Source - LSE Regulatory
RNS Number : 9945G
NatWest Group plc
30 July 2021
 

 

 

 

 

 

 

 

 

 

 

 

 

                          Interim Results 2021

      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                         natwestgroup.com

 

 

 

NatWest Group plc

Interim Results for the period ending 30 June 2021

Alison Rose, Chief Executive Officer, commented:

 

"These results have been driven by good operating performances across the Group, underpinned by a robust loan book and a strong capital position. Defaults remain low and, given the improved outlook, we have released a further £0.6 billion of impairment provisions in the quarter. While we see the potential for a more rapid recovery, we will continue to take an appropriate and conservative approach as the government schemes wind down and the economy reopens.

 

As a result of our strong and resilient performance, coupled with our capital strength and cautiously optimistic outlook, we are announcing an interim dividend of 3p per share and share buy-back of up to £750 million. We are also increasing our minimum annual distribution to shareholders to £1.0 billion for the next three years. Taken together, this means our total distributions for 2021 will be a minimum of £2.9 billion.  

 

We continue to make progress against our strategic targets and to accelerate our digital transformation as we build a bank that is relevant to our customers in every region of the UK and supports them at every stage of their lives. As the UK's leading business bank, we are determined to remove barriers to entry and help the economy build back better. Against the background of an ongoing pandemic, our commitment to helping people, families and businesses to rebuild and thrive has never been more important. Because if they thrive, so will we."

 

Financial performance in a challenging environment

·   H1 2021 operating profit before tax of £2,505 million compared with an operating loss before tax of £770 million in H1 2020. H1 2021 attributable profit of £1,842 million.

·   Income across the UK and RBSI retail and commercial businesses, excluding notable items, decreased by £160 million, or 3.3%, compared with H1 2020 reflecting the lower yield curve and subdued transactional business activity, partially offset by balance sheet growth. NatWest Markets (NWM) income, excluding asset disposals/strategic risk reduction and OCA, decreased by £492 million, or 59.6%, compared with H1 2020 reflecting the exceptional level of market activity generated by the spread of the COVID-19 virus in the prior period, together with weak performance in the Fixed Income business in the current period.

·   Bank net interest margin (NIM) of 1.61% decreased by 3 basis points compared with Q1 2021 principally reflecting increased levels of liquidity.

·   Other expenses, excluding operating lease depreciation (OLD) and Ulster Bank RoI direct costs, were £185 million, or 5.9% lower than H1 2020.

·   A net impairment release of £707 million in the first half of 2021 mainly reflects releases in non-default portfolios as a result of the improved economic outlook.

 

Robust balance sheet with strong capital and liquidity levels 

·   CET1 ratio of 18.2% was in line with Q1 2021.

·   An interim dividend of 3 pence per share is proposed.

·   The liquidity coverage ratio (LCR) of 164%, representing £75.3 billion headroom above 100% minimum requirement, increased by 6 percentage points compared with Q1 2021, reflecting the continued growth in customer deposits.

·   Net lending increased by £2.2 billion to £362.7 billion during H1 2021. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes, increased by £4.1 billion, or 2.8% on an annualised basis, including £7.0 billion of mortgage growth.

·   Customer deposits increased by £35.5 billion during H1 2021 to £467.2 billon, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove £11.5 billion of balance growth.

·   RWAs decreased by £7.3 billion to £163.0 billion during H1 2021 mainly reflecting business movements in Commercial Banking. 

 

Outlook(1)

The rollout of COVID-19 vaccines over the first half of 2021 has contributed towards an improved economic outlook. Our central forecasts are disclosed on pages 20 to 23. The outlook remains subject to significant uncertainty and we will continue to refine our internal forecast as the economic position evolves. We retain the guidance provided at the full year results announcement with the exception of the following:

·   We now expect NatWest Markets exit/disposal costs and the impact of Commercial Banking capital management actions to total a combined £150 million in 2021;

·   Noting impairment losses in the first half of 2021 were a net release of £707 million, we now expect the 2021 full year impairment loss to be a net release;

·   We now expect NatWest Group RWAs to be below or at the lower end of our previously guided range of £185-195 billion on 1 January 2022;

·   NatWest Group now aims to distribute a minimum of £1 billion per annum from 2021 to 2023, via a combination of ordinary and special dividends, and intends to commence an ordinary share buy-back programme of up to £750 million in the second half of the year.

Note:

(1)    The guidance, targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the Risk Factors section on pages 112 and 113 of this announcement, pages 345 to 362 of the NatWest Group plc 2020 Annual Report and Accounts, pages 48 and 49 of the NatWest Markets Plc 2021 Interim Results announcement and on pages 156 to 172 of the NatWest Markets Plc 2020 Annual Report and Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 

 

 

Our Purpose in action

We champion potential, helping people, families and businesses to thrive. If they succeed, so will we. By being relevant to our customers and communities and by supporting our colleagues, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements from H1 2021:

 

People and families

Supported customers with 1.5 million financial capability interactions including 515,000 financial health checks. 

273,000 customers have grown their savings with us by £100 or more for the first time.

Use of chatbot Cora has grown with 2.7 million conversation in Q2 2021 compared to 2.5 million in Q2 2020.

Facial biometrics and cheque deposits are now live in our app and Know My Credit Score has been used 20 million times since launch.

We've introduced 95% mortgages to help more young people onto the property ladder and Retail Banking has supported customers with £19.3 billion of gross new mortgage lending in H1 2021.

Launched Career Sense, a new programme to support 13 to 24 year-olds with readiness for work, aiming to reach over 10,000 young people this year.

Businesses

c.92% of Bounce Back Loan Scheme (BBLS) customers due to commence loan repayments had begun repayments on, or ahead of, schedule and c.5% of all BBLS customers had repaid in full as at 30 June 2021.

Held 35,000 interactions with entrepreneurs to help them launch their business so far this year through mentoring, webinars and coaching, 76% of which are outside London and the South-East and 53% are female led.

Relaunched our entrepreneurship proposition and refocused 11 of our 12 Entrepreneur Accelerator hubs to support high growth, female led, black and minority ethnic led and B Corp focused businesses.

Coutts has collaborated with the Business Growth Fund to provide additional funding, growth capital, and to support small and medium sized enterprises (SMEs).

Our Springboard to Recovery report launched in March 2021, showed how targeted support for SMEs could unlock £140 billion of additional Gross Value Added (GVA) growth by 2030 equivalent to creating around 3.2 million new jobs across the UK. In response we committed £6 billion to help SMEs grow, of which £4 billion will be allocated outside London, and we doubled our funding of female entrepreneurship to £2 billion.

Our digital investment platform across NatWest Invest, Royal Bank Invest and Coutts Invest saw £0.5 billion of inflows in H1 2021.

Colleagues

Launched a framework for NatWest Group's new hybrid working model, balancing the needs of our customers, communities and colleagues.

Named as one of the top 25 workplaces in the UK to grow a career by LinkedIn. NatWest Group was also recognised in The Times Top 50 Employers for Women for the 11th year running.

Extended our package of COVID-19 support available to colleagues in India, including access to interest-free salary advances to meet medical expenses, reimbursement for the cost of vaccines and extended leave.

Launched the Talent Academy, a new talent initiative, open to all colleagues with an initial cohort of just over 3,500.

Communities

NatWest Group joined the Net Zero Banking Alliance and Coutts Asset Management has joined the Net Zero Asset Managers initiative, working with other financial organisations to help deliver the Paris Agreement.

NatWest Group was the first UK bank to introduce a carbon tracking feature in our mobile banking app to help customers reduce the climate impact of their spending. Following a successful pilot, we've partnered with carbon tracking experts CoGo to let personal customers see the carbon impact of their daily spending. 

NatWest Group issued a €1 billion affordable housing social bond, the first of its kind by a UK bank. The proceeds will support lending to not-for-profit, UK housing associations as part of our commitment to provide £3 billion of funding to the UK's affordable housing sector by the end of 2022.

Coutts has become the first major UK Private Bank and Wealth Manager to be certified as a B Corp demonstrating its commitment to meeting the highest standards of verifiable social and environmental performance, public transparency and legal accountability. 

Applications opened for the Circle Fund to support victims of economic and domestic abuse. NatWest pledged £1 million to the fund to help frontline specialist services who provide crisis intervention and recovery support.

 

 

For further detail refer to the Climate, Purpose and ESG measures supplement H1 2021.

 

 

 

 

Business performance summary

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

Performance key metrics and ratios

2021

2020

 

2021

2021

2020

Total income

£5,319m

£5,838m

 

£2,660m

£2,659m

£2,676m

Operating expenses

(£3,521m)

(£3,750m)

 

(£1,706m)

(£1,815m)

(£1,909m)

Profit before impairment releases/(losses)

£1,798m

£2,088m

 

£954m

£844m

£767m

Operating profit/(loss) before tax

£2,505m

(£770m)

 

£1,559m

£946m

(£1,289m)

Profit/(loss) attributable to ordinary shareholders

£1,842m

(£705m)

 

£1,222m

£620m

(£993m)

 

 

 

 

 

 

 

Excluding notable items within total income (1)

 

 

 

 

 

 

Total income excluding notable items 

£5,314m

£5,844m

 

£2,641m

£2,673m

£2,797m

Operating expenses

(£3,521m)

(£3,750m)

 

(£1,706m)

(£1,815m)

£1,909m

Profit before impairment releases/(losses) and 

 

 

 

 

 

 

   excluding notable items

£1,793m

£2,094m

 

£935m

£858m

£888m

Operating profit/(loss) before tax and excluding notable items

£2,500m

(£764m)

 

£1,540m

£960m

(£1,168m)

UK and RBSI retail and commercial income excluding

 

 

 

 

 

 

   notable items (2)

£4,687m

£4,847m

 

£2,368m

£2,319m

£2,325m

 

 

 

 

 

 

 

Performance key metrics and ratios

 

 

 

 

 

 

Bank net interest margin (2,3)

1.62%

1.78%

 

1.61%

1.64%

1.67%

Bank net interest margin excluding liquid asset buffer (2)

2.40%

2.48%

 

2.40%

2.39%

2.38%

Bank average interest earning assets (2,3)

£487bn

£440bn

 

£494bn

£480bn

£458bn

Bank average interest earning assets excluding

 

 

 

 

 

 

   liquid asset buffer (2)

£329bn

£316bn

 

£330bn

£328bn

£321bn

Cost:income ratio (2)

65.7%

63.8%

 

63.7%

67.8%

70.9%

Loan impairment rate (2)

(38bps)

159bps

 

(66bps)

(11bps)

229bps

Earnings per share - basic

15.6p

(5.8p)

 

10.6p

5.1p

(8.2p)

Return on tangible equity (2)

11.7%

(4.4%)

 

15.6%

7.9%

(12.4%)

 

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2021

2021

2020

Balance sheet

 

 

 

 

 

 

Total assets

 

 

 

£775.9bn

£769.8bn

£799.5bn

Funded assets (2)

 

 

 

£666.3bn

£646.8bn

£633.0bn

Loans to customers - amortised cost

 

 

 

£362.7bn

£358.7bn

£360.5bn

Loans to customers and banks - amortised cost and FVOCI 

 

 

 

£375.6bn

£371.0bn

£372.4bn

UK and RBSI retail and commercial net lending excluding UK Government

 

 

 

 

   support schemes (2)

 

 

 

£302.0bn

£300.1bn

£297.9bn

Impairment provisions - amortised cost

 

 

 

£4.7bn

£5.6bn

£6.0bn

Total impairment provisions 

 

 

 

£4.9bn

£5.8bn

£6.2bn

Expected credit loss (ECL) coverage ratio 

 

 

 

1.31%

1.56%

1.66%

Assets under management and administration (AUMA) (2)

 

 

 

£34.7bn

£32.6bn

£32.1bn

Customer deposits 

 

 

 

£467.2bn

£453.3bn

£431.7bn

UK and RBSI retail and commercial customer deposits (2)

 

£428.7bn

£415.3bn

£403.2bn

 

 

 

 

 

 

 

Liquidity and funding

 

 

 

 

 

 

Liquidity coverage ratio (LCR)

 

 

 

164%

158%

165%

Liquidity portfolio

 

 

 

£277bn

£263bn

£262bn

Net stable funding ratio (NSFR) (4)

 

 

 

154%

153%

151%

Loan:deposit ratio (2)

 

 

 

78%

79%

84%

Total wholesale funding

 

 

 

£66bn

£61bn

£71bn

Short-term wholesale funding

 

 

 

£23bn

£20bn

£19bn

 

 

 

 

 

 

 

Capital and leverage

 

 

 

 

 

 

Common Equity Tier (CET1) ratio (5)

 

 

 

18.2%

18.2%

18.5%

Total capital ratio

 

 

 

24.9%

24.0%

24.5%

Pro forma CET1 ratio, pre dividend accrual (6)

 

 

 

19.1%

18.6%

18.8%

Risk-weighted assets (RWAs)

 

 

 

£163.0bn

£164.7bn

£170.3bn

UK leverage ratio (7)

 

 

 

6.2%

6.2%

6.4%

Tangible net asset value (TNAV) per ordinary share

 

 

 

266p

261p

261p

Number of ordinary shares in issue (millions) (8)

 

 

 

           11,569

11,560

12,129

 

Notes:

(1)

Refer to page 5 for details of notable items within total income.

(2)

Refer to Non-IFRS financial measures Appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.

(3)

NatWest Group excluding NWM.

(4)

NSFR reported in line with CRR2 regulations finalised in June 2019.

(5)

Based on CRR end-point including the IFRS 9 transitional adjustment of £1.2 billion (31 March 2021 - £1.7 billion; 31 December 2020 - £1.7 billion). Excluding this adjustment, the CET1 ratio would be 17.5% (31 March 2021 - 17.2%; 31 December 2020 - 17.5%).

(6)

The pro forma CET1 ratio at 30 June 2021 excludes foreseeable items of £1.4 billion, £500 million for ordinary dividends and £924 million foreseeable charges and pension contributions (31 March 2021 excludes foreseeable charges of £547 million for ordinary dividend including £200 million (11bps) in Q1 2021; 31 December 2020 excludes foreseeable charges of £364 million for ordinary dividend (3p per share) and £266 million pension contribution). At 31 March 2020 there was no charge in CET1 for foreseeable dividends or charges.

(7)

Based on UK end-point including the IFRS9 transitional adjustment of £1.2 billion (31 March 2021 - £1.7 billion; 31 December 2020 - £1.7 billion). Excluding this adjustment the UK leverage ratio would be 6.0% (31 March 2021 - 6.0%; 31 December 2020 - 6.1%)

(8)

In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI). NatWest Group cancelled 391 million of the purchased ordinary shares and held the remaining 200 million in own shares held. The number of ordinary shares in issue excludes own shares held which comprises the remainder of the shares purchased and shares held by the NatWest Group 2001 Employee Share Trust.

 

 

Summary consolidated income statement for the period ended 30 June 2021

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Net interest income

3,916

3,852

 

1,985

1,931

1,910

 

 

 

 

 

 

 

Own credit adjustments

-

53

 

(2)

2

(102)

Other non-interest income 

1,403

1,933

 

677

726

868

 

 

 

 

 

 

 

Non-interest income

1,403

1,986

 

675

728

766

 

 

 

 

 

 

 

Total income

5,319

5,838

 

2,660

2,659

2,676

 

 

 

 

 

 

 

Litigation and conduct costs

18

89

 

34

(16)

85

Strategic costs

(332)

(464)

 

(172)

(160)

(333)

Other expenses

(3,207)

(3,375)

 

(1,568)

(1,639)

(1,661)

 

 

 

 

 

 

 

Operating expenses

(3,521)

(3,750)

 

(1,706)

(1,815)

(1,909)

 

 

 

 

 

 

 

Profit before impairment releases/(losses)

1,798

2,088

 

954

844

767

Impairment releases/(losses)

707

(2,858)

 

605

102

(2,056)

 

 

 

 

 

 

 

Operating profit/(loss) before tax

2,505

(770)

 

1,559

946

(1,289)

Tax (charge)/credit

(435)

208

 

(202)

(233)

396

 

 

 

 

 

 

 

Profit/(loss) for the period

2,070

(562)

 

1,357

713

(893)

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

1,842

(705)

 

1,222

620

(993)

Preference shareholders

9

16

 

4

5

8

Paid-in equity shareholders

178

192

 

91

87

95

Non-controlling interests

41

(65)

 

40

1

(3)

 

 

 

 

 

 

 

Notable items within total income

 

 

 

 

 

 

Own credit adjustments

-

53

 

(2)

2

(102)

FX recycling (loss)/gain in Central items & other

-

(103)

 

-

-

(39)

Liquidity Asset Bond sale gain

-

110

 

-

-

17

IFRS volatility in Central items & other (1)

44

(11)

 

45

(1)

55

Loss on redemption of own debt

(138)

-

 

(20)

(118)

-

Retail Banking debt sale gain

-

3

 

-

-

3

Commercial Banking fair value and disposal (loss)/gain

(22)

(11)

 

(8)

(14)

8

Commercial Banking tax variable lease repricing

32

-

 

32

-

-

NatWest Markets asset disposals/strategic risk reduction (2)

(40)

(63)

 

(36)

(4)

(63)

Share of associate profits for Business Growth Fund

129

16

 

8

121

-

Total

5

(6)

 

19

(14)

(121)

 

Notes:

(1)   IFRS volatility relates to derivatives used for risk management not in IFRS hedge accounting relationships and IFRS hedge ineffectiveness.

(2)

Asset disposals/strategic risk reduction relates to the costs of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of risk reduction transactions entered into, in respect of the strategic announcements of 14 February 2020.

 

 

 

 

 

Business performance summary

Chief Financial Officer review

We have progressed against our strategic objectives and have delivered a good financial performance in the first half of the year. The interim results include a £707 million impairment release reflecting the improved economic outlook, our capital and liquidity positions remain robust and we have increased our commitment for capital returns.

 

Financial performance

Total income decreased by £519 million, or 8.9%, compared with H1 2020 reflecting the lower yield curve, subdued transactional business activity and a more normalised level of customer activity in NatWest Markets, partially offset by balance sheet growth. We continue to expect a full year reduction in structural hedge income of around £250 million compared with 2020, of which £157 million was incurred in H1 2021. Excluding notable items, Q2 2021 income decreased by £32 million, or 1.2%, compared with Q1 2021 as a weaker performance in the NWM Fixed Income business was partially offset by positive signs of an initial recovery in transactional business activity as COVID-19 restrictions eased. Bank NIM of 1.61% decreased by 3 basis points compared with Q1 2021 principally due to excess levels of liquidity, 4 basis points, lower structural hedge income, 1 basis point, and lower asset margins, 1 basis point, partially offset by tax variable lease repricing in Commercial Banking following the enactment of future corporation tax rate changes, 3 basis points.

 

We achieved a cost reduction of £185 million, or 5.9%, compared with H1 2020 mainly reflecting Customer Journey Transformation, the continued shift from physical to digital and actions taken in NatWest Markets in line with the strategic announcement made in February 2020. Strategic costs of £332 million in the first half of 2021 included £87 million redundancy charges, £48 million related to property charges and a £27 million charge related to technology spend. We remain committed to our 4% full year cost reduction target.

 

Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of £707 million for the first half of 2021 reflects an improved economic outlook. We have assessed the downside risk posed by COVID-19 to be diminishing over the course of 2021. Given the vaccination roll-out and positive economic data observed since the gradual relaxing of lockdown restrictions, it is appropriate to apply a higher probability to upside-biased scenarios than at the year-end 2020. Total impairment provisions decreased by £0.9 billion to £4.9 billion in the quarter, which resulted in a reduction in the ECL coverage ratio from 1.56% at Q1 2021 to 1.31%. Whilst we are comfortable with the strong performance of our book, we continue to hold economic uncertainty post model adjustments (PMA) of £0.8 billion, or 16.9% of total impairment provisions. We will continue to assess this position as UK Government support winds down and we emerge from the pandemic.

 

As a result, we are pleased to report an interim attributable profit of £1,842 million, with earnings per share of 15.6 pence and a return on tangible equity (RoTE) of 11.7%.

 

We continue to support our customers to recover and grow during this period of continued uncertainty, whilst taking a measured approach to risk. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes increased by £4.1 billion in the first half of 2021, or 2.8% on an annualised basis, including £7.0 billion of mortgage growth, partially offset by lower unsecured balances and lower Commercial Banking lending volumes. The £1.9 billion increase in the second quarter of 2021 included mortgage lending growth of £3.6 billion.

 

Customer deposits increased by £35.5 billion, or 8.2%, to £467.2 billon in the first half of 2021. Across the UK and RBSI retail and commercial businesses customer deposits increased by £25.5 billion, or 6.3%, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove a further £11.5 billion.

 

TNAV per share increased by 5 pence in the quarter to 266 pence largely reflecting the attributable profit partially offset by the full year dividend payment.

 

Capital and leverage

The CET1 ratio of 18.2%, or 17.5% excluding IFRS 9 transitional relief, remains robust and was in line with Q1 2021 as the attributable profit for the period and the reduction in RWAs were offset by a £0.5 billion decrease in IFRS 9 transitional relief and foreseeable capital deductions in respect of our proposed in-market buy-backs, dividends and associated pension contribution. The total capital ratio increased by 90 basis points in the quarter to 24.9%.

 

RWAs of £163.0 billion decreased by £7.3 billion, or 4.3%, in the first half of 2021 reflecting business movements of £2.9 billion, risk parameter improvements of £1.4 billion and FX movements of £1.2 billion. The £1.7 billion reduction in the second quarter of 2021 mainly relates to Commercial Banking business movements.

 

The UK leverage ratio of 6.2% was in line with Q1 2021.

 

Funding and Liquidity

The liquidity portfolio was £277 billion at the end of Q2 2021, £14 billion higher than Q1 2021, and the LCR increased by 6 percentage points to 164%, representing £75.3 billion headroom above 100% minimum requirement, primarily reflecting the £13.9 billion increase in customer deposits in the quarter. The loan:deposit ratio remained broadly stable with Q1 2021 at 78%.

 

Total wholesale funding increased by £5 billion compared with Q1 2021. Short term wholesale funding increased by £3 billion in the quarter to £23 billion.


 

 

 

Business performance summary

Retail Banking

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Total income

2,150

2,185

 

1,094

1,056

1,035

Operating expenses

(1,187)

(1,075)

 

(600)

(587)

(546)

 of which: Other expenses

(1,102)

(1,169)

 

(545)

(557)

(577)

Impairment releases/(losses)

57

(657)

 

91

(34)

(360)

Operating profit

1,020

453

 

585

435

129

Return on equity

27.5%

10.7%

 

32.0%

23.0%

5.7%

Net interest margin

2.07%

2.23%

 

2.08%

2.06%

2.18%

Cost:income ratio

55.2%

49.2%

 

54.8%

55.6%

52.8%

Loan impairment rate

(6)bps

79bps

 

(20)bps

8bps

87bps

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2021

2021

2020

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

178.1

174.8

172.3

Customer deposits

 

 

 

184.1

179.1

171.8

RWAs

 

 

 

35.6

35.0

36.7

 

During H1 2021, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk. Lending growth was supported by a strong performance in mortgages, partially offset by continued UK Government restrictions impacting customer spending and the continued repayment of unsecured balances, although both customer spending and demand for new unsecured lending continued to improve over H1 2021 as the UK Government restrictions eased.

 

As at 30 June 2021, Retail Banking had c.500 active mortgage repayment holidays, representing less than 0.1% of the book by volume, and approximately 2,300, or 0.3%, of personal loan customers on active repayment holidays.

 

H1 2021 performance

Total income was £35 million, or 1.6%, lower than H1 2020 primarily due to regulatory changes impacting fee income, lower deposit returns and lower unsecured balances, partially offset by strong balance growth in mortgages and improved asset margins.

Other expenses were £67 million, or 5.7%, lower than H1 2020 primarily reflecting a 10.5% reduction in headcount as a result of the continued digitalisation, automation and improvement of end-to-end customer journeys.

A net impairment release of £57 million in H1 2021 primarily reflects ECL releases related to an improvement in the economic outlook. Stage 3 defaults remain at a low level.

Net loans to customers increased by £5.8 billion, or 3.4%, in H1 2021 due to continued strong mortgage growth of £6.2 billion, with gross new mortgage lending of £19.3 billion, and flow share of 11.4%, supporting a stock share of 11.0%. Personal advances and cards reduced by £0.4 billion and £0.2 billion respectively as customers spent less and made higher repayments, reflecting the impact of continued UK Government restrictions.

Customer deposits increased by £12.3 billion, or 7.2%, in H1 2021 as continued UK Government support schemes combined with restrictions, resulted in lower customer spend and increased savings.

RWAs decreased by £1.1 billion, or 3.0%, in H1 2021 largely reflecting lower unsecured balances and continued quality improvements supported by rising house prices and customer behaviour.

Q2 2021 performance

Total income was £38 million higher than Q1 2021 as strong mortgage completions and a full quarter impact of savings customer rate changes were partially offset by the non-repeat of an insurance profit share. In comparison with Q2 2020, total income was £59 million, or 5.7%, higher due to stronger asset margins and transactional related fee income, partially offset by lower deposit returns. Non-interest income in Q2 2021 benefitted from a debt sale, along with other one-off items which will not repeat in Q3 2021, totalling around £12 million.

Net interest margin increased by 2 basis points compared with Q1 2021 reflecting strong mortgage completion margins and a full quarter of savings customer rate changes. Mortgage completion margins of around 165 basis points were higher than the back book margin of 163 basis points, with application margins of around 155 basis points in the quarter decreasing to around 145 basis points in the latter part of Q2 2021, reflecting increased competition in the market.

Other expenses were £12 million, or 2.2%, lower than Q1 2021 as continued cost reduction activity was partially offset by the annual pay award.

A net impairment release of £91 million in Q2 2021 primarily reflects ECL releases related to an improvement in the economic outlook.

Net loans to customers increased by £3.3 billion compared with Q1 2021 reflecting continued mortgage growth, supported by a retention rate of 79%, partially offset by lower personal advances. Cards balances increased by £0.1 billion as customer demand and spend levels increased.

Customer deposits increased by £5.0 billion compared with Q1 2021 as continued UK Government support schemes combined with restrictions, resulted in lower customer spend and increased savings.

 

 

Business performance summary

Private Banking

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Total income

368

392

 

183

185

191

Operating expenses

(249)

(252)

 

(128)

(121)

(129)

 of which: Other expenses

(242)

(241)

 

(120)

(122)

(123)

Impairment releases/(losses)

27

(56)

 

27

-

(27)

Operating profit

146

84

 

82

64

35

Return on equity

14.2%

8.2%

 

15.9%

12.4%

6.6%

Net interest margin

1.77%

2.20%

 

1.75%

1.79%

2.14%

Cost:income ratio

67.7%

64.3%

 

69.9%

65.4%

67.5%

Loan impairment rate

(30)bps

70bps

 

(60)bps

-

67bps

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2021

2021

2020

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

18.0

17.5

17.0

Customer deposits

 

 

 

34.7

33.5

32.4

RWAs

 

 

 

11.2

11.2

10.9

Assets under management (AUMs) (1)

 

 

 

29.6

27.6

27.0

Assets under administration (AUAs) (1)

 

 

 

5.1

5.0

5.1

Total assets under management and administration (AUMA) (1)

 

 

34.7

32.6

32.1

 

Note:

(1)   The definitions of AUMs/AUAs have been updated to provide clarity on assets where the investment management is undertaken by Private Banking. AUMs now comprises assets where the investment management is undertaken by Private Banking irrespective of the franchise the customer belongs to. AUAs now comprises third party assets held on an execution-only basis in custody. Total AUMA remain as before. 

 

Private Banking delivered strong balance growth and a resilient operating performance in H1 2021, including a £27 million impairment release, which supported a return on equity of 14.2%. AUMA growth in H1 2021 included £1.4 billion of AUM net new money, of which £0.5 billion related to digital investing inflows into NatWest Invest, Royal Bank Invest and Coutts Invest, more than double H1 2020 levels.

 

H1 2021 performance

Total income decreased by £24 million, or 6.1%, compared with H1 2020 primarily reflecting lower deposit returns, partially offset by strong balance growth.

Other expenses increased by £1 million, or 0.4%, compared with H1 2020 principally due to an increase in headcount, related to the enhancement of AUMA growth and other client propositions, partially offset by the movement of costs associated with the planned sale of Adam and Company Investment Management business to strategic costs in Q2 2021 and a property revaluation charge in H1 2020.

A net impairment release of £27 million in H1 2021 reflects ECL releases related to the improved economic outlook.

Net loans to customers increased by £1.0 billion, or 5.9%, in H1 2021 due to continued strong mortgage lending growth, whilst RWAs increased by £0.3 billion, or 2.8%.

Customer deposits increased by £2.3 billion, or 7.1%, in H1 2021 reflecting strong personal and commercial inflows as UK Government restrictions resulted in customers continuing to build and retain liquidity.

AUMAs increased by £2.6 billion, or 8.1%, in H1 2021 largely due to AUM net new money inflows of £1.4 billion and AUM positive investment performance of £1.2 billion.

 

Q2 2021 performance

Total income decreased by £2 million compared to Q1 2021 as lower fee income was partially offset by continued balance growth. In comparison to Q2 2020, total income decreased by £8 million, or 4.2%, as lower deposit returns were partially offset by strong balance growth. Net interest margin decreased by 4 basis points compared with Q1 2021 reflecting higher liquidity portfolio costs.

Net loans to customers increased by £0.5 billion compared with Q1 2021 supported by £0.4 billion of mortgage lending growth.

AUMAs increased by £2.1 billion compared with Q1 2021 largely due to AUM net new money inflows of £0.8 billion and AUM positive investment performance of £1.2 billion.

 

 

Business performance summary

Commercial Banking

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Total income

1,923

2,003

 

982

941

995

Operating expenses

(1,152)

(1,221)

 

(569)

(583)

(611)

 of which: Other expenses (excluding OLD)

(983)

(1,066)

 

(470)

(513)

(534)

Impairment releases/(losses)

568

(1,790)

 

451

117

(1,355)

Operating profit/(loss)

1,339

(1,008)

 

864

475

(971)

Return on equity

21.9%

(17.9%)

 

29.3%

14.9%

(32.5%)

Net interest margin

1.57%

1.76%

 

1.60%

1.54%

1.70%

Cost:income ratio

58.4%

59.5%

 

56.4%

60.5%

59.9%

Loan impairment rate

(107)bps

311bps

 

(170)bps

(43)bps

472bps

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2021

2021

2020

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

103.8

106.6

108.2

Customer deposits

 

 

 

176.0

169.4

167.7

RWAs

 

 

 

69.5

71.6

75.1

 

Note:

(1)    EU Divestment balances from Q2 2021 integrated within business banking (Q4 2020 - £1.1 billion, Q1 2021 - £1.7 billion) and SME & mid corporates (Q4 2020 - £4.8 billion, Q1 2021 - £4.1 billion), as the Incentivised Switching Scheme (ISS) closed at the end of June 2021.

 

Commercial Banking delivered a solid performance in H1 2021 as business activity increased. The £1,339 million operating profit includes a £568 million impairment release, largely reflecting the improved economic outlook. During H1 2021 Commercial Banking delivered £2.5 billion towards NatWest Group's Climate and Sustainable Funding and Financing 2021 target.

 

Commercial Banking continues to support its customers with active payment holidays on c.3,000 customer accounts, representing 1% of the lending book by value as at 30 June 2021. c.92% of BBLS customers due to commence loan repayments had begun repayments on, or ahead of, schedule and c.5% of all BBLS customers had repaid in full as at 30 June 2021.

 

 

H1 2021 performance

Total income decreased by £80 million, or 4.0%, compared with H1 2020 as lower deposit returns and lower transactional banking activity were partially offset by higher other non-interest income.

Other expenses, excluding OLD, decreased by £83 million, or 7.8%, compared with H1 2020, reflecting cost reduction actions, lower staff costs and a reduction in back office operations costs.

A net impairment release of £568 million in H1 2021 mainly reflects ECL releases related to the improved economic outlook, with limited defaults. Excluding amounts related to economic uncertainty held within the PMA, the ECL coverage ratio was 1.65%.

Net loans to customers decreased by £4.4 billion, or 4.1%, in H1 2021 mainly reflecting reductions across Large Corporates & Institutions, SME & mid-corporates and Real Estate Finance related to net revolving credit facility (RCF) repayments of £1.5 billion, active capital management of £0.6 billion and targeted sector reductions partially offset by £0.8 billion lower loan provisions.

Customer deposits increased by £8.3 billion, or 4.9%, in H1 2021 as customers continued to build and retain liquidity in light of economic uncertainty and the continued impact of UK Government initiatives.

RWAs decreased by £5.6 billion, or 7.5%, in H1 2021 mainly reflecting business movements, excluding active capital management, of £3.0 billion, active capital management of £0.8 billion, a £0.8 billion reduction reflecting a CRR COVID-19 amendment related to a Housing Association supporting factor, £0.2 billion lower risk parameters, and FX movements of £0.4 billion.

Q2 2021 performance

Total income increased by £41 million compared with Q1 2021 mainly reflecting tax variable lease repricing and a partial recovery in transactional banking volumes, partially offset by lower lending volumes. In comparison to Q2 2020 total income decreased by £13 million, or 1.3%, primarily reflecting lower deposit returns. Net interest margin increased by 6 basis points compared with Q1 2021 mainly reflecting tax variable lease repricing following the enactment of future corporation tax rate changes. Underlying net interest margin decreased by 2 basis points reflecting lower deposit returns.

Other expenses, excluding OLD, decreased by £43 million compared with Q1 2021 mainly reflecting the transfer of remediation costs to Litigation and conduct costs.

A net impairment release of £451 million in Q2 2021 mainly reflects ECL releases related to the improved economic outlook.

Net loans to customers decreased by £2.8 billion compared with Q1 2021 as net RCF repayments of £1.2 billion, net UK Government financial support scheme repayments of £0.4 billion and targeted sector reductions were partially offset by £0.6 billion lower loan provisions. RCF utilisation was c.20% of committed facilities, significantly below the COVID-19 peak of c.40%.

Customer deposits increased by £6.6 billion compared with Q1 2021 as customers continued to build and retain liquidity.

RWAs decreased by £2.1 billion compared with Q1 2021 mainly reflecting business movements, excluding active capital management, of £1.1 billion, a £0.8 billion reduction reflecting the CRR COVID-19 amendment and active capital management of £0.2 billion.

 

 

Business performance summary

International Banking & Markets

RBS International

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Total income

256

259

 

133

123

115

Operating expenses

(112)

(126)

 

(55)

(57)

(65)

 of which: Other expenses

(104)

(121)

 

(52)

(52)

(61)

Impairment releases/(losses)

29

(46)

 

27

2

(31)

Operating profit

173

87

 

105

68

19

Return on equity

22.1%

11.8%

 

26.5%

17.5%

4.3%

Net interest margin

1.04%

1.30%

 

1.02%

1.06%

1.15%

Cost:income ratio

43.8%

48.6%

 

41.4%

46.3%

56.5%

Loan impairment rate

(38)bps

72bps

 

(71)bps

(5)bps

97bps

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2021

2021

2020

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

15.1

14.7

13.3

Customer deposits

 

 

 

33.9

33.3

31.3

RWAs

 

 

 

7.6

7.7

7.5

Depositary assets (1)

 

 

 

460.4

452.0

427.5

 

Note:

(1)   Assets held by RBSI as an independent trustee and in a depositary service capacity.

 

During H1 2021 RBSI delivered £256 million of income, supported by customer lending growth and contributed £0.6 billion towards NatWest Group's Climate and Sustainable Funding and Financing 2021 target. RBSI also implemented a range of new payment features on the mobile app for both personal and business customers, including the introduction of face biometrics to authorise payments and the ability to deposit cheques.
 

As at 30 June 2021, RBSI was supporting 22 mortgage repayment breaks, reflecting a mortgage value of £4.8 million, and was providing 161 business customers with working capital facilities, reflecting a value of £434 million, whilst continuing to suspend some fees.

 

H1 2021 performance

Total income was £3 million, or 1.2%, lower than H1 2020 with net interest income £19 million lower, impacted by lower deposit funding benefits partially offset by higher customer lending volumes and depositary fees in non-interest income.

Other expenses were £17 million, or 14.0%, lower than H1 2020 due to a 11% reduction in headcount from simplifying the business and the non-repeat of COVID-19 related costs last year.

A net impairment release of £29 million in H1 2021 mainly reflects Stage 1 and Stage 2 releases. Stage 3 defaults remain low.

Net loans to customers increased by £1.8 billion, or 13.5%, in H1 2021 due to higher demand from customers in the Institutional Banking sector.

Customer deposits increased by £2.6 billion, or 8.3%, in H1 2021 due to £2.3 billion of short-term placement inflows in the Institutional Banking sector and a £0.6 billion increase in Notice products as clients switched from short-term call products to longer term products.

Depositary assets have increased by £32.9 billion in H1 2021 in both operating jurisdictions, Luxembourg and UK, as a result of increases in fund performance and new business.

 

Q2 2021 performance

Total income was £10 million, or 8.1%, higher than Q1 2021 due to higher average lending and deposit volumes in the Institutional Banking sector and was £18 million, or 15.7%, higher than Q2 2020 principally due to higher depositary and non-utilisation fees. Net interest margin decreased by 4 basis points compared with Q1 2021 largely due to lower returns from higher surplus deposits. 

A net impairment release of £27 million in Q2 2021, mainly reflects Stage 1 and Stage 2 releases. Stage 3 defaults remain low.

Net loans to customers increased by £0.4 billion compared with Q1 2021 due to higher demand from customers in the Institutional Banking sector.

Customer deposits increased by £0.6 billion compared with Q1 2021 following an inflow of short term call deposits in the Institutional Banking sector as customer activity increased.

 

 

 

 

Business performance summary

International Banking and Markets

NatWest Markets(1)

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Total income

295

816

 

106

189

273

of which:

 

 

 

 

 

 

   - Income excluding asset disposals/strategic risk

 

 

 

 

 

 

      reduction and own credit adjustments

334

826

 

143

191

438

   - Asset disposals/strategic risk reduction (2)

(40)

(63)

 

(36)

(4)

(63)

   - Own credit adjustments

1

53

 

(1)

2

(102)

Operating expenses

(560)

(707)

 

(285)

(275)

(365)

 of which: Other expenses

(456)

(569)

 

(216)

(240)

(271)

Impairment releases/(losses)

16

(40)

 

10

6

(45)

Operating (loss)/profit

(249)

69

 

(169)

(80)

(137)

Return on equity

(9.2%)

0.8%

 

(12.1%)

(6.3%)

(7.1%)

Cost:income ratio

189.8%

86.6%

 

268.9%

145.5%

133.7%

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2021

2021

2020

 

 

 

 

£bn

£bn

£bn

Funded assets

 

 

 

111.8

105.7

105.9

RWAs

 

 

 

26.9

26.5

26.9

 

Notes:

(1)   The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). The NatWest Markets segment excludes the Central items & other segment.

(2)   Asset disposals/strategic risk reduction relates to the cost of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020.

 

NatWest Markets continued to support customers with innovative financial solutions and to deliver on plans to become a more sustainable part of NatWest Group. NatWest Markets has further developed its capability to offer better integrated solutions, particularly in foreign exchange and funds financing, targeted to the investment management community. NatWest Markets continued to build momentum in Climate and Sustainable Funding and Financing, with a strong performance during the first half of 2021, delivering £6.3 billion towards NatWest Group's 2021 target.

 

 

H1 2021 performance

Income excluding asset disposals/strategic risk reduction and OCA decreased by £492 million, or 59.6%, compared with H1 2020 reflecting the exceptional level of market activity generated by the spread of the COVID-19 virus in the prior period, together with weaker performance and reshaping of the Fixed Income business in the current period. Capital Markets and Currencies performed broadly in line with expectations. The H1 2021 results also included a £20 million loss from a liability management exercise which thereafter reduces the cost of funding.

Other expenses decreased by £113 million, or 19.9%, compared with H1 2020 reflecting continued reductions in line with the strategic announcement in February 2020.

RWAs were in line with 31 December 2020 however, following the announcement of GBP LIBOR cessation in March 2021, market risk RWAs became elevated by £2.5 billion as a result of including modelled GBP LIBOR basis risk post 4 January 2022. Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021. If this model approval was back dated to Q2 2021 the reported RWAs would have been £24.4 billion. Underlying levels of market risk were low and progress continues to be made on asset disposals in line with the strategy.

 

 

Q2 2021 performance

Income excluding asset disposals/strategic risk reduction and OCA decreased by £48 million compared with Q1 2021 reflecting a weaker performance in Fixed Income and a reduction in Currencies as volatility decreased. In comparison to Q2 2020, income excluding asset disposals/strategic risk reduction and OCA decreased by £295 million, or 67.4%, reflecting more normalised levels of customer activity, with the prior period impacted by exceptional levels of market activity generated by the spread of the COVID-19 virus.

Other expenses decreased by £24 million compared with Q1 2021 reflecting the timing of discretionary expense and continued reductions in line with the strategic announcement in February 2020.

RWAs increased by £0.4 billion compared with Q1 2021 reflecting the impact of GBP LIBOR cessation highlighted above. Underlying levels of market risk were low and progress continues to be made on asset disposals in line with the strategy.

 

 

 

 

Business performance summary

Ulster Bank RoI

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

€m

€m

 

€m

€m

€m

Total income

279

285

 

137

142

135

Operating expenses

(299)

(283)

 

(156)

(143)

(140)

 of which: Other expenses

(281)

(271)

 

(149)

(132)

(134)

Impairment releases/(losses)

13

(278)

 

(1)

14

(246)

Operating (loss)/profit

(7)

(276)

 

(20)

13

(251)

Return on equity

(0.7%)

(24.3%)

 

(4.1%)

2.6%

(45.5%)

Net interest margin

1.46%

1.52%

 

1.43%

1.49%

1.49%

Cost:income ratio

107.2%

99.3%

 

113.9%

100.7%

103.7%

Loan impairment rate

(13)bps

260bps

 

2bps

(27)bps

460bps

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2021

2021

2020

 

 

 

 

€bn

€bn

€bn

Net loans to customers (amortised cost)

 

 

 

19.4

19.8

20.0

Customer deposits

 

 

 

21.6

21.7

21.8

RWAs

 

 

 

12.2

13.1

13.2

 

In June 2021, UBIDAC entered into a binding agreement with Allied Irish Banks p.l.c. for the sale of around €4.2 billion of gross performing commercial lending and associated undrawn exposures of around €2.8 billion. The timing of completion remains uncertain and the sale is subject to obtaining regulatory and other approvals. In July 2021, NatWest Group plc and UBIDAC entered into a non-binding Memorandum of Understanding with Permanent TSB Group Holdings p.l.c. for the proposed sale of a perimeter comprising performing non-tracker mortgages, performing micro-SME loans, UBIDAC's asset finance business and 25 branch locations. The proposed perimeter included approximately €7.6 billion gross performing loans as at 31 March 2021. Ulster Bank RoI remains focused on supporting its customers as it continues its withdrawal from the Republic of Ireland.

 

H1 2021 performance

Total income decreased by €6 million, or 2.1%, compared with H1 2020 primarily reflecting lower lending levels and fee income as a result of the continued impact of COVID-19 and the recent announcement to commence a phased withdrawal from the Republic of Ireland, partially offset by increased FX gains.

Other expenses were €10 million, or 3.7%, higher than H1 2020 due to increased regulatory levies and higher VAT charges, partially offset by a 7.1% reduction in headcount and lower back office operations costs.

A net impairment release of €13 million in H1 2021 reflects improvements in the mortgage portfolio, including releases related to the final de-recognition of assets from a non-performing loan (NPL) sale agreed in Q4 2019, offset by post model adjustments to reflect loan disposal strategies not captured within loss modelling.

Net loans to customers decreased by €0.6 billion, or 3.0%, in H1 2021 as repayments exceeded gross new lending of €0.8 billion.

Customer deposits decreased by €0.2 billion, or 0.9%, in H1 2021 due to a large short term placement at the end of 2020 partially offset by increased personal balances.

 

Q2 2021 performance

Total income decreased by €5 million compared with Q1 2021 due to lower lending income and reduced FX gains. Net interest margin decreased by 6 basis points compared with Q1 2021 reflecting lower lending volumes and a stable deposit base, resulting in higher liquid assets in a negative interest rate environment.

Other expenses increased by €17 million compared with Q1 2021 mainly due to increased Single Resolution Fund (SRF) levies, much of which relates to prior years, and higher VAT charges, partially offset by a 3.7% reduction in headcount.

Net loans to customers decreased by €0.4 billion compared with Q1 2021.

Customer deposits decreased by €0.1 billion compared with Q1 2021 resulting in loan:deposit ratio of 90% compared with 91% in Q1 2021.

RWAs decreased by €0.9 billion compared with Q1 2021 mainly due to improvements in asset quality, lower lending volumes and the impact of the NPL de-recognition.

 

 

 

 

 

 

Business performance summary

Central items & other

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Central items not allocated

83

(216)

 

110

(27)

(146)

 

An £83 million operating profit within central items not allocated mainly reflects a £129 million share of associate profits for the Business Growth Fund, a litigation and conduct release and IFRS volatility, partially offset by a £138 million day one loss on redemption of own debt related to the repurchase of legacy instruments, which will result in annual net interest savings of c.£51 million.

 

Segment performance

 

 

Half year ended 30 June 2021

 

 

 

International Banking & Markets

 

Central

Total

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

 items &

NatWest

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

other

Group

 

 

£m

£m

£m

£m

£m

£m 

£m

£m

Income statement 

 

 

 

 

 

 

 

 

Net interest income

1,976

232

1,308

182

(3)

187

34

3,916

Own credit adjustments

-

-

-

-

1

-

(1)

-

Other non-interest income

174

136

615

74

297

56

51

1,403

Total income 

2,150

368

1,923

256

295

243

84

5,319

Direct expenses

- staff costs

(232)

(67)

(280)

(52)

(188)

(94)

(768)

(1,681)

 

- other costs

(111)

(20)

(131)

(24)

(64)

(68)

(1,108)

(1,526)

Indirect expenses

(759)

(155)

(642)

(28)

(204)

(83)

1,871

-

Strategic costs 

- direct

(16)

(5)

(39)

(6)

(90)

(1)

(175)

(332)

 

- indirect

(60)

(7)

(23)

(2)

(16)

(2)

110

-

Litigation and conduct costs

(9)

5

(37)

-

2

(13)

70

18

Operating expenses

(1,187)

(249)

(1,152)

(112)

(560)

(261)

-

(3,521)

Operating profit/(loss) before impairment releases/(losses)

963

119

771

144

(265)

(18)

84

1,798

Impairment releases/(losses)

57

27

568

29

16

11

(1)

707

Operating profit/(loss)

1,020

146

1,339

173

(249)

(7)

83

2,505

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

11.7%

Return on equity (1)

27.5%

14.2%

21.9%

22.1%

(9.2%)

(0.8%)

nm

na

Cost:income ratio (1)

55.2%

67.7%

58.4%

43.8%

189.8%

107.4%

nm

65.7%

Total assets (£bn)

204.2

27.7

185.8

37.0

219.4

25.4

76.4

775.9

Funded assets (£bn) (1)

204.2

27.7

185.8

36.9

111.8

25.4

74.5

666.3

Net loans to customers - amortised cost (£bn)

178.1

18.0

103.8

15.1

6.3

16.7

24.7

362.7

Loan impairment rate (1)

(6)bps

(30)bps

(107)bps

(38)bps

nm

(13)bps

nm

(38)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.1)

(0.1)

(0.1)

(0.7)

-

(4.7)

Impairment provisions - Stage 3 (£bn)

(0.8)

-

(0.8)

(0.1)

(0.1)

(0.4)

-

(2.2)

Customer deposits (£bn)

184.1

34.7

176.0

33.9

2.5

18.5

17.5

467.2

Risk-weighted assets (RWAs) (£bn)

35.6

11.2

69.5

7.6

26.9

10.5

1.7

163.0

RWA equivalent (RWAe) (£bn)

35.6

11.3

69.5

7.7

28.6

10.5

1.8

165.0

Employee numbers (FTEs - thousands)

15.3

1.9

9.1

1.6

1.6

2.6

27.1

59.2

Third party customer asset rate (2)

2.70%

2.36%

2.74%

2.23%

nm

2.28%

nm

nm

Third party customer funding rate (2)

(0.07%)

 (0.00%)

(0.01%)

0.07%

nm

0.01%

nm

nm

Average interest earning assets (£bn) (1)

192.5

26.4

168.2

35.3

32.3

25.8

nm

519.2

Bank net interest margin (1)

2.07%

1.77%

1.57%

1.04%

na

1.46%

nm

1.62%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to page 18.

 

 

Segment performance

 

 

Half year ended 30 June 2020

 

 

 

International Banking & Markets

 

Central

Total

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

 items &

NatWest

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

other

Group

 

 

£m

£m

£m

£m

£m

£m 

£m

£m

Income statement 

 

 

 

 

 

 

 

 

Net interest income

1,982

251

1,370

201

(34)

194

(112)

3,852

Own credit adjustments

-

-

-

-

53

-

-

53

Other non-interest income

203

141

633

58

797

55

46

1,933

Total income 

2,185

392

2,003

259

816

249

(66)

5,838

Direct expenses

- staff costs

(268)

(79)

(341)

(65)

(326)

(100)

(617)

(1,796)

 

- other costs

(103)

(25)

(140)

(27)

(94)

(42)

(1,148)

(1,579)

Indirect expenses

(798)

(137)

(658)

(29)

(149)

(92)

1,863

-

Strategic costs 

- direct

(1)

-

(2)

(3)

(120)

(4)

(334)

(464)

 

- indirect

(103)

(10)

(73)

(5)

(16)

(8)

215

-

Litigation and conduct costs

198

(1)

(7)

3

(2)

1

(103)

89

Operating expenses

(1,075)

(252)

(1,221)

(126)

(707)

(245)

(124)

(3,750)

Operating profit/(loss) before impairment losses

1,110

140

782

133

109

4

(190)

2,088

Impairment losses

(657)

(56)

(1,790)

(46)

(40)

(243)

(26)

(2,858)

Operating profit/(loss)

453

84

(1,008)

87

69

(239)

(216)

(770)

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

(4.4%)

Return on equity (1)

10.7%

8.2%

(17.9%)

11.8%

0.8%

(24.2%)

nm

na

Cost:income ratio (1)

49.2%

64.3%

59.5%

48.6%

86.6%

98.4%

nm

63.8%

Total assets (£bn)

187.1

23.9

186.0

31.5

303.8

27.6

47.0

806.9

Funded assets (£bn) (1)

187.1

23.9

186.0

31.5

122.9

27.6

44.5

623.5

Net loans to customers - amortised cost (£bn)

164.5

16.0

112.0

12.7

11.4

18.7

17.0

352.3

Loan impairment rate (1)

79bps

70bps

311bps

72bps

nm

248bps

nm

159bps

Impairment provisions (£bn)

(1.9)

(0.1)

(3.0)

-

(0.2)

(0.9)

-

(6.1)

Impairment provisions - Stage 3 (£bn)

(0.9)

-

(1.2)

-

(0.1)

(0.6)

-

(2.8)

Customer deposits (£bn)

161.0

29.8

159.6

29.5

5.5

20.0

2.9

408.3

Risk-weighted assets (RWAs) (£bn)

36.7

10.4

78.3

6.8

35.1

12.8

1.4

181.5

RWA equivalent (RWAe) (£bn)

36.7

10.4

78.4

6.9

37.2

12.8

1.5

183.9

Employee numbers (FTEs - thousands)

17.1

1.8

9.6

1.8

5.0

2.8

24.6

62.7

Third party customer asset rate (2)

2.97%

2.67%

3.04%

2.65%

nm

2.27%

nm

nm

Third party customer funding rate (2)

(0.28%)

(0.21%)

(0.15%)

(0.05%)

nm

(0.07%)

nm

nm

Average interest earning assets (£bn) (1)

178.6

23.0

156.5

31.2

38.0

25.7

nm

477.9

Bank net interest margin (1)

2.23%

2.20%

1.76%

1.30%

na

1.52%

nm

1.78%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to page 18.

 

 

 

 

Segment performance

 

 

Quarter ended 30 June 2021

 

 

 

International Banking & Markets

 

Central

Total

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

 items &

NatWest

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

other

Group

 

 

£m

£m

£m

£m

£m

£m 

£m

£m

Income statement 

 

 

 

 

 

 

 

 

Net interest income

1,003

117

665

93

4

93

10

1,985

Own credit adjustments

-

-

-

-

(1)

-

(1)

(2)

Other non-interest income

91

66

317

40

103

26

34

677

Total income 

1,094

183

982

133

106

119

43

2,660

Direct expenses

- staff costs

(116)

(33)

(139)

(26)

(77)

(47)

(371)

(809)

 

- other costs

(50)

(11)

(65)

(11)

(35)

(45)

(542)

(759)

Indirect expenses

(379)

(76)

(301)

(15)

(104)

(38)

913

-

Strategic costs 

- direct

(5)

(5)

(13)

(2)

(60)

(1)

(86)

(172)

 

- indirect

(43)

(3)

(14)

(1)

(11)

(1)

73

-

Litigation and conduct costs

(7)

-

(37)

-

2

(4)

80

34

Operating expenses

(600)

(128)

(569)

(55)

(285)

(136)

67

(1,706)

Operating profit/(loss) before impairment releases/(losses)

494

55

413

78

(179)

(17)

110

954

Impairment releases/(losses)

91

27

451

27

10

(1)

-

605

Operating profit/(loss)

585

82

864

105

(169)

(18)

110

1,559

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

15.6%

Return on equity (1)

32.0%

15.9%

29.3%

26.5%

(12.1%)

(4.3%)

nm

na

Cost:income ratio (1)

54.8%

69.9%

56.4%

41.4%

268.9%

114.3%

nm

63.7%

Total assets (£bn)

204.2

27.7

185.8

37.0

219.4

25.4

76.4

775.9

Funded assets (£bn) (1)

204.2

27.7

185.8

36.9

111.8

25.4

74.5

666.3

Net loans to customers - amortised cost (£bn)

178.1

18.0

103.8

15.1

6.3

16.7

24.7

362.7

Loan impairment rate (1)

(20)bps

(60)bps

(170)bps

(71)bps

nm

2bps

nm

(66)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(2.1)

(0.1)

(0.1)

(0.7)

-

(4.7)

Impairment provisions - Stage 3 (£bn)

(0.8)

-

(0.8)

(0.1)

(0.1)

(0.4)

-

(2.2)

Customer deposits (£bn)

184.1

34.7

176.0

33.9

2.5

18.5

17.5

467.2

Risk-weighted assets (RWAs) (£bn)

35.6

11.2

69.5

7.6

26.9

10.5

1.7

163.0

RWA equivalent (RWAe) (£bn)

35.6

11.3

69.5

7.7

28.6

10.5

1.8

165.0

Employee numbers (FTEs - thousands)

15.3

1.9

9.1

1.6

1.6

2.6

27.1

59.2

Third party customer asset rate (2)

2.67%

2.36%

2.82%

2.18%

nm

2.28%

nm

nm

Third party customer funding rate (2)

(0.06%)

 (0.00%)

(0.02%)

0.09%

nm

0.01%

nm

nm

Average interest earning assets (£bn) (1)

193.8

26.8

167.1

36.4

32.3

25.8

nm

526.1

Bank net interest margin (1)

2.08%

1.75%

1.60%

1.02%

na

1.45%

nm

1.61%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to page 18.

 

 

 

Segment performance

 

 

Quarter ended 31 March 2021

 

 

 

International Banking & Markets

 

Central

Total

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

 items &

NatWest

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

other

Group

 

 

£m

£m

£m

£m

£m

£m 

£m

£m

Income statement 

 

 

 

 

 

 

 

 

Net interest income

973

115

643

89

(7)

94

24

1,931

Own credit adjustments

-

-

-

-

2

-

-

2

Other non-interest income

83

70

298

34

194

30

17

726

Total income 

1,056

185

941

123

189

124

41

2,659

Direct expenses

- staff costs

(116)

(34)

(141)

(26)

(111)

(47)

(397)

(872)

 

- other costs

(61)

(9)

(66)

(13)

(29)

(23)

(566)

(767)

Indirect expenses

(380)

(79)

(341)

(13)

(100)

(45)

958

-

Strategic costs 

- direct

(11)

-

(26)

(4)

(30)

-

(89)

(160)

 

- indirect

(17)

(4)

(9)

(1)

(5)

(1)

37

-

Litigation and conduct costs

(2)

5

-

-

-

(9)

(10)

(16)

Operating expenses

(587)

(121)

(583)

(57)

(275)

(125)

(67)

(1,815)

Operating profit/(loss) before impairment (losses)/releases

469

64

358

66

(86)

(1)

(26)

844

Impairment (losses)/releases

(34)

-

117

2

6

12

(1)

102

Operating profit/(loss)

435

64

475

68

(80)

11

(27)

946

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

7.9%

Return on equity (1)

23.0%

12.4%

14.9%

17.5%

(6.3%)

2.5%

nm

na

Cost:income ratio (1)

55.6%

65.4%

60.5%

46.3%

145.5%

100.8%

nm

67.8%

Total assets (£bn)

199.2

26.9

187.1

36.7

226.8

25.9

67.2

769.8

Funded assets (£bn) (1)

199.2

26.9

187.1

36.7

105.7

25.9

65.3

646.8

Net loans to customers - amortised cost (£bn)

174.8

17.5

106.6

14.7

7.5

16.9

20.7

358.7

Loan impairment rate (1)

8bps

-

(43)bps

(5)bps

nm

(27)bps

nm

(11)bps

Impairment provisions (£bn)

(1.8)

(0.1)

(2.7)

(0.1)

(0.1)

(0.7)

(0.1)

(5.6)

Impairment provisions - Stage 3 (£bn)

(0.8)

-

(0.9)

-

(0.1)

(0.5)

(0.1)

(2.4)

Customer deposits (£bn)

179.1

33.5

169.4

33.3

2.4

18.4

17.2

453.3

Risk-weighted assets (RWAs) (£bn)

35.0

11.2

71.6

7.7

26.5

11.1

1.6

164.7

RWA equivalent (RWAe) (£bn)

35.0

11.2

71.7

7.7

29.2

11.1

1.7

167.6

Employee numbers (FTEs - thousands)

15.8

1.9

9.5

1.6

2.1

2.7

26.0

59.6

Third party customer asset rate (2)

2.73%

2.36%

2.65%

2.28%

nm

2.28%

nm

nm

Third party customer funding rate (2)

(0.08%)

 (0.00%)

(0.01%)

0.05%

nm

 0.00%

nm

nm

Average interest earning assets (£bn) (1)

191.2

26.0

169.4

34.1

32.4

25.8

nm

512.2

Bank net interest margin (1)

2.06%

1.79%

1.54%

1.06%

na

1.48%

nm

1.64%

nm = not meaningful, na = not applicable.

 

For the notes to this table, refer to the following page.

 

 

 

Segment performance

 

 

Quarter ended 30 June 2020

 

 

 

International Banking & Markets

 

Central

Total

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

 items &

NatWest

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

other 

Group

 

 

£m

£m

£m

£m

£m

£m 

£m

£m

Income statement 

 

 

 

 

 

 

 

 

Net interest income

975

124

696

90

6

97

(78)

1,910

Own credit adjustments

-

-

-

-

(102)

-

-

(102)

Other non-interest income

60

67

299

25

369

23

25

868

Total income 

1,035

191

995

115

273

120

(53)

2,676

Direct expenses

- staff costs

(133)

(40)

(167)

(33)

(159)

(52)

(293)

(877)

 

- other costs

(45)

(9)

(67)

(13)

(37)

(18)

(595)

(784)

Indirect expenses

(399)

(74)

(337)

(15)

(75)

(46)

946

-

Strategic costs 

- direct

(1)

-

-

(2)

(86)

(3)

(241)

(333)

 

- indirect

(69)

(5)

(34)

(2)

(8)

(4)

122

-

Litigation and conduct costs

101

(1)

(6)

-

-

1

(10)

85

Operating expenses

(546)

(129)

(611)

(65)

(365)

(122)

(71)

(1,909)

Operating profit/(loss) before impairment losses

489

62

384

50

(92)

(2)

(124)

767

Impairment losses

(360)

(27)

(1,355)

(31)

(45)

(216)

(22)

(2,056)

Operating profit/(loss)

129

35

(971)

19

(137)

(218)

(146)

(1,289)

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

(12.4%)

Return on equity (1)

5.7%

6.6%

(32.5%)

4.3%

(7.1%)

(44.5%)

nm

na

Cost:income ratio (1)

52.8%

67.5%

59.9%

56.5%

133.7%

101.7%

nm

70.9%

Total assets (£bn)

187.1

23.9

186.0

31.5

303.8

27.6

47.0

806.9

Funded assets (£bn) (1)

187.1

23.9

186.0

31.5

122.9

27.6

44.5

623.5

Net loans to customers - amortised cost (£bn)

164.5

16.0

112.0

12.7

11.4

18.7

17.0

352.3

Loan impairment rate (1)

87bps

67bps

472bps

97bps

nm

441bps

nm

229bps

Impairment provisions (£bn)

(1.9)

(0.1)

(3.0)

-

(0.2)

(0.9)

-

(6.1)

Impairment provisions - Stage 3 (£bn)

(0.9)

-

(1.2)

-

(0.1)

(0.6)

-

(2.8)

Customer deposits (£bn)

161.0

29.8

159.6

29.5

5.5

20.0

2.9

408.3

Risk-weighted assets (RWAs) (£bn)

36.7

10.4

78.3

6.8

35.1

12.8

1.4

181.5

RWA equivalent (RWAe) (£bn)

36.7

10.4

78.4

6.9

37.2

12.8

1.5

183.9

Employee numbers (FTEs - thousands)

17.1

1.8

9.6

1.8

5.0

2.8

24.6

62.7

Third party customer asset rate (2)

2.88%

2.53%

2.88%

2.58%

nm

2.27%

nm

nm

Third party customer funding rate (2)

(0.20%)

(0.12%)

(0.13%)

(0.01%)

nm

(0.07%)

nm

nm

Average interest earning assets (£bn) (1)

179.8

23.3

164.6

31.5

39.9

26.4

nm

497.4

Bank net interest margin (1)

2.18%

2.14%

1.70%

1.15%

na

1.48%

nm

1.67%

nm = not meaningful, na = not applicable.

 

Notes:

(1)

Refer to Non-IFRS financial measures Appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics where relevant.

(2)

Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, loans to banks and liquid asset portfolios. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. Comparatives have been restated. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets without these exclusions.

 

 

 

Risk and capital management

 

Page

Credit risk

 

     Economic loss drivers

20

     UK economic uncertainty

22

     Measurement uncertainty and ECL sensitivity analysis

 

26

     Measurement uncertainty and ECL adequacy

 

28

Credit risk - Banking activities

 

     Segment analysis

30

     Sector analysis

35

     Wholesale forbearance

41

     Personal portfolio

43

     Commercial real estate

46

     Flow statements

48

     Stage 2 decomposition by a significant increase in credit risk trigger

 

57

     Asset quality

59

Credit risk - Trading activities

63

Capital, liquidity and funding risk

66

Market risk

 

     Non-traded

76

     Traded

80

Other risks

81

 

Certain disclosures in the Risk and capital management section are within the scope of EY's review report and are marked accordingly by a bracket in the right-hand margin.

 

 

 

 

Risk and capital management

Credit risk

Economic loss drivers

Introduction

The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by product or asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors, (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement.

 

The most material economic loss drivers are shown in the table below.

 

Portfolio

Economic loss drivers

UK retail mortgages

UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income

UK retail unsecured

UK unemployment rate, sterling swap rate, UK household debt to income

UK large corporates

World GDP, UK unemployment rate, sterling swap rate, stock price index

UK commercial

UK GDP, UK unemployment rate, sterling swap rate

UK commercial real estate

UK GDP, UK property price indices, sterling swap rate

RoI retail mortgages

RoI unemployment rate, European Central Bank base rate, RoI house price index

 

Note:

(1)   This is not an exhaustive list of economic loss drivers but shows the most material drivers for the most material models/portfolios.

 

Economic scenarios

There was improvement in the economic outlook for the UK since 31 December 2020, which was reflected in a more optimistic base case scenario as at 30 June 2021. The main drivers of the improvement were as follows:

·    Rapid roll-out of the COVID-19 vaccination in the UK and in other developed countries, leading to relaxation of restrictions.

·    The success of various government support measures in containing the fallout from lockdown.

·    Faster than expected economic recovery, with GDP having made material gains since the lifting of restrictions, and labour and housing markets in particular showing continued signs of resiliency.

 

The range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflect a range of outcomes for the path of COVID-19 as well as recovery, and the associated effects on labour and asset markets.

 

The four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. The scenarios were developed to provide sufficient coverage across potential changes in unemployment, asset price and the degree of permanent damage to the economy, around which there are pronounced levels of uncertainty at this stage.

 

The tables below provide details of the key economic parameters under the four scenarios.

 

The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the table below. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for unemployment and the Bank of England base rate. The House Price Index and commercial real estate figures show the total change in each asset over five years.

 

Main macroeconomic variables

30 June 2021

 

31 December 2020

 

 

 

 

Extreme

 

 

 

 

Extreme

 

Upside

Base case

Downside

downside

 

Upside

Base case

Downside

downside

Five-year summary

%

%

%

%

 

%

%

%

%

UK

 

 

 

 

 

 

 

 

 

GDP - CAGR

3.9

3.5

2.9

2.5

 

3.6

3.1

2.8

1.3

Unemployment - average

4.1

4.6

5.8

8.1

 

4.4

5.7

7.1

9.7

House price index - total change

23.4

14.2

4.9

(0.8)

 

12.5

7.6

4.4

(19.0)

Bank of England base rate - average

0.9

0.4

-

(0.5)

 

0.2

-

(0.1)

(0.5)

Commercial real estate price - total change

13.6

4.7

0.1

(8.7)

 

4.3

0.7

(12.0)

(31.5)

 

 

 

 

 

 

 

 

 

 

Republic of Ireland

 

 

 

 

 

 

 

 

 

GDP - CAGR

3.8

3.2

2.5

1.8

 

4.2

3.5

3.0

1.6

Unemployment - average

5.1

6.8

9.1

10.9

 

5.6

7.5

9.3

11.2

House price index - total change

25.4

18.0

11.3

2.6

 

21.0

13.3

6.8

(7.0)

European Central Bank base rate - average

0.2

0.1

-

-

 

0.1

-

-

-

 

 

 

 

 

 

 

 

 

 

World GDP - CAGR

3.8

3.5

2.7

1.8

 

3.5

3.4

2.9

2.8

 

 

 

 

 

 

 

 

 

 

Probability weight

35.0

40.0

20.0

5.0

 

20.0

40.0

30.0

10.0

 

Notes:

(1)    The five year period starts at Q1 2021 for 30 June 2021 and Q3 2020 for 31 December 2020.

(2)    The Republic of Ireland unemployment rate in table above and following tables corresponds to the mid-point of the Irish Central Statistics Office lower and upper bound unemployment rate measures.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk continued

Annual figures

 

GDP - annual growth

 

 

 

 

 

 

 

Base

 

Extreme

 

 

 

Base

 

Extreme

 

Upside

case

Downside

downside

 

 

Upside

case

Downside

downside

UK

%

%

%

%

 

Republic of Ireland

%

%

%

%

2021

10.1

7.3

2.7

0.1

 

2021

9.1

4.8

1.8

(0.3)

2022

5.4

5.8

4.3

-

 

2022

5.0

4.9

2.2

(3.7)

2023

1.6

1.6

4.4

7.7

 

2023

3.0

3.6

5.4

7.5

2024

1.6

1.6

2.2

3.7

 

2024

2.6

3.0

3.2

5.2

2025

1.6

1.6

1.5

1.7

 

2025

2.7

2.9

2.8

3.1

 

 

 

 

 

 

 

 

 

 

 

Unemployment rate - annual average

 

 

 

 

 

 

 

 

 

 

Base

 

Extreme

 

 

 

Base

 

Extreme

 

Upside

case

Downside

downside

 

 

Upside

case

Downside

downside

UK

%

%

%

%

 

Republic of Ireland

%

%

%

%

2021

4.7

5.3

5.4

5.9

 

2021

9.0

11.7

14.2

14.9

2022

4.3

4.8

7.0

11.8

 

2022

5.8

7.5

12.7

13.9

2023

4.0

4.5

6.5

10.4

 

2023

4.7

6.1

7.6

12.4

2024

3.8

4.5

5.4

7.1

 

2024

4.4

5.7

7.0

9.0

2025

3.8

4.3

4.8

5.2

 

2025

4.2

5.4

6.3

6.6

 

 

 

 

 

 

 

 

 

 

 

House price index - four quarter growth

 

 

 

 

 

 

Base

 

Extreme

 

 

 

Base

 

Extreme

 

Upside

case

Downside

downside

 

 

Upside

case

Downside

downside

UK

%

%

%

%

 

Republic of Ireland

%

%

%

%

2021

8.0

2.0

(2.4)

(5.4)

 

2021

10.9

3.6

(4.7)

(3.5)

2022

1.7

0.5

(3.0)

(27.0)

 

2022

4.9

3.6

1.3

(21.4)

2023

2.8

1.9

1.3

12.2

 

2023

2.4

3.3

4.0

10.3

2024

4.8

4.8

4.8

19.5

 

2024

2.8

3.5

5.8

17.6

2025

4.0

4.0

4.0

6.2

 

2025

3.2

3.4

5.3

4.7

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate price - four quarter growth

 

 

 

 

 

Base

 

Extreme

 

 

 

 

 

 

 

Upside

case

Downside

downside

 

 

 

 

 

 

UK

%

%

%

%

 

 

 

 

 

 

2021

7.0

(1.4)

(8.4)

(13.4)

 

 

 

 

 

 

2022

2.1

2.0

(1.3)

(18.2)

 

 

 

 

 

 

2023

1.7

1.7

5.8

15.7

 

 

 

 

 

 

2024

1.3

1.3

2.3

5.4

 

 

 

 

 

 

2025

1.2

1.2

2.3

5.1

 

 

 

 

 

 

 

 

 

Worst points

30 June 2021

 

31 December 2020

 

 

 

 

Extreme

 

 

 

 

Extreme

 

Upside

Base case

Downside

downside

 

Upside

Base case

Downside

downside

UK

%

%

%

%

 

%

%

%

%

GDP

-

-

-

(10.2)

 

-

(1.8)

(5.1)

(10.4)

Unemployment rate (peak)

5.0

5.5

7.0

11.9

 

5.9

7.0

9.4

13.9

House price index

-

-

(6.1)

(33.1)

 

-

(3.6)

(11.2)

(32.0)

Commercial real estate price

-

(2.1)

(14.1)

(33.1)

 

(3.4)

(10.1)

(28.9)

(40.4)

 

 

 

 

 

 

 

 

 

 

Republic of Ireland

 

 

 

 

 

 

 

 

 

GDP

-

-

(5.3)

(13.3)

 

(0.6)

(3.0)

(5.5)

(13.8)

Unemployment rate (peak)

15.0

15.0

15.0

17.2

 

16.5

16.5

16.5

18.1

House price index

-

-

(10.1)

(26.5)

 

-

(4.2)

(13.3)

(27.0)

 

Note:

(1)    For the unemployment rate, the figures show the peak levels between 2021 and 2026 for 30 June 2021, and between 2020 and 2025 for 31 December 2020. For the other parameters, the figures show falls relative to the starting periods mentioned under the five-year summary table above.

 

 

 

 

 

 

 

Risk and capital management

Credit risk continued

Probability weightings of scenarios

NatWest Group's approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. The scale of the economic impact of COVID-19 and the range of recovery paths necessitates a change of approach to assigning probability weights from that used in recent updates. Prior to 2020, GDP paths for NatWest Group's scenarios were compared against a set of 1,000 model runs, following which a percentile in the distribution was established that most closely corresponded to the scenario.

 

Instead, NatWest Group has subjectively applied probability weights, reflecting expert views within NatWest Group. The probability weight assignment was judged to present good coverage to the central scenarios and the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. A 35% weighting was applied to the upside scenario, a 40% weighting applied to the base case scenario, a 20% weighting applied to the downside scenario and a 5% weighting applied to the extreme downside scenario. NatWest Group assessed the downside risk posed by COVID-19 to be diminishing over the course of 2021, with the vaccination roll-out and positive economic data being observed since the gradual relaxing of lockdown restrictions. NatWest Group therefore judged it was appropriate to apply a higher probability to upside-biased scenarios than at December 2020.

 

Use of the scenarios in Personal lending

Personal lending follows a discrete scenario approach. The probability of default (PD) and loss given default (LGD) values for each discrete scenario are calculated using product specific econometric models. Each account has a PD and LGD calculated as probability weighted averages across the suite of economic scenarios.

 

Use of the scenarios in Wholesale lending

The Wholesale lending ECL methodology is based on the concept of credit cycle indices (CCIs). The CCIs represent, similar to the exogenous component in Personal, all relevant economic loss drivers for a region/industry segment aggregated into a single index value that describes the loss rate conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to loss rates at long-run average levels, a positive CCI value corresponds to loss rates below long-run average levels and a negative CCI value corresponds to loss rates above long-run average levels.

 

The four economic scenarios are translated into forward-looking projections of CCIs using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then overlaid with an additional mean reversion assumption, i.e. that after one to two years into the forecast horizon the CCIs gradually revert to their long-run average of zero.

 

Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection.

 

The rationale for the Wholesale approach is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NatWest Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from using the discrete macro-economic scenarios alone.

 

Business banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal lending rather than the Wholesale lending methodology.

 

UK economic uncertainty

Treatment of COVID-19 relief mechanisms

Use of COVID-19 relief mechanisms (for example, payment holidays, Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS)) does not automatically merit identification of significant increase in credit risk (SICR) and trigger a Stage 2 classification in isolation. However, a subset of Personal customers who had accessed payment holiday support, and where their risk profile has been identified as relatively high risk continue to be collectively migrated to Stage 2 (if not already captured by other SICR criteria).

 

For Wholesale customers, NatWest Group continues to provide support, where appropriate, to existing customers. Those who are deemed either (a) to require a prolonged timescale to return to within NatWest Group's risk appetite, (b) not to have been viable pre-COVID-19, or (c) not to be able to sustain their debt once COVID-19 is over, will trigger a SICR and, if concessions are sought, be categorised as forborne, in line with regulatory guidance. Payment holiday extensions beyond an aggregate of 12 months in an 18 month period to cover continuing COVID-19 business interruption are categorised as forbearance, including for customers where no other SICR triggers are present.

 

 

 

 

Risk and capital management

Credit risk continued

In February 2021, the British Business Bank announced details of Pay As You Grow (PAYG) options for borrowers of BBLS. The scheme options include the extension of lending terms, periods of reduced repayments and six month payment holidays. PAYG options are a feature of BBLS rather than a concession granted by NatWest Group. It is therefore not automatically considered significant credit deterioration and a Stage 2 trigger. NatWest Group relies on both customer attestations and existing credit monitoring procedures to identify significant financial difficulty. Should signs of financial stress be identified, a review is performed. If credit deterioration is confirmed, existing problem debt management journeys are followed and forbearance (if a concession is granted) is marked in line with existing processes. This will result in Stage 2 transfer.

 

Model monitoring and enhancement

The abrupt and prolonged interruption of a wide range of economic activities due to COVID-19 and the subsequent government interventions to support businesses and individuals, has resulted in patterns in the data of key economic loss drivers and loss outcomes, that are markedly different from those that NatWest Group's models have been built on. To account for these structural changes, model adjustments have been applied and model changes have been implemented.

 

All in-model adjustments described have been applied by correcting the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform SICR identification and ECL measurement.

 

Government support

Most notably as a result of various government support measures, model-projected default rates in Wholesale and Personal have been adjusted by introducing lags between 6 to 12 months. These lags are based partly on objective empirical data (i.e. the absence of increases in realised default rates by the reporting date) and partly judgmental, based on remaining government support measures and their expected effectiveness.

 

Extreme GDP movements - Wholesale only

Due to the specific nature of COVID-19, GDP year-on-year movements in both directions are extremely sharp, many multiples of their respective extremes observed previously.

 

This creates a risk of overstretched, invalid extrapolations in statistical models. Therefore, all Wholesale econometric models were updated to make them robust against extreme GDP movements by capping projected CCI values at levels corresponding to three times the default rates observed at the peak of the global financial crisis and using quarterly averages rather than spot values for CCI projections.

 

 

Scenario sensitivity - Personal only

For the Personal lending portfolio, the forward-looking components of the IFRS 9 PD models were modified, leveraging existing econometric models used in stress testing to ensure that PDs appropriately reflect the forecasts for unemployment and house prices in particular.

 

Additionally, post model ECL adjustments were made in Personal to ensure that the ECL was adjusted for known model over and underpredictions pre-dating COVID-19, pending the systematic recalibration of the underlying models.

 

 

 

     

 

 

 

Risk and capital management

Credit risk continued

Governance and post model adjustments

The IFRS 9 PD, exposure at default and LGD models are subject to NatWest Group's model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments (PMAs) were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All PMAs were subject to formal approval through provisioning governance, and were categorised as follows:

·    Deferred model calibrations - ECL adjustments where PD model monitoring indicated that actual defaults were below estimated levels but where it was judged that an implied ECL release was not supportable, as these were being judged to have been distorted by government support schemes. As a consequence, any potential ECL release was deferred and retained on the balance sheet.

·    Economic uncertainty - ECL adjustments primarily arising from uncertainties associated with MES and credit outcomes as a result of the effect of COVID-19 and the consequences of government interventions. In both cases, management judged that additional ECL was required until further credit performance data became available on the behavioural and loss consequences of COVID-19.

·    Other adjustments - ECL adjustments where it was judged that the modelled ECL required to be amended.

 

PMAs will remain a key focus area of NatWest Group's ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends, particularly with more observable outcomes from the unwinding of COVID-19 support mechanisms during the remainder of 2021.

 

ECL post model adjustments

Retail 

Commercial

Ulster

 

 

 

Banking

Banking

Bank RoI

Other

Total

30 June 2021

£m

£m

£m

£m

£m

Deferred model calibrations

103

51

(2)

-

152

Economic uncertainty

197

493

114

30

834

Other adjustments

22

19

118

4

163

 

322

563

230

34

1,149

 

 

 

 

 

 

31 December 2020

 

 

 

 

 

Deferred model calibrations

34

13

2

-

49

Economic uncertainty

158

526

176

18

878

Other adjustments

20

19

26

3

68

 

212

558

204

21

995

 

 

Retail Banking - The PMA for deferred model calibrations increased to £103 million from £34 million at 31 December

2020. This reflected management's judgement that the implied ECL decreases that continued to manifest themselves

through the standard PD model monitoring process during H1 2021, were not fully supportable as they were viewed as being temporarily distorted by government support mechanisms. Management retained this view on the basis that underlying portfolio performance had been influenced by the various customer support mechanisms and further outcome data is required.

 

The PMA for economic uncertainty increased to £197 million from £158 million at 31 December 2020. This was primarily due to the addition of a further £47 million of post model adjustments to hold back modelled LGD reductions on certain unsecured portfolio segments. The total included an ECL uplift of £55 million (a reduction from £63 million at 31 December 2020 due to PD improvements) on a subset of customers who had accessed payment holiday support where their risk profile was identified as relatively high risk. In addition, NatWest Group continues to retain a holdback of a modelled ECL release of £69 million, again due to the delayed default emergence reflective of the various customer support mechanisms (£15 million related to mortgages and £54 million related to unsecured lending). The H1 2021 overlay also included an ECL uplift on buy-to-let mortgages of £14 million (31 December 2020 - £15 million) to mitigate the risk of a disproportionate credit deterioration in challenging economic circumstances.

 

Other judgmental overlays included £15 million (31 December 2020 - £13 million) in respect of the repayment risk not captured in the models, that a proportion of customers on interest-only mortgages would not be able to repay the capital element of their loan at the end of term, as well as a £7 million overlay for an identified weakness in the mortgage PD model pending remediation.

 

 

 

 

 

 

 

Risk and capital management

Credit risk continued

Commercial Banking - The PMA for economic uncertainty included an overlay of £409 million (£450 million across NatWest Group's Wholesale portfolio) based on a judgemental thesis, reflecting concern that the unprecedented nature of COVID-19 could result in longer debt recovery periods and lower values than history suggested, and also the risk of idiosyncratic credit outcomes. It also included an overlay of £23 million in respect of elevated concerns around borrowers' ability to refinance facilities at the end of the contractual term. Additionally, it included overlays to address the effects of customer support mechanisms.

 

There was also a PMA for deferred model calibrations on the business banking portfolio reflecting management's judgement that the beneficial modelling impact, and implied ECL decrease, was not supportable again while portfolio performance was being under-pinned by the various support mechanisms. Other adjustments included an overlay of £19 million to mitigate the effect of operational timing delays in the identification and flagging of a SICR.

 

Ulster Bank RoI - The PMA for economic uncertainty included an adjustment of £49 million in the mortgage portfolio reflecting concerns that losses arising from defaults during 2021 would be higher than modelled. There was a PMA of £30 million in the Wholesale portfolio, reflecting concern that the unprecedented nature of COVID-19 could result in longer debt recovery periods and lower recovery values than history suggested. It also included PMAs of £9 million in respect of high risk payment break mortgage customers and £23 million in the SME portfolio reflective of the elevated risk for this sector. The increase in other PMAs reflects the judgment that continuing actions on the phased withdrawal of Ulster Bank RoI from the Irish market will lead to higher/earlier crystallisation of losses.       

 

Government guarantees

In April 2021, the UK government launched the Recovery Loan Scheme, replacing previous support schemes which are now closed. Consistent with CBILS and the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the government guarantee is 80%. NatWest Group recognises lower LGDs for these lending products as a result, with 0% applied to the government-guaranteed part of the exposure. NatWest Group does not directly adjust the measurement of PD due to the government guarantee and continues to move exposures to Stage 2 and Stage 3 where a significant deterioration in credit risk or a default is identified.

 

 

Wholesale support schemes

The table below shows the uptake of BBLS, CBILS and CLBILS by Wholesale customers, by sector, which ended for new applications on 31 March 2021.

 

BBLS

 

CBILS

 

CLBILS

 

Approved

Drawdown 

% of BBLS to

 

Approved

Drawdown 

% of CBILS to

 

Approved

Drawdown 

% of CLBILS to

30 June 2021

volume

amount (£m)

sector loans

 

volume

amount (£m)

sector loans

 

volume

amount (£m)

sector loans

Wholesale lending by sector

 

 

 

 

 

 

 

 

 

 

 

  Airlines and aerospace

260

6

0.35%

 

18

9

0.53%

 

4

16

0.93%

  Automotive

12,839

409

6.78%

 

578

143

2.37%

 

26

44

0.73%

  Education

2,050

52

3.36%

 

121

76

4.91%

 

10

32

2.07%

  Health

10,248

302

5.46%

 

630

101

1.82%

 

3

19

0.34%

  Land transport and logistics

8,996

255

5.35%

 

399

99

2.08%

 

1

5

0.10%

  Leisure

32,721

982

10.74%

 

2,182

568

6.21%

 

39

228

2.49%

  Oil and gas

329

9

0.61%

 

15

7

0.47%

 

-

-

-

  Retail

32,652

1,060

12.29%

 

1,655

399

4.63%

 

26

115

1.33%

  Property

71,422

1,993

5.55%

 

2,491

676

1.88%

 

37

81

0.23%

  Other (including Business 

 

 

 

 

 

 

 

 

 

 

 

    Banking)

127,787

3,181

3.49%

 

8,918

1,844

2.02%

 

84

328

0.36%

Total

299,304

8,249

4.97%

 

17,007

3,922

2.36%

 

230

868

0.52%

 

Notes:

(1)    The table contains some cases which as at 30 June 2021 were approved but not yet drawn down. Approved limits as at 30 June 2021 were as follows: BBLS £9.2 billion (90% drawn); CBILS - £4.2 billion (93% drawn); and CLBILS - £1.3 billion (66% drawn).

(2)    The Recovery Loan Scheme, a successor to the now closed BBLS, CBILS, and CLBILS was launched on 6 April 2021. Uptake of the new scheme was minimal with 192 customers having drawn down £13.7 million as at 2 July 2021.

 

 

 

Risk and capital management

Credit risk continued

Measurement uncertainty and ECL sensitivity analysis

The recognition and measurement of ECL is complex and involves the use of significant judgement and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate.

 

The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact as at 30 June 2021. Scenario impacts on a SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.

 

Stage 3 provisions are not subject to the same level of measurement uncertainty - default is an observed event as at the balance sheet date. Stage 3 provisions therefore have not been considered in this analysis.

 

The impact arising from the upside, downside and extreme downside scenarios has been simulated. These scenarios are three of the four discrete scenarios used in the methodology for Personal MES as described in the Economic loss drivers section. In the simulations, NatWest Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a combined total 100% probability weighting and therefore serving as a single economic scenario.

 

These scenarios have been applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Modelled PMAs present in the underlying ECL estimates are also sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for economic uncertainty, were not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit.

 

NatWest Group's core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact.

 

 

 

Risk and capital management

Credit risk continued

 

 

 

 

 

Extreme

30 June 2021

Actual

Base case

Upside

Downside

downside

Stage 1 modelled exposure (£m)

 

 

 

 

 

Retail Banking

      152,428 

      152,412 

      152,510 

      152,128 

      141,758 

Ulster Bank RoI Personal & Business Banking

        10,989 

        10,989 

        11,022 

        10,556 

        10,373 

Wholesale

      113,315 

      115,403 

      116,189 

      113,405 

        98,561 

 

      276,732 

      278,804 

      279,721 

      276,089 

      250,692 

Stage 1 modelled ECL (£m)

 

 

 

 

 

Retail Banking

110

112

112

113

113

Ulster Bank RoI Personal & Business Banking

25

24

22

27

27

Wholesale

262

269

269

273

287

 

397

405

403

413

427

Stage 1 coverage (%)

 

 

 

 

 

Retail Banking

0.07%

0.07%

0.07%

0.07%

0.08%

Ulster Bank RoI Personal & Business Banking

0.22%

0.22%

0.20%

0.26%

0.26%

Wholesale

0.23%

0.23%

0.23%

0.24%

0.29%

 

0.14%

0.15%

0.14%

0.15%

0.17%

Stage 2 modelled exposure (£m)

 

 

 

 

 

Retail Banking

        19,435 

        19,451 

        19,353 

        19,735 

        30,105 

Ulster Bank RoI Personal & Business Banking

          1,387 

          1,387 

          1,354 

          1,820 

          2,003 

Wholesale

        33,405 

        31,317 

        30,531 

        33,315 

        48,159 

 

        54,227 

        52,155 

        51,238 

        54,870 

        80,267 

Stage 2 modelled ECL (£m)

 

 

 

 

 

Retail Banking

             710 

             722 

             671 

             799 

          1,042 

Ulster Bank RoI Personal & Business Banking

               76 

               76 

               71 

               93 

             107 

Wholesale

          1,479 

          1,368 

          1,316 

          1,485 

          2,347 

 

          2,265 

          2,166 

          2,058 

          2,377 

          3,496 

Stage 2 coverage (%)

 

 

 

 

 

Retail Banking

3.65%

3.71%

3.46%

4.05%

3.46%

Ulster Bank RoI Personal & Business Banking

5.51%

5.49%

5.22%

5.10%

5.32%

Wholesale

4.43%

4.37%

4.31%

4.46%

4.87%

 

4.18%

4.15%

4.01%

4.33%

4.35%

Stage 1 and Stage 2 modelled exposure (£m)

 

 

 

 

 

Retail Banking

      171,863 

      171,863 

      171,863 

      171,863 

      171,863 

Ulster Bank RoI Personal & Business Banking

        12,376 

        12,376 

        12,376 

        12,376 

        12,376 

Wholesale

      146,720 

      146,720 

      146,720 

      146,720 

      146,720 

 

      330,959 

      330,959 

      330,959 

      330,959 

      330,959 

Stage 1 and Stage 2 modelled ECL (£m)

 

 

 

 

 

Retail Banking

             820 

             834 

             783 

             912 

          1,155 

Ulster Bank RoI Personal & Business Banking

             101 

             100 

               93 

             120 

             134 

Wholesale

          1,741 

          1,637 

          1,584 

          1,758 

          2,635 

 

          2,662 

          2,571 

          2,460 

          2,790 

          3,924 

Stage 1 and Stage 2 coverage (%)

 

 

 

 

 

Retail Banking

0.48%

0.49%

0.46%

0.53%

0.67%

Ulster Bank RoI Personal & Business Banking

0.82%

0.81%

0.75%

0.97%

1.08%

Wholesale

1.19%

1.12%

1.08%

1.20%

1.80%

 

0.80%

0.78%

0.74%

0.84%

1.19%

Reconciliation to Stage 1 and Stage 2 ECL (£m)

 

 

 

 

 

ECL on modelled exposures

          2,662 

          2,571 

          2,461 

          2,790 

          3,923 

ECL on non-modelled exposures

               70 

               70 

               70 

               70 

               70 

 

 

 

 

 

 

Total Stage 1 and Stage 2 ECL

          2,732 

          2,641 

          2,530 

          2,860 

          3,994 

Variance - (lower)/higher to actual total Stage 1 and Stage 2 ECL

 

(91)

(202)

             128 

          1,262 

 

 

Notes:

(1)   Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 30 June 2021 and therefore does not include variation in future undrawn exposure values.

(2)   Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios and exposure relating to bonds and cash.

(3)   All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 30 June 2021. The simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static.

(4)   Refer to the Economic loss drivers section for details of economic scenarios.

(5)   Refer to the NatWest Group 2020 Annual Report and Accounts for 31 December 2020 comparatives.

 

 

 

 

 

 

Risk and capital management

Credit risk continued

Key points

·  During H1 2021, both the Stage 2 size and overall modelled ECL reduced as a result of the improved economic outlook and scenario weightings, together with stable portfolio performance. Judgemental ECL PMAs continued to reflect residual economic uncertainty with the expectation of increased defaults later in 2021 and beyond, now representing 23% of total ECL (31 December 2020 - 18%). These combined factors, in conjunction with a less severe suite of economics in the H1 2021 extreme downside scenario, contributed to a smaller range of ECL sensitivities at H1 2021 compared to the 2020 year end.

·  If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by £1.3 billion (approximately 45%). In this scenario, Stage 2 exposure increased significantly and was the key driver of the simulated ECL rise. The movement in Stage 2 balances in the other simulations was less significant.

·  The small ECL uplift in the downside scenario, particularly in Wholesale, reflected the net effect of the MES weightings towards the downside for ECL, observable when comparing to the ECL scenario with 100% weight on the base case.

·  For the downside scenario, the ECL result was not materially different to actual ECL due to mean reversion of default rates and the recovery trajectory in the downside. Compared to the base case, Wholesale Stage 1 and Stage 2 ECL was over 7% higher in the downside scenario. In Retail Banking, similar scenario shape dynamics led to minimal difference between the base case sensitivity and actual ECL.

·  In the upside scenario, the simulated ECL reduction (£0.2 billion, 8% of actual) was lower than the uplift observed in the extreme downside, again reflecting the expectation that the non-linearity of losses was skewed to the downside. In Retail Banking this is partly due to the effect of PD persistence, where Stage 2 will not be affected immediately by PD reductions.

 

 

Measurement uncertainty and ECL adequacy

The improvement in the economic outlook and scenarios used in the IFRS 9 MES framework at H1 2021 resulted in a release of modelled ECL. Given continued uncertainty remains due to COVID-19 despite the improved economic outlook, NatWest Group utilised a framework of quantitative and qualitative measures to support the directional change and levels of ECL coverage, including economic data, credit performance insights and problem debt trends. This was particularly important for consideration of post model adjustments.

 

As government support mechanisms continue to conclude during 2021, NatWest Group anticipates further credit deterioration in the portfolios. However, the income statement effect of this will be mitigated by the forward-looking provisions retained on the balance sheet as at 30 June 2021.

 

There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. A key factor would be a more adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates, but also, among others:

·  The ongoing trajectory of lockdown restriction relaxation within the UK and the Republic of Ireland, and any future repeated lockdown requirements.

·  The progress of the COVID-19 vaccination roll-out and its effectiveness against new variants.

·  The efficacy of the various government support initiatives in terms of their ability to defray customer defaults is yet to be proven, notably over an extended period.

·  Higher unemployment if companies fail to retain jobs after the UK furlough scheme concludes in Q3 2021.

·  The level of revenues lost by corporate clients and pace of recovery of those revenues may affect NatWest Group's clients' ability to service their borrowing, especially in those sectors most exposed to the effects of COVID-19.

 

Movement in ECL provision

The table below shows the main ECL provision movements during H1 2021.

 

 

ECL provision

 

£m

At 1 January 2021

6,186

Changes in economic forecasts

(363)

Changes in risk metrics and exposure: Stage 1 and Stage 2

(483)

Changes in risk metrics and exposure: Stage 3

43

Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3

155

Write-offs and other

(613)

At 30 June 2021

4,925

 

 

Risk and capital management

Credit risk - Banking activities

Introduction

This section details the credit risk profile of NatWest Group's banking activities.

 

Financial instruments within the scope of the IFRS 9 ECL framework

Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.

 

Financial assets

 

30 June 2021

 

31 December 2020

 

Gross

ECL

Net

 

Gross

ECL

Net

 

£bn

£bn

£bn

 

£bn

£bn

£bn

Balance sheet total gross amortised cost and FVOCI

586.1

 

 

 

555.0

 

 

In scope of IFRS 9 ECL framework

575.9

 

 

 

548.8

 

 

% in scope

98%

 

 

 

99%

 

 

Loans to customers - in scope - amortised cost

367.0

4.7

362.3

 

365.5

6.0

359.5

Loans to customers - in scope - FVOCI

0.7

-

0.7

 

-

-

-

Loans to banks - in scope - amortised cost

7.9

-

7.9

 

6.8

-

6.8

Total loans - in scope

375.6

4.7

370.9

 

372.3

6.0

366.3

  Stage 1

316.7

0.4

316.3

 

287.1

0.5

286.6

  Stage 2

53.2

2.2

51.0

 

78.9

3.0

75.9

  Stage 3

5.7

2.1

3.6

 

6.3

2.5

3.8

Other financial assets - in scope - amortised cost

159.2

-

159.2

 

132.1

-

132.1

Other financial assets - in scope - FVOCI

41.1

-

41.1

 

44.4

-

44.4

Total other financial assets - in scope

200.3

-

200.3

 

176.5

-

176.5

  Stage 1

199.5

-

199.5

 

175.5

-

175.5

  Stage 2

0.8

-

0.8

 

1.0

-

1.0

Out of scope of IFRS 9 ECL framework

10.2

na

10.2

 

6.2

na

6.2

Loans to customers - out of scope - amortised cost

0.4

na

0.4

 

1.0

na

1.0

Loans to banks - out of scope - amortised cost

0.3

na

0.3

 

0.1

na

0.1

Other financial assets - out of scope - amortised cost

9.2

na

9.2

 

4.6

na

4.6

Other financial assets - out of scope - FVOCI

0.3

na

0.3

 

0.5

na

0.5

na = not applicable

 

The assets outside the IFRS 9 ECL framework were as follows:

Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £8.5 billion (31 December 2020 - £4.1 billion). These were assessed as having no ECL unless there was evidence that they were credit impaired.

Equity shares of £0.3 billion (31 December 2020 - £0.3 billion) as not within the IFRS 9 ECL framework by definition. 

Fair value adjustments on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope - £1.0 billion (31 December 2020 - £1.4 billion).

NatWest Group originated securitisations, where ECL was captured on the underlying loans of £0.4 billion (31 December 2020 - £0.4 billion).

 

 

Contingent liabilities and commitments

In addition to contingent liabilities and commitments disclosed in Note 11, reputationally-committed limits, are also included in the scope of the IFRS 9 ECL framework. These are offset by nil (31 December 2020 - £0.2 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as amortised cost or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £127.6 billion (31 December 2020 - £133.6 billion) comprised Stage 1 £110.6 billion (31 December 2020 - £107.4 billion); Stage 2 £16.2 billion (31 December 2020 - £25.2 billion); and Stage 3 £0.8 billion (31 December 2020 - £1.0 billion).

 

The ECL relating to contingent liabilities is £0.2 billion (31 December 2020 - £0.2 billion). The total ECL in the remainder of the credit risk section of £4.9 billion includes ECL for both balance sheet exposure and contingent liabilities.

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Segment analysis - portfolio summary

The table below shows gross loans and related credit impairment measures, within the scope of the IFRS 9 ECL framework.

 

 

 

 

International Banking & Markets

 

 

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Total

30 June 2021

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI

 

 

 

 

 

 

 

 

Stage 1

158,989

16,728

75,713

15,027

7,019

13,732

29,493

316,701

Stage 2

18,866

1,444

27,895

1,342

721

2,821

99

53,188

Stage 3

1,921

307

2,226

206

108

935

-

5,703

Of which: individual

-

307

1,202

206

98

38

-

1,851

Of which: collective

1,921

-

1,024

-

10

897

-

3,852

 

179,776

18,479

105,834

16,575

7,848

17,488

29,592

375,592

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

120

21

208

15

10

44

15

433

Stage 2

709

49

1,222

46

36

225

13

2,300

Stage 3

811

36

812

47

88

398

-

2,192

Of which: individual

-

36

386

47

79

12

-

560

Of which: collective

811

-

426

-

9

386

-

1,632

 

1,640

106

2,242

108

134

667

28

4,925

ECL provisions coverage (2,3)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.08

0.13

0.27

0.10

0.14

0.32

0.05

0.14

Stage 2 (%)

3.76

3.39

4.38

3.43

4.99

7.98

13.13

4.32

Stage 3 (%)

42.22

11.73

36.48

22.82

81.48

42.57

-

38.44

 

0.91

0.57

2.12

0.65

1.71

3.81

0.09

1.31

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2021

 

 

 

 

 

 

 

 

Impairment losses

 

 

 

 

 

 

 

 

ECL (release)/charge (4)

(57)

(27)

(568)

(29)

(16)

(11)

1

(707)

Stage 1

(195)

(27)

(405)

(23)

(8)

(43)

-

(701)

Stage 2

45

(4)

(141)

(4)

(5)

8

1

(100)

Stage 3

93

4

(22)

(2)

(3)

24

-

94

Of which: individual

-

4

(29)

(2)

1

1

-

(25)

Of which: collective

93

-

7

-

(4)

23

-

119

ECL loss rate - annualised

 

 

 

 

 

 

 

 

   (basis points) (3)

(6)

(29)

(107)

(35)

(41)

(13)

1

(38)

Amounts written-off

138

5

257

1

40

76

-

517

Of which: individual

-

5

210

1

40

-

-

256

Of which: collective

138

-

47

-

-

76

-

261

 

For the notes to this table refer to the following page.

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Segment analysis - portfolio summary

 

 

 

 

 

International Banking & Markets

 

 

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Total

31 December 2020

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI

 

 

 

 

 

 

 

 

Stage 1

139,956

15,321

70,685

12,143

7,780

14,380

26,859

287,124

Stage 2

32,414

1,939

37,344

2,242

1,566

3,302

110

78,917

Stage 3

1,891

298

2,551

211

171

1,236

-

6,358

Of which: individual

-

298

1,578

211

162

43

-

2,292

Of which: collective

1,891

-

973

-

9

1,193

-

4,066

 

174,261

17,558

110,580

14,596

9,517

18,918

26,969

372,399

ECL provisions (1)

 

 

 

 

 

 

 

 

Stage 1

134

31

270

14

12

45

13

519

Stage 2

897

68

1,713

74

49

265

15

3,081

Stage 3

806

39

1,069

48

132

492

-

2,586

Of which: individual

-

39

607

48

124

13

-

831

Of which: collective

806

-

462

-

8

479

-

1,755

 

1,837

138

3,052

136

193

802

28

6,186

ECL provisions coverage (2,3)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.10

0.20

0.38

0.12

0.15

0.31

0.05

0.18

Stage 2 (%)

2.77

3.51

4.59

3.30

3.13

8.03

13.64

3.90

Stage 3 (%)

42.62

13.09

41.91

22.75

77.19

39.81

-

40.67

 

1.05

0.79

2.76

0.93

2.03

4.24

0.10

1.66

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2020

 

 

 

 

 

 

 

 

Impairment losses

 

 

 

 

 

 

 

 

ECL charge (4)

657

56

1,790

46

40

243

26

2,858

Stage 1

24

16

231

4

10

12

11

308

Stage 2

524

39

1,323

20

43

186

15

2,150

Stage 3

109

1

236

22

(13)

45

-

400

Of which: individual

-

1

114

22

(4)

(2)

-

131

Of which: collective

109

-

122

-

(9)

47

-

269

ECL loss rate - annualised

 

 

 

 

 

 

 

 

   (basis points) (3)

79

69

312

63

63

197

25

154

Amounts written-off

117

1

120

2

4

164

-

408

Of which: individual

-

1

34

2

4

 -   

-

41

Of which: collective

117

-

86

-

-

164

-

367

 

Notes:

(1)    Includes £6 million (31 December 2020 - £6 million) related to assets classified as FVOCI.

(2)    ECL provisions coverage is calculated as ECL provisions divided by loans - amortised cost and FVOCI.

(3)    ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans - amortised cost and FVOCI. The half year ECL charge is annualised by multiplying by two.

(4)    Includes a £4 million charge (30 June 2020 - £5 million) related to other financial assets, of which nil (30 June 2020 - £4 million) related to assets classified as FVOCI; and £2 million (30 June 2020 - £8 million) related to contingent liabilities.

(5)    The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 29 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £150.5 billion (31 December 2020 - £122.7 billion) and debt securities of £49.8 billion (31 December 2020 - £53.8 billion).

(6)    The stage allocation of the ECL charge was aligned to the stage transition approach that underpins the analysis in the Flow statement section.

 

Key points

ECL reduced significantly on Stage 1 and Stage 2 exposures, reflecting a more positive economic outlook, commensurate with reduced levels of uncertainty due to vaccination progress and economic rebound as lockdown eases.

The various customer support mechanisms which continue to be available mitigate against flows to default in the short-term. Hence, there was a limited effect on Stage 3 ECL requirements during H1 2021.

Reflecting the improved economic environment and resultant ECL releases across all key businesses, the annualised loss rate has reduced to negative 38bps.

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Segment loans and impairment metrics

The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.

 

 

Gross loans

 

ECL provisions (2)

 

 

Stage 2 (1)

 

 

 

 

Stage 2 (1)

 

 

 

 

Not past

1-30

>30

 

 

 

 

 

Not past

1-30

>30

 

 

 

 

Stage 1

due

DPD

DPD

Total

Stage 3

Total

 

Stage 1

due

DPD

DPD

Total

Stage 3

Total

30 June 2021

£m

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

£m

£m

Retail Banking

158,989

17,478

895

493

18,866

1,921

179,776

 

120

626

44

39

709

811

1,640

Private Banking

16,728

1,376

38

30

1,444

307

18,479

 

21

49

-

-

49

36

106

Personal

13,783

114

38

27

179

267

14,229

 

6

2

-

-

2

17

25

Wholesale

2,945

1,262

-

3

1,265

40

4,250

 

15

47

-

-

47

19

81

Commercial Banking

75,713

26,569

876

450

27,895

2,226

105,834

 

208

1,155

49

18

1,222

812

2,242

International Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  & Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      RBS International

15,027

1,311

17

14

1,342

206

16,575

 

15

45

-

1

46

47

108

      Personal

2,686

19

14

7

40

68

2,794

 

2

1

-

1

2

12

16

      Wholesale

12,341

1,292

3

7

1,302

138

13,781

 

13

44

-

-

44

35

92

      NatWest Markets

7,019

709

-

12

721

108

7,848

 

10

36

-

-

36

88

134

Ulster Bank RoI

13,732

2,636

85

100

2,821

935

17,488

 

44

205

9

11

225

398

667

Personal 

10,798

1,166

78

85

1,329

773

12,900

 

24

59

6

8

73

301

398

Wholesale

2,934

1,470

7

15

1,492

162

4,588

 

20

146

3

3

152

97

269

Central items & other

29,493

99

-

-

99

-

29,592

 

15

13

-

-

13

-

28

Total loans

316,701

50,178

1,911

1,099

53,188

5,703

375,592

 

433

2,129

102

69

2,300

2,192

4,925

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

186,256

18,777

1,025

612

20,414

3,029

209,699

 

152

688

50

48

786

1,141

2,079

Wholesale

130,445

31,401

886

487

32,774

2,674

165,893

 

281

1,441

52

21

1,514

1,051

2,846

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Banking

139,956

30,714

1,080

620

32,414

1,891

174,261

 

134

762

70

65

897

806

1,837

Private Banking

15,321

1,908

17

14

1,939

298

17,558

 

31

67

-

1

68

39

138

Personal

12,799

116

17

11

144

263

13,206

 

7

2

-

-

2

19

28

Wholesale

2,522

1,792

-

3

1,795

35

4,352

 

24

65

-

1

66

20

110

Commercial Banking

70,685

36,451

589

304

37,344

2,551

110,580

 

270

1,648

44

21

1,713

1,069

3,052

International Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  & Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      RBS International

12,143

2,176

46

20

2,242

211

14,596

 

14

72

1

1

74

48

136

      Personal

2,676

18

17

14

49

70

2,795

 

3

1

-

-

1

11

15

      Wholesale

9,467

2,158

29

6

2,193

141

11,801

 

11

71

1

1

73

37

121

      NatWest Markets

7,780

1,457

-

109

1,566

171

9,517

 

12

49

-

-

49

132

193

Ulster Bank RoI

14,380

2,964

144

194

3,302

1,236

18,918

 

45

227

15

23

265

492

802

Personal 

11,117

1,500

115

130

1,745

1,064

13,926

 

27

74

9

13

96

392

515

Wholesale

3,263

1,464

29

64

1,557

172

4,992

 

18

153

6

10

169

100

287

Central items & other

26,859

110

-

-

110

-

26,969

 

13

15

-

-

15

-

28

Total loans

287,124

75,780

1,876

1,261

78,917

6,358

372,399

 

519

2,840

130

111

3,081

2,586

6,186

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

166,548

32,348

1,229

775

34,352

3,288

204,188

 

171

839

79

78

996

1,228

2,395

Wholesale

120,576

43,432

647

486

44,565

3,070

168,211

 

348

2,001

51

33

2,085

1,358

3,791

 

For the notes to this table refer to the following page.

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Segment loans and impairment metrics

The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework.

 

 

 

 

ECL provisions coverage

 

Half year ended 30 June 2021

 

 

Stage 2 (1,2)

 

 

 

ECL

 

 

Not past

 

 

 

 

 

 

Total

 

Amounts

 

Stage 1

due

1-30 DPD

>30 DPD

Total

Stage 3

Total

 

(release)/charge

Loss rate

written-off

30 June 2021

%

%

%

%

%

%

%

 

£m

basis points

£m

Retail Banking

0.08

3.58

4.92

7.91

3.76

42.22

0.91

 

(57)

(6)

138

Private Banking

0.13

3.56

-

-

3.39

11.73

0.57

 

(27)

(29)

5

Personal

0.04

1.75

-

-

1.12

6.37

0.18

 

(4)

(6)

(1)

Wholesale

0.51

3.72

-

-

3.72

47.50

1.91

 

(23)

(108)

6

Commercial Banking

0.27

4.35

5.59

4.00

4.38

36.48

2.12

 

(568)

(107)

257

International Banking

 

 

 

 

 

 

 

 

 

 

 

  & Markets

 

 

 

 

 

 

 

 

 

 

 

      RBS International

0.10

3.43

-

7.14

3.43

22.82

0.65

 

(29)

(35)

1

      Personal

0.07

5.26

-

14.29

5.00

17.65

0.57

 

-

-

-

      Wholesale

0.11

3.41

-

-

3.38

25.36

0.67

 

(29)

(42)

1

      NatWest Markets

0.14

5.08

-

-

4.99

81.48

1.71

 

(16)

(41)

40

Ulster Bank RoI

0.32

7.78

10.59

11.00

7.98

42.57

3.81

 

(11)

(13)

76

Personal 

0.22

5.06

7.69

9.41

5.49

38.94

3.09

 

(11)

(17)

71

Wholesale

0.68

9.93

42.86

20.00

10.19

59.88

5.86

 

-

-

5

Central items & other

0.05

13.13

-

-

13.13

-

0.09

 

1

1

-

Total loans

0.14

4.24

5.34

6.28

4.32

38.44

1.31

 

(707)

(38)

517

Of which:

 

 

 

 

 

 

 

 

 

 

 

Personal

0.08

3.66

4.88

7.84

3.85

37.67

0.99

 

(72)

(7)

208

Wholesale

0.22

4.59

5.87

4.31

4.62

39.30

1.72

 

(635)

(77)

309

 

 

ECL provisions coverage

 

Half year ended 30 June 2020

 

 

Stage 2 (1,2)

 

 

 

ECL

 

 

Not past

 

 

 

 

 

 

Total

 

Amounts

 

Stage 1

due

1-30 DPD

>30 DPD

Total

Stage 3

Total

 

charge/
(release)

Loss rate

written-off

31 December 2020

%

%

%

%

%

%

%

 

£m

basis points

£m

Retail Banking

0.10

2.48

6.48

10.48

2.77

42.62

1.05

 

657

79

117

Private Banking

0.20

3.51

-

7.14

3.51

13.09

0.79

 

56

69

1

Personal

0.05

1.72

-

-

1.39

7.22

0.21

 

3

5

-

Wholesale

0.95

3.63

-

33.33

3.68

57.14

2.53

 

53

273

1

Commercial Banking

0.38

4.52

7.47

6.91

4.59

41.91

2.76

 

1,790

312

120

International Banking

 

 

 

 

 

 

 

 

 

 

 

  & Markets

 

 

 

 

 

 

 

 

 

 

 

      RBS International

0.12

3.31

2.17

5.00

3.30

22.75

0.93

 

46

63

2

      Personal

0.11

5.56

-

-

2.04

15.71

0.54

 

(3)

(21)

2

      Wholesale

0.12

3.29

3.45

16.67

3.33

26.24

1.03

 

49

83

-

      NatWest Markets

0.15

3.36

-

-

3.13

77.19

2.03

 

40

63

4

Ulster Bank RoI

0.31

7.66

10.42

11.86

8.03

39.81

4.24

 

243

197

164

Personal

0.24

4.93

7.83

10.00

5.50

36.84

3.70

 

120

168

162

Wholesale

0.55

10.45

20.69

15.63

10.85

58.14

5.75

 

123

236

2

Central items & other

0.05

13.64

-

-

13.64

-

0.10

 

26

25

-

Total loans

0.18

3.75

6.93

8.80

3.90

40.67

1.66

 

2,858

154

408

Of which:

 

 

 

 

 

 

 

 

 

 

 

Personal

0.10

2.59

6.43

10.06

2.90

37.35

1.17

 

777

79

281

Wholesale

0.29

4.61

7.88

6.79

4.68

44.23

2.25

 

2,081

238

127

 

 

Notes:

(1)   30 DPD - 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for a SICR.

(2)   ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Segment loans and impairment metrics

Key points

·    Retail Banking - Balance sheet growth during H1 2021 was mainly due to mortgages. In line with the market, mortgage demand was strong during the first six months of the year, supported by the extension of the stamp duty holiday and overall improvements in economic conditions. The improved economic outlook captured in the updated MES scenarios, including a more positive forecast on unemployment levels, resulted in reduced account level PDs compared to the year end. Unsecured lending balances reduced over the same period as customer spend and demand for borrowing has been subdued during COVID-19 restrictions, particularly in the first quarter of 2021. Lending criteria were selectively relaxed in H1 2021 to support growing demand for secured and unsecured borrowing, as lockdown restrictions eased.

·    Portfolio performance remained stable, for further details refer to the Personal portfolio section below. Arrears levels in both the mortgage and unsecured portfolios remained low overall, however, a small number of customers who had utilised their full payment holiday support did migrate into late arrears during H1 2021. With the vast majority of payment holidays now complete, this trend stabilised by the end of H1 2021 and new inflows to arrears were below pre-COVID-19 levels. The improved economic conditions alongside continued benign credit performance in the portfolio, resulted in a smaller proportion of customer accounts triggering SICR and an associated migration of assets from Stage 2 to Stage 1, resulting in reduced ECL. The various COVID-19 related customer support mechanisms (e.g. loan repayment holidays, government job retention scheme) have mitigated actual portfolio deterioration in the short term, with the days past due and flows to Stage 3 yet to be materially affected. Provisions coverage reduced overall mirroring the positive trajectory of the COVID-19 vaccination, labour market trends and portfolio performance. The annualised loss rate for H1 2021 was significantly lower than in 2020.

·    Commercial Banking - Balance sheet reduction occurred across the key sectors of the portfolio that continue to be affected by COVID-19, including off-balance sheet exposures in the Land Transport & Logistics, Oil and Gas, Automotive and Retail sectors. Sector appetite continued to be regularly reviewed with oversight classifications adjusted based on updated financial performance and economic outlook for the sectors. The improved economic outlook, including positive movement in GDP and commercial real estate valuations, resulted in lower IFRS 9 PDs. Consequently, there was a reduction in exposures exhibiting a SICR which caused a migration of assets from Stage 2 to Stage 1. As a result, the ECL requirement decreased. Reflecting the residual uncertainty arising from COVID-19, management judged it appropriate to maintain certain ECL post model adjustments. The various COVID-19 related customer support mechanisms continued to mitigate against flows into default. The Stage 2 exposure reduced with PMAs dampening the associated ECL reduction. The loss rate was significantly lower in H1 2021 than in the prior year.

·    Ulster Bank RoI - Balance sheet reductions since the 2020 year end were a result of diminished credit demand caused by COVID-19 disruption and the announcement of the phased withdrawal of Ulster Bank RoI from the Irish market. The weakening of the euro against sterling further contributed to this balance sheet reduction. Decreases in ECL reflected ongoing deleveraging of the non-performing mortgage portfolio through the execution of the final tranche of a 2019 debt sale. The various COVID-19 related customer support mechanisms are mitigating actual portfolio deterioration in the short term, with the days past due and flows to Stage 3 yet to be materially impacted. The annualised loss rate for H1 2021 was significantly lower than in 2020.   

 

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary

The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region.

 

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

30 June 2021

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

196,708

3,727

9,264

209,699

 

35,941

74,122

50,072

5,758

165,893

 

375,592

  - UK

184,046

3,660

9,093

196,799

 

33,825

63,855

36,774

4,223

138,677

 

335,476

  - RoI

12,662

67

171

12,900

 

1,137

3,677

321

27

5,162

 

18,062

  - Other Europe

-

-

-

-

 

621

3,759

4,799

878

10,057

 

10,057

  - RoW

-

-

-

-

 

358

2,831

8,178

630

11,997

 

11,997

Loans by stage

196,708

3,727

9,264

209,699

 

35,941

74,122

50,072

5,758

165,893

 

375,592

  - Stage 1

177,630

2,562

6,064

186,256

 

28,105

49,050

47,694

5,596

130,445

 

316,701

  - Stage 2

16,750

1,083

2,581

20,414

 

6,782

23,478

2,361

153

32,774

 

53,188

  - Stage 3

2,328

82

619

3,029

 

1,054

1,594

17

9

2,674

 

5,703

  - Of which: individual

315

-

20

335

 

706

791

10

9

1,516

 

1,851

  - Of which: collective

2,013

82

599

2,694

 

348

803

7

-

1,158

 

3,852

Loans - past due analysis (2,3)

196,708

3,727

9,264

209,699

 

35,941

74,122

50,072

5,758

165,893

 

375,592

  - Not past due

193,185

3,618

8,457

205,260

 

34,889

71,810

48,943

5,488

161,130

 

366,390

  - Past due 1-30 days

1,317

25

129

1,471

 

398

1,495

1,110

269

3,272

 

4,743

  - Past due 30-90 days

697

24

93

814

 

251

250

13

1

515

 

1,329

  - Past due 90-180 days

433

23

72

528

 

39

41

-

-

80

 

608

  - Past due >180 days

1,076

37

513

1,626

 

364

526

6

-

896

 

2,522

Loans - Stage 2

16,750

1,083

2,581

20,414

 

6,782

23,478

2,361

153

32,774

 

53,188

  - Not past due

15,331

1,053

2,393

18,777

 

6,330

22,599

2,320

152

31,401

 

50,178

  - Past due 1-30 days

903

14

108

1,025

 

211

647

28

-

886

 

1,911

  - Past due 30-90 days

516

16

80

612

 

241

232

13

1

487

 

1,099

Weighted average life*

 

 

 

 

 

 

 

 

 

 

 

 

   - ECL measurement (years)

9

2

5

6

 

4

6

3

1

5

 

5

Weighted average 12 months PDs*

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.34

5.94

3.51

0.56

 

2.31

2.91

0.41

0.13

1.91

 

1.18

  - Basel (%)

0.77

3.33

3.22

0.91

 

1.23

1.87

0.27

0.14

1.18

 

1.03

ECL provisions by geography

853

289

937

2,079

 

797

1,885

143

21

2,846

 

4,925

  - UK

469

287

925

1,681

 

678

1,482

86

15

2,261

 

3,942

  - RoI

384

2

12

398

 

73

187

13

2

275

 

673

  - Other Europe

-

-

-

-

 

38

97

38

1

174

 

174

  - RoW

-

-

-

-

 

8

119

6

3

136

 

136

ECL provisions by stage 

853

289

937

2,079

 

797

1,885

143

21

2,846

 

4,925

  - Stage 1

43

47

62

152

 

93

149

21

18

281

 

433

  - Stage 2

249

183

354

786

 

313

1,085

115

1

1,514

 

2,300

  - Stage 3

561

59

521

1,141

 

391

651

7

2

1,051

 

2,192

  - Of which: individual

19

-

10

29

 

222

304

3

2

531

 

560

  - Of which: collective

542

59

511

1,112

 

169

347

4

-

520

 

1,632

ECL provisions coverage (%)

0.43

7.75

10.11

0.99

 

2.22

2.54

0.29

0.36

1.72

 

1.31

  - Stage 1 (%)

0.02

1.83

1.02

0.08

 

0.33

0.30

0.04

0.32

0.22

 

0.14

  - Stage 2 (%)

1.49

16.90

13.72

3.85

 

4.62

4.62

4.87

0.65

4.62

 

4.32

  - Stage 3 (%)

24.10

71.95

84.17

37.67

 

37.10

40.84

41.18

22.22

39.30

 

38.44

ECL (release)/charge

(53)

(17)

(2)

(72)

 

(195)

(465)

22

3

(635)

 

(707)

  - UK

(40)

(17)

(3)

(60)

 

(224)

(373)

28

2

(567)

 

(627)

  - RoI

(13)

-

1

(12)

 

40

(49)

9

1

1

 

(11)

  - Other Europe

-

-

-

-

 

(20)

(10)

(8)

-

(38)

 

(38)

  - RoW

-

-

-

-

 

9

(33)

(7)

-

(31)

 

(31)

ECL loss rate (%)

(0.05)

(0.91)

(0.04)

(0.07)

 

(1.09)

(1.25)

0.09

0.10

(0.77)

 

(0.38)

Amounts written-off 

74

45

89

208

 

120

187

2

-

309

 

517

 

 

 

*Not within the scope of EY's review report.

 

For the notes to this table refer to page 38.

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary

 

 

 

 

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

30 June 2021

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by residual maturity

196,708

3,727

9,264

209,699

 

35,941

74,122

50,072

5,758

165,893

 

375,592

 - <1 year 

3,761

2,420

3,080

9,261

 

9,876

22,159

39,865

2,713

74,613

 

83,874

 - 1-5 year

12,075

1,307

5,286

18,668

 

17,145

35,795

9,147

1,714

63,801

 

82,469

 - 5 year

180,872

-

898

181,770

 

8,920

16,168

1,060

1,331

27,479

 

209,249

Other financial assets by asset quality (4)

-

-

-

-

 

93

12

10,764

189,412

200,281

 

200,281

  - AQ1-AQ4

-

-

-

-

 

-

12

10,263

189,375

199,650

 

199,650

  - AQ5-AQ8

-

-

-

-

 

93

-

501

37

631

 

631

Off-balance sheet

12,825

14,470

10,251

37,546

 

17,591

55,538

15,585

1,358

90,072

 

127,618

  - Loan commitments

12,822

14,470

10,212

37,504

 

17,083

52,626

14,659

1,356

85,724

 

123,228

  - Financial guarantees

3

-

39

42

 

508

2,912

926

2

4,348

 

4,390

Off-balance sheet by asset quality (4)

12,825

14,470

10,251

37,546

 

17,591

55,538

15,585

1,358

90,072

 

127,618

  - AQ1-AQ4

12,021

185

8,514

20,720

 

13,130

30,984

14,148

1,212

59,474

 

80,194

  - AQ5-AQ8

795

13,991

1,718

16,504

 

4,368

24,071

1,434

146

30,019

 

46,523

  - AQ9 

-

9

7

16

 

8

38

-

-

46

 

62

  - AQ10

9

285

12

306

 

85

445

3

-

533

 

839

 

For the notes to this table refer to page 38.

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

31 December 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by geography

190,516

3,895

9,777

204,188

 

38,076

77,533

47,643

4,959

168,211

 

372,399

  - UK

176,866

3,816

9,580

190,262

 

35,617

65,968

34,847

3,776

140,208

 

330,470

  - RoI

13,650

79

197

13,926

 

1,241

4,056

348

30

5,675

 

19,601

  - Other Europe

-

-

-

-

 

772

4,132

4,535

538

9,977

 

9,977

  - RoW

-

-

-

-

 

446

3,377

7,913

615

12,351

 

12,351

Loans by stage

190,516

3,895

9,777

204,188

 

38,076

77,533

47,643

4,959

168,211

 

372,399

  - Stage 1

158,387

2,411

5,750

166,548

 

23,733

48,090

44,002

4,751

120,576

 

287,124

  - Stage 2

29,571

1,375

3,406

34,352

 

13,021

27,716

3,624

204

44,565

 

78,917

  - Stage 3

2,558

109

621

3,288

 

1,322

1,727

17

4

3,070

 

6,358

  - Of which: individual

308

-

26

334

 

987

958

9

4

1,958

 

2,292

  - Of which: collective

2,250

109

595

2,954

 

335

769

8

-

1,112

 

4,066

Loans - past due analysis (2,3)

190,516

3,895

9,777

204,188

 

38,076

77,533

47,643

4,959

168,211

 

372,399

  - Not past due

186,592

3,770

8,868

199,230

 

36,818

75,690

47,195

4,689

164,392

 

363,622

  - Past due 1-30 days

1,482

29

192

1,703

 

348

990

328

270

1,936

 

3,639

  - Past due 30-90 days

863

26

135

1,024

 

260

251

113

-

624

 

1,648

  - Past due 90-180 days

456

20

66

542

 

161

67

-

-

228

 

770

  - Past due >180 days

1,123

50

516

1,689

 

489

535

7

-

1,031

 

2,720

Loans - Stage 2

29,571

1,375

3,406

34,352

 

13,021

27,716

3,624

204

44,565

 

78,917

  - Not past due

27,893

1,340

3,115

32,348

 

12,708

27,036

3,484

204

43,432

 

75,780

  - Past due 1-30 days

1,038

18

173

1,229

 

160

457

30

-

647

 

1,876

  - Past due 30-90 days

640

17

118

775

 

153

223

110

-

486

 

1,261

Weighted average life*

 

 

 

 

 

 

 

 

 

 

 

 

   - ECL measurement (years)

9

2

5

6

 

4

6

4

-

5

 

5

Weighted average 12 months PDs*

 

 

 

 

 

 

 

 

 

 

 

 

  - IFRS 9 (%)

0.72

6.17

4.82

1.03

 

3.99

3.70

0.51

0.13

2.73

 

1.81

  - Basel (%)

0.85

3.40

3.82

1.03

 

1.66

2.51

0.32

0.15

1.54

 

1.25

ECL provisions by geography

1,005

354

1,036

2,395

 

1,175

2,478

121

17

3,791

 

6,186

  - UK

506

351

1,024

1,881

 

1,069

1,907

60

12

3,048

 

4,929

  - RoI

499

3

12

514

 

41

277

3

1

322

 

836

  - Other Europe

-

-

-

-

 

53

125

46

1

225

 

225

  - RoW

-

-

-

-

 

12

169

12

3

196

 

196

ECL provisions by stage 

1,005

354

1,036

2,395

 

1,175

2,478

121

17

3,791

 

6,186

  - Stage 1

51

53

67

171

 

123

188

23

14

348

 

519

  - Stage 2

319

225

452

996

 

507

1,487

90

1

2,085

 

3,081

  - Stage 3

635

76

517

1,228

 

545

803

8

2

1,358

 

2,586

  - Of which: individual

18

-

12

30

 

360

436

3

2

801

 

831

  - Of which: collective

617

76

505

1,198

 

185

367

5

-

557

 

1,755

ECL provisions coverage (%)

0.53

9.09

10.60

1.17

 

3.09

3.20

0.25

0.34

2.25

 

1.66

  - Stage 1 (%)

0.03

2.20

1.17

0.10

 

0.52

0.39

0.05

0.29

0.29

 

0.18

  - Stage 2 (%)

1.08

16.36

13.27

2.90

 

3.89

5.37

2.48

0.49

4.68

 

3.90

  - Stage 3 (%)

24.82

69.72

83.25

37.35

 

41.23

46.50

47.06

50.00

44.23

 

40.67

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

 

ECL charge

243

164

370

777

 

568

1,439

73

1

2,081

 

2,858

  - UK

136

163

358

657

 

501

1,238

26

1

1,766

 

2,423

  - RoI

107

1

12

120

 

47

77

1

-

125

 

245

  - Other Europe

-

-

-

-

 

16

50

36

-

102

 

102

  - RoW

-

-

-

-

 

4

74

10

-

88

 

88

ECL loss rate (%)

0.27

8.59

7.40

0.79

 

2.81

3.52

0.34

0.02

2.38

 

1.54

Amounts written-off 

169

49

63

281

 

21

104

2

-

127

 

408

 

 

 

*Not within the scope of EY's review report.

 

For the notes to this table refer to the following page.

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - portfolio summary

 

 

Personal

 

Wholesale

 

Total

 

 

Credit

Other

 

 

 

 

 

 

 

 

 

 

Mortgages (1)

cards

personal

Total

 

Property

Corporate

FI

Sovereign

Total

 

 

31 December 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

 

£m

Loans by residual maturity

190,516

3,895

9,777

204,188

 

38,076

77,533

47,643

4,959

168,211

 

372,399

 - <1 year 

3,831

2,557

3,249

9,637

 

8,669

23,015

38,203

2,196

72,083

 

81,720

 - 1-5 year

12,193

1,338

5,509

19,040

 

20,029

36,640

8,340

1,590

66,599

 

85,639

 - 5 year

174,492

-

1,019

175,511

 

9,378

17,878

1,100

1,173

29,529

 

205,040

Other financial assets by asset quality (4)

-

-

-

-

 

98

116

11,093

165,209

176,516

 

176,516

  - AQ1-AQ4

-

-

-

-

 

-

116

10,734

165,184

176,034

 

176,034

  - AQ5-AQ8

-

-

-

-

 

98

-

359

25

482

 

482

Off-balance sheet

14,557

14,262

10,186

39,005

 

17,397

58,635

17,011

1,587

94,630

 

133,635

  - Loan commitments

14,554

14,262

10,144

38,960

 

16,829

55,496

15,935

1,585

89,845

 

128,805

  - Financial guarantees

3

-

42

45

 

568

3,139

1,076

2

4,785

 

4,830

Off-balance sheet by asset quality (4)

14,557

14,262

10,186

39,005

 

17,397

58,635

17,011

1,587

94,630

 

133,635

  - AQ1-AQ4

13,610

148

8,008

21,766

 

12,917

33,939

15,460

1,404

63,720

 

85,486

  - AQ5-AQ8

937

13,809

2,152

16,898

 

4,372

24,065

1,544

183

30,164

 

47,062

  - AQ9 

1

8

9

18

 

13

76

1

-

90

 

108

  - AQ10

9

297

17

323

 

95

555

6

-

656

 

979

 

Notes:

(1)

Includes a portion of secured lending in Private Banking, in line with ECL calculation methodology. Private Banking and RBS International mortgages are reported in UK, which includes crown dependencies, reflecting the country of lending origination.

(2)

30 DPD - 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR.

(3)

Days past due - Personal products: at a high level, for amortising products, the number of days past due is derived from the arrears amount outstanding and the monthly repayment instalment. For credit cards, it is based on payments missed, and for current accounts the number of continual days in excess of borrowing limit. Wholesale products: the number of days past due for all products is the number of continual days in excess of borrowing limit.

(4)

AQ bandings are based on Basel PDs and the mapping is as follows:

 

Internal asset quality band

Probability of default range

Indicative S&P rating

AQ1

0% - 0.034%

AAA to AA

AQ2

0.034% - 0.048%

AA to AA-

AQ3

0.048% - 0.095%

A+ to A

AQ4

0.095% - 0.381%

BBB+ to BBB-

AQ5

0.381% - 1.076%

BB+ to BB

AQ6

1.076% - 2.153%

BB- to B+

AQ7

2.153% - 6.089%

B+ to B

AQ8

6.089% - 17.222%

B- to CCC+

AQ9

17.222% - 100%

CCC to C

AQ10

100%

D

                                                                   

£0.3 billion (31 December 2020 - £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. AQ10 includes £0.3 billion (31 December 2020 - £0.4 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3.

 

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - COVID-19 impact

The table below shows ECL, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19.

 

 

 

 

Off-balance sheet

 

 

 

Loans - amortised cost & FVOCI

 

Loan

Contingent

 

ECL provisions 

 

Stage 1

Stage 2

Stage 3

Total

 

commitments

liabilities

 

Stage 1

Stage 2

Stage 3

Total

30 June 2021

£m

£m

£m

£m

 

£m

£m

 

£m

£m

£m

£m

Personal

186,256

20,414

3,029

209,699

 

37,504

42

 

152

786

1,141

2,079

  Mortgages

177,630

16,750

2,328

196,708

 

12,822

3

 

43

249

561

853

  Credit cards

2,562

1,083

82

3,727

 

14,470

-

 

47

183

59

289

  Other personal

6,064

2,581

619

9,264

 

10,212

39

 

62

354

521

937

Wholesale

130,445

32,774

2,674

165,893

 

85,724

4,348

 

281

1,514

1,051

2,846

  Property

28,105

6,782

1,054

35,941

 

17,083

508

 

93

313

391

797

  Financial institutions

47,694

2,361

17

50,072

 

14,659

926

 

21

115

7

143

  Sovereign

5,596

153

9

5,758

 

1,356

2

 

18

1

2

21

  Corporate

49,050

23,478

1,594

74,122

 

52,626

2,912

 

149

1,085

651

1,885

    Of which:

 

 

 

 

 

 

 

 

 

 

 

 

        Airlines and aerospace 

635

1,017

60

1,712

 

1,805

209

 

2

33

27

62

        Automotive

4,214

1,617

201

6,032

 

3,897

98

 

15

60

14

89

        Education

864

616

68

1,548

 

1,144

17

 

2

22

18

42

        Health

3,136

2,276

123

5,535

 

650

12

 

12

116

47

175

        Land transport and logistics

3,131

1,578

53

4,762

 

3,061

170

 

7

83

30

120

        Leisure

3,264

5,578

305

9,147

 

2,106

123

 

15

323

142

480

        Oil and gas

1,005

415

60

1,480

 

1,663

339

 

3

11

31

45

        Retail

6,133

2,303

191

8,627

 

5,339

468

 

13

112

80

205

Total

316,701

53,188

5,703

375,592

 

123,228

4,390

 

433

2,300

2,192

4,925

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

Personal

166,548

34,352

3,288

204,188

 

38,960

45

 

171

996

1,228

2,395

  Mortgages

158,387

29,571

2,558

190,516

 

14,554

3

 

51

319

635

1,005

  Credit cards

2,411

1,375

109

3,895

 

14,262

-

 

53

225

76

354

  Other personal

5,750

3,406

621

9,777

 

10,144

42

 

67

452

517

1,036

Wholesale

120,576

44,565

3,070

168,211

 

89,845

4,785

 

348

2,085

1,358

3,791

  Property

23,733

13,021

1,322

38,076

 

16,829

568

 

123

507

545

1,175

  Financial institutions

44,002

3,624

17

47,643

 

15,935

1,076

 

23

90

8

121

  Sovereign

4,751

204

4

4,959

 

1,585

2

 

14

1

2

17

  Corporate

48,090

27,716

1,727

77,533

 

55,496

3,139

 

188

1,487

803

2,478

    Of which:

 

 

 

 

 

 

 

 

 

 

 

 

        Airlines and aerospace

753

1,213

41

2,007

 

1,888

215

 

2

42

25

69

        Automotive

4,383

1,759

161

6,303

 

4,205

102

 

17

63

17

97

        Education

821

754

63

1,638

 

1,016

16

 

2

41

17

60

        Health

2,694

2,984

131

5,809

 

616

14

 

13

164

48

225

        Land transport and logistics

2,868

1,823

111

4,802

 

3,782

197

 

8

98

32

138

        Leisure

3,299

6,135

385

9,819

 

2,199

125

 

22

439

204

665

        Oil and gas

1,178

300

83

1,561

 

2,225

346

 

4

20

59

83

        Retail

6,702

2,282

187

9,171

 

5,888

512

 

18

112

101

231

Total

287,124

78,917

6,358

372,399

 

128,805

4,830

 

519

3,081

2,586

6,186

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Sector analysis - COVID-19 impact

The table below shows ECL, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19. It also includes 2019 data to allow a pre-COVID19 comparison.

 

ECL provisions

 

30 June 2021 

 

31 December 2020 

 

31 December 2019 

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

£m

Personal

152

786

1,141

2,079

 

171

996

1,228

2,395

 

130

503

1,449

2,082

Mortgages

43

249

561

853

 

51

319

635

1,005

 

25

118

821

964

Cards

47

183

59

289

 

53

225

76

354

 

40

132

89

261

Other Personal

62

354

521

937

 

67

452

517

1,036

 

65

253

539

857

Wholesale

281

1,514

1,051

2,846

 

348

2,085

1,358

3,791

 

192

249

1,269

1,710

Property

93

313

391

797

 

123

507

545

1,175

 

45

47

402

494

Financial institutions

21

115

7

143

 

23

90

8

121

 

16

4

8

28

Sovereigns

18

1

2

21

 

14

1

2

17

 

7

-

-

7

Corporate

149

1,085

651

1,885

 

188

1,487

803

2,478

 

124

198

859

1,181

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airlines and aerospace (1)

2

33

27

62

 

2

42

25

69

 

2

3

55

60

Automotive

15

60

14

89

 

17

63

17

97

 

12

11

15

38

Education

2

22

18

42

 

2

41

17

60

 

2

4

1

7

Health

12

116

47

175

 

13

164

48

225

 

9

16

52

77

Land transport & logistics

7

83

30

120

 

8

98

32

138

 

6

12

21

39

Leisure

15

323

142

480

 

22

439

204

665

 

25

27

175

227

Oil and gas

3

11

31

45

 

4

20

59

83

 

5

3

55

63

Retail

13

112

80

205

 

18

112

101

231

 

13

16

180

209

Total

433

2,300

2,192

4,925

 

519

3,081

2,586

6,186

 

322

752

2,718

3,792

 

The table below shows ECL provisions coverage, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19. It also includes 2019 data to allow a pre-COVID19 comparison.

 

 

ECL provisions coverage

 

30 June 2021 

 

31 December 2020 

 

31 December 2019 

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

%

%

%

%

 

%

%

%

%

 

%

%

%

%

Personal

0.08

3.85

37.67

0.99

 

0.10

2.90

37.35

1.17

 

0.08

3.35

35.90

1.10

Mortgages

0.02

1.49

24.10

0.43

 

0.03

1.08

24.82

0.53

 

0.02

1.03

25.05

0.55

Cards

1.83

16.90

71.95

7.75

 

2.20

16.36

69.72

9.09

 

1.29

10.48

76.72

5.83

Other Personal

1.02

13.72

84.17

10.11

 

1.17

13.27

83.25

10.60

 

0.87

10.95

83.83

8.25

Wholesale

0.22

4.62

39.30

1.72

 

0.29

4.68

44.23

2.25

 

0.14

1.94

49.53

1.16

Property

0.33

4.62

37.10

2.22

 

0.52

3.89

41.23

3.09

 

0.14

1.82

44.92

1.36

Financial institutions

0.04

4.87

41.18

0.29

 

0.05

2.48

47.06

0.25

 

0.04

0.73

61.54

0.08

Sovereigns

0.32

0.65

22.22

0.36

 

0.29

0.49

50.00

0.34

 

0.16

-

-

0.16

Corporate

0.30

4.62

40.84

2.54

 

0.39

5.37

46.50

3.20

 

0.21

2.04

52.09

1.66

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airlines and aerospace

0.31

3.24

45.00

3.62

 

0.27

3.46

60.98

3.44

 

0.14

1.15

137.50

3.50

Automotive

0.36

3.71

6.97

1.48

 

0.39

3.58

10.56

1.54

 

0.24

0.96

75.00

0.61

Education

0.23

3.57

26.47

2.71

 

0.24

5.44

26.98

3.66

 

0.14

2.60

8.33

0.44

Health

0.38

5.10

38.21

3.16

 

0.48

5.50

36.64

3.87

 

0.19

1.90

31.14

1.35

Land transport & logistics

0.22

5.26

56.60

2.52

 

0.28

5.38

28.83

2.87

 

0.17

3.80

39.62

1.01

Leisure

0.46

5.79

46.56

5.25

 

0.67

7.16

52.99

6.77

 

0.40

2.15

46.42

2.85

Oil and gas

0.30

2.65

51.67

3.04

 

0.34

6.67

71.08

5.32

 

0.26

2.14

63.95

2.93

Retail

0.21

4.86

41.88

2.38

 

0.27

4.91

54.01

2.52

 

0.20

1.25

83.69

2.65

Total

0.14

4.32

38.44

1.31

 

0.18

3.90

40.67

1.66

 

0.11

2.70

41.19

1.13

 

Note:

(1)   Airlines and aerospace Stage 3 ECL as at 31 December 2019 included £27 million of ECL related to contingent liabilities.

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Wholesale forbearance

The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on page 43.

 

The exposure in this section is based on current exposure gross of provisions but reflecting risk transfer where exposure is guaranteed by a third party. Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives - the mark-to-market value; netted where netting agreements exist and net of legally enforceable collateral. Where exposure is guaranteed by a third party not in forbearance, heightened monitoring, or risk of credit loss it will not feature in the table.

 

 

 

 

 

 

Property

FI

Other corporate

Total

30 June 2021

£m

£m

£m

£m

Forbearance (flow)

974

41

3,290

4,305

Forbearance (stock)

1,466

60

5,868

7,394

Heightened Monitoring and Risk of Credit Loss

1,542

206

5,816

7,564

31 December 2020

 

 

 

 

Forbearance (flow)

1,597

68

4,201

5,866

Forbearance (stock)

1,744

92

4,983

6,819

Heightened Monitoring and Risk of Credit Loss

1,600

155

5,771

7,526

 

 

 

Key points

Loans by geography - In Personal, exposures continued to be concentrated in the UK and heavily weighted to mortgages and the vast majority of exposures in the Republic of Ireland remained in mortgages. Balance sheet growth since the 2020 year end was mainly in mortgages. Unsecured lending balances reduced in H1 2021 as noted previously. In Wholesale, exposures were mainly in the UK. Balance sheet reduction was primarily due to lower levels of business activity in the period.

Loans by asset quality (based on Basel II PD) - In Personal, asset quality improved from the 2020 year end, supported by actions taken at the outset of COVID-19 to maintain credit quality. In Wholesale, Basel II PDs were based on a through-the-cycle approach. The asset quality distribution demonstrated mild improvements across the portfolio consistent with the improvement in the economic outlook for the UK since 31 December 2020. For further details refer to the Asset quality section.

Loans by stage - In both Wholesale and Personal, the improved economic outlook resulted in reduced IFRS 9 PDs compared to the 2020 year end. This, alongside continued benign credit performance of the portfolio, resulted in a smaller proportion of accounts to exhibit a SICR and thereby an associated migration of exposures from Stage 2 to Stage 1. In the absence of any other forbearance or SICR triggers, customers granted COVID-19 related payment holidays were not considered forborne and did not result in an automatic trigger to Stage 2. However, a subset of Personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high, continued to be collectively migrated to Stage 2. In Wholesale, BBLS customers granted PAYG options, including the extension of lending terms, periods of reduced repayments and six month payment holidays, were not automatically considered significantly credit deteriorated. PAYG options are a feature of BBLS rather than a concession granted by NatWest Group.

Loans - past due analysis and Stage 2 - The various COVID-19 related customer support mechanisms (capital repayment holidays, government job retention scheme, government supported lending schemes) are mitigating actual portfolio deterioration in the short term, although there have been some increases in past due exposures.

Weighted average PDs - In Personal, the Basel II point-in-time PDs improved during H1 2021. The forward-looking IFRS 9 PDs reduced reflecting the improved economics. PD reductions were most evident in Personal mortgages due to benign arrears performance (catalysed by COVID-19 support mechanisms) combined with the improved economic outlook, which is connected to the need for collective SICR migration and judgemental post model adjustments. In Wholesale, the Basel II PDs were based on a through-the-cycle approach and decreased less than the forward-looking IFRS 9 PDs which reduced, reflecting the improved economic outlook.

ECL provisions by geography - In line with the point relating to loans by geography above, the vast majority of ECL related to exposures in the UK and the Republic of Ireland.

ECL provisions by stage - Stage 1 and Stage 2 provisions have reduced reflecting the improved economic outlook. As outlined above, Stage 3 provisions have yet to be materially affected, mitigated by the various customer support mechanisms noted previously. In Ulster Bank RoI, the Stage 3 ECL reduction was mainly due to a debt sale where the exposure value also reduced.

ECL provisions coverage - Overall provisions coverage reduced, mainly due to the improvement in economic outlook and scenario weightings. The base economic scenario improved compared with H2 2020 reflecting the faster than expected vaccination roll-out, better than expected actual economic data and the persisting strong government support. Stage 2 coverage increased during the period for some Wholesale sectors due to the inclusion of the recovery risk overlay and lower Stage 2 balances.

ECL charge and loss rate - Reflecting the improved economic outlook, the impairment charge was significantly lower, with the annualised loss rate for H1 2021 materially reduced compared with the 2020 year end.

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Key points

Loans by residual maturity - In mortgages, the vast majority of exposures remained greater than five years. In unsecured lending - cards and other - exposures were concentrated in less than five years. In Wholesale, with the exception of financial institutions where new lending was concentrated in less than one year, the majority of new lending was for residual maturity of one to five years, with some greater than five years in line with lending under the government support schemes.

Other financial assets by asset quality - Consisting almost entirely of cash and balances at central banks and debt securities, held in the course of treasury related management activities, these assets were mainly within the AQ1-AQ4 bands.

Off-balance sheet by asset quality - In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts and they increased slightly as drawn exposures reduced. Additionally, the mortgage portfolio had undrawn exposures, where a formal offer had been made to a customer but had not yet drawn down; the value decreased in line with a reduction in the pipeline of offers. There was also a legacy portfolio of flexible mortgages where a customer had the right and ability to draw down further funds. The asset quality distribution in mortgages remained heavily weighted to the highest quality bands AQ1-AQ4, with credit cards and other Personal concentrated in the AQ5-AQ8 bands. In Wholesale, undrawn exposures declined in line with muted credit demand, with customers repaying revolving credit and working capital facilities to optimise liquidity. In addition, sector appetite adjustments in Land Transport and Logistics, Oil & Gas and Retail reduced off-balance sheet exposures to these sectors.

Wholesale forbearance - Customers seeking COVID-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium term post-COVID-19 to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. Customers seeking a payment holiday extension beyond an aggregate of 12 months in an 18 month period are considered to have been granted forbearance and are classed as heightened monitoring. This classification does not apply to customers with Bounce Back Loans taking a PAYG payment holiday option. For Wholesale, forbearance flow increased in the first half of 2021 compared to the second half of 2020. This was mainly related to a small number of large value customers. Volumes of completed forbearance were lower. The Leisure sector represented the largest share of forbearance flow in the half year due to ongoing restrictions, followed by the Property and Land Transport & Logistics sectors. Payment holidays and covenant waivers were the most common forms of forbearance granted.

Heightened Monitoring and Risk of Credit Loss - Inflows reduced during H1 2021 compared to the first half of 2020. The reduction in value was mainly due to a small number of high value customers as, by volume, inflows and outflows were closely matched. Whilst noting the reduced flows into Heightened Monitoring and Risk of Credit Loss, the volume and value of cases remained significantly higher than pre-COVID-19 levels. The sector breakdown of exposures remained consistent with prior periods.

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Personal portfolio

Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).

 

30 June 2021

 

31 December 2020

 

Retail

Private

RBS

Ulster

 

 

Retail

Private

RBS

Ulster

 

 

Banking

Banking

International

Bank RoI

Total

 

Banking

Banking

International

Bank RoI

Total

Personal lending

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

£m

Mortgages

169,300

11,838

2,508

12,688

196,334

 

163,107

10,910

2,517

13,678

190,212

Of which:

 

 

 

 

 

 

 

 

 

 

 

  Owner occupied

155,136

10,469

1,645

11,887

179,137

 

148,614

9,601

1,676

12,781

172,672

  Buy-to-let

14,164

1,369

863

801

17,197

 

14,493

1,309

841

897

17,540

  Interest only - variable

4,534

4,575

357

151

9,617

 

5,135

4,375

347

159

10,016

  Interest only - fixed

13,729

5,337

225

10

19,301

 

13,776

4,758

233

10

18,777

  Mixed (1)

8,039

1

18

43

8,101

 

7,321

1

20

56

7,398

  Impairment provisions (2)

445

5

8

384

842

 

483

5

9

499

996

Other personal lending (3)

10,542

1,722

280

238

12,782

 

11,116

1,613

279

276

13,284

Impairment provisions (2)

1,188

17

3

14

1,222

 

1,348

20

1

15

1,384

Total personal lending

179,842

13,560

2,788

12,926

209,116

 

174,223

12,523

2,796

13,954

203,496

Mortgage LTV ratios

 

 

 

 

 

 

 

 

 

 

 

  Total portfolio

55%

59%

57%

56%

55%

 

56%

58%

57%

59%

57%

      - Stage 1

55%

59%

56%

55%

55%

 

55%

58%

57%

57%

55%

      - Stage 2

58%

58%

62%

61%

58%

 

66%

61%

64%

65%

66%

      - Stage 3

50%

65%

76%

62%

56%

 

53%

64%

75%

67%

60%

  Buy-to-let

51%

57%

53%

56%

52%

 

52%

56%

53%

59%

53%

      - Stage 1

51%

57%

53%

53%

52%

 

51%

56%

53%

55%

52%

      - Stage 2

54%

56%

50%

65%

55%

 

60%

59%

53%

69%

61%

      - Stage 3

53%

57%

59%

69%

59%

 

56%

54%

61%

74%

62%

Gross new mortgage lending (4)

18,862

1,692

197

338

21,089

 

30,551

2,148

249

910

33,858

Of which:

 

 

 

 

 

 

 

 

 

 

 

Owner occupied 

18,289

1,528

111

335

20,263

 

29,608

1,922

167

908

32,605

Weighted average LTV

69%

67%

67%

73%

68%

 

69%

66%

66%

74%

69%

Buy-to-let

573

164

86

3

826

 

943

227

82

2

1,254

Weighted average LTV

63%

65%

63%

58%

63%

 

62%

62%

63%

54%

62%

Interest only - variable rate

15

551

-

-

566

 

81

1,082

7

-

1,170

Interest only - fixed rate

984

826

45

-

1,855

 

1,501

695

35

-

2,231

Mixed (1)

1,193

-

1

-

1,194

 

1,630

-

2

-

1,632

 

 

 

 

 

 

 

 

 

 

 

 

Forbearance flow

284

7

4

40

335

 

550

50

10

127

737

Forbearance stock

1,273

3

10

1,326

2,612

 

1,293

18

10

1,627

2,948

  Current

651

1

6

939

1,597

 

648

13

9

1,070

1,740

  1-3 months in arrears

292

2

1

70

365

 

360

3

-

105

468

  > 3 months in arrears

330

-

3

317

650

 

285

2

1

452

740

 

Notes:

(1)   Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.

(2)   Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios.

(3)   Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.

(4)   Retail Banking excludes additional lending to existing customers.

 

Key points

New mortgage lending in H1 2021 reflected a strong demand in lending, particularly in property purchases, following the easing of COVID-19 restrictions and the extension of the stamp duty holiday. The existing mortgage stock and new business were closely monitored against agreed parameters. These included loan-to-value ratios, buy-to-let concentrations, new-build concentrations and credit quality.

Unsecured balances fell slightly during H1 2021 as COVID-19 restrictions persisted, however, later in H1 2021, the value of new business began to increase as restrictions started to ease. 

Across both mortgages and unsecured products, NatWest Group responded to COVID-19 with a more cautious approach to new lending, to protect both NatWest Group and customers from potentially unaffordable borrowing. With growing consumer confidence and improved economic conditions, lending criteria have been selectively relaxed during H1 2021 taking into account observed portfolio performance.

At the end of the half year, the value and volume of customers with an active COVID-19 payment holiday was immaterial across both the mortgages and unsecured portfolios.

Impairment provisions - as noted previously, the improved economic outlook including a more positive forecast on unemployment and house prices, resulted in reduced ECL.

Mortgage forbearance stock in Retail Banking remained stable, with inflows to collections and recoveries below pre-COVID-19 levels during H1 2021, as customers who would have been supported through forbearance previously, were able to utilise COVID-19 payment holidays. With new payment holidays no longer available from 31 March 2021, customers are being supported through forbearance where appropriate.

The reduction in Ulster Bank RoI forbearance stock was mainly due to an asset sale executed during the period as well as forbearance exits and closures outweighing new forbearance flows.

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Personal portfolio

Mortgage LTV distribution by stage

The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value.

 

Mortgages

 

ECL provisions

 

ECL provisions coverage (2)

Retail Banking

 

 

Not within

 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9

 

gross new

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

ECL scope

Total

lending

 

Stage 1

Stage 2

Stage 3

Total (1)

 

Stage 1

Stage 2

Stage 3

Total

30 June 2021

£m

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

54,791

4,808

604

66

60,269

2,493

 

4

60

129

193

 

 -   

1.2

21.4

0.3

>50% and ≤70%

63,017

5,772

509

13

69,311

5,105

 

6

74

89

169

 

 -   

1.3

17.6

0.2

>70% and ≤80%

27,713

2,869

121

1

30,704

7,544

 

6

31

21

58

 

 -   

1.1

17.1

0.2

>80% and ≤90%

6,854

1,581

35

1

8,471

3,565

 

2

14

6

22

 

 -   

0.9

18.0

0.3

>90% and ≤100%

474

22

5

-

501

29

 

-

-

1

1

 

 -   

1.5

27.3

0.3

>100% and ≤110%

4

6

1

-

11

-

 

-

-

-

-

 

 -   

2.9

32.0

5.0

>110% and ≤130%

4

4

1

-

9

-

 

-

-

-

-

 

 -   

4.4

32.0

4.0

>130% and ≤150%

3

2

-

-

5

-

 

-

-

-

-

 

 -   

2.1

45.2

4.3

Total with LTVs

152,860

15,064

1,276

81

169,281

18,736

 

18

179

246

443

 

 -   

1.2

19.4

0.3

Other

16

2

1

-

19

126

 

-

-

1

1

 

0.1

8.5

100.0

6.0

Total

152,876

15,066

1,277

81

169,300

18,862

 

18

179

247

444

 

 -   

1.2

19.5

0.3

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

50,170

5,009

554

124

55,857

4,207

 

4

43

107

154

 

-

0.8

19.4

0.3

>50% and ≤70%

55,263

7,416

488

35

63,202

9,083

 

7

66

81

154

 

-

0.9

16.5

0.2

>70% and ≤80%

19,994

9,555

141

8

29,698

11,060

 

7

56

26

89

 

-

0.6

18.5

0.3

>80% and ≤90%

8,029

5,552

52

6

13,639

5,175

 

3

52

11

66

 

-

0.9

20.3

0.5

>90% and ≤100%

368

137

13

2

520

865

 

-

5

3

8

 

0.1

3.4

26.8

1.6

>100% and ≤110%

19

31

6

1

57

-

 

-

2

1

3

 

0.1

6.2

22.1

5.6

>110% and ≤130%

23

45

6

1

75

-

 

-

3

2

5

 

0.3

7.6

31.1

7.3

>130% and ≤150%

5

20

5

-

30

-

 

-

1

1

2

 

-

7.2

23.0

8.5

>150%

1

3

3

-

7

-

 

-

-

1

1

 

0.1

9.4

44.4

22.6

Total with LTVs

133,872

27,768

1,268

177

163,085

30,390

 

21

228

233

482

 

-

0.8

18.5

0.3

Other

17

4

1

-

22

161

 

-

-

1

1

 

0.1

3.6

71.9

3.3

Total

133,889

27,772

1,269

177

163,107

30,551

 

21

228

234

483

 

-

0.8

18.5

0.3

 

For the notes to this table refer to the following page.

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Personal portfolio  

 

 

Mortgages

 

ECL provisions

 

ECL provisions coverage (2)

Ulster Bank RoI

 

 

 

Of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gross new

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

Total

lending

 

Stage 1

Stage 2

Stage 3

Total (1)

 

Stage 1

Stage 2

Stage 3

Total

30 June 2021

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

4,266

429

306

5,001

33

 

9

22

118

149

 

0.2

5.0

38.7

3.0

>50% and ≤70%

3,435

375

163

3,973

81

 

8

20

55

83

 

0.2

5.3

34.1

2.1

>70% and ≤80%

1,521

172

81

1,774

146

 

3

9

31

43

 

0.2

5.5

37.8

2.4

>80% and ≤90%

1,060

131

67

1,258

76

 

2

8

25

35

 

0.2

5.6

38.3

2.8

>90% and ≤100%

240

81

58

379

-

 

1

5

23

29

 

0.3

6.0

40.0

7.6

>100% and ≤110%

87

50

41

178

1

 

-

3

18

21

 

0.3

6.4

43.1

11.8

>110% and ≤130%

37

30

28

95

-

 

-

2

14

16

 

0.4

7.4

47.1

16.5

>130% and ≤150%

4

3

11

18

-

 

-

-

5

5

 

0.4

7.8

50.1

31.2

>150%

6

2

4

12

1

 

-

-

3

3

 

0.4

8.0

62.6

23.0

Total

10,656

1,273

759

12,688

338

 

23

69

292

384

 

0.2

5.4

38.5

3.0

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

4,156

504

354

5,014

78

 

10

24

105

139

 

0.2

4.8

29.7

2.8

>50% and ≤70%

3,453

453

230

4,136

194

 

8

23

66

97

 

0.2

5.1

28.7

2.3

>70% and ≤80%

1,569

232

114

1,915

346

 

4

12

40

56

 

0.3

5.2

35.1

2.9

>80% and ≤90%

1,214

190

105

1,509

286

 

3

11

40

54

 

0.2

5.8

38.1

3.6

>90% and ≤100%

372

145

88

605

1

 

1

9

40

50

 

0.3

6.2

45.5

8.3

>100% and ≤110%

119

76

74

269

4

 

1

5

37

43

 

0.8

6.6

50.0

16.0

>110% and ≤130%

53

63

64

180

1

 

-

5

35

40

 

-

7.9

54.7

22.2

>130% and ≤150%

6

8

17

31

-

 

-

1

10

11

 

-

12.5

58.8

35.5

>150%

5

4

10

19

-

 

-

1

8

9

 

-

25.0

80.0

47.4

Total with LTVs

10,947

1,675

1,056

13,678

910

 

27

91

381

499

 

0.2

5.4

36.1

3.6

 

Notes:

(1)

Excludes a non-material amount of provisions held on relatively small legacy portfolios.

(2)

ECL provisions coverage is ECL provisions divided by mortgages.

 

 

 

Key points

Within the Retail Banking portfolio, LTV distribution improved with strong house price growth in the UK in the first half of the year and the more cautious approach to LTV for new lending, adopted in response to COVID-19, which has seen a reduction in exposure to higher LTV bands.

ECL coverage rates increased through the LTV bands with both Retail Banking and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for Retail Banking included the effect of time-discounting on expected recoveries. Additionally, this also reflected the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity.

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Commercial real estate (CRE)

The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions and risk transfer). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives - the mark-to-market value; netted where netting agreements exist and net of legally enforceable collateral.

 

 

30 June 2021

 

31 December 2020

 

UK

RoI

Other

Total

 

UK

RoI

Other

Total

By geography and sub sector (1)

£m

£m

£m

£m

 

£m

£m

£m

£m

Investment 

 

 

 

 

 

 

 

 

 

Residential (2)

4,360

372

20

4,752

 

4,507

360

14

4,881

Office (3)

3,152

210

35

3,397

 

3,386

226

28

3,640

Retail (4)

4,903

78

87

5,068

 

5,423

68

118

5,609

Industrial (5)

2,604

14

154

2,772

 

2,773

18

202

2,993

Mixed/other (6)

2,101

131

80

2,312

 

2,688

154

74

2,916

 

17,120

805

376

18,301

 

18,777

826

436

20,039

Development

 

 

 

 

 

 

 

 

 

Residential (2)

2,151

103

2

2,256

 

2,685

200

3

2,888

Office (3)

83

31

-

114

 

123

30

-

153

Retail (4)

64

-

-

64

 

126

-

-

126

Industrial (5)

100

1

-

101

 

125

2

-

127

Mixed/other (6)

24

2

-

26

 

24

2

-

26

 

2,422

137

2

2,561

 

3,083

234

3

3,320

Total 

19,542

942

378

20,862

 

21,860

1,060

439

23,359

 

Notes:

(1)

Geographical splits are based on country of collateral risk.

(2)

Properties including houses, flats and student accommodation.

(3)

Properties including offices in central business districts, regional headquarters and business parks.

(4)

Properties including high street retail, shopping centres, restaurants, bars and gyms.

(5)

Properties including distribution centres, manufacturing and warehouses. 

(6)

Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Commercial real estate

CRE LTV distribution by stage

The table below shows CRE current exposure and related ECL by LTV band.

 

Current exposure (gross of provisions) (1,2)

 

ECL provisions

 

ECL provisions coverage (4)

 

 

 

Not within

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IFRS 9 ECL

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

Stage 2

Stage 3

scope (3)

Total

 

Stage 1

Stage 2

Stage 3

Total (1)

 

Stage 1

Stage 2

Stage 3

Total

30 June 2021

£m

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

≤50%

7,099

1,230

143

 -   

8,472

 

26

46

26

98

 

0.4

3.7

18.2

1.2

>50% and ≤70%

4,345

1,189

176

 -   

5,710

 

21

54

56

131

 

0.5

4.5

31.8

2.3

>70% and ≤80%

245

309

21

 -   

575

 

2

26

3

31

 

0.8

8.4

14.3

5.4

>80% and ≤90%

30

37

36

 -   

103

 

-

3

12

15

 

 -   

8.1

33.3

14.6

>90% and ≤100%

71

14

51

 -   

136

 

-

2

19

21

 

 -   

14.3

37.3

15.4

>100% and ≤110%

10

2

60

 -   

72

 

-

-

7

7

 

 -   

 -   

11.7

9.7

>110% and ≤130%

24

23

31

 -   

78

 

-

1

10

11

 

 -   

4.3

32.3

14.1

>130% and ≤150%

7

2

8

 -   

17

 

-

-

3

3

 

 -   

 -   

37.5

17.6

>150%

75

10

140

 -   

225

 

1

2

61

64

 

1.3

20.0

43.6

28.4

Total with LTVs

11,906

2,816

666

-

15,388

 

50

134

197

381

 

0.4

4.8

29.6

2.5

Total portfolio average LTV

45%

49%

101%

-

47%

 

 

 

 

 

 

 

 

 

 

Other (5)

1,771

739

101

302

2,913

 

6

53

42

101

 

0.3

7.2

41.6

3.9

Development (6)

1,699

757

91

14

2,561

 

16

22

53

91

 

0.9

2.9

58.2

3.6

Total

15,376

4,312

858

316

20,862

 

72

209

292

573

 

0.5

4.8

34.0

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤50%

4,918

4,538

138

-

9,594

 

46

145

24

215

 

0.9

3.2

17.4

2.2

>50% and ≤70%

2,815

3,266

226

-

6,307

 

32

112

63

207

 

1.1

3.4

27.9

3.3

>70% and ≤80%

39

222

23

-

284

 

1

17

7

25

 

2.6

7.7

30.4

8.8

>80% and ≤90%

84

35

36

-

155

 

2

4

11

17

 

2.4

11.4

30.6

11

>90% and ≤100%

46

26

65

-

137

 

-

2

33

35

 

-

7.7

50.8

25.5

>100% and ≤110%

6

6

63

-

75

 

-

1

10

11

 

-

16.7

15.9

14.7

>110% and ≤130%

9

22

117

-

148

 

-

2

45

47

 

-

9.1

38.5

31.8

>130% and ≤150%

12

12

10

-

34

 

-

1

5

6

 

-

8.3

50.0

17.6

>150%

23

24

105

-

152

 

-

2

53

55

 

-

8.3

50.5

36.2

Total with LTVs

7,952

8,151

783

-

16,886

 

81

286

251

618

 

1.0

3.5

32.1

3.7

Total portfolio average LTV

45%

47%

93%

-

48%

 

 

 

 

 

 

 

 

 

 

Other (5)

1,776

511

159

707

3,153

 

6

40

93

139

 

0.3

7.8

58.5

5.7

Development (6)

1,362

1,767

161

30

3,320

 

15

58

70

143

 

1.1

3.3

43.5

4.3

Total

11,090

10,429

1,103

737

23,359

 

102

384

414

900

 

0.9

3.7

37.5

4.0

 

Notes:

(1)   Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as part of the overall CRE portfolio.

(2)   The exposure in Stage 3 mainly relates to legacy assets.

(3)   Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives.

(4)   ECL provisions coverage is ECL provisions divided by current exposure.

(5)   Relates mainly to business banking, rate risk management products and unsecured corporate lending.

(6)   Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.

 

Key points

Overall - The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy remained aligned across the segments.

2021 trends - The reduction in the size of the portfolio was a consequence of active portfolio management to reduce the size and composition of the CRE portfolio as the economy recovers from the disruption associated with COVID-19. In addition, customer appetite to borrow was muted particularly amongst larger customers. At a sub sector level the Residential market has been resilient; the Retail sector has exhibited mixed performance in line with changing consumer habits; the Industrial market has performed strongly; with uncertainty continuing in the Office sub sector as occupiers move to a more flexible way of working, new business in the Office sub sector has been selective.

Credit quality - Heightened Monitoring inflows by volume have been muted with overall CRE exposures on the Risk of Credit Loss Framework having reduced since the 2020 year end. NatWest Group entered the COVID-19 period with a conservatively positioned CRE portfolio, which has helped to mitigate the impact of COVID-19. However, in the Retail sub sector, structural change, which was already underway, has been exacerbated by COVID-19, and a number of defaulted loans were seen during 2020, mainly related to shopping centres, this trend has not however continued during H1 2021.

Outside of Retail, there has been limited distress as noted, uncertainty still remains, particularly in relation to the Office sub sector and the portfolio continues to be actively reviewed and managed.

Risk appetite - Lending appetite has been gradually and selectively increased by sub sector during 2021 albeit below pre-COVID-19 levels. 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL affect. Other points to note:

·   Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included.

·   Stage transfers (for example, exposures moving from Stage 1 to Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage.

·   Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down.

·   Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements.

·   Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for debt sale activity.

·   There were small ECL flows from Stage 3 to Stage 1. This does not, however, indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period.

·   The impact of any change in PMAs during the year is typically reported under changes in risk parameters, as are any impacts arising from changes to the underlying models Refer to the section on Governance and post model adjustments for further details.

·   All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments.

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

NatWest Group total

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

446,666

519

 

81,667

3,081

 

6,524

2,586

 

534,857

6,186

Currency translation and other adjustments

(3,369)

(2)

 

(302)

(12)

 

67

(52)

 

(3,604)

(66)

Transfers from Stage 1 to Stage 2

(21,925)

(104)

 

21,925

104

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

36,688

712

 

(36,688)

(712)

 

-

-

 

-

-

Transfers to Stage 3

(256)

(1)

 

(1,211)

(165)

 

1,467

166

 

-

-

Transfers from Stage 3

155

13

 

654

107

 

(809)

(120)

 

-

-

Net re-measurement of ECL on stage transfer

 

(585)

 

 

524

 

 

154

 

 

93

Changes in risk parameters (model inputs)

 

(174)

 

 

(345)

 

 

89

 

 

(430)

Other changes in net exposure

34,739

55

 

(10,546)

(281)

 

(875)

(74)

 

23,318

(300)

Other (P&L only items)

 

3

 

 

2

 

 

(75)

 

 

(70)

Income statement (releases)/charges

 

(701)

 

 

(100)

 

 

94

 

 

(707)

Amounts written-off

-

-

 

(1)

(1)

 

(516)

(516)

 

(517)

(517)

Unwinding of discount

 

-

 

 

-

 

 

(41)

 

 

(41)

At 30 June 2021

492,698

433

 

55,498

2,300

 

5,858

2,192

 

554,054

4,925

Net carrying amount

492,265

 

 

53,198

 

 

3,666

 

 

549,129

 

At 1 January 2020

428,604

322

 

28,630

752

 

7,135

2,718

 

464,369

3,792

2020 movements

(16,119)

147

 

72,132

2,273

 

257

142

 

56,270

2,562

At 30 June 2020

412,485

469

 

100,762

3,025

 

7,392

2,860

 

520,639

6,354

Net carrying amount

412,016

 

 

97,737

 

 

4,532

 

 

514,285

 

 

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Retail Banking - mortgages

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

132,390

23

 

28,079

227

 

1,291

236

 

161,760

486

Currency translation and other adjustments

-

-

 

-

-

 

7

7

 

7

7

Transfers from Stage 1 to Stage 2

(6,168)

(1)

 

6,168

1

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

16,906

80

 

(16,906)

(80)

 

-

-

 

-

-

Transfers to Stage 3

(9)

-

 

(337)

(13)

 

346

13

 

-

-

Transfers from Stage 3

6

-

 

157

11

 

(163)

(11)

 

-

-

Net re-measurement of ECL on stage transfer

 

(77)

 

 

64

 

 

4

 

 

(9)

Changes in risk parameters (model inputs)

 

(6)

 

 

(16)

 

 

27

 

 

5

Other changes in net exposure

6,180

-

 

(1,592)

(14)

 

(126)

(8)

 

4,462

(22)

Other (P&L only items)

 

-

 

 

-

 

 

(13)

 

 

(13)

Income statement (releases)/charges

 

(83)

 

 

34

 

 

10

 

 

(39)

Amounts written-off

-

-

 

-

-

 

(3)

(3)

 

(3)

(3)

Unwinding of discount

 

-

 

 

-

 

 

(15)

 

 

(15)

At 30 June 2021

149,305

19

 

15,569

180

 

1,352

250

 

166,226

449

Net carrying amount

149,286

 

 

15,389

 

 

1,102

 

 

165,777

 

At 1 January 2020

135,625

12

 

10,283

86

 

1,289

215

 

147,197

313

2020 movements

(7,420)

5

 

13,789

106

 

52

15

 

6,421

126

At 30 June 2020

128,205

17

 

24,072

192

 

1,341

230

 

153,618

439

Net carrying amount

128,188

 

 

23,880

 

 

1,111

 

 

153,179

 

 

Key points

Despite the strong portfolio growth during H1 2021, ECL levels for mortgages reduced during the same period. The decrease in ECL was primarily a result of reduced PDs and LGDs reflecting the improved economic outlook and stable portfolio performance, resulting in lower levels of SICR identification and ECL requirement.

More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after the 2020 year end.

With various customer support mechanisms available and the revised economic outlook, Stage 3 ECL remained stable as new inflows remaining subdued. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments when previously in Stage 2. Refer to the Governance and post model adjustments section for further details.

Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given the moratorium on repossession activity, write-offs remained at a subdued level.  

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Retail Banking - credit cards

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

2,250

52

 

1,384

220

 

114

75

 

3,748

347

Currency translation and other adjustments

-

(1)

 

-

2

 

(1)

(1)

 

(1)

-

Transfers from Stage 1 to Stage 2

(460)

(25)

 

460

25

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

565

70

 

(565)

(70)

 

-

-

 

-

-

Transfers to Stage 3

(8)

-

 

(44)

(18)

 

52

18

 

-

-

Transfers from Stage 3

-

-

 

4

2

 

(4)

(2)

 

-

-

Net re-measurement of ECL on stage transfer

 

(43)

 

 

89

 

 

15

 

 

61

Changes in risk parameters (model inputs)

 

(15)

 

 

(33)

 

 

2

 

 

(46)

Other changes in net exposure

(5)

8

 

(148)

(36)

 

(27)

(2)

 

(180)

(30)

Other (P&L only items)

 

-

 

 

-

 

 

(2)

 

 

(2)

Income statement (releases)/charges

 

(50)

 

 

20

 

 

13

 

 

(17)

Amounts written-off

-

-

 

-

-

 

(45)

(45)

 

(45)

(45)

Unwinding of discount

 

-

 

 

-

 

 

(3)

 

 

(3)

At 30 June 2021

2,342

46

 

1,091

181

 

89

57

 

3,522

284

Net carrying amount

2,296

 

 

910

 

 

32

 

 

3,238

 

At 1 January 2020

2,804

38

 

1,246

131

 

127

88

 

4,177

257

2020 movements

(627)

7

 

74

109

 

-

(3)

 

(553)

113

At 30 June 2020

2,177

45

 

1,320

240

 

127

85

 

3,624

370

Net carrying amount

2,132

 

 

1,080

 

 

42

 

 

3,254

 

 

 

Key points

The overall decrease in ECL was mainly due to the reduction in Stage 2 ECL reflecting the improved economic outlook and stable portfolio performance, causing both PDs and LGDs to decrease and resulting in reduced levels of SICR identification and ECL requirement.

More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after 2020 year end.

In line with industry trends in the UK, credit card balances reduced further during H1 2021, which has amplified the ECL reductions within the portfolio. This has stabilised as UK lockdown restrictions have eased and borrowing demand increased.

With various customer support mechanisms available and the improved economic outlook, Stage 3 inflows have remained subdued and therefore Stage 3 ECL movement was minimal during H1 2021.

Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Retail Banking - other personal unsecured

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

3,385

59

 

3,487

450

 

596

495

 

7,468

1,004

Currency translation and other adjustments

-

-

 

-

(1)

 

-

2

 

-

1

Transfers from Stage 1 to Stage 2

(876)

(21)

 

876

21

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

1,109

75

 

(1,109)

(75)

 

-

-

 

-

-

Transfers to Stage 3

(5)

-

 

(194)

(73)

 

199

73

 

-

-

Transfers from Stage 3

3

4

 

57

35

 

(60)

(39)

 

-

-

Net re-measurement of ECL on stage transfer

 

(58)

 

 

74

 

 

53

 

 

69

Changes in risk parameters (model inputs)

 

(9)

 

 

(38)

 

 

39

 

 

(8)

Other changes in net exposure

204

5

 

(593)

(45)

 

(52)

(21)

 

(441)

(61)

Other (P&L only items)

 

-

 

 

-

 

 

(1)

 

 

(1)

Income statement (releases)/charges

 

(62)

 

 

(9)

 

 

70

 

 

(1)

Amounts written-off

-

-

 

-

-

 

(90)

(90)

 

(90)

(90)

Unwinding of discount

 

-

 

 

-

 

 

(8)

 

 

(8)

At 30 June 2021

3,820

55

 

2,524

348

 

593

504

 

6,937

907

Net carrying amount

3,765

 

 

2,176

 

 

89

 

 

6,030

 

At 1 January 2020

5,417

63

 

2,250

252

 

608

518

 

8,275

833

2020 movements

(1,272)

30

 

942

217

 

94

68

 

(236)

315

At 30 June 2020

4,145

93

 

3,192

469

 

702

586

 

8,039

1,148

Net carrying amount

4,052

 

 

2,723

 

 

116

 

 

6,891

 

 

 

Key points

The overall reduction in ECL was mainly due to the reduction in Stage 2 ECL reflecting the improved economic outlook and stable portfolio performance, causing both PDs and LGDs to decrease and resulting in reduced levels of SICR identification and ECL requirement.

More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after the 2020 year end.

In line with industry trends in the UK, unsecured balances reduced further during H1 2021, which has amplified the ECL reductions within the portfolio. This has stabilised as UK lockdown restrictions have eased and borrowing demand increased.

With various customer support mechanisms available and the improved economic outlook, Stage 3 inflows have remained subdued and therefore Stage 3 ECL movement was minimal during H1 2021.

Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than six years after default.

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

Commercial Banking

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

  - commercial real estate

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

17,269

90

 

10,380

364

 

1,118

428

 

28,767

882

Currency translation and other adjustments

(8)

-

 

(3)

-

 

(1)

3

 

(12)

3

Inter-group transfers

-

-

 

-

-

 

-

-

 

-

-

Transfers from Stage 1 to Stage 2

(1,832)

(15)

 

1,832

15

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

5,366

147

 

(5,366)

(147)

 

-

-

 

-

-

Transfers to Stage 3

(6)

-

 

(95)

(4)

 

101

4

 

-

-

Transfers from Stage 3

5

-

 

74

7

 

(79)

(7)

 

-

-

Net re-measurement of ECL on stage transfer

 

(109)

 

 

25

 

 

5

 

 

(79)

Changes in risk parameters (model inputs)

 

(65)

 

 

-

 

 

(36)

 

 

(101)

Other changes in net exposure

356

16

 

(1,654)

(45)

 

(175)

(1)

 

(1,473)

(30)

Other (P&L only items)

 

(1)

 

 

2

 

 

1

 

 

2

Income statement releases

 

(159)

 

 

(18)

 

 

(31)

 

 

(208)

Amounts written-off

-

-

 

-

-

 

(115)

(115)

 

(115)

(115)

Unwinding of discount

 

-

 

 

-

 

 

(2)

 

 

(2)

At 30 June 2021

21,150

64

 

5,168

215

 

849

279

 

27,167

558

Net carrying amount

21,086

 

 

4,953

 

 

570

 

 

26,609

 

At 1 January 2020

25,556

31

 

2,218

28

 

895

306

 

28,669

365

2020 movements

(5,896)

66

 

8,136

246

 

181

95

 

2,421

407

At 30 June 2020

19,660

97

 

10,354

274

 

1,076

401

 

31,090

772

Net carrying amount

19,563

 

 

10,080

 

 

675

 

 

30,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key points

The decrease in ECL in Stage 1 and Stage 2 was primarily due to the improvement in the economic outlook. This resulted in a reduction in IFRS 9 PDs and a flow of exposure from Stage 2 to Stage 1. Total exposure reduced with repayment of existing debt and lower demand for new facilities following significant growth during 2020 driven by government support schemes. 

The migration of assets from Stage 2 to Stage 1 resulted in more assets attracting a 12 month ECL and release of lifetime ECL in Stage 2.

Flows to Stage 3 during H1 2021 were low, as government support continued to mitigate against defaults in the Wholesale portfolio. Stage 3 ECL reduced in the period due to the write-off of previously defaulted debt which also resulted in an ECL release in the period.

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial Banking - business banking

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

12,122

41

 

2,184

145

 

250

173

 

14,556

359

Currency translation and other adjustments

-

-

 

-

-

 

(7)

(5)

 

(7)

(5)

Transfers from Stage 1 to Stage 2

(2,250)

(9)

 

2,250

9

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

1,200

60

 

(1,200)

(60)

 

-

-

 

-

-

Transfers to Stage 3

(46)

-

 

(79)

(16)

 

125

16

 

-

-

Transfers from Stage 3

6

1

 

15

4

 

(21)

(5)

 

-

-

Net re-measurement of ECL on stage transfer

 

(57)

 

 

119

 

 

10

 

 

72

Changes in risk parameters (model inputs)

 

(4)

 

 

(46)

 

 

3

 

 

(47)

Other changes in net exposure

710

(3)

 

(199)

(13)

 

(19)

(2)

 

492

(18)

Other (P&L only items)

 

-

 

 

1

 

 

(17)

 

 

(16)

Income statement (releases)/charges

 

(64)

 

 

61

 

 

(6)

 

 

(9)

Amounts written-off

-

-

 

-

-

 

(21)

(21)

 

(21)

(21)

Unwinding of discount

 

-

 

 

-

 

 

(3)

 

 

(3)

At 30 June 2021

11,742

29

 

2,971

142

 

307

166

 

15,020

337

Net carrying amount

11,713

 

 

2,829

 

 

141

 

 

14,683

 

At 1 January 2020

6,338

28

 

767

45

 

257

200

 

7,362

273

2020 movements

2,862

4

 

832

53

 

(5)

(10)

 

3,689

47

At 30 June 2020

9,200

32

 

1,599

98

 

252

190

 

11,051

320

Net carrying amount

9,168

 

 

1,501

 

 

62

 

 

10,731

 

 

 

Key points

Total ECL reduced marginally during H1 2021 primarily due to the improvement in the economic outlook, causing both PDs and LGDs to decrease. The increase in Stage 2 loans was mainly due to an appropriately conservative approach to government support scheme exposure as customers reached the end of the initial payment holiday period. Due to the guarantees in place, related ECL did not see a proportionate increase.

Flows of defaulted exposure into Stage 3 remained suppressed reflecting the various government customer support mechanisms available, with ECL reducing during H1 2021.

The portfolio continued to benefit from cash recoveries post write-off, which are reported as other (P&L only items). Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than five years after default. 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Commercial Banking - other

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

39,279

139

 

25,981

1,204

 

1,249

468

 

66,509

1,811

Currency translation and other adjustments

(257)

1

 

(88)

-

 

76

3

 

(269)

4

Inter-group transfers

-

-

 

-

-

 

-

-

 

-

-

Transfers from Stage 1 to Stage 2

(4,447)

(21)

 

4,447

21

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

6,076

174

 

(6,076)

(174)

 

-

-

 

-

-

Transfers to Stage 3

(43)

-

 

(343)

(29)

 

386

29

 

-

-

Transfers from Stage 3

19

5

 

190

27

 

(209)

(32)

 

-

-

Net re-measurement of ECL on stage transfer

 

(152)

 

 

98

 

 

60

 

 

6

Changes in risk parameters (model inputs)

 

(51)

 

 

(173)

 

 

(15)

 

 

(239)

Other changes in net exposure

300

20

 

(3,372)

(109)

 

(249)

(22)

 

(3,321)

(111)

Other (P&L only items)

 

1

 

 

-

 

 

(8)

 

 

(7)

Income statement (releases)/charges

 

(182)

 

 

(184)

 

 

15

 

 

(351)

Amounts written-off

-

-

 

-

-

 

(121)

(121)

 

(121)

(121)

Unwinding of discount

 

-

 

 

-

 

 

(3)

 

 

(3)

At 30 June 2021

40,927

115

 

20,739

865

 

1,132

367

 

62,798

1,347

Net carrying amount

40,812

 

 

19,874

 

 

765

 

 

61,451

 

At 1 January 2020

53,722

94

 

8,788

143

 

1,386

516

 

63,896

753

2020 movements

(32,838)

(7)

 

39,333

1,200

 

202

83

 

6,697

1,276

At 30 June 2020

20,884

87

 

48,121

1,343

 

1,588

599

 

70,593

2,029

Net carrying amount

20,797

 

 

46,778

 

 

989

 

 

68,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key points

The decrease in ECL in Stage 1 and Stage 2 was primarily due to the improvement in the economic outlook and the change in scenario weightings. Underlying PD's and LGDs improved as a result. The updated economics resulted in the migration of assets from Stage 2 to Stage 1 with a consequential reduction in Stage 2 lifetime ECL.

Changes in net exposure reduced in Stage 1 and 2 with repayment of existing debt which was not fully replaced by new lending in the period due to muted demand.

Flows to Stage 3 remained suppressed reflecting the various government customer support mechanisms. Stage 3 assets and ECL reduced in the period due to the write-off of previously defaulted debt.

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

NatWest Markets (1)

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

33,327

12

 

1,671

49

 

168

132

 

35,166

193

Currency translation and other adjustments

(700)

-

 

(36)

-

 

(3)

(1)

 

(739)

(1)

Inter-group transfers

(3)

-

 

-

-

 

-

-

 

(3)

-

Transfers from Stage 1 to Stage 2

(484)

(1)

 

484

1

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

1,150

7

 

(1,150)

(7)

 

-

-

 

-

-

Transfers to Stage 3

-

-

 

-

-

 

-

-

 

-

-

Net re-measurement of ECL on stage transfer

 

(5)

 

 

3

 

 

-

 

 

(2)

Changes in risk parameters (model inputs)

 

(3)

 

 

(8)

 

 

(1)

 

 

(12)

Other changes in net exposure

(1,978)

-

 

(226)

(2)

 

(23)

(2)

 

(2,227)

(4)

Other (P&L only items)

 

-

 

 

2

 

 

-

 

 

2

Income statement (releases)/charges

 

(8)

 

 

(5)

 

 

(3)

 

 

(16)

Amounts written-off

-

-

 

-

-

 

(40)

(40)

 

(40)

(40)

Unwinding of discount

 

-

 

 

-

 

 

-

 

 

-

At 30 June 2021

31,312

10

 

743

36

 

102

88

 

32,157

134

Net carrying amount

31,302

 

 

707

 

 

14

 

 

32,023

 

At 1 January 2020

32,892

10

 

188

5

 

183

131

 

33,263

146

2020 movements

5,355

8

 

2,609

48

 

(1)

5

 

7,963

61

At 30 June 2020

38,247

18

 

2,797

53

 

182

136

 

41,226

207

Net carrying amount

38,229

 

 

2,744

 

 

46

 

 

41,019

 

 

Note:

(1)   Reflects the NatWest Markets segment and includes NWM N.V..

 

Key points

The decrease in Stage 1 and Stage 2 ECL was primarily due to the improvement in economic forecasts.

The updated economics resulted in the migration of assets from Stage 2 to Stage 1 with a consequential reduction in Stage 2 lifetime ECL.

Amounts written-off in the period largely related to a small number of legacy defaulted exposures.

 

 

 

 

 

 

 


 

 

Risk and capital management

Credit risk - Banking activities continued

Flow statements  

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Financial

 

 

Financial

 

 

Financial

 

 

Financial

 

 

assets

ECL

 

assets

ECL

 

assets

ECL

 

assets

ECL

Ulster Bank RoI - mortgages

£m

£m

 

£m

£m

 

£m

£m

 

£m

£m

At 1 January 2021

10,919

27

 

1,682

91

 

1,061

381

 

13,662

499

Currency translation and other adjustments

(489)

(1)

 

(71)

(4)

 

(44)

(37)

 

(604)

(42)

Transfers from Stage 1 to Stage 2

(473)

(1)

 

473

1

 

-

-

 

-

-

Transfers from Stage 2 to Stage 1

827

34

 

(827)

(34)

 

-

-

 

-

-

Transfers to Stage 3

(2)

-

 

(43)

(5)

 

45

5

 

-

-

Transfers from Stage 3

13

-

 

136

19

 

(149)

(19)

 

-

-

Net re-measurement of ECL on stage transfer

 

(31)

 

 

8

 

 

4

 

 

(19)

Changes in risk parameters (model inputs)

 

(4)

 

 

(6)

 

 

33

 

 

23

Other changes in net exposure

(147)

(1)

 

(73)

-

 

(81)

(2)

 

(301)

(3)

Other (P&L only items)

 

-

 

 

(1)

 

 

(13)

 

 

(14)

Income statement (releases)/charges

 

(36)

 

 

1

 

 

22

 

 

(13)

Amounts written-off

-

-

 

(1)

(1)

 

(68)

(68)

 

(69)

(69)

Unwinding of discount

 

-

 

 

-

 

 

(5)

 

 

(5)

At 30 June 2021

10,648

23

 

1,276

69

 

764

292

 

12,688

384

Net carrying amount

10,625

 

 

1,207

 

 

472

 

 

12,304

 

At 1 January 2020

10,603

11

 

1,084

30

 

1,875

581

 

13,562

622

2020 movements

(238)

5

 

1,134

68

 

(500)

(124)

 

396

(51)

At 30 June 2020

10,365

16

 

2,218

98

 

1,375

457

 

13,958

571

Net carrying amount

10,349

 

 

2,120

 

 

918

 

 

13,387

 

 

 

Key points

The decrease in ECL reflected ongoing deleveraging of the non-performing mortgage portfolio through the execution of the final tranche of a 2019 debt sale.

Updated economics resulted in a net migration of assets from Stage 2 to Stage 1.

Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding or when the loan is sold to a third party.

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

 

 

 

 

UK mortgages

 

RoI mortgages

 

Credit cards

 

Other

 

Total

30 June 2021

 

 

£m

%

 

£m

%

 

£m

%

 

£m

%

 

£m

%

Personal trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

 

 

3,412

22.0

 

185

14.6

 

583

53.8

 

1,520

58.9

 

5,700

27.9

PD persistence

 

 

6,458

41.8

 

55

4.3

 

404

37.3

 

842

32.6

 

7,759

38.0

Adverse credit bureau recorded with credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  reference agency

 

 

3,449

22.3

 

-

-

 

54

5.0

 

60

2.3

 

3,563

17.5

Forbearance support provided

 

 

147

0.9

 

12

0.9

 

1

0.1

 

22

0.9

 

182

0.9

Customers in collections

 

 

50

0.3

 

44

3.5

 

4

0.4

 

9

0.3

 

107

0.5

Collective SICR and other reasons (2)

1,877

12.1

 

970

76.5

 

37

3.4

 

121

4.7

 

3,005

14.7

Days past due >30

 

 

89

0.6

 

2

0.2

 

-

-

 

7

0.3

 

98

0.5

 

 

 

15,482

100

 

1,268

100

 

1,083

100

 

2,581

100

 

20,414

100

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

 

 

13,520

48.4

 

751

45.0

 

911

66.2

 

2,310

67.8

 

17,492

51.0

PD persistence

 

 

9,977

35.8

 

46

2.8

 

350

25.5

 

968

28.4

 

11,341

33.0

Adverse credit bureau recorded with credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  reference agency

 

 

2,936

10.5

 

-

-

 

51

3.7

 

46

1.4

 

3,033

8.8

Forbearance support provided

 

 

138

0.5

 

7

0.4

 

1

0.1

 

9

0.3

 

155

0.5

Customers in collections

 

 

131

0.5

 

30

1.8

 

2

0.1

 

14

0.4

 

177

0.5

Collective SICR and other reasons (2)

1,165

4.2

 

832

49.9

 

60

4.4

 

55

1.6

 

2,112

6.1

Days past due >30

 

 

36

0.1

 

2

0.1

 

-

-

 

4

0.1

 

42

0.1

 

 

 

27,903

100

 

1,668

100

 

1,375

100

 

3,406

100

 

34,352

100

 

For the notes to the table refer to the following page.

 

Key points

The improved economic outlook, including a more optimistic forecast for unemployment, resulted in decreased account level IFRS 9 PDs. Consequently, compared to the 2020 year end, a smaller proportion of accounts exhibited PD deterioration at H1 2021.

Since the 2020 year end, large populations of Stage 2 have been migrated to Stage 1, reflecting the PD persistence roll-off three months after the PD reductions at the end of 2020. Furthermore, continued reductions in PDs as a result of stable portfolio performance during H1 2021, have supported the Stage 2 reductions.

In the absence of PD deterioration or other backstop SICR triggers, the granting of a COVID-19 related payment holiday did not automatically result in a migration to Stage 2.

However, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2. In Retail Banking (primarily on mortgages), approximately £1.6 billion of exposures were collectively migrated from Stage 1 to Stage 2, and approximately £0.4 million in Ulster Bank RoI mortgages. The effect of collective migrations on unsecured lending was much more limited.

PD persistence made up a larger proportion of Stage 2 for UK mortgages than at the 2020 year end, supporting the use of the collective SICR migration approach described above.

As expected, ECL coverage was higher in accounts that were more than 30 days past due than those in Stage 2 for other reasons.

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

 

 

 

 

Property

 

Corporate

 

FI

 

Other

 

Total

 

 

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

 

Loans

ECL

30 June 2021

 

 

 

 

 

 

Wholesale trigger (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PD movement

 

 

4,619

68.1

 

17,782

75.8

 

2,246

95.2

 

89

58.1

 

24,736

75.4

PD persistence

 

 

278

4.1

 

1,122

4.8

 

10

0.4

 

2

1.3

 

1,412

4.3

Risk of Credit Loss

 

 

651

9.6

 

2,493

10.6

 

53

2.2

 

56

36.6

 

3,253

9.9

Forbearance support provided

 

 

93

1.4

 

288

1.2

 

5

0.2

 

-

-

 

386

1.2

Customers in collections

 

 

20

0.3

 

63

0.3

 

-

-

 

-

-

 

83

0.3

Collective SICR and other reasons (2)

908

13.4

 

1,677

7.1

 

35

1.5

 

5

3.3

 

2,625

8.0

Days past due >30

 

 

213

3.1

 

53

0.2

 

12

0.5

 

1

0.7

 

279

0.9

 

 

 

6,782

100

 

23,478

100

 

2,361

100

 

153

100

 

32,774

100

31 December 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholesale trigger (1)

 

 

 

 

 

PD movement

 

 

 

 

 

 

PD persistence

 

 

 

 

 

 

Risk of Credit Loss

 

 

 

 

 

 

Forbearance support provided

 

 

 

 

 

 

Customers in collections

 

 

 

 

 

 

Collective SICR and other reasons (2)

 

 

 

 

Days past due >30

 

 

 

 

 

 

 

 

 

13,021

100

 

27,716

100

 

3,624

100

 

204

100

 

44,565

100

 

Notes:

(1)   The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.

(2)   Includes customers where a PD assessment cannot be undertaken due to missing PDs.

 

Key points

 

The improved economic outlook, including improvement in forecasts of GDP and UK property price indices, resulted in a reduction in IFRS 9 PDs. Consequently, compared to 2020, a smaller proportion of exposures exhibited a SICR which resulted in a reduction in Stage 2 exposures. The decrease in Stage 2 was larger in Property, which saw a relatively higher increase during 2020 following the onset of COVID-19.

PD deterioration remained the primary trigger for identifying a SICR and Stage 2 treatment.

While noting the reduced flows into Heightened Monitoring and Risk of Credit Loss, there was an increase in Risk of Credit Loss as a SICR trigger at H1 2021. This was due to the reduction in underlying IFRS 9 PDs where exposures did not meet the PD SICR criteria but were captured by the Risk of Credit Loss backstop.

Use of COVID-19 relief mechanisms did not automatically merit identification of SICR and trigger a Stage 2 classification in isolation (refer to Treatment of COVID-19 relief mechanisms for further details).

In Ulster Bank RoI, £0.4 billion of exposures relating to small and medium size enterprises were collectively migrated from Stage 1 to Stage 2 reflective of the elevated risk for this sector.

 

 

Risk and capital management

Credit risk - Banking activities continued

Asset quality

The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.

 

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2021

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

UK mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

118,191

6,163

-

124,354

 

7

64

-

71

 

0.01

1.04

-

0.06

AQ5-AQ8

48,554

8,543

-

57,097

 

13

94

-

107

 

0.03

1.10

-

0.19

AQ9 

251

776

-

1,027

 

-

22

-

22

 

-

2.84

-

2.14

AQ10 

-

-

1,568

1,568

 

-

-

269

269

 

-

-

17.16

17.16

 

166,996

15,482

1,568

184,046

 

20

180

269

469

 

0.01

1.16

17.16

0.25

RoI mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

8,134

615

-

8,749

 

17

31

-

48

 

0.21

5.04

-

0.55

AQ5-AQ8

2,492

371

-

2,863

 

6

22

-

28

 

0.24

5.93

-

0.98

AQ9 

8

282

-

290

 

-

16

-

16

 

-

5.67

-

5.52

AQ10

-

-

760

760

 

-

-

292

292

 

-

-

38.42

38.42

 

10,634

1,268

760

12,662

 

23

69

292

384

 

0.22

5.44

38.42

3.03

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

25

9

-

34

 

1

2

-

3

 

4.00

22.22

-

8.82

AQ5-AQ8

2,532

1,040

-

3,572

 

46

169

-

215

 

1.82

16.25

-

6.02

AQ9 

5

34

-

39

 

-

12

-

12

 

-

35.29

-

30.77

AQ10 

-

-

82

82

 

-

-

59

59

 

-

-

71.95

71.95

 

2,562

1,083

82

3,727

 

47

183

59

289

 

1.83

16.90

71.95

7.75

Other Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

1,035

105

-

1,140

 

8

25

-

33

 

0.77

23.81

-

2.89

AQ5-AQ8

4,997

2,301

-

7,298

 

53

279

-

332

 

1.06

12.13

-

4.55

AQ9 

32

175

-

207

 

1

50

-

51

 

3.13

28.57

-

24.64

AQ10 

-

-

619

619

 

-

-

521

521

 

-

-

84.17

84.17

 

6,064

2,581

619

9,264

 

62

354

521

937

 

1.02

13.72

84.17

10.11

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

127,385

6,892

-

134,277

 

33

122

-

155

 

0.03

1.77

-

0.12

AQ5-AQ8

58,575

12,255

-

70,830

 

118

564

-

682

 

0.20

4.60

-

0.96

AQ9 

296

1,267

-

1,563

 

1

100

-

101

 

0.34

7.89

-

6.46

AQ10 

-

-

3,029

3,029

 

-

-

1,141

1,141

 

-

-

37.67

37.67

 

186,256

20,414

3,029

209,699

 

152

786

1,141

2,079

 

0.08

3.85

37.67

0.99

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Asset quality

 

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

31 December 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

UK mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

108,869

6,634

-

115,503

 

10

33

-

43

 

0.01

0.50

-

0.04

AQ5-AQ8

38,347

20,254

-

58,601

 

14

146

-

160

 

0.04

0.72

-

0.27

AQ9 

240

1,015

-

1,255

 

-

49

-

49

 

-

4.83

-

3.90

AQ10 

-

-

1,507

1,507

 

-

-

254

254

 

-

-

16.85

16.85

 

147,456

27,903

1,507

176,866

 

24

228

254

506

 

0.02

0.82

16.85

0.29

RoI mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

8,247

777

-

9,024

 

20

38

-

58

 

0.24

4.89

-

0.64

AQ5-AQ8

2,677

560

-

3,237

 

7

34

-

41

 

0.26

6.07

-

1.27

AQ9 

7

331

-

338

 

-

19

-

19

 

-

5.74

-

5.62

AQ10

-

-

1,051

1,051

 

-

-

381

381

 

-

-

36.25

36.25

 

10,931

1,668

1,051

13,650

 

27

91

381

499

 

0.25

5.46

36.25

3.66

Credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

23

4

-

27

 

1

2

-

3

 

4.35

50.00

-

11.11

AQ5-AQ8

2,384

1,329

-

3,713

 

52

208

-

260

 

2.18

15.65

-

7.00

AQ9 

4

42

-

46

 

-

15

-

15

 

-

35.71

-

32.61

AQ10 

-

-

109

109

 

-

-

76

76

 

-

-

69.72

69.72

 

2,411

1,375

109

3,895

 

53

225

76

354

 

2.20

16.36

69.72

9.09

Other Personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

1,234

59

-

1,293

 

8

9

-

17

 

0.65

15.25

-

1.31

AQ5-AQ8

4,461

3,020

-

7,481

 

58

336

-

394

 

1.30

11.13

-

5.27

AQ9 

55

327

-

382

 

1

107

-

108

 

1.82

32.72

-

28.27

AQ10 

-

-

621

621

 

-

-

517

517

 

-

-

83.25

83.25

 

5,750

3,406

621

9,777

 

67

452

517

1,036

 

1.17

13.27

83.25

10.6

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

118,373

7,474

-

125,847

 

39

82

-

121

 

0.03

1.1

-

0.10

AQ5-AQ8

47,869

25,163

-

73,032

 

131

724

-

855

 

0.27

2.88

-

1.17

AQ9 

306

1,715

-

2,021

 

1

190

-

191

 

0.33

11.08

-

9.45

AQ10 

-

-

3,288

3,288

 

-

-

1,228

1,228

 

-

-

37.35

37.35

 

166,548

34,352

3,288

204,188

 

171

996

1,228

2,395

 

0.10

2.90

37.35

1.17

 

 

 

Key points

In the Personal portfolio, the asset quality distribution overall improved with high quality new business written during H1 2021 and no material deterioration in existing portfolio quality.

The majority of exposures were in AQ1-AQ4, with a significant proportion in AQ5-AQ8. As expected, mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing.

The slight increase in AQ10 exposure in UK mortgages related to a small number of customers who took extended COVID-19 payment holidays and had subsequently moved from arrears to default during the period. Repossession and formal recovery activities were paused to support customers during COVID-19, also contributing to late arrears and therefore an increase in AQ10 balances.

In other Personal, the relatively high level of exposures in AQ10 reflected that impaired assets can be held on the balance sheet, with commensurate ECL provision for up to six years after default.

ECL provisions coverage shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage.

As noted previously, across all asset quality bands, migration from Stage 2 to Stage 1 was observed as the effect of improved economic scenarios enhanced IFRS 9 PDs and therefore reduced Stage 2 exposure.

 

 

 

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Asset quality

The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.

 

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

30 June 2021

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

13,097

721

-

13,818

 

11

11

-

22

 

0.08

1.53

-

0.16

AQ5-AQ8

14,966

5,953

-

20,919

 

82

292

-

374

 

0.55

4.91

-

1.79

AQ9 

42

108

-

150

 

-

10

-

10

 

-

9.26

-

6.67

AQ10 

-

-

1,054

1,054

 

-

-

391

391

 

-

-

37.10

37.10

 

28,105

6,782

1,054

35,941

 

93

313

391

797

 

0.33

4.62

37.10

2.22

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

17,252

1,710

-

18,962

 

15

34

-

49

 

0.09

1.99

-

0.26

AQ5-AQ8

31,542

21,388

-

52,930

 

134

1,014

-

1,148

 

0.42

4.74

-

2.17

AQ9 

256

380

-

636

 

-

37

-

37

 

-

9.74

-

5.82

AQ10 

-

-

1,594

1,594

 

-

-

651

651

 

-

-

40.84

40.84

 

49,050

23,478

1,594

74,122

 

149

1,085

651

1,885

 

0.30

4.62

40.84

2.54

Financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

46,160

1,050

-

47,210

 

13

9

-

22

 

0.03

0.86

-

0.05

AQ5-AQ8

1,533

1,146

-

2,679

 

8

76

-

84

 

0.52

6.63

-

3.14

AQ9 

1

165

-

166

 

-

30

-

30

 

-

18.18

-

18.07

AQ10 

-

-

17

17

 

-

-

7

7

 

-

-

41.18

41.18

 

47,694

2,361

17

50,072

 

21

115

7

143

 

0.04

4.87

41.18

0.29

Sovereign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

5,582

58

-

5,640

 

18

-

-

18

 

0.32

-

-

0.32

AQ5-AQ8

14

95

-

109

 

-

1

-

1

 

-

1.05

-

0.92

AQ 9

-

-

-

-

 

-

-

-

-

 

-

-

-

-

AQ10 

-

-

9

9

 

-

-

2

2

 

-

-

22.22

22.22

 

5,596

153

9

5,758

 

18

1

2

21

 

0.32

0.65

22.22

0.36

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

82,091

3,539

-

85,630

 

57

54

-

111

 

0.07

1.53

-

0.13

AQ5-AQ8

48,055

28,582

-

76,637

 

224

1,383

-

1,607

 

0.47

4.84

-

2.10

AQ9 

299

653

-

952

 

-

77

-

77

 

-

11.79

-

8.09

AQ10 

-

-

2,674

2,674

 

-

-

1,051

1,051

 

-

-

39.30

39.30

 

130,445

32,774

2,674

165,893

 

281

1,514

1,051

2,846

 

0.22

4.62

39.30

1.72

 

 

 

 

 

Risk and capital management

Credit risk - Banking activities continued

Asset quality

 

Gross loans

 

ECL provisions

 

ECL provisions coverage

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

 

Stage 1

Stage 2

Stage 3

Total

31 December 2020

£m

£m

£m

£m

 

£m

£m

£m

£m

 

%

%

%

%

Property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

12,694

2,079

-

14,773

 

20

40

-

60

 

0.16

1.92

-

0.41

AQ5-AQ8

10,785

10,780

-

21,565

 

103

450

-

553

 

0.96

4.17

-

2.56

AQ9 

254

162

-

416

 

-

17

-

17

 

-

10.49

-

4.09

AQ10 

-

-

1,322

1,322

 

-

-

545

545

 

-

-

41.23

41.23

 

23,733

13,021

1,322

38,076

 

123

507

545

1,175

 

0.52

3.89

41.23

3.09

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

17,757

2,726

-

20,483

 

20

51

-

71

 

0.11

1.87

-

0.35

AQ5-AQ8

29,405

24,430

-

53,835

 

167

1,374

-

1,541

 

0.57

5.62

-

2.86

AQ9 

928

560

-

1,488

 

1

62

-

63

 

0.11

11.07

-

4.23

AQ10 

-

-

1,727

1,727

 

-

-

803

803

 

-

-

46.5

46.5

 

48,090

27,716

1,727

77,533

 

188

1,487

803

2,478

 

0.39

5.37

46.5

3.20

Financial institutions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

42,222

1,985

-

44,207

 

13

13

-

26

 

0.03

0.65

-

0.06

AQ5-AQ8

1,776

1,453

-

3,229

 

10

39

-

49

 

0.56

2.68

-

1.52

AQ9 

4

186

-

190

 

-

38

-

38

 

-

20.43

-

20.00

AQ10 

-

-

17

17

 

-

-

8

8

 

-

-

47.06

47.06

 

44,002

3,624

17

47,643

 

23

90

8

121

 

0.05

2.48

47.06

0.25

Sovereign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

4,731

106

-

4,837

 

14

1

-

15

 

0.30

0.94

-

0.31

AQ5-AQ8

17

98

-

115

 

-

-

-

-

 

-

-

-

-

AQ9 

3

-

-

3

 

-

-

-

-

 

-

-

-

-

AQ10 

-

-

4

4

 

-

-

2

2

 

-

-

50.00

50.00

 

4,751

204

4

4,959

 

14

1

2

17

 

0.29

0.49

50.00

0.34

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

77,404

6,896

-

84,300

 

67

105

-

172

 

0.09

1.52

-

0.20

AQ5-AQ8

41,983

36,761

-

78,744

 

280

1,863

-

2,143

 

0.67

5.07

-

2.72

AQ9 

1,189

908

-

2,097

 

1

117

-

118

 

0.08

12.89

-

5.63

AQ10 

-

-

3,070

3,070

 

-

-

1,358

1,358

 

-

-

44.23

44.23

 

120,576

44,565

3,070

168,211

 

348

2,085

1,358

3,791

 

0.29

4.68

44.23

2.25

 

Key points

Across the Wholesale portfolio, the asset quality band distribution differed, reflecting the diverse nature of the sectors. However, improvements were observed across the portfolio consistent with the improvement in the economic outlook for the UK since the 2020 year end.

Increased exposure in the AQ1-AQ4 band in financial institutions was related to repo transactions as part of treasury activities.

Remaining government support measures in relation to COVID-19 continued to mitigate against flows to default in the short-term.

Within the Wholesale portfolio, customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was performed or a material event specific to that customer occurred.

As previously noted, a request for support using one of the government-backed COVID-19 support schemes would prompt credit grades to be reassessed but was not, in itself, a reason for a customer's credit grade to be amended.

ECL provisions coverage showed the expected trend with increased coverage in the poorer asset quality bands, and also by stage. Overall provisions coverage reduced, mainly due to the improvement in economic outlook and scenario weightings. The base economic scenario improved compared with H2 2020 reflecting the faster than expected vaccination roll-out, better than expected actual economic data and the persisting strong government support.

The lower provision coverage for Stage 3 loans in the Property sector reflected the secured nature of the exposures.

 

 

 

 

 

 

 

Risk and capital management

Credit risk - Trading activities

This section details the credit risk profile of NatWest Group's trading activities.

 

Securities financing transactions and collateral

The table below shows securities financing transactions in NatWest Markets and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9.

 

 

Reverse repos

 

Repos

 

 

 

Outside

 

 

 

Outside

 

 

Of which:

netting

 

 

Of which:

netting

 

Total

can be offset

arrangements

 

Total

can be offset

arrangements

30 June 2021

£m

£m

£m

 

£m

£m

£m

Gross

86,079

85,070

1,009

 

83,005

81,873

1,132

IFRS offset

(38,273)

(38,273)

-

 

(38,273)

(38,273)

-

Carrying value

47,806

46,797

1,009

 

44,732

43,600

1,132

 

 

 

 

 

 

 

 

Master netting arrangements

(2,838)

(2,838)

-

 

(2,838)

(2,838)

-

Securities collateral

(43,440)

(43,440)

-

 

(40,694)

(40,694)

-

Potential for offset not recognised under IFRS

(46,278)

(46,278)

-

 

(43,532)

(43,532)

-

Net

1,528

519

1,009

 

1,200

68

1,132

 

 

 

 

 

 

 

 

31 December 2020

 

 

 

 

 

 

 

Gross

80,388

80,025

363

 

66,493

64,793

1,700

IFRS offset

(35,820)

(35,820)

-

 

(35,820)

(35,820)

-

Carrying value

44,568

44,205

363

 

30,673

28,973

1,700

 

 

 

 

 

 

 

 

Master netting arrangements

(929)

(929)

-

 

(929)

(929)

-

Securities collateral

(43,204)

(43,204)

-

 

(28,044)

(28,044)

-

Potential for offset not recognised under IFRS

(44,133)

(44,133)

-

 

(28,973)

(28,973)

-

Net

435

72

363

 

1,700

-

1,700

 

 

Key points

Reverse repos and repos increased on both gross and carrying value basis when compared to 2020. These trends are consistent with trading assets and liabilities having been managed within limits at 31 December 2020.

Reverse repo and repo transactions are primarily backed by highly-rated sovereign, supranational and agency collateral.

 

 

 

 

 

 

       

 

 

 

Risk and capital management

Credit risk - Trading activities continued

Derivatives

The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table also includes hedging derivatives in Treasury.

 

 

30 June 2021

 

31 December 2020

 

Notional

 

 

 

 

 

 

 

 

GBP

USD

Euro

Other

Total

Assets

Liabilities

 

Notional

Assets

Liabilities

 

£bn

£bn

£bn

£bn

£bn

£m

£m

 

£bn

£m

£m

Gross exposure

 

 

 

 

 

117,434

112,464

 

 

177,330

172,245

IFRS offset

 

 

 

 

 

(7,878)

(8,472)

 

 

(10,807)

(11,540)

Carrying value

3,835

3,843

4,930

1,413

14,021

109,556

103,992

 

14,047

166,523

160,705

Of which:

 

 

 

 

 

 

 

 

 

 

 

Interest rate (1)

 

 

 

 

 

 

 

 

 

 

 

  Interest rate swaps

 

 

 

 

 

60,918

53,667

 

 

93,587

85,022

  Options purchased

 

 

 

 

 

14,664

-

 

 

20,527

-

  Options written

 

 

 

 

 

-

14,804

 

 

-

20,190

  Futures and forwards

 

 

 

 

 

-

-

 

 

1

2

Total

3,472

2,304

4,304

425

10,505

75,582

68,471

 

10,703

114,115

105,214

Exchange rate

 

 

 

 

 

 

 

 

 

 

 

  Spot, forwards and futures

 

 

 

 

 

22,260

22,148

 

 

34,924

35,309

  Currency swaps

 

 

 

 

 

6,931

8,116

 

 

10,038

12,136

  Options purchased

 

 

 

 

 

4,562

-

 

 

7,277

-

  Options written

 

 

 

 

 

-

4,825

 

 

-

7,662

Total

361

1,535

615

988

3,499

33,753

35,089

 

3,328

52,239

55,107

Credit

2

4

11

-

17

221

431

 

15

161

376

Equity and commodity

-

-

-

-

-

-

1

 

1

8

8

Carrying value

 

 

 

 

14,021

109,556

103,992

 

14,047

166,523

160,705

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty mark-to-market netting

 

 

 

 

 

(87,322)

(87,322)

 

 

(137,086)

(137,086)

Cash collateral

 

 

 

 

 

(14,009)

(10,368)

 

 

(19,608)

(15,034)

Securities collateral

 

 

 

 

 

(4,170)

(3,125)

 

 

(5,053)

(4,921)

Net exposure

 

 

 

 

 

4,055

3,177

 

 

4,776

3,664

Of which outside netting arrangements

 

 

 

 

 

999

962

 

 

905

631

 

 

 

 

 

 

 

 

 

 

 

 

Banks (2)

 

 

 

 

 

311

683

 

 

206

557

Other financial institutions (3)

 

 

 

 

 

1,647

1,371

 

 

1,436

1,931

Corporate (4)

 

 

 

 

 

1,993

957

 

 

2,985

1,082

Government (5)

 

 

 

 

 

104

166

 

 

149

94

Net exposure

 

 

 

 

 

4,055

3,177

 

 

4,776

3,664

 

 

 

 

 

 

 

 

 

 

 

 

UK

 

 

 

 

 

2,445

780

 

 

2,914

1,627

Europe

 

 

 

 

 

822

1,188

 

 

1,091

1,118

US

 

 

 

 

 

573

945

 

 

470

644

RoW

 

 

 

 

 

215

264

 

 

301

275

Net exposure

 

 

 

 

 

4,055

3,177

 

 

4,776

3,664

 

 

 

 

 

 

 

 

 

 

 

 

Asset quality of uncollateralised derivative assets

 

 

 

 

 

 

 

 

 

 

AQ1-AQ4

 

 

 

 

 

3,150

 

 

 

3,464

 

AQ5-AQ8

 

 

 

 

 

847

 

 

 

1,283

 

AQ9-AQ10

 

 

 

 

 

58

 

 

 

29

 

Net exposure

 

 

 

 

 

4,055

 

 

 

4,776

 

 

 

Notes:

(1)   The notional amount of interest rate derivatives included £7,330 billion (31 December 2020 - £7,390 billion) in respect of contracts cleared through central clearing counterparties.

(2)   Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions, for example China, where the collateral agreements are not deemed to be legally enforceable.

(3)   Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group's external rating.

(4)   Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting.

(5)   Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour.

 

 

 

 

 

Risk and capital management

Credit risk - Trading activities continued

Debt securities

The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor's, Moody's and Fitch. A significant proportion (more than 95%) of these positions are trading securities in NatWest Markets.

 

 

Central and local government

Financial

 

 

 

UK

US

Other

institutions

Corporate

Total

30 June 2021

£m

£m

£m

£m

£m

£m

AAA

-

-

2,469

1,013

-

3,482

AA to AA+

-

4,088

4,829

1,010

44

9,971

A to AA-

5,121

-

1,781

397

75

7,374

BBB- to A-

-

-

9,235

386

518

10,139

Non-investment grade

-

-

33

252

105

390

Unrated

-

-

-

10

4

14

Total

5,121

4,088

18,347

3,068

746

31,370

Short positions

(5,487)

(2,303)

(22,185)

(2,030)

(106)

(32,111)

 

 

 

 

 

 

 

31 December 2020

 

 

 

 

 

 

AAA

-

-

3,114

1,113

-

4,227

AA to AA+

-

5,149

3,651

576

49

9,425

A to AA-

4,184

-

1,358

272

81

5,895

BBB- to A-

-

-

8,277

444

656

9,377

Non-investment grade

-

-

36

127

53

216

Unrated

-

-

-

150

5

155

Total

4,184

5,149

16,436

2,682

844

29,295

Short positions

(5,704)

(1,123)

(18,135)

(1,761)

(56)

(26,779)

 

 

 

 

 

 

 

 

 

Risk and capital management

 

Capital, liquidity and funding risk  

Introduction

NatWest Group continually ensures a comprehensive approach is taken to the management of Capital, Liquidity and Funding,

underpinned by frameworks, risk appetite and policies, to manage and mitigate Capital, Liquidity and Funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that

NatWest Group operates within its regulatory requirements and risk appetite.

 

Within the 2020 Annual Report and Accounts, NatWest Group outlined a number of COVID-19 specific relief measures which

impacted capital and leverage ratios during the year, one of which was a temporary change to the Prudential Valuation Adjustment (PVA). From 1 January 2021 the aggregation factor reverted back to 50% from 66%. This has increased NatWest Group's PVA deduction by c.£120 million.

 

Key developments 

CET1 (CRR end-point)

In the first half of 2021, the CET1 ratio decreased by 30 basis points to 18.2%. The CET1 decrease is primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion (72 bps), foreseeable dividend accrual of £0.5 billion (33 bps) and foreseeable charges and pension contributions of £0.9 billion (58 bps). The attributable profit in the period of £1.8 billion has been partially utilised by the foreseeable dividends and charges. There was a £0.5 billion decrease in the IFRS 9 transitional arrangements on expected credit losses however this offset the impact of impairment releases.

LAC (MREL)

LAC (MREL) ratio as percentage of risk weighted assets increased to 38.9% from 37.5% primarily due to the £7.3 billion decrease in RWAs and remains well above the minimum of 23%.

 

In the first half of 2021, there were new issuances of $1.5 billion and €1.0 billion Senior debt, AT1 issuances of $0.75 billion and £0.4 billion and Tier 2 issuances of £1.0 billion. These were partially offset by the redemption of $2.1 billion, $0.2 billion and €0.2 billion Tier 2 instruments.

Total RWAs

RWAs reduced by £7.3 billion in H1 2021, primarily reflecting reductions in credit risk RWAs of £7.4 billion due to repayments and expired facilities of c.£4 billion in Commercial Banking, a reduction of c.£0.8 billion due to improved risk metrics in Retail Banking and reduced exposures in Ulster Bank RoI in line with the current exit strategy. The decreases in credit risk also included a £0.8 billion benefit as a result of the CRR COVID-19 amendment for Infrastructure Supporting factor. Operational risk RWAs reduced by £0.9 billion following the annual recalculation in Q1 2021. Counterparty credit risk RWAs reduced by £0.5 billion as a result of lower exposures in NatWest Markets. There were offsetting increases in market risk RWAs of £1.5 billion, mainly reflecting an increase in modelled market risk following the announcement of GBP LIBOR cessation in March 2021 as a result of including modelled GBP LIBOR basis risk post 4 January 2022.  Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021.

UK leverage ratio

The UK leverage ratio decreased by c.20 basis points from 6.4% to 6.2% predominantly driven by a decrease in Tier 1 capital.

Liquidity portfolio

The liquidity portfolio increased by £15 billion in H1 2021 to £277 billion, with primary liquidity increasing by £17 billion to £187 billion. The increase in primary liquidity was mainly driven by customer deposits, cash proceeds from new issuance and the methodology change to include UBIDAC cash at central banks. This is offset by the TFSME repayment, buyback of shares owned by UK Government, pension fund contributions, liability management exercise and the purchase of additional mortgages. Secondary liquidity is lower due to monthly repayments on underlying assets.

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Maximum Distributable Amount (MDA) and Minimum Capital Requirements

NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.

 

Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments, known as the MDA. Note that different capital requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.

 

The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements.

 

Type

CET1

Total Tier 1

Total capital

Pillar 1 requirements

4.5%

6.0%

8.0%

Pillar 2A requirements

2.0%

2.7%

3.6%

Minimum Capital Requirements

6.5%

8.7%

11.6%

Capital conservation buffer

2.5%

2.5%

2.5%

Countercyclical capital buffer (1) 

-

-

-

MDA threshold (2)

9.0%

 

                     n/a

          

                     n/a

Subtotal

9.0%

11.2%

14.1%

Capital ratios at 30 June 2021

18.2%

21.8%

24.9%

Headroom (3)

9.2%

10.6%

10.8%

 

 

 

 

 

 

 

 

               

Notes:

(1)   In response to COVID-19 many countries reduced their CCyB rates. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% and the CBI also announced a reduction in the Republic of Ireland rate from 1% to 0%.

(2)   Pillar 2A requirements for NatWest Group are set on a nominal capital basis.

(3)   The headroom does not reflect excess distributable capital and may vary over time.

 

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios

The table below sets out the key capital and leverage ratios.

 

 

30 June

31 December

 

2021

2020

Capital adequacy ratios (1)

%

%

CET1

18.2

18.5

Tier 1

21.8

21.4

Total

24.9

24.5

 

 

 

Capital

£m

£m

Tangible equity

30,751

31,712

 

 

 

Prudential valuation adjustment

(285)

(286)

Deferred tax assets

(832)

(760)

Own credit adjustments

22

(1)

Pension fund assets

(384)

(579)

Cash flow hedging reserve

77

(229)

Foreseeable ordinary dividends

(500)

(364)

Foreseeable charges

(750)

-

Foreseeable pension contributions

(174)

(266)

Prudential amortisation of software development costs

537

473

Adjustments under IFRS 9 transitional arrangements

1,198

1,747

Total deductions

(1,091)

(265)

 

 

 

CET1 capital

29,660

31,447

AT1 capital

5,916

4,983

Tier 1 capital

35,576

36,430

Tier 2 capital

4,973

5,255

Total regulatory capital

40,549

41,685

 

 

 

Risk-weighted assets

 

 

Credit risk

122,475

129,914

Counterparty credit risk

8,619

9,104

Market risk

10,845

9,362

Operational risk

21,031

21,930

Total RWAs

162,970

170,310

 

 

 

Leverage

 

 

Cash and balances at central banks

151,511

124,489

Trading assets

70,195

68,990

Derivatives

109,556

166,523

Financial assets

422,356

422,647

Other assets

22,240

16,842

Total assets

775,858

799,491

Derivatives

 

 

  - netting and variation margin

(112,441)

(172,658)

  - potential future exposures

37,468

38,171

Securities financing transactions gross up

1,486

1,179

Other off balance sheet items

43,979

45,853

Regulatory deductions and other adjustments

(13,831)

(8,943)

Claims on central banks

(148,644)

(122,252)

Exclusion of bounce back loans

(8,239)

(8,283)

UK leverage exposure 

575,636

572,558

UK leverage ratio % (2)

6.2

6.4

 

 

 

Notes:

(1)

Based on CRR end-point including an IFRS 9 transitional adjustment of £1.2 billion (31 December 2020 - £1.7 billion). Excluding this adjustment, the CET1 ratio would be 17.5% (31 December 2020 - 17.5%). The amended article for the prudential treatment of software assets was implemented in December 2020. Excluding this adjustment the CET1 ratio at 30 June 2021 would be 17.9% (31 December 2020 - 18.2%).

(2)

The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding an IFRS 9 transitional adjustment, the UK leverage ratio would be 6.0% (31 December 2020 - 6.1%). The amended article for the prudential treatment of software assets was implemented in December 2020. Excluding this adjustment, the UK leverage ratio at 30 June 2021 would be 6.1% (31 December 2020 - 6.3%).

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Capital flow statement

The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2021.

 

CET1

AT1

Tier 2

Total

 

£m

£m

£m

£m

At 1 January 2021

31,447

4,983

5,255

41,685

Attributable profit for the period

1,842

-

-

1,842

Own credit

23

-

-

23

Share capital and reserve movements in respect of employee share schemes

23

-

-

23

Directed buyback

(1,231)

-

-

(1,231)

Foreign exchange reserve

(304)

-

-

(304)

FVOCI reserve

(121)

-

-

(121)

Goodwill and intangibles deduction

25

-

-

25

Deferred tax assets

(72)

-

-

(72)

Prudential valuation adjustments

1

-

-

1

New issues of capital instruments

-

933

996

1,929

Redemption of capital instruments

-

-

(1,456)

(1,456)

Net dated subordinated debt instruments

-

-

292

292

Foreign exchange movements

-

-

(77)

(77)

Foreseeable ordinary dividends

(500)

-

-

(500)

Foreseeable charges

(750)

-

-

(750)

Foreseeable pension contributions

(174)

-

-

(174)

Adjustment under IFRS 9 transitional arrangements

(549)

-

-

(549)

Other movements

-

-

(37)

(37)

At 30 June 2021

29,660

5,916

4,973

40,549

 

Key points

·     

The CET1 decrease is primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion, foreseeable dividend accrual of £0.5 billion and foreseeable charges and pension contributions of £0.9 billion offset by an increase in attributable profit.

·     

AT1 reflects the £400 million 4.5% Reset Perpetual Subordinated Contingent Convertible Notes issued in March 2021 and $750m 4.600% Reset Perpetual Subordinated Contingent Convertible notes in June 2021.

·   

The Tier 2 movement is primarily due to the redemption of own debt of £1.5 billion in March 2021 and a £1.0 billion issuance of subordinated Tier 2 notes in May 2021.

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Capital resources

 

PRA transitional basis

 

30 June

31 December

 

2021

2020

 

£m

£m

Shareholders' equity (excluding non-controlling interests)

 

 

Shareholders' equity

43,875

43,860

Preference shares - equity

(494)

(494)

Other equity instruments

(5,936)

(4,999)

 

37,445

38,367

Regulatory adjustments and deductions

 

 

Own credit

22

(1)

Defined benefit pension fund adjustment

(384)

(579)

Cash flow hedging reserve 

77

(229)

Deferred tax assets

(832)

(760)

Prudential valuation adjustments

(285)

(286)

Goodwill and other intangible assets

(6,157)

(6,182)

Foreseeable ordinary and special dividends

(500)

(364)

Foreseeable charges

(750)

-

Foreseeable pension contributions

(174)

(266)

Adjustment under IFRS 9 transitional arrangements 

1,198

1,747

 

(7,785)

(6,920)

CET1 capital 

29,660

31,447

 

 

 

Additional Tier (AT1) capital

 

 

Qualifying instruments and related share premium

5,916

4,983

Qualifying instruments and related share premium to phase out

569

690

Qualifying instruments issued by subsidiaries and held by third parties subject to phase out

-

140

AT1 capital

6,485

5,813

Tier 1 capital

36,145

37,260

 

 

 

Qualifying Tier 2 capital

 

 

Qualifying instruments and related share premium

4,570

4,882

Qualifying instruments issued by subsidiaries and held by third parties

581

1,191

Other regulatory adjustments

362

400

Tier 2 capital

5,513

6,473

Total regulatory capital

41,658

43,733

 

 

 

 

Risk and capital management                                                                                                                                                                         

Capital, liquidity and funding risk continued

Loss absorbing capital 

The following table illustrates the components of estimated loss absorbing capital (LAC) in NatWest Group plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.

 

 

30 June 2021

 

31 December 2020

 

 

Balance

 

 

 

 

Balance

 

 

 

Par

sheet

Regulatory

LAC

 

Par

sheet

Regulatory

LAC

 

 value (1)

value

value (2)

value (3)

 

value

value

value

value

 

£bn

£bn

£bn

£bn

 

£bn

£bn

£bn

£bn

CET1 capital (4)

29.7

29.7

29.7

29.7

 

31.4

31.4

31.4

31.4

 

 

 

 

 

 

 

 

 

 

Tier 1 capital: end-point CRR compliant AT1

 

 

 

 

 

 

 

 

 

  of which: NatWest Group plc (holdco)

6.0

5.9

5.9

5.9

 

5.0

5.0

5.0

5.0

  of which: NatWest Group plc operating 

 

 

 

 

 

 

 

 

 

       subsidiaries (opcos)

-

-

-

-

 

-

-

-

-

 

6.0

5.9

5.9

5.9

 

5.0

5.0

5.0

5.0

 

 

 

 

 

 

 

 

 

 

Tier 1 capital: end-point CRR non-compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

0.6

0.6

0.5

0.5

 

0.7

0.7

0.7

0.5

  of which: opcos

0.1

0.1

-

-

 

0.1

0.1

0.1

0.1

 

0.7

0.7

0.5

0.5

 

0.8

0.8

0.8

0.6

 

 

 

 

 

 

 

 

 

 

Tier 2 capital: end-point CRR compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

6.3

6.5

4.6

5.4

 

6.9

7.2

4.8

5.7

  of which: opcos

0.4

0.4

0.1

-

 

0.4

0.4

0.1

0.1

 

6.7

6.9

4.7

5.4

 

7.3

7.6

4.9

5.8

 

 

 

 

 

 

 

 

 

 

Tier 2 capital: end-point CRR non-compliant

 

 

 

 

 

 

 

 

 

  of which: holdco

-

-

-

-

 

0.1

0.1

0.1

0.1

  of which: opcos

1.3

1.6

0.4

0.2

 

1.6

1.9

1.1

1.0

 

1.3

1.6

0.4

0.2

 

1.7

2.0

1.2

1.1

 

 

 

 

 

 

 

 

 

 

Senior unsecured debt securities 

 

 

 

 

 

 

 

 

 

  of which: holdco

21.2

22.0

-

21.2

 

19.6

20.9

-

19.6

  of which: opcos

20.7

20.7

-

-

 

20.9

21.5

-

-

 

41.9

42.7

-

21.2

 

40.5

42.4

-

19.6

 

 

 

 

 

 

 

 

 

 

Tier 2 capital:

 

 

 

 

 

 

 

 

 

  Other regulatory adjustments

-

-

0.4

0.4

 

-

-

0.4

0.4

 

-

-

0.4

0.4

 

-

-

0.4

0.4

 

 

 

 

 

 

 

 

 

 

Total

86.3

87.5

41.6

63.3

 

86.7

89.2

43.7

63.9

 

 

 

 

 

 

 

 

 

 

RWAs

 

 

 

163.0

 

 

 

 

170.3

UK leverage exposure

 

 

 

575.6

 

 

 

 

572.6

 

 

 

 

 

 

 

 

 

 

LAC as a ratio of RWAs

 

 

 

38.9%

 

 

 

 

37.5%

LAC as a ratio of UK leverage exposure

 

 

 

11.0%

 

 

 

 

11.2%

 

Notes:

(1)   Par value reflects the nominal value of securities issued.

(2)   Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.

(3)   LAC value reflects NatWest Group's interpretation of the Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such NatWest Group's estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.

(4)   Corresponding shareholders' equity was £43.9 billion (31 December 2020 - £43.9 billion).

(5)   Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Loss absorbing capital 

The following table illustrates the components of the stock of outstanding issuance in NatWest Group plc and its operating subsidiaries including external and internal issuances.

 

 

 

 

NatWest

 

 

 

 

NatWest

NWM

RBS

 

 

NatWest

Holdings

NWB

RBS

UBI

NWM

Markets

Securities

International

 

 

Group plc

Limited

Plc

plc

DAC

Plc

N.V.

Inc.

Limited

 

 

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Tier 1 (Inclusive of AT1)

Externally issued

6.5

-

0.1

-

-

-

-

-

-

Tier 1 (Inclusive of AT1)

Internally issued

-

3.7

2.4

1.0

-

1.1

0.2

-

0.3

 

 

6.5

3.7

2.5

1.0

-

1.1

0.2

-

0.3

Tier 2

Externally issued

6.5

-

0.9

-

0.1

0.5

0.6

-

-

Tier 2

Internally issued

-

4.7

3.1

1.4

0.5

1.5

0.1

0.3

-

 

 

6.5

4.7

4.0

1.4

0.6

2.0

0.7

0.3

-

Senior unsecured

Externally issued

22.0

-

-

-

-

-

-

-

-

Senior unsecured

Internally issued

-

10.5

5.7

0.4

0.5

3.9

-

-

-

 

 

22.0

10.5

5.7

0.4

0.5

3.9

-

-

-

Total outstanding issuance

35.0

18.9

12.2

2.8

1.1

7.0

0.9

0.3

0.3

 

Notes:

(1)   The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude, for example, issuance costs and fair value movements, whilst dated capital is required to be amortised on a straight-line basis over the final five years of maturity.

(2)   Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

(3)   Internal issuance for NWB Plc, RBS plc and UBIDAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc.

(4)   Senior unsecured debt does not include CP, CD and short/medium term notes issued from NatWest Group operating subsidiaries. 

(5)   Tier 1 (inclusive of AT1) does not include CET1 numbers.

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Risk-weighted assets

The table below analyses the movement in RWAs during the half year, by key drivers.

 

 

Counterparty

 

Operational

 

 

Credit risk

credit risk

Market risk

risk

Total 

 

£bn

£bn

£bn

£bn

£bn

At 1 January 2021

129.9

9.1

9.4

21.9

170.3

Foreign exchange movement

(1.0)

(0.2)

-

-

(1.2)

Business movement

(3.4)

(0.2)

1.8

(0.9)

(2.7)

Risk parameter changes (1)

(1.3)

(0.1)

-

-

(1.4)

Model updates

(0.7)

-

(0.3)

-

(1.0)

Other movements (2)

(0.8)

-

-

-

(0.8)

Acquisitions & Disposals (3)

(0.2)

-

-

-

(0.2)

At 30 June 2021

122.5

8.6

10.9

21.0

163.0

 

The table below analyses segmental RWAs.

 

 

 

 

International Banking & Markets

 

Central

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

 items

 

 

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Total

Total RWAs

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

At 1 January 2021

36.7

10.9

75.1

7.5

26.9

11.8

1.4

170.3

Foreign exchange movement

-

-

(0.4)

(0.1)

(0.3)

(0.4)

-

(1.2)

Business movement

(0.3)

0.3

(3.6)

0.2

0.8

(0.3)

0.2

(2.7)

Risk parameter changes (1)

(0.8)

-

(0.2)

-

(0.1)

(0.4)

0.1

(1.4)

Model updates

-

-

(0.7)

-

(0.3)

-

-

(1.0)

Other movements (2)

-

-

(0.7)

-

(0.1)

-

-

(0.8)

Acquisitions & Disposals (3)

-

-

-

-

-

(0.2)

-

(0.2)

At 30 June 2021

35.6

11.2

69.5

7.6

26.9

10.5

1.7

163.0

 

 

 

 

 

 

 

 

 

Credit risk

28.2

9.8

60.8

6.6

5.9

9.5

1.7

122.5

Counterparty credit risk

0.2

0.1

0.3

-

8.0

-

-

8.6

Market risk

0.2

-

0.4

-

10.2

0.1

-

10.9

Operational risk

7.0

1.3

8.0

1.0

2.8

0.9

-

21.0

Total RWAs

35.6

11.2

69.5

7.6

26.9

10.5

1.7

163.0

 

Notes:

(1)

Risk parameter changes relate to changes in credit quality metrics of customers and counterparties (such as probability of default and loss given default) as well as internal ratings based model changes relating to counterparty credit risk in line with European Banking Authority Pillar 3 Guidelines.

(2)

The movements in Other include the following:

a.     RWA benefit of £0.8 billion as a result of the CRR COVID-19 amendment for Infrastructure Supporting Factor.

b.     Asset transfers from NatWest Markets to Commercial.

(3)

The movement in Acquisitions & Disposals reflected a portfolio sale of non-performing loans in Ulster Bank RoI.

 

Key points

Total RWAs decreased by £7.3 billion during the period due to the following:

·   Credit risk RWAs decreased by £7.4 billion due to repayments and expired facilities of c.£4 billion in Commercial Banking, a reduction of c.£0.8 billion due to improved risk metrics in Retail Banking and reduced exposures in Ulster Bank RoI in line with the current exit strategy. In addition, favourable foreign exchange movements resulted in further reductions.

·   Operational risk RWAs reduced by £0.9 billion following the annual recalculation in Q1 2021.

·   Counterparty credit risk RWAs reduced by £0.5 billion as a result of lower exposures in NatWest Markets.

·   The £1.5 billion increase in market risk RWAs mainly reflected an increase in modelled market risk following the announcement of GBP LIBOR cessation in March 2021 as a result of including modelled GBP LIBOR basis risk post 4 January 2022.  Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021.

 

Risk and capital management

Capital, liquidity and funding risk continued

Funding sources

The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9.

 

30 June 2021

 

31 December 2020

 

Short-term

Long-term

 

 

Short-term

Long-term

 

 

less than

 

 

 

 

1 year

Total

 

Total

 

£m

£m

 

£m

Bank deposits

 

 

 

 

 

 

 

Repos

4,261

-

4,261

 

6,470

-

6,470

Other bank deposits (1)

7,156

2,977

10,133

 

5,845

8,291

14,136

 

11,417

2,977

14,394

 

12,315

8,291

20,606

Customer deposits

 

 

 

 

 

 

 

Repos

16,750

-

16,750

 

5,167

-

5,167

Non-bank financial institutions

56,430

115

56,545

 

53,475

147

53,622

Personal

221,480

1,042

222,522

 

208,046

1,183

209,229

Corporate

171,327

70

171,397

 

163,595

126

163,721

 

465,987

1,227

467,214

 

430,283

1,456

431,739

Trading liabilities (2)

 

 

 

 

 

 

 

Repos (3)

23,720

-

23,720

 

19,036

-

19,036

Derivative collateral

17,165

-

17,165

 

23,229

-

23,229

Other bank customer deposits

920

726

1,646

 

819

985

1,804

Debt securities in issue - Medium term notes

378

827

1,205

 

527

881

1,408

 

42,183

1,553

43,736

 

43,611

1,866

45,477

Other financial liabilities

 

 

 

 

 

 

 

Customer deposits

546

172

718

 

616

180

796

Debt securities in issue:

 

 

 

 

 

 

 

   Commercial papers and certificates of deposit

7,327

143

7,470

 

7,086

168

7,254

   Medium term notes

6,492

27,605

34,097

 

4,648

29,078

33,726

   Covered bonds

25

2,890

2,915

 

53

2,967

3,020

   Securitisation

-

918

918

 

-

1,015

1,015

 

14,390

31,728

46,118

 

12,403

33,408

45,811

Subordinated liabilities

1,106

7,590

8,696

 

365

9,597

9,962

Total funding

535,083

45,075

580,158

 

498,977

54,618

553,595

Of which: available in resolution (4)

-

28,412

28,412

 

-

28,823

28,823

 

Notes:

(1)   Includes nil (31 December 2020 - £5.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation and £2.6 billion (31 December 2020 - £2.8 billion) relating to NatWest Group's participation in central bank financing operations under the European Central Bank's targeted Long-term financing operations.

(2)   Excludes short positions of £32.1 billion (31 December 2020 - £26.8 billion).

(3)   Comprises central & other bank repos of £1.3 billion (31 December 2020 - £1.0 billion), other financial institution repos of £20.5 billion (31 December 2020 - £16.0 billion) and other corporate repos of £1.9 billion (31 December 2020 - £2.0 billion).

(4)   Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £22.0 billion (31 December 2020 - £20.9 billion) under debt securities in issue (senior MREL) and £6.4 billion (31 December 2020 - £7.9 billion) under subordinated liabilities.

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Liquidity portfolio

The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes.

 

Liquidity value

 

30 June 2021

 

31 December 2020

 

NatWest

UK DoL

 

UK DoL

 

Group (1)

Sub (3)

 

Sub 

 

£m

£m

£m

 

£m

£m

£m

Cash and balances at central banks

148,904

117,162

111,310

 

115,820

86,575

86,575

  AAA to AA- rated governments

34,639

25,254

24,490

 

50,901

37,086

35,875

  A+ and lower rated governments

38

-

-

 

79

-

-

  Government guaranteed issuers, Public sector entities and

 

 

 

 

 

 

 

        Government sponsored entities

265

265

140

 

272

272

141

   International organisations and multilateral development 

 

 

 

 

 

 

 

        banks

3,175

2,247

1,874

 

3,140

2,579

2,154

LCR level 1 bonds

38,117

27,766

26,504

 

54,392

39,937

38,170

LCR level 1 assets

187,021

144,928

137,814

 

170,212

126,512

124,745

LCR level 2 assets

116

-

-

 

124

-

-

Non-LCR eligible assets

-

-

-

 

-

-

-

Primary liquidity 

187,137

144,928

137,814

 

170,336

126,512

124,745

Secondary liquidity (4)

89,909

89,685

86,445

 

91,985

91,761

88,774

Total liquidity value

277,046

234,613

224,259

 

262,321

218,273

213,519

 

Notes:

(1)

NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(2)

NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(3)

UK DoLSub comprises NatWest Group's four licensed deposit-taking UK banks within the ring-fenced bank: NWB Plc, RBS plc, Coutts & Company and

Ulster Bank Limited.

(4)

Comprises assets eligible for discounting at the Bank of England and other central banks.

(5)

NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement.

(6)

Following a change in methodology in our internal stressed outflow coverage metric, cash placed at Central Bank of Ireland within UBIDAC is now reported in the liquidity portfolio.

 

 

 

 

 

Risk and capital management

Non-traded market risk

Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates.

 

Key developments 

 

The global economy showed progression towards recovery in H1 2021 as COVID-19 vaccination programmes gathered pace and economies opened up. Market concerns turned to the impact of central bank actions in supporting recovery and managing inflation. Yield curves rose higher in anticipation of earlier rises in central bank policy rates and/or action to reduce quantitative easing.

The five-year sterling swap rate increased to 0.47% at the end of June 2021 from (0.01)% at the end of December 2020. The ten-year sterling swap rate also increased, to 0.71% from 0.16%.

 

 

The structural hedge notional increased by £21 billion from £169 billion to £190 billion, mainly due to the increase in deposit volumes realised through the pandemic. The structural hedge yield fell over the same period to 0.80% from 1.00% as new hedges were booked at current market rates and maturing hedges were replaced.

During H1 2021, NatWest Group continued to progress its transition from LIBOR to alternative risk-free rates. Income allocated to sterling product and equity hedges is now almost entirely benchmarked against the SONIA swap rate rather than LIBOR.

Sterling strengthened against both the US dollar and the euro over the period. Against the dollar, sterling was 1.38 at 30 June 2021 compared to 1.37 at 31 December 2020. Against the euro, it was 0.85 at 30 June 2021 compared to 0.90 at 31 December 2020. Structural foreign currency exposure decreased, in sterling equivalent terms, by £459 million over the period.

 

 

Non-traded internal VaR (1-day 99%)

The following table shows one-day internal banking book Value-at-Risk (VaR) at a 99% confidence level, split by risk type.

 

Half year ended

 

30 June 2021

 

30 June 2020

 

31 December 2020

 

 

 

 

Period

 

 

 

 

Period

 

 

 

 

Period

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

 

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

£m

Interest rate

11.7

13.0

9.2

12.8

 

12.8

16.9

8.0

16.9

 

15.5

17.7

12.3

12.3

Credit spread

103.6

113.5

99.6

99.6

 

99.6

121.1

63.7

114.7

 

106.7

111.7

103.1

111.5

Structural foreign 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   exchange rate

11.0

12.8

9.2

12.8

 

11.9

14.7

9.8

14.7

 

9.6

10.5

9.1

8.9

Equity

11.3

11.7

11.1

11.7

 

30.6

33.5

25.3

31.6

 

26.3

35.4

24.9

11.6

Pipeline risk (1)

0.3

0.4

0.3

0.4

 

0.5

0.7

0.3

0.5

 

0.4

0.7

0.3

0.3

Diversification (2)

(3.4)

 

 

(8.5)

 

(28.6)

 

 

(25.8)

 

(20.3)

 

 

4.2

Total

134.5

147.1

128.8

128.8

 

126.8

159.9

70.8

152.6

 

138.2

159.9

70.8

148.8

 

Notes:

(1)

Pipeline risk is the risk of loss arising from Personal customers owning an option to draw down a loan - typically a mortgage - at a committed rate, where interest rate changes may result in greater or fewer customers than anticipated taking up the committed offer.

(2)

NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

 

 

 

Key points

 

Non-traded VaR was broadly constant over H1 2021 compared to the prior period, reflecting a largely stable portfolio.

The decrease in equity VaR, on an average basis, reflected the disposal of SABB during Q4 2020.

 

 

 

Risk and capital management

Non-traded market risk continued

Structural hedging

NatWest Group has a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity and money transmission accounts. These balances are usually hedged, either by investing directly in longer-term fixed-rate assets (such as fixed-rate mortgages or UK Government gilts) or by using interest rate swaps, which are generally booked as cash flow hedges of floating rate assets, in order to provide a consistent and predictable revenue stream.

 

After hedging the net interest rate exposure externally, NatWest Group allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution to products and interest rate returns. The programme aims to track a time series of medium-term swap rates, but the yield will be affected by changes in product volumes and NatWest Group's capital composition.

 

The table below shows the total income and total yield, incremental income relative to short-term cash rates, and the period-end and average notional balances associated with structural hedges in NatWest Group. 

 

 

 

Half year ended

 

30 June 2021

 

30 June 2020

 

31 December 2020

 

 

 

Period

 

 

 

 

 

Period

 

 

 

 

 

Period

 

 

 

Incremental

Total

-end

Average

Total

 

Incremental

Total

-end

Average

Total

 

Incremental

Total

-end

Average

Total

 

income

income

notional

notional

yield

 

income

income

notional

notional

yield

 

income

income

notional

notional

yield

 

£m

£m

£bn

£bn

%

 

£m

£m

£bn

£bn

%

 

£m

£m

£bn

£bn

%

Equity structural 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 hedging

235

244

23

23

2.13

 

209

294

24

25

2.39

 

269

286

23

23

2.46

Product structural 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 hedging

360

412

146

135

0.61

 

146

503

114

112

0.90

 

397

455

125

118

0.77

Other structural 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 hedging

74

62

21

22

0.56

 

42

78

20

20

0.78

 

77

72

21

21

0.69

Total

669

718

190

180

0.80

 

397

875

158

157

1.12

 

743

813

169

162

1.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity structural hedges refer to income allocated primarily to equity and reserves. At 30 June 2021, the equity structural hedge notional was allocated between NWH Group and NWM Plc in a ratio of approximately 80/20 respectively.

 

Product structural hedges refer to income allocated to customer products by NWH Treasury, mainly current accounts and customer deposits in Commercial Banking and UK Retail Banking. Other structural hedges refer to hedges managed by UBIDAC, Private Banking and RBS International. Hedges associated with Ulster Bank Limited were moved from other structural hedges to product hedges in H1 2021 as Ulster Bank Limited products migrated to NatWest Bank Plc.

 

At 30 June 2021, approximately 93% by notional of total structural hedges were sterling-denominated.

 

The following table presents the incremental income associated with product structural hedges at segment level.

 

 

 

Half year ended

 

30 June

30 June

31 December

 

2021

2020

2020

 

£m

£m

£m

Retail Banking

168

66

185

Commercial Banking

192

80

212

Total

360

146

397

 

 

 

 

 

Key points

Expectations of an economic recovery after the pandemic led to rising yield curves. The five-year sterling swap rate rose to 0.47% at 30 June 2021 from (0.01)% at 31 December 2020. The ten-year sterling swap rate also rose, to 0.71% from 0.16%.

The yield of the structural hedge fell in H1 2021. The hedge notional increased, resulting in new hedges being written at current market rates. Maturing hedges were replaced with new hedges at lower rates.

Short-term rates fell in 2020 as a result of the COVID-19 pandemic. That led to incremental income increasing in H2 2020, compared to H1 2020, and remaining high in H1 2021.

The increase in structural hedge notional mainly resulted from hedging Personal and Commercial deposits, which increased through the pandemic.

 

 

 

Risk and capital management

Non-traded market risk continued

Sensitivity of net interest earnings

Net interest earnings are sensitive to changes in the level of interest rates, mainly because maturing structural hedges are replaced at higher or lower rates and changes to coupons on managed rate customer products do not always match changes in market rates of interest or central bank policy rates.

 

Earnings sensitivity is derived from a market-implied forward rate curve. A simple scenario is shown that projects forward earnings based on the 30 June 2021 balance sheet, which is assumed to remain constant. A base-case earnings forecast is derived from the market-implied curve, which is then subject to interest rate shocks. The difference between the base-case forecast and the shock gives an indication of underlying sensitivity to interest rate movements.

 

Reported sensitivities should not be considered a forecast of future performance in these rate scenarios. Actions that could reduce interest earnings sensitivity include changes in pricing strategies on customer loans and deposits as well as hedging. Management action may also be taken to stabilise total income also taking into account non-interest income.

 

Three-year 25 basis point sensitivity table

The table below shows the sensitivity of net interest earnings - for both structural hedges and managed rate accounts - on a one, two and three-year forward-looking basis to an upward or downward interest rate shift of 25 basis points.

 

In the upward rate scenario, yield curves were assumed to move in parallel, at both year-ends.

 

The downward rate scenarios at both 30 June 2021 and 31 December 2020 allow interest rates to fall to negative rates.

 

 

 

+25 basis points upward shift

 

-25 basis points downward shift

 

Year 1 

Year 2 (1)

Year 3 (1)

 

Year 1 

Year 2 (1)

Year 3 (1)

30 June 2021

£m

£m

£m

 

£m

£m

£m

Structural hedges

39

127

215

 

(39)

(127)

(215)

Managed margin

414

365

287

 

(374)

(420)

(395)

Other

(3)

 

 

 

7

 

 

Total

450

492

502

 

(406)

(547)

(610)

 

 

 

 

 

 

 

 

31 December 2020

 

 

 

 

 

 

 

Structural hedges

37

118

199

 

(37)

(118)

(199)

Managed margin

319

380

387

 

(258)

(285)

(292)

Other

15

 

 

 

(20)

 

 

Total

371

498

586

 

(315)

(403)

(491)

 

 

 

 

 

 

 

 

Note:

(1)  The projections for Year 2 and Year 3 consider only the main drivers of earnings sensitivity, namely structural hedging and margin management

 

Key points

Structural hedge sensitivities are affected by structural hedging volumes. Managed margin sensitivities are affected by loan and deposit volumes and by the level of interest rates.

The higher volume of customer deposits and structural hedging at 30 June 2021 compared to 31 December 2020 was a key driver of changes in sensitivities between the two dates.

Adverse sensitivity to the 25-basis-point downward scenario was greater at 30 June 2021 than at 31 December 2020. This was mainly because assumptions regarding the extent to which negative rates would be passed through to loans and deposits in this scenario had less impact.

At 30 June 2021, the higher level of rates in the base case affected estimates of the extent to which base rate rises are passed through to managed rate deposits in upward rate shift scenarios (notably in year 3 of the 25-basis-point upward shift).

 

One-year 25 and 100 basis point sensitivity table

The following table analyses the one-year scenarios by currency and, in addition, shows the impact over one year of a 100-basis-point upward shift in all interest rates.

 

 

Shifts in yield curve

 

30 June 2021

 

31 December 2020

 

+25 basis 

-25 basis 

+100 basis

 

+25 basis 

-25 basis 

+100 basis

 

points

points

points

 

points

points

points

 

£m

£m

£m

 

£m

£m

£m

Euro

6

(11)

97

 

7

(6)

99

Sterling

405

(358)

1,253

 

336

(287)

1,109

US dollar

37

(35)

147

 

26

(22)

102

Other

2

(2)

14

 

2

-

7

Total

450

(406)

1,511

 

371

(315)

1,317

 

 

Risk and capital management

Non-traded market risk continued

Foreign exchange risk

The table below shows structural foreign currency exposures.

 

 

 

Structural

 

 

 

Net

 

foreign currency

 

Residual

 

investments

Net

exposures

 

structural

 

in foreign

investment

pre-economic

Economic

foreign currency

 

operations

hedges

hedges

hedges (1)

exposures

30 June 2021

£m

£m

£m

£m

£m

US dollar

1,291

-

1,291

(1,291)

-

Euro

6,286

(1,022)

5,264

-

5,264

Other non-sterling

996

(331)

665

-

665

Total

8,573

(1,353)

7,220

(1,291)

5,929

 

 

 

 

 

 

31 December 2020

 

 

 

 

 

US dollar

1,299

(3)

1,296

(1,296)

-

Euro

6,485

(829)

5,656

-

5,656

Other non-sterling

1,077

(350)

727

-

727

Total

8,861

(1,182)

7,679

(1,296)

6,383

 

Note:

(1)

Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available. Economic hedges of other currency net investments in foreign operations represent monetary liabilities that are not booked as net investment hedges.

 

Key points 

Sterling strengthened against the US dollar and the euro over the period.

The increase in euro hedging related to NatWest Bank's investment in its German branch.

Changes in foreign currency exchange rates affect equity in proportion to structural foreign currency exposure. For example, a 5% strengthening or weakening in foreign currencies against sterling would result in a gain or loss of £0.4 billion in equity respectively.

 

 

 

 

 

Risk and capital management

Traded market risk

Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices.

 

Traded VaR (1-day 99%)

The table below shows one-day internal value-at-risk (VaR) for NatWest Group's trading portfolios, split by exposure type.

 

Half year ended

 

30 June 2021

 

30 June 2020

 

31 December 2020

 

 

 

 

Period

 

 

 

 

Period

 

 

 

 

Period

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

 

Average

Maximum

Minimum

end

 

£m

£m

£m

£m

 

£m

£m

£m

£m

 

£m

£m

£m

£m

Interest rate

11.3

19.0

4.5

17.4

 

10.1

20.2

6.1

6.1

 

7.3

11.4

4.8

6.3

Credit spread

11.0

13.4

9.4

11.2

 

16.3

27.2

8.7

17.7

 

14.4

18.8

10.0

10.3

Currency

3.9

9.4

2.0

2.4

 

4.2

8.4

2.1

3.9

 

4.1

7.0

2.1

3.0

Equity

0.5

0.8

0.2

0.2

 

0.8

2.0

0.3

0.3

 

0.4

0.8

0.2

0.7

Commodity

0.2

0.5

-

-

 

0.1

0.3

-

0.1

 

0.2

0.6

-

0.2

Diversification (1)

(13.5)

 

 

(15.5)

 

(14.8)

 

 

(9.6)

 

(10.9)

 

 

(10.3)

Total

13.4

23.9

9.5

15.7

 

16.7

25.7

10.1

18.5

 

15.5

22.2

10.2

10.2

 

Note:

(1)

NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

 

 

 

Key points 

The increase in average interest rate VaR, compared to the prior period, reflected a rise in tenor basis risk in sterling flow trading. This related to the transition from LIBOR to alternative risk-free rates. The regulator has approved an update of the VaR model, which will remove this impact during Q3 2021.

The decrease in average credit spread VaR mostly reflected a tightening of credit spreads over the period.

Traded VaR remained within appetite throughout the period.

 

 

 

 

Risk and capital management

Other risks

Operational risk

·    Management attention focused heavily on operational resilience to ensure that planning, controls and operational activities remained robust and appropriate. There was also continuing focus on the potential operational risks arising from changes in working practices. 

·    The security threat and the potential for cyber-attacks on NatWest Group and its supply chain is closely monitored. There is continuous enhancement of NatWest Group's defences against the evolving threat and ongoing focus on assuring the security of the supply chain.

 

Conduct & compliance risk

·    The impact of the pandemic on NatWest Group's conduct and regulatory compliance risk profiles remained an important area of focus. This included oversight of NatWest Group's diverse initiatives to support its customers throughout the crisis. While NatWest Group acted to ensure customer needs were met at pace, the associated conduct and compliance risks were carefully assessed and monitored throughout.

·    In addition, there was a sustained emphasis on oversight of NatWest Group's pricing, payment and forbearance treatment strategies to support customers in recent months, as well as prioritising the delivery of mandatory and regulatory change programmes.

·    NatWest Group remains committed to ensuring its transition from LIBOR to risk-free rates by the end of 2021 is appropriately managed and controlled to ensure the best outcomes for NatWest Group and its customers.

 

Climate risk

·    A qualitative statement of appetite for climate risk was also approved by NatWest Group Board in April 2021. The appetite statement reflects the ambitions of NatWest Group to support customers while managing the carbon impact and risk exposure of the organisation in line with its commitments.

·    Throughout the first half of 2021, NatWest Group continued to develop its data and modelling capability to assess the impact of its customers' physical and transition risks, and collaborated with a range of industry initiatives to support the wider development of climate risk scenario analysis. Following this work, NatWest Group will undertake the Bank of England's Climate Biennial Exploratory Scenario during H2 2021.

 

 

 

 

 

 

 

 

 

 

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