Natwest Group Plc · LSE:NWG
Natwest — Q3 2022 Earnings Presentation
47 slides from Natwest's earnings presentation, Oct 28, 2022
Slide 1: NatWest Group Q3 2022 Results
NatWest Group Q3 2022 Results 28 October 2022
Slide 2: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 2
Slide 3: 9M'22 results highlights
9M’22 results highlights Balanced growth and 9M’22 performance strong operating performance driving £4,075m £2,078m 10.0% attractive returns and Operating profit before tax2 Attributable profit Return on Tangible Equity capital generation vs. £3,548m in 9M’21 vs. £2,516m in 9M’21 vs. 10.7% in 9M’21
Slide 4: Increased uncertainty but on track to deliver 2022 targets
Economic background Revised macro-economic outlook Increased uncertainty June’22 (Weighting to downside scenarios 34% 3) Sept’22 (Weighting to downside scenarios 55% 3) but on track to deliver 4.3% 4.5% 4.1% 4.1% 2022 targets 1.2% Significant market volatility and -0.2% -0.2% increased uncertainty h
Slide 5: 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 Our purpose led strategy is delivering and
Slide 6: Our purpose in action
Our purpose in action Helping people, families Supporting our customers through uncertainty ы and businesses navigate ▪ Around 2% saving on the next mortgage rate for some eligible through uncertainty mortgage customers that refinanced in Q3’22 using the early refinance window that was recently exte
Slide 7: Supporting customers at every stage of their lives
Supporting customers at every stage of their lives We continue to invest Sustainable growth with an intelligent approach to risk for growth • New strategic partnership with We are a leading UK bank Deepening existing relationships Vodeno Group announced on 20 with strong franchises 1 and acquiring n
Slide 8: Simplification and efficiency
Simplification and efficiency We are a relationship ы bank for a digital world We are meeting ▪ 90% Retail customer needs met digitally (FY’19: 53%) delivering improved our customers’ customer experience needs digitally ▪ 84% Commercial customers digitally active (FY’19: 76%) and productivity Using
Slide 9: Disciplined deployment of capital
Disciplined deployment of capital Effective capital Well diversified loan book, strong track record on risk management ы allocation across a well ▪ £384bn loan book1 o/w 55% Personal, 45% Wholesale diversified loan book ▪ Unsecured personal lending <4% group loans driving strong capital generation a
Slide 10: Katie Murray, Chief Financial Officer
Katie Murray Chief Financial Officer 10
Slide 11: Strong Q3'22 operating performance
Generating sustainable shareholder value Strong Q3’22 operating Q3'22 vs Q3'22 vs Go-forward group, £m 1 Q3'22 Q2'22 Q3'21 performance Q2'22 Q3'21 Net interest income 2,634 2,305 1,866 14.3% 41.2% Income excluding notable items increased 10.7% versus Q2’22 Non-interest income 632 894 763 (29.3%) (17
Slide 12: Strong net interest income growth
Generating sustainable shareholder value Go-forward Net Interest Income1,2, £m +14.3% Strong net interest 2,634 25 (30) income growth driven 159 37 by continued strong 2,305 138 lending and margin expansion Net interest income was up 14.3% in the quarter driven by Q2’22 Retail Banking Private C&I Da
Slide 13: Further balanced loan growth across group
Generating sustainable shareholder value Go-forward gross customer loans1, Q3’22 vs Q2’22, £bn Balances outstanding at Q3’22 +4.8 Further balanced loan 0.0 growth across group • ~55% working capital/ short term finance Gross loans1 to customers +4.1 • ~35% term finance • ~10% FX movements across our
Slide 14: Robust deposit funding
Generating sustainable Go-forward customer deposits1, Q3’22 vs Q2’22, £bn shareholder value Robust deposit funding 1.4 0.8 0.1 Customer deposits across our (0.4) three franchises are down by (0.8) (2.6) £7.0bn, or 1.5%, in the quarter to £448.3bn Current Accounts C&I decrease of £8bn in quarter ~40%
Slide 15: Non-interest income support from increased market volatility
Generating sustainable Go-forward Non Interest Income1,2, £m shareholder value 797 800 740 707 Non-Interest Income1 642 645 222 250 598 205 Trading and other income support from increased 221 139 134 39 Net fees and commissions market volatility Non interest income was broadly stable as higher 511 5
Slide 16: On track for around 3% cost reduction
Simplification and cost efficiency Group other operating expenses, £m We remain on track to 9M’21 9M’22 5,154 5,255 achieve our target of around 3% reduction for 2,761 2,658 FY’22 1,015 1,164 765 820 613 613 Other operating expenses1 for the first 9 months of the year Staff costs Premises and Deprec
Slide 17: Well diversified loan book
Intelligent and consistent Gross Loans and Advances ex-Ulster1 by sector, £bn in Q3’22 approach to risk Mortgages Selected corporate sectors Commercial Real Estate (CRE) • Balances: 64% 5Y, 27% Well diversified loan 2Y, 9% Var Agriculture 4.9 • <5% of group loans Airlines3 1.6 book • c.£50bn or c.25
Slide 18: Updated weightings drive our impairment charge
Intelligent and consistent Update to our economic scenario weightings approach to risk H1'22 Q3'22 Updated weightings drive Extreme Extreme Upside Base Case Downside Upside Base Case Downside our impairment charge in downside downside 21% 45% 20% 14% 10% 35% 30% 25% the quarter Weighted-average vari
Slide 19: Continued sustainable capital generation
Robust balance sheet with strong capital & liquidity levels CET1 ratio, %1 0.08 (0.12) Continued sustainable capital generation with (0.09) progress towards target (0.14) CET1 ratio 0.46 (0.16) Go-forward group capital 14.3 14.3 generation strong, 46bps of capital in a volatile market Q2’22 Go-forwa
Slide 20: Strong capital and liquidity positions
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 £67.9bn c.£
Slide 21: Key financial guidance
Guidance Key financial guidance 2022 • At today’s Bank of England base rate of 2.25%, we expect: Positively geared for rising interest rates with strong • Income excluding notable items to be around £12.8bn1 income growth • NIM2 > 2.80% for full year 2022 • Costs: expect to reduce other operating ex
Slide 22: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 22
Slide 23: Investment case
Investment case A purpose led company Accelerating growth with proactive risk with clear strategic priorities, strong management franchises and capacity to grow Simplification via Digital and Technology We are: • Supporting our customers whilst growing and diversifying income Disciplined deployment
Slide 24: Q&A
Q&A 24
Slide 25: Q3'22 Group performance
Q3'22 Group performance Q3’22 Q3'21 Q3'22 Q3'21 incl. discontinued operations Go- Ulster Go- Ulster £m 1 1 forward Bank RoI Group 2 Group forward Bank RoI Group Group Total income 3,266 (37) 3,229 2,686 3,266 (438) 2,828 2,774 Operating expenses (1,782) (114) (1,896) (1,931) (1,782) (125) (1,907) (1
Slide 26: Outlook
Outlook1 Financial targets and outlook Income • At today’s Bank of England base rate of 2.25% we expect 2022 income excluding notable items to be around £12.8 billion in the Go-forward group2. Income will be higher supported by higher interest rate in 2023. NIM • We expect NIM to be greater than 2.8
Slide 27: Notable items
Notable items Notable items in Income, £m Q1’21 Q2’21 Q3’21 Q4’21 FY’21 Q1’22 Q2’22 Q3’22 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 9 Loss on r
Slide 28: Segmental summary
Segmental summary Ulster Bank RoI Retail Private Commercial & Central items Go-forward (continuing & Group (incl. 2 1 Group, Q3'22 £bn Banking Banking Institutional & other Group discontinued) discontinued ops) Net interest income 1.4 0.2 1.1 (0.1) 2.6 0.0 2.6 Non-interest income 0.1 0.1 0.5 (0.1) 0
Slide 29: Ulster Bank RoI – continuing and discontinued operations
Ulster Bank RoI – continuing and discontinued operations Ulster Bank ROI (£m) Q3'22 Q3'21 Q2'22 Continuing Discontinued Continuing Discontinued Continuing Discontinued Total Total Total operations operations operations operations operations operations Total income (37) (401) (438) 57 88 145 12 74 86
Slide 30: Tangible net asset value
Tangible net asset value GBP, m Share count, m Pence As at 30 June 2022 27,858 10,436 267 Interim dividend paid (364) (3) Special dividend with share consolidation (1,746) (741) 4 Attributable profit 187 2 Fair value through OCI reserve (38) (0) Cash flow hedge reserve (1,747) (18) Other movements (
Slide 31: 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 • Min. ordinary dividend ~(70)bps • DBB3 ~(65)bps • On-market buy-backs 13-14% Not to scale Q3’22 Regulation Target FY’23 We aim to end 2022 with a CET1 rati
Slide 32: Key Drivers of CET1 ratio
Key Drivers of CET1 ratio From 14.3% at 30 September 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
Slide 33: Gross yields of interest earning banking assets
Gross yields of interest earning banking assets, %1 4.0 3.5 3.19 3.53 3.09 Retail Banking 3.0 2.83 2.77 2.67 2.75 Private Banking 2.64 2.58 2.59 2.59 2.64 2.5 Commercial & Institutional 2.36 2.53 2.34 2.40 NatWest Group 1.97 2.0 1.71 1.79 1.66 1.5 0.0 Q3’21 Q4’21 Q1’22 Q2’22 Q3’22 Cost of interest b
Slide 34: Movement in ECL provision
Movement in ECL provision1,2, £m 3,515 22 (108) 3,389 (288) 138 (19) 129 583 545 258 158 2,674 2,686 Q2’22 Transfers to Changes in Changes in Changes in Judgemental Write-offs Q3’22 disposal groups economic risk metrics risk metrics changes and other forecasts & exposure: & exposure: Stages 1& 2 Sta
Slide 35: Gross Loans and Advances by stage
Gross Loans and Advances by stage, £bn and % in Q3’22 30-Sep-22 ECL provisions ECL provisions ECL provisions Loans1(£bn) Loans1(% of total) (£bn) (% of total) coverage (% ) Stage 1 344,859 89.7% 523 15% 0.15% Stage 2 34,033 8.9% 1,121 33% 3.29% Stage 3 5,521 1.4% 1,745 51% 31.61% Subtotal excluding
Slide 36: Impairment (charge)/release by segment
Impairment (charge)/release by segment Retail Private Commercial Central items Go-forward Ulster Bank Group Banking Banking & Institutional & other Group RoI Q3’22 (£m) (116) (7) (119) 0 (242) (5) (247) Q3’22 (bps) 24 15 36 nm 26 nm 26 Q2’22 (£m) (21) 6 48 6 39 (21) 18 Q2’22 (bps) 4 (13) (15) nm (4)
Slide 37: Customer Loans and Deposits
Customer Loans1 and Deposits Loans to customers - amortised Customer Deposits, £bn LDR, % cost, £bn2 Q2’22 Q3’22 Q2’22 Q3’22 Q2’22 Q3’22 Retail Banking 188.7 192.8 190.5 190.9 99% 101% Private Banking 18.8 19.1 41.6 42.2 45% 45% Commercial & Institutional 127.3 131.9 223.2 215.2 57% 61% Central item
Slide 38: Q3'22 Customer loan growth by product and sector
Q3’22 Customer loan growth by product and sector Total loans to customers (amortised cost), £bn Retail Banking +3.9 182.6 178.7 +0.1 +0.1 7.4 7.5 4.1 4.2 Q2’22 Q3’22 Q2’22 Q3’22 Q2’22 Q3’22 Mortgages Personal advances Cards C&I Gross loans to customers (amortised cost) ex-government schemes, £bn 0.0
Slide 39: Supporting our customers through Covid-19
Supporting our customers through Covid-19 £0.7bn of net government scheme repayments in Q3, £0.2bn related to BBLS Government Lending Scheme in NWG, £bn1 Approved 6.1 1.8 0.7 0.5 9.1 BBLS Drawdown Q2’22 6.7 (0.2) Drawdown Q3’22 6.5 0.1 Approved 3.3 0.6 0.3 4.3 CBILS Drawdown Q2’22 2.9 (0.3) Drawdown
Slide 40: 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 41: Structural Hedge
Structural Hedge1 H1 2022 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 178 20 20 1.77 Product 585 182 168 0.70 Other 76 28 27 0.57 Total 839 230 215 0.78 FY 2021 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 448 21
Slide 42: 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 43: UK Economic Assumptions
UK Economic Assumptions1 Q3'22 H1'22 FY’21 Extreme Extreme Extreme Scenario Upside Base Case Downside Upside Base Case Downside Upside Base Case Downside downside downside downside Weighting Weighted Weighted 10% 35% 30% 25% 21% 45% 20% 14% 30% 45% 20% 5% average average UK GDP – Annual Growth (%) 2
Slide 44: Issuance and capital management progress
Issuance and capital management strategy Issuance and capital management progress 2022 guidance YTD issuances as at Q3 2022 NatWest Group plc issued ~£2.5bn MREL NWG £750m 7NC6 eligible senior in the YTD NatWest Group ~£3-5bn NWG $1bn 6NC5 Q3’22 against FY’22 plan plc of £3-5bn; with no NWG €1bn 6NC
Slide 45: Credit ratings
Credit ratings(1) Moody’s S&P Fitch In September 2022 Moody’s upgraded the rating of Group holding company NatWest Group plc to A3 from Baa1 and upgraded NatWest Group plc A3/Sta BBB/Sta A/Sta the ratings of NatWest Ring-fenced bank operating companies Markets Plc and NatWest Markets N.V. to A1 from
Slide 46: ESG ratings
ESG ratings (1),(3) ESG Ratings (1) Scale 2019 2020 2021 2022 Our Sustainalytics rating MSCI is affirmed as low risk. Rating AAA to CCC BBB AA AA AA2 ISS ESG upgraded Sustainalytics ESG Risk Rating NatWest to C+ from C, Prime status affirmed. 1-100 27.7 20.5 17.3 17.7 Rating Negligible to Medium ris
Slide 47: 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” in the NatWest Gro