Natwest Group Plc · LSE:NWG
Natwest — Q3 2023 Earnings Presentation
39 slides from Natwest's earnings presentation, Oct 27, 2023
Slide 1: 27 October 2023
27 October 2023
Slide 2: Paul Thwaite, Chief Executive Officer
Paul Thwaite Chief Executive Officer
Slide 3: Strong earnings and returns, robust funding, strong capital generation
Strong earnings and returns, operating £10.9bn 49.9% 17.1% profit of £4.9bn in Income ex notable items1 Cost to Income ratio2 Return on Tangible Equity 9M’23 +£1.6bn vs 9M’22 vs 55.6% in 9M’22 vs 10.0% in 9M’22 Robust funding, deposits and liquidity £423.5bn £358bn 83% profile Customer Deposits3 Cus
Slide 4: Near term priorities
Near term priorities oe Supporting our customers 2) Driving simplification and digitisation of customer experiences oe Disciplined approach to managing cost and productivity oO Dynamic and disciplined management of strong Balance Sheet Focused execution of our strategy to deliver attractive returns
Slide 5: Katie Murray, Chief Financial Officer
Katie Murray Chief Financial Officer
Slide 6: Group financial results Q3'23
Q3'23 vs Q3'23 vs Group, £m Q3'23 Q2'23 Q3'22 Q2'23 Q3'22 Net interest income, ex notable items 1 2,685 2,824 2,640 (4.9%) 1.7% Non-interest income, ex notable items 1 829 739 757 12.2% 9.5% 1 Total income, ex notable items 3,514 3,563 3,397 (1.4%) 3.4% Total income 3,488 3,851 3,229 (9.4%) 8.0% Oth
Slide 7: Lending balances by segment
203.8 Mortgages1 205.7 Q1’23 205.9 Q2’23 Mortgages 14.4 Q3’23 12.6% stock share Unsecured1 15.0 +0.3% YTD4 15.5 4.5 Other Private 4.6 4.6 2.1 Credit Cards Business Banking2,3 2.0 8.0% stock share 2.0 +1.1% YTD5 67.5 Commercial Mid-Market2,3 68.0 68.9 56.1 Corporate & Institutions2 54.0 55.2 CSFF £53
Slide 8: Customer deposits
Q1’23 73.7 110.3 184.0 £422bn £421bn £424bn Retail Q2’23 183.1 8% 11% 15% 70.8 112.3 Banking NIBBs1 (Current Accounts) Q3’23 68.0 116.5 184.5 IBBs2 (Savings) 52% 52% 50% Q1’23 10.7 26.6 37.3 Private Q2’23 9.1 27.4 36.5 40% 37% 35% Banking Q3’23 37.2 7.8 29.4 Q1’23 Q2’23 Q3’23 Q1’23 82.1 118.4 200.5
Slide 9: Deposit costs, mix and structural hedge
6 424 424 5.2 5 4.4 65 ~65 3.8 Term deposits 15% 4 2.8 Term Hedge Instant Access 2.7 Unhedged 3 Non interest- ~163 2.0 bearing balances 211 Structural hedge 2 1.4 1.8 50% 0.9 1.2 1 0.9 0.5 0 ~195 Q4’22 Q1’23 Q2’23 Q3’23 147 Q1’23 35% ~8% Average UK Base Rate Average cost of interest bearing customer
Slide 10: Income, net interest margin and volume
Income Non interest income Net interest income • FY’23 income now expected to be around £14.3 billion1 3,820 • Q3’23 Net interest income reduction reflects increased 3,563 3,514 ~3.4bn deposit expense and lower mortgage income 918 739 829 • Q3’23 Non–interest income improvement includes increased cu
Slide 11: Operating expenses and cost drivers
C:I ratio1 48.7% 51.4% 9M’23 cost drivers -4.4% o Staff costs include ~£60m one off cash payment in 1,875 January plus 6.4% average annual wage increase (44) 14 (9) effective from April 2023 (43) 1,793 o Non-staff costs reflect broader inflationary pressures o Higher amortisation due to capitalised
Slide 12: Loan impairment rate and ECL
85 Group loan impairment rate 20-30 FY’23 and through the cycle Stage 3 loan impairment rate 21 24 16 13 9 7 16 18 17 10 12 8 12 6 2 (32) FY’171 FY’18 FY’19 FY’20 FY’21 FY’22 Q1’23 Q2’23 Q3’23 452 0.91% 0.89% 0.92% 0.94% 229 Q3’23 3,557 3,649 Q2’23 3,434 3,447 337 153 352 333 462 453 59 61 78 76 70
Slide 13: Mortgage, corporate and unsecured lending books
Mortgages Corporate • Mortgage LTV of 55%2 • Diversified £78.5bn corporate loan book • Balances: 67% 5Y, 24% 2Y, 1% 10Y, 5% Tracker, • Low exposure to in focus areas such as Retail 3% SVR £7.7bn, Automotive £7.8bn and Leisure £7.1bn • £15.5bn or ~8.2% of fixed book expire by end of • Limited exposur
Slide 14: CET1 ratio and capital generation
16.4 14.7 (5.1) 1.9 (0.8) 3.5 (1.2) Q2’23 Notable income items Operating profit Impairments Discontinued operations TNAV and other Q3’23 before impaiments and notable tax1 118bps2 underlying capital generation in 9M’23, 159bps distributions in of which 21bps in Q3’23 9M’23, of which 20bps in Q3’23 (
Slide 15: Capital requirements and buffers
5.1% 13.5% 13-14% 152% 4.3% 145% 145% 1.2% 1.2% 0.40 3.85% 10.4% 10.4% 1.7% MDA2 1.7% MDA2 0.60 Min. Requirement 2.5% 2.5% 1.7% 1.7% 3.25 4.5% 4.5% Q3’23 Q3’23 FY’23 operating Q3’23 FY’23 requirement FY’19 FY’22 Q3’23 requirement range Management buffer Capital conservation buffer O-SII group risk a
Slide 16: Guidance and shareholder distributions
1. Total Income ex notable items. 2. Cost:income ratio is total costs excluding litigation and conduct, divided by total income 3. considered if compelling shareholder value and strategic rationale. 4. Paid and accrued 16
Slide 17: Paul Thwaite, Chief Executive Officer
Paul Thwaite Chief Executive Officer
Slide 18: Well positioned for current macro environment
Well positioned for current macro environment oe The business is performing well as our customers adapt to the changing macro 2) Maintaining focus on serving our customers and meeting their evolving needs oe Disciplined execution with strong focus on digitisation and simplification oO Strong Balance
Slide 19: NatWest
NatWest UI
Slide 20: Appendix
Appendix
Slide 21: Outlook 2023
The economic outlook and consequent customer behaviours remain uncertain. The following statements are based on our latest economic forecasts and expected customer behaviours. Outlook 2023 • We continue to expect to achieve a return on tangible equity for the Group of 14-16%. • We expect total incom
Slide 22: Notable items in income
Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Q1'23 Q2’23 Q3'23 Group income 3,008 3,211 3,229 3,708 13,156 3,876 3,851 3,488 Notable items in Income, £m Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Q1'23 Q2’23 Q3'23 Commercial and Institutional Banking Own credit adjustments (OCA) 18 34 9 (19) 42 6 3 (6) Fair value, disposal los
Slide 23: Segment results Q3'23
Ulster Bank ROI continuing operations are reflected within Central Items & other Retail Private Commercial & Central items Group Q3'23, £m Group Banking Banking Institutional & other Net interest income 1,334 144 1,271 (64) 2,685 Non-interest income 108 70 570 55 803 Total income 1,442 214 1,841 (9)
Slide 24: Tangible equity and share count movements
GBP, m Share count, m Pence As at 30 June 2023 23,415 8,929 262 Ordinary Interim Dividend payment (5.5p) (491) (5) Attributable profit 866 10 Cash flow hedge reserve (net of tax) 377 4 On-market share buyback (139) (58) 0 Other movements (13) (0) Net change 600 (58) 9 As at 30 September 2023 24,015
Slide 25: Net interest income and margin bridge
-4.9% 2,824 2,685 31 (98) (57) 13 (28) Q2’23 Day count1 Retail Banking Private Banking Commercial Central items & other Q3’23 & Institutional Group Net Interest Margin -19bps3 Bank Net Interest Margin 313 220 (12) 205 294 (14) 6 Q2’23 Q2’23 Lending margin Deposit margin Funding & other Q3’23 Q3’23 5
Slide 26: Net interest income, AIEAs and NIM trends
2,868 2,902 2,824 Net interest income 2,640 2,685 2,027 2,307 1,869 1,922 Q3’21 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 522 546 544 548 548 539 522 521 Group AIEAs 514 207 197 183 162 158 Liquid asset buffer 195 214 209 152 Bank AIEA’s 327 332 335 342 351 356 360 362 363 Q3’21 Q4’21 Q1’22 Q2
Slide 27: Asset yields and funding costs by segment
6.72 Retail Banking 7 Private Banking 6 5.84 Commercial & Institutional 5.38 4.80 5 NatWest Group 4.44 4.41 4.26 4 3.53 4.07 3.88 3.62 3.49 3.09 3.11 3.34 3 2.64 2.98 2.94 2.40 2.72 0 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 3.0 2.80 Retail Banking 2.5 2.21 Private Banking Commercial & Institutional 2.0 1.71 1
Slide 28: Structural hedge notional and yield
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 29: 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 30: Non-interest income and net fees
918 857 829 757 739 242 335 244 204 178 Trading and other income Net fees and commissions 553 615 583 561 585 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 553 615 583 561 585 Net fees and commissions 770 740 756 Fees and commissions receivable 721 719 262 256 259 259 254 Payment services 171 190 183 164 187 Lendin
Slide 31: Economic scenario 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 32: Impairments by segment
Private Commercial & Central items Retail Banking Group Banking Institutional & other 9M’23 (£m) 362 9 79 2 452 9M’23 (bps) 23bps 6bps 8bps nm 16bps 9M’22 (£m) 142 (4) 60 (5) 193 9M’22 (bps) 10bps (3)bps 6bps nm 7bps Q3’23 (£m) 169 (2) 59 3 229 Q3’23 (bps) 33bps (4)bps 18bps nm 24bps Q2’23 (£m) 79 3
Slide 33: Mortgage 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 34: NatWest Group Q3 2023 Results, Fixed Income Investors
NatWest | Group NatWest Group Q3 2023 Results Fixed Income Investors
Slide 35: Capital and MREL resources and requirements
18.7% 31.2% Tier 2 3.0% (£5.5bn) 15.2% 1.2% AT1 2.1% 1.7% (£3.9bn) 2.7% 2.5% 2 x Pillar 2A3 2.1% 6.0% MREL eligible 22% CET1, AT1 & Tier 2 capital MREL 13.5% resources requirement 2 x Pillar 1 CET1 (£24.6bn) 2 x Pillar 1 10.4% CET1 16.0% O-SII Group Risk Add-on4 Countercyclical buffer5 Capital conse
Slide 36: 2023 funding issuance guidance and actual
2023 2023 guidance actual2 NatWest Senior £3bn to • $1bn 4NC3 • $1bn 11NC10 • €500m 5NC4 Social bond unsecured ~£4bn - - Group plc (MREL) £5bn • $1.25bn 6.25NC5.25 • €1bn 5.75NC4.75 Benchmark (HoldCo) Up to Tier 2 capital ~£600m - • €700m 11NC6 - - £1bn NatWest Senior unsecured Markets (non-MREL) £3
Slide 37: Credit ratings
Moody’s S&P Fitch S&P long-term issuer rating action in 2023: Group holding company • NatWest Group plc long-term issuer ratings NatWest Group plc A3/Sta BBB+/Sta A/Sta now rated BBB+ from BBB Ring-fenced bank operating companies • Core operating NatWest Bank Plc A1/Sta1 A+/Sta A+/Sta subsidiaries w
Slide 38: Issuance entities and funding structure
External issuance of AT1, Tier 2 and MREL is only from NatWest Group plc, the group holding company. Subsidiary operating companies will only issue internal AT1, Tier 2 and MREL. Non ring-fenced bank (NRFB) operating subsidiaries Issue internal AT1, T2, MREL senior NatWest Bank Plc issues senior sec
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