Natwest Group Plc · LSE:NWG
Natwest — FY2022 Earnings Presentation
56 slides from Natwest's earnings presentation, Feb 17, 2023
Slide 1: NatWest Group FY 2022 Results
NatWest Group FY 2022 Results 17 February 2023 Document classification: Public 1
Slide 2: Howard Davies, Chairman
Howard Davies Chairman 2
Slide 3: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 3
Slide 4: Strong 2022 performance
Strong 2022 performance Strong earnings £5.1bn £3.3bn 12.3% Operating profit before tax Attributable profit Return on Tangible Equity vs £3.8bn in FY’21 vs £3.0bn in FY’21 vs 9.4% in FY’21 Continued focus on growth, efficiency and 29.7% (2.9)% 14.2% capital Income growth1 Cost1 reduction of £201m CE
Slide 5: We have delivered on our strategy and met our 2022 objectives
We have delivered on our strategy and met our 2022 objectives Objectives FY'22 results Status Targeted 2022 Income above £11.0 billion in the Go-forward group1,2 (upgraded to £12.8bn3) £13.1bn ✓ growth Provide an additional £100 billion of Climate and Sustainable Funding and £24.5bn On track Financi
Slide 6: We have built an all-weather balance sheet and are well positioned to support stakeholders
We have built an all-weather balance sheet and are well positioned to support stakeholders and navigate through uncertainty Strong Capital, Funding & Liquidity UK macro outlook is challenging, however we remain well provided Annual average, %1 10 7% 4% 5% 4% 4% 4% 4% 5% 5% 5 2% 1% 1% 14.2% 5.4% 145%
Slide 7: Our purpose enables us to support the economy and our stakeholders
Our purpose enables us to support the economy and our stakeholders Category Examples • 6.7% growth in lending since FY’211 • 8.1% growth in Retail and Private Banking lending in FY’22, including £45bn of gross new mortgage lending Supporting our customers • 4.4% growth in C&I lending in FY’22, with
Slide 8: Our purpose-led strategy is delivering and we are strongly placed for future growth
Our purpose-led strategy is delivering and we are strongly placed for future growth Transformation progress NatWest today Strategic Metrics FY’19 FY’22 A relationship bank for a digital world priorities Supporting Retail Net Promoter Score1 +4 +22 • 19m customers across the Group customers • No.1 UK
Slide 9: We will build on our purpose led strategy, amplifying our approach in three key growth areas
We will build on our purpose led strategy, amplifying our approach in three key growth areas whilst maintaining expense and capital discipline Drive targeted growth across the Delivering personalised solutions 1 a Group across customers’ lifecycles Maintain expense and Supporting customers’ 2 invest
Slide 10: Build on our core strengths across Retail Banking
1 Build on our core strengths across Retail Banking Our Focus for Growth Retail Banking 43% of Group Income, 54% of Group loans1 and 31% of RWA’s Key achievements (2019 vs 2022) Strategic focus (2023 onwards) Driving customer satisfaction, NPS a • Supporting customers to achieve their financial goal
Slide 11: Grow AUM and scale our wealth offering
1 Grow AUM and scale our wealth offering Our Focus for Growth Private Banking 8% of Group Income, 5% of Group loans1 and 6% of RWA’s Key achievements (2019 vs 2022) Strategic focus (2023 onwards) No.1 UK Private Bank2 with strong Return on Equity a ➢ Coutts and Co. certified as a B Corp in 2021 Deli
Slide 12: Broaden offering and deepen relationships across C&I
1 Broaden offering and deepen relationships across C&I Our Focus for Growth Commercial & Institutional 49% of Group Income, 35% of Group loans1 and 59% of RWA’s Key achievements (2019 vs 2022) Strategic focus (2023 onwards) a • Build on position as the leading high street bank for start-ups, Support
Slide 13: Maintain expense and investment discipline
2 Maintain expense and investment discipline We target further efficiency improvements Our approach to investment Other operating expenses, £ billion FY23 Medium- • Enhance data analytics to deliver highly Cost:Income ratio1 personalised, targeted messaging target term target 60%2 74% 70% 56% <52% <
Slide 14: Effective capital deployment: maintaining pay-out ratio of 40%
3 Effective capital deployment: maintaining pay-out ratio of 40%1 Optimising capital allocation across the group £10.9bn shareholder distributions 2019-2022 RWAs by business segments in 2019 versus 2022, % Paid and accrued, £ billion CET1 16.2% 18.5% 18.2% 14.2% 5.1 7% 1% 1% 21% 3% 1.2 31% 3.8 2019
Slide 15: Delivering sustainable value creation and strong distributions
Delivering sustainable value creation and strong distributions SUSTAINABLE MEDIUM-TERM GROUP TARGETS Sustainable RoTE Cost:Income ratio1 Payout ratio 40% 14-16% <50% by 2025 + capacity for buybacks Provide £100 billion of Climate and Sustainable Funding and Financing by 2025 Operating with a CET1 ra
Slide 16: Katie Murray, Chief Financial Officer
Katie Murray Chief Financial Officer 16
Slide 17: Strong Q4'22 and FY'22 operating performance
Strong Q4’22 and FY'22 operating performance Q4'22 vs Q4'22 vs FY'22 vs Group, £m Q4'22 Q3'22 Q4'21 FY'22 FY'21 Q3'22 Q4'21 FY'21 1 Net interest income, ex notable items 2,909 2,640 1,922 10.2% 51.4% 9,883 7,503 31.7% 1 Non-interest income, ex notable items 857 757 618 13.2% 38.6% 3,178 2,681 18.5%
Slide 18: UK macro-economic context and outlook
UK macro-economic context and outlook1 UK GDP annual growth rate, % UK Unemployment Rate, % 5.0 4.4 4.8 4.6 4.4 4.2 1.0 0.7 4.0 3.8 3.6 3.4 -0.9 2022 2023 2024 2025 3.2 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 Q3’24 Q4’24 Q1’25 Q2’25 Q3’25 Q4’25 UK CPI Inflation, % year-on-year ch
Slide 19: Continued income momentum in the fourth quarter
Continued income momentum in the fourth quarter Net Interest Income, £m +10.2% incl. 2,909 2,868 mortgage adj. (42) (41) £(23)m1 145 40 2,640 126 Q3’22 Retail Banking Private Banking Commercial Central items Q4’22 ex Redemption EIR Q4’22 & Institutional & other notable items adjustment2 Bank Net Int
Slide 20: Balanced loan growth across the Group in 2022
Balanced loan growth across the Group in 2022 Gross customer loans by products and segments, £bn Mortgages LDR1 LDR LDR Unsecured 105% 47% 64% Gov Schemes balances +8% Business Banking +4% Commercial Mid-Market 199.2 133.5 131.5 194.3 Corporate & Institutions 183.7 12.0 125.9 11.7 Other 10.9 45.4 55
Slide 21: Robust deposit funding
Robust deposit funding Customer deposits in 2022 across our 3 business segments, £bn Customer deposits mix, % Retail Banking Non interest-bearing balances 41.2 Commercial and Institutional Interest bearing-balances Private Banking 40% Customer 188.4 Customer deposits deposits £433bn £433bn 60% 203.3
Slide 22: Structural hedging provides a multi-year tailwind
Structural hedging provides a multi-year tailwind Product structural hedge income statement outlook, £bn Considerations for product structural hedge income £184bn product hedge notional at year end 2022 2.0 Product hedge income Already written • We model 3.3% average 5-year swap rate on reinvestment
Slide 23: Non interest income supported by new lending fees in Q4
Non interest income supported by new lending fees in Q4 Non Interest Income1, £m +19% 857 3,178 807 757 757 2,682 227 242 886 2022 performance supported by: 618 213 204 562 43 • Higher spend and payment related fees in Retail Banking and C&I • Higher trading income in C&I 575 544 580 553 615 2,120 2
Slide 24: Exceeded income guidance in 2022; 2023 income expected around £14.8bn
Exceeded income guidance in 2022. Total income excluding notable items in 2023 expected to be around £14.8bn 2022 and 2023 income guidance1, £bn +29.7% ~14.8 12.8 13.1 2023 income and NIM drivers 10.1 • Full year run-rate of UK Base Rate rises to 4% • Benefit of structural hedge reinvestment at high
Slide 25: Delivered target reduction of around 3% for 2022
Delivered target reduction of around 3% for 2022 Group other operating expenses1 2021-2022, £m C:I ratio3 55.5% 7,302 Includes £195m of Ulster direct expenses exit costs in 2022 Ulster indirect expenses Other operating expenses 433 (2.9)% 6,849 6,869 (201) 221 6,648 FY’21 Net cost FY’22 FY’22 Ulster
Slide 26: Expect other operating expenses of around £7.6bn in 2023
Expect other operating expenses of around £7.6bn in 2023 and litigation and conduct costs to be broadly stable Group other operating expenses 2022-2023, £bn C:I ratio2 <52% +5% increase ~7.6 ex Ulster directs ~7.3 ~0.3 Down from £433m in 2022 ~7.0 6.9 +0.1 ~7.3 Ulster Bank RoI direct expenses Other
Slide 27: Drivers of other operating expenses in 2023
Drivers of other operating expenses in 2023 Group other operating expenses £m1 FY’21 FY’22 FY’23 illustrative 3,676 3,671 1,686 1,560 1,133 1,112 923 833 Staff costs Other administrative expenses Premises and equipment Depreciation and amortisation o Average pay award effective in o Supplier contrac
Slide 28: Well diversified, de-risked, high-quality loan book
Well diversified, de-risked, high-quality loan book Arrears levels remain broadly stable Mortgages Corporate • Customer rates reducing from October peak • Diversified £73.6bn corporate loan book • Mortgage LTV of 53%2 • Low exposure to in focus areas such as Retail £8.4bn, Automotive £7.3bn and Leis
Slide 29: Well provided for the economic cycle and have revised the economic scenarios
Well provided for the economic cycle and have revised the economic scenarios Economic scenarios and weightings Q3'22 FY'22 Extreme Extreme Upside Base Case Downside Upside Base Case Downside downside downside 10% 35% 30% 25% 19% 45% 21% 16% Additional Stage 1 and 2 ECL at 100% weighting 445 216 (193
Slide 30: Our impairment guidance remains unchanged with 20-30bps in 2023
Our impairment guidance remains unchanged with 20-30bps in 2023 History of loan impairment rates, bps Impairment charge / (release), £m 20-30bps 85 Group loan impairment rate FY’23 Guidance Stage 3 loan impairment rate1 391 337 (54) 21 20-30 15 16 13 9 18 17 (1,173) 12 8 6 (32) FY’16 FY’17 FY’18 FY’
Slide 31: Continued sustainable capital generation and distribution with progress towards CET1 range of 13-14%
Continued sustainable capital generation and distribution with progress towards CET1 range of 13-14% CET1 ratio, % 0.19 (0.08) 0.59 (0.79) 14.3 14.2 14.2% CET1 ratio includes accrual (0.05) for £800 million on-market buyback announced today Q3’22 Group Other CET1 Group RWAs Ordinary Pension Q4’22 ea
Slide 32: Strong capital and liquidity positions provide flexibility
Strong capital and liquidity positions provide flexibility CET1 capital (% RWA)1,2 UK leverage ratio (% leverage exposure) Liquidity coverage ratio - Headroom of £52.0bn 5.40% 156% 14.2% 145% 13-14% 4.25% 3.95% 1.2% 0.40 1.2% 10.4% 0.40 3.85% 100% 9.5% 1.7% MDA2 0.30 3.55% 0.60 Min. 0.8% MDA2 Min. R
Slide 33: Medium-term group targets and 2023 guidance
Medium-term group targets and 2023 guidance SUSTAINABLE MEDIUM-TERM GROUP TARGETS Sustainable RoTE Cost:Income ratio1 Payout ratio 40% 14-16% <50% by 2025 + capacity for buybacks Provide £100 billion of Climate and Sustainable Funding and Financing by 2025 Operating with a CET1 ratio in the range of
Slide 34: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 34
Slide 35: Our investment case over the medium-term
Our investment case over the medium-term Strong market positions across our three business segments Well-positioned for targeted growth Pay out ratio of Disciplined expense and risk management, targeting a C:I ratio1 <50% by 2025 40% + capacity to participate in buy-backs All-weather balance sheet,
Slide 36: Q&A
Q&A Document classification: Public 36
Slide 37: Appendix
Appendix Document classification: Public 37
Slide 38: A brief history and medium-term value creation
A brief history and medium-term value creation 2008-2012: 2013-2019: 2020-2022: 2023-2025 Stabilising Restructuring Simplifying Guidance and Targets End of period FY’12 End of period FY’19 End of period FY’22 Number of business divisions 8 6 3 2023 Guidance Income ~14.8bn NIM ~3.2% Cost:Income ratio
Slide 39: Outlook statements
Outlook statements1 Outlook The economic outlook remains uncertain. We will monitor and react to market conditions and refine our internal forecasts as the economic position evolves. The following statements are based on our current expectations for interest rates and economic activity. Outlook 2023
Slide 40: UK Economic Assumptions
UK Economic Assumptions1 FY'22 Q3'22 H1'22 FY’21 Extreme Extreme Extreme Extreme Scenario Upside Base Case Downside Upside Base Case Downside Upside Base Case Downside Upside Base Case Downside downside downside downside downside Weighting Weighted Weighted Weighted 19% 45% 21% 16% 10% 35% 30% 25% 2
Slide 41: Segmental summary
Segmental summary Ulster Bank ROI continuing operations are now reflected within Central Items & other Retail Private Commercial & Central items Group FY'22, £bn Group Banking Banking Institutional & other Net interest income 5.2 0.8 4.2 (0.3) 9.8 Non-interest income 0.4 0.3 2.2 0.4 3.3 Total income
Slide 42: Ulster Bank RoI – continuing and discontinued operations
Ulster Bank RoI – continuing and discontinued operations Ulster Bank RoI Ulster Bank RoI discontinued continuing operations operations continue to be are now reflected within shown as one line net of tax Central Items & other in the Group P&L Ulster Bank ROI (£m) FY'22 FY'21 Continuing Discontinued
Slide 43: Notable items
Notable items Q1’21 Q2’21 Q3’21 Q4’21 FY’21 Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Group income 2,570 2,571 2,686 2,602 10,429 3,008 3,211 3,229 3,708 13,156 N otable items in Income, £m Q1’21 Q2’21 Q3’21 Q4’21 FY’21 Q1’22 Q2’22 Q3’22 Q4'22 FY'22 Private Banking Consideration on the sale of Adam & Company in
Slide 44: Higher interest rates are feeding through to customer lending and deposit rates
Higher interest rates are feeding through to customer lending and deposit rates Gross yields of interest earning banking assets, %1 4.44 4.5 Retail Banking Private Banking 4.0 3.53 3.62 Commercial & Institutional 3.5 3.19 2.83 3.09 NatWest Group 3.0 2.75 2.59 2.98 2.59 2.77 2.58 2.53 2.64 2.5 2.40 2
Slide 45: Structural Hedge
Structural Hedge1 FY 2022 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 363 21 21 1.77 Product 1571 184 176 0.89 Other 201 25 26 0.77 Total 2,135 230 223 0.96 H1 2022 Period end Total Income Average Notional Total Yield notional (£m) (£bn) (£bn) % Equity 178
Slide 46: Interest rate sensitivity
Interest rate sensitivity1 FY 2022 +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 50 158 260 (50) (158) (260) Managed Margin 148 141 136 (170) (140) (129) Total 198 299 396 (220)
Slide 47: Customer Loans and Deposits
Customer Loans1 and Deposits Loans to customers - Customer Deposits, £bn LDR, % amortised cost, £bn 2 Q3’22 Q4’22 Q3’22 Q4’22 Q3’22 Q4’22 Retail Banking 192.8 197.6 190.9 188.4 101% 105% Private Banking 19.1 19.2 42.2 41.2 45% 47% Commercial & Institutional 131.9 129.9 215.2 203.3 61% 64% Central it
Slide 48: Gross loans to customers and customer deposits, Q4'22 vs Q3'22
Gross loans to customers and customer deposits, Q4’22 vs Q3’22 Gross customer loans, Q4’22 vs Q3’22, £bn Customer deposits, Q4’22 vs Q3’22, £bn Private Commercial & Central Retail Private Commercial Central Retail Banking Banking Institutional & Other Banking Banking & Institutional & Other +4.9 0.1
Slide 49: Gross loans to customers and customer deposits, FY'22 vs FY'21
Gross loans to customers and customer deposits, FY’22 vs FY’21 Gross customer loans, FY’22 vs FY’21, £bn Customer deposits, FY’22 vs FY’21, £bn Private Commercial & Central Retail Private Commercial Central Retail Banking Banking Institutional & Other Banking Banking & Institutional & Other +15.5 +1
Slide 50: Q4'22 Customer loan growth by product and sector
Q4’22 Customer loan growth by product and sector Total loans to customers (amortised cost), £bn Retail Banking +4.6 187.2 182.6 +0.1 +0.2 7.5 7.6 4.2 4.4 Q3’22 Q4’22 Q3’22 Q4’22 Q3’22 Q4’22 Mortgages Personal advances Cards C&I Gross loans to customers (amortised cost) ex-government schemes, £bn +1.
Slide 51: Supporting our customers through Covid-19
Supporting our customers through Covid-19 £3.5bn of net government scheme repayments in FY’22 including £1.4bn in Q4 Remaining UK Government lending schemes are £8.1bn, or 2% of Group loans and advances to customers at amortised cost Government Lending Schemes in NWG, £bn1 Approved 6.1 1.8 0.7 0.5 9
Slide 52: Impairment (charge)/release by segment
Impairment (charge)/release by segment Private Commercial & Central items Retail Banking Group Banking Institutional & other FY’22 (£m) (229) 2 (122) 12 (337) FY’22 (bps) 11 (1) 9 nm 9 FY’21 (£m) 36 54 1,160 (77) 1,173 FY'21 (bps) (2) (29) (92) nm (32) Q4’22 (£m) (87) (2) (62) 7 (144) Q4’22 (bps) 17
Slide 53: Asset quality
Asset quality1 Mortgage LTV distribution by stage Total Stage 1 Stage 2 Stage 3 FY'19 FY'20 FY'21 FY'22 FY'19 FY'20 FY'21 FY'22 FY'19 FY'20 FY'21 FY'22 FY'19 FY'20 FY'21 FY'22 ≤50% 51,791 55,857 66,488 80,675 47,746 50,170 61,233 71,321 3,375 5,009 4,548 8,257 511 554 644 1,036 >50% and ≤70% 51,582
Slide 54: Tangible net asset value
Tangible net asset value GBP, m Share count, m Pence As at 30 September 2022 24,093 9,650 250 Attributable profit 1,262 13 Cash flow hedge reserve (net of tax) 502 5 FX (117) (1) Remeasurement of net defined benefit liability (158) (2) Other movements (100) 9 (1) Net change 1,389 9 14 As at 31 Decem
Slide 55: Key drivers of CET1 ratio
Key drivers of CET1 ratio1, % Capital generation Capital usage • Earnings • Loan growth and procyclicality 14.2 • Ulster Bank RoI phased withdrawal Regulation • IFRS 9 unwind ~(20)bps • Basel 3.1 Distributions2 • Ordinary dividend • DBB3 ~(85)bps • On-market buy-backs4 13-14% Not to scale FY’22 Targ
Slide 56: 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 ex pectations and are subject to change, including as a result of the factors described in the “Risk Factors” in NWG’s 2022 Annual Repo