Natwest Group Plc · LSE:NWG
Natwest — Debt Investor Presentation (July 2023)
34 slides from Natwest's debt investor presentation, Jul 28, 2023
Slide 1: NatWest Group Q2 2023 Results Fixed Income Investors
NatWest Grou NatWest Group Q2 2023 Results Fixed Income Investors
Slide 2: Katie Murray, Chief Financial Officer
Katie Murray - Chief Financial Officer
Slide 3: 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 4: Group financial summary Q2'23
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 5: Income
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 6: Costs and C:I 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 7: Group loan impairment rate and ECL
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 8: Lending balances 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 9: Mortgages and Corporate lending
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 10: Donal Quaid, Treasurer
& NatWest Group Donal Quaid Treasurer
Slide 11: Capital, leverage, liquidity and funding
Capital and leverage 13.5% 18.8% 31.2% 5.0% £177.5bn Risk weighted CET1 ratio Total capital ratio MREL ratio UK leverage ratio assets Liquidity and 83% funding 141% 138% Loan to deposit £432.5bn. £81bn. Liquidity coverage Net stable funding ratio Customer deposits Wholesale funding ratio ratio (ex r
Slide 12: Liquidity
152% 145% 141% 139% 3% 16% Secondary liquidity £79bn Total liquidity value £227bn FY’19 FY’22 Q1’23 Q2’23 81% 12-month average LCR 145%1 Cash and balances at central banks AAA to AA- rated government bonds Net Stable Funding Ratio 138% Other LCR level 1 bonds TFSME £12bn ~£4bn due for repayment in 2
Slide 13: Customer deposits
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 14: Capital requirements and buffers
18.8% Tier2 3.1% 5.0% 13.5% 13-14% (£5.4bn) AT1 15.2% 2.2% 4.25% (£3.9bn) 2.7% 0.40 1.2% 3.85% 10.4% 1.2% MDA3 0.60 Min. 0.9% 9.6% 1.7% 2.1% Requirement MDA2 2.5% 2.5% CET1 13.5% 1.7% 1.7% (£24.0bn) 10.4% 3.25 4.5% 4.5% Q2’23 Q2’23 FY’23 operating Q2’23 FY’23 requirements Q2’23 FY’23 requirement req
Slide 15: CET1 ratio movement
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 16: Stress test CET1 projections
NatWest Group’s capital position remains above its CET1 ratio hurdle rate of 7% and its Tier 1 leverage ratio of 3.7% on a IRFS9 transitional basis, with a low point of 11.1% CET1 ratio and 5.2% leverage ratio after strategic management actions Projected CET1 capital ratios in the stress scenario (a
Slide 17: 2023 issuance guidance and H1 actual
2023 H1 2023 guidance actual NatWest Senior unsecured £3bn to • $1bn 4NC3 • $1bn 11NC10 • €500m 5NC4 Social bond ~£4bn - - Group plc (MREL) £5bn • $1.25bn 6.25NC5.25 • €1bn 5.75NC4.75 Benchmark (HoldCo) Tier 2 capital Up to £1bn ~£600m - • €700m 11NC6 - - NatWest Senior unsecured Markets Plc (non-MR
Slide 18: Credit ratings
Moody’s S&P Fitch S&P long-term issuer rating action: 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 within th
Slide 19: Katie Murray, Chief Financial Officer
Katie Murray - Chief Financial Officer
Slide 20: Guidance and targets
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, will not cast due to rounding 20
Slide 21: NatWest Group
& NatWest Group
Slide 22: Appendix
Appendix
Slide 23: MREL
31.2% Senior MREL 1.2% 12.5% 1.7% 2.5% 2 x Pillar 2A3 6.0% MREL 22% eligible CET1, AT1 & MREL Tier 2 capital requirement resources 2 x Pillar 1 2 x Pillar 1 18.7% CET1 16.0% O-SII Group Risk Add-on4 Countercyclical buffer5 Capital conservation buffer MREL H1'23 2023 MREL requirements 1. “MREL” = Min
Slide 24: Wholesale funding
7% 11% 4% £[X]bn 15% 74 79 81 £81bn 47% 16% 433 422 421 Bank deposits TFSME FY'22 Q1'23 H1'23 CP & CD MTN 3 Wholesale funding Senior secured Subordinated debt Customer deposits excluding central items 1. Wholesale funding excluding repos, derivative cash collateral. 2. Customer deposits includes NBF
Slide 25: Group funding and issuance 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 26: Deposit pass through
£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 27: 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 28: Structural hedge
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
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 31: ECL scenarios and coverage
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 32: 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 33: Group Treasury and Investor Relations contacts
Group Treasury Investor Relations Scott Forrest Paul Pybus Amber Sekhri Head of Treasury Debt Capital Markets Head of Debt Investor Relations Fixed Income Corporate Access scott.forrest@natwest.com paul.pybus@natwest.com amber.sekhri@natwest.com +44 (0) 207 672 1758 +44 (0) 207 672 1767 Useful links
Slide 34: 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
NatWest Group — Debt Investor Presentation (July 2023) on 6ix