NatWest : Sell-Side Update

NatWest Group Interim Results 2022

NatWest Group plc

natwestgroup.com

Natwest Group Interim Results 2022	Page
Highlights	3
Our Purpose in action	5
Business performance summary	6
CFO Review	8
Retail Banking	9
Private Banking	10
Commercial & Institutional	11
Ulster Bank RoI	12
Central items & other	13
Segment performance	14
Risk and capital management
Credit risk	20
Credit risk - banking activities	29
Credit risk - trading activities	61
Capital, liquidity and funding risk	64
Market risk	74
Other risks	79
Condensed consolidated financial statements	80
Notes to the financial statements	86
Independent review report to NatWest Group plc	105
Summary risk factors	106
Statement of directors' responsibilities	108
Other information	109

NatWest Group - Interim Results 2022

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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-forwardgroup 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.

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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-forwardgroup excludes Ulster Bank RoI and discontinued operations.
3. Denotes cash investment spend excluding certain regulatory and legacy programmes.

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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.

NatWest Group - Interim Results 2022

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