TIDMNWG
RNS Number : 1757U
NatWest Group plc
29 July 2022
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group continually ensures a comprehensive approach is
taken to the management of capital, liquidity and funding,
underpinned by frameworks, risk appetite and policies, to manage
and mitigate capital, liquidity and funding risks. The framework
ensures the tools and capability are in place to facilitate the
management and mitigation of risk ensuring that NatWest Group
operates within its regulatory requirements and risk appetite.
Key developments
CET1 The CET1 ratio decreased by 390 basis points to 14.3%. The
decrease is primarily due to a GBP22.8 billion increase in
RWAs and a GBP2.9 billion decrease in CET1 capital.
The CET1 decrease is mainly driven by:
* the directed buyback of GBP1.2 billion;
* foreseeable dividend accrual of GBP2.3 billion
(special dividend will be paid on 16 September 2022,
subject to approval at a General Meeting, with the
notice and circular publication on 9 August 2022 and
the General Meeting scheduled for 25 August 2022);
* a GBP0.3 billion decrease in the IFRS 9 transitional
adjustment;
* the removal of adjustment for prudential amortisation
on software development costs of GBP0.4 billion;
* a GBP0.3 billion decrease due to FX loss on
retranslation on the redemption of a USD instrument;
and
* other reserve movements.
These reductions were partially offset by the GBP1.9 billion
attributable profit in the period.
------------ --------------------------------------------------------------------
MREL (LAC) MREL (LAC) ratio as a percentage of risk-weighted assets
decreased to 31.7% from 39.8% due to a GBP22.8 billion increase
in RWAs and GBP5.4 billion decrease in MREL resources. The
ratio remains well above the minimum of 22.2%, calculated
as 2 x (Pillar 1 + Pillar 2A).
--------------------------------------------------------------------
In the first half of 2022 there were redemptions of $3 billion
and EUR1.5 billion Senior debt, and $1 billion Tier 1 instruments.
These were partially offset by new issuances of $1 billion
and GBP0.75 billion Senior debt.
--------------------------------------------------------------------
Total RWAs Total RWAs increased by GBP22.8 billion to GBP179.8 billion
during H1 2022 reflecting:
* An increase in credit risk RWAs of GBP23.6 billion,
primarily due to GBP19.4 billion of model adjustments
applied as a result of new regulation applicable to
IRB models from 1 January 2022, in addition to
increased exposure in Commercial & Institutional and
Retail Banking. This was partially offset by improved
risk metrics in Commercial & Institutional and Retail
Banking.
* An increase in market risk RWAs of GBP0.6 billion,
driven by a raised capital multiplier for NWM Plc
affecting VaR and SVaR calculations.
* An increase in counterparty credit risk RWAs of
GBP0.4 billion, mainly driven by the implementation
of SA-CCR affecting the RWA calculation for
non-internally modelled exposure.
* A decrease in operational risk RWAs of GBP1.9 billion
following the annual recalculation.
--------------------------------------------------------------------
UK leverage The leverage ratio at 30 June 2022 is 5.2% and has been calculated
ratio in accordance with changes to the UK's leverage ratio framework
which were introduced by the PRA and came into effect from
1 January 2022. As at 31 December 2021, the UK leverage ratio
was 5.9%, which was calculated under the prior year's UK
leverage methodology. The key driver of the decrease is a
GBP3.5 billion decrease in Tier 1 capital.
------------ --------------------------------------------------------------------
Liquidity The liquidity portfolio decreased by GBP18.0 billion to GBP268.4
portfolio billion, with primary liquidity decreasing by GBP10.3 billion
to GBP198.3 billion. The decrease in primary liquidity is
driven by shareholder distributions (share buyback and dividends),
redemption of Senior debt, maturing commercial papers and
certificates of deposit and a marginal increase in lending
outstripping growth in deposits. The reduction in secondary
liquidity is due to a reduction in the pre-positioned collateral
at the Bank of England.
Risk and capital management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital
Requirements
NatWest Group is subject to minimum capital requirements
relative to RWAs. The table below summarises the minimum capital
requirements (the sum of Pillar 1 and Pillar 2A), and the
additional capital buffers which are held in excess of the
regulatory minimum requirements and are usable in stress.
Where the CET1 ratio falls below the sum of the minimum capital
and the combined buffer requirement, there is a subsequent
automatic restriction on the amount available to service
discretionary payments (including AT1 coupons), known as the MDA.
Note that different capital requirements apply to individual legal
entities or sub-groups and that the table shown does not reflect
any incremental PRA buffer requirements, which are not
disclosable.
The current capital position provides significant headroom above
both NatWest Group's minimum requirements and its MDA threshold
requirements.
Type CET1 Total Tier Total capital
1
----------------------------------- ------------- --------------- ----------------
Pillar 1 requirements 4.5% 6.0% 8.0%
Pillar 2A requirements 1.7% 2.3% 3.1%
----------------------------------- ------------- --------------- ----------------
Minimum Capital Requirements 6.2% 8.3% 11.1%
Capital conservation buffer 2.5% 2.5% 2.5%
Countercyclical capital buffer - - -
(1)
MDA threshold (2) 8.7% n/a n/a
----------------------------------- ------------- ---- --------- --- -----------
Subtotal 8.7% 10.8% 13.6%
----------------------------------- ------------- --------------- ----------------
Capital ratios at 30 June 2022 14.3% 16.4% 19.3%
----------------------------------- ------------- --------------- ----------------
Headroom (3) 5.6% 5.6% 5.7%
----------------------------------- ------------- --------------- ----------------
(1) In response to COVID-19 many countries reduced their CCyB
rates. In December 2021, the Financial Policy Committee announced
an increase in the UK CCyB rate from 0% to 1% effective from 13
December 2022. A further increase from 1% to 2% was announced on 5
July 2022, effective 5 July 2023. In June 2022, the Central Bank of
Ireland announced that the CCyB on Irish exposures will increase
from 0% to 0.5%, applicable from 15 June 2023. This is the first
step towards a gradual increase which, conditional on
macro-financial developments, would see a CCyB of 1.5% announced by
mid-2023, which is expected to be applicable from June 2024.
(2) Pillar 2A requirements for NatWest Group are set on a
nominal capital basis. The PRA has confirmed that from Q4 2022
Pillar 2A will be set as a variable amount with the exception of
some fixed add-ons.
(3) The headroom does not reflect excess distributable capital and may vary over time.
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios.
From 1 January 2022, NatWest Group is subject to the requirements
set out in the PRA Rulebook. Therefore, going forward the capital
and leverage ratios are being presented under these frameworks on a
transitional basis.
30 June 31 December
2022 2021
Capital adequacy ratios (1) % %
------------------------------------------------------- -------
CET1 14.3 18.2
Tier 1 16.4 21.0
Total 19.3 24.7
------------------------------------------------------- ------- -----------
Capital GBPm GBPm
------------------------------------------------------- -------
Tangible equity 27,858 30,689
Prudential valuation adjustment (316) (274)
Deferred tax assets (738) (761)
Own credit adjustments (99) 21
Pension fund assets (471) (465)
Cash flow hedging reserve 1,526 395
Foreseeable dividends and pension contributions (2,250) (1,211)
Foreseeable charges - on-market ordinary share buyback
programme (91) (825)
Prudential amortisation of software development costs - 411
Adjustments under IFRS 9 transitional arrangements 284 621
Insufficient coverage for non-performing exposures (10) (5)
------------------------------------------------------- ------- -----------
Total deductions (2,165) (2,093)
CET1 capital 25,693 28,596
------------------------------------------------------- -------
End-point AT1 capital 3,875 3,875
Grandfathered instrument transitional arrangements - 571
------------------------------------------------------- ------- -----------
Transitional AT1 capital 3,875 4,446
------------------------------------------------------- ------- -----------
Tier 1 capital 29,568 33,042
End-point Tier 2 capital 5,011 5,402
Grandfathered instrument transitional arrangements 172 304
------------------------------------------------------- ------- -----------
Transitional Tier 2 capital 5,183 5,706
------------------------------------------------------- ------- -----------
Total regulatory capital 34,751 38,748
------------------------------------------------------- ------- -----------
Risk-weighted assets
------------------------------------------------------- -------
Credit risk 143,765 120,116
Counterparty credit risk 8,352 7,907
Market risk 8,563 7,917
Operational risk 19,115 21,031
------------------------------------------------------- ------- -----------
Total RWAs 179,795 156,971
------------------------------------------------------- ------- -----------
(1) Based on current PRA rules, therefore includes the
transitional relief on grandfathered capital instruments and the
transitional arrangements for the capital impact of IFRS 9 expected
credit loss (ECL) accounting. The impact of the IFRS 9 transitional
adjustments at 30 June 2022 was GBP0.3 billion for CET1 capital,
GBP62 million for total capital and GBP32 million RWAs (31 December
2021 - GBP0.6 billion CET1 capital, GBP0.5 billion total capital
and GBP36 million RWAs). Excluding these adjustments, the CET1
ratio would be 14.1% (31 December 2021 - 17.8%). The transitional
relief on grandfathered instruments at 30 June 2022 was GBP0.2
billion (31 December 2021 - GBP0.9 billion). Excluding both the
transitional relief on grandfathered capital instruments and the
transitional arrangements for the capital impact of IFRS 9 expected
credit loss (ECL) accounting, the end-point Tier 1 capital ratio
would be 16.3% (31 December 2021 - 20.3%) and the end-point Total
capital ratio would be 19.3% (31 December 2021 - 23.8%).
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
30 June 31 December
2022 2021
Leverage GBPm GBPm
-------------------------------------------- ---------
Cash and balances at central banks 179,525 177,757
Trading assets 65,604 59,158
Derivatives 109,342 106,139
Financial assets 412,115 412,817
Other assets 25,705 17,106
Assets of disposal groups 14,187 9,015
-------------------------------------------- --------- -----------
Total assets 806,478 781,992
Derivatives
- netting and variation margin (107,295) (110,204)
- potential future exposures 20,552 35,035
Securities financing transactions gross up 5,184 1,397
Other off balance sheet items 45,095 44,240
Regulatory deductions and other adjustments (16,314) (8,980)
Claims on central banks (176,163) (174,148)
Exclusion of bounce back loans (6,785) (7,474)
-------------------------------------------- --------- -----------
UK leverage exposure 570,752 561,858
-------------------------------------------- --------- -----------
UK leverage ratio (%) (1) 5.2 5.9
-------------------------------------------- --------- -----------
(1) 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.
Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
would be 5.1% (31 December 2021 - 5.8%).
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2
capital for the half year ended 30 June 2022. It is being presented
on a transitional basis as calculated under the PRA Rulebook
Instrument requirements.
CET1 AT1 Tier 2 Total
GBPm GBPm GBPm GBPm
-------------------------------------------------- ------- ----- ------ -------
At 31 December 2021 28,596 4,446 5,706 38,748
Attributable profit for the period 1,891 - - 1,891
Directed buyback (1,212) - - (1,212)
Foreseeable dividends (2,250) - - (2,250)
Foreign exchange reserve 199 - - 199
FVOCI reserve (336) - - (336)
Own credit (120) - - (120)
Share capital and reserve movements in
respect of employee share schemes 64 - - 64
Goodwill and intangibles deduction (557) - - (557)
Deferred tax assets 23 - - 23
Prudential valuation adjustments (42) - - (42)
End of 2021 transitional relief on grandfathered
instruments - (571) (232) (803)
Net dated subordinated debt instruments - - (605) (605)
Foreign exchange movements (254) - 509 255
Adjustment under IFRS 9 transitional arrangements (337) - - (337)
Other movements 28 - (195) (167)
At 30 June 2022 25,693 3,875 5,183 34,751
-------------------------------------------------- ------- ----- ------ -------
- The CET1 decrease is primarily due to the directed buyback of GBP1.2
billion, foreseeable dividend accrual of GBP2.3 billion, a GBP0.3
billion decrease in the IFRS 9 transitional adjustment, the removal
of adjustment for prudential amortisation on software development
costs of GBP0.4 billion, GBP0.3 billion due to FX loss on retranslation
on the redemption of a USD instrument and other reserve movements
in the period, partially offset by an attributable profit in the
period of GBP1.9 billion.
- The AT1 and Tier 2 movements are due to the end of the 2021 transitional
relief on grandfathered instruments. In Tier 2 there was also a GBP0.2
billion decrease in the Tier 2 surplus provisions.
Risk and capital management
Capital, liquidity and funding risk continued
Capital resources (reviewed)
NatWest Group's regulatory capital is assessed against minimum requirements
that are set out under the UK Capital Requirements Regulation to determine
the strength of its capital base. This note shows a reconciliation
of shareholders' equity to regulatory capital. PRA transitional
basis
--------------------
30 June 31 December
2022 2021
GBPm GBPm
Shareholders' equity (excluding non-controlling interests)
----------------------------------------------------------- ------- -----------
Shareholders' equity 38,617 41,796
Preference shares - equity - (494)
Other equity instruments (3,890) (3,890)
----------------------------------------------------------- ------- -----------
34,727 37,412
Regulatory adjustments and deductions
----------------------------------------------------------- -------
Own credit (99) 21
Defined benefit pension fund adjustment (471) (465)
Cash flow hedging reserve 1,526 395
Deferred tax assets (738) (761)
Prudential valuation adjustments (316) (274)
Goodwill and other intangible assets (6,869) (6,312)
Foreseeable dividends and pension contributions (2,250) (1,211)
Foreseeable charges - on-market share buyback programme (91) (825)
Adjustment under IFRS 9 transitional arrangements 284 621
Insufficient coverage for non-performing exposures (10) (5)
(9,034) (8,816)
CET1 capital 25,693 28,596
Additional Tier (AT1) capital
Qualifying instruments and related share premium 3,875 3,875
Qualifying instruments and related share premium to
phase out - 571
----------------------------------------------------------- ------- -----------
AT1 capital 3,875 4,446
----------------------------------------------------------- -------
Tier 1 capital 29,568 33,042
Qualifying Tier 2 capital
Qualifying instruments and related share premium 4,848 4,935
Qualifying instruments issued by subsidiaries and
held by third parties 73 314
Other regulatory adjustments 262 457
----------------------------------------------------------- ------- -----------
Tier 2 capital 5,183 5,706
-----------
Total regulatory capital 34,751 38,748
----------------------------------------------------------- ------- -----------
Risk and capital management
Capital, liquidity and funding risk continued
Loss absorbing capital
The following table illustrates the components of estimated loss
absorbing capital (LAC) in NatWest Group plc and operating
subsidiaries and includes external issuances only. The table is
prepared on a transitional basis, including the benefit of
regulatory capital instruments issued from operating companies, to
the extent they meet the current MREL criteria.
30 June 2022 31 December 2021
Balance Balance
Par sheet Regulatory LAC Par sheet Regulatory LAC
value value value value value value value value
(1) (2,5) (3)
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------ ------- ---------- ----- ----- ------- ---------- -----
CET1 capital (4) 25.7 25.7 25.7 25.7 28.6 28.6 28.6 28.6
Tier 1 capital: end-point
CRR compliant AT1
--------------------------------- ------ ------- ---------- ----- ----- ------- ---------- -----
of which: NatWest Group plc
(holdco) 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
of which: NatWest Group plc
operating
subsidiaries (opcos) - - - - - - - -
--------------------------------- ------ ------- ---------- ----- ----- ------- ---------- -----
3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9
Tier 1 capital: end-point
CRR non-compliant (6)
--------------------------------- ------ ------- ---------- -----
of which: holdco - - - - 0.6 0.6 0.5 0.5
of which: opcos 0.1 0.1 - - 0.1 0.1 - -
--------------------------------- ----- ------- ---------- -----
0.1 0.1 - - 0.7 0.7 0.5 0.5
Tier 2 capital: end-point
CRR compliant
of which: holdco 6.5 6.2 4.7 6.1 7.1 7.1 4.9 6.0
of which: opcos - - - - 0.3 0.3 - -
--------------------------------- ------ ------- ---------- ----- ----- ------- ---------- -----
6.5 6.2 4.7 6.1 7.4 7.4 4.9 6.0
Tier 2 capital: end-point
CRR non-compliant (6)
------ ------- ---------- -----
of which: holdco 1.1 1.1 0.1 - - - - -
of which: opcos 0.6 0.8 0.1 - 0.6 0.9 0.3 0.1
--------------------------------- ----- ------- ---------- -----
1.7 1.9 0.2 - 0.6 0.9 0.3 0.1
Senior unsecured debt securities
of which: holdco 22.3 21.7 - 21.0 22.8 23.4 - 22.8
of which: opcos 25.6 22.6 - - 22.7 22.6 - -
--------------------------------- ------ ------- ---------- ----- ----- ------- ---------- -----
47.9 44.3 - 21.0 45.5 46.0 - 22.8
Tier 2 capital
--------------------------------- ------ ------- ---------- -----
Other regulatory adjustments - - 0.3 0.3 - - 0.5 0.5
--------------------------------- ------ ------- ---------- ----- ----- ------- ----------
- - 0.3 0.3 - - 0.5 0.5
Total 85.8 82.1 34.8 57.0 86.7 87.5 38.7 62.4
--------------------------------- ------ ------- ---------- ----- ----- ------- ---------- -----
RWAs 179.8 157.0
UK leverage exposure 570.8 561.9
--------------------------------- ------ ------- ---------- ----- ------- ---------- -----
LAC as a ratio of RWAs 31.7% 39.8%
LAC as a ratio of UK leverage
exposure 10.0% 11.1%
--------------------------------- ------ ------- ---------- ----- ----- ------- ---------- -----
(1) Par value reflects the nominal value of securities issued.
(2) Regulatory capital instruments issued from operating
companies are included in the transitional LAC calculation, to the
extent they meet the current MREL criteria.
(3) LAC value reflects NatWest Group's interpretation of the
Bank of England's approach to setting a minimum requirement for own
funds and eligible liabilities (MREL), published in December 2021
(updating June 2018). MREL policy and requirements remain subject
to further potential development, as such NatWest Group's estimated
position remains subject to potential change. Liabilities excluded
from LAC include instruments with less than one year remaining to
maturity, structured debt, operating company senior debt, and other
instruments that do not meet the MREL criteria. The LAC calculation
includes Tier 1 and Tier 2 securities before the application of any
regulatory caps or adjustments.
(4) Corresponding shareholders' equity was GBP38.6 billion (31
December 2021 - GBP41.8 billion).
(5) Regulatory amounts reported for AT1, Tier 1 and Tier 2
instruments incudes grandfathered instruments as per the
transitional provisions allowed under CRR2 (until 28 June
2025).
(6) (i) CRR1 non-compliant instruments (2021) - All Tier 1 and
Tier 2 instruments that were grandfathered under CRR1 compliance
have lost their regulatory value and no longer form part of our
regulatory capital resources from 1 January 2022. As at 31 December
2021, these are reported under the "Tier 1 capital: end-point CRR
non-compliant" and "Tier 2 capital: end-point CRR non-compliant"
categories.
(ii) CRR2 non-compliant instruments (2022) - From January 2022,
All Tier 1 and Tier 2 instruments that were grandfathered under
CRR2 compliance (until 28 June 2025) are reported under "Tier 1
capital: end-point CRR non-compliant" and "Tier 2 capital:
end-point CRR non-compliant" category.
Risk and capital management
Capital, liquidity and funding risk continued
Loss absorbing capital
The following table illustrates the components of the stock of
outstanding issuance in NatWest Group plc and its operating
subsidiaries including external and internal issuances.
NatWest NatWest NWM RBS
NatWest Holdings NWB RBS UBI NWM Markets Securities International
Group
plc Limited Plc plc DAC Plc N.V. Inc. Limited
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Tier 1 (Inclusive Externally
of AT1) issued 3.9 - 0.1 - - - - - -
Tier 1 (Inclusive Internally
of AT1) issued - 3.7 2.5 1.0 - 0.9 0.2 - 0.3
------------------ ----------- ------- -------- ----- ----- ----- ----- ------- ---------- -------------
3.9 3.7 2.6 1.0 - 0.9 0.2 - 0.3
Externally
Tier 2 issued 7.2 - 0.1 - 0.1 0.1 0.5 - -
Internally
Tier 2 issued - 4.7 3.0 1.5 0.4 1.5 0.1 0.3 -
------------------ ----------- ------- -------- ----- ----- ----- ----- ------- ---------- -------------
7.2 4.7 3.1 1.5 0.5 1.6 0.6 0.3 -
Externally
Senior unsecured issued 21.7 - - - - - - - -
Internally
Senior unsecured issued - 11.8 6.5 0.4 0.5 3.1 - - -
------------------ ----------- ------- -------- ----- ----- ----- ----- ------- ---------- -------------
21.7 11.8 6.5 0.4 0.5 3.1 - - -
Total outstanding issuance 32.8 20.2 12.2 2.9 1.0 5.6 0.8 0.3 0.3
------------------------------- ------- -------- ----- ----- ----- ----- ------- ---------- -------------
(1) The balances are the IFRS balance sheet carrying amounts,
which may differ from the amount which the instrument contributes
to regulatory capital. Regulatory balances exclude, for example,
issuance costs and fair value movements, while dated capital is
required to be amortised on a straight-line basis over the final
five years of maturity.
(2) Balance sheet amounts reported for AT1, Tier 1 and Tier 2
instruments are before grandfathering restrictions imposed by
CRR.
(3) Internal issuance for NWB Plc, RBS plc and UBIDAC represents
AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings
Limited and for NWM N.V. and NWM SI to NWM Plc.
(4) Senior unsecured debt does not include CP, CD and
short/medium term notes issued from NatWest Group operating
subsidiaries.
(5) Tier 1 (inclusive of AT1) does not include CET1 numbers.
Risk and capital management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the half
year, by key drivers.
Counterparty Operational
Credit credit Market risk Total
risk risk risk
GBPbn GBPbn GBPbn GBPbn GBPbn
At 31 December 2021 120.2 7.9 7.9 21.0 157.0
--------------------------- ------ ------------ ------ ----------- -----
Foreign exchange movement 1.2 - - - 1.2
Business movement 3.7 - 1.0 (1.9) 2.8
Risk parameter changes (2.8) - - - (2.8)
Methodology changes 0.2 0.4 - - 0.6
Model updates 21.4 - (0.3) - 21.1
Acquisitions and disposals (0.1) - - - (0.1)
At 30 June 2022 143.8 8.3 8.6 19.1 179.8
--------------------------- ------ ------------ ------ ----------- -----
The table below analyses segmental RWAs.
Go-forward group
----------------------------------------------------
Total Total
excluding
Retail Private Commercial Central Ulster Ulster NatWest
& items Bank
Banking Banking Institutional & other ROI Bank Group
RoI
Total RWAs GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
At 31 December 2021 36.7 11.3 98.1 1.8 147.9 9.1 157.0
--------------------------- ------- ------- ------------- ------- ---------- ------ -------
Foreign exchange movement - - 1.0 - 1.0 0.2 1.2
Business movement 2.4 - 1.2 (0.1) 3.5 (0.7) 2.8
Risk parameter changes (1.4) - (1.4) - (2.8) - (2.8)
Methodology changes - - 0.4 - 0.4 0.2 0.6
Model updates 15.3 - 3.7 - 19.0 2.1 21.1
Acquisitions and disposals - - - - - (0.1) (0.1)
At 30 June 2022 53.0 11.3 103.0 1.7 169.0 10.8 179.8
--------------------------- ------- ------- ------------- ------- ---------- ------ -------
Credit risk 46.0 10.0 76.3 1.6 133.9 9.9 143.8
Counterparty credit risk 0.2 0.1 8.0 - 8.3 - 8.3
Market risk 0.1 - 8.5 - 8.6 - 8.6
Operational risk 6.7 1.2 10.2 0.1 18.2 0.9 19.1
Total RWAs 53.0 11.3 103.0 1.7 169.0 10.8 179.8
--------------------------- ------- ------- ------------- ------- ---------- ------ -------
Total RWAs increased by GBP22.8 billion to GBP179.8 billion
during the period mainly reflecting:
- Model updates totalling GBP21.1 billion primarily due to model
adjustments applied as a result of new regulation applicable to IRB
models from 1 January 2022 within Retail Banking, Commercial &
Institutional and Ulster Bank ROI.
- Business movements totalling GBP2.8 billion driven by
increased credit risk exposures within Retail Banking and
Commercial & Institutional, partially offset by a reduction in
credit risk exposures within Ulster Bank ROI.
- There was a partially offsetting decrease of approximately
GBP2.8 billion RWAs due to improved risk metrics within Commercial
& Institutional and Retail Banking.
Risk and capital management
Capital, liquidity and funding risk continued
Funding sources (reviewed)
The table below shows the carrying values of the principal funding sources
based on contractual maturity. Balance sheet captions include balances
held at all classifications under IFRS 9. 30 June 2022 31 December 2021
Short-term Long-term Short-term Long-term
less more less than more than
than than
1 year 1 year Total 1 year 1 year Total
GBPm GBPm GBPm GBPm GBPm GBPm
Bank deposits
---------------------- ---------- --------- ------- ---------- --------- -------
Repos 4,720 - 4,720 7,912 - 7,912
Other bank deposits
(1) 7,588 12,554 20,142 5,803 12,564 18,367
---------------------- ---------- --------- ------- ---------- --------- -------
12,308 12,554 24,862 13,715 12,564 26,279
---------------------- ---------- --------- ------- ---------- --------- -------
Customer deposits
---------- --------- -------
Repos 19,195 - 19,195 14,541 - 14,541
Non-bank financial
institutions 62,291 525 62,816 57,885 67 57,952
Personal 232,686 714 233,400 230,525 829 231,354
Corporate 176,331 333 176,664 175,850 113 175,963
---------------------- ---------- --------- ------- -------
490,503 1,572 492,075 478,801 1,009 479,810
---------------------- ---------- --------- ------- ---------- --------- -------
Trading liabilities
(2)
Repos (3) 29,406 - 29,406 19,389 - 19,389
Derivative collateral 18,276 - 18,276 17,718 - 17,718
Other bank customer
deposits 442 657 1,099 849 704 1,553
Debt securities in
issue - Medium
term notes 60 743 803 178 796 974
---------------------- ---------- --------- ------- ---------- --------- -------
48,184 1,400 49,584 38,134 1,500 39,634
---------------------- ---------- --------- -------
Other financial
liabilities
---------- --------- -------
Customer deposits 542 - 542 568 - 568
Debt securities in
issue:
Commercial papers and
certificates
of deposit 6,214 127 6,341 9,038 115 9,153
Medium term notes 7,007 30,173 37,180 6,401 29,451 35,852
Covered bonds 775 2,044 2,819 53 2,833 2,886
Securitisation - 862 862 - 867 867
---------------------- ---------- --------- ------- ---------- -------
14,538 33,206 47,744 16,060 33,266 49,326
---------------------- ---------- --------- ------- ---------- --------- -------
Subordinated
liabilities 1,804 6,306 8,110 1,375 7,054 8,429
---------------------- ---------- --------- -------
Total funding 567,337 55,038 622,375 548,085 55,393 603,478
Of which: available in
resolution
(4) 26,173 29,624
---------------------- ---------- --------- ------- ---------- --------- -------
(1) Includes GBP12.0 billion (31 December 2021 - GBP12.0 billion) relating
to Term Funding Scheme with additional incentives for Small and Medium-sized
Enterprises participation.
(2) Excludes short positions of GBP24.8 billion (31 December 2021 -
GBP25.0 billion).
(3) Comprises central & other bank repos of GBP3.1 billion (31 December
2021 - GBP0.8 billion), other financial institution repos of GBP23.4
billion (31 December 2021 - GBP17.0 billion) and other corporate repos
of GBP2.9 billion (31 December 2021 - GBP1.6 billion).
(4) Eligible liabilities (as defined in the Banking Act 2009 as amended
from time to time) that meet the eligibility criteria set out in the
regulations, rules, policies, guidelines, or statements of the Bank
of England including the Statement of Policy published by the Bank of
England in December 2021 (updating June 2018). The balance consists
of GBP20.4 billion (31 December 2021 - GBP23.4 billion) under debt securities
in issue (senior MREL) and GBP5.8 billion (31 December 2021 - GBP6.2
billion) under subordinated liabilities.
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio (reviewed)
The table below shows the liquidity portfolio by product, with primary
liquidity aligned to internal stressed outflow coverage and regulatory
LCR categorisation. Secondary liquidity comprises assets eligible for
discount at central banks, which do not form part of the liquid asset
portfolio for LCR or internal stressed outflow purposes. Liquidity value
----------------------------------------------------
30 June 2022 31 December 2021
------------------------- -------------------------
NatWest NWH UK DoL NatWest NWH UK DoL
Group Group Sub (3) Group Group Sub
(1) (2)
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- ------- ------- ------- ------- -------
Cash and balances at central
banks 176,976 143,463 139,230 174,328 140,562 136,154
------- ------- -------
AAA to AA- rated governments 18,458 8,656 7,998 31,073 21,710 21,123
A+ and lower rated governments 3 - - 25 - -
Government guaranteed issuers,
public sector entities
and government sponsored
entities 236 222 102 307 295 174
International organisations and
multilateral
development banks 2,589 1,849 1,574 2,720 1,807 1,466
-------------------------------- ------- ------- ------- ------- ------- -------
LCR level 1 bonds 21,286 10,727 9,674 34,125 23,812 22,763
-------------------------------- ------- ------- ------- ------- ------- -------
LCR level 1 assets 198,262 154,190 148,904 208,453 164,374 158,917
LCR level 2 assets - - - 117 - -
Non-LCR eligible assets - - - - - -
-------------------------------- ------- ------- ------- ------- ------- -------
Primary liquidity 198,262 154,190 148,904 208,570 164,374 158,917
Secondary liquidity (4) 70,186 70,046 69,980 77,849 77,660 76,573
-------
Total liquidity value 268,448 224,236 218,884 286,419 242,034 235,490
-------------------------------- ------- ------- ------- ------- ------- -------
(1) NatWest Group includes the UK Domestic Liquidity Sub-Group (UK
DoLSub), NatWest Markets Plc and other significant operating subsidiaries
that hold liquidity portfolios. These include The Royal Bank of
Scotland International Limited, NWM N.V. and Ulster Bank Ireland
DAC who hold managed portfolios that comply with local regulations
that may differ from PRA rules.
(2) NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold
managed portfolios that comply with local regulations that may
differ from PRA rules.
(3) UK DoLSub comprises NatWest Group's three licensed deposit-taking
UK banks within the ring-fenced bank: NWB Plc, RBS plc and Coutts
& Company. Ulster Bank Limited was previously a member of the UK
DoLSub and was removed from the UK DoLSub effective 1 January 2022.
(4) Comprises assets eligible for discounting at the Bank of England
and other central banks.
(5) NatWest Markets Plc liquidity portfolio is reported in the NatWest
Markets Plc Company Announcement.
Risk and capital management
Non-traded market risk
Non-traded market risk is the risk to the value of assets or
liabilities outside the trading book, or the risk to income, that
arises from changes in market prices such as interest rates,
foreign exchange rates and equity prices, or from changes in
managed rates.
Key developments
- In the UK, the base rate has risen from 0.25% at 31 December 2021
to 1.25% at 30 June 2022. Market concerns increasingly centred on
the speed and extent to which central banks will raise their policy
rates and use other monetary policy tightening measures to manage
inflation.
- The five-year sterling swap rate increased to 2.48% at the end of
June 2022 from 1.05% at the end of December 2021. The ten-year sterling
swap rate also increased, to 2.33% from 0.95%.
- The structural hedge notional increased by GBP24 billion from GBP206
billion to GBP230 billion, mainly due to increased hedging of higher
deposit volumes realised through the pandemic. The structural hedge
yield rose over the same period to 0.78% from 0.71% as new hedges
were booked at current market rates and maturing hedges were replaced.
- Sterling weakened against both the US dollar and the euro over the
period. Against the dollar, sterling was 1.21 at 30 June 2022 compared
to 1.35 at 31 December 2021. Against the euro, it was 1.16 at 30
June 2022 compared to 1.19 at 31 December 2021. Structural foreign
currency exposure decreased, in sterling equivalent terms, by GBP267
million over the period, mainly due to increased hedging of euro
exposure.
Non-traded internal VaR (1-day 99%) (reviewed)
The following table shows one-day internal banking book Value-at-Risk
(VaR) at a 99% confidence level, split by risk type. Half year ended
-------------------------------------------------------------------------------------------------------
30 June 2022 30 June 2021 31 December 2021
--------------------------------- --------------------------------- ---------------------------------
Period Period Period
Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ------ ------- ------- ------- ------ ------- ------- ------- ------
Interest rate 17.0 37.8 7.6 37.8 11.7 13.0 9.2 12.8 8.4 9.5 6.4 8.6
Credit spread 48.8 86.6 33.4 34.6 103.6 113.5 99.6 99.6 100.9 108.5 92.4 100.9
Structural
foreign
exchange rate 8.8 10.9 5.4 7.0 11.0 12.8 9.2 12.8 11.9 13.2 10.3 12.0
Equity 18.9 22.2 13.7 18.8 11.3 11.7 11.1 11.7 13.6 14.6 11.6 14.3
Pipeline risk
(1) 1.0 2.9 0.3 2.9 0.3 0.4 0.3 0.4 0.7 1.2 0.5 1.2
Diversification
(2) (33.4) (48.1) (3.4) (8.5) (20.9) (35.6)
Total 61.1 91.2 52.3 53.0 134.5 147.1 128.8 128.8 114.6 128.3 101.4 101.4
---------------- ------- ------- ------- ------ ------- ------- ------- ------ ------- ------- ------- ------
(1) Pipeline risk is the risk of loss arising from Personal customers
owning an option to draw down a loan - typically a mortgage - at
a committed rate, where interest rate changes may result in greater
or fewer customers than anticipated taking up the committed offer.
(2) NatWest Group benefits from diversification across various financial
instrument types, currencies and markets. The extent of the diversification
benefit depends on the correlation between the assets and risk factors
in the portfolio at a particular time. The diversification factor
is the sum of the VaR on individual risk types less the total portfolio
VaR.
- Credit spread VaR decreased in H1 2022 reflecting bond
disposals in the period. In addition, the heightened market
volatility in March 2020, resulting from the onset of the COVID-19
crisis, dropped out of the rolling window for VaR calculation
during H1 2022.
- The credit spread VaR decrease was the main driver of the reduction in total non-traded VaR.
- Interest rate VaR rose on an average basis, reflecting an
increase in hedging undertaken to reduce the sensitivity of
interest income to downward interest rate shocks.
- The increase in equity VaR reflects the agreement to invest in
Permanent TSB as part of the UBIDAC withdrawal strategy.
Risk and capital management
Non-traded market risk continued
Structural hedging
NatWest Group has a significant pool of stable, non and low
interest-bearing liabilities, principally comprising equity and
money transmission accounts. These balances are usually hedged,
either by investing directly in longer-term fixed-rate assets (such
as fixed-rate mortgages or UK government gilts) or by using
interest rate swaps, which are generally booked as cash flow hedges
of floating-rate assets, in order to provide a consistent and
predictable revenue stream.
After hedging the net interest rate exposure externally, NatWest
Group allocates income to equity or products in structural hedges
by reference to the relevant interest rate swap curve. Over time,
this approach has provided a basis for stable income attribution to
products and interest rate returns. The programme aims to track a
time series of medium-term swap rates, but the yield will be
affected by changes in product volumes and NatWest Group's capital
composition.
The table below shows the total income and total yield,
incremental income relative to short-term cash rates, and the
period-end and average notional balances allocated to equity and
products in respect of the structural hedges managed by NatWest
Group.
Half year ended
----------------------------------------------------------------------------------------------------------------------------------------------
30 June 2022 30 June 2021 31 December 2021
---------------------------------------------- ---------------------------------------------- ----------------------------------------------
Period Period Period
Incremental Total -end Average Total Incremental Total -end Average Total Incremental Total -end Average Total
income income notional notional yield income income notional notional yield income income notional notional yield
GBPm GBPm GBPbn GBPbn % GBPm GBPm GBPbn GBPbn % GBPm GBPm GBPbn GBPbn %
-------- ----------- ------ -------- -------- ----- ----------- ------ -------- -------- ----- ----------- ------ -------- -------- -----
Equity 111 178 20 20 1.77 235 244 23 23 2.13 190 204 21 21 1.96
Product 42 585 182 168 0.70 360 412 146 135 0.61 383 450 161 155 0.58
Other 29 76 28 27 0.57 74 62 21 22 0.56 65 52 24 23 0.45
----------- ------ -------- -------- ----- ----------- ------ -------- -------- ----- ----------- ------ -------- -------- -----
Total 182 839 230 215 0.78 669 718 190 180 0.80 638 706 206 199 0.71
-------- ----------- ------ -------- -------- ----- ----------- ------ -------- -------- ----- ----------- ------ -------- -------- -----
(1) Incremental income represents the difference between total
income (i.e. hedged income) and an unhedged return that is based on
short-term cash rates. For example, the sterling overnight index
average (SONIA) is used to estimate incremental income from
sterling structural hedges.
Equity structural hedges refer to income allocated primarily to
equity and reserves. At 30 June 2022, the equity structural hedge
notional was allocated between NWH Group and NWM Plc in a ratio of
approximately 83%/17% respectively.
Product structural hedges refer to income allocated to customer
products by NWH Group Treasury, mainly current accounts and
customer deposits in Commercial & Institutional and Retail
Banking. Other structural hedges refer to hedges managed by UBIDAC,
Coutts & Co and RBS International legal entities.
At 30 June 2022, approximately 93% by notional of total
structural hedges were sterling-denominated.
The following table presents the incremental income associated
with product structural hedges at segment level.
Half year ended
-----------------------------
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
-----------
Retail Banking 12 168 178
Commercial & Institutional 30 192 206
Total 42 360 384
--------------------------- ------- ------- -----------
- The increase in the structural hedge notional mainly resulted
from hedging of Retail and Commercial deposits.
- The five-year sterling swap rate rose to 2.48% at 30 June 2022
from 1.05% at 31 December 2021. The ten-year sterling swap rate
also rose, to 2.33% from 0.95%. Higher swap rates resulted in the
total yield of the structural hedge rising to 0.78% from 0.71% in
H1 2022.
- Despite the increase in total yield, incremental income fell.
This reflects the relative stability of the total yield of the
structural hedge compared to an unhedged portfolio earning
short-term cash rates. Compared to the 7-basis-point increase in
the structural hedge total yield, SONIA increased 100 basis points
to 1.19% at 30 June 2022 from 0.19% at 31 December 2021.
Risk and capital management
Non-traded market risk continued
Sensitivity of net interest earnings
Net interest earnings are sensitive to changes in the level of
interest rates, mainly because maturing structural hedges are
replaced at higher or lower rates and changes to coupons on managed
rate customer products do not always match changes in market rates
of interest or central bank policy rates.
Earnings sensitivity is derived from a market-implied forward
rate curve, which will incorporate expected changes in central bank
policy rates such as the Bank of England base rate. A simple
scenario is shown that projects forward earnings based on the 30
June 2022 balance sheet, which is assumed to remain constant. An
earnings projection is derived from the market-implied curve, which
is then subject to interest rate shocks. The difference between the
market-implied projection and the shock gives an indication of
underlying sensitivity to interest rate movements.
Reported sensitivities should not be considered a forecast of
future performance in these rate scenarios. Actions that could
reduce interest earnings sensitivity include changes in pricing
strategies on customer loans and deposits as well as hedging.
Management action may also be taken to stabilise total income also
taking into account non-interest income.
Three-year 25 basis point sensitivity table
The table below shows the sensitivity of net interest earnings -
for both structural hedges and managed rate accounts - on a one,
two and three-year forward-looking basis to an upward or downward
interest rate shift of 25 basis points.
In the upward rate scenarios, yield curves were assumed to move
in parallel. The downward rate scenarios allow interest rates to
fall to negative rates. At 30 June 2022, negative rates affected
only euro earnings sensitivity.
+25 basis points upward -25 basis points downward
shift shift
--------------------------- -----------------------------
Year 1 Year 2 Year 3 Year 1 Year 2 Year 3
(1) (1) (1) (1)
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm
Structural hedges 45 150 253 (45) (150) (253)
Managed margin 231 227 223 (219) (205) (227)
Total 276 377 476 (264) (355) (480)
------------------ -------- -------- ------- --------- -------- --------
31 December 2021
-------- -------- ------- --------- -------- --------
Structural hedges 40 132 224 (40) (132) (224)
Managed margin 269 203 239 (245) (199) (177)
Total 309 335 463 (285) (331) (401)
------------------ -------- -------- ------- --------- -------- --------
(1) Earnings sensitivity considers only the main drivers, namely
structural hedging and margin management.
(2) Following a change in the basis of preparation of this
table, it now excludes UBIDAC. Including UBIDAC would increase Year
1 sensitivity by 4-5%.
The following table analyses the one-year scenarios by currency
and, in addition, shows the impact over one year of a
100-basis-point upward shift in all interest rates.
Shifts in yield curve
--------------------------------------------------------------
30 June 2022 31 December 2021
---------------------------- --------------------------------
+25 basis -25 basis +100 +25 basis -25 basis +100 basis
basis
points points points points points points
GBPm GBPm GBPm GBPm GBPm GBPm
--------- --------- ------ --------- --------- ----------
Euro 7 6 47 7 15 64
Sterling 255 (253) 980 260 (265) 950
US dollar 13 (16) 56 40 (33) 143
Other 1 (1) 6 2 (2) 11
---------- --------- --------- ----------
Total 276 (264) 1,089 309 (285) 1,168
---------- --------- --------- ------ --------- --------- ----------
(1) Following a change in the basis of preparation of this table, it now excludes UBIDAC.
Risk and capital management
Non-traded market risk continued
Foreign exchange risk (reviewed)
The table below shows structural foreign currency exposures. Structural
Net foreign currency Residual
investments Net exposures structural
in foreign investment pre-economic Economic foreign currency
operations hedges hedges hedges exposures
(1)
30 June 2022 GBPm GBPm GBPm GBPm GBPm
US dollar 1,332 (206) 1,126 (1,126) -
Euro 7,051 (3,898) 3,153 - 3,153
Other
non-sterling 1,011 (420) 591 - 591
----------------- ----------- ---------- ---------------- -------- ----------------
Total 9,394 (4,524) 4,870 (1,126) 3,744
31 December 2021
----------------- ----------- ---------- ---------------- -------- ----------------
US dollar 1,275 (260) 1,015 (1,015) -
Euro 6,222 (2,669) 3,553 - 3,553
Other
non-sterling 990 (421) 569 - 569
----------- ---------- ---------------- -------- ----------------
Total 8,487 (3,350) 5,137 (1,015) 4,122
----------------- ----------- ---------- ---------------- -------- ----------------
(1) Economic hedges of US dollar net investments in foreign operations
represent US dollar equity securities that do not qualify as net investment
hedges for accounting purposes. They provide an offset to structural
foreign exchange exposures to the extent that there are net assets in
overseas operations available.
- The increase in net investments in foreign operations resulted from
increased investment in European operations. Sterling weakening against
other currencies over the period also contributed to the increase.
- The increase in net investment hedges notably reflected increased
hedging of European operations as well as the sterling weakening.
- Changes in foreign currency exchange rates affect equity in proportion
to structural foreign currency exposure. For example, a 5% strengthening
or weakening in foreign currencies against sterling would result in
a gain or loss of GBP0.2 billion in equity respectively.
Risk and capital management
Traded market risk
Traded market risk is the risk arising from changes in fair
value on positions, assets, liabilities or commitments in trading
portfolios as a result of fluctuations in market prices.
Traded VaR (1-day 99%) (reviewed)
The table below shows one-day internal value-at-risk (VaR) for NatWest
Group's trading portfolios, split by exposure type. Half year ended
-------------------------------------------------------------------------------------------------------
30 June 2022 30 June 2021 31 December 2021
--------------------------------- --------------------------------- ---------------------------------
Period Period Period
Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------- ------- ------ ------- ------- ------- ------ ------- ------- ------- ------
Interest rate 7.4 12.6 4.1 6.0 11.3 19.0 4.5 17.4 9.6 25.3 4.7 8.9
Credit spread 8.5 12.0 6.5 6.9 11.0 13.4 9.4 11.2 11.6 13.2 10.0 10.7
Currency 2.8 8.0 1.2 2.3 3.9 9.4 2.0 2.4 3.0 8.6 1.7 2.2
Equity 0.1 0.3 - - 0.5 0.8 0.2 0.2 0.2 0.5 - 0.2
Commodity - - - - 0.2 0.5 - - - 0.1 - -
Diversification
(1) (8.3) (6.0) (13.5) (15.5) (11.1) (10.5)
------- ------ ------- ------ ------- ------
Total 10.5 15.1 7.2 9.2 13.4 23.9 9.5 15.7 13.3 21.1 9.3 11.5
---------------- ------- ------- ------- ------ ------- ------- ------- ------ ------- ------- ------- ------
(1) NatWest Group benefits from diversification across various financial
instrument types, currencies and markets. The extent of the diversification
benefit depends on the correlation between the assets and risk factors
in the portfolio at a particular time. The diversification factor
is the sum of the VaR on individual risk types less the total portfolio
VaR.
- The decrease in average interest rate VaR, compared to both H1 2021
and H2 2021, reflected a reduction in tenor basis risk in sterling
flow trading. This followed a regulator-approved update to the VaR
model, which was applied in Q3 2021 to address the impact of the transition
from LIBOR to alternative risk-free rates.
- Average credit spread VaR also declined because the heightened market
volatility in March 2020, resulting from the onset of the COVID-19
crisis, dropped out of the rolling window for VaR calculation during
H1 2022.
Risk and capital management
Other risks
Operational risk
Risk management continued to focus on delivering strong
operational resilience and a robust supply chain, with particular
emphasis on internal change programmes aimed at enhancing customer
experience, ensuring NatWest Group's operations and external
suppliers continue to be resilient against disruption and
developing technology solutions to mitigate operational risks.
The security threat and the potential for cyber-attacks on
NatWest Group and its supply chain continued to be closely
monitored and timely remediation of any identified control gaps.
NatWest Group continued to focus heavily on its defences during the
reporting period as well as on the security of its supply
chain.
Conduct & compliance risk
The impact of the cost of living challenge remained a key
priority for the conduct and regulatory compliance agenda. NatWest
Group continues to review forbearance and treatment for customers,
recognising differing needs and support required where appropriate
to provide good outcomes for all.
There was continued oversight of delivery of the mandatory and
regulatory change programmes, with a particular focus on the impact
of proposed regulation to enhance customer care.
In addition, there was a sustained emphasis on compliance with
the UK's ring-fencing legislation as NatWest Group continued to
review and update organisational designs to best serve its
customers.
Climate risk
NatWest Group continued to embed climate considerations within
its risk management framework throughout the reporting period, with
work focused on making iterative advancements in capabilities
towards quantitative techniques in risk assessment .
Particular attention continues to be paid to developing a
NatWest Group transition plan for which the identification,
assessment and management of transition risk is a critical
component.
NatWest Group has also continued to develop its data, modelling
and scenario analysis capabilities to support the assessment of
customers' physical and transition risks.
The Bank of England's findings following its Climate Biennial
Exploratory Scenario - in which NatWest Group participated - were
released to the industry in Q2 2022. These provided helpful
insights for the continued maturing of NatWest Group's climate risk
activity for H2 2022 and beyond; NatWest Group will seek alignment
with the 'observed examples of good practice' published by the Bank
of England as appropriate.
Condensed consolidated income statement for the period ended 30
June 2022 (unaudited)
Half year ended
30 June 30 June
2022 2021
GBPm GBPm
-------- -------
Interest receivable 5,250 4,610
Interest payable (916) (866)
--------------------------------------------------------------- -------- -------
Net interest income 4,334 3,744
--------------------------------------------------------------- -------- -------
Fees and commissions receivable 1,424 1,304
Fees and commissions payable (300) (285)
Income from trading activities 709 231
Other operating income 52 147
--------------------------------------------------------------- -------- -------
Non-interest income 1,885 1,397
--------------------------------------------------------------- -------- -------
Total income 6,219 5,141
--------------------------------------------------------------- -------- -------
Staff costs (1,808) (1,880)
Premises and equipment (534) (502)
Other administrative expenses (898) (703)
Depreciation and amortisation (413) (414)
--------------------------------------------------------------- -------- -------
Operating expenses (3,653) (3,499)
--------------------------------------------------------------- -------- -------
Profit before impairment releases 2,566 1,642
Impairment releases 54 683
--------------------------------------------------------------- -------- -------
Operating profit before tax 2,620 2,325
Tax charge (795) (432)
--------------------------------------------------------------- -------- -------
Profit from continuing operations 1,825 1,893
--------------------------------------------------------------- -------- -------
Profit from discontinued operations, net of tax 190 177
--------------------------------------------------------------- -------- -------
Profit for the period 2,015 2,070
--------------------------------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 1,891 1,842
Preference shareholders - 9
Paid-in equity holders 121 178
Non-controlling interests 3 41
--------------------------------------------------------------- -------- -------
2,015 2,070
--------------------------------------------------------------- -------- -------
Earnings per ordinary share - continuing operations 15.7p 14.1p
Earnings per ordinary share - discontinued operations 1.7p 1.5p
--------
Total earnings per share attributable to ordinary shareholders
- basic 17.4p 15.6p
--------------------------------------------------------------- -------- -------
Earnings per ordinary share - fully diluted continuing
operations 15.6p 14.0p
Earnings per ordinary share - fully diluted discontinued
operations 1.7p 1.5p
--------
Total earnings per share attributable to ordinary shareholders
- fully diluted 17.3p 15.5p
--------------------------------------------------------------- -------- -------
Condensed consolidated statement of comprehensive income for the
period ended 30 June 2022 (unaudited)
Half year ended
-----------------
30 June 30 June
2022 2021
GBPm GBPm
Profit for the period 2,015 2,070
--------------------------------------------------------- -------- -------
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (1) (517) (734)
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss
(FVTPL) due to own credit risk 91 (25)
Fair value through other comprehensive income (FVOCI)
financial assets 3 8
Tax 123 182
(300) (569)
--------------------------------------------------------- -------- -------
Items that do qualify for reclassification
FVOCI financial assets (458) (145)
Cash flow hedges (1,557) (365)
Currency translation 185 (288)
Tax 566 65
(1,264) (733)
--------------------------------------------------------- -------- -------
Other comprehensive losses after tax (1,564) (1,302)
--------------------------------------------------------- -------- -------
Total comprehensive income for the period 451 768
--------------------------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 327 535
Preference shareholders - 9
Paid-in equity holders 121 178
Non-controlling interests 3 46
451 768
--------------------------------------------------------- -------- -------
(1) Following the purchase of ordinary shares from UKGI in March
2021, NatWest Group contributed GBP500 million to its main pension
scheme in line with the memorandum of understanding announced on 17
April 2018. After tax relief, this contribution reduced total
equity by GBP365 million. In line with our policy, the present
value of defined benefit obligations and the fair value of plan
assets at the end of the interim reporting period are assessed to
identity significant market fluctuations and one-off events since
the end of the prior financial year.
Condensed consolidated balance sheet as at 30 June 2022
(unaudited)
30 June 31 December
2022 2021
GBPm GBPm
Assets
Cash and balances at central banks 179,525 177,757
Trading assets 65,604 59,158
Derivatives 109,342 106,139
Settlement balances 10,294 2,141
Loans to banks - amortised cost 10,668 7,682
Loans to customers - amortised cost 362,551 358,990
Other financial assets 38,896 46,145
Intangible assets 6,869 6,723
Other assets 8,542 8,242
Assets of disposal groups 14,187 9,015
------------------------------------ ------- -----------
Total assets 806,478 781,992
------------------------------------ ------- -----------
Liabilities
Bank deposits 24,862 26,279
Customer deposits 492,075 479,810
Settlement balances 9,779 2,068
Trading liabilities 74,345 64,598
Derivatives 102,719 100,835
Other financial liabilities 47,744 49,326
Subordinated liabilities 8,110 8,429
Notes in circulation 2,947 3,047
Other liabilities 5,270 5,797
------------------------------------ ------- -----------
Total liabilities 767,851 740,189
------------------------------------ ------- -----------
Equity
Ordinary shareholders' interests 34,727 37,412
Other owners' interests 3,890 4,384
------------------------------------ ------- -----------
Owners' equity 38,617 41,796
Non-controlling interests 10 7
------------------------------------ ------- -----------
Total equity 38,627 41,803
------------------------------------ ------- -----------
Total liabilities and equity 806,478 781,992
------------------------------------ ------- -----------
Condensed consolidated statement of changes in equity for the
period ended 30 June 2022 (unaudited)
Half year ended
-----------------
30 June 30 June
2022 2021
GBPm GBPm
Called-up share capital - at beginning of period 11,468 12,129
Ordinary shares issued - 38
Share cancellation (1,4) (885) (391)
--------------------------------------------------------- -------- -------
At end of period 10,583 11,776
--------------------------------------------------------- -------- -------
Paid-in equity - at beginning of period 3,890 4,999
Securities issued during the period (2) - 937
At end of period 3,890 5,936
--------------------------------------------------------- -------- -------
Share premium account - at beginning of period 1,161 1,111
Ordinary shares issued - 50
At end of period 1,161 1,161
--------------------------------------------------------- -------- -------
Merger reserve - at beginning and end of period 10,881 10,881
--------------------------------------------------------- -------- -------
FVOCI reserve - at beginning of period 269 360
Unrealised losses (444) (113)
Realised gains (17) (23)
Tax 125 15
--------------------------------------------------------- -------- -------
At end of period (67) 239
--------------------------------------------------------- -------- -------
Cash flow hedging reserve - at beginning of period (395) 229
Amount recognised in equity (1,386) (323)
Amount transferred from equity to earnings (171) (42)
Tax 426 59
--------------------------------------------------------- -------- -------
At end of period (1,526) (77)
--------------------------------------------------------- -------- -------
Foreign exchange reserve - at beginning of period 1,205 1,608
Retranslation of net assets 307 (336)
Foreign currency (losses)/gains on hedges of net assets (122) 43
Tax 14 (11)
At end of period 1,404 1,304
--------------------------------------------------------- -------- -------
Capital redemption reserve - at beginning of period 722 -
Share cancellation (1,4) 885 390
Redemption of preference shares - 24
At end of period 1,607 414
--------------------------------------------------------- -------- -------
Retained earnings - at beginning of period 12,966 12,567
Profit attributable to ordinary shareholders and other
equity owners
- continuing 1,822 1,855
- discontinued 190 174
Equity preference dividends paid - (9)
Paid-in equity dividends paid (121) (178)
Ordinary dividends paid (841) (347)
Shares repurchased during the year (1,4) (1,958) (748)
Redemption of preference shares (5) (750) (24)
Tax on redemption/reclassification of paid-in equity (21) -
Realised losses/(gains) in period on FVOCI equity shares 6 (1)
Remeasurement of the retirement benefit schemes (3)
- gross (517) (734)
- tax 133 182
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss
- gross 91 (25)
- tax (9) 2
Shares issued under employee share schemes 5 -
Share-based payments (33) (82)
--------------------------------------------------------- -------- -------
At end of period 10,963 12,632
--------------------------------------------------------- -------- -------
Condensed consolidated statement of changes in equity for the
period ended 30 June 2022 continued (unaudited)
Half year ended
30 June 30 June
2022 2021
GBPm GBPm
Own shares held - at beginning of period (371) (24)
Shares issued under employee share schemes 92 17
Own shares acquired - (384)
----------------------------------------------------- -------- -------
At end of period (279) (391)
Owners' equity at end of period 38,617 43,875
----------------------------------------------------- -------- -------
Non-controlling interests - at beginning of period 7 (36)
Currency translation adjustments and other movements - 5
Profit attributable to non-controlling interests 3 41
At end of period 10 10
----------------------------------------------------- -------- -------
Total equity at end of period 38,627 43,885
Attributable to:
Ordinary shareholders 34,727 37,445
Preference shareholders - 494
Paid-in equity holders 3,890 5,936
Non-controlling interests 10 10
----------------------------------------------------- -------- -------
38,627 43,885
----------------------------------------------------- -------- -------
(1) In March 2022, there was an agreement with HM Treasury to
buy 549.9 million ordinary shares in the Company from UK Government
Investments Ltd (UKGI), at 220.5p per share for the total
consideration of GBP1.22 billion. NatWest Group cancelled 549.9
million of the purchased ordinary shares. The nominal value of the
share cancellation has been transferred to the capital redemption
reserve.
(2) In June 2021, AT1 capital notes totalling US$750 million less fees were issued.
(3) Following the purchase of ordinary shares from UKGI in Q1
2022, NatWest Group contributed GBP500 million (2021 - GBP500
million) to its main pension scheme in line with the memorandum of
understanding announced on 17 April 2018. After tax relief, this
contribution reduced total equity by GBP365 million (2021 - GBP354
million). In line with our policy, the present value of defined
benefit obligations and the fair value of plan assets at the end of
the interim reporting period, are assessed to identity significant
market fluctuations and one-off events since the end of the prior
financial year.
(4) NatWest Group plc repurchased and cancelled 345.6 million
shares for total consideration of GBP756.7 million excluding fees
in H1 2022, as part of the On Market Share Buyback Programme. Of
the 345.6 million shares bought back, 10.7 million shares were
settled and cancelled in July 2022. The nominal value of the share
cancellations has been transferred to the capital redemption
reserve.
(5) Following an announcement of a Regulatory Call in February
2022, the Series U preference shares were reclassified to
liabilities. A GBP254 million loss was recognised in P&L
reserves due to FX unlocking.
Condensed consolidated cash flow statement for the period ended
30 June 2022 (unaudited)
Half year ended
-----------------
30 June 30 June
2022 2021
GBPm GBPm
Operating activities
Operating profit before tax from continuing operations 2,620 2,325
Operating profit before tax from discontinued operations 190 180
Adjustments for non-cash items 355 2,635
-------------------------------------------------------------- -------- -------
Net cash flows from trading activities 3,165 5,140
Changes in operating assets and liabilities 7,966 25,745
-------------------------------------------------------------- -------- -------
Net cash flows from operating activities before tax 11,131 30,885
Income taxes paid (575) (259)
-------------------------------------------------------------- -------- -------
Net cash flows from operating activities 10,556 30,626
Net cash flows from investing activities 5,713 (790)
Net cash flows from financing activities (6,970) (359)
Effects of exchange rate changes on cash and cash equivalents 2,224 (1,935)
-------------------------------------------------------------- -------- -------
Net increase in cash and cash equivalents 11,523 27,542
Cash and cash equivalents at beginning of period 190,706 139,199
-------------------------------------------------------------- -------- -------
Cash and cash equivalents at end of period 202,229 166,741
-------------------------------------------------------------- -------- -------
Notes
1. Presentation of condensed consolidated financial
statements
The condensed consolidated financial statements are set out on
pages 80 to 104 and the reviewed sections of Risk and capital
management on pages 19 to 79. The directors have prepared these on
a going concern basis after assessing the principal risks,
forecasts, projections and other relevant evidence over the twelve
months from the date they are approved and in accordance with IAS
34 'Interim Financial Reporting', as adopted by the UK and as
issued by the International Accounting Standards Board (IASB), and
the Disclosure Guidance and Transparency Rules sourcebook of the
UK's Financial Conduct Authority. They should be read in
conjunction with NatWest Group plc's 2021 Annual Report and
Accounts.
Comparative period results have been re-presented from those
previously published to reclassify certain items as discontinued
operations. For further details refer to Note 8 on page 90.
2. Accounting policies
NatWest Group's principal accounting policies are as set out on
pages 307 to 312 of NatWest Group plc's 2021 Annual Report and
Accounts. Amendments to IFRS effective from 1 January 2022 had no
material effect on the condensed consolidated financial
statements.
Critical accounting policies and key sources of estimation
uncertainty
The judgments and assumptions that are considered to be the most
important to the portrayal of NatWest Group's financial condition
are those relating to deferred tax, fair value of financial
instruments, loan impairment provisions, goodwill and provisions
for liabilities and charges. These critical accounting policies and
judgments are noted on page 311 of NatWest Group plc's 2021 Annual
Report and Accounts. Management's consideration of uncertainty is
outlined in the relevant sections of NatWest Group plc's 2021
Annual Report and Accounts, including the ECL estimate for the
period in the Risk and capital management section contained in
NatWest Group plc's 2021 Annual Report and Accounts.
Information used for significant estimates
Key financial estimates are based on management's latest
five-year revenue and cost forecasts. Measurement of goodwill,
deferred tax and expected credit losses are highly sensitive to
reasonably possible changes in those anticipated conditions.
Changes in judgments and assumptions could result in a material
adjustment to those estimates in future reporting periods. (Refer
to the Summary Risk Factors on page 106 which should be read in
conjunction with the Risk factors included in NatWest Group plc's
2021 Annual Report and Accounts).
Notes
3. Net interest income
Half year ended
-----------------
30 June 30 June
2022 2021
Continuing operations GBPm GBPm
Loans to customers - amortised cost 4,483 4,261
Loans to banks - amortised cost 582 217
Other financial assets 185 132
--------------------------------------- -------- -------
Interest receivable 5,250 4,610
--------------------------------------- -------- -------
Deposits by banks 157 99
Customer deposits 179 319
Other financial liabilities 433 314
Subordinated liabilities 141 130
Internal funding of trading businesses 6 4
Interest payable 916 866
--------------------------------------- -------- -------
Net interest income 4,334 3,744
--------------------------------------- -------- -------
4. Non-interest income
Half year ended
-----------------
30 June 30 June
2022 2021
Continuing operations GBPm GBPm
Net fees and commissions (1) 1,124 1,019
------------------------------------------------------------- -------- -------
Foreign exchange 258 183
Interest rate 416 (6)
Credit 33 54
Equity, commodities and other 2 -
Income from trading activities 709 231
------------------------------------------------------------- -------- -------
Loss on redemption of own debt (24) (138)
Operating lease and other rental income 114 108
Changes in fair value of financial liabilities designated
at fair value through profit or loss (2) 21 (4)
Hedge ineffectiveness (22) 13
Loss on disposal of amortised cost assets (16) (6)
Profit on disposal of fair value through other comprehensive
income assets 10 24
Share of profit of associated entities (20) 129
Other income (3) (11) 21
Other operating income 52 147
------------------------------------------------------------- -------- -------
Non-interest income 1,885 1,397
------------------------------------------------------------- -------- -------
(1) Refer to Note 6 for further analysis.
(2) Includes related derivatives.
(3) Includes income from activities other than banking.
5. Operating expenses
Half year ended
-----------------
30 June 30 June
2022 2021
Continuing operations GBPm GBPm
Salaries 1,103 1,172
Bonus awards 195 142
Temporary and contract costs 116 114
Social security costs 163 150
Pension costs 184 177
- defined benefit schemes 108 110
- defined contribution schemes 76 67
---------------------------------- -------- -------
Other 47 125
Staff costs 1,808 1,880
---------------------------------- -------- -------
Premises and equipment 534 502
Depreciation and amortisation 413 414
Other administrative expenses 898 703
Administrative expenses 1,845 1,619
---------------------------------- -------- -------
Operating expenses 3,653 3,499
---------------------------------- -------- -------
Notes
6. Segmental analysis
On 27 January 2022, NatWest Group announced that a new
franchise, Commercial & Institutional, would be created,
bringing together the Commercial, NatWest Markets and RBSI
businesses to form a single franchise, with common management and
objectives, to best support our customers across the full
non-personal customer lifecycle. Comparatives have been
re-presented. The re-presentation of operating segments does not
change the consolidated financial results of NatWest Group.
The business is organised into the following reportable
segments: Retail Banking, Private Banking, Commercial &
Institutional, Central items & other and Ulster Bank RoI.
Analysis of operating profit/(loss) before tax
The following tables provide a segmental analysis of operating
profit/(loss) before tax by the main income statement captions.
Go-forward group
---------------------------------------------------
Total
Central excluding Ulster
Retail Private Commercial items Ulster Bank
& &
Banking Banking Institutional other Bank RoI Total
RoI
Half year ended 30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------- ------- ------------- ------- --------- ------ -------
Continuing operations
Net interest income 2,340 315 1,764 (91) 4,328 6 4,334
Net fees and commissions 219 131 753 7 1,110 14 1,124
Other non-interest income (5) 15 420 318 748 13 761
Total income 2,554 461 2,937 234 6,186 33 6,219
------------------------------ ------- ------- ------------- ------- --------- ------ -------
Depreciation and amortisation - - (82) (331) (413) - (413)
Other operating expenses (1,242) (285) (1,738) 279 (2,986) (254) (3,240)
Impairment (losses)/releases (26) 11 59 2 46 8 54
Operating profit/(loss) 1,286 187 1,176 184 2,833 (213) 2,620
------------------------------ ------- ------- ------------- ------- --------- ------ -------
Half year ended 30 June 2021
------------------------------ ------- ------- ------------- ------- --------- ------ -------
Continuing operations
Net interest income 1,976 232 1,487 34 3,729 15 3,744
Net fees and commissions 173 124 702 (10) 989 30 1,019
Other non-interest income 1 12 285 60 358 20 378
Total income 2,150 368 2,474 84 5,076 65 5,141
------------------------------ ------- ------- ------------- ------- --------- ------ -------
Depreciation and amortisation - - (85) (329) (414) - (414)
Other operating expenses (1,187) (249) (1,739) 329 (2,846) (239) (3,085)
Impairment releases/(losses) 57 27 613 (1) 696 (13) 683
------------------------------
Operating profit/(loss) 1,020 146 1,263 83 2,512 (187) 2,325
------------------------------ ------- ------- ------------- ------- --------- ------ -------
Total revenue (1)
Go-forward group
---------------------------------------------------
Total
Central excluding Ulster
Retail Private Commercial items Ulster Bank
& &
Banking Banking Institutional other Bank RoI Total
RoI
Half year ended 30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
External 2,766 407 3,020 1,167 7,360 75 7,435
Inter-segmental - 106 76 (182) - - -
----------------------------- ------- ------- ------------- ------- --------- ------ -----
Total 2,766 513 3,096 985 7,360 75 7,435
----------------------------- ------- ------- ------------- ------- --------- ------ -----
Half year ended 30 June 2021
Continuing operations
External 2,667 358 2,662 508 6,195 97 6,292
Inter-segmental 14 60 63 (137) - - -
----------------------------- ------- ------- ------------- ------- --------- ------ -----
Total 2,681 418 2,725 371 6,195 97 6,292
----------------------------- ------- ------- ------------- ------- --------- ------ -----
(1) Total revenue comprises interest receivable, fees and commissions
receivable, income from trading activities and other operating income.
Notes
6. Segmental analysis continued
Analysis of net fees and commissions
Go-forward group
---------------------------------------------------
Total
Central excluding Ulster
Retail Private Commercial items Ulster Bank
& &
Banking Banking Institutional other Bank RoI Total
RoI
Half year ended 30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------
Continuing operations
Fees and commissions receivable
- Payment services 152 17 308 - 477 26 503
- Credit and debit card fees 203 8 102 - 313 10 323
- Lending and financing 8 4 327 - 339 1 340
- Brokerage 27 3 21 - 51 - 51
- Investment management,
trustee and fiduciary services 1 114 22 - 137 - 137
- Underwriting fees - - 65 - 65 - 65
- Other - - 56 (51) 5 - 5
------------------------------------- ------- ------- ------------- ------- --------- ------ -----
Total 391 146 901 (51) 1,387 37 1,424
Fees and commissions payable (172) (15) (148) 58 (277) (23) (300)
------------------------------------- ------- ------- ------------- ------- --------- ------ -----
Net fees and commissions 219 131 753 7 1,110 14 1,124
Half year ended 30 June 2021
------------------------------------- ------- ------- ------------- ------- --------- ------ -----
Continuing operations
Fees and commissions receivable
- Payment services 145 16 271 - 432 26 458
- Credit and debit card fees 149 4 70 - 223 8 231
- Lending and financing 6 4 304 - 314 1 315
- Brokerage 32 3 25 - 60 - 60
- Investment management,
trustee and fiduciary services 1 113 22 - 136 1 137
- Underwriting fees - - 77 - 77 - 77
- Other - 16 66 (56) 26 - 26
------- ------- ------------- ------- --------- ------ -----
Total 333 156 835 (56) 1,268 36 1,304
-------------------------------------
Fees and commissions payable (160) (32) (133) 46 (279) (6) (285)
------- ------- ------------- ------- --------- ------ -----
Net fees and commissions 173 124 702 (10) 989 30 1,019
------------------------------------- ------- ------- ------------- ------- --------- ------ -----
Total assets and liabilities
Go-forward group
----------------------------------------------------
Total
Central excluding Ulster
Retail Private Commercial items Ulster Bank
& &
Banking Banking Institutional other Bank RoI Total
RoI
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Assets 216,174 30,045 451,530 87,050 784,799 21,679 806,478
Liabilities 194,182 41,720 441,393 74,359 751,654 16,197 767,851
----------------- -------- ------- ------------- ------- --------- ------ --------
31 December 2021
Assets 209,973 29,854 425,718 93,614 759,159 22,833 781,992
Liabilities 192,715 39,388 411,757 77,308 721,168 19,021 740,189
----------------- -------- ------- ------------- ------- --------- ------ --------
Notes
7. Tax
The actual tax charge differs from the expected tax charge
computed by applying the standard UK corporation tax rate of 19%
(2021 - 19%), as analysed below:
Half year ended
30 June 30 June
2022 2021
Continuing operations GBPm GBPm
Profit before tax 2,620 2,325
------------------------------------------------------------- -------- -------
Expected tax charge (498) (442)
Losses and temporary differences in period where no deferred
tax assets recognised (51) (28)
Foreign profits taxed at other rates (39) (8)
Items not allowed for tax:
- losses on disposals and write-downs (4) (3)
- UK bank levy (9) (11)
- regulatory and legal actions (13) 3
- other disallowable items (12) (10)
Non-taxable items 8 25
Taxable foreign exchange movements (7) -
Losses bought forward and utilised - 6
Increase/(decrease) in the carrying value of deferred
tax assets in respect of:
- UK losses 10 (5)
- Ireland losses (1) (32)
Banking surcharge (207) (173)
Tax on paid-in equity 22 32
UK tax rate change impact (31) 206
Adjustments in respect of prior periods 37 8
Actual tax charge (795) (432)
------------------------------------------------------------- -------- -------
At 30 June 2022, NatWest Group has recognised a deferred tax
asset of GBP1,637 million (31 December 2021 - GBP1,195 million) and
a deferred tax liability of GBP286 million (31 December 2021 -
GBP359 million). These amounts include deferred tax assets
recognised in respect of trading losses of GBP801 million (31
December 2021 - GBP899 million). NatWest Group has considered the
carrying value of these assets as at 30 June 2022 and concluded
that they are recoverable.
It was announced in the UK Government's Budget on 27 October
2021 that the UK banking surcharge will decrease from 8% to 3% from
1 April 2023. This legislative change was substantively enacted on
2 February 2022. NatWest Group's closing deferred tax assets and
liabilities have therefore been recalculated taking into account
this change of rate and the applicable period the deferred tax
assets and liabilities are expected to crystallise.
8. Discontinued operations and assets and liabilities of
disposal groups
Three legally binding agreements for the sale of UBIDAC business
have been announced as part of the phased withdrawal from the
Republic of Ireland:
On 28 June 2021 NatWest Group announced it had agreed a binding
sale agreement with Allied Irish Banks, p.l.c. for the transfer of
c.EUR4.2 billion (plus up to EUR2.8 billion of undrawn exposures),
of gross performing commercial loans as well as those c.280
colleagues who are wholly or mainly assigned to supporting that
part of the business, with the final number of roles to be
confirmed as the deal completes. On 28 April 2022, approval was
received from the Irish competition authority (the CCPC) in
relation to this sale, which is expected to be completed in a
series of transactions during 2022 and H1 2023.
On 17 December 2021 NatWest Group signed a legally binding
agreement with Permanent TSB p.l.c. (PTSB) for the sale of
approximately EUR7.6bn of gross performing non-tracker mortgages
(as at 30 June 2021), the performing loans in the micro-SME
business; the UBIDAC Asset Finance business, including its Lombard
digital platform, and 25 Ulster Bank branch locations in the
Republic of Ireland. The majority of loans are expected to transfer
by Q4 2022. As part of the transaction it is anticipated that c.450
colleagues will have the right to transfer under the TUPE
regulations, with the final number of roles to be confirmed as the
deal completes. On 22 July 2022, confirmation was received from the
CCPC that it had cleared this sale. Shareholders of PTSB's holding
company have also approved this transaction.
On 1 June 2022 a legally binding agreement was reached with
Allied Irish Banks, p.l.c. for the sale of 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.
The business activities relating to these sales that meet the
requirements of IFRS 5 are presented as a discontinued operation
and as a disposal group at 30 June 2022. Comparatives have been
re-presented from those previously published to reclassify certain
items as discontinued operations. The Ulster Bank RoI operating
segment continues to be reported separately and reflects the
results and balance sheet position of its continuing
operations.
Notes
8. Discontinued operations and assets and liabilities of
disposal groups continued
Further to the announced sales of the majority of mortgage loans
held, in June 2022 UBIDAC announced the cessation of new mortgage
business to its customers. This decision represents a change to the
IFRS9 business model on mortgage financial assets in UBIDAC. We
will reclassify these assets to fair value through profit and loss
from 1 July 2022 as required by IFRS9. We anticipate a c.EUR350
million reduction in mortgage financial assets moving from an
amortised cost basis to a fair value basis. This reclassification
applies to all mortgage financial assets in UBIDAC across both our
continuing and discontinued operations.
(a) Profit from discontinued operations, net of tax
30 June 30 June
2022 2021
GBPm GBPm
Interest receivable 156 172
------------------------------------------------ ------- -------
Net interest income 156 172
Non-interest income (4) 6
Total income 152 178
Operating expenses (24) (22)
------------------------------------------------ ------- -------
Profit before impairment releases 128 156
Impairment releases 62 24
Operating profit before tax 190 180
Tax charge - (3)
------------------------------------------------ ------- -------
Profit from discontinued operations, net of tax 190 177
------- -------
(b) Assets and liabilities of disposal groups
30 June 31 December
2022 2021
GBPm GBPm
Assets of disposal groups
Loans to customers - amortised cost 14,178 9,002
Derivatives 1 5
Other assets 8 8
------------------------------------ ------- -----------
14,187 9,015
------- -----------
Liabilities of disposal groups
Other liabilities 8 5
------------------------------------ ------- -----------
8 5
------- -----------
Net assets of disposal groups 14,179 9,010
------------------------------------ ------- -----------
(c) Operating cash flows attributable to discontinued
operations
30 June 30 June
2022 2021
GBPm GBPm
Net cash flows from operating activities 402 857
Net cash flows from investing activities 150 -
------------------------------------------ ------- -------
Net increase in cash and cash equivalents 552 857
------- -------
Notes
9. Financial instruments - classification
The following tables analyse financial assets and liabilities in
accordance with the categories of financial instruments in IFRS
9.
Amortised Other
MFVTPL FVOCI cost assets Total
Assets GBPm GBPm GBPm GBPm GBPm
Cash and balances at central banks 179,525 179,525
Trading assets 65,604 65,604
Derivatives (1) 109,342 109,342
Settlement balances 10,294 10,294
Loans to banks - amortised cost 10,668 10,668
Loans to customers - amortised cost
(2) 362,551 362,551
Other financial assets 242 26,691 11,963 38,896
Intangible assets 6,869 6,869
Other assets 8,542 8,542
Assets of disposal groups 14,187 14,187
30 June 2022 175,188 26,691 575,001 29,598 806,478
------------------------------------ ------- ------ --------- ------ -------
Cash and balances at central banks 177,757 177,757
Trading assets 59,158 59,158
Derivatives (1) 106,139 106,139
Settlement balances 2,141 2,141
Loans to banks - amortised cost 7,682 7,682
Loans to customers - amortised cost
(2) 358,990 358,990
Other financial assets 317 37,266 8,562 46,145
Intangible assets 6,723 6,723
Other assets 8,242 8,242
Assets of disposal groups 9,015 9,015
------- ------ --------- ------ -------
31 December 2021 165,614 37,266 555,132 23,980 781,992
------------------------------------ ------- ------ --------- ------ -------
Held-for- Amortised Other
trading DFV cost liabilities Total
Liabilities GBPm GBPm GBPm GBPm GBPm
Bank deposits 24,862 24,862
Customer deposits 492,075 492,075
Settlement balances 9,779 9,779
Trading liabilities 74,345 74,345
Derivatives (1) 102,719 102,719
Other financial liabilities 1,779 45,965 47,744
Subordinated liabilities 340 7,770 8,110
Notes in circulation 2,947 2,947
Other liabilities (3) 1,275 3,995 5,270
---------------------------- --------- ----- --------- ----------- -------
30 June 2022 177,064 2,119 584,673 3,995 767,851
Bank deposits 26,279 26,279
Customer deposits 479,810 479,810
Settlement balances 2,068 2,068
Trading liabilities 64,598 64,598
Derivatives (1) 100,835 100,835
Other financial liabilities 1,671 47,655 49,326
Subordinated liabilities 703 7,726 8,429
Notes in circulation 3,047 3,047
Other liabilities (3) 1,356 4,441 5,797
---------------------------- --------- ----- --------- ----------- -------
31 December 2021 165,433 2,374 567,941 4,441 740,189
---------------------------- --------- ----- --------- ----------- -------
(1) Includes net hedging derivatives assets of GBP136 million (31 December
2021 - GBP44 million) and net hedging derivatives liabilities of
GBP166 million (31 December 2021 - GBP120 million).
(2) Includes finance lease receivables of GBP8,113 million (31 December
2021 - GBP8,531 million).
(3) Includes lease liabilities of GBP1,189 million (31 December 2021
- GBP1,263 million) in amortised cost.
30 June 31 December
2022 2021
GBPm GBPm
-----------
Reverse repos
Trading assets 25,893 20,742
Loans to banks - amortised cost 8 189
Loans to customers - amortised cost 25,084 25,962
Repos
Bank deposits 4,720 7,912
Customer deposits 19,195 14,541
Trading liabilities 29,406 19,389
------------------------------------ ------- -----------
Notes
9. Financial instruments - valuation
Disclosures relating to the control environment, valuation
techniques and related aspects pertaining to financial instruments
measured at fair value are included in the NatWest Group plc 2021
Annual Report and Accounts. Valuation, sensitivity methodologies
and inputs at 30 June 2022 are consistent with those described in
Note 11 to the NatWest Group plc 2021 Annual Report and
Accounts.
Fair value hierarchy
The table below shows the assets and liabilities held by NatWest
Group split by fair value hierarchy level. Level 1 are considered
the most liquid instruments, and level 3 the most illiquid, valued
using expert judgment and hence carry the most significant price
uncertainty.
30 June 2022 31 December 2021
------------------------------- -------------------------------
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- ------ ------- ----- -------
Assets
Trading assets
Loans - 40,722 642 41,364 - 33,482 721 34,203
Securities 20,032 4,206 2 24,240 19,563 5,371 21 24,955
Derivatives - 108,349 993 109,342 - 105,222 917 106,139
Other financial assets
Loans - 111 230 341 - 359 207 566
Securities 18,879 7,521 192 26,592 28,880 7,951 186 37,017
----------------------------
Total financial assets
held at fair value 38,911 160,909 2,059 201,879 48,443 152,385 2,052 202,880
As a % of total fair
value assets 19% 80% 1% 24% 75% 1%
------ ------- ----- ------- ------ ------- ----- -------
Liabilities
Trading liabilities
Deposits - 48,780 1 48,781 - 38,658 2 38,660
Debt securities in issue - 801 2 803 - 974 - 974
Short positions 22,022 2,738 1 24,761 20,507 4,456 1 24,964
Derivatives - 101,972 747 102,719 - 100,229 606 100,835
Other financial liabilities
Debt securities in issue - 1,237 - 1,237 - 1,103 - 1,103
Other deposits - 542 - 542 - 568 - 568
Subordinated liabilities - 340 - 340 - 703 - 703
----------------------------
Total financial liabilities
held at fair value 22,022 156,410 751 179,183 20,507 146,691 609 167,807
As a % of total fair
value liabilities 12% 88% 0% 12% 88% 0%
------ ------- ----- ------- ------ ------- ----- -------
(1) Level 1 - Instruments valued using unadjusted quoted prices in active
and liquid markets, for identical financial instruments. Examples
include government bonds, listed equity shares and certain exchange-traded
derivatives.
Level 2 - Instruments valued using valuation techniques that have
observable inputs. Observable inputs are those that are readily available
with limited adjustments required. Examples include most government
agency securities, investment-grade corporate bonds, certain mortgage
products - including CLOs, most bank loans, repos and reverse repos,
state and municipal obligations, most notes issued, certain money
market securities, loan commitments and most OTC derivatives.
Level 3 - Instruments valued using a valuation technique where at
least one input which could have a significant effect on the instrument's
valuation, is not based on observable market data. Examples include
non-derivative instruments which trade infrequently, certain syndicated
and commercial mortgage loans, private equity, and derivatives with
unobservable model inputs.
(2) Transfers between levels are deemed to have occurred at the beginning
of the quarter in which the instrument was transferred.
(3) For an analysis of debt securities held at mandatorily fair value
through profit or loss by issuer as well as ratings and derivatives,
by type and contract, refer to Risk and capital management - Credit
risk.
Valuation adjustments
When valuing financial instruments in the trading book,
adjustments are made to mid-market valuations to cover bid-offer
spread, funding and credit risk. These adjustments are presented in
the table below. For further information refer to the descriptions
of valuation adjustments within 'Financial instruments - valuation'
on page 341 of the NatWest Group plc 2021 Annual Report and
Accounts.
30 June 31 December
2022 2021
GBPm GBPm
Funding - FVA 121 90
Credit - CVA 365 390
Bid - Offer 120 113
Product and deal specific 128 119
-------------------------- ------- -----------
734 712
-------------------------- ------- -----------
- Valuation reserves comprising of credit valuation adjustments (CVA),
funding valuation adjustment (FVA), bid-offer and product and deal
specific reserves, increased to GBP734 million at 30 June 2022 (31
December 2021 - GBP712 million).
- The net increase in FVA was driven by a net increase in the underlying
derivative exposure, driven by an increase in interest rates. The
increase in bid-offer was driven by an increase in risk and wider
bid-offer spreads. The decrease in CVA was driven by a reduction in
exposures, primarily due to increases in interest rates and trade
exit activity, partially offset by the net impact of credit spreads
widening and specific counterparty activity.
Notes
9. Financial instruments - valuation continued
Level 3 sensitivities
The table below shows the high and low range of fair value of
the level 3 assets and liabilities.
30 June 2022 31 December 2021
Level Favourable Unfavourable Level Favourable Unfavourable
3 3
GBPm GBPm GBPm GBPm GBPm GBPm
----- ---------- ------------ ----- ---------- ------------
Assets
Trading assets
Loans 642 10 (10) 721 10 (10)
Securities 2 - - 21 - -
Derivatives 993 60 (60) 917 60 (70)
Other financial assets
Loans 230 10 (10) 207 10 (10)
Securities 192 30 (30) 186 20 (20)
---------------------------- ----- ---------- ------------ ----- ---------- ------------
Total financial assets held
at fair value 2,059 110 (110) 2,052 100 (110)
---------------------------- ----- ---------- ------------ ----- ---------- ------------
Liabilities
Trading liabilities
Deposits 1 - - 2 - -
Debt securities in issue 2 - - - - -
Short positions 1 - - 1 - -
Derivatives 747 30 (30) 606 30 (30)
Total financial liabilities
held at fair value 751 30 (30) 609 30 (30)
---------------------------- ----- ---------- ------------ ----- ---------- ------------
Alternative assumptions
Reasonably plausible alternative assumptions of unobservable
inputs are determined based on a specified target level of
certainty of 90%. Alternative assumptions are determined with
reference to all available evidence including consideration of the
following: quality of independent pricing information considering
consistency between different sources, variation over time,
perceived tradability or otherwise of available quotes; consensus
service dispersion ranges; volume of trading activity and market
bias (e.g. one-way inventory); day 1 profit or loss arising on new
trades; number and nature of market participants; market
conditions; modelling consistency in the market; size and nature of
risk; length of holding of position; and market intelligence.
Movement in level 3 assets and liabilities
The following table shows the movement in level 3 assets and
liabilities.
Half year ended 30 June Half year ended 30 June
2022 2021
--------------------------------------- ---------------------------------------
Other Other
Trading financial Total Total Trading financial Total Total
assets assets assets liabilities assets assets assets liabilities
(1) (2) (1) (2)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- --------- ------ ----------- ------- --------- ------ -----------
At 1 January 1,659 393 2,052 609 1,388 335 1,723 894
Amount recorded in the
income statement (3) 134 (20) 114 139 (125) 3 (122) (98)
Amount recorded in the
statement of
comprehensive income - (19) (19) - - 17 17 -
Level 3 transfers in 143 - 143 31 42 428 470 15
Level 3 transfers out (101) (1) (102) (36) (68) - (68) (116)
Purchases/originations 352 67 419 154 168 10 178 114
Settlements/other decreases (28) - (28) (15) (36) (4) (40) (15)
Sales (526) - (526) (133) (156) (4) (160) (107)
Foreign exchange and other 4 2 6 2 (1) (3) (4) (2)
At 30 June 1,637 422 2,059 751 1,212 782 1,994 685
---------------------------- ------- --------- ------ ----------- ------- --------- ------ -----------
Amounts recorded in the
income statement
in respect of balances
held at year end
- unrealised 134 (20) 114 139 (125) 3 (122) (98)
---------------------------- ------- --------- ------ ----------- ------- --------- ------ -----------
(1) Trading assets comprise assets held at fair value in trading portfolios.
(2) Other financial assets comprise fair value through other comprehensive
income, designated at fair value through profit or loss and other
fair value through profit or loss.
(3) Net losses of GBP5 million on trading assets and liabilities (30
June 2021 - GBP27 million) were recorded in income from trading activities.
Net losses on other instruments of GBP20 million (30 June 2021 -
GBP3 million gains) were recorded in other operating income and interest
income as appropriate.
Notes
9. Financial instruments - valuation continued
Fair value of financial instruments measured at amortised cost
on the balance sheet
The following table shows the carrying value and fair value of
financial instruments carried at amortised cost on the balance
sheet.
Items where
fair value
approximates Carrying Fair value hierarchy
level
carrying value Fair value Level Level Level
value 1 2 3
30 June 2022 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------- ------- ------
Financial assets
Cash and balances at central
banks 179.5
Settlement balances 10.3
Loans to banks 0.7 10.0 10.0 - 5.9 4.1
Loans to customers 362.6 355.4 - 27.2 328.2
Other financial assets -
securities 12.0 11.7 4.7 2.1 4.9
31 December 2021
----------------------------- ------------ -------- ---------- ------- ------- ------
Financial assets
Cash and balances at central
banks 177.8
Settlement balances 2.1
Loans to banks 0.1 7.5 7.5 - 5.0 2.5
Loans to customers 359.0 354.1 - 28.0 326.1
Other financial assets -
securities 8.6 8.6 4.4 0.7 3.5
----------------------------- ------------ -------- ---------- ------- ------- ------
30 June 2022
----------------------------- ------------ -------- ---------- ------- ------- ------
Financial liabilities
Bank deposits 6.2 18.7 17.6 - 15.1 2.5
Customer deposits 444.1 47.9 47.9 - 22.1 25.8
Settlement balances 9.8
Other financial liabilities
- debt securities in issue 46.0 45.9 - 39.3 6.6
Subordinated liabilities 7.8 7.9 - 7.8 0.1
Notes in circulation 2.9
----------------------------- ------------ -------- ---------- ------- ------- ------
31 December 2021
----------------------------- ------------ -------- ---------- ------- ------- ------
Financial liabilities
Bank deposits 4.9 21.4 21.0 - 18.7 2.3
Customer deposits 442.4 37.4 37.6 - 18.1 19.5
Settlement balances 2.1
Other financial liabilities
- debt securities in issue 47.7 48.6 - 41.4 7.2
Subordinated liabilities 7.7 8.3 - 8.2 0.1
Notes in circulation 3.0
----------------------------- ------------ -------- ---------- ------- ------- ------
Short-term financial instruments
For certain short-term financial instruments: cash and balances
at central banks, items in the course of collection from other
banks, settlement balances, items in the course of transmission to
other banks, customer demand deposits and notes in circulation,
carrying value is deemed a reasonable approximation of fair
value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks
measured at amortised cost, NatWest Group's loans are segregated
into appropriate portfolios reflecting the characteristics of the
constituent loans. Two principal methods are used to estimate fair
value; contractual cash flows and expected cash flows.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active
markets or from quoted prices of similar financial instruments in
active markets. For the remaining population, fair values are
determined using market standard valuation techniques, such as
discounted cash flows.
Bank and customer deposits
Fair value of deposits are estimated using discounted cash flow
valuation techniques.
Notes
10. Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities
held at fair value in trading portfolios.
30 June 31 December
2022 2021
Assets GBPm GBPm
Loans
Reverse repos 25,893 20,742
Collateral given 14,378 12,047
Other loans 1,093 1,414
--------------------------------------- ------- -----------
Total loans 41,364 34,203
Securities
Central and local government
- UK 7,075 6,919
- US 3,840 3,329
- other 9,364 10,929
Financial institutions and corporate 3,961 3,778
--------------------------------------- ------- -----------
Total securities 24,240 24,955
--------------------------------------- ------- -----------
Total 65,604 59,158
------- -----------
Liabilities
Deposits
Repos 29,406 19,389
Collateral received 18,276 17,718
Other deposits 1,099 1,553
--------------------------------------- ------- -----------
Total deposits 48,781 38,660
-----------
Debt securities in issue 803 974
Short positions 24,761 24,964
--------------------------------------- ------- -----------
Total 74,345 64,598
------- -----------
Notes
11. Loan impairment provisions
Loan exposure and impairment metrics
The table below summarises loans and related credit impairment
measures on an IFRS 9 basis.
30 June 31 December
2022 2021
GBPm GBPm
Loans - amortised cost and FVOCI
Stage 1 342,121 330,824
Stage 2 28,505 33,981
Stage 3 5,816 5,022
Of which: individual 1,162 1,215
Of which: collective 4,654 3,807
--------------------------------- ------- -----------
376,442 369,827
--------------------------------- ------- -----------
ECL provisions (1)
Stage 1 408 302
Stage 2 1,122 1478
Stage 3 1,985 2,026
Of which: individual 304 363
Of which: collective 1,681 1,663
3,515 3,806
--------------------------------- ------- -----------
ECL provisions coverage (2)
Stage 1 (%) 0.12 0.09
Stage 2 (%) 3.94 4.35
Stage 3 (%) 34.13 40.34
0.93 1.03
--------------------------------- ------- -----------
Half year ended
--------------------
30 June 30 June
2022 2021
GBPm GBPm
--------------------------------- ------- -----------
Impairment losses
ECL (release)/charge (3) (54) (683)
Stage 1 (342) (662)
Stage 2 205 (114)
Stage 3 83 93
Of which: individual (1) (25)
Of which: collective 84 118
Amounts written off 215 517
Of which: individual 58 256
Of which: collective 157 261
--------------------------------- ------- -----------
(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. 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) related to contingent liabilities.
(4) The table shows gross loans only and excludes amounts that are outside
the scope of the ECL framework. Refer to page 29 for Financial instruments
within the scope of the IFRS 9 ECL framework for further details.
Other financial assets within the scope of the IFRS 9 ECL framework
were cash and balances at central banks totalling GBP178.4 billion
(31 December 2021 - GBP176.3 billion) and debt securities of GBP38.6
billion (31 December 2021 - GBP44.9 billion).
Notes
12. Provisions for liabilities and charges
Financial
Customer Litigation commitments
and
redress other regulatory Property and guarantees Other Total
(1) (2) (3)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- ---------------- -------- -------------- ------ -----
At 1 January 2022 474 277 231 93 193 1,268
Expected credit losses
impairment release - - - (6) - (6)
Currency translation
and other movements 1 18 - - 3 22
Charge to income statement 88 6 10 - 33 137
Release to income statement (19) (5) (5) - (27) (56)
Provisions utilised (76) (71) (16) - (63) (226)
At 30 June 2022 468 225 220 87 139 1,139
------------------------------- -------- ---------------- -------- -------------- ------ -----
(1) Includes payment protection insurance provision which reflects the
estimated cost of PPI redress attributable to claims prior to the
Financial Conduct Authority (FCA) complaint deadline of 29 August
2019. All pre-deadline complaints have been processed which removes
complaint volume estimation uncertainty from the provision estimate.
NatWest Group continues to conclude remaining bank-identified closure
work and conclude cases with the Financial Ombudsmen Service.
(2) Majority of utilisation of litigation provisions relates to resolutions
of the FX-related investigation by the European Commission and the
spoofing-related investigation by the US Department of Justice.
(3) Other materially comprises provisions relating to restructuring costs.
Provisions are liabilities of uncertain timing or amount and are
recognised when there is a present obligation as a result of a past
event, the outflow of economic benefit is probable and the outflow
can be estimated reliably. Any difference between the final outcome
and the amounts provided will affect the reported results in the
period when the matter is resolved.
13. Dividends
The 2021 final dividend was approved by shareholders at the
Annual General Meeting on 28 April 2022 and the payment made on 4
May 2022 to shareholders on the register at the close of business
on 18 March 2022.
NatWest Group plc announces an interim dividend for 2022 of
GBP364 million, or 3.5 pence per ordinary share. The interim
dividend will be paid on 16 September 2022 to shareholders on the
register at close of business on 26 August 2022. The ex-dividend
date will be 25 August 2022.
NatWest Group plc also announces that the directors have
recommended a special dividend of GBP1,750 million, or 16.8 pence
per share, and associated share consolidation, each will be subject
to shareholder approval at a General Meeting on 25 August 2022. A
circular containing details of the special dividend and share
consolidation, as well as a notice convening a General Meeting of
shareholders and a class meeting of ordinary shareholders and
details of the resolutions to be considered at that General Meeting
and class meeting, is expected to be published shortly. If approved
by shareholders, assuming that all other conditions are satisfied,
the special dividend is expected to be paid on 16 September 2022 to
shareholders on the register on 26 August 2022. The ex-entitlement
date for the special dividend will be 30 August 2022.
14. Contingent liabilities and commitments
The amounts shown in the table below are intended only to
provide an indication of the volume of business outstanding at 30
June 2022. Although NatWest Group is exposed to credit risk in the
event of a customer's failure to meet its obligations, the amounts
shown do not, and are not intended to, provide any indication of
NatWest Group's expectation of future losses.
30 June 31 December
2022 2021
GBPm GBPm
Guarantees 2,436 2,055
Other contingent liabilities 1,863 2,004
Standby facilities, credit lines and other commitments 129,293 121,308
------------------------------------------------------- ------- -----------
Contingent liabilities and commitments 133,592 125,367
------------------------------------------------------- ------- -----------
Commitments and contingent obligations are subject to NatWest
Group's normal credit approval processes.
Notes
15. Litigation and regulatory matters
NatWest Group plc and certain members of NatWest Group are party
to legal proceedings and involved in regulatory matters, including
as the subject of investigations and other regulatory and
governmental action (Matters) in the United Kingdom (UK), the
United States (US), the European Union (EU) and other
jurisdictions.
NatWest Group recognises a provision for a liability in relation
to these Matters when it is probable that an outflow of economic
benefits will be required to settle an obligation resulting from
past events, and a reliable estimate can be made of the amount of
the obligation.
In many of these Matters, it is not possible to determine
whether any loss is probable, or to estimate reliably the amount of
any loss, either as a direct consequence of the relevant
proceedings and regulatory matters or as a result of adverse
impacts or restrictions on NatWest Group's reputation, businesses
and operations. Numerous legal and factual issues may need to be
resolved, including through potentially lengthy discovery and
document production exercises and determination of important
factual matters, and by addressing novel or unsettled legal
questions relevant to the proceedings in question, before a
liability can reasonably be estimated for any claim. NatWest Group
cannot predict if, how, or when such claims will be resolved or
what the eventual settlement, damages, fine, penalty or other
relief, if any, may be, particularly for claims that are at an
early stage in their development or where claimants seek
substantial or indeterminate damages.
There are situations where NatWest Group may pursue an approach
that in some instances leads to a settlement agreement. This may
occur in order to avoid the expense, management distraction or
reputational implications of continuing to contest liability, or in
order to take account of the risks inherent in defending claims or
regulatory matters, even for those Matters for which NatWest Group
believes it has credible defences and should prevail on the merits.
The uncertainties inherent in all such Matters affect the amount
and timing of any potential outflows for both Matters with respect
to which provisions have been established and other contingent
liabilities.
It is not practicable to provide an aggregate estimate of
potential liability for our legal proceedings and regulatory
matters as a class of contingent liabilities.
The future outflow of resources in respect of any Matter may
ultimately prove to be substantially greater than or less than the
aggregate provision that NatWest Group has recognised. Where (and
as far as) liability cannot be reasonably estimated, no provision
has been recognised. NatWest Group expects that in future periods,
additional provisions, settlement amounts and customer redress
payments will be necessary, in amounts that are expected to be
substantial in some instances. Please refer to Note 12 for
information on material provisions.
Material Matters in which NatWest Group is currently involved
are set out below. We have provided information on the procedural
history of certain Matters, where we believe appropriate, to aid
the understanding of the Matter.
For a discussion of certain risks associated with NatWest
Group's litigation and regulatory matters, see the Risk factor
relating to legal, regulatory and governmental actions and
investigations set out on page 425 of NatWest Group plc's 2021
Annual Report and Accounts.
Litigation
Residential mortgage-backed securities (RMBS) litigation in the
US
NatWest Group companies continue to defend RMBS-related claims
in the US in which the plaintiff, the Federal Deposit Insurance
Corporation (FDIC), alleges that certain disclosures made in
connection with the relevant offerings of RMBS contained materially
false or misleading statements and/or omissions regarding the
underwriting standards pursuant to which the mortgage loans
underlying the RMBS were issued.
London Interbank Offered Rate (LIBOR) and other rates
litigation
NWM Plc and certain other members of NatWest Group, including
NatWest Group plc, are defendants in a number of class actions and
individual claims pending in the United States District Court for
the Southern District of New York (SDNY) with respect to the
setting of LIBOR and certain other benchmark interest rates. The
complaints allege that certain members of NatWest Group and other
panel banks violated various federal laws, including the US
commodities and antitrust laws, and state statutory and common law,
as well as contracts, by manipulating LIBOR and prices of
LIBOR-based derivatives in various markets through various
means.
Several class actions relating to USD LIBOR, as well as more
than two dozen non-class actions concerning USD LIBOR, are part of
a co-ordinated proceeding in the SDNY. In December 2021, the United
States Court of Appeals for the Second Circuit (US Court of
Appeals) affirmed the SDNY's prior decision that plaintiffs who
purchased LIBOR-based instruments from third parties (as opposed to
the defendants) lack antitrust standing to pursue such claims. In
addition, the appellate court, reversing a December 2016 decision
of the SDNY, held that plaintiffs in these cases have adequately
asserted the court's personal jurisdiction over NWM Plc and other
non-US banks, including with respect to antitrust class action
claims on behalf of over-the-counter plaintiffs and exchange-based
purchaser plaintiffs. In February 2022, the US Court of Appeals, on
similar grounds, reversed the SDNY's prior dismissal of a fraud
class action on behalf of lender plaintiffs. The appellate court
remanded these matters to the SDNY for further proceedings in light
of its rulings. In March 2020, NatWest Group companies finalised a
settlement resolving the class action on behalf of bondholder
plaintiffs (those who held bonds issued by non-defendants on which
interest was paid from 2007 to 2010 at a rate expressly tied to USD
LIBOR). The amount of the settlement (which was covered by an
existing provision) has been paid into escrow pending court
approval of the settlement.
Notes
15. Litigation and regulatory matters continued
The non-class claims filed in the SDNY include claims that the
FDIC is asserting on behalf of certain failed US banks. In July
2017, the FDIC, on behalf of 39 of those failed US banks, commenced
substantially similar claims against NatWest Group companies and
others in the High Court of Justice of England and Wales. The
action alleges collusion with regard to the setting of USD LIBOR
and that the defendants breached UK and European competition law,
as well as asserting common law claims of fraud under US law. The
defendant banks consented to a request by the FDIC for
discontinuance of the claim in respect of 20 failed US banks,
leaving 19 failed US banks as claimants. The UK proceedings are at
the disclosure stage but have been stayed until 31 July 2022.
In addition, there are two class actions relating to JPY LIBOR
and Euroyen TIBOR. The first class action, which relates to Euroyen
TIBOR futures contracts, was dismissed by the SDNY in September
2020 on jurisdictional and other grounds, and the plaintiffs have
commenced an appeal to the US Court of Appeals. The second class
action, which relates to other derivatives allegedly tied to JPY
LIBOR and Euroyen TIBOR, was dismissed by the SDNY in relation to
NWM Plc and other NatWest Group companies in September 2021. That
dismissal may be the subject of a future appeal .
In addition to the above, five other class action complaints
were filed against NatWest Group companies in the SDNY, each
relating to a different reference rate. In February 2017, the SDNY
dismissed the case relating to Euribor for lack of personal
jurisdiction and in August 2019, the SDNY dismissed the case
relating to Pound Sterling for various reasons. Plaintiffs' appeals
in those two cases remain pending.
In May 2022, NatWest Group companies and the plaintiffs in the
class action relating to the Singapore Interbank Offered Rate and
Singapore Swap Offer Rate ('SIBOR / SOR') finalised a settlement
resolving that case. In April 2022, NatWest Group companies and the
plaintiffs in the class action relating to the Australian Bank Bill
Swap Reference Rate finalised a settlement resolving that case. In
June 2021, NWM Plc and the plaintiffs in the Swiss Franc LIBOR
class action finalised a settlement resolving that case. The
amounts of the three settlements have been paid into escrow pending
final court approval of the settlements.
NWM Plc is also named as a defendant in a motion to certify a
class action relating to LIBOR in the Tel Aviv District Court in
Israel. NWM Plc filed a motion for cancellation of service outside
the jurisdiction, which was granted in July 2020. The claimants
appealed that decision and in November 2020 the appeal was refused
and the claim dismissed by the Appellate Court. The claim could in
future be recommenced depending on the outcome of an appeal to
Israel's Supreme Court in respect of dismissal of the substantive
case against banks that had a presence in Israel.
In August 2020, a complaint was filed in the United States
District Court for the Northern District of California by several
United States consumer borrowers against the USD ICE LIBOR panel
banks and their affiliates, alleging that the normal process of
setting USD ICE LIBOR amounts to illegal price-fixing, and also
that banks in the United States have illegally agreed to use LIBOR
as a component of price in variable consumer loans. The NatWest
Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc.
The plaintiffs seek damages and to prevent the enforcement of
LIBOR-based instruments through injunction. Defendants have filed a
motion to dismiss, which remains pending.
FX litigation
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
several cases relating to NWM Plc's foreign exchange (FX) business.
In 2015, NWM Plc paid US$255 million to settle the consolidated
antitrust class action filed in the SDNY on behalf of persons who
entered into over-the-counter FX transactions with defendants or
who traded FX instruments on exchanges. In 2018, some members of
the settlement class who opted out of that class action settlement
filed their own non-class complaint in the SDNY asserting antitrust
claims against NWM Plc, NWMSI and other banks. Those opt-out claims
are proceeding in discovery.
In April 2019, some of the same claimants in the opt-out case
described above, as well as others, served proceedings (which are
ongoing) in the High Court of Justice of England and Wales,
asserting competition claims against NWM Plc and several other
banks. The claim was transferred from the High Court of Justice of
England and Wales in December 2021 and registered in the UK
Competition Appeal Tribunal (CAT) in January 2022.
An FX-related class action, on behalf of 'consumers and end-user
businesses', is proceeding in the SDNY against NWM Plc and others.
In March 2022, the SDNY denied the plaintiffs' motion for class
certification. Plaintiffs are seeking to appeal the decision.
In May 2019, a cartel class action was filed in the Federal
Court of Australia against NWM Plc and four other banks on behalf
of persons who bought or sold currency through FX spots or forwards
between 1 January 2008 and 15 October 2013 with a total transaction
value exceeding AUD $0.5 million. The claimant has alleged that the
banks, including NWM Plc, contravened Australian competition law by
sharing information, coordinating conduct, widening spreads and
manipulating FX rates for certain currency pairs during this
period. NatWest Group plc and NWMSI have been named in the action
as 'other cartel participants', but are not respondents. The claim
was served in June 2019 and, after a number of interlocutory
pleading disputes, NWM Plc filed its defence in March 2022.
Notes
15. Litigation and regulatory matters continued
In July and December 2019, two separate applications seeking
opt-out collective proceedings orders were filed in the CAT against
NatWest Group plc, NWM Plc and other banks. Both applications were
brought on behalf of persons who, between 18 December 2007 and 31
January 2013, entered into a relevant FX spot or outright forward
transaction in the EEA with a relevant financial institution or on
an electronic communications network. A hearing to determine class
certification took place in July 2021. In March 2022, the CAT
declined to certify as collective proceedings either of the
applications, ruling that the opt-out basis on which they were
brought was inappropriate. The CAT granted each applicant three
months to revise their application for certification on an opt-in
basis, if they wished to proceed. Neither applicant did so. The
applicants have served judicial review proceedings, which are
currently stayed. Separately, the applicants have applied for
permission to appeal the CAT's judgment.
Two motions to certify FX-related class actions were filed in
the Tel Aviv District Court in Israel in September and October
2018, and were subsequently consolidated into one motion. The
consolidated motion to certify, which names The Royal Bank of
Scotland plc (now NWM Plc) and several other banks as defendants,
was served on NWM Plc in May 2020. NWM Plc has filed a motion
challenging the permission to serve the consolidated motion outside
the Israeli jurisdiction, which remains pending.
In December 2021, a claim was issued in the Netherlands against
NatWest Group plc, NWM Plc and NWM N.V. by Stichting FX Claims,
seeking a declaration from the court that anti-competitive FX
market conduct described in decisions of the European Commission
(EC) of 16 May 2019 is unlawful, along with unspecified damages.
The claimant has requested the court's permission to amend its
claim to also refer to a December 2021 decision by the EC, which
also described anti-competitive FX market conduct.
Certain other foreign exchange transaction related claims have
been or may be threatened. NatWest Group cannot predict whether all
or any of these claims will be pursued.
Government securities antitrust litigation
NWMSI and certain other US broker-dealers are defendants in a
consolidated antitrust class action in the SDNY on behalf of
persons who transacted in US Treasury securities or derivatives
based on such instruments, including futures and options. The
plaintiffs allege that defendants rigged the US Treasury securities
auction bidding process to deflate prices at which they bought such
securities and colluded to increase the prices at which they sold
such securities to plaintiffs. In March 2022, the SDNY dismissed
the operative complaint, without leave to re-plead. The dismissal
is subject to appeal.
Class action antitrust claims commenced in March 2019 are
pending in the SDNY against NWM Plc, NWMSI and other banks in
respect of Euro-denominated bonds issued by European central banks
(EGBs). The complaint alleges a conspiracy among dealers of EGBs to
widen the bid-ask spreads they quoted to customers, thereby
increasing the prices customers paid for the EGBs or decreasing the
prices at which customers sold the bonds. The class consists of
those who purchased or sold EGBs in the US between 2007 and 2012.
In March 2022, the SDNY dismissed the claims against NWM Plc and
NWMSI in the operative complaint on the ground that the complaint's
conspiracy allegations are insufficient. The plaintiffs have
indicated that they intend to file an amended complaint.
Swaps antitrust litigation
NWM Plc and other members of NatWest Group, including NatWest
Group plc, as well as a number of other interest rate swap dealers,
are defendants in several cases pending in the SDNY alleging
violations of the US antitrust laws in the market for interest rate
swaps. There is a consolidated class action complaint on behalf of
persons who entered into interest rate swaps with the defendants,
as well as non-class action claims by three swap execution
facilities (TeraExchange, Javelin, and trueEx). The plaintiffs
allege that the swap execution facilities would have successfully
established exchange-like trading of interest rate swaps if the
defendants had not unlawfully conspired to prevent that from
happening through boycotts and other means. Discovery in these
cases is complete, and the plaintiffs' motion for class
certification remains pending.
In June 2021, a class action antitrust complaint was filed
against a number of credit default swap dealers in New Mexico
federal court on behalf of persons who, from 2005 onwards, settled
credit default swaps in the United States by reference to the ISDA
credit default swap auction protocol. The complaint alleges that
the defendants conspired to manipulate that benchmark through
various means in violation of the antitrust laws and the Commodity
Exchange Act. The defendants include several NatWest Group
companies, including NatWest Group plc. Defendants are seeking
dismissal.
Odd lot corporate bond trading antitrust litigation
In October 2021, the SDNY granted defendants' motion to dismiss
the class action antitrust complaint alleging that from August 2006
onwards various securities dealers, including NWMSI, conspired
artificially to widen spreads for odd lots of corporate bonds
bought or sold in the United States secondary market and to boycott
electronic trading platforms that would have allegedly promoted
pricing competition in the market for such bonds. Plaintiffs have
commenced an appeal of the dismissal.
Spoofing litigation
In December 2021, three substantially similar class actions
complaints were filed in federal court in the United States against
NWM Plc and NWMSI alleging Commodity Exchange Act and common law
unjust enrichment claims arising from manipulative trading known as
spoofing. The complaints refer to NWM Plc's December 2021
spoofing-related guilty plea (described below under "US
investigations relating to fixed-income securities") and purport to
assert claims on behalf of those who transacted in US Treasury
securities and futures and options on US Treasury securities
between 2008 and 2018. In July 2022, defendants filed a motion to
dismiss these claims, which have been consolidated into one matter
in the United States District Court for the Northern District of
Illinois.
Notes
15. Litigation and regulatory matters continued
Madoff
NWM N.V. was named as a defendant in two actions filed by the
trustee for the bankruptcy estates of Bernard L. Madoff and Bernard
L. Madoff Investment Securities LLC, in bankruptcy court in New
York, which together seek to clawback more than US$298 million that
NWM N.V. allegedly received from certain Madoff feeder funds and
certain swap counterparties. The claims were previously dismissed,
but as a result of an August 2021 decision by the US Court of
Appeals, they will now proceed in the bankruptcy court, where they
have now been consolidated into one action, subject to NWM N.V.'s
legal and factual defences. In May 2022, NWM N.V. filed a motion to
dismiss the amended complaint in the consolidated action.
EUA trading litigation
NWM Plc was a named defendant in civil proceedings before the
High Court of Justice of England and Wales brought in 2015 by ten
companies (all in liquidation) (the 'Liquidated Companies') and
their respective liquidators (together, 'the Claimants'). The
Liquidated Companies previously traded in European Union Allowances
(EUAs) in 2009 and were alleged to be VAT defaulting traders within
(or otherwise connected to) EUA supply chains of which NWM Plc was
a party. In March 2020, the court held that NWM Plc and Mercuria
Energy Europe Trading Limited ('Mercuria') were liable for
dishonestly assisting and knowingly being a party to fraudulent
trading during a seven business day period in 2009.
In October 2020, the High Court quantified total damages against
NWM Plc and Mercuria at GBP45 million plus interest and costs, and
permitted the defendants to appeal to the Court of Appeal. In May
2021 the Court of Appeal set aside the High Court's judgment and
ordered that a retrial take place before a different High Court
judge. The claimants have been denied permission by the Supreme
Court to appeal that decision and the retrial will therefore
proceed on a date to be scheduled. Mercuria has also been denied
permission by the Supreme Court to appeal the High Court's finding
that NWM Plc and Mercuria were both vicariously liable.
Offshoring VAT assessments
HMRC issued protective tax assessments in 2018 against NatWest
Group plc totalling GBP143 million relating to unpaid VAT in
respect of the UK branches of two NatWest Group companies
registered in India. NatWest Group formally requested
reconsideration by HMRC of their assessments, and this process was
completed in November 2020. HMRC upheld their original decision
and, as a result, NatWest Group plc lodged an appeal with the Tax
Tribunal and an application for judicial review with the High Court
of Justice of England and Wales, both in December 2020. In order to
lodge the appeal with the Tax Tribunal, NatWest Group plc was
required to pay the GBP143 million to HMRC, and payment was made in
December 2020. The appeal and the application for judicial review
have both been stayed pending resolution of a separate case
involving another bank.
US Anti-Terrorism Act litigation
In March 2019, the trial court granted summary judgment in
favour of NWB Plc in connection with lawsuits filed in the United
States District Court for the Eastern District of New York by a
number of US nationals (or their estates, survivors, or heirs) who
were victims of terrorist attacks in Israel. In April 2021, the US
Court of Appeals affirmed the trial court's judgment in favour of
NWB Plc. In September 2021, the plaintiffs filed a petition seeking
discretionary review by the United States Supreme Court, and that
petition was denied in June 2022, bringing the matter to an
end.
NWM N.V. and certain other financial institutions are defendants
in several actions filed by a number of US nationals (or their
estates, survivors, or heirs), most of whom are or were US military
personnel, who were killed or injured in attacks in Iraq between
2003 and 2011. NWM Plc is also a defendant in some of these
cases.
According to the plaintiffs' allegations, the defendants are
liable for damages arising from the attacks because they allegedly
conspired with Iran and certain Iranian banks to assist Iran in
transferring money to Hezbollah and the Iraqi terror cells that
committed the attacks, in violation of the US Anti-Terrorism Act,
by agreeing to engage in 'stripping' of transactions initiated by
the Iranian banks so that the Iranian nexus to the transactions
would not be detected.
The first of these actions was filed in the United States
District Court for the Eastern District of New York in November
2014. In September 2019, the district court dismissed the case,
finding that the claims were deficient for several reasons,
including lack of sufficient allegations as to the alleged
conspiracy and causation. The plaintiffs are appealing the decision
to the US Court of Appeals. Another action, filed in the SDNY in
2017, was dismissed in March 2019 on similar grounds, but remains
subject to appeal to the US Court of Appeals. Other follow-on
actions that are substantially similar to the two that have now
been dismissed are pending in the same courts.
Securities underwriting litigation
NWMSI is an underwriter defendant in securities class actions in
the US in which plaintiffs generally allege that an issuer of
public securities, as well as the underwriters of the securities
(including NWMSI), are liable to purchasers for misrepresentations
and omissions made in connection with the offering of such
securities.
1MDB litigation
A claim for a material sum was issued, but not served, in
Malaysia in 2021 by 1MDB against Coutts & Co Ltd for alleged
losses in connection with the 1MDB fund. Coutts & Co Ltd is a
company registered in Switzerland and is in wind-down following the
announced sale of its business assets in 2015.
Notes
15. Litigation and regulatory matters continued
Regulatory matters (including investigations and customer
redress programmes)
NatWest Group's businesses and financial condition can be
affected by the actions of various governmental and regulatory
authorities in the UK, the US, the EU and elsewhere. NatWest Group
has engaged, and will continue to engage, in discussions with
relevant governmental and regulatory authorities, including in the
UK, the US, the EU and elsewhere, on an ongoing and regular basis,
and in response to informal and formal inquiries or investigations,
regarding operational, systems and control evaluations and issues
including those related to compliance with applicable laws and
regulations, including consumer protection, investment advice,
business conduct, competition/anti-trust, VAT recovery,
anti-bribery, anti-money laundering and sanctions regimes. NatWest
Group expects government and regulatory intervention in financial
services to be high for the foreseeable future, including increased
scrutiny from competition and other regulators in the retail and
SME business sectors.
NWM Group in particular has been providing information regarding
a variety of matters, including, for example, offering of
securities, the setting of benchmark rates and related derivatives
trading, conduct in the foreign exchange market, product
mis-selling and various issues relating to the issuance,
underwriting, and sales and trading of fixed-income securities,
including structured products and government securities, some of
which have resulted, and others of which may result, in
investigations or proceedings.
Any matters discussed or identified during such discussions and
inquiries may result in, among other things, further inquiry or
investigation, other action being taken by governmental and
regulatory authorities, increased costs being incurred by NatWest
Group, remediation of systems and controls, public or private
censure, restriction of NatWest Group's business activities and/or
fines. Any of the events or circumstances mentioned in this
paragraph or below could have a material adverse effect on NatWest
Group, its business, authorisations and licences, reputation,
results of operations or the price of securities issued by it, or
lead to material additional provisions being taken.
NatWest Group is co-operating fully with the matters described
below.
US investigations relating to fixed-income securities
In December 2021, NWM Plc pled guilty in the United States
District Court for the District of Connecticut to one count of wire
fraud and one count of securities fraud in connection with
historical spoofing conduct by former employees in US Treasuries
markets between January 2008 and May 2014 and, separately, during
approximately three months in 2018. The 2018 trading occurred
during the term of a non-prosecution agreement (NPA) between NWMSI
and the United States Attorney's Office for the District of
Connecticut (USAO CT), under which non-prosecution was conditioned
on NWMSI and affiliated companies not engaging in criminal conduct
during the term of the NPA. The relevant trading in 2018 was
conducted by two NWM traders in Singapore and breached that NPA.
The plea agreement reached with the US Department of Justice and
the USAO CT resolves both the spoofing conduct and the breach of
the NPA.
As required by the resolution and sentence imposed by the court,
NWM Plc is subject to a three-year period of probation and has paid
a US$25.2 million criminal fine, approximately US$2.8 million in
criminal forfeiture and approximately US$6.8 million in restitution
out of existing provisions. The plea agreement also imposes an
independent corporate monitor. In addition, NWM Plc has committed
to compliance programme reviews and improvements and agreed to
reporting and co-operation obligations.
Other material adverse collateral consequences may occur as a
result of this matter, as further described in the Risk factor
relating to legal, regulatory and governmental actions and
investigations set out on page 425 of NatWest Group plc's 2021
Annual Report & Accounts.
RBSI inspection report and referral to enforcement
The Isle of Man Financial Services Authority undertook an
inspection at The Royal Bank of Scotland International Limited
(RBSI), Isle of Man, in 2021, following which it issued an
inspection report. The inspection was in relation to anti-money
laundering and counter-terrorist financing controls and procedures
relating to specific RBSI customers. In May 2022, the FSA notified
RBSI that it had been referred to its Enforcement Division in
relation to certain issues identified in the inspection report.
Investment advice review
In October 2019, the FCA notified NatWest Group of its intention
to appoint a Skilled Person under section 166 of the Financial
Services and Markets Act 2000 to conduct a review of whether
NatWest Group's past business review of investment advice provided
during 2010 to 2015 was subject to appropriate governance and
accountability and led to appropriate customer outcomes. The
Skilled Person's review has concluded and, after discussion with
the FCA, NatWest Group is now conducting additional review /
remediation work.
Review and investigation of treatment of tracker mortgage
customers in Ulster Bank Ireland DAC
In December 2015, correspondence was received from the CBI
setting out an industry examination framework in respect of the
sale of tracker mortgages from approximately 2001 until the end of
2015. The redress and compensation phase has concluded, although an
appeals process is currently anticipated to run until the end of
2022. NatWest Group has made provisions totalling EUR358 million
(GBP308 million), of which EUR339 million (GBP292 million) had been
utilised by 30 June 2022.
UBIDAC customers have lodged tracker mortgage complaints with
the Financial Services and Pensions Ombudsman (FSPO). UBIDAC is
challenging three FSPO adjudications in the Irish High Court. The
outcome and impact of that challenge on those and related
complaints is uncertain but may be material.
UBIDAC has identified further legacy business issues and these
remediation programmes are ongoing. NatWest Group has made
provisions of EUR201 million (GBP173 million), of which EUR158
million (GBP136 million) had been utilised by 30 June 2022 for
these programmes.
Notes
16. Related party transactions
UK Government
The UK Government and bodies controlled or jointly controlled by
the UK Government and bodies over which it has significant
influence are related parties of NatWest Group. NatWest Group's
other transactions with the UK Government include the payment of
taxes, principally UK corporation tax and value added tax; national
insurance contributions; local authority rates; and regulatory fees
and levies (including the bank levy and FSCS levy).
Bank of England facilities
In the ordinary course of business, NatWest Group may from time
to time access market-wide facilities provided by the Bank of
England.
Other related parties
(a) In their roles as providers of finance, NatWest Group
companies provide development and other types of capital support to
businesses. In some instances, the investment may extend to
ownership or control over 20% or more of the voting rights of the
investee company.
(b) NatWest Group recharges The NatWest Group Pension Fund with
the cost of administration services incurred by it. The amounts
involved are not material to NatWest Group.
Full details of NatWest Group's related party transactions for
the year ended 31 December 2021 are included in NatWest Group plc's
2021 Annual Report and Accounts.
17. Post balance sheet events
On 22 July 2022, approval was received from the Irish
competition authority (the CCPC) in relation to the agreement with
PTSB for the sale of UBIDAC's performing non-tracker mortgage
portfolio, asset finance business, business direct loan book and 25
branches.
The successful completion of a second tranche of commercial
customers to Allied Irish Banks, p.l.c (AIB) was finalised in July
2022.
Other than as disclosed in this document, there have been no
significant events between 30 June 2022 and the date of approval of
this announcement which would require a change to, or additional
disclosure, in the announcement.
18. Date of approval
This announcement was approved by the Board of Directors on 28
July 2022.
Independent review report to NatWest Group plc
Conclusion
We have been engaged by NatWest Group ("the Group") to review
the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 which
comprises of the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated
statement of changes in equity, the condensed consolidated cash
flow statement, related Notes 1 to 18 and the Risk and capital
management disclosures for those identified as within the scope of
our review (together "the condensed consolidated financial
statements"). We have read the other information contained in the
half yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with UK adopted International
Accounting Standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this International Standard on Review Engagements
2410 (UK), however future events or conditions may cause the entity
to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Group a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report.
Use of our report
This report is made solely to the Group in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Group,
for our work, for this report, or for the conclusions we have
formed.
Ernst & Young LLP
London, United Kingdom
28 July 2022
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties
Set out below is a summary of the principal risks and
uncertainties for the remaining six months of the financial year
which could adversely affect NatWest Group. This summary should not
be regarded as a complete and comprehensive statement of all
potential risks and uncertainties; a fuller description of these
and other risk factors is included on pages 406 to 426 of the
NatWest Group plc 2021 Annual Report and Accounts and pages 136 to
157 of NatWest Group plc's 2021 Form 20-F. Any of the risks
identified may have a material adverse effect on NatWest Group's
business, operations, financial condition or prospects.
Economic and political risk
- NatWest Group faces continued economic and political risks and
uncertainty in the UK and global markets, including as a result of
high inflation, rising interest rates, supply chain disruption and
the Russian invasion of Ukraine.
- The impact of the COVID-19 pandemic and related uncertainties
continue to affect the UK, global economies and financial markets
and NatWest Group's customers, as well as its competitive
environment, which may continue to have an adverse effect on
NatWest Group.
- Continuing uncertainty regarding the effects and extent of the
UK's post Brexit divergence from EU laws and regulation, and
NatWest Group's post Brexit EU operating model may continue to
adversely affect NatWest Group and its operating environment.
- Changes in interest rates have significantly affected and will
continue to affect NatWest Group's business and results.
- Changes in foreign currency exchange rates may affect NatWest
Group's results and financial position.
- HM Treasury (or UKGI on its behalf) could exercise a
significant degree of influence over NatWest Group and further
offers or sales of NatWest Group's shares held by HM Treasury may
affect the price of NatWest Group securities.
Strategic risk
- NatWest Group continues to implement its purpose-led strategy,
which carries significant execution and operational risks and may
not achieve its stated aims and targeted outcomes.
- NatWest Group continues to refocus its NWM franchise, which
entails material execution, commercial and operational risks and
the intended benefits for NatWest Group may not be realised within
the timeline and in the manner currently contemplated.
- Trends relating to the COVID-19 pandemic may adversely affect
NatWest Group's strategy and impair its ability to meet its targets
and strategic objectives.
Financial resilience risk
- NatWest Group may not meet the targets it communicates or be
in a position to continue to make discretionary capital
distributions (including dividends to shareholders).
- NatWest Group operates in markets that are highly competitive,
with increasing competitive pressures and technology
disruption.
- The impact of the COVID-19 pandemic on the credit quality of
NatWest Group's counterparties may negatively impact NatWest
Group.
- NatWest Group has significant exposure to counterparty and borrower risk.
- NatWest Group may not meet the prudential regulatory
requirements for capital and MREL, or manage its capital
effectively, which could trigger the execution of certain
management actions or recovery options.
- NatWest Group is subject to Bank of England and PRA oversight
in respect of resolution. Following submission of a biennial
assessment of NatWest Group's preparations for resolution to the
PRA, the Bank of England has not identified any shortcomings,
deficiencies or substantive impediments associated with NatWest
Group's ability to achieve resolvability outcomes, but has
highlighted two areas as requiring further enhancements. NatWest
Group could be adversely affected should future Bank of England
assessments deem NatWest Group's preparations to be inadequate.
- NatWest Group may not be able to adequately access sources of liquidity and funding.
- Any reduction in the credit rating and/or outlooks assigned to
NatWest Group plc, any of its subsidiaries or any of their
respective debt securities could adversely affect the availability
of funding for NatWest Group, reduce NatWest Group's liquidity
position and increase the cost of funding.
- NatWest Group may be adversely affected if it fails to meet
the requirements of regulatory stress tests.
- NatWest Group's results could be adversely affected if an
event triggers the recognition of a goodwill impairment. NatWest
Group capitalises goodwill, which is calculated as the excess of
the cost of an acquisition over the net fair value of the
identifiable assets, liabilities and contingent liabilities
acquired. Acquired goodwill is recognised at cost less any
accumulated impairment losses. As required by IFRS, NatWest Group
tests goodwill for impairment at least annually, or more frequently
when events or circumstances indicate that it might be
impaired.
- NatWest Group could incur losses or be required to maintain
higher levels of capital as a result of limitations or failure of
various models.
- NatWest Group's financial statements are sensitive to the
underlying accounting policies, judgments, estimates and
assumptions
NatWest Group plc Summary Risk Factors
Summary of Principal Risks and Uncertainties continued
- Changes in accounting standards may materially impact NatWest Group's financial results.
- The value or effectiveness of any credit protection that
NatWest Group has purchased depends on the value of the underlying
assets and the financial condition of the insurers and
counterparties.
- NatWest Group may become subject to the application of UK
statutory stabilisation or resolution powers which may result in,
among other actions, the cancellation, transfer or dilution of
ordinary shares, or the write-down or conversion of certain other
of NatWest Group's securities.
Climate and sustainability-related risks
- NatWest Group and its customers, suppliers and counterparties
face significant climate-related risks, including in transitioning
to a net zero economy, which may adversely impact NatWest
Group.
- NatWest Group's purpose-led strategy includes climate change
as one of its three areas of focus and, following the passing of a
'Say on Climate' resolution by NatWest Group's shareholders in
April 2022, NatWest Group is required to publish an initial climate
transition plan in 2023. NatWest Group's climate strategy and
transition plan entails significant execution and reputational risk
and is unlikely to be achieved without internal and external
actions including significant government policy, technology and
customer changes.
- Any failure by NatWest Group to prepare or execute a credible
transition plan or implement effective and compliant climate change
resilient systems, controls and procedures could adversely affect
NatWest Group's reputation or its ability to manage climate-related
risks.
- There are significant challenges in relation to
climate-related data due to quality and other limitations, lack of
standardisation, consistency and incompleteness which amongst other
factors contribute to the significant uncertainties inherent in
accurately modelling the impact of climate-related risks.
- A failure to adapt NatWest Group's business strategy,
governance, procedures, systems and controls to manage emerging
sustainability-related risks and opportunities may have a material
adverse effect on NatWest Group, its reputation, business, results
of operations and outlook.
- Any reduction in the ESG ratings of NatWest Group could have a
negative impact on NatWest Group's reputation and on investors'
risk appetite and customers' willingness to deal with NatWest
Group.
- Increasing levels of climate, environmental and
sustainability-related laws, regulation and oversight may adversely
affect NatWest Group's business and expose NatWest Group to
increased costs of compliance, regulatory sanction and reputational
damage.
- NatWest Group may be subject to potential climate,
environmental and other sustainability-related litigation,
enforcement proceedings, investigations and conduct risk.
Operational and IT resilience risk
- Operational risks (including reliance on third party suppliers
and outsourcing of certain activities) are inherent in NatWest
Group's businesses.
- NatWest Group is subject to increasingly sophisticated and frequent cyberattacks.
- NatWest Group operations and strategy are highly dependent on
the accuracy and effective use of data.
- NatWest Group's operations are highly dependent on its complex
IT systems (including those that enable remote working) and any IT
failure could adversely affect NatWest Group.
- Remote working may adversely affect NatWest Group's ability to
maintain effective internal controls.
- NatWest Group relies on attracting, retaining and developing
diverse senior management and skilled personnel, and is required to
maintain good employee relations.
- A failure in NatWest Group's risk management framework could
adversely affect NatWest Group, including its ability to achieve
its strategic objectives.
- NatWest Group's operations are subject to inherent reputational risk.
Legal, regulatory and conduct risk
- NatWest Group's businesses are subject to substantial
regulation and oversight, which are constantly evolving and may
adversely affect NatWest Group.
- NatWest Group is exposed to the risks of various litigation
matters, regulatory and governmental actions and investigations as
well as remedial undertakings, including conduct-related reviews,
anti-money laundering and redress projects, the outcomes of which
are inherently difficult to predict, and which could have an
adverse effect on NatWest Group.
- NatWest Group may not effectively manage the transition of
LIBOR and other IBOR rates to alternative risk-free rates.
- Changes in tax legislation or failure to generate future
taxable profits may impact the recoverability of certain deferred
tax assets recognised by NatWest Group.
Statement of directors' responsibilities
We, the directors listed below, confirm that to the best of our
knowledge:
- the condensed financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting', as adopted by
the UK and as issued by the International Accounting Standards
Board (IASB);
- the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
- the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Howard Davies Alison Rose-Slade Katie Murray
Chairman Group Chief Executive Officer Group Chief Financial Officer
28 July 2022
Board of directors
Chairman Executive directors Non-executive directors
Howard Davies Alison Rose-Slade Frank Dangeard
Katie Murray Patrick Flynn
Morten Friis
Robert Gillespie
Yasmin Jetha
Mike Rogers
Mark Seligman
Lena Wilson
Presentation of information
In this document, 'parent company' refers to the NatWest Group
plc, and 'NatWest Group' or the 'Group' refers to NatWest Group plc
and its subsidiaries. The term 'NWH Group' refers to NatWest
Holdings Limited ('NWH') and its subsidiary and associated
undertakings. The term 'NWM Group' refers to NatWest Markets Plc
('NWM Plc') and its subsidiary and associated undertakings. The
term 'NWM N.V.' refers to NatWest Markets N.V. The term 'NWMSI'
refers to NatWest Markets Securities, Inc. The term 'RBS plc'
refers to The Royal Bank of Scotland plc. The term 'NWB Plc' refers
to National Westminster Bank Plc. The term 'UBIDAC' refers to
Ulster Bank Ireland DAC. 'Go-forward group' excludes Ulster Bank
RoI and discontinued operations.
NatWest Group publishes its financial statements in pounds
sterling ('GBP' or 'sterling'). The abbreviations 'GBPm' and
'GBPbn' represent millions and thousands of millions of pounds
sterling, respectively, and references to 'pence' or 'p' represent
pence where the amounts are denominated in pounds sterling ('GBP').
Reference to 'dollars' or '$' are to United States of America
('US') dollars. The abbreviations '$m' and '$bn' represent millions
and thousands of millions of dollars, respectively. The
abbreviation 'EUR' represents the 'euro', and the abbreviations
'EURm' and 'EURbn' represent millions and thousands of millions of
euros, respectively.
On 27 January 2022, NatWest Group announced that a new
franchise, Commercial & Institutional, would be created,
bringing
together the Commercial, NatWest Markets and RBSI businesses to
form a single franchise, with common management and
objectives, to best support our customers across the full
non-personal customer lifecycle. Comparatives have been
re-presented in
this document. Refer to the re-segmentation document published
on 22 April 2022 for further details. The re-presentation of
operating segments does not change the consolidated financial
results of NatWest Group.
Statutory accounts
Financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 ('the Act'). The statutory accounts for the
year ended 31 December 2021 have been filed with the Registrar of
Companies. The report of the auditor on those statutory accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act.
MAR - Inside Information
This announcement contains information that qualified or may
have qualified as inside information for NatWest Group plc, for the
purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014
(MAR) as it forms part of domestic law by virtue of the European
Union (Withdrawal) Act 2018 for NatWest Group plc. This
announcement is made by Alexander Holcroft, Head of Investor
Relations for NatWest Group plc.
Forward-looking statements
This document contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation,
the words 'expect', 'estimate', 'project', 'anticipate', 'commit',
'believe', 'should', 'intend', 'will', 'plan', 'could',
'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal',
'objective', 'may', 'endeavour', 'outlook', 'optimistic',
'prospects' and similar expressions or variations on these
expressions. These statements concern or may affect future matters,
such as NatWest Group's future economic results, business plans and
strategies. In particular, this document may include
forward-looking statements relating to NatWest Group plc in respect
of, but not limited to: its economic and political risks, its
regulatory capital position and related requirements, its financial
position, profitability and financial performance (including
financial, capital, cost savings and operational targets), the
implementation of its purpose-led strategy, its ESG and climate
related targets, its access to adequate sources of liquidity and
funding, increasing competition from new incumbents and disruptive
technologies, the impact of the COVID-19 pandemic, its exposure to
third party risks, its ongoing compliance with the UK ring-fencing
regime and ensuring operational continuity in resolution, its
impairment losses and credit exposures under certain specified
scenarios, substantial regulation and oversight, ongoing legal,
regulatory and governmental actions and investigations, the
transition of LIBOR and IBOR rates to alternative risk free rates
and NatWest Group's exposure to operational risk,
conduct risk, cyber, data and IT risk, financial crime risk, key
person risk and credit rating risk. Forward-looking statements are
subject to a number of risks and uncertainties that might cause
actual results and performance to differ materially from any
expected future results or performance expressed or implied by the
forward-looking statements. Factors that could cause or contribute
to differences in current expectations include, but are not limited
to, future growth initiatives (including acquisitions, joint
ventures and strategic partnerships), the outcome of legal,
regulatory and governmental actions and investigations, the level
and extent of future impairments and write-downs (including with
respect to goodwill), legislative, political, fiscal and regulatory
developments, accounting standards, competitive conditions,
technological developments, interest and exchange rate
fluctuations, general economic and political conditions, the impact
of climate-related risks and the transitioning to a net zero
economy and the impact of the COVID-19 pandemic. These and other
factors, risks and uncertainties that may impact any
forward-looking statement or NatWest Group plc's actual results are
discussed in NatWest Group plc's UK 2021 Annual Report and Accounts
(ARA), NatWest Group plc's Interim Results for Q1 2022 and H1 2022
and NatWest Group plc's filings with the US Securities and Exchange
Commission, including, but not limited to, NatWest Group plc's most
recent Annual Report on Form 20-F and Reports on Form 6-K. The
forward-looking statements contained in this document speak only as
of the date of this document and NatWest Group plc does not assume
or undertake any obligation or responsibility to update any of the
forward-looking statements contained in this document, whether as a
result of new information, future events or otherwise, except to
the extent legally required.
Additional information
Share information
30 June 31 March 31 December
2022 2022 2021
---------------------------------------------- ------- -------- -----------
Ordinary share price (pence) 218.30 215.90 225.70
Number of ordinary shares in issue (millions) 10,583 10,783 11,468
---------------------------------------------- ------- -------- -----------
Financial calendar
2022 third quarter interim management statement 28 October 2022
----------------------------------------------- ---------------
Contacts
Analyst enquiries: Alexander Holcroft, Investor Relations +44
(0) 20 7672 1758
Media enquiries: NatWest Group Press Office +44 (0) 131 523 4205
Management presentation Fixed income call
Date: Friday 29 July 2022 Friday 29 July 2022
Time: 9.30am 1.00pm
Zoom ID: 958 4410 8428 939 1342 1434
----------------------- -------------------
Available on natwestgroup.com/results
- Interim Results 2022 and background slides.
- A financial supplement containing income statement, balance sheet
and segment performance information for the nine quarters ended 30
June 2022.
- NatWest Group Pillar 3 supplement at 30 June 2022.
Appendix
Non-IFRS financial measures
Non-IFRS financial measures
NatWest Group prepares its financial statements in accordance
with generally accepted accounting principles (GAAP). This document
contains a number of adjusted or alternative performance measures,
also known as non-GAAP or non-IFRS performance measures. These
measures are adjusted for notable and other defined items which
management believes are not representative of the underlying
performance of the business and which distort period-on-period
comparison. The non-IFRS measures provide users of the financial
statements with a consistent basis for comparing business
performance between financial periods and information on elements
of performance that are one-off in nature. The non-IFRS measures
also include the calculation of metrics that are used throughout
the banking industry. These non-IFRS measures are not measures
within the scope of IFRS and are not a substitute for IFRS
measures.
Non-IFRS financial measures
1. Go-forward group income excluding notable items
Go-forward group income excluding notable items is calculated as
total income excluding Ulster Bank RoI total income and excluding
notable items.
The exclusion of notable items aims to remove the impact of
one-offs which may distort period-on-period comparisons.
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
Less Ulster Bank RoI total
income (33) (65) (12) (21) (30)
---------------------------------- -------- ------- ------- -------- -------
Go-forward group income 6,186 5,076 3,199 2,987 2,541
Less notable items (321) (30) (97) (224) (39)
Go-forward group income excluding
notable items 5,865 5,046 3,102 2,763 2,502
---------------------------------- -------- ------- ------- -------- -------
2. Go-forward group other operating expenses
Other operating expenses is calculated as total operating
expenses less litigation and conduct costs. Other operating
expenses of the Go-forward group excludes Ulster Bank RoI.
Our cost target for 2022 is based on this measure and we track
progress against it.
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 operating expenses 3,653 3,499 1,833 1,820 1,695
Less litigation and conduct
costs (169) 18 (67) (102) 34
--------------------------------- -------- ------- ------- -------- -------
Other operating expenses 3,484 3,517 1,766 1,718 1,729
Less Ulster Bank RoI other
operating expenses (243) (226) (130) (113) (121)
--------------------------------- -------- ------- ------- -------- -------
Go-forward group other operating
expenses 3,241 3,291 1,636 1,605 1,608
--------------------------------- -------- ------- ------- -------- -------
3. Go-forward group profit before impairment
releases/(losses)
Go-forward group profit before impairment releases/(losses) is
calculated as total profit before impairment releases/(losses) less
Ulster Bank RoI loss before impairment (losses)/releases.
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
Profit before impairment releases/(losses) 2,566 1,642 1,378 1,188 876
Less Ulster Bank RoI loss before
impairment (losses)/releases 221 174 129 92 95
------------------------------------------- -------- ------- ------- -------- -------
Go-forward group profit before
impairment
releases/(losses) 2,787 1,816 1,507 1,280 971
------------------------------------------- -------- ------- ------- -------- -------
.
Non-IFRS financial measures
4. Operating expenses - management view
The management analysis of operating expenses shows litigation
and conduct costs on a separate line. These amounts are included
within staff costs and other administrative expenses in the
statutory analysis. Other operating expenses excludes litigation
and conduct costs, which are more volatile and may distort
comparisons with prior periods.
Half year ended
----------------------------------------------------
30 June 2022
----------------------------------------------------
Litigation
and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ -------------- --------------- -------------------
Continuing operations
Staff costs 18 1,790 1,808
Premises and equipment - 534 534
Depreciation and amortisation - 413 413
Other administrative expenses 151 747 898
Total 169 3,484 3,653
------------------------------ -------------- --------------- -------------------
Half year ended
----------------------------------------------------
30 June 2021
----------------------------------------------------
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ -------------- --------------- -------------------
Continuing operations
Staff costs - 1,880 1,880
Premises and equipment - 502 502
Depreciation and amortisation - 414 414
Other administrative expenses (18) 721 703
------------------------------
Total (18) 3,517 3,499
------------------------------ -------------- --------------- -------------------
Quarter ended
----------------------------------------------------
30 June 2022
----------------------------------------------------
Litigation
and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ -------------- --------------- -------------------
Continuing operations
Staff costs 11 896 907
Premises and equipment - 283 283
Depreciation and amortisation - 216 216
Other administrative expenses 56 371 427
Total 67 1,766 1,833
------------------------------ -------------- --------------- -------------------
Quarter ended
----------------------------------------------------
31 March 2022
----------------------------------------------------
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ -------------- --------------- -------------------
Continuing operations
Staff costs 7 894 901
Premises and equipment - 251 251
Depreciation and amortisation - 197 197
Other administrative expenses 95 376 471
------------------------------
Total 102 1,718 1,820
------------------------------ -------------- --------------- -------------------
Quarter ended
----------------------------------------------------
30 June 2021
----------------------------------------------------
Litigation and Other operating Statutory operating
conduct costs expenses expenses
Operating expenses GBPm GBPm GBPm
------------------------------ -------------- --------------- -------------------
Continuing operations
Staff costs - 906 906
Premises and equipment - 254 254
Depreciation and amortisation - 209 209
Other administrative expenses (34) 360 326
------------------------------
Total (34) 1,729 1,695
------------------------------ -------------- --------------- -------------------
Non-IFRS financial measures
5. Cost:income ratio
The cost:income ratio is calculated as total operating expenses
less operating lease depreciation divided by total income less
operating lease depreciation.
This is a common metric used to compare profitability across the
banking industry.
Go-forward group
---------------------------------------------------------
Central Total excluding Total
Commercial
Retail Private & items Ulster Ulster NatWest
Bank
Banking Banking Institutional & other Bank RoI RoI Group
Half year ended 30
June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ------- ------------- ------- --------------- ------ -------
Continuing operations
Operating expenses (1,242) (285) (1,820) (52) (3,399) (254) (3,653)
Operating lease depreciation - - 64 - 64 - 64
----------------------------- ------- ------- ------------- ------- --------------- ------ -------
Adjusted operating
expenses (1,242) (285) (1,756) (52) (3,335) (254) (3,589)
Total income 2,554 461 2,937 234 6,186 33 6,219
Operating lease depreciation - - (64) - (64) - (64)
-------------
Adjusted total income 2,554 461 2,873 234 6,122 33 6,155
Cost:income ratio 48.6% 61.8% 61.1% nm 54.5% nm 58.3%
----------------------------- ------- ------- ------------- ------- --------------- ------ -------
Half year ended 30
June 2021
Continuing operations
Operating expenses (1,187) (249) (1,824) - (3,260) (239) (3,499)
Operating lease depreciation - - 70 - 70 - 70
----------------------------- ------- ------- ------------- ------- --------------- ------ -------
Adjusted operating
expenses (1,187) (249) (1,754) - (3,190) (239) (3,429)
Total income 2,150 368 2,474 84 5,076 65 5,141
Operating lease depreciation - - (70) - (70) - (70)
Adjusted total income 2,150 368 2,404 84 5,006 65 5,071
Cost:income ratio 55.2% 67.7% 73.0% nm 63.7% nm 67.6%
----------------------------- ------- ------- ------------- ------- --------------- ------ -------
Quarter ended 30
June 2022
----------------------------- ----- ----- ----- ---- ------- ----- -------
Continuing operations
Operating expenses (597) (146) (898) (51) (1,692) (141) (1,833)
Operating lease depreciation - - 32 - 32 - 32
----------------------------- ----- ----- ----- ---- ------- ----- -------
Adjusted operating
expenses (597) (146) (866) (51) (1,660) (141) (1,801)
Total income 1,337 245 1,562 55 3,199 12 3,211
Operating lease depreciation - - (32) - (32) - (32)
-----
Adjusted total income 1,337 245 1,530 55 3,167 12 3,179
Cost:income ratio 44.7% 59.6% 56.6% nm 52.4% nm 56.7%
----------------------------- ----- ----- ----- ---- ------- ----- -------
Quarter ended 31 March
2022
Continuing operations
Operating expenses (645) (139) (922) (1) (1,707) (113) (1,820)
Operating lease depreciation - - 32 - 32 - 32
----------------------------- ----- ----- ----- ---- ------- ----- -------
Adjusted operating
expenses (645) (139) (890) (1) (1,675) (113) (1,788)
Total income 1,217 216 1,375 179 2,987 21 3,008
Operating lease depreciation - - (32) - (32) - (32)
Adjusted total income 1,217 216 1,343 179 2,955 21 2,976
Cost:income ratio 53.0% 64.4% 66.3% nm 56.7% nm 60.1%
----------------------------- ----- ----- ----- ---- ------- ----- -------
Quarter ended 30 June
2021
Continuing operations
Operating expenses (600) (128) (909) 67 (1,570) (125) (1,695)
Operating lease depreciation - - 35 - 35 - 35
----------------------------- ----- ----- ----- ---- ------- ----- -------
Adjusted operating
expenses (600) (128) (874) 67 (1,535) (125) (1,660)
Total income 1,094 183 1,221 43 2,541 30 2,571
Operating lease depreciation - - (35) - (35) - (35)
-----
Adjusted total income 1,094 183 1,186 43 2,506 30 2,536
Cost:income ratio 54.8% 69.9% 73.7% nm 61.3% nm 65.5%
----------------------------- ----- ----- ----- ---- ------- ----- -------
Non-IFRS financial measures
6. NatWest Group return on tangible equity
Return on tangible equity comprises annualised profit or loss
for the period attributable to ordinary shareholders divided by
average tangible equity. Average tangible equity is average total
equity excluding average non-controlling interests, average other
owners equity and average intangible assets.
Go-forward group return on tangible equity is calculated as
annualised profit for the period less Ulster Bank RoI divided by
Go-forward group total tangible equity. Go forward RWAe applying
factor is the Go- forward group average RWAe as a percentage of
total Natwest Group average RWAe.
This measure shows the return NatWest Group generates on
tangible equity deployed. It is used to determine relative
performance of banks and used widely across the sector, although
different banks may calculate the rate differently.
Half year
ended
and as at Quarter ended and
as at
------------------ ----------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
NatWest Group return on tangible equity GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ -------- -------- -------- -------- --------
Profit attributable to ordinary shareholders 1,891 1,842 1,050 841 1,222
Annualised profit attributable to ordinary
shareholders 3,782 3,684 4,200 3,364 4,888
Average total equity 39,857 43,375 38,625 40,934 43,011
Adjustment for other owners' equity and
intangibles (11,037) (11,934) (10,944) (11,067) (11,712)
------------------------------------------------ -------- -------- -------- -------- --------
Adjusted total tangible equity 28,820 31,441 27,681 29,867 31,299
------------------------------------------------ -------- -------- -------- -------- --------
Return on tangible equity 13.1% 11.7% 15.2% 11.3% 15.6%
------------------------------------------------ -------- -------- -------- -------- --------
Go-forward group return on tangible
equity
------------------------------------------------ -------- -------- -------- -------- --------
Profit attributable to ordinary shareholders 1,891 1,842 1,050 841 1,222
Less Ulster Bank RoI loss from continuing
operations, net of tax 212 218 149 63 126
Less profit from discontinued operations (190) (177) (127) (63) (83)
------------------------------------------------ -------- -------- -------- -------- --------
Go-forward group profit attributable
to ordinary shareholders 1,913 1,883 1,072 841 1,265
Annualised go-forward group profit attributable
to ordinary shareholders 3,826 3,766 4,288 3,364 5,060
------------------------------------------------ -------- -------- -------- -------- --------
Average total equity 39,857 43,375 38,625 40,934 43,011
Adjustment for other owners' equity and
intangibles (11,037) (11,934) (10,944) (11,067) (11,712)
------------------------------------------------ -------- -------- -------- -------- --------
Adjusted total tangible equity 28,820 31,441 27,681 29,867 31,299
Go-forward group RWAe applying factor 94% 93% 94% 95% 93%
Go-forward group total tangible equity 27,091 29,240 26,020 28,374 29,108
------------------------------------------------ -------- -------- -------- -------- --------
Go-forward group return on tangible equity 14.1% 12.8% 16.5% 11.9% 17.3%
------------------------------------------------ -------- -------- -------- -------- --------
Non-IFRS financial measures
7. Segmental return on equity
Segmental return on equity comprises segmental operating profit
or loss, adjusted for preference share dividends and tax, divided
by average notional equity. Average RWAe is defined as average
segmental RWAs incorporating the effect of capital deductions. This
is multiplied by an allocated equity factor for each segment to
calculate the average notional tangible equity.
This measure shows the return generated by operating segments on
equity deployed.
Commercial
Retail Private &
Half year ended 30 June 2022 Banking Banking Institutional
Operating profit (GBPm) 1,286 187 1,176
Paid-in equity cost allocation (GBPm) (40) (6) (93)
Adjustment for tax (GBPm) (349) (51) (271)
---------------------------------------------------- ------- ------- -------------
Adjusted attributable profit (GBPm) 897 130 812
Annualised adjusted attributable profit (GBPm) 1,794 261 1,624
Average RWAe (GBPbn) 52.5 11.3 101.7
Equity factor 13.0% 11.0% 14.0%
----------------------------------------------------
Average notional equity (GBPbn) 6.8 1.2 14.2
Return on equity (%) 26.3% 20.9% 11.4%
---------------------------------------------------- ------- ------- -------------
Half year ended 30 June 2021
Operating profit (GBPm) 1,020 146 1,263
Preference share and paid-in equity cost allocation
(GBPm) (40) (10) (118)
Adjustment for tax (GBPm) (274) (38) (286)
---------------------------------------------------- ------- ------- -------------
Adjusted attributable profit (GBPm) 706 98 859
Annualised adjusted attributable profit (GBPm) 1,412 196 1,718
Average RWAe (GBPbn) 35.4 11.0 108.9
Equity factor 14.5% 12.5% 13.0%
----------------------------------------------------
Average notional equity (GBPbn) 5.1 1.4 14.2
Return on equity (%) 27.5% 14.2% 12.1%
---------------------------------------------------- ------- ------- -------------
Commercial
Retail Private &
Quarter ended 30 June 2022 Banking Banking Institutional
Operating profit (GBPm) 719 105 712
Paid-in equity cost allocation (GBPm) (20) (3) (47)
Adjustment for tax (GBPm) (196) (29) (166)
---------------------------------------------------- ------- ------- -------------
Adjusted attributable profit (GBPm) 503 73 499
Annualised adjusted attributable profit (GBPm) 2,012 293 1,996
---------------------------------------------------- ------- ------- -------------
Average RWAe (GBPbn) 52.4 11.3 101.0
Equity factor 13.0% 11.0% 14.0%
Average notional equity (GBPbn) 6.8 1.2 14.1
Return on equity (%) 29.5% 23.5% 14.0%
---------------------------------------------------- ------- ------- -------------
Quarter ended 31 March 2022
Operating profit (GBPm) 567 82 464
Paid-in equity cost allocation (GBPm) (20) (3) (46)
Adjustment for tax (GBPm) (153) (22) (105)
---------------------------------------------------- ------- ------- -------------
Adjusted attributable profit (GBPm) 394 57 314
Annualised adjusted attributable profit (GBPm) 1,576 228 1,256
Average RWAe (GBPbn) 52.6 11.4 102.0
Equity factor 13.0% 11.0% 14.0%
---------------------------------------------------- ------- ------- -------------
Average notional equity (GBPbn) 6.8 1.3 14.3
Return on equity (%) 23.1% 18.2% 8.8%
---------------------------------------------------- ------- ------- -------------
Quarter ended 30 June 2021
Operating profit (GBPm) 585 82 800
Preference share and paid-in equity cost allocation
(GBPm) (20) (5) (59)
Adjustment for tax (GBPm) (158) (22) (185)
---------------------------------------------------- ------- ------- -------------
Adjusted attributable profit (GBPm) 407 55 556
Annualised adjusted attributable profit (GBPm) 1,628 220 2,223
Average RWAe (GBPbn) 35.1 11.1 107.6
Equity factor 14.5% 12.5% 13.0%
---------------------------------------------------- ------- ------- -------------
Average notional equity (GBPbn) 5.1 1.4 14.0
Return on equity (%) 32.0% 15.9% 15.9%
---------------------------------------------------- ------- ------- -------------
Non-IFRS financial measures
8. Bank net interest margin
Bank net interest margin is defined as annualised net interest
income of the Go-forward group, as a percentage of bank average
interest-earning assets. Bank average interest earning assets are
the average interest earning assets of the banking business of the
Go-forward group excluding liquid asset buffer.
Liquid asset buffer consists of assets held by NatWest Group,
such as cash and balances at central banks and debt securities in
issue, that can be used to ensure repayment of financial
obligations as they fall due. The exclusion of liquid asset buffer
presents net interest margin on a basis more comparable with UK
peers and excludes the impact of regulatory driven factors.
Half year ended Quarter ended
-------------------- -------------------------------
30 June 30 June 30 June 31 March 30 June
2022 2021 2022 2022 2021
Go-forward group GBPm GBPm GBPm GBPm GBPm
---------------------------------------- --------- --------- --------- --------- ---------
Continuing operations
NatWest Group net interest income 4,334 3,744 2,307 2,027 1,900
Less Ulster Bank RoI net interest
income (6) (15) (2) (4) (8)
---------------------------------------- --------- --------- --------- --------- ---------
Bank net interest income 4,328 3,729 2,305 2,023 1,892
---------------------------------------- --------- --------- --------- --------- ---------
Annualised NatWest Group net interest
income 8,740 7,550 9,253 8,221 7,621
Annualised bank net interest income 8,728 7,520 9,245 8,204 7,589
---------------------------------------- --------- --------- --------- --------- ---------
Average interest earning assets
(IEA) 546,045 503,624 548,371 543,697 510,517
Less Ulster Bank RoI average IEA (1,564) (2,216) (1,544) (1,584) (2,336)
Less liquid asset buffer average
IEA (207,583) (180,791) (206,843) (208,764) (185,210)
---------------------------------------- --------- --------- --------- --------- ---------
Bank average IEA 336,898 320,617 339,984 333,349 322,971
---------------------------------------- --------- --------- --------- --------- ---------
Bank net interest margin 2.59% 2.35% 2.72% 2.46% 2.35%
---------------------------------------- --------- --------- --------- --------- ---------
Retail Banking
---------------------------------------- --------- --------- --------- --------- ---------
Net interest income 2,340 1,976 1,228 1,112 1,003
Annualised net interest income 4,719 3,985 4,925 4,510 4,023
---------------------------------------- --------- --------- --------- --------- ---------
Retail Banking average IEA 186,813 176,327 188,081 185,531 177,297
Less liquid asset buffer average
IEA - - - - -
Adjusted Retail Banking average
IEA 186,813 176,327 188,081 185,531 177,297
---------------------------------------- --------- --------- --------- --------- ---------
Retail Banking net interest margin 2.53% 2.26% 2.62% 2.43% 2.27%
---------------------------------------- --------- --------- --------- --------- ---------
Private Banking
---------------------------------------- --------- --------- --------- --------- ---------
Net interest income 315 232 172 143 117
Annualised net interest income 635 468 690 580 469
---------------------------------------- --------- --------- --------- --------- ---------
Private Banking average IEA 19,006 17,886 19,144 18,867 18,081
Less liquid asset buffer average
IEA - - - - -
Adjusted Private Banking average
IEA 19,006 17,886 19,144 18,867 18,081
---------------------------------------- --------- --------- --------- --------- ---------
Private Banking net interest margin 3.34% 2.62% 3.60% 3.07% 2.60%
---------------------------------------- --------- --------- --------- --------- ---------
Commercial & Institutional
---------------------------------------- --------- --------- --------- --------- ---------
Net interest income 1,764 1,487 961 803 762
Annualised net interest income 3,557 2,999 3,855 3,257 3,056
---------------------------------------- --------- --------- --------- --------- ---------
Commercial & Institutional average
IEA 125,188 120,462 124,940 120,985 121,049
Less liquid asset buffer average
IEA - - - - -
Adjusted Commercial & Institutional
average IEA 125,188 120,462 124,940 120,985 121,049
---------------------------------------- --------- --------- --------- --------- ---------
Commercial & Institutional net interest
margin 2.84% 2.49% 3.09% 2.69% 2.52%
---------------------------------------- --------- --------- --------- --------- ---------
Non-IFRS financial measures
9. Tangible net asset value (TNAV) per ordinary share
TNAV per ordinary share is calculated as tangible equity divided
by the number of ordinary shares in issue.
This is a measure used by external analysts in valuing the bank
and allows for comparison with other per ordinary share metrics
including the share price.
As at
------------------------------
30 June 31 March 31 December
2022 2022 2021
GBPbn GBPbn GBPbn
------------------------------------ ------- -------- -----------
Ordinary shareholders' interests
(GBPm) 34,727 35,345 37,412
Less intangible assets (GBPm) (6,869) (6,774) (6,723)
--------------------------------------- ------- -------- -----------
Tangible equity (GBPm) 27,858 28,571 30,689
Ordinary shares in issue (millions) 10,436 10,622 11,272
TNAV per ordinary share (pence) 267p 269p 272p
--------------------------------------- ------- -------- -----------
10. Go-forward group net lending
NatWest Group net lending is calculated as total loans to
customers less loan impairment provisions. Go-forward group net
lending is calculated as net loans to customers less Ulster Bank
RoI net loans to customers.
As at
------------------------------
30 June 31 March 31 December
2022 2022 2021
GBPbn GBPbn GBPbn
-------------------------------------------- ------- -------- -----------
Total loans to customers (amortised
cost) 366.0 368.9 362.8
Less loan impairment provisions (3.4) (3.6) (3.8)
----------------------------------------------- ------- -------- -----------
Net loans to customers (amortised
cost) 362.6 365.3 359.0
Less Ulster Bank RoI net loans to customers
(amortised cost) (1.0) (6.3) (6.7)
--------------------------------------------- ------- -------- -----------
Go-forward group net lending 361.6 359.0 352.3
----------------------------------------------- ------- -------- -----------
11. Go-forward group customer deposits
Go-forward group customer deposits is calculated as total
customer deposits less Ulster Bank RoI customer deposits.
As at
------------------------------
30 June 31 March 31 December
2022 2022 2021
GBPbn GBPbn GBPbn
----------------------------------- ------- -------- -----------
Total customer deposits 492.1 482.9 479.8
Less Ulster Bank RoI customer
deposits (15.9) (17.3) (18.4)
-------------------------------------- ------- -------- -----------
Go-forward group customer deposits 476.2 465.6 461.4
-------------------------------------- ------- -------- -----------
Performance metrics not defined under IFRS
Metrics based on GAAP measures, included as not defined under
IFRS and reported for compliance with the European Securities and
Markets Authority (ESMA) adjusted performance measure rules.
1. Loan:deposit ratio
Loan:deposit ratio is calculated as net customer loans held at
amortised cost excluding reverse repos divided by total customer
deposits excluding repos. Prior periods have been re-presented.
This is a common metric used to assess liquidity. The removal of
repos and reverse repos reduces volatility and presents the ratio
on a basis that is comparable to UK peers.
As at
30 June 31 March 30 June
2022 2022 2021
GBPbn GBPbn GBPbn
Loans to customers - amortised cost 362,551 365,340 362,711
Less reverse repos (25,084) (26,780) (22,706)
337,467 338,560 340,005
--------------------------------------- -------- -------- --------
Customer deposits 492,075 482,887 467,214
Less repos (19,195) (16,166) (16,751)
472,880 466,721 450,463
--------------------------------------- -------- -------- --------
Loan:deposit ratio (%) 71% 73% 75%
------------------------------------------ -------- -------- --------
2. Loan impairment rate
Loan impairment rate is the annualised loan impairment charge
divided by gross customer loans.
3. Funded assets
Funded assets is calculated as total assets less derivative
assets.
This measure allows review of balance sheet trends exclusive of
the volatility associated with derivative fair values.
4. AUMAs
AUMA comprises both assets under management (AUMs) and assets
under administration (AUAs) serviced through the Private Banking
franchise. AUMs comprise assets where the investment management is
undertaken by Private Banking on behalf of Private Banking, Retail
Banking and Commercial & Institutional customers. AUAs comprise
third party assets held on an execution-only basis in custody by
Private Banking, Retail Banking and Commercial & Institutional
for their customers, for which the execution services are supported
by Private Banking. Private Banking receives a fee for providing
investment management and execution services to Retail Banking and
Commercial & Institutional franchises.
Private Banking is the centre of expertise for asset management
across NatWest Group servicing all client segments across Retail
Banking, Private Banking and Commercial & Institutional
Banking.
5. Net new money
Net new money refers to client cash inflows and outflows
relating to investment products (this can include transfers from
saving accounts). Net new money excludes the impact of EEA resident
client outflows following the UK's exit from the EU.
Net new money is reported and tracked to monitor the business
performance of new business inflows and management of existing
client withdrawals across Retail Banking, Private Banking and
Commercial & Institutional Banking.
6. Wholesale funding
Wholesale funding comprises deposits by banks (excluding repos),
debt securities in issue and subordinated liabilities.
Funding risk is the risk of not maintaining a diversified,
stable and cost-effective funding base. The disclosure of wholesale
funding highlights the extent of our diversification and how we
mitigate funding risk.
Legal Entity Identifier: 2138005O9XJIJN4JPN90
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