Natwest Group Plc · LSE:NWG
Natwest — H1 2022 Earnings Presentation
50 slides from Natwest's earnings presentation, Jul 29, 2022
Slide 1: NatWest Group H1 2022 Results
NatWest Group H1 2022 Results 29 July 2022
Slide 2: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 2
Slide 3: H1'22 results highlights
H1’22 results highlights Balanced growth and H1’22 performance strong operating performance driving £2,833m £1,891m 13.1% attractive returns and Operating profit before tax2 Attributable profit Return on Tangible Equity capital generation vs. £2,512m in H1’21 vs. £1,842m in H1’21 vs. 11.7% in H1’21
Slide 4: Strategic priorities driving sustainable returns
Strategic priorities driving sustainable returns Delivering against our strategic priorities to drive sustainable returns for shareholders and Our Purpose help our customers to We champion potential, helping thrive people, families and businesses to thrive Powering growth through: - Supporting custo
Slide 5: Supporting our customers and colleagues through uncertainty
Our purpose in action Personal Helping people, families customers 0.4m financial health 2.7m customers proactively contacted with support and ы and businesses navigate checks carried out in H1’22 information through uncertainty 100k customers supported by Financial Health & Support ~£30m per annum o
Slide 6: Operating at scale across our One Bank model
Supporting customers at every stage of their lives Operating at scale Strong franchises: A leading UK bank serving 19 million customers1 across our One Bank Retail Private Commercial & model Banking Banking Institutional We are a leading UK bank with 19 million customers Criteria: >£1m lending, inve
Slide 7: Deepening relationships and acquiring new customers
Supporting customers at every stage of their lives Retail Private Commercial & 1 Deepening relationships Banking Banking Institutional and acquiring new customers Opportunity Deepen penetration of high Increase client ‘Needs Met’; Better support our non value addressable markets grow AuMA & HNW mort
Slide 8: Supporting customers through their energy transition
Supporting customers at every stage of their lives 2ы Supporting customers Retail Private Commercial & through their energy Banking Banking Institutional transition presents Retail Banking green mortgage Recognised as having one of the Green, Social and Sustainability opportunities for growth cumula
Slide 9: Diversifying income streams
Supporting customers at every stage of their lives 3ы Diversifying income Retail Private Commercial & streams Banking Banking Institutional Credit card balances, £bn Affluent AuMA1, £bn NWM FX income, £m Investment-led and +8% +4% +37% innovation driven approach to meet more of our 3.8 4.1 2.5 2.6 2
Slide 10: A relationship bank for a digital world
Simplification and efficiency We are a relationship ы bank for a digital world ▪ 61% Retail customers bank entirely digitally (50% Mar’20)1 We are meeting delivering improved ▪ 88% Retail customer needs met digitally (53% FY’19) our customers’ customer experience ▪ 84% Commercial customers digitally
Slide 11: Effective capital allocation across a well diversified loan book
Disciplined deployment of capital Effective capital Well diversified loan book, strong track record on risk management ы allocation across a well Loans - amortised cost and FVOCI, £bn 93% diversified loan book Personal lending secured Wholesale with 92% Mortgage book fixed 40% ex-CRE Proactively man
Slide 12: Strong capital generation and distributions
Strong capital generation and distributions Strong capital Consistent, strong capital generation ы generation and Operating profit before impairments1, £bn distributions 2.9 3.0 2.8 NatWest Group is a highly capital generative business with a strong track record on risk diversification and managemen
Slide 13: Strengthened guidance
Financial targets Strengthened guidance ы Income1,2 Around £12.5bn in 2022 Strengthened guidance underpinned by: • Strong customer franchises • Continued lending growth ~3% reduction in 2022 and broadly stable in 2023 with Costs3 • Well diversified balance positive operating jaws sheet • Strong cred
Slide 14: Katie Murray, Chief Financial Officer
Katie Murray Chief Financial Officer 14
Slide 15: Strong Q2'22 operating performance delivering RoTE of 15.2%
Generating sustainable shareholder value Strong Q2’22 operating Q2'22 vs H1'22 vs performance delivering Go-forward group, £m 1 Q2'22 Q1'22 Q1'22 H1'22 H1'21 H1'21 RoTE of 15.2% Net interest income 2,305 2,023 13.9% 4,328 3,729 16.1% Income excluding notable Non-interest income 894 964 (7.3%) 1,858
Slide 16: Strong net interest income growth driven by margin and volume
Generating sustainable shareholder value Go-forward Net Interest Income1,2, £m +13.9% Strong net interest 2,305 22 (21) income growth driven 150 28 by both margin and 2,023 105 volume growth Net interest income was up 13.9% in the quarter driven by higher margin and strong Q1’22 Retail Banking Priva
Slide 17: Well positioned for rising interest rates
Generating sustainable shareholder value Managed margin and structural hedge benefits versus 2021: Net interest income growth year-on-year1, £bn We remain well positioned for rising Managed margin benefit at 1.25% +1.9 interest rates Additional managed margin benefit at 2.00% Structural hedge benefi
Slide 18: Strong loan growth
Generating sustainable shareholder value Go-forward gross customer loans1, Q2’22 vs Q1’22, £bn Balances outstanding at Q2’22 Strong loan growth +3.8 Gross loans1 to customers across our three franchises are up £4.4bn, or 1.3%, in the 3.3 quarter to £337.8bn +0.5 Retail Banking mortgage growth of £3.
Slide 19: Non-interest income growth from increased customer activity
Generating sustainable Go-forward Non Interest Income1,2, £m shareholder value 797 740 707 Non-Interest Income1 642 645 222 598 205 Trading and other income growth from increased 221 139 134 39 Net fees and commissions customer activity Net fees and commissions2 increased £40m in Q2 503 511 559 535
Slide 20: We are strengthening our 2022 income guidance
Generating sustainable Go-forward group income guidance1, £bn shareholder value Around 12.5 Other Net-Interest and We are strengthening 1.9 Mortgage margins Non-Interest Income benefits our 2022 income 10.1 guidance We remain well positioned for rising UK interest rates and are seeing good customer
Slide 21: Delivered 1.5% cost reduction in H1
Simplification and cost efficiency Group other operating expenses, £m Delivered 1.5% cost H1’21 H1’22 Cost:Income ratio 64% 55% reduction in H1, and 68% 58% -1.5% despite inflation, we are 3,517 3,484 3,291 3,241 on track to achieve our target of around 3% 1,880 1,790 reduction for FY’22 721 747 502
Slide 22: Quality of loan book drives further impairment release
Intelligent and consistent approach to risk Group ECL Coverage, % 1.03 Quality of loan book and Economic Uncertainty PMA Other PMA & ECL ECL coverage, low level of defaults excluding the economic 0.15 drive further impairment 0.93 uncertainty PMA, of 0.78%, reflects the release quality of the book a
Slide 23: ECL decrease in H1'22 driven by improved loan book quality
Intelligent and consistent Update to our economic scenarios and weightings approach to risk FY’21 H1’22 Change Base case scenario ECL decrease in H1’22 Macroeconomic variable1 2022 2023 2022 2023 2022 2023 driven by improved Weighting 45% 45% 0% quality of loan book and UK GDP - annual growth (%) 5.
Slide 24: Significant progress on phased withdrawal from the Republic of Ireland
Portfolio discipline and Ulster Bank RoI, H1’22 effective deployment of capital Loans1 (€bn) Credit Risk RWAs (€bn) Significant progress on Remaining Remaining our phased withdrawal c.10% from the Republic of c.25% Ireland €17.7bn €11.6bn We have binding agreements with AIB and PTSB for the sale c.7
Slide 25: Continued sustainable capital generation with progress towards CET1 target
Robust balance sheet with strong capital & liquidity levels CET1 ratio, %1 Continued sustainable (0.08) capital generation with (0.25) 0.53 progress towards CET1 15.2 (0.14) ratio of around 14% by end 2022 (0.97) CET1 ratio 14.3% decreased 14.3 90bps in Q2 driven by the special dividend of £1.75bn a
Slide 26: £1.75bn special dividend with share consolidation
Robust balance sheet with strong capital & liquidity levels Summary We have announced a £1.75bn special dividend • Announced a special dividend of £1.75bn with share consolidation, subject to with share consolidation shareholder approval Continued sustainable capital • The special dividend will retu
Slide 27: Strong capital and liquidity positions provide flexibility
Robust balance sheet with strong capital & liquidity levels CET1 headroom above Headroom above Liquidity coverage ratio Strong capital and medium term target1,2 minimum UK leverage remains well above min UK liquidity positions requirements requirement provide flexibility 30-130bps 195bps £76.1bn Our
Slide 28: Key financial guidance: previous vs strengthened
Guidance Previous guidance Strengthened guidance Key financial guidance Income ex-notable items to be Income ex-notable items to be around comfortably above £11bn in 2022, £12.5bn in 2022, assuming 2% UK Base We are strengthening our assuming 1.25% UK Base Rate by Q4 Rate by end of 20221 guidance as
Slide 29: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 29
Slide 30: Investment case
Investment case A purpose-led company Accelerating growth with proactive with clear strategic priorities, strong risk management franchises and capacity to grow Simplification via Digital and Technology We are: • Supporting our customers whilst growing and diversifying income Disciplined deployment
Slide 31: Q&A
Q&A 31
Slide 32: H1'22 Group performance
H1'22 Group performance H1’22 H1'21 H1'22 H1'21 incl. discontinued operations Go- Ulster Go- Ulster £m 1 1 forward Bank RoI Group Group forward Bank RoI Group Group Total income 6,186 33 6,219 5,141 6,186 185 6,371 5,319 Operating expenses (3,399) (254) (3,653) (3,499) (3,399) (278) (3,677) (3,521)
Slide 33: Q2'22 Group performance
Q2'22 Group performance Q2’22 Q2'21 Q2'22 Q2'21 incl. discontinued operations Go- Ulster Go- Ulster £m 1 1 forward Bank RoI Group Group forward Bank RoI Group Group Total income 3,199 12 3,211 2,571 3,199 86 3,285 2,660 Operating expenses (1,692) (141) (1,833) (1,695) (1,692) (154) (1,846) (1,706) I
Slide 34: Outlook
Outlook1 Financial targets and outlook Income • In 2022, we expect income excluding notable items to be around £12.5 billion in the Go-forward group2. NIM • We expect NIM to be greater than 2.70% for full year 2022 in the Go-forward group. Costs • We are investing around £3 billion3 over 2021 to 202
Slide 35: Notable items
Notable items Notable items in Income, £m Q1’21 Q2’21 Q3’21 Q4’21 FY’21 Q1’22 Q2’22 Private Banking Consideration on the sale of Adam & Company investment management business -- -- -- 54 54 -- -- Commercial and Institutional Banking Own credit adjustments (OCA) 2 (1) 2 3 6 18 34 Tax variable lease r
Slide 36: Segmental summary
Segmental summary Ulster Bank RoI Retail Private Commercial & Central items Go-forward (continuing & Group (incl. 2 1 Group, Q2'22 £bn Banking Banking Institutional & other Group discontinued) discontinued ops) Net interest income 1.2 0.2 1.0 (0.1) 2.3 0.1 2.4 Non-interest income 0.1 0.1 0.6 0.1 0.9
Slide 37: Ulster Bank RoI – continuing and discontinued operations
Ulster Bank RoI – continuing and discontinued operations H1'22 H1'21 Ulster Bank ROI (£m) Continuing Discontinued Continuing Discontinued Total Total operations operations operations operations Total income 33 152 185 65 178 243 Operating expenses (254) (24) (278) (239) (22) (261) o/w Other operatin
Slide 38: Tangible net asset value
Tangible net asset value GBP, m Share count, m Pence As at 31 March 2022 28,571 10,622 269 Attributable profit 1,050 10 Cash flow hedge reserve (net of tax) (413) (4) FVOCI (227) (2) Final FY'21 ordinary dividend paid (841) (8) On-market share buy-backs (436) (200) 1 Other movements 154 14 1 Net cha
Slide 39: Key drivers of CET1 ratio
Key drivers of CET1 ratio1, % Capital generation Capital usage • Earnings • Loan growth 14.3 • Ulster Bank RoI withdrawal (0.2) Distributions2 (0.2) • Min divi ~(85)bps • DBB3 ~(70)bps • On-market buy-backs 13-14% Not to scale Q2’22 Regulation Dividend Target FY’23 linked pension contribution We aim
Slide 40: Key Drivers of CET1 ratio
Key Drivers of CET1 ratio From 14.3% at 30 June 2022 through to FY’23 Driver Timing Impact 1 Details Earnings ROTE in the range of 14-16% for the Group in 2023 Lending volumes Across 2022 and 2023, we expect movements in RWAs to largely reflect lending growth 2 Intend to distribute a minimum of £1bn
Slide 41: Gross yields and cost of liabilities
Gross yields of interest earning banking assets, %1 3.5 3.19 2.813 2.83 Retail Banking 3.0 2.73 2.67 2.75 2.77 Private Banking 2.62 2.67 2.64 2.59 2.59 2.5 Commercial & Institutional 2.58 2.53 2.36 NatWest Group 2.36 2.36 2.34 2.0 1.97 1.83 1.78 1.79 1.71 1.66 0.0 Q1’21 Q2’21 Q3’21 Q4’21 Q1’22 Q2’22
Slide 42: Impairment (charge)/release by segment
Impairment (charge)/release by segment Retail Private Commercial Go-forward Ulster Bank Central items Group Banking Banking & Institutional Group RoI H1’22 (£m) (26) 11 59 2 46 8 54 H1’22 (bps) 3 (12) (9) nm (3) nm (3) H1’21 (£m) 57 27 613 (1) 696 (13) 683 H1’21 (bps) (6) (30) (96) nm (40) nm (37) Q
Slide 43: Customer Loans and Deposits
Customer Loans1 and Deposits Loans to customers - amortised Customer Deposits, £bn cost, £bn2 Q1’22 Q2’22 Q1’22 Q2’22 Retail Banking 184.9 188.7 189.7 190.5 Private Banking 18.7 18.8 40.3 41.6 Commercial & Institutional 126.6 127.3 217.9 223.2 Central items & other 28.8 26.8 17.7 20.9 Go-forward Gro
Slide 44: Q2'22 Customer loan growth by product and sector
Q2’22 Customer loan growth by product and sector Total loans to customers (amortised cost), £bn Retail Banking +3.3 178.7 175.4 +0.2 +0.3 7.2 7.4 3.8 4.1 Q1’22 Q2’22 Q1’22 Q2’22 Q1’22 Q2’22 Mortgages Personal advances Cards C&I Gross loans to customers (amortised cost) ex-government schemes, £bn -0.
Slide 45: Supporting our customers through Covid-19
Supporting our customers through Covid-19 £0.7bn of net government scheme repayments in Q2, £0.4bn related to BBLS Government Lending Scheme in NWG, £bn1 Approved 6.1 1.8 0.7 0.5 9.1 BBLS Drawdown Q1’22 7.1 (0.4) Drawdown Q2’22 6.7 0.1 Approved 3.3 0.6 0.3 4.3 CBILS Drawdown Q1’22 3.1 (0.2) Drawdown
Slide 46: Asset quality
Asset quality1 Mortgage LTV distribution by stage Total Stage 1 Stage 2 Stage 3 FY'19 FY'20 FY'21 H1'22 FY'19 FY'20 FY'21 H1'22 FY'19 FY'20 FY'21 H1'22 FY'19 FY'20 FY'21 H1'22 ≤50% 51,791 55,857 66,488 71,985 47,746 50,170 61,233 66,690 3,375 5,009 4,548 4,283 511 554 644 950 >50% and ≤70% 51,582 63
Slide 47: Structural Hedge
Structural Hedge1 H1 2022 Incremental Period end Total Income Average Notional Total Yield Income notional (£m) (£m) (£bn) (£bn) % Equity 111 178 20 20 1.77 Product 42 585 182 168 0.70 Other 29 76 28 27 0.57 Total 182 839 230 215 0.78 FY 2021 Incremental Period end Total Income Average Notional Tota
Slide 48: Interest rate sensitivity
Interest rate sensitivity1 H1 2022 +25 basis points parallel upward shift -25 basis points parallel upward shift Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 (£m) (£m) (£m) (£m) (£m) (£m) Structural Hedge 45 150 253 (45) (150) (253) Managed Margin 231 227 223 (219) (205) (227) Total 276 377 476 (264) (
Slide 49: UK Economic Assumptions
UK Economic Assumptions1 H1'22 FY’21 H1’21 Extreme Extreme Extreme Scenario Upside Base Case Downside Upside Base Case Downside Upside Base Case Downside downside downside downside Weighting 21% 45% 20% 14% 30% 45% 20% 5% 35% 40% 20% 5% UK GDP – Annual Growth (%) 2022 4.8 3.5 2.7 2.7 8.1 5.0 1.5 (3.
Slide 50: 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 “Summary Risk Factors” on pages 106-107 o