TIDM72OH
RNS Number : 4916H
National Westminster Bank PLC
28 July 2023
NatWest Bank Group
Interim Results 2023
National Westminster Bank Plc natwestgroup.com
National Westminster Bank Plc
Interim results for the period ended 30 June 2023
NatWest Bank Group (NWB Group) reported an attributable profit
for the period of GBP2,325 million, compared with GBP1,892 million
in H1 2022.
The results of NWB Group in the first half of the year reflect a
strong operating performance across our operating segments with
good growth in key areas underpinned by a robust loan book and
balance sheet. A strong balance sheet and prudent approach to risk
means NWB Group remains well placed to support our customers in
this current uncertain and challenging environment.
Strong H1 2023 performance
- Attributable profit for the period was GBP2,325 million
compared with GBP1,892 million in H1 2022.
- Total income increased by GBP939 million to GBP6,610 million
compared with GBP5,671 million in H1 2022, reflecting the
beneficial impact from base rate rises and lending growth.
- Operating expenses increased by GBP235 million to GBP3,265
million, compared with GBP3,030 million in H1 2022, principally due
to higher staff costs, as a result of one-off cost of living
payments, and continued investment in the capability of the
business.
- The cost:income ratio has decreased from 53.4% to 49.4%.
- A net impairment loss of GBP191 million in H1 2023 compared
with a release of GBP18 million in H1 2022 reflects an increase in
post model adjustments driven by increased economic uncertainty.
Defaults remain stable and at low levels across the portfolio.
Robust balance sheet with strong capital and liquidity
levels
- Net loans to customers increased by GBP10.7 billion to
GBP312.3 billion during H1 2023, primarily reflecting GBP6.7
billion mortgage growth in Retail Banking, and a GBP1.4 billion
increase in Commercial & Institutional due to corporate lending
growth, partly offset by UK Government scheme repayments.
- Customer deposits decreased by GBP15.1 billion to GBP307.5
billion during H1 2023 primarily reflecting seasonal factors
including customer tax payments, increased competition for savings
balances and an overall market liquidity contraction. Deposit
balances were broadly stable in the second quarter following the
outflows in the first quarter.
- The loan:deposit ratio (LDR) (excl. repos and reverse repos)
was 97.4%, with customer deposits exceeding net loans to customers
by around GBP7.1 billion.
- Total RWAs increased by GBP4.4 billion during the period
primarily reflecting an increase in exposures within Retail Banking
and Commercial & Institutional, in addition to model
adjustments applied as a result of new regulations. Operational
risk also increased by GBP1.3 billion following the annual
recalculation.
- The CET1 ratio increased to 11.7% from 11.3%. This is due to a
GBP0.9 billion increase in CET1 capital partially offset by a
GBP4.4 billion increase in RWAs. The CET1 increase was mainly
driven by a GBP1.8 billion profit, offset by a foreseeable dividend
of GBP0.8 billion and other reserves movements in the period.
Financial review
Financial performance summary
The following tables provide a segmental analysis of operating
profit by the main income statement captions and a note of the key
performance metrics and ratios.
Central Half year ended
--------------------
Retail Private Commercial items 30 June 30 June
Banking Banking & Institutional & other 2023 2022 Variance
----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
----------------------------- ------- ------- --------------- ------- ------- ----------- -----
Net interest income 2,452 426 1,537 (166) 4,249 3,405 844 25%
Non-interest income 212 137 687 1,325 2,361 2,266 95 4%
----------------------------- ------- ------- --------------- ------- ------- ----------- ----- ---
Total income 2,664 563 2,224 1,159 6,610 5,671 939 17%
Operating expenses (1,134) (306) (1,067) (758) (3,265) (3,030) (235) 8%
------- ------- --------------- ------- ------- ----------- ----- ---
Profit before impairment
losses/releases 1,530 257 1,157 401 3,345 2,641 704 27%
Impairment (losses)/releases (167) (10) (18) 4 (191) 18 (209) nm
----------------------------- ------- ------- --------------- ------- ------- ----------- ----- ---
Operating profit 1,363 247 1,139 405 3,154 2,659 495 19%
------- ----------- ----- ---
Tax charge (829) (767) (62) 8%
----------------------------- ------- ------- --------------- ------- ------- ----------- ----- ---
Profit for the period 2,325 1,892 433 23%
----------------------------- ------- ------- --------------- ------- ------- ----------- ----- ---
Attributable to:
------- -----------
Ordinary shareholders 2,264 1,833
Paid-in equity holders 61 56
Non-controlling interests - 3
----------------------------- ------- ------- --------------- ------- ------- -----------
Profit for the period 2,325 1,892
----------------------------- ------- ------- --------------- ------- ------- -----------
Half year ended
--------------------
30 June 30 June
Key metrics and ratios 2023 2022
Cost:income ratio (%)
(1) 49.4 53.4
Loan impairment rate (bps)
(2) 12 (1)
----------------------------- ------- ------- --------------- ------- ------- -----------
As at
--------------------
30 June 31 December
2023 2022
----------------------------- ------- ------- --------------- ------- ------- -----------
CET1 ratio (%) (3) 11.7 11.3
----------------------------- ------- ------- --------------- -------
Leverage ratio (%) (4) 4.4 4.4
----------------------------- ------- ------- --------------- -------
Risk weighted assets (RWAs)
(GBPbn) 116.8 112.4
----------------------------- ------- ------- --------------- -------
Loan:deposit ratio (%)
(5) 97.4 90.0
----------------------------- ------- ------- --------------- ------- ------- -----------
(1) Cost:income ratio is total operating expenses divided by total income.
(2) Loan impairment rate is the annualised loan impairment charge divided
by gross customer loans.
(3) Common Equity Tier 1 (CET1) ratio is CET1 capital divided by RWAs.
(4) Leverage ratio is Tier 1 capital divided by total exposure. This
is in accordance with changes to the UK's leverage ratio framework.
Refer to page 63 of the NatWest Bank Plc 2022 Annual Report and Accounts
for further details.
(5) Loan deposit ratio is total loans divided by total deposits.
Total income increased by GBP939 million, or 17%, to GBP6,610
million compared with GBP5,671 million in H1 2022.
Net interest income increased by GBP844 million, or 25%, to
GBP4,249 million, compared with GBP3,405 million in H1 2022,
reflecting the beneficial impact of base rate increases and lending
growth, partially offset by a reduction in mortgage margins .
Non-interest income increased by GBP95 million, or 4%, to
GBP2,361 million, compared with GBP2,266 million in H1 2022.
- Net fees and commissions increased by GBP31 million to GBP819
million due to higher transactional-related fee income.
- Other operating income increased by GBP64 million to GBP1,542
million, compared with GBP1,478 million in H1 2022, reflecting:
- GBP234 million gain in H1 2023 on redemption of own debt; partially offset by
- GBP117 million reduction in gains predominantly from
derivatives held for economic hedging purposes, reflecting interest
rate volatility across all currencies; and
- GBP24 million loss incurred on bond disposals, a reduction of
GBP60 million compared with gains of GBP36 million in H1 2022.
Operating expenses increased by GBP235 million, or 8%, to
GBP3,265 million, compared with GBP3,030 million in H1 2022.
- Staff costs increased by GBP155 million following higher pay
awards to support our colleagues with cost of living
challenges.
- Premises and equipment costs increased by GBP28 million due to
further investments in technology.
- Depreciation and amortisation costs increased by GBP69 million
due to additions and a property impairment.
- Other administrative expenses have decreased by GBP17 million
due to reduced conduct and remediation charges.
Financial review
Financial performance summary continued
A net impairment loss of GBP191 million in H1 2023, compared
with a release of GBP18 million in H1 2022, reflects an increase in
post model adjustments driven by increased economic uncertainty.
Defaults remain stable and at low levels across the portfolio.
Total impairment provisions increased by GBP0.1 billion to GBP2.7
billion in H1 2023, with no movement in the ECL provision coverage
ratio of 0.84% compared with 31 December 2022.
Customer lending and deposits
Customer lending increased by GBP10.6 billion to GBP312.3
billion, compared with GBP301.7 billion as at 31 December 2022,
predominantly driven by:
- GBP6.7 billion retail mortgage growth as a result of strong
gross new lending, partially offset by redemptions;
- GBP1.4 billion net increase in Commercial & Institutional
lending due to corporate lending growth, partly offset by UK
Government scheme repayments; and
- GBP2.1 billion increase resulting from Treasury net repo activity.
- Customer deposits decreased by GBP15.1 billion to GBP307.5
billion, primarily reflecting seasonal factors including customer
tax payments, increased competition for savings balances and an
overall market liquidity contraction.
Other balance sheet movements
- Derivative assets increased by GBP0.3 billion and derivative
liabilities decreased by GBP0.3 billion driven by interest rate
changes and sterling FX rate appreciation.
- Other financial assets increased by GBP4.2 billion to GBP18.7
billion, primarily reflecting a GBP4.3 billion net impact from bond
purchases, sales and maturities. The remaining movement reflects
changes in the fair value of the bond portfolio due to interest and
FX rate movements.
- Bank deposits increased by GBP1.0 billion to GBP17.0 billion
due to a GBP0.7 billion increase in repo balances and a GBP0.3
billion increase in deposits.
- Amounts due to holding companies and fellow subsidiaries
increased by GBP5.0 billion to GBP43.8 billion.
- Other financial liabilities increased by GBP5.6 billion
primarily due to changes in interest rates in short and medium-term
funding.
- Owners' equity increased by GBP1.2 billion due to the net
impact of profit in the period, offset by dividends paid.
Business performance summary
Retail Banking
Operating profit was GBP1,363 million, compared with GBP1,177
million in H1 2022.
- Net interest income increased by GBP422 million to GBP2,452
million compared with GBP2,030 million in H1 2022, reflecting
continued strong mortgage growth and higher deposit income
supported by interest rate rises, partially offset by a reduction
in mortgage margins, lower deposit balances with mix shift from
non-interest bearing to interest bearing balances, as well as
increased liquidity and funding costs.
- Non-interest income increased by GBP18 million to GBP212
million, compared with GBP194 million in H1 2022, primarily
reflecting higher net income from the recharging of costs to other
NatWest Group entities.
- Operating expenses increased by GBP119 million to GBP1,134
million compared with GBP1,015 million in H1 2022, reflecting
higher pay awards to support colleagues with cost of living
challenges and increased data and restructuring costs, partially
offset by lower conduct costs.
- Impairment losses of GBP167 million in H1 2023 reflect good
book charges driven by strong unsecured lending growth in H1 2023,
partially offset by benefits from the updated economic outlook.
Stage 3 defaults remain stable.
- Net loans to customers increased by GBP7.5 billion in H1 2023
mainly reflecting continued mortgage growth of GBP6.7 billion, with
gross new mortgage lending of GBP16.7 billion. Cards balances
increased by GBP0.6 billion and personal advances increased by
GBP0.3 billion in H1 2023 with strong customer demand.
- Customer deposits decreased by GBP3.9 billion in H1 2023
reflecting the impact of customer tax payments which were higher
than previous years, lower household liquidity and increased
competition for savings balances.
Financial review
Business performance summary continued
Private Banking
Operating profit was GBP247 million, compared with GBP172
million in H1 2022.
- Net interest income increased by GBP125 million to GBP426
million, compared with GBP301 million in H1 2022, reflecting higher
deposit income supported by interest rate rises, partially offset
by a reduction in mortgage margins.
- Non-interest income decreased by GBP5 million to GBP137
million primarily due to a reduction in asset management fees.
- Operating expenses increased by GBP23 million to GBP306
million, reflecting the impact of pay awards to support colleagues
with cost of living challenges and increased technology costs.
- Impairment losses of GBP10 million in H1 2023 reflect higher
good book charges and a small level of stage 3 defaults.
- Net loans to customers were broadly flat as gross new lending
was offset by increased repayments.
- Customer deposits decreased by GBP4.7 billion to GBP36.5
billion in H1 2023 driven by tax outflows which were higher than
previous years, increased loan repayments and increased competition
for savings balances.
Commercial & Institutional
Operating profit was GBP1,139 million, compared with GBP845
million in H1 2022.
- Net interest income increased by GBP330 million to GBP1,537
million, compared with GBP1,207 million in H1 2022, primarily
reflecting higher deposit returns from an improved interest rate
environment and lending growth, partially offset by increased
liquidity and funding costs.
- Non-interest income increased by GBP128 million to GBP687
million, primarily reflecting improved card payment fees and gains
on derivatives held for economic hedging purposes.
- Operating expenses increased by GBP109 million to GBP1,067
million, reflecting the impact of pay awards to support colleagues
with cost of living challenges and continued investment in the
business.
- Impairment losses of GBP18 million in H1 2023 compared with an
impairment release of GBP37 million in H1 2022, reflect higher good
book charges as benefits from revised economic outlook are more
than offset by an increase in post model adjustments.
- Net loans to customers increased by GBP1.4 billion to GBP83.0
billion, reflecting an increase in term loan facilities and asset
finance, partially offset by continued UK Government scheme
repayments.
- Customer deposits decreased by GBP6.3 billion to GBP112.0
billion primarily due to overall market liquidity contraction
particularly in current accounts with growth in savings deposit
balances.
Central items & other
Operating profit was GBP405 million, compared with GBP465
million in H1 2022.
- Total income decreased by GBP79 million primarily due to lower
income from hedging activities, including lower gains on economic
hedging derivatives, reflecting interest rate movements and a loss
on bond disposals. This was partially offset by a GBP234 million
gain on redemption of own debt.
- Operating expenses decreased by GBP16 million to GBP758
million, primarily due to lower restructuring costs. Costs
recovered through service recharges to other NatWest Group entities
in non-interest income totalled GBP710 million.
Financial review
Capital and leverage ratios
The table below sets out the key capital and leverage ratios.
NWB Plc is subject to the requirements set out in UK CRR therefore
capital and leverage ratios are presented under these frameworks on
a transitional basis.
30 June 31 December
2023 2022
Capital adequacy ratios % %
CET1 (1) 11.7 11.3
Tier 1 13.6 13.3
Total 16.5 15.9
----------------------------- ------- -----------
Capital GBPm GBPm
-----------
CET1 (1) 13,609 12,713
Tier 1 15,852 14,956
Total 19,235 17,877
----------------------------- ------- -----------
Risk-weighted assets
-----------
Credit risk 101,802 98,913
Counterparty credit risk 675 497
Market risk 15 26
Operational risk 14,319 12,992
----------------------------- ------- -----------
Total RWAs 116,811 112,428
------- -----------
Leverage
----------------------------- ------- -----------
Tier 1 capital (GBPm) 15,852 14,956
Leverage exposure (GBPm) (2) 363,052 341,308
Leverage ratio (%) (1) 4.4 4.4
----------------------------- ------- -----------
(1) Includes an IFRS 9 transitional adjustment of GBP0.2 billion (31
December 2022 - GBP0.3 billion). Excluding this adjustment, the CET1
ratio would be 11.5% (31 December 2022 - 11.1%) and the leverage ratio
would be 4.3% (31 December 2022 - 4.3%).
(2) Leverage exposure is broadly aligned to the accounting value of
on and off-balance sheet exposures albeit subject to specific adjustments
for derivatives, securities financing positions and off-balance sheet
exposures.
- The CET1 ratio increased to 11.7% from 11.3%. This is due to a
GBP0.9 billion increase in CET1 capital partially offset by a
GBP4.4 billion increase in RWAs. The CET1 increase was mainly
driven by a GBP1.8 billion profit, offset by a foreseeable dividend
of GBP0.8 billion and other reserves movements in the period.
- NWB Plc issued a GBP0.6 billion internal EUR Tier 2 instrument
in February 2023 and in June 2023 an issuance of GBP0.65 billion
internal GBP Tier 2 partially offsetting a GBP0.7 billion internal
Tier 2 redemption.
- Total RWAs increased by GBP4.4 billion during the period
primarily reflecting an increase in exposures within Retail Banking
and Commercial & Institutional, in addition to IRB model
adjustments applied as a result of new regulations. Operational
risk also increased by GBP1.3 billion following the annual
recalculation.
Condensed consolidated income statement
for the period ended 30 June 2023 (unaudited)
Half year ended
-----------------
30 June 30 June
2023 2022
GBPm GBPm
--------
Interest receivable 6,613 3,868
Interest payable (2,364) (463)
-------
Net interest income 4,249 3,405
----------------------------------------- --------
Fees and commissions receivable 1,070 1,037
Fees and commissions payable (251) (249)
Other operating income 1,542 1,478
-------
Non-interest income 2,361 2,266
----------------------------------------- --------
Total income 6,610 5,671
----------------------------------------- -------- -------
Staff costs (1,591) (1,436)
Premises and equipment (515) (487)
Other administrative expenses (714) (731)
Depreciation and amortisation (445) (376)
Operating expenses (3,265) (3,030)
----------------------------------------- -------- -------
Profit before impairment losses/releases 3,345 2,641
Impairment (losses)/releases (191) 18
----------------------------------------- --------
Operating profit before tax 3,154 2,659
Tax charge (829) (767)
----------------------------------------- -------
Profit for the period 2,325 1,892
----------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 2,264 1,833
Paid-in equity holders 61 56
Non-controlling interests - 3
-----------------------------------------
2,325 1,892
----------------------------------------- -------- -------
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2023 (unaudited)
Half year ended
-----------------
30 June 30 June
2023 2022
GBPm GBPm
Profit for the period 2,325 1,892
----------------------------------------------- -------- -------
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (64) (536)
Tax 15 135
(49) (401)
----------------------------------------------- -------- -------
Items that do qualify for reclassification
FVOCI financial assets 44 (373)
Cash flow hedges (221) (308)
Currency translation (18) 2
Tax 51 205
(144) (474)
----------------------------------------------- -------- -------
Other comprehensive loss after tax (193) (875)
----------------------------------------------- -------- -------
Total comprehensive income for the period 2,132 1,017
----------------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 2,071 958
Paid-in equity holders 61 56
Non-controlling interests - 3
2,132 1,017
----------------------------------------------- -------- -------
Condensed consolidated balance sheet as at 30 June 2023
(unaudited)
30 June 31 December
2023 2022
GBPm GBPm
----------------------------------------------------------- ------- -----------
Assets
Cash and balances at central banks 52,453 73,065
Derivatives 4,736 4,407
Loans to banks - amortised cost 3,657 3,197
Loans to customers - amortised cost 312,337 301,684
Amounts due from holding companies and fellow subsidiaries 7,015 4,903
Other financial assets 18,709 14,546
Other assets 7,639 7,667
----------------------------------------------------------- ------- -----------
Total assets 406,546 409,469
----------------------------------------------------------- ------- -----------
Liabilities
Bank deposits 17,014 16,060
Customer deposits 307,491 322,614
Amounts due to holding companies and fellow subsidiaries 43,813 38,771
Derivatives 1,751 2,088
Other financial liabilities 10,999 5,384
Subordinated liabilities 122 197
Notes in circulation 798 809
Other liabilities 3,285 3,470
----------------------------------------------------------- ------- -----------
Total liabilities 385,273 389,393
----------------------------------------------------------- ------- -----------
Owners' equity 21,232 20,066
Non-controlling interests 41 10
----------------------------------------------------------- ------- -----------
Total equity 21,273 20,076
----------------------------------------------------------- ------- -----------
Total liabilities and equity 406,546 409,469
----------------------------------------------------------- ------- -----------
Condensed consolidated statement of changes in equity
for the period ended 30 June 2023 (unaudited)
Half year ended
-----------------
30 June 30 June
2023 2022
GBPm GBPm
--------------------------------------------------------- -------- -------
Called-up share capital - at beginning and end of period 1,678 1,678
--------------------------------------------------------- -------- -------
Paid-in equity - at beginning of period 2,518 2,377
Redeemed - (359)
Issued (1) - 500
At end of period 2,518 2,518
--------------------------------------------------------- -------- -------
Share premium account - at beginning and end of period 2,225 2,225
--------------------------------------------------------- -------- -------
Merger reserve - at beginning of period 77 14
Amortisation (24) 33
At end of period 53 47
--------------------------------------------------------- -------- -------
FVOCI reserve - at beginning of period (76) 192
Unrealised gains/(losses) 20 (337)
Realised losses/(gains) 24 (36)
Tax (11) 119
At end of period (43) (62)
--------------------------------------------------------- -------- -------
Cash flow hedging reserve - at beginning of period (391) (1)
Amount recognised in equity (82) (223)
Amount transferred from equity to earnings (139) (85)
Tax 62 86
At end of period (550) (223)
--------------------------------------------------------- -------- -------
Foreign exchange reserve - at beginning of period (87) (85)
Retranslation of net assets (48) 15
Foreign currency gains/(losses) on hedges of net assets 30 (13)
At end of period (105) (83)
--------------------------------------------------------- -------- -------
Capital redemption reserve - at beginning and end of
period 820 820
--------------------------------------------------------- -------- -------
Retained earnings - at beginning of period 13,302 13,507
Profit attributable to ordinary shareholders and other
equity owners 2,325 1,889
Paid-in equity dividends paid (61) (56)
Ordinary dividends paid (900) (993)
Redemption of paid-in equity (2) - (29)
Remeasurement of the retirement benefit schemes
- gross (64) (536)
- tax 15 135
Employee share schemes 6 6
Share-based payments
- gross (11) (13)
- tax - (2)
Amortisation of merger reserve 24 (33)
At end of period 14,636 13,875
--------------------------------------------------------- -------- -------
Owners' equity at end of period 21,232 20,795
--------------------------------------------------------- -------- -------
For the notes to this table refer the following page.
Condensed consolidated statement of changes in equity
for the period ended 30 June 2023 continued (unaudited)
Half year ended
-----------------
30 June 30 June
2023 2022
GBPm GBPm
--------------------------------------------------- -------- -------
Non-controlling interests - at beginning of period 10 10
Profit attributable to non-controlling interests - 3
New minority interest holding 31 -
At end of period 41 13
--------------------------------------------------- -------- -------
Total equity at end of period 21,273 20,808
--------------------------------------------------- -------- -------
Attributable to:
Ordinary shareholders 18,714 18,277
Paid-in equity holders 2,518 2,518
Non-controlling interests 41 13
21,273 20,808
--------------------------------------------------- -------- -------
(1) In June 2022, AT1 capital notes totalling GBP500 million less fees were issued.
(2) The redemption of paid-in equity is made up of FX unlocking and loss on redemption.
Condensed consolidated cash flow statement
for the period ended 30 June 2023 (unaudited)
Half year ended
-----------------
30 June 30 June
2023 2022
GBPm GBPm
Operating activities
Operating profit before tax 3,154 2,659
Adjustments for non-cash and other items 1,200 529
-------------------------------------------------------------- -------- -------
Net cash flows from trading activities 4,354 3,188
Changes in operating assets and liabilities (19,066) (9,673)
-------------------------------------------------------------- -------- -------
Net cash flows from operating activities before tax (14,712) (6,485)
Income taxes paid (671) (515)
-------------------------------------------------------------- -------- -------
Net cash flows from operating activities (15,383) (7,000)
Net cash flows from investing activities (2,786) 6,474
Net cash flows from financing activities (139) (254)
Effects of exchange rate changes on cash and cash equivalents (677) 729
-------------------------------------------------------------- -------- -------
Net decrease in cash and cash equivalents (18,985) (51)
Cash and cash equivalents at beginning of period 76,318 106,645
-------------------------------------------------------------- -------- -------
Cash and cash equivalents at end of period 57,333 106,594
-------------------------------------------------------------- -------- -------
Notes
1. Presentation of condensed consolidated financial
statements
The condensed consolidated financial statements should be read
in conjunction with NatWest Bank Plc's 2022 Annual Report and
Accounts. The accounting policies are the same as those applied in
the consolidated financial statements.
The directors have prepared the condensed consolidated financial
statements on a going concern basis after assessing the principal
risks, forecasts, projections and other relevant evidence over the
twelve months from the date they are approved and in accordance
with IAS 34 'Interim Financial Reporting', as adopted by the UK and
as issued by the International Accounting Standards Board (IASB),
and the Disclosure Guidance and Transparency Rules sourcebook of
the UK's Financial Conduct Authority.
Amendments to IFRS effective from 1 January 2023 had no material
effect on the condensed consolidated financial statements.
2. Net interest income
Half year ended
-----------------
30 June 30 June
-----------------------------------------------------------
2023 2022
GBPm GBPm
----------------------------------------------------------- -------- -------
Balances at central banks and loans to banks - amortised
cost 531 297
Loans to customers - amortised cost 5,691 3,470
Amounts due from holding companies and fellow subsidiaries 79 15
Other financial assets 312 86
Interest receivable 6,613 3,868
----------------------------------------------------------- -------- -------
Bank deposits 316 98
Customer deposits 859 69
Amounts due to holding companies and fellow subsidiaries 960 210
Other financial liabilities 222 77
Subordinated liabilities 7 9
Interest payable 2,364 463
----------------------------------------------------------- -------- -------
Net interest income 4,249 3,405
----------------------------------------------------------- -------- -------
3. Operating expenses
Half year ended
-----------------
30 June 30 June
2023 2022
GBPm GBPm
Salaries and other staff costs 1,231 1,063
Temporary and contract costs 88 108
Social security costs 145 129
Pension costs 127 136
- defined benefit schemes 51 72
- defined contribution schemes 76 64
-------------------------------- -------- -------
Staff costs 1,591 1,436
-------------------------------- -------- -------
Premises and equipment 515 487
Depreciation and amortisation 445 376
Other administrative expenses 714 731
Administrative expenses 1,674 1,594
-------------------------------- -------- -------
Operating expenses 3,265 3,030
-------------------------------- -------- -------
Notes
4. Segmental analysis
The business is organised into the following reportable
segments: Retail Banking, Private Banking, Commercial &
Institutional and Central items & other.
Analysis of operating profit
Retail Private Commercial Central
items
Banking Banking & Institutional & other Total
Half year ended 30 June 2023 GBPm GBPm GBPm GBPm GBPm
Net interest income 2,452 426 1,537 (166) 4,249
Net fees and commissions 159 123 535 2 819
Other non-interest income 53 14 152 1,323 1,542
Total income 2,664 563 2,224 1,159 6,610
------------------------------ ------- ------- --------------- ------- -------
Depreciation and amortisation - - (65) (380) (445)
Other operating expenses (1,134) (306) (1,002) (378) (2,820)
Impairment (losses)/releases (167) (10) (18) 4 (191)
------------------------------ ------- ------- --------------- ------- -------
Operating profit 1,363 247 1,139 405 3,154
------------------------------ ------- ------- --------------- ------- -------
Half year ended 30 June 2022
------------------------------ ------- ------- --------------- ------- -------
Net interest income 2,030 301 1,207 (133) 3,405
Net fees and commissions 174 127 479 8 788
Other non-interest income 20 15 80 1,363 1,478
Total income 2,224 443 1,766 1,238 5,671
------------------------------ ------- ------- --------------- ------- -------
Depreciation and amortisation - - (67) (309) (376)
Other operating expenses (1,015) (283) (891) (465) (2,654)
Impairment (losses)/releases (32) 12 37 1 18
------------------------------ ------- ------- --------------- ------- -------
Operating profit 1,177 172 845 465 2,659
------------------------------ ------- ------- --------------- ------- -------
Total revenue (1)
Retail Private Commercial Central
items
Banking Banking & Institutional & other Total
Half year ended 30 June 2023 GBPm GBPm GBPm GBPm GBPm
External 3,027 409 2,988 2,801 9,225
Inter-segmental (66) 559 (703) 210 -
Total 2,961 968 2,285 3,011 9,225
----------------------------- ------- ------- --------------- ------- -----
Half year ended 30 June 2022
External 2,400 395 1,645 1,943 6,383
Inter-segmental 14 119 72 (205) -
Total 2,414 514 1,717 1,738 6,383
----------------------------- ----- --- ----- ----- -----
(1) Total revenue comprises interest receivable, fees and
commissions receivable and other operating income .
Notes
4. Segmental analysis continued
Analysis of net fees and commissions
Retail Private Commercial Central
items
Banking Banking & Institutional & other Total
Half year ended 30 June 2023 GBPm GBPm GBPm GBPm GBPm
Fees and commissions receivable
- Payment services 130 16 258 - 404
- Credit and debit card fees 160 6 98 - 264
- Lending and financing 7 3 232 - 242
- Brokerage 14 3 - - 17
- Investment management, trustee
and fiduciary services 1 102 - - 103
- Other 1 2 28 9 40
------------------------------------ ------- ------- --------------- ------- -----
Total 313 132 616 9 1,070
Fees and commissions payable (154) (10) (81) (6) (251)
------------------------------------ ------- ------- --------------- ------- -----
Net fees and commissions 159 122 535 3 819
------------------------------------ ------- ------- --------------- ------- -----
Half year ended 30 June 2022
Fees and commissions receivable
- Payment services 123 16 235 - 374
- Credit and debit card fees 163 8 73 - 244
- Lending and financing 7 4 212 - 223
- Brokerage 21 3 - - 24
- Investment management, trustee
and fiduciary services 1 111 - - 112
- Other - - 75 (15) 60
------------------------------------ ------- ------- --------------- ------- -----
Total 315 142 595 (15) 1,037
Fees and commissions payable (141) (15) (116) 23 (249)
------------------------------------ ------- ------- --------------- ------- -----
Net fees and commissions 174 127 479 8 788
------------------------------------ ------- ------- --------------- ------- -----
Total assets and liabilities
Retail Private Commercial Central
items
Banking Banking & Institutional & other Total
30 June 2023 GBPm GBPm GBPm GBPm GBPm
Assets 192,595 19,893 88,578 105,480 406,546
Liabilities 149,363 36,764 124,880 74,266 385,273
------------- ------- ------- --------------- ------- -------
31 December 2022
------- ------ ------- ------- -------
Assets 184,140 19,734 86,406 119,189 409,469
Liabilities 153,304 41,489 127,301 67,299 389,393
----------------- ------- ------ ------- ------- -------
Notes
5. Tax
The actual tax charge differs from the expected tax charge
computed by applying the standard UK corporation tax rate of 23.5%
(2022 - 19%), as analysed below:
Half year ended
-----------------
30 June 30 June
2023 2022
GBPm GBPm
Profit before tax 3,154 2,659
------------------------------------------------------------- -------- -------
Expected tax charge (741) (505)
Losses and temporary differences in period where no deferred
tax assets recognised - (1)
Foreign profits taxed at other rates (1) (2)
Items not allowed for tax:
- UK bank levy (8) (6)
- regulatory and legal actions (5) (9)
- other disallowable items (10) (7)
Non-taxable items 63 6
Increase/(decrease) in the carrying value of deferred
tax assets in respect of UK losses 1 (13)
Banking surcharge (118) (199)
Tax on paid-in equity 12 11
UK tax rate change impact - (79)
Adjustments in respect of prior periods (22) 37
------------------------------------------------------------- -------- -------
Actual tax charge (829) (767)
------------------------------------------------------------- -------- -------
At 30 June 2023, NWB Group has recognised a deferred tax asset
of GBP979 million (31 December 2022 - GBP1,117 million) and a
deferred tax liability of GBP123 million (31 December 2022 - GBP130
million). These amounts include deferred tax assets recognised in
respect of trading losses of GBP295 million (31 December 2022 -
GBP445 million). NWB Group has considered the carrying value of
these assets as at 30 June 2023 and concluded that they are
recoverable.
Notes
6. Financial instruments - classification
The following tables analyse financial assets and liabilities in
accordance with the categories of financial instruments in IFRS
9.
Amortised Other
MFVTPL FVOCI cost assets Total
GBPm GBPm GBPm GBPm GBPm
Assets
Cash and balances at central banks 52,453 52,453
Derivatives (1) 4,736 4,736
Loans to banks - amortised cost (2) 3,657 3,657
Loans to customers - amortised cost
(3) 312,337 312,337
Amounts due from holding companies
and fellow subsidiaries 5 6,387 623 7,015
Other financial assets 248 11,553 6,908 18,709
Other assets 7,639 7,639
30 June 2023 4,989 11,553 381,742 8,262 406,546
------------------------------------ ------ ------ --------- ------ -------
Cash and balances at central banks 73,065 73,065
Derivatives (1) 4,407 4,407
Loans to banks - amortised cost (2) 3,197 3,197
Loans to customers - amortised cost
(3) 301,684 301,684
Amounts due from holding companies
and fellow subsidiaries 5 4,173 725 4,903
Other financial assets 417 9,713 4,416 14,546
Other assets 7,667 7,667
31 December 2022 4,829 9,713 386,535 8,392 409,469
------------------------------------ ------ ------ --------- ------ -------
Held-for- Amortised Other
trading cost liabilities Total
GBPm GBPm GBPm GBPm
Liabilities
Bank deposits 17,014 17,014
Customer deposits 307,491 307,491
Amounts due to holding companies
and fellow subsidiaries 119 43,544 150 43,813
Derivatives (1) 1,751 1,751
Other financial liabilities 73 10,926 10,999
Subordinated liabilities 122 122
Notes in circulation 798 798
Other liabilities (4) 843 2,442 3,285
--------- --------- ----------- -------
30 June 2023 1,943 380,738 2,592 385,273
---------------------------------- --------- --------- ----------- -------
Bank deposits 16,060 16,060
Customer deposits 322,614 322,614
Amounts due to holding companies
and fellow subsidiaries 104 38,511 156 38,771
Derivatives (1) 2,088 2,088
Other financial liabilities 17 5,367 5,384
Subordinated liabilities 197 197
Notes in circulation 809 809
Other liabilities (4) 960 2,510 3,470
31 December 2022 2,209 384,518 2,666 389,393
---------------------------------- --------- --------- ----------- -------
(1) Includes net hedging derivative assets of GBP972 million (31 December 2022 - GBP743 million)
and net hedging derivative liabilities of GBP316 million (31 December 2022 - GBP258 million).
(2) Includes items in the course of collection from other banks of GBP5 million (31 December 2022
- GBP2 million).
(3) Includes finance lease receivables of GBP8,675 million (31 December 2022 - GBP8,324 million).
(4) Includes lease liabilities of GBP782 million (31 December 2022 - GBP901 million), held at
amortised cost.
Notes
6. Financial instruments - classification continued
NWB Group's financial assets and liabilities include amounts due
from/to holding companies and fellow subsidiaries as below:
30 June 2023 31 December 2022
------------------------------- -------------------------------
Holding Fellow Holding Fellow
companies subsidiaries Total companies subsidiaries Total
GBPm GBPm GBPm GBPm GBPm GBPm
Assets
Loans to banks - amortised
cost - 6,339 6,339 - 4,100 4,100
Loans to customers - amortised
cost - 48 48 - 73 73
Other financial assets - 5 5 - 5 5
Other assets 104 519 623 15 710 725
----------------------------------- --------- ------------ ------ --------- ------------ ------
Amounts due from holding companies
and
fellow subsidiaries 104 6,911 7,015 15 4,888 4,903
----------------------------------- --------- ------------ ------ --------- ------------ ------
Derivatives (1) 321 3,511 3,832 405 2,977 3,382
--------- ------------ ------ --------- ------------ ------
Liabilities
Bank deposits - 28,923 28,923 - 22,919 22,919
Customer deposits 4,853 27 4,880 6,264 46 6,310
Subordinated liabilities 3,432 - 3,432 2,941 - 2,941
MREL instruments issued to
NatWest Holdings Ltd 6,309 - 6,309 6,339 - 6,339
Other financial liabilities - 119 119 - 106 106
Other liabilities 16 134 150 33 123 156
-----------------------------------
Amounts due to holding companies
and
fellow subsidiaries 14,610 29,203 43,813 15,577 23,194 38,771
----------------------------------- --------- ------------ ------ --------- ------------ ------
Derivatives (1) 475 644 1,119 403 667 1,070
----------------------------------- --------- ------------ ------ --------- ------------ ------
(1) Intercompany derivatives are included within derivative classification on the balance sheet.
Notes
6. Financial instruments - valuation
Disclosures relating to the control environment, valuation
techniques and related aspects pertaining to financial instruments
measured at fair value are included in NatWest Bank Plc's 2022
Annual Report and Accounts. Valuation, sensitivity methodologies
and inputs at 30 June 2023 are consistent with those described in
Note 10 to NatWest Bank Plc's 2022 Annual Report and Accounts.
Fair value hierarchy
The table below shows the assets and liabilities held by NWB
Group split by fair value hierarchy level. Level 1 are
considered
the most liquid instruments, and level 3 the most illiquid,
valued using expert judgment and hence carry the most significant
price
uncertainty.
30 June 2023 31 December 2022
---------------------------- ---------------------------
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------
Assets
Derivatives - 4,713 23 4,736 - 4,387 20 4,407
Amounts due from holding
companies
and fellow subsidiaries - 5 - 5 - 5 - 5
Other financial assets
Securities 5,810 5,741 2 11,553 5,105 4,606 2 9,713
Loans - 132 116 248 - 369 48 417
----- ------ ----- ------
Total financial assets
held at fair value 5,810 10,591 141 16,542 5,105 9,367 70 14,542
------
As % of total value assets 35% 64% 1% 35% 65% 0%
---------------------------- ----- ------ ----- ------ ----- ----- ----- ------
Liabilities
Derivatives - 1,745 6 1,751 - 2,081 7 2,088
Amounts due to holding
companies
and fellow subsidiaries - 119 - 119 - 104 - 104
Other financial liabilities
Deposits - 73 - 73 - 17 - 17
---------------------------- ----- ------ ----- ------ ----- ----- ----- ------
Total financial liabilities
held at fair value - 1,937 6 1,943 - 2,202 7 2,209
As % of total fair value
liabilities - 100% 0% - 100% 0%
---------------------------- ----- ------ ----- ------ ----- ----- ----- ------
(1) Level 1 - Instruments valued using unadjusted quoted prices in active and liquid markets,
for identical financial instruments. Examples include government bonds, listed equity shares
and certain exchange-traded derivatives.
Level 2 - Instruments valued using valuation techniques that have observable inputs. Observable
inputs are those that are readily available with limited adjustments required. Examples include
most government agency securities, investment-grade corporate bonds, certain mortgage products
- including CLOs, most bank loans, repos and reverse repos, state and municipal obligations,
most notes issued, certain money market securities, loan commitments and most OTC derivatives.
Level 3 - Instruments valued using a valuation technique where at least one input which could
have a significant effect on the instrument's valuation, is not based on observable market
data. Examples include non-derivative instruments which trade infrequently, certain syndicated
and commercial mortgage loans, private equity, and derivatives with unobservable model inputs.
(2) Transfers between levels are deemed to have occurred at the beginning of the quarter in which
the instruments were transferred.
Notes
6. Financial instruments - valuation continued
Fair value of financial instruments measured at amortised cost
on the balance sheet
The following table shows the carrying value and fair value of
financial instruments carried at amortised cost on the balance
sheet.
Items where fair
value approximates Carrying Fair Fair value hierarchy
level
------------------------
carrying value value value Level Level Level
1 2 3
30 June 2023 GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
----------------------------- ------------------ -------- ----- ------- ------- ------
Financial assets
Cash and balances at central
banks 52.5
Loans to banks 0.1 3.6 3.6 - 3.2 0.4
Loans to customers 312.3 298.7 - 21.2 277.5
Amounts due from holding
companies
and fellow subsidiaries 6.4 6.4 - 0.3 6.1
Other financial assets
Securities 6.8 6.7 2.7 3.6 0.4
Settlement balances 0.2
----------------------------- ------------------ -------- ----- ------- ------- ------
31 December 2022
----------------------------- ------------------ -------- ----- ------- ------- ------
Financial assets
Cash and balances at central
banks 73.1
Loans to banks - 3.2 3.2 - 2.7 0.5
Loans to customers 301.7 290.8 - 19.4 271.4
Amounts due from holding
companies
and fellow subsidiaries 4.2 4.1 - - 4.1
Other financial assets
Securities 4.4 4.3 0.8 3.1 0.4
Settlement balances -
----------------------------- ------------------ -------- ----- ------- ------- ------
30 June 2023
----------------------------- ------------------ -------- ----- ------- ------- ------
Financial liabilities
Bank deposits 3.3 13.7 13.5 - 13.2 0.3
Customer deposits 270.8 36.7 36.8 - 16.4 20.4
Amounts due to holding
companies
and fellow subsidiaries 0.4 43.2 43.2 - 10.0 33.2
Other financial liabilities
Debt securities in issue 10.6 10.6 - 2.1 8.5
Settlement balances 0.3
Subordinated liabilities 0.1 0.1 - 0.1 -
Notes in circulation 0.8
----------------------------- ------------------ -------- ----- ------- ------- ------
31 December 2022
----------------------------- ------------------ -------- ----- ------- ------- ------
Financial liabilities
Bank deposits 3.4 12.7 12.3 - 12.3 -
Customer deposits 294.9 27.7 27.7 - 11.9 15.8
Amounts due to holding
companies
and fellow subsidiaries 0.8 37.7 37.2 - 8.9 28.3
Other financial liabilities
Debt securities in issue 5.4 5.4 - 2.9 2.5
Settlement balances -
Subordinated liabilities 0.2 0.2 - 0.2 -
Notes in circulation 0.8
----------------------------- ------------------ -------- ----- ------- ------- ------
Notes
6. Financial instruments - valuation continued
The assumptions and methodologies underlying the calculation of
fair values of financial instruments at the balance sheet date are
as follows:
Short-term financial instruments
For certain short-term financial instruments: cash and balances
at central banks, items in the course of collection from other
banks, settlement balances, items in the course of transmission to
other banks, customer demand deposits and notes in circulation,
carrying value is deemed a reasonable approximation of fair
value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks
measured at amortised cost, NWB Group's loans are segregated into
appropriate portfolios reflecting the characteristics of the
constituent loans. Two principal methods are used to estimate fair
value; contractual cash flows and expected cash flows.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active
markets or from quoted prices of similar financial instruments in
active markets. For the remaining population, fair values are
determined using market standard valuation techniques, such as
discounted cash flows.
Bank and customer deposits
Fair value of deposits are estimated using discounted cash flow
valuation techniques.
Notes
7. Loan impairment provisions
Economic loss drivers
Introduction
The portfolio segmentation and selection of economic loss
drivers for IFRS 9 follows 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 variables (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
judgement.
The most significant economic loss drivers for the most material
portfolios are shown in the table below.
Portfolio Economic loss drivers
---------------------- -------------------------------------------------------
UK Personal mortgages UK unemployment rate, sterling swap rate, UK house
price index, UK household debt to income
---------------------- -------------------------------------------------------
UK Personal unsecured UK unemployment rate, sterling swap rate, UK household
debt to income
---------------------- -------------------------------------------------------
UK corporates UK stock price index, UK gross domestic product (GDP),
Bank of England base rate
---------------------- -------------------------------------------------------
UK commercial UK stock price index, UK commercial property price
real estate index, UK GDP, Bank of England base rate
Economic scenarios
At 30 June 2023, 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 the current risks
faced by the economy, particularly related to persistently high
inflation and interest rate environment, resulting in a fall in
real household income, economic slowdown, a rise in unemployment
and asset price declines.
For 30 June 2023, 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, asset price declines
and the degree of permanent damage to the economy, around which
there remains pronounced levels of uncertainty.
Upside - This scenario assumes robust growth as inflation falls
sharply and rates are lowered. Consumer spending is supported by
savings built up since COVID-19 and further helped by fiscal
support and strong business investment. The labour market remains
resilient, with the unemployment rate remaining below pre-COVID-19
levels. The housing market slows down compared to the previous year
but remains robust.
Base case - In the midst of high inflation and significant
monetary policy tightening, economic growth remains muted. However,
recession is avoided as only a relatively small proportion of
households are directly affected by the rise in mortgage costs. The
unemployment rate rises modestly but job losses are contained.
Inflation moderates over the medium-term and falls to the target
level of 2%. The housing market experiences price decline and lower
activity but the extent of the decline is lower than that
experienced during prior stresses.
Since 31 December 2022, the economic outlook has improved as
energy prices fell sharply and the labour market remained
resilient. However, the inflation outlook remains elevated due to
higher core inflation pressure. As a result, interest rates need to
rise higher than assumed previously. The base case now assumes
muted growth in 2023 as opposed to a mild recession assumed
previously. The unemployment rate still rises but the peak is
lower, reflecting the labour market's recent resilience. The peak
to trough house price correction remains broadly similar to the
previous assumption.
Downside - Inflation remains persistently high. The economy
experiences a recession as consumer confidence weakens due to a
fall in real income. Interest rates are raised higher than the base
case and remain elevated for longer. High rates are assumed to have
a more significant impact on the labour market. Unemployment is
higher than the base case scenario while house prices experience
declines comparable to previous episodes of stress.
The previous year's downside scenario also included a deep
recession, labour market deterioration and asset price falls, but
the current downside scenario explores these risks in a
persistently high inflation, high rates environment.
Extreme downside - This scenario assumes high and persistent
inflation. Households see the highest recorded decline in real
income. Interest rates rise to levels last observed in early 2000.
Resulting economic recession is deep and leads to widespread job
losses. House prices lose approximately a third of their value
while the unemployment rate rises to a level above that observed
during the 2008 financial crisis.
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.
Notes
7. Loan impairment provisions continued
Main macroeconomic variables
30 June 2023 31 December 2022
------------------------------------------- -------------------------------------------
Extreme Weighted Extreme Weighted
Upside Base Downside downside average Upside Base Downside downside average
case case
Five-year summary % % % % % % % % % %
-------------------------- ------ ----- -------- -------- -------- ------ ----- -------- -------- --------
GDP 1.8 0.9 0.4 (0.2) 0.8 2.2 1.3 0.8 0.4 1.2
Unemployment 3.5 4.2 4.9 6.6 4.6 3.9 4.5 4.9 6.7 4.8
House price index 3.8 0.3 (0.8) (6.0) - 5.1 0.8 (0.7) (4.4) 0.6
Commercial real estate
price 3.3 0.2 (2.7) (7.6) (0.7) 1.2 (1.9) (2.8) (9.1) (2.5)
Consumer price index 1.7 2.3 4.2 3.7 2.8 3.6 4.2 4.4 8.2 4.8
Bank of England base rate 2.6 4.2 5.0 5.1 4.2 2.4 3.1 1.5 4.5 2.8
UK stock price index 5.8 4.3 1.8 0.1 3.5 3.0 1.4 (1.1) (3.7) 0.5
World GDP 3.7 3.1 2.7 1.0 2.8 3.7 3.3 1.7 1.1 2.7
Probability weight 19.5 45.0 21.5 14.0 18.6 45.0 20.8 15.6
-------------------------- ------ ----- -------- -------- -------- ------ ----- -------- -------- --------
(1) The five year summary runs from 2023-2027 for 30 June 2023 .
(2) The table shows five calendar year CAGR for GDP, average for
unemployment and Bank of England base rate and 20-quarter CAGR for
other parameters .
(3) Comparatives have been aligned with the current calculation approach.
Probability weightings of scenarios
NWB Group's quantitative 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. This
quantitative approach is used for 30 June 2023.
The approach involves comparing UK GDP paths for NWB 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. Probability weight for base case is
set first based on judgement, while probability weights for the
alternate scenarios are assigned based on these percentiles
scores.
The assigned probability weights were judged to be aligned with
the subjective assessment of balance of the risks in the economy.
The weights were broadly comparable to those used at 31 December
2022. Since then, the outlook has improved across key areas of the
economy. However, the risks still remain elevated and there is
considerable uncertainty in the economic outlook, particularly with
respect to persistence and the range of outcomes on inflation.
Given that backdrop, NWB Group judges it appropriate that
downside-biased scenarios have higher probability weights than the
upside-biased scenario. It presents good coverage to the range of
outcomes assumed in the scenarios, including the potential for a
robust recovery on the upside and exceptionally challenging
outcomes on the downside. A 19.5% weighting was applied to the
upside scenario, a 45.0% weighting applied to the base case
scenario, a 21.5% weighting applied to the downside scenario and a
14.0% weighting applied to the extreme downside scenario.
Notes
7. Loan impairment provisions continued
Annual figures
Extreme Weighted
Base
Upside case Downside downside average
GDP - annual growth % % % % %
------ ----- -------- -------- --------
2023 1.4 0.3 - (0.3) 0.3
2024 3.8 0.8 (1.4) (4.1) 0.3
2025 1.4 1.0 1.0 0.9 1.1
2026 1.2 1.3 1.2 1.2 1.2
2027 1.2 1.4 1.3 1.2 1.3
2028 1.2 1.4 1.3 1.2 1.3
-------------------- ------ ----- -------- -------- --------
Extreme Weighted
Base
Upside case Downside downside average
Unemployment rate - annual average % % % % %
------ ----- -------- -------- --------
2023 3.9 3.9 4.1 4.3 4.0
2024 3.3 4.2 5.1 7.3 4.7
2025 3.3 4.4 5.3 7.7 4.8
2026 3.4 4.3 5.1 7.1 4.7
2027 3.4 4.3 4.9 6.5 4.6
2028 3.4 4.3 4.7 6.0 4.4
----------------------------------- ------ ----- -------- -------- --------
Extreme Weighted
Base
Upside case Downside downside average
House price index - four quarter change % % % % %
------ ----- -------- -------- --------
2023 (3.3) (6.9) (6.2) (8.2) (6.2)
2024 10.4 (1.0) (13.2) (14.1) (3.1)
2025 6.1 2.9 0.9 (16.4) 0.9
2026 3.1 3.4 8.5 4.3 4.4
2027 3.5 3.4 7.9 6.8 4.7
2028 3.4 3.4 5.5 5.0 4.0
---------------------------------------- ------ ----- -------- -------- --------
Extreme Weighted
Base
Upside case Downside downside average
Commercial real estate price - four quarter
change % % % % %
------ ----- -------- -------- --------
2023 1.1 (5.8) (7.8) (10.7) (5.6)
2024 5.5 0.5 (13.4) (35.3) (6.1)
2025 4.6 2.5 2.5 2.5 3.0
2026 3.8 2.5 3.6 6.3 3.4
2027 1.8 1.3 3.0 6.9 2.3
2028 1.5 1.3 2.2 4.2 1.8
-------------------------------------------- ------ ----- -------- -------- --------
Extreme Weighted
Base
Upside case Downside downside average
Consumer price index - four quarter change % % % % %
------ ----- -------- -------- --------
2023 1.6 3.4 5.5 7.0 4.0
2024 1.1 2.3 4.3 6.8 3.2
2025 1.8 1.9 3.9 1.7 2.3
2026 1.9 1.9 3.8 1.2 2.2
2027 1.9 1.9 3.7 2.1 2.3
2028 1.9 1.9 3.2 2.1 2.2
------------------------------------------- ------ ----- -------- -------- --------
Extreme Weighted
Base
Upside case Downside downside average
Bank of England base rate - annual average % % % % %
------ ----- -------- -------- --------
2023 4.3 4.8 4.7 4.8 4.7
2024 3.0 5.0 5.5 6.0 4.9
2025 2.3 4.2 5.0 5.7 4.2
2026 2.0 3.7 4.9 4.9 3.8
2027 1.6 3.3 4.7 4.1 3.4
2028 1.5 3.2 4.5 3.4 3.2
------------------------------------------- ------ ----- -------- -------- --------
Extreme Weighted
Base
Upside case Downside downside average
UK stock price index - four quarter change % % % % %
------ ----- -------- -------- --------
2023 13.0 9.1 (9.2) (26.6) 0.9
2024 5.7 3.1 (1.9) (9.4) 1.4
2025 4.1 3.1 9.7 21.2 6.2
2026 3.6 3.1 6.5 12.9 4.9
2027 3.2 3.1 5.3 10.2 4.3
2028 3.0 3.1 5.3 6.4 3.9
------------------------------------------- ------ ----- -------- -------- --------
Notes
7. Loan impairment provisions continued
Worst points
30 June 2023 31 December 2022
---------------------------------------------- ----------------------------------------------
Extreme Weighted Extreme Weighted
Downside downside average Downside downside average
% Quarter % Quarter % % Quarter % Quarter %
-------- ------- -------- ------- -------- -------- ------- -------- ------- --------
GDP (1.7) Q2 2024 (4.9) Q2 2024 0.1 (3.2) Q4 2023 (4.7) Q4 2023 (0.8)
Unemployment rate
- peak 5.4 Q1 2025 8.0 Q4 2024 4.9 6.0 Q1 2024 8.5 Q3 2024 5.4
House price index (18.9) Q1 2025 (34.3) Q1 2026 (9.2) (15.0) Q1 2025 (26.2) Q3 2025 (3.4)
Commercial real
estate
price (20.1) Q4 2024 (42.6) Q1 2025 (11.3) (21.8) Q4 2023 (46.8) Q3 2024 (16.4)
Consumer price index
- highest four
quarter
change 10.1 Q1 2023 10.1 Q1 2023 10.1 15.7 Q1 2023 17.0 Q4 2023 11.7
Bank of England base
rate
- extreme level 5.8 Q1 2024 6.0 Q1 2024 5.3 4.0 Q1 2023 6.0 Q1 2024 4.1
UK stock price index (15.5) Q2 2024 (40.9) Q2 2024 (1.1) (26.0) Q4 2023 (48.7) Q4 2023 (14.1)
-------------------- -------- ------- -------- ------- -------- -------- ------- -------- ------- --------
(1) Unless specified otherwise, the figures show falls relative to the
starting period. The calculations are performed over five years, with
a starting point of Q4 2022 for 30 June 2023 scenarios.
(2) Comparatives have been aligned with the current calculation approach.
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The
probability of default (PD), exposure at default (EAD), loss given
default (LGD) and resultant ECL for each discrete scenario is
calculated using product specific economic response models.
Probability weighted averages across the suite of economic
scenarios are then calculated for each of the model outputs, with
the weighted PD being used for staging purposes.
Business Banking utilises the Personal lending methodology
rather than the Wholesale lending methodology.
Use of the scenarios in Wholesale lending
The Wholesale lending scenario methodology is based on the
concept of credit cycle indices (CCIs). The CCIs represent, similar
to the exogenous component in Personal, all relevant economic
drivers for a region/industry segment aggregated into a single
index value that describes the credit conditions in the respective
segment relative to its long-run average. A CCI value of zero
corresponds to credit conditions at long-run average levels, a
positive CCI value corresponds to credit conditions below long run
average levels and a negative CCI value corresponds to credit
conditions above long-run average levels.
The individual economic scenarios are translated into
forward-looking projections of 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 extended with an additional mean reversion
assumption to gradually revert to the long-run average CCI value of
zero in the outer years of the projection horizon.
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.
UK economic uncertainty
The high inflation environment alongside rapidly rising interest
rates and supply chain disruption are presenting significant headwinds
for some businesses and consumers. 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 2024. NWB Group has considered
where these are most likely to affect the customer base, with the
rising cost of borrowing during 2023 for both businesses and consumers
presenting an additional affordability challenge for many borrowers
in recent months.
The effects of these risks are not expected to be fully captured
by forward-looking credit modelling, particularly given the unique
high inflation environment, 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.
Notes
7. Loan impairment provisions continued
Governance and post model adjustments
The IFRS 9 PD, EAD and LGD models are subject to NWB 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 model
monitoring and similar analyses indicates that model adjustments
will be required to ensure ECL adequacy. As a consequence, an
estimate of the ECL impact is recorded 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 high inflation and rapidly rising
interest rates as well as supply chain disruption, along with the
residual effects from COVID-19 government support schemes. In all
cases, management judged that additional ECL was required until
further credit performance data became available as the observable
effects of these issues crystallise.
- Other adjustments - ECL adjustments where it was judged that
the modelled ECL required amendment.
Post model adjustments will remain a key focus area of NWB
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 high inflation, rapidly rising interest rates and
supply chain disruption, where risks may not be fully captured by
the models.
ECL post model adjustments
The table below shows ECL post model adjustments.
Retail Banking Commercial
----------------
Mortgages Other Private Banking & Institutional Total
30 June 2023 GBPm GBPm GBPm GBPm GBPm
Deferred model calibrations - - - 14 14
Economic uncertainty 105 34 12 225 376
Other adjustments 7 - - 8 15
----------------------------
Total 112 34 12 247 405
---------------------------- --------- ----- --------------- --------------- -----
Of which:
- Stage 1 70 15 6 85 176
- Stage 2 31 19 6 158 214
- Stage 3 11 - - 4 15
---------------------------- --------- ----- --------------- --------------- -----
31 December 2022
Economic uncertainty 91 40 6 151 288
Other adjustments 7 15 - 11 33
---------------------------- --------- ----- --------------- --------------- -----
Total 98 55 6 162 321
---------------------------- --------- ----- --------------- --------------- -----
Of which:
- Stage 1 58 21 3 50 132
- Stage 2 29 34 3 108 174
- Stage 3 11 - - 4 15
---------------------------- --------- ----- --------------- --------------- -----
Notes
7. Loan impairment provisions continued
Post model adjustments increased since 31 December 2022, with a
notable shift in economic uncertainty reflecting rapidly rising
interest rates and high inflation.
- Retail Banking - The post model adjustment for economic
uncertainty increased from GBP131 million at 31 December 2022 to
GBP139 million at 30 June 2023, with recent interest rate rises
resulting in higher levels of mortgage customers at risk of
financial difficulties and prompting an uplift in the cost of
living post model adjustment (up from GBP112 million to GBP120
million). The cost of living post model adjustment captures the
risk on segments in the Retail Banking 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, over-indebted borrowers and customers vulnerable to a
potential mortgage rate shock effect on their affordability.
- The GBP15 million other judgemental overlay for EAD modelling
dynamics in credit cards was no longer required.
- Commercial & Institutional - The post model adjustment for
economic uncertainty increased from GBP151 million at 31 December
2022 to GBP225 million at 30 June 2023. It still includes an
overlay of GBP62 million to cover the residual risks from COVID-19,
including the risk that government support schemes could affect
future recoveries and concerns surrounding associated debt, to
customers that have utilised government support schemes. The
inflation and supply chain post model adjustment has been
maintained with a mechanistic adjustment, via a sector-level
downgrade, being applied to the sectors that were considered most
at risk from these headwinds. A number of additional sectors have
been included in the sector-level downgrade reflecting the
pressures from inflation plus broader concerns around liquidity and
reducing cash reserves across many sectors. The impact of the
sector-level downgrades is a post model adjustment increase from
GBP61 million at 31 December 2022 to GBP163 million at 30 June
2023, reflecting the significant headwinds for a number of sectors
which are not fully captured in the models.
- The GBP14 million judgemental overlay for deferred model
calibrations relates to refinance risk with the existing
mechanistic modelling approach not fully capturing the risk on
deteriorated exposures.
- Other adjustments include an overlay of GBP8 million to
mitigate the effect of operational timing delays in the
identification and flagging of a SICR.
Measurement uncertainty and ECL sensitivity analysis
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
conditions 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 impact arising from the base case, upside, downside and
extreme downside scenarios was simulated. These scenarios are used
in the methodology for Personal multiple economic scenarios as
described in the Economic loss drivers section. In the simulations,
NWB 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 were applied to all modelled portfolios in the
analysis below, with the simulation impacting both PDs and LGDs.
Post model adjustments included in the ECL estimates that were
modelled were sensitised in line with the modelled ECL movements,
but those that were judgmental in nature, primarily those for
deferred model calibrations and economic uncertainty, were 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.
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 2023.
Scenario impacts on 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 were not
considered in this analysis.
NWB Group's core criterion to identify a SICR is founded on PD
deterioration. Under the simulations, PDs change and result in
exposures moving between Stage 1 and Stage 2 contributing to the
ECL impact.
Notes
7. Loan impairment provisions continued
Measurement uncertainty and ECL sensitivity analysis
Moderate Moderate Extreme
Base upside downside downside
30 June 2023 Actual scenario scenario scenario scenario
Stage 1 modelled loans (GBPm)
Retail Banking - mortgages 158,081 157,591 158,573 158,053 150,266
Retail Banking - unsecured 6,631 6,667 6,893 6,501 5,923
Wholesale - property 18,025 18,256 18,344 17,727 11,425
Wholesale - non-property 76,760 77,875 78,457 75,775 55,282
------------------------------------------ ------- -------- -------- -------- --------
259,497 260,389 262,267 258,056 222,896
Stage 1 modelled ECL (GBPm)
Retail Banking - mortgages 81 78 76 82 78
Retail Banking - unsecured 157 159 158 156 138
Wholesale - property 74 57 46 96 95
Wholesale - non-property 195 169 146 240 232
------------------------------------------ ------- -------- -------- -------- --------
507 463 426 574 543
Stage 2 modelled loans (GBPm)
Retail Banking - mortgages 17,488 17,978 16,996 17,516 25,303
Retail Banking - unsecured 2,744 2,708 2,482 2,874 3,452
Wholesale - property 2,595 2,364 2,276 2,893 9,195
Wholesale - non-property 13,289 12,174 11,592 14,274 34,767
------------------------------------------ ------- -------- -------- -------- --------
36,116 35,224 33,346 37,557 72,717
Stage 2 modelled ECL (GBPm)
Retail Banking - mortgages 57 58 40 58 104
Retail Banking - unsecured 307 301 247 331 423
Wholesale - property 75 61 49 90 410
Wholesale - non-property 331 277 231 396 1,032
------------------------------------------ ------- -------- -------- -------- --------
770 697 567 875 1,969
Stage 1 and Stage 2 modelled loans (GBPm)
Retail Banking - mortgages 175,569 175,569 175,569 175,569 175,569
Retail Banking - unsecured 9,375 9,375 9,375 9,375 9,375
Wholesale - property 20,620 20,620 20,620 20,620 20,620
Wholesale - non-property 90,049 90,049 90,049 90,049 90,049
------------------------------------------ ------- -------- -------- -------- --------
295,613 295,613 295,613 295,613 295,613
Stage 1 and Stage 2 modelled ECL (GBPm)
Retail Banking - mortgages 138 136 116 140 182
Retail Banking - unsecured 464 460 405 487 561
Wholesale - property 149 118 95 186 505
Wholesale - non-property 526 446 377 636 1,264
------------------------------------------ ------- -------- -------- -------- --------
1,277 1,160 993 1,449 2,512
Stage 1 and Stage 2 coverage (%)
Retail Banking - mortgages 0.08 0.08 0.07 0.08 0.10
Retail Banking - unsecured 4.95 4.91 4.32 5.19 5.98
Wholesale - property 0.72 0.57 0.46 0.90 2.45
Wholesale - non-property 0.58 0.50 0.42 0.71 1.40
------------------------------------------
0.43 0.39 0.34 0.49 0.85
Reconciliation to Stage 1 and Stage
2 ECL (GBPm)
ECL on modelled exposures 1,277 1,160 993 1,449 2,512
ECL on non-modelled exposures 33 33 33 33 33
------- -------- -------- -------- --------
Total Stage 1 and Stage 2 ECL 1,310 1,193 1,026 1,482 2,545
------------------------------------------
Variance to actual total Stage 1 and
Stage 2 ECL (117) (284) 172 1,235
------------------------------------------ ------- -------- -------- -------- --------
Moderate Moderate Extreme
Base upside downside downside
30 June 2023 Actual scenario scenario scenario scenario
------- --------- --------- --------- ---------
Reconciliation to Stage 1 and Stage
2 flow exposure (GBPm)
Modelled loans 295,613 295,613 295,613 295,613 295,613
Non-modelled loans 18,523 18,523 18,523 18,523 18,523
Other asset classes 65,228 65,228 65,228 65,228 65,228
------------------------------------ ------- --------- --------- --------- ---------
(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 2023 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.
(3) 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 2023. 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.
(4) Refer to the Economic loss drivers section for details of economic scenarios.
(5) Refer to the NatWest Bank Plc 2022 Annual Report and
Accounts for 31 December 2022 comparatives.
Notes
7. Loan impairment provisions continued
Measurement uncertainty and ECL adequacy
- During H1 2023, overall modelled ECL remained stable
reflecting portfolio growth coupled with stable portfolio
performance offset by the H1 2023 economics update ECL reduction at
30 June 2023. Judgemental ECL post model adjustments, increased
from 31 December 2022, reflecting the increased economic
uncertainty and the expectation of increased defaults in H2 2023
and beyond, and represented 15% of total ECL (31 December 2022 -
12%).
- If the economics were as negative as observed in the extreme
downside, total Stage 1 and Stage 2 ECL was simulated to increase
by GBP1.2 billion (approximately 94%). 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
in ECL under both a moderate and extreme downside scenario. The
Wholesale property ECL increase was mainly due to commercial real
estate prices which show negative growth until 2024 and significant
deterioration in the stock index. The non-property increase was
mainly due to GDP contraction and significant deterioration in the
stock index.
- The changes in the economic outlook and scenarios used in the
IFRS 9 MES framework at 30 June 2023 resulted in a decrease in
modelled ECL. Given that continued uncertainty remains due to high
inflation, rapidly rising interest rates and supply chain
disruption, NWB Group utilised a framework of quantitative and
qualitative measures to support the levels of ECL coverage,
including economic data, credit performance insights , supply chain
contagion analysis and problem debt trends. This was particularly
important for consideration of post model adjustments.
- As the effects of high inflation, rapidly rising interest
rates and supply chain disruption evolve during 2023 and into 2024,
there is a risk of credit deterioration. However, the income
statement effect of this should have been mitigated by the
forward-looking provisions retained on the balance sheet at 30 June
2023.
- 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 which could impact the IFRS 9 models,
include an adverse deterioration in GDP and unemployment in the
economies in which NWB Group operates.
Notes
7. Loan impairment provisions continued
Loan exposure and impairment metrics
The table below shows gross loans and related credit impairment
measures, within the scope of the IFRS 9 ECL framework.
30 June 31 December
2023 2022
GBPm GBPm
Loans - amortised cost
Stage 1 279,340 266,722
Stage 2 35,660 37,216
Stage 3 4,102 3,783
Inter-Group (1) 6,392 4,220
---------------------------- -------
Total 325,494 311,941
-----------
ECL provisions (2)
Stage 1 532 506
Stage 2 778 813
Stage 3 1,383 1,262
Inter-Group 6 4
---------------------------- -------
2,699 2,585
---------------------------- -----------
ECL provisions coverage (3)
Stage 1 (%) 0.19 0.19
Stage 2 (%) 2.18 2.18
Stage 3 (%) 33.72 33.36
Inter-Group (%) 0.09 0.09
-------
0.84 0.84
---------------------------- ------- -----------
Half year ended
--------------------
30 June 30 June
2023 2022
GBPm GBPm
Impairment losses
ECL (release)/charge (4)
Stage 1 (167) (292)
Stage 2 237 179
Stage 3 119 94
Third party 189 (19)
Inter-Group 2 1
---------------------------- ------- -----------
191 (18)
-------
Amounts written-off 88 121
---------------------------- ------- -----------
(1) NWB Group's intercompany assets were classified in Stage 1.
(2) Includes GBP4 million ( 31 December 2022 - GBP2 million) related to
assets classified as FVOCI.
(3) 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.
(4) Includes GBP2 million ( 30 June 2022 - nil) related to other financial
assets, of which GBP1 million ( 30 June 2022 - nil) related to assets
classified as FVOCI; and nil ( 30 June 2022 - GBP2 million release)
related to contingent liabilities.
(5) The table shows gross loans only and excludes amounts that were outside
the scope of the ECL framework. Refer to page 33 for Financial instruments
within the scope of the IFRS 9 ECL framework in the NatWest Bank Plc
2022 Annual Report and Accounts for further details. Other financial
assets within the scope of the IFRS 9 ECL framework were cash and
balances at central banks totaling GBP51.9 billion ( 31 December 2022
- GBP72.5 billion) and debt securities of GBP18.0 billion ( 31 December
2022 - GBP14.1 billion).
- Stage 1 and Stage 2 modelled ECL remained broadly unchanged
with stable portfolio performance and latest MES scenario update
modelled ECL reduction being offset by increased post model
adjustments to reflect growing economic uncertainty due to high
inflation and rapidly rising interest rates.
- Stage 2 loans decreased during H1 2023, primarily within
Wholesale portfolios, in line with the modelled ECL reduction,
linked to the update of MES forward-looking economics at H1 2023.
The latest MES scenario update captures a lower unemployment peak
and better GDP outlook, offset by higher inflation and interest
rates.
- Stage 3 loans increased, primarily due to reduced write-off activity in H1 2023.
- As previously mentioned, in Personal, the flows into default
remained relatively stable and broadly in-line with post-COVID-19
lending strategy expectations and for Wholesale portfolios, with
the exception of BBLS, default levels were lower than historic
trends. However, it is expected that defaults will increase as
growing inflationary pressures on businesses, consumers and the
broader economy continue to evolve, particularly given the rapid
rise in interest rates.
Notes
7. Loan impairment provisions continued
Sector analysis
The table below shows ECL by stage, for the Personal portfolios
and selected sectors of the Wholesale portfolios.
Loans - amortised
cost Off-balance sheet ECL provisions
------------------------------- ------------------------ --------------------------
Loan Contingent
Stage Stage Stage Stage Stage Stage
1 2 3 Total commitments liabilities 1 2 3 Total
30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Personal 182,969 20,124 2,412 205,505 33,214 45 251 367 832 1,450
Mortgages 174,238 17,476 1,577 193,291 12,900 - 86 57 167 310
Credit cards 2,871 1,190 95 4,156 13,179 - 48 116 65 229
Other personal 5,860 1,458 740 8,058 7,135 45 117 194 600 911
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
Wholesale 96,371 15,536 1,690 113,597 56,934 2,463 281 411 551 1,243
Property 19,132 2,646 428 22,206 10,443 309 73 76 129 278
Financial institutions 27,024 243 24 27,291 3,654 226 15 6 9 30
Sovereign 3,674 125 25 3,824 300 - 7 1 1 9
Corporate 46,541 12,522 1,213 60,276 42,537 1,928 186 328 412 926
Of which:
Agriculture 3,148 938 80 4,166 753 17 13 28 25 66
Airlines and
aerospace 1,109 424 12 1,545 877 150 4 9 6 19
Automotive 6,163 796 26 6,985 3,351 38 20 16 10 46
Chemicals 335 55 1 391 702 11 2 1 1 4
Health 2,629 805 87 3,521 416 4 13 25 28 66
Industrial 1,857 698 73 2,628 2,612 120 7 17 15 39
Land transport and
logistics 3,495 801 26 4,322 2,672 124 11 16 11 38
Leisure 3,161 2,475 162 5,798 1,487 124 23 78 63 164
Mining and metals 183 38 2 223 358 2 - - 1 1
Oil and gas 569 48 25 642 1,151 129 2 1 25 28
Power utilities 4,128 353 46 4,527 5,730 456 10 14 7 31
Retail 4,078 1,284 211 5,573 3,439 281 19 33 75 127
Shipping 162 69 3 234 61 20 - 3 3 6
Water and waste 3,375 370 15 3,760 1,866 78 4 4 4 12
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
Total 279,340 35,660 4,102 319,102 90,148 2,508 532 778 1,383 2,693
--------------------------- ------- ------ ----- ------- ----------- ----------- ----- ----- ----- -----
31 December 2022
Personal 176,925 18,941 2,195 198,061 35,160 51 220 373 730 1,323
Mortgages 168,675 16,511 1,464 186,650 15,894 - 75 55 148 278
Credit cards 2,590 834 85 3,509 12,287 - 48 92 57 197
Other personal 5,660 1,596 646 7,902 6,979 51 97 226 525 848
-------------------------------- ------- ------ ----- ------- ------ ----- --- --- ----- -----
Wholesale 89,797 18,275 1,588 109,660 53,863 2,988 286 440 532 1,258
Property 18,379 2,874 431 21,684 9,879 328 80 75 120 275
Financial institutions 23,748 653 35 24,436 3,344 252 15 9 14 38
Sovereign 3,824 79 24 3,927 411 - 9 1 - 10
Corporate 43,846 14,669 1098 59,613 40,229 2,408 182 355 398 935
Of which:
Agriculture 3,065 824 67 3,956 739 17 17 25 29 71
Airlines and aerospace 367 1048 17 1,432 919 61 2 37 7 46
Automotive 5,270 1,409 20 6,699 3,194 41 17 16 8 41
Chemicals 323 113 1 437 546 11 1 2 1 4
Health 2,812 764 96 3,672 394 2 16 20 29 65
Industrial 1,923 694 73 2,690 2,638 129 8 13 19 40
Land transport and
logistics 3,184 1,045 22 4,251 2,694 129 11 29 9 49
Leisure 2,769 2,855 174 5,798 1,386 51 22 97 84 203
Mining and metals 157 40 2 199 349 2 - 1 1 2
Oil and gas 608 111 37 756 1,079 136 2 1 27 30
Power utilities 3,715 404 1 4,120 3,916 1115 9 11 - 20
Retail 4,919 1,248 126 6,293 3,475 335 17 25 56 98
Shipping 141 129 14 284 78 14 - 6 6 12
Water and waste 2,970 303 7 3,280 1,796 79 4 4 4 12
--------------------------------
Total 266,722 37,216 3,783 307,721 89,023 3,039 506 813 1,262 2,581
-------------------------------- ------- ------ ----- ------- ------ ----- --- --- ----- -----
Notes
7. Loan impairment provisions continued
- Personal - Balance sheet growth during H1 2023 mainly
reflected continued mortgage growth. Unsecured balances growth,
primarily in credit cards, was mainly a result of strong customer
demand alongside disciplined credit risk appetite. Total ECL
coverage increased. The increase in coverage was reflective of
increased Stage 3 ECL on unsecured portfolios, mainly due to
reduced write-off activity. Stable good book coverage reflected
continued stable portfolio performance, while maintaining
sufficient ECL coverage given increased affordability pressures on
customers due to high inflation and rapidly rising interest rates.
Stage 2 balances increased during H1 2023 as a result of the
forecast rise in unemployment, therefore increasing IFRS 9
probability of defaults on a forward-looking basis during H1 2023.
The expected peak in unemployment rate reduced as a result of the
latest MES update at 30 June 2023, dampening the levels of PD SICR
deterioration, but Stage 2 balance levels were maintained through
three month PD persistence rules.
- Wholesale - Balance sheet growth was observed in financial
institutions, property and corporates. Sector appetite continues to
be reviewed regularly, with particular focus on sector clusters and
sub-sectors that are vulnerable to cost of living, supply chain or
inflationary pressures, or deemed to represent a heightened risk .
Total coverage has reduced by 0.05% to 1.10% mainly due to growth
in Stage 1 exposures. Stage 1 and Stage 2 ECL decreased due to
improvements in forward-looking economics and some positive
portfolio performance more than offsetting increases in post model
adjustments.
Flow statements
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
effect. 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 effect of any change in post model adjustments 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.
Stage 1 Stage 2 Stage 3 Total
---------------- ---------------- ---------------- ----------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
NWB Group total GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- ----- --------- ----- --------- ----- --------- -----
At 1 January 2023 359,432 506 39,087 813 3,862 1,262 402,381 2,581
Currency translation and other
adjustments (1,360) 2 (191) (3) 44 48 (1,507) 47
Transfers from Stage 1 to Stage
2 (21,122) (133) 21,122 133 - - - -
Transfers from Stage 2 to Stage
1 18,796 312 (18,796) (312) - - - -
Transfers to Stage 3 (125) (2) (1,385) (109) 1,510 111 - -
Transfers from Stage 3 151 14 237 18 (388) (32) - -
-----
Net re-measurement of ECL
on stage transfer (227) 332 94 199
Changes in risk parameters
(model inputs) (26) (22) 102 54
Other changes in net exposure (13,112) 86 (3,370) (72) (770) (63) (17,252) (49)
Other (P&L only items) - (1) (14) (15)
------------------------------------ --------- ----- --------- ----- --------- ----- --------- -----
Income statement (releases)/charges (167) 237 119 189
Amounts written-off - - - - (88) (88) (88) (88)
Unwinding of discount - - (51) (51)
------------------------------------
At 30 June 2023 342,660 532 36,704 778 4,170 1,383 383,534 2,693
------------------------------------ --------- ----- --------- ----- --------- ----- --------- -----
Net carrying amount 342,128 35,926 2,787 380,841
------------------------------------ --------- ----- --------- ----- --------- ----- --------- -----
At 1 January 2022 388,953 231 27,337 1,105 3,147 1,167 419,437 2,503
2022 movements (2,874) 86 (4,465) (267) 834 43 (6,505) (138)
--------- ----- --------- ----- --------- ----- --------- -----
At 30 June 2022 386,079 317 22,872 838 3,981 1,210 412,932 2,365
------------------------------------ --------- ----- --------- ----- --------- ----- --------- -----
Net carrying amount 385,762 22,034 2,771 410,567
------------------------------------ --------- ----- --------- ----- --------- ----- --------- -----
Notes
7. Loan impairment provisions continued
Flow statements
Stage 1 Stage 2 Stage 3 Total
--------------- --------------- --------------- ---------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - mortgages GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 1 January 2023 153,791 74 16,557 55 1,321 139 171,669 268
Currency translation and other
adjustments (2) - 2 - 25 25 25 25
Transfers from Stage 1 to Stage
2 (8,778) (6) 8,778 6 - - - -
Transfers from Stage 2 to Stage
1 6,532 14 (6,532) (14) - - - -
Transfers to Stage 3 (14) - (371) (2) 385 2 - -
Transfers from Stage 3 18 - 114 3 (132) (3) - -
Net re-measurement of ECL
on stage transfer (10) 14 2 6
Changes in risk parameters
(model inputs) 17 (1) 27 43
Other changes in net exposure 7,583 (3) (1,050) (3) (186) (16) 6,347 (22)
Other (P&L only items) (1) - (5) (6)
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Income statement (releases)/charges 3 10 8 21
Amounts written-off - - - - (4) (4) (4) (4)
Unwinding of discount - - (16) (16)
At 30 June 2023 159,130 86 17,498 58 1,409 156 178,037 300
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 159,044 17,440 1,253 177,737
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 1 January 2022 146,450 22 8,692 123 875 158 156,017 303
2022 movements 6,786 29 (1,397) (66) 401 (23) 5,790 (60)
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 30 June 2022 153,236 51 7,295 57 1,276 135 161,807 243
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 153,185 7,238 1,141 161,564
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
- ECL levels for mortgages increased during H1 2023, reflecting
continued strong growth. While portfolio performance remained
stable, increased economic uncertainty is captured through ECL post
model adjustments (reflected in changes in risk parameters).
- There were net flows into Stage 2 from Stage 1 as PDs
increased due to moving closer to the forecasted unemployment peak,
noting the latest MES update reduction in unemployment peak will
not result in exits from Stage 2 until Q3 2023 (due to the three
month PD persistence rule in stage allocation).
- The increase in the cost of living post model adjustment at 30
June 2023 proportionately allocated more ECL to Stage 1 given the
forward-looking nature of the cost of living and inflation threat.
Refer to the Governance and post model adjustments section for more
information.
- The Stage 3 inflows remained broadly stable but there was a
modest increase in Stage 3 ECL overall, partly linked to recent
house price index deterioration. The relatively small ECL cost for
net re-measurement on stage transfer included the effect of risk
targeted ECL adjustments, when previously in the good book. 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.
Notes
7. Loan impairment provisions continued
Flow statements
Stage 1 Stage 2 Stage 3 Total
--------------- --------------- --------------- ---------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Retail Banking - credit cards GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 1 January 2023 2,420 47 855 91 88 57 3,363 195
Currency translation and other - - - - 3 1 3 1
adjustments
Transfers from Stage 1 to Stage
2 (695) (17) 695 17 - - - -
Transfers from Stage 2 to Stage
1 263 19 (263) (19) - - - -
Transfers to Stage 3 (8) - (44) (18) 52 18 - -
Transfers from Stage 3 1 1 3 1 (4) (2) - -
Net re-measurement of ECL
on stage transfer (12) 63 13 64
Changes in risk parameters
(model inputs) 5 (1) 7 11
Other changes in net exposure 579 4 (40) (19) (13) (1) 526 (16)
Other (P&L only items) - - - -
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Income statement (releases)/charges (3) 43 19 59
Amounts written-off - - - - (26) (26) (26) (26)
Unwinding of discount - - (2) (2)
At 30 June 2023 2,560 47 1,206 115 100 65 3,866 227
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 2,513 1,091 35 3,639
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 1 January 2022 2,096 47 751 114 69 45 2,916 206
2022 movements 89 4 46 (24) 15 7 150 (13)
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 30 June 2022 2,185 51 797 90 84 52 3,066 193
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 2,134 707 32 2,873
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
* The overall increase in ECL was mainly due to the
increase in Stage 2 ECL.
* While portfolio performance remained stable, a net
flow into Stage 2 from Stage 1 is observed as PDs
increase as the forecasted unemployment peak moves
closer and PD modelling updates capture more economic
downside.
* Credit card balances have continued to grow since the
2022 year end, in line with industry trends in the UK,
reflecting strong customer demand, while sustaining
robust risk appetite.
* Reflecting the strong credit performance observed
during H1 2023, Stage 3 inflows remained stable and
therefore Stage 3 ECL movement was modest in H1 2023.
* Charge-off (analogous to partial write-off) typically
occurs after 12 missed payments.
Notes
7. Loan impairment provisions continued
Flow statements
Stage 1 Stage 2 Stage 3 Total
---------------- ---------------- --------------- ---------------
Financial Financial Financial Financial
Retail Banking assets ECL assets ECL assets ECL assets ECL
- other personal unsecured GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------- ----- --------- ----- --------- ---- --------- ----
At 1 January 2023 3,813 92 1,666 225 638 516 6,117 833
Currency translation and other
adjustments - - (1) (2) 10 10 9 8
Transfers from Stage 1 to Stage
2 (1,206) (50) 1,206 50 - - - -
Transfers from Stage 2 to Stage
1 984 140 (984) (140) - - - -
Transfers to Stage 3 (19) (1) (136) (53) 155 54 - -
Transfers from Stage 3 2 1 9 3 (11) (4) - -
Net re-measurement of ECL
on stage transfer (100) 140 20 60
Changes in risk parameters
(model inputs) (19) (8) 41 14
Other changes in net exposure 498 47 (222) (24) (42) (14) 234 9
Other (P&L only items) 1 (1) 4 4
------------------------------------ --------- ----- --------- ----- --------- ---- --------- ----
Income statement (releases)/charges (71) 107 51 87
Amounts written-off - - - - (18) (18) (18) (18)
Unwinding of discount - - (12) (12)
At 30 June 2023 4,072 110 1,538 191 732 593 6,342 894
------------------------------------ --------- ----- --------- ----- --------- ---- --------- ----
Net carrying amount 3,962 1,347 139 5,448
------------------------------------ --------- ----- --------- ----- --------- ---- --------- ----
At 1 January 2022 3,636 43 1,574 242 510 438 5,720 723
2022 movements 229 9 (150) (51) 87 62 166 20
------------------------------------ --------- ----- --------- ----- --------- ---- --------- ----
At 30 June 2022 3,865 52 1,424 191 597 500 5,886 743
------------------------------------ --------- ----- --------- ----- --------- ---- --------- ----
Net carrying amount 3,813 1,233 97 5,143
------------------------------------ --------- ----- --------- ----- --------- ---- --------- ----
* Total ECL increased mainly in Stage 3. While default
levels were stable, they were higher than in 2022 in
absolute terms. This increase was in line with
post-COVID-19 portfolio growth alongside robust risk
appetite and, given write-off levels are lower during
2023 so far, ECL levels have also risen.
* While portfolio performance remains stable, a net
flow into Stage 2 from Stage 1 is observed as PDs
increase as the forecasted unemployment peak moves
closer. The lower forecast unemployment peak in the
latest MES economics dampened the net effect of stage
migrations on ECL, primarily through reducing PDs on
existing Stage 2 cases.
* Unsecured retail balances have grown since the 2022
year end, in line with industry trends in the UK, as
unsecured borrowing demand continues.
* 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.
Notes
7. Loan impairment provisions continued
Flow statements
Stage 1 Stage 2 Stage 3 Total
---------------- ---------------- --------------- ----------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
total
--------------------------------- --------- ----- --------- ----- --------- ---- --------- -----
At 1 January 2023 63,844 259 18,360 419 1,567 524 83,771 1,202
Currency translation and other
adjustments (434) 3 (183) (2) 8 9 (609) 10
Transfers from Stage 1 to Stage
2 (9,402) (56) 9,402 56 - - - -
Transfers from Stage 2 to Stage
1 9,703 131 (9,703) (131) - - - -
Transfers to Stage 3 (37) (1) (742) (33) 779 34 - -
Transfers from Stage 3 81 12 103 11 (184) (23) - -
Net re-measurement of ECL
on stage transfer (101) 105 60 64
Changes in risk parameters
(model inputs) (29) (11) 24 (16)
Other changes in net exposure 5,296 36 (1,883) (20) (470) (33) 2,943 (17)
Other (P&L only items) - - (13) (13)
--------------------------------- --------- ----- --------- ----- --------- ---- --------- -----
Income statement releases (94) 74 38 18
Amounts written-off - - - - (39) (39) (39) (39)
Unwinding of discount - - (17) (17)
At 30 June 2023 69,051 254 15,354 394 1,661 539 86,066 1,187
--------------------------------- --------- ----- --------- ----- --------- ---- --------- -----
Net carrying amount 68,797 14,960 1,122 84,879
--------------------------------- --------- ----- --------- ----- --------- ---- --------- -----
At 1 January 2022 61,223 96 15,055 588 1,422 486 77,700 1,170
2022 movements 4,971 41 (2,426) (113) 254 4 2,799 (68)
--------- ----- --------- ----- --------- ---- --------- -----
At 30 June 2022 66,194 137 12,629 475 1,676 490 80,499 1,102
--------------------------------- --------- ----- --------- ----- --------- ---- --------- -----
Net carrying amount 66,057 12,154 1,186 79,397
--------------------------------- --------- ----- --------- ----- --------- ---- --------- -----
* There was a small decrease in ECL levels during H1
2023, with reductions in modelled ECL from improving
economic variables and risk metrics partially offset
by increases in post model adjustments to capture
increased economic uncertainty and Stage 3 charges.
* Stage 2 exposure and ECL reduced, reflecting
improving economic variables and risk metrics which
lowered PDs and led to significant transfers of
exposure and ECL from Stage 2 into Stage 1. The ECL
reduction was partially offset by charges, the
majority of which were from increases in post model
adjustments, with the PD downgrade adjustment
resulting in transfers from Stage 1 into Stage 2 and
increased ECL on stage transfer, from moving from a
12 month ECL to a lifetime ECL.
* Stage 3 inflows remained stable. There was a modest
increase in Stage 3 ECL overall with increases from
transfers and charges largely offset by write-offs.
Notes
7. Loan impairment provisions continued
Flow statements
Stage 1 Stage 2 Stage 3 Total
--------------- ---------------- --------------- ---------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- corporate
------------------------------------ --------- ---- --------- ----- --------- ---- --------- ----
At 1 January 2023 40,369 175 14,662 344 1,093 385 56,124 904
Currency translation and other
adjustments (361) 4 (153) (3) 9 8 (505) 9
Inter-Group transfers 1 - (11) - (3) - (13) -
Transfers from Stage 1 to Stage
2 (7,238) (44) 7,238 44 - - - -
Transfers from Stage 2 to Stage
1 6,998 102 (6,998) (102) - - - -
Transfers to Stage 3 (31) (1) (570) (26) 601 27 - -
Transfers from Stage 3 58 10 80 8 (138) (18) - -
Net re-measurement of ECL
on stage transfer (80) 78 47 45
Changes in risk parameters
(model inputs) (16) (16) 19 (13)
Other changes in net exposure 4,897 28 (1,798) (13) (352) (30) 2,747 (15)
Other (P&L only items) (1) - (12) (13)
------------------------------------ --------- ---- --------- ----- --------- ---- --------- ----
Income statement (releases)/charges (69) 49 24 4
Amounts written-off - - - - (20) (20) (20) (20)
Unwinding of discount - - (14) (14)
At 30 June 2023 44,693 178 12,450 314 1,190 404 58,333 896
------------------------------------ --------- ---- --------- ----- --------- ---- --------- ----
Net carrying amount 44,515 12,136 786 57,437
------------------------------------ --------- ---- --------- ----- --------- ---- --------- ----
- There was a modest decrease in ECL levels during H1 2023, with
reductions in modelled ECL from improving economic variables and
risk metrics offset by increases in post model adjustments to
capture increased economic uncertainty and Stage 3 charges.
- Stage 2 exposure and ECL reduced, reflecting improving
economic variables and risk metrics which lowered PDs, with the net
effect of stage transfers leading to a reduction in ECL. The ECL
reduction was partially offset by charges, the majority of which,
were from increases in post model adjustments.
- Stage 3 inflows remained stable with increases from government
scheme lending. There was a modest increase in Stage 3 ECL overall
with increases from transfers and charges partially offset by
write-offs.
Stage 1 Stage 2 Stage 3 Total
--------------- --------------- --------------- ---------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- property
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 1 January 2023 16,806 73 2,871 66 378 126 20,055 265
Currency translation and other
adjustments (7) - (4) (1) 1 2 (10) 1
Inter-Group transfers 1 - 6 - 2 - 9 -
Transfers from Stage 1 to Stage
2 (1,739) (11) 1,739 11 - - - -
Transfers from Stage 2 to Stage
1 1,596 21 (1,596) (21) - - - -
Transfers to Stage 3 (7) - (169) (7) 176 7 - -
Transfers from Stage 3 21 2 22 3 (43) (5) - -
Net re-measurement of ECL
on stage transfer (15) 24 12 21
Changes in risk parameters
(model inputs) (11) 4 3 (4)
Other changes in net exposure 505 7 (344) (5) (78) (3) 83 (1)
Other (P&L only items) 1 (1) - -
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Income statement (releases)/charges (18) 22 12 16
Amounts written-off - - - - (14) (14) (14) (14)
Unwinding of discount - - (3) (3)
At 30 June 2023 17,176 66 2,525 74 422 125 20,123 265
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 17,110 2,451 297 19,858
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
* ECL levels stayed constant during H1 2023, with
reductions in modelled ECL from improving economic
variables and risk metrics offset by increases in
post model adjustments to capture increased economic
uncertainty.
* Stage 2 exposure reduced reflecting improving
economic variables and risk metrics which lowered PDs,
with the net effect of stage transfers leading to a
reduction in ECL.
* Stage 2 ECL increased due to economic uncertainty
post model adjustments which more than offset
reductions from stage transfers.
* Stage 3 inflows increased due to an uptick in
defaults but this did not lead to a change in ECL
with increases from transfers and charges offset by
write-offs.
Notes
7. Loan impairment provisions continued
Flow statements
Stage 1 Stage 2 Stage 3 Total
--------------- --------------- --------------- ---------------
Financial Financial Financial Financial
assets ECL assets ECL assets ECL assets ECL
Commercial & Institutional GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
- other
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
At 1 January 2023 6,669 11 827 9 96 13 7,592 33
Currency translation and other
adjustments (65) - (27) - (2) - (94) -
Inter-Group transfers (1) - 5 - - - 4 -
Transfers from Stage 1 to Stage
2 (424) (1) 424 1 - - - -
Transfers from Stage 2 to Stage
1 1,108 7 (1,108) (7) - - - -
Transfers to Stage 3 - - (2) - 2 - - -
Transfers from Stage 3 2 - 1 - (3) - - -
Net re-measurement of ECL
on stage transfer (6) 4 - (2)
Changes in risk parameters (2) - 2 -
(model inputs)
Other changes in net exposure (107) 1 259 (1) (40) (1) 112 (1)
Other (P&L only items) - - 1 1
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Income statement (releases)/charges (7) 3 2 (2)
Amounts written-off - - - - (4) (4) (4) (4)
Unwinding of discount - - - -
At 30 June 2023 7,182 10 379 6 49 10 7,610 26
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
Net carrying amount 7,172 373 39 7,584
------------------------------------ --------- ---- --------- ---- --------- ---- --------- ----
* There was a modest decrease in ECL levels during H1
2023, with reductions in modelled ECL from improving
economic variables and risk metrics partially offset
by increases in post model adjustments to capture
increased economic uncertainty.
* Stage 2 exposure and ECL reduced, reflecting
improving economic variables and risk metrics which
lowered PDs and led to significant transfers of
exposure and ECL from Stage 2 into Stage 1.
Notes
7. Loan impairment provisions continued
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 IFRS 9 ECL
reflected portfolios carried at fair value.
Mortgages ECL provisions ECL provisions
coverage (2)
--------------------------------------- ------- -------------------------- --------------------------
Not Of
within which:
IFRS gross
9
ECL new
Stage Stage Stage scope Total lending Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3 (1) 1 2 3
30 June GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % % % %
2023
<=50% 59,186 6,234 733 44 66,197 2,722 24 15 78 117 0.0 0.2 10.6 0.2
>50% and
<=70% 64,066 7,149 569 5 71,789 4,773 33 25 55 113 0.1 0.4 9.7 0.2
>70% and
<=80% 22,059 2,091 89 - 24,239 3,978 11 8 11 30 0.1 0.4 12.4 0.1
>80% and
<=90% 11,207 1,392 27 - 12,626 3,148 9 6 4 19 0.1 0.4 14.8 0.2
>90% and
<=100% 4,331 481 9 - 4,821 2,427 4 3 2 9 0.1 0.6 22.2 0.2
>100% 44 7 11 - 62 7 2 - 5 7 4.6 - 45.5 11.3
--------- ------- ------ ----- ------ ------- ------- ----- ----- ----- ----- ----- ----- ----- -----
Total
with
LTVs 160,893 17,354 1,438 49 179,734 17,055 83 57 155 295 0.1 0.3 10.8 0.2
Other 103 1 1 - 105 - 2 - 1 3 1.9 - 100.0 2.9
--------- ------- ------ ----- ------ ------- ------- ----- ----- ----- ----- ----- ----- ----- -----
Total 160,996 17,355 1,439 49 179,839 17,055 85 57 156 298 0.1 0.3 10.8 0.2
--------- ------- ------ ----- ------ ------- ------- ----- ----- ----- ----- ----- ----- ----- -----
31
December
2022
------- ------ ----- ------ ------- ------- ----- ----- ----- ----- ----- ----- ----- -----
<=50% 63,446 6,809 742 50 71,047 7,187 23 17 77 117 - 0.3 10.4 0.2
>50% and
<=70% 65,419 7,118 495 5 73,037 13,790 31 27 47 105 0.1 0.4 9.5 0.1
>70% and
<=80% 17,227 1,540 52 1 18,820 10,978 7 6 7 20 - 0.4 13.5 0.1
>80% and
<=90% 7,714 889 14 1 8,618 6,950 6 4 4 14 0.1 0.5 28.6 0.2
>90% and
<=100% 1,363 17 4 - 1,384 1,341 2 - 1 3 0.2 - 25.0 0.2
>100% 34 7 9 - 50 2 2 - 4 6 5.9 - 44.4 12.0
--------- ----- ----- -----
Total
with
LTVs 155,203 16,380 1,316 57 172,956 40,248 71 54 140 265 0.1 0.3 10.6 0.2
Other 40 1 1 - 42 - 3 - 1 4 7.5 - 100.0 9.5
--------- ------- ------ ----- ------- ------- ----- ----- ----- -----
Total 155,243 16,381 1,317 57 172,998 40,248 74 54 141 269 0.1 0.3 10.7 0.2
--------- ------- ------ ----- ------ ------- ------- ----- ----- ----- ----- ----- ----- ----- -----
(1) Excludes a non-material amount of provisions held on relatively small legacy portfolios.
(2) ECL provisions coverage is ECL provisions divided by mortgages.
- Overall LTV for the portfolio increased during H1 2023,
reflecting the easing of UK house prices, which was reflected in
the increased exposure in the higher LTV bands. ECL coverage levels
were maintained across the LTV bands.
Notes
8. Provisions for liabilities and charges
Redress Financial
and other commitments
litigation Property and guarantees Other (1) Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2023 292 105 59 94 550
Expected credit losses impairment - - 1 - 1
charge
Currency translation and
other movements (3) - - (4) (7)
Charge to income statement 26 19 - 31 76
Release to income statement (1) (16) - (11) (28)
Provisions utilised (68) (7) - (25) (100)
---------------------------------- ----------- -------- --------- -----
At 30 June 2023 246 101 60 85 492
---------------------------------- ----------- -------- --------------- --------- -----
(1) Other materially comprises provisions relating to restructuring costs.
Provisions are liabilities of uncertain timing or amount and are
recognised when there is a present obligation as a result of a past
event, the outflow of economic benefit is probable and the outflow
can be estimated reliably. Any difference between the final outcome
and the amounts provided will affect the reported results in the
period when the matter is resolved.
9. Dividends
The Board of National Westminster Bank Plc has declared an
interim dividend for H1 2023 of GBP838 million to be paid to NWH
Ltd in H2 2023 (H1 2022- GBP993 million).
10. Contingent liabilities and commitments
The amounts shown in the table below are intended only to
provide an indication of the volume of business outstanding at 30
June 2023. Although NWB Group is exposed to credit risk in the
event of non-performance of the obligations undertaken by
customers, the amounts shown do not, and are not intended to,
provide any indication of NWB Group's expectation of future
losses.
30 June 31 December
2023 2022
GBPm GBPm
-----------
Contingent liabilities and commitments
Guarantees 1,324 1,728
Other contingent liabilities 1,034 1,197
Standby facilities, credit lines and other commitments 81,997 87,221
------------------------------------------------------- ------- -----------
Total 84,355 90,146
------------------------------------------------------- ------- -----------
Commitments and contingent obligations are subject to NWB
Group's normal credit approval processes.
Indemnity deed
In April 2019, NWM Plc and NWB Plc entered into a cross
indemnity agreement for losses incurred within the entities in
relation to business transferred to or from the ring-fenced bank
under the NatWest Group's structural re-organisation. Under the
agreement, NWM Plc is indemnified by NWB Plc against losses
relating to the NWB Plc transferring businesses and ringfenced bank
obligations and NWB Plc is indemnified by NWM Plc against losses
relating to NWM Plc transferring businesses and non-ring-fenced
bank obligations with effect from the relevant transfer date.
No tes
11. Litigation and regulatory matters
NWB Plc and its subsidiary and associated undertakings (NWB
Group) are party to legal proceedings and involved in regulatory
matters, including as the subject of investigations and other
regulatory and governmental action (Matters) in the United Kingdom
(UK), the United States (US), the European Union (EU) and other
jurisdictions.
NWB Group recognises a provision for a liability in relation to
these Matters when it is probable that an outflow of economic
benefits will be required to settle an obligation resulting from
past events, and a reliable estimate can be made of the amount of
the obligation.
In many of these Matters, it is not possible to determine
whether any loss is probable, or to estimate reliably the amount of
any loss, either as a direct consequence of the relevant
proceedings and regulatory matters or as a result of adverse
impacts or restrictions on NWB Group's reputation, businesses and
operations. Numerous legal and factual issues may need to be
resolved, including through potentially lengthy discovery and
document production exercises and determination of important
factual matters, and by addressing novel or unsettled legal
questions relevant to the proceedings in question, before a
liability can reasonably be estimated for any claim. NWB Group
cannot predict if, how, or when such claims will be resolved or
what the eventual settlement, damages, fine, penalty or other
relief, if any, may be, particularly for claims that are at an
early stage in their development or where claimants seek
substantial or indeterminate damages.
There are situations where NWB Group may pursue an approach that
in some instances leads to a settlement agreement. This may occur
in order to avoid the expense, management distraction or
reputational implications of continuing to contest liability, or in
order to take account of the risks inherent in defending claims or
regulatory matters, even for those Matters for which NWB Group
believes it has credible defences and should prevail on the merits.
The uncertainties inherent in all such Matters affect the amount
and timing of any potential outflows for both Matters with respect
to which provisions have been established and other contingent
liabilities in respect of any such Matter.
It is not practicable to provide an aggregate estimate of
potential liability for our legal proceedings and regulatory
matters as a class of contingent liabilities.
The future outflow of resources in respect of any Matter may
ultimately prove to be substantially greater than or less than the
aggregate provision that NWB Group has recognised. Where (and as
far as) liability cannot be reasonably estimated, no provision has
been recognised. NWB Group expects that in future periods,
additional provisions, settlement amounts and customer redress
payments will be necessary, in amounts that are expected to be
substantial in some instances. Please refer to Note 8 for
information on material provisions.
Matters which are, or could be material, having regard to NWB
Group, considered as a whole, in which NWB Group is currently
involved are set out below. We have provided information on the
procedural history of certain Matters, where we believe
appropriate, to aid the understanding of the Matter.
For a discussion of certain risks associated with NWB Group's
litigation and regulatory matters, see the Risk Factor relating to
legal, regulatory and governmental actions and investigations set
out on page 191 of NWB Plc's 2022 Annual Report and Accounts.
Litigation
London Interbank Offered Rate (LIBOR) and other rates
litigation
In August 2020, a complaint was filed in the United States
District Court for the Northern District of California by several
United States retail borrowers against the USD ICE LIBOR panel
banks and their affiliates (including NatWest Group plc, NatWest
Markets Plc, NatWest Markets Securities Inc. and NWB Plc), alleging
(i) that the very process of setting USD ICE LIBOR amounts to
illegal price-fixing; and (ii) that banks in the United States have
illegally agreed to use LIBOR as a component of price in variable
retail loans. In September 2022, the district court dismissed the
complaint, subject to re-pleading by the plaintiffs. The plaintiffs
filed an amended complaint in October 2022, which the defendants
are again seeking to have dismissed.
No tes
11. Litigation and regulatory matters continued
Offshoring VAT assessments
HMRC issued protective tax assessments in 2018 against NatWest
Group plc totalling GBP143 million relating to unpaid VAT in
respect of the UK branches of two NatWest Group companies
registered in India. NatWest Group formally requested
reconsideration by HMRC of their assessments, and this process was
completed in November 2020. HMRC upheld their original decision
and, as a result, NatWest Group plc lodged an appeal with the Tax
Tribunal and an application for judicial review with the High Court
of Justice of England and Wales, both in December 2020. In order to
lodge the appeal with the Tax Tribunal, NatWest Group plc was
required to pay GBP143 million to HMRC, and payment was made in
December 2020. The appeal and the application for judicial review
have both been stayed pending resolution of a separate case
involving another bank.
Regulatory matters (including investigations and customer
redress programmes)
NWB Group's financial condition can be affected by the actions
of various governmental and regulatory authorities in the UK, the
US, the EU and elsewhere. NWB Group and/or NatWest Group have
engaged, and will continue to engage, in discussions with relevant
governmental and regulatory authorities, including in the UK, the
US, the EU and elsewhere, on an ongoing and regular basis, and in
response to informal and formal inquiries or investigations,
regarding operational, systems and control evaluations and issues
including those related to compliance with applicable laws and
regulations, including consumer protection, investment advice,
business conduct, competition/anti-trust, VAT recovery,
anti-bribery, anti-money laundering and sanctions regimes. NWB
Group expects government and regulatory intervention in financial
services to be high for the foreseeable future, including increased
scrutiny from competition and other regulators in the retail and
SME business sectors.
Any matters discussed or identified during such discussions and
inquiries may result in, among other things, further inquiry or
investigation, other action being taken by governmental and
regulatory authorities, increased costs being incurred by NWB
Group, remediation of systems and controls, public or private
censure, restriction of NWB Group's business activities and/or
fines. Any of the events or circumstances mentioned in this
paragraph or below could have a material adverse effect on NWB
Group, its business, authorisations and licences, reputation,
results of operations or the price of securities issued by it, or
lead to material additional provisions being taken.
NWB Group is co-operating fully with the matters described
below.
Investment advice review
In October 2019, the FCA notified NatWest Group of its intention
to appoint a Skilled Person under section 166 of the Financial
Services and Markets Act 2000 to conduct a review of whether
NatWest Group's past business review of investment advice provided
during 2010 to 2015 was subject to appropriate governance and
accountability and led to appropriate customer outcomes. The
Skilled Person's review has concluded and, after discussion with
the FCA, NatWest Group has now commenced additional
review/remediation work.
No tes
12. Related party transactions
UK Government
The UK Government through HM Treasury is the ultimate
controlling party of NatWest Group plc. The UK Government's
shareholding is managed by UK Government Investments Limited, a
company wholly owned by the UK Government. As a result the UK
Government and UK Government controlled bodies are related parties
of the Group.
At 30 June 2023 HM Treasury's holding in the NatWest Group's
ordinary shares was 38.53%.
NWB Group enters into transactions with many of these bodies.
Transactions include the payment of: taxes - principally UK
corporation tax and value added tax; national insurance
contributions; local authority rates; regulatory fees and levies;
together with banking transactions such as loans and deposits
undertaken in the normal course of banker customer
relationships.
Bank of England facilities
In the ordinary course of business, NWB Group may from time to
time access market-wide facilities provided by the Bank of
England.
Other related parties
(a) In their roles as providers of finance, NWB Group companies
provide development and other types of capital support to
businesses. These investments are made in the normal course of
business.
(b) To further strategic partnerships, NWB Group may seek to
invest in third parties or allow third parties to hold a minority
interest in a subsidiary of NWB Group. We disclose as related
parties where stakes of 10 per cent or more are held. Ongoing
business transactions with these entities are on normal commercial
terms.
(c) NWB Group recharges the NatWest Group Pension Fund with the
cost of administration services incurred by it. The amounts
involved are not material to NWB Group.
(d) In accordance with IAS 24, transactions or balances between
NWB Group entities that have been eliminated on consolidation are
not reported.
Full details of NWB Group's related party transactions for the
year ended 31 December 2022 are included in NatWest Bank Plc's 2022
Annual Report and Accounts.
13. Post balance sheet events
Other than as disclosed in this document there have been no
significant events between 30 June 2023 and the date of approval of
this announcement which would require a change to, or additional
disclosure in, the announcement .
14. Date of approval
This announcement was approved by the Board of Directors on 27
July 2023.
Independent review report to National Westminster Bank Plc
Conclusion
We have been engaged by National Westminster Bank Plc ( the
Group ) to review the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2023
which comprises of the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the
condensed consolidated balance sheet, the condensed consolidated
statement of changes in equity, the condensed consolidated cash
flow statement, and related Notes 1 to 14 (together "the condensed
consolidated financial statements ") . We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Group a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Group in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Group,
for our work, for this report, or for the conclusions we have
formed.
Ernst & Young LLP
London, United Kingdom
27 July 2023
NatWest Bank plc Summary Risk Factors
Summary of Principal Risks and Uncertainties
Set out below is a summary of the principal risks and
uncertainties for the remaining six months of the financial year
which could adversely affect NWB Group. This summary should not be
regarded as a complete and comprehensive statement of all potential
risks and uncertainties; a fuller description of these and other
risk factors is included on pages 172 to 192 of the NatWest Bank
Plc 2022 Annual Report and Accounts. Any of the risks identified
may have a material adverse effect on NatWest Group's business,
operations, financial condition or prospects.
Economic and political risk
- NWB Group, its customers and its counterparties face continued
economic and political risks and uncertainties in the UK and global
markets, including as a result of high inflation and rising
interest rates, supply chain disruption and the Russian invasion of
Ukraine.
- Changes in interest rates have significantly affected, and
will continue to affect, NWB Group's business and results.
- Fluctuations in currency exchange rates may adversely affect
NWB Group's results and financial condition.
- Continuing uncertainty regarding the effects and extent of the
UK's post Brexit divergence from EU laws and regulation, and NWB
Group's post Brexit EU operating model may adversely affect NWB
Group and its operating environment.
- HM Treasury (or UKGI on its behalf) could exercise a
significant degree of influence over NatWest Group and NWB Group is
controlled by NatWest Group.
Strategic risk
- NatWest Group (NWB Plc's parent company) continues to
implement its purpose-led strategy, which carries significant
execution and operational risks and may not achieve its stated aims
and targeted outcomes.
- Future acquisitions or divestments by NatWest Group (and/or
NWB Group) may not be successful, and consolidation or
fragmentation of the financial services industry may adversely
affect NatWest Group.
- The transfer of NatWest Group's Western European corporate portfolio involves certain risks.
Financial resilience risk
- NWB Group may not meet the targets it communicates or generate sustainable returns.
- NWB Group has significant exposure to counterparty and borrower risk.
- NWB Group operates in markets that are highly competitive,
with increasing competitive pressures and technology
disruption.
- NWB Group may not meet the prudential regulatory requirements
for regulatory capital and MREL, or manage its capital effectively,
which could trigger the execution of certain management actions or
recovery options.
- NWB Group may not be able to adequately access sources of liquidity and funding.
- NWB Group is reliant on NatWest Group for capital and funding
support, and is substantially reliant on NatWest Group plc's
ability to issue sufficient amounts of capital and external MREL
securities and downstream the proceeds to NWB Group. The inability
to do so may adversely affect NWB Group.
- Any reduction in the credit rating and/or outlooks assigned to
NatWest Group plc, any of its subsidiaries (including NWB Plc or
other NWB Group subsidiaries) or any of their respective debt
securities could adversely affect the availability of funding for
NWB Group, reduce its liquidity position and increase the cost of
funding.
- NWB Group may be adversely affected if NatWest Group fails to
meet the requirements of regulatory stress tests.
- NWB Group could incur losses or be required to maintain higher
levels of capital as a result of limitations or failure of various
models.
- NWB Group's financial statements are sensitive to underlying
accounting policies, judgments, estimates and assumptions.
- Changes in accounting standards may materially impact NWB Group's financial results.
- NatWest Group (including NWB Group) may become subject to the
application of UK statutory stabilisation or resolution powers
which may result in, for example, the write-down or conversion of
NWB Group's eligible liabilities.
- NatWest Group is subject to Bank of England and PRA oversight
in respect of resolution, and NWB Group could be adversely affected
should the Bank of England in the future deem NatWest Group's
preparations to be inadequate.
Climate and sustainability-related risks
- NWB Group and its customers, suppliers and counterparties face significant climate and sustainability-related risks, which may adversely affect NWB Group.
- NatWest Group's climate change related strategy, ambitions,
targets and transition plan entail significant execution and
reputational risk and are unlikely to be achieved without
significant and timely government policy, technology and customer
behavioural changes.
- There are significant limitations related to accessing
reliable, verifiable and comparable climate and other
sustainability-related data, including as a result of lack of
standardisation, consistency and completeness which, alongside
other factors, contribute to substantial uncertainties in
accurately modelling and reporting on climate and sustainability
information, as well as making appropriate important internal
decisions.
- A failure to implement effective climate change resilient
governance, procedures, systems and controls in compliance with
legal and regulatory expectations to manage climate and
sustainability-related risks and opportunities could adversely
affect NWB Group's ability to manage those risks.
- Increasing levels of climate, environmental, human rights and
other sustainability-related laws, regulation and oversight which
are constantly evolving may adversely affect NWB Group.
- NWB Group may be subject to potential climate, environmental, human rights and other sustainability-related litigation, enforcement proceedings, investigations and conduct risk.
- A reduction in the ESG ratings of NatWest Group (including NWB
Group) could have a negative impact on NatWest Group's (including
NWB Group's) reputation and on investors' risk appetite and
customers' willingness to deal with NatWest Group (including NWB
Group).
NatWest Bank plc Summary Risk Factors
Summary of Principal Risks and Uncertainties continued
Operational and IT resilience risk
- Operational risks (including reliance on third party suppliers
and outsourcing of certain activities) are inherent in NWB Group's
businesses. NWB Group increasingly provides certain shared critical
services, including property and financial accounting, regulatory
reporting and certain administrative, treasury and legal services
to other entities within NatWest Group (in particular, NWM Plc) and
receives income in respect of these services. As a result, NWB
Group may be exposed to a loss of income if these services are not
required to the same extent, or are no longer required at all.
- NWB Group is subject to increasingly sophisticated and frequent cyberattacks.
- NWB Group operations and strategy are highly dependent on the
accuracy and effective use of data.
- NWB Group's operations are highly dependent on its complex IT
systems and any IT failure could adversely affect NWB Group.
- NWB Group relies on attracting, retaining and developing
diverse senior management and skilled personnel, and is required to
maintain good employee relations.
- A failure in NWB Group's risk management framework could
adversely affect NWB Group, including its ability to achieve its
strategic objectives.
- NWB Group's operations are subject to inherent reputational risk.
Legal, regulatory and conduct risk
- NWB Group's businesses are subject to substantial regulation
and oversight, which are constantly evolving and may adversely
affect NWB Group.
- NWB Group is exposed to the risks of various litigation
matters, regulatory and governmental actions and investigations as
well as remedial undertakings, including conduct-related reviews,
anti-money laundering and redress projects, the outcomes of which
are inherently difficult to predict, and which could have an
adverse effect on NWB Group.
- NWB Group may not effectively manage the transition of LIBOR
and other IBOR rates to replacement risk-free rates.
- Changes in tax legislation or failure to generate future
taxable profits may impact the recoverability of certain deferred
tax assets recognised by NWB Group.
Statement of directors' responsibilities
We, the directors listed below, confirm that to the best of our
knowledge:
- the condensed financial statements have been prepared in
accordance with UK adopted IAS 34 'Interim Financial
Reporting';
- the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
- the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
By order of the Board
Howard Davies Katie Murray
Chairman Chief Financial Officer
27 July 2023
Board of directors
Chairman Executive directors Non-executive directors
Howard Davies John-Paul Thwaite Francesca Barnes
Katie Murray Graham Beale
Ian Cormack
Roisin Donnelly
Patrick Flynn
Morten Friis
Yasmin Jetha
Stuart Lewis
Mark Seligman
Lena Wilson
Presentation of information
National Westminster Bank Plc ('NWB Plc' or NatWest Bank Plc) is
a wholly-owned subsidiary of NatWest Holdings Limited ('NWH Ltd' or
'the intermediate holding company'). The term 'NatWest Bank Group'
or 'NWB Group' refers to NWB Plc and its subsidiary and associated
undertakings. The term 'NWH Group' refers to NWH Ltd and its
subsidiary and associated undertakings. NatWest Group plc is 'the
ultimate holding company'. The term 'NatWest Group' refers to
NatWest Group plc and its subsidiary and associated
undertakings.
NWB Plc publishes its financial statements in pounds sterling
('GBP' or 'sterling'). The abbreviations 'GBPm' and 'GBPbn'
represent millions and thousands of millions of pounds sterling,
respectively, and references to 'pence' or 'p' represent pence
where the amounts are denominated in pounds sterling ('GBP').
Reference to 'dollars' or '$' are to United States of America
('US') dollars. The abbreviations '$m' and '$bn' represent millions
and thousands of millions of dollars, respectively. The
abbreviation 'EUR' represents the 'euro', and the abbreviations
'EURm' and 'EURbn' represent millions and thousands of millions of
euros, respectively.
Statutory accounts
Financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 ("the Act"). The statutory accounts for the
year ended 31 December 2022 have been filed with the Registrar of
Companies. The report of the auditor on those statutory accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act.
Contact
Alexander Holcroft Investor Relations +44 (0) 20 7672 1758
------------------- ------------------- --------------------
Forward-looking statements
This document may include forward-looking statements within the
meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation,
the words 'expect', 'estimate', 'project', 'anticipate', 'commit',
'believe', 'should', 'intend', 'will', 'plan', 'could',
'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal',
'objective', 'may', 'endeavour', 'outlook', 'optimistic',
'prospects' and similar expressions or variations on these
expressions. These statements concern or may affect future matters,
such as NWB Group's future economic results, business plans and
strategies. In particular, this document may include
forward-looking statements relating to NWB Group in respect of, but
not limited to: its economic and political risks, its regulatory
capital position and related requirements, its financial position,
profitability and financial performance (including financial,
capital, cost savings and operational targets), the implementation
of NatWest Group's purpose-led strategy, its environmental, social
and governance and climate related targets, its access to adequate
sources of liquidity and funding, increasing competition from new
incumbents and disruptive technologies, its exposure to third party
risks, its ongoing compliance with the UK ring-fencing regime and
ensuring operational continuity in resolution, its impairment
losses and credit exposures under certain specified scenarios,
substantial regulation and oversight, ongoing legal, regulatory and
governmental actions and investigations, the transition of LIBOR
and IBOR rates to replacement risk free rates and NWB Group's
exposure to, operational risk, conduct risk, cyber, data and IT
risk, financial crime risk, key person risk and credit rating risk.
Forward-looking statements are subject to a number of risks and
uncertainties that might cause actual results and performance to
differ materially from any expected future results or performance
expressed or implied by the forward-looking statements. Factors
that could cause or contribute to differences in current
expectations include, but are not limited to, future growth
initiatives (including acquisitions, joint ventures and strategic
partnerships), the outcome of legal, regulatory and governmental
actions and investigations, the level and extent of future
impairments and write-downs, legislative, political, fiscal and
regulatory developments, accounting standards, competitive
conditions, technological developments, interest and exchange rate
fluctuations, and general economic and political conditions and the
impact of climate related risks and the transitioning to a net zero
economy. These and other factors, risks and uncertainties that may
impact any forward-looking statement or the NWB Group's actual
results are discussed in the NWB Plc's 2022 Annual Report and
Accounts (ARA), and NWB Plc's Interim Results for H1 2023. The
forward-looking statements contained in this document speak only as
of the date of this document and NWB Plc does not assume or
undertake any obligation or responsibility to update any of the
forward-looking statements contained in this document, whether as a
result of new information, future events or otherwise, except to
the extent legally required.
Legal Entity Identifier: 213800IBT39XQ9C4CP71
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IR NKOBPNBKBNOB
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