Last checked at 29 Jul 2022 07:00
NatWest Group
Interim Results 2022
NatWest Group plc natwestgroup.com
NatWest Group plc
Interim results for the period ended 30 June 2022
Chief Executive, Alison Rose, commented
"NatWest Group delivered a strong performance in the first half of 2022, building on two years of progress against our strategic priorities. We are growing our lending to customers and continuing our £3 billion investment programme to create a simpler and better banking experience whilst delivering sustainable dividends and returns for our shareholders.
We know that continued increases in the cost of living are impacting people, families and businesses across the UK and we have put in place a range of targeted measures to support those who are likely to need it most. Our strong levels of profitability and capital generation mean we are well positioned to provide this support.
By building deeper relationships with our customers at every stage of their lives, we will deliver sustainable growth and help them to thrive in a challenging environment."
Strong H1 2022 performance
- H1 2022 attributable profit of £1,891 million and a return on tangible equity of 13.1%. The cost:income ratio was 58.3% in the first half compared with 67.6% in H1 2021.
- Excluding notable items, income in the Go-forward group increased by £819 million, or 16.2%, compared with H1 2021 principally reflecting the impact of base rate increases and volume growth.
- Bank net interest margin (NIM) of 2.72% was 26 basis points higher than Q1 2022 driven by the impact of base rate rises.
- Other operating expenses in the Go-forward group were £50 million, or 1.5%, lower than H1 2021.
- H1 2022 operating profit before impairments in the Go-forward group was £2,787 million, up 53.5% on H1 2021.
- A net impairment release of £46 million in the Go-forward group in H1 2022 reflected the low levels of realised losses we continue to see across our portfolio, although we continue to monitor our book given the uncertain economic outlook.
Robust balance sheet underpins sustainable growth
- Go-forward group net lending increased by £9.3 billion during H1 2022 to £361.6 billion, with growth well balanced across the business.
- Customer deposits in the Go-forward group increased by £14.8 billion during H1 2022 to £476.2 billon.
- The liquidity coverage ratio (LCR) of 159%, representing £76.1 billion above 100%, decreased by 13 percentage points compared with Q4 2021.
Continued strong capital generation supports substantial distributions to shareholders
- We are pleased to announce an interim dividend of 3.5 pence per share, up 17% on 2021 and a special dividend with share consolidation of £1,750 million, or 16.8 pence per share, subject to shareholder approval. Taken together these will deliver 20.3p of dividends per share.
- When combined with the directed buyback in the first quarter, the proposed interim and special dividends bring total distributions deducted from capital in the first half to £3.3 billion, or c.32 pence per share.
- CET1 ratio of 14.3% was c.160 basis points lower than 1 January 2022 as total distributions of c.190 basis points and increased RWAs of c.30 basis points were partially offset by the attributable profit of c.110 basis points.
- RWAs increased by £3.5 billion compared to 1 January 2022 to £179.8 billion.
Outlook(1)
The economic outlook remains uncertain. The following statements are based on central economic forecasts, as detailed on pages 20 to 22, which include an anticipated increase in the central bank rate to 2.0% by the end of the year. We will monitor and react to market conditions and refine our internal forecasts as the economic position evolves.
- In 2022, we expect income excluding notable items to be around £12.5 billion in the Go-forward group(2).
- We expect NIM to be greater than 2.70% for full year 2022 in the Go-forward group.
- We are investing around £3 billion(3) over 2021 to 2023 and, with continuing simplification, we plan to reduce Go-forward group operating expenses, excluding litigation and conduct costs, by around 3% in 2022 and to keep broadly stable in 2023, with positive jaws. In 2023 we expect some of the current inflationary impacts to be more significant, however this will be offset by ongoing savings from our investment programme.
- We expect our 2022 and 2023 impairment charge to be lower than our through the cycle loss rate of 20-30 basis points, with 2022 below 10 basis points in the Go-forward group.
- In 2023, we expect to achieve a return on tangible equity in the range of 14-16% for the Group.
Capital and funding
- We aim to end 2022 with a CET1 ratio of around 14% and target a ratio of 13-14% by 2023.
- We intend to maintain ordinary dividends of around 40% of attributable profit and to distribute a minimum of £1 billion in each of 2022 and 2023.
- We intend to maintain capacity to participate in directed buybacks of the UK Government stake, recognising that any exercise of this authority would be dependent upon HMT's intentions and is limited to 4.99% of issued share capital in any 12-month period.
- We will consider further on-market buybacks as part of our overall capital distribution approach as well as inorganic growth opportunities provided they are consistent with our strategy and have a strong shareholder value case.
- As part of the NatWest Group capital and funding plans we intend to issue between £3 billion to £5 billion of MREL-compliant instruments in 2022, with a continued focus on issuance under our Green, Social and Sustainability Bond framework. NatWest Markets plc's funding plan targets £4 billion to £5 billion of public benchmark issuance.
Ulster Bank RoI
- We have made significant progress on our phased withdrawal from the Republic of Ireland and have binding agreements in place for c.90% of gross customer loans. We expect the majority of the commercial asset sale to Allied Irish Banks and the majority of the asset sale to Permanent TSB to be largely complete by the end of 2022 and for the tracker mortgage asset sale to Allied Irish Banks to complete in the first half of 2023.
- With this progress, we continue to expect total exit costs of €900 million, with the majority incurred by the end of 2023. In Q3 2022 we expect to incur around €350 million of these exit costs as a result of the reclassification of UBIDAC mortgages to fair value.
- We continue to expect the phased withdrawal to be capital accretive.
(1) 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 406 to 426 of the 2021 Annual Report and Accounts and the Summary Risk Factors on pages 106 and 107 of this announcement. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.
(2) Go-forward group excludes Ulster Bank RoI and discontinued operations.
(3) Denotes cash investment spend excluding certain regulatory and legacy programmes.
Our Purpose in action
We champion potential, helping people, families and businesses to thrive. We are breaking down barriers, building financial confidence and delivering sustainable growth and returns by living up to our purpose. Some key achievements from H1 2022 include:
People and families
- We have proactively contacted 2.7 million personal and business customers year to date, offering support and information on the cost of living. We have also launched an online Cost of Living hub to share resources and tools, and to inform customers of the support that is available to them through third parties.
- We delivered 3.7 million financial capability interactions in H1 2022, including carrying out 0.4 million financial health checks.
- In Retail Banking, we have completed £1.4 billion of green mortgages (which give a discounted interest rate to energy efficient properties) since they were launched in Q4 2020, including £661 million in H1 2022.
- Our support for young people continues with the launch of our new pocket money product, NatWest Rooster Money, which helps children build money confidence and develop positive money habits around saving and spending. We acquired Rooster
along with 130,000 customers and since the beginning of the year added 17,000 new customers plus a smooth connection to Rooster via the main Mobile App.
Businesses
- We completed £11.9 billion of climate and sustainable funding and financing in H1 2022, bringing the cumulative contribution to £20.0 billion against our target of £100 billion between 1 July 2021 and the end of 2025.
- We announced an additional £1.25 billion lending package to the UK farming community and our 40,000 customers within it, building on an earlier set of measures for the sector announced in June 2022.
- To provide certainty to SMEs, Business Current Accounts remain available without a minimum charge and we are freezing the standard published tariffs on these accounts for the next 12 months.
- NatWest Markets won the 'Most Impressive Investment Bank for Corporate Green and ESG-Linked Bonds' as well as the 'Most Impressive FIG (Financial Institutions Group) House in Sterling' at the 2022 Global Capital Bond Awards in June 2022.
Colleagues
- To support our colleagues with the rising cost of living, we announced a permanent increase in base pay averaging £1,000 for more than 22,000 colleagues globally.
- We announced a three-year partnership with the University of Edinburgh to make climate education available to all colleagues across the bank, including the delivery of more in-depth Climate Change Transformation and Sector Specific programmes for over 16,000 roles which require a broader level of knowledge.
- To support our colleagues who are carers, unpaid carers' leave can now be taken day-by-day, instead of only in full-week blocks, up to a maximum of four weeks in a year, and up to a maximum of 18 weeks in total.
- Building on our campaign to support learning for the future, colleagues are now able to take two dedicated, learning-for-the-future days each year to support the development of future skills.
Communities
- To help with the rising cost of living, we announced a new £4 million hardship fund to provide grants and support, delivered through partner organisations including Citizens Advice, StepChange and Money Advice Trust.
- We launched the pilot scheme for the NatWest Thrive with Marcus Rashford programme. The programme aims to help more young people pursue their dreams, appreciate their strengths and become more money confident.
- In collaboration with Aston University, we published the report 'Time to change: A blueprint for advancing the UK's ethnic minority businesses', which sets out recommendations for policymakers, companies and entrepreneurs to advance the growth potential of ethnic minority businesses.
- To champion female entrepreneurship in the UK, NatWest Group and The Telegraph launched the '100 Female Entrepreneurs to Watch' list. 10 female entrepreneurs will be selected from the list for further support, and one business will receive a £10,000 investment grant from NatWest Group as well as a year's mentorship from a Rose Review board member.
- We pledged £100,000 to support 500 Ukrainian students to continue their studies at Polish universities and polytechnics following the Russian invasion.
Business performance summary
Half year ended |
| Quarter ended | ||||
30 June | 30 June |
| 30 June | 31 March | 30 June | |
2022 | 2021 |
| 2022 | 2022 | 2021 | |
| £m | £m |
| £m | £m | £m |
Continuing operations |
|
|
| |||
Total income | 6,219 | 5,141 | 3,211 | 3,008 | 2,571 | |
Operating expenses | (3,653) | (3,499) | (1,833) | (1,820) | (1,695) | |
Profit before impairment releases | 2,566 | 1,642 | 1,378 | 1,188 | 876 | |
Operating profit before tax | 2,620 | 2,325 | 1,396 | 1,224 | 1,473 | |
Profit attributable to ordinary shareholders | 1,891 | 1,842 | 1,050 | 841 | 1,222 | |
Excluding notable items within total income (1) | ||||||
Total income excluding notable items (2) | 5,898 | 5,111 | 3,114 | 2,784 | 2,532 | |
Operating expenses | (3,653) | (3,499) | (1,833) | (1,820) | (1,695) | |
Profit before impairment releases and excluding notable items | 2,245 | 1,612 | 1,281 | 964 | 837 | |
Operating profit before tax and excluding notable items | 2,299 | 2,295 | 1,299 | 1,000 | 1,434 | |
Go-forward group (3) |
|
| ||||
Total income (2) | 6,186 | 5,076 | 3,199 | 2,987 | 2,541 | |
Total income excluding notable items (2) | 5,865 | 5,046 | 3,102 | 2,763 | 2,502 | |
Other operating expenses | (3,241) | (3,291) | (1,636) | (1,605) | (1,608) | |
Profit before impairment releases/(losses) (2) | 2,787 | 1,816 | 1,507 | 1,280 | 971 | |
Return on tangible equity | 14.1% | 12.8% | 16.5% | 11.9% | 17.3% | |
Performance key metrics and ratios |
| |||||
Bank net interest margin (2,4) | 2.59% | 2.35% | 2.72% | 2.46% | 2.35% | |
Bank average interest earning assets (2,4) | £337bn | £321bn | £340bn | £333bn | £323bn | |
Cost:income ratio (2) | 58.3% | 67.6% | 56.7% | 60.1% | 65.5% | |
Loan impairment rate (2) | (3bps) | (37bps) | (2bps) | (1bp) | (65bps) | |
Total earnings per share attributable to ordinary |
|
| ||||
shareholders - basic | 17.4p | 15.6p | 10.0p | 7.5p | 10.6p | |
Return on tangible equity (2) | 13.1% | 11.7% | 15.2% | 11.3% | 15.6% | |
| 30 June | 31 March | 31 December |
| 2022 | 2022 | 2021 |
| £bn | £bn | £bn |
Balance sheet |
| ||
Total assets | 806.5 | 785.4 | 782.0 |
Funded assets (2) | 697.1 | 685.4 | 675.9 |
Loans to customers - amortised cost | 362.6 | 365.3 | 359.0 |
Loans to customers and banks - amortised cost and FVOCI | 376.4 | 375.7 | 369.8 |
Go-forward group net lending (2) | 361.6 | 359.0 | 352.3 |
Total impairment provisions | 3.5 | 3.7 | 3.8 |
Expected credit loss (ECL) coverage ratio | 0.93% | 0.98% | 1.03% |
Assets under management and administration (AUMA) (2) | 32.9 | 35.0 | 35.6 |
Go-forward group customer deposits (2) | 476.2 | 465.6 | 461.4 |
Customer deposits | 492.1 | 482.9 | 479.8 |
Liquidity and funding |
| ||
Liquidity coverage ratio (LCR) | 159% | 167% | 172% |
Liquidity portfolio | 268 | 275 | 286 |
Net stable funding ratio (NSFR) (5) | 153% | 152% | 157% |
Loan:deposit ratio (2) | 71% | 73% | 72% |
Total wholesale funding | 76 | 76 | 77 |
Short-term wholesale funding | 24 | 22 | 23 |
Capital and leverage |
| ||
Common Equity Tier (CET1) ratio (6) | 14.3% | 15.2% | 18.2% |
Total capital ratio (6) | 19.3% | 20.4% | 24.7% |
Pro forma CET1 ratio, pre foreseeable items (7) | 15.6% | 16.1% | 19.5% |
Risk-weighted assets (RWAs) | 179.8 | 176.8 | 157.0 |
UK leverage ratio (8) | 5.2% | 5.5% | 5.9% |
Tangible net asset value (TNAV) per ordinary share | 267p | 269p | 272p |
Number of ordinary shares in issue (millions) (9) | 10,436 | 10,622 | 11,272 |
(1) | Refer to the following page for details of notable items within total income. |
(2) | Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
(3) | Go-forward group excludes Ulster Bank RoI and discontinued operations. |
(4) | NatWest Group excluding Ulster Bank RoI and liquid asset buffer. |
(5) | The NSFR is presented on a spot basis. |
(6) | Based on the PRA Rulebook Instrument transitional arrangements, therefore includes transitional relief on grandfathered capital instruments and transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. For additional information, refer to page 66. On 1 January 2022 the proforma CET1 ratio was 15.9% following regulatory changes. |
(7) | The pro forma CET1 ratio at 30 June 2022 excludes foreseeable items of £2,341 million: £500 million for ordinary dividends, £1,750 million for special dividends and £91 million foreseeable charges (31 March 2022 excludes foreseeable items of £1,623 million: £1,096 million for ordinary dividends and £527 million foreseeable charges; 31 December 2021 excludes foreseeable charges of £2,036 million: £846 million for ordinary dividends and £1,190 million foreseeable charges and pension contributions). |
(8) | The UK leverage exposure is calculated in accordance with the Leverage Ratio (CRR) part of the PRA Rulebook, and transitional Tier 1 capital is calculated in accordance with the PRA Rulebook. For additional information, refer to page 67. |
(9) | The number of ordinary shares in issue excludes own shares held. |
Summary consolidated income statement for the period ended 30 June 2022
Half year ended |
| Quarter ended | ||||
30 June | 30 June |
| 30 June | 31 March | 30 June | |
| 2022 | 2021 |
| 2022 | 2022 | 2021 |
| £m | £m |
| £m | £m | £m |
Net interest income | 4,334 | 3,744 | 2,307 | 2,027 | 1,900 | |
Non-interest income | 1,885 | 1,397 | 904 | 981 | 671 | |
Total income | 6,219 | 5,141 | 3,211 | 3,008 | 2,571 | |
Litigation and conduct costs | (169) | 18 | (67) | (102) | 34 | |
Other operating expenses | (3,484) | (3,517) | (1,766) | (1,718) | (1,729) | |
Operating expenses | (3,653) | (3,499) | (1,833) | (1,820) | (1,695) | |
Profit before impairment releases | 2,566 | 1,642 | 1,378 | 1,188 | 876 | |
Impairment releases | 54 | 683 | 18 | 36 | 597 | |
Operating profit before tax | 2,620 | 2,325 | 1,396 | 1,224 | 1,473 | |
Tax charge | (795) | (432) | (409) | (386) | (199) | |
Profit from continuing operations | 1,825 | 1,893 | 987 | 838 | 1,274 | |
Profit from discontinued operations, net of tax | 190 | 177 | 127 | 63 | 83 | |
Profit for the period | 2,015 | 2,070 | 1,114 | 901 | 1,357 | |
Attributable to: |
|
| ||||
Ordinary shareholders | 1,891 | 1,842 | 1,050 | 841 | 1,222 | |
Preference shareholders | - | 9 | - | - | 4 | |
Paid-in equity shareholders | 121 | 178 | 62 | 59 | 91 | |
Non-controlling interests | 3 | 41 | 2 | 1 | 40 | |
2,015 | 2,070 | 1,114 | 901 | 1,357 | ||
|
| |||||
Notable items within total income (1) |
|
| ||||
Commercial & Institutional |
|
| ||||
Fair value, disposal losses and asset |
|
| ||||
disposals/strategic risk reduction (2) | (45) | (62) | (45) | - | (44) | |
Tax variable lease repricing | - | 32 | - | - | 32 | |
Own credit adjustments | 52 | 1 | 34 | 18 | (1) | |
|
| |||||
Central items & other |
|
| ||||
Share of associate (losses)/profits for Business Growth |
|
| ||||
Fund | (13) | 129 | (36) | 23 | 8 | |
Loss on redemption of own debt | (24) | (138) | - | (24) | (20) | |
Liquidity Asset Bond sale gains/(losses) | 36 | 25 | (5) | 41 | 20 | |
Interest and FX risk management derivatives |
|
| ||||
not in accounting hedge relationships | 315 | 44 | 149 | 166 | 45 | |
Own credit adjustments | - | (1) | - | - | (1) | |
Total | 321 | 30 |
| 97 | 224 | 39 |
(1) Refer to page 1 of the Non-IFRS financial measures appendix.
(2) | As previously reported H1 2021 and Q2 2021 includes fair value and disposal gains/(losses) in the banking book H1 2021 - £22 million (Q2 2021 - (£8) million) and H1 2021 - £40 million (Q2 2021 - (£36) million) of asset disposals/strategic risk reduction relating to the costs of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of risk reduction transactions entered into, in respect of the strategic announcements of 14 February 2020. |
Business performance summary
Chief Financial Officer review
We have made good progress against our strategic objectives and our capital and liquidity position remains robust. We have delivered a strong financial performance in the first half of the year, with a RoTE of 13.1%, reflecting the strong profit and capital generation capacity of the business in the current interest rate environment. We also saw strong growth in lending and deposits across the business. We continue to monitor the evolving economic outlook and are mindful of the impact that higher levels of inflation, higher interest rates and supply chain shortages are having on our customers. We are pleased to announce an interim dividend of 3.5 pence per share and a special dividend of £1,750 million, representing total distributions deducted from capital of £3.3 billion when combined with the directed buyback in the first quarter. We have also now completed the £750 million on-market buyback programme we announced in February. Financial performance |
Total income in the Go-forward group increased by 21.9% to £6,186 million compared with H1 2021. Excluding notable items, income was 16.2% higher than H1 2021, primarily driven by volume growth and favourable yield curve movements. We have also seen increased payment card fees and markets income in Commercial & Institutional and higher spend-related fee income in Retail Banking. Bank NIM of 2.72% was 26 basis points higher than Q1 2022 reflecting the beneficial impact of recent base rate rises. Other operating expenses in the Go-forward group were £50 million, or 1.5%, lower than H1 2021 as we continue with our 3-year investment programme. We remain on track to achieve our full year cost reduction target of around 3% in 2022, although savings will not be linear across the remaining quarters. We have reported a £46 million impairment release in the Go-forward group for the first half of 2022, reflecting the continued low levels of realised losses we have seen across our portfolio; we do recognise the significant uncertainty in the economic outlook and are monitoring activity closely. Compared with Q1 2022, our ECL provisions have reduced by £0.2 billion to £3.5 billion, and our ECL coverage ratio has reduced from 0.98% to 0.93%. Whilst we are comfortable with the strong credit performance of our book, we continue to hold economic uncertainty post model adjustments (PMA) of £0.6 billion, or 17.2%, of total impairment provisions. PMAs have been pivoted more towards expected pressure from cost of living increases and supply chain issues rather than concerns over COVID-19 impacts. We will continue to assess this position regularly. As a result, we are pleased to report an interim attributable profit of £1,891 million, with earnings per share of 17.4 pence and a RoTE of 13.1%. Net lending in the Go-forward group increased by £9.3 billion over the first half of the year. Mortgage lending increased by £6.3 billion, with gross new lending of £20.6 billion in the first half, compared with £21.4 billion in H1 2021 and £18.3 billion in H2 2021. Net lending in Commercial & Institutional grew by £3.1 billion reflecting growth across all areas of the business including increases in facility utilisation and funds activity, partly offset by continued UK Government financial support scheme repayments. Customer deposits increased by £14.8 billion in the Go-forward group during the first half of the year principally reflecting a £5.7 billion increase in Commercial & Institutional, largely due to improved market liquidity, and treasury repo activity of £4.7 billion. We have seen a slowdown in Retail Banking deposit growth, with balances up by £1.6 billion in the first half of the year. TNAV per share reduced by 2 pence in the quarter to 267 pence principally reflecting the full year ordinary dividend payment and movements in cashflow hedging and other reserves partially offset by the attributable profit for the period.
Capital The CET1 ratio remains strong at 14.3%, including 16 basis points of IFRS 9 transitional relief. The c.160 basis point reduction compared with 1 January 2022 principally reflects total distributions of c.190 basis points and increased RWAs of c.30 basis points partially offset by the attributable profit of c.110 basis points. The total capital ratio decreased by 540 basis points to 19.3% compared with Q4 2021. Compared to the 1 January position, RWAs increased by £3.5 billion to £179.8 billion principally reflecting lending growth, FX movements and model updates. When combined with the directed buyback in the first quarter, the proposed interim and special dividends bring total distributions deducted from capital in the first half to £3.3 billion, or c.32 pence per share.
The special dividend will return material capital to shareholders whilst ensuring the UK Government's shareholding remains below 50%, which the Board has determined is the interests of all the Group's stakeholders. The proposed consolidation will be set to reduce the share count as if we were buying back at the market price thereby offsetting the dilutive impact to TNAV per share of the substantial special dividend.
Funding and liquidity The LCR decreased by 8 percentage points to 159% in the quarter, representing £76.1 billion headroom above 100% minimum requirement. The main drivers of this include an increase in cash outflows from wholesale funding and credit facilities to our customers and an increase in customer lending which outstripped growth in customer deposits. Total wholesale funding increased by £0.6 billion in the quarter to £76.4 billion. Short term wholesale funding increased by £1.6 billion in the quarter to £23.6 billion. |
Business performance summary
Retail Banking
Half year ended |
| Quarter ended | ||||
30 June | 30 June | 30 June | 31 March | 30 June | ||
2022 | 2021 | 2022 | 2022 | 2021 | ||
£m | £m | £m | £m | £m | ||
Total income | 2,554 | 2,150 | 1,337 | 1,217 | 1,094 | |
Operating expenses | (1,242) | (1,187) | (597) | (645) | (600) | |
of which: Other operating expenses | (1,184) | (1,178) |
| (593) | (591) | (593) |
Impairment (losses)/releases | (26) | 57 | (21) | (5) | 91 | |
Operating profit | 1,286 | 1,020 | 719 | 567 | 585 | |
Return on equity | 26.3% | 27.5% | 29.5% | 23.1% | 32.0% | |
Net interest margin | 2.53% | 2.26% | 2.62% | 2.43% | 2.27% | |
Cost:income ratio | 48.6% | 55.2% | 44.7% | 53.0% | 54.8% | |
Loan impairment rate | 3bps | (6)bps | 4bps | 1bps | (20)bps | |
|
| |||||
| As at | |||||
| 30 June | 31 March | 31 December | |||
| 2022 | 2022 | 2021 | |||
£bn | £bn | £bn | ||||
Net loans to customers (amortised cost) | 188.7 | 184.9 | 182.2 | |||
Customer deposits | 190.5 | 189.7 | 188.9 | |||
RWAs | 53.0 | 52.2 | 36.7 | |||
During H1 2022, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 26% and an operating profit of £1,286 million.
To support our customers, we launched a new Cost of Living hub, online and in app, which provides tools and support including Financial Health Checks, budget planner, top 10 tips to save, advice on what to do if customers think they are going to miss a payment and links to third parties, including PayPlan and Citizens Advice. In addition, for our younger customers we launched NatWest Rooster Money aimed at building their money confidence and developing positive money habits around earning, saving, and spending. This complements our existing MoneySense education programme which has recently recommenced in-school workshops.
Retail Banking completed £1.5 billion of climate and sustainable funding and financing in H1 2022 which will contribute towards the NatWest Group target of £100 billion between 1 July 2021 and the end of 2025.
H1 2022 performance
- Total income was £404 million, or 18.8%, higher than H1 2021 reflecting higher deposit income, supported by recent base rate rises, combined with strong mortgage balance growth, higher unsecured balances and higher transactional-related fee income, partially offset by lower mortgage margins.
- Other operating expenses were £6 million, or 0.5%, higher than H1 2021 due to higher investment spend and increased costs for financial crime and fraud prevention. This was partly offset by a 9.2% reduction in operational headcount, as a result of continued customer digital adoption and automation of end-to-end customer journeys. Cost income ratio of 48.6 percent in H1 2022.
- Impairment losses of £26 million in H1 2022 continue to reflect a low level of stage 3 defaults, partly offset by provision releases in stage 2. ECL provision includes post model adjustments of £179 million relating to economic uncertainty, as at 30 June 2022.
- Net loans to customers increased by £6.5 billion, or 3.6%, in H1 2022 reflecting continued mortgage growth of £5.9 billion, with gross new mortgage lending of £18.9 billion representing flow share of around 13%. Cards balances increased by £0.3 billion and personal advances increased by £0.3 billion in H1 2022 from improving customer demand.
- Customer deposits increased by £1.6 billion, or 0.8%, in H1 2022 with growth slowing towards pre-COVID-19 levels, reflecting higher customer spend levels.
- RWAs increased by £16.3 billion in H1 2022 primarily reflecting 1 January 2022 regulatory changes of £15.3 billion, higher lending partially offset by quality improvements.
Q2 2022 performance
- Total income was £120 million, or 9.9%, higher than Q1 2022 reflecting higher deposit income, supported by recent base rate rises, higher mortgage balances, higher unsecured balances and higher transactional-related fee income, partially offset by the non-repeat of an insurance profit share and lower mortgage margins.
- Net interest margin was 19 basis points higher than Q1 2022 reflecting higher deposit returns, partly offset by mortgage margin pressure. Mortgage back book margin was 148 basis points in the period and application margins increased to around 60 basis points at the end of the quarter.
- Other operating expenses were £2 million, or 0.3%, higher than Q1 2022 primarily due to higher property related provision costs.
- Impairment losses of £21 million in Q2 2022 continue to reflect a low level of stage 3 defaults, partly offset by provision releases in stage 2.
- Net loans to customers increased by £3.8 billion, or 2.1% compared with Q1 2022 reflecting continued mortgage growth of £3.3 billion, with gross new mortgage lending of £9.8 billion representing flow share of around 13%. Cards balances increased by £0.3 billion and personal advances increased by £0.2 billion in Q2 2022 as customer demand and spend levels continued to improve.
- Customer deposits increased by £0.8 billion, or 0.4% in Q2 2022 with growth slowing towards pre-COVID-19 levels, reflecting higher customer spend levels.
- RWAs increased by £0.8 billion, or 1.5%, in Q2 2022 primarily reflecting lending growth partially offset by quality improvements.
Business performance summary
Private Banking
Half year ended |
| Quarter ended |
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30 June | 30 June | 30 June | 31 March | 30 June |
| ||||
2022 | 2021 | 2022 | 2022 | 2021 |
| ||||
£m | £m | £m | £m | £m |
| ||||
Total income | 461 | 368 | 245 | 216 | 183 |
| |||
Operating expenses | (285) | (249) | (146) | (139) | (128) |
| |||
of which: Other operating expenses | (284) | (254) |
| (146) | (138) | (128) |
| ||
Impairment releases | 11 | 27 | 6 | 5 | 27 |
| |||
Operating profit | 187 | 146 | 105 | 82 | 82 |
| |||
Return on equity | 20.9% | 14.2% | 23.5% | 18.2% | 15.9% |
| |||
Net interest margin | 3.34% | 2.62% | 3.60% | 3.07% | 2.60% |
| |||
Cost:income ratio | 61.8% | 67.7% | 59.6% | 64.4% | 69.9% |
| |||
Loan impairment rate | (12)bps | (30)bps | (13)bps | (11)bps | (60)bps |
| |||
Net new money (£bn) (1) | 1.4 | 1.6 | 0.6 | 0.8 | 1.0 |
| |||
|
|
| |||||||
| As at |
| |||||||
| 30 June | 31 March | 31 December |
| |||||
| 2022 | 2022 | 2021 |
| |||||
£bn | £bn | £bn |
| ||||||
Net loans to customers (amortised cost) | 18.8 | 18.7 | 18.4 |
| |||||
Customer deposits | 41.6 | 40.3 | 39.3 |
| |||||
RWAs | 11.3 | 11.5 | 11.3 |
| |||||
Assets under management (AUMs) (1) | 28.1 | 29.6 | 30.2 |
| |||||
Assets under administration (AUAs) (1) | 4.8 | 5.4 | 5.4 |
| |||||
Total assets under management and administration (AUMA) (1) | 32.9 | 35.0 | 35.6 |
| |||||
(1) Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. |
| ||||||||
Private Banking operating profit of £187 million in H1 2022 was supported by robust deposit and lending growth with strong net new money despite volatile investment market conditions. Return on equity of 20.9% represents an increase of 7 percentage points compared with H1 2021. Coutts achieved B Corp Certification in July 2021, and since then we've engaged with over 60 clients and 10 suppliers to support them in achieving B Corp status. We have also worked with NatWest Group's 'Purpose Led Accelerator' to provide a deep dive on the B Corp Certification journey to 130 entrepreneurs and business leaders. | |||||||||
H1 2022 performance | |||||||||
- | Total income was £93 million, or 25.3%, higher than H1 2021 reflecting strong balance growth and higher deposit income, supported by recent interest rate rises and higher card and payment related fee income as transactional volumes continued to improve. Net interest margin was 72 basis points higher than H1 2021 reflecting higher deposit income. | ||||||||
- | Other operating expenses were £30 million, or 11.8%, higher than H1 2021 principally due to continued investment in people and technology to enhance our AUMA growth propositions and increased costs for financial crime and fraud. | ||||||||
- | A net impairment release of £11 million in H1 2022 reflects the continued low levels of credit risk in the portfolio. | ||||||||
- | Net loans to customers increased by £0.4 billion, or 2.2%, in H1 2022 due to continued strong mortgage lending growth, whilst RWAs were broadly in line with Q4 2021. | ||||||||
- | Customer deposits increased by £2.3 billion, or 5.9%, in H1 2022 as customers continue to build and retain liquidity. | ||||||||
- | AUMA balances decreased by £2.7 billion, or 7.6%, in H1 2022 largely driven by lower global investment markets. Net new money was £1.4 billion in H1 2022, which was £0.2 billion less than H1 2021, and represented 7.9% of opening AUMA balances on an annualised basis representing a strong performance given volatile investment market conditions. | ||||||||
Q2 2022 performance | |||||||||
- | Total income was £29 million, or 13.4%, higher than Q1 2022 reflecting higher deposit income, supported by further interest rate rises and continued balance growth. Net interest margin increased by 53 basis points compared with Q1 2022 reflecting higher deposit returns. | ||||||||
- | Net loans to customers increased by £0.1 billion, or 0.5%, compared with Q1 2022 supported by continued mortgage lending growth. | ||||||||
- | AUMA balances reduced by £2.1 billion, or 6.0%, in the quarter as growth was more than offset by lower global investment markets. Net new money was £0.6 billion, which was £0.2bn lower than Q1 2022, and represented 8.0% of opening AUMA balances on an annualised basis. | ||||||||
Business performance summary
Commercial & Institutional
Half year ended |
| Quarter ended | ||||
30 June | 30 June | 30 June | 31 March | 30 June | ||
2022 | 2021 | 2022 | 2022 | 2021 | ||
£m | £m | £m | £m | £m | ||
Net interest income | 1,764 | 1,487 | 961 | 803 | 762 | |
Non-interest income | 1,173 | 987 | 601 | 572 | 459 | |
Total income | 2,937 | 2,474 | 1,562 | 1,375 | 1,221 | |
Operating expenses | (1,820) | (1,824) | (898) | (922) | (909) | |
of which: Other operating expenses | (1,734) | (1,789) |
| (854) | (880) | (874) |
Impairment releases | 59 | 613 | 48 | 11 | 488 | |
Operating profit | 1,176 | 1,263 | 712 | 464 | 800 | |
Return on equity | 11.4% | 12.1% | 14.0% | 8.8% | 15.9% | |
Net interest margin | 2.84% | 2.49% | 3.09% | 2.69% | 2.52% | |
Cost:income ratio | 61.1% | 73.0% | 56.6% | 66.3% | 73.7% | |
Loan impairment rate | (9)bps | (96)bps | (15)bps | (3)bps | (153)bps | |
|
| |||||
| As at | |||||
| 30 June | 31 March | 31 December | |||
| 2022 | 2022 | 2021 | |||
£bn | £bn | £bn | ||||
Net loans to customers (amortised cost) | 127.3 | 126.6 | 124.2 | |||
Customer deposits | 223.2 | 217.9 | 217.5 | |||
Funded assets | 343.4 | 334.6 | 321.3 | |||
RWAs | 103.0 | 100.3 | 98.1 | |||
During H1 2022 Commercial & Institutional delivered a strong performance with a return on equity of 11.4% and operating profit of £1,176 million.
Commercial & Institutional remains well positioned to support its customers in the current macro-economic environment. Our balance sheet strength means we are able to meet our customers' financing requirements and our product suite allows us to support customers' risk management during times of macroeconomic volatility. Our specialist Relationship Managers and business hubs located across the UK offer advice and support to those facing a cost of business, as well as living, crisis. We continually monitor all sectors to proactively identify the most vulnerable. As a result, for example, we have developed a tailored support package for our agricultural customer base who are facing extreme impacts on supply costs and profit margins.
Commercial & Institutional completed £10.3 billion of climate and sustainable funding and financing in H1 2022 delivering a cumulative £17.3 billion since 1 July 2021, contributing toward the NatWest Group target of £100 billion between 1 July 2021 and the end of 2025. To ensure that as many SMEs as possible can realise benefits from their carbon-reduction efforts and innovation, we have reduced the lower threshold for our Green Loans offering for SMEs from £50,000 to £25,000.
H1 2022 performance | |
- | Total income was £463 million, or 18.7%, higher than H1 2021 primarily reflecting strong balance sheet growth, higher interest rates supporting deposit returns, improved markets and card payment fees. Markets income(1) of £427 million, was £98 million, or 29.8%, higher than H1 2021 with good performance across the product suite. |
- | Net interest margin was 35 basis points higher than H1 2021 reflecting higher deposit returns. |
- | Other operating expenses were £55 million, or 3.1%, lower than H1 2021 due to ongoing cost management, and non-repeat of H1 2021 restructuring costs, partly offset by continued investment in the business. |
- | An impairment release of £59 million in H1 2022 compared with an impairment release of £613 million in H1 2021, reflecting a continued low level of stage 3 defaults more than offset by good book provision releases. ECL provision includes post model adjustments of £388 million relating to economic uncertainty, as at 30 June 2022. |
- | Net loans to customers increased by £3.1 billion, or 2.5%, in H1 2022 with growth in facility utilisation and funds activity within Corporate & Institutions, partly offset by continued UK Government financial support scheme repayments. Invoice and asset finance balances within the Commercial Mid-market business increased by £0.8 billion. |
- | Customer deposits increased by £5.7 billion, or 2.6%, in H1 2022 due to overall increased customer liquidity and strong growth in the funds business. |
- | RWAs increased by £4.9 billion, or 5.0%, in H1 2022 primarily reflecting 1 January 2022 regulatory changes, business and FX movements, partly offset by risk parameter improvements. |
Q2 2022 performance | |
- | Total income was £187 million, or 13.6%, higher than Q1 2022 due to continued balance sheet growth, higher deposit returns from an improved interest rate environment and increased card payment fees. |
- | Net interest margin was 40 basis points higher than Q1 2022 reflecting higher deposit returns. |
- | Other operating expenses were £26 million, or 3.0%, lower than Q1 2022 primarily reflecting increased capitalisation of certain investment costs, business efficiencies partly offset by the annual pay revision. |
- | Net loans to customers increased by £0.7 billion, or 0.6%, in Q2 2022 due to increased funds activity and facility utilisation within Corporate & Institutions partly offset by UK Government scheme repayments, primarily in the Commercial Mid-market business. |
- | Customer deposits increased by £5.3 billion, or 2.4%, in Q2 2022 reflecting continued customer liquidity and increased fund inflows. |
- | RWAs increased by £2.7 billion, or 2.7%, in Q2 2022 mainly reflecting business movements and model updates. |
(1) Markets income excludes asset disposals/strategic risk reduction, own credit risk adjustments and central items.
Business performance summary
Ulster Bank RoI
Continuing operations | Half year ended |
| Quarter ended | |||
30 June | 30 June | 30 June | 31 March | 30 June | ||
2022 | 2021 | 2022 | 2022 | 2021 | ||
€m | €m | €m | €m | €m | ||
Total income | 38 | 74 | 13 | 25 | 34 | |
Operating expenses | (301) | (273) | (167) | (134) | (143) | |
of which: Other operating expenses | (288) | (258) |
| (154) | (134) | (138) |
Impairment releases/(losses) | 9 | (15) | (26) | 35 | (11) | |
Operating loss | (254) | (214) | (180) | (74) | (120) | |
|
| |||||
| As at | |||||
| 30 June | 31 March | 31 December | |||
| 2022 | 2022 | 2021 | |||
€bn | €bn | €bn | ||||
Net loans to customers - amortised cost | 1.2 | 7.5 | 7.9 | |||
Customer deposits | 18.4 | 20.4 | 21.9 | |||
RWAs | 12.6 | 13.2 | 10.9 | |||
Ulster Bank ROI continues to make progress on its phased withdrawal from the Republic of Ireland.
- | A significant milestone was reached with the successful completion of a migration of an initial tranche of commercial customers to Allied Irish Banks, p.l.c. (AIB). Remaining migrations of the c.€4.2 billion of gross performing commercial loans will be completed in phases mainly over H2 2022, with the final cohorts in H1 2023. |
- | Confirmation was received from the Irish competition authority (the CCPC) that it had cleared the sale of c.€7.6 billion of gross performing non-tracker mortgages, the Lombard asset finance business, the business direct loan book, and 25 branches to Permanent TSB p.l.c. (PTSB). Shareholders of PTSB's holding company have also approved this transaction. |
- | A legally binding agreement was reached with AIB for the sale of a c.€6 billion portfolio of gross performing tracker and linked mortgages. Completion of this sale, which is subject to obtaining any relevant regulatory approvals and satisfying the conditions of the legally binding agreement, is expected to occur in Q2 2023. UBIDAC now has binding agreements in place for c.90% of its total gross customer lending portfolio. |
- | In other transactions, UBIDAC also announced that it will transfer its existing life assurance intermediary activities to Irish Life Financial Services Ltd and its Home and Car Insurance renewal rights to Aviva Direct. |
- | 'Choose, Move & Close' letters have been sent to customers since April with tranches of letters being sent out on a weekly basis. Customers have six months to choose a new provider, move their banking relationship and close their account with Ulster Bank. |
- | Work continues on managing the residual activities of the bank, including remaining asset sales. |
H1 2022 performance | |
- | Total income was €36 million, or 48.6%, lower than H1 2021 reflecting reduced business levels following the decision to withdraw, coupled with the cost of an inter-group liquidity facility that was put in place as part of the arrangements to manage deposit outflows. |
- | Other operating expenses were €30 million, or 11.6%, higher than H1 2021, due to higher withdrawal-related programme costs and a one-off pension charge being partially offset by lower regulatory levies and a 5.3% reduction in headcount. Ulster Bank RoI incurred €31 million of withdrawal-related direct costs in H1 2022. |
- | A net impairment release of €9 million in H1 2022 reflects improvements in the reducing portfolio and releases of COVID-related post-model adjustments, partially offset by new post-model adjustments for current macro-economic and divestment risks. |
- | Net loans to customers decreased by €6.7 billion, or 84.8%, in H1 2022 as €5.9 billion of tracker loans were reclassified as Assets held for sale and as repayments continue to exceed gross new lending. |
- | Customer deposits decreased by €3.5 billion, or 16.0%, in H1 2022 due to reducing personal deposits as customers continue to close their accounts. |
- | RWAs increased by €1.7 billion in H1 2022 due to temporary model adjustments as a result of new regulations applicable to IRB models, partially offset by asset sales, other repayments and facility maturities in the context of the phased withdrawal. |
Q2 2022 performance | |
- | Total income was €12 million, or 48.0%, lower than Q1 2022 reflecting reduced business levels and the cost of the inter-group liquidity facility. |
- | Other operating expenses were €20 million, or 14.9%, higher than Q1 2022 due to higher withdrawal-related programme costs and a one-off pension charge. |
- | Impairment losses of €26 million in Q2 2022 reflect post-model adjustments for current macro-economic and divestment risks. |
- | RWAs reduced by €0.6 billion in Q2 2022 due to asset sales, other repayments and facility maturities in the context of the phased withdrawal. |
Business performance summary
Ulster Bank RoI continued
Total Ulster Bank RoI including discontinued operations |
|
|
| |||
| Half year ended |
| Quarter ended | |||
30 June | 30 June |
| 30 June | 31 March | 30 June | |
2022 | 2021 |
| 2022 | 2022 | 2021 | |
€m | €m |
| €m | €m | €m | |
Total income | 219 | 279 |
| 101 | 118 | 137 |
Operating expenses | (330) | (299) |
| (182) | (148) | (156) |
of which: Other operating expenses | (317) | (284) |
| (169) | (148) | (151) |
Impairment releases/(losses) | 83 | 13 |
| 53 | 30 | (1) |
Operating loss | (28) | (7) | (28) | - | (20) | |
|
| |||||
|
| |||||
|
| As at | ||||
|
| 30 June | 31 March | 31 December | ||
|
| 2022 | 2022 | 2021 | ||
|
| €bn | €bn | €bn | ||
Net loans to customers - amortised cost |
|
| 17.7 | 18.4 | 18.6 | |
Customer deposits |
|
| 18.4 | 20.4 | 21.9 | |
RWAs |
|
| 12.6 | 13.2 | 10.9 | |
Central items & other
Half year ended |
| Quarter ended | ||||
30 June | 30 June | 30 June | 31 March | 30 June | ||
2022 | 2021 | 2022 | 2022 | 2021 | ||
£m | £m | £m | £m | £m | ||
Central items not allocated | 184 | 83 | 10 | 174 | 110 | |
An operating profit of £184 million within central items not allocated includes gains resulting from risk management derivatives not in hedge accounting relationships of £315 million.
Segment performance
|
| Half year ended 30 June 2022 | ||||||
| Go-forward group |
|
| |||||
|
|
| Total |
|
| |||
|
|
| Central | excluding |
| Total | ||
Retail | Private | Commercial & | items & | Ulster | Ulster | NatWest | ||
Banking | Banking | Institutional | other | Bank RoI | Bank RoI | Group | ||
£m | £m | £m | £m | £m | £m | £m | ||
Continuing operations | ||||||||
Income statement | ||||||||
Net interest income | 2,340 | 315 | 1,764 | (91) | 4,328 | 6 | 4,334 | |
Own credit adjustments | - | - | 52 | - | 52 | - | 52 | |
Other non-interest income | 214 | 146 | 1,121 | 325 | 1,806 | 27 | 1,833 | |
Total income | 2,554 | 461 | 2,937 | 234 | 6,186 | 33 | 6,219 | |
Direct expenses | (320) | (102) | (736) | (2,181) | (3,339) | (145) | (3,484) | |
Indirect expenses | (864) | (182) | (998) | 2,142 | 98 | (98) | - | |
Other operating expenses | (1,184) | (284) | (1,734) | (39) | (3,241) | (243) | (3,484) | |
Litigation and conduct costs | (58) | (1) | (86) | (13) | (158) | (11) | (169) | |
Operating expenses | (1,242) | (285) | (1,820) | (52) | (3,399) | (254) | (3,653) | |
Operating profit/(loss) before |
|
|
|
|
|
|
| |
impairment (losses)/releases | 1,312 | 176 | 1,117 | 182 | 2,787 | (221) | 2,566 | |
Impairment (losses)/releases | (26) | 11 | 59 | 2 | 46 | 8 | 54 | |
Operating profit/(loss) | 1,286 | 187 | 1,176 | 184 | 2,833 | (213) | 2,620 | |
|
|
|
|
|
|
| ||
Income excluding notable items | 2,554 | 461 | 2,930 | (80) | 5,865 | 33 | 5,898 | |
|
|
|
|
|
|
| ||
Additional information |
|
|
|
|
|
|
| |
Return on tangible equity (1) | na | na | na | na | 14.1% | na | 13.1% | |
Return on equity (1) | 26.3% | 20.9% | 11.4% | nm | nm | nm | na | |
Cost:income ratio (1) | 48.6% | 61.8% | 61.1% | nm | 54.5% | nm | 58.3% | |
Total assets (£bn) | 216.2 | 30.0 | 451.5 | 87.1 | 784.8 | 21.7 | 806.5 | |
Funded assets (£bn) (1) | 216.2 | 30.0 | 343.4 | 85.8 | 675.4 | 21.7 | 697.1 | |
Net loans to customers - amortised cost (£bn) | 188.7 | 18.8 | 127.3 | 26.8 | 361.6 | 1.0 | 362.6 | |
Loan impairment rate (1) | 3bps | (12)bps | (9)bps | nm | (3)bps | nm | (3)bps | |
Impairment provisions (£bn) | (1.5) | (0.1) | (1.4) | - | (3.0) | (0.4) | (3.4) | |
Impairment provisions - stage 3 (£bn) | (0.9) | - | (0.7) | - | (1.6) | (0.4) | (2.0) | |
Customer deposits (£bn) | 190.5 | 41.6 | 223.2 | 20.9 | 476.2 | 15.9 | 492.1 | |
Risk-weighted assets (RWAs) (£bn) | 53.0 | 11.3 | 103.0 | 1.7 | 169.0 | 10.8 | 179.8 | |
RWA equivalent (RWAe) (£bn) | 53.0 | 11.3 | 101.4 | 2.2 | 167.9 | 10.8 | 178.7 | |
Employee numbers (FTEs - thousands) | 13.9 | 2.0 | 11.8 | 29.4 | 57.1 | 1.8 | 58.9 | |
Third party customer asset rate (2) | 2.59% | 2.65% | 3.01% | nm | nm | nm | nm | |
Third party customer funding rate (2) | (0.07%) | (0.07%) | (0.06%) | nm | nm | 0.05% | nm | |
Bank average interest earning assets (£bn) (1) | 186.8 | 19.0 | 125.2 | nm | 336.9 | na | 336.9 | |
Bank net interest margin (1) | 2.53% | 3.34% | 2.84% | nm | 2.59% | na | 2.59% | |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
|
| Half year ended 30 June 2021 | ||||||
| Go-forward group | |||||||
|
| Total | ||||||
|
| Central | excluding | Total | ||||
Retail | Private | Commercial & | items & | Ulster | Ulster | NatWest | ||
Banking | Banking | Institutional | other | Bank RoI | Bank RoI | Group | ||
£m | £m | £m | £m | £m | £m | £m | ||
Continuing operations | ||||||||
Income statement | ||||||||
Net interest income | 1,976 | 232 | 1,487 | 34 | 3,729 | 15 | 3,744 | |
Own credit adjustments | - | - | 1 | (1) | - | - | - | |
Other non-interest income | 174 | 136 | 986 | 51 | 1,347 | 50 | 1,397 | |
Total income | 2,150 | 368 | 2,474 | 84 | 5,076 | 65 | 5,141 | |
Direct expenses | (359) | (92) | (874) | (2,051) | (3,376) | (141) | (3,517) | |
Indirect expenses | (819) | (162) | (915) | 1,981 | 85 | (85) | - | |
Other operating expenses | (1,178) | (254) | (1,789) | (70) | (3,291) | (226) | (3,517) | |
Litigation and conduct costs | (9) | 5 | (35) | 70 | 31 | (13) | 18 | |
Operating expenses | (1,187) | (249) | (1,824) | - | (3,260) | (239) | (3,499) | |
Operating profit/(loss) before | ||||||||
impairment releases/(losses) | 963 | 119 | 650 | 84 | 1,816 | (174) | 1,642 | |
Impairment releases/(losses) | 57 | 27 | 613 | (1) | 696 | (13) | 683 | |
Operating profit/(loss) | 1,020 | 146 | 1,263 | 83 | 2,512 | (187) | 2,325 | |
Income excluding notable items | 2,150 | 368 | 2,503 | 25 | 5,046 | 65 | 5,111 | |
Additional information | ||||||||
Return on tangible equity (1) | na | na | na | na | 12.8% | na | 11.7% | |
Return on equity (1) | 27.5% | 14.2% | 12.1% | nm | nm | nm | na | |
Cost:income ratio (1) | 55.2% | 67.7% | 73.0% | nm | 63.7% | nm | 67.6% | |
Total assets (£bn) | 204.2 | 27.7 | 442.2 | 76.4 | 750.5 | 25.4 | 775.9 | |
Funded assets (£bn) (1) | 204.2 | 27.7 | 334.5 | 74.5 | 640.9 | 25.4 | 666.3 | |
Net loans to customers - amortised cost (£bn) | 178.1 | 18.0 | 125.2 | 24.7 | 346.0 | 16.7 | 362.7 | |
Loan impairment rate (1) | (6)bps | (30)bps | (96)bps | nm | (40)bps | nm | (37)bps | |
Impairment provisions (£bn) | (1.6) | (0.1) | (2.3) | - | (4.0) | (0.7) | (4.7) | |
Impairment provisions - stage 3 (£bn) | (0.8) | - | (1.0) | - | (1.8) | (0.4) | (2.2) | |
Customer deposits (£bn) | 184.1 | 34.7 | 212.4 | 17.5 | 448.7 | 18.5 | 467.2 | |
Risk-weighted assets (RWAs) (£bn) | 35.6 | 11.2 | 104.0 | 1.7 | 152.5 | 10.5 | 163.0 | |
RWA equivalent (RWAe) (£bn) | 35.6 | 11.3 | 105.8 | 1.8 | 154.5 | 10.5 | 165.0 | |
Employee numbers (FTEs - thousands) | 15.3 | 1.9 | 12.3 | 27.1 | 56.6 | 1.9 | 58.5 | |
Third party customer asset rate (2) | 2.70% | 2.36% | 2.71% | nm | nm | nm | nm | |
Third party customer funding rate (2) | (0.07%) | - | (0.02%) | nm | nm | 0.01% | nm | |
Bank average interest earning assets (£bn) (1) | 176.3 | 17.9 | 120.5 | nm | 320.6 | na | 320.6 | |
Bank net interest margin (1) | 2.26% | 2.62% | 2.49% | nm | 2.35% | na | 2.35% | |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
|
| Quarter ended 30 June 2022 | ||||||
| Go-forward group |
|
| |||||
|
|
| Total |
|
| |||
|
|
| Central | excluding |
| Total | ||
Retail | Private | Commercial & | items & | Ulster | Ulster | NatWest | ||
Banking | Banking | Institutional | other | Bank RoI | Bank RoI | Group | ||
£m | £m | £m | £m | £m | £m | £m | ||
Continuing operations |
|
|
|
|
|
|
| |
Income statement | ||||||||
Net interest income | 1,228 | 172 | 961 | (56) | 2,305 | 2 | 2,307 | |
Own credit adjustments | - | - | 34 | - | 34 | - | 34 | |
Other non-interest income | 109 | 73 | 567 | 111 | 860 | 10 | 870 | |
Total income | 1,337 | 245 | 1,562 | 55 | 3,199 | 12 | 3,211 | |
Direct expenses | (159) | (53) | (329) | (1,144) | (1,685) | (81) | (1,766) | |
Indirect expenses | (434) | (93) | (525) | 1,101 | 49 | (49) | - | |
Other operating expenses | (593) | (146) | (854) | (43) | (1,636) | (130) | (1,766) | |
Litigation and conduct costs | (4) | - | (44) | (8) | (56) | (11) | (67) | |
Operating expenses | (597) | (146) | (898) | (51) | (1,692) | (141) | (1,833) | |
Operating profit/(loss) before |
|
|
|
|
|
|
| |
Impairment (losses)/releases | 740 | 99 | 664 | 4 | 1,507 | (129) | 1,378 | |
Impairment (losses)/releases | (21) | 6 | 48 | 6 | 39 | (21) | 18 | |
Operating profit/(loss) | 719 | 105 | 712 | 10 | 1,546 | (150) | 1,396 | |
|
|
|
|
|
|
| ||
Income excluding notable items | 1,337 | 245 | 1,573 | (53) | 3,102 | 12 | 3,114 | |
|
|
|
|
|
|
| ||
Additional information |
|
|
|
|
|
|
| |
Return on tangible equity (1) | na | na | na | na | 16.5% | na | 15.2% | |
Return on equity (1) | 29.5% | 23.5% | 14.0% | nm | nm | nm | na | |
Cost:income ratio (1) | 44.7% | 59.6% | 56.6% | nm | 52.4% | nm | 56.7% | |
Total assets (£bn) | 216.2 | 30.0 | 451.5 | 87.1 | 784.8 | 21.7 | 806.5 | |
Funded assets (£bn) (1) | 216.2 | 30.0 | 343.4 | 85.8 | 675.4 | 21.7 | 697.1 | |
Net loans to customers - amortised cost (£bn) | 188.7 | 18.8 | 127.3 | 26.8 | 361.6 | 1.0 | 362.6 | |
Loan impairment rate (1) | 4bps | (13)bps | (15)bps | nm | (4)bps | nm | (2)bps | |
Impairment provisions (£bn) | (1.5) | (0.1) | (1.4) | - | (3.0) | (0.4) | (3.4) | |
Impairment provisions - stage 3 (£bn) | (0.9) | - | (0.7) | - | (1.6) | (0.4) | (2.0) | |
Customer deposits (£bn) | 190.5 | 41.6 | 223.2 | 20.9 | 476.2 | 15.9 | 492.1 | |
Risk-weighted assets (RWAs) (£bn) | 53.0 | 11.3 | 103.0 | 1.7 | 169.0 | 10.8 | 179.8 | |
RWA equivalent (RWAe) (£bn) | 53.0 | 11.3 | 101.4 | 2.2 | 167.9 | 10.8 | 178.7 | |
Employee numbers (FTEs - thousands) | 13.9 | 2.0 | 11.8 | 29.4 | 57.1 | 1.8 | 58.9 | |
Third party customer asset rate (2) | 2.59% | 2.77% | 3.19% | nm | nm | nm | nm | |
Third party customer funding rate (2) | (0.10%) | (0.13%) | (0.09%) | nm | nm | 0.04% | nm | |
Bank average interest earning assets (£bn) (1) | 188.1 | 19.1 | 124.9 | nm | 340.0 | na | 340.0 | |
Bank net interest margin (1) | 2.62% | 3.60% | 3.09% | nm | 2.72% | na | 2.72% | |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to page 18.
Segment performance
|
| Quarter ended 31 March 2022 | ||||||
| Go-forward group | |||||||
|
| Total | ||||||
|
| Central | excluding | Total | ||||
Retail | Private | Commercial & | items & | Ulster | Ulster | NatWest | ||
Banking | Banking | Institutional | other | Bank RoI | Bank RoI | Group | ||
£m | £m | £m | £m | £m | £m | £m | ||
Continuing operations | ||||||||
Income statement | ||||||||
Net interest income | 1,112 | 143 | 803 | (35) | 2,023 | 4 | 2,027 | |
Own credit adjustments | - | - | 18 | - | 18 | - | 18 | |
Other non-interest income | 105 | 73 | 554 | 214 | 946 | 17 | 963 | |
Total income | 1,217 | 216 | 1,375 | 179 | 2,987 | 21 | 3,008 | |
Direct expenses | (161) | (49) | (407) | (1,037) | (1,654) | (64) | (1,718) | |
Indirect expenses | (430) | (89) | (473) | 1,041 | 49 | (49) | - | |
Other operating expenses | (591) | (138) | (880) | 4 | (1,605) | (113) | (1,718) | |
Litigation and conduct costs | (54) | (1) | (42) | (5) | (102) | - | (102) | |
Operating expenses | (645) | (139) | (922) | (1) | (1,707) | (113) | (1,820) | |
Operating profit/(loss) before | ||||||||
impairment (losses)/releases | 572 | 77 | 453 | 178 | 1,280 | (92) | 1,188 | |
Impairment (losses)/releases | (5) | 5 | 11 | (4) | 7 | 29 | 36 | |
Operating profit/(loss) | 567 | 82 | 464 | 174 | 1,287 | (63) | 1,224 | |
Income excluding notable items | 1,217 | 216 | 1,357 | (27) | 2,763 | 21 | 2,784 | |
Additional information | ||||||||
Return on tangible equity (1) | na | na | na | na | 11.9% | na | 11.3% | |
Return on equity (1) | 23.1% | 18.2% | 8.8% | nm | nm | nm | na | |
Cost:income ratio (1) | 53.0% | 64.4% | 66.3% | nm | 56.7% | nm | 60.1% | |
Total assets (£bn) | 210.7 | 29.6 | 433.5 | 89.3 | 763.1 | 22.3 | 785.4 | |
Funded assets (£bn) (1) | 210.7 | 29.6 | 334.6 | 88.2 | 663.1 | 22.3 | 685.4 | |
Net loans to customers - amortised cost (£bn) | 184.9 | 18.7 | 126.6 | 28.8 | 359.0 | 6.3 | 365.3 | |
Loan impairment rate (1) | 1bp | (11)bps | (3)bps | nm | - | nm | (1)bp | |
Impairment provisions (£bn) | (1.5) | (0.1) | (1.6) | - | (3.2) | (0.4) | (3.6) | |
Impairment provisions - stage 3 (£bn) | (0.9) | - | (0.7) | - | (1.6) | (0.4) | (2.0) | |
Customer deposits (£bn) | 189.7 | 40.3 | 217.9 | 17.7 | 465.6 | 17.3 | 482.9 | |
Risk-weighted assets (RWAs) (£bn) | 52.2 | 11.5 | 100.3 | 1.6 | 165.6 | 11.2 | 176.8 | |
RWA equivalent (RWAe) (£bn) | 52.2 | 11.5 | 102.6 | 1.9 | 168.2 | 11.2 | 179.4 | |
Employee numbers (FTEs - thousands) | 14.0 | 1.9 | 11.8 | 28.7 | 56.4 | 1.8 | 58.2 | |
Third party customer asset rate (2) | 2.59% | 2.53% | 2.83% | nm | nm | nm | nm | |
Third party customer funding rate (2) | (0.05%) | (0.01%) | (0.02%) | nm | nm | 0.06% | nm | |
Bank average interest earning assets (£bn) (1) | 185.5 | 18.9 | 121.0 | nm | 333.3 | na | 333.3 | |
Bank net interest margin (1) | 2.43% | 3.07% | 2.69% | nm | 2.46% | na | 2.46% | |
nm = not meaningful, na = not applicable.
For the notes to this table, refer to the following page.
Segment performance
|
| Quarter ended 30 June 2021 | ||||||
| Go-forward group | |||||||
|
| Total | ||||||
|
| Central | excluding | Total | ||||
Retail | Private | Commercial & | items & | Ulster | Ulster | NatWest | ||
Banking | Banking | Institutional | other | Bank RoI | Bank RoI | Group | ||
£m | £m | £m | £m | £m | £m | £m | ||
Continuing operations | ||||||||
Income statement | ||||||||
Net interest income | 1,003 | 117 | 762 | 10 | 1,892 | 8 | 1,900 | |
Own credit adjustments | - | - | (1) | (1) | (2) | - | (2) | |
Other non-interest income | 91 | 66 | 460 | 34 | 651 | 22 | 673 | |
Total income | 1,094 | 183 | 1,221 | 43 | 2,541 | 30 | 2,571 | |
Direct expenses | (171) | (49) | (428) | (999) | (1,647) | (82) | (1,729) | |
Indirect expenses | (422) | (79) | (446) | 986 | 39 | (39) | - | |
Other operating expenses | (593) | (128) | (874) | (13) | (1,608) | (121) | (1,729) | |
Litigation and conduct costs | (7) | - | (35) | 80 | 38 | (4) | 34 | |
Operating expenses | (600) | (128) | (909) | 67 | (1,570) | (125) | (1,695) | |
Operating profit/(loss) before | ||||||||
impairment releases/(losses) | 494 | 55 | 312 | 110 | 971 | (95) | 876 | |
Impairment releases/(losses) | 91 | 27 | 488 | - | 606 | (9) | 597 | |
Operating profit/(loss) | 585 | 82 | 800 | 110 | 1,577 | (104) | 1,473 | |
Income excluding notable items | 1,094 | 183 | 1,234 | (9) | 2,502 | 30 | 2,532 | |
Additional information | ||||||||
Return on tangible equity (1) | na | na | na | na | 17.3% | na | 15.6% | |
Return on equity (1) | 32.0% | 15.9% | 15.9% | nm | nm | nm | na | |
Cost:income ratio (1) | 54.8% | 69.9% | 73.7% | nm | 61.3% | nm | 65.5% | |
Total assets (£bn) | 204.2 | 27.7 | 442.2 | 76.4 | 750.5 | 25.4 | 775.9 | |
Funded assets (£bn) (1) | 204.2 | 27.7 | 334.5 | 74.5 | 640.9 | 25.4 | 666.3 | |
Net loans to customers - amortised cost (£bn) | 178.1 | 18.0 | 125.2 | 24.7 | 346.0 | 16.7 | 362.7 | |
Loan impairment rate (1) | (20)bps | (60)bps | (153)bps | nm | (69)bps | nm | (65)bps | |
Impairment provisions (£bn) | (1.6) | (0.1) | (2.3) | - | (4.0) | (0.7) | (4.7) | |
Impairment provisions - stage 3 (£bn) | (0.8) | - | (1.0) | - | (1.8) | (0.4) | (2.2) | |
Customer deposits (£bn) | 184.1 | 34.7 | 212.4 | 17.5 | 448.7 | 18.5 | 467.2 | |
Risk-weighted assets (RWAs) (£bn) | 35.6 | 11.2 | 104.0 | 1.7 | 152.5 | 10.5 | 163.0 | |
RWA equivalent (RWAe) (£bn) | 35.6 | 11.3 | 105.8 | 1.8 | 154.5 | 10.5 | 165.0 | |
Employee numbers (FTEs - thousands) | 15.3 | 1.9 | 12.3 | 27.1 | 56.6 | 1.9 | 58.5 | |
Third party customer asset rate (2) | 2.67% | 2.36% | 2.81% | nm | nm | nm | nm | |
Third party customer funding rate (2) | (0.06%) | - | (0.04%) | nm | nm | 0.01% | nm | |
Bank average interest earning assets (£bn) (1) | 177.3 | 18.1 | 121.0 | nm | 323.0 | na | 323.0 | |
Bank net interest margin (1) | 2.27% | 2.60% | 2.52% | nm | 2.35% | na | 2.35% | |
nm = not meaningful, na = not applicable.
(1) Refer to the appendix for details of basis of preparation and reconciliation of non-IFRS performance measures 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. This excludes assets of disposal groups, 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.
Risk and capital management
Page | |
Credit risk | |
Economic loss drivers | 20 |
UK economic uncertainty | 23 |
Measurement uncertainty and ECL sensitivity analysis
| 26 |
Measurement uncertainty and ECL adequacy
| 28 |
Credit risk - Banking activities | |
Financial instruments within the scope of the IFRS 9 ECL framework
| 29 |
Segment analysis | 30 |
Segment loans and impairment metrics | 33 |
Sector analysis | 34 |
Wholesale forbearance | 39 |
Personal portfolio | 41 |
Commercial real estate | 44 |
Flow statements | 46 |
Stage 2 decomposition by a significant increase in credit risk trigger
| 55 |
Asset quality | 57 |
Credit risk - Trading activities | 61 |
Capital, liquidity and funding risk | 64 |
Market risk | |
Non-traded | 74 |
Traded | 78 |
Other risks | 79 |
Certain disclosures in the Risk and capital management section are within the scope of EY's review report and are marked as reviewed in the section header.
Risk and capital management
Credit risk
Economic loss drivers (reviewed)
Introduction
The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely the approach used in stress testing. To enable robust modelling, the forecasting models for each portfolio segment (defined by product or asset class and, where relevant, industry sector and region) are based on a selected, small number of economic factors (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgment.
The most material economic loss drivers are shown in the table below.
Portfolio | Economic loss drivers |
UK retail mortgages | UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income |
UK retail unsecured | UK unemployment rate, sterling swap rate, UK household debt to income |
UK large corporates | World GDP, UK unemployment rate, sterling swap rate, stock price index |
UK commercial | UK GDP, UK unemployment rate, sterling swap rate |
UK commercial real estate | UK GDP, UK commercial property price index, sterling swap rate, stock price index |
RoI retail mortgages | RoI unemployment rate, European Central Bank base rate, RoI house price index |
(1) This is not an exhaustive list of economic loss drivers but shows the most material drivers for the most significant portfolios.
Economic scenarios
At 30 June 2022, the range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflected a range of outcomes associated with the most prominent risks facing the economy, and the associated effects on labour and asset markets.
The four economic scenarios are translated into forward-looking projections of credit cycle indices (CCIs) using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then overlaid with an additional mean reversion assumption, i.e. after reaching their worst forecast position the CCIs start to gradually revert to their long-run average of zero.
Upside - This scenario assumes a very strong recovery through 2022 as consumers dip into excess savings built up since amidst COVID-19. The labour market remains resilient, with the unemployment rate falling substantially below pre-COVID-19 levels. Inflation is marginally higher than the base case but eventually retreats close to the target without substantial tightening and with no major effect on growth. The housing market shows a strong performance.
Base case - After a strong recovery in 2021, growth moderates in 2022 as real incomes decline and consumer confidence falls. The unemployment rate decreases initially but subsequently increases above pre-COVID-19 levels, although remains low by historical standards. Inflation remains elevated at close to current levels through to early 2023 before retreating. Interest rates are raised to 2% to control price pressures. There is a gradual cooling in the housing market, but activity remains firm. As inflation retreats, economic growth returns to its pre-COVID-19 pace over the course of 2023, remaining steady through the forecast period.
Downside - This scenario assumes that inflation accelerates to 15%, triggered by further escalation in geopolitical tensions and an associated rise in energy prices. This undermines the recovery, harming business and consumer confidence and pushing the economy into recession. Unemployment rate rises above the levels seen during COVID-19 and there is a modest decline in house prices. Inflation subsequently normalises, paving the way for cuts to interest rates and recovery.
Extreme downside - The trigger for the extreme downside is similar to the downside scenario. However, in this scenario, inflation remains more persistent, necessitating a significant degree of rate tightening. This tighter policy and fall in real income leads to a deep recession. There is widespread job shedding in the labour market while asset prices see deep corrections, with housing market falls higher than those seen during previous episodes. The recovery is tepid throughout the five-year period, meaning only a gradual decline in joblessness.
For June 2022, the four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. These four scenarios were developed to provide sufficient coverage across potential rises in unemployment, inflation and asset price falls around which there are pronounced levels of uncertainty.
The tables below provide details of the key economic loss drivers under the four scenarios.
The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the main macroeconomic variables table below. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for unemployment and the Bank of England base rate. The house price index and commercial real estate figures show the total change in each asset over five years.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Main macroeconomic variables | 30 June 2022 |
| 31 December 2021 | ||||||
Extreme |
| Extreme | |||||||
Upside | Base case | Downside | downside |
| Upside | Base case | Downside | downside | |
Five-year summary | % | % | % | % |
| % | % | % | % |
UK |
|
|
|
|
| ||||
GDP - CAGR | 1.7 | 1.1 | 0.8 | (0.1) | 2.4 | 1.7 | 1.4 | 0.6 | |
Unemployment - average | 3.3 | 4.0 | 4.5 | 6.3 |
| 3.5 | 4.2 | 4.8 | 6.7 |
House price index - total change | 24.4 | 13.7 | (0.9) | (10.5) |
| 22.7 | 12.1 | 4.3 | (5.3) |
Commercial real estate price - total change | 7.5 | (2.6) | (6.8) | (14.5) |
| 18.2 | 7.2 | 5.5 | (6.4) |
Bank of England base rate - average | 1.5 | 1.8 | 0.6 | 2.7 |
| 1.5 | 0.8 | 0.7 | (0.5) |
Consumer price index - CAGR | 2.7 | 2.9 | 3.9 | 7.2 |
| 2.7 | 2.5 | 3.1 | 1.5 |
|
|
|
|
| |||||
Republic of Ireland |
|
|
|
|
| ||||
GDP - CAGR | 4.6 | 3.9 | 2.9 | 2.1 |
| 4.4 | 3.7 | 2.9 | 1.6 |
Unemployment - average | 3.8 | 4.9 | 6.5 | 7.7 |
| 4.2 | 5.2 | 6.8 | 9.3 |
House price index - total change | 28.9 | 22.2 | 6.3 | (1.9) |
| 30.3 | 23.4 | 16.3 | 4.6 |
European Central Bank base rate - average | 1.3 | 2.0 | 0.1 | 1.4 |
| 0.8 | 0.1 | 0.2 | - |
|
|
|
|
| |||||
World GDP - CAGR | 3.8 | 3.4 | 2.0 | 1.0 |
| 3.5 | 3.2 | 2.6 | 0.6 |
|
|
|
|
| |||||
Probability weight | 21.0 | 45.0 | 20.0 | 14.0 | 30.0 | 45.0 | 20.0 | 5.0 | |
(3) The five year period starts after Q1 2022 for 30 June 2022 and Q3 2021 for 31 December 2021.
(4) CAGR and total change figures are not comparable with 31 December 2021 data, as the starting quarters are different.
Probability weightings of scenarios
NatWest Group's approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. The scale of the economic effect of COVID-19 and the range of recovery paths had necessitated subjective assignment of probability weights. However, for June 2022, NatWest Group resurrected the quantitative approach used pre-COVID-19. The approach involves comparing UK GDP paths for NatWest Group's scenarios against a set of 1,000 model runs, following which a percentile in the distribution is established that most closely corresponded to the scenario. The probability weight for the base case is set based on judgement while probability weights for the alternate scenarios are assigned based on these percentile scores.
A 21% weighting was applied to the upside scenario (compared to 30% at 31 December 2021), a 45% weighting applied to the base case scenario (unchanged from 31 December 2021), a 20% weighting applied to the downside scenario (unchanged from 31 December 2021) and a 14% weighting applied to the extreme downside scenario (compared to 5% at 31 December 2021).
The assigned probability weights reflect the outputs of NatWest Group's quantitative approach and were judged to be aligned with subjective assessment of balance of the risks in the economy, presenting good coverage to the range of outcomes assumed in the central scenarios, including the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. The current geopolitical tensions pose considerable uncertainty to the economic outlook, with respect to their persistence, range of outcomes and subsequent impacts on inflation and economic activity. Given that backdrop, and the higher possibility of a more challenging economic backdrop than assumed in the base case, NatWest Group judged it appropriate to apply a lower probability weight to the upside scenario and a higher probability to downside-biased scenarios, than at 31 December 2021.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Annual figures
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Worst points | 30 June 2022 | 31 December 2021 | |||||||
|
| Extreme |
| Extreme | |||||
Downside |
| downside |
| Downside | downside | ||||
UK | % | Quarter | % | Quarter | % | Quarter | % | Quarter | |
GDP | (3.6) | Q1 2023 | (7.4) | Q3 2023 | (1.8) | Q1 2022 | (7.9) | Q1 2022 | |
Unemployment rate (peak) | 5.1 | Q3 2023 | 9.0 | Q2 2024 | 5.4 | Q1 2023 | 9.4 | Q4 2022 | |
House price index | (12.9) | Q2 2024 | (28.0) | Q2 2024 | (3.0) | Q3 2023 | (26.0) | Q2 2023 | |
Commercial real estate price | (20.7) | Q2 2023 | (34.7) | Q1 2024 | (2.5) | Q1 2022 | (29.8) | Q3 2022 | |
Bank of England base rate | 1.5 | Q4 2022 | 4.0 | Q1 2024 | 1.5 | Q4 2022 | (0.5) | Q2 2022 | |
Consumer price index | 14.8 | Q2 2023 | 14.8 | Q2 2023 | 7.9 | Q4 2022 | 4.3 | Q4 2021 | |
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Republic of Ireland |
|
|
|
| |||||
GDP | - | Q2 2023 | (2.9) | Q3 2023 | (0.7) | Q1 2022 | (8.9) | Q2 2022 | |
Unemployment rate (peak) | 8.6 | Q3 2023 | 10.5 | Q3 2023 | 9.4 | Q2 2022 | 15.1 | Q2 2022 | |
House price index | (4.4) | Q2 2024 | (26.5) | Q2 2024 | (0.1) | Q4 2022 | (25.1) | Q2 2023 | |
(1) For the unemployment rate, the figures show the peak levels. For the Bank of England base rate, the figures show highest or lowest levels. For other parameters, the figures show falls relative to the starting period. The calculations are performed over five years, with a starting point of Q1 2022 for 30 June 2022 scenarios.
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The probability of default (PD) and loss given default (LGD) values for each discrete scenario are calculated using product-specific econometric models. Each account has a PD and LGD calculated as probability weighted-averages across the suite of economic scenarios.
Use of the scenarios in Wholesale lending
The Wholesale lending ECL methodology is based on the concept of CCIs. The CCIs represent, similar to the exogenous component in Personal, all relevant economic loss drivers for a region/industry segment aggregated into a single index value that describes the loss rate conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to loss rates at long-run average levels, a positive CCI value corresponds to loss rates below long-run average levels and a negative CCI value corresponds to loss rates above long-run average levels.
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection.
The rationale for the Wholesale approach is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NatWest Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from using the discrete macro-economic scenarios alone.
Business banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal lending rather than the Wholesale lending methodology.
UK economic uncertainty Businesses are still trying to recover fully from the effects of COVID-19 and to service additional debt which was accessed during the period. New headwinds on inflation, cost of living and supply chain disruption have arisen. Inflation and supply chain issues are presenting significant headwinds for some businesses and sectors. These are a result of various factors and in many cases are compounding and look set to remain a feature of the economic environment into 2023. NatWest Group has considered where these are most likely to affect the customer base, including assessing which businesses that NatWest Group does not believe will fully pass the costs onto the consumer and those that can, driving further cost of living risks. In addition, while a direct impact from the Russian invasion of Ukraine is limited, the contagion events of supply chain disruption is still anticipated with European economies being dependent on Russia, Ukraine and Belarus for a number of commodities. The effects of these risks are not expected to be fully captured by forward-looking credit modelling, particularly given the unique high inflation, low unemployment base-case outlook. Any incremental ECL effects for these risks will be captured via post-model adjustments and are detailed further in the Governance and post-model adjustments section. Personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk are no longer collectively migrated into Stage 2, given the lack of observable default emergence from these segments and with the focus of high-risk segment monitoring now shifting to the effects of inflation and the growing cost of living effect on customers. Model monitoring and enhancement As of January 2022, a new regulatory definition of default for was introduced in line with PRA and EBA guidance. This definition of default was also adopted for IFRS 9. Underlying observed one-year default rates (after isolating one-off effects from the new definition of default) across all portfolios still trend at or below pre-COVID-19 levels. As a result, most recent back-testing of forward-looking IFRS 9 PDs continues to show some overprediction in some portfolios. As in previous quarters, model recalibrations to adjust for this overprediction have been deferred based on the judgment that low default rate actuals during COVID-19 were distorted, due to government support. Going forward, NatWest Group expects potential increases in default emergence to come primarily from forward-looking risks like high inflation and rising interest rates, rather than from delayed COVID-19 effects. Therefore, previously applied lags to the projections from the economic forecasting models of up to 12 months have been discontinued. For Personal mortgages, new fully redeveloped PD and LGD models were implemented in Q1, which removed the need for several model adjustments. In addition, newly approved IFRS 9 models for Personal unsecured portfolios are at a parallel run stage awaiting implementation in Q3 2022, with expected effects on staging and ECL captured at 30 June 2022 used to support the reported ECL estimates. Scenario sensitivity - Personal only For the unsecured Personal lending portfolios, the ECL sensitivity analyses now leverage the newly approved PD models.
|
Risk and capital management
Credit risk continued
UK economic uncertainty
Governance and post model adjustments (reviewed)
The IFRS 9 PD, EAD and LGD models are subject to NatWest Group's model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All post model adjustments were subject to formal approval through provisioning governance, and were categorised as follows (business level commentary is provided below):
- Deferred model calibrations - ECL adjustments where PD model monitoring indicated that actual defaults were below estimated levels but where it was judged that an implied ECL release was not supportable due to the influence of government support schemes on default levels in the past two years. As a consequence, any potential ECL release was deferred and retained on the balance sheet until modelled ECL levels are affirmed by new model parallel runs or similar analyses.
- Economic uncertainty - ECL adjustments primarily arising from uncertainties associated with increased inflation and cost of living risks as well as supply chain disruption, along with the residual effect of COVID-19 and government support schemes. In all cases, management judged that additional ECL was required until further credit performance data became available as the full effects of these issues matures.
- Other adjustments - ECL adjustments where it was judged that the modelled ECL required to be amended.
Post-model adjustments will remain a key focus area of NatWest Group's ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends with a particular focus on segments of the portfolio (both commercial and consumer) that are likely to be more susceptible to inflation, cost of living and supply chain risks.
ECL post model adjustments | Retail Banking | Private | Commercial & | Ulster Bank RoI (1) |
|
| ||||
Mortgages | Other |
| Banking | Institutional |
| Mortgages | Other |
| Total | |
30 June 2022 | £m | £m |
| £m | £m |
| £m | £m |
| £m |
Deferred model calibrations | - | - |
| - | 64 |
| - | 2 |
| 66 |
Economic uncertainty | 97 | 82 |
| 11 | 388 |
| - | 5 |
| 583 |
Other adjustments | 28 | (26) |
| - | 12 |
| 160 | 18 |
| 192 |
Total | 125 | 56 |
| 11 | 464 |
| 160 | 25 |
| 841 |
|
|
|
|
|
|
|
|
|
| |
Of which: |
|
|
|
|
|
|
|
|
|
|
- Stage 1 | 39 | 20 |
| 2 | 58 |
| 5 | 2 |
| 126 |
- Stage 2 | 63 | 36 |
| 9 | 404 |
| 9 | 22 |
| 543 |
- Stage 3 | 23 | - |
| - | 2 |
| 146 | 1 |
| 172 |
|
|
|
|
|
|
|
|
|
|
|
31 December 2021 |
|
|
|
|
|
|
|
|
|
|
Deferred model calibrations | 58 | 97 |
| - | 62 |
| - | 2 |
| 219 |
Economic uncertainty | 60 | 99 |
| 5 | 391 |
| 6 | 23 |
| 584 |
Other adjustments | 37 | - |
| - | 5 |
| 156 | - |
| 198 |
Total | 155 | 196 |
| 5 | 458 |
| 162 | 25 |
| 1,001 |
|
|
| ||||||||
Of which: |
|
|
| |||||||
- Stage 1 | 9 | 5 |
| - | 15 |
| 4 | 1 |
| 34 |
- Stage 2 | 126 | 164 |
| 5 | 443 |
| 7 | 26 |
| 771 |
- Stage 3 | 20 | 27 |
| - | - |
| 151 | (2) |
| 196 |
(1) Excludes £34 million (31 December 2021 - £49 million) of post model adjustments (mortgages - £0.4 million; other - £33.6 million (31 December 2021 - mortgages £4 million; other - £45 million)) for Ulster Bank RoI disclosed as transfers to disposal groups.
Risk and capital management
Credit risk continued
- Retail Banking - The judgemental post-model adjustment for deferred model calibrations of £155 million at 31 December 2021 was no longer required. This was due, firstly, to the removal of the mortgage element of this post model adjustment because of the implementation of a new IFRS 9 PD model in Q1 2022. In addition, the effects of new PD models on loan and overdraft portfolios are now captured in the staging and ECL estimates at 30 June 2022, negating the need for further management judgement on PD calibration adjustments. - The post-model adjustment for economic uncertainty increased from £159 million to £179 million, reflecting the increased level of uncertainty since 31 December 2021 as a result of sharply rising inflation, cost of living pressures and the expected effect on consumers and the broader economy. The primary element of these economic uncertainty adjustments was a new £152 million ECL uplift, to capture the risk on segments of the Retail portfolio that are more susceptible to the effects of cost of living rises, focusing on key affordability lenses, including customers with lower incomes in fuel poverty and over-indebted borrowers. This adjustment has superseded the previously held £26 million for COVID-19 payment holiday high-risk customers and the £69 million judgemental ECL release holdback at 31 December 2021. This demonstrated management's view of a dissipating risk of economic effects from COVID-19 with the focus now on risks associated with cost of living and affordability. The introduction of the new cost of living post-model adjustment at 30 June 2022 allocated more ECL to Stage 1 given the forward-looking nature of the cost of living and inflation threat, whereas the previous COVID-19 post-model adjustments were focused on Stage 2 (for example, high-risk payment holiday cases migrated into Stage 2). - Other judgmental overlays included a post model adjustment of £16 million to capture the effect of potential cladding risk in the portfolio. In addition, a temporary £26 million ECL reduction adjustment was in place to reflect, on a forward-looking basis, the associated effects of a new credit card PD model that is pending implementation. - Commercial & Institutional - The post-model adjustment for economic uncertainty remained broadly stable at £388 million (31 December 2021 - £391 million.) It included an overlay of £336 million to cover the residual risks from COVID-19, including the risk that government support schemes, during COVID-19 could have suppressed defaults that may materialise in future periods above expected default levels, concerns surrounding associated debt to customers that have utilised government support schemes and a new risk from inflation and supply chain issues which will present significant new headwinds for a number of sectors. The amount relating to the new inflation and supply chain risk was £107 million and is a mechanistic adjustment, where a sector-level downgrade was applied to the sectors that were considered most at risk from these headwinds. - The post-model adjustment for deferred model calibrations on the business banking portfolio was broadly unchanged at £64 million (31 December 2021 - £62 million). This reflected management's judgment that the modelled ECL reduction remained unsupportable while portfolio performance was being underpinned by the various support schemes. New business banking models are currently being developed in H2 2022 in part to address this concern. - Other adjustments included an overlay of £9 million to mitigate the effect of operational timing delays in the identification and flagging of a significant increase in credit risk (SICR). This increased from £2 million at 31 December 2021, mainly as a result of increased Stage 1 balances and an increase in Stage 1 into Stage 3 flows. - Ulster Bank RoI - The post model adjustment for economic uncertainty reduced to £5 million from £29 million owing to a decrease in the amount of COVID-19 related adjustments. Other adjustments increased to £178 million from £156 million reflecting management opinion that continuing actions on the phased withdrawal of Ulster Bank RoI from the Republic of Ireland market will lead to higher, and/or earlier, crystallisation of losses. |
|
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Back Loan Scheme (BBLS) as well as associated debt split by stage. Associated debt refers to the non-BBLS lending to customers who also have BBLS lending.
Gross carrying amount | |||||||||||||
BBL |
| Associated debt |
| ECL on associated debt | |||||||||
Stage 1 | Stage 2 | Stage 3 | Total |
| Stage 1 | Stage 2 | Stage 3 | Total |
| Stage 1 | Stage 2 | Stage 3 | |
30 June 2022 | £m | £m | £m | £m |
| £m | £m | £m | £m |
| £m | £m | £m |
Wholesale | |||||||||||||
Property | 1,240 | 200 | 150 | 1,590 |
| 1,078 | 171 | 64 | 1,313 |
| 4 | 16 | 23 |
Financial institutions | 29 | 4 | 1 | 34 |
| 26 | 2 | - | 28 |
| - | - | - |
Sovereign | 6 | 1 | 1 | 8 |
| 2 | - | - | 2 |
| - | - | - |
Corporate | 3,829 | 635 | 689 | 5,153 |
| 2,704 | 700 | 109 | 3,513 |
| 10 | 66 | 52 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture | 258 | 81 | 11 | 350 |
| 959 | 256 | 16 | 1,231 |
| 4 | 21 | 7 |
Airlines and aerospace | 4 | 1 | 1 | 6 |
| 1 | - | - | 1 |
| - | - | - |
Automotive | 264 | 34 | 31 | 329 |
| 116 | 25 | 4 | 145 |
| 1 | 2 | 2 |
Health | 197 | 24 | 11 | 232 |
| 320 | 75 | 16 | 411 |
| 1 | 4 | 4 |
Land transport and logistics | 148 | 26 | 27 | 201 |
| 62 | 11 | 2 | 75 |
| - | 2 | 2 |
Leisure | 578 | 113 | 84 | 775 |
| 373 | 154 | 25 | 552 |
| 1 | 16 | 11 |
Oil and gas | 7 | 2 | 1 | 10 |
| 4 | 1 | - | 5 |
| - | - | - |
Retail | 670 | 99 | 77 | 846 |
| 347 | 63 | 14 | 424 |
| 1 | 7 | 8 |
Total | 5,104 | 840 | 841 | 6,785 |
| 3,810 | 873 | 173 | 4,856 |
| 14 | 82 | 75 |
31 December 2021 |
|
|
|
|
|
|
|
|
|
|
| ||
Wholesale | |||||||||||||
Property | 1,480 | 218 | 99 | 1,797 | 1,232 | 165 | 55 | 1,452 | 3 | 13 | 18 | ||
Financial institutions | 33 | 5 | 1 | 39 | 9 | 20 | 3 | 32 | - | 1 | - | ||
Sovereign | 7 | 1 | - | 8 | 2 | - | - | 2 | - | - | - | ||
Corporate | 4,593 | 703 | 334 | 5,630 | 2,481 | 1,087 | 84 | 3,652 | 10 | 66 | 34 | ||
Of which: |
|
|
|
| |||||||||
Agriculture | 302 | 86 | 6 | 394 |
| 827 | 396 | 14 | 1,237 |
| 3 | 16 | 4 |
Airlines and aerospace | 5 | 1 | 1 | 7 |
| 1 | 1 | - | 2 |
| - | - | - |
Automotive | 309 | 43 | 21 | 373 |
| 119 | 39 | 2 | 160 |
| 1 | 2 | 1 |
Health | 233 | 26 | 7 | 266 |
| 287 | 131 | 13 | 431 |
| 1 | 7 | 3 |
Land transport and logistics | 180 | 32 | 19 | 231 |
| 57 | 26 | 2 | 85 |
| - | 2 | 1 |
Leisure | 706 | 122 | 55 | 883 |
| 367 | 208 | 25 | 600 |
| 1 | 15 | 9 |
Oil and gas | 8 | 2 | 1 | 11 |
| 3 | 1 | - | 4 |
| - | - | - |
Retail | 800 | 109 | 47 | 956 |
| 310 | 127 | 8 | 445 |
| 2 | 7 | 4 |
Total | 6,113 | 927 | 434 | 7,474 | 3,724 | 1,272 | 142 | 5,138 | 13 | 80 | 52 | ||
Measurement uncertainty and ECL sensitivity analysis (reviewed)
The recognition and measurement of ECL is complex and involves the use of significant judgment and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic scenarios into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate.
The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact at 30 June 2022. Scenario impacts on a SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.
Stage 3 provisions are not subject to the same level of measurement uncertainty - default is an observed event as at the balance sheet date. Stage 3 provisions therefore have not been considered in this analysis.
The impact arising from the base case, upside, downside and extreme downside scenarios has been simulated. These scenarios are used in the methodology for Personal multiple economic scenarios as described in the Economic loss drivers section. In the simulations, NatWest Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a 100% probability weighting and therefore serving as a single economic scenario.
These scenarios have been applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Modelled post model adjustments present in the underlying ECL estimates are also sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for deferred model calibrations and economic uncertainty, are not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit.
NatWest Group's core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact.
Risk and capital management Credit risk continued Measurement uncertainty and ECL sensitivity analysis (reviewed)
(1) Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 30 June 2022 and therefore does not include variation in future undrawn exposure values. (2) Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios and exposure relating to bonds and cash. (3) Exposures related to Ulster Bank RoI continuing operations have not been included in the simulations, the current Ulster Bank RoI ECL has been included across all scenarios to enable reconciliation to other disclosures. (4) All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 30 June 2022. The simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static. (5) Refer to the Economic loss drivers section for details of economic scenarios. (6) Refer to the NatWest Group 2021 Annual Report and Accounts for 31 December 2021 comparatives.
|
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL adequacy (reviewed)
- During the first half of 2022, both the Stage 2 size and overall modelled ECL reduced in line with stable portfolio performance and underlying ECL driver trends. Judgmental ECL post-model adjustments, although reduced in value terms from 31 December 2021, continue to reflect economic uncertainty with the expectation of increased defaults later in 2022 and beyond, still represents 24% of total ECL (31 December 2021 - 26%). These combined factors, in conjunction with the new regulatory definition of default moving riskier Stage 2 assets to Stage 3 and a new suite of Personal IFRS 9 models, contributed to a smaller range of ECL sensitivities at 30 June 2022 compared to the 2021 year end.
- If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by £1.0 billion (approximately 63%). In this scenario, Stage 2 exposure increased significantly and was the key driver of the simulated ECL rise. The movement in Stage 2 balances in the other simulations was less significant.
- In the Wholesale portfolio, there was a significant increase to ECL under both a moderate and extreme downside scenario. The Wholesale property ECL increase under a moderate and extreme downside scenario was driven by commercial real estate prices which show negative growth for 2022 and 2023 and significant deterioration in the stock index. The non-property increase under a moderate and extreme downside scenario was driven by GDP contraction, unemployment growth and interest rate changes.
The changes in the economic outlook and scenarios used in the IFRS 9 MES framework at 30 June 2022 to capture the increased risks of inflation, cost of living and supply chain had a minimal effect on modelled ECL. Given that uncertainty has increased due to these risks, NatWest Group utilised a framework of quantitative and qualitative measures to support the directional change and levels of ECL coverage, including economic data, credit performance insights on higher risk portfolio segments and problem debt trends. This was particularly important for consideration of post-model adjustments.
As the effects of inflation, cost of living and supply chain risks evolve during 2022 and into 2023 and government support schemes have to be serviced, there is a risk of credit deterioration. However, the income statement effect of this will be mitigated by the forward-looking provisions retained on the balance sheet at 30 June 2022.
There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. Such factors would include an adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates.
Movement in ECL provision
The table below shows the main ECL provision movements during H1 2022.
ECL provision | |
£m | |
At 1 January 2022 | 3,806 |
Transfers to disposal groups | (50) |
Changes in economic forecasts | 41 |
Changes in risk metrics and exposure: Stage 1 and Stage 2 | (120) |
Changes in risk metrics and exposure: Stage 3 | 261 |
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3 | (159) |
Write-offs and other | (264) |
At 30 June 2022 | 3,515 |
- ECL reduced during H1 2022 reflecting continued positive trends in portfolio performance alongside a related net release of judgemental post model adjustments and write-off activity.
- Stage 3 defaults continued to be subdued on an underlying basis. Stage 3 ECL balances remained broadly stable during the quarter, mainly due to write-offs and repayments of defaulted debt largely offsetting the effect of the new regulatory default definition.
- The update to the economic scenarios at 30 June 2022 resulted in a modest modelled £41 million increase in ECL. Additionally, broader portfolio performance continued to be stable, which led to some additional post model adjustments being required to ensure provision adequacy in the face of growing uncertainty due to inflation, cost of living threat and supply chain challenges.
- As described in the Governance and post model adjustments section above, the new cost of living focused post model adjustments were more than offset by the retirement of previously held COVID-19 related adjustments and also significant reduction in the requirement for deferred model calibrations due to impending new model implementations in Q3 2022.
- The £50 million ECL reduction due to transfer to discontinued operations relates to the phased withdrawal of Ulster Bank RoI from the Republic of Ireland.
Risk and capital management
Credit risk - Banking activities
Introduction
This section details the credit risk profile of NatWest Group's banking activities.
Financial instruments within the scope of the IFRS 9 ECL framework (reviewed) Refer to Note 9 for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment. The table below excludes loans in disposal group of £14.3 billion (31 December 2021 - £9.1 billion). Financial assets
na = not applicable
The assets outside the IFRS 9 ECL framework were as follows:
Contingent liabilities and commitments In addition to contingent liabilities and commitments disclosed in Note 14, reputationally-committed limits, were also included in the scope of the IFRS 9 ECL framework. These were offset by £1.4 billion (31 December 2021 - £0.8 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as amortised cost or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £133.3 billion (31 December 2021 - £127.9 billion) comprised Stage 1 £122.7 billion (31 December 2021 - £119.5 billion); Stage 2 £9.9 billion (31 December 2021 - £7.8 billion); and Stage 3 £0.7 billion (31 December 2021 - £0.6 billion). The ECL relating to off-balance sheet exposures was £0.1 billion (31 December 2021 - £0.1 billion). The total ECL in the remainder of the Credit risk section of £3.5 billion (31 December 2021 - £3.8 billion) included ECL for both on and off-balance sheet exposures for non-disposal groups.
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Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed) The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
For the notes to this table refer to the following page.
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Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
(1) Includes £3 million (31 December 2021 - £5 million) related to assets classified as FVOCI. (2) 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. (3) Includes a £2 million release (30 June 2021 - £4 million charge) related to other financial assets, of which nil (30 June 2021 - nil) related to assets classified as FVOCI; and £3 million (30 June 2021 - £2 million release) related to contingent liabilities. (4) The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £178.4 billion (31 December 2021 - £176.3 billion) and debt securities of £38.6 billion (31 December 2021 - £44.9 billion).
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Risk and capital management
Credit risk - Banking activities continued
Segment analysis - portfolio summary (reviewed)
The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these exposures.
|
|
| Off-balance sheet |
|
|
|
|
| ||||
| Loans - amortised cost and FVOCI |
| Loan | Contingent |
| ECL provisions | ||||||
| Stage 1 | Stage 2 | Stage 3 | Total |
| commitments | liabilities |
| Stage 1 | Stage 2 | Stage 3 | Total |
30 June 2022 | £m | £m | £m | £m |
| £m | £m |
| £m | £m | £m | £m |
Personal | 9,988 | 640 | 82 | 10,710 |
| - | - |
| 4 | 10 | 12 | 26 |
Wholesale | 2,835 | 678 | 31 | 3,544 |
| 1,906 | 217 |
| 17 | 37 | 15 | 69 |
Total | 12,823 | 1,318 | 113 | 14,254 |
| 1,906 | 217 |
| 21 | 47 | 27 | 95 |
31 December 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
Personal | 5,547 | 210 | 34 | 5,791 | - | - | 4 | 6 | 7 | 17 | ||
Wholesale | 2,647 | 639 | 7 | 3,293 | 1,665 | 115 | 10 | 78 | 4 | 92 | ||
Total | 8,194 | 849 | 41 | 9,084 | 1,665 | 115 | 14 | 84 | 11 | 109 |
Segment loans and impairment metrics (reviewed)
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.
Gross loans |
| ECL provisions (2) | |||||||||||||
| Stage 2 (1) |
|
|
|
| Stage 2 (1) |
|
| |||||||
| Not past | 1-30 | >30 |
|
|
|
|
| Not past | 1-30 | >30 |
|
|
| |
Stage 1 | due | DPD | DPD | Total | Stage 3 | Total |
| Stage 1 | due | DPD | DPD | Total | Stage 3 | Total | |
30 June 2022 | £m | £m | £m | £m | £m | £m | £m |
| £m | £m | £m | £m | £m | £m | £m |
Retail Banking | 175,867 | 10,623 | 605 | 280 | 11,508 | 2,493 | 189,868 |
| 184 | 382 | 16 | 21 | 419 | 895 | 1,498 |
Private Banking | 18,428 | 548 | 63 | 17 | 628 | 353 | 19,409 |
| 12 | 16 | 1 | - | 17 | 34 | 63 |
Personal | 14,813 | 100 | 43 | 16 | 159 | 307 | 15,279 |
| 6 | 2 | 1 | - | 3 | 17 | 26 |
Wholesale | 3,615 | 448 | 20 | 1 | 469 | 46 | 4,130 |
| 6 | 14 | - | - | 14 | 17 | 37 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& Institutional | 114,675 | 14,080 | 804 | 1,163 | 16,047 | 2,336 | 133,058 |
| 185 | 569 | 33 | 29 | 631 | 706 | 1,522 |
Personal | 2,352 | 15 | 18 | 5 | 38 | 49 | 2,439 |
| 3 | 1 | - | 1 | 2 | 9 | 14 |
Wholesale | 112,323 | 14,065 | 786 | 1,158 | 16,009 | 2,287 | 130,619 |
| 182 | 568 | 33 | 28 | 629 | 697 | 1,508 |
Central items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& other | 32,481 | 83 | - | - | 83 | - | 32,564 |
| 17 | 9 | - | - | 9 | - | 26 |
Ulster Bank RoI | 670 | 218 | 4 | 17 | 239 | 634 | 1,543 |
| 10 | 42 | 1 | 3 | 46 | 350 | 406 |
Personal | 470 | 103 | 4 | 16 | 123 | 471 | 1,064 |
| 6 | 12 | 1 | 3 | 16 | 278 | 300 |
Wholesale | 200 | 115 | - | 1 | 116 | 163 | 479 |
| 4 | 30 | - | - | 30 | 72 | 106 |
Total loans | 342,121 | 25,552 | 1,476 | 1,477 | 28,505 | 5,816 | 376,442 |
| 408 | 1,018 | 51 | 53 | 1,122 | 1,985 | 3,515 |
Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal | 193,502 | 10,841 | 670 | 317 | 11,828 | 3,320 | 208,650 |
| 199 | 397 | 18 | 25 | 440 | 1,199 | 1,838 |
Wholesale | 148,619 | 14,711 | 806 | 1,160 | 16,677 | 2,496 | 167,792 |
| 209 | 621 | 33 | 28 | 682 | 786 | 1,677 |
31 December 2021 | |||||||||||||||
Retail Banking | 168,013 | 12,275 | 863 | 456 | 13,594 | 1,884 | 183,491 | 134 | 516 | 38 | 36 | 590 | 850 | 1,574 | |
Private Banking | 17,600 | 902 | 27 | 38 | 967 | 270 | 18,837 | 12 | 29 | - | - | 29 | 37 | 78 | |
Personal | 14,350 | 137 | 24 | 11 | 172 | 232 | 14,754 |
| 6 | 2 | - | - | 2 | 18 | 26 |
Wholesale | 3,250 | 765 | 3 | 27 | 795 | 38 | 4,083 |
| 6 | 27 | - | - | 27 | 19 | 52 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& Institutional | 107,368 | 17,352 | 455 | 670 | 18,477 | 2,081 | 127,926 | 129 | 750 | 23 | 11 | 784 | 751 | 1,664 | |
Personal | 2,647 | 21 | 17 | 11 | 49 | 57 | 2,753 |
| 2 | 1 | - | - | 1 | 10 | 13 |
Wholesale | 104,721 | 17,331 | 438 | 659 | 18,428 | 2,024 | 125,173 |
| 127 | 749 | 23 | 11 | 783 | 741 | 1,651 |
Central items | |||||||||||||||
& other | 32,283 | 90 | - | - | 90 | - | 32,373 | 17 | 11 | - | - | 11 | - | 28 | |
Ulster Bank RoI | 5,560 | 747 | 58 | 48 | 853 | 787 | 7,200 | 10 | 58 | 3 | 3 | 64 | 388 | 462 | |
Personal | 5,165 | 510 | 52 | 46 | 608 | 609 | 6,382 |
| 7 | 15 | 3 | 3 | 21 | 301 | 329 |
Wholesale | 395 | 237 | 6 | 2 | 245 | 178 | 818 | 3 | 43 | - | - | 43 | 87 | 133 | |
Total loans | 330,824 | 31,366 | 1,403 | 1,212 | 33,981 | 5,022 | 369,827 | 302 | 1,364 | 64 | 50 | 1,478 | 2,026 | 3,806 | |
Of which: | |||||||||||||||
Personal | 190,175 | 12,943 | 956 | 524 | 14,423 | 2,782 | 207,380 |
| 149 | 534 | 41 | 39 | 614 | 1,179 | 1,942 |
Wholesale | 140,649 | 18,423 | 447 | 688 | 19,558 | 2,240 | 162,447 |
| 153 | 830 | 23 | 11 | 864 | 847 | 1,864 |
For the notes to this table refer to the following page.
Risk and capital management
Credit risk - Banking activities continued
Segment loans and impairment metrics (reviewed)
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework.
ECL provisions coverage | Half year ended 30 June 2022 | ||||||||
| Stage 2 (1,2) |
|
| ECL | |||||
| Not past |
|
|
|
|
| Total | Amounts | |
Stage 1 | due | 1-30 DPD | >30 DPD | Total | Stage 3 | Total | (release)/charge | written-off | |
30 June 2022 | % | % | % | % | % | % | % | £m | £m |
Retail Banking | 0.10 | 3.60 | 2.64 | 7.50 | 3.64 | 35.90 | 0.79 | 26 | 106 |
Private Banking | 0.07 | 2.92 | 1.59 | - | 2.71 | 9.63 | 0.32 | (11) | 1 |
Personal | 0.04 | 2.00 | 2.33 | - | 1.89 | 5.54 | 0.17 | (2) | 1 |
Wholesale | 0.17 | 3.13 | - | - | 2.99 | 36.96 | 0.90 | (9) | - |
Commercial & Institutional | 0.16 | 4.04 | 4.10 | 2.49 | 3.93 | 30.22 | 1.14 | (59) | 94 |
Personal | 0.13 | 6.67 | - | 20.00 | 5.26 | 18.37 | 0.57 | 1 | 1 |
Wholesale | 0.16 | 4.04 | 4.20 | 2.42 | 3.93 | 30.48 | 1.15 | (60) | 93 |
Central items & other | 0.05 | 10.84 | - | - | 10.84 | - | 0.08 | (2) | - |
Ulster Bank RoI | 1.49 | 19.27 | 25.00 | 17.65 | 19.25 | 55.21 | 26.31 | (8) | 14 |
Personal | 1.28 | 11.65 | 25.00 | 18.75 | 13.01 | 59.02 | 28.20 | (7) | 6 |
Wholesale | 2.00 | 26.09 | - | - | 25.86 | 44.17 | 22.13 | (1) | 8 |
Total loans | 0.12 | 3.98 | 3.46 | 3.59 | 3.94 | 34.13 | 0.93 | (54) | 215 |
Of which: |
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|
Personal | 0.10 | 3.66 | 2.69 | 7.89 | 3.72 | 36.11 | 0.88 | 18 | 116 |
Wholesale | 0.14 | 4.22 | 4.09 | 2.41 | 4.09 | 31.49 | 1.00 | (72) | 99 |
ECL provisions coverage | Half year ended 30 June 2021 | ||||||||
Stage 2 (1,2) | ECL | ||||||||
Not past | Total | Amounts | |||||||
Stage 1 | due | 1-30 DPD | >30 DPD | Total | Stage 3 | Total | (release)/charge | written-off | |
31 December 2021 | % | % | % | % | % | % | % | £m | £m |
Retail Banking | 0.08 | 4.20 | 4.40 | 7.89 | 4.34 | 45.12 | 0.86 | (57) | 138 |
Private Banking | 0.07 | 3.22 | - | - | 3.00 | 13.70 | 0.41 | (27) | 5 |
Personal | 0.04 | 1.46 | - | - | 1.16 | 7.76 | 0.18 | (4) | (1) |
Wholesale | 0.18 | 3.53 | - | - | 3.40 | 50.00 | 1.27 | (23) | 6 |
Commercial & Institutional | 0.12 | 4.32 | 5.05 | 1.64 | 4.24 | 36.09 | 1.30 | (613) | 298 |
Personal | 0.08 | 4.76 | - | - | 2.04 | 17.54 | 0.47 | - | - |
Wholesale | 0.12 | 4.32 | 5.25 | 1.67 | 4.25 | 36.61 | 1.32 | (613) | 298 |
Central items & other | 0.05 | 12.22 | - | - | 12.22 | - | 0.09 | 1 | - |
Ulster Bank RoI | 0.18 | 7.76 | 5.17 | 6.25 | 7.50 | 49.30 | 6.42 | 13 | 76 |
Personal | 0.14 | 2.94 | 5.77 | 6.52 | 3.45 | 49.43 | 5.16 | 19 | 71 |
Wholesale | 0.76 | 18.14 | - | - | 17.55 | 48.88 | 16.26 | (6) | 5 |
Total loans | 0.09 | 4.35 | 4.56 | 4.13 | 4.35 | 40.34 | 1.03 | (683) | 517 |
Of which: |
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|
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| ||
Personal | 0.08 | 4.13 | 4.29 | 7.44 | 4.26 | 42.38 | 0.94 | (42) | 208 |
Wholesale | 0.11 | 4.51 | 5.15 | 1.60 | 4.42 | 37.81 | 1.15 | (641) | 309 |
(1) 30 DPD - 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
(2) ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
Segment loans and impairment metrics (reviewed) - Retail Banking - Balance sheet growth continued during H1 2022, primarily in mortgages, where new lending remained strong. Unsecured lending balances increased during H1 2022, following the easing of COVID-19 restrictions. Total ECL coverage reduced slightly during 2022, reflective of low unemployment and stable portfolio performance, while maintaining sufficient ECL coverage for key portfolios above 2019 levels, given increased inflationary and cost of living pressures. Stage 3 ECL increased overall, mainly because of the IFRS 9 alignment to the new regulatory default definition, implemented on 1 January 2022. This change resulted in an increase in Stage 3 exposures of approximately £0.7 billion, mostly in mortgages. Stage 2 balances decreased during the first half of the year, reflecting continued stability in IFRS 9 PD estimates and the consequence of the migration of balances into Stage 3 under the new regulatory default definition. The implementation of new mortgage IFRS 9 models resulted in lower Stage 3 ECL coverage due to reduced loss estimates for cases where the customer was not subject to repossession activity and was the primary driver for the change in overall Retail Stage 3 coverage during H1 2022. - Commercial & Institutional - The balance sheet increased during H1 2022, mainly attributable to growth in exposure to financial institutions. Sector appetite is regularly reviewed with continued focus on appetite to high oversight sectors. Strategic reductions and right sizing of appetite limits continued to be achieved. Stage 2 balances continued to fall mainly reflecting positive portfolio performance which lowered PDs and resulted in exposure migrating back into Stage 1. In addition, some deterioration in government scheme lending resulted in exposure moving from Stage 2 into Stage 3. PD deterioration remained the primary driver of cases moving into Stage 2. The ECL release was largely due to improvements in underlying PDs and reduced Stage 2 balances, as assets migrated back into Stage 1. |
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed) The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region.
*Not within the scope of EY's review report.
For the notes to this table refer to page 37. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
For the notes to this table refer to page 37.
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Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
Personal | Wholesale | Total |
| ||||||||||
Credit | Other |
| |||||||||||
Mortgages (1) | cards | personal | Total | Property | Corporate | FI | Sovereign | Total |
| ||||
31 December 2021 | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| ||
Loans by geography | 194,011 | 3,947 | 9,422 | 207,380 | 32,522 | 70,851 | 53,041 | 6,033 | 162,447 | 369,827 |
| ||
- UK | 187,847 | 3,877 | 9,253 | 200,977 |
| 31,574 | 62,952 | 39,086 | 4,542 | 138,154 |
| 339,131 |
|
- RoI | 6,164 | 70 | 147 | 6,381 |
| 130 | 1,222 | 116 | 4 | 1,472 |
| 7,853 |
|
- Other Europe | - | - | - | - |
| 439 | 3,831 | 5,066 | 840 | 10,176 |
| 10,176 |
|
- RoW | - | - | 22 | 22 |
| 379 | 2,846 | 8,773 | 647 | 12,645 |
| 12,667 |
|
Loans by stage | 194,011 | 3,947 | 9,422 | 207,380 | 32,522 | 70,851 | 53,041 | 6,033 | 162,447 | 369,827 |
| ||
- Stage 1 | 180,418 | 2,924 | 6,833 | 190,175 |
| 28,679 | 53,803 | 52,263 | 5,904 | 140,649 |
| 330,824 |
|
- Stage 2 | 11,543 | 933 | 1,947 | 14,423 |
| 3,101 | 15,604 | 732 | 121 | 19,558 |
| 33,981 |
|
- Stage 3 | 2,050 | 90 | 642 | 2,782 |
| 742 | 1,444 | 46 | 8 | 2,240 |
| 5,022 |
|
- Of which: individual | 269 | - | 19 | 288 |
| 329 | 583 | 7 | 8 | 927 |
| 1,215 |
|
- Of which: collective | 1,781 | 90 | 623 | 2,494 |
| 413 | 861 | 39 | - | 1,313 |
| 3,807 |
|
Loans - past due analysis (3,4) | 194,011 | 3,947 | 9,422 | 207,380 | 32,522 | 70,851 | 53,041 | 6,033 | 162,447 | 369,827 |
| ||
- Not past due | 190,834 | 3,834 | 8,619 | 203,287 |
| 31,391 | 68,630 | 52,285 | 6,030 | 158,336 |
| 361,623 |
|
- Past due 1-30 days | 1,217 | 28 | 124 | 1,369 |
| 521 | 1,081 | 732 | 2 | 2,336 |
| 3,705 |
|
- Past due 31-89 days | 592 | 25 | 73 | 690 |
| 256 | 448 | 19 | 1 | 724 |
| 1,414 |
|
- Past due 90-180 days | 367 | 22 | 61 | 450 |
| 91 | 215 | 1 | - | 307 |
| 757 |
|
- Past due >180 days | 1,001 | 38 | 545 | 1,584 |
| 263 | 477 | 4 | - | 744 |
| 2,328 |
|
Loans - Stage 2 | 11,543 | 933 | 1,947 | 14,423 | 3,101 | 15,604 | 732 | 121 | 19,558 | 33,981 |
| ||
- Not past due | 10,259 | 899 | 1,785 | 12,943 |
| 2,725 | 14,870 | 708 | 120 | 18,423 |
| 31,366 |
|
- Past due 1-30 days | 843 | 16 | 97 | 956 |
| 125 | 318 | 4 | - | 447 |
| 1,403 |
|
- Past due 31-89 days | 441 | 18 | 65 | 524 |
| 251 | 416 | 20 | 1 | 688 |
| 1,212 |
|
Weighted average life* |
| ||||||||||||
- ECL measurement (years) | 8 | 2 | 5 | 5 |
| 5 | 6 | 3 | 1 | 6 |
| 6 |
|
Weighted average 12 months |
| ||||||||||||
PDs* |
| ||||||||||||
- IFRS 9 (%) | 0.16 | 4.84 | 2.73 | 0.36 |
| 0.76 | 1.85 | 0.14 | 0.14 | 1.00 |
| 0.65 |
|
- Basel (%) | 0.76 | 3.31 | 3.22 | 0.91 |
| 1.20 | 1.74 | 0.14 | 0.16 | 1.04 |
| 0.97 |
|
ECL provisions by geography | 768 | 260 | 914 | 1,942 | 374 | 1,411 | 57 | 22 | 1,864 | 3,806 |
| ||
- UK | 449 | 258 | 904 | 1,611 |
| 331 | 1,124 | 47 | 18 | 1,520 |
| 3,131 |
|
- RoI | 319 | 2 | 10 | 331 |
| 19 | 107 | 3 | 1 | 130 |
| 461 |
|
- Other Europe | - | - | - | - |
| 20 | 77 | 4 | 1 | 102 |
| 102 |
|
- RoW | - | - | - | - |
| 4 | 103 | 3 | 2 | 112 |
| 112 |
|
ECL provisions by stage | 768 | 260 | 914 | 1,942 | 374 | 1,411 | 57 | 22 | 1,864 | 3,806 |
| ||
- Stage 1 | 32 | 59 | 58 | 149 |
| 24 | 96 | 14 | 19 | 153 |
| 302 |
|
- Stage 2 | 174 | 141 | 299 | 614 |
| 111 | 713 | 39 | 1 | 864 |
| 1,478 |
|
- Stage 3 | 562 | 60 | 557 | 1,179 |
| 239 | 602 | 4 | 2 | 847 |
| 2,026 |
|
- Of which: individual | 19 | - | 12 | 31 |
| 69 | 261 | - | 2 | 332 |
| 363 |
|
- Of which: collective | 543 | 60 | 545 | 1,148 |
| 170 | 341 | 4 | - | 515 |
| 1,663 |
|
ECL provisions coverage (%) | 0.40 | 6.59 | 9.70 | 0.94 | 1.15 | 1.99 | 0.11 | 0.36 | 1.15 | 1.03 |
| ||
- Stage 1 (%) | 0.02 | 2.02 | 0.85 | 0.08 |
| 0.08 | 0.18 | 0.03 | 0.32 | 0.11 |
| 0.09 |
|
- Stage 2 (%) | 1.51 | 15.11 | 15.36 | 4.26 |
| 3.58 | 4.57 | 5.33 | 0.83 | 4.42 |
| 4.35 |
|
- Stage 3 (%) | 27.41 | 66.67 | 86.76 | 42.38 |
| 32.21 | 41.69 | 8.70 | 25.00 | 37.81 |
| 40.34 |
|
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Half year ended 30 June 2021 |
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|
ECL (release)/charge | (23) | (17) | (2) | (42) | (197) | (469) | 22 | 3 | (641) | (683) |
| ||
- UK | (40) | (17) | (3) | (60) |
| (224) | (373) | 28 | 2 | (567) |
| (627) |
|
- RoI | 17 | - | 1 | 18 |
| 38 | (53) | 9 | 1 | (5) |
| 13 |
|
- Other Europe | - | - | - | - |
| (20) | (10) | (8) | - | (38) |
| (38) |
|
- RoW | - | - | - | - |
| 9 | (33) | (7) | - | (31) |
| (31) |
|
Amounts written-off | 74 | 45 | 89 | 208 | 120 | 187 | 2 | - | 309 | 517 |
| ||
*Not within the scope of EY's review report.
For the notes to this table refer to the following page. | |||||||||||||
Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed)
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Personal | Wholesale | Total |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit | Other |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgages (1) | cards | personal | Total | Property | Corporate | FI | Sovereign | Total |
| ||||||||||||||||||||||||||||||||||||||||||||||||
31 December 2021 | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m |
| ||||||||||||||||||||||||||||||||||||||||||||||
Loans by residual maturity | 194,011 | 3,947 | 9,422 | 207,380 | 32,522 | 70,851 | 53,041 | 6,033 | 162,447 | 369,827 |
| ||||||||||||||||||||||||||||||||||||||||||||||
- | 3,611 | 2,532 | 3,197 | 9,340 |
| 7,497 | 22,593 | 41,195 | 2,809 | 74,094 |
| 83,434 |
| ||||||||||||||||||||||||||||||||||||||||||||
- 1-5 year | 12,160 | 1,415 | 5,393 | 18,968 |
| 16,293 | 33,301 | 10,969 | 1,967 | 62,530 |
| 81,498 |
| ||||||||||||||||||||||||||||||||||||||||||||
- 5 year | 178,240 | - | 832 | 179,072 |
| 8,732 | 14,957 | 877 | 1,257 | 25,823 |
| 204,895 |
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Other financial assets by |
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asset quality (5) | - | - | - | - | 55 | 11 | 11,516 | 209,553 | 221,135 | 221,135 |
| ||||||||||||||||||||||||||||||||||||||||||||||
- AQ1-AQ4 | - | - | - | - | - | 11 | 10,974 | 209,551 | 220,536 | 220,536 |
| ||||||||||||||||||||||||||||||||||||||||||||||
- AQ5-AQ8 | - | - | - | - |
| 55 | - | 542 | 2 | 599 |
| 599 |
| ||||||||||||||||||||||||||||||||||||||||||||
Off-balance sheet | 16,827 | 15,354 | 8,230 | 40,411 | 16,342 | 52,033 | 17,898 | 1,212 | 87,485 | 127,896 |
| ||||||||||||||||||||||||||||||||||||||||||||||
- Loan commitments | 16,827 | 15,354 | 8,170 | 40,351 |
| 15,882 | 49,231 | 16,906 | 1,212 | 83,231 |
| 123,582 |
| ||||||||||||||||||||||||||||||||||||||||||||
- Financial guarantees | - | - | 60 | 60 |
| 460 | 2,802 | 992 | - | 4,254 |
| 4,314 |
| ||||||||||||||||||||||||||||||||||||||||||||
Off-balance sheet by |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
asset quality (5) | 16,827 | 15,354 | 8,230 | 40,411 | 16,342 | 52,033 | 17,898 | 1,212 | 87,485 | 127,896 |
| ||||||||||||||||||||||||||||||||||||||||||||||
- AQ1-AQ4 | 14,792 | 248 | 6,591 | 21,631 | 12,550 | 30,417 | 16,192 | 1,064 | 60,223 | 81,854 |
| ||||||||||||||||||||||||||||||||||||||||||||||
- AQ5-AQ8 | 2,028 | 14,804 | 1,625 | 18,457 |
| 3,757 | 21,262 | 1,703 | 148 | 26,870 |
| 45,327 |
| ||||||||||||||||||||||||||||||||||||||||||||
- AQ9 | - | 9 | 3 | 12 |
| 6 | 48 | 1 | - | 55 |
| 67 |
| ||||||||||||||||||||||||||||||||||||||||||||
- AQ10 | 7 | 293 | 11 | 311 |
| 29 | 306 | 2 | - | 337 |
| 648 |
| ||||||||||||||||||||||||||||||||||||||||||||
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Risk and capital management
Credit risk - Banking activities continued
Sector analysis - portfolio summary (reviewed) The table below shows ECL by stage, for the Personal portfolios and selected sectors of the Wholesale portfolios.
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Risk and capital management
Credit risk - Banking activities continued
Wholesale forbearance (reviewed) The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed in the Personal portfolio section on page 41. This table show current exposure but reflects risk transfers where there is a guarantee by another customer.
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Risk and capital management
Credit risk - Banking activities continued (reviewed)
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Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed) Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
(1) Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures. (2) Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios. (3) Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature. (4) The new lending LTV in the comparative has been amended to reflect LTV at time of lending origination rather than LTV at reporting period.
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*Not within the scope of EY's review report.
Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed) Mortgage LTV distribution by stage The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of Governance and post-model adjustments reflected portfolios carried at fair value.
For the notes to this table refer to the following page.
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Risk and capital management
Credit risk - Banking activities continued
Personal portfolio (reviewed)
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Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (CRE)
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. The CRE tables in this section include information on exposures which are out of scope of ECL calculations or part of disposal groups.
30 June 2022 | 31 December 2021 |
| |||||||||
UK | RoI | Other | Total | UK | RoI | Other | Total |
| |||
By geography and sub-sector (1) | £m | £m | £m | £m | £m | £m | £m | £m |
| ||
Investment |
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| ||||||
Residential (2) | 4,497 | 253 | 14 | 4,764 | 4,422 | 341 | 19 | 4,782 |
| ||
Office (3) | 3,087 | 228 | - | 3,315 | 3,037 | 190 | 10 | 3,237 |
| ||
Retail (4) | 4,071 | 78 | 1 | 4,150 | 4,207 | 81 | - | 4,288 |
| ||
Industrial (5) | 2,942 | 12 | 144 | 3,098 | 2,760 | 13 | 106 | 2,879 |
| ||
Mixed/other (6) | 935 | 105 | 49 | 1,089 | 1,185 | 113 | 50 | 1,348 |
| ||
15,532 | 676 | 208 | 16,416 | 15,611 | 738 | 185 | 16,534 |
| |||
Development |
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| ||||||
Residential (2) | 1,959 | 117 | 1 | 2,077 | 1,775 | 76 | 2 | 1,853 |
| ||
Office (3) | 85 | - | - | 85 | 79 | 33 | - | 112 |
| ||
Retail (4) | 57 | - | - | 57 | 48 | - | - | 48 |
| ||
Industrial (5) | 81 | 1 | - | 82 | 67 | 1 | - | 68 |
| ||
Mixed/other (6) | 17 | 1 | - | 18 | 20 | 2 | - | 22 |
| ||
2,199 | 119 | 1 | 2,319 | 1,989 | 112 | 2 | 2,103 |
| |||
Total | 17,731 | 795 | 209 | 18,735 | 17,600 | 850 | 187 | 18,637 |
| ||
(1) |
Geographical splits are based on country of collateral risk. | ||||||||||
(2) | Properties including houses, flats and student accommodation. | ||||||||||
(3) | Properties including offices in central business districts, regional headquarters and business parks. | ||||||||||
(4) | Properties including high street retail, shopping centres, restaurants, bars and gyms. | ||||||||||
(5) | Properties including distribution centres, manufacturing and warehouses. | ||||||||||
(6) | Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. | ||||||||||
Risk and capital management
Credit risk - Banking activities continued
Commercial real estate (reviewed) CRE LTV distribution by stage The table below shows CRE current exposure and related ECL by LTV band.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Includes exposures relating to non-modelled portfolios and other exposures carried at fair value.
(2) ECL provisions coverage is ECL provisions divided by current exposure.
(3) Relates mainly to business banking, rate risk management products and unsecured corporate lending.
(4) Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.
Overall - The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy was aligned across NatWest Group.
2022 trends - H1 2022 saw a relatively flat performance, as the growth noted in Q1 began to subside due to deterioration in the wider economic outlook. The residential sector continued to perform well, although, with . house price growth coupled with rising borrowing costs the outlook is uncertain. Uncertainty in the office sector remained, with the full consequences of the limited return to work, still to flow through to the sector. The industrial sector continued to perform strongly reflecting the structural change in retail. The retail sector continued to exhibit mixed performance based on changing consumer habits.
Credit quality - NatWest Group entered 2022 with a conservatively positioned CRE portfolio. The majority of the defaults experienced during 2021 were in the retail sector, particularly in the fashion-led shopping centre sub-sector. NatWest Group completed a strategic sale of a portfolio of these loans during 2021, achieving a rebalance of the portfolio at that stage. Rental payments have now normalised, but uncertainty still remains and the portfolio continues to be actively reviewed and managed.
During H1 2022, Heightened Monitoring stock reduced by both volume and value, most materially within the investment sub-sector (retail, residential and office).
Risk appetite - Lending appetite continued to be gradually and selectively increased by sub-sector aligned to our purpose led approach.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed) The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL affect. Other points to note: - Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included. - Stage transfers (for example, exposures moving from Stage 1 into Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage. - Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down. - Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements. - Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity. - There were flows from Stage 1 into Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflected the effect of portfolio debt sales and also staging at the start of the analysis period. - The effect of any change in PMAs during the year is typically reported under changes in risk parameters, as are any effects arising from changes to the underlying models. Refer to the section on Governance and post model adjustments for further details. - All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
Stage 1 | Stage 2 |
| Stage 3 | Total | |||||||
Financial |
|
| Financial |
|
| Financial |
|
| Financial |
| |
assets | ECL |
| assets | ECL |
| assets | ECL |
| assets | ECL | |
Retail Banking - mortgages | £m | £m |
| £m | £m |
| £m | £m |
| £m | £m |
At 1 January 2022 | 159,966 | 24 |
| 10,748 | 155 |
| 1,267 | 250 |
| 171,981 | 429 |
Currency translation and other adjustments | - | - |
| - | - |
| 3 | 2 |
| 3 | 2 |
Transfers from Stage 1 to Stage 2 | (5,576) | (3) |
| 5,576 | 3 |
| - | - |
| - | - |
Transfers from Stage 2 to Stage 1 | 5,869 | 53 |
| (5,869) | (53) |
| - | - |
| - | - |
Transfers to Stage 3 | (37) | - |
| (910) | (28) |
| 947 | 28 |
| - | - |
Transfers from Stage 3 | 14 | 1 |
| 241 | 11 |
| (255) | (12) |
| - | - |
Net re-measurement of ECL on stage transfer |
| (50) |
|
| 47 |
|
| (13) |
|
| (16) |
Changes in risk parameters (model inputs) |
| 32 |
|
| (49) |
|
| 3 |
|
| (14) |
Other changes in net exposure | 5,899 | - |
| (801) | (10) |
| (174) | (7) |
| 4,924 | (17) |
Other (P&L only items) |
| (2) |
|
| (1) |
|
| (26) |
|
| (29) |
Income statement (releases)/charges |
| (20) |
|
| (13) |
|
| (43) |
|
| (76) |
Amounts written-off | - | - |
| - | - |
| (20) | (20) |
| (20) | (20) |
Unwinding of discount |
| - |
|
| - |
|
| (19) |
|
| (19) |
At 30 June 2022 | 166,135 | 57 |
| 8,985 | 76 |
| 1,768 | 212 |
| 176,888 | 345 |
Net carrying amount | 166,078 |
|
| 8,909 |
|
| 1,556 |
|
| 176,543 |
|
At 1 January 2021 | 132,390 | 23 | 28,079 | 227 | 1,291 | 236 | 161,760 | 486 | |||
2021 movements | 16,915 | (4) | (12,510) | (47) | 61 | 14 | 4,466 | (37) | |||
At 30 June 2021 | 149,305 | 19 | 15,569 | 180 | 1,352 | 250 | 166,226 | 449 | |||
Net carrying amount | 149,286 | 15,389 | 1,102 | 165,777 | |||||||
- Despite the strong portfolio growth during 2022 so far, ECL levels for mortgages reduced during the same period. The decrease in ECL was primarily a result of stable portfolio performance alongside the implementation of new IFRS 9 models in Q1 2022. Collectively, this resulted in lower levels of ECL requirement.
- More specifically, strong credit performance resulted in the migration of assets from Stage 2 into Stage 1, with an associated decrease from lifetime ECL to a 12 month ECL. In addition, the introduction of the new cost of living post model adjustment at 30 June 2022 allocated more ECL to Stage 1 given the forward-looking nature of the cost of living and inflation threat, whereas the previous COVID-19 post model adjustments were focused on Stage 2 (for example, high risk payment holiday cases migrated into Stage 2). Refer to the Governance and post model adjustments section for more information.
- The Stage 3 inflow relates to the IFRS 9 adoption of the new regulatory definition of default in January 2022. However, the Stage 3 ECL levels reduced since 31 December 2021 primarily due to reduced LGD estimates as a result of the new model implementation in Q1 2022 alongside stable underlying default levels. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments, when previously in Stage 2. Refer to the Governance and post model adjustments section for further details.
- Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given repossession activity remains subdued relative to pre-COVID-19 levels, write-offs remained at a lower level.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- The overall decrease in ECL was mainly due to the reduction in Stage 2 ECL reflecting the stable portfolio performance, causing PDs to decrease. This resulted in reduced levels of SICR identification and ECL requirement.
- In addition, a temporary adjustment for an ECL release is in place to reflect, on a forward-looking basis, the associated effects of a new credit card PD model that is pending implementation in Q3 2022. This is captured in changes in risk parameters for Stage 1 and Stage 2.
- Cards balances have grown since the 2021 year end, in line with industry trends in the UK, as unsecured borrowing demand increased.
- Reflecting the strong credit performance observed during 2022, Stage 3 inflows remained subdued and the effect of the IFRS 9 adoption of the new regulatory definition of default was minimal for Cards, therefore Stage 3 ECL movement was low in H1 2022.
- Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- Overall ECL has remained stable, with a modest increase driven by Stage 3 ECL linked to the IFRS 9 adoption of the new regulatory definition of default in January 2022, with underlying Stage 3 inflows remaining stable, reflecting the strong credit performance observed during 2022.
- More specifically, the reduced PDs alongside muted portfolio deterioration, resulted in migration of assets from Stage 2 into Stage 1, with an associated decrease from lifetime ECL to a 12 month ECL and kept Stage 2 levels stable.
- Unsecured retail balances have grown since the 2021 year end, in line with industry trends in the UK, as unsecured borrowing demand increased.
- Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than six years after default.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- There was an uplift in Stage 1 exposure from new and increased lending specifically to financial institutions along with movements in currency translations. Stage 1 ECL increased due to an uplift in post model adjustments, the largest adjustment being a new adjustment for inflation and supply chain issues and additional ECL on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs, with net effect of stage transfers leading to a significant reduction in ECL. In addition, a reduction in the Stage 2 economic uncertainty adjustment further reduced ECL.
- Flows into Stage 3 increased due to defaults on government scheme lending, but the government guarantee has meant this has not led to an increase in ECL. In addition, write-offs led to an overall reduction in Stage 3 ECL.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- At a total level, exposure reduced mainly due to the repayment of government scheme debt.
- Exposure moved from Stage 1 into Stage 2 due to a deterioration in some government scheme lending. ECL increased, reflecting a higher probability of default on additional lending to customers that had government scheme lending.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- There was a rise in Stage 1 exposure from new and increased lending along with movements in currency translations. ECL increased due to a rise in post model adjustments with a new adjustment for inflation and supply chain issues and additional ECL on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs. The net effect of stage transfers led to a significant reduction in Stage 2 ECL, and there were further reductions due to a decrease in the economic uncertainty adjustment.
- Flows into Stage 3 increased due to defaults on government scheme lending, but the government guarantee has meant this has not led to an increase in ECL. In addition, write-offs have led to an overall reduction in Stage 3 ECL.
- The portfolio benefit from cash recoveries post write-off, which are reported as other (P&L only items). Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than five years after default.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- There was a rise in Stage 1 exposure from new and increased lending along with movements in currency translations. ECL increased due to a rise in post model adjustments with a new adjustment for inflation and supply chain issues and additional ECL on loans that migrated from Stage 2 and Stage 3.
- Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs and a reduction in the economic uncertainty adjustment.
Risk and capital management
Credit risk - Banking activities continued
Flow statements (reviewed)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
- There was an uplift in Stage 1 exposure from new and increased lending along with movements in currency translations and an increase from exposures moving from Stage 2. Stage 1 ECL was broadly unchanged as the exposures that returned to Stage 1 are now subject to 12 months ECL , generating a significant ECL release on re-measurement.
- Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs, this led to large exposure transfers to Stage 1 and a significant reduction in ECL.
- Stage 3 exposure increased due to stage transfers. There was also a significant increase in Stage 3 ECL and charge due to two individual cases.
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
UK mortgages |
| RoI mortgages |
| Credit cards |
| Other |
| Total | ||||||||
30 June 2022 |
|
| £m | % |
| £m | % |
| £m | % |
| £m | % |
| £m | % |
Personal trigger (1) |
|
|
|
|
|
| ||||||||||
PD movement | 5,158 | 57.3 |
| 23 | 32.0 |
| 565 | 54.5 |
| 808 | 47.0 |
| 6,554 | 55.4 | ||
PD persistence | 1,228 | 13.6 |
| 5 | 7.0 |
| 329 | 31.7 |
| 369 | 21.5 |
| 1,931 | 16.3 | ||
Adverse credit bureau recorded with |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
credit reference agency | 1,936 | 21.5 |
| - | - |
| 49 | 4.7 |
| 85 | 5.0 |
| 2,070 | 17.5 | ||
Forbearance support provided | 140 | 1.6 |
| 1 | 1.0 |
| 1 | 0.1 |
| 22 | 1.3 |
| 164 | 1.4 | ||
Customers in collections | 269 | 3.0 |
| 3 | 4.0 |
| 2 | 0.2 |
| 17 | 1.0 |
| 291 | 2.5 | ||
Collective SICR and other reasons (2) | 163 | 1.8 |
| 39 | 55.0 |
| 91 | 8.8 |
| 404 | 23.6 |
| 697 | 5.9 | ||
Days past due >30 | 111 | 1.2 |
| - | - |
| - | - |
| 10 | 0.6 |
| 121 | 1.0 | ||
9,005 | 100 |
| 71 | 100 |
| 1,037 | 100 |
| 1,715 | 100 |
| 11,828 | 100 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
31 December 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Personal trigger (1) | ||||||||||||||||
PD movement | 2,707 | 24.6 | 83 | 14.9 | 560 | 60.1 | 1,008 | 51.8 | 4,358 | 30.2 | ||||||
PD persistence | 3,103 | 28.2 | 21 | 3.8 | 270 | 28.9 | 771 | 39.6 | 4,165 | 28.9 | ||||||
Adverse credit bureau recorded with | ||||||||||||||||
credit reference agency | 3,657 | 33.3 | - | - | 60 | 6.4 | 73 | 3.7 | 3,790 | 26.3 | ||||||
Forbearance support provided | 178 | 1.6 | 6 | 1.1 | 2 | 0.2 | 28 | 1.4 | 214 | 1.5 | ||||||
Customers in collections | 82 | 0.8 | 33 | 6.0 | 3 | 0.3 | 15 | 0.8 | 133 | 0.9 | ||||||
Collective SICR and other reasons (2) | 1,197 | 10.9 | 409 | 74.0 | 38 | 4.1 | 46 | 2.4 | 1,690 | 11.7 | ||||||
Days past due >30 | 66 | 0.6 | 1 | 0.2 | - | - | 6 | 0.3 | 73 | 0.5 | ||||||
10,990 | 100 | 553 | 100 | 933 | 100 | 1,947 | 100 | 14,423 | 100 | |||||||
For the notes to the table refer to the following page.
- The strong credit performance of the portfolio resulted in either decreased or stable account level IFRS 9 PDs during the year so far for most products. UK mortgages was the exception, where the implementation of a new IFRS 9 PD model in Q1 2022 increased the proportion of accounts exhibiting significant PD deterioration.
- Personal customers who had accessed COVID-19 payment holiday support, and where their risk profile was identified as relatively high risk are no longer collectively migrated into Stage 2, given the lack of default emergence from these segments and with the focus of high risk segment monitoring now shifting to the effects of inflation and the growing cost of living effect on customers. In UK mortgages at 31 December 2021, approximately £0.8 billion of exposures were previously collectively migrated from Stage 1 into Stage 2.
- In the other lending category, there was an increase in 'Collective SICR and other reasons' as a result of the net migration of assets into Stage 2 of £0.5 billion reflecting, on a forward-looking basis, the staging effect of new retail unsecured PD models that are pending implementation in Q3 2022.
Risk and capital management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
|
| Property |
| Corporate |
| Financial institution |
| Other |
| Total | ||||||
|
| Loans | ECL |
| Loans | ECL |
| Loans | ECL |
| Loans | ECL |
| Loans | ECL | |
30 June 2022 |
|
| £m | % |
| £m | % |
| £m | % |
| £m | % |
| £m | % |
Wholesale trigger (1) |
|
|
|
|
|
| ||||||||||
PD movement | 1,202 | 41.2 |
| 8,752 | 65.6 |
| 130 | 47.9 |
| 86 | 54.4 |
| 10,170 | 61.1 | ||
PD persistence | 69 | 2.4 |
| 215 | 1.6 |
| 3 | 1.1 |
| - | - |
| 287 | 1.7 | ||
Risk of Credit Loss | 810 | 27.7 |
| 2,141 | 16.1 |
| 64 | 23.6 |
| 57 | 36.1 |
| 3,072 | 18.4 | ||
Forbearance support provided | 105 | 3.6 |
| 682 | 5.1 |
| 4 | 1.5 |
| - | - |
| 791 | 4.7 | ||
Customers in collections | 29 | 1.0 |
| 102 | 0.8 |
| 1 | 0.4 |
| - | - |
| 132 | 0.8 | ||
Collective SICR and other reasons (2) | 497 | 17.0 |
| 894 | 6.7 |
| 66 | 24.4 |
| 15 | 9.5 |
| 1,472 | 8.8 | ||
Days past due >30 | 208 | 7.1 |
| 542 | 4.1 |
| 3 | 1.1 |
| - | - |
| 753 | 4.5 | ||
2,920 | 100 |
| 13,328 | 100 |
| 271 | 100 |
| 158 | 100 |
| 16,677 | 100 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
31 December 2021 |
|
|
|
|
|
| ||||||||||
Wholesale trigger (1) | ||||||||||||||||
PD movement | 942 | 30.3 | 10,553 | 67.7 | 595 | 81.3 | 84 | 69.4 | 12,174 | 62.2 | ||||||
PD persistence | 139 | 4.5 | 553 | 3.5 | 6 | 0.8 | 1 | 0.8 | 699 | 3.6 | ||||||
Risk of Credit Loss | 962 | 31.0 | 2,626 | 16.8 | 71 | 9.7 | 34 | 28.1 | 3,693 | 18.9 | ||||||
Forbearance support provided | 101 | 3.3 | 489 | 3.1 | 6 | 0.8 | - | - | 596 | 3.0 | ||||||
Customers in collections | 27 | 0.9 | 88 | 0.6 | 1 | 0.1 | - | - | 116 | 0.6 | ||||||
Collective SICR and other reasons (2) | 762 | 24.6 | 1,189 | 7.6 | 35 | 4.8 | 2 | 1.7 | 1,988 | 10.2 | ||||||
Days past due >30 | 168 | 5.4 | 106 | 0.7 | 18 | 2.5 | - | - | 292 | 1.5 | ||||||
3,101 | 100 | 15,604 | 100 | 732 | 100 | 121 | 100 | 19,558 | 100 | |||||||
(1) The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.
(2) Includes customers where a PD assessment cannot be undertaken due to missing PDs.
- PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 into Stage 2. There was a reduction in cases triggering PD deterioration reflecting positive portfolio performance which is lowering PDs.
- Moving exposures on to the Risk of Credit Loss framework remained an important backstop indicator of a SICR. The exposures classified under the Stage 2 Risk of Credit Loss framework decreased over the period again reflecting positive portfolio performance.
- PD persistence related to the Business Banking portfolio only. A reduction in PDs in Q4 2021 meant that some Business Banking customers were only in Stage 2 because of persistence and with PDs marginally improving in 2022, they have now returned to Stage 1.
- There was an increase in customers meeting the >30 days past due trigger as a result of regulatory definition of default changes where all customer borrowing is now categorised as past due, previously it was assessed at a facility level.
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed) The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
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Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed) The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.
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Risk and capital management
Credit risk - Banking activities continued
Asset quality (reviewed)
Gross loans | ECL provisions | ECL provisions coverage | ||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||
31 December 2021 | £m | £m | £m | £m | £m | £m | £m | £m | % | % | % | % | ||
Property | ||||||||||||||
AQ1-AQ4 | 13,529 | 223 | - | 13,752 | 3 | 7 | - | 10 | 0.02 | 3.14 | - | 0.07 | ||
AQ5-AQ8 | 15,126 | 2,742 | - | 17,868 | 21 | 94 | - | 115 | 0.14 | 3.43 | - | 0.64 | ||
AQ9 | 24 | 136 | - | 160 | - | 10 | - | 10 | - | 7.35 | - | 6.25 | ||
AQ10 | - | - | 742 | 742 | - | - | 239 | 239 | - | - | 32.21 | 32.21 | ||
28,679 | 3,101 | 742 | 32,522 | 24 | 111 | 239 | 374 | 0.08 | 3.58 | 32.21 | 1.15 | |||
Corporate | ||||||||||||||
AQ1-AQ4 | 18,378 | 1,027 | - | 19,405 | 8 | 48 | - | 56 | 0.04 | 4.67 | - | 0.29 | ||
AQ5-AQ8 | 35,351 | 13,922 | - | 49,273 | 88 | 621 | - | 709 | 0.25 | 4.46 | - | 1.44 | ||
AQ9 | 74 | 655 | - | 729 | - | 44 | - | 44 | - | 6.72 | - | 6.04 | ||
AQ10 | - | - | 1,444 | 1,444 | - | - | 602 | 602 | - | - | 41.69 | 41.69 | ||
53,803 | 15,604 | 1,444 | 70,851 | 96 | 713 | 602 | 1,411 | 0.18 | 4.57 | 41.69 | 1.99 | |||
Financial institutions | ||||||||||||||
AQ1-AQ4 | 50,121 | 63 | - | 50,184 | 7 | 1 | - | 8 | 0.01 | 1.59 | - | 0.02 | ||
AQ5-AQ8 | 2,138 | 667 | - | 2,805 | 7 | 38 | - | 45 | 0.33 | 5.70 | - | 1.60 | ||
AQ9 | 4 | 2 | - | 6 | - | - | - | - | - | - | - | - | ||
AQ10 | - | - | 46 | 46 | - | - | 4 | 4 | - | - | 8.70 | 8.70 | ||
52,263 | 732 | 46 | 53,041 | 14 | 39 | 4 | 57 | 0.03 | 5.33 | 8.70 | 0.11 | |||
Sovereign | ||||||||||||||
AQ1-AQ4 | 5,787 | 35 | - | 5,822 | 19 | 1 | - | 20 | 0.33 | 2.86 | - | 0.34 | ||
AQ5-AQ8 | 117 | 86 | - | 203 | - | - | - | - | - | - | - | - | ||
AQ9 | - | - | - | - | - | - | - | - | - | - | - | - | ||
AQ10 | - | - | 8 | 8 | - | - | 2 | 2 | - | - | 25.00 | 25.00 | ||
5,904 | 121 | 8 | 6,033 | 19 | 1 | 2 | 22 | 0.32 | 0.83 | 25.00 | 0.36 | |||
Total | ||||||||||||||
AQ1-AQ4 | 87,815 | 1,348 | - | 89,163 | 37 | 57 | - | 94 | 0.04 | 4.23 | - | 0.11 | ||
AQ5-AQ8 | 52,732 | 17,417 | - | 70,149 | 116 | 753 | - | 869 | 0.22 | 4.32 | - | 1.24 | ||
AQ9 | 102 | 793 | - | 895 | - | 54 | - | 54 | - | 6.81 | - | 6.03 | ||
AQ10 | - | - | 2,240 | 2,240 | - | - | 847 | 847 | - | - | 37.81 | 37.81 | ||
140,649 | 19,558 | 2,240 | 162,447 | 153 | 864 | 847 | 1,864 | 0.11 | 4.42 | 37.81 | 1.15 | |||
- Across the Wholesale portfolio, the asset quality band distribution differed, reflective of the underlying quality of counterparties within each segment.
- Asset quality improvement was observed across most segments as the economy recovered from the effects of COVID-19.
- Within the Wholesale portfolio, customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was undertaken or a material event specific to that customer occurred.
- ECL provisions coverage showed the expected trend with increased coverage in the poorer asset quality bands, and also by stage.
- The low provision coverage for Stage 3 loans in financial institutions for 2021 reflected the secured nature of one exposure classified AQ10.
Risk and capital management
Credit risk - Trading activities
This section details the credit risk profile of NatWest Group's trading activities.
Securities financing transactions and collateral (reviewed) The table below shows securities financing transactions in NatWest Markets and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9.
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- Reverse repos and repos increased on both gross and carrying value basis when compared to 2021. These trends are consistent with trading assets and liabilities having been managed within limits at 31 December 2021.
- Reverse repo and repo transactions are primarily backed by highly-rated sovereign, supranational and agency collateral.
Risk and capital management
Credit risk - Trading activities continued
Derivatives (reviewed) The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table also includes hedging derivatives in Treasury.
(1) The notional amount of interest rate derivatives included £7,730 billion (31 December 2021 - £6,173 billion) in respect of contracts cleared through central clearing counterparties. (2) Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions, for example China, where the collateral agreements are not deemed to be legally enforceable. (3) Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group's external rating. (4) Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting. (5) Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour.
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Risk and capital management
Credit risk - Trading activities continued
Debt securities (reviewed) The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor's, Moody's and Fitch.
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