Natwest Group Plc · LSE:NWG
Natwest — H1 2020 Earnings Presentation
37 slides from Natwest's earnings presentation, Jul 31, 2020
Slide 1: H1 2020 Results
H1 2020 Results 31st July 2020
Slide 2: Agenda
Agenda Topic Presenter Performance update Alison Rose Detailed H1 & Q2 results Katie Murray Investment case Alison Rose
Slide 3: Performance update
Performance update ALISON ROSE, Chief Executive Officer 3
Slide 4: H1 2020 highlights
H1 results highlights Operating profit1 Impairments CET1 ratio % H1 2020 highlights £2.1 billion £2.9 billion 17.2% Operating Profit before impairment Impairment charges as at H1’20 CET1 Ratio up 60bps vs Q1’20 Operating loss before tax £0.8bn losses, up 3% on H1’19 driven by net impairments of +2.6
Slide 5: H1 results highlights
H1 results highlights We have a robust absolute and relative £2.9bn 17.2% capital position versus Impairment charge CET1 ratio UK listed banks – this Q2’20 Impairment charge of £2.1bn vs We have shaped a capital generative business is underpinned by a £0.8bn in Q1’20 that in the medium to long term
Slide 6: Key messages: Purpose-led, long term decision making
H1 results highlights Key messages Purpose-led, long term decision making Strong customer franchises Safe Balanced and consistent approach to risk Simple Focus on simplification and taking costs out Smart Robust balance sheet with strong capital & liquidity levels Focused on generating shareholder v
Slide 7: IT investment powering operational effectiveness and innovation agenda
Purpose-led, long term decision making Strong innovation pipeline in H1 2020 IT investment Credit scoring on the Payit powering operational mobile app 1.8m customers using Bounce back loans Fully digital application Open Banking solution for e-commerce payments effectiveness and the feature, NPS +52
Slide 8: UK Personal Banking and Commercial Banking activity
Strong customer franchises Personal Banking: UK PB lending & card spend UK Personal Banking Mortgages & Personal loans Debit and credit card spend and Commercial Monthly new loans issued, # Monthly spend, as % of January spend Banking activity in 50k Mortgages 100% £7.87bn £7.83bn Personal loans H1’
Slide 9: Supporting People & Families and Business customers
Strong customer franchises Payment holidays % of book % requested extension after People & Families Volumes initial holiday period UK Personal Banking continues to support customers whose UK Personal Mortgages 240,000 20% approximately 1/3rd income has been impacted by Banking Covid-19 Personal Loan
Slide 10: Loan book is well diversified across Personal Banking
Balanced and consistent approach to risk Total Loans & Advances1, H1’20 Spotlight on Personal loans, H1’20 Loan book is well diversified across Secured Personal Banking Unsecured 196 93% £196bn 7% Limited unsecured exposure in (53%) our personal loan book Stable average loan-to-value (LTV) within th
Slide 11: Loan book is well diversified across Commercial Banking
Balanced and consistent approach to risk Total Loans & Advances1, H1’20 Spotlight on sectors in focus for management, H1’20 Loan book is well Total loans and advances1,2, £bn diversified across Commercial Banking Oil & Gas Transport 196 2.1 Airlines (53%) 4.6 Management is focused on key 2.4 Shippin
Slide 12: H1'20: Deposit growth
Strong customer franchises H1’20: Deposit growth UK Personal Banking1 Commercial Banking £bn Current Accounts £bn Total customer deposits Savings +18% increased by £39bn (+11%) vs +7% 160 FY’19 161 144 150 153 135 Personal Banking customer deposits increased by £11bn 59 52 54 (+7%) vs FY’19 reflecti
Slide 13: We champion potential, helping people, families and businesses to thrive
Purpose-led, long term decision making We champion potential, helping Strategic priorities people, families and businesses to thrive Powered by Simple to deal with innovation and Reengineering-led partnerships simplification to drive better customer Strong pace of experience and business model colle
Slide 14: Accelerating refocus of NatWest Markets
Focus on simplification and taking costs out Accelerating refocus 2020 RWAs, £bn Actions taken of NatWest Markets £2.8bn reduction in c.470 £63m Refocusing NatWest Markets to serve Headcount reduction Disposal losses2 RWA achieved in 6 months communicated as at associated with our corporate and inst
Slide 15: We remain committed to achieving the £250m FY'20 cost reduction
Focus on simplification and taking costs out Other expenses ex Operating Lease Strategic costs, £m We remain committed depreciation1, £m to achieving the Q1 Q2 Q1 Q2 £250m FY’20 cost 3,343 629 reduction target (41) Full year target of £250m to be 3,302 (165) achieved through digitisation of our Pers
Slide 16: Enterprise, Learning & Climate will deliver future value to stakeholders
Purpose-led, long term decision making Our focus on 1.2k Extended our Dream Bigger Enterprise programme to be offered digitally Enterprise, Learning & Accelerator cohort welcomed in supporting the next generation Climate will deliver April Migrated our 12 accelerators to digital of female entreprene
Slide 17: Investment case
Outlook & investment case Investment case Purpose-led, long term decision making People and families - supporting the financial health of our customers Strong customer franchises Business - providing lending support with disciplined approach to risk and value accretion Safe Balanced and consistent C
Slide 18: Detailed H1 & Q2 results
Detailed H1 & Q2 results KATIE MURRAY, Chief Financial Officer 18
Slide 19: H1: Income statement
H1 & Q2 detail £m H1’20 Vs H1’191 Q2’20 Vs Q1’20 H1: Income statement Net interest income 3,852 -4% 1,910 -2% Income - excluding the Q2’19 Non-interest income 1,986 -6% 766 -37% strategic disposal of Alawwal - Total income 5,838 -5% 2,676 -15% decreased by 5% in comparison to H1’19 Operating expense
Slide 20: Income by line of business
H1 & Q2 detail Income by line of business Total Income £m UK PB: Total income decreased (486) by £115 million due to lower 3,162 overdraft fees, Covid-19 support measures and significantly 115 reduced card spend 9 13 10 29 Commercial Banking: Total 270 income decreased by £13 million 40 2,676 as low
Slide 21: Q2 revenues: NIM
H1 & Q2 detail Q2 revenues: NIM Bank NIM, bps NIM decrease reflects the 189 contraction of the yield curve, (10) the impact of a change in the (5) mix of lending, and an (7) 167 increase in excess levels of central liquidity. Q1’20 Downward shift Lending mix Increased Q2’20 in the yield curve centra
Slide 22: Q2: Costs
H1 & Q2 detail Other expenses ex Strategic costs, Litigation and Q2: Costs Operating Lease £m conduct costs, £m Other expenses, excluding Depreciation, £m Operating Lease Depreciation decreased £54m over the Other 333 1,678 quarter in line with the cost Property Technology 55 reduction plan (54) NWM
Slide 23: H1: Impairments
H1 & Q2 detail Movement in ECL, £m H1: Impairments 2,458 6,354 Stage 3 individual charges of £131m and Stage 1 & 2 charges 3,792 269 of £2,458m 131 (296) The existing overlay for economic uncertainty at Q1 2020 of £798 million has been absorbed through the H1’20 ECL Net Write offs and Stage 3 Stage
Slide 24: Approach to ECL
H1 & Q2 detail Approach to ECL 1 Selected economic scenarios and weightings A three step approach including four Probability UK GDP – Annual Growth (%) UK Unemployment rate (%) economic scenarios with two central Scenario Weighting 2020 2021 5y Avg. 2020 2021 5y Avg. scenarios and expert credit judg
Slide 25: H1: stage migration and impact on ECL within Personal
H1 & Q2 detail Gross Loans, % ECL coverage, % H1: stage migration FY’19 H1’20 FY’19 H1’20 and impact on ECL Personal1 1.0% 1.9% 0.9% 1.6% Stage 3 25.1% 24.3% Mortgages within Personal 5.6% 13.5% Stage 2 1.0% 1.1% We have continued to use a 91.5% conservative approach to stage 84.0% Stage 1 0.0% 0.0%
Slide 26: H1: stage migration and impact on ECL within Wholesale
H1 & Q2 detail H1: stage migration Gross Loans, % ECL coverage, % and impact on ECL FY’19 H1’20 FY’19 H1’20 within Wholesale Wholesale1 0.4% 1.7% 1.9% 1.7% Stage 3 49.5% 44.3% 8.1% Sensitivity: if higher PD materiality threshold of 75bps used Wholesale stage 2 migration reduced by 24% 36.3% Stage 2
Slide 27: Q2: Risk weighted assets (RWA)
H1 & Q2 detail Q2: Risk weighted RWA, £bn assets (RWA) 185.2 We expect to end 2020 with risk weighted assets in the range of 1.5 £185 – £195bn We have seen limited procyclicality to date 1.5 We would expect to see some procyclicality as impairments occur 0.7 181.5 We expect further RWA increase in l
Slide 28: Robust capital position
Robust balance sheet with strong capital & liquidity levels CET1 (%) Robust capital position We have shaped a business that 17.2% should operate at a CET1 ratio of between 13% to 14% over (0.2) 0.3 medium to long term 0.71 16.6% (0.91) (0.5) 16.3% 0.3 13%-14% Q1’20 Attributable RWA IFRS9 AT1 Other Q
Slide 29: Strong capital & leverage positions
Robust balance sheet with strong capital & leverage levels CET1 headroom above Total LAC ratio above Headroom above Strong capital & minimum requirements (MDA)1,2 end-state minimum requirements2 minimum UK leverage requirements leverage positions Our capital and leverage 830bps 1150bps 275 bps £15bn
Slide 30: Significant excess liquidity, diversified funding
Robust balance sheet with significant excess liquidity, diversified funding Liquidity Portfolio (£bn) Liquidity coverage ratio Total funding mix (£bn)1,2 Significant excess £68bn 86 liquidity, Secondary liquidity Other AAA to AA- governments Cash and surplus liquidity over £494bn diversified governm
Slide 31: Q2'20 update on targets and guidance
H1 & Q2 detail Q1 guidance Updated Q2 guidance1 Q2’20 update on targets and guidance Regulatory impact Personal Banking: c.£200m negative impact on income Guidance maintained Costs Cost take-out target: £250m We remain committed to achieving a £250 We expect strategic costs to be at the million cost
Slide 32: Investment case
Investment case ALISON ROSE, Chief Executive Officer 32
Slide 33: We have shaped a business that should operate at a CET1 ratio of 13% to 14%
Outlook & investment case We have shaped a 1 Purpose-led, long term business that should decision making Robust capital levels 320-420 bps or c.£5.8-7.6bn headroom to operate at a CET1 target CET1 ratio Strong customer franchises ratio of between 13% 830 bps or £15bn headroom to MDA UK listed banks
Slide 34: Q&A
Q&A 34
Slide 35: Appendix
Appendix 35
Slide 36: Stage migration
H1 & Q2 detail Accounting approach Stage migration • Our Q1’20 approach to IFRS9 treatment of customer payment holidays, CBILs, bounce back Q1 IFRS 9 accounting treatment loans support has been continued in Q2. New or extended (i.e. rolled over) payment holidays in approach to customer support and o
Slide 37: Cautionary and Forward-looking Statements
Cautionary statement regarding forward-looking statements Cautionary and Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate