Source - LSE Regulatory
RNS Number : 6499Q
NatWest Group plc
29 October 2021
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3 2021

Interim Management Statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                           natwestgroup.com

 

 

 

 

 

 

 

NatWest Group plc

Q3 2021 Interim Management Statement

 

Alison Rose, Chief Executive Officer, commented:

 

"Throughout Q3 2021, NatWest continued to deliver a strong operating performance; growing in key areas and accelerating our digital transformation to improve customer experience and make our business more efficient. Our robust capital position means that we have been able to buy back £402 million of our shares to date(1) whilst also investing for growth as we support our customers and drive sustainable returns to our shareholders.

 

Although we are seeing challenges in the economy and for our customers - especially around supply chains and the cost of living - a number of key indicators remain positive; growth is good, unemployment is low and there are limited signs of default across our book. We have a vital role to play in helping the 19 million people, families and businesses we serve in communities throughout the UK to thrive. Because when they thrive, so do we.

 

NatWest Group has made addressing the climate challenge and supporting our customers through the transition a key strategic priority. We recently announced a new target to deliver an additional £100 billion of Climate and Sustainable Funding and Financing between 1 July 2021 and the end of 2025, having exceeded our initial two-year target of £20 billion in less than 18 months."

 

Financial performance in a challenging environment

Q3 2021 operating profit before tax of £1,074 million, attributable profit of £674 million and a return on tangible equity (RoTE) of 8.5%.

Income across the UK and RBSI retail and commercial businesses, excluding notable items, increased by £103 million, or 4.4%, compared with Q3 2020 principally reflecting balance sheet growth. NatWest Markets (NWM) income, excluding asset disposals/strategic risk reduction and OCA, decreased by £175 million, or 62.5%, compared with Q3 2020 reflecting continued weakness in Fixed Income which was impacted by subdued levels of customer activity and ongoing reshaping of the business.

Bank net interest margin (NIM) excluding Liquid Asset Buffer (LAB) decreased by 6 basis points to 2.34% compared with Q2 2021 principally reflecting the Q2 2021 tax variable lease repricing in Commercial Banking. Bank NIM of 1.54% decreased by 7 basis points.

Other expenses, excluding operating lease depreciation (OLD) and Ulster Bank RoI direct costs, were £198 million, or 4.3% lower for the year to date.

A net impairment release of £242 million in Q3 2021 mainly reflects releases in non-default portfolios, principally in Commercial Banking.

 

Robust balance sheet with strong capital and liquidity levels

 

CET1 ratio of 18.7% was 50 basis points higher than Q2 2021 largely reflecting the attributable profit and reduction in RWAs partially offset by the foreseeable dividend accrual.

The liquidity coverage ratio (LCR) of 166%, representing £78.6 billion headroom above 100% minimum requirement, increased by 2 percentage points compared with Q2 2021, reflecting continued growth in customer deposits.

Net lending decreased by £1.7 billion to £361.0 billion during Q3 2021. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes increased by £2.9 billion, including £2.5 billion related to mortgage growth, with year to date annualised growth of 3.1%.

Customer deposits increased by £9.1 billion compared with Q2 2021 to £476.3 billion. Across the UK and RBSI retail and commercial businesses customer deposits increased by £8.5 billion, or 2.0%, largely due to customers continuing to build and retain liquidity and higher short term placements in RBS International (RBSI).

RWAs decreased by £3.2 billion to £159.8 billion during Q3 2021 mainly reflecting business movements in Commercial Banking and unwinding of the Q2 2021 increase in NWM following regulatory approval to update the VaR model to remove the impact of GBP LIBOR cessation. 

 

Outlook(2)

We retain the outlook guidance provided in the 2021 Interim Results document, except:

·    We no longer expect to achieve the majority of the remaining RWA reduction towards the medium term target in NWM of £20 billion this year; and

·    We now expect Group RWAs to be below our previously guided range of £185-195 billion on 1 January 2022.

 

 

 

 

(1)   At 27 October 2021.

(2)   The guidance, targets, expectations and trends discussed in this section represent NatWest Group plc management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors section on pages 345 to 362 of the 2020 Annual Report and Accounts, pages 112 and 113 of the NatWest Group plc 2021 Interim Results, pages 156 to 172 of the NatWest Markets Plc 2020 Annual Report and Accounts and on pages 48 and 49 of the NatWest Markets Plc 2021 Interim Results. 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 for the nine months ended 30 September 2021 are:

 

People and families

Supported customers with five million financial capability interactions including 750,000 financial health checks. 

Retail Banking personalised messaging to customers has grown from 72 million messages in the first nine months of 2020 to 318 million in the same period of 2021. The personalisation of messages has resulted in a 41% increase in customer engagement.

As part of our strategy to help families and young people manage their money more effectively, we acquired the fintech business RoosterMoney, whose pocket money app aims to build money confidence and financial capability from an early age.

Launched Housemate, an app designed to help young renters manage shared bills and help build a history with the bank's data partner Experian.

 

Businesses

Announced a target to provide an additional £100 billion Climate and Sustainable Funding and Financing (CSFF) to customers between the 1 July 2021 and the end of 2025 as well as plans to launch a new green loan product for Small to Medium-sized Enterprise (SME) customers.

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

 

Colleagues

Recognised as a top ten UK employer by the work-life balance charity Working Families.

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

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

 

Communities

Retail Banking completed Green Mortgages with a value of £565 million during the nine months ended 30 September 2021.

Teamed up with the manufacturer of one of Britain's best-known childhood games, Top Trumps, to launch a new MoneySense Climate Savers competition for primary school pupils across the UK as part of our principal sponsorship of the UN Climate Change conference COP26.

Launched a 'Sustainable Homes and Buildings' Coalition' with British Gas, Worcester Bosch, and Shelter to improve UK buildings energy efficiency. The Coalition aims to address the key blockers to meeting net zero in the UK buildings environment.

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 became 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. 

 

 

 

For further detail refer to the Climate, Purpose and ESG measures supplement Q3 2021.

 

 

 

 

 

Business performance summary

 

Nine months ended

 

Quarter ended

 

 

30 September

30 September

 

30 September

30 June

30 September

 

 

2021

2020

 

2021

2021

2020

 

Total income

£8,093m

£8,261m

 

£2,774m

£2,660m

£2,423m

 

Operating expenses

(£5,463m)

(£5,564m)

 

(£1,942m)

(£1,706m)

(£1,814m)

 

Profit before impairment releases/(losses)

£2,630m

£2,697m

 

£832m

£954m

£609m

 

Operating profit/(loss) before tax

£3,579m

(£415m)

 

£1,074m

£1,559m

£355m

 

Profit/(loss) attributable to ordinary shareholders

£2,516m

(£644m)

 

£674m

£1,222m

£61m

 

 

 

 

 

 

 

 

 

Excluding notable items within total income (1)

 

 

 

 

 

 

 

Total income excluding notable items 

£7,910m

£8,564m

 

£2,621m

£2,621m

£2,720m

 

Operating expenses

(£5,463m)

(£5,564m)

 

(£1,942m)

(£1,706m)

(£1,814m)

 

Profit before impairment releases/(losses) and 

 

 

 

 

 

 

 

   excluding notable items

£2,447m

£3,000m

 

£679m

£915m

£906m

 

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

£3,396m

(£112m)

 

£921m

£1,520m

£652m

 

UK and RBSI retail and commercial income excluding

£7,110m

£7,167m

 

£2,423m

£2,368m

£2,320m

 

   notable items (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance key metrics and ratios

 

 

 

 

 

 

 

Bank net interest margin (2,3)

1.59%

1.73%

 

1.54%

1.61%

1.65%

 

Bank net interest margin excluding liquid asset buffer (2)

2.38%

2.45%

 

2.34%

2.40%

2.39%

 

Bank average interest earning assets (2,3)

£493bn

£449bn

 

£505bn

£494bn

£469bn

 

Bank average interest earning assets excluding

 

 

 

 

 

 

 

   liquid asset buffer (2)

£330bn

£318bn

 

£331bn

£330bn

£324bn

 

Cost:income ratio (2)

67.1%

66.9%

 

69.6%

63.7%

74.5%

 

Loan impairment rate (2)

(35bps)

115bps

 

(26bps)

(66bps)

28bps

 

Earnings per share - basic

21.5p

(5.3p)

 

5.8p

10.6p

0.5p

 

Return on tangible equity (2)

10.7%

(2.7%)

 

8.5%

15.6%

0.8%

 

 

30 September

30 June

31 December

 

2021

2021

2020

Balance sheet

 

 

 

Total assets

£778.3bn

£775.9bn

£799.5bn

Funded assets (2)

£674.5bn

£666.3bn

£633.0bn

Loans to customers - amortised cost

£361.0bn

£362.7bn

£360.5bn

Loans to customers and banks - amortised cost and FVOCI 

£374.0bn

£375.6bn

£372.4bn

UK and RBSI retail and commercial net lending excluding UK Government

 

 

 

   support schemes (2)

£304.9bn

£302.0bn

£297.9bn

Impairment provisions - amortised cost

£4.3bn

£4.7bn

£6.0bn

Total impairment provisions 

£4.4bn

£4.9bn

£6.2bn

Expected credit loss (ECL) coverage ratio 

1.19%

1.31%

1.66%

Assets under management and administration (AUMA) (2)

£35.7bn

£34.7bn

£32.1bn

Customer deposits 

£476.3bn

£467.2bn

£431.7bn

UK and RBSI retail and commercial customer deposits (2)

£437.2bn

£428.7bn

£403.2bn

 

 

 

 

Liquidity and funding

 

 

 

Liquidity coverage ratio (LCR)

166%

164%

165%

Liquidity portfolio

£278bn

£277bn

£262bn

Net stable funding ratio (NSFR) (4)

155%

154%

151%

Loan:deposit ratio (2)

76%

78%

84%

Total wholesale funding

£67bn

£66bn

£71bn

Short-term wholesale funding

£22bn

£23bn

£19bn

 

 

 

 

Capital and leverage

 

 

 

Common Equity Tier (CET1) ratio (5)

18.7%

18.2%

18.5%

Total capital ratio

24.6%

24.9%

24.5%

Pro forma CET1 ratio, pre dividend accrual (6)

19.5%

19.1%

18.8%

Risk-weighted assets (RWAs)

£159.8bn

£163.0bn

£170.3bn

UK leverage ratio (7)

5.9%

6.2%

6.4%

Tangible net asset value (TNAV) per ordinary share

269p

266p

261p

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

11,436

11,569

12,129

                 

 

(1)

Refer to page 4 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 £1.0 billion (30 June 2021 - £1.2 billion; 31 December 2020 - £1.7 billion). Excluding this adjustment, the CET1 ratio would be 18.1% (30 June 2021 - 17.5%; 31 December 2020 - 17.5%).

(6)

The pro forma CET1 ratio at 30 September 2021 excludes foreseeable items of £1.2 billion, £402 million for ordinary dividends and £816 million foreseeable charges and pension contributions (30 June 2021 excludes foreseeable items of £1.4 billion, £500 million for ordinary dividends and £924 million foreseeable charges and pension contributions; 31 December 2020 excludes foreseeable charges of £364 million for ordinary dividend (3p per share) and £266 million pension contribution).

(7)

Based on UK end-point including the IFRS 9 transitional adjustment of £1.0 billion (30 June 2021 - £1.2 billion; 31 December 2020 - £1.7 billion). Excluding this adjustment the UK leverage ratio would be 5.8% (30 June 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 September 2021

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2021

2020

 

2021

2021

2020

 

£m 

£m 

 

£m 

£m 

£m 

Net interest income

5,870

5,778 

 

1,954

1,985 

1,926 

Own credit adjustments

2

19 

 

2

(2)

(34)

Other non-interest income

2,221

2,464 

 

818

677 

531 

Non-interest income

2,223

2,483 

 

820

675 

497 

Total income

8,093

8,261 

 

2,774

2,660 

2,423 

Litigation and conduct costs

(276)

81 

 

(294)

34 

(8)

Strategic costs

(409)

(687)

 

(77)

(172)

(223)

Other expenses

(4,778)

(4,958)

 

(1,571)

(1,568)

(1,583)

Operating expenses

(5,463)

(5,564)

 

(1,942)

(1,706)

(1,814)

Profit before impairment releases/(losses)

2,630

2,697 

 

832

954 

609 

Impairment releases/(losses)

949

(3,112)

 

242

605 

(254)

Operating profit/(loss) before tax

3,579

(415)

 

1,074

1,559 

355 

Tax (charge)/credit

(765)

 

(330)

(202)

(207)

Profit/(loss) for the period

2,814

(414)

 

744

1,357 

148 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

2,516

(644)

 

674

1,222 

61 

Preference shareholders

14

21 

 

5

Paid-in equity holders

241

272 

 

63

91 

80 

Non-controlling interests

43

(63)

 

2

40 

 

Notable items within total income (1)

 

 

 

 

 

 

Own credit adjustments (OCA)

2

19

 

2

(2)

(34)

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

-

(39)

 

-

-

64

Liquidity Asset Bond sale gain

70

111

 

45

20

1

IFRS volatility in Central items & other (2)

44

38

 

-

45

49

Loss on redemption of own debt

(138)

(324)

 

-

(20)

(324)

Retail Banking debt sale gain

-

7

 

-

-

4

Commercial Banking fair value and disposal (loss)/gain

(18)

(10)

 

4

(8)

1

Commercial Banking tax variable lease repricing

32

-

 

-

32

-

NatWest Markets asset disposals/strategic risk 

 

 

 

 

 

 

   reduction (3)

(52)

(75)

 

(12)

(36)

(12)

Share of associate profits/(losses) for Business

 

 

 

 

 

 

   Growth Fund

208

(30)

 

79

8

(46)

Ulster Bank RoI gain arising from the restructuring of

 

 

 

 

 

 

   structural hedges

35

-

 

35

-

-

Total

183

(303)

 

153

39

(297)

 

(1)   Refer to page 1 of the Non-IFRS financial measures Appendix.

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

(3)   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.

 

Non-IFRS financial measures

This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations, where applicable, refer to the Appendix.

 

 

 

Business performance summary

 

Chief Financial Officer review

 

 

We have delivered a strong operating performance in the third quarter. We have grown lending across our retail and commercial franchises and have continued to deliver against our CSFF commitments. Good progress has been made against our cost reduction commitments and we continue to work towards optimising our capital base. During the quarter default levels remained low across our portfolio and we have reported another impairment release as a result.

 

Financial performance

Total income increased by 14.5% to £2,774 million compared with Q3 2020. Excluding notable items, income was £99 million, or 3.6%, lower than Q3 2020 principally in NWM, reflecting continued weakness in Fixed Income which was impacted by subdued levels of customer activity and ongoing reshaping of the business. The Currencies and Capital Markets businesses performed in line with expectations. Across the UK and RBSI retail and commercial businesses income increased by 4.4% reflecting strong balance sheet growth, principally in our mortgage book. Excluding notable items income was in line with the second quarter. Bank NIM, excluding the LAB, of 2.34% was 6 basis points lower than Q2 2021 reflecting the one-off tax variable lease repricing adjustment in Q2 2021 and a £14 million AT1 reclassification in Q3 2021. Bank NIM of 1.54% was 7 basis points lower reflecting the one-off items and increased levels of liquidity.

 

We have delivered a cost reduction of £198 million, or 4.3%, for the year to date. This has been achieved by transformation across our Customer Journeys and NWM business, in line with the strategic announcement made in February 2020, and we remain committed to our 4% full year cost reduction target. Strategic costs of £77 million in the quarter included £50 million in NWM, £18 million of technology spend and £13 million of redundancy charges. Litigation and conduct costs were £294 million which included provisions for an anticipated fine in respect of NWB Plc's breaches of the UK Money Laundering Regulations 2007 and other matters.

 

A net impairment release of £242 million reflects the continued low levels of realised losses we have seen to date. Total impairment provisions reduced by £0.5 billion to £4.4 billion in the quarter and as a result ECL coverage ratio decreased from 1.31% to 1.19%. Whilst we are comfortable with the strong credit performance of our book, we continue to hold economic uncertainty post model adjustments (PMA) of £0.7 billion, or 16.4% of total impairment provisions. We will continue to assess this position as we see the impact within the economy of the UK Government support measures winding down and we emerge from the pandemic.

 

As a result, we are pleased to report a Q3 2021 attributable profit of £674 million, with earnings per share of 5.8 pence and a RoTE of 8.5%.   

We continued to support our customers 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 £2.9 billion in the quarter, including £2.5 billion of mortgage growth, and annualised growth for the year to date was 3.1%. Total Group net lending reduced by £1.7 billion, which included a £3.5 billion reduction in Ulster Bank RoI as loans agreed to be sold to Allied Irish Banks p.l.c. as part of our phased withdrawal from the Republic of Ireland were reclassified as assets held for sale.

 

During H1 2021 we exceeded our 2020-21 target of providing an additional £20 billion CSFF, bringing our delivery against this target to £21.5 billion. During Q3 2021 we completed £2.0 billion CSFF which will contribute towards the new £100 billion target.

 

Customer deposits increased by £9.1 billion, or 1.9%, in the quarter as customers continued to build and retain liquidity.

 

TNAV per share increased by 3 pence in the quarter to 269 pence largely reflecting the attributable profit partially offset by the impact of the share buy-back programme.

 

 

Capital and leverage

The CET1 ratio remains robust at 18.7%, or 18.1% excluding IFRS 9 transitional relief, and increased by 50 basis points in the quarter reflecting the attributable profit and reduction in RWAs partially offset by a foreseeable dividend accrual, a dividend linked pension accrual and reduction in IFRS 9 transitional relief. The total capital ratio decreased by 30 basis points in the quarter to 24.6%.

 

RWAs decreased by £3.2 billion to £159.8 billion during Q3 2021 mainly reflecting business movements in Commercial Banking and unwinding of the Q2 2021 increase in NWM following regulatory approval to update the VaR model to remove the impact of GBP LIBOR cessation. 

 

Funding and liquidity

The LCR increased by 2 percentage points to 166%, representing £78.6 billion headroom above 100% minimum requirement, primarily reflecting continued growth in customer deposits. Total wholesale funding increased by £1 billion in the quarter to £66 billion.

 

 

 

 

Business performance summary

Retail Banking

 

 

 

Quarter ended

 

 

 

 

 

30 September

30 June

30 September

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£m

£m

£m

Total income

 

 

 

 

1,131

1,094

1,022

Operating expenses

 

 

 

 

(552)

(600)

(647)

   of which: Other expenses

 

 

 

 

(543)

(545)

(560)

Impairment (losses)/releases

 

 

 

 

(16)

91

(70)

Operating profit

 

 

 

 

563

585

305

 

 

 

 

 

 

 

 

Return on equity

 

 

 

 

29.9%

32.0%

15.3%

Net interest margin

 

 

 

 

2.09%

2.08%

2.05%

Cost:income ratio

 

 

 

 

48.8%

54.8%

63.3%

Loan impairment rate

 

 

 

 

4bps

(20)bps

17bps

 

 

 

 

As at

 

 

 

 

 

30 September

30 June

31 December

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£bn

£bn

£bn

Net loans to customers - amortised cost

 

 

 

 

180.5

178.1

172.3

Customer deposits

 

 

 

 

186.3

184.1

171.8

RWAs

 

 

 

 

36.6

35.6

36.7

 

 

During Q3 2021, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering an operating profit of £563 million. Lending growth was supported by a strong performance in mortgages and a return to unsecured lending growth with improved customer spending and demand for new lending as the UK economy continued to recover. Retail Banking completed £0.5 billion of CSFF in Q3 2021 which will contribute towards the new NatWest Group target of £100 billion between 1 July 2021 and the end of 2025. Retail Banking also made good progress in buy-to-let, with application volumes in Q3 2021 more than double Q2 2021 reflecting the alignment of lending criteria with the rest of the market, the introduction of a simplified policy and customer journey improvements.

 

Total income was £109 million, or 10.7%, higher than Q3 2020 primarily due to strong mortgage balance growth and improved asset margins, partially offset by lower deposit returns and lower unsecured balances. Total income was £37 million, or 3.4%, higher than Q2 2021 reflecting balance growth and higher transactional-related fee income, partially offset by the non-repeat of Q2 2021 one-off items totalling £12 million.

Net interest margin was 1 basis point higher than Q2 2021 largely reflecting higher margin unsecured balance growth. Mortgage completion margins of 143 basis points were lower than the back book margin of 164 basis points, with application margins of 115 basis points in the quarter decreasing to 105 basis points in the latter part of Q3 2021, reflecting rising swap rates and continued strong competition in the market.

Other expenses were £17 million, or 3.0%, lower than Q3 2020 primarily reflecting a 9.6% reduction in headcount as a result of continued digitalisation, automation and improvement of end-to-end customer journeys. Customer behaviour continues to shift towards digital with 89% of retail customer needs met digitally, up from 77% in Q3 2020, and mobile payments increased 13% compared with Q3 2020. Additionally, 7.0 million current account customers are now exclusively using digital channels to interact with us, up from 6.7 million in Q3 2020.

A net impairment charge of £16 million in Q3 2021 primarily reflects Stage 3 defaults, which remain at low levels, partially offset by ECL releases resulting from continued stable portfolio performance underpinned by government support schemes.

Net loans to customers increased by £2.4 billion, or 1.3%, compared with Q2 2021 reflecting continued mortgage growth of £2.2 billion, with gross new mortgage lending of £8.3 billion representing flow share of approximately 11%. Personal advances and cards both increased by £0.1 billion as customer demand and spend levels increased.

Customer deposits increased £2.2 billion, or 1.2%, compared with Q2 2021 reflecting slower growth than previous periods as customer spending increased following the easing of UK Government restrictions.

RWAs increased by £1.0 billion, or 2.8%, compared with Q2 2021 largely reflecting lending growth across all products and predictive loss model recalibrations.

 

 

 

Business performance summary

Private Banking

 

 

 

Quarter ended

 

 

 

 

30 September

30 June

30 September

 

 

 

 

2021

2021

2020

 

 

 

 

£m

£m

£m

Total income

 

 

 

195

183

187

Operating expenses

 

 

 

(116)

(128)

(112)

  of which: Other expenses

 

 

 

(117)

(120)

(106)

Impairment releases/(losses)

 

 

 

15

27

(18)

Operating profit

 

 

 

94

82

57

 

 

 

 

 

 

 

Return on equity

 

 

 

18.1%

15.9%

11.2%

Net interest margin

 

 

 

1.76%

1.75%

1.99%

Cost:income ratio

 

 

 

59.5%

69.9%

59.9%

Loan impairment rate

 

 

 

(32)bps

(60)bps

43bps

 

 

 

 

 

As at

 

 

 

 

30 September

30 June

31 December

 

 

 

 

2021

2021

2020

 

 

 

 

£bn

£bn

£bn

Net loans to customers - amortised cost

 

 

 

18.4

18.0

17.0

Customer deposits

 

 

 

35.7

34.7

32.4

RWAs

 

 

 

11.4

11.2

10.9

Assets under management (AUMs) (1)

 

 

 

30.5

29.6

27.0

Assets under administration (AUAs) (1)

 

 

 

5.2

5.1

5.1

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

 

 

 

35.7

34.7

32.1

 

 

(1)   The definition of AUMs/AUAs has been updated to provide clarity on assets where the investment management is undertaken by Private Banking. AUMs now comprise 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 return on equity of 18.1% and operating profit of £94 million in Q3 2021 was supported by a strong operating performance and continued balance growth. During the first nine months of the year approximately 1,300 new customers were onboarded into Private Banking, an increase of around 10% compared to the same period last year.

 

NatWest Group completed the sale of Adam & Company's £1.8 billion investment management business to Canaccord Genuity Wealth Management on 1 October 2021 for a total consideration of £54 million, which included the Adam & Company brand and the FCA regulated Adam & Company Investment Management Ltd legal entity which had net assets of £2 million. The final net gain on sale will be recorded as a notable item in the Q4 2021 results.

 

Total income was £8 million, or 4.3%, higher than Q3 2020 as strong balance growth was partially offset by lower deposit returns. Total income was £12 million, or 6.6%, higher than Q2 2021 reflecting continued balance growth. Net interest margin was broadly in line with Q2 2021.

Other expenses were £11 million, or 10.4%, higher than Q3 2020 principally due to investment in digital infrastructure and an increase in headcount related to the enhancement of AUMA growth propositions.

A net impairment release of £15 million in Q3 2021 mainly reflects ECL releases in non-default portfolios.

Net loans to customers increased by £0.4 billion, or 2.2%, compared with Q2 2021 due to continued strong mortgage lending growth, whilst RWAs increased by £0.2 billion, or 1.8%.

AUMAs increased by £1.0 billion, or 2.9%, compared with Q2 2021 reflecting positive investment performance of £0.3 billion and AUM net new money inflows of £0.7 billion. AUM net new money inflows of £2.1 billion in the nine months ended 30 September 2021 included £0.6 billion of digital investing net inflows into NatWest Invest, Royal Bank Invest and Coutts Invest, compared to £0.2 billion during the same period of 2020. 

 

 

 

 

 

 

 

 

 

Business performance summary

Commercial Banking

 

 

 

Quarter ended

 

 

 

 

 

30 September

30 June

30 September

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£m

£m

£m

Total income

 

 

 

 

965

982

1,004

Operating expenses

 

 

 

 

(556)

(569)

(553)

   of which: Other expenses (excluding OLD)

 

 

 

 

(484)

(470)

(490)

Impairment releases/(losses)

 

 

 

 

216

451

(127)

Operating profit

 

 

 

 

625

864

324

 

 

 

 

 

 

 

 

Return on equity

 

 

 

 

21.7%

29.3%

9.2%

Net interest margin

 

 

 

 

1.49%

1.60%

1.65%

Cost:income ratio

 

 

 

 

56.0%

56.4%

53.4%

Loan impairment rate

 

 

 

 

(83)bps

(170)bps

45bps

 

 

 

 

 

As at

 

 

 

 

 

30 September

30 June

31 December

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£bn

£bn

£bn

Net loans to customers - amortised cost

 

 

 

 

102.7

103.8

108.2

Customer deposits

 

 

 

 

178.3

176.0

167.7

RWAs

 

 

 

 

66.4

69.5

75.1

 

 

 

Commercial Banking delivered a resilient performance in Q3 2021 with an operating profit of £625 million including a £216 million impairment release as the UK economy continued to recover.  Commercial Banking continues to actively manage its balance sheet to enhance returns through a combination of active capital management, pricing discipline, targeted sector appetite and growing capital efficient revenue streams. These actions have enabled the business to deliver a resilient revenue performance whilst materially increasing capital efficiency and returns.

 

In the nine months ended 30 September 2021, Commercial Banking completed £3.4 billion of CSFF, including £0.9 billion in Q3 2021 which will contribute towards the new NatWest Group target of £100 billion between 1 July 2021 and the end of 2025. Commercial Banking continues to scale Tyl to business customers providing an opportunity to reduce cash usage and customer footfall in branch network. Tyl has processed over £1.5 billion transactions since inception in 2019.

 

Total income was £39 million, or 3.9%, lower than Q3 2020 as lower deposit returns and lower lending volumes were partially offset by a recovery in transactional banking volumes. Total income was £17 million, or 1.7%, lower than Q2 2021 mainly reflecting the non-repeat of a tax variable lease repricing gain of £32 million and lower lending volumes, partially offset by higher deposit returns and increased transactional banking income.

Net interest margin was 11 basis points lower than Q2 2021 mainly due to the non-repeat of the tax variable lease repricing gain in Q2 2021. Excluding the impact of the tax variable lease repricing gain, NIM was broadly stable compared with Q2 2021.

Other expenses were £6 million, or 1.2%, lower than Q3 2020 primarily reflecting an 8.3% reduction in headcount and lower non-staff costs, including additional VAT recoveries, partially offset by higher back office operational costs.

A net impairment release of £216 million in Q3 2021 primarily reflects ECL releases related to the reduced economic uncertainty with Stage 3 defaults remaining at low levels.

Net loans to customers decreased by £1.1 billion, or 1.1%, compared with Q2 2021 primarily reflecting UK Government financial support scheme repayments of £0.7 billion and targeted sector reductions mainly across Real Estate and Retail, partially offset by growth in Specialised Business of £0.3 billion as customer utilisation levels increased. RCF utilisation was approximately 19% of committed facilities, broadly stable versus Q2 2021 and significantly below the COVID-19 peak of approximately 40%.

Customer deposits increased by £2.3 billion, or 1.3%, compared with Q2 2021 as customers continued to build and retain liquidity.

RWAs decreased by £3.1 billion, or 4.5%, compared with Q2 2021 reflecting business movements including targeted sector reductions across Real Estate and Retail as well as active capital management of £0.7 billion.

                 

 

 

 

Business performance summary

International Banking & Markets

RBS International

 

 

 

 

Quarter ended

 

 

 

 

 

30 September

30 June

30 September

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£m

£m

£m

Total income

 

 

 

 

136

133

112

Operating expenses

 

 

 

 

(60)

(55)

(53)

   of which: Other expenses

 

 

 

 

(56)

(52)

(50)

Impairment releases/(losses)

 

 

 

 

11

27

(34)

Operating profit

 

 

 

 

87

105

25

 

 

 

 

 

 

 

 

Return on equity

 

 

 

 

21.6%

26.5%

6.4%

Net interest margin

 

 

 

 

0.99%

1.02%

1.07%

Cost:income ratio

 

 

 

 

44.1%

41.4%

47.3%

Loan impairment rate

 

 

 

 

(28)bps

(71)bps

105bps

 

 

 

 

 

 

As at

 

 

 

 

 

30 September

30 June

31 December

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£bn

£bn

£bn

Net loans to customers - amortised cost

 

 

 

 

15.6

15.1

13.3

Customer deposits

 

 

 

 

36.9

33.9

31.3

RWAs

 

 

 

 

8.1

7.6

7.5

Depositary assets (1)

 

 

 

 

463.8

460.4

427.5

 

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

During Q3 2021 RBS International (RBSI) delivered £87 million of operating profit, supported by net lending growth and an impairment release. RBSI also supported local social enterprises to thrive through mentoring programmes and delivered digital enhancements to eQ, our payment processing platform, making batch payments easier for our customers. In the nine months ended 30 September 2021, RBSI completed £0.6 billion of CSFF.

 

Total income was £24 million, or 21.4%, higher than Q3 2020 primarily due to higher average customer volumes and higher non utilisation and depositary fees. Net interest margin was 3 basis points lower than Q2 2021 primarily due to lower returns from higher surplus deposits.

Other expenses were £6 million, or 12.0%, higher than Q3 2020 primarily reflecting higher investment spend.

A net impairment release of £11 million in Q3 2021 primarily reflects releases across Stage 1 and Stage 2 portfolios.

Net loans to customers increased by £0.5 billion, or 3.3%, reflecting new business growth and higher utilisation levels in the Institutional Banking sector.

Customer deposits increased by £3.0 billion, or 8.8%, compared with Q2 2021 due to higher short-term placements in the Institutional Banking sector.

Depositary assets were £3.4 billion, or 0.7% higher than Q2 2021 and £60.9 billion, or 15.1%, higher than Q3 2020 reflecting new client business, new fund launches and strong fund performance from existing clients.

RWAs increased by £0.5 billion, or 6.6%, compared with Q2 2021 principally due to higher lending volumes and higher deposit balances placed with third party banks.

                 

 

 

 

 

 

Business performance summary

International Banking & Markets

NatWest Markets(1)

 

 

 

 

Quarter ended

 

 

 

 

 

30 September

30 June

30 September

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£m

£m

£m

Income excluding revenue share, asset disposals and OCA

 

 

160

193

325

Revenue share paid to other NatWest Group segments

 

 

(55)

(50)

(45)

Income excluding asset disposals and OCA

 

 

 

105

143

280

Asset disposals/strategic risk reduction (2)

 

 

 

(12)

(36)

(12)

Own credit adjustments (OCA)

 

 

 

 

2

(1)

(34)

Total income

 

 

 

 

95

106

234

Operating expenses

 

 

 

 

(258)

(285)

(302)

   of which: Other expenses

 

 

 

 

(206)

(216)

(225)

Impairment releases

 

 

 

 

3

10

2

Operating loss

 

 

 

 

(160)

(169)

(66)

 

 

 

 

 

 

 

 

Return on equity

 

 

 

 

(12.1%)

(12.1%)

(4.7%)

Cost:income ratio

 

 

 

 

271.6%

268.9%

129.1%

 

 

 

 

As at

 

 

 

 

 

30 September

30 June

31 December

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

£bn

£bn

£bn

Funded assets

 

 

 

 

108.0

111.8

105.9

RWAs

 

 

 

 

25.4

26.9

26.9

 

(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) as 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 has supported customers in navigating challenging market conditions and continued to deliver an integrated customer proposition across NatWest Group. NatWest Markets has maintained a focus on product innovation, investing in its people, and on growing its expertise in areas that matter most to customers.

In the nine months ended 30 September 2021, NatWest Markets completed £6.9 billion of CSFF, including £0.5 billion in Q3 2021 which will contribute towards the new NatWest Group target of £100 billion between 1 July 2021 and the end of 2025.

Income excluding asset disposals/strategic risk reduction and OCA decreased by £175 million, or 62.5%, compared with Q3 2020 reflecting continued weakness in Fixed Income which was impacted by subdued levels of customer activity and ongoing reshaping of the business, resulting in an operating loss of £160 million in Q3 2021. The Currencies and Capital Markets businesses performed in line with expectations.

Other expenses decreased £19 million, or 8.4%, compared with Q3 2020, reflecting continued reductions in line with the strategic announcement in February 2020.

RWAs decreased by £1.5 billion, or 5.6%, compared to Q2 2021 as the impact related to LIBOR cessation largely unwound, with £2.4 billion unwinding in Q3 2021 and £0.1 billion to unwind in October, partially offset by higher credit risk driven by activity in the capital markets business.

 

 

 

Business performance summary

Ulster Bank RoI

 

 

 

Quarter ended

 

 

 

 

 

30 September

30 June

30 September

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

€m

€m

€m

Total income

 

 

 

 

171

137

145

Operating expenses

 

 

 

 

(144)

(156)

(138)

   of which: Other expenses

 

 

 

 

(134)

(149)

(129)

Impairment releases/(losses)

 

 

 

 

19

(1)

(6)

Operating profit/(loss)

 

 

 

 

46

(20)

1

 

 

 

 

 

 

 

 

Return on equity

 

 

 

 

9.9%

(4.1%)

0.2%

Net interest margin

 

 

 

 

1.40%

1.43%

1.47%

Cost:income ratio

 

 

 

 

84.2%

113.9%

95.2%

Loan impairment rate

 

 

 

 

(48)bps

2bps

11bps

 

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

 

 

 

30 September

30 June

31 December

 

 

 

 

 

2021

2021

2020

 

 

 

 

 

€bn

€bn

€bn

Net loans to customers - amortised cost

 

 

 

 

15.3

19.4

20.0

Customer deposits

 

 

 

 

21.6

21.6

21.8

RWAs

 

 

 

 

11.7

12.2

13.2

 

 

Ulster Bank RoI continues its phased withdrawal from the Republic of Ireland and delivered an operating profit of €46 million for Q3 2021. Since the end of July, apart from UBIDAC's asset finance business, commercial banking has been closed to new customers, remaining open for existing customers only. From the end of October, Ulster Bank RoI will stop accepting applications from new personal customers but will continue to consider applications on a reduced number of products from existing personal customers. Progress has continued with Allied Irish Banks p.l.c. and Permanent TSB Group Holdings p.l.c. for the sale of performing loan portfolios and associated undrawn exposures, UBIDAC's asset finance business and 25 branch locations, the details of which were outlined in the interim results. Discussions are ongoing with other counterparties about their potential interest in other parts of the bank.

 

 

Total income increased by €26 million, or 17.9%, compared with Q3 2020 primarily due to gains arising from the restructuring of the duration of swaps hedging deposits and other balances under the withdrawal plan, partially offset by lower lending levels and fee income as a result of the decision to withdraw from the RoI market. 

Net interest margin was 3 basis points lower than Q2 2021 reflecting continuation of reducing lending volumes against a stable deposit base, resulting in higher liquid assets in a negative interest rate environment.

Other expenses were €5 million, or 3.9%, higher than Q3 2020 as higher VAT charges and regulatory levies have been partially offset by a 10.7% reduction in headcount, lower back office operational costs and the reclassification of withdrawal-related programme costs to strategic costs. 

A net impairment release of €19 million in Q3 2021 reflects improvements in the mortgage and commercial portfolios.

Net loans to customers decreased by €4.1 billion, or 21.1%, compared with Q2 2021 reflecting the reclassification of €3.7 billion of loans agreed to be sold to Allied Irish Banks, p.l.c. as assets held for sale and repayments continuing to exceed gross new lending, which was €0.4 billion in Q3 2021.

                 

 

Central items & other

 

Quarter ended

 

30 September

30 June

30 September

 

2021

2021

2020

 

£m

£m

£m

Central items not allocated

(173)

110 

(285)

 

A £173 million operating loss within central items not allocated mainly reflects various litigation and conduct items, partially offset by a £79 million share of gains under equity accounting for Business Growth Fund and other treasury income.

 

 

 

Segment performance

 

 

Nine months ended 30 September 2021

 

 

 

 

International Banking & Markets

 

 

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster 

Central items

Total NatWest

 

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

3,017

354

1,937

277

(4)

275

14

5,870

Own credit adjustments

-

-

-

-

3

-

(1)

2

Other non-interest income

264

209

951

115

391

113

178

2,221

Total income

3,281

563

2,888

392

390

388

191

8,093

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(342)

(102)

(421)

(80)

(274)

(140)

(1,146)

(2,505)

  - other costs

(161)

(30)

(196)

(36)

(93)

(97)

(1,660)

(2,273)

Indirect expenses

(1,142)

(227)

(956)

(44)

(295)

(122)

2,786

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(21)

(7)

(43)

(7)

(141)

(10)

(180)

(409)

  - indirect

(49)

(7)

(30)

(3)

(15)

(3)

107

-

Litigation and conduct costs

(24)

8

(62)

(2)

-

(12)

(184)

(276)

Operating expenses

(1,739)

(365)

(1,708)

(172)

(818)

(384)

(277)

(5,463)

Operating profit/(loss)before impairment releases

1,542

198

1,180

220

(428)

4

(86)

2,630

Impairment releases

41

42

784

40

19

27

(4)

949

Operating profit/(loss) 

1,583

240

1,964

260

(409)

31

(90)

3,579

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

10.7%

Return on equity (1)

28.3%

15.5%

21.9%

21.9%

(10.1%)

2.5%

nm

na

Cost:income ratio (1)

53.0%

64.8%

57.6%

43.9%

209.7%

99.0%

nm

67.1%

Total assets (£bn)

207.6

28.2

186.0

39.9

210.1

25.2

81.3

778.3

Funded assets (£bn) (1)

207.6

28.2

186.0

39.9

108.0

25.2

79.6

674.5

Net loans to customers - amortised cost (£bn)

180.5

18.4

102.7

15.6

7.1

13.2

23.5

361.0

Loan impairment rate (1)

(3)bps

(30)bps

(100)bps

(34)bps

nm

(26)bps

nm

(35)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(1.9)

(0.1)

(0.1)

(0.5)

-

(4.3)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(0.8)

(0.1)

(0.1)

(0.4)

-

(2.2)

Customer deposits (£bn)

186.3

35.7

178.3

36.9

2.2

18.5

18.4

476.3

Risk-weighted assets (RWAs) (£bn)

36.6

11.4

66.4

8.1

25.4

10.0

1.9

159.8

RWA equivalent (RWAe) (£bn)

36.6

11.4

66.5

8.2

26.9

10.0

2.1

161.7

Employee numbers (FTEs - thousands)

15.0

1.9

8.8

1.6

1.6

2.5

27.5

58.9

Third party customer asset rate (2)

2.68% 

2.36% 

2.71% 

2.23% 

nm

2.27% 

nm

nm

Third party customer funding rate (2)

(0.06%)

0.00%

(0.01%)

0.07% 

nm

0.01% 

nm

nm

Average interest earning assets (£bn) (1)

194.2

26.8

168.0

36.2

32.4

25.6

nm

525.4

Bank net interest margin (1)

2.08%

1.77%

1.54%

1.02%

na

1.44%

nm

1.59%

Bank net interest margin excluding liquid asset buffer (1)

na

na

na

na

na

na

na

2.38%

nm = not meaningful, na = not applicable.

Refer to page 16 for the notes to this table.

Segment performance

 

Nine months ended 30 September 2020

 

 

 

 

International Banking & Markets

 

 

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster 

Central items

Total NatWest

 

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

2,919

371

2,073

286

(55)

294

(110)

5,778

Own credit adjustments

-

-

-

-

19

-

-

19

Other non-interest income

288

208

934

85

1,086

85

(222)

2,464

Total income

3,207

579

3,007

371

1,050

379

(332)

8,261

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(399)

(117)

(497)

(92)

(434)

(150)

(934)

(2,623)

  - other costs

(152)

(36)

(212)

(37)

(131)

(65)

(1,702)

(2,335)

Indirect expenses

(1,178)

(194)

(957)

(42)

(229)

(139)

2,739

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(46)

(4)

(5)

(8)

(187)

(9)

(428)

(687)

  - indirect

(138)

(10)

(111)

(3)

(24)

(10)

296

-

Litigation and conduct costs

191

(3)

8

3

(4)

1

(115)

81

Operating expenses

(1,722)

(364)

(1,774)

(179)

(1,009)

(372)

(144)

(5,564)

Operating profit/(loss) before impairment (losses)

1,485

215

1,233

192

41

7

(476)

2,697

Impairment losses

(727)

(74)

(1,917)

(80)

(38)

(251)

(25)

(3,112)

Operating profit/(loss)

758

141

(684)

112

3

(244)

(501)

(415)

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

(2.7%)

Return on equity (1)

12.2%

9.2%

(8.7%)

10.0%

(0.8%)

(16.6%)

nm

na

Cost:income ratio (1)

53.7%

62.9%

57.4%

48.2%

96.1%

98.2%

nm

66.9%

Total assets (£bn)

189.5

24.9

186.9

32.7

283.2

27.4

47.0

791.6

Funded assets (£bn) (1)

189.5

24.9

186.9

32.7

121.3

27.4

44.6

627.3

Net loans to customers - amortised cost (£bn)

166.7

16.5

110.0

12.8

10.1

18.3

19.3

353.7

Loan impairment rate (1)

57bps

59bps

226bps

83bps

nm

175bps

nm

115bps

Impairment provisions (£bn)

(1.9)

(0.1)

(3.0)

(0.1)

(0.2)

(0.8)

-

(6.1)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(1.1)

-

(0.2)

(0.5)

-

(2.7)

Customer deposits (£bn)

164.9

30.3

161.3

30.4

4.7

19.6

7.2

418.4

Risk-weighted assets (RWAs) (£bn)

36.3

10.6

76.5

7.0

30.0

12.1

1.4

173.9

RWA equivalent (RWAe) (£bn)

36.3

10.6

76.6

7.1

32.0

12.1

1.4

176.1

Employee numbers (FTEs - thousands)

16.6

1.8

9.6

1.7

2.8

2.8

26.3

61.6

Third party customer asset rate (2)

2.92%

2.59%

2.93%

2.57%

nm

2.27%

nm

nm

Third party customer funding rate (2)

(0.23%)

(0.15%)

(0.10%)

(0.03%)

nm

(0.05%)

nm

nm

Average interest earning assets (£bn) (1)

179.8

23.3

160.8

31.3

38.4

26.2

nm

487.8

Bank net interest margin (1)

2.17%

2.12%

1.72%

1.22%

na

1.50%

nm

1.73%

Bank net interest margin excluding liquid asset buffer (1)

na

na

na

na

na

na

na

2.45%

nm = not meaningful, na = not applicable.

Refer to page 16 for the notes to this table.
 

Segment performance

 

 

Quarter ended 30 September 2021

 

 

 

 

International Banking & Markets

 

 

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster 

Central items

Total NatWest

 

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

1,041

122

629

95

(1)

88

(20)

1,954

Own credit adjustments

-

-

-

-

2

-

-

2

Other non-interest income

90

73

336

41

94

57

127

818

Total income

1,131

195

965

136

95

145

107

2,774

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(110)

(35)

(141)

(28)

(86)

(46)

(378)

(824)

  - other costs

(50)

(10)

(65)

(12)

(29)

(29)

(552)

(747)

Indirect expenses

(383)

(72)

(314)

(16)

(91)

(39)

915

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(5)

(2)

(4)

(1)

(51)

(9)

(5)

(77)

  - indirect

11

-

(7)

(1)

1

(1)

(3)

-

Litigation and conduct costs

(15)

3

(25)

(2)

(2)

1

(254)

(294)

Operating expenses

(552)

(116)

(556)

(60)

(258)

(123)

(277)

(1,942)

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

579

79

409

76

(163)

22

(170)

832

Impairment (losses)/releases

(16)

15

216

11

3

16

(3)

242

Operating profit/(loss) 

563

94

625

87

(160)

38

(173)

1,074

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

8.5%

Return on equity (1)

29.9%

18.1%

21.7%

21.6%

(12.1%)

9.6%

nm

na

Cost:income ratio (1)

48.8%

59.5%

56.0%

44.1%

271.6%

84.8%

nm

69.6%

Total assets (£bn)

207.6

28.2

186.0

39.9

210.1

25.2

81.3

778.3

Funded assets (£bn) (1)

207.6

28.2

186.0

39.9

108.0

25.2

79.6

674.5

Net loans to customers - amortised cost (£bn)

180.5

18.4

102.7

15.6

7.1

13.2

23.5

361.0

Loan impairment rate (1)

4bps

(32)bps

(83)bps

(28)bps

nm

(47)bps

nm

(26)bps

Impairment provisions (£bn)

(1.6)

(0.1)

(1.9)

(0.1)

(0.1)

(0.5)

-

(4.3)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(0.8)

(0.1)

(0.1)

(0.4)

-

(2.2)

Customer deposits (£bn)

186.3

35.7

178.3

36.9

2.2

18.5

18.4

476.3

Risk-weighted assets (RWAs) (£bn)

36.6

11.4

66.4

8.1

25.4

10.0

1.9

159.8

RWA equivalent (RWAe) (£bn)

36.6

11.4

66.5

8.2

26.9

10.0

2.1

161.7

Employee numbers (FTEs - thousands)

15.0

1.9

8.8

1.6

1.6

2.5

27.5

58.9

Third party customer asset rate (2)

2.64%

2.36%

2.65%

2.24%

nm

2.24%

nm

nm

Third party customer funding rate (2)

(0.05%)

0.00%

0.00%

0.07%

nm

0.02%

nm

nm

Average interest earning assets (£bn) (1)

197.5

27.5

167.5

37.9

32.5

25.2

nm

537.4

Bank net interest margin (1)

2.09%

1.76%

1.49%

0.99%

na

1.38%

nm

1.54%

Bank net interest margin excluding liquid asset buffer (1)

na

na

na

na

na

na

na

2.34%

nm = not meaningful, na = not applicable.

Refer to page 16 for the notes to this table.

 

 

Segment performance

 

 

Quarter ended 30 June 2021

 

 

 

 

International Banking & Markets

 

 

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster 

Central items

Total 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%

Bank net interest margin excluding liquid asset buffer (1)

na

na

na

na

na

na

na

2.40%

nm = not meaningful, na = not applicable.

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

 

 

Segment performance

 

Quarter ended 30 September 2020

 

 

 

 

International Banking & Markets

 

 

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster 

Central items

Total NatWest

 

Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

 

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

Net interest income

937

120

703

85

(21)

100

2

1,926

Own credit adjustments

-

-

-

-

(34)

-

-

(34)

Other non-interest income

85

67

301

27

289

30

(268)

531

Total income

1,022

187

1,004

112

234

130

(266)

2,423

Direct expenses

 

 

 

 

 

 

 

 

  - staff costs

(131)

(38)

(156)

(27)

(108)

(50)

(317)

(827)

  - other costs

(49)

(11)

(72)

(10)

(37)

(23)

(554)

(756)

Indirect expenses

(380)

(57)

(299)

(13)

(80)

(47)

876

-

Strategic costs

 

 

 

 

 

 

 

 

  - direct

(45)

(4)

(3)

(5)

(67)

(5)

(94)

(223)

  - indirect

(35)

-

(38)

2

(8)

(2)

81

-

Litigation and conduct costs

(7)

(2)

15

-

(2)

-

(12)

(8)

Operating expenses

(647)

(112)

(553)

(53)

(302)

(127)

(20)

(1,814)

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

375

75

451

59

(68)

3

(286)

609

Impairment (losses)/releases

(70)

(18)

(127)

(34)

2

(8)

1

(254)

Operating profit/(loss)

305

57

324

25

(66)

(5)

(285)

355

Additional information

 

 

 

 

 

 

 

 

Return on tangible equity (1)

na

na

na

na

na

na

na

0.8%

Return on equity (1)

15.3%

11.2%

9.2%

6.4%

(4.7%)

(1.0%)

nm

na

Cost:income ratio (1)

63.3%

59.9%

53.4%

47.3%

129.1%

97.7%

nm

74.5%

Total assets (£bn)

189.5

24.9

186.9

32.7

283.2

27.4

47.0

791.6

Funded assets (£bn) (1)

189.5

24.9

186.9

32.7

121.3

27.4

44.6

627.3

Net loans to customers - amortised cost (£bn)

166.7

16.5

110.0

12.8

10.1

18.3

19.3

353.7

Loan impairment rate (1)

17bps

43bps

45bps

105bps

nm

17bps

nm

28bps

Impairment provisions (£bn)

(1.9)

(0.1)

(3.0)

(0.1)

(0.2)

(0.8)

-

(6.1)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(1.1)

-

(0.2)

(0.5)

-

(2.7)

Customer deposits (£bn)

164.9

30.3

161.3

30.4

4.7

19.6

7.2

418.4

Risk-weighted assets (RWAs) (£bn)

36.3

10.6

76.5

7.0

30.0

12.1

1.4

173.9

RWA equivalent (RWAe) (£bn)

36.3

10.6

76.6

7.1

32.0

12.1

1.4

176.1

Employee numbers (FTEs - thousands)

16.6

1.8

9.6

1.7

2.8

2.8

26.3

61.6

Third party customer asset rate (2)

2.82%

2.43%

2.73%

2.40%

nm

2.27%

nm

nm

Third party customer funding rate (2)

(0.13%)

(0.02%)

(0.02%)

0.03%

nm

(0.01%)

nm

nm

Average interest earning assets (£bn) (1)

182.2

24.0

169.3

31.5

39.2

27.3

nm

508.2

Bank net interest margin (1)

2.05%

1.99%

1.65%

1.07%

na

1.46%

nm

1.65%

Bank net interest margin excluding liquid asset buffer (1)

na

na

na

na

na

na

na

2.39%

nm = not meaningful, na = not applicable.

(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, including those reported as assets held for sale. This excludes intragroup items, loans to banks and liquid asset portfolios. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. 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

 

     Segment analysis - portfolio summary

17

     Segment analysis - loans

19

     Movement in ECL provision

19

     ECL post model adjustments

20

     Sector analysis - COVID-19 impact

21

     Wholesale support schemes

23

Capital, liquidity and funding risk

24

 

Credit risk

Segment analysis - portfolio summary

The table below shows gross loans and expected credit loss (ECL), by segment and stage, 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 (1)

& other

Total

30 September 2021

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (2)

 

 

 

 

 

 

 

 

Stage 1

167,641

17,511

78,185

15,791

8,401

11,530

28,023

327,082

Stage 2

12,511

1,018

24,266

1,815

361

1,407

107

41,485

Stage 3

1,902

289

2,112

178

98

854

-

5,433

Of which: individual

-

289

1,089

178

88

37

-

1,681

Of which: collective

1,902

-

1,023

-

10

817

-

3,752

 

182,054

18,818

104,563

17,784

8,860

13,791

28,130

374,000

ECL provisions (3)

 

 

 

 

 

 

 

 

Stage 1

137

16

164

11

9

30

15

382

Stage 2

641

36

1,050

37

35

85

15

1,899

Stage 3

833

40

786

49

81

382

-

2,171

Of which: individual

-

40

380

49

72

14

-

555

Of which: collective

833

-

406

-

9

368

-

1,616

 

1,611

92

2,000

97

125

497

30

4,452

ECL provisions coverage (4)

 

 

 

 

 

 

 

 

Stage 1 (%)

0.08

0.09

0.21

0.07

0.11

0.26

0.05

0.12

Stage 2 (%)

5.12

3.54

4.33

2.04

9.70

6.04

14.02

4.58

Stage 3 (%)

43.80

13.84

37.22

27.53

82.65

44.73

-

39.96

 

0.88

0.49

1.91

0.55

1.41

3.60

0.11

1.19

 

 

 

 

 

 

 

 

 

30 June 2021

 

 

 

 

 

 

 

 

Loans - amortised cost and FVOCI (2)

 

 

 

 

 

 

 

 

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 (3)

 

 

 

 

 

 

 

 

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 (4)

 

 

 

 

 

 

 

 

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

 

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

Risk and capital management

Credit risk 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 (2)

 

 

 

 

 

 

 

 

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 (3)

 

 

 

 

 

 

 

 

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 (4)

 

 

 

 

 

 

 

 

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

 

(1)   30 September 2021 data excludes £3.3 billion of gross loans and £148 million of ECL that were reclassified as assets held-for-sale.

(2)   Fair value through other comprehensive income (FVOCI).

(3)   Includes £7 million (30 June 2021 - £6 million; 31 December 2020 - £6 million) related to assets classified as FVOCI.

(4)   ECL provisions coverage is calculated as ECL provisions divided by loans - amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.

(5)   The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £163.6 billion (30 June 2021 - £150.5 billion; 31 December 2020 - £122.7 billion) and debt securities of £45.7 billion (30 June 2021 - £49.8 billion; 31 December 2020 - £53.8 billion).

 

·   Stage 1 and Stage 2 ECL reduced further in Q3 2021, with sustained improvement in underlying risk metrics underpinned by various government support schemes. The Stage 2 population reduced reflecting lower underlying PDs, resulting in migration of cases back to Stage 1. The Stage 2 population remained above pre-COVID-19 levels.

·   Stage 3 loans and ECL balances reduced slightly in Q3 2021 mainly due to write-off and repayment of defaulted debt. To date, the various COVID-19 related government support schemes have mitigated new flows into default. It is expected that defaults will increase as the various government support schemes unwind.    

·   The economic scenarios driving the ECL requirement, as well as the model performance considerations, were consistent with those described in the NatWest Group 2021 Interim Results.

 

 

 

Risk and capital management

Credit risk continued

Segment analysis - loans

·   Retail Banking - Balance sheet growth since the 2020 year end was mainly in mortgages, with strong mortgage growth particularly in property purchases following the easing of COVID-19 restrictions and the extension of the stamp duty holiday. Unsecured balances increased slightly during Q3 2021 mainly due to increased credit card spending as lockdown restrictions eased. In both the mortgage and unsecured portfolios, selective relaxation of lending criteria was implemented during 2021. Stage 2 balances decreased, reflecting the ongoing stable portfolio performance but was primarily a result of the improved economic outlook during 2021, with reduced PDs driving migration back into Stage 1 after conclusion of the three month significant increase in credit risk "persistence" period. Stage 3 ECL was stable in Q3 2021 as new defaults remained subdued due to the effects of government support schemes. There is an expectation that defaults will increase in the coming months with the ending of the government job retention scheme, but uncertainty remains on the timing and extent of this.

·   Commercial Banking - Balance sheet reduction during Q3 2021 reflected a decrease in both government support scheme debt and conventional debt. A further reduction is expected in government support scheme exposure during Q4 2021 as repayments continue and government support schemes are closed for new lending. Outside of government support scheme lending, there was a decrease due to strategic reductions in exposure to high risk sectors. Sector appetite continues to be regularly reviewed based on updated financial performance and economic outlook for the sectors. Stage 2 balances continued to fall reflecting positive economic outlook and portfolio performance which is lowering PDs and resulting in exposure migrating back to Stage 1. PD deterioration remains the primary driver of cases in Stage 2. This migration of cases back to Stage 1 also led to a reduction in ECL as more exposure moves to a 12 month expected credit loss assessment from a lifetime loss assessment. Stage 3 balances continued to reduce as the pace of repayment and write-off of existing impaired debt outweighed the effect of new flows to default. The termination of the government BBL, CBIL and CLBIL support schemes, commencement of government support scheme repayments and the expiration of capital repayment holidays could trigger a rise in problem debt. While Wholesale forbearance increased during 2020, there has been a reducing trend in 2021. Payment holidays and covenant waivers were, and remain, the most common forms of forbearance granted.

·   Ulster Bank RoI - Balance sheet reductions reflected loan amortisation outstripping new lending following the announcement of the phased withdrawal of Ulster Bank RoI from the Irish market. Stage 3 balances continued to reduce as new defaults remained subdued. In Q3 2021, £3.2 billion of net performing commercial loans were reclassified as assets held-for-sale, for which Ulster Bank RoI has entered a binding agreement to sell to Allied Irish Banks p.l.c..

 

Movement in ECL provision

The table below shows the main ECL provision movements.

 

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

(784)

Changes in risk metrics and exposure: Stage 3

122

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

63

Write-offs and other

(772)

At 30 September 2021

4,452

 

·   ECL reduced during 2021 as the economy recovered from COVID-19 and government support schemes mitigated the flow of cases into default.

·   Economic forecasts were updated for H1 2021 and drove a reduction in ECL on implementation. The positive economics, both forward looking and actual economic outcomes resulted in improving underlying portfolio credit metrics resulting in a reduction in Stage 1 and Stage 2 ECL.

·   Stage 3 movements remained relatively muted with low level underlying defaults, partially offset by ECL releases on previously impaired exposure.

·   Judgemental overlays increased during 2021, mainly due to deferred model calibrations where implied ECL releases were not deemed supportable.

 

 

 

Risk and capital management

Credit risk continued

ECL post model adjustments

The table below shows ECL post model adjustments by segment.

 

 

Retail Banking (1)

Commercial Banking

Ulster Bank RoI (1)

Other

Total

30 September 2021

£m

£m

£m

£m

£m

Deferred model calibrations

111

62

4

-

177

Economic uncertainty

169

469

61

30

729

Other adjustments

22

5

122

3

152

 

302

536

187

33

1,058

 

 

 

 

 

 

30 June 2021

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

 

(1)  Of which: UK Retail Banking mortgages - £141 million (30 June 2021 - £150 million; 31 December 2020 - £123 million); Ulster Bank RoI mortgages - £181 million (30 June 2021 - £177 million; 31 December 2020 - £139 million); and Ulster Bank RoI Wholesale - £7 million (30 June 2021 - £54 million; 31 December 2020 - £65 million).

 

·   Retail Banking - The post model adjustment for deferred model calibrations increased to £111 million from £103 million at 30 June 2021. This reflected management's continued judgement that the implied ECL decreases that continued to manifest themselves through the standard probability of default model monitoring process during the quarter were not fully supportable. Management retained this view on the basis that underlying portfolio performance has been underpinned by government support schemes and further outcome data is required.

 

The post model adjustment for economic uncertainty decreased to £169 million from £197 million at 30 June 2021. This was primarily due to a post model adjustment release of £28 million relating to the improvement in the underlying risk profile of customers who had accessed payment holiday support and were previously considered higher risk (£55 million was held at 30 June 2021). 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 government support schemes (£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.

 

·   Commercial Banking - The post model adjustment 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. The overlay remains unchanged since December 2020. It also included an overlay of £15 million in respect of elevated concerns around borrowers' ability to refinance facilities at the end of the contractual term. This reduced from £23 million at H1 2021. Additionally, it included overlays to address the effects of government support schemes.

 

There was also a post model adjustment for deferred model calibrations on the business banking portfolio reflecting management's judgement that the beneficial modelling effect, and implied ECL decrease, was not supportable while portfolio performance was under-pinned by the effect of various government support schemes.

 

·   Ulster Bank RoI - The post model adjustment for deferred model calibration increased by £6 million from H1 2021. Similar to Retail Banking, this post model adjustment reflected management's view that implied ECL decreases observable through the model monitoring process were not fully supportable. Included in H1 2021 other adjustments, was a post model adjustment of £118 million to reflect judgement that continuing actions on the phased withdrawal of Ulster Bank RoI from the Irish market will lead to higher/earlier crystallisation of losses. This post model adjustment increased by £4 million to £122 million for Q3 2021. In Q3 2021, the economic uncertainty adjustment decreased from £114 million to £61 million. This reduction reflected post-model adjustments of £56 million allocated to assets held-for-sale, for which Ulster Bank RoI has entered a binding agreement to sell to Allied Irish Bank p.l.c..

 

 

Risk and capital management

Credit risk 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 September 2021

£m

£m

£m

£m

£m

 

£m

 

£m

£m

£m

£m

Personal

194,957

14,036

2,925

211,918

38,867

 

62

 

170

716

1,161

2,047

  Mortgages

185,621

10,986

2,207

198,814

15,444

 

-

 

45

225

559

829

  Credit cards

2,844

909

82

3,835

15,295

 

-

 

56

172

60

288

  Other personal

6,492

2,141

636

9,269

8,128

 

62

 

69

319

542

930

Wholesale

132,125

27,449

2,508

162,082

84,490

 

4,323

 

212

1,183

1,010

2,405

  Property

27,657

4,896

1,108

33,661

16,620

 

461

 

52

194

402

648

  Financial institutions

48,428

2,251

11

50,690

15,691

 

976

 

18

93

6

117

  Sovereign

5,609

200

8

5,817

1,222

 

2

 

17

1

2

20

  Corporate

50,431

20,102

1,381

71,914

50,957

 

2,884

 

125

895

600

1,620

    Of which:

 

 

 

 

 

 

 

 

 

 

 

 

        Airlines and aerospace 

765

859

75

1,699

1,573

 

208

 

2

45

30

77

        Automotive

4,486

1,702

20

6,208

3,984

 

72

 

12

34

12

58

        Health

3,291

1,669

125

5,085

622

 

12

 

10

74

43

127

        Land transport and logistics

3,243

1,305

46

4,594

3,081

 

231

 

5

62

20

87

        Leisure

3,237

4,771

308

8,316

2,151

 

111

 

11

321

134

466

        Oil and gas

1,173

349

53

1,575

1,469

 

403

 

2

21

30

53

        Retail

6,133

1,958

152

8,243

5,211

 

419

 

11

46

68

125

Total

327,082

41,485

5,433

374,000

123,357

 

4,385

 

382

1,899

2,171

4,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 June 2021

 

 

 

 

 

 

 

 

 

 

 

 

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

  Credit cards

2,562

1,083

82

3,727

14,470

 

-

 

47

183

59

  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

  Property

28,105

6,782

1,054

35,941

17,083

 

508

 

93

313

391

  Financial institutions

47,694

2,361

17

50,072

14,659

 

926

 

21

115

7

  Sovereign

5,596

153

9

5,758

1,356

 

2

 

18

1

2

  Corporate

49,050

23,478

1,594

74,122

52,626

 

2,912

 

149

1,085

651

    Of which:

 

 

 

 

 

 

 

 

 

 

 

 

        Airlines and aerospace 

635

1,017

60

1,712

1,805

 

209

 

2

33

27

        Automotive

4,214

1,617

201

6,032

3,897

 

98

 

15

60

14

        Health

3,136

2,276

123

5,535

650

 

12

 

12

116

47

        Land transport and logistics

3,131

1,578

53

4,762

3,061

 

170

 

7

83

30

        Leisure

3,264

5,578

305

9,147

2,106

 

123

 

15

323

142

        Oil and gas

1,005

415

60

1,480

1,663

 

339

 

3

11

31

        Retail

6,133

2,303

191

8,627

5,339

 

468

 

13

112

80

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

        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 continued

Sector analysis - COVID-19 impact

·   Personal - Mortgage balances increased during 2021 with strong purchase demand in the UK assisted by the extension of the stamp duty holiday. Unsecured lending balances reduced during 2021, however as noted earlier, increased slightly in Q3 2021 as COVID-19 restrictions eased and lending criteria were selectively relaxed. As also noted previously, ECL in Stage 2 decreased due to migrations back to Stage 1 following the effects of the economic scenarios used since H1 2021 and continued stable portfolio performance supporting improved risk metrics. The total ECL coverage requirements were broadly stable during Q3 2021.

·   Wholesale - On and off-balance sheet exposure reduced during the quarter with lower demand for new lending due to uncertainty in the economy and many customers able to utilise the excess liquidity created by various government support schemes. Additionally, there was a £0.7 billion decrease in government support scheme lending following scheduled repayment activity. When the government BBL, CBIL and CLBIL support schemes closed, approximately 317,000 applications across all the schemes had been approved, totalling £14.7 billion in new lending, of which, £13.4 billion had been drawdown. Approximately £1.1 billion has since been repaid. 62% of the government support scheme lending by value had been granted through BBLS. Construction (in Property), Retail and Leisure remain the top three sectors for borrowers accessing the government support schemes. Uptake for the subsequent Recovery Loan Scheme remains muted. Wholesale credit risk outlook is still uncertain despite improving economic metrics. The termination of the government BBL, CBIL and CLBIL support schemes, commencement of government support scheme repayments and the expiration of capital repayment holidays could trigger a rise in problem debt. Credit risk measures continue to reflect a more stable environment but horizon risks remain, including issues in the supply chain and rising energy costs which are contributing to overall inflationary pressures. Sector appetite continued to be regularly reviewed and where appropriate adjusted, for those sectors most affected by COVID-19. Stage 2 balances continued to reduce reflecting positive economic outlook and portfolio performance. In Q3 2021, £3.2 billion of net performing commercial loans were reclassified as assets held-for-sale, for which Ulster Bank RoI has entered a binding agreement to sell to Allied Irish Banks p.l.c..

 

 

 

 

Risk and capital management

Credit risk continued

Wholesale support schemes

The table below shows the uptake of the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) by Wholesale customers which ended for new applicants on 31 March 2021. Sectors shown are those that continue to be affected by COVID-19. Drawdown amounts reflect total balances net of repayments. These include the effects of further drawdowns, term extensions, and other loan adjustments.

 

BBLS

 

CBILS

 

CLBILS

 

Approved

Drawdown 

% of BBLS to

 

Approved

Drawdown 

% of CBILS to

 

Approved

Drawdown 

% of CLBILS to

30 September 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

0.94%

  Automotive

12,839

389

6.27%

 

578

128

2.06%

 

26

30

0.48%

  Education

2,050

50

3.37%

 

121

66

4.44%

 

10

32

2.15%

  Health

10,248

282

5.55%

 

630

95

1.87%

 

3

19

0.37%

  Land transport and logistics

8,996

243

5.29%

 

399

93

2.02%

 

1

-

-

  Leisure

32,721

931

11.20%

 

2,182

533

6.41%

 

39

194

2.33%

  Oil and gas

329

9

0.57%

 

15

7

0.44%

 

-

-

-

  Retail

32,652

1,007

12.22%

 

1,655

370

4.49%

 

26

74

0.90%

  Property 

71,422

1,899

5.64%

 

2,491

632

1.88%

 

37

88

0.26%

  Other (including Business 

 

 

 

 

 

 

 

 

 

 

 

    Banking)

127,787

3,029

3.32%

 

8,918

1,762

1.93%

 

84

300

0.33%

Total

299,304

7,845

4.84%

 

17,007

3,695

2.28%

 

230

753

0.46%

 

(1)  The Recovery Loan Scheme, a successor to the closed BBLS, CBILS, and CLBILS was launched on 6 April 2021. Uptake of the new scheme was minimal with 364 customers having drawn down £30 million as at 30 September 2021.

 

 

 

 

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 to 50% from 66%. This has increased NatWest Group's PVA deduction by c.£120 million.

 

Key developments since December 2020

 

CET1 (CRR end-point)

The CET1 ratio increased by 20 basis points to 18.7%. The increase is primarily due to the attributable profit in the period of £2.5 billion and a reduction in RWAs, partially offset by the impact of the directed buy back and associated pension contribution of £1.2 billion (72 bps), foreseeable charges and pension contributions of £0.8 billion (48 bps), a £0.8 billion decrease in the IFRS 9 transitional adjustment (45 bps) and other reserve movements in the period.

Total RWAs

Total RWAs decreased 6.2% to £159.8 billion mainly reflecting decreases in credit risk RWAs of £7.6 billion, market risk RWAs of £1.4 billion and operational risk RWAs of £0.9 billion following the annual recalculation in Q1 2021. The decrease in credit risk RWAs was mainly driven by reductions in Commercial Banking and Ulster Bank RoI. Market risk RWAs decreased £1.4 billion predominantly due to the transition from LIBOR to alternative risk free rates. Counterparty credit risk RWAs reduced by £0.6 billion as a result of reduced exposures in NatWest Markets.

UK leverage ratio

The UK leverage ratio decreased c.50 basis points to 5.9% driven by a £2.7 billion decrease in Tier 1 capital.

Liquidity portfolio

The liquidity portfolio increased by £15.4 billion in the period to £277.8 billion at Q3 2021, with primary liquidity increasing by £20.6 billion to £190.9 billion. The increase in primary liquidity was mainly driven by customer deposits, cash proceeds from new issuances and the methodology change to include UBIDAC cash at central banks. This is offset by the TFSME repayment, buy back of shares owned by UK Government, pension fund contributions, liability management exercise, increased lending and the purchase of mortgages from Metro Bank. Secondary liquidity is lower due to a reduction of collateral pre-positioned with the Bank of England due to monthly repayments of 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 (including AT1 coupons), known as the MDA. Note that different 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 September 2021

18.7%

21.1%

24.6%

Headroom (3)

9.7%

9.9%

10.5%

 

(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 of 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 September

30 June

31 December

 

2021

2021

2020

Capital adequacy ratios (1)

%

%

%

CET1

18.7

18.2

18.5

Tier 1

21.1

21.8

21.4

Total

24.6

24.9

24.5

 

 

 

 

Capital

£m

£m

£m

Tangible equity

30,769

30,751

31,712

 

 

 

 

Prudential valuation adjustment

(264)

(285)

(286)

Deferred tax assets

(765)

(832)

(760)

Own credit adjustments

27

22

(1)

Pension fund assets

(385)

(384)

(579)

Cash flow hedging reserve

254

77

(229)

Foreseeable ordinary dividends

(402)

(500)

(364)

Foreseeable charges - on-market ordinary share buy back programme

(462)

(750)

-

Foreseeable pension contributions

(354)

(174)

(266)

Prudential amortisation of software development costs

476

537

473

Adjustments under IFRS 9 transitional arrangements

973

1,198

1,747

Other adjustments for regulatory purposes

(5)

-

-

Total deductions

(907)

(1,091)

(265)

 

 

 

 

CET1 capital

29,862

29,660

31,447

AT1 capital

3,875

5,916

4,983

Tier 1 capital

33,737

35,576

36,430

Tier 2 capital

5,522

4,973

5,255

Total regulatory capital

39,259

40,549

41,685

 

 

 

 

Risk-weighted assets

 

 

 

Credit risk

122,270

122,475

129,914

Counterparty credit risk

8,475

8,619

9,104

Market risk

7,979

10,845

9,362

Operational risk

21,031

21,031

21,930

Total RWAs

159,755

162,970

170,310

 

 

 

 

Leverage

 

 

 

Cash and balances at central banks

164,851

151,511

124,489

Trading assets

66,357

70,195

68,990

Derivatives

103,770

109,556

166,523

Financial assets

417,273

422,356

422,647

Other assets

26,027

22,240

16,842

Total assets

778,278

775,858

799,491

Derivatives

 

 

 

  - netting and variation margin

(107,160)

(112,441)

(172,658)

  - potential future exposures

36,382

37,468

38,171

Securities financing transactions gross up

1,903

1,486

1,179

Other off balance sheet items

44,292

43,979

45,853

Regulatory deductions and other adjustments

(14,340)

(13,831)

(8,943)

Claims on central banks

(161,688)

(148,644)

(122,252)

Exclusion of bounce back loans

(7,845)

(8,239)

(8,283)

UK leverage exposure

569,822

575,636

572,558

UK leverage ratio % (2)

5.9

6.2

6.4

                                                       

 

(1)   Based on CRR end-point including an IFRS 9 transitional adjustment of £1.0 billion (30 June 2021 - £1.2 billion, 31 December 2020 - £1.7 billion). Excluding this adjustment, the CET1 ratio would be 18.1% (30 June 2021 - 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 September 2021 would be 18.4% (30 June 2021 - 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 5.8% (30 June 2021 - 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 September 2021 would be 5.8% (30 June 2021 - 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 nine months ended 30 September 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

2,516

-

-

2,516

Ordinary interim dividend paid 

(348)

-

-

(348)

Own credit

28

-

-

28

Share capital and reserve movements in respect of employee share schemes

41

-

-

41

Directed buy back

(1,231)

-

-

(1,231)

On-market ordinary share buy back programme

(750)

-

-

(750)

Foreseeable ordinary dividends

(402)

-

-

(402)

Foreseeable pension contributions

(354)

-

-

(354)

Foreign exchange reserve

(283)

-

-

(283)

FVOCI reserve

(123)

-

-

(123)

Goodwill and intangibles deduction

(65)

-

-

(65)

Deferred tax assets

(5)

-

-

(5)

Prudential valuation adjustments

22

-

-

22

New issues of capital instruments

-

933

1,635

2,568

Redemption of capital instruments

150

(2,041)

(1,456)

(3,347)

Net dated subordinated debt instruments

-

-

76

76

Foreign exchange movements

-

-

26

26

Adjustment under IFRS 9 transitional arrangements

(774)

-

-

(774)

Other movements

(7)

-

(14)

(21)

At 30 September 2021

29,862

3,875

5,522

39,259

 

·    CET1 decrease is primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion, foreseeable dividends and pension contributions of £0.8 billion, a £0.8 billion decrease in the IFRS 9 transitional adjustment and other reserve movements. This is partially offset by an attributable profit in the period. At H1 2021, an on-market ordinary share buy back programme of £750 million was announced resulting in a foreseeable charge to capital, of which £288 million has been executed in the third quarter with the remaining £462 million remaining foreseeable at 30 September 2021.

·    AT1 reflects the £400 million 4.5% Reset Perpetual Subordinated Contingent Convertible Notes issued in March 2021 and $750 million 4.600% Reset Perpetual Subordinated Contingent Convertible notes in June 2021. It also reflects a $2.7 billion redemption of 8.625% Perpetual Subordinated Contingent Convertible Additional notes in August 2021.

·    The Tier 2 movement is primarily due to the redemption of own debt of £1.5 billion in March 2021, a £1.0 billion issuance of subordinated Tier 2 notes in May 2021 and a €750 million issuance of subordinated Tier 2 notes in September 2021.

 

 

 

 

Risk and capital management

Capital, liquidity and funding risk continued

Risk-weighted assets

The table below analyses the movement in RWAs during the period, 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

(0.8)

(0.1)

-

-

(0.9)

Business movement

(4.0)

(0.4)

1.9

(0.9)

(3.4)

Risk parameter changes (1)

(1.4)

(0.1)

-

-

(1.5)

Model updates

(0.4)

-

(3.3)

-

(3.7)

Other movements (2)

(0.8)

-

-

-

(0.8)

Acquisitions and disposals (3)

(0.2)

-

-

-

(0.2)

At 30 September 2021

122.3

8.5

8.0

21.0

159.8

 

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

-

-

(0.3)

-

(0.2)

(0.4)

-

(0.9)

Business movement

-

0.5

(6.5)

0.7

2.2

(0.7)

0.4

(3.4)

Risk parameter changes (1)

(0.1)

-

(0.8)

(0.1)

(0.1)

(0.5)

0.1

(1.5)

Model updates

-

-

(0.4)

-

(3.3)

-

-

(3.7)

Other movements (2)

-

-

(0.7)

-

(0.1)

-

-

(0.8)

Acquisitions and disposals (3)

-

-

-

-

-

(0.2)

-

(0.2)

At 30 September 2021

36.6

11.4

66.4

8.1

25.4

10.0

1.9

159.8

 

 

 

 

 

 

 

 

 

Credit risk

29.4

10.0

58.1

7.1

6.7

9.1

1.9

122.3

Counterparty credit risk

0.2

0.1

0.3

-

7.9

-

-

8.5

Market risk

-

-

-

-

8.0

-

-

8.0

Operational risk

7.0

1.3

8.0

1.0

2.8

0.9

-

21.0

Total RWAs

36.6

11.4

66.4

8.1

25.4

10.0

1.9

159.8

 

(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.

 

Total RWAs decreased to £159.8 billion during the period due to the following:

Credit risk RWAs decreased by £7.6 billion due to repayments and expired facilities in Commercial Banking and reductions in business lending and mortgages in Ulster Bank RoI in line with the announced phased withdrawal.

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

Counterparty credit risk RWAs reduced by £0.6 billion, mainly reflecting reduced IMM exposures in NatWest Markets.

Market Risk RWAs decreased by £1.4 billion primarily driven by a decrease in modelled market risk reflecting a reduction in tenor basis risk in sterling flow rates, related to the transition from LIBOR to alternative risk-free rates.

 

 

 

 

 

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 liquidity coverage ratio (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 coverage purposes.

 

 

Liquidity value

 

30 September 2021

 

30 June 2021

 

31 December 2020

 

NatWest

 

NatWest

 

NatWest

 

Group (1)

 

Group

 

Group 

 

£m

 

£m

 

£m

Cash and balances at central banks

161,763

 

148,904

 

115,820

  AAA to AA- rated governments

25,699

 

34,639

 

50,901

  A+ and lower rated governments

40

 

38

 

79

  Government guaranteed issuers, public sector entities and

 

 

 

 

 

        government sponsored entities

265

 

265

 

272

   International organisations and multilateral development banks

3,027

 

3,175

 

3,140

LCR level 1 bonds

29,031

 

38,117

 

54,392

LCR level 1 assets

190,794

 

187,021

 

170,212

LCR level 2 assets

118

 

116

 

124

Non-LCR eligible assets

-

 

-

 

-

Primary liquidity 

190,912

 

187,137

 

170,336

Secondary liquidity (2)

86,856

 

89,909

 

91,985

Total liquidity value

277,768

 

277,046

 

262,321

 

(1)

NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc, RBS plc, Coutts & Co and Ulster Bank Limited), 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)

(3)

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

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.

 

 

 

Condensed consolidated income statement for the period ended 30 September 2021 (unaudited)

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2021

2020

 

2021

2021

2020

 

£m 

£m 

 

£m 

£m 

£m 

Interest receivable

7,166 

7,702 

 

2,384

2,433 

2,512 

Interest payable

(1,296)

(1,924)

 

(430)

(448)

(586)

Net interest income 

5,870 

5,778 

 

1,954

1,985 

1,926 

Fees and commissions receivable

1,982 

2,081 

 

670

665 

651 

Fees and commissions payable

(425)

(591)

 

(140)

(144)

(199)

Income from trading activities

326 

1,054 

 

95

71 

252 

Other operating income 

340 

(61)

 

195

83 

(207)

Non-interest income

2,223 

2,483 

 

820

675 

497 

Total income

8,093 

8,261 

 

2,774

2,660 

2,423 

Staff costs

(2,794)

(2,937)

 

(892)

(917)

(982)

Premises and equipment

(765)

(902)

 

(263)

(254)

(251)

Other administrative expenses

(1,291)

(1,081)

 

(588)

(326)

(385)

Depreciation and amortisation

(613)

(644)

 

(199)

(209)

(196)

Operating expenses

(5,463)

(5,564)

 

(1,942)

(1,706)

(1,814)

Profit before impairment releases/(losses)

2,630 

2,697 

 

832

954 

609 

Impairment releases/(losses)

949 

(3,112)

 

242

605 

(254)

Operating profit/(loss) before tax

3,579 

(415)

 

1,074

1,559 

355 

Tax (charge)/credit

(765)

 

(330)

(202)

(207)

Profit/(loss) for the period

2,814 

(414)

 

744

1,357 

148 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

2,516 

(644)

 

674

1,222 

61 

Preference shareholders

14 

21 

 

5

Paid-in equity holders

241 

272 

 

63

91 

80 

Non-controlling interests

43 

(63)

 

2

40 

 

2,814 

(414)

 

744

1,357 

148 

Earnings per ordinary share 

21.5p

(5.3p)

 

5.8p

10.6p

0.5p

Earnings per ordinary share - fully diluted

21.4p

(5.3p)

 

5.8p

10.5p

0.5p

 

(1)    Other operating income includes £138 million loss on redemption of own debt for the nine months ended 30 September 2021; Q3 2021 - £nil million (nine months ended 30 September 2020 - £324 million loss; Q2 2021 - £20 million loss; Q3 2020 - £324 million loss).

 

 

Condensed consolidated statement of comprehensive income for the period ended 30 September 2021 (unaudited)

 

 

Nine months ended

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2021

2020

 

2021

2021

2020

 

£m

£m

 

£m

£m

£m

Profit/(loss) for the period

2,814

(414)

 

744

1,357

148

Items that do not qualify for reclassification

 

 

 

 

 

 

Remeasurement of retirement benefit schemes (1)

(740)

54

 

(6)

(226)

(14)

Changes in fair value of credit in financial liabilities 

 

 

 

 

 

 

  designated at fair value through profit or loss (FVTPL) 

 

 

 

 

 

 

    due to own credit risk

(29)

20

 

(4)

(18)

(63)

Fair value through other comprehensive income (FVOCI) 

 

 

 

 

 

 

   financial assets

11

(43)

 

3

7

77

Tax (1)

185

13

 

3

45

13

 

(573)

44

 

(4)

(192)

13

Items that do qualify for reclassification 

 

 

 

 

 

 

FVOCI financial assets

(145)

(37)

 

 -

(27)

74

Cash flow hedges

(610)

364

 

(245)

(7)

(53)

Currency translation

(267)

425

 

21

55

(150)

Tax 

130

(85)

 

65

(48)

94

 

(892)

667

 

(159)

(27)

(35)

Other comprehensive (loss)/income after tax

(1,465)

711

 

(163)

(219)

(22)

Total comprehensive income for the period

1,349

297

 

581

1,138

126

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

1,047

51

 

512

998

37

Preference shareholders

14

21

 

5

4

5

Paid-in equity holders

241

272

 

63

91

80

Non-controlling interests

47

(47)

 

1

45

4

 

1,349

297

 

581

1,138

126

 

(1)   Following the purchase of ordinary shares from UKGI in March 2021, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)). In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period, are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year.

 

Condensed consolidated balance sheet as at 30 September 2021 (unaudited)

 

30 September

31 December

2021

2020

 

£m

£m 

Assets

 

 

Cash and balances at central banks

164,851

124,489

Trading assets

66,357

68,990

Derivatives

103,770

166,523

Settlement balances

8,140

2,297

Loans to banks - amortised cost

9,251

6,955

Loans to customers - amortised cost

361,022

360,544

Other financial assets

47,000

55,148

Intangible assets

6,723

6,655

Other assets

11,164

7,890

Total assets

778,278

799,491

 

 

 

Liabilities

 

 

Bank deposits 

17,375

20,606

Customer deposits

476,319

431,739

Settlement balances

7,792

5,545

Trading liabilities

70,946

72,256

Derivatives

98,560

160,705

Other financial liabilities

47,857

45,811

Subordinated liabilities

8,675

9,962

Notes in circulation

3,037

2,655

Other liabilities

5,830

6,388

Total liabilities

736,391

755,667

 

 

 

Equity

 

 

Ordinary shareholders' interests

37,492

38,367

Other owners' interests

4,384

5,493

Owners' equity

41,876

43,860

Non-controlling interests

11

(36)

Total equity

41,887

43,824

Total liabilities and equity

778,278

799,491

 

 

Condensed consolidated statement of changes in equity for the period ended 30 September 2021 (unaudited)

 

 

Share 

 

 

 

 

 

 

capital and

 

 

 

Total

Non

 

 

statutory

Paid-in

Retained

Other

owners'

controlling

Total 

 

reserves (1)

equity

earnings

reserves*

equity

 interests

equity

 

£m

£m

£m

£m

£m

£m

£m

At 1 January 2021

13,216

4,999

12,567

13,078

43,860

(36)

43,824

Profit attributable to ordinary shareholders

 

 

 

 

 

 

 

    and other equity owners  

-

-

2,771

-

2,771

43

2,814

Other comprehensive income

 

 

 

 

 

 

 

  - Realised gains/(losses) in period 

 

 

 

 

 

 

 

        on FVOCI equity shares 

-

-

2

(2)

-

-

-

  - Remeasurement of retirement 

 

 

 

 

 

 

 

        benefit schemes (2)

-

-

(740)

-

(740)

-

(740)

  - Changes in fair value of credit in financial 

 

 

 

 

 

 

 

        liabilities designated at FVTPL due 

 

 

 

 

 

 

 

         to own credit risk

-

-

(29)

-

(29)

-

(29)

  - Unrealised losses: FVOCI and equity shares

-

-

-

(65)

(65)

-

(65)

  - Unrealised losses: cash flow hedges

-

-

-

(501)

(501)

-

(501)

  - Foreign exchange reserve movement

-

-

-

(271)

(271)

4

(267)

  - Amount transferred from equity to earnings

-

-

-

(178)

(178)

-

(178)

  - Tax

-

-

187

128

315

-

315

Ordinary share dividends paid

-

-

(693)

-

(693)

-

(693)

Preference share and paid-in equity

 

 

 

 

 

 

 

  dividends paid

-

-

(255)

-

(255)

-

(255)

Shares repurchased during the period (3,4)

-

-

(1,036)

-

(1,036)

-

(1,036)

Shares and securities issued during the period (5)

87

937

-

-

1,024

-

1,024

Reclassification of paid-in equity (6)

-

(2,046)

-

-

(2,046)

-

(2,046)

Redemption of paid-in equity (7)

-

-

150

-

150

-

150

Redemption of preference shares

24

-

(24)

-

-

-

-

Share-based payments

-

-

(65)

-

(65)

-

(65)

Movement in own shares held (3)

(365)

-

-

-

(365)

-

(365)

At 30 September 2021

12,962

3,890

12,835

12,189

41,876

11

41,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 September

 

 

 

 

 

 

 

2021

Attributable to:

 

 

 

 

£m

Ordinary shareholders

 

 

 

 

 

 

37,492

Preference shareholders

 

 

 

 

 

 

494

Paid-in equity holders

 

 

 

 

 

 

3,890

Non-controlling interests

 

 

 

 

 

 

11

 

 

 

 

 

 

 

41,887

*Other reserves consists of:

 

 

 

 

 

 

Merger reserve

 

 

 

 

 

 

10,881

FVOCI reserve

 

 

 

 

 

 

237

Cash flow hedging reserve

 

 

 

 

 

 

(254)

Foreign exchange reserve

 

 

 

 

 

 

1,325

 

 

 

 

 

 

 

12,189

 

(1)   Share capital and statutory reserves includes share premium, capital redemption reserve and own shares held.

(2)   Following the purchase of ordinary shares from UKGI in March 2021, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)). In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period, are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year.

(3)   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), at 190.5p per share for the total consideration of £1.13 billion. NatWest Group cancelled 391 million of the purchased ordinary shares, amounting to £744 million excluding fees, and held the remaining 200 million in own shares held, amounting to £381 million excluding fees. The nominal value of the share cancellation has been transferred to the capital redemption reserve.

(4)   In line with the announcement in July 2021, NatWest Group plc repurchased and cancelled 137.1 million shares for total consideration of £292.2 million excluding fees. Of the 137.1 million shares bought back, 2.9 million shares were settled and cancelled in October 2021. The nominal value of the share cancellations has been transferred to the capital redemption reserve with the share premium element to retained earnings.

(5)   AT1 capital notes totalling US$750 million less fees were issued in June 2021 (£400 million less fees were issued in March 2021 and US$1.49 billion less fees were issued in June 2020).

(6)   In July 2021, paid-in equity reclassified to liabilities as the result of a call in August 2021 of US$2.65 billion AT1 Capital notes.

(7)   The redemption of paid-in equity includes a tax credit of £16 million.

 

 

 

 

Notes

1. Basis of preparation

The condensed consolidated financial statements should be read in conjunction with NatWest Group plc 2020 Annual Report and Accounts which were prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006.

 

Going concern

Having reviewed NatWest Group's forecasts, projections, the potential impact of COVID-19, and other relevant evidence, the directors have a reasonable expectation that NatWest Group will continue in operational existence for a period of not less than twelve months. Accordingly, the results for the period ended 30 September 2021 have been prepared on a going concern basis.

 

2. Accounting policies

NatWest Group's principal accounting policies are as set out on pages 264 to 268 of the NatWest Group plc 2020 Annual Report and Accounts. Changes to accounting policies from 1 January 2021 had no material effect on NatWest Group plc's

accounts.

 

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of NatWest Group's financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgements are referenced on page 268 of the NatWest Group plc 2020 Annual Report and Accounts. Estimation uncertainty has been affected by the COVID-19 pandemic. Management's consideration of this source of uncertainty is outlined in the relevant sections of NatWest Group plc 2020 Annual Report and Accounts, including the ECL estimate for the period in the Risk and capital management section contained in the NatWest Group plc 2020 Annual Report and Accounts.

 

It was announced in the UK Government's Budget on 27 October 2021 that the UK banking surcharge will decrease from 8% to 3% from 1 April 2023. This change is expected to be enacted in 2022. The resulting change to the net deferred tax asset position in NatWest Group is not expected to be material.

 

Information used for significant estimates

The COVID-19 pandemic has continued to cause significant economic and social disruption. Key financial estimates are based

on a range of anticipated future economic conditions described by internally developed scenarios. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods, refer to the NatWest Group plc Risk factors in the 2020 Annual Report and Accounts.

 

 

 

Notes

3. Litigation and regulatory matters

NatWest Group plc's Interim Results 2021, issued on 30 July 2021, included disclosures about NatWest Group's litigation and regulatory matters in Note 12. Set out below are the material developments in those matters since publication of the Interim Results 2021.

 

Litigation

Residential mortgage-backed securities (RMBS) litigation in the US

The State of New Mexico, on behalf of certain state agencies, has been pursuing claims in New Mexico state court against NWMSI concerning certain historical RMBS offerings that allegedly involved materially false or misleading statements and/or omissions regarding the underwriting standards pursuant to which the mortgage loans underlying the RMBS were issued. NWMSI has reached an agreement in principle to settle this matter for an amount that is covered by an existing provision.

 

London Interbank Offered Rate (LIBOR) and other rates litigation

On 30 September 2021, the United States District Court for the Southern District of New York dismissed all claims against NWM Plc and other NatWest Group companies in the class action alleging that manipulation of JPY LIBOR and Euroyen TIBOR impacted the price of derivatives allegedly tied to those rates, finding a lack of antitrust standing and personal jurisdiction. The dismissal may be the subject of a future appeal.

 

Madoff

NWM N.V. is a defendant in two actions filed by the trustee for the bankruptcy estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, in bankruptcy court in New York, which together seek to clawback more than US$298 million in redemptions that NWM N.V. allegedly received from certain Madoff feeder funds and certain swap counterparties. In these and similar cases pending against other defendants, the bankruptcy court previously held that, in order to proceed to discovery and pursue its claims, the trustee had to allege that a defendant lacked "good faith" when it received the funds in question. In August 2021, the United States Court of Appeals for the Second Circuit, in similar cases against other defendants, reversed the bankruptcy court's ruling on this question, holding instead that if a defendant wishes to rely on "good faith" arguments, it is a matter for the defendant to prove in their defence. The trustee's actions against NWM N.V. will proceed in light of the appellate court's ruling.

 

Odd lot corporate bond trading antitrust litigation

On 25 October 2021, the United States District Court for the Southern District of New York granted, on several grounds, defendants' motion to dismiss the class action complaint alleging that from August 2006 onwards various securities dealers, including NWMSI, conspired artificially to widen spreads for odd lots of corporate bonds bought or sold in the United States secondary market and to boycott electronic trading platforms that would have allegedly promoted pricing competition in the market for such bonds. The dismissal is subject to appeal. 

 

Regulatory matters

US investigations relating to fixed-income securities

In October 2017, NWMSI entered into a non-prosecution agreement (NPA) with the United States Attorney for the District of Connecticut (USAO) in connection with alleged misrepresentations to counterparties relating to secondary trading in various forms of asset-backed securities. In the NPA, the USAO agreed not to file criminal charges relating to certain conduct and information described in the NPA, conditional on NWMSI and affiliated companies complying with the NPA's reporting and conduct requirements during its term, including by not engaging in conduct during the NPA that the USAO determines was a felony under federal or state law or a violation of the anti-fraud provisions of the United States securities law.

 

The NatWest Markets business is currently responding to a separate criminal investigation by the USAO and the US Department of Justice (DoJ) concerning unrelated trading by certain NWM Plc and NWMSI former traders involving alleged spoofing. The NPA (referred to above) has been extended as the criminal investigation has progressed and related discussions with the USAO and the DoJ, including relating to the impact of such alleged conduct on the status of the NPA and the potential consequences thereof, have been ongoing. On 30 August 2021, NWMSI received a letter from USAO stating that it had determined that NWMSI had materially breached the NPA as a result of the alleged spoofing activity and that NWMSI is subject to prosecution for securities fraud in respect of the conduct underlying the NPA. NatWest Markets is engaging in discussions with the U.S. government about the resolution of the alleged spoofing activity investigation and the USAO's determination of the breach of the NPA, including why criminal prosecution of the conduct underlying the NPA should not be pursued.

 

The precise duration and outcome of this matter remains uncertain.

 

 

 

 

 

Notes

3. Litigation and regulatory matters continued

Adverse outcomes or resolution of current or future legal or regulatory actions (in particular, a finding of criminal liability in this matter) could have material collateral consequences for NatWest Group's business and result in restrictions or limitations on NatWest Group's operations.

 

These may include the effective or actual disqualification from carrying on certain regulated activities and consequences resulting from the need to reapply for various important licences or obtain waivers to conduct certain existing activities of NatWest Group, particularly but not solely in the US, which may take a significant period of time and the results of which are uncertain. Disqualification from carrying on any activities, whether automatic as a result of the resolution of a particular matter or as a result of the failure to obtain such licences or waivers could adversely impact NatWest Group's business, in particular in the

US. This in turn and/or any fines, settlement payments or penalties could adversely impact NatWest Group's reported financial results and condition, capital position or reputation.

 

FCA investigation into NatWest Group's compliance with the Money Laundering Regulations 2007

In July 2017, the FCA notified NatWest Group that it was undertaking an investigation into NatWest Group's compliance with the UK Money Laundering Regulations 2007 ("MLR 2007") in relation to certain money service businesses and related parties.

 

In March 2021, the FCA notified NatWest Group that it had commenced criminal proceedings against NWB Plc for three offences under regulation 45(1) of the MLR 2007 arising from the handling of the accounts of a UK incorporated customer.

 

On 7 October 2021, NWB Plc pleaded guilty to the three offences under regulation 45(1) of the MLR 2007 for failure to comply with regulation 8(1) of the MLR 2007 between 7 November 2013 and 23 June 2016 and 8(3) and 14(1) of the MLR 2007 between 8 November 2012 and 23 June 2016.

These regulations required the firm to determine and conduct risk sensitive due diligence and ongoing monitoring of its customers for the purposes of preventing money laundering. The offences relate to operational weaknesses between 2012 and 2016, during which period NWB Plc did not adequately monitor the accounts of that customer.

 

NWB Plc has cooperated fully with the FCA since its investigation began. The FCA has confirmed it will not take action against any individual current or former employee of NWB Plc.

 

The case has been remitted to the Crown Court for sentencing, which will be determined at a hearing scheduled to take place on a date to be determined by the Crown Court. NWB Plc made a provision at 30 September 2021 in anticipation of a potential fine being imposed at that hearing, but is not disclosing the amount as it remains the matter of ongoing judicial proceedings. In addition to the fine, other material adverse collateral consequences may occur as a result of these convictions.

 

Review and investigation of treatment of tracker mortgage customers in Ulster Bank Ireland DAC

In December 2015, correspondence was received from the CBI setting out an industry examination framework in respect of the sale of tracker mortgages from approximately 2001 until the end of 2015. The redress and compensation phase has concluded, although an appeals process is currently anticipated to run until at least the end of 2021. NatWest Group has made provisions totalling €350 million (£300 million), of which €332 million (£285 million) had been utilised by 30 September 2021 in respect of redress and compensation.

 

UBIDAC previously identified further legacy business issues, as an extension to the tracker mortgage review. These remediation programmes are ongoing. NatWest Group has made provisions of €163 million (£140 million), of which €155 million (£133 million) had been utilised by 30 September 2021 for these programmes.

 

UBIDAC customers continue to lodge tracker mortgage complaints with the Financial Services and Pensions Ombudsman (FSPO). UBIDAC is challenging two recent FSPO adjudications in the Irish High Court. The outcome and impact of that challenge on those and related complaints is uncertain but potentially may be material.

 

4. Post balance sheet events

Other than as disclosed there have been no significant events between 30 September 2021 and the date of approval of these accounts that would require a change to or additional disclosure in the condensed consolidated financial statements.

 

 

 

Additional information

Presentation of information

 

 

 

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2020 have been filed with the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

 

MAR - Inside Information

This announcement contains information that qualified or may have qualified as inside information for NatWest Group plc, for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018. This announcement is made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.

 

Contacts

Analyst enquiries:

Alexander Holcroft, Investor Relations

+44 (0) 20 7672 1758

 

Media enquiries:

NatWest Group Press Office

+44 (0) 131 523 4205

 

 

Management presentation

Webcast and dial in details

Date:

29 October 2021

www.natwestgroup.com/results

 

 

Time:

8:45am UK time

International: +44 (0) 203 057 6566

Conference ID:

1653446

UK Free Call: 0800 279 5995

US Local Dial-In, New York: +1 646 741 2115

         

 

Available on www.natwestgroup.com/results

·    Q3 2021 Interim Management Statement and slides.

·    A financial supplement containing income statement, balance sheet and segment performance for the quarter ended 30 September 2021.

·    NatWest Group and NWH Group Pillar 3 supplements.

 

 

·    Climate, Purpose and ESG measures supplement Q3 2021.

Forward looking statements

This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include, without limitation, the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. These statements concern or may affect future matters, such as NatWest Group's future economic results, business plans and strategies. In particular, this document may include forward-looking statements relating to NatWest Group plc in respect of, but not limited to: the impact of the COVID-19 pandemic, its regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital, cost savings and operational targets), the implementation of its Purpose-led strategy and the refocusing of its NatWest Markets franchise, its ESG and climate-related targets, its access to adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, its exposure to third party risks, its ongoing compliance with the UK ring-fencing regime and ensuring operational continuity in resolution, its impairment losses and credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, the transition of LIBOR and IBOR rates to alternative risk free rates and NatWest Group's exposure to economic and political risks (including with respect to terms surrounding Brexit and climate change), operational risk, conduct risk, cyber and IT risk, key person risk and credit rating risk. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, the impact of the COVID-19 pandemic, future acquisitions, the outcome of legal, regulatory and governmental actions and investigations, the level and extent of future impairments and write-downs (including with respect to goodwill), legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations, general economic and political conditions and the impact of climate-related risks and the transitioning to a low carbon economy. These and other factors, risks and uncertainties that may impact any forward-looking statement or NatWest Group plc's actual results are discussed in NatWest Group plc's UK 2020 Annual Report and Accounts (ARA), NatWest Group plc's Interim Results for H1 2021 and NatWest Group plc's filings with the US Securities and Exchange Commission, including, but not limited to, NatWest Group plc's most recent Annual Report on Form 20-F and Reports on Form 6-K. The forward-looking statements contained in this document speak only as of the date of this document and NatWest Group plc does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

Legal Entity Identifier: 2138005O9XJIJN4JPN90

 

 

 

 

 

 

 

 

 

 

Appendix

 

 

Non-IFRS financial measures

 

 

 

 

Appendix - Non-IFRS financial measures

NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for notable and other defined items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:

 

Non-IFRS financial measures

Measure

Basis of preparation

Additional analysis or reconciliation

NatWest Group return on tangible equity

Annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding non-controlling interests (NCI) less average intangible assets and average other owners' equity.

Table 1

Segmental return on equity

Segmental operating profit or loss adjusted for preference share dividends and tax divided by average notional tangible equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).

Table 2

Operating expenses analysis - management view

The management analysis of operating expenses shows strategic costs and litigation and conduct costs in separate lines. Depreciation and amortisation, and other administrative expenses attributable to these costs are included in strategic costs and litigation and conduct costs lines for management analysis. These amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis.

Table 3

Cost:income ratio

Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.

Table 4

Net interest margin (NIM)

Net interest income as a percentage of average interest-earning assets.

Table 5

Bank NIM

Net interest income of the banking business less NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less NWM element.

Table 5

Bank NIM excluding Liquid Asset Buffer

Net interest income of the banking business less NWM element as a percentage of interest-earning assets of the banking business less NWM element and Liquid Asset Buffer.

Table 5

Income across UK and RBSI retail and commercial businesses excluding notable items

Comprises income in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding notable items.

Table 7

Net lending in the UK and RBSI retail and commercial businesses excluding UK Government support schemes

Comprises customer loans in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding UK Government support schemes.

Table 8

Customer deposits across UK and RBSI retail and commercial businesses

Comprises customer deposits in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments.

Table 9

Other expenses excluding operating lease depreciation (OLD) and Ulster Bank RoI direct costs.                          

Total operating expenses less strategic, litigation and conduct costs, operating lease depreciation and Ulster Bank RoI direct costs.

Table 10

Commentary - adjusted periodically for specific items

NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as notable items, operating lease depreciation, strategic costs and litigation and conduct costs.

 

Notable items - page 4, Operating lease depreciation,

Strategic costs and litigation and conduct costs - pages 12 to 16.

 

 

 

Appendix - Non-IFRS financial measures

Performance metrics based on but not defined under IFRS

 

Measure

Basis of preparation

Additional analysis or reconciliation

Loan:deposit ratio

Net customer loans held at amortised cost divided by total customer deposits.

Table 6

Tangible net asset value (TNAV)

Tangible equity divided by the number of ordinary shares in issue (excluding own shares held). Tangible equity is ordinary shareholders' equity less intangible assets.

Page 3

Funded assets

Total assets less derivatives.

Pages 3, 10 and 12 to 16

Loan impairment rate

The annualised loan impairment charge divided by gross customer loans.

Pages 3, 6 to 9, and 11 to 16

Third party customer asset rate

Third party customer asset rate is calculated as annualised interest payable or receivable on third-party loans to customers as a percentage of third-party loans to customers, including those reported as assets held for sale. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin.

Pages 12 to 16

Third party customer funding rate

Third party customer funding rate is calculated as annualised interest payable or receivable on third-party customer deposits as a percentage of third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation.

Pages 12 to 16

Assets under management and administration (AUMA)

AUMA comprises both assets under management (AUMs) and assets under

administration (AUAs) serviced through the Private Banking franchise.

 

AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and RBSI customers.

 

AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and RBSI for their customers accordingly, for which the execution services are supported by Private Banking. Private Banking receive a fee in respect of providing investment management and execution services to Retail Banking and RBSI franchises.

Pages 3 and 7

Depositary assets

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

Page 9

 

 

Appendix Non-IFRS financial measures

1. Return on tangible equity

 

 

 

Nine months ended 

 

Quarter ended

 

30 September

30 September

 

30 September

30 June

30 September

 

2021

2020

 

2021

2021

2020

Profit/(loss) attributable to ordinary shareholders (£m)

2,516

(644)

 

674

1,222

61

Annualised profit/(loss) attributable to ordinary

 

 

 

 

 

 

   shareholders (£m)

3,355

(859)

 

2,696

4,888

244

Average total equity excluding NCI (£m)

42,978

43,766

 

42,507

43,011

43,145

Adjustment for other owners' equity and intangibles (£m)

(11,525)

(11,760)

 

(10,881)

(11,712)

(11,482)

Adjusted total tangible equity (£m)

31,453

32,006

 

31,626

31,299

31,663

Return on tangible equity (%)

10.7%

(2.7%)

 

8.5%

15.6%

0.8%

 

2. Segmental return on equity

 

 

 

 

 

International Banking & Markets

 

 

Retail

Private

Commercial

RBS

NatWest

Ulster

 

Banking

Banking

Banking

International

Markets

Bank RoI

Nine months ended 30 September 2021

£m

£m

£m

£m

£m

£m

Operating profit/(loss) (£m)

1,583 

240 

1,964 

260 

(409)

31 

Preference share cost allocation (£m)

(60)

(15)

(114)

(15)

(47)

-

Adjustment for tax (£m)

(426)

(63)