Natwest Group Plc · LSE:NWG
Natwest — Q2 2024 Earnings Presentation
36 slides from Natwest's earnings presentation, Jul 26, 2024
Slide 1: 26 July 2024
26 July 2024
Slide 2: Paul Thwaite, Chief Executive Officer
NatWest UI 1 Paul Thwaite | Chief Executive Officer
Slide 3: Strong returns with attributable profit of £2.1bn
Strong returns with £7.0bn £4.0bn 16.4% attributable profit of Income ex notable items1 Costs2 Return on Tangible Equity £2.1bn, EPS 24.2p vs £7.4bn in H1’23 vs £3.8bn in H1’23 vs 18.2% in H1’23 Strong funding and risk management 83% 151% 13.6% 3bps Loan impairment Loan to Deposit Ratio Liquidity Co
Slide 4: Leading positions in an attractive UK market serving 19m customers
Leading positions in an Attractive returns attractive UK market Creating shareholder value to shareholders serving 19m customers 8.9 8.8 8.3 Shareholder returns H1 2024 Disciplined growth £1.7bn 304 292 6.0 total distributions Bank wide simplification 11.5 to shareholders1 262 5.5 Active balance she
Slide 5: Growing customer base and strategic progress
• Growing our customer base +220k1 • Strategic hubs from 3 to 2 • Active liquidity management Poland exit by end 2025 announced £6.1bn deposit growth with mix • Accretive growth in target segments stabilisation Loans to Commercial Mid-market • Platforms and Channels customers + £1.8bn2 Telephony sys
Slide 6: Delivering attractive returns to shareholders
Delivering attractive returns to shareholders — —— Total Other operating Loan RoTE Income expenses impairment rate Broadly stable ~ 2. 0, £14.0bn’ vs 20233 Below 15 bps >14% Po Targets 2026 RoTE target of >13% Ordinary dividend payout ratio ~40% Capacity for buybacks CET1 ratio in the range of 13-14
Slide 7: Katie Murray, Chief Financial Officer
NatWest UI = Katie Murray Chief Financial Officer
Slide 8: Group financial summary, £m
Q2'24 vs H1'24 vs Group, £m Q2'24 Q1'24 Q1'24 H1'24 H1'23 H1'23 Net interest income, ex notable items 1 2,757 2,651 4.0% 5,408 5,726 (5.6%) Non-interest income, ex notable items 1 833 763 9.2% 1,596 1,657 (3.7%) 1 Total income, ex notable items 3,590 3,414 5.2% 7,004 7,383 (5.1%) Total income 3,659
Slide 9: Interest rates higher for longer; two Base Rate cuts expected in 2024
2024-2026 reflects NatWest Group IFRS 9 base case1 5.5 5.25 UK base rate assumption at H1’24 5.0 4.75 UK base rate assumption at FY’23 • Interest rates have remained 4.5 UK Consumer price index2 higher for longer than anticipated; 4.0 4.00 we now expect 2 Base Rate cuts in 3.5 3.50 2024 and 5 cuts i
Slide 10: Strengthened guidance: income and net interest margin
Net interest income Non interest income Total Centre income +5.2% 3,590 28 29 11 51 3,414 43 17 (3) 833 763 3 businesses +£147m, +4.3% Strengthened guidance NII +£111m, +4.3% Non-II +£36m, +4.5% • FY’24 total income2 of ~£14.0bn 2,651 2,757 • Assumes UK Base Rate 4.75% by end 2024 Q1’24 Retail Banki
Slide 11: Lending balances by business
205.4 Q4’23 Gross New Lending +20% in Q2 vs Q1, Mortgages1 203.3 202.5 Q1’24 more than offset by redemptions Q2’24 12.4% stock share as at May’244 15.8 Unsecured1 15.8 +£0.4bn in Q2’24, 9.0% stock share5 16.1 4.5 Other Private 4.6 • Sainsbury’s Bank transaction +£2.5bn unsecured, 4.6 +10.6% proforma
Slide 12: Customer deposits by segment and mix
£421bn £424bn £419bn £420bn £425bn Q4’23 66.1 121.9 188.0 +£5.2bn Retail Banking Q1’24 66.4 123.6 190.0 11% 15% 17% 16% 17% +£1.5bn Q2’24 65.3 126.2 191.5 52% Q4’23 7.2 30.5 37.7 50% 50% 51% 51% Private Banking Q1’24 7.0 30.8 37.8 +£1.7bn Q2’24 6.7 32.8 39.5 37% Q4’23 68.9 124.5 193.4 35% 34% 33% 32
Slide 13: Illustrative income impact of -25bps shift in yield curve
Illustrative Year 1 Income impact of -25bps downward shift in yield curve, (£m) 6.0 (44) (42) 5.2 5.3 5.3 5.3 (50) 5.0 4.4 4.0 3.0 3.1 3.1 2.7 (125) (125) 3.0 2.0 2.0 2.1 2.1 (170) 2.0 1.8 1.2 1.0 (169) (167) 0.0 Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 (220) FY’22 FY’23 H1’24 Average base rate Average cost of
Slide 14: Structural hedge
Product hedge gross income Gross income already written 3.0 • >90% of expected 2024 product hedge income already written 2.0 • Annual maturities are one fifth of the period end 2.8 2.9 2.9 2.9 balance which is equivalent to c.£35bn in FY’24.3 1.0 • We continue to expect the hedge notional to reduce
Slide 15: Other operating expenses
-4.9% 2,028 +0.9% -3.7% Retail share offer costs 1 17 -0.4% 8 25 (72) -2.0% Bank levies 2 (7) 1,928 87 (38) 17 30 Ulster direct Other operating expenses excluding 1,908 retail share offer costs, bank levies and Ulster direct 1,881 Q1’24 Staff costs Other Premises and Depreciation Q2’24 administrativ
Slide 16: Loan impairment charge and rate
3,131 Includes £117m of total PMA releases 724 578 Loan Impairment charge / 337 93 (release), £m1 (45) (1,173) FY’19 FY’20 FY’213 FY’22 FY’23 Q1’24 Q2’24 Loan impairment rate, bps1,2 Retail Banking 25 45 (2) 11 22 12 12 Commercial & Institutional 27 156 (92) 9 7 11 (28) Private Banking (4) 58 (29) (
Slide 17: CET1 capital and RWAs
14.5 0.04 0.41 (0.67) 0.63 (0.26) 13.6 13.5 Q1’24 Attrib. profit Group RWAs Other CET1 CET1 ratio pre Directed Buyback Ordinary Q2’24 changes distributions dividend CET1 capital1 25.1 +1.2 +0.1 -1.2 -0.5 24.6 £bn -£5.5bn 186.3 (3.9) (1.0) 180.8 (0.6) Q1’24 RWA management Business Movements Other Q2’
Slide 18: Guidance and H1'24 progress
Previous guidance Strengthened guidance H1’24 Progress Total income2 Other operating expenses Loan impairment rate ROTE 18
Slide 19: A ae)
a 7) ws A ae) BO z
Slide 20: Appendix
NatWest UI ~~ Appendix
Slide 21: Outlook
Outlook: We continue to assess the economic outlook and 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. In 2024 we now expect: • to
Slide 22: Notable items in income
Q2’23 Q3'23 Q4'23 FY'23 Q1'24 Q2'24 Group income 3,851 3,488 3,537 14,752 3,475 3,659 Notable items in Income, £m Q2’23 Q3'23 Q4'23 FY'23 Q1'24 Q2'24 Commercial and Institutional Own credit adjustments (OCA) 3 (6) (5) (2) (5) (2) Tax interest on prior periods (net interest income) -- -- 3 3 -- -- Ce
Slide 23: Q2'24 results by segment
Retail Private Commercial & Central items Group Q2'24, £bn Group Banking Banking Institutional & other Net interest income 1.3 0.2 1.3 0.1 2.8 Non-interest income 0.1 0.1 0.6 0.1 0.9 Total income 1.4 0.2 1.9 0.1 3.7 Income ex-notable items 1.4 0.2 1.9 0.0 3.6 Other operating expenses (0.7) (0.2) (1.
Slide 24: Tangible net asset value and share count movements
GBP, m Share count, m Pence As at 31 March 2024 26,360 8,727 302 Final ordinary dividend (paid 31 May 2024) (1,008) (11) On-market share buyback (181) (60) 0 Directed buyback (executed on 31 May 2024) (1,241) (392) (1) Attributable profit 1,181 14 Cash flow hedge reserve (net of tax) 132 2 Other mov
Slide 25: Net interest margin bridge
+5bps 210 2 205 6 (2) Q1’24 Lending margin Deposit margin Funding & other Q2’24 527.6 521.1 Group AIEAs Group AIEAs 25
Slide 26: Net interest income, AIEAs and NIM
2,824 2,757 2,685 Net interest income 2,638 2,651 Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 514 521 525 521 528 Group AIEAs 152 158 158 155 160 o.w. Liquid Asset Buffer Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 2.20% 2.10% Group NIM 2.05% 2.05% 1.99% Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 26
Slide 27: Lending and deposit rates by segment
6.81 Retail Banking 7.0 6.73 6.72 6.65 Private Banking 6.5 5.84 6.0 Commercial & Institutional 5.5 5.01 NatWest Group 4.97 5.0 4.41 4.80 4.88 4.67 4.75 4.5 4.26 4.50 3.97 4.0 3.88 3.79 3.5 3.34 3.50 3.0 3.11 0.0 Q2’23 Q3’23 Q4’23 Q1’24 Q2’24 3.5 3.14 3.15 3.02 Retail Banking 3.0 2.80 Private Banking
Slide 28: Structural hedge income and yield
H1 2024 Period end Total income Average notional Total yield notional (£m) (£bn) (£bn) % Equity 218 22 22 1.95 Product 1,392 175 176 1.58 Total 1,610 197 198 1.62 FY 2023 Period end Total income Average notional Total yield notional (£m) (£bn) (£bn) % Equity 418 22 22 1.87 Product 2,822 185 199 1.42
Slide 29: Interest rate sensitivities
H1 2024 +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 42 129 216 (42) (129) (216) Managed Margin 93 97 110 (125) (107) (110) Total 135 226 326 (167) (236) (326) FY 2023 +25 basi
Slide 30: Deposit mix and hedge mix
1.5% 1.5% 425 425 Subject to customer and market dynamics 419 419 16% 17% Term deposits 68 73 Term hedge 68 73 Term Deposit Income: moderate increase • Volume: increasing at a more moderate rate • Margin: broadly stable Unhedged 166 Unhedged Deposit Income: some reduction 50% 51% 178 Instant Access
Slide 31: Economic scenarios and weightings
H1'24 Q1'24 and FY'23 H1'23 Upside Base Case Downside Extreme Upside Base Case Downside Extreme Extreme Scenario Upside Base Case Downside downside downside downside Weighting Weighted Weighted 22% 45% 19% 14% 21% 45% 20% 13% Weighted average 19% 45% 21% 16% average average UK GDP – Annual Growth (%
Slide 32: Loan impairment charges by segment
Retail Private Commercial & Central items Group Banking Banking Institutional & other H1'24 (£m) 122 (11) (57) (6) 48 H1'24 (bps) 12bps (12)bps (8)bps nm 3bps H1'23 (£m) 193 11 20 (1) 223 H1'23 (bps) 19bps 11bps 3bps nm 12bps Q2’24 (£m) 59 (5) (96) (3) (45) Q2’24 (bps) 12bps (11)bps (28)bps nm (5)bp
Slide 33: Loan book composition: personal and wholesale
Personal: £221.4bn, 57% of group Wholesale: £167.5bn, 43% of group Group mortgages £205.5bn Corporate £76.6bn Loan-to-value of 57%1 stable year-on-year Diverse corporate loan book, with exposure 64% 5Y, 26% 2Y, 1% 10Y, 6% Tracker2, 3% SVR across a broad range of sectors Default levels remain below h
Slide 34: Capital and leverage requirements
5.20% 13.6% 152% 151% 144% 11.7% 4.25% 1.2% 0.40% 3.85% 10.5% 0.60% Min. 1.7% MDA2 Requirement 2.5% 1.8% 3.25% 4.5% Q2’24 Regulatory Q2’24 Regulatory FY’19 FY’23 H1’24 requirement requirement O-SII group risk add-on3 Pillar 2A5 O-SII group risk add-on3 Countercyclical buffer4 Pillar 1 Countercyclica
Slide 35: Footnotes to slides
Slide 3: 1. Excludes notable items per slide 22. 2. Costs excluding litigation and conduct. 3. The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83% at Q2 2024, with customer deposits exceeding net loans to customers by around £72 billion. 4. £54.5bn headroom above the regulatory mini
Slide 36: Cautionary statement regarding 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 2023 Annual Report and Accounts and Form 20- F, the “Risk F