TIDMNWG TIDM83NF TIDMTTM
RNS Number : 1750U
NatWest Group plc
29 July 2022
NatWest Markets N.V.
Interim Results 2022
NatWest Markets N.V.
Results for the half year ended 30 June 2022
Growing sustainably
In H1 2022, we have made good progress through our One Bank
initiatives to grow in our target customer segment and markets. The
creation of NatWest Group's new Commercial and Institutional
franchise (C&I) announced in January 2022, which includes
NatWest Markets, will provide further opportunities to deepen our
customer relationships and drive sustainable income growth across
the C&I franchise.
Against a backdrop of challenging market conditions and reduced
levels of market liquidity in Fixed Income markets, we have overall
delivered a strong financial performance in the first half of the
year and maintained our strong capital and liquidity position. We
continue to monitor the evolving economic outlook including the
continued rise in cost of living and are mindful of the impact that
rising inflation, higher interest rates and supply-chain shortages
are having on our customers. We continue to monitor the situation
closely regarding the Russian invasion of Ukraine. NatWest Markets
N.V. (NWM N.V.) has no material direct exposure to the region
through our operations or material dependencies on suppliers.
We continue to make progress in our remediation programmes
relating to Financial Crime, Data Management, Outsourcing and
Capital Models and our progress is shared regularly with the
relevant supervisors.
Climate and sustainable funding and financing have continued to
perform well, and as at the end of H1 2022 we had delivered EUR5.3
billion towards the NatWest Group climate and sustainable funding
and financing target of GBP100 billion between 1 July 2021 and the
end of 2025.
Management Board and Supervisory Board update
In May 2022, Vincent Goedegebuure joined NWM N.V. as Chief
Executive Officer and Chairman of the Managing Board.
In April 2022, David King stepped down as Chief Financial
Officer of NatWest Markets Plc (NWM Plc) and, as a result, he also
stepped down as NWM N.V. Supervisory Board member.
Outlook (1) We retain the Outlook as set out in NWM N.V. 2021
Annual Report and Accounts.
(1) The targets, expectations and trends discussed in this
section represent management's current expectations and are subject
to change, including as a result of the factors described in the
Risk Factors section on pages 127 to 150 of NWM N.V. 2021 Annual
Report and Accounts and the Summary Risk Factors set out on pages
28 and 29 of this announcement for H1 2022. These statements
constitute forward-looking statements. Refer to Forward-looking
statements in this announcement.
Financial review
Profit for the period was EUR11 million compared with EUR40
million in H1 2021. The total decrease of EUR29 million was mainly
due to an impairment charge of EUR7 million compared with a release
of EUR4 million in H1 2021, a EUR7 million decrease in total income
from EUR111 million to EUR104 million and a tax charge of EUR7
million compared with a tax credit of EUR2 million in H1 2021.
Net interest income was a net expense of EUR1 million compared
with a net expense of EUR4 million in H1 2021.
Non-interest income decreased by EUR10 million to EUR105 million
compared with EUR115 million in H1 2021. Net fees and commissions
of EUR94 million (H1 2021 - EUR129 million) primarily related to
transfer pricing income from NWM Plc of EUR60 million (H1 2021 -
EUR76 million) and syndicate fee income of EUR34 million (H1 2021 -
EUR52 million). The decrease in transfer pricing income is mainly
driven by lower income from revenue share models. Income from
trading activities was a gain of EUR10 million compared with a EUR2
million loss in H1 2021. Other operating income was a gain of EUR1
million compared with a loss of EUR12 million in H1 2021, largely
reflecting the loss on disposal of Loans to customers of EUR12
million in the comparative period.
Operating expenses were EUR79 million compared with EUR77
million in H1 2021. Staff costs decreased by EUR2 million to EUR39
million in H1 2022 , mainly due to restructuring expenses in H1
2021. Premises and equipment costs were EUR3 million (H1 2021 -
EUR3 million). Administrative expenses increased by EUR4 million to
EUR35 million , compared with EUR31 million in H1 2021, primarily
driven by higher cost recharges from NatWest Group companies.
Depreciation and amortisation was EUR2 million (H1 2021 - EUR2
million).
Impairments were a charge of EUR7 million, compared with a
release of EUR4 million in H1 2021, mainly driven by increases in
IFRS 9 Stage 1 and 2 exposures and associated expected credit loss
in the period. The EUR4 million release in H1 2021 was mainly
driven by a reduction of an individual significant exposure.
Tax charge was EUR7 million compared with a tax credit of EUR2
million in H1 2021, largely driven by the utilisation of deferred
tax assets in H1 2022 and the release of a legacy tax provision in
the comparative period .
Balance sheet
Total assets and total liabilities both increased by EUR6.2
billion to EUR27 billion and EUR24.7 billion respectively as at 30
June 2022, compared with 31 December 2021.
- Cash and balances at central banks decreased by EUR1.2 billion to
EUR3.9 billion at 30 June 2022, with the full balance placed with
the Dutch Central Bank.
- Trading assets increased to EUR4.6 billion (31 December 2021 - EUR4.2
billion), driven by an increase in reverse repos of EUR0.9 billion,
partially offset by a decrease in collateral given of EUR0.5 billion.
- Derivative assets increased to EUR10.7 billion (31 December 2021
- EUR7.8 billion) and derivative liabilities increased to EUR10.2
billion (31 December 2021 - EUR8.9 billion), primarily reflecting
movements in interest rate derivatives and FX derivatives.
- Settlement balance assets and liabilities were EUR1.9 billion (31
December 2021 - EUR0.4 billion) and EUR2.9 billion (31 December 2021
- EUR0.2 billion) respectively due to higher trading volume around
June 2022 month end compared to December 2021 month end.
- Loans to banks - amortised cost increased by EUR0.3 billion to EUR0.4
billion at 30 June 2022, largely driven by timing differences in
Nostro accounts.
- Loans to customers - amortised cost increased by EUR0.3 billion to
EUR0.9 billion, reflecting new deals.
- Amounts due from holding company and fellow subsidiaries increased
to EUR3.1 billion compared with EUR1.4 billion at 31 December 2021,
mainly due to increases in deals pending settlement and loans subject
to reverse repo agreements .
- Other financial assets increased by EUR0.3 billion to EUR1.4 billion,
reflecting an increase in treasury bills of EUR0.4 billion and a
decrease in equity shares of EUR0.1 billion.
- Bank deposits increased by EUR0.2 billion to EUR0.2 billion at 30
June 2022.
- Customer deposits increased from EUR0.9 billion to EUR1.3 billion,
reflecting increased funding requirement.
- Amounts due to holding companies and fellow subsidiaries increased
by EUR0.1 billion to EUR4.0 billion, mainly driven by an increase
in deposits subject to repo agreements of EUR0.7 billion, partially
offset by a decrease in cash collateral of EUR0.5 billion.
- Trading liabilities increased to EUR3.7 billion (31 December 2021
- EUR2.1 billion) primarily reflecting increases in collateral received
and repos of EUR1.5 billion and EUR0.2 billion respectively.
- Subordinated liabilities decreased by EUR0.1 billion to EUR0.5 billion
primarily due to valuation changes.
- Other financial liabilities were EUR1.9 billion (31 December 2021
- EUR1.9 billion).
- Equity attributable to controlling interests increased by EUR49 million
to EUR2.3 billion, mainly driven by the profit for the period of
EUR11 million and own credit adjustments of EUR59 million due to
widening of credit spreads. This was partially offset by dividends
paid on AT1 capital securities of EUR7 million and fair value through
other comprehensive income movements of EUR13 million.
Financial review
Capital and liquidity
Capital ratios and risk-weighted assets (RWAs) on the CRR
transitional basis are set out below.
30 June 31 December
2022 2021
Capital ratios % %
CET1 26.9 29.7
Tier 1 30.9 34.1
Total 33.2 37.4
------------------------------- ------- -----------
Risk-weighted assets EURm EURm
------------------------------- ------- -----------
Credit risk 4,869 3,785
Market risk 1,054 1,269
Operational risk 354 620
Settlement risk - 2
Total RWAs 6,277 5,676
------------------------------- ------- -----------
Liquidity % %
Liquidity coverage ratio (LCR) 218 255
------------------------------- ------- -----------
- The decrease in market risk RWAs was primarily due to a
decrease in Credit Valuation Adjustment (CVA) RWAs.
- The increase in credit risk RWAs was mainly driven by
increased corporate lending. This was also the primary driver for
the decrease in the CET1 ratio.
- There were no capital actions during H1 2022.
- The decrease in the LCR ratio was driven by increased
intercompany and increased lending, partially offset by increased
funding over H1 2022.
Condensed consolidated income statement for the half year ended
30 June 2022 (unaudited)
Half year ended
-----------------
30 June 30 June
2022 2021
EURm EURm
Interest receivable 24 22
Interest payable (25) (26)
------------------------------------------- -------- -------
Net interest income (1) (4)
Fees and commissions receivable 106 143
Fees and commissions payable (12) (14)
Income from trading activities 10 (2)
Other operating income 1 (12)
------------------------------------------- -------- -------
Non-interest income 105 115
Total income 104 111
Staff costs (39) (41)
Premises and equipment (3) (3)
Other administrative expenses (35) (31)
Depreciation and amortisation (2) (2)
------------------------------------------- -------- -------
Operating expenses (79) (77)
------------------------------------------- -------- -------
Profit before impairment (losses)/releases 25 34
Impairment (losses)/releases (7) 4
Operating profit before tax 18 38
Tax (charge)/credit (7) 2
------------------------------------------- -------- -------
Profit for the period 11 40
------------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 4 33
AT1 capital securities 7 7
11 40
------------------------------------------- -------- -------
Condensed consolidated statement of comprehensive income for the
half year ended 30 June 2022 (unaudited)
Half year ended
-----------------
30 June 30 June
2022 2021
EURm EURm
Profit for the period 11 40
--------------------------------------------------------------- -------- -------
Items that do not qualify for reclassification
Profit/(loss) on fair value of credit in financial liabilities
designated at fair value through
profit or loss due to own credit risk 59 (19)
Fair value through other comprehensive income (FVOCI)
financial assets (5) (1)
54 (20)
Items that qualify for reclassification
FVOCI financial assets (8) (1)
Currency translation (1) 3
===============================================================
(9) 2
Other comprehensive income/(loss) after tax 45 (18)
=============================================================== -------- -------
Total comprehensive income for the period 56 22
--------------------------------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 49 15
AT1 capital securities 7 7
56 22
--------------------------------------------------------------- -------- -------
Condensed consolidated balance sheet as at 30 June 2022
(unaudited)
30 June 31 December
2022 2021
EURm EURm
Assets
Cash and balances at central banks 3,928 5,145
Trading assets 4,565 4,174
Derivatives 10,747 7,767
Settlement balances 1,861 391
Loans to banks - amortised cost 397 139
Loans to customers - amortised cost 915 660
Amounts due from holding companies and fellow subsidiaries 3,109 1,380
Other financial assets 1,369 1,027
Other assets 98 95
----------------------------------------------------------- ------- -----------
Total assets 26,989 20,778
----------------------------------------------------------- ------- -----------
Liabilities
Bank deposits 182 -
Customer deposits 1,259 880
Amounts due to holding companies and fellow subsidiaries 4,035 3,923
Settlement balances 2,857 186
Trading liabilities 3,727 2,080
Derivatives 10,170 8,854
Other financial liabilities 1,868 1,907
Subordinated liabilities 536 652
Other liabilities 59 49
----------------------------------------------------------- ------- -----------
Total liabilities 24,693 18,531
Total equity 2,296 2,247
----------------------------------------------------------- ------- -----------
Total liabilities and equity 26,989 20,778
----------------------------------------------------------- ------- -----------
Condensed consolidated statement of changes in equity for the
half year ended 30 June 2022 (unaudited)
Half year ended
=================
30 June 30 June
2022 2021
EURm EURm
Share capital and premium account - at beginning and
end of period (1) 1,700 1,700
AT1 capital securities - at the beginning and end of
period 250 250
--------------------------------------------------------- -------- -------
FVOCI reserve - at beginning of period 4 7
Unrealised losses (17) (1)
Realised losses/(gains) 4 (1)
--------------------------------------------------------- -------- -------
At end of period (9) 5
========================================================= ======== =======
Foreign exchange reserve - at beginning of period 13 9
Retranslation of net assets (1) 11
Foreign currency losses on hedges of net assets - (8)
--------------------------------------------------------- -------- -------
At end of period 12 12
--------------------------------------------------------- -------- -------
Retained earnings - at beginning of period 280 207
Profit attributable to ordinary shareholders and other
equity owners 11 40
AT1 capital securities dividends paid (7) (7)
Changes in fair value of credit in financial liabilities
designated at fair value through profit or loss 59 (19)
--------------------------------------------------------- -------- -------
At end of period 343 221
--------------------------------------------------------- -------- -------
Total equity at end of period 2,296 2,188
--------------------------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 2,046 1,938
AT1 capital securities 250 250
2,296 2,188
--------------------------------------------------------- -------- -------
(1) Includes Ordinary share capital of EUR50,000 (2021 - EUR50,000).
Condensed consolidated cash flow statement for the half year
ended 30 June 2022 (unaudited)
Half year ended
-----------------
30 June 30 June
2022 2021
EURm EURm
Operating activities
Operating profit before tax 18 38
Adjustments for non-cash items (65) (16)
-------------------------------------------------------------- -------- -------
Net cash flows from trading activities (47) 22
Changes in operating assets and liabilities (196) 131
-------------------------------------------------------------- -------- -------
Net cash flows from operating activities before tax (243) 153
Income taxes paid (2) (25)
-------------------------------------------------------------- -------- -------
Net cash flows from operating activities (245) 128
Net cash flows from investing activities (345) (178)
Net cash flows from financing activities (23) (17)
Effects of exchange rate changes on cash and cash equivalents 22 32
-------------------------------------------------------------- -------- -------
Net decrease in cash and cash equivalents (591) (35)
Cash and cash equivalents at beginning of period 7,229 7,286
-------------------------------------------------------------- -------- -------
Cash and cash equivalents at end of period 6,638 7,251
-------------------------------------------------------------- -------- -------
Notes
1. Presentation of condensed consolidated financial
statements
The condensed consolidated financial statements are set out on
pages 5 to 27. 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 European Union. They should be read
in conjunction with the NatWest Markets N.V. 2021 Annual Report and
Accounts.
2. Accounting policies
NatWest Markets N.V.'s principal accounting policies are as set
out on pages 65 to 68 of the NatWest Markets N.V. 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 judgements and assumptions that are considered to be the
most important to the portrayal of NatWest Markets N.V.'s financial
condition are those relating to deferred tax, fair value of
financial instruments and loan impairment provisions. These
critical accounting policies and judgements are noted on page 68 of
NatWest Markets N.V. 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 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 Risk
factors on page 28 which should be read in conjunction with the
Risk factors included in the NatWest Markets N.V.'s 2021 Annual
Report and Accounts).
3. Analysis of net fees and commissions
Half year ended
-----------------
30 June 30 June
2022 2021
EURm EURm
Fees and commissions receivable
- Transfer pricing arrangements (Note 11) 60 76
- Underwriting fees 30 52
- Lending and financing 10 9
- Other 6 6
Total 106 143
-------------------------------------------- -------- -------
Fees and commissions payable (12) (14)
-------- -------
Net fees and commissions 94 129
-------------------------------------------- -------- -------
4. Tax
The actual tax charge differs from the expected tax charge
computed by applying the standard Dutch corporation tax rate of
25.8% as follows:
Half year ended
-----------------
30 June 30 June
2022 2021
EURm EURm
Profit before tax 18 38
-------------------------------------- -------- -------
Expected tax charge (5) (9)
Foreign profits taxed at other rates (1) -
Losses brought forward and utilised - 8
Tax on AT1 capital securities 2 -
Adjustments in respect to prior years (3) 3
Actual tax (charge)/credit (7) 2
-------------------------------------- -------- -------
Deferred tax assets - Deferred tax assets of EUR57 million
recognised at 31 December 2021 have decreased to EUR 54 million at
30 June 2022 due to utilisations. NWM N.V. Group has considered the
carrying value of this asset as at 30 June 2022 and concluded that
it is recoverable based on future profit projections.
Notes
5. Derivatives
The table below shows third party derivatives by type of
contract. The master netting agreements and collateral shown do not
result in a net presentation on the balance sheet under IFRS.
30 June 2022 31 December 2021
------------------------------------------------------- ------------------------------
Notional
---------------------------------
GBP USD Euro Other Total Assets Liabilities Notional Assets Liabilities
EURbn EURbn EURbn EURbn EURbn EURm EURm EURbn EURm EURm
Gross exposure 7,325 6,811 5,175 6,713
IFRS offset - - - -
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
Carrying value 422 72 1,575 35 2,104 7,325 6,811 1,814 5,175 6,713
Of which:
Interest rate (1) 410 12 1,516 6 1,944 4,453 3,865 1,664 3,243 4,321
Exchange rate 12 60 59 29 160 2,870 2,944 149 1,932 2,382
Credit - - - - - 2 2 1 - 10
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
Carrying value 2,104 7,325 6,811 1,814 5,175 6,713
Counterparty mark-to-market
netting (3,295) (3,295) (2,747) (2,747)
Cash collateral (2,524) (2,425) (1,382) (3,105)
Securities collateral (880) (183) (534) (365)
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
Net exposure 626 908 512 496
Banks (2) 18 117 32 35
Other financial
institutions
(3) 282 371 233 179
Corporate (4) 311 342 247 259
Government (5) 15 78 - 23
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
Net exposure 626 908 512 496
UK 10 6 7 3
Europe 606 902 470 493
US - - 4 -
RoW 10 - 31 -
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
Net exposure 626 908 512 496
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
Asset quality of
uncollateralised
derivative assets
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
AQ1-AQ4 559 446
AQ5-AQ10 67 66
----- ----- ----- ----- ----- -------
Net exposure 626 512
--------------------------- ----- ----- ----- ----- ----- ------- ----------- -------- ------- -----------
(1) The notional amount of interest rate derivatives includes
EUR1,820 billion (31 December 2021 - EUR1,556 billion) in respect
of contracts cleared through central clearing counterparties.
(2) Transactions with certain counterparties with whom NWM N.V.
has netting arrangements but collateral is not posted on a daily
basis; certain transactions with specific terms that may not fall
within netting and collateral arrangements; derivative positions in
certain jurisdictions, for example China, where the collateral
agreements are not deemed to be legally enforceable.
(3) Includes transactions with securitisation vehicles and funds
where collateral posting is contingent on NWM N.V.'s external
rating.
(4) Mainly large corporates with whom NWM N.V. may have netting
arrangements in place, but operational capability does not support
collateral posting.
(5) Sovereigns and supranational entities with no collateral
arrangements, collateral arrangements that are not considered
enforceable, or one-way collateral agreements in their favour.
Notes
6. 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 EURm EURm EURm EURm EURm
------------------------------------ ------ ----- --------- ------ ------
Cash and balances at central banks 3,928 3,928
Trading assets 4,565 4,565
Derivatives 10,747 10,747
Settlement balances 1,861 1,861
Loans to banks - amortised cost 397 397
Loans to customers - amortised cost 915 915
Amounts due from holding companies
and fellow subsidiaries 1,006 - 2,098 5 3,109
Other financial assets 1,222 147 1,369
Other assets 98 98
------------------------------------ ------ ----- --------- ------ ------
30 June 2022 16,318 1,222 9,346 103 26,989
------------------------------------ ------ ----- --------- ------ ------
Cash and balances at central banks 5,145 5,145
Trading assets 4,174 4,174
Derivatives 7,767 7,767
Settlement balances 391 391
Loans to banks - amortised cost 139 139
Loans to customers - amortised cost 660 660
Amounts due from holding companies
and fellow subsidiaries 765 - 612 3 1,380
Other financial assets 1 904 122 1,027
Other assets 95 95
------------------------------------ ------ ----- --------- ------ ------
31 December 2021 12,707 904 7,069 98 20,778
------------------------------------ ------ ----- --------- ------ ------
Held-for- Amortised Other
trading DFV cost liabilities Total
Liabilities EURm EURm EURm EURm EURm
Bank deposits 182 182
Customer deposits 1,259 1,259
Amounts due to holding companies and
fellow subsidiaries 2,414 - 1,590 31 4,035
Settlement balances 2,857 2,857
Trading liabilities 3,727 3,727
Derivatives 10,170 10,170
Other financial liabilities 635 1,233 1,868
Subordinated liabilities 260 276 536
Other liabilities 9 50 59
30 June 2022 16,311 895 7,406 81 24,693
------------------------------------- --------- ---- --------- ----------- ------
Bank deposits - -
Customer deposits 880 880
Amounts due to holding companies and
fellow subsidiaries 2,068 - 1,825 30 3,923
Settlement balances 186 186
Trading liabilities 2,080 2,080
Derivatives 8,854 8,854
Other financial liabilities - 586 1,321 1,907
Subordinated liabilities 394 258 652
Other liabilities 7 42 49
31 December 2021 13,002 980 4,477 72 18,531
------------------------------------- --------- ---- --------- ----------- ------
Notes
6. Financial instruments - classification continued
Amounts due from/to holding companies and fellow subsidiaries as
below:
30 June 2022 31 December 2021
------------------------------ ------------------------------
Holding Fellow Holding Fellow
companies subsidiaries Total companies subsidiaries Total
EURm EURm EURm EURm EURm EURm
Assets
Trading assets 1,006 - 1,006 765 - 765
Loans to banks - amortised
cost 358 17 375 61 24 85
Loans to customers - amortised
cost 146 - 146 135 - 135
Settlement balances 1,570 7 1,577 392 - 392
Other assets 5 - 5 3 - 3
--------- ------------ -----
Amounts due from holding
companies and fellow
subsidiaries 3,085 24 3,109 1,356 24 1,380
--------------------------------- --------- ------------ ----- --------- ------------ -----
Derivatives (1) 3,422 - 3,422 2,592 - 2,592
--------------------------------- --------- ------------ ----- --------- ------------ -----
-
Liabilities
Trading liabilities 2,414 - 2,414 2,068 - 2,068
Bank deposits - amortised
cost 972 - 972 1,037 3 1,040
Customer deposits - amortised
cost - 96 96 - 179 179
Other financial liabilities
- subordinated liabilities 150 - 150 150 - 150
Settlement balances 372 - 372 456 - 456
Other liabilities 17 14 31 23 7 30
--------- ------------ -----
Amounts due to holding companies
and fellow
subsidiaries 3,925 110 4,035 3,734 189 3,923
--------------------------------- --------- ------------ ----- --------- ------------ -----
Derivatives (1) 3,359 - 3,359 2,141 - 2,141
--------------------------------- --------- ------------ ----- --------- ------------ -----
(1) Intercompany derivatives are included within derivative
classification on the balance sheet.
Notes
6. 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 NWM N.V.'s 2021 Annual
Report and Accounts. Valuation and input methodologies at 30 June
2022 are consistent with those described in Note 8 to NWM N.V.'s
2021 Annual Report and Accounts.
Fair value hierarchy
The table below shows the assets and liabilities held by NWM
N.V. 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 Level Level Level
1 2 3 Total 1 2 3 Total
EURm EURm EURm EURm EURm EURm EURm EURm
Assets
Trading assets
Loans - 4,480 85 4,565 - 4,112 59 4,171
Securities - - - - - - 3 3
Derivatives - 10,669 78 10,747 - 7,655 112 7,767
Amounts due from holding
companies and
fellow subsidiaries - 1,006 - 1,006 - 765 - 765
Other financial assets
- securities 855 364 3 1,222 460 445 - 905
----------------------------
Total financial assets
held at fair value 855 16,519 166 17,540 460 12,977 174 13,611
As a % of total fair value
assets 5% 94% 1% 3% 96% 1%
----- ------ ----- ------ ----- ------ ----- ------
Liabilities
Amounts due to holding
companies and
fellow subsidiaries - 2,414 - 2,414 - 2,068 - 2,068
Trading liabilities
Deposits - 3,708 - 3,708 - 2,059 - 2,059
Short positions - 19 - 19 - 21 - 21
Derivatives - 10,060 110 10,170 - 8,794 60 8,854
Other financial liabilities
Deposits - 580 - 580 - 586 - 586
Debt securities in issue - 55 - 55 - - - -
Subordinated liabilities - 260 - 260 - 394 - 394
----------------------------
Total financial liabilities
held at fair value - 17,096 110 17,206 - 13,922 60 13,982
As a % of total fair value
liabilities - 99% 1% - 100% 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 instruments were
transferred.
Notes
6. Financial instruments - valuation
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 Level
3 Favourable Unfavourable 3 Favourable Unfavourable
Assets EURm EURm EURm EURm EURm EURm
Trading assets
Loans 85 - - 59 - -
Securities - - - 3 - -
Derivatives 78 10 (10) 112 10 (10)
Other financial assets -
Securities 3 - - - - -
----------------------------
Total financial assets
held at fair value 166 10 (10) 174 10 (10)
----- ---------- ------------ ----- ---------- ------------
Liabilities
Derivatives 110 10 (10) 60 - -
----------------------------
Total financial liabilities
held at fair value 110 10 (10) 60 - -
----- ---------- ------------ ----- ---------- ------------
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 assets
(1) (2) assets liabilities (1) (2) assets liabilities
EURm EURm EURm EURm EURm EURm EURm EURm
At 1 January 174 - 174 60 133 - 133 59
Amount recorded in the income
statement (3) (23) - (23) 34 (31) - (31) (6)
Level 3 transfers in - - - 1 - 35 35 -
Level 3 transfers out - - - (1) (7) - (7) (3)
Purchases/originations 95 3 98 35 46 - 46 13
Settlements/other decreases (9) - (9) (6) (4) (5) (9) 3
Sales (73) - (73) (13) (1) - (1) (3)
Foreign exchange and other (1) - (1) - 4 - 4 -
-------------------------------
At 30 June 163 3 166 110 140 30 170 63
------- ---------- ------ ----------- ------- --------- ------ -----------
Amounts recorded in the income
statement in
respect of balances held
at year end
- unrealised (23) - (23) 34 (31) - (31) (6)
------- ---------- ------ ----------- ------- --------- ------ -----------
(1) Trading assets comprise assets held at fair value in trading portfolios.
(2) Other financial assets comprise fair value through other
comprehensive income, designated as at fair value through profit or
loss and other fair value through profit or loss.
(3) There were EUR57 million net losses on trading assets and
liabilities (30 June 2021 - EUR25 million) recorded in income from
trading activities.
Notes
6. 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
Fair value hierarchy
approximates Carrying level
----------------------
carrying Fair Level Level
value value value 2 3
30 June 2022 EURm EURm EURm EURm EURm
Financial assets
Cash and balances at central banks 3,928
Settlement balances 1,861
Loans to banks 222 175 175 73 102
Loans to customers 915 888 - 888
Amounts due from holding companies
and fellow subsidiaries 1,577 521 521 - 521
Other financial assets 147 147 - 147
----------------------------------- ------------ -------- ------ ---------- ----------
31 December 2021
----------------------------------- ------------ -------- ------ ---------- ----------
Financial assets
Cash and balances at central banks 5,145
Settlement balances 391
Loans to banks 18 121 121 62 59
Loans to customers 660 656 - 656
Amounts due from holding companies
and fellow subsidiaries 612 612 - 612
Other financial assets 122 122 - 122
----------------------------------- ------------ -------- ------ ---------- ----------
30 June 2022
----------------------------------- ------------ -------- ------ ---------- ----------
Financial liabilities
Bank deposits 32 150 150 - 150
Customer deposits 3 1,256 1,256 - 1,256
Amounts due to holding companies
and fellow subsidiaries 357 1,233 1,239 150 1,089
Settlement balances 2,857
Other financial liabilities 1,233 1,233 553 680
Subordinated liabilities 276 367 367 -
----------------------------------- ------------ -------- ------ ---------- ----------
31 December 2021
----------------------------------- ------------ -------- ------ ---------- ----------
Financial liabilities
Bank deposits - - - - -
Customer deposits 4 876 876 - 876
Amounts due to holding companies
and fellow subsidiaries 31 1,794 1,807 157 1,650
Settlement balances 186
Other financial liabilities 1,321 1,321 814 507
Subordinated liabilities 258 382 380 2
----------------------------------- ------------ -------- ------ ---------- ----------
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, and customer demand deposits, 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, NWM N.V.'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
7. 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 EURm EURm
Loans
Reverse repos 1,819 946
Collateral given 2,648 3,164
Other loans 98 61
Total loans 4,565 4,171
----------------------- ------- -----------
Securities - 3
Total 4,565 4,174
------- -----------
Liabilities
Deposits
Repos 754 586
Collateral received 2,953 1,468
Other deposits 1 5
----------------------- ------- -----------
Total deposits 3,708 2,059
----------------------- ------- -----------
Short positions 19 21
Total 3,727 2,080
------- -----------
8. Loan impairment provisions
Economic loss drivers
Introduction
The portfolio segmentation and selection of economic loss
drivers for IFRS 9 follow closely the approach used in stress
testing. To enable robust modelling the forecasting models for each
portfolio segment (defined by product or asset class and where
relevant, industry sector and region) are based on a selected,
small number of economic factors, (typically three to four) that
best explain the temporal variations in portfolio loss rates. The
process to select economic loss drivers involves empirical analysis
and expert judgment.
Economic scenarios
At 30 June 2022, the range of anticipated future economic
conditions was defined by a set of four internally developed
scenarios and their respective probabilities. In addition to the
base case, they comprised upside, downside and extreme downside
scenarios. The scenarios primarily reflected a range of outcomes
associated with the most prominent risks facing the economy, and
the associated effects on labour and asset markets.
The four economic scenarios are translated into forward-looking
projections of credit cycle indices (CCIs) using a set of
econometric models. Subsequently the CCI projections for the
individual scenarios are averaged into a single central CCI
projection according to the given scenario probabilities. The
central CCI projection is then overlaid with an additional mean
reversion assumption i.e., after reaching their worst forecast
position the CCIs start to gradually revert to their long-run
average of zero.
Upside - This scenario assumes a very strong recovery through
2022 as consumers dip into excess savings built up since amidst
COVID-19. The labour market remains resilient, with the
unemployment rate falling substantially below pre-COVID-19 levels.
Inflation is marginally higher than the base case but eventually
retreats close to the target without substantial tightening and
with no major effect on growth. The housing market shows a strong
performance.
Base case - After a strong recovery in 2021, growth moderates in
2022 as real incomes decline and consumer confidence falls. The
unemployment rate decreases initially but subsequently increases
above pre-COVID-19 levels, although remains low by historical
standards. Inflation remains elevated at close to current levels
through to early 2023 before retreating. Interest rates are raised
to 2% to control price pressures. There is a gradual cooling in the
housing market, but activity remains firm. As inflation retreats,
economic growth returns to its pre-COVID-19 pace over the course of
2023, remaining steady through the forecast period.
Downside - This scenario assumes that inflation accelerates to
15%, triggered by further escalation in geopolitical tensions and
an associated rise in energy prices. This undermines the recovery,
harming business and consumer confidence and pushing the economy
into recession. Unemployment rate rises above the levels seen
during COVID-19 and there is a modest decline in house prices.
Inflation subsequently normalises, paving the way for cuts to
interest rates and recovery.
Notes
8. Loan impairment provisions continued
Economic loss drivers
Extreme downside - The trigger for the extreme downside is
similar to the downside scenario. However, in this scenario,
inflation remains more persistent, necessitating a significant
degree of rate tightening. This tighter policy and fall in real
income leads to a deep recession. There is widespread job shedding
in the labour market while asset prices see deep corrections, with
housing market falls higher than those seen during previous
episodes. The recovery is tepid throughout the five-year period,
meaning only a gradual decline in joblessness.
For June 2022, the four scenarios were deemed appropriate in
capturing the uncertainty in economic forecasts and the
non-linearity in outcomes under different scenarios. These four
scenarios were developed to provide sufficient coverage across
potential rises in unemployment, inflation and asset price falls
around which there are pronounced levels of uncertainty.
The tables below provide details of the key economic loss
drivers under the four scenarios.
The main macroeconomic variables for each of the four scenarios
used for expected credit loss (ECL) modelling are set out in the
table below. The compound annual growth rate (CAGR) for GDP is
shown. It also shows the five-year average for unemployment and the
European Central Bank main refinancing rate.
Main macroeconomic variables
30 June 2022 31 December 2021
--------------------------------- -------------------------------------
Extreme Extreme
Base
Upside case Downside downside Upside Base case Downside downside
Five-year summary % % % % % % % %
----------------------- ------ ----- -------- -------- ------ --------- -------- --------
Eurozone
GDP - CAGR 2.3 2.0 0.7 0.1 2.6 2.2 1.2 0.6
Unemployment - average 7.2 7.4 8.7 10.0 7.4 7.6 8.6 9.9
European Central Bank
- main refinancing
rate - average 1.3 2.0 0.1 1.4 0.8 0.1 0.2 -
Probability weight 21.0 45.0 20.0 14.0 30.0 45.0 20.0 5.0
----------------------- ------ ----- -------- -------- ------ --------- -------- --------
(1) The five year period starts after Q1 2022 for 30 June 2022
and Q3 2021 for 31 December 2021 .
(2) CAGR figures are not comparable with 31 December 2021 data,
as the starting quarters are different.
Probability weightings of scenarios
NWM N.V. Group's approach to IFRS 9 multiple economic scenarios
(MES) involves selecting a suitable set of discrete scenarios to
characterise the distribution of risks in the economic outlook and
assigning appropriate probability weights. The scale of the
economic effect of COVID-19 and the range of recovery paths had
necessitated subjective assignment of probability weights. However,
for H1 2022, NWM N.V. Group resurrected the quantitative approach
used pre-COVID-19. The approach involves comparing GDP paths for
NWM N.V. Group's scenarios against a set of 1,000 model runs,
following which, a percentile in the distribution is established
that most closely corresponded to the scenario. The p robability
weight for the base case is set based on judgement while
probability weights for the alternate scenarios are assigned based
on these percentiles scores .
A 21% weighting was applied to the upside scenario (compared to
30% at 31 December 2021), a 45% weighting applied to the base case
scenario (unchanged from 31 December 2021), a 20% weighting applied
to the downside scenario (unchanged from 31 December 2021) and a
14% weighting applied to the extreme downside scenario (compared to
5% at 31 December 2021).
The assigned probability weights reflect the outputs of NWM N.V.
Group's quantitative approach and were judged to be aligned with
subjective assessment of balance of the risks in the economy,
presenting good coverage to the range of outcomes assumed in the
central scenarios, including the potential for a robust recovery on
the upside and exceptionally challenging outcomes on the downside.
The current geopolitical tensions pose considerable uncertainty to
the economic outlook, with respect to their persistence, range of
outcomes and subsequent impacts on inflation and economic activity.
Given that backdrop, and the higher possibility of a more
challenging economic backdrop than assumed in the base case, NWM
N.V. Group judged it appropriate to apply a lower probability
weight to the upside scenario and a higher probability to
downside-biased scenarios, than at 31 December 2021.
Notes
8. Loan impairment provisions continued
Economic loss drivers
Annual figures
Extreme
Base
Upside case Downside downside
Eurozone - GDP - annual
growth % % % %
------ ----- -------- --------
2022 3.5 3.0 2.6 2.4
2023 3.9 2.4 (3.8) (6.1)
2024 2.7 2.3 1.3 (0.3)
2025 1.2 1.8 2.5 2.9
2026 1.5 1.6 2.1 2.6
--------------------------------------------------- ------ ----- -------- --------
Extreme
Base
Upside case Downside downside
Eurozone - unemployment rate - annual average % % % %
-------------------------------------------------- ------ ----- -------- --------
2022 7.4 7.5 7.6 7.7
2023 7.1 7.4 9.1 9.6
2024 7.1 7.4 9.5 11.8
2025 7.2 7.3 8.8 10.9
2026 7.2 7.3 8.2 9.4
--------------------------------------------------- ------ ----- -------- --------
Extreme
Base
Upside case Downside downside
European Central Bank - main refinancing rate
- annual average % % % %
-------------------------------------------------- ------ ----- -------- --------
2022 0.1 0.3 - 0.2
2023 1.3 2.1 - 1.7
2024 1.7 2.4 - 2.4
2025 1.7 2.4 0.1 1.8
2026 1.7 2.4 0.3 0.9
--------------------------------------------------- ------ ----- -------- --------
Use of the scenarios in lending
The lending ECL methodology is based on the concept of CCIs. The
CCIs represent all relevant economic loss drivers for a
region/industry segment aggregated into a single index value that
describes the loss rate conditions in the respective segment
relative to its long-run average. A CCI value of zero corresponds
to loss rates at long-run average levels, a positive CCI value
corresponds to loss rates below long run average levels and a
negative CCI value corresponds to loss rates above long-run average
levels.
Finally, ECL is calculated using a Monte Carlo approach by
averaging probability of default (PD) and loss given default (LGD)
values arising from many CCI paths simulated around the central CCI
projection.
The rationale for the approach is the long-standing observation
that loss rates tend to follow regular cycles. This allows NWM N.V.
Group to enrich the range and depth of future economic conditions
embedded in the final ECL beyond what would be obtained from using
the discrete macro-economic scenarios alone.
Economic uncertainty
Businesses are still trying to recover fully from the effects of
COVID-19 and to service additional debt which was accessed during
the period. New headwinds on inflation, cost of living and supply
chain have arisen.
Inflation and supply chain issues are presenting significant
headwinds for some businesses and sectors. These are a result of
various factors and in many cases are compounding and look set to
remain a feature of the economic environment into 2023. NWM N.V.
Group has considered where these are most likely to affect the
customer base including assessing which businesses that NWM N.V.
Group do not believe will fully pass the costs onto the consumer
and those that can, driving further cost of living risks.
Notes
8. Loan impairment provisions continued
Economic uncertainty
The effects of these risks are not expected to be fully captured
by forward-looking credit modelling, particularly given the unique
high inflation, low unemployment base case outlook. Any incremental
ECL effects for these risks will be captured via post model
adjustments and are detailed further in the Governance and post
model adjustments section.
Model monitoring and enhancement
As of January 2022, a new definition of default for internal
ratings based models was introduced in line with PRA and EBA
guidance. This definition of default was also adopted for IFRS 9.
Underlying observed one year default rates (after isolating one-off
effects from the new definition of default) across all portfolios
still trend at or below pre-COVID-19 levels. As a result, most
recent back-testing of forward-looking IFRS 9 PDs continues to show
some overprediction in some portfolios. As in previous quarters,
model recalibrations to adjust for this overprediction have been
deferred based on the judgment that low default rate actuals during
COVID-19 were distorted, due to government support.
Going forward, NWM N.V. Group expects potential increases in
default emergence to come primarily from forward-looking risks like
high inflation and rising interest rates, rather than from delayed
COVID-19 effects. Therefore, previously applied lags to the
projections from the economic forecasting models of up to 12 months
have been discontinued.
Governance and post model adjustments
The IFRS 9 PD, EAD and LGD models are subject to NWM N.V.
Group's model risk policy that stipulates periodic model
monitoring, periodic re-validation and defines approval procedures
and authorities according to model materiality. Various post model
adjustments were applied where management judged they were
necessary to ensure an adequate level of overall ECL provision.
All post model adjustments were subject to formal approval
through provisioning governance, and were categorised as
follows:
- Deferred model calibrations - ECL adjustments where PD model
monitoring indicated that actual defaults were below estimated
levels but where it was judged that an implied ECL release was not
supportable due to the influence of government support schemes on
default levels in the past two years. As a consequence, any
potential ECL release was deferred and retained on the balance
sheet until modelled ECL levels are affirmed by new model parallel
runs or similar analyses .
- Economic uncertainty - ECL adjustments primarily arising from
uncertainties associated with increased inflation and cost of
living risks as well as supply chain disruption, along with the
residual effect of COVID-19 and government support schemes. In all
cases, management judged that additional ECL was required until
further credit performance data became available as the full
effects of these issues matures.
- Other adjustments - ECL adjustments where it was judged that
the modelled ECL required to be amended.
Post model adjustments will remain a key focus area of NWM N.V.
Group's ongoing ECL adequacy assessment process. A holistic
framework has been established including reviewing a range of
economic data, external benchmark information and portfolio
performance trends with a particular focus on segments of the
portfolio that are likely to be more susceptible to inflation, cost
of living and supply chain risks.
Measurement uncertainty and ECL sensitivity analysis
The recognition and measurement of ECL is complex and involves
the use of significant judgment and estimation, particularly in
times of economic volatility and uncertainty. This includes the
formulation and incorporation of multiple forward-looking economic
scenarios into ECL to meet the measurement objective of IFRS 9. The
ECL provision is sensitive to the model inputs and economic
assumptions underlying the estimate.
The focus of the simulations is on ECL provisioning requirements
on performing exposures in Stage 1 and Stage 2. The simulations are
run on a stand-alone basis and are independent of each other; the
potential ECL impacts reflect the simulated impact at 30 June 2022.
Scenario impacts on a significant increase in credit risk (SICR)
should be considered when evaluating the ECL movements of Stage 1
and Stage 2. In all scenarios the total exposure was the same but
exposure by stage varied in each scenario.
Stage 3 provisions are not subject to the same level of
measurement uncertainty - default is an observed event as at the
balance sheet date. Stage 3 provisions therefore have not been
considered in this analysis.
Notes
8. Loan impairment provisions continued
Measurement uncertainty and ECL sensitivity analysis
The impact arising from the base case, upside, downside and
extreme downside scenarios has been simulated. NWM N.V. Group has
assumed that the economic macro variables associated with these
scenarios replace the existing base case economic assumptions,
giving them a 100% probability weighting and therefore serving as a
single economic scenario.
These scenarios have been applied to all modelled portfolios in
the analysis below, with the simulation impacting both PDs and
LGDs. Modelled post model adjustments present in the underlying ECL
estimates are also sensitised in line with the modelled ECL
movements, but those that were judgmental in nature, primarily
those for deferred model calibrations and economic uncertainty, are
not (refer to the Governance and post model adjustments section).
As expected, the scenarios create differing impacts on ECL by
portfolio and the impacts are deemed reasonable. In this
simulation, it is assumed that existing modelled relationships
between key economic variables and loss drivers hold, but in
practice other factors would also have an impact, for example,
potential customer behaviour changes and policy changes by lenders
that might impact on the wider availability of credit.
NWM N.V. Group's core criterion to identify a SICR is founded on
PD deterioration, as discussed above. Under the simulations, PDs
change and result in exposures moving between Stage 1 and Stage 2
contributing to the ECL impact.
Measurement uncertainty and ECL adequacy
- During the first half of 2022, both the Stage 2 size and
overall modelled ECL reduced in line with stable portfolio
performance and underlying ECL driver trends. Judgmental ECL post
model adjustments, although reduced in value terms from 31 December
2021, continue to reflect economic uncertainty with the expectation
of increased defaults later in 2022 and beyond.
- If the economics were as negative as observed in the extreme
downside, total Stage 1 and Stage 2 ECL was simulated to increase.
In this scenario, Stage 2 exposure increased significantly and was
the key driver of the simulated ECL rise. The movement in Stage 2
balances in the other simulations was less significant.
- In the Wholesale portfolio, there was a significant increase
to ECL under both the moderate and extreme downsides.
The changes in the economic outlook and scenarios used in the
IFRS 9 MES framework at 30 June 2022 to capture the increased risks
of inflation, cost of living and supply chain had a minimal effect
on modelled ECL. Given that uncertainty has increased due to these
risks, NWM N.V. Group utilised a framework of quantitative and
qualitative measures to support the directional change and levels
of ECL coverage, including economic data, credit performance
insights on higher risk portfolio segments and problem debt trends.
This was particularly important for consideration of post model
adjustments.
As the effects of inflation, cost of living and supply chain
risks evolve during 2022 and into 2023 and government support
schemes have to be serviced, there is a risk of credit
deterioration. However, the income statement effect of this will be
mitigated by the forward-looking provisions retained on the balance
sheet at 30 June 2022.
There are a number of key factors that could drive further
downside to impairments, through deteriorating economic and credit
metrics and increased stage migration as credit risk increases for
more customers. Such factors would include an adverse deterioration
in GDP and unemployment in the economies in which NWM N.V. Group
operates.
Notes
8. Loan impairment provisions continued
Portfolio summary
The table below shows gross loans and related credit impairment
measurements, within the scope of the ECL IFRS 9 framework.
30 June 31 December
2022 2021
EURm EURm
Loans - amortised cost and fair value through other comprehensive
income (FVOCI)
Stage 1 883 732
Stage 2 215 50
Stage 3 - 39
Inter-Group (1) 521 220
------------------------------------------------------------------ ------- -----------
Total 1,619 1,041
ECL provisions
Stage 1 5 -
Stage 2 3 1
Stage 3 - 39
------------------------------------------------------------------ ------- -----------
Total 8 40
ECL provisions coverage (2)
Stage 1 (%) 0.57 -
Stage 2 (%) 1.40 2.00
Stage 3 (%) - 100.00
------------------------------------------------------------------ ------- -----------
Total 0.73 4.87
Other financial assets - gross exposure 5,255 6,072
------------------------------------------------------------------ ------- -----------
Other financial assets - ECL provision - -
------------------------------------------------------------------ ------- -----------
Half year ended
--------------------
30 June 30 June
2022 2021
EURm EURm
Impairment losses
ECL (release)/charge - third party (3) 7 (4)
------------------------------------------------------------------ ------- -----------
Amounts written-off 43 38
------------------------------------------------------------------ ------- -----------
(1) NWM N.V. Group's intercompany assets were classified in
Stage 1. The ECL for these loans was EUR0.1 million (31 December
2021 - EUR0.1 million).
(2) ECL provisions coverage is calculated as ECL provisions
divided by loans - amortised cost and FVOCI. It is calculated on
third party loans and total ECL provisions.
(3) Includes EUR0.1 million (30 June 2021 - nil) related to
other financial assets and nil (30 June 2021 - nil) relating 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 39 for
Financial instruments within the scope of the IFRS 9 ECL framework
in the NWM N.V. Group 2021 Annual Report and Accounts for further
details. Other financial assets within the scope of the IFRS 9 ECL
framework were cash and balances at central banks totalling EUR3.9
billion (31 December 2021 - EUR5.1 billion) and debt securities of
EUR1.3 billion (31 December 2021 - EUR0.9 billion).
Notes
8. Loan impairment provisions continued
Sector analysis - portfolio summary
The table below shows exposures and ECL by stage, for key
sectors.
Loans - amortised
cost and FVOCI Off-balance sheet ECL provisions
-------------------------- ------------------------ --------------------------
Loan Contingent
Stage Stage Stage Stage Stage Stage
1 2 3 Total commitments liabilities 1 2 3 Total
30 June 2022 EURm EURm EURm EURm EURm EURm EURm EURm EURm EURm
--------------------------- ----- ----- ----- ----- ----------- ----------- ----- ----- ----- -----
Property 16 - - 16 313 - - - - -
Financial institutions 479 8 - 487 896 475 1 - - 1
Corporate 388 207 - 595 6,112 - 4 3 - 7
Of which:
Agriculture 2 - - 2 - - - - - -
Airlines and aerospace 1 - - 1 39 - - - - -
Automotive 6 - - 6 644 - - - - -
Health 21 - - 21 - - - - - -
Land transport
and logistics 15 60 - 75 327 - - 1 - 1
Leisure - 14 - 14 169 - - - - -
Oil and gas 3 - - 3 481 - - - - -
Retail 8 - - 8 332 - - - - -
Total 883 215 - 1,098 7,321 475 5 3 - 8
--------------------------- ----- ----- ----- ----- ----------- ----------- ----- ----- ----- -----
31 December 2021
--------------------------- --- --- ----- ---
Property 23 - - 23 285 - -- - -
Financial institutions 195 3 - 198 927 474 -- - -
Corporate 514 47 39 600 4,640 1 -139 40
Of which:
Agriculture - - 39 39 - - --39 39
Airlines and aerospace - - - - 33 - -- - -
Automotive - - - - 647 - -- - -
Health 5 - - 5 178 - -- - -
Land transport
and logistics 87 - - 87 273 - -- - -
Leisure - 4 - 4 174 - -- - -
Oil and gas 300 - - 300 - - -- - -
Retail - - - - 332 - -- - -
Total 732 50 39 821 5,852 475 -139 40
--------------------------- --- --- ----- ---
Notes
8. Loan impairment provisions continued
Flow statement
The flow statement that follows shows the main ECL and related
income statement movements. It also shows the changes in ECL as
well as the changes in related financial assets used in determining
ECL. Due to differences in scope, exposures may differ from those
reported in other tables, principally in relation to exposures in
Stage 1 and Stage 2. These differences do not have a material ECL
impact because they relate to balances at central banks. Other
points to note:
- Financial assets include treasury liquidity portfolios,
comprising balances at central banks and debt securities, as well
as loans. Both modelled and non-modelled portfolios are included
.
- Stage transfers (for example, exposures moving from Stage 1
into Stage 2) are a key feature of the ECL movements, with the net
re-measurement cost of transitioning to a worse stage being a
primary driver of income statement charges. Similarly, there is an
ECL benefit for accounts improving stage .
- Changes in risk parameters shows the reassessment of the ECL
within a given stage, including any ECL overlays and residual
income statement gains or losses at the point of write-off or
accounting write-down .
- Amounts written-off represent the gross asset written-down
against accounts with ECL, including the net asset write-down for
any debt sale activity .
Stage 1 Stage 2 Stage 3 Total
--------------- --------------- --------------- ---------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
NatWest Markets N.V. EURm EURm EURm EURm EURm EURm EURm EURm
At 1 January 2022 6,937 - 46 1 39 39 7,022 40
Currency translation and
other adjustments (41) 1 2 - (3) 4 (42) 5
Inter group transfers 76 - - - - - 76 -
Transfers from Stage 1 to
Stage 2 (377) - 377 - - - - -
Transfers from Stage 2 to
Stage 1 204 3 (204) (3) - - - -
Net re-measurement of ECL (2) 5 - 3
on stage transfer
Changes in risk parameters 1 - - 1
(model inputs)
Other changes in net exposure 93 2 9 - 7 - 109 2
Other Profit or loss only - 1 - 1
items
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Income statement (releases)/charges 1 6 - 7
Amounts written-off - - - - (43) (43) (43) (43)
--------- ---- --------- ---- --------- ---- --------- ----
At 30 June 2022 6,892 5 230 3 - - 7,122 8
Net carrying amount 6,887 227 - 7,114
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 1 January 2021 6,311 1 388 41 72 69 6,771 111
2021 movements (425) - 51 (6) (37) (33) (411) (39)
At 30 June 2021 5,886 1 439 35 35 36 6,360 72
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 5,885 404 (1) 6,288
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
- The effect of the Russian invasion of Ukraine remains limited
to indirect or second order impact.
- Stage 2 provisions were largely due to legacy assets for
non-go-forward clients following the strategic review in 2020. A
significant portion of these provisions are expected to be released
in Q3 2022 as some of the positions are being exited.
- Stage 3 write-off was related to legacy assets that were fully
provisioned earlier and has negligible P&L impact.
Notes
9. Contingent liabilities, commitments and guarantees
30 June 31 December
2022 2021
EURm EURm
Guarantees and assets pledged as collateral security 486 486
Other contingent liabilities 1
Standby facilities, credit lines and other commitments 7,497 5,957
------------------------------------------------------- ------- -----------
Contingent liabilities and commitments 7,983 6,444
------------------------------------------------------- ------- -----------
Commitments and contingent obligations are subject to NWM NV's
normal credit approval processes. The amounts shown do not, and are
not intended to, provide any indication of the NWM N.V.'s
expectation of future losses.
Included within guarantees and assets pledged as collateral
security as at 30 June 2022 is EUR0.5 billion (31 December 2021 -
EUR0.5 billion) which relates to the NatWest Group's obligations
over liabilities held within the Dutch State acquired businesses
included in ABN AMRO Bank N.V..
Risk-sharing agreements
NWM Plc and NWM N.V. have limited risk-sharing arrangements in
place to facilitate the smooth provision of services to NatWest
Markets' customers. The arrangements include:
- The provision of a funded guarantee of up to EUR1.2 billion by
NWM Plc to NWM N.V. that limits certain NWM N.V.'s exposures to
large individual customer credits. Funding is provided by NWM Plc
deposits placed with NWM N.V. of not less than the guaranteed
amount. At 30 June 2022, the deposits amounted to EUR0.9 billion
and the guarantee fees in the period were EUR2.4 million.
- The provision of a funded and an unfunded guarantee by NWM Plc
in respect of NWM N.V.'s legacy portfolio. At 30 June 2022 the
exposure at default covered by the guarantees was approximately
EUR0.2 billion (of which EUR40 million was cash collateralised).
Fees of EUR0.8 million in relation to the guarantees were
recognised in the period.
10. Litigation and regulatory matters
NWM N.V. 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 Netherlands, the United Kingdom (UK), the
European Union (EU), the United States (US) and other
jurisdictions.
NWM N.V. 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 NWM N.V. 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. NWM N.V. 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 NWM N.V. 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 NWM N.V. 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.
Notes
10. Litigation and regulatory matters continued
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 NWM N.V. Group has recognised. Where (and
as far as) liability cannot be reasonably estimated, no provision
has been recognised.
NatWest Group is involved in ongoing litigation and regulatory
matters that are not described below but are described on pages 104
to 108 of NatWest Group's H1 Results 2022. 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. While NWM N.V.
Group may not be directly involved in such NatWest Group matters,
any final adverse outcome of those matters may also have an adverse
effect on NWM N.V. Group.
Litigation
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 United States
Court of Appeals for the Second Circuit (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.
Australian Bank Bill Swap Reference Rate (BBSW)
In August 2017, a class action complaint was filed in the United
States District Court for the Southern District of New York (SDNY)
against certain NatWest Group companies (including NWM N.V.) and a
number of other financial institutions. The complaint alleged that
the defendants conspired to manipulate the BBSW and asserts claims
under the U.S. antitrust laws, the Commodity Exchange Act, RICO
(Racketeer Influenced and Corrupt Organizations Act), and the
common law. In April 2022, the parties in this case finalised a
settlement agreement resolving the claims, which remains subject to
court approval. The settlement amount paid on behalf of NatWest
Group companies was covered by an existing provision held at NWM
Plc.
FX litigation
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.
Anti-Terrorism Act litigation against NWM N.V.
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.
Notes
10. Litigation and regulatory matters continued
Regulatory matters (including investigations)
NWM N.V. Group's financial condition can be affected by the
actions of various governmental and regulatory authorities in the
Netherlands, the UK, the EU, the US and elsewhere. NatWest Group
has engaged, and will continue to engage, in discussions with
relevant governmental and regulatory authorities, including in the
Netherlands, the UK, the EU, the US 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.
NWM Group companies have 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 NWM N.V.
Group, remediation of systems and controls, public or private
censure, restriction of NWM N.V. Group's business activities and/or
fines. Any of these events or circumstances could have a material
adverse effect on NWM N.V. 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.
11. Related party transactions
NWM N.V. has a related party relationship with associates, joint
ventures, key management and shareholders. NWM N.V. enters into
transactions with related parties.
Interim pricing agreement
NWM N.V. is a party to transfer pricing arrangements with NWM
Plc under which NWM N.V. received income of EUR60 million ( EUR76
million in H1 2021) for the activities it now performs for European
clients on behalf of NWM Plc. The at arm's length nature of the
transfer pricing arrangements is confirmed by transfer pricing
documentation which has been prepared by an external expert.
Business transfers
During H1 2022, EUR0.5 billion of contingent liabilities and
commitments were transferred from NatWest Bank Plc to NWM N.V. in
relation to the Western European Corporate Portfolio. As part of a
larger initiative to increase the size and diversity of its banking
book portfolio EUR0.3 billion of contingent liabilities and
commitments and EUR0.1bn of drawn balances were transferred from
NatWest Bank Plc to NWM N.V..
Loan purchases via NWM Plc
In H1 2022 NWM N.V. continued purchasing loans from market
participants via NWM Plc onto the banking book as part of a larger
initiative to increase size and diversity of its banking book
portfolio. As at 30 June 2022, the balance of these loans purchased
from market participants with assistance from NWM Plc amounted to
EUR230 million (31 December 2021 - EUR24 million).
Full details of the NWM N.V. Group's related party transactions
for the year ended 31 December 2021 are included in the NatWest
Markets N.V. 2021 Annual Report and Accounts.
12. Post balance sheet events
Other than as disclosed there have been no other significant
events between 30 June 2022 and the date of approval of these
accounts which would require a change to or additional disclosure
in the condensed consolidated financial statements.
13. Date of approval
The interim results for the half year ended 30 June 2022 were
approved by the Supervisory Board on 28 July 2022.
NatWest Markets N.V. 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 NWM N.V. 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 127 to 150 of the
NatWest Markets N.V. 2021 Annual Report and Accounts. Any of the
risks identified may have a material adverse effect on NWM N.V.
Group's business, operations, financial condition or prospects.
Economic and political risk
- NWM N.V. Group faces continued economic and political risks
and uncertainty in the UK, European 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, Dutch, European and global economies and
financial markets and NWM N.V. Group's customers, as well as its
competitive environment, which may continue to have an adverse
effect on NWM N.V. Group.
- Continuing uncertainty regarding the effects and extent of the
UK's post Brexit divergence from EU laws and regulation, and NWM
N.V.'s post Brexit EU operating model may continue to adversely
affect NWM Plc (NWM N.V.'s parent company) and its operating
environment and NatWest Group plc (NWM N.V.'s ultimate parent
company) and may have an indirect effect on NWM N.V. Group.
- Changes in interest rates have affected and will continue to
affect NWM N.V. Group's business and results.
- HM Treasury (or UKGI on its behalf) could exercise a
significant degree of influence over NatWest Group and NWM N.V.
Group is ultimately controlled by NatWest Group.
Strategic risk
- NWM Group (including NWM N.V. Group) has been in a period of
significant structural and other change, including as a result of
NatWest Group's purpose-led strategy ( including the NWM Refocusing
and NatWest Group's recent creation of its Commercial &
Institutional franchise, of which NWM Group (including NWM N.V.
Group) forms part) and may continue to be subject to significant
structural and other change. There is no certainty that the
intended benefits of any such change for NWM Group (including NWM
N.V. Group) will be realised within the timeline or in the manner
currently contemplated, or that NWM Group (or NWM N.V. Group) will
meet its targets and expectations as a result of such changes.
- Trends relating to the COVID-19 pandemic may adversely affect
NWM N.V. Group's strategy and impair its ability to meet its
targets and strategic objectives.
Financial resilience risk
- NWM Group, including NWM N.V. Group, may not meet the targets
it communicates, generate returns or implement its strategy
effectively.
- NWM N.V. is NatWest Group's banking and trading entity located
in the Netherlands. NWM N.V. has repurposed its banking licence,
and NWM N.V. Group may be subject to further changes.
- NWM N.V. may not meet the prudential regulatory requirements for capital and liquidity.
- NWM N.V. Group may not be able to adequately access sources of liquidity and funding.
- NWM N.V. Group is reliant on access to the capital markets to
meet its funding requirements. The inability to do so may adversely
affect NWM N.V. Group.
- NWM N.V. may not manage its capital, liquidity or funding
effectively which could trigger the execution of certain management
actions or recovery options.
- Any reduction in the credit rating and/or outlooks assigned to
NatWest Group plc, any of its subsidiaries (including NWM Plc or
NWM N.V.) or any of their respective debt securities could
adversely affect the availability of funding for NWM N.V. Group,
reduce NWM N.V. Group's liquidity position and increase the cost of
funding.
- NWM N.V. Group operates in markets that are highly
competitive, with increasing competitive pressures and technology
disruption.
- NWM N.V. Group may be adversely affected if NatWest Group
fails to meet the requirements of regulatory stress tests.
- The effects of the COVID-19 pandemic could affect NWM N.V.
Group's ability to access sources of liquidity and funding, which
may result in higher funding costs and failure to comply with
regulatory capital, funding and leverage requirements.
- The impact of the COVID-19 pandemic on the credit quality of
NWM N.V. Group's counterparties may negatively impact NWM N.V.
Group.
- NWM N.V. Group has significant exposure to counterparty and borrower risk.
- NWM N.V. Group could incur losses or be required to maintain
higher levels of capital as a result of limitations or failure of
various models.
- NWM N.V. Group's financial statements are sensitive to
underlying accounting policies, judgments, estimates and
assumptions.
- Changes in accounting standards may materially impact NWM N.V. Group's financial results.
- NatWest Group (including NWM N.V.) may become subject to the
application of statutory stabilisation or resolution powers which
may result in, among other actions, the write-down or conversion of
certain Eligible Liabilities (including NWM N.V.'s Eligible
Liabilities).
- 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, including NWM Group (and NWM N.V. Group), could be adversely
affected should future Bank of England assessments deem NatWest
Group's preparations to be inadequate.
NatWest Markets N.V. Summary Risk Factors
Summary of Principal Risks and Uncertainties continued
Climate and sustainability-related risks
- NWM N.V. Group and its customers, suppliers and counterparties
face significant climate-related risks, including in transitioning
to a net zero economy, which may adversely impact NWM N.V.
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 NWM N.V. Group to prepare or execute a credible
transition plan or implement effective and compliant climate change
resilient systems, controls and procedures could adversely affect
NWM N.V. 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
consistency, standardisation 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 NWM N.V. Group's business strategy,
governance, procedures, systems and controls to manage emerging
sustainability-related risks and opportunities may have a material
adverse effect on NWM N.V. Group, its reputation, business, results
of operations and outlook.
- Any reduction in the ESG ratings of NatWest Group or NWM Group
(including NWM N.V. Group) could have a negative impact on NatWest
Group's or NWM Group's (including NWM N.V. Group) reputation and on
investors' risk appetite and customers' willingness to deal with
NatWest Group, NWM Group or NWM N.V. Group.
- Increasing levels of climate, environmental and
sustainability-related laws, regulation and oversight may adversely
affect NWM N.V. Group's business and expose NWM N.V. Group to
increased costs of compliance, regulatory sanction and reputational
damage.
- NWM N.V. 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 NWM N.V.
Group's businesses.
- NWM N.V. Group is subject to increasingly sophisticated and frequent cyberattacks.
- NWM N.V. Group operations and strategy are highly dependent on
the accuracy and effective use of data.
- NWM N.V. Group relies on attracting, retaining, developing and
remunerating diverse senior management and skilled personnel (such
as market trading specialists), and is required to maintain good
employee relations.
- NWM N.V. Group's operations are highly dependent on its
complex IT systems (including those that enable remote working), IT
infrastructure and cloud platforms and any IT failure could
adversely affect NWM N.V. Group.
- Remote working may adversely affect NWM N.V. Group's ability
to maintain effective internal controls.
- A failure in NWM N.V. Group's risk management framework could
adversely affect NWM N.V. Group, including its ability to achieve
its strategic objectives.
- NWM N.V. Group's operations are subject to inherent reputational risk.
Legal, regulatory and conduct risk
- NWM N.V. Group's businesses are subject to substantial
regulation and oversight, which are constantly evolving and may
adversely affect NWM N.V. Group.
- NWM N.V. Group and NWM Plc are exposed to the risks of various
litigation matters, regulatory and governmental actions and
investigations as well as remedial undertakings, the outcomes of
which are inherently difficult to predict, and which could have an
adverse effect on NWM N.V. Group.
- NWM N.V. Group may not effectively manage the transition of
LIBOR and other IBOR rates to alternative risk-free rates.
Additional information
Contact
Alexander Holcroft Investor Relations +44 (0) 20 7672 1758
------------------- ------------------- --------------------
Presentation of Information
NatWest Markets N.V. (NWM N.V.) is a wholly owned subsidiary of
RBS Holdings N.V. ('RBSH N.V.' or 'the intermediate holding
company'). NWM N.V. Group refers to NWM N.V. and its subsidiary and
associated undertakings. The term 'RBSH Group' refers to RBSH N.V.
and its only subsidiary, NWM N.V.. RBSH N.V. is a wholly-owned
subsidiary of NatWest Markets Plc (NWM Plc). The term 'NWM Group'
refers to NWM Plc and its subsidiary and associated
undertakings.
NatWest Group plc is 'the ultimate holding company'. The term
'NatWest Group' refers to NatWest Group plc and its subsidiary and
associated undertakings. NatWest Group plc is registered at 36 St
Andrew Square, Edinburgh, Scotland.
NWM N.V. publishes its financial statements in 'euro', the
European single currency. The abbreviation 'EUR' represents the
'euro', and the abbreviations 'EURm' and 'EURbn' represent millions
and thousands of millions of euros, respectively, and references to
'cents' represent cents in the European Union ('EU'). The
abbreviations 'GBPm' and 'GBPbn' represent millions and thousands
of millions of pounds sterling, respectively, and references to
'pence' represent pence in the United Kingdom ('UK'). Reference to
'dollars' or '$' are to United States of America ('US') dollars.
The abbreviations '$m' and '$bn' represent millions and thousands
of millions of dollars, respectively, and references to 'cents'
represent cents in the US. The term 'EEA' refers to European
Economic Area.
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 NWM N.V. Group's future economic results, business plans
and current strategies. In particular, this document may include
forward-looking statements relating to NWM N.V. Group in respect
of, but not limited to: its economic and political risks, NWM
N.V.'s regulatory capital position and related requirements, its
financial position, profitability and financial performance
(including financial, capital, cost savings and operational
targets), NWM Group's strategic and structural change and the
implementation of NatWest Group's 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 and ensuring operational
continuity in resolution, its credit exposures under certain
specified scenarios, substantial regulation and oversight, ongoing
legal, regulatory and governmental actions and investigations, the
transition of LIBOR and other IBOR rates to alternative risk free
rates and NWM N.V. 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: the outcome of legal, regulatory and governmental actions and
investigations, 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 the NWM N.V. Group's actual results
are discussed in NWM N.V. Group's 2021 Annual Report and Accounts
(ARA), NWM N.V.'s Interim Results for H1 2022 and other public
filings. The forward-looking statements contained in this document
speak only as of the date of this document and NWM N.V. Group 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.
Management's report on the interim financial statements
Pursuant to section 5:25d, paragraph 2(c), of the Dutch
Financial Supervision Act (Wet op het financieel
toezicht (Wft)), the members of the Managing Board state that to the best of their knowledge:
- the interim financial statements give a true and fair view, in
all material respects, of the assets and liabilities, financial
position, and profit or loss of NatWest Markets N.V. and the companies
included in the consolidation as at 30 June 2022 and for the six
month period then ended.
- the interim report, for the six month period ending on 30 June
2022, gives a true and fair view of the information required pursuant
to section 5:25d, paragraphs 8 and 9, of the Dutch Financial Supervision
Act of NatWest Markets N.V. and the companies included in the
consolidation.
Amsterdam
28 July 2022
Cornelis Visscher
Chief Financial Officer
NatWest Group plc 2138005O9XJIJN4JPN90
NatWest Markets N.V. X3CZP3CK64YBHON1LE12
This information is provided by RNS, the news service of the
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