TIDMNWG
RNS Number : 1756U
NatWest Group plc
29 July 2022
NatWest Group
Interim Results 2022
NatWest Group plc natwestgroup.com
NatWest Group plc
Interim results for the period ended 30 June 2022
Chief Executive, Alison Rose, commented
"NatWest Group delivered a strong performance in the first half
of 2022, building on two years of progress against our strategic
priorities. We are growing our lending to customers and continuing
our GBP3 billion investment programme to create a simpler and
better banking experience whilst delivering sustainable dividends
and returns for our shareholders.
We know that continued increases in the cost of living are
impacting people, families and businesses across the UK and we have
put in place a range of targeted measures to support those who are
likely to need it most. Our strong levels of profitability and
capital generation mean we are well positioned to provide this
support.
By building deeper relationships with our customers at every
stage of their lives, we will deliver sustainable growth and help
them to thrive in a challenging environment."
Strong H1 2022 performance
- H1 2022 attributable profit of GBP1,891 million and a return
on tangible equity of 13.1%. The cost:income ratio was 58.3% in the
first half compared with 67.6% in H1 2021.
- Excluding notable items, income in the Go-forward group
increased by GBP819 million, or 16.2%, compared with H1 2021
principally reflecting the impact of base rate increases and volume
growth.
- Bank net interest margin (NIM) of 2.72% was 26 basis points
higher than Q1 2022 driven by the impact of base rate rises.
- Other operating expenses in the Go-forward group were GBP50
million, or 1.5%, lower than H1 2021.
- H1 2022 operating profit before impairments in the Go-forward
group was GBP2,787 million, up 53.5% on H1 2021.
- A net impairment release of GBP46 million in the Go-forward
group in H1 2022 reflected the low levels of realised losses we
continue to see across our portfolio, although we continue to
monitor our book given the uncertain economic outlook.
Robust balance sheet underpins sustainable growth
- Go-forward group net lending increased by GBP9.3 billion
during H1 2022 to GBP361.6 billion, with growth well balanced
across the business.
- Customer deposits in the Go-forward group increased by GBP14.8
billion during H1 2022 to GBP476.2 billon.
- The liquidity coverage ratio (LCR) of 159%, representing
GBP76.1 billion above 100%, decreased by 13 percentage points
compared with Q4 2021.
Continued strong capital generation supports substantial
distributions to shareholders
- We are pleased to announce an interim dividend of 3.5 pence
per share, up 17% on 2021 and a special dividend with share
consolidation of GBP1,750 million, or 16.8 pence per share, subject
to shareholder approval. Taken together these will deliver 20.3p of
dividends per share.
- When combined with the directed buyback in the first quarter,
the proposed interim and special dividends bring total
distributions deducted from capital in the first half to GBP3.3
billion, or c.32 pence per share.
- CET1 ratio of 14.3% was c.160 basis points lower than 1
January 2022 as total distributions of c.190 basis points and
increased RWAs of c.30 basis points were partially offset by the
attributable profit of c.110 basis points.
- RWAs increased by GBP3.5 billion compared to 1 January 2022 to GBP179.8 billion.
Outlook(1)
The economic outlook remains uncertain. The following statements
are based on central economic forecasts, as detailed on pages 20 to
22, which include an anticipated increase in the central bank rate
to 2.0% by the end of the year. We will monitor and react to market
conditions and refine our internal forecasts as the economic
position evolves.
- In 2022, we expect income excluding notable items to be around
GBP12.5 billion in the Go-forward group(2) .
- We expect NIM to be greater than 2.70% for full year 2022 in the Go-forward group.
- We are investing around GBP3 billion(3) over 2021 to 2023 and,
with continuing simplification, we plan to reduce Go-forward group
operating expenses, excluding litigation and conduct costs, by
around 3% in 2022 and to keep broadly stable in 2023, with positive
jaws. In 2023 we expect some of the current inflationary impacts to
be more significant, however this will be offset by ongoing savings
from our investment programme.
- We expect our 2022 and 2023 impairment charge to be lower than
our through the cycle loss rate of 20-30 basis points, with 2022
below 10 basis points in the Go-forward group.
- In 2023, we expect to achieve a return on tangible equity in the range of 14-16% for the Group.
Capital and funding
- We aim to end 2022 with a CET1 ratio of around 14% and target a ratio of 13-14% by 2023.
- We intend to maintain ordinary dividends of around 40% of
attributable profit and to distribute a minimum of GBP1 billion in
each of 2022 and 2023.
- We intend to maintain capacity to participate in directed
buybacks of the UK Government stake, recognising that any exercise
of this authority would be dependent upon HMT's intentions and is
limited to 4.99% of issued share capital in any 12-month
period.
- We will consider further on-market buybacks as part of our
overall capital distribution approach as well as inorganic growth
opportunities provided they are consistent with our strategy and
have a strong shareholder value case.
- As part of the NatWest Group capital and funding plans we
intend to issue between GBP3 billion to GBP5 billion of
MREL-compliant instruments in 2022, with a continued focus on
issuance under our Green, Social and Sustainability Bond framework.
NatWest Markets plc's funding plan targets GBP4 billion to GBP5
billion of public benchmark issuance.
Ulster Bank RoI
- We have made significant progress on our phased withdrawal
from the Republic of Ireland and have binding agreements in place
for c.90% of gross customer loans. We expect the majority of the
commercial asset sale to Allied Irish Banks and the majority of the
asset sale to Permanent TSB to be largely complete by the end of
2022 and for the tracker mortgage asset sale to Allied Irish Banks
to complete in the first half of 2023.
- With this progress, we continue to expect total exit costs of
EUR900 million, with the majority incurred by the end of 2023. In
Q3 2022 we expect to incur around EUR350 million of these exit
costs as a result of the reclassification of UBIDAC mortgages to
fair value.
- We continue to expect the phased withdrawal to be capital accretive.
(1) The guidance, targets, expectations, and trends discussed in
this section represent NatWest Group plc management's current
expectations and are subject to change, including as a result of
the factors described in the NatWest Group plc Risk Factors section
on pages 406 to 426 of the 2021 Annual Report and Accounts and the
Summary Risk Factors on pages 106 and 107 of this announcement.
These statements constitute forward-looking statements. Refer to
Forward-looking statements in this announcement.
(2) Go-forward group excludes Ulster Bank RoI and discontinued operations.
(3) Denotes cash investment spend excluding certain regulatory and legacy programmes.
Our Purpose in action
We champion potential, helping people, families and businesses
to thrive. We are breaking down barriers, building financial
confidence and delivering sustainable growth and returns by living
up to our purpose. Some key achievements from H1 2022 include:
People and families
- We have proactively contacted 2.7 million personal and
business customers year to date, offering support and information
on the cost of living. We have also launched an online Cost of
Living hub to share resources and tools, and to inform customers of
the support that is available to them through third parties.
- We delivered 3.7 million financial capability interactions in
H1 2022, including carrying out 0.4 million financial health
checks.
- In Retail Banking, we have completed GBP1.4 billion of green
mortgages (which give a discounted interest rate to energy
efficient properties) since they were launched in Q4 2020,
including GBP661 million in H1 2022.
- Our support for young people continues with the launch of our
new pocket money product, NatWest Rooster Money, which helps
children build money confidence and develop positive money habits
around saving and spending. We acquired Rooster
along with 130,000 customers and since the beginning of the year
added 17,000 new customers plus a smooth connection to Rooster via
the main Mobile App.
Businesses
- We completed GBP11.9 billion of climate and sustainable
funding and financing in H1 2022, bringing the cumulative
contribution to GBP20.0 billion against our target of GBP100
billion between 1 July 2021 and the end of 2025.
- We announced an additional GBP1.25 billion lending package to
the UK farming community and our 40,000 customers within it,
building on an earlier set of measures for the sector announced in
June 2022.
- To provide certainty to SMEs, Business Current Accounts remain
available without a minimum charge and we are freezing the standard
published tariffs on these accounts for the next 12 months.
- NatWest Markets won the 'Most Impressive Investment Bank for
Corporate Green and ESG-Linked Bonds' as well as the 'Most
Impressive FIG (Financial Institutions Group) House in Sterling' at
the 2022 Global Capital Bond Awards in June 2022.
Colleagues
- To support our colleagues with the rising cost of living, we
announced a permanent increase in base pay averaging GBP1,000 for
more than 22,000 colleagues globally.
- We announced a three-year partnership with the University of
Edinburgh to make climate education available to all colleagues
across the bank, including the delivery of more in-depth Climate
Change Transformation and Sector Specific programmes for over
16,000 roles which require a broader level of knowledge.
- To support our colleagues who are carers, unpaid carers' leave
can now be taken day-by-day, instead of only in full-week blocks,
up to a maximum of four weeks in a year, and up to a maximum of 18
weeks in total.
- Building on our campaign to support learning for the future,
colleagues are now able to take two dedicated,
learning-for-the-future days each year to support the development
of future skills.
Communities
- To help with the rising cost of living, we announced a new
GBP4 million hardship fund to provide grants and support, delivered
through partner organisations including Citizens Advice, StepChange
and Money Advice Trust.
- We launched the pilot scheme for the NatWest Thrive with
Marcus Rashford programme. The programme aims to help more young
people pursue their dreams, appreciate their strengths and become
more money confident.
- In collaboration with Aston University, we published the
report 'Time to change: A blueprint for advancing the UK's ethnic
minority businesses', which sets out recommendations for
policymakers, companies and entrepreneurs to advance the growth
potential of ethnic minority businesses.
- To champion female entrepreneurship in the UK, NatWest Group
and The Telegraph launched the '100 Female Entrepreneurs to Watch'
list. 10 female entrepreneurs will be selected from the list for
further support, and one business will receive a GBP10,000
investment grant from NatWest Group as well as a year's mentorship
from a Rose Review board member.
- We pledged GBP100,000 to support 500 Ukrainian students to
continue their studies at Polish universities and polytechnics
following the Russian invasion.
Business performance summary
Half year
ended Quarter ended
------------------ ----------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- -------- -------- -------- -------- --------
Continuing operations
Total income 6,219 5,141 3,211 3,008 2,571
Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695)
Profit before impairment releases 2,566 1,642 1,378 1,188 876
Operating profit before tax 2,620 2,325 1,396 1,224 1,473
Profit attributable to ordinary shareholders 1,891 1,842 1,050 841 1,222
Excluding notable items within total
income (1)
Total income excluding notable items
(2) 5,898 5,111 3,114 2,784 2,532
Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695)
Profit before impairment releases and
excluding notable items 2,245 1,612 1,281 964 837
Operating profit before tax and excluding
notable items 2,299 2,295 1,299 1,000 1,434
--------------------------------------------- -------- -------- -------- -------- --------
Go-forward group (3)
Total income (2) 6,186 5,076 3,199 2,987 2,541
Total income excluding notable items
(2) 5,865 5,046 3,102 2,763 2,502
Other operating expenses (3,241) (3,291) (1,636) (1,605) (1,608)
Profit before impairment releases/(losses)
(2) 2,787 1,816 1,507 1,280 971
Return on tangible equity 14.1% 12.8% 16.5% 11.9% 17.3%
--------------------------------------------- -------- -------- -------- -------- --------
Performance key metrics and ratios
Bank net interest margin (2,4) 2.59% 2.35% 2.72% 2.46% 2.35%
Bank average interest earning assets
(2,4) GBP337bn GBP321bn GBP340bn GBP333bn GBP323bn
Cost:income ratio (2) 58.3% 67.6% 56.7% 60.1% 65.5%
Loan impairment rate (2) (3bps) (37bps) (2bps) (1bp) (65bps)
Total earnings per share attributable
to ordinary
shareholders - basic 17.4p 15.6p 10.0p 7.5p 10.6p
Return on tangible equity (2) 13.1% 11.7% 15.2% 11.3% 15.6%
--------------------------------------------- -------- -------- -------- -------- --------
30 June 31 March 31 December
2022 2022 2021
GBPbn GBPbn GBPbn
---------------------------------------------------
Balance sheet
Total assets 806.5 785.4 782.0
Funded assets (2) 697.1 685.4 675.9
Loans to customers - amortised cost 362.6 365.3 359.0
Loans to customers and banks - amortised cost and
FVOCI 376.4 375.7 369.8
Go-forward group net lending (2) 361.6 359.0 352.3
Total impairment provisions 3.5 3.7 3.8
Expected credit loss (ECL) coverage ratio 0.93% 0.98% 1.03%
Assets under management and administration (AUMA)
(2) 32.9 35.0 35.6
Go-forward group customer deposits (2) 476.2 465.6 461.4
Customer deposits 492.1 482.9 479.8
--------------------------------------------------- ------- -------- -----------
Liquidity and funding
Liquidity coverage ratio (LCR) 159% 167% 172%
Liquidity portfolio 268 275 286
Net stable funding ratio (NSFR) (5) 153% 152% 157%
Loan:deposit ratio (2) 71% 73% 72%
Total wholesale funding 76 76 77
Short-term wholesale funding 24 22 23
--------------------------------------------------- ------- -------- -----------
Capital and leverage
Common Equity Tier (CET1) ratio (6) 14.3% 15.2% 18.2%
Total capital ratio (6) 19.3% 20.4% 24.7%
Pro forma CET1 ratio, pre foreseeable items (7) 15.6% 16.1% 19.5%
Risk-weighted assets (RWAs) 179.8 176.8 157.0
UK leverage ratio (8) 5.2% 5.5% 5.9%
Tangible net asset value (TNAV) per ordinary share 267p 269p 272p
Number of ordinary shares in issue (millions) (9) 10,436 10,622 11,272
--------------------------------------------------- ------- -------- -----------
(1) Refer to the following page for details of notable items within total
income.
(2) Refer to the Non-IFRS financial measures appendix for details of
basis of preparation and reconciliation of non-IFRS financial measures
and performance metrics.
(3) Go-forward group excludes Ulster Bank RoI and discontinued operations.
(4) NatWest Group excluding Ulster Bank RoI and liquid asset buffer.
(5) The NSFR is presented on a spot basis.
(6) Based on the PRA Rulebook Instrument transitional arrangements, therefore
includes transitional relief on grandfathered capital instruments
and transitional arrangements for the capital impact of IFRS 9 expected
credit loss (ECL) accounting. For additional information, refer to
page 66. On 1 January 2022 the proforma CET1 ratio was 15.9% following
regulatory changes.
(7) The pro forma CET1 ratio at 30 June 2022 excludes foreseeable items
of GBP2,341 million: GBP500 million for ordinary dividends, GBP1,750
million for special dividends and GBP91 million foreseeable charges
(31 March 2022 excludes foreseeable items of GBP1,623 million: GBP1,096
million for ordinary dividends and GBP527 million foreseeable charges;
31 December 2021 excludes foreseeable charges of GBP2,036 million:
GBP846 million for ordinary dividends and GBP1,190 million foreseeable
charges and pension contributions).
(8) The UK leverage exposure is calculated in accordance with the Leverage
Ratio (CRR) part of the PRA Rulebook, and transitional Tier 1 capital
is calculated in accordance with the PRA Rulebook. For additional
information, refer to page 67.
(9) The number of ordinary shares in issue excludes own shares held.
Summary consolidated income statement for the period ended 30
June 2022
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
-------- ------- ------- -------- -------
Net interest income 4,334 3,744 2,307 2,027 1,900
Non-interest income 1,885 1,397 904 981 671
----------------------------------------- -------- ------- ------- -------- -------
Total income 6,219 5,141 3,211 3,008 2,571
----------------------------------------- -------- ------- ------- -------- -------
Litigation and conduct costs (169) 18 (67) (102) 34
Other operating expenses (3,484) (3,517) (1,766) (1,718) (1,729)
----------------------------------------- -------- ------- ------- -------- -------
Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695)
----------------------------------------- -------- ------- ------- -------- -------
Profit before impairment releases 2,566 1,642 1,378 1,188 876
Impairment releases 54 683 18 36 597
----------------------------------------- -------- ------- ------- -------- -------
Operating profit before tax 2,620 2,325 1,396 1,224 1,473
Tax charge (795) (432) (409) (386) (199)
----------------------------------------- -------- ------- ------- -------- -------
Profit from continuing operations 1,825 1,893 987 838 1,274
----------------------------------------- -------- ------- ------- -------- -------
Profit from discontinued operations,
net of tax 190 177 127 63 83
----------------------------------------- -------- ------- ------- -------- -------
Profit for the period 2,015 2,070 1,114 901 1,357
----------------------------------------- -------- ------- ------- -------- -------
Attributable to:
Ordinary shareholders 1,891 1,842 1,050 841 1,222
Preference shareholders - 9 - - 4
Paid-in equity shareholders 121 178 62 59 91
Non-controlling interests 3 41 2 1 40
2,015 2,070 1,114 901 1,357
----------------------------------------- -------- ------- ------- -------- -------
Notable items within total income
(1)
Commercial & Institutional
Fair value, disposal losses and
asset
disposals/strategic risk reduction
(2) (45) (62) (45) - (44)
Tax variable lease repricing - 32 - - 32
Own credit adjustments 52 1 34 18 (1)
Central items & other
Share of associate (losses)/profits
for Business Growth
Fund (13) 129 (36) 23 8
Loss on redemption of own debt (24) (138) - (24) (20)
Liquidity Asset Bond sale gains/(losses) 36 25 (5) 41 20
Interest and FX risk management
derivatives
not in accounting hedge relationships 315 44 149 166 45
Own credit adjustments - (1) - - (1)
----------------------------------------- -------- ------- ------- -------- -------
Total 321 30 97 224 39
----------------------------------------- -------- ------- ------- -------- -------
(1) Refer to page 1 of the Non-IFRS financial measures appendix.
(2) As previously reported H1 2021 and Q2 2021 includes fair value and
disposal gains/(losses) in the banking book H1 2021 - GBP22 million
(Q2 2021 - (GBP8) million) and H1 2021 - GBP40 million (Q2 2021 -
(GBP36) million) of asset disposals/strategic risk reduction relating
to the costs of exiting positions, which includes changes in carrying
value to align to the expected exit valuation, and the impact of risk
reduction transactions entered into, in respect of the strategic announcements
of 14 February 2020.
Business performance summary
Chief Financial Officer review
We have made good progress against our strategic objectives and our
capital and liquidity position remains robust. We have delivered a
strong financial performance in the first half of the year, with a
RoTE of 13.1%, reflecting the strong profit and capital generation
capacity of the business in the current interest rate environment.
We also saw strong growth in lending and deposits across the business.
We continue to monitor the evolving economic outlook and are mindful
of the impact that higher levels of inflation, higher interest rates
and supply chain shortages are having on our customers.
We are pleased to announce an interim dividend of 3.5 pence per share
and a special dividend of GBP1,750 million, representing total distributions
deducted from capital of GBP3.3 billion when combined with the directed
buyback in the first quarter. We have also now completed the GBP750
million on-market buyback programme we announced in February .
Financial performance
Total income in the Go-forward group increased by 21.9% to GBP6,186
million compared with H1 2021. Excluding notable items, income was
16.2% higher than H1 2021, primarily driven by volume growth and favourable
yield curve movements. We have also seen increased payment card fees
and markets income in Commercial & Institutional and higher spend-related
fee income in Retail Banking. Bank NIM of 2.72% was 26 basis points
higher than Q1 2022 reflecting the beneficial impact of recent base
rate rises.
Other operating expenses in the Go-forward group were GBP50 million,
or 1.5%, lower than H1 2021 as we continue with our 3-year investment
programme. We remain on track to achieve our full year cost reduction
target of around 3% in 2022, although savings will not be linear across
the remaining quarters.
We have reported a GBP46 million impairment release in the Go-forward
group for the first half of 2022, reflecting the continued low levels
of realised losses we have seen across our portfolio; we do recognise
the significant uncertainty in the economic outlook and are monitoring
activity closely. Compared with Q1 2022, our ECL provisions have reduced
by GBP0.2 billion to GBP3.5 billion, and our ECL coverage ratio has
reduced from 0.98% to 0.93%. Whilst we are comfortable with the strong
credit performance of our book, we continue to hold economic uncertainty
post model adjustments (PMA) of GBP0.6 billion, or 17.2%, of total
impairment provisions. PMAs have been pivoted more towards expected
pressure from cost of living increases and supply chain issues rather
than concerns over COVID-19 impacts. We will continue to assess this
position regularly.
As a result, we are pleased to report an interim attributable profit
of GBP1,891 million, with earnings per share of 17.4 pence and a RoTE
of 13.1%.
Net lending in the Go-forward group increased by GBP9.3 billion over
the first half of the year. Mortgage lending increased by GBP6.3 billion,
with gross new lending of GBP20.6 billion in the first half, compared
with GBP21.4 billion in H1 2021 and GBP18.3 billion in H2 2021. Net
lending in Commercial & Institutional grew by GBP3.1 billion reflecting
growth across all areas of the business including increases in facility
utilisation and funds activity, partly offset by continued UK Government
financial support scheme repayments.
Customer deposits increased by GBP14.8 billion in the Go-forward group
during the first half of the year principally reflecting a GBP5.7
billion increase in Commercial & Institutional, largely due to improved
market liquidity, and treasury repo activity of GBP4.7 billion. We
have seen a slowdown in Retail Banking deposit growth, with balances
up by GBP1.6 billion in the first half of the year.
TNAV per share reduced by 2 pence in the quarter to 267 pence principally
reflecting the full year ordinary dividend payment and movements in
cashflow hedging and other reserves partially offset by the attributable
profit for the period.
Capital
The CET1 ratio remains strong at 14.3%, including 16 basis points
of IFRS 9 transitional relief. The c.160 basis point reduction compared
with 1 January 2022 principally reflects total distributions of c.190
basis points and increased RWAs of c.30 basis points partially offset
by the attributable profit of c.110 basis points. The total capital
ratio decreased by 540 basis points to 19.3% compared with Q4 2021.
Compared to the 1 January position, RWAs increased by GBP3.5 billion
to GBP179.8 billion principally reflecting lending growth, FX movements
and model updates.
When combined with the directed buyback in the first quarter, the
proposed interim and special dividends bring total distributions deducted
from capital in the first half to GBP3.3 billion, or c.32 pence per
share.
The special dividend will return material capital to shareholders
whilst ensuring the UK Government's shareholding remains below 50%,
which the Board has determined is the interests of all the Group's
stakeholders. The proposed consolidation will be set to reduce the
share count as if we were buying back at the market price thereby
offsetting the dilutive impact to TNAV per share of the substantial
special dividend.
Funding and liquidity
The LCR decreased by 8 percentage points to 159% in the quarter, representing
GBP76.1 billion headroom above 100% minimum requirement. The main
drivers of this include an increase in cash outflows from wholesale
funding and credit facilities to our customers and an increase in
customer lending which outstripped growth in customer deposits. Total
wholesale funding increased by GBP0.6 billion in the quarter to GBP76.4
billion. Short term wholesale funding increased by GBP1.6 billion
in the quarter to GBP23.6 billion.
Business performance summary
Retail Banking
Half year ended Quarter ended
================= ------------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------- ------- ------- -------- -----------
Total income 2,554 2,150 1,337 1,217 1,094
Operating expenses (1,242) (1,187) (597) (645) (600)
of which: Other operating expenses (1,184) (1,178) (593) (591) (593)
Impairment (losses)/releases (26) 57 (21) (5) 91
Operating profit 1,286 1,020 719 567 585
Return on equity 26.3% 27.5% 29.5% 23.1% 32.0%
Net interest margin 2.53% 2.26% 2.62% 2.43% 2.27%
Cost:income ratio 48.6% 55.2% 44.7% 53.0% 54.8%
Loan impairment rate 3bps (6)bps 4bps 1bps (20)bps
-------------------------------------- -------- ------- ------- -------- -----------
As at
------------------------------
30 June 31 March 31 December
2022 2022 2021
GBPbn GBPbn GBPbn
-------------------------------------- -------- ------- ------- -------- -----------
Net loans to customers (amortised
cost) 188.7 184.9 182.2
Customer deposits 190.5 189.7 188.9
RWAs 53.0 52.2 36.7
-------------------------------------- -------- ------- ------- -------- -----------
During H1 2022, Retail Banking continued to pursue sustainable
growth with an intelligent approach to risk, delivering a return on
equity of 26% and an operating profit of GBP1,286 million.
To support our customers, we launched a new Cost of Living hub,
online and in app, which provides tools and support including
Financial Health Checks, budget planner, top 10 tips to save,
advice on what to do if customers think they are going to miss a
payment and links to third parties, including PayPlan and Citizens
Advice. In addition, for our younger customers we launched NatWest
Rooster Money aimed at building their money confidence and
developing positive money habits around earning, saving, and
spending. This complements our existing MoneySense education
programme which has recently recommenced in-school workshops.
Retail Banking completed GBP1.5 billion of climate and
sustainable funding and financing in H1 2022 which will contribute
towards the NatWest Group target of GBP100 billion between 1 July
2021 and the end of 2025.
H1 2022 performance
- Total income was GBP404 million, or 18.8%, higher than H1 2021
reflecting higher deposit income, supported by recent base rate
rises, combined with strong mortgage balance growth, higher
unsecured balances and higher transactional-related fee income,
partially offset by lower mortgage margins.
- Other operating expenses were GBP6 million, or 0.5%, higher
than H1 2021 due to higher investment spend and increased costs for
financial crime and fraud prevention. This was partly offset by a
9.2% reduction in operational headcount, as a result of continued
customer digital adoption and automation of end-to-end customer
journeys. Cost income ratio of 48.6 percent in H1 2022.
- Impairment losses of GBP26 million in H1 2022 continue to
reflect a low level of stage 3 defaults, partly offset by provision
releases in stage 2. ECL provision includes post model adjustments
of GBP179 million relating to economic uncertainty, as at 30 June
2022.
- Net loans to customers increased by GBP6.5 billion, or 3.6%,
in H1 2022 reflecting continued mortgage growth of GBP5.9 billion,
with gross new mortgage lending of GBP18.9 billion representing
flow share of around 13%. Cards balances increased by GBP0.3
billion and personal advances increased by GBP0.3 billion in H1
2022 from improving customer demand.
- Customer deposits increased by GBP1.6 billion, or 0.8%, in H1
2022 with growth slowing towards pre-COVID-19 levels, reflecting
higher customer spend levels.
- RWAs increased by GBP16.3 billion in H1 2022 primarily
reflecting 1 January 2022 regulatory changes of GBP15.3 billion,
higher lending partially offset by quality improvements.
Q2 2022 performance
- Total income was GBP120 million, or 9.9%, higher than Q1 2022
reflecting higher deposit income, supported by recent base rate
rises, higher mortgage balances, higher unsecured balances and
higher transactional-related fee income, partially offset by the
non-repeat of an insurance profit share and lower mortgage
margins.
- Net interest margin was 19 basis points higher than Q1 2022
reflecting higher deposit returns, partly offset by mortgage margin
pressure. Mortgage back book margin was 148 basis points in the
period and application margins increased to around 60 basis points
at the end of the quarter.
- Other operating expenses were GBP2 million, or 0.3%, higher
than Q1 2022 primarily due to higher property related provision
costs.
- Impairment losses of GBP21 million in Q2 2022 continue to
reflect a low level of stage 3 defaults, partly offset by provision
releases in stage 2.
- Net loans to customers increased by GBP3.8 billion, or 2.1%
compared with Q1 2022 reflecting continued mortgage growth of
GBP3.3 billion, with gross new mortgage lending of GBP9.8 billion
representing flow share of around 13%. Cards balances increased by
GBP0.3 billion and personal advances increased by GBP0.2 billion in
Q2 2022 as customer demand and spend levels continued to
improve.
- Customer deposits increased by GBP0.8 billion, or 0.4% in Q2
2022 with growth slowing towards pre-COVID-19 levels, reflecting
higher customer spend levels.
- RWAs increased by GBP0.8 billion, or 1.5%, in Q2 2022
primarily reflecting lending growth partially offset by quality
improvements .
Business performance summary
Private Banking
Half year ended Quarter ended
----------------- --------------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
------- -------- -------------
Total income 461 368 245 216 183
Operating expenses (285) (249) (146) (139) (128)
of which: Other operating expenses (284) (254) (146) (138) (128)
Impairment releases 11 27 6 5 27
Operating profit 187 146 105 82 82
Return on equity 20.9% 14.2% 23.5% 18.2% 15.9%
Net interest margin 3.34% 2.62% 3.60% 3.07% 2.60%
Cost:income ratio 61.8% 67.7% 59.6% 64.4% 69.9%
Loan impairment rate (12)bps (30)bps (13)bps (11)bps (60)bps
Net new money (GBPbn) (1) 1.4 1.6 0.6 0.8 1.0
----------------------------------------------- -------- ------- ------- -------- -------------
As at
--------------------------------
30 June 31 March 31 December
2022 2022 2021
GBPbn GBPbn GBPbn
------- -------- -------------
Net loans to customers (amortised
cost) 18.8 18.7 18.4
Customer deposits 41.6 40.3 39.3
RWAs 11.3 11.5 11.3
Assets under management (AUMs)
(1) 28.1 29.6 30.2
Assets under administration (AUAs)
(1) 4.8 5.4 5.4
Total assets under management and administration
(AUMA) (1) 32.9 35.0 35.6
--------------------------------------------------------- ------- ------- -------- -------------
(1) Refer to the Non-IFRS financial measures appendix for details
of basis of preparation and reconciliation of non-IFRS financial
measures and performance metrics.
Private Banking operating profit of GBP187 million in H1 2022 was supported
by robust deposit and lending growth with strong net new money despite
volatile investment market conditions. Return on equity of 20.9% represents
an increase of 7 percentage points compared with H1 2021.
Coutts achieved B Corp Certification in July 2021, and since then we've
engaged with over 60 clients and 10 suppliers to support them in achieving
B Corp status. We have also worked with NatWest Group's 'Purpose Led
Accelerator' to provide a deep dive on the B Corp Certification journey
to 130 entrepreneurs and business leaders.
H1 2022 performance
- Total income was GBP93 million, or 25.3%, higher than H1 2021 reflecting
strong balance growth and higher deposit income, supported by recent
interest rate rises and higher card and payment related fee income
as transactional volumes continued to improve. Net interest margin
was 72 basis points higher than H1 2021 reflecting higher deposit
income.
- Other operating expenses were GBP30 million, or 11.8%, higher than
H1 2021 principally due to continued investment in people and technology
to enhance our AUMA growth propositions and increased costs for financial
crime and fraud.
- A net impairment release of GBP11 million in H1 2022 reflects the
continued low levels of credit risk in the portfolio.
- Net loans to customers increased by GBP0.4 billion, or 2.2%, in H1
2022 due to continued strong mortgage lending growth, whilst RWAs
were broadly in line with Q4 2021.
- Customer deposits increased by GBP2.3 billion, or 5.9%, in H1 2022
as customers continue to build and retain liquidity.
- AUMA balances decreased by GBP2.7 billion, or 7.6%, in H1 2022 largely
driven by lower global investment markets. Net new money was GBP1.4
billion in H1 2022, which was GBP0.2 billion less than H1 2021, and
represented 7.9% of opening AUMA balances on an annualised basis
representing a strong performance given volatile investment market
conditions.
Q2 2022 performance
- Total income was GBP29 million, or 13.4%, higher than Q1 2022 reflecting
higher deposit income, supported by further interest rate rises and
continued balance growth. Net interest margin increased by 53 basis
points compared with Q1 2022 reflecting higher deposit returns.
- Net loans to customers increased by GBP0.1 billion, or 0.5%, compared
with Q1 2022 supported by continued mortgage lending growth.
- AUMA balances reduced by GBP2.1 billion, or 6.0%, in the quarter
as growth was more than offset by lower global investment markets.
Net new money was GBP0.6 billion, which was GBP0.2bn lower than Q1
2022, and represented 8.0% of opening AUMA balances on an annualised
basis.
Business performance summary
Commercial & Institutional
Half year ended Quarter ended
----------------- ------------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
-------------------------------------- -------- ------- ------- -------- -----------
Net interest income 1,764 1,487 961 803 762
Non-interest income 1,173 987 601 572 459
-------------------------------------- -------- ------- ------- -------- -----------
Total income 2,937 2,474 1,562 1,375 1,221
Operating expenses (1,820) (1,824) (898) (922) (909)
of which: Other operating expenses (1,734) (1,789) (854) (880) (874)
Impairment releases 59 613 48 11 488
Operating profit 1,176 1,263 712 464 800
Return on equity 11.4% 12.1% 14.0% 8.8% 15.9%
Net interest margin 2.84% 2.49% 3.09% 2.69% 2.52%
Cost:income ratio 61.1% 73.0% 56.6% 66.3% 73.7%
Loan impairment rate (9)bps (96)bps (15)bps (3)bps (153)bps
-------------------------------------- -------- ------- ------- -------- -----------
As at
------------------------------
30 June 31 March 31 December
2022 2022 2021
GBPbn GBPbn GBPbn
-------------------------------------- -------- ------- ------- -------- -----------
Net loans to customers (amortised
cost) 127.3 126.6 124.2
Customer deposits 223.2 217.9 217.5
Funded assets 343.4 334.6 321.3
RWAs 103.0 100.3 98.1
-------------------------------------- -------- ------- ------- -------- -----------
During H1 2022 Commercial & Institutional delivered a strong
performance with a return on equity of 11.4% and operating profit
of GBP1,176 million.
Commercial & Institutional remains well positioned to
support its customers in the current macro-economic environment.
Our balance sheet strength means we are able to meet our customers'
financing requirements and our product suite allows us to support
customers' risk management during times of macroeconomic
volatility. Our specialist Relationship Managers and business hubs
located across the UK offer advice and support to those facing a
cost of business, as well as living, crisis. We continually monitor
all sectors to proactively identify the most vulnerable. As a
result, for example, we have developed a tailored support package
for our agricultural customer base who are facing extreme impacts
on supply costs and profit margins.
Commercial & Institutional completed GBP10.3 billion of
climate and sustainable funding and financing in H1 2022 delivering
a cumulative GBP17.3 billion since 1 July 2021, contributing toward
the NatWest Group target of GBP100 billion between 1 July 2021 and
the end of 2025. To ensure that as many SMEs as possible can
realise benefits from their carbon-reduction efforts and
innovation, we have reduced the lower threshold for our Green Loans
offering for SMEs from GBP50,000 to GBP25,000.
H1 2022 performance
- Total income was GBP463 million, or 18.7%, higher than H1 2021 primarily
reflecting strong balance sheet growth, higher interest rates supporting
deposit returns, improved markets and card payment fees. Markets income(1)
of GBP427 million, was GBP98 million, or 29.8%, higher than H1 2021
with good performance across the product suite.
- Net interest margin was 35 basis points higher than H1 2021 reflecting
higher deposit returns.
- Other operating expenses were GBP55 million, or 3.1%, lower than H1
2021 due to ongoing cost management, and non-repeat of H1 2021 restructuring
costs, partly offset by continued investment in the business.
- An impairment release of GBP59 million in H1 2022 compared with an
impairment release of GBP613 million in H1 2021, reflecting a continued
low level of stage 3 defaults more than offset by good book provision
releases. ECL provision includes post model adjustments of GBP388
million relating to economic uncertainty, as at 30 June 2022.
- Net loans to customers increased by GBP3.1 billion, or 2.5%, in H1
2022 with growth in facility utilisation and funds activity within
Corporate & Institutions, partly offset by continued UK Government
financial support scheme repayments. Invoice and asset finance balances
within the Commercial Mid-market business increased by GBP0.8 billion.
- Customer deposits increased by GBP5.7 billion, or 2.6%, in H1 2022
due to overall increased customer liquidity and strong growth in the
funds business.
- RWAs increased by GBP4.9 billion, or 5.0%, in H1 2022 primarily reflecting
1 January 2022 regulatory changes, business and FX movements, partly
offset by risk parameter improvements.
Q2 2022 performance
- Total income was GBP187 million, or 13.6%, higher than Q1 2022 due
to continued balance sheet growth, higher deposit returns from an
improved interest rate environment and increased card payment fees.
- Net interest margin was 40 basis points higher than Q1 2022 reflecting
higher deposit returns.
- Other operating expenses were GBP26 million, or 3.0%, lower than Q1
2022 primarily reflecting increased capitalisation of certain investment
costs, business efficiencies partly offset by the annual pay revision.
- Net loans to customers increased by GBP0.7 billion, or 0.6%, in Q2
2022 due to increased funds activity and facility utilisation within
Corporate & Institutions partly offset by UK Government scheme repayments,
primarily in the Commercial Mid-market business.
- Customer deposits increased by GBP5.3 billion, or 2.4%, in Q2 2022
reflecting continued customer liquidity and increased fund inflows.
- RWAs increased by GBP2.7 billion, or 2.7%, in Q2 2022 mainly reflecting
business movements and model updates .
(1) Markets income excludes asset disposals/strategic risk
reduction, own credit risk adjustments and central items.
Business performance summary
Ulster Bank RoI
Continuing operations Half year ended Quarter ended
----------------- ------------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
EURm EURm EURm EURm EURm
-------------------------------------- -------- ------- ------- -------- -----------
Total income 38 74 13 25 34
Operating expenses (301) (273) (167) (134) (143)
of which: Other operating expenses (288) (258) (154) (134) (138)
Impairment releases/(losses) 9 (15) (26) 35 (11)
Operating loss (254) (214) (180) (74) (120)
-------------------------------------- -------- ------- ------- -------- -----------
As at
------------------------------
30 June 31 March 31 December
2022 2022 2021
EURbn EURbn EURbn
-------------------------------------- -------- ------- ------- -------- -----------
Net loans to customers - amortised
cost 1.2 7.5 7.9
Customer deposits 18.4 20.4 21.9
RWAs 12.6 13.2 10.9
-------------------------------------- -------- ------- ------- -------- -----------
Ulster Bank ROI continues to make progress on its phased
withdrawal from the Republic of Ireland.
- A significant milestone was reached with the successful completion
of a migration of an initial tranche of commercial customers to Allied
Irish Banks, p.l.c. (AIB). Remaining migrations of the c.EUR4.2 billion
of gross performing commercial loans will be completed in phases mainly
over H2 2022, with the final cohorts in H1 2023.
- Confirmation was received from the Irish competition authority (the
CCPC) that it had cleared the sale of c.EUR7.6 billion of gross performing
non-tracker mortgages, the Lombard asset finance business, the business
direct loan book, and 25 branches to Permanent TSB p.l.c. (PTSB).
Shareholders of PTSB's holding company have also approved this transaction.
- A legally binding agreement was reached with AIB for the sale of a
c.EUR6 billion portfolio of gross performing tracker and linked mortgages.
Completion of this sale, which is subject to obtaining any relevant
regulatory approvals and satisfying the conditions of the legally
binding agreement, is expected to occur in Q2 2023. UBIDAC now has
binding agreements in place for c.90% of its total gross customer
lending portfolio.
- In other transactions, UBIDAC also announced that it will transfer
its existing life assurance intermediary activities to Irish Life
Financial Services Ltd and its Home and Car Insurance renewal rights
to Aviva Direct.
- 'Choose, Move & Close' letters have been sent to customers since April
with tranches of letters being sent out on a weekly basis. Customers
have six months to choose a new provider, move their banking relationship
and close their account with Ulster Bank.
- Work continues on managing the residual activities of the bank, including
remaining asset sales.
H1 2022 performance
- Total income was EUR36 million, or 48.6%, lower than H1 2021 reflecting
reduced business levels following the decision to withdraw, coupled
with the cost of an inter-group liquidity facility that was put in
place as part of the arrangements to manage deposit outflows.
- Other operating expenses were EUR30 million, or 11.6%, higher than
H1 2021, due to higher withdrawal-related programme costs and a one-off
pension charge being partially offset by lower regulatory levies and
a 5.3% reduction in headcount. Ulster Bank RoI incurred EUR31 million
of withdrawal-related direct costs in H1 2022.
- A net impairment release of EUR9 million in H1 2022 reflects improvements
in the reducing portfolio and releases of COVID-related post-model
adjustments, partially offset by new post-model adjustments for current
macro-economic and divestment risks.
- Net loans to customers decreased by EUR6.7 billion, or 84.8%, in H1
2022 as EUR5.9 billion of tracker loans were reclassified as Assets
held for sale and as repayments continue to exceed gross new lending.
- Customer deposits decreased by EUR3.5 billion, or 16.0%, in H1 2022
due to reducing personal deposits as customers continue to close their
accounts.
- RWAs increased by EUR1.7 billion in H1 2022 due to temporary model
adjustments as a result of new regulations applicable to IRB models,
partially offset by asset sales, other repayments and facility maturities
in the context of the phased withdrawal.
Q2 2022 performance
- Total income was EUR12 million, or 48.0%, lower than Q1 2022 reflecting
reduced business levels and the cost of the inter-group liquidity
facility.
- Other operating expenses were EUR20 million, or 14.9%, higher than
Q1 2022 due to higher withdrawal-related programme costs and a one-off
pension charge.
- Impairment losses of EUR26 million in Q2 2022 reflect post-model adjustments
for current macro-economic and divestment risks.
- RWAs reduced by EUR0.6 billion in Q2 2022 due to asset sales, other
repayments and facility maturities in the context of the phased withdrawal.
Business performance summary
Ulster Bank RoI continued
Total Ulster Bank RoI including discontinued
operations
Half year ended Quarter ended
----------------- ------------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
EURm EURm EURm EURm EURm
-------- ------- ------- -------- -----------
Total income 219 279 101 118 137
Operating expenses (330) (299) (182) (148) (156)
of which: Other operating expenses (317) (284) (169) (148) (151)
Impairment releases/(losses) 83 13 53 30 (1)
Operating loss (28) (7) (28) - (20)
-------- ------- ------- -------- -----------
As at
------------------------------
30 June 31 March 31 December
2022 2022 2021
EURbn EURbn EURbn
------- -------- -----------
Net loans to customers - amortised
cost 17.7 18.4 18.6
Customer deposits 18.4 20.4 21.9
RWAs 12.6 13.2 10.9
-------------------------------------- -------- ------- ------- -------- -----------
Central items & other
Half year ended Quarter ended
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
GBPm GBPm GBPm GBPm GBPm
-------- ------- ------- -------- -------
Central items not allocated 184 83 10 174 110
---------------------------- -------- ------- ------- -------- -------
An operating profit of GBP184 million within central items not
allocated includes gains resulting from risk management derivatives
not in hedge accounting relationships of GBP315 million.
Segment performance
Half year ended 30 June 2022
--------------------------------------------------------------------
Go-forward group
---------------------------------------------------
Total
Central excluding Total
Retail Private Commercial items Ulster Ulster NatWest
& &
Banking Banking Institutional other Bank Bank Group
RoI RoI
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Income statement
Net interest income 2,340 315 1,764 (91) 4,328 6 4,334
--------------------------------
Own credit adjustments - - 52 - 52 - 52
Other non-interest income 214 146 1,121 325 1,806 27 1,833
-------------------------------- ------- ------- ------------- ------- --------- ------ -------
Total income 2,554 461 2,937 234 6,186 33 6,219
Direct expenses (320) (102) (736) (2,181) (3,339) (145) (3,484)
Indirect expenses (864) (182) (998) 2,142 98 (98) -
Other operating expenses (1,184) (284) (1,734) (39) (3,241) (243) (3,484)
Litigation and conduct costs (58) (1) (86) (13) (158) (11) (169)
-------------------------------- ------- ------- ------------- ------- --------- ------ -------
Operating expenses (1,242) (285) (1,820) (52) (3,399) (254) (3,653)
-------------------------------- ------- ------- ------------- ------- --------- ------ -------
Operating profit/(loss)
before
impairment (losses)/releases 1,312 176 1,117 182 2,787 (221) 2,566
Impairment (losses)/releases (26) 11 59 2 46 8 54
-------------------------------- ------- ------- ------------- ------- --------- ------ -------
Operating profit/(loss) 1,286 187 1,176 184 2,833 (213) 2,620
-------------------------------- ------- ------- ------------- ------- --------- ------ -------
Income excluding notable
items 2,554 461 2,930 (80) 5,865 33 5,898
-------------------------------- ------- ------- ------------- ------- --------- ------ -------
Additional information
Return on tangible equity
(1) na na na na 14.1% na 13.1%
Return on equity (1) 26.3% 20.9% 11.4% nm nm nm na
Cost:income ratio (1) 48.6% 61.8% 61.1% nm 54.5% nm 58.3%
Total assets (GBPbn) 216.2 30.0 451.5 87.1 784.8 21.7 806.5
Funded assets (GBPbn) (1) 216.2 30.0 343.4 85.8 675.4 21.7 697.1
Net loans to customers -
amortised cost (GBPbn) 188.7 18.8 127.3 26.8 361.6 1.0 362.6
Loan impairment rate (1) 3bps (12)bps (9)bps nm (3)bps nm (3)bps
Impairment provisions (GBPbn) (1.5) (0.1) (1.4) - (3.0) (0.4) (3.4)
Impairment provisions -
stage 3 (GBPbn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (GBPbn) 190.5 41.6 223.2 20.9 476.2 15.9 492.1
Risk-weighted assets (RWAs)
(GBPbn) 53.0 11.3 103.0 1.7 169.0 10.8 179.8
RWA equivalent (RWAe) (GBPbn) 53.0 11.3 101.4 2.2 167.9 10.8 178.7
Employee numbers (FTEs -
thousands) 13.9 2.0 11.8 29.4 57.1 1.8 58.9
Third party customer asset
rate (2) 2.59% 2.65% 3.01% nm nm nm nm
Third party customer funding
rate (2) (0.07%) (0.07%) (0.06%) nm nm 0.05% nm
Bank average interest earning
assets (GBPbn) (1) 186.8 19.0 125.2 nm 336.9 na 336.9
Bank net interest margin
(1) 2.53% 3.34% 2.84% nm 2.59% na 2.59%
-------------------------------- ------- ------- ------------- ------- --------- ------ -------
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
Half year ended 30 June 2021
----------------------------------------------------------------------
Go-forward group
---------------------------------------------------
Total
Central excluding Total
Retail Private Commercial items Ulster Ulster NatWest
& &
Banking Banking Institutional other Bank RoI Bank RoI Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Income statement
Net interest income 1,976 232 1,487 34 3,729 15 3,744
Own credit adjustments - - 1 (1) - - -
Other non-interest income 174 136 986 51 1,347 50 1,397
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Total income 2,150 368 2,474 84 5,076 65 5,141
Direct expenses (359) (92) (874) (2,051) (3,376) (141) (3,517)
Indirect expenses (819) (162) (915) 1,981 85 (85) -
Other operating expenses (1,178) (254) (1,789) (70) (3,291) (226) (3,517)
Litigation and conduct costs (9) 5 (35) 70 31 (13) 18
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Operating expenses (1,187) (249) (1,824) - (3,260) (239) (3,499)
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Operating profit/(loss)
before
impairment releases/(losses) 963 119 650 84 1,816 (174) 1,642
Impairment releases/(losses) 57 27 613 (1) 696 (13) 683
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Operating profit/(loss) 1,020 146 1,263 83 2,512 (187) 2,325
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Income excluding notable
items 2,150 368 2,503 25 5,046 65 5,111
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Additional information
Return on tangible equity
(1) na na na na 12.8% na 11.7%
Return on equity (1) 27.5% 14.2% 12.1% nm nm nm na
Cost:income ratio (1) 55.2% 67.7% 73.0% nm 63.7% nm 67.6%
Total assets (GBPbn) 204.2 27.7 442.2 76.4 750.5 25.4 775.9
Funded assets (GBPbn) (1) 204.2 27.7 334.5 74.5 640.9 25.4 666.3
Net loans to customers -
amortised cost (GBPbn) 178.1 18.0 125.2 24.7 346.0 16.7 362.7
Loan impairment rate (1) (6)bps (30)bps (96)bps nm (40)bps nm (37)bps
Impairment provisions (GBPbn) (1.6) (0.1) (2.3) - (4.0) (0.7) (4.7)
Impairment provisions -
stage 3 (GBPbn) (0.8) - (1.0) - (1.8) (0.4) (2.2)
Customer deposits (GBPbn) 184.1 34.7 212.4 17.5 448.7 18.5 467.2
Risk-weighted assets (RWAs)
(GBPbn) 35.6 11.2 104.0 1.7 152.5 10.5 163.0
RWA equivalent (RWAe) (GBPbn) 35.6 11.3 105.8 1.8 154.5 10.5 165.0
Employee numbers (FTEs -
thousands) 15.3 1.9 12.3 27.1 56.6 1.9 58.5
Third party customer asset
rate (2) 2.70% 2.36% 2.71% nm nm nm nm
Third party customer funding
rate (2) (0.07%) - (0.02%) nm nm 0.01% nm
Bank average interest earning
assets (GBPbn) (1) 176.3 17.9 120.5 nm 320.6 na 320.6
Bank net interest margin
(1) 2.26% 2.62% 2.49% nm 2.35% na 2.35%
------------------------------- ------- ------- ------------- ------- --------- -------- -------
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
Quarter ended 30 June 2022
--------------------------------------------------------------------
Go-forward group
---------------------------------------------------
Total
Central excluding Total
Retail Private Commercial items Ulster Ulster NatWest
& &
Banking Banking Institutional other Bank Bank Group
RoI RoI
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------- ------------- ------- --------- ------ -------
Continuing operations
Income statement
Net interest income 1,228 172 961 (56) 2,305 2 2,307
Own credit adjustments - - 34 - 34 - 34
Other non-interest income 109 73 567 111 860 10 870
------------------------------- ------- ------- ------------- ------- --------- ------ -------
Total income 1,337 245 1,562 55 3,199 12 3,211
-------------------------------
Direct expenses (159) (53) (329) (1,144) (1,685) (81) (1,766)
Indirect expenses (434) (93) (525) 1,101 49 (49) -
Other operating expenses (593) (146) (854) (43) (1,636) (130) (1,766)
Litigation and conduct costs (4) - (44) (8) (56) (11) (67)
------- ------- ------------- ------- --------- ------ -------
Operating expenses (597) (146) (898) (51) (1,692) (141) (1,833)
------------------------------- ------- ------- ------------- ------- --------- ------ -------
Operating profit/(loss)
before
Impairment (losses)/releases 740 99 664 4 1,507 (129) 1,378
-------------------------------
Impairment (losses)/releases (21) 6 48 6 39 (21) 18
------- ------- ------------- ------- --------- ------ -------
Operating profit/(loss) 719 105 712 10 1,546 (150) 1,396
------------------------------- ------- ------- ------------- ------- --------- ------ -------
Income excluding notable
items 1,337 245 1,573 (53) 3,102 12 3,114
------------------------------- ------- ------- ------------- ------- --------- ------ -------
Additional information
Return on tangible equity
(1) na na na na 16.5% na 15.2%
Return on equity (1) 29.5% 23.5% 14.0% nm nm nm na
Cost:income ratio (1) 44.7% 59.6% 56.6% nm 52.4% nm 56.7%
Total assets (GBPbn) 216.2 30.0 451.5 87.1 784.8 21.7 806.5
Funded assets (GBPbn) (1) 216.2 30.0 343.4 85.8 675.4 21.7 697.1
Net loans to customers -
amortised cost (GBPbn) 188.7 18.8 127.3 26.8 361.6 1.0 362.6
Loan impairment rate (1) 4bps (13)bps (15)bps nm (4)bps nm (2)bps
Impairment provisions (GBPbn) (1.5) (0.1) (1.4) - (3.0) (0.4) (3.4)
Impairment provisions -
stage 3 (GBPbn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (GBPbn) 190.5 41.6 223.2 20.9 476.2 15.9 492.1
Risk-weighted assets (RWAs)
(GBPbn) 53.0 11.3 103.0 1.7 169.0 10.8 179.8
RWA equivalent (RWAe) (GBPbn) 53.0 11.3 101.4 2.2 167.9 10.8 178.7
Employee numbers (FTEs -
thousands) 13.9 2.0 11.8 29.4 57.1 1.8 58.9
Third party customer asset
rate (2) 2.59% 2.77% 3.19% nm nm nm nm
Third party customer funding
rate (2) (0.10%) (0.13%) (0.09%) nm nm 0.04% nm
Bank average interest earning
assets (GBPbn) (1) 188.1 19.1 124.9 nm 340.0 na 340.0
Bank net interest margin
(1) 2.62% 3.60% 3.09% nm 2.72% na 2.72%
------------------------------- ------- ------- ------------- ------- --------- ------ -------
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
Quarter ended 31 March 2022
----------------------------------------------------------------------
Go-forward group
---------------------------------------------------
Total
Central excluding Total
Retail Private Commercial items Ulster Ulster NatWest
& &
Banking Banking Institutional other Bank RoI Bank RoI Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Income statement
-------------------------------
Net interest income 1,112 143 803 (35) 2,023 4 2,027
Own credit adjustments - - 18 - 18 - 18
Other non-interest income 105 73 554 214 946 17 963
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Total income 1,217 216 1,375 179 2,987 21 3,008
Direct expenses (161) (49) (407) (1,037) (1,654) (64) (1,718)
Indirect expenses (430) (89) (473) 1,041 49 (49) -
Other operating expenses (591) (138) (880) 4 (1,605) (113) (1,718)
Litigation and conduct costs (54) (1) (42) (5) (102) - (102)
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Operating expenses (645) (139) (922) (1) (1,707) (113) (1,820)
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Operating profit/(loss)
before
impairment (losses)/releases 572 77 453 178 1,280 (92) 1,188
Impairment (losses)/releases (5) 5 11 (4) 7 29 36
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Operating profit/(loss) 567 82 464 174 1,287 (63) 1,224
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Income excluding notable
items 1,217 216 1,357 (27) 2,763 21 2,784
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Additional information
Return on tangible equity
(1) na na na na 11.9% na 11.3%
Return on equity (1) 23.1% 18.2% 8.8% nm nm nm na
Cost:income ratio (1) 53.0% 64.4% 66.3% nm 56.7% nm 60.1%
Total assets (GBPbn) 210.7 29.6 433.5 89.3 763.1 22.3 785.4
Funded assets (GBPbn) (1) 210.7 29.6 334.6 88.2 663.1 22.3 685.4
Net loans to customers -
amortised cost (GBPbn) 184.9 18.7 126.6 28.8 359.0 6.3 365.3
Loan impairment rate (1) 1bp (11)bps (3)bps nm - nm (1)bp
Impairment provisions (GBPbn) (1.5) (0.1) (1.6) - (3.2) (0.4) (3.6)
Impairment provisions -
stage 3 (GBPbn) (0.9) - (0.7) - (1.6) (0.4) (2.0)
Customer deposits (GBPbn) 189.7 40.3 217.9 17.7 465.6 17.3 482.9
Risk-weighted assets (RWAs)
(GBPbn) 52.2 11.5 100.3 1.6 165.6 11.2 176.8
RWA equivalent (RWAe) (GBPbn) 52.2 11.5 102.6 1.9 168.2 11.2 179.4
Employee numbers (FTEs -
thousands) 14.0 1.9 11.8 28.7 56.4 1.8 58.2
Third party customer asset
rate (2) 2.59% 2.53% 2.83% nm nm nm nm
Third party customer funding
rate (2) (0.05%) (0.01%) (0.02%) nm nm 0.06% nm
Bank average interest earning
assets (GBPbn) (1) 185.5 18.9 121.0 nm 333.3 na 333.3
Bank net interest margin
(1) 2.43% 3.07% 2.69% nm 2.46% na 2.46%
------------------------------- ------- ------- ------------- ------- --------- -------- -------
nm = not meaningful, na = not applicable.
For the notes to this table, refer to the following page.
Segment performance
Quarter ended 30 June 2021
----------------------------------------------------------------------
Go-forward group
---------------------------------------------------
Total
Central excluding Total
Retail Private Commercial items Ulster Ulster NatWest
& &
Banking Banking Institutional other Bank RoI Bank RoI Group
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------- ------------- ------- --------- -------- -------
Continuing operations
Income statement
Net interest income 1,003 117 762 10 1,892 8 1,900
Own credit adjustments - - (1) (1) (2) - (2)
Other non-interest income 91 66 460 34 651 22 673
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Total income 1,094 183 1,221 43 2,541 30 2,571
-------------------------------
Direct expenses (171) (49) (428) (999) (1,647) (82) (1,729)
Indirect expenses (422) (79) (446) 986 39 (39) -
Other operating expenses (593) (128) (874) (13) (1,608) (121) (1,729)
Litigation and conduct costs (7) - (35) 80 38 (4) 34
------- ------- ------------- ------- --------- -------- -------
Operating expenses (600) (128) (909) 67 (1,570) (125) (1,695)
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Operating profit/(loss)
before
impairment releases/(losses) 494 55 312 110 971 (95) 876
-------------------------------
Impairment releases/(losses) 91 27 488 - 606 (9) 597
------- ------- ------------- ------- --------- -------- -------
Operating profit/(loss) 585 82 800 110 1,577 (104) 1,473
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Income excluding notable
items 1,094 183 1,234 (9) 2,502 30 2,532
------------------------------- ------- ------- ------------- ------- --------- -------- -------
Additional information
Return on tangible equity
(1) na na na na 17.3% na 15.6%
Return on equity (1) 32.0% 15.9% 15.9% nm nm nm na
Cost:income ratio (1) 54.8% 69.9% 73.7% nm 61.3% nm 65.5%
Total assets (GBPbn) 204.2 27.7 442.2 76.4 750.5 25.4 775.9
Funded assets (GBPbn) (1) 204.2 27.7 334.5 74.5 640.9 25.4 666.3
Net loans to customers -
amortised cost (GBPbn) 178.1 18.0 125.2 24.7 346.0 16.7 362.7
Loan impairment rate (1) (20)bps (60)bps (153)bps nm (69)bps nm (65)bps
Impairment provisions (GBPbn) (1.6) (0.1) (2.3) - (4.0) (0.7) (4.7)
Impairment provisions -
stage 3 (GBPbn) (0.8) - (1.0) - (1.8) (0.4) (2.2)
Customer deposits (GBPbn) 184.1 34.7 212.4 17.5 448.7 18.5 467.2
Risk-weighted assets (RWAs)
(GBPbn) 35.6 11.2 104.0 1.7 152.5 10.5 163.0
RWA equivalent (RWAe) (GBPbn) 35.6 11.3 105.8 1.8 154.5 10.5 165.0
Employee numbers (FTEs -
thousands) 15.3 1.9 12.3 27.1 56.6 1.9 58.5
Third party customer asset
rate (2) 2.67% 2.36% 2.81% nm nm nm nm
Third party customer funding
rate (2) (0.06%) - (0.04%) nm nm 0.01% nm
Bank average interest earning
assets (GBPbn) (1) 177.3 18.1 121.0 nm 323.0 na 323.0
Bank net interest margin
(1) 2.27% 2.60% 2.52% nm 2.35% na 2.35%
------------------------------- ------- ------- ------------- ------- --------- -------- -------
nm = not meaningful, na = not applicable.
(1) Refer to the appendix for details of basis of preparation
and reconciliation of non-IFRS performance measures where
relevant.
(2) Third party customer asset rate is calculated as annualised
interest receivable on third-party loans to customers as a
percentage of third-party loans to customers. This excludes assets
of disposal groups, intragroup items, loans to banks and liquid
asset portfolios. Third party customer funding rate reflects
interest payable or receivable on third-party customer deposits,
including interest bearing and non-interest bearing customer
deposits. Intragroup items, bank deposits, debt securities in issue
and subordinated liabilities are excluded for customer funding rate
calculation.
Risk and capital management
Page
--------------------------------------------------------------- -----
Credit risk
--------------------------------------------------------------- -----
Economic loss drivers 20
--------------------------------------------------------------- -----
UK economic uncertainty 23
--------------------------------------------------------------- -----
Measurement uncertainty and ECL sensitivity analysis 26
--------------------------------------------------------------- -----
Measurement uncertainty and ECL adequacy 28
--------------------------------------------------------------- -----
Credit risk - Banking activities
--------------------------------------------------------------- -----
Financial instruments within the scope of the IFRS 9 ECL
framework 29
--------------------------------------------------------------- -----
Segment analysis 30
--------------------------------------------------------------- -----
Segment loans and impairment metrics 33
--------------------------------------------------------------- -----
Sector analysis 34
--------------------------------------------------------------- -----
Wholesale forbearance 39
--------------------------------------------------------------- -----
Personal portfolio 41
--------------------------------------------------------------- -----
Commercial real estate 44
--------------------------------------------------------------- -----
Flow statements 46
--------------------------------------------------------------- -----
Stage 2 decomposition by a significant increase in credit
risk trigger 55
--------------------------------------------------------------- -----
Asset quality 57
--------------------------------------------------------------- -----
Credit risk - Trading activities 61
--------------------------------------------------------------- -----
Capital, liquidity and funding risk 64
--------------------------------------------------------------- -----
Market risk
--------------------------------------------------------------- -----
Non-traded 74
--------------------------------------------------------------- -----
Traded 78
--------------------------------------------------------------- -----
Other risks 79
--------------------------------------------------------------- -----
Certain disclosures in the Risk and capital management section
are within the scope of EY's review report and are marked as
reviewed in the section header.
Risk and capital management
Credit risk
Economic loss drivers (reviewed)
Introduction
The portfolio segmentation and selection of economic loss
drivers for IFRS 9 follow closely the approach used in stress
testing. To enable robust modelling, the forecasting models for
each portfolio segment (defined by product or asset class and,
where relevant, industry sector and region) are based on a
selected, small number of economic factors (typically three to
four) that best explain the temporal variations in portfolio loss
rates. The process to select economic loss drivers involves
empirical analysis and expert judgment.
The most material economic loss drivers are shown in the table
below.
Portfolio Economic loss drivers
--------------------- -------------------------------------------------------
UK retail mortgages UK unemployment rate, sterling swap rate, UK house
price index, UK household debt to income
--------------------- -------------------------------------------------------
UK retail unsecured UK unemployment rate, sterling swap rate, UK household
debt to income
--------------------- -------------------------------------------------------
UK large corporates World GDP, UK unemployment rate, sterling swap rate,
stock price index
--------------------- -------------------------------------------------------
UK commercial UK GDP, UK unemployment rate, sterling swap rate
--------------------- -------------------------------------------------------
UK commercial real UK GDP, UK commercial property price index, sterling
estate swap rate, stock price index
--------------------- -------------------------------------------------------
RoI retail mortgages RoI unemployment rate, European Central Bank base
rate, RoI house price index
(1) This is not an exhaustive list of economic loss drivers but
shows the most material drivers for the most significant
portfolios.
Economic scenarios
At 30 June 2022, the range of anticipated future economic
conditions was defined by a set of four internally developed
scenarios and their respective probabilities. In addition to the
base case, they comprised upside, downside and extreme downside
scenarios. The scenarios primarily reflected a range of outcomes
associated with the most prominent risks facing the economy, and
the associated effects on labour and asset markets.
The four economic scenarios are translated into forward-looking
projections of credit cycle indices (CCIs) using a set of
econometric models. Subsequently the CCI projections for the
individual scenarios are averaged into a single central CCI
projection according to the given scenario probabilities. The
central CCI projection is then overlaid with an additional mean
reversion assumption, i.e. after reaching their worst forecast
position the CCIs start to gradually revert to their long-run
average of zero.
Upside - This scenario assumes a very strong recovery through
2022 as consumers dip into excess savings built up since amidst
COVID-19. The labour market remains resilient, with the
unemployment rate falling substantially below pre-COVID-19 levels.
Inflation is marginally higher than the base case but eventually
retreats close to the target without substantial tightening and
with no major effect on growth. The housing market shows a strong
performance.
Base case - After a strong recovery in 2021, growth moderates in
2022 as real incomes decline and consumer confidence falls . The
unemployment rate decreases initially but subsequently increases
above pre-COVID-19 levels , although remains low by historical
standards. Inflation remains elevated at close to current levels
through to early 2023 before retreating. Interest rates are raised
to 2% to control price pressures. There is a gradual cooling in the
housing market, but activity remains firm. As inflation retreats,
economic growth returns to its pre-COVID-19 pace over the course of
2023, remaining steady through the forecast period.
Downside - This scenario assumes that inflation accelerates to
15%, triggered by further escalation in geopolitical tensions and
an associated rise in energy prices. This undermines the recovery,
harming business and consumer confidence and pushing the economy
into recession . Unemployment rate rises above the levels seen
during COVID-19 and there is a modest decline in house prices.
Inflation subsequently normalises, paving the way for cuts to
interest rates and recovery.
Extreme downside - The trigger for the extreme downside is
similar to the downside scenario. However, in this scenario,
inflation remains more persistent, necessitating a significant
degree of rate tightening. This tighter policy and fall in real
income leads to a deep recession. There is widespread job shedding
in the labour market while asset prices see deep corrections, with
housing market falls higher than those seen during previous
episodes. The recovery is tepid throughout the five-year period,
meaning only a gradual decline in joblessness.
For June 2022, the four scenarios were deemed appropriate in
capturing the uncertainty in economic forecasts and the
non-linearity in outcomes under different scenarios. These four
scenarios were developed to provide sufficient coverage across
potential rises in unemployment, inflation and asset price falls
around which there are pronounced levels of uncertainty.
The tables below provide details of the key economic loss
drivers under the four scenarios.
The main macroeconomic variables for each of the four scenarios
used for expected credit loss (ECL) modelling are set out in the
main macroeconomic variables table below. The compound annual
growth rate (CAGR) for GDP is shown. It also shows the five-year
average for unemployment and the Bank of England base rate. The
house price index and commercial real estate figures show the total
change in each asset over five years.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Main macroeconomic variables 30 June 2022 31 December 2021
--------------------------------- ---------------------------------
Extreme Extreme
Upside Base Downside downside Upside Base Downside downside
case case
Five-year summary % % % % % % % %
----------------------------- ------ ----- -------- --------
UK
GDP - CAGR 1.7 1.1 0.8 (0.1) 2.4 1.7 1.4 0.6
Unemployment - average 3.3 4.0 4.5 6.3 3.5 4.2 4.8 6.7
House price index - total
change 24.4 13.7 (0.9) (10.5) 22.7 12.1 4.3 (5.3)
Commercial real estate
price - total change 7.5 (2.6) (6.8) (14.5) 18.2 7.2 5.5 (6.4)
Bank of England base rate
- average 1.5 1.8 0.6 2.7 1.5 0.8 0.7 (0.5)
Consumer price index -
CAGR 2.7 2.9 3.9 7.2 2.7 2.5 3.1 1.5
Republic of Ireland
GDP - CAGR 4.6 3.9 2.9 2.1 4.4 3.7 2.9 1.6
Unemployment - average 3.8 4.9 6.5 7.7 4.2 5.2 6.8 9.3
House price index - total
change 28.9 22.2 6.3 (1.9) 30.3 23.4 16.3 4.6
European Central Bank base
rate - average 1.3 2.0 0.1 1.4 0.8 0.1 0.2 -
World GDP - CAGR 3.8 3.4 2.0 1.0 3.5 3.2 2.6 0.6
Probability weight 21.0 45.0 20.0 14.0 30.0 45.0 20.0 5.0
----------------------------- ------ ----- -------- -------- ------ ----- -------- --------
(3) The five year period starts after Q1 2022 for 30 June 2022
and Q3 2021 for 31 December 2021.
(4) CAGR and total change figures are not comparable with 31
December 2021 data, as the starting quarters are different.
Probability weightings of scenarios
NatWest Group's approach to IFRS 9 multiple economic scenarios
(MES) involves selecting a suitable set of discrete scenarios to
characterise the distribution of risks in the economic outlook and
assigning appropriate probability weights. The scale of the
economic effect of COVID-19 and the range of recovery paths had
necessitated subjective assignment of probability weights. However,
for June 2022, NatWest Group resurrected the quantitative approach
used pre-COVID-19. The approach involves comparing UK GDP paths for
NatWest Group's scenarios against a set of 1,000 model runs,
following which a percentile in the distribution is established
that most closely corresponded to the scenario. The probability
weight for the base case is set based on judgement while
probability weights for the alternate scenarios are assigned based
on these percentile scores.
A 21% weighting was applied to the upside scenario (compared to
30% at 31 December 2021), a 45% weighting applied to the base case
scenario (unchanged from 31 December 2021), a 20% weighting applied
to the downside scenario (unchanged from 31 December 2021) and a
14% weighting applied to the extreme downside scenario (compared to
5% at 31 December 2021).
The assigned probability weights reflect the outputs of NatWest
Group's quantitative approach and were judged to be aligned with
subjective assessment of balance of the risks in the economy,
presenting good coverage to the range of outcomes assumed in the
central scenarios, including the potential for a robust recovery on
the upside and exceptionally challenging outcomes on the downside.
The current geopolitical tensions pose considerable uncertainty to
the economic outlook, with respect to their persistence, range of
outcomes and subsequent impacts on inflation and economic activity.
Given that backdrop, and the higher possibility of a more
challenging economic backdrop than assumed in the base case,
NatWest Group judged it appropriate to apply a lower probability
weight to the upside scenario and a higher probability to
downside-biased scenarios, than at 31 December 2021.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Annual figuresGDP - annual growth
Extreme Extreme
Base Base
Upside case Downside downside Upside case Downside downside
Republic
of
UK % % % % Ireland % % % %
2022 4.8 3.5 2.7 2.7 2022 6.9 6.1 5.8 5.6
2023 2.9 0.8 (2.4) (5.1) 2023 7.1 4.8 (0.2) (3.8)
2024 1.7 1.4 2.1 0.3 2024 4.4 3.6 2.5 1.5
2025 1.3 1.1 2.1 2.4 2025 3.1 3.5 4.5 5.1
2026 1.1 1.3 2.0 2.2 2026 2.8 2.8 2.8 2.7
----- ------ ------ -------- -------- -------- ------ ----- -------- --------
Unemployment rate -
annual
average
Extreme Extreme
Base Base
Upside case Downside downside Upside case Downside downside
Republic%
of
UK %% %% Ireland %% %
2022 3.4 3.6 3.8 3.8 2022 4.8 5.2 5.9 5.8
2023 3.0 3.8 4.9 5.9 2023 3.6 4.9 8.1 9.3
2024 3.3 4.0 4.8 8.7 2024 3.7 4.8 6.8 8.4
2025 3.4 4.2 4.5 7.5 2025 3.7 4.7 5.9 7.4
2026 3.5 4.3 4.4 5.5 2026 3.7 4.7 5.6 7.0
----- ------ ------ -------- -------- -------- ------ ----- -------- --------
House price index -
four
quarter growth
Extreme Extreme
Base Base
Upside case Downside downside Upside case Downside downside
Republic%
of
UK %% %% Ireland %% %
2022 9.7 5.1 2.4 2.4 2022 10.0 7.3 4.0 3.4
2023 5.5 2.0 (11.7) (20.4) 2023 9.6 4.3 (5.7) (20.0)
2024 2.9 1.9 0.4 (4.6) 2024 1.6 3.5 1.0 (3.4)
2025 3.0 2.7 5.0 12.3 2025 2.6 3.1 3.4 15.1
2026 3.5 3.2 6.0 4.4 2026 4.1 4.0 5.4 8.4
----- ------ ------ -------- -------- -------- ------ ----- -------- --------
Commercial real estate price Bank of England base rate -
- four quarter growth annual average
Extreme Extreme
Base Base
Upside case Downside downside Upside case Downside downside
UK %% %% UK % %% %
2022 9.5 6.8 (3.3) (3.2) 2022 1.05 1.28 1.05 1.05
2023 3.9 0.2 (10.8) (27.6) 2023 1.63 2.00 1.12 2.31
2024 1.4 (0.1) 4.5 8.5 2024 1.69 2.00 0.10 4.00
2025 - (1.5) 4.6 13.1 2025 1.50 1.75 0.18 3.38
2026 (1.4) (2.1) 4.6 5.3 2026 1.44 1.73 0.44 2.25
----- ------ ------ -------- -------- -------- ------ ----- -------- --------
Consumer price index - four
quarter growth
Extreme
Base
Upside case Downside downside
UK %% %%
2022 9.5 8.4 9.3 9.3
2023 (0.9) 1.1 8.1 13.7
2024 2.0 2.0 0.4 6.4
2025 2.0 2.0 1.4 4.2
2026 2.0 2.0 1.7 3.6
----- ------ ------ -------- --------
Worst points 30 June 2022 31 December 2021
------------------------------------ ------------------------------------
Extreme Extreme
Downside downside Downside downside
UK % Quarter % Quarter % Quarter % Quarter
GDP (3.6) Q1 2023 (7.4) Q3 2023 (1.8) Q1 2022 (7.9) Q1 2022
Unemployment rate (peak) 5.1 Q3 2023 9.0 Q2 2024 5.4 Q1 2023 9.4 Q4 2022
House price index (12.9) Q2 2024 (28.0) Q2 2024 (3.0) Q3 2023 (26.0) Q2 2023
Commercial real estate
price (20.7) Q2 2023 (34.7) Q1 2024 (2.5) Q1 2022 (29.8) Q3 2022
Bank of England base rate 1.5 Q4 2022 4.0 Q1 2024 1.5 Q4 2022 (0.5) Q2 2022
Consumer price index 14.8 Q2 2023 14.8 Q2 2023 7.9 Q4 2022 4.3 Q4 2021
-------------------------- -------- ------- -------- ------- -------- ------- -------- -------
Republic of Ireland
GDP - Q2 2023 (2.9) Q3 2023 (0.7) Q1 2022 (8.9) Q2 2022
Unemployment rate (peak) 8.6 Q3 2023 10.5 Q3 2023 9.4 Q2 2022 15.1 Q2 2022
House price index (4.4) Q2 2024 (26.5) Q2 2024 (0.1) Q4 2022 (25.1) Q2 2023
-------------------------- -------- ------- -------- ------- -------- ------- -------- -------
(1) For the unemployment rate, the figures show the peak levels.
For the Bank of England base rate, the figures show highest or
lowest levels. For other parameters, the figures show falls
relative to the starting period. The calculations are performed
over five years, with a starting point of Q1 2022 for 30 June 2022
scenarios .
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The
probability of default (PD) and loss given default (LGD) values for
each discrete scenario are calculated using product-specific
econometric models. Each account has a PD and LGD calculated as
probability weighted-averages across the suite of economic
scenarios.
Use of the scenarios in Wholesale lending
The Wholesale lending ECL methodology is based on the concept of
CCIs. The CCIs represent, similar to the exogenous component in
Personal, all relevant economic loss drivers for a region/industry
segment aggregated into a single index value that describes the
loss rate conditions in the respective segment relative to its
long-run average. A CCI value of zero corresponds to loss rates at
long-run average levels, a positive CCI value corresponds to loss
rates below long-run average levels and a negative CCI value
corresponds to loss rates above long-run average levels.
Finally, ECL is calculated using a Monte Carlo approach by
averaging PD and LGD values arising from many CCI paths simulated
around the central CCI projection.
The rationale for the Wholesale approach is the long-standing
observation that loss rates in Wholesale portfolios tend to follow
regular cycles. This allows NatWest Group to enrich the range and
depth of future economic conditions embedded in the final ECL
beyond what would be obtained from using the discrete
macro-economic scenarios alone.
Business banking, while part of the Wholesale segment, for
reporting purposes, utilises the Personal lending rather than the
Wholesale lending methodology.
UK economic uncertainty
Businesses are still trying to recover fully from the effects of
COVID-19 and to service additional debt which was accessed during
the period. New headwinds on inflation, cost of living and supply
chain disruption have arisen.
Inflation and supply chain issues are presenting significant headwinds
for some businesses and sectors. These are a result of various factors
and in many cases are compounding and look set to remain a feature
of the economic environment into 2023. NatWest Group has considered
where these are most likely to affect the customer base, including
assessing which businesses that NatWest Group does not believe will
fully pass the costs onto the consumer and those that can, driving
further cost of living risks. In addition, while a direct impact
from the Russian invasion of Ukraine is limited, the contagion events
of supply chain disruption is still anticipated with European economies
being dependent on Russia, Ukraine and Belarus for a number of commodities.
The effects of these risks are not expected to be fully captured
by forward-looking credit modelling, particularly given the unique
high inflation, low unemployment base-case outlook. Any incremental
ECL effects for these risks will be captured via post-model adjustments
and are detailed further in the Governance and post-model adjustments
section.
Personal customers who had accessed payment holiday support, and
where their risk profile was identified as relatively high risk
are no longer collectively migrated into Stage 2, given the lack
of observable default emergence from these segments and with the
focus of high-risk segment monitoring now shifting to the effects
of inflation and the growing cost of living effect on customers.
Model monitoring and enhancement
As of January 2022, a new regulatory definition of default for was
introduced in line with PRA and EBA guidance. This definition of
default was also adopted for IFRS 9. Underlying observed one-year
default rates (after isolating one-off effects from the new definition
of default) across all portfolios still trend at or below pre-COVID-19
levels. As a result, most recent back-testing of forward-looking
IFRS 9 PDs continues to show some overprediction in some portfolios.
As in previous quarters, model recalibrations to adjust for this
overprediction have been deferred based on the judgment that low
default rate actuals during COVID-19 were distorted, due to government
support.
Going forward, NatWest Group expects potential increases in default
emergence to come primarily from forward-looking risks like high
inflation and rising interest rates, rather than from delayed COVID-19
effects. Therefore, previously applied lags to the projections from
the economic forecasting models of up to 12 months have been discontinued.
For Personal mortgages, new fully redeveloped PD and LGD models
were implemented in Q1, which removed the need for several model
adjustments. In addition, newly approved IFRS 9 models for Personal
unsecured portfolios are at a parallel run stage awaiting implementation
in Q3 2022, with expected effects on staging and ECL captured at
30 June 2022 used to support the reported ECL estimates.
Scenario sensitivity - Personal only
For the unsecured Personal lending portfolios, the ECL sensitivity
analyses now leverage the newly approved PD models.
Risk and capital management
Credit risk continued
UK economic uncertainty
Governance and post model adjustments (reviewed)
The IFRS 9 PD, EAD and LGD models are subject to NatWest Group's
model risk policy that stipulates periodic model monitoring,
periodic re-validation and defines approval procedures and
authorities according to model materiality. Various post model
adjustments were applied where management judged they were
necessary to ensure an adequate level of overall ECL provision. All
post model adjustments were subject to formal approval through
provisioning governance, and were categorised as follows (business
level commentary is provided below):
- Deferred model calibrations - ECL adjustments where PD model
monitoring indicated that actual defaults were below estimated
levels but where it was judged that an implied ECL release was not
supportable due to the influence of government support schemes on
default levels in the past two years. As a consequence, any
potential ECL release was deferred and retained on the balance
sheet until modelled ECL levels are affirmed by new model parallel
runs or similar analyses.
- Economic uncertainty - ECL adjustments primarily arising from
uncertainties associated with increased inflation and cost of
living risks as well as supply chain disruption, along with the
residual effect of COVID-19 and government support schemes. In all
cases, management judged that additional ECL was required until
further credit performance data became available as the full
effects of these issues matures.
- Other adjustments - ECL adjustments where it was judged that
the modelled ECL required to be amended.
Post-model adjustments will remain a key focus area of NatWest
Group's ongoing ECL adequacy assessment process. A holistic
framework has been established including reviewing a range of
economic data, external benchmark information and portfolio
performance trends with a particular focus on segments of the
portfolio (both commercial and consumer) that are likely to be more
susceptible to inflation, cost of living and supply chain
risks.
ECL post model adjustments Commercial Ulster Bank
Retail Banking Private & RoI (1)
---------------- ----------------
Mortgages Other Banking Institutional Mortgages Other Total
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- ----- ------- ------------- --------- ----- -----
Deferred model calibrations - - - 64 - 2 66
Economic uncertainty 97 82 11 388 - 5 583
Other adjustments 28 (26) - 12 160 18 192
Total 125 56 11 464 160 25 841
--------- ----- ------- ------------- --------- ----- -----
Of which:
- Stage 1 39 20 2 58 5 2 126
- Stage 2 63 36 9 404 9 22 543
- Stage 3 23 - - 2 146 1 172
---------------------------- --------- ----- ------- ------------- --------- ----- -----
31 December 2021
---------------------------- --------- ----- ------- ------------- --------- ----- -----
Deferred model calibrations 58 97 - 62 - 2 219
Economic uncertainty 60 99 5 391 6 23 584
Other adjustments 37 - - 5 156 - 198
---------------------------- --------- ----- ------- ------------- --------- ----- -----
Total 155 196 5 458 162 25 1,001
--------- ----- ------- ------------- --------- ----- -----
Of which:
- Stage 1 9 5 - 15 4 1 34
- Stage 2 126 164 5 443 7 26 771
- Stage 3 20 27 - - 151 (2) 196
---------------------------- --------- ----- ------- ------------- --------- ----- -----
(1) Excludes GBP34 million (31 December 2021 - GBP49 million) of
post model adjustments (mortgages - GBP0.4 million; other - GBP33.6
million (31 December 2021 - mortgages GBP4 million; other - GBP45
million)) for Ulster Bank RoI disclosed as transfers to disposal
groups.
Risk and capital management
Credit risk continued
* Retail Banking - The judgemental post-model
adjustment for deferred model calibrations of GBP155
million at 31 December 2021 was no longer required.
This was due, firstly, to the removal of the mortgage
element of this post model adjustment because of the
implementation of a new IFRS 9 PD model in Q1 2022.
In addition, the effects of new PD models on loan and
overdraft portfolios are now captured in the staging
and ECL estimates at 30 June 2022, negating the need
for further management judgement on PD calibration
adjustments.
* The post-model adjustment for economic uncertainty
increased from GBP159 million to GBP179 million,
reflecting the increased level of uncertainty since
31 December 2021 as a result of sharply rising
inflation, cost of living pressures and the expected
effect on consumers and the broader economy. The
primary element of these economic uncertainty
adjustments was a new GBP152 million ECL uplift, to
capture the risk on segments of the Retail portfolio
that are more susceptible to the effects of cost of
living rises, focusing on key affordability lenses,
including customers with lower incomes in fuel
poverty and over-indebted borrowers. This adjustment
has superseded the previously held GBP26 million for
COVID-19 payment holiday high-risk customers and the
GBP69 million judgemental ECL release holdback at 31
December 2021. This demonstrated management's view of
a dissipating risk of economic effects from COVID-19
with the focus now on risks associated with cost of
living and affordability. T he introduction of the
new cost of living post-model adjustment at 30 June
2022 allocated more ECL to Stage 1 given the
forward-looking nature of the cost of living and
inflation threat, whereas the previous COVID-19
post-model adjustments were focused on Stage 2 (for
example, high-risk payment holiday cases migrated
into Stage 2).
* Other judgmental overlays included a post model
adjustment of GBP16 million to capture the effect of
potential cladding risk in the portfolio. In addition,
a temporary GBP26 million ECL reduction adjustment
was in place to reflect, on a forward-looking basis,
the associated effects of a new credit card PD model
that is pending implementation.
* Commercial & Institutional - The post-model
adjustment for economic uncertainty remained broadly
stable at GBP388 million (31 December 2021 - GBP391
million.) It included an overlay of GBP336 million to
cover the residual risks from COVID-19, including the
risk that government support schemes, during COVID-19
could have suppressed defaults that may materialise
in future periods above expected default levels,
concerns surrounding associated debt to customers
that have utilised government support schemes and a
new risk from inflation and supply chain issues which
will present significant new headwinds for a number
of sectors. The amount relating to the new inflation
and supply chain risk was GBP107 million and is a
mechanistic adjustment, where a sector-level
downgrade was applied to the sectors that were
considered most at risk from these headwinds .
* The post-model adjustment for deferred model
calibrations on the business banking portfolio was
broadly unchanged at GBP64 million (31 December 2021
- GBP62 million). This reflected management's
judgment that the modelled ECL reduction remained
unsupportable while portfolio performance was being
underpinned by the various support schemes. New
business banking models are currently being developed
in H2 2022 in part to address this concern.
* Other adjustments included an overlay of GBP9 million
to mitigate the effect of operational timing delays
in the identification and flagging of a significant
increase in credit risk (SICR). This increased from
GBP2 million at 31 December 2021, mainly as a result
of increased Stage 1 balances and an increase in
Stage 1 into Stage 3 flows.
* Ulster Bank RoI - The post model adjustment for
economic uncertainty reduced to GBP5 million from
GBP29 million owing to a decrease in the amount of
COVID-19 related adjustments. Other adjustments
increased to GBP178 million from GBP156 million
reflecting management opinion that continuing actions
on the phased withdrawal of Ulster Bank RoI from the
Republic of Ireland market will lead to higher,
and/or earlier, crystallisation of losses.
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Back Loan
Scheme (BBLS) as well as associated debt split by stage. Associated
debt refers to the non-BBLS lending to customers who also have BBLS
lending.
Gross carrying amount
-----------------------------------------------------------------------------
BBL Associated debt ECL on associated
debt
-------------------------- -------------------------- ---------------------
Stage Stage Stage Total Stage Stage Stage Total Stage Stage Stage
1 2 3 1 2 3 1 2 3
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ------ ------ -----
Wholesale
Property 1,240 200 150 1,590 1,078 171 64 1,313 4 16 23
Financial institutions 29 4 1 34 26 2 - 28 - - -
Sovereign 6 1 1 8 2 - - 2 - - -
Corporate 3,829 635 689 5,153 2,704 700 109 3,513 10 66 52
Of which:
Agriculture 258 81 11 350 959 256 16 1,231 4 21 7
Airlines and aerospace 4 1 1 6 1 - - 1 - - -
Automotive 264 34 31 329 116 25 4 145 1 2 2
Health 197 24 11 232 320 75 16 411 1 4 4
Land transport
and logistics 148 26 27 201 62 11 2 75 - 2 2
Leisure 578 113 84 775 373 154 25 552 1 16 11
Oil and gas 7 2 1 10 4 1 - 5 - - -
Retail 670 99 77 846 347 63 14 424 1 7 8
Total 5,104 840 841 6,785 3,810 873 173 4,856 14 82 75
------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ------ ------ -----
31 December 2021
--------------------------------------- ----- ----- ----- ----- ----- ----- ------ ------ -----
Wholesale
Property 1,480 218 99 1,797 1,232 165 55 1,452 3 13 18
Financial institutions 33 5 1 39 9 20 3 32 - 1 -
Sovereign 7 1 - 8 2 - - 2 - - -
Corporate 4,593 703 334 5,630 2,481 1,087 84 3,652 10 66 34
Of which:
Agriculture 302 86 6 394 827 396 14 1,237 3 16 4
Airlines and aerospace 5 1 1 7 1 1 - 2 - - -
Automotive 309 43 21 373 119 39 2 160 1 2 1
Health 233 26 7 266 287 131 13 431 1 7 3
Land transport
and logistics 180 32 19 231 57 26 2 85 - 2 1
Leisure 706 122 55 883 367 208 25 600 1 15 9
Oil and gas 8 2 1 11 3 1 - 4 - - -
Retail 800 109 47 956 310 127 8 445 2 7 4
Total 6,113 927 434 7,474 3,724 1,272 142 5,138 13 80 52
------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ------ ------ -----
Measurement uncertainty and ECL sensitivity analysis
(reviewed)
The recognition and measurement of ECL is complex and involves
the use of significant judgment and estimation, particularly in
times of economic volatility and uncertainty. This includes the
formulation and incorporation of multiple forward-looking economic
scenarios into ECL to meet the measurement objective of IFRS 9. The
ECL provision is sensitive to the model inputs and economic
assumptions underlying the estimate.
The focus of the simulations is on ECL provisioning requirements
on performing exposures in Stage 1 and Stage 2. The simulations are
run on a stand-alone basis and are independent of each other; the
potential ECL impacts reflect the simulated impact at 30 June 2022.
Scenario impacts on a SICR should be considered when evaluating the
ECL movements of Stage 1 and Stage 2. In all scenarios the total
exposure was the same but exposure by stage varied in each
scenario.
Stage 3 provisions are not subject to the same level of
measurement uncertainty - default is an observed event as at the
balance sheet date. Stage 3 provisions therefore have not been
considered in this analysis.
The impact arising from the base case, upside, downside and
extreme downside scenarios has been simulated. These scenarios are
used in the methodology for Personal multiple economic scenarios as
described in the Economic loss drivers section. In the simulations,
NatWest Group has assumed that the economic macro variables
associated with these scenarios replace the existing base case
economic assumptions, giving them a 100% probability weighting and
therefore serving as a single economic scenario.
These scenarios have been applied to all modelled portfolios in
the analysis below, with the simulation impacting both PDs and
LGDs. Modelled post model adjustments present in the underlying ECL
estimates are also sensitised in line with the modelled ECL
movements, but those that were judgmental in nature, primarily
those for deferred model calibrations and economic uncertainty, are
not (refer to the Governance and post model adjustments section).
As expected, the scenarios create differing impacts on ECL by
portfolio and the impacts are deemed reasonable. In this
simulation, it is assumed that existing modelled relationships
between key economic variables and loss drivers hold, but in
practice other factors would also have an impact, for example,
potential customer behaviour changes and policy changes by lenders
that might impact on the wider availability of credit.
NatWest Group's core criterion to identify a SICR is founded on
PD deterioration, as discussed above. Under the simulations, PDs
change and result in exposures moving between Stage 1 and Stage 2
contributing to the ECL impact.
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
Extreme
Base
30 June 2022 Actual case Upside Downside downside
----------------------------------------- ------- ------- ------- -------- --------
Stage 1 modelled exposure (GBPm)
Retail Banking - mortgages 164,607 164,315 165,182 164,514 162,356
Retail Banking - unsecured 7,714 7,769 7,942 7,662 7,053
Wholesale - property 28,433 28,747 28,878 27,461 23,382
Wholesale - non-property 112,900 116,027 116,679 109,232 94,138
-----------------------------------------
313,654 316,858 318,681 308,869 286,929
Stage 1 modelled ECL (GBPm)
Retail Banking - mortgages 45 46 42 50 51
Retail Banking - unsecured 131 157 152 160 141
Wholesale - property 39 33 28 50 83
Wholesale - non-property 155 162 160 171 149
----------------------------------------- ------- ------- ------- -------- --------
370 398 382 431 424
Stage 2 modelled exposure (GBPm)
Retail Banking - mortgages 8,965 9,257 8,390 9,058 11,216
Retail Banking - unsecured 2,829 2,774 2,601 2,881 3,490
Wholesale - property 2,902 2,588 2,457 3,874 7,953
Wholesale - non-property 14,043 10,916 10,264 17,711 32,805
----------------------------------------- ------- ------- ------- -------- --------
28,739 25,535 23,712 33,524 55,464
Stage 2 modelled ECL (GBPm)
Retail Banking - mortgages 76 75 69 76 86
Retail Banking - unsecured 345 302 265 325 424
Wholesale - property 101 78 69 121 300
Wholesale - non-property 543 463 420 616 1,170
----------------------------------------- ------- ------- ------- -------- --------
1,065 918 823 1,138 1,980
Stage 1 and Stage 2 modelled exposure
(GBPm)
Retail Banking - mortgages 173,572 173,572 173,572 173,572 173,572
Retail Banking - unsecured 10,543 10,543 10,543 10,543 10,543
Wholesale - property 31,335 31,335 31,335 31,335 31,335
Wholesale - non-property 126,943 126,943 126,943 126,943 126,943
----------------------------------------- ------- ------- ------- -------- --------
342,393 342,393 342,393 342,393 342,393
Stage 1 and Stage 2 modelled ECL (GBPm)
Retail Banking - mortgages 121 121 111 126 137
Retail Banking - unsecured 476 459 417 485 565
Wholesale - property 140 111 97 171 383
Wholesale - non-property 698 625 580 787 1,319
----------------------------------------- ------- ------- ------- -------- --------
1,435 1,316 1,205 1,569 2,404
Stage 1 and Stage 2 coverage (%)
Retail Banking - mortgages 0.07 0.07 0.06 0.07 0.08
Retail Banking - unsecured 4.51 4.35 3.96 4.60 5.36
Wholesale - property 0.45 0.35 0.31 0.54 1.22
Wholesale - non-property 0.55 0.49 0.46 0.62 1.04
----------------------------------------- ------- ------- ------- -------- --------
0.42 0.38 0.35 0.46 0.70
Reconciliation to Stage 1 and Stage 2
ECL (GBPm)
ECL on modelled exposures 1,435 1,316 1,205 1,569 2,404
ECL on Ulster Bank RoI modelled exposures 56 56 56 56 56
ECL on non-modelled exposures 39 39 39 39 39
------- ------- ------- -------- --------
Total Stage 1 and Stage 2 ECL 1,530 1,411 1,300 1,664 2,499
----------------------------------------- ------- ------- ------- -------- --------
Variance - (lower)/higher to actual total
Stage 1 and Stage 2 ECL - (119) (230) 134 969
----------------------------------------- ------- ------- ------- -------- --------
(1) Variations in future undrawn exposure values across the scenarios
are modelled, however the exposure position reported is that used to
calculate modelled ECL as at 30 June 2022 and therefore does not include
variation in future undrawn exposure values.
(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The
analysis excludes non-modelled portfolios and exposure relating to bonds
and cash.
(3) Exposures related to Ulster Bank RoI continuing operations have
not been included in the simulations, the current Ulster Bank RoI ECL
has been included across all scenarios to enable reconciliation to other
disclosures.
(4) All simulations are run on a stand-alone basis and are independent
of each other, with the potential ECL impact reflecting the simulated
impact as at 30 June 2022. The simulations change the composition of
Stage 1 and Stage 2 exposure but total exposure is unchanged under each
scenario as the loan population is static.
(5) Refer to the Economic loss drivers section for details of economic
scenarios.
(6) Refer to the NatWest Group 2021 Annual Report and Accounts for 31
December 2021 comparatives.
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL adequacy (reviewed)
- During the first half of 2022, both the Stage 2 size and
overall modelled ECL reduced in line with stable portfolio
performance and underlying ECL driver trends. Judgmental ECL
post-model adjustments, although reduced in value terms from 31
December 2021, continue to reflect economic uncertainty with the
expectation of increased defaults later in 2022 and beyond, still
represents 24% of total ECL (31 December 2021 - 26%). These
combined factors, in conjunction with the new regulatory definition
of default moving riskier Stage 2 assets to Stage 3 and a new suite
of Personal IFRS 9 models, contributed to a smaller range of ECL
sensitivities at 30 June 2022 compared to the 2021 year end.
- If the economics were as negative as observed in the extreme
downside, total Stage 1 and Stage 2 ECL was simulated to increase
by GBP1.0 billion (approximately 63%). In this scenario, Stage 2
exposure increased significantly and was the key driver of the
simulated ECL rise. The movement in Stage 2 balances in the other
simulations was less significant.
- In the Wholesale portfolio, there was a significant increase
to ECL under both a moderate and extreme downside scenario. The
Wholesale property ECL increase under a moderate and extreme
downside scenario was driven by commercial real estate prices which
show negative growth for 2022 and 2023 and significant
deterioration in the stock index. The non-property increase under a
moderate and extreme downside scenario was driven by GDP
contraction, unemployment growth and interest rate changes.
The changes in the economic outlook and scenarios used in the
IFRS 9 MES framework at 30 June 2022 to capture the increased risks
of inflation, cost of living and supply chain had a minimal effect
on modelled ECL. Given that uncertainty has increased due to these
risks, NatWest Group utilised a framework of quantitative and
qualitative measures to support the directional change and levels
of ECL coverage, including economic data, credit performance
insights on higher risk portfolio segments and problem debt trends.
This was particularly important for consideration of post-model
adjustments.
As the effects of inflation, cost of living and supply chain
risks evolve during 2022 and into 2023 and government support
schemes have to be serviced, there is a risk of credit
deterioration. However, the income statement effect of this will be
mitigated by the forward-looking provisions retained on the balance
sheet at 30 June 2022.
There are a number of key factors that could drive further
downside to impairments, through deteriorating economic and credit
metrics and increased stage migration as credit risk increases for
more customers. Such factors would include an adverse deterioration
in GDP and unemployment in the economies in which NatWest Group
operates.
Movement in ECL provision
The table below shows the main ECL provision movements during H1
2022.
ECL provision
GBPm
At 1 January 2022 3,806
Transfers to disposal groups (50)
Changes in economic forecasts 41
Changes in risk metrics and exposure: Stage 1 and Stage 2 (120)
Changes in risk metrics and exposure: Stage 3 261
Judgemental changes: changes in post model adjustments for
Stage 1, Stage 2 and Stage 3 (159)
Write-offs and other (264)
----------------------------------------------------------- -------------
At 30 June 2022 3,515
----------------------------------------------------------- -------------
- ECL reduced during H1 2022 reflecting continued positive
trends in portfolio performance alongside a related net release of
judgemental post model adjustments and write-off activity.
- Stage 3 defaults continued to be subdued on an underlying
basis. Stage 3 ECL balances remained broadly stable during the
quarter, mainly due to write-offs and repayments of defaulted debt
largely offsetting the effect of the new regulatory default
definition.
- The update to the economic scenarios at 30 June 2022 resulted
in a modest modelled GBP41 million increase in ECL. Additionally,
broader portfolio performance continued to be stable, which led to
some additional post model adjustments being required to ensure
provision adequacy in the face of growing uncertainty due to
inflation, cost of living threat and supply chain challenges.
- As described in the Governance and post model adjustments
section above, the new cost of living focused post model
adjustments were more than offset by the retirement of previously
held COVID-19 related adjustments and also significant reduction in
the requirement for deferred model calibrations due to impending
new model implementations in Q3 2022.
- The GBP50 million ECL reduction due to transfer to
discontinued operations relates to the phased withdrawal of Ulster
Bank RoI from the Republic of Ireland .
Risk and capital management
Credit risk - Banking activities
Introduction
This section details the credit risk profile of NatWest Group 's
banking activities.
Financial instruments within the scope of the IFRS 9 ECL framework
(reviewed)
Refer to Note 9 for balance sheet analysis of financial assets that
are classified as amortised cost or fair value through other comprehensive
income (FVOCI), the starting point for IFRS 9 ECL framework assessment.
The table below excludes loans in disposal group of GBP14.3 billion
(31 December 2021 - GBP9.1 billion).
Financial assets 30 June 2022 31 December 2021
------------------- --------------------
Gross ECL Net Gross ECL Net
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
----- ----- -----
Balance sheet total gross amortised
cost and FVOCI 605.1 596.1
-------------------------------------- ----- ----- ----- ------ ----- -----
In scope of IFRS 9 ECL framework 593.4 590.9
% in scope 98% 99%
-------------------------------------- ----- ----- ----- ------ ----- -----
Loans to customers - in scope
- amortised cost 365.9 3.4 362.5 361.9 3.7 358.2
Loans to customers - in scope
- FVOCI 0.1 - 0.1 0.3 - 0.3
Loans to banks - in scope - amortised
cost 10.4 - 10.4 7.6 - 7.6
Total loans - in scope 376.4 3.4 373.0 369.8 3.7 366.1
-------------------------------------- ----- ----- ----- ------ ----- -----
Stage 1 342.1 0.4 341.7 330.8 0.3 330.5
Stage 2 28.5 1.0 27.5 34.0 1.4 32.6
Stage 3 5.8 2.0 3.8 5.0 2.0 3.0
-------------------------------------- ----- ----- ----- ------ ----- -----
Other financial assets - in scope
- amortised cost 190.4 - 190.4 184.4 - 184.4
Other financial assets - in scope
- FVOCI 26.6 - 26.6 36.7 - 36.7
-------------------------------------- ----- ----- ----- ------ ----- -----
Total other financial assets
- in scope 217.0 - 217.0 221.1 - 221.1
-------------------------------------- ----- ----- ----- ------ ----- -----
Stage 1 217.0 - 217.0 220.8 - 220.8
Stage 2 - - - 0.3 - 0.3
-------------------------------------- ----- ----- ----- ------ ----- -----
Out of scope of IFRS 9 ECL framework 11.7 na 11.7 5.2 na 5.2
-------------------------------------- ----- ----- ----- ------ ----- -----
Loans to customers - out of scope
- amortised cost - na - 0.8 na 0.8
Loans to banks - out of scope
- amortised cost 0.3 na 0.3 0.1 na 0.1
Other financial assets - out
of scope - amortised cost 11.4 na 11.4 4.0 na 4.0
Other financial assets - out
of scope - FVOCI - na - 0.3 na 0.3
-------------------------------------- ----- ----- ----- ------ ----- -----
na = not applicable
The assets outside the IFRS 9 ECL framework were as follows:- Settlement balances, items in the course of collection, cash balances
and other non-credit risk assets of GBP11.4 billion (31 December 2021
- GBP3.7 billion). These were assessed as having no ECL unless there
was evidence that they were defaulted.
- Equity shares of GBP0.3 billion (31 December 2021 - GBP0.3 billion)
as not within the IFRS 9 ECL framework by definition.
- Fair value adjustments on loans hedged by interest rate swaps, where
the underlying loan was within the IFRS 9 ECL scope of nil (31 December
2021 - GBP0.8 billion).
- NatWest Group originated securitisations, where ECL was captured on
the underlying loans of nil (31 December 2021 - GBP0.4 billion).
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note
14, reputationally-committed limits, were also included in the scope
of the IFRS 9 ECL framework. These were offset by GBP1.4 billion (31
December 2021 - GBP0.8 billion) out of scope balances primarily related
to facilities that, if drawn, would not be classified as amortised cost
or FVOCI, or undrawn limits relating to financial assets exclusions.
Total contingent liabilities (including financial guarantees) and commitments
within IFRS 9 ECL scope of GBP133.3 billion (31 December 2021 - GBP127.9
billion) comprised Stage 1 GBP122.7 billion (31 December 2021 - GBP119.5
billion); Stage 2 GBP9.9 billion (31 December 2021 - GBP7.8 billion);
and Stage 3 GBP0.7 billion (31 December 2021 - GBP0.6 billion).
The ECL relating to off-balance sheet exposures was GBP0.1 billion (31
December 2021 - GBP0.1 billion). The total ECL in the remainder of the
Credit risk section of GBP3.5 billion (31 December 2021 - GBP3.8 billion)
included ECL for both on and off-balance sheet exposures for non-disposal
groups.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows gross loans and ECL, by segment and stage, within
the scope of the IFRS 9 ECL framework. Go-forward group
---------------------------------------------------
Central Total Ulster
Retail Private Commercial items excluding Bank
& &
Banking Banking Institutional other Ulster RoI Total
Bank RoI
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------
Loans - amortised
cost
and FVOCI
Stage 1 175,867 18,428 114,675 32,481 341,451 670 342,121
Stage 2 11,508 628 16,047 83 28,266 239 28,505
Stage 3 2,493 353 2,336 - 5,182 634 5,816
Of which:
individual - 225 857 - 1,082 80 1,162
Of which:
collective 2,493 128 1,479 - 4,100 554 4,654
------------------ ------- ------- ------------- ------- --------- ------ -------
Subtotal excluding
disposal
group loans 189,868 19,409 133,058 32,564 374,899 1,543 376,442
Disposal group
loans 14,254 14,254
------------------ ------- ------- ------------- ------- --------- ------ -------
Total 15,797 390,696
------------------ ------- ------- ------------- ------- --------- ------ -------
ECL provisions (1)
Stage 1 184 12 185 17 398 10 408
Stage 2 419 17 631 9 1,076 46 1,122
Stage 3 895 34 706 - 1,635 350 1,985
Of which:
individual - 33 260 - 293 11 304
Of which:
collective 895 1 446 - 1,342 339 1,681
------------------ ------- ------- ------------- ------- --------- ------ -------
Subtotal excluding
ECL
provisions
on disposal group
loans 1,498 63 1,522 26 3,109 406 3,515
ECL provisions on
disposal
group loans 95 95
------------------ ------- ------- ------------- ------- --------- ------ -------
Total 501 3,610
------------------ ------- ------- ------------- ------- --------- ------ -------
ECL provisions
coverage
(2)
Stage 1 (%) 0.10 0.07 0.16 0.05 0.12 1.49 0.12
Stage 2 (%) 3.64 2.71 3.93 10.84 3.81 19.25 3.94
Stage 3 (%) 35.90 9.63 30.22 - 31.55 55.21 34.13
------------------ ------- ------- ------------- ------- --------- ------ -------
ECL provisions
coverage
excluding
disposal group
loans 0.79 0.32 1.14 0.08 0.83 26.31 0.93
ECL provisions
coverage
on
disposal group
loans 0.67 0.67
------------------ ------- ------- ------------- ------- --------- ------ -------
Total 3.17 0.92
------------------ ------- ------- ------------- ------- --------- ------ -------
Impairment
(releases)/losses
ECL
(release)/charge
(3) 26 (11) (59) (2) (46) (8) (54)
Stage 1 (125) (6) (204) (9) (344) 2 (342)
Stage 2 86 (7) 108 8 195 10 205
Stage 3 65 2 37 (1) 103 (20) 83
Of which:
individual - 2 - (1) 1 (2) (1)
Of which:
collective 65 - 37 - 102 (18) 84
------------------ ------- ------------- --------- ------ -------
Continuing
operations 26 (11) (59) (2) (46) (8) (54)
Discontinued
operations (62) (62)
------------------ ------- ------- ------------- ------- --------- ------ -------
Total (70) (116)
------------------ ------- ------- ------------- ------- --------- ------ -------
Amounts
written-off 106 1 94 - 201 14 215
Of which:
individual - 1 57 - 58 - 58
Of which:
collective 106 - 37 - 143 14 157
------------------ ------- ------- ------------- ------- --------- ------ -------
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed) Go-forward group
----------------------------------------------------
Central Total Ulster
Retail Private Commercial items excluding Bank
& &
Banking Banking Institutional other Ulster RoI Total
Bank
RoI
31 December 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans - amortised
cost
and FVOCI
Stage 1 168,013 17,600 107,368 32,283 325,264 5,560 330,824
Stage 2 13,594 967 18,477 90 33,128 853 33,981
Stage 3 1,884 270 2,081 - 4,235 787 5,022
Of which:
individual - 270 884 - 1,154 61 1,215
Of which:
collective 1,884 - 1,197 - 3,081 726 3,807
------------------ ------- ------- ------------- ------- ---------- ------ -------
Subtotal excluding
disposal
group loans 183,491 18,837 127,926 32,373 362,627 7,200 369,827
Disposal group
loans 9,084 9,084
------------------ ------- ------- ------------- ------- ---------- ------ -------
Total 16,284 378,911
------------------ ------- ------- ------------- ------- ---------- ------ -------
ECL provisions (1)
Stage 1 134 12 129 17 292 10 302
Stage 2 590 29 784 11 1,414 64 1,478
Stage 3 850 37 751 - 1,638 388 2,026
Of which:
individual - 37 313 - 350 13 363
Of which:
collective 850 - 438 - 1,288 375 1,663
------------------ ------- ------- ------------- ------- ---------- ------ -------
Subtotal excluding
ECL
provisions
on disposal group
loans 1,574 78 1,664 28 3,344 462 3,806
ECL provisions on
disposal
group loans 109 109
------------------ ------- ------- ------------- ------- ---------- ------ -------
Total 571 3,915
------------------ ------- ------- ------------- ------- ---------- ------ -------
ECL provisions
coverage
(2)
Stage 1 (%) 0.08 0.07 0.12 0.05 0.09 0.18 0.09
Stage 2 (%) 4.34 3.00 4.24 12.22 4.27 7.50 4.35
Stage 3 (%) 45.12 13.70 36.09 - 38.68 49.30 40.34
------------------
ECL provisions
coverage
excluding
disposal group
loans 0.86 0.41 1.30 0.09 0.92 6.42 1.03
ECL provisions
coverage
on
disposal group
loans 1.20 1.20
------------------ ------- ------- ------------- ------- ---------- ------ -------
Total 3.51 1.03
------------------ ------- ------- ------------- ------- ---------- ------ -------
Half year ended 30
June
2021
------------------ ------- ------- ------------- ------- ---------- ------ -------
Impairment
(releases)/losses
ECL
(release)/charge
(3) (57) (27) (613) 1 (696) 13 (683)
Stage 1 (195) (27) (436) - (658) (4) (662)
Stage 2 45 (4) (150) 1 (108) (6) (114)
Stage 3 93 4 (27) - 70 23 93
Of which:
individual - 4 (30) - (26) 1 (25)
Of which:
collective 93 - 3 - 96 22 118
------------------ -------------
Continuing
operations (57) (27) (613) 1 (696) 13 (683)
Discontinued
operations (24) (24)
------------------ ------- ------- ------------- ------- ---------- ------ -------
Total (11) (707)
------------------ ------- ------- ------------- ------- ---------- ------ -------
Amounts
written-off 138 5 298 - 441 76 517
Of which:
individual - 5 251 - 256 - 256
Of which:
collective 138 - 47 - 185 76 261
------------------ ------- ------- ------------- ------- ---------- ------ -------
(1) Includes GBP3 million (31 December 2021 - GBP5 million) related
to assets classified as FVOCI.
(2) ECL provisions coverage is calculated as ECL provisions divided
by loans - amortised cost and FVOCI. It is calculated on third party
loans and total ECL provisions.
(3) Includes a GBP2 million release (30 June 2021 - GBP4 million charge)
related to other financial assets, of which nil (30 June 2021 - nil)
related to assets classified as FVOCI; and GBP3 million (30 June 2021
- GBP2 million release) related to contingent liabilities.
(4) The table shows gross loans only and excludes amounts that were
outside the scope of the ECL framework. Refer to Financial instruments
within the scope of the IFRS 9 ECL framework for further details.
Other financial assets within the scope of the IFRS 9 ECL framework
were cash and balances at central banks totalling GBP178.4 billion
(31 December 2021 - GBP176.3 billion) and debt securities of GBP38.6
billion (31 December 2021 - GBP44.9 billion).
* Stage 3 loans increased, as write-offs and repayments
were more than offset by the effect of the new
regulatory definition of default, which in isolation
led to an increase of approximately GBP0.7 billion in
Stage 3 balances, mostly in retail mortgages and new
Wholesale defaults on government scheme lending.
* Underlying flows into default remained subdued during
H1 2022. However, it is expected that defaults will
increase as the year progresses and growing
inflationary pressures on businesses, consumers and
the broader economy continue to evolve.
* Stage 2 loans and ECL reduced further during the
first half of 2022, with positive trends in
underlying risk metrics maintained since 31 December
2021 and migration of exposures into Stage 3 because
of the new regulatory default definition mentioned
previously.
* Reflecting the stable portfolio performance and
resultant ECL releases, there was a net impairment
release of GBP54 million for the first half of the
year for continued operations.
Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows Ulster Bank RoI disposal groups for
Personal and Wholesale, by stage, for gross loans, off-balance
sheet exposures and ECL. The tables in the rest of the Credit risk
section are shown on a continuing basis and therefore exclude these
exposures.
Off-balance
sheet
------------------------
Loans - amortised cost
and FVOCI Loan Contingent ECL provisions
---------------------------- --------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total commitments liabilities 1 2 3 Total
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------
Personal 9,988 640 82 10,710 - - 4 10 12 26
Wholesale 2,835 678 31 3,544 1,906 217 17 37 15 69
Total 12,823 1,318 113 14,254 1,906 217 21 47 27 95
------ ----- ----- ------ ----------- ----------- ----- ----- ----- -----
31 December
2021
------------
Personal 5,547 210 34 5,791 - - 4 6 7 17
Wholesale 2,647 639 7 3,293 1,665 115 10 78 4 92
Total 8,194 849 41 9,084 1,665 115 14 84 11 109
----- --- ----- ----- --- ---
Segment loans and impairment metrics (reviewed)
The table below shows gross loans and ECL provisions, by days
past due, by segment and stage, within the scope of the ECL
framework.
Gross loans ECL provisions (2)
----------------------------------------------------- ---------------------------------------------
Stage 2 (1) Stage 2 (1)
----------------------------
Not Not
past 1-30 >30 past 1-30 >30
Stage due DPD DPD Total Stage Total Stage due DPD DPD Total Stage Total
1 3 1 3
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------
Retail Banking 175,867 10,623 605 280 11,508 2,493 189,868 184 382 16 21 419 895 1,498
Private Banking 18,428 548 63 17 628 353 19,409 12 16 1 - 17 34 63
Personal 14,813 100 43 16 159 307 15,279 6 2 1 - 3 17 26
Wholesale 3,615 448 20 1 469 46 4,130 6 14 - - 14 17 37
Commercial
&
Institutional 114,675 14,080 804 1,163 16,047 2,336 133,058 185 569 33 29 631 706 1,522
Personal 2,352 15 18 5 38 49 2,439 3 1 - 1 2 9 14
Wholesale 112,323 14,065 786 1,158 16,009 2,287 130,619 182 568 33 28 629 697 1,508
Central items
& other 32,481 83 - - 83 - 32,564 17 9 - - 9 - 26
Ulster Bank
RoI 670 218 4 17 239 634 1,543 10 42 1 3 46 350 406
Personal 470 103 4 16 123 471 1,064 6 12 1 3 16 278 300
Wholesale 200 115 - 1 116 163 479 4 30 - - 30 72 106
Total loans 342,121 25,552 1,476 1,477 28,505 5,816 376,442 408 1,018 51 53 1,122 1,985 3,515
Of which:
Personal 193,502 10,841 670 317 11,828 3,320 208,650 199 397 18 25 440 1,199 1,838
Wholesale 148,619 14,711 806 1,160 16,677 2,496 167,792 209 621 33 28 682 786 1,677
---------------- ------- ------ ----- ----- ------ ----- ------- ----- ----- ---- ---- ----- ----- -----
31 December
2021
--------------------------- ------ ----- ----- ------ ----- ------- --- ----- ----- ----- -----
Retail Banking 168,013 12,275 863 456 13,594 1,884 183,491 134 516 38 36 590 850 1,574
Private Banking 17,600 902 27 38 967 270 18,837 12 29 - - 29 37 78
Personal 14,350 137 24 11 172 232 14,754 6 2 - - 2 18 26
Wholesale 3,250 765 3 27 795 38 4,083 6 27 - - 27 19 52
Commercial
& Institutional 107,368 17,352 455 670 18,477 2,081 127,926 129 750 23 11 784 751 1,664
Personal 2,647 21 17 11 49 57 2,753 2 1 - - 1 10 13
Wholesale 104,721 17,331 438 659 18,428 2,024 125,173 127 749 23 11 783 741 1,651
Central items
& other 32,283 90 - - 90 - 32,373 17 11 - - 11 - 28
Ulster Bank
RoI 5,560 747 58 48 853 787 7,200 10 58 3 3 64 388 462
Personal 5,165 510 52 46 608 609 6,382 7 15 3 3 21 301 329
Wholesale 395 237 6 2 245 178 818 3 43 - - 43 87 133
Total loans 330,824 31,366 1,403 1,212 33,981 5,022 369,827 302 1,364 64 50 1,478 2,026 3,806
Of which:
Personal 190,175 12,943 956 524 14,423 2,782 207,380 149 534 41 39 614 1,179 1,942
Wholesale 140,649 18,423 447 688 19,558 2,240 162,447 153 830 23 11 864 847 1,864
------------------ ------- ------ ----- ----- ------ ----- ------- --- ----- ----- ----- -----
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Segment loans and impairment metrics (reviewed)
The table below shows ECL and ECL provisions coverage, by days
past due, by segment and stage, within the scope of the ECL
framework.
ECL provisions coverage Half year ended
30 June 2022
---------------------------------------------------- -----------------------------
Stage 2 (1,2) ECL
------------------------------- -----------------------------
Not Total Amounts
past
Stage due 1-30 >30 Total Stage Total (release)/charge written-off
1 DPD DPD 3
30 June 2022 % % % % % % % GBPm GBPm
--------------------------- ----- ----------------
Retail Banking 0.10 3.60 2.64 7.50 3.64 35.90 0.79 26 106
Private Banking 0.07 2.92 1.59- 2.71 9.63 0.32 (11) 1
Personal 0.04 2.00 2.33- 1.89 5.54 0.17 (2) 1
Wholesale 0.17 3.13 -- 2.99 36.96 0.90 (9) -
Commercial & Institutional 0.16 4.04 4.10 2.49 3.93 30.22 1.14 (59) 94
Personal 0.13 6.67 - 20.00 5.26 18.37 0.57 1 1
Wholesale 0.16 4.04 4.20 2.42 3.93 30.48 1.15 (60) 93
Central items & other 0.05 10.84 -- 10.84- 0.08 (2) -
Ulster Bank RoI 1.49 19.27 25.00 17.65 19.25 55.21 26.31 (8) 14
Personal 1.28 11.65 25.00 18.75 13.01 59.02 28.20 (7) 6
Wholesale 2.00 26.09 -- 25.86 44.17 22.13 (1) 8
--------------------------- ----- -------- ----- ------ ----- ----- ----- ---------------- -----------
Total loans 0.12 3.98 3.46 3.59 3.94 34.13 0.93 (54) 215
Of which:
Personal 0.10 3.66 2.69 7.89 3.72 36.11 0.88 18 116
Wholesale 0.14 4.22 4.09 2.41 4.09 31.49 1.00 (72) 99
--------------------------- ----- -------- ----- ------- ----- ----- ----- ---------------- -----------
ECL provisions coverage Half year ended
30 June 2021
---------------------------------------------------- -----------------------------
Stage 2 (1,2) ECL
------------------------------- -----------------------------
Not past Total Amounts
Stage due 1-30 >30 DPD Total Stage Total (release)/charge written-off
1 DPD 3
31 December 2021 %% %% %% % GBPm GBPm
--------------------------- ----- ----------------
Retail Banking 0.08 4.20 4.40 7.89 4.34 45.12 0.86 (57) 138
Private Banking 0.07 3.22 -- 3.00 13.70 0.41 (27) 5
Personal 0.04 1.46 -- 1.16 7.76 0.18 (4) (1)
Wholesale 0.18 3.53 -- 3.40 50.00 1.27 (23) 6
Commercial & Institutional 0.12 4.32 5.05 1.64 4.24 36.09 1.30 (613) 298
Personal 0.08 4.76 -- 2.04 17.54 0.47 - -
Wholesale 0.12 4.32 5.25 1.67 4.25 36.61 1.32 (613) 298
Central items & other 0.05 12.22 -- 12.22- 0.09 1 -
Ulster Bank RoI 0.18 7.76 5.17 6.25 7.50 49.30 6.42 13 76
Personal 0.14 2.94 5.77 6.52 3.45 49.43 5.16 19 71
Wholesale 0.76 18.14 -- 17.55 48.88 16.26 (6) 5
--------------------------- ----- -------- ----- ------ ----- ----- ----- ----------------
Total loans 0.09 4.35 4.56 4.13 4.35 40.34 1.03 (683) 517
Of which:
Personal 0.08 4.13 4.29 7.44 4.26 42.38 0.94 (42) 208
Wholesale 0.11 4.51 5.15 1.60 4.42 37.81 1.15 (641) 309
--------------------------- ----- -------- ----- ------- ----- ----- ----- ---------------- -----------
(1) 30 DPD - 30 days past due, the mandatory 30 days past due
backstop as prescribed by IFRS 9 for a SICR.
(2) ECL provisions on contingent liabilities and commitments are
included within the Financial assets section so as not to distort
ECL coverage ratios.
Segment loans and impairment metrics (reviewed)
* Retail Banking - Balance sheet growth continued
during H1 2022, primarily in mortgages, where new
lending remained strong. Unsecured lending balances
increased during H1 2022, following the easing of
COVID-19 restrictions. Total ECL coverage reduced
slightly during 2022, reflective of low unemployment
and stable portfolio performance, while maintaining
sufficient ECL coverage for key portfolios above 2019
levels, given increased inflationary and cost of
living pressures. Stage 3 ECL increased overall,
mainly because of the IFRS 9 alignment to the new
regulatory default definition, implemented on 1
January 2022. This change resulted in an increase in
Stage 3 exposures of approximately GBP0.7 billion,
mostly in mortgages. Stage 2 balances decreased
during the first half of the year, reflecting
continued stability in IFRS 9 PD estimates and the
consequence of the migration of balances into Stage 3
under the new regulatory default definition. The
implementation of new mortgage IFRS 9 models resulted
in lower Stage 3 ECL coverage due to reduced loss
estimates for cases where the customer was not
subject to repossession activity and was the primary
driver for the change in overall Retail Stage 3
coverage during H1 2022.
* Commercial & Institutional - The balance sheet
increased during H1 2022, mainly attributable to
growth in exposure to financial institutions. Sector
appetite is regularly reviewed with continued focus
on appetite to high oversight sectors. Strategic
reductions and right sizing of appetite limits
continued to be achieved. Stage 2 balances continued
to fall mainly reflecting positive portfolio
performance which lowered PDs and resulted in
exposure migrating back into Stage 1. In addition,
some deterioration in government scheme lending
resulted in exposure moving from Stage 2 into Stage
3. PD deterioration remained the primary driver of
cases moving into Stage 2. The ECL release was
largely due to improvements in underlying PDs and
reduced Stage 2 balances, as assets migrated back
into Stage 1.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows financial assets and off-balance sheet exposures
gross of ECL and related ECL provisions, impairment and past due by
sector, asset quality and geographical region.
Personal Wholesale Total
Mortgages Credit Other
(1) cards personal Total Property Corporate FI Sovereign Total
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-----------------
Loans by
geography 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- UK 194,055 4,142 9,389 207,586 31,950 62,433 38,741 4,538 137,662 345,248
- RoI 883 59 122 1,064 64 1,003 62 - 1,129 2,193
- Other Europe - - - - 506 3,560 7,485 1,136 12,687 12,687
- RoW - - - - 364 4,075 11,165 710 16,314 16,314
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Loans by stage
(2) 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- Stage 1 183,414 3,059 7,029 193,502 29,231 56,068 57,107 6,213 148,619 342,121
- Stage 2 9,076 1,037 1,715 11,828 2,920 13,328 271 158 16,677 28,505
- Stage 3 2,448 105 767 3,320 733 1,675 75 13 2,496 5,816
- Of which:
individual 219 - 20 239 316 533 66 8 923 1,162
- Of which:
collective 2,229 105 747 3,081 417 1,142 9 5 1,573 4,654
--------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Loans - past due
analysis (3,4) 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- Not past due 192,129 4,092 8,672 204,893 31,503 67,128 56,409 6,227 161,267 366,160
- Past due 1-30
days 987 25 75 1,087 669 2,369 1,033 156 4,227 5,314
- Past due 31-89
days 505 25 89 619 382 825 5 - 1,212 1,831
- Past due 90-180
days 457 21 81 559 49 88 1 - 138 697
- Past due >180
days 860 38 594 1,492 281 661 5 1 948 2,440
Loans - Stage 2 9,076 1,037 1,715 11,828 2,920 13,328 271 158 16,677 28,505
- Not past due 8,224 1,007 1,610 10,841 2,403 11,887 263 158 14,711 25,552
- Past due 1-30
days 611 15 44 670 150 652 4 - 806 1,476
- Past due 31-89
days 241 15 61 317 367 789 4 - 1,160 1,477
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Weighted average
life*
- ECL measurement 8 2 5 5 5 6 3 2 5 5
(years)
Weighted average
12 months
PDs*
- IFRS 9 (%) 0.25 3.78 2.24 0.40 0.98 1.27 0.12 0.17 0.77 0.57
- Basel (%) 0.67 3.16 3.01 0.82 1.11 1.55 0.14 0.17 0.92 0.86
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
ECL provisions by
geography 650 250 938 1,838 358 1,250 48 21 1,677 3,515
- UK 364 246 928 1,538 322 1,012 29 16 1,379 2,917
- RoI 286 4 10 300 15 80 1 1 97 397
- Other Europe - - - - 16 87 6 2 111 111
- RoW - - - - 5 71 12 2 90 90
ECL provisions by
stage 650 250 938 1,838 358 1,250 48 21 1,677 3,515
- Stage 1 61 65 73 199 40 134 17 18 209 408
- Stage 2 89 117 234 440 101 571 9 1 682 1,122
- Stage 3 500 68 631 1,199 217 545 22 2 786 1,985
- Of which:
individual 16 - 10 26 75 183 18 2 278 304
- Of which:
collective 484 68 621 1,173 142 362 4 - 508 1,681
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
ECL provisions
coverage
(%) 0.33 5.95 9.86 0.88 1.09 1.76 0.08 0.33 1.00 0.93
- Stage 1 (%) 0.03 2.12 1.04 0.10 0.14 0.24 0.03 0.29 0.14 0.12
- Stage 2 (%) 0.98 11.28 13.64 3.72 3.46 4.28 3.32 0.63 4.09 3.94
- Stage 3 (%) 20.42 64.76 82.27 36.11 29.60 32.54 29.33 15.38 31.49 34.13
ECL
(release)/charge (80) 20 78 18 21 (61) (31) (1) (72) (54)
- UK (75) 20 78 23 30 (66) (34) (1) (71) (48)
- RoI (5) - - (5) 2 (7) (3) - (8) (13)
- Other Europe - - - - (12) 10 1 - (1) (1)
- RoW - - - - 1 2 5 - 8 8
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Amounts
written-off 27 33 54 114 17 84 - - 101 215
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
*Not within the scope of EY's review report.
For the notes to this table refer to page 37.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
------------------------------------ -----------------------------------------------
Mortgages Credit Other
(1) cards personal Total Property Corporate FI Sovereign Total
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------
Loans by
residual
maturity 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442
- <1 year 3,589 2,490 3,187 9,266 7,892 23,283 43,697 4,152 79,024 88,290
- 1-5 year 11,760 1,711 5,448 18,919 16,551 32,808 12,682 786 62,827 81,746
- 5 year 179,589 - 876 180,465 8,441 14,980 1,074 1,446 25,941 206,406
------------ --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Other
financial
assets
by
asset
quality (5) - - - - 47 9 13,864 203,094 217,014 217,014
- AQ1-AQ4 - - - - - 9 13,510 203,094 216,613 216,613
- AQ5-AQ8 - - - - 47 - 352 - 399 399
Off-balance
sheet 19,535 15,816 8,253 43,604 15,712 53,452 19,617 913 89,694 133,298
- Loan
commitments 19,535 15,816 8,197 43,548 15,184 50,711 18,525 913 85,333 128,881
- Financial
guarantees - - 56 56 528 2,741 1,092 - 4,361 4,417
------------ --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Off-balance
sheet
by
asset
quality (5) 19,535 15,816 8,253 43,604 15,712 53,452 19,617 913 89,694 133,298
- AQ1-AQ4 18,510 442 7,161 26,113 12,389 32,070 18,114 781 63,354 89,467
- AQ5-AQ8 1,008 15,055 1,062 17,125 3,285 21,023 1,503 132 25,943 43,068
- AQ9 2 17 8 27 5 52 - - 57 84
- AQ10 15 302 22 339 33 307 - - 340 679
------------ --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
For the notes to this table refer to page 37.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other
Mortgages cards personal Total Property Corporate FI Sovereign Total
(1)
31 December 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans by
geography 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- UK 187,847 3,877 9,253 200,977 31,574 62,952 39,086 4,542 138,154 339,131
- RoI 6,164 70 147 6,381 130 1,222 116 4 1,472 7,853
- Other Europe - - - - 439 3,831 5,066 840 10,176 10,176
- RoW - - 22 22 379 2,846 8,773 647 12,645 12,667
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Loans by stage 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- Stage 1 180,418 2,924 6,833 190,175 28,679 53,803 52,263 5,904 140,649 330,824
- Stage 2 11,543 933 1,947 14,423 3,101 15,604 732 121 19,558 33,981
- Stage 3 2,050 90 642 2,782 742 1,444 46 8 2,240 5,022
- Of which:
individual 269 - 19 288 329 583 7 8 927 1,215
- Of which:
collective 1,781 90 623 2,494 413 861 39 - 1,313 3,807
--------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Loans - past due
analysis (3,4) 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- Not past due 190,834 3,834 8,619 203,287 31,391 68,630 52,285 6,030 158,336 361,623
- Past due 1-30
days 1,217 28 124 1,369 521 1,081 732 2 2,336 3,705
- Past due
31-89
days 592 25 73 690 256 448 19 1 724 1,414
- Past due
90-180
days 367 22 61 450 91 215 1 - 307 757
- Past due >180
days 1,001 38 545 1,584 263 477 4 - 744 2,328
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Loans - Stage 2 11,543 933 1,947 14,423 3,101 15,604 732 121 19,558 33,981
- Not past due 10,259 899 1,785 12,943 2,725 14,870 708 120 18,423 31,366
- Past due 1-30
days 843 16 97 956 125 318 4 - 447 1,403
- Past due
31-89
days 441 18 65 524 251 416 20 1 688 1,212
--------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Weighted average
life*
- ECL 8 2 5 5 5 6 3 1 6 6
measurement
(years)
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Weighted average
12 months
PDs*
- IFRS 9 (%) 0.16 4.84 2.73 0.36 0.76 1.85 0.14 0.14 1.00 0.65
- Basel (%) 0.76 3.31 3.22 0.91 1.20 1.74 0.14 0.16 1.04 0.97
--------- ------ -------- ------- -------- --------- ------ --------- ------- -------
ECL provisions by
geography 768 260 914 1,942 374 1,411 57 22 1,864 3,806
- UK 449 258 904 1,611 331 1,124 47 18 1,520 3,131
- RoI 319 2 10 331 19 107 3 1 130 461
- Other Europe - - - - 20 77 4 1 102 102
- RoW - - - - 4 103 3 2 112 112
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
ECL provisions by
stage 768 260 914 1,942 374 1,411 57 22 1,864 3,806
- Stage 1 32 59 58 149 24 96 14 19 153 302
- Stage 2 174 141 299 614 111 713 39 1 864 1,478
- Stage 3 562 60 557 1,179 239 602 4 2 847 2,026
- Of which:
individual 19 - 12 31 69 261 - 2 332 363
- Of which:
collective 543 60 545 1,148 170 341 4 - 515 1,663
--------- ------ -------- ------- -------- --------- ------ --------- ------- -------
ECL provisions
coverage
(%) 0.40 6.59 9.70 0.94 1.15 1.99 0.11 0.36 1.15 1.03
- Stage 1 (%) 0.02 2.02 0.85 0.08 0.08 0.18 0.03 0.32 0.11 0.09
- Stage 2 (%) 1.51 15.11 15.36 4.26 3.58 4.57 5.33 0.83 4.42 4.35
- Stage 3 (%) 27.41 66.67 86.76 42.38 32.21 41.69 8.70 25.00 37.81 40.34
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Half year ended
30
June 2021
-----------------
ECL
(release)/charge (23) (17) (2) (42) (197) (469) 22 3 (641) (683)
- UK (40) (17) (3) (60) (224) (373) 28 2 (567) (627)
- RoI 17 - 1 18 38 (53) 9 1 (5) 13
- Other Europe - - - - (20) (10) (8) - (38) (38)
- RoW - - - - 9 (33) (7) - (31) (31)
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
Amounts
written-off 74 45 89 208 120 187 2 - 309 517
----------------- --------- ------ -------- ------- -------- --------- ------ --------- ------- -------
*Not within the scope of EY's review report.
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal Wholesale Total
Credit Other
Mortgages cards personal Total Property Corporate FI Sovereign Total
(1)
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
2021
-------------
Loans by
residual
maturity 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827
- <1 year 3,611 2,532 3,197 9,340 7,497 22,593 41,195 2,809 74,094 83,434
- 1-5 year 12,160 1,415 5,393 18,968 16,293 33,301 10,969 1,967 62,530 81,498
- 5 year 178,240 - 832 179,072 8,732 14,957 877 1,257 25,823 204,895
------------- ----------------- ------ -------- ------- ----- -------- --------- ------ --------- ------- ----- -------
Other
financial
assets
by
asset
quality
(5) - - - - 55 11 11,516 209,553 221,135 221,135
- AQ1-AQ4 - - - - - 11 10,974 209,551 220,536 220,536
- AQ5-AQ8 - - - - 55 - 542 2 599 599
-------------
Off-balance
sheet 16,827 15,354 8,230 40,411 16,342 52,033 17,898 1,212 87,485 127,896
- Loan
commitments 16,827 15,354 8,170 40,351 15,882 49,231 16,906 1,212 83,231 123,582
- Financial
guarantees - - 60 60 460 2,802 992 - 4,254 4,314
------------- ----------------- ------ -------- ------- ----- -------- --------- ------ --------- ------- ----- -------
Off-balance
sheet
by
asset
quality
(5) 16,827 15,354 8,230 40,411 16,342 52,033 17,898 1,212 87,485 127,896
- AQ1-AQ4 14,792 248 6,591 21,631 12,550 30,417 16,192 1,064 60,223 81,854
- AQ5-AQ8 2,028 14,804 1,625 18,457 3,757 21,262 1,703 148 26,870 45,327
- AQ9 - 9 3 12 6 48 1 - 55 67
- AQ10 7 293 11 311 29 306 2 - 337 648
------------- ----------------- ------ -------- ------- ----- -------- --------- ------ --------- ------- ----- -------
(1) Includes a portion of Private Banking lending secured against residential
real estate, in line with ECL calculation methodology. Private Banking
and RBS International mortgages are reported in UK, which includes
crown dependencies, reflecting the country of lending origination.
(2) At 30 June 2022, Stage 3 included GBP330 million in respect of mortgages
and GBP451 million of total lending for cases in default due to
probation.
(3) 30 DPD - 30 days past due, the mandatory 30 days past due backstop
as prescribed by the IFRS 9 guidance for a SICR.
(4) Days past due - Personal products: at a high level, for amortising
products, the number of days past due is derived from the arrears
amount outstanding and the monthly repayment instalment. For credit
cards, it is based on payments missed, and for current accounts
the number of continual days in excess of borrowing limit. Wholesale
products: the number of days past due for all products is the number
of continual days in excess of borrowing limit.
(5) AQ bandings are based on Basel PDs and the mapping is as follows:
Indicative
Internal asset quality band Probability of default range S&P rating
--------------------------- ---------------------------- ------------
AQ1 0% - 0.034% AAA to AA
AQ2 0.034% - 0.048% AA to AA-
AQ3 0.048% - 0.095% A+ to A
AQ4 0.095% - 0.381% BBB+ to BBB-
AQ5 0.381% - 1.076% BB+ to BB
AQ6 1.076% - 2.153% BB- to B+
AQ7 2.153% - 6.089% B+ to B
AQ8 6.089% - 17.222% B- to CCC+
AQ9 17.222% - 100% CCC to C
AQ10 100% D
--------------------------- ---------------------------- ------------
GBP0.3 billion ( 31 December 2021 - GBP0.3 billion) of AQ10 Personal
balances primarily relate to loan commitments, the drawdown of which
is effectively prohibited.
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
The table below shows ECL by stage, for the Personal portfolios and
selected sectors of the Wholesale portfolios. Off-balance
sheet
------------------------
Loans - amortised cost
and FVOCI Loan Contingent ECL provisions
------------------------------- --------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total commitments liabilities 1 2 3 Total
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------
Personal 193,502 11,828 3,320 208,650 43,548 56 199 440 1,199 1,838
Mortgages 183,414 9,076 2,448 194,938 19,535 - 61 89 500 650
Credit cards 3,059 1,037 105 4,201 15,816 - 65 117 68 250
Other
personal 7,029 1,715 767 9,511 8,197 56 73 234 631 938
--------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
Wholesale 148,619 16,677 2,496 167,792 85,333 4,361 209 682 786 1,677
Property 29,231 2,920 733 32,884 15,184 528 40 101 217 358
Financial
institutions 57,107 271 75 57,453 18,525 1,092 17 9 22 48
Sovereigns 6,213 158 13 6,384 913 - 18 1 2 21
Corporate 56,068 13,328 1,675 71,071 50,711 2,741 134 571 545 1,250
Of which:
Agriculture 4,129 831 92 5,052 827 21 13 46 43 102
Airlines
and
aerospace 868 700 40 1,608 1,491 221 2 38 8 48
Automotive 4,704 1,455 46 6,205 4,148 54 11 24 12 47
Health 4,434 592 135 5,161 535 9 8 30 42 80
Land
transport
and
logistics 3,885 797 43 4,725 3,242 154 5 30 12 47
Leisure 3,877 3,429 360 7,666 1,830 110 22 231 133 386
Oil and gas 966 179 57 1,202 1,565 465 2 5 31 38
Retail 6,573 1,283 190 8,046 4,501 404 13 27 67 107
Total 342,121 28,505 5,816 376,442 128,881 4,417 408 1,122 1,985 3,515
--------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
31 December
2021
---------------
Personal 190,175 14,423 2,782 207,380 40,351 60 149 614 1,179 1,942
Mortgages 180,418 11,543 2,050 194,011 16,827 - 32 174 562 768
Credit cards 2,924 933 90 3,947 15,354 - 59 141 60 260
Other
personal 6,833 1,947 642 9,422 8,170 60 58 299 557 914
--------------- ------- ------ ----- ------- ------- ----- --- ----- ----- -----
Wholesale 140,649 19,558 2,240 162,447 83,231 4,254 153 864 847 1,864
Property 28,679 3,101 742 32,522 15,882 460 24 111 239 374
Financial
institutions 52,263 732 46 53,041 16,906 992 14 39 4 57
Sovereigns 5,904 121 8 6,033 1,212 - 19 1 2 22
Corporate 53,803 15,604 1,444 70,851 49,231 2,802 96 713 602 1,411
Of which:
Agriculture 3,722 1,229 133 5,084 993 24 11 39 78 128
Airlines
and
aerospace 779 668 44 1,491 1,528 221 1 39 15 55
Automotive 5,133 1,304 38 6,475 3,507 65 9 32 10 51
Health 3,818 1,235 133 5,186 799 9 9 58 48 115
Land
transport
and
logistics 3,721 833 39 4,593 3,069 188 4 53 12 69
Leisure 3,712 4,050 340 8,102 1,874 107 11 247 133 391
Oil and gas 1,482 141 52 1,675 1,126 453 1 14 28 43
Retail 6,380 1,342 180 7,902 4,872 410 8 29 66 103
Total 330,824 33,981 5,022 369,827 123,582 4,314 302 1,478 2,026 3,806
--------------- ------- ------ ----- ------- ------- ----- --- ----- ----- -----
Risk and capital management
Credit risk - Banking activities continued
Wholesale forbearance (reviewed)
The table below shows Wholesale forbearance, Heightened Monitoring
and Risk of Credit Loss by sector. Personal forbearance is disclosed
in the Personal portfolio section on page 41. This table show current
exposure but reflects risk transfers where there is a guarantee by
another customer. Property Financial Other corporate Total
institution
30 June 2022 GBPm GBPm GBPm GBPm
----------------------------------
Forbearance (flow) 453 100 1,749 2,302
Forbearance (stock) 1,024 119 4,967 6,110
Heightened Monitoring and Risk of
Credit Loss 985 149 3,654 4,788
---------------------------------- -------- ------------ --------------- -----
31 December 2021
Forbearance (flow) 709 27 3,894 4,630
Forbearance (stock) 1,033 35 5,659 6,727
Heightened Monitoring and Risk of
Credit Loss 1,225 83 4,492 5,800
---------------------------------- -------- ------------ --------------- -----
- Loans by geography - In Personal, exposures continued to be concentrated
in the UK and heavily weighted to mortgages and the vast majority
of exposure in the Republic of Ireland was also in mortgages. Balance
sheet growth during the year was mainly in mortgages. Unsecured lending
balances grew slightly as noted previously. In Wholesale, exposures
were mainly in the UK. Balance sheet growth was primarily due to
increased lending to financial institutions. Wholesale exposure to
high oversight sectors reduced in leisure and oil and gas, largely
offset by an increase in retail. Agriculture was added to the disclosure
due to the effect on the sector from inflation and supply chain issues.
- Loans by stage - In both Wholesale and Personal, continued strong
credit performance resulted in a smaller proportion of accounts exhibiting
a SICR and there was, therefore, an associated migration of exposures
from Stage 2 into Stage 1. Personal customers who had accessed payment
holiday support, and where their risk profile was identified as relatively
high, are no longer collectively migrated into Stage 2. The relevance
of this collective SICR identification is no longer considered as
pertinent in the context of the current inflation and cost of living
related economic uncertainty. Stage 3 loans increased due to the
effect of the new regulatory definition of default, mostly impacting
mortgages and new Wholesale defaults on government scheme lending.
- Loans - Past due analysis - Despite the risks of inflation, cost
of living pressures and supply chain issues, the past due profile
of the key portfolios remained stable, reflecting the broader observations
on portfolio performance. The implementation of the new regulatory
default definition for Wholesale included refinements to the days
past due calculations, which explains the uplift in early arrears,
with the largest increase in corporates.
- Weighted average 12 months PDs - In Personal, the Basel II point-in-time
PDs improved slightly during 2022 due to stable credit performance
in the portfolios. For IFRS 9 PDs, there were decreases across the
product groups, with the exception of mortgages, as a result of new
IFRS 9 PD model implementation in Q1 2022. In Wholesale, the Basel
II PDs were based on a through-the-cycle approach and decreased less
than the forward-looking IFRS 9 PDs which reduced, reflecting positive
portfolio performance. For further details refer to the Asset quality
section.
- ECL provision by geography - In line with the loans by geography,
the vast majority of ECL related to exposures in the UK, noting the
reduction in RoI mostly due to the phased withdrawal of Ulster Bank
RoI from the Republic of Ireland and moving of assets to discontinued
operations.
- ECL provisions by stage - Stage 2 provisions reduced during H1 2022
reflecting continued strong credit performance of the portfolios,
this along with increased lending led to an increase in Stage 1 provisions.
As outlined above, Stage 3 provisions have yet to be materially affected
by the risks of inflation, cost of living and supply chain, with
increases relating to the introduction of the new regulatory definition
of default more than offset by write offs.
- ECL provisions coverage - Overall provisions coverage reduced, driven
by a combination of robust underlying portfolio performance reflecting
recent strong growth in the portfolio within risk appetite and continued
stable portfolio performance.
- The ECL charge and loss rate - Reflecting the continued stable portfolio
performance and default trends, the impairment charge was a release
for H1 2022, mainly as a result of releases in Wholesale portfolios.
Risk and capital management
Credit risk - Banking activities continued (reviewed)
- Loans by residual maturity - The maturity profile of the portfolios
remained consistent with prior periods. In mortgages, as expected,
the vast majority of exposures were greater than five years. In unsecured
lending - cards and other - exposures were concentrated in less than
five years. In Wholesale, with the exception of financial institutions
where lending was concentrated in less than one year, the majority
of lending was for residual maturity of one to five years, with some
greater than five years in line with lending under the government
support schemes.
- Other financial assets by asset quality - Consisting almost entirely
of cash and balances at central banks and debt securities, held in
the course of treasury related management activities, these assets
were mainly within the AQ1-AQ4 bands.
- Off-balance sheet exposures by asset quality - In Personal, undrawn
exposures were reflective of available credit lines in credit cards
and current accounts. Additionally, the mortgage portfolio had undrawn
exposures, where a formal offer had been made to a customer but had
not yet drawn down; the value increased in line with the pipeline
of offers. There was also a legacy portfolio of flexible mortgages
where a customer had the right and ability to draw down further funds.
The asset quality was aligned to the wider portfolio.
- Wholesale forbearance - Forbearance flow continued to decrease in
the first half of 2022. The leisure sector continued to represent
the largest share of forbearance flow as it continued to experience
disruption beyond the COVID-19 restrictions evident throughout 2021.
Labour shortages, airport capacity issues, rising fuel costs and
consumer uncertainty continue to weigh on the sector recovery. Payment
holidays and covenant waivers were the most common forms of forbearance
granted.
- Heightened Monitoring and Risk of Credit Loss - Risk of Credit Loss
framework exposures continued to reduce and were below pre-COVID-19
levels. Inflows were also trending lower. The sector breakdown of
exposures remained consistent with prior periods.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Disclosures in the Personal portfolio section include drawn exposure
(gross of provisions). 30 June 2022 31 December 2021
------------------------------------------------ ------------------------------------------------
Retail Private Commercial Ulster Retail Private Commercial Ulster
& &
Banking Banking Institutional Bank Total Banking Banking Institutional Bank Total
RoI RoI
Personal GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
lending
Mortgages 178,490 12,715 2,398 906 194,509 172,707 12,781 2,444 6,164 194,096
Of which:
------------ ------- ------- ------------- ------ -------
Owner
occupied 161,930 11,271 1,561 867 175,629 158,059 11,219 1,597 5,563 176,438
Buy-to-let 16,560 1,444 837 39 18,880 14,648 1,562 847 601 17,658
Interest
only -
variable 3,774 3,665 330 6 7,775 4,348 4,889 346 120 9,703
Interest
only -
fixed 16,468 7,211 214 1 23,894 14,255 5,957 209 3 20,424
Mixed (1) 9,202 1 16 5 9,224 8,616 1 17 34 8,668
ECL
provisions
(2) 344 7 6 286 643 429 7 8 318 762
------------ ------- ------- ------------- ------ ------- ------- ------- ------------- ------ -------
Other
personal
lending
(3) 11,445 1,797 314 182 13,738 10,829 1,974 305 218 13,326
-------
ECL
provisions
(2) 1,156 17 2 14 1,189 1,140 19 2 11 1,172
------- ------- ------------- ------ ------- ------- ------- ------------- ------
Total
personal
lending 189,935 14,512 2,712 1,088 208,247 183,536 14,755 2,749 6,382 207,422
Mortgage LTV
ratios
Total
portfolio 53% 59% 56% 45% 53% 54% 59% 57% 50% 54%
- Stage 1 54% 59% 56% 37% 54% 54% 59% 56% 48% 54%
- Stage 2 49% 63% 64% 45% 49% 52% 59% 62% 57% 52%
- Stage 3 47% 60% 72% 52% 50% 49% 64% 77% 56% 53%
------------ ------- ------- ------------- ------ ------- ------- ------- ------------- ------ -------
Buy-to-let 51% 58% 53% 60% 52% 50% 57% 53% 52% 51%
- Stage 1 51% 58% 53% 31% 52% 50% 58% 53% 51% 51%
- Stage 2 48% 57% 51% 47% 48% 52% 55% 50% 56% 52%
- Stage 3 48% 53% 57% 61% 52% 51% 53% 60% 66% 56%
------------ ------- ------- ------------- ------ -------
Gross new
mortgage
lending 18,872 1,528 138 - 20,538 35,290 2,874 340 40 38,544
Of which:
------- ------- ------------- ------ -------
Owner
occupied 16,242 1,395 89 - 17,726 33,630 2,583 206 40 36,459
Weighted
average
LTV (4) 68% 65% 66% - 68% 69% 65% 67% 62% 68%
Buy-to-let 2,630 133 49 - 2,812 1,660 292 134 - 2,086
Weighted
average
LTV (4) 63% 68% 62% - 63% 63% 65% 63% 60% 64%
Interest
only -
variable
rate 12 274 5 - 291 25 832 37 - 894
Interest
only -
fixed rate 2,821 1,102 22 - 3,945 2,388 1,563 36 - 3,987
Mixed (1) 1,088 - 1 - 1,089 2,256 - 7 - 2,263
------------ ------- ------- ------------- ------ ------- ------- ------- ------------- ------ -------
Mortgage
forbearance
Forbearance
flow 52 7 3 3 65 316 19 4 50 389
Forbearance
stock 1,024 29 9 425 1,487 1,156 3 8 944 2,111
Current 689 17 6 149 861 727 - 5 616 1,348
1-3 months
in arrears 108 2 1 34 145 146 2 1 58 207
> 3 months
in arrears 227 10 2 242 481 283 1 2 270 556
------------ ------- ------- ------------- ------ ------- ------- ------- ------------- ------ -------
(1) Includes accounts which have an interest only sub-account and a
capital and interest sub-account to provide a more comprehensive view
of interest only exposures.
(2) Retail Banking excludes a non-material amount of provisions held
on relatively small legacy portfolios.
(3) Comprises unsecured lending except for Private Banking, which includes
both secured and unsecured lending. It excludes loans that are commercial
in nature.
(4) The new lending LTV in the comparative has been amended to reflect
LTV at time of lending origination rather than LTV at reporting period.
- The mortgage portfolio grew steadily in H1 2022, benefiting from
buoyant housing market activity and customers re-mortgaging ahead
of anticipated Bank of England interest rate rises.
- LTV ratios continued to improve as house prices increased as a
result of housing market demand.
- The existing mortgage stock and new business were closely monitored
against agreed risk appetite parameters. These included loan-to-value
ratios, buy-to-let concentrations, new-build concentrations and
credit quality. Affordability assessments and assumptions were
continuously reviewed considering inflationary pressure, interest
rate rises and taxation changes.
- The buy-to-let portfolio grew in H1 2022. This growth was expected
and within risk appetite following strategy and customer journey
simplification implemented in H2 2021.
- Forbearance flows were subdued in H1 2022 compared to historical
norms after an increase in forbearance in H2 2021, following the
end of COVID-19 payment holidays.
- Unsecured lending increased during H1 2022, with resilient customer
demand after the easing of COVID-19 restrictions.
- As set out above ECL has reduced, for further detail of movements
in ECL provisions at product level refer to the Flow statements
section.
- As at 30 June 2022, GBP121.8 billion, 63%, of the total residential
mortgages portfolio had Energy Performance Certificate (EPC) data
available (31 December 2021 - GBP116.2 billion, 62%). Of which,
40% of UK properties were rated as EPC C or above (31 December
2021 - 38%). In addition to the Retail Banking portfolio, during
Q2 2022 EPC data became available for the Private Banking portfolio
for all periods * . EPC data source and limitations are provided
on page 60 of the 2021 NatWest Group Climate-related Disclosures
Report.
*Not within the scope of EY's review report.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band.
Mortgage lending not within the scope of Governance and post-model adjustments
reflected portfolios carried at fair value. Mortgages ECL provisions ECL provisions
coverage (2)
-------------------------------------------------- -------------------------- --------------------------
Retail Not Of which:
Banking within
IFRS gross
9 new
Stage Stage Stage ECL Total lending Stage Stage Stage Total Stage Stage Stage Total
1 2 3 scope 1 2 3 (1) 1 2 3
30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
2022
---------
<=50% 66,690 4,283 950 62 71,985 3,250 17 32 107 156 - 0.7 11.3 0.2
>50% and
<=70% 71,128 3,861 654 9 75,652 5,511 24 34 78 136 - 0.9 11.9 0.2
>70% and
<=80% 20,758 600 104 1 21,463 5,348 7 7 15 29 - 1.2 14.4 0.1
>80% and
<=90% 7,976 90 15 - 8,081 3,827 3 1 5 9 - 1.1 33.3 0.1
>90% and
<=100% 1,241 20 7 - 1,268 934 1 - 3 4 0.1 - 42.9 0.3
>100% 54 6 7 - 67 2 - 1 4 5 - 16.7 57.1 7.5
--------- ------- ------ ----- ------ ------- --------- ----- ----- ----- ----- ----- ----- ----- -----
Total
with
LTVs 167,847 8,860 1,737 72 178,516 18,872 52 75 212 339 - 0.8 12.2 0.2
Other 43 1 2 - 46 - 3 - 1 4 7.0 - 50.0 8.7
Total 167,890 8,861 1,739 72 178,562 18,872 55 75 213 343 - 0.8 12.2 0.2
--------- ------- ------ ----- ------ ------- --------- ----- ----- ----- ----- ----- ----- ----- -----
31
December
2021
<=50% 61,233 4,548 644 63 66,488 5,845 7 60 140 207 - 1.3 21.7 0.3
>50% and
<=70% 68,271 4,674 483 9 73,437 12,397 10 64 84 158 - 1.4 17.4 0.2
>70% and
<=80% 24,004 1,255 93 1 25,353 10,964 3 18 15 36 - 1.4 16.1 0.1
>80% and
<=90% 5,983 250 22 1 6,256 4,985 1 8 5 14 - 3.2 22.7 0.2
>90% and
<=100% 1,125 58 10 - 1,193 1,098 - 5 3 8 - 8.6 30.0 0.7
>100% 14 18 6 - 38 - - 1 2 3 - 5.6 33.3 7.9
---------
Total
with
LTVs 160,630 10,803 1,258 74 172,765 35,289 21 156 249 426 - 1.4 19.8 0.2
Other 14 1 1 - 16 1 - - - - - - - -
------- ------ ----- ------ ------- --------- ----- ----- ----- ----- ----- ----- ----- -----
Total 160,644 10,804 1,259 74 172,781 35,290 21 156 249 426 - 1.4 19.8 0.2
--------- ------- ------ ----- ------ ------- --------- ----- ----- ----- ----- ----- ----- ----- -----
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
Mortgages ECL provisions ECL provisions
coverage (2)
--------------------------------------------- -------------------------- --------------------------
Ulster Not Of which:
Bank within
RoI
IFRS gross
9 new
Stage Stage Stage ECL Total lending Stage Stage Stage Total Stage Stage Stage Total
1 2 3 scope 1 2 3 (1) 1 2 3
30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
2022
---------
<=50% 275 43 233 - 551 - 6 9 146 161 2.2 20.9 62.7 29.2
>50% and
<=70% 76 21 100 - 197 - 2 7 61 70 2.6 33.3 61.0 35.5
>70% and
<=80% 6 5 48 - 59 - 1 3 29 33 16.7 60.0 60.4 55.9
>80% and
<=90% 1 1 33 - 35 - - 1 20 21 - 100.0 60.6 60.0
>90% and
<=100% - 1 22 - 23 - - 1 13 14 - 100.0 59.1 60.9
>100% - - 23 - 23 - - - 13 13 - - 56.5 56.5
Total 358 71 459 - 888 - 9 21 282 312 2.5 29.6 61.4 35.1
--------- ----- ----- ----- ------ ----- --------- ----- ----- ----- ----- ----- ----- ----- -----
Other 17 - 1 - 18 - - - - - - - - -
Total 375 71 460 - 906 - 9 21 282 312 2.4 29.6 61.3 34.4
--------- ----- ----- ----- ------ ----- --------- ----- ----- ----- ----- ----- ----- ----- -----
31 December 2021
---------------- ----- ----- ------ ----- --------- ----- ----- ----- ----- ----- ----- ----- -----
<=50% 2,660 221 274 - 3,155 13 4 6 138 148 0.2 2.7 50.4 4.7
>50% and
<=70% 1,497 172 128 - 1,797 16 2 5 59 66 0.1 2.9 46.1 3.7
>70% and
<=80% 484 67 60 - 611 9 1 2 28 31 0.2 3.0 46.7 5.1
>80% and
<=90% 231 51 55 - 337 1 1 2 26 29 0.4 3.9 47.3 8.6
>90% and
<=100% 82 26 37 - 145 1 - 1 19 20 - 3.8 51.4 13.8
>100% 33 16 41 - 90 - - 1 23 24 - 6.3 56.1 26.7
Total
with
LTVs 4,987 553 595 - 6,135 40 8 17 293 318 0.2 3.1 49.2 5.2
Other 25 - 4 - 29 - - - - - - - - -
----- ----- ----- ------ ----- --------- ----- ----- ----- ----- ----- ----- ----- -----
Total 5,012 553 599 - 6,164 40 8 17 293 318 0.2 3.1 48.9 5.2
----- ----- ----- ------ ----- --------- ----- ----- ----- ----- ----- ----- ----- -----
(1) Excludes a non-material amount of provisions held on relatively
small legacy portfolios.
(2) ECL provisions coverage is ECL provisions divided by mortgages.
- ECL coverage rates for each Stage increased through the LTV bands
with both Retail Banking and Ulster Bank RoI having only limited
exposures in the highest LTV bands. The reduced coverage level in
the lower LTV bands for Retail Banking reflects the implementation
of new IFRS 9 LGD model with a modelling approach that now captures
a reduced loss expectation from non-repossession recovery action.
- Continued stable portfolio performance alongside the new IFRS 9 PD
and LGD model implementations have resulted in reduced coverage across
most LTV bands in Stage 2 and Stage 3. The increased ECL across Stage
1 LTV bands was driven by higher Stage 1 PDs as a result of the new
PD model implementation and also the proportionate allocation of
the new cost of living post model adjustment to Stage 1.
Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (CRE)
The CRE portfolio comprises exposures to entities involved in
the development of, or investment in, commercial and residential
properties (including house builders but excluding housing
associations, construction and the building materials sub-sector).
The sector is reviewed regularly by senior executive committees.
Reviews include portfolio credit quality, capital consumption and
control frameworks. The CRE tables in this section include
information on exposures which are out of scope of ECL calculations
or part of disposal groups.
30 June 2022 31 December 2021
UK RoI Other Total UK RoI Other Total
By geography and sub-sector GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
(1)
Investment
Residential (2) 4,497 253 14 4,764 4,422 341 19 4,782
Office (3) 3,087 228 - 3,315 3,037 190 10 3,237
Retail (4) 4,071 78 1 4,150 4,207 81 - 4,288
Industrial (5) 2,942 12 144 3,098 2,760 13 106 2,879
Mixed/other (6) 935 105 49 1,089 1,185 113 50 1,348
15,532 676 208 16,416 15,611 738 185 16,534
Development
Residential (2) 1,959 117 1 2,077 1,775 76 2 1,853
Office (3) 85 - - 85 79 33 - 112
Retail (4) 57 - - 57 48 - - 48
Industrial (5) 81 1 - 82 67 1 - 68
Mixed/other (6) 17 1 - 18 20 2 - 22
2,199 119 1 2,319 1,989 112 2 2,103
Total 17,731 795 209 18,735 17,600 850 187 18,637
(1) Geographical splits are based on country of collateral risk.
(2) Properties including houses, flats and student accommodation.
(3) Properties including offices in central business districts, regional
headquarters and business parks.
(4) Properties including high street retail, shopping centres, restaurants,
bars and gyms.
(5) Properties including distribution centres, manufacturing and warehouses.
(6) Properties that do not fall within the other categories above. Mixed
generally relates to a mixture of retail/office with residential.
Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (reviewed)
CRE LTV distribution by stage
The table below shows CRE current exposure and related ECL by LTV band. Gross loans ECL provisions ECL provisions
coverage (2)
Not
within
IFRS
9
ECL
Stage Stage Stage scope Total Stage Stage Stage Total Stage Stage Stage Total
1 2 3 (1) 1 2 3 1 2 3
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
<=50% 7,113 253 37 240 7,643 10 7 11 28 0.1 2.8 29.7 0.4
>50% and
<=70% 4,249 384 41 470 5,144 7 8 20 35 0.2 2.1 48.8 0.7
>70% and
<=100% 299 265 57 11 632 - 10 26 36 - 3.8 45.6 5.7
>100% 159 9 86 4 258 - 2 31 33 - 22.2 36.0 12.8
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Total with
LTVs 11,820 911 221 725 13,677 17 27 88 132 0.1 3.0 39.8 1.0
Total
portfolio
average LTV% 46% 61% 87% 49% 48%
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Other (5) 2,299 332 57 51 2,739 5 23 27 55 0.2 6.9 47.4 2.0
Development
(6) 1,947 196 66 110 2,319 5 7 30 42 0.3 3.6 45.5 1.8
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Total 16,066 1,439 344 886 18,735 27 57 145 229 0.2 4.0 42.2 1.2
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
31 December
2021
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
<=50% 6,767 388 34 268 7,457 5 7 9 21 0.1 1.8 26.5 0.3
>50% and
<=70% 4,367 470 46 469 5,352 3 13 20 36 0.1 2.8 43.5 0.7
>70% and
<=100% 377 192 127 9 705 - 9 32 41 - 4.7 25.2 5.8
>100% 215 7 86 4 312 - 2 28 30 - 28.6 32.6 9.6
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Total with
LTVs 11,726 1,057 293 750 13,826 8 31 89 128 0.1 2.9 30.4 0.9
Total
portfolio
average LTV% 48% 58% 88% 52% 50%
------ ----- ----- ------
Other (3) 2,271 293 61 83 2,708 4 13 28 45 0.2 4.4 45.9 1.7
Development
(4) 1,736 228 62 77 2,103 3 6 34 43 0.2 2.6 54.8 2.0
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Total 15,733 1,578 416 910 18,637 15 50 151 216 0.1 3.2 36.3 1.2
------ ----- ----- ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
(1) Includes exposures relating to non-modelled portfolios and
other exposures carried at fair value.
(2) ECL provisions coverage is ECL provisions divided by current exposure.
(3) Relates mainly to business banking, rate risk management
products and unsecured corporate lending.
(4) Relates to the development of commercial and residential
properties. LTV is not a meaningful measure for this type of
lending activity.
Overall - The majority of the CRE portfolio was located and
managed in the UK. Business appetite and strategy was aligned
across NatWest Group.
2022 trends - H1 2022 saw a relatively flat performance, as the
growth noted in Q1 began to subside due to deterioration in the
wider economic outlook. The residential sector continued to perform
well, although, with . house price growth coupled with rising
borrowing costs the outlook is uncertain. Uncertainty in the office
sector remained, with the full consequences of the limited return
to work, still to flow through to the sector. The industrial sector
continued to perform strongly reflecting the structural change in
retail. The retail sector continued to exhibit mixed performance
based on changing consumer habits.
Credit quality - NatWest Group entered 2022 with a
conservatively positioned CRE portfolio. The majority of the
defaults experienced during 2021 were in the retail sector,
particularly in the fashion-led shopping centre sub-sector. NatWest
Group completed a strategic sale of a portfolio of these loans
during 2021, achieving a rebalance of the portfolio at that stage.
Rental payments have now normalised, but uncertainty still remains
and the portfolio continues to be actively reviewed and
managed.
During H1 2022, Heightened Monitoring stock reduced by both
volume and value, most materially within the investment sub-sector
(retail, residential and office).
Risk appetite - Lending appetite continued to be gradually and
selectively increased by sub-sector aligned to our purpose led
approach.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
The flow statements that follow show the main ECL and related income
statement movements. They also show the changes in ECL as well as the
changes in related financial assets used in determining ECL. Due to
differences in scope, exposures may differ from those reported in other
tables, principally in relation to exposures in Stage 1 and Stage 2.
These differences do not have a material ECL affect. Other points to
note:
* Financial assets include treasury liquidity
portfolios, comprising balances at central banks and
debt securities, as well as loans. Both modelled and
non-modelled portfolios are included.
* Stage transfers (for example, exposures moving from
Stage 1 into Stage 2) are a key feature of the ECL
movements, with the net re-measurement cost of
transitioning to a worse stage being a primary driver
of income statement charges. Similarly, there is an
ECL benefit for accounts improving stage.
* Changes in risk parameters shows the reassessment of
the ECL within a given stage, including any ECL
overlays and residual income statement gains or
losses at the point of write-off or accounting
write-down.
* Other (P&L only items) includes any subsequent
changes in the value of written-down assets (for
example, fortuitous recoveries) along with other
direct write-off items such as direct recovery costs.
Other (P&L only items) affects the income statement
but does not affect balance sheet ECL movements.
* Amounts written-off represent the gross asset
written-down against accounts with ECL, including the
net asset write-down for any debt sale activity.
* There were flows from Stage 1 into Stage 3 including
transfers due to unexpected default events. The small
number of write-offs in Stage 1 and Stage 2 reflected
the effect of portfolio debt sales and also staging
at the start of the analysis period.
* The effect of any change in PMAs during the year is
typically reported under changes in risk parameters,
as are any effects arising from changes to the
underlying models. Refer to the section on Governance
and post model adjustments for further details.
* All movements are captured monthly and aggregated.
Interest suspended post default is included within
Stage 3 ECL with the movement in the value of
suspended interest during the year reported under
currency translation and other adjustments.
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
NatWest Group total GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ----- --------- ----- --------- -------
At 1 January 2022 546,178 302 35,557 1,478 5,238 2,026 586,973 3,806
Currency
translation and
other adjustments 4,259 (3) 131 - 38 2 4,428 (1)
Transfers from
Stage 1
to Stage 2 (18,211) (68) 18,211 68 - - - -
Transfers from
Stage 2
to Stage 1 18,567 512 (18,567) (512) - - - -
Transfers to Stage
3 (319) (1) (1,992) (135) 2,311 136 - -
Transfers from
Stage 3 143 11 448 42 (591) (53) - -
Net re-measurement
of ECL
on stage transfer (443) 483 155 195
Changes in risk
parameters
(model inputs) 72 (119) 34 (13)
Other changes in
net exposure (1,560) 31 (3,645) (155) (640) (29) (5,845) (153)
Other (P&L only
items) (2) (4) (77) (83)
--------- --------- ----- --------- ----- ---------
Income statement
(releases)/charges (342) 205 83 (54)
Transfers to
disposal groups (4,942) (5) (603) (28) (134) (17) (5,679) (50)
Amounts written-off - - - - (215) (215) (215) (215)
Unwinding of
discount - - (54) (54)
At 30 June 2022 544,115 408 29,540 1,122 6,007 1,985 579,662 3,515
--------- --------- ----- --------- ----- --------- -------
Net carrying amount 543,707 28,418 4,022 576,147
At 1 January 2021 446,666 519 81,667 3,081 6,524 2,586 534,857 6,186
2021 movements 46,032 (86) (26,169) (781) (666) (394) 19,197 (1,261)
At 30 June 2021 492,698 433 55,498 2,300 5,858 2,192 554,054 4,925
Net carrying amount 492,265 53,198 3,666 549,129
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - mortgages GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ---------
At 1 January 2022 159,966 24 10,748 155 1,267 250 171,981 429
Currency translation and - - - - 3 2 3 2
other adjustments
Transfers from Stage 1 to
Stage 2 (5,576) (3) 5,576 3 - - - -
Transfers from Stage 2 to
Stage 1 5,869 53 (5,869) (53) - - - -
Transfers to Stage 3 (37) - (910) (28) 947 28 - -
Transfers from Stage 3 14 1 241 11 (255) (12) - -
Net re-measurement of ECL
on stage transfer (50) 47 (13) (16)
Changes in risk parameters
(model inputs) 32 (49) 3 (14)
Other changes in net exposure 5,899 - (801) (10) (174) (7) 4,924 (17)
Other (P&L only items) (2) (1) (26) (29)
--------- ---- --------- ---- --------- ---- ---------
Income statement (releases)/charges (20) (13) (43) (76)
Amounts written-off - - - - (20) (20) (20) (20)
Unwinding of discount - - (19) (19)
At 30 June 2022 166,135 57 8,985 76 1,768 212 176,888 345
--------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 166,078 8,909 1,556 176,543
At 1 January 2021 132,390 23 28,079 227 1,291 236 161,760 486
2021 movements 16,915 (4) (12,510) (47) 61 14 4,466 (37)
At 30 June 2021 149,305 19 15,569 180 1,352 250 166,226 449
Net carrying amount 149,286 15,389 1,102 165,777
--------- ---------
- Despite the strong portfolio growth during 2022 so far, ECL
levels for mortgages reduced during the same period. The decrease
in ECL was primarily a result of stable portfolio performance
alongside the implementation of new IFRS 9 models in Q1 2022.
Collectively, this resulted in lower levels of ECL requirement.
- More specifically, strong credit performance resulted in the
migration of assets from Stage 2 into Stage 1, with an associated
decrease from lifetime ECL to a 12 month ECL. In addition, the
introduction of the new cost of living post model adjustment at 30
June 2022 allocated more ECL to Stage 1 given the forward-looking
nature of the cost of living and inflation threat, whereas the
previous COVID-19 post model adjustments were focused on Stage 2
(for example, high risk payment holiday cases migrated into Stage
2). Refer to the Governance and post model adjustments section for
more information.
- The Stage 3 inflow relates to the IFRS 9 adoption of the new
regulatory definition of default in January 2022. However, the
Stage 3 ECL levels reduced since 31 December 2021 primarily due to
reduced LGD estimates as a result of the new model implementation
in Q1 2022 alongside stable underlying default levels. The
relatively small ECL cost for net re-measurement on stage transfer
included the effect of risk targeted ECL adjustments, when
previously in Stage 2. Refer to the Governance and post model
adjustments section for further details.
- Write-off occurs once the repossessed property has been sold
and there is a residual shortfall balance remaining outstanding.
This would typically be within five years from default but can be
longer. Given repossession activity remains subdued relative to
pre-COVID-19 levels, write-offs remained at a lower level.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
credit
cards
--------- ---- --------- ---- --------- ----
At 1 January 2022 2,740 58 947 141 91 60 3,778 259
Currency - - - - - - - -
translation and
other adjustments
Transfers from
Stage 1
to Stage 2 (626) (23) 626 23 - - - -
Transfers from
Stage 2
to Stage 1 450 59 (450) (59) - - - -
Transfers to Stage
3 (12) - (54) (22) 66 22 - -
Transfers from
Stage 3 - - 4 2 (4) (2) - -
Net re-measurement
of ECL
on stage transfer (35) 90 16 71
Changes in risk
parameters
(model inputs) (2) (34) 7 (29)
Other changes in
net exposure 252 7 (49) (28) (12) 1 191 (20)
Other (P&L only
items) - - (2) (2)
--------- --------- ---- --------- ---- ---------
Income statement
(releases)/charges (30) 28 22 20
Amounts written-off - - - - (33) (33) (33) (33)
Unwinding of
discount - - (3) (3)
At 30 June 2022 2,804 64 1,024 113 108 68 3,936 245
--------- --------- ---- --------- ---- --------- ----
Net carrying amount 2,740 911 40 3,691
At 1 January 2021 2,250 52 1,384 220 114 75 3,748 347
2021 movements 92 (6) (293) (39) (25) (18) (226) (63)
At 30 June 2021 2,342 46 1,091 181 89 57 3,522 284
Net carrying amount 2,296 910 32 3,238
- The overall decrease in ECL was mainly due to the reduction in
Stage 2 ECL reflecting the stable portfolio performance, causing
PDs to decrease. This resulted in reduced levels of SICR
identification and ECL requirement.
- In addition, a temporary adjustment for an ECL release is in
place to reflect, on a forward-looking basis, the associated
effects of a new credit card PD model that is pending
implementation in Q3 2022 . This is captured in changes in risk
parameters for Stage 1 and Stage 2.
- Cards balances have grown since the 2021 year end, in line
with industry trends in the UK, as unsecured borrowing demand
increased.
- Reflecting the strong credit performance observed during 2022,
Stage 3 inflows remained subdued and the effect of the IFRS 9
adoption of the new regulatory definition of default was minimal
for Cards, therefore Stage 3 ECL movement was low in H1 2022.
- Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
other
personal unsecured
--------- ----- --------- ---- --------- -----
At 1 January 2022 4,548 52 1,967 294 629 540 7,144 886
Currency
translation and
other adjustments - (3) - - 6 - 6 (3)
Transfers from
Stage 1
to Stage 2 (1,019) (18) 1,019 18 - - - -
Transfers from
Stage 2
to Stage 1 788 105 (788) (105) - - - -
Transfers to Stage
3 (16) - (198) (56) 214 56 - -
Transfers from
Stage 3 1 2 14 8 (15) (10) - -
Net re-measurement
of ECL
on stage transfer (94) 119 65 90
Changes in risk
parameters
(model inputs) 13 (14) 33 32
Other changes in
net exposure 518 6 (241) (34) (48) (12) 229 (40)
Other (P&L only - - - -
items)
--------- --------- ----- --------- ---- ---------
Income statement
(releases)/charges (75) 71 86 82
Amounts written-off - - - - (53) (53) (53) (53)
Unwinding of
discount - - (4) (4)
At 30 June 2022 4,820 63 1,773 230 733 615 7,326 908
--------- --------- ----- --------- ---- --------- -----
Net carrying amount 4,757 1,543 118 - 6,418
At 1 January 2021 3,385 59 3,487 450 596 495 7,468 1,004
2021 movements 435 (4) (963) (102) (3) 9 (531) (97)
At 30 June 2021 3,820 55 2,524 348 593 504 6,937 907
Net carrying amount 3,765 2,176 89 6,030
- Overall ECL has remained stable, with a modest increase driven
by Stage 3 ECL linked to the IFRS 9 adoption of the new regulatory
definition of default in January 2022, with underlying Stage 3
inflows remaining stable, reflecting the strong credit performance
observed during 2022.
- More specifically, the reduced PDs alongside muted portfolio
deterioration, resulted in migration of assets from Stage 2 into
Stage 1, with an associated decrease from lifetime ECL to a 12
month ECL and kept Stage 2 levels stable.
- Unsecured retail balances have grown since the 2021 year end,
in line with industry trends in the UK, as unsecured borrowing
demand increased.
- Write-off occurs once recovery activity with the customer has
been concluded or there are no further recoveries expected, but no
later than six years after default.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Institutional
total
--------- ----- --------- ----- --------- -----
At 1 January 2022 152,224 129 19,731 785 2,155 750 174,110 1,664
Currency
translation and
other
adjustments 2,455 (1) 124 - 14 2 2,593 1
Inter-group
transfers (660) - - - - - (660) -
Transfers from
Stage 1
to Stage 2 (10,291) (21) 10,291 21 - - - -
Transfers from
Stage 2
to Stage 1 10,378 273 (10,378) (273) - - - -
Transfers to
Stage 3 (102) - (682) (25) 784 25 - -
Transfers from
Stage 3 100 8 92 14 (192) (22) - -
Net
re-measurement
of ECL
on stage
transfer (248) 214 83 49
Changes in risk
parameters
(model inputs) 27 (31) 5 1
Other changes in
net exposure 8,223 18 (2,409) (74) (313) (17) 5,501 (73)
Other (P&L only
items) (1) (1) (34) (36)
--------- --------- ----- --------- ----- ---------
Income statement
releases (204) 108 37 (59)
Amounts
written-off - - - - (94) (94) (94) (94)
Unwinding of
discount - - (26) (26)
At 30 June 2022 162,327 185 16,769 631 2,354 706 181,450 1,522
Net carrying
amount 162,142 - 16,138 - 1,648 - 179,928 -
At 1 January 2021 131,307 296 42,290 1,836 2,998 1,249 176,595 3,381
2021 movements 221 (63) (11,194) (532) (452) (302) (11,425) (897)
At 30 June 2021 131,528 233 31,096 1,304 2,546 947 165,170 2,484
Net carrying
amount 131,295 29,792 1,599 162,686
- There was an uplift in Stage 1 exposure from new and increased
lending specifically to financial institutions along with movements
in currency translations. Stage 1 ECL increased due to an uplift in
post model adjustments, the largest adjustment being a new
adjustment for inflation and supply chain issues and additional ECL
on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs, with net effect of stage transfers
leading to a significant reduction in ECL. In addition, a reduction
in the Stage 2 economic uncertainty adjustment further reduced
ECL.
- Flows into Stage 3 increased due to defaults on government
scheme lending, but the government guarantee has meant this has not
led to an increase in ECL. In addition, write-offs led to an
overall reduction in Stage 3 ECL.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
Commercial & assets ECL assets ECL assets ECL assets ECL
Institutional
- business banking GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ---- --------- ---- --------- ----
At 1 January 2022 6,673 11 1,376 60 44 10 8,093 81
Currency - - - - - - - -
translation and
other adjustments
Transfers from
Stage 1
to Stage 2 (866) (3) 866 3 - - - -
Transfers from
Stage 2
to Stage 1 491 21 (491) (21) - - - -
Transfers to Stage
3 (12) - (69) (4) 81 4 - -
Transfers from
Stage 3 16 1 15 2 (31) (3) - -
Net re-measurement
of ECL
on stage transfer (20) 35 11 26
Changes in risk
parameters
(model inputs) 7 22 2 31
Other changes in
net exposure (442) 2 (382) (9) (46) (6) (870) (13)
Other (P&L only
items) (2) 1 (1) (2)
--------- --------- ---- --------- ---- ---------
Income statement
(releases)/charges (13) 49 6 42
Amounts written-off - - - - (1) (1) (1) (1)
Unwinding of
discount - - (1) (1)
At 30 June 2022 5,860 19 1,315 88 47 16 7,222 123
--------- --------- ---- --------- ---- --------- ----
Net carrying amount 5,841 1,227 31 7,099
--------- --------- ---- --------- ---- --------- ----
- At a total level, exposure reduced mainly due to the repayment of government scheme debt.
- Exposure moved from Stage 1 into Stage 2 due to a
deterioration in some government scheme lending. ECL increased,
reflecting a higher probability of default on additional lending to
customers that had government scheme lending .
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Institutional
- corporate
--------- ----- --------- ---- --------- -----
At 1 January 2022 44,089 83 14,296 599 1,350 521 59,735 1,203
Currency
translation and
other adjustments 537 (1) 102 - 11 3 650 2
Inter-group
transfers (11) - (84) (4) 1 - (94) (4)
Transfers from
Stage 1
to Stage 2 (6,425) (14) 6,425 14 - - - -
Transfers from
Stage 2
to Stage 1 6,742 189 (6,742) (189) - - - -
Transfers to Stage
3 (55) - (419) (16) 474 16 - -
Transfers from
Stage 3 21 5 49 9 (70) (14) - -
Net re-measurement
of ECL
on stage transfer (170) - 142 49 21
Changes in risk
parameters
(model inputs) 12 (44) (12) (44)
Other changes in
net exposure 4,389 10 (1,099) (47) (200) (4) 3,090 (41)
Other (P&L only
items) (1) (2) (31) (34)
--------- --------- ----- --------- ---- ---------
Income statement
(releases)/charges (149) 49 2 (98)
Amounts written-off - - - - (77) (77) (77) (77)
Unwinding of
discount - - (18) (18)
At 30 June 2022 49,287 114 12,528 464 1,489 464 63,304 1,042
Net carrying amount 49,173 12,064 1,025 62,262
--------- --------- ----- --------- ---- --------- -----
- There was a rise in Stage 1 exposure from new and increased
lending along with movements in currency translations. ECL
increased due to a rise in post model adjustments with a new
adjustment for inflation and supply chain issues and additional ECL
on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs. The net effect of stage transfers
led to a significant reduction in Stage 2 ECL, and there were
further reductions due to a decrease in the economic uncertainty
adjustment.
- Flows into Stage 3 increased due to defaults on government
scheme lending, but the government guarantee has meant this has not
led to an increase in ECL. In addition, write-offs have led to an
overall reduction in Stage 3 ECL.
- The portfolio benefit from cash recoveries post write-off,
which are reported as other (P&L only items). Write-off occurs
once recovery activity with the customer has been concluded or
there are no further recoveries expected, but no later than five
years after default.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Institutional
- property
--------- ---- --------- ---- --------- ----
At 1 January 2022 25,352 20 2,777 84 661 204 28,790 308
Currency
translation and
other adjustments 10 - 1 - 1 (4) 12 (4)
Inter-group
transfers 7 - (17) - (1) - (11) -
Transfers from
Stage 1
to Stage 2 (1,612) (3) 1,612 3 - - - -
Transfers from
Stage 2
to Stage 1 1,310 23 (1,310) (23) - - - -
Transfers to Stage
3 (19) - (137) (5) 156 5 - -
Transfers from
Stage 3 22 2 25 2 (47) (4) - -
Net re-measurement
of ECL
on stage transfer (23) 28 12 17
Changes in risk
parameters
(model inputs) 11 (6) 9 14
Other changes in
net exposure 986 3 (468) (14) (64) (8) 454 (19)
Other (P&L only - - - -
items)
--------- --------- ---- --------- ---- ---------
Income statement
(releases)/charges (9) 8 13 12
Amounts written-off - - - - (15) (15) (15) (15)
Unwinding of
discount - - (6) (6)
At 30 June 2022 26,056 33 2,483 69 691 193 29,230 295
--------- --------- ---- --------- ---- --------- ----
Net carrying amount 26,023 2,414 498 28,935
--------- --------- ---- --------- ---- --------- ----
- There was a rise in Stage 1 exposure from new and increased
lending along with movements in currency translations. ECL
increased due to a rise in post model adjustments with a new
adjustment for inflation and supply chain issues and additional ECL
on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs and a reduction in the economic
uncertainty adjustment.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 Stage 2 Stage 3 Total
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Institutional
- other
--------- ---- --------- ---- --------- ----
At 1 January 2022 76,109 15 1,282 43 100 15 77,491 73
Currency
translation and
other adjustments 1,908 - 21 - 2 2 1,931 2
Inter-group
transfers (655) - 101 4 - (1) (554) 3
Transfers from
Stage 1
to Stage 2 (1,387) (1) 1,387 1 - - - -
Transfers from
Stage 2
to Stage 1 1,835 39 (1,835) (39) - - - -
Transfers to Stage
3 (17) - (57) - 74 - - -
Transfers from
Stage 3 41 - 4 - (45) - - -
Net re-measurement
of ECL
on stage transfer (34) 8 10 (16)
Changes in risk
parameters
(model inputs) (4) (3) 8 1
Other changes in
net exposure 3,290 4 (460) (4) (3) - 2,827 -
Other (P&L only
items) - - (1) (1)
--------- --------- ---- --------- ---- ---------
Income statement
(releases)/charges (34) 1 17 (16)
Amounts written-off - - - - (1) (1) (1) (1)
Unwinding of - - - -
discount
At 30 June 2022 81,124 19 443 10 127 33 81,694 62
--------- --------- ---- --------- ---- --------- ----
Net carrying amount 81,105 433 94 81,632
--------- --------- ---- --------- ---- --------- ----
- There was an uplift in Stage 1 exposure from new and increased
lending along with movements in currency translations and an
increase from exposures moving from Stage 2. Stage 1 ECL was
broadly unchanged as the exposures that returned to Stage 1 are now
subject to 12 months ECL , generating a significant ECL release on
re-measurement.
- Stage 2 exposure and ECL reduced reflecting positive portfolio
performance which lowered PDs, this led to large exposure transfers
to Stage 1 and a significant reduction in ECL.
- Stage 3 exposure increased due to stage transfers. There was
also a significant increase in Stage 3 ECL and charge due to two
individual cases.
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk
trigger
UK mortgages RoI mortgages Credit cards Other Total
30 June GBPm % GBPm % GBPm % GBPm % GBPm %
2022
----------------------------
Personal trigger
(1)
PD movement 5,158 57.3 23 32.0 565 54.5 808 47.0 6,554 55.4
PD persistence 1,228 13.6 5 7.0 329 31.7 369 21.5 1,931 16.3
Adverse credit bureau
recorded with
credit reference agency 1,936 21.5 - - 49 4.7 85 5.0 2,070 17.5
Forbearance support provided 140 1.6 1 1.0 1 0.1 22 1.3 164 1.4
Customers in collections 269 3.0 3 4.0 2 0.2 17 1.0 291 2.5
Collective SICR and other
reasons (2) 163 1.8 39 55.0 91 8.8 404 23.6 697 5.9
Days past due >30 111 1.2 - - - - 10 0.6 121 1.0
9,005 100 71 100 1,037 100 1,715 100 11,828 100
-------- ------- ------ ------- ----- ----- ---- ------ ----
31 December 2021
Personal trigger
(1)
PD movement 2,707 24.6 83 14.9 560 60.1 1,008 51.8 4,358 30.2
PD persistence 3,103 28.2 21 3.8 270 28.9 771 39.6 4,165 28.9
Adverse credit bureau
recorded with
credit reference agency 3,657 33.3 - - 60 6.4 73 3.7 3,790 26.3
Forbearance support provided 178 1.6 6 1.1 2 0.2 28 1.4 214 1.5
Customers in collections 82 0.8 33 6.0 3 0.3 15 0.8 133 0.9
Collective SICR and other
reasons (2) 1,197 10.9 409 74.0 38 4.1 46 2.4 1,690 11.7
Days past due >30 66 0.6 1 0.2 - - 6 0.3 73 0.5
-------- ------- ------ ------- ----- ----- ---- ------ ----
10,990 100 553 100 933 100 1,947 100 14,423 100
-------- ------- ------ ------- ----- ----- ---- ------ ----
For the notes to the table refer to the following page.
- The strong credit performance of the portfolio resulted in
either decreased or stable account level IFRS 9 PDs during the year
so far for most products. UK mortgages was the exception, where the
implementation of a new IFRS 9 PD model in Q1 2022 increased the
proportion of accounts exhibiting significant PD deterioration
.
- Personal customers who had accessed COVID-19 payment holiday
support, and where their risk profile was identified as relatively
high risk are no longer collectively migrated into Stage 2, given
the lack of default emergence from these segments and with the
focus of high risk segment monitoring now shifting to the effects
of inflation and the growing cost of living effect on customers. In
UK mortgages at 31 December 2021, approximately GBP0.8 billion of
exposures were previously collectively migrated from Stage 1 into
Stage 2 .
- In the other lending category, there was an increase in
'Collective SICR and other reasons' as a result of the net
migration of assets into Stage 2 of GBP0.5 billion reflecting, on a
forward-looking basis, the staging effect of new retail unsecured
PD models that are pending implementation in Q3 2022 .
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk
trigger
Property Corporate Financial Other
institution Total
Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL
30 June GBPm % GBPm % GBPm % GBPm % GBPm %
2022
-----------------------------
Wholesale trigger
(1)
PD movement 1,202 41.2 8,752 65.6 130 47.9 86 54.4 10,170 61.1
PD persistence 69 2.4 215 1.6 3 1.1 - - 287 1.7
Risk of Credit Loss 810 27.7 2,141 16.1 64 23.6 57 36.1 3,072 18.4
Forbearance support provided 105 3.6 682 5.1 4 1.5 - - 791 4.7
Customers in collections 29 1.0 102 0.8 1 0.4 - - 132 0.8
Collective SICR and other
reasons (2) 497 17.0 894 6.7 66 24.4 15 9.5 1,472 8.8
Days past due >30 208 7.1 542 4.1 3 1.1 - - 753 4.5
2,920 100 13,328 100 271 100 158 100 16,677 100
----- ------ ---- ------- ----- ----- ---- ------ ----
31 December 2021
----- ------ ---- ------- ----- ----- ---- ------ ----
Wholesale trigger
(1)
PD movement 942 30.3 10,553 67.7 595 81.3 84 69.4 12,174 62.2
PD persistence 139 4.5 553 3.5 6 0.8 1 0.8 699 3.6
Risk of Credit Loss 962 31.0 2,626 16.8 71 9.7 34 28.1 3,693 18.9
Forbearance support provided 101 3.3 489 3.1 6 0.8 - - 596 3.0
Customers in collections 27 0.9 88 0.6 1 0.1 - - 116 0.6
Collective SICR and other
reasons (2) 762 24.6 1,189 7.6 35 4.8 2 1.7 1,988 10.2
Days past due >30 168 5.4 106 0.7 18 2.5 - - 292 1.5
----- ------ ---- ------- ----- ----- ---- ------ ----
3,101 100 15,604 100 732 100 121 100 19,558 100
----- ------ ---- ------- ----- ----- ---- ------ ----
(1) The table is prepared on a hierarchical basis from top to
bottom, for example, accounts with PD deterioration may also
trigger backstop(s) but are only reported under PD
deterioration.
(2) Includes customers where a PD assessment cannot be undertaken due to missing PDs.
- PD deterioration continued to be the primary trigger of
migration of exposures from Stage 1 into Stage 2. There was a
reduction in cases triggering PD deterioration reflecting positive
portfolio performance which is lowering PDs.
- Moving exposures on to the Risk of Credit Loss framework
remained an important backstop indicator of a SICR. The exposures
classified under the Stage 2 Risk of Credit Loss framework
decreased over the period again reflecting positive portfolio
performance.
- PD persistence related to the Business Banking portfolio only.
A reduction in PDs in Q4 2021 meant that some Business Banking
customers were only in Stage 2 because of persistence and with PDs
marginally improving in 2022, they have now returned to Stage
1.
- There was an increase in customers meeting the >30 days
past due trigger as a result of regulatory definition of default
changes where all customer borrowing is now categorised as past
due, previously it was assessed at a facility level.
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL,
by stage, for the Personal portfolio.
Gross loans ECL provisions ECL provisions coverage
Stage Stage Stage Total Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3 1 2 3
30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
2022
UK
mortgages
AQ1-AQ4 111,137 3,478 - 114,615 28 24 - 52 0.03 0.69 - 0.05
AQ5-AQ8 71,779 4,951 - 76,730 27 47 - 74 0.04 0.95 - 0.10
AQ9 146 576 - 722 - 7 - 7 - 1.22 - 0.97
AQ10 - - 1,988 1,988 - - 231 231 - - 11.62 11.62
183,062 9,005 1,988 194,055 55 78 231 364 0.03 0.87 11.62 0.19
RoI
mortgages
AQ1-AQ4 236 21 - 257 5 2 - 7 2.12 9.52 - 2.72
AQ5-AQ8 116 39 - 155 1 8 - 9 0.86 20.51 - 5.81
AQ9 - 11 - 11 - 1 - 1 - 9.09 - 9.09
AQ10 - - 460 460 - - 269 269 - - 58.48 58.48
352 71 460 883 6 11 269 286 1.70 15.49 58.48 32.39
Credit
cards
AQ1-AQ4 90 1 - 91 2 - - 2 2.22 - - 2.20
AQ5-AQ8 2,964 1,002 - 3,966 62 106 - 168 2.09 10.58 - 4.24
AQ9 5 34 - 39 1 11 - 12 20.00 32.35 - 30.77
AQ10 - - 105 105 - - 68 68 - - 64.76 64.76
3,059 1,037 105 4,201 65 117 68 250 2.12 11.28 64.76 5.95
Other
personal
AQ1-AQ4 1,096 121 - 1,217 7 21 - 28 0.64 17.36 - 2.30
AQ5-AQ8 5,895 1,485 - 7,380 65 191 - 256 1.10 12.86 - 3.47
AQ9 38 109 - 147 1 22 - 23 2.63 20.18 - 15.65
AQ10 - - 767 767 - - 631 631 - - 82.27 82.27
7,029 1,715 767 9,511 73 234 631 938 1.04 13.64 82.27 9.86
Total
AQ1-AQ4 112,559 3,621 - 116,180 42 47 - 89 0.04 1.30 - 0.08
AQ5-AQ8 80,754 7,477 - 88,231 155 352 - 507 0.19 4.71 - 0.57
AQ9 189 730 - 919 2 41 - 43 1.06 5.62 - 4.68
AQ10 - - 3,320 3,320 - - 1,199 1,199 - - 36.11 36.11
193,502 11,828 3,320 208,650 199 440 1,199 1,838 0.10 3.72 36.11 0.88
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage Stage Stage Total Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3 1 2 3
31 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
December
2021
UK
mortgages
AQ1-AQ4 93,956 3,157 - 97,113 8 40 - 48 0.01 1.27 - 0.05
AQ5-AQ8 81,160 7,325 - 88,485 17 103 - 120 0.02 1.41 - 0.14
AQ9 290 508 - 798 - 14 - 14 - 2.76 - 1.75
AQ10 - - 1,451 1,451 - - 269 269 - - 18.54 18.54
175,406 10,990 1,451 187,847 25 157 269 451 0.01 1.43 18.54 0.24
RoI
mortgages
AQ1-AQ4 3,669 226 - 3,895 5 5 - 10 0.14 2.21 - 0.26
AQ5-AQ8 1,335 176 - 1,511 2 6 - 8 0.15 3.41 - 0.53
AQ9 8 151 - 159 - 6 - 6 - 3.97 - 3.77
AQ10 - - 599 599 - - 293 293 - - 48.91 48.91
5,012 553 599 6,164 7 17 293 317 0.14 3.07 48.91 5.14
Credit
cards
AQ1-AQ4 44 1 - 45 1 - - 1 2.27 - - 2.22
AQ5-AQ8 2,874 894 - 3,768 58 130 - 188 2.02 14.54 - 4.99
AQ9 6 38 - 44 - 11 - 11 - 28.95 - 25.00
AQ10 - - 90 90 - - 60 60 - - 66.67 66.67
2,924 933 90 3,947 59 141 60 260 2.02 15.11 66.67 6.59
Other
personal
AQ1-AQ4 831 88 - 919 6 19 - 25 0.72 21.59 - 2.72
AQ5-AQ8 5,950 1,723 - 7,673 51 243 - 294 0.86 14.10 - 3.83
AQ9 52 136 - 188 1 37 - 38 1.92 27.21 - 20.21
AQ10 - - 642 642 - - 557 557 - - 86.76 86.76
6,833 1,947 642 9,422 58 299 557 914 0.85 15.36 86.76 9.70
Total
AQ1-AQ4 98,500 3,472 - 101,972 20 64 - 84 0.02 1.84 - 0.08
AQ5-AQ8 91,319 10,118 - 101,437 128 482 - 610 0.14 4.76 - 0.60
AQ9 356 833 - 1,189 1 68 - 69 0.28 8.16 - 5.80
AQ10 - - 2,782 2,782 - - 1,179 1,179 - - 42.38 42.38
190,175 14,423 2,782 207,380 149 614 1,179 1,942 0.08 4.26 42.38 0.94
- In the Personal portfolio, the asset quality distribution improved
overall with high quality new business written during H1 2022 and
existing portfolio quality being maintained.
- The majority of exposures were in AQ1-AQ4, with a significant proportion
in AQ5-AQ8. As expected, mortgage exposures have a higher proportion
in AQ1-AQ4 than unsecured borrowing.
- The increase in AQ10/Stage 3 balances was mainly because of the IFRS
9 alignment to the new regulatory default definition, implemented
on 1 January 2022. This change resulted in an increase in Stage 3
exposures of approximately GBP0.7 billion, mostly in mortgages.
- In other Personal, the relatively high level of exposures in AQ10
reflected that impaired assets can be held on the balance sheet, with
commensurate ECL provision for up to six years after default.
- ECL provisions coverage shows the expected trend with increased coverage
in the poorer asset quality bands, and also by stage.
- As noted previously, across all asset quality bands, migration from
Stage 2 into Stage 1 was observed as the effect of improved economic
scenarios enhanced IFRS 9 PDs and therefore reduced Stage 2 exposure.
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL,
by stage, for the Wholesale portfolio. Gross loans ECL provisions ECL provisions coverage
Stage Stage Stage Total Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3 1 2 3
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
Property
AQ1-AQ4 15,014 242 - 15,256 6 2 - 8 0.04 0.83 - 0.05
AQ5-AQ8 14,204 2,435 - 16,639 34 82 - 116 0.24 3.37 - 0.70
AQ9 13 243 - 256 - 17 - 17 - 7.00 - 6.64
AQ10 - - 733 733 - - 217 217 - - 29.60 29.60
------- ------ ----- ------- ----- ----- ----- ----- ----- ----- ----- -----
29,231 2,920 733 32,884 40 101 217 358 0.14 3.46 29.60 1.09
Corporate
------- ------ ----- ------- ----- ----- ----- ----- ----- ----- -----
AQ1-AQ4 18,734 1,750 - 20,484 11 20 - 31 0.06 1.14 - 0.15
AQ5-AQ8 37,288 11,169 - 48,457 122 511 - 633 0.33 4.58 - 1.31
AQ9 46 409 - 455 1 40 - 41 2.17 9.78 - 9.01
AQ10 - - 1,675 1,675 - - 545 545 - - 32.54 32.54
56,068 13,328 1,675 71,071 134 571 545 1,250 0.24 4.28 32.54 1.76
------- ------ ----- ------- ----- ----- ----- ----- ----- ----- ----- -----
Financial
institutions
AQ1-AQ4 54,185 86 - 54,271 10 - - 10 0.02 - - 0.02
AQ5-AQ8 2,921 183 - 3,104 7 9 - 16 0.24 4.92 - 0.52
AQ9 1 2 - 3 - - - - - - - -
AQ10 - - 75 75 - - 22 22 - - 29.33 29.33
------- ------ ----- ------- ----- ----- ----- ----- ----- ----- ----- -----
57,107 271 75 57,453 17 9 22 48 0.03 3.32 29.33 0.08
Sovereign
------- ------ ----- ------- ----- ----- ----- ----- ----- -----
AQ1-AQ4 6,082 71 - 6,153 18 1 - 19 0.30 1.41 - 0.31
AQ5-AQ8 131 86 - 217 - - - - - - - -
AQ 9 - 1 - 1 - - - - - - - -
AQ10 - - 13 13 - - 2 2 - - 15.38 15.38
6,213 158 13 6,384 18 1 2 21 0.29 0.63 15.38 0.33
------- ------ ----- ------- ----- ----- ----- ----- ----- -----
Total
AQ1-AQ4 94,015 2,149 - 96,164 45 23 - 68 0.05 1.07 - 0.07
AQ5-AQ8 54,544 13,873 - 68,417 163 602 - 765 0.30 4.34 - 1.12
AQ9 60 655 - 715 1 57 - 58 1.67 8.70 - 8.11
AQ10 - - 2,496 2,496 - - 786 786 - - 31.49 31.49
------- ------ ----- ------- ----- ----- ----- ----- ----- ----- ----- -----
148,619 16,677 2,496 167,792 209 682 786 1,677 0.14 4.09 31.49 1.00
------- ------ ----- ------- ----- ----- ----- ----- ----- ----- ----- -----
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans ECL provisions ECL provisions coverage
Stage Stage Stage Total Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3 1 2 3
31 December GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
2021
Property
AQ1-AQ4 13,529 223 - 13,752 3 7 - 10 0.02 3.14 - 0.07
AQ5-AQ8 15,126 2,742 - 17,868 21 94 - 115 0.14 3.43 - 0.64
AQ9 24 136 - 160 - 10 - 10 - 7.35 - 6.25
AQ10 - - 742 742 - - 239 239 - - 32.21 32.21
28,679 3,101 742 32,522 24 111 239 374 0.08 3.58 32.21 1.15
Corporate
AQ1-AQ4 18,378 1,027 - 19,405 8 48 - 56 0.04 4.67 - 0.29
AQ5-AQ8 35,351 13,922 - 49,273 88 621 - 709 0.25 4.46 - 1.44
AQ9 74 655 - 729 - 44 - 44 - 6.72 - 6.04
AQ10 - - 1,444 1,444 - - 602 602 - - 41.69 41.69
53,803 15,604 1,444 70,851 96 713 602 1,411 0.18 4.57 41.69 1.99
Financial institutions
AQ1-AQ4 50,121 63 - 50,184 7 1 - 8 0.01 1.59 - 0.02
AQ5-AQ8 2,138 667 - 2,805 7 38 - 45 0.33 5.70 - 1.60
AQ9 4 2 - 6 - - - - - - - -
AQ10 - - 46 46 - - 4 4 - - 8.70 8.70
52,263 732 46 53,041 14 39 4 57 0.03 5.33 8.70 0.11
Sovereign
AQ1-AQ4 5,787 35 - 5,822 19 1 - 20 0.33 2.86 - 0.34
AQ5-AQ8 117 86 - 203 - - - - - - - -
AQ9 - - - - - - - - - - - -
AQ10 - - 8 8 - - 2 2 - - 25.00 25.00
5,904 121 8 6,033 19 1 2 22 0.32 0.83 25.00 0.36
Total
AQ1-AQ4 87,815 1,348 - 89,163 37 57 - 94 0.04 4.23 - 0.11
AQ5-AQ8 52,732 17,417 - 70,149 116 753 - 869 0.22 4.32 - 1.24
AQ9 102 793 - 895 - 54 - 54 - 6.81 - 6.03
AQ10 - - 2,240 2,240 - - 847 847 - - 37.81 37.81
140,649 19,558 2,240 162,447 153 864 847 1,864 0.11 4.42 37.81 1.15
- Across the Wholesale portfolio, the asset quality band
distribution differed, reflective of the underlying quality of
counterparties within each segment.
- Asset quality improvement was observed across most segments as
the economy recovered from the effects of COVID-19.
- Within the Wholesale portfolio, customer credit grades were
reassessed as and when a request for financing was made, a
scheduled customer credit review was undertaken or a material event
specific to that customer occurred.
- ECL provisions coverage showed the expected trend with
increased coverage in the poorer asset quality bands, and also by
stage.
- The low provision coverage for Stage 3 loans in financial
institutions for 2021 reflected the secured nature of one exposure
classified AQ10.
Risk and capital management
Credit risk - Trading activities
This section details the credit risk profile of NatWest Group's
trading activities.
Securities financing transactions and collateral (reviewed)
The table below shows securities financing transactions in NatWest
Markets and Treasury. Balance sheet captions include balances held
at all classifications under IFRS 9.
Reverse repos Repos
Outside Outside
Of which: netting Of which: netting
Total can be arrangements Total can be arrangements
offset offset
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm
----------------
Gross 83,381 82,631 750 85,717 84,295 1,422
IFRS offset (32,396) (32,396) - (32,396) (32,396) -
Carrying value 50,985 50,235 750 53,321 51,899 1,422
Master netting
arrangements (2,540) (2,540) - (2,540) (2,540) -
Securities
collateral (47,449) (47,449) - (49,338) (49,338) -
Potential for
offset not
recognised
under IFRS (49,989) (49,989) - (51,878) (51,878) -
Net 996 246 750 1,443 21 1,422
31 December 2021
Gross 78,909 78,259 650 73,858 72,712 1,146
IFRS offset (32,016) (32,016) - (32,016) (32,016) -
Carrying value 46,893 46,243 650 41,842 40,696 1,146
Master netting
arrangements (900) (900) - (900) (900) -
Securities
collateral (45,271) (45,271) - (39,794) (39,794) -
Potential for
offset not
recognised
under IFRS (46,171) (46,171) - (40,694) (40,694) -
Net 722 72 650 1,148 2 1,146
- Reverse repos and repos increased on both gross and carrying
value basis when compared to 2021. These trends are consistent with
trading assets and liabilities having been managed within limits at
31 December 2021.
- Reverse repo and repo transactions are primarily backed by
highly-rated sovereign, supranational and agency collateral.
Risk and capital management
Credit risk - Trading activities continued
Derivatives (reviewed)
The table below shows derivatives by type of contract. The master
netting agreements and collateral shown do not result in a net presentation
on the balance sheet under IFRS. A significant proportion (more than
90%) of the derivatives relate to trading activities in NatWest Markets.
The table also includes hedging derivatives in Treasury.
30 June 2022 31 December 2021
Notional
GBP USD Euro Other Total Assets Liabilities Notional Assets Liabilities
GBPbn GBPbn GBPbn GBPbn GBPbn GBPm GBPm GBPbn GBPm GBPm
Gross exposure 119,935 115,208 114,100 109,403
IFRS offset (10,592) (12,488) (7,961) (8,568)
----- ----- ----- ----- ------ -------- -------- -----------
Carrying value 3,128 4,338 5,167 1,303 13,936 109,343 102,720 12,100 106,139 100,835
-------- -------- -----------
Of which:
Interest rate (1) 2,794 2,764 4,561 290 10,409 54,590 48,653 8,919 67,458 61,206
Exchange rate 332 1,570 596 1,013 3,511 54,504 53,762 3,167 38,517 39,286
Credit 2 4 10 - 16 249 289 14 154 343
Equity and
commodity - - - - - - 16 - 10 -
-----
Carrying value 13,936 109,343 102,720 12,100 106,139 100,835
Counterparty
mark-to-market
netting (85,072) (85,072) (85,006) (85,006)
Cash collateral (14,499) (10,545) (15,035) (9,909)
Securities
collateral (4,468) (918) (2,428) (2,913)
----- -------- -------- -------- -----------
Net exposure 5,304 6,185 3,670 3,007
-------- -------- -----------
Banks (2) 546 992 393 413
Other financial
institutions
(3) 3,292 2,793 1,490 1,584
Corporate (4) 1,386 2,253 1,716 938
Government (5) 80 147 71 72
----- -------- --------
Net exposure 5,304 6,185 3,670 3,007
--------
UK 2,050 2,333 1,990 1,122
Europe 1,297 2,069 714 1,028
US 1,573 1,440 645 653
RoW 384 343 321 204
----- -------- --------
Net exposure 5,304 6,185 3,670 3,007
--------
Asset quality of
uncollateralised
derivative assets
----- -------- --------
AQ1-AQ4 4,611 2,939
AQ5-AQ8 648 674
AQ9-AQ10 45 57
----- -------- -------- -------- -----------
Net exposure 5,304 3,670
-------- --------
(1) The notional amount of interest rate derivatives included GBP7,730
billion (31 December 2021 - GBP6,173 billion) in respect of contracts
cleared through central clearing counterparties.
(2) Transactions with certain counterparties with whom NatWest Group
has netting arrangements but collateral is not posted on a daily basis;
certain transactions with specific terms that may not fall within
netting and collateral arrangements; derivative positions in certain
jurisdictions, for example China, where the collateral agreements
are not deemed to be legally enforceable.
(3) Includes transactions with securitisation vehicles and funds where
collateral posting is contingent on NatWest Group's external rating.
(4) Mainly large corporates with whom NatWest Group may have netting
arrangements in place, but operational capability does not support
collateral posting.
(5) Sovereigns and supranational entities with no collateral arrangements,
collateral arrangements that are not considered enforceable, or one-way
collateral agreements in their favour.
Risk and capital management
Credit risk - Trading activities continued
Debt securities (reviewed)
The table below shows debt securities held at mandatory fair value
through profit or loss by issuer as well as ratings based on the lowest
of Standard & Poor's, Moody's and Fitch. Central and local Financial
government
UK US Other institutions Corporate Total
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- --------
AAA - - 2,395 1,209 - 3,604
AA to AA+ - 3,840 3,091 1,635 16 8,582
A to AA- 7,074 - 1,445 214 66 8,799
BBB- to A- - - 2,433 302 424 3,159
Non-investment grade - - - 51 43 94
Unrated - - - 1 1 2
-------- ------------ --------- --------
Total 7,074 3,840 9,364 3,412 550 24,240
------- ------- -------- ------------ --------- --------
Short positions (7,363) (2,915) (12,323) (2,000) (160) (24,761)
31 December 2021
AAA - - 2,011 838 - 2,849
AA to AA+ - 3,329 3,145 1,401 62 7,937
A to AA- 6,919 - 1,950 308 57 9,234
BBB- to A- - - 3,792 346 517 4,655
Non-investment grade - - 31 163 82 276
Unrated - - - 3 3 6
------- ------- -------- ------------ --------- --------
Total 6,919 3,329 10,929 3,059 721 24,957
------- ------- -------- ------------ --------- --------
Short positions (9,790) (56) (12,907) (2,074) (137) (24,964)
------- ------- -------- ------------ --------- --------
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