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Morningstar DBRS Confirms Credit Ratings on NatWest Group Plc at 'A', Stable Trend
Morningstar DBRS Confirms Credit Ratings on NatWest Group Plc at 'A', Stable
About this update from Natwest Group Plc
DBRS Ratings Limited (Morningstar DBRS) confirmed the long-term credit ratings of NatWest Group plc ( NatWest or the Group) and its related entities, including the Group's Long-Term Issuer Rating at 'A', and NatWest Markets Plc's (the Bank) Long-Term Issuer Rating was at A (high). Concurrently, Morningstar DBRS confirmed the Group's Short-Term Issuer Rating at R-1 (low) and the Bank's Short-Term Issuer Rating at R-1 (middle). The IA for the Group remains at A (high) and the Support Assessment remains at SA3. The Group's Long-Term Issuer Rating is positioned one notch below the Bank's Intrinsic Assessment (IA), reflecting the structural subordination of the holding company. The trend on all credit ratings is Stable. KEY CREDIT RATING CONSIDERATIONS The confirmation of NatWest's credit ratings reflects the Group's franchise strength as one of the leading banks in the UK with meaningful market shares in retail and commercial banking, ample liquidity, and robust capitalization, which are supported by its sound earnings generation ability. Morningstar DBRS expects NatWest to maintain sound profitability despite recent interest rate cuts, supported by strong revenues from the structural hedge, good cost discipline, and low cost of risk. The credit ratings also consider NatWest's low risk profile after significant de-risking over the years and which has resulted in strong asset quality with low levels of impaired loans that compare better than domestic and most international peers. However, the credit ratings also consider NatWest's concentration in the UK and to developments in the UK economy as well as the Group's low non-interest income diversification compared with higher-rated peers. The Group's IA of A (high) is at the lower end of the IA Range to reflect the Group's more limited franchise and revenue diversification when compared with those of higher-rated peers. CREDIT RATING DRIVERS An upgrade would require higher revenue and franchise diversification while maintaining strong and sustained profitability, robust capitalisation, and a similar risk profile. Conversely, Morningstar DBRS would downgrade the credit ratings if there were a sustained decline in the Group's profitability levels, or a deterioration in its risk profile and capital position. CREDIT RATING RATIONALE Franchise Combined Building Block Assessment : Strong With total assets of about GBP 730.8 billion at the end of June 2025 , NatWest is a leading retail and commercial UK bank with meaningful market shares of 12.6% for mortgages at the end of 2024, and, in commercial banking. NatWest is almost entirely concentrated in the UK . As part of the strategy to focus on niche markets, the Group finalized the integration of Sainsbury's bank in H1 2025, which boosted its market share in the credit card business by 1.4% to 11.0%. Earnings Combined Building Block Assessment : Good NatWest continues to improve profitability supported by strong revenue generation, generally sound cost discipline, and low cost of risk. In H1 2025, the Group reported record results with a net profit attributable to shareholders of GBP 2.7 billion , , up about 20% from H1 2024 of GBP 2.2 billion . The improved results largely reflected significant growth of operating revenues year over year (YOY), particularly net interest income, largely driven by higher revenues from the structural hedge, higher trading gains, and lower operating costs, which offset higher loan impairment charges YOY. In H1 2024, loan impairment charges were low as they included significant releases, reflecting a better than initially anticipated UK macroeconomic environment in their credit models. The Group's return on tangible equity (ROTE) in H1 2025 was 18.1%, and the Group expects a ROTE of above 16.5%, which although lower than in 2024, still compares favorably with domestic and international peers. Group net interest margin improved to 2.28% in H1 2025, up from 2.13% in 2024 and 2.12% in 2023. Morningstar DBRS considers NatWest as generally having sound cost discipline. Total operating costs totaled GBP 4 billion in H1 2025, broadly stable YOY. The significant growth of revenues translated in the cost to income ratio improving to 50.3% in H1 2025 from 56.9% in H1 2024. NatWest's cost of risk, as calculated by Morningstar DBRS, was 19 basis points (bps) in H1 2025, compared with 3 bps in H1 2024, 18 bps in 2024, and 30 bps in 2023. NatWest expects the cost of risk to be below 20 bps in 2025. Risk Combined Building Block Assessment : Strong Morningstar DBRS considers NatWest Group's risk profile to be solid with robust asset quality with low levels of impaired loans. The high interest rate and inflation translated into an increase in Stage 3 loans to GBP 5.9 billion at the end of 2024, up 7% YOY, although from low levels. At the end of H1 2025, Stage 3 loans declined to GBP 5.8 billion , largely reflecting improved performance of mortgages despite some mild deterioration in individual names in the Commercial and Institutional portfolio. The Group's share of Stage 3 exposures (assets which have defaulted or are otherwise considered to be credit impaired) remained stable and one of the lowest among the largest UK banks, representing 1.4% of total gross loans at the end of H1 2025. Moreover, Morningstar DBRS expects borrowers to benefit from the most recent base rate cuts. Funding and Liquidity Combined Building Block Assessment : Strong/Good NatWest has a very solid funding profile, underpinned by a strong domestic retail deposit base and well-diversified wholesale funding. Customer deposits represent the main funding source for the Group, accounting for 84% of the total. The Group's loan-to-deposit (LTD) ratio was 86% at end-H1 2025, slightly improved YOY. However, Morningstar DBRS considers NatWest has a relatively higher proportion of nonretail deposits including corporate deposits (34% of the total at the end of H1 2025) and deposits to nonbank financial institutions (12%), which are likely to be uninsured and that are inherently more volatile in time of crisis. Total wholesale funding, including deposits from banks, stood at about GBP 91 billion at end-H1 2025, and it is well-diversified by maturity, currency, and instruments. Refinancing risk is moderate; at the end of H1 2025, 25% of total wholesale funding (excluding bank deposits) mature in less than a year and fully relates to medium-term notes, although most of this funding is used to match the short-term assets of NatWest Markets . The Group has ample liquidity, with GBP 160 billion highly liquid assets, representing 21.8% of total assets at the end of H1 2025. The liquidity coverage ratio was a strong 147% and the net stable funding ratio was 134% at the end of H1 2025. Capitalisation Combined Building Block Assessment : Strong NatWest has solid capitalisation, which is supported by strong and recurrent earnings and sound access to capital instruments. The Group's CET1 ratio was 13.6% at the end of H1 2025, stable YOY and from the end of 2024 as earnings generation fully offset the impact of the acquisition of Sainsbury's Bank (-15 bps, and an increase of GBP 1.6 billion of risk-weighted assets (RWAs)) and higher RWAs driven by lending growth. The H1 2025 CET1 ratio is within management's target of maintaining a CET1 ratio between 13% and 14%. and comfortably above the 10.5% minimum requirement. Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/462721 . ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS There were no Environmental, Social, and Governance factors that had a significant or relevant effect on the credit analysis. A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings ( 16 May 2025 ), https://dbrs.morningstar.com/research/454196 Notes: All figures are in British pound sterling unless otherwise noted. The principal methodology is the Global Methodology for Rating Banks and Banking Organisations ( 23 May 2025 ) https://dbrs.morningstar.com/research/454637 . In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings ( 16 May 2025 ), https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors. The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies . The sources of information used for these credit ratings include Morningstar, Inc. and company documents. Other sources include NatWest Group plc Annual Report and Accounts 2024, NatWest Group plc Interim Results 2025, NatWest Group FY 2024 & Q2 2025 Fixed Income Investors Presentation, and NatWest Group plc FY 2024 & H1 2025 Pillar 3 Report. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality. With respect to FCA and ESMA regulations in the United Kingdom and European Union , respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer. With Rated Entity or Related Third Party Participation: YES With Access to Internal Documents: NO With Access to Management NO Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance. The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance. For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication . For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats . The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/462722 . These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union . Lead Analyst: Maria Rivas Escrigas, Senior Vice President, Sector Lead Rating Committee Chair: Marcos Alvarez , Managing Director - Global Financial Institution Ratings Initial Rating Date: 27 October 2004 Last Rating Date: 19 September 2024 DBRS Ratings Limited 1 Oliver's Yard 55-71 City Road 2nd Floor, London EC1Y 1HQ United Kingdom Tel. +44 (0) 20 7855 6600 Registered and incorporated under the laws of England and Wales : Company No. 7139960 For more information on this credit or on this industry, visit https://dbrs.morningstar.com . 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