Natwest Group Plc · LSE:NWG
Natwest — Q3 2021 Earnings Presentation
37 slides from Natwest's earnings presentation, Oct 29, 2021
Slide 1: Q3 2021 Results
(Q3: 2021 Results 29% Oct 2021
Slide 2: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 2
Slide 3: Q3'21 results highlights
Q3’21 results highlights Q3’21 performance Strong Q3’21 performance £1,074m £242m £674m Impairment release in Q3’21 Supporting our customers Operating profit before tax in (26bps) of customer loans Attributable profit in Q3’21, Q3’21, up from £0.4bn profit in compared to £61m profit in through the r
Slide 4: Strategic priorities will drive sustainable returns
Strategic priorities will drive sustainable returns Delivering against our strategic priorities to drive sustainable returns for shareholders Powering growth through innovation, partnership and digital transformation Simplification and cost efficiency Portfolio discipline and effective deployment of
Slide 5: Supporting our customers through the recovery
Sustainable growth with an intelligent approach to risk Mortgage net lending1,2 Credit card activity1 Supporting our (change in period, £bn) (rebased 100 = Sept’20) customers through the 3.0 3.2 200 Launch of Purchase and balance transfer card +80%3 3.02 recovery 175 2.3 2.2 150 Net mortgage lending
Slide 6: Accelerating digital transformation to deliver improved customer experience
Simplifications and cost efficiency Accelerating digital Digital customer base Personalised Messaging transformation to deliver Retail1 customers exclusively using # messages delivered to customers, digital channels to interact with us (m) tailored to individual needs improved customer 7.0 318m expe
Slide 7: Actively managing capital
Portfolio discipline and effective deployment of capital Actively managing Actively managing capital and optimising its allocation across the group ы capital We remain strongly ▪ Active capital management in Commercial Banking contributed to £0.7bn reduction in RWAs in Q3’21 capitalised with 18.7% C
Slide 8: Katie Murray, Chief Financial Officer
Katie Murray Chief Financial Officer 8
Slide 9: Strong Q3 performance
Focused on generating shareholder value £m Q3'21 Q2'21 Q3'20 vs Q2'21 vs Q3'20 Strong Q3 performance Net interest income 1,954 1,985 1,926 (1.6)% 1.5% Income excluding notable Non-interest income 820 675 497 21.5% 65.0% items was in line with Total income 2,774 2,660 2,423 4.3% 14.5% Q2’21 as streng
Slide 10: Net interest income supported by mortgage growth
Focused on generating shareholder value Net Interest Income1, £m Net interest income supported by mortgage Group NII 1,985 (4) 5 growth 4 1,953 38 (33) 1,955 Banking NII NWM NII 4 Banking net interest 1,954 Group NII Banking NII 1,981 1,949 income ex-notable items was up 0.3% in the quarter driven b
Slide 11: NIM drivers: moderate pressure on asset yields
Focused on generating shareholder value Gross yields of interest earning banking assets, %1 NIM drivers: moderate 3.0 2.82 2.81 2.82 pressure on asset yields 2.73 2.65 Commercial Banking 2.73 2.65 2.67 Group asset yield 2.5 2.65 2.64 Retail Banking impacted by further growth in Bank Liquid 1.94 Asse
Slide 12: Spotlight on NIM drivers
Focused on generating shareholder value Mortgage margin dynamics Q4’20 and Q1’21 average 180bps Spotlight on NIM drivers 2.00% Pre-covid-19 Pre-covid-19 lockdown Q3’21 average Mortgage margins are lockdown Q3’21 average 115bps 115bps returning to levels seen pre- 1.50% Jan’20 COVID 19 and ROE remain
Slide 13: Growth in our target segments
Focused on generating shareholder value Gross customer loans4, quarter on quarter, £bn Growth in our target Gov Schemes (0.7) Mortgages 0.5 segments1 Group 367.4 2.5 RCF6 (0.3) Other (0.3) NWM 6.4 (3.7) Gross banking loans to Unsecured 0.3 358.1 365.3 Group customers down by 0.8% in (1.2) 7.2 NWM Ba
Slide 14: Non-interest income impacted by lower trading income
Focused on generating shareholder value Non Interest Income1 £m Non-interest income 794 737 impacted by lower 645 668 667 trading income 342 123 231 147 137 Trading and other Net fees and commissions Group NatWest Markets income1 down 27% over Q2’21 to 452 522 506 521 530 £105m due to ongoing weak F
Slide 15: Cost reduction of 4.3% in 9M'21, on track for c.4% target
Simplification and cost efficiency Cost reduction of 4.3% in Other expenses ex Operating Lease Depreciation and Ulster Bank RoI Direct2, £m 9M’211, on track for c.4% 1,473 4,633 target for FY’21 13 198 1,460 4,435 Other expenses ex-OLD and Ulster Bank RoI2 of £1.5bn in Q3, down £13m or 0.9% versus Q
Slide 16: Impairment release driven by low level of defaults
Intelligent and consistent approach to risk Impairments charge/ (release), (£m) Impairment release Loan impairment rate (bps of gross loans) driven by low level of 90bps 229bps 28bps 14bps 88bps (11)bps (66)bps (26)bps defaults 3,242 Expect net 2,056 release at Of the £242m impairment FY 21 release,
Slide 17: Strong capital generation in the quarter
Robust balance sheet with strong capital & liquidity levels Strong capital CET1, (%)1 generation in the 18.7% quarter 0.11 CET1 ratio 18.7% up 50bps (0.15) 0.37 (0.60) 0.29 on Q2’21 driven by 18.2% (0.11) 18.1% earnings and RWA reduction Q2’21 Attrib. profit Ordinary Dividend RWAs Other incl. Q3’21
Slide 18: Strong capital and liquidity positions provide flexibility
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 provide requirements requirement flexibility 470-570 bps 265bps £79bn Exc
Slide 19: Alison Rose, Chief Executive Officer
Alison Rose Chief Executive Officer 19
Slide 20: Investment case: focused on generating shareholder value
Investment case Focused on generating shareholder value Growing Lending1 through our strategic priorities We are: Reducing Cost2 • Generating strong performance • Supporting our customers and growing Retail and Commercial Optimising Capital lending • Investing to accelerate our digital transformatio
Slide 21: Q&A
Q&A 21
Slide 22: Appendix
Appendix 22
Slide 23: 2021 financial targets and outlook; medium-term targets
Guidance 2021 financial targets and outlook Medium-term targets and outlook Costs We plan on reducing other expenses, excluding OLD, by around 4% in comparison to 2020, excluding any change in Expect annual cost reduction of around 4%, excluding the direct cost base of Ulster Bank RoI. We also expec
Slide 24: Notable items
Notable items Q3'20 Q4’20 FY’20 Q1’21 Q2’21 Q3’21 £m Metro Bank mortgage portfolio acquisition loss - (58) (58) - - - FX recycling (loss)/gain in Central items & other 64 (1) (40) - - - IFRS volatility in Central items & other1 49 45 83 (1) 45 - Retail Banking Debt Sale Gain 4 1 8 - - - Commercial B
Slide 25: Tangible net asset value
Tangible net asset value GBP, m Share count, m Pence 1 As at 30 June 2021 30,751 11,569 266 Attributable profit 674 - 6 AT1 gain on redemption (reserves) 150 - 1 Cash flow hedge reserve (net of tax) (177) - (2) Dividend paid (348) - (3) Share buy-back (288) (133) 0 Other 7 - 0 Net change 18 (133) 3
Slide 26: Key Drivers of CET1 ratio: from 18.7% at Q3'21 through to FY'23
Key Drivers of CET1 ratio1: from 18.7% at Q3’21 through to FY’23 2 Driver Timing Impact Details Earnings Target a ROTE of 9-10% by FY'23 3 Distributions : Intend to distribute a minimum of £1bn per annum through dividends, £750m accrued through to Dividends Through to FY’23 c.140bps Q3’21. Impact re
Slide 27: Customer Loans and Deposits
Customer Loans1 and Deposits Loans, £bn2 Deposits, £bn Q2’21 Q3’21 Q2’21 Q3’21 Retail Banking 178.1 180.5 184.1 186.3 Private Banking, ex government schemes 17.7 18.1 34.7 35.7 Commercial Banking, ex government schemes 91.1 90.7 176.0 178.3 RBS International 15.1 15.6 33.9 36.9 UK & RBSI Retail and
Slide 28: Q3'21 Customer loan growth by product and sector
Q3’21 Customer loan growth by product and sector Total loans to customers (amortised cost), £bn Retail Banking 2.2 171.4 169.2 0.1 7.0 0.1 6.9 3.6 3.7 Q2’21 Q3’21 Q2’21 Q3’21 Q2’21 Q3’21 Mortgages Personal advances Cards Commercial Banking (0.5) (0.5) 35.5 35.0 0.3 (0.8) 0.3 19.6 19.9 20.2 19.4 15.0
Slide 29: Diversified credit risk profile
Diversified credit risk profile Gross Loans & Advances by stage 1,2 £bn, Spotlight on sectors in focus for management Q3’21 Total loans and advances1,3, £bn, Q3’21 Stage 2 Airlines Transport 1.7 11.1% 4.6 Stage 3 1.5% Retail 8.2 £374bn £24.4bn 8.3 87.5% 1.6 Leisure Stage 1 Oil and Gas Staging of tot
Slide 30: Impairment charge/(release) by segment
Impairment charge/(release) by segment Retail Private Commercial Ulster Bank Natwest NatWest RBSI Banking Banking Banking RoI Markets Group Q3’21 (£m) 16 (15) (216) (11) (16) (3) (242) Q3’21 (bps) 4 (32) (83) (28) (47) n.m. (26) Q2’21 (£m) (91) (27) (451) (27) 1 (10) (605) Q2’21 (bps) (20) (60) (170
Slide 31: Supporting our customers through Covid-19
Supporting our customers through Covid-19 • £0.7bn of net government scheme repayments in Q3, £0.4bn related to BBLS Government Lending Scheme in NWG, £bn1 Approved 6.1 1.8 0.7 0.5 9.1 BBLS Drawdown 7.9 0.1 Approved 3.3 0.6 0.3 4.3 CBILS Drawdown 3.7 0.1 Approved 0.7 0.5 1.3 CLBILS Drawdown 0.8 Q2’2
Slide 32: Bank Net Interest Margin
Bank Net Interest Margin1,bps 161 158 (3) 0 (1) 154 Q2’21 Q2’21 ex Liquidity Yield Curve Mix and Q3’21 notable item2 Price 494 Average Interest Earning Assets1, £bn 505 240 237 Bank NIM excluding Liquid Asset Buffer 234 1. Bank net interest margin and Bank average interest earning assets exclude NWM
Slide 33: Delivering on our Areas of Focus, 9M'21 progress
Delivering on our Areas of Focus1, 9M’21 progress ENTERPRISE 43k individuals or business supported through enterprise programmes, with >148k interventions The biggest 516 entrepreneurs in the current accelerator cohort, 44% female supporter of Coutts has collaborated with the Business Growth Fund to
Slide 34: Structural Hedge
Structural Hedge1 H1 2021 H1 2020 Incremental Total Period end Average Total Incremental Total Period end Average Total Income Income notional Notional Yield Income Income notional Notional Yield (£m) (£m) (£bn) (£bn) % (£m) (£m) (£bn) (£bn) % Equity structural 235 244 23 23 2.13 209 294 24 25 2.39
Slide 35: Interest rate sensitivity
Interest rate sensitivity H1 2021 +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 39 127 215 (39) (127) (215) Managed Margin 414 365 287 (374) (420) (395) Other (3) - - 7 Total 450
Slide 36: Economic Assumptions
Economic Assumptions1 H1’21 FY’20 Scenario Upside Base Case Downside Extreme Upside Base Case Downside Extreme downside downside Weighting 35% 40% 20% 5% 20% 40% 30% 10% UK GDP – Annual Growth (%) 2021 10.1 7.3 2.7 0.1 9.0 4.5 2.6 (4.6) 2022 5.4 5.8 4.3 - 2.6 4.2 4.6 6.1 5 year Average 3.9 3.5 2.9 2
Slide 37: 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” on pages 112-113 o