Slide 1: NatWest Group H1 2023 Results
NatWest Grou NatWest Group H1 2023 Results
Slide 2: Howard Davies, Chairman
Howard Davies Chairman
Slide 3: H1'23 Financial Update
Katie Murray - Chief Financial Officer H1’23 Financial Update
Slide 4: Strong earnings and returns
Strong earnings and returns £3.6bn £2.3bn 18.2% Operating profit before tax Attributable profit Return on Tangible Equity vs £2.6bn in H1’22 vs £1.9bn in H1’22 vs 13.1% in H1’22 Focused on growth, efficiency and £7.4bn £3.8bn 49.3% operating leverage Income ex notable items1 Other operating expenses
Slide 5: Macroeconomic outlook: interest rates, GDP and money supply
5.5 5.0 4.5 • Interest rates have risen faster than expected in response to 4.0 3.5 Base rate peaks at more persistent inflation 3.0 5.5% in Q3’23 2.5 (Prev. 4.25% peak) Annual GDP • Credit demand is muted and we expect customers to be prudent 2.0 growth of +1% from Q3’24 1.5 as they readjust to thi
Slide 6: Group financial summary Q2'23 and H1'23
Q2'23 vs H1'23 vs Group, £m Q2'23 Q1'23 H1'23 H1'22 Q1'23 H1'22 Net interest income, ex notable items 1 2,824 2,902 (2.7%) 5,726 4,334 32.1% Non-interest income, ex notable items 1 739 918 (19.5%) 1,657 1,564 5.9% 1 Total income, ex notable items 3,563 3,820 (6.7%) 7,383 5,898 25.2% Total income 3,8
Slide 7: Net loans to customers by segment
199.9 Q4’22 Mortgages1 203.8 205.7 Q1’23 Mortgages 12.6% stock share Q2’23 14.2 +0.3% YTD3 Unsecured1 14.4 15.0 4.4 Other Private 4.5 4.6 Credit Cards 2.4 7.5% stock share Business Banking2 2.0 +0.6% YTD4 1.9 67.4 Commercial Mid-Market2 67.7 68.2 53.7 Corporate & Institutions2 56.1 CSFF 54.0 £48.6bn
Slide 8: Customer deposits by segment
83% 83% 79% 188.4 Q4’22 Q1’23 Retail Banking 184.0 Q2’23 183.1 41.2 Private Banking 37.3 36.5 Q4’22 Q1’23 Q2’23 203.3 Commercial & Institutional 200.5 £433bn £422bn £421bn 201.5 6% 8% 11% 432.9 54% 52% 52% 3 business segments 421.8 421.1 450.3 40% 40% 37% Customer deposits 1 430.5 432.5 Q4’22 Q1’23
Slide 9: Income, net interest margin and guidance
7,383 Income 1,657 • Net interest income reduction reflects lower 3,820 Non interest income mortgage income and higher cost of deposits 3,563 918 739 Net interest income • Non–interest income reduction reflects lower 5,726 markets income following strong Q1 performance 2,902 2,824 Net interest margi
Slide 10: Costs and cost:income ratio
C:I ratio 49.8% 48.7% -3.0% H1’23 cost drivers 1,932 +21% 1,875 o Staff costs include ~£60m one off cash payment in (78) January plus 6.4% average annual wage increase (22) 45 -8% (2) effective from April 2023 -5% -1% o Non-staff costs reflect broader inflationary pressures Q1’23 Staff costs Other P
Slide 11: Group loan impairment rate and ECL provision
223 Group loan impairment rate 85 20-30 FY’23 and through the cycle 337 153 Q2’23 Stage 3 loan impairment rate Q1’23 70 (1,173) 21 FY’21 FY’22 H1’23 16 13 9 16 18 17 7 12 8 12 6 2 (32) 0.91% 0.89% 0.92% FY’171 FY’18 FY’19 FY’20 FY’21 FY’22 Q1’23 Q2’23 3,434 3,447 3,557 352 333 462 59 61 78 Economic
Slide 12: Mortgage, corporate, CRE and credit card portfolios
Mortgages Corporate • Mortgage LTV of 55%2 • Diversified £74bn corporate loan book • Balances: 67% 5Y, 23% 2Y, 1% 10Y, 5% • Low exposure to in focus areas such as Retail Tracker, 4% SVR £7.5bn, Automotive £7.5bn and Leisure £7.4bn • Limited exposure to Oil and Gas £1bn • £24.7bn or ~13.1% of fixed b
Slide 13: CET1 ratio and capital generation
19.8 0.6 (1.3) (2.8) 16.4 0.1 Q1’23 Operating profit Impairments Discontinued operations TNAV and other Q2’23 before impaiments 100bps capital generation in H1’23, of which 50bps in Q2’231 143bps distributions in H1’23, of which 0.05 14.7 114bps in Q2’231 (0.08) (0.12) 14.4 0.53 (0.11) (0.71) (0.15)
Slide 14: Capital requirements and management buffer
5.00% 13.5% 13-14% 152% 145% 141% 4.25% 1.2% 0.40 10.4% 3.85% 1.2% MDA2 0.60 Min. 9.6% 1.7% Requirement 0.9% MDA2 2.5% 2.5% 1.7% 1.7% 3.25 4.5% 4.5% Q2’23 Q2’23 FY’23 operating Q2’23 FY’23 requirement FY’19 FY’22 H1’23 requirement range Management buffer Capital conservation buffer O-SII group risk
Slide 15: Financial guidance and targets
1. Total Income ex notable items. 2. Cost:income ratio is total costs excluding litigation and conduct, divided by total income3. considered if compelling shareholder value and strategic rationale. 4. Paid and accrued 15
Slide 16: Slide 16
Slide 17: Actions and outcomes: customer growth
Actions Outcomes a Delivering personalised Focused on customer lifetime 17.7%1 leading start up share solutions across value to deliver targeted growth c.20% share of the youth market2, 93k new NatWest customers’ lifecycles Rooster card holders in H1’23 Wealth AUM Net New Money of c.£1bn in H1’233 b
Slide 18: Simplification
Simplification Customer journey re-engineering Accelerating adoption of AI Investing to deepen engagement to improve efficiency and to improve operating leverage and and diversify future customer experience keep customers safe income streams 1. Cost:income ratio is total costs excluding litigation a
Slide 19: Capital distributions and Ulster Bank withdrawal
Paid and accrued, £ billion RWAs, £ billion 46%1 RWA 53% Density FY’19 1.7 179 178 RWA (£bn) 1% 1% 2% 7% 6% FY’20 0.3 6% 21% 32% 2 FY’21 3.8 Central Items & Other Ulster Bank FY’22 5.1 Private Banking Retail Banking 65% H1’23 0.83 0.5 1.3 2.54 58% Commercial & Institutional Ordinary dividend On mark
Slide 20: Purpose, strategic priorities and shareholder returns
Our Purpose… … and the strength of our business… … is delivering for our shareholders We champion potential, helping people, Strong market positions and digital Improvement in RoTE and strong capital generation families and businesses to thrive engagement, well placed for future growth resulting in
Slide 21: Total distributions paid and accrued
21 1. Total distributions paid and accrued
Slide 22: NatWest Group
& NatWest Group
Slide 23: Appendix
Appendix
Slide 24: Outlook 2023
Outlook We retain the guidance provided in the 2022 Annual Report and Accounts with the exception of full year 2023 Bank NIM which is now expected to be less than 3.20%, with a current view of around 3.15%. This remains subject to market conditions including the assumption of a Bank of England base
Slide 25: Notable items in income
Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Q1'23 Q2’23 Group income 3,008 3,211 3,229 3,708 13,156 3,876 3,851 Notable items in Income, £m Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Q1'23 Q2’23 Commercial and Institutional Banking Own credit adjustments (OCA) 18 34 9 (19) 42 6 3 Fair value, disposal losses and strategic risk
Slide 26: Net interest income and margin bridge Q1'23 to Q2'23
-2.7% 2,902 2,824 32 (92) (33) (32) 47 Q1’23 Day count1 Retail Banking Private Banking Commercial Central items & other Q2’23 & Institutional -14bps 327 313 Group Net Interest Margin (9) (5) 0 Bank Net Interest Margin 225 220 Q1’23 Q1’23 Lending margin Deposit margin Funding & other Q2’23 Q2’23 522.
Slide 27: Net interest income and NIM trend
2,868 2,902 2,824 Net interest income 2,640 2,307 1,900 1,869 1,922 2,027 Q2’21 Q3’21 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 511 522 546 544 548 548 539 522 514 Group AIEAs 185 195 214 209 207 197 183 162 152 Liquid asset buffer Bank AIEAs 325 327 332 335 342 351 356 360 362 Q2’21 Q3’21 Q4’21 Q1’
Slide 28: Deposit pass through and deposit costs
£433bn £422bn £421bn 6% 8% 11% Term deposits Pass through on £218bn Instant Access Deposits (52% of Instant Access deposits across 3 businesses) Non interest-bearing balances 54% 52% 52% • Cumulative pass through • from 0.1% to 5% base rate ~50% • from 0.1% to 4.25% base rate ~40% • Incremental pass
Slide 29: Asset yields and funding costs by segment
Retail Banking 6.0 5.84 5.5 Private Banking 5.38 5.0 Commercial & Institutional 4.5 4.44 4.41 NatWest Group 4.0 4.07 3.88 3.5 3.19 3.53 3.62 3.49 2.77 3.09 3.11 3.0 2.98 2.94 2.5 2.59 2.64 2.72 2.0 1.97 2.40 0.0 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 1.8 1.71 1.68 Retail Banking 1.6 Private Banking 1.4 1.24
Slide 30: Structural hedge total income
H1 2023 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 204 23 22 1.83 Product 1362 202 205 1.33 Total 1,566 225 227 1.38 H2 2022 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 189 23 22 1.72 Product 1118 208 206 1.08 T
Slide 31: Interest rate sensitivity
H1 2023 +25 basis points parallel upward shift -25 basis points parallel downward shift Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 (£m) (£m) (£m) (£m) (£m) (£m) Structural Hedge 49 151 249 (49) (151) (248) Managed Margin 86 76 157 (121) (75) (168) Total 135 227 406 (170) (226) (416) FY 2022 +25 basis
Slide 32: Non-interest income
918 Q2’23 performance 857 807 • Primarily reflecting lower NatWest Markets fixed 757 739 242 335 income following strong Q1’23 227 204 178 • Lower lending fees 580 553 615 583 561 Trading and other income Net fees and commissions Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 580 553 615 583 561 Net fees and commiss
Slide 33: ECL coverage and scenario sensitivities
FY'22 H1'23 Extreme Extreme Upside Base Case Downside Upside Base Case Downside downside downside 18.6% 45.0% 20.8% 15.6% 19.5% 45.0% 21.5% 14.0% ECL increase/(decrease) at 100% weighting (stage 1 and 2) (445) (216) 193 1,565 (355) (148) 214 1,558 H1'23 Extreme Weighted-average variables FY'22 H1'23
Slide 34: Economic scenarios and weightings
H1'23 Q1'23 and FY'22 H1'22 Extreme Extreme Extreme Scenario Upside Base Case Downside Upside Base Case Downside Upside Base Case Downside downside downside downside Weighting Weighted Weighted Weighted 19% 45% 21% 16% 19% 45% 21% 16% 21% 45% 20% 14% average average average UK GDP – Annual Growth (%
Slide 35: Impairment by segment
Private Commercial & Central items Retail Banking Group Banking Institutional & other H1’23 (£m) 193 11 20 (1) 223 H1’23 (bps) 19 11 3 nm 12 H1’22 (£m) 26 (11) (59) (10) (54) H1’22 (bps) 3 (12) (9) nm (3) Q2’23 (£m) 79 3 64 7 153 Q2’23 (bps) 15 6 20 nm 16 Q1’23 (£m) 114 8 (44) (8) 70 Q1’23 (bps) 22
Slide 36: Mortgage and CRE LTV distribution by stage
Mortgage LTV distribution by stage Total Stage 1 Stage 2 Stage 3 FY'19 FY'22 H1'23 FY'19 FY'22 H1'23 FY'19 FY'22 H1'23 FY'19 FY'22 H1'23 ≤50% 51,791 80,675 74,778 47,746 71,321 66,183 3,375 8,257 7,523 511 1,036 1,019 >50% and ≤70% 51,582 76,593 75,337 47,224 68,178 66,810 3,804 7,792 7,816 463 616
Slide 37: Tangible equity and share count movements
GBP, m Share count, m Pence As at 31 March 2023 26,646 9,581 278 Cushon acquisition (196) (2) Final ordinary dividend (paid 2 May 2023) (965) (10) Directed buy back (executed 22 May 2023) (1,259) (469) 1 On-market share buyback (512) (195) 0 Q2'23 proforma for distributions & acquisition 23,714 8,91
Slide 38: Segment results Q2'23
Ulster Bank ROI continuing operations are reflected within Central Items & other Retail Private Commercial & Central items Group Q2'23, £m Group Banking Banking Institutional & other Net interest income 1,416 199 1,243 (34) 2,824 Non-interest income 100 72 552 303 1,027 Total income 1,516 271 1,795
Slide 39: Cautionary and Forward-looking statements
Cautionary and Forward-looking statements The guidance, targets, expectations and trends discussed in this presentation represent NatWest Group management’s current expectations and are subject to change, including as a result of the factors described in the “Risk Factors” in NWG’s 2022 Annual Repor