Serving our
customers
everyday
NatWest Group plc 2023 Annual Report and Accounts
NatWest Group is a UK-focused banking organisation, serving over 19 million customers, with business operations stretching across retail, commercial and private banking markets.
Our 2023 reporting suite
Annual Report | Climate-related |
and Accounts | Disclosures Report |
ESG Disclosures Report and | Company Announcement |
ESG Frameworks Appendix | and Financial Supplement |
Serving our
customers
everyday
NatWest Group plc 2023Annual Report and Accounts
Disclosures related to our strategic performance, governance and remuneration, risk and capital management, along with our financial statements and related notes, including the independent auditor's report.
Serving our
customers
everyday
NatWest Group plc 2023 Climate-related Disclosures Report
Progress against our climate ambitions and Climate transition plan.
Annual | ||||||
results | ||||||
for the year ended 31 December 2023 and | ||||||
Q4 2023 | ||||||
Serving our | Financial | |||||
Supplement | ||||||
customers | ||||||
every day | ||||||
NatWest Group plc | 2023 Environmental, Social | NatWest Group plc | ||||
and Governance Disclosures Report | ||||||
Progress on Environmental, Social | Our latest company information, | |||||
and Governance (ESG) matters and | including our financial performance | |||||
our frameworks appendix, prepared | for the year. | |||||
with reference to industry-wide | ||||||
sustainability standards. |
Read more and download our reports atnatwestgroup.com
On the cover: Royal Bank of Scotland Personal Banker, Laura McWhinnie, at our Lanark branch. Laura works with customers to build their financial resilience and offers personalised support. Read the story on page 35.
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 1 | |||
2023 Annual Report and Accounts | REPORT | REVIEW | GOVERNANCE | MANAGEMENT | STATEMENTS | INFORMATION | |||
Inside this report
1 Strategic report
- Our 2023 performance
- Chairman's statement
- Group Chief Executive's review
- Outlook statement
- Our strategic framework
- Our investment case and shareholder value
- Our business model
- Market environment
- Delivering our strategy
- Key performance indicators
- Section 172(1) statement
- Stakeholder engagement
-
Stakeholder focus areas 30 Investors
32 Customers
36 Colleagues
40 Regulators
41 Communities
43 Suppliers
- Respecting Human Rights
- Business performance
- Retail Banking
- Private Banking
- Commercial & Institutional
48 NatWest Group's climate strategy and progress highlights
50 Task-force on Climate-related Financial Disclosures (TCFD) overview
- Our own operational footprint
- Risk overview
- Viability statement
- Non-financialand sustainability information statement
- Financial review
- Group Chief Financial Officer's review
- Financial summary
76 Segment performance
- Summary financial statements
- Governance and remuneration
- Our Board
- Chairman's introduction
- Governance at a glance
105 Report of the Group Nominations and Governance Committee
110 Report of the Group Audit Committee
115 Report of the Group Board Risk Committee
- Report of the Group Sustainable Banking Committee
- Directors' remuneration report
- Remuneration at a glance
- Wider workforce remuneration
- Summary of Policy for executive directors
- Annual remuneration report
- Compliance report
- Report of the directors
- Statement of directors' responsibilities
170 Risk and capital management
- Risk management framework
- Credit risk
- Capital, liquidity and funding risk
- Market risk
- Pension risk
- Compliance and conduct risk
- Financial crime risk
- Climate risk
- Operational risk
- Model risk
- Reputational risk
283 Financial statements
- Independent auditor's report
- Consolidated financial statements
- Accounting policies
- Notes to the consolidated accounts
- NatWest Group plc financial statements and notes
- Non-IFRSfinancial measures
413 Additional information
417 Risk factors
- Shareholder information
- Presentation of information
- Forward looking statements
Approval of Strategic report
The Strategic report for the year ended 31 December 2023 set out on pages 1 to 69 was approved by the Board of directors on 15 February 2024.
By order of the Board
Jan Cargill
Chief Governance Officer and Company Secretary
15 February 2024
Chairman:
Howard Davies
Executive directors:
Paul Thwaite (Group CEO)
Katie Murray (Group CFO)
Non-executive directors:
Frank Dangeard
Roisin Donnelly
Patrick Flynn
Rick Haythornthwaite
Yasmin Jetha
Stuart Lewis
Mark Seligman
Lena Wilson
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 2 | |||
2023 Annual Report and Accounts | REPORT | REVIEW | GOVERNANCE | MANAGEMENT | STATEMENTS | INFORMATION | |||
Serving our customers
every day
We're dedicated to serving our customers. By being there throughout their lives, we can build long-term value, invest for growth and drive attractive returns for shareholders.
Our focus is to continue building a great bank, powered by great people and delivering fantastic service to our 19 million customers.
Creating sustainable value
Read the story on page 17.
Read the story on page 23. | Read the story on page 35. |
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 3 | |||
2023 Annual Report and Accounts | REPORT | REVIEW | GOVERNANCE | MANAGEMENT | STATEMENTS | INFORMATION | |||
Our 2023 performance
Strong financial | Robust balance sheet | Strong capital | |||
performance | underpinning growth | generation | |||
Income | Operating expenses | Loans to customers | Customer | Common Equity Tier 1 | Total capital returned |
£14,752m | £7,996m | (amortised cost) | deposits | (CET1) ratio(1) | to shareholders(2) |
£381.4bn | £431.4bn | 13.4% | £3.6bn | ||
(2022: £13,156m) | (2022: £7,687m) | (2022: £366.3bn) | (2022: £450.3bn) | (2022: 14.2%) | (2022: £5.1bn) |
Profit before tax | Profit attributable | Loan:deposit ratio (LDR) | Liquidity coverage | Risk-weighted assets (RWAs)(1) | Return on tangible |
£6,178m | to shareholders | (excl. repos and reverse repos) | ratio (LCR) | £183.0bn | equity (RoTE) |
£4,394m | 84% | 144% | 17.8% | ||
(2022: £5,132m) | (2022: £3,340m) | (2022: 79%) | (2022: 145%) | (2022: £176.1bn) | (2022: 12.3%) |
Supporting our customers | Driving efficiency | Delivering capital returns | |||
Gross new mortgage lending | Assets Under Management | Cost:income ratio | Operating expenses | Total ordinary dividend(2) | Buybacks |
in Retail Banking | (AUM) net flows | (excl. litigation and conduct)(4) | (excl. litigation and conduct)(4) | ||
£29.8bn | £1.3bn | 51.8% | £7,641m | £1.5bn | £2.1bn |
(2022: £41.4bn) | (2022: £2.0bn) | (2022: 55.5%) | (2022: £7,302m) | (2022: £1.3bn) | (2022: £2.0bn) |
Climate and sustainable | Net loans to customers in | Retail Banking customers | Commercial & Institutional | Dividend per ordinary | Increase in ordinary |
funding and financing(*) | Commercial & Institutional | exclusively using digital | customers actively using digital | share(2) | dividend per share(2) |
channels(*) | channels to interact with us |
£29.3bn(3) | £131.9bn | 67% |
(2022: £24.5bn) | (2022: £129.9bn) | (2022: 63%) |
- On 1 January 2022 the pro forma CET1 ratio was 15.9% and RWAs were £176.3 billion following regulatory changes.
- Distributions paid and proposed. We paid a special dividend of £1.7 billion in 2022 as we returned surplus capital to shareholders. For full details of our distributions over the last five years refer to page 11.
86% | 17.0p | 26.0% |
(2022: 83%) | (2022: 13.5p) |
- Cumulative contribution of £61.9 billion towards £100 billion between 1 July 2021 and the end of 2025 target.
- Litigation and conduct costs of £355 million (2022: £385 million).
(*) Within the scope of EY assurance. Refer to page 68.
Read more in our Financial Review on pages 70 to 83.
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 4 | |||
2023 Annual Report and Accounts | REPORT | REVIEW | GOVERNANCE | MANAGEMENT | STATEMENTS | INFORMATION | |||
Chairman's statement
'Our capital generation remained strong, which allowed us to invest in the business and provide shareholders with attractive returns and distributions. We have created a strong track record of distributing surplus capital to shareholders and this intention has not changed; we remain committed to a ~40% pay-out ratio on distributions.'
This will be my last Chairman's statement for NatWest Group after nine years in the role. As you will have seen, the bank announced in September 2023 that Rick Haythornthwaite who joined the Board as a non-executive director in January 2024, will take over as Chair in April 2024, ahead of our AGM.
I am confident that Rick's experience and range of skills will complement and further strengthen the Board in the years to come and support NatWest Group's continued progress.
2023 has been a challenging year for some of our customers as well as for our industry and the UK's economy. Inflation remained for much of the year and we saw 14 successive interest rate rises by the Bank of England, the fastest rate cycle since the 1970s. There are now, however, some grounds for optimism. Importantly, unemployment remains low and, by the end of 2023, inflation had started to come down, albeit still remaining well above the Bank of England's 2% target.
This uncertain environment has also had implications for the stability of a number of banks, both in Europe and in the United States. In general, banks in the UK have remained resilient. At NatWest Group, we have built a robust balance sheet with strong capital and liquidity, a largely secured retail loan book and well-diversified commercial lending.
Disciplined risk management continued to underpin our strategy and helps to ensure we are well positioned for the future. We closely monitor customer activity and behaviours for signs of stress, with a focus on maintaining good credit quality.
We have seen volatility in UK banking stocks prices through 2023, as the impact of changes in customer behaviour and market dynamics were reflected in the earnings outlook.
However, against this challenging economic backdrop it is pleasing that NatWest Group performed well in 2023, with continued growth in our lending and progress against our strategy. In 2023, we delivered an operating profit of £6.2 billion, with an attributable profit of £4.4 billion.
Our capital generation remained strong, which allowed us to invest in the business and provide shareholders with attractive returns and distributions. We have created a strong track record of distributing surplus capital to shareholders and this intention has not changed; we remain committed to a ~40% pay-out ratio on distributions.
'At NatWest Group, we have built a robust balance sheet with strong capital and liquidity, a largely secured retail loan book and well-diversified commercial lending.'
In 2023, we announced £3.6 billion of capital returned to shareholders, including an interim dividend of £0.5 billion and a proposed final dividend of £1.0 billion. We were pleased to complete a directed buyback of £1.3 billion in May 2023 and the £0.5 billion on-market buyback announced in July 2023 which is expected to complete in Q1 2024. At full year 2023 we announced a new on-market buy back of £300 million, which we expect to be completed by the time we announce first-half results at the end of July 2024.
We maintain capacity for further directed and on-market buy backs and will continue to consider them as appropriate. As a result of these actions, and following an extension to the UK Government's trading plan, the UK Government's shareholding in the bank reduced from 45.97% at the end of December 2022 to 37.97% by
31 December 2023.
At the Autumn Statement in November 2023, the Chancellor announced that the Treasury remains committed to exiting its stake in the bank by 2025/26 and that it will explore options for a retail investor share sale in the next 12 months. Overall, good progress has been made in recent years and we believe the UK Government's ambition to sell down its stake in NatWest Group in the next two years is in the best interests of the bank and its shareholders.
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 5 | |||
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Chairman's statement continued
Following the departure of Alison Rose as our Group Chief Executive Officer in July 2023, we welcomed Paul Thwaite as our Chief Executive Officer for an initial period of
12 months. He had been identified as her immediate successor six months before and took over at once, which stabilised the bank at a difficult time.
As is appropriate, it has fallen to my successor to manage the process of appointing a permanent CEO, supported by the Group Nominations and Governance Committee. The succession process has been completed and I am very pleased to see Paul secure the appointment. We can now look ahead to the future knowing we have both an incoming Chair and CEO with proven skills and who care deeply about this business and its customers.
To understand the facts of what happened in relation to customer decision-making during the summer of 2023, the Board commissioned the legal firm, Travers Smith, to conduct an independent review over two phases. We have now received and published the findings of the independent review. Furthermore, the bank is committed to implementing all of the recommendations made by Travers Smith and we are making changes to our policies and procedures to deliver better, more consistent outcomes for customers. The Board also decided on how these findings would impact Alison Rose's remuneration, which we announced to the market in November 2023.
As well as changes to our management, a number of changes were made to the Board during the year. Mike Rogers and Morten Friis stepped down as directors on 25 April and 31 July 2023 respectively. I would like to record our thanks to them for their significant contributions to the Board during their tenures. Stuart Lewis was appointed as a director on 1 April 2023, succeeding Morten Friis as the Chair of the Group Board Risk Committee on 1 August 2023.
Graham Beale, who became the Senior Independent Director of NatWest Holdings Limited in 2018, also stood down on 31 August 2023. We thank him for his excellent work in that role. Mark Rennison joined the Board of NatWest Holdings Limited as an independent non-executive director and became a member of the NatWest Holdings Audit Committee, with effect from 1 September 2023. Mark joined the NatWest Holdings Performance & Remuneration Committee in December 2023.
In July 2024, Geeta Gopalan will join the Board as an independent non-executive director. Geeta will be a valuable addition, bringing substantial financial and banking expertise, combined with a strong track record as a plc non-executive director.
My own intention to step down from the Board before I reached my nine-year tenure in July 2024 was disclosed at our AGM in April 2023.
The bank my successor inherits is very different to the one I joined in 2015. NatWest Group has returned to profitability, is more customer focused and is fundamentally stronger, delivering strong returns and regular distributions to shareholders. Despite the economic uncertainty that we have experienced in recent years, we remain well positioned to stand by our customers, to continue growing our lending responsibly and to play a vital role in the UK economy.
I am proud of what we have achieved over the past nine years and I wish Paul and Rick every success in this next chapter in NatWest Group's history.
Howard Davies
Chairman
'In 2023, we announced £3.6 billion of capital returned to shareholders, including an interim dividend of £0.5 billion and a proposed final dividend of £1.0 billion.'
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 6 | |||
2023 Annual Report and Accounts | REPORT | REVIEW | GOVERNANCE | MANAGEMENT | STATEMENTS | INFORMATION | |||
Group Chief Executive's review
'Our leading positions across our three customer businesses, and 19 million customer base provide strong foundations on which to create further long-term value for shareholders and make a meaningful contribution to the UK economy.'
Overview
NatWest Group performed well in 2023, delivering for our customers, our shareholders, and the wider UK economy.
Despite the macroeconomic uncertainty, our customers remained resilient, navigating both inflation and rising interest rates. Throughout the year, we supported them to manage their finances, meeting our goal to help 2 million customers save over £100 for the first time(1), and lent an additional £9 billion to the UK economy. Our investment in digital and data capabilities continues to make it easier for our customers to manage their money, and for our colleagues to provide great service.
As we look to 2024 and beyond, I am optimistic about the opportunities ahead for NatWest Group, building on our UK heritage, leading customer businesses, deep regional connections and financial strength. It is therefore an honour to be asked to lead the bank and to have the opportunity to shape the future of NatWest Group.
Business performance
Our overall operating profit of £6.2 billion was up 20% on 2022 and our return on tangible equity was 17.8%, compared with 12.3% at the end of 2022. Income, excluding notable items, was up 10% on 2022 at £14.3 billion, with total expenses up 5%.
Our disciplined approach to capital allocation and balance sheet management delivered attractive returns and distributions for our shareholders in 2023. We announced £3.6 billion of capital returns to shareholders, including an interim dividend of 5.5p at the half year and a proposed final dividend of 11.5p, bringing the total for 2023 to 17.0p, representing a 26% increase on 2022.
Our business performance was grounded in helping customers. In 2023, we increased our lending to customers by £9 billion, opened over 100,000 new start-up accounts for entrepreneurs, and over a million new personal current accounts, as well as helping 379,000 Retail banking customers to buy or re-mortgage their home.
We also made progress against our Climate transition plan in 2023, helping to build a more sustainable economy. We are working to support our customers' transition to net zero across a range of sectors and we have been a leading loan arranger to the UK power infrastructure(2) and renewables sector over the last 10 years(3). We have now provided
'Our overall operating profit of £6.2 billion was up 20% on 2022 and our return on tangible equity was 17.8%, compared with 12.3% at the end of 2022.'
£61.9 billion in climate and sustainable funding and financing against our target of £100 billion between 1 July 2021 and the end of 2025.
Supporting our customers
During a year of macroeconomic uncertainty, we focused on supporting our customers to better manage their finances. In 2023, we helped six million customers by conducting financial health checks, providing improved personal insights on credit scores, and helping customers to save for the first time. We were also one of the first high street banks to sign up to the Mortgage Charter in July 2023 to ease the pressure of increasing mortgage costs, and we allowed our customers to lock in their next mortgage up to six months before the end of a fixed-rate deal.
Over 1.5 million new savings accounts were opened in 2023. By making our fixed term savings accounts available to more people, including those without an existing account with NatWest Group, and providing a broad range of flexible savings accounts, we met our goal to help two million people save more than £100 for the first time.
We are the biggest supporter of UK businesses, serving more than 1.5 million businesses across the country. During 2023, our extensive network of relationship managers continued to help corporate customers grow, manage costs, find the right funding solutions, and reduce risk in volatile markets. In the context of macroeconomic volatility, we also provided centralised resources such as a cashflow tool, energy calculator and supply chain navigator to manage costs, in response to business customers' demand for help on managing high energy prices. In response
- 2020 goal: To help two million customers save over £100 for the first time with NatWest Group since 2020.
- Power infrastructure comprise battery storage, electricity distribution, electricity smart meter and electricity transmission.
- NatWest Group ranked first among Loan Arrangers by deal value for the period 2014-2023. Source: Infralogic 31 December 2023.
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 7 | |||
2023 Annual Report and Accounts | REPORT | REVIEW | GOVERNANCE | MANAGEMENT | STATEMENTS | INFORMATION | |||
Chief Executive Officer review continued
to broader concerns from our SME customers, we collaborated with the Federation of Small Business to give them access to independent support and advice on topics such as obtaining funding and managing late payments.
Our 19 million customer base means we are well-placed to support our customers to make sustainable choices, while driving value and growth from the commercial opportunities arising from the transition to a net-zero economy. Through initiatives such as partnering with WWF-UK and food manufacturer McCain we are reducing financial barriers for farmers transitioning to sustainable agricultural practices. Through Lombard, no.1 in UK asset finance, we supported customers with financing for electric vehicles, renewables, and cleaner energy alternatives.
Investing for the future
As set out in our Investment Case (refer to page 10), we have capacity for disciplined growth across our three customer businesses. Our focus is on delivering long-term value for our shareholders by putting our customers at the heart of our strategy and deepening our relationships with them to better meet their needs. Using data and technology will make the business more efficient and effective, making it easier for our customers to do business with us and improving engagement and productivity for our colleagues. Accompanied by a disciplined approach to cost, investment, and capital allocation, I am confident that these actions will deliver long-term sustainable value for our customers, shareholders, and the wider UK economy.
'We want to make it easier for customers to do business with us and are investing in technology and partnerships to be a simple, safe, and smart bank, driven by data and digital innovation.'
Simple for customers
We want to make it easier for customers to do business with us and are investing in technology and partnerships to be a simple, safe, and smart bank, driven by data and digital innovation.
In 2023, our Retail Banking mobile app was used by more than 9.8 million customers and there were 10.9 million active digital users(4) of our online and mobile banking platforms. 94% of our retail customer needs are now met digitally - up from 53% in 2019. In Commercial & Institutional, 86% of customers are now actively using digital channels to interact with us, and our innovative card and payments solution, Tyl, continued to grow. We were one of the first banks to offer Apple and Android Tap to Pay, a low-cost service removing the need for businesses to use hardware to accept payments.
We are also making it easier and quicker for our business customers to access financing with the launch of a new online lending platform, enabling customers to apply for a loan digitally in a matter of minutes.
By harnessing digital capabilities, we have also improved our customer service and productivity. In 2023, we collaborated with technology partners to responsibly use artificial intelligence (AI) to enhance customer engagement and improve efficiency. This led to the development of new AI capabilities, analysing customer behaviour to help us detect scams and fraud earlier to reduce financial loss.
- An active digital user is a customer who has accessed either their online banking platform or mobile banking app.
Building our team and culture
It is clear to me that our people are at the heart of our business, and I am grateful to our colleagues for their hard work, enthusiasm, and dedication throughout 2023. We have an engaged and resilient colleague base, and
I am particularly pleased that our colleagues feel proud to deliver a great service to our customers.
We are also continuing to invest in future talent by providing colleagues with the skills and capabilities to fulfil their potential and build a high-performing culture. This includes offering reskilling programmes to build skills in software and data engineering, testing automation and human-centred designs, supporting future talent through our early career programmes and developing a new approach to performance management. These initiatives are equipping our people with the tools and opportunities to develop their own careers.
Conclusion
Our leading positions across our three customer businesses, and 19 million customer base provide strong foundations on which to create further long-term value for shareholders.
In 2024, we will focus on disciplined growth, improving bank-wide simplification to make it easier to do business with us, and deploying capital efficiently while maintaining strong risk management to drive strong capital generation. This will enable us to continue supporting our customers, reinvest in the business, generate attractive distributions to shareholders, and make a meaningful contribution to the UK economy.
Paul Thwaite
Group Chief Executive Officer
NatWest Group | STRATEGIC | FINANCIAL | RISK AND CAPITAL | FINANCIAL | ADDITIONAL | 8 | |||
2023 Annual Report and Accounts | REPORT | REVIEW | GOVERNANCE | MANAGEMENT | STATEMENTS | INFORMATION | |||
The economic outlook remains uncertain. We will monitor and react to market conditions and refine our internal forecasts as the economic position evolves. The following statements are based on our current expectations for interest rates and economic activity.
Outlook(1)
In 2024 we expect:
- to achieve a return on tangible equity of around 12%.
- income excluding notable items to be in the range of £13.0-13.5 billion.
- NatWest Group operating costs, excluding litigation and conduct costs, to be broadly stable compared with 2023.
- our loan impairment rate to be below 20 basis points.
In 2026 we expect:
- to achieve a return on tangible equity for the NatWest Group of greater than 13%.
Capital
- target a CET1 ratio in the range of 13-14%.
- expect RWAs to be around £200 billion at the end of 2025, including the impact of Basel 3.1, however this remains subject to final rules and approval.
- expect to pay ordinary dividends of around 40% of attributable profit and maintain capacity to participate in directed buybacks from the UK Government, recognising that any exercise of this authority would be dependent upon HMT's intentions. We will also consider further on-market buybacks as appropriate.
- 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 Risk Factors section. These statements constitute forward-looking statements. Refer to Forward-looking statements in this document.
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Natwest Group plc published this content on 18 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 March 2024 16:47:12 UTC.