NatWest : Sell-Side Update

NatWest Group Interim Results 2023

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NatWest Group Interim Results 2023	Page
Highlights	3
Our Purpose in action	4
Business performance summary	5
Chief Financial Officer review	6
Retail Banking	8
Private Banking	9
Commercial & Institutional	10
Central items & other	11
Segment performance	12
Risk and capital management
Credit risk	18
Credit risk - banking activities	29
Credit risk - trading activities	58
Capital, liquidity and funding risk	61
Market risk	71
Other risks	76
Condensed consolidated financial statements	77
Notes to the financial statements	83
Independent review report to NatWest Group plc	102
Summary of Principal Risks and Uncertainties	103
Statement of directors' responsibilities	105
Additional information	106
Appendix - Non-IFRS financial measures	109

NatWest Group - Interim Results 2023

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NatWest Group plc

Interim results for the period ended 30 June 2023

Chief Financial Officer, Katie Murray, commented

"NatWest Group's strong performance for the first half of the year is underpinned by our robust balance sheet, with a high-quality deposit base, high levels of liquidity and a well-diversified loan book. As a result, we are able to continue lending to our customers and delivering sustainable returns and distributions to our shareholders, even in the current uncertain economic environment.

Although arrears remain low, we know that people, families and businesses are anxious about their finances and many are really struggling. We are being proactive in our support for those who are hardest hit, helping to build the financial resilience of the customers and communities we serve."

Group Chief Executive Officer

On 25 July 2023, Alison Rose stepped down as Chief Executive Officer and as a Director of NatWest Group plc. Paul Thwaite was appointed as Chief Executive Officer and as a Director of NatWest Group plc for an initial period of 12 months, subject to regulatory approval.

Strong H1 2023 performance

• H1 2023 attributable profit of £2,299 million and a return on tangible equity of 18.2%.
• Total income, excluding notable items(1), increased by £1,485 million, or 25.2%, compared with H1 2022 principally reflecting the impact of lending growth and yield curve movements.
• Bank net interest margin (NIM) of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally reflecting asset margin pressure and changes in deposit mix from non-interest bearing to interest bearing balances.
• Other operating expenses were £323 million, or 9.3%, higher than H1 2022. The cost:income ratio (excl. litigation and conduct) was 49.3% for the first half of the year compared with 56.0% in H1 2022.
• A net impairment charge of £223 million in H1 2023, or 12 basis points of gross customer loans, principally reflects an increase in post model adjustments driven by increased economic uncertainty notwithstanding a £98 million modelled release. Defaults remain stable and at low levels across the portfolio.

Robust balance sheet underpinning growth

• Net loans to customers excluding central items increased by £6.0 billion to £352.7 billion during H1 2023 primarily reflecting £5.9 billion of mortgage growth in Retail Banking.
• Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025.
• Customer deposit balances were stable in the second quarter following the outflows in the first quarter. Customer deposits excluding central items decreased by £11.8 billion to £421.1 billion during H1 2023.
• The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83%, with customer deposits exceeding net loans to customers by around £71 billion.
• The liquidity coverage ratio (LCR) of 141%, representing £45.3 billion headroom above 100% minimum requirement, increased by 2 percentage points compared with Q1 2023 primarily due to increased wholesale funding and UBIDAC asset sale offset by capital distributions.

Shareholder return supported by strong capital generation

• We are pleased to announce an interim dividend of 5.5 pence per share and intend to commence an on-market buyback programme of up to £500 million in the second half of 2023 in addition to the £1.3 billion directed buyback completed in Q2 2023 bringing total distributions deducted from capital to £2.5 billion for H1 2023.
• Common Equity Tier (CET1) ratio of 13.5% was 70 basis points lower than at 31 December 2022 principally reflecting distributions deducted from capital of c.140 basis points and an increase in RWAs, partially offset by the attributable profit.
• RWAs increased by £1.4 billion during the first half of the year to £177.5 billion.

Outlook(2)

We retain the guidance provided in the 2022 Annual Report and Accounts with the exception of full year 2023 Bank NIM which is now expected to be less than 3.20%, with a current view of around 3.15%. This remains subject to market conditions including the assumption of a Bank of England base rate of 5.50% from Q3 2023 through to the end of the year.

1. Refer to the Non-IFRS financial measures appendix for details of notable items.
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 in the 2022 Annual Report and Accounts and Form 20-F and the Summary Risk Factors in this announcement. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

NatWest Group - Interim Results 2023

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Our Purpose in action

We champion potential, helping people, families, and businesses to thrive. By working to benefit our customers, colleagues, and communities, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements in H1 2023 include:

People and families

• We announced a new ambition to support 10 million people with their financial wellbeing every year by the end of 2027; starting with 6.5 million people in 2023 and increasing on an annual basis between 2024 and 2027, to reach 10 million a year by 2027. In H1 2023, we carried out c.341,000 financial health checks and extended our free Know Your Credit Score tool to everyone in the UK.
• From the end of April 2023, we stopped all fees and charges for personal mortgage customers in persistent financial difficulty who are receiving help from our specialist Financial Health and Support teams.
• We announced our collaboration with Places for People, British Gas Centrica and Schneider Electric - coordinated by Pineapple Sustainable Partnerships - to show that retrofitting homes at scale can be an achievable and affordable goal.

Businesses

• We announced our aim to provide an additional £1 billion of lending to the UK manufacturing sector by the end of 2030, aiming to stimulate growth and help manufacturers invest in cleaner, more efficient forms of energy generation and use(1).
• We announced strategic partnerships with WWF-UK to mobilise investment in climate and nature-friendly farming, and with food manufacturer McCain to reduce financial barriers for farmers transitioning to sustainable agricultural practices.
• As part of our ambition to remove the barriers for women in business, in March 2023 we became the first bank in Europe to issue a bond with the intention to use the net proceeds to lend to businesses identified as women-led. The nominal amount of the bond is €500 million (£446 million), as at 7 March 2023.

Colleagues

• With the National Youth Agency, we announced a new employee volunteering programme, which will enable our colleagues to deliver NatWest Thrive in their local youth clubs.
• We launched our new Women in Entrepreneurship learning programme, open to all colleagues across the bank, to help them offer practical advice and support to women entrepreneurs.
• We were included in The Times 2023 Top 50 Employers for Gender Equality list, run by business network, Business in the Community.

Communities

• We announced £5.7 million in cost of living donations to charities and strategic partners, including £1 million to the Trussell Trust to further support the Help through Hardship scheme and over £1.6 million to the debt advice sector.
• With the University of Edinburgh, we launched the Centre for Purpose-Driven Innovation in Banking, which will use business insights from NatWest Group to improve how data is used to benefit customers, researchers and policymakers.
• We launched the Royal Bank Regenerate Fund with giving platform, Neighbourly, to support schools, charities and community groups based in Scotland to deliver sustainability projects.

Driving targeted growth

We're driving our strategy forward through three areas of growth:

Delivering personalised solutions throughout our customers' lifecycle

• We're focused on customer lifetime value to deliver growth: c.20% of youth accounts are held with NatWest Group(2) and in H1 2023 we attracted c.93,000 new NatWest Rooster card holders.
• According to a survey by Savanta, we have a 17.7% share of the start-up market, up from 13.0% at the same time last year, with c.55,000 new accounts opened in H1 2023(3).

Supporting our customers' sustainability transitions

• During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, bringing the cumulative contribution to £48.6 billion at 30 June 2023 against our target to provide £100 billion between 1 July 2021 and the end of 2025(4).
• As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023, we provided £2.3 billion in lending for residential properties with EPC ratings A and B.

Embedding our services in our customers' digital lives

• We're scaling up digital and payment offerings for our business customers: Mettle has grown its customer base to almost 100,000 with c.17,000 new accounts opened in H1 2023; £2.2 billion transactions were processed by Tyl by NatWest, a 64% year-on-year increase, and c.8,000 new merchants onboarded.
• We launched a whole-of-market(5) credit card offering: our credit card share is 9.6%(6), up from 5.7% this time last year, with c.309,000 cards issued in the year to date and c.76,000 new-to-bank customers.

1. The £1 billion manufacturing fund lending package will be deployed through a variety of routes, including loans, asset finance and increased overdrafts.
2. As at April 2023. Source: CACI - UK youth flow share max age 18, cash card and no overdraft and Rooster 11+ overlay (12 months rolling).
3. Based on the % of 771 businesses, less than 2 years old, that name a NatWest Group brand as their main bank. Compared to other banks with a presence on the high street. Source: MarketVue Business Banking from Savanta at Q2 2023. Excludes those using personal bank accounts.
4. NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements.
5. Whole-of-marketprimarily comprises retail customers who do not currently hold a current account with NatWest Group.
6. Source: eBenchmarkers 3 month rolling average to end May.

NatWest Group - Interim Results 2023

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Business performance summary

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2023	2022		2023	2023	2022
Summary consolidated income statement	£m	£m	£m	£m	£m
Net interest income	5,726	4,334		2,824	2,902	2,307
Non-interest income	2,001	1,885		1,027	974	904
Total income	7,727	6,219		3,851	3,876	3,211
Litigation and conduct costs	(108)	(169)		(52)	(56)	(67)
Other operating expenses	(3,807)	(3,484)		(1,875)	(1,932)	(1,766)
Operating expenses	(3,915)	(3,653)		(1,927)	(1,988)	(1,833)
Profit before impairment losses/releases	3,812	2,566		1,924	1,888	1,378
Impairment (losses)/releases	(223)	54		(153)	(70)	18
Operating profit before tax	3,589	2,620		1,771	1,818	1,396
Tax charge	(1,061)	(795)		(549)	(512)	(409)
Profit from continuing operations	2,528	1,825		1,222	1,306	987
(Loss)/profit from discontinued operations, net of tax	(108)	190		(143)	35	127
Profit for the period	2,420	2,015		1,079	1,341	1,114
Performance key metrics and ratios
Notable items within total income (1)	£344m	£321m	£288m	£56m	£97m
Total income excluding notable items (1)	£7,383m	£5,898m	£3,563m	£3,820m	£3,114m
Bank net interest margin (1)	3.20%	2.58%		3.13%	3.27%	2.71%
Bank average interest earning assets (1)	£361bn	£338bn	£362bn	£360bn	£342bn
Cost:income ratio (excl. litigation and conduct) (1)	49.3%	56.0%		48.7%	49.8%	55.0%
Loan impairment rate (1)	12bps	(3bps)	16bps	7bps	(2bps)
Profit attributable to ordinary shareholders	£2,299m	£1,891m	£1,020m	£1,279m	£1,050m
Total earnings per share attributable to ordinary shareholders - basic (2)	24.3p	18.7p	11.0p	13.2p	10.8p
Return on tangible equity (RoTE) (1)	18.2%	13.1%		16.4%	19.8%	15.2%
Climate and sustainable funding and financing (3)	£16.0bn	£11.9bn	£8.4bn	£7.6bn	£6.4bn
					As at
				30 June	31 March 31 December
				2023	2023	2022
Balance sheet				£bn	£bn	£bn
Total assets				702.6	695.6	720.1
Net loans to customers - amortised cost				373.9	374.2	366.3
Net loans to customers excluding central items (1)				352.7	352.4	346.7
Loans to customers and banks - amortised cost and FVOCI				385.2	385.8	377.1
Total impairment provisions (4)				3.4	3.4	3.4
Expected credit loss (ECL) coverage ratio				0.9%	0.9%	0.9%
Assets under management and administration (AUMAs) (1)				37.9	35.2	33.4
Customer deposits				432.5	430.5	450.3
Customer deposits excluding central items (1,5)				421.1	421.8	432.9
Liquidity and funding
Liquidity coverage ratio (LCR)				141%	139%	145%
Liquidity portfolio				227	210	226
Net stable funding ratio (NSFR)				138%	141%	145%
Loan:deposit ratio (excl. repos and reverse repos) (1)				83%	83%	79%
Total wholesale funding				81	79	74
Short-term wholesale funding				28	25	21
Capital and leverage
Common Equity Tier (CET1) ratio (6)				13.5%	14.4%	14.2%
Total capital ratio (6)				18.8%	19.6%	19.3%
Pro forma CET1 ratio (excl. foreseeable items) (7)				14.2%	15.7%	15.4%
Risk-weighted assets (RWAs)				177.5	178.1	176.1
UK leverage ratio				5.0%	5.4%	5.4%
Tangible net asset value (TNAV) per ordinary share (1,8)				262p	278p	264p
Number of ordinary shares in issue (millions) (8)				8,929	9,581	9,659

1. Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
2. On 30 August 2022 issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares for earnings per share has been adjusted retrospectively.
3. NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements. Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, which included £2.3 billion in lending for residential properties with EPC ratings A and B.
4. Includes £0.1 billion relating to off-balance sheet exposures (31 March 2023 - £0.1 billion; 31 December 2022 - £0.1 billion).
5. Central items includes Treasury repo activity and Ulster Bank Republic of Ireland.
6. Refer to the Capital, liquidity and funding risk section for details of the basis of preparation.
7. The pro forma CET1 ratio at 30 June 2023 excludes foreseeable items of £1,280 million: £780 million for ordinary dividends and £500 million foreseeable charges. (31 March 2023
   excludes foreseeable items of £2,351 million: £1,479 million for ordinary dividends and £872 million foreseeable charges. 31 December 2022 excludes foreseeable charges of £2,132
   million: £967 million for ordinary dividends and £1,165 million foreseeable charges).
8. The number of ordinary shares in issue excludes own shares held. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted for the effect of the share consolidation referred to in footnote 2 above.

NatWest Group - Interim Results 2023

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