Natwest Group Plc · LSE:NWG
Natwest — Q4 2023 Earnings Presentation
46 slides from Natwest's earnings presentation, Feb 16, 2024
Slide 1: 16 February 2024
16 February 2024
Slide 2: Paul Thwaite, Chief Executive Officer
NatWest UI 1 Paul Thwaite | Chief Executive Officer
Slide 3: Growing our customer base and supporting customers
+£9bn >100k 1.1m Growing our Personal Current accounts customer base Customer Loans1 New Business start-up opened3 +3% vs. FY’22 accounts opened2 + 57% vs FY’22 Supporting personal +£21bn +£7bn ~6m customers Fixed Term Savings4 AUMA5 Retail customers helped across Retail and Private +22% vs FY’22 wi
Slide 4: Strong returns with attributable profit of £4.4bn
Strong returns with £14.3bn £7.6bn 17.8% attributable profit of Income ex notable items1 Costs2 Return on Tangible Equity £4.4bn +10% vs FY’22 +5% vs FY’22 vs 12.3% in FY’22 Significant capital 17p £2.1bn 13.4% generation and £3.6bn Ordinary dividend per Buybacks share Includes new £300m -CET1 ratio
Slide 5: Economic forecasts and customer behaviour
1 2024-2026 Forecast is NatWest Group IFRS 9 base case 12 BoE Base Rate CPI 2 • Customers are paying down their 10 debt in a higher rate environment 3 8 Percentage 6 • Early signs of improving mortgage 4 demand as customer rates fall 4 2 0 • Flows into UK fixed term savings Dec-22 Dec-23 Dec-24 Dec-
Slide 6: 19 million customers across the Group
19 million customers across the Group Full-service UK Retail Retail Banking Private Banking Commercial & Institutional & Commercial bank 17.8m customers1 0.1m customers2 1.5m customers3 Multi channel brands serving a broad range of customers Start ups to Large Corporates & Youth to Mass Affluent Aff
Slide 7: £12.5bn total distributions to shareholders
Retail Banking Private Banking Commercial & Institutional Leading positions in an attractive UK market Attractive returns serving 19m customers to shareholders Shareholder returns 2021-23 Disciplined growth £12.5bn total distributions to shareholders1 Reinvestment Simplification into the and cost ef
Slide 8: Strategic priorities
• Meet more of our customers’ • Digitise journeys to improve • Allocate capital dynamically to needs, diversifying income customer experience optimise returns • Improve share in targeted • Streamline platforms, processes • Maintain strong asset quality segments, subject to returns and systems throug
Slide 9: Focused on returns
Focused on returns Committed to returning surplus capital to shareholders Underpinned by a strong Balance Sheet 9
Slide 10: Katie Murray, Chief Financial Officer
NatWest UI *. “ Katie Murray “©" Chief Financial Officer
Slide 11: Group financial summary
FY'23 vs Q4'23 vs Q4'23 vs Group, £m FY'23 FY'22 FY'22 Q4'23 Q3'23 Q4'22 Q3'23 Q4'22 1 Net interest income, ex notable items 11,081 9,883 12.1% 2,670 2,685 2,909 (0.6%) (8.2%) 1 Non-interest income, ex notable items 3,258 3,178 2.5% 772 829 857 (6.9%) (9.9%) 1 Total income, ex notable items 14,339 1
Slide 12: Segment income, costs and returns
+15.7% +5.0% 7.4 5.6 5.9 6.4 -6.3% 1.1 1.0 FY’22 FY’23 FY’22 FY’23 FY’22 FY’23 +27.1% -6.6% 3.2 2.8 2.6 2.5 -33.3% 0.4 0.3 FY’22 FY’23 FY’22 FY’23 FY’22 FY’23 -4.8% -9.7% 28.6% 24.5% +3.2% 23.8% 15.4% 14.8% 12.2% FY’22 FY’23 FY’22 FY’23 FY’22 FY’23 12
Slide 13: Net interest income and margin
14,339 3,514 3,442 13,061 3,258 829 772 Non interest income 3,178 Net interest income 9,883 11,081 2,685 2,6703 FY’22 FY’23 Q3’23 Q4’23 544 521 521 525 Group AIEAs 199 158 158 158 Liquid asset buffer Bank AIEAs 345 363 363 367 FY’22 FY’23 Q3’23 Q4’23 +31bps3 -6bps 205 212 (1) 10 181 (5) 41 199 (21)
Slide 14: Loans to customers
199.9 Mortgages1 205.9 Q4’22 • 10.5% flow share in Q4’23 205.4 Q3’23 • 12.7% stock share at FY’234 14.2 Q4’23 Unsecured1 15.5 15.8 • 8.5% stock share at FY’23, 4.4 up from 6.9% at FY’225 Other Private 4.6 4.5 Business 2.3 Banking2,3 2.0 1.9 • Housebuilding and vehicle asset 67.4 finance Commercial +
Slide 15: Customer deposits
£433bn £422bn £421bn £424bn £419bn -3% Q4’22 76.3 112.1 188.4 6% 8% 11% Retail 15% 16% Q3’23 68.0 116.5 184.5 Banking Q4’23 66.1 121.9 188.0 54% 52% Q4’22 12.3 28.9 41.2 52% 50% Private 50% Q3’23 7.8 29.4 37.2 Banking Q4’23 7.2 30.5 37.7 Q4’22 86.7 116.6 203.3 Commercial Q3’23 40% 40% 37% 71.3 130.5
Slide 16: Deposit mix and structural hedge
433 419 433 419 Subject to customer and market dynamics 6% 16% 28 68 Term deposits 68 Term Hedge Term Deposit Income: moderate increase • Volume: increasing at a more moderate rate • Margin: broadly stable 197 54% 50% 166 Unhedged Unhedged Deposit Income: significant 209 Instant Access reduction • V
Slide 17: Income sensitivity to yield curve shift
Illustrative Year 1 Income impact of -25bps downward shift in yield curve, (£m) 5.5 5.3 5.2 5.0 4.4 (40) (50) (44) 4.5 3.8 4.0 3.5 2.8 2.9 (125) 3.0 2.7 (170) 2.5 2.0 (245) 2.0 1.8 2.0 (169) 1.4 1.5 1.2 0.9 (220) 1.0 0.9 0.5 0.5 (285) 0.0 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 FY’21 FY’22 FY’23 Average UK Ba
Slide 18: Key drivers of income in 2024
Key drivers of income in 2024 BOE Base Rate cuts and deposit pass through Deposit volumes and mix Product structural hedge volume and reinvestment rate Mortgage volumes and margins In 2024 we expect Income excluding notable items to be £13.0 — 13.5bn 18
Slide 19: Operating expenses
Bank Levy Ulster Direct Other operating expenses excl. Ulster direct and Bank levy C:I ratio1 55.5% 51.8% +4.6% Broadly stable vs 7,641 FY’23 7,302 29 41 101 109 ~0.1bn ~0.1bn 101 168 275 433 7,257 7,468 6,768 FY’22 Staff costs Other Premises Depreciation FY’23 Annualised Bank Levy Ulster Inflation
Slide 20: Lending portfolio mix and credit quality
Personal: £223.8bn, 57% of group Wholesale: £168.3bn, 43% of group Group mortgages £208.3bn Corporate £77.3bn Loan-to-value of 55%1, stable year-on-year Out of scope of FCA review into broker- introduced personal Car Finance5 64% 5Y, 24% 2Y, 1% 10Y, 6% Tracker2, 4% SVR Diverse corporate loan book, w
Slide 21: Impairments and economic scenarios
H1'23 FY'23 Extreme Extreme Upside Base Case Downside Upside Base Case Downside downside downside 19.5% 45.0% 21.5% 14.0% 21.2% 45.0% 20.4% 13.4% Additional Stage 1 and 2 ECL at 100% weighting (355) (148) 214 1,558 (309) (132) 220 977 H1'23 FY'23 Change FY'23 Extreme Downside Weighted-average variab
Slide 22: CET1 capital generation and distributions
154bps1 underlying capital generation 195bps distributions in FY’23 in FY’23 (0.63) (0.24) (0.24) 15.3 2.41 (0.19) 14.2 (0.82) (0.44) (0.69) 13.4 FY’22 Attrib. profit1 Other Group Other CET1 RWA model Notable CET1 ratio Ordinary On market Directed FY’23 RWAs changes updates items 2 pre dividend buyb
Slide 23: Attractive returns to shareholders
Attractive returns to shareholders +61.9% Interim dividend 17.0 Final dividend 5.1 0.8 13.5 3.8 1.2 3.6 28% reduction in share 10.5 11.5 count since end 20202 1.5 0.8 10.0 30% reduction 1.74 1.3 7.5 pro-forma for new £300m buyback 1.1 On market buyback announced3 Directed buyback 5.5 1.5 Special div
Slide 24: 2026 targets and 2024 guidance
2026 targets and 2024 guidance!’ 2024 Guidance Total Other operating Loan impairment RoTE Income expenses rate Broadly stable £13.0-13.5bn2 Below 20bps ~12% vs 2023 ——]#]!Eaaae eee 2026 RoTE target of >13% oe avout ividena Capacity for 40% buybacks ~ fo CET1 ratio in the range of 13-14% 24
Slide 25: Paul Thwaite, Chief Executive Officer
ak NatWest Sa Group Ja? Ai Paul Thwaite Ys Lap Chief Executive Officer
Slide 26: Our focus is on creating sustainable long-term value
Our focus is on creating sustainable long-term value 2024 Priorities Disciplined Bank-wide Active balance sheet and growth simplification risk management 2026 RoTE target of >13% Ordinary dividend payout ratio ~40% Capacity for buybacks CET1 ratio in the range of 13-14% 26
Slide 27: Group
Group
Slide 28: 28
28
Slide 29: Outlook
Outlook The economic outlook remains uncertain. We will monitor and react to market conditions and refine our internal forecasts as the economic position evolves. The following statements are based on our current expectations for interest rates and economic activity. In 2024 we expect: - to achieve
Slide 30: Group income and notable items
Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Q1'23 Q2’23 Q3'23 Q4'23 FY'23 Group income 3,008 3,211 3,229 3,708 13,156 3,876 3,851 3,488 3,537 14,752 Notable items in Income, £m Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Q1'23 Q2’23 Q3'23 Q4'23 FY'23 Commercial and Institutional Banking Own credit adjustments (OCA) 18 34 9 (19
Slide 31: Group FY'23 by segment
Ulster Bank ROI continuing operations are reflected within Central Items & other Retail Private Commercial & Central items Group FY'23, £bn Group Banking Banking Institutional & other Net interest income 5.5 0.7 5.0 (0.2) 11.0 Non-interest income 0.4 0.3 2.4 0.6 3.7 Total income 5.9 1.0 7.4 0.4 14.8
Slide 32: Tangible net asset value movement
GBP, m Share count, m Pence As at 30 September 2023 24,015 8,871 271 On-market share buyback (205) (96) 1 Attributable profit 1,229 14 Cash flow hedge reserve (net of tax) 1,068 12 FX Reserves (218) (2) Other movements (236) 17 (3) Net change 1,638 (79) 21 As at 31 December 2023 25,653 8,792 292 32
Slide 33: Capital and leverage requirements
5.00% 13.4% 13-14% 152% 4.25% 145% 144% 0.40 3.85% 1.2% 10.5% 0.60 Min. 1.7% MDA2 Requirement 2.5% 1.8% 3.25 4.5% FY’23 Regulatory FY’23 Regulatory FY’19 FY’22 FY’23 requirement requirement Management buffer Capital conservation buffer O-SII group risk add-on3 O-SII group risk add-on3 Pillar 2A5 Cou
Slide 34: Q4 net interest income and margin movement
-0.6% 2,685 2,670 (80) (32) 2,638 76 (6) (5) Q3’23 Retail Banking Private Banking Commercial Central items Q4’23 ex NII notable items Q4’23 & Institutional & other notable items Excl. tax interest on prior periods Group Net Interest Margin -8bps Group NIM: 202bps Bank Net Interest Margin Bank NIM: 2
Slide 35: Quarterly net interest income and margin
2,640 2,868 2,902 2,824 2,685 2,638 2,027 2,307 1,922 Net interest income Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 546 544 548 548 539 522 521 525 514 207 197 183 158 Group AIEAs 214 209 162 152 158 Liquid asset buffer Bank AIEA’s 332 335 342 351 356 360 362 363 367 Q4’21 Q1’22 Q2’22 Q3
Slide 36: Deposit and loan rates by segment
Retail Banking 7.0 6.72 6.65 6.5 Private Banking 6.0 5.84 Commercial & Institutional 5.5 5.38 4.88 NatWest Group 5.0 4.44 4.80 4.5 4.07 4.41 4.50 4.26 4.0 3.62 3.88 3.5 3.49 3.34 3.50 2.98 3.11 3.0 2.94 2.5 2.72 0.0 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 3.5 3.02 Retail Banking 3.0 2.80 Private Banking 2.51
Slide 37: Structural hedge income and notional
FY 2023 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 418 22 22 1.87 Product 2822 185 199 1.42 Total 3,240 207 221 1.47 H1 2023 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 204 23 22 1.83 Product 1,362 202 205 1.33
Slide 38: Interest rate sensitivity
FY 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 44 138 227 (44) (138) (227) Managed Margin 120 117 114 (125) (121) (105) Total 164 255 341 (169) (259) (332) H1 2023 +25 ba
Slide 39: Non-interest income
918 857 829 739 772 242 335 244 178 171 Trading and other income Net fees and commissions 615 583 561 585 601 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 615 583 561 585 601 Net fees and commissions 770 740 756 768 719 Payment services 262 256 259 261 Lending and financing 254 Credit and debit card fees 190 183 1
Slide 40: Economic scenario weightings
FY'23 H1'23 Q1'23 and FY'22 Upside Base Case Downside Extreme Extreme Extreme Scenario Upside Base Case Downside Upside Base Case Downside downside downside downside Weighting Weighted Weighted 21% 45% 20% 13% Weighted average 19% 45% 21% 16% 19% 45% 21% 16% average average UK GDP – Annual Growth (%
Slide 41: ECL provisions and coverage
0.91% 0.93% ECL coverage, % 74 (310) 3,645 3,434 557 Economic Uncertainty PMA (80) (125) 95 429 352 56 Other PMA 59 Stage 3 ex PMA Q4’23 impact Stage 2 ex PMA 1,737 1,935 of -£27m Stage 1 ex PMA 809 736 477 489 FY’22 Transfers to Changes in Changes in Changes in risk Judgemental Write-offs FY’23 dis
Slide 42: Impairments by segment
Retail Private Commercial & Central items Group Banking 1 Banking Institutional & other FY’23 (£m) 465 14 94 5 578 FY’23 (bps) 22bps 8bps 7bps nm 15bps FY’22 (£m) 229 (2) 122 (12) 337 FY’22 (bps) 11bps (1)bps 9bps nm 9bps Q4’23 (£m) 103 5 15 3 126 Q4’23 (bps) 20bps 11bps 4bps nm 13bps Q3’23 (£m) 169
Slide 43: Mortgage and CRE LTV distribution by stage
Mortgage LTV distribution by stage Total Stage 1 Stage 2 Stage 3 FY'19 FY'222 FY'23 FY'19 FY'22 FY'23 FY'19 FY'22 FY'23 FY'19 FY'22 FY'23 ≤50% 51,791 80,614 76,684 47,746 71,321 68,092 3,375 8,257 7,447 511 1,036 1,145 >50% and ≤70% 51,582 76,586 73,555 47,224 68,178 65,777 3,804 7,792 7,011 463 616
Slide 44: Footnotes
Slide 3: 1 Gross Loans and Advances to Customers at amortised cost across the three business segments – Retail, Private and Commercial & Institutional. 2. Business banking accounts opened in 2023 including Mettle 3. Current Accounts opened includes NatWest Rooster Money and NatWest Adapt / Revolve c
Slide 45: Footnotes
Slide 16: 1. May not cast due to rounding. Slide 19: 1. Cost: Income ratio is total costs excluding litigation and conduct, divided by total income. 2. Q4 23 annualised run rate is Q4 23 Other Operating Expenses of £2,041m excl. £105m bank levy and £69m Ulster costs annualised by multiplying by 4. S
Slide 46: 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 the NatWest Group plc 2