6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

30 July 2021

Commission file number: 001-10306

Form 6-K

NatWest Group plc

Gogarburn

PO Box 1000

Edinburgh EH12 1HQ

Scotland

United Kingdom

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ⌧                                             Form 40-F    

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):__

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):__

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes                                                             No  X 

If "Yes" is marked, indicate below the file number assigned to

the registrant in connection with Rule 12g3-2(b): 82-            

This report on Form 6-K, except for any information contained on any websites linked or documents referred to in this report, shall be deemed incorporated by reference into the company’s Registration Statement on Form F-3 (File No. 333-251220) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

Forward-looking statements

Cautionary statement regarding forward-looking statements

Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include 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. In particular, this document includes forward-looking statements relating, but not limited to: the COVID-19 pandemic and its impact on NatWest Group; future profitability and performance, including financial performance targets (such as RoTE and ROE) and discretionary capital distribution targets; ESG and climate-related targets, including in relation to sustainable financing and financed emissions; planned cost savings; implementation of NatWest Group’s Purpose-led strategy, including in relation to the refocusing of its NWM franchise and the digitalisation of its operations and services; the timing and outcome of litigation and government and regulatory investigations; the implementation of the Alternative Remedies Package; balance sheet reduction, including the reduction of RWAs; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWAes, Pillar 2 and other regulatory buffer requirements and MREL; funding plans and credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth and product share; impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; NatWest Group’s exposure to political risk, economic risk, climate, environmental and sustainability risk, operational risk, conduct risk, cyber and IT risk and credit rating risk and to various types of market risk, including interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience, including our Net Promotor Score (NPS); employee engagement and gender balance in leadership positions.

Limitations inherent to forward-looking statements

These statements are based on current plans, expectations, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to NatWest Group’s strategy or operations, which may result in NatWest Group being unable to achieve the current plans, expectations, estimates, targets, projections and other anticipated outcomes expressed or implied by such forward-looking statements. In addition, certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future results, gains or losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. The forward-looking statements contained in this document speak only as of the date we make them and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein, whether to reflect any change in our expectations with regard thereto, any change in events, conditions or circumstances on which any such statement is based, or otherwise, except to the extent legally required.

Important factors that could affect the actual outcome of the forward-looking statements

We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements described in this document. These factors include, but are not limited to, those set forth in the risk factors and the other uncertainties described in NatWest Group plc’s Annual Report on Form 20-F and its other filings with the US Securities and Exchange Commission. The principal risks and uncertainties that could adversely NatWest Group’s future results, its financial condition and prospects and cause them to be materially different from what is forecast or expected, include, but are not limited to: risks relating to the COVID-19 pandemic (including in respect of: the effects on the global economy and financial markets, and NatWest Group’s customers; increased counterparty risk; NatWest Group’s ability to meet its targets and strategic objectives; increased operational and control risks; increased funding risk; future impairments and write-downs); economic and political risk (including in respect of: uncertainty regarding the effects of Brexit; increased political and economic risks and uncertainty in the UK and global markets; changes in interest rates and foreign currency exchange rates; and HM Treasury’s ownership of NatWest Group plc); strategic risk (including in respect of the implementation of NatWest Group’s Purpose-led Strategy, including the re-focusing of the NWM franchise, the phased withdrawal from the Republic of Ireland and NatWest Group’s ability to achieve its targets); financial resilience risk (including in respect of: NatWest Group’s ability to meet targets and to resume discretionary capital distributions; the competitive environment; counterparty risk; prudential regulatory requirements for capital and MREL; funding risk; changes in the credit ratings; the adequacy of NatWest Group’s resolution plans; the requirements of regulatory stress tests; model risk; sensitivity to accounting policies, judgments, assumptions and estimates; changes in applicable accounting standards; the value or effectiveness of credit protection; and the application of UK statutory stabilisation or resolution powers); climate and sustainability risk (including in respect of: risks relating to climate change and the transitioning to a low-carbon economy; the implementation of NatWest Group’s climate change strategy and climate change resilient systems, controls and procedures; increased model risk; the failure to adapt to emerging climate, environmental and sustainability risks and opportunities; changes in ESG ratings; increasing levels of climate, environmental and sustainability related regulation and oversight; and climate, environmental and sustainability related litigation, enforcement proceedings and investigations); operational and IT resilience risk (including in respect of: operational risks (including reliance on third party suppliers); cyberattacks; the accuracy and effective use of data; complex IT systems (including those that enable remote working); attracting, retaining and developing senior management and skilled personnel; NatWest Group’s risk management framework; and reputational risk); and legal, regulatory and conduct risk (including in respect of: the impact of substantial regulation and oversight; compliance with regulatory requirements; the outcome of legal, regulatory and governmental actions and investigations; the replacement of LIBOR, EURIBOR and other IBOR rates;

heightened regulatory and governmental scrutiny (including by competition authorities); implementation of the Alternative Remedies Package; and changes in tax legislation or failure to generate future taxable profits).

The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or a solicitation of an offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

NatWest Group – Form 6-K Interim Results 2021 2

Introduction

Presentation of information

‘Parent company’ refers to the NatWest Group plc, and ‘NatWest Group’ refers to NatWest Group plc and its subsidiary and associated undertakings. The term ‘NWH Group’ refers to NatWest Holdings Limited (‘NWH’) and its subsidiary and associated undertakings. The term ‘NWM Group’ refers to NatWest Markets Plc (‘NWM Plc’) and its subsidiary and associated undertakings. The term ‘NWM N.V.’ refers to NatWest Markets N.V. The term ‘NWMSI’ refers to NatWest Markets Securities, Inc. The term ‘RBS plc’ refers to The Royal Bank of Scotland plc. The term ‘NWB Plc’ refers to National Westminster Bank Plc.  The term ‘UBI DAC’ refers to Ulster Bank Ireland DAC. The term ‘RBSI Limited’ refers to The Royal Bank of Scotland International Limited.

NatWest Group publishes its financial statements in pounds sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references to ‘pence’ represent pence in the United Kingdom (‘UK’). 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, and references to ‘cents’ represent cents in the US. The abbreviation ‘€’ represents the ‘euro’, and the abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively, and references to ‘cents’ represent cents in the European Union (‘EU’).

To aid readability, this document retains references to EU legislative and regulatory provisions in effect in the UK before 1 January 2021 that have now been implemented in UK domestic law. These references should be read and construed as including references to the applicable UK implementation measures with effect from 1 January 2021.

NatWest Group – Form 6-K Interim Results 2021 3

Non-IFRS financial measures

NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). The 2021 Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:

Non-IFRS financial measures

Measure	Basis of preparation	Additional analysis or reconciliation
NatWest Group return on tangible equity	Annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding non-controlling interests (NCI) less average intangible assets and average other owners’ equity.	Table 1 in the Appendix
Segmental return on equity	Segmental operating profit or loss adjusted for tax and for preference share dividends divided by average notional tangible equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).	Table 2 in the Appendix
Operating expenses analysis – management view	The management analysis of operating expenses shows strategic costs and litigation and conduct costs in separate lines. Depreciation and amortisation, and other administrative expenses attributable to these costs are included in strategic costs and litigation and conduct costs lines for management analysis. These amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis.	Table 3 in the Appendix
Cost:income ratio	Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.	Table 4 in the Appendix
Commentary – adjusted periodically for specific items	NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as such as notable items, operating lease depreciation, strategic costs and litigation and conduct costs.	Notable items - page 9 Operating lease depreciation, Strategic, litigation and conduct costs - pages 18 to 22
Income across UK and RBSI retail and commercial businesses	Comprises income in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding notable items.	Table 7 in the Appendix
Net lending in the UK and RBSI retail and commercial businesses	Comprises customer loans in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding UK Government support schemes.	Table 8 in the Appendix
Deposits across UK and RBSI retail and commercial businesses	Comprises customer deposits in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments.	Table 9 in the Appendix
Bank net interest margin (NIM)	Net interest income of the banking business less NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less NWM element.	Table 5 in the Appendix
Bank net interest margin (NIM) excluding Liquid Asset Buffer	Net interest income of the banking business less NWM element as a percentage of interest-earning assets of the banking business less NWM element and Liquid Asset Buffer.	Table 5 in the Appendix

NatWest Group – Form 6-K Interim Results 2021 4

Performance metrics not defined under IFRS

Measure	Basis of preparation	Additional analysis or reconciliation
Loan:deposit ratio	Net customer loans held at amortised cost divided by total customer deposits.	Table 6 in the Appendix
Tangible net asset value (TNAV)	Tangible equity divided by the number of ordinary shares in issue (excluding own shares held). Tangible equity is ordinary shareholders’ equity less intangible assets.	Page 8
NIM	Net interest income as a percentage of interest-earning assets.	Pages 18 to 22
Funded assets	Total assets less derivatives.	Pages 18 to 22
Loan impairment rate	The annualised loan impairment charge divided by gross customer loans.	Pages 18 to 22
Third party customer asset rate	Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin.	Pages 18 to 22
Third party customer funding rate	Third party customer funding rate is calculated as annualised interest payable on third-party customer deposits as a percentage of third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, bank deposits, debt securities in issue and subordinated liabilities.	Pages 18 to 22
Assets under management and administration (AUMA)	AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and RBSI customers. AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and RBSI for their customers accordingly, for which the execution services are supported by Private Banking. Private Banking receive a fee in respect of providing investment management and execution services to Retail Banking and RBSI franchises.	Page 12
Depositary assets	Assets held by RBSI as an independent trustee and in a depositary service capacity.	Page 14

NatWest Group – Form 6-K Interim Results 2021 5

NatWest Group plc

Interim Results for the period ending 30 June 2021

Alison Rose, Chief Executive Officer, commented:

“These results have been driven by good operating performances across the Group, underpinned by a robust loan book and a strong capital position. Defaults remain low and, given the improved outlook, we have released a further £0.6 billion of impairment provisions in the quarter. While we see the potential for a more rapid recovery, we will continue to take an appropriate and conservative approach as the government schemes wind down and the economy reopens.

As a result of our strong and resilient performance, coupled with our capital strength and cautiously optimistic outlook, we are announcing an interim dividend of 3p and share buy-back of up to £750 million. We are also increasing our minimum distribution to shareholders to £1.0 billion for the next three years. Taken together, this means our total distributions for 2021 will be a minimum of £2.9 billion.

We continue to make progress against our strategic targets and to accelerate our digital transformation as we build a bank that is relevant to our customers in every region of the UK and supports them at every stage of their lives. As the UK’s leading business bank, we are determined to remove barriers to entry and help the economy build back better. Against the background of an ongoing pandemic, our commitment to helping people, families and businesses to rebuild and thrive has never been more important. Because if they thrive, so will we.”

Financial performance in a challenging environment

● H1 2021 operating profit before tax of £2,505 million compared with an operating loss before tax of £770 million in H1 2020. H1 2021 profit attributable to shareholders of £1,842 million.

● Total income decreased by £519 million, or 8.9% compared with H1 2020. Income across the UK and RBSI retail and commercial businesses, excluding notable items, decreased by £160 million, or 3.3%, compared with H1 2020 reflecting the lower yield curve and subdued transactional business activity, partially offset by balance sheet growth. NatWest Markets (NWM) total income decreased by £521 million, or 63.8%, compared with H1 2020. NWM income, excluding asset disposals/strategic risk reduction and OCA, decreased by £492 million, or 59.6%, compared with H1 2020 reflecting the exceptional level of market activity generated by the spread of the COVID-19 virus in the prior period, together with weak performance in the Fixed Income business in the current period.

● Net interest margin of 1.51% decrease by 2 basis points compared with Q1 2021. Bank net interest margin (NIM) of 1.61% decreased by 3 basis points compared with Q1 2021 principally reflecting increased levels of liquidity.

● Operating expenses decreased by £229 million, or 6.1%, compared with H1 2020. Other expenses, excluding operating lease depreciation (OLD) and Ulster Bank RoI direct costs, were £185 million, or 5.9% lower than H1 2020.

● A net impairment release of £707 million in the first half of 2021 mainly reflects releases in non-default portfolios as a result of the improved economic outlook.

Robust balance sheet with strong capital and liquidity levels

● CET1 ratio of 18.2% was in line with Q1 2021.

● An interim dividend of 3 pence per share is proposed.

● The liquidity coverage ratio (LCR) of 164%, representing £75.3 billion headroom above 100% minimum requirement, increased by 6 percentage points compared with Q1 2021, reflecting the continued growth in customer deposits.

● Net lending increased by £2.2 billion to £362.7 billion during H1 2021. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes, increased by £4.1 billion, or 2.8% on an annualised basis, including £7.0 billion of mortgage growth.

● Customer deposits increased by £35.5 billion during H1 2021 to £467.2 billon, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove £11.5 billion of balance growth.

● RWAs decreased by £7.3 billion to £163.0 billion during H1 2021 mainly reflecting business movements in Commercial Banking.

Outlook⁽¹⁾

The rollout of COVID-19 vaccines over the first half of 2021 has contributed towards an improved economic outlook. Our central forecasts are disclosed on pages 24 to 27. The outlook remains subject to significant uncertainty and we will continue to refine our internal forecast as the economic position evolves. We retain the guidance provided at the full year results announcement with the exception of the following:

● We now expect NatWest Markets exit/disposal costs and the impact of Commercial Banking capital management actions to total a combined £150 million in 2021;

● Noting impairment losses in the first half of 2021 were a net release of £707 million, we now expect the 2021 full year impairment loss to be a net release;

● We now expect NatWest Group RWAs to be below or at the lower end of our previously guided range of £185-195 billon on 1 January 2022;

● NatWest Group now aims to distribute a minimum of £1 billion per annum from 2021 to 2023, via a combination of ordinary and special dividends, and intends to commence an ordinary share buy-back programme of up to £750 million in the second half of the year.

Note:

(1) The guidance, targets, expectations and trends discussed in this section represent management’s current expectations and are subject to change, including as a result of the factors described in the Risk Factors section on pages 116 and 117 of this announcement and pages 347 to 366 of the NatWest Group plc 2020 Annual Report on Form 20-F. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

NatWest Group – Form 6-K Interim Results 2021 6

Our Purpose in action

We champion potential, helping people, families and businesses to thrive. If they succeed, so will we. By being relevant to our customers and communities and by supporting our colleagues, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements from H1 2021:

People and families

● Supported customers with 1.5 million financial capability interactions including 515,000 financial health checks.

● 273,000 customers have grown their savings with us by £100 or more for the first time.

● Use of chatbot Cora has grown with 2.7 million conversation in Q2 2021 compared to 2.5 million in Q2 2020.

● Facial biometrics and cheque deposits are now live in our app and Know My Credit Score has been used 20 million times since launch.

● We’ve introduced 95% mortgages to help more young people onto the property ladder and Retail Banking has supported customers with £19.3 billion of gross new mortgage lending in H1 2021.

● Launched Career Sense, a new programme to support 13 to 24 year-olds with readiness for work, aiming to reach over 10,000 young people this year.

Businesses

● c.92% of Bounce Back Loan Scheme (BBLS) customers due to commence loan repayments had begun repayments on, or ahead of schedule and c.5% of all BBLS customers had repaid in full as at 30 June 2021.

● Held 35,000 interactions with entrepreneurs to help them launch their business so far this year through mentoring, webinars and coaching, 76% of which are outside London and the South-East and 53% are female led.

● Relaunched our entrepreneurship proposition and refocused 11 of our 12 Entrepreneur Accelerator hubs to support high growth, female led, black and minority ethnic led and B Corp focused businesses.

● Coutts has collaborated with the Business Growth Fund to provide additional funding, growth capital, and to support small and medium sized enterprises (SMEs).

● Our Springboard to Recovery report launched in March 2021, showed how targeted support for SMEs could unlock £140 billion of additional Gross Value Added (GVA) growth by 2030 equivalent to creating around 3.2 million new jobs across the UK. In response we committed £6 billion to help SMEs grow, of which £4 billion will be allocated outside London, and we doubled our funding of female entrepreneurship to £2 billion.

● Our digital investment platform across NatWest Invest, Royal Bank Invest and Coutts Invest saw £0.5 billion of inflows in H1 2021.

Colleagues

● Launched a framework for NatWest Group’s new hybrid working model, balancing the needs of our customers, communities and colleagues.

● Named as one of the top 25 workplaces in the UK to grow a career by LinkedIn. NatWest Group was also recognised in The Times Top 50 Employers for Women for the 11^th year running.

● Extended our package of COVID-19 support available to colleagues in India, including access to interest-free salary advances to meet medical expenses, reimbursement for the cost of vaccines and extended leave.

● Launched the Talent Academy, a new talent initiative, open to all colleagues with an initial cohort of just over 3,500.

Communities

● NatWest Group joined the Net Zero Banking Alliance and Coutts Asset Management has joined the Net Zero Asset Managers initiative, working with other financial organisations to help deliver the Paris Agreement.

● NatWest Group was the first UK bank to introduce a carbon tracking feature in our mobile banking app to help customers reduce the climate impact of their spending. Following a successful pilot, we've partnered with carbon tracking experts CoGo to let personal customers see the carbon impact of their daily spending.

● NatWest Group issued a €1 billion affordable housing social bond, the first of its kind by a UK bank. The proceeds will support lending to not-for-profit, UK housing associations as part of our commitment to provide £3 billion of funding to the UK’s affordable housing sector by the end of 2022.

● Coutts has become the first major UK Private Bank and Wealth Manager to be certified as a B Corp demonstrating its commitment to meeting the highest standards of verifiable social and environmental performance, public transparency and legal accountability.

● Applications opened for the Circle Fund to support victims of economic and domestic abuse. NatWest pledged £1 million to the fund to help frontline specialist services who provide crisis intervention and recovery support.

For further detail refer to the Climate, Purpose and ESG measures supplement H1 2021.

NatWest Group – Form 6-K Interim Results 2021 7

Business performance summary

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
Performance key metrics and ratios	2021	2020	2021	2021	2020
Total income	£5,319m	£5,838m	£2,660m	£2,659m	£2,676m
Operating expenses	(£3,521m)	(£3,750m)	(£1,706m)	(£1,815m)	(£1,909m)
Profit before impairment releases/(losses)	£1,798m	£2,088m	£954m	£844m	£767m
Operating profit/(loss) before tax	£2,505m	(£770m)	£1,559m	£946m	(£1,289m)
Profit/(loss) attributable to ordinary shareholders	£1,842m	(£705m)	£1,222m	£620m	(£993m)
Excluding notable items within total income (1)
Total income excluding notable items	£5,314m	£5,844m	£2,641m	£2,673m	£2,797m
Operating expenses	(£3,521m)	(£3,750m)	(£1,706m)	(£1,815m)	£1,909m
Profit before impairment releases/(losses) and excluding notable items	£1,793m	£2,094m	£935m	£858m	£888m
Operating profit/(loss) before tax and excluding notable items	£2,500m	(£764m)	£1,540m	£960m	(£1,168m)
UK and RBSI retail and commercial income excluding notable items (2)	£4,687m	£4,847m	£2,368m	£2,319m	£2,325m
Performance key metrics and ratios
Bank net interest margin (2,3)	1.62%	1.78%	1.61%	1.64%	1.67%
Bank net interest margin excluding liquid asset buffer (2)	2.40%	2.48%	2.40%	2.39%	2.38%
Bank average interest earning assets (2,3)	£487bn	£440bn	£494bn	£480bn	£458bn
Bank average interest earning assets excluding liquid asset buffer (2)	£329bn	£316bn	£330bn	£328bn	£321bn
Cost:income ratio (2)	65.7%	63.8%	63.7%	67.8%	70.9%
Loan impairment rate (2)	(38bps)	159bps	(66bps)	(11bps)	229bps
Earnings per share - basic	15.6p	(5.8p)	10.6p	5.1p	(8.2p)
Return on tangible equity (2)	11.7%	(4.4)%	15.6%	7.9%	(12.4)%

	30 June	31 March	31 December
	2021	2021	2020
Balance sheet
Total assets	£775.9bn	£769.8bn	£799.5bn
Funded assets (2)	£666.3bn	£646.8bn	£633.0bn
Loans to customers - amortised cost	£362.7bn	£358.7bn	£360.5bn
Loans to customers and banks - amortised cost and FVOCI	£375.6bn	£371.0bn	£372.4bn
UK and RBSI retail and commercial net lending excluding UK Government support schemes (2)	£302.0bn	£300.1bn	£297.9bn
Impairment provisions - amortised cost	£4.7bn	£5.6bn	£6.0bn
Total impairment provisions	£4.9bn	£5.8bn	£6.2bn
Expected credit loss (ECL) coverage ratio	1.31%	1.56%	1.66%
Assets under management and administration (AUMA) (2)	£34.7bn	£32.6bn	£32.1bn
Customer deposits	£467.2bn	£453.3bn	£431.7bn
UK and RBSI retail and commercial customer deposits (2)	£428.7bn	£415.3bn	£403.2bn
Liquidity and funding
Liquidity coverage ratio (LCR)	164%	158%	165%
Liquidity portfolio	£277bn	£263bn	£262bn
Net stable funding ratio (NSFR) (4)	154%	153%	151%
Loan:deposit ratio (2)	78%	79%	84%
Total wholesale funding	£66bn	£61bn	£71bn
Short-term wholesale funding	£23bn	£20bn	£19bn
Capital and leverage
Common Equity Tier (CET1) ratio (5)	18.2%	18.2%	18.5%
Total capital ratio	24.9%	24.0%	24.5%
Pro forma CET1 ratio, pre dividend accrual (6)	19.1%	18.6%	18.8%
Risk-weighted assets (RWAs)	£163.0bn	£164.7bn	£170.3bn
UK leverage ratio (7)	6.2%	6.2%	6.4%
Tangible net asset value (TNAV) per ordinary share	266p	261p	261p
Number of ordinary shares in issue (millions) (8)	11,569	11,560	12,129

Notes:

(1)Refer to page 9 for details of notable items within total income.

(2)Refer to Non-IFRS financial measures Appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.

(3)NatWest Group excluding NWM.

(4)NSFR reported in line with CRR2 regulations finalised in June 2019.

(5)Based on CRR end-point including the IFRS 9 transitional adjustment of £1.2 billion (31 March 2021 - £1.7 billion; 31 December 2020 - £1.7 billion). Excluding this adjustment, the CET1 ratio would be 17.5% (31 March 2021 - 17.2%; 31 December 2020 - 17.5%).

(6)The pro forma CET1 ratio at 30 June 2021 excludes foreseeable items of £1.4 billion, £500 million for ordinary dividends and £924 million foreseeable charges and pension contributions (31 March 2021 excludes foreseeable charges of £547 million for ordinary dividend including £200 million (11bps) in Q1 2021; 31 December 2020 excludes foreseeable charges of £364 million for ordinary dividend (3p per share) and £266 million pension contribution). At 31 March 2020 there was no charge in CET1 for foreseeable dividends or charges.

(7)Based on UK end-point including the IFRS9 transitional adjustment of £1.2 billion (31 March 2021 - £1.7 billion; 31 December 2020 - £1.7 billion). Excluding this adjustment the UK leverage ratio would be 6.0% (31 March 2021 – 6.0%; 31 December 2020 – 6.1%)

(8)In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI). NatWest Group cancelled 391 million of the purchased ordinary shares and held the remaining 200 million in own shares held. The number of ordinary shares in issue excludes own shares held which comprises the remainder of the shares purchased and shares held by the NatWest Group 2001 Employee Share Trust.

NatWest Group – Form 6-K Interim Results 2021 8

Summary consolidated income statement for the period ended 30 June 2021

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Net interest income	3,916	3,852	1,985	1,931	1,910
Own credit adjustments	—	53	(2)	2	(102)
Other non-interest income	1,403	1,933	677	726	868
Non-interest income	1,403	1,986	675	728	766
Total income	5,319	5,838	2,660	2,659	2,676
Litigation and conduct costs	18	89	34	(16)	85
Strategic costs	(332)	(464)	(172)	(160)	(333)
Other expenses	(3,207)	(3,375)	(1,568)	(1,639)	(1,661)
Operating expenses	(3,521)	(3,750)	(1,706)	(1,815)	(1,909)
Profit before impairment releases/(losses)	1,798	2,088	954	844	767
Impairment releases/(losses)	707	(2,858)	605	102	(2,056)
Operating profit/(loss) before tax	2,505	(770)	1,559	946	(1,289)
Tax (charge)/credit	(435)	208	(202)	(233)	396
Profit/(loss) for the period	2,070	(562)	1,357	713	(893)
Attributable to:
Ordinary shareholders	1,842	(705)	1,222	620	(993)
Preference shareholders	9	16	4	5	8
Paid-in equity shareholders	178	192	91	87	95
Non-controlling interests	41	(65)	40	1	(3)
Notable items within total income
Own credit adjustments	—	53	(2)	2	(102)
FX recycling (loss)/gain in Central items & other	—	(103)	—	—	(39)
Liquidity Asset Bond sale gain	—	110	—	—	17
IFRS volatility in Central items & other (1)	44	(11)	45	(1)	55
Loss on redemption of own debt	(138)	—	(20)	(118)	—
Retail Banking debt sale gain	—	3	—	—	3
Commercial Banking fair value and disposal (loss)/gain	(22)	(11)	(8)	(14)	8
Commercial Banking tax variable lease repricing	32	—	32	—	—
NatWest Markets asset disposals/strategic risk reduction (2)	(40)	(63)	(36)	(4)	(63)
Share of associate profits for Business Growth Fund	129	16	8	121	—
Total	5	(6)	19	(14)	(121)

Notes:

(1)IFRS volatility relates to derivatives used for risk management not in IFRS hedge accounting relationships and IFRS hedge ineffectiveness.

(2)Asset disposals/strategic risk reduction relates to the costs of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of risk reduction transactions entered into, in respect of the strategic announcements of 14 February 2020.

NatWest Group – Form 6-K Interim Results 2021 9

Business performance summary

Chief Financial Officer review

We have progressed against our strategic objectives and have delivered a good financial performance in the first half of the year. The interim results include a £707 million impairment release reflecting the improved economic outlook, our capital and liquidity positions remain robust and we have increased our commitment for capital returns.

Financial performance

Total income decreased by £519 million, or 8.9%, compared with H1 2020 reflecting the lower yield curve, subdued transactional business activity and a more normalised level of customer activity in NatWest Markets, partially offset by balance sheet growth. We continue to expect a full year reduction in structural hedge income of around £250 million compared with 2020, of which £157 million was incurred in H1 2021. Total income increased by £1 million compared with Q1 2021. Excluding notable items, Q2 2021 income decreased by £32 million, or 1.2%, compared with Q1 2021 as a weaker performance in the NWM Fixed Income business was partially offset by positive signs of an initial recovery in transactional business activity as COVID-19 restrictions eased. Net interest margin of 1.51% decreased by 2 basis points compared with Q1 2021. Bank NIM of 1.61% decreased by 3 basis points compared with Q1 2021 principally due to excess levels of liquidity, 4 basis points, lower structural hedge income, 1 basis point, and lower asset margins, 1 basis point, partially offset by tax variable lease repricing in Commercial Banking following the enactment of future corporation tax rate changes, 3 basis points.

Operating expenses decreased by £229 million, or 6.1% compared with H1 2020. We achieved a cost reduction of £185 million, or 5.9%, compared with H1 2020 mainly reflecting Customer Journey Transformation, the continued shift from physical to digital and actions taken in NatWest Markets in line with the strategic announcement made in February 2020. Strategic costs of £332 million in the first half of 2021 included £87 million redundancy charges, £48 million related to property charges and a £27 million charge related to technology spend. We remain committed to our 4% full year cost reduction target.

Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of £707 million for the first half of 2021 reflects an improved economic outlook. We have assessed the downside risk posed by COVID-19 to be diminishing over the course of 2021. Given the vaccination roll-out and positive economic data observed since the gradual relaxing of lockdown restrictions, it is appropriate to apply a higher probability to upside-biased scenarios than at the year-end 2020. Total impairment provisions decreased by £0.9 billion to £4.9 billion in the quarter, which resulted in a reduction in the ECL coverage ratio from 1.56% at Q1 2021 to 1.31%. Whilst we are comfortable with the strong performance of our book, we continue to hold economic uncertainty post model adjustments (PMA) of £0.8 billion, or 16.9% of total impairment provisions. We will continue to assess this position as UK Government support winds down and we emerge from the pandemic.

As a result, we are pleased to report an interim attributable profit of £1,842 million, with earnings per share of 15.6 pence and a return on tangible equity (RoTE) of 11.7%.

We continue to support our customers to recover and grow during this period of continued uncertainty, whilst taking a measured approach to risk. Net lending increased by £2.2 billion to £362.7 billion during H1 2021. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes increased by £4.1 billion in the first half of 2021, or 2.8% on an annualised basis, including £7.0 billion of mortgage growth, partially offset by lower unsecured balances and lower Commercial Banking lending volumes. The £1.9 billion increase in the second quarter of 2021 included mortgage lending growth of £3.6 billion.

Customer deposits increased by £35.5 billion, or 8.2%, to £467.2 billon in the first half of 2021. Across the UK and RBSI retail and commercial businesses customer deposits increased by £25.5 billion, or 6.3%, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove a further £11.5 billion.

TNAV per share increased by 5 pence in the quarter to 266 pence largely reflecting the attributable profit partially offset by the full year dividend payment.

Capital and leverage

The CET1 ratio of 18.2%, or 17.5% excluding IFRS 9 transitional relief, remains robust and was in line with Q1 2021 as the attributable profit for the period and the reduction in RWAs were offset by a £0.5 billion decrease in IFRS 9 transitional relief and foreseeable capital deductions in respect of our proposed in-market buy-backs, dividends and associated pension contribution. The total capital ratio increased by 90 basis points in the quarter to 24.9%.

RWAs of £163.0 billion decreased by £7.3 billion, or 4.3%, in the first half of 2021 reflecting business movements of £2.9 billion, risk parameter improvements of £1.4 billion and FX movements of £1.2 billion. The £1.7 billion reduction in the second quarter of 2021 mainly relates to Commercial Banking business movements.

The UK leverage ratio of 6.2% was in line with Q1 2021.

Funding and Liquidity

The liquidity portfolio was £277 billion at the end of Q2 2021, £14 billion higher than Q1 2021, and the LCR increased by 6 percentage points to 164%, representing £75.3 billion headroom above 100% minimum requirement, primarily reflecting the £13.9 billion increase in customer deposits in the quarter. The loan:deposit ratio remained broadly stable with Q1 2021 at 78%.

Total wholesale funding increased by £5 billion compared with Q1 2021. Short term wholesale funding increased by £3 billion in the quarter to £23 billion.

NatWest Group – Form 6-K Interim Results 2021 10

Business performance summary

Retail Banking

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Total income	2,150	2,185	1,094	1,056	1,035
Operating expenses	(1,187)	(1,075)	(600)	(587)	(546)
of which: Other expenses	(1,102)	(1,169)	(545)	(557)	(577)
Impairment releases/(losses)	57	(657)	91	(34)	(360)
Operating profit	1,020	453	585	435	129
Return on equity	27.5%	10.7%	32.0%	23.0%	5.7%
Net interest margin	2.07%	2.23%	2.08%	2.06%	2.18%
Cost:income ratio	55.2%	49.2%	54.8%	55.6%	52.8%
Loan impairment rate	(6)bps	79bps	(20)bps	8bps	87bps

	As at
	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Net loans to customers (amortised cost)	178.1	174.8	172.3
Customer deposits	184.1	179.1	171.8
RWAs	35.6	35.0	36.7

During H1 2021, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk. Lending growth was supported by a strong performance in mortgages, partially offset by continued UK Government restrictions impacting customer spending and the continued repayment of unsecured balances, although both customer spending and demand for new unsecured lending continued to improve over H1 2021 as the UK Government restrictions eased.

As at 30 June 2021, Retail Banking had c.500 active mortgage repayment holidays, representing less than 0.1% of the book by volume, and approximately 2,300, or 0.3%, of personal loan customers on active repayment holidays.

H1 2021 performance

● Total income was £35 million, or 1.6%, lower than H1 2020 primarily due to regulatory changes impacting fee income, lower deposit returns and lower unsecured balances, partially offset by strong balance growth in mortgages and improved asset margins.

● Operating expenses were £112 million, or 10.4%, higher than H1 2020. Other expenses were £67 million, or 5.7%, lower than H1 2020 primarily reflecting a 10.5% reduction in headcount as a result of the continued digitalisation, automation and improvement of end-to-end customer journeys.

● A net impairment release of £57 million in H1 2021 primarily reflects ECL releases related to an improvement in the economic outlook. Stage 3 defaults remain at a low level.

● Net loans to customers increased by £5.8 billion, or 3.4%, in H1 2021 due to continued strong mortgage growth of £6.2 billion, with gross new mortgage lending of £19.3 billion, and flow share of 11.4%, supporting a stock share of 11.0%. Personal advances and cards reduced by £0.4 billion and £0.2 billion respectively as customers spent less and made higher repayments, reflecting the impact of continued UK Government restrictions.

● Customer deposits increased by £12.3 billion, or 7.2%, in H1 2021 as continued UK Government support schemes combined with restrictions, resulted in lower customer spend and increased savings.

● RWAs decreased by £1.1 billion, or 3.0%, in H1 2021 largely reflecting lower unsecured balances and continued quality improvements supported by rising house prices and customer behaviour.

Q2 2021 performance

● Total income was £38 million higher than Q1 2021 as strong mortgage completions and a full quarter impact of savings customer rate changes were partially offset by the non-repeat of an insurance profit share. In comparison with Q2 2020, total income was £59 million, or 5.7%, higher due to stronger asset margins and transactional related fee income, partially offset by lower deposit returns. Non-interest income in Q2 2021 benefitted from a debt sale, along with other one-off items which will not repeat in Q3 2021, totalling around £12 million.

● Net interest margin increased by 2 basis points compared with Q1 2021 reflecting strong mortgage completion margins and a full quarter of savings customer rate changes. Mortgage completion margins of around 165 basis points were higher than the back book margin of around 163 basis points, with application margins of around 155 basis points in the quarter decreasing to around 145 basis points in the latter part of Q2 2021, reflecting increased competition in the market.

● Operating expenses were £13 million, or 2.2%, higher than Q1 2021. Other expenses were £12 million, or 2.2%, lower than Q1 2021 as continued cost reduction activity was partially offset by the annual pay award.

● A net impairment release of £91 million in Q2 2021 primarily reflects ECL releases related to an improvement in the economic outlook.

● Net loans to customers increased by £3.3 billion compared with Q1 2021 reflecting continued mortgage growth, supported by a retention rate of 79%, partially offset by lower personal advances. Cards balances increased by £0.1 billion as customer demand and spend levels increased.

● Customer deposits increased by £5.0 billion compared with Q1 2021 as continued UK Government support schemes combined with restrictions, resulted in lower customer spend and increased savings.

NatWest Group – Form 6-K Interim Results 2021 11

Business performance summary

Private Banking

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Total income	368	392	183	185	191
Operating expenses	(249)	(252)	(128)	(121)	(129)
of which: Other expenses	(242)	(241)	(120)	(122)	(123)
Impairment releases/(losses)	27	(56)	27	—	(27)
Operating profit	146	84	82	64	35
Return on equity	14.2%	8.2%	15.9%	12.4%	6.6%
Net interest margin	1.77%	2.20%	1.75%	1.79%	2.14%
Cost:income ratio	67.7%	64.3%	69.9%	65.4%	67.5%
Loan impairment rate	(30)bps	70bps	(60)bps	—	67bps

	As at
	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Net loans to customers (amortised cost)	18.0	17.5	17.0
Customer deposits	34.7	33.5	32.4
RWAs	11.2	11.2	10.9
Assets under management (AUMs) (1)	29.6	27.6	27.0
Assets under administration (AUAs) (1)	5.1	5.0	5.1
Total assets under management and administration (AUMA) (1)	34.7	32.6	32.1

Note:

(1) The definitions of AUMs/AUAs have been updated to provide clarity on assets where the investment management is undertaken by Private Banking. AUMs now comprises assets where the investment management is undertaken by Private Banking irrespective of the franchise the customer belongs to. AUAs now comprises third party assets held on an execution-only basis in custody. Total AUMA remain as before.

Private Banking delivered strong balance growth and a resilient operating performance in H1 2021, including a £27 million impairment release, which supported a return on equity of 14.2%. AUMA growth in H1 2021 included £1.4 billion of AUM net new money, of which £0.5 billion related to digital investing inflows into NatWest Invest, Royal Bank Invest and Coutts Invest, more than double H1 2020 levels.

H1 2021 performance

● Total income decreased by £24 million, or 6.1%, compared with H1 2020 primarily reflecting lower deposit returns, partially offset by strong balance growth.

● Operating expenses were £3 million, or 1.2%, lower than H1 2020. Other expenses increased by £1 million, or 0.4%, compared with H1 2020 principally due to an increase in headcount, related to the enhancement of AUMA growth and other client propositions, partially offset by the movement of costs associated with the planned sale of Adam and Company Investment Management business to strategic costs in Q2 2021 and a property revaluation charge in H1 2020.

● A net impairment release of £27 million in H1 2021 reflects ECL releases related to the improved economic outlook.

● Net loans to customers increased by £1.0 billion, or 5.9%, in H1 2021 due to continued strong mortgage lending growth, whilst RWAs increased by £0.3 billion, or 2.8%.

● Customer deposits increased by £2.3 billion, or 7.1%, in H1 2021 reflecting strong personal and commercial inflows as UK Government restrictions resulted in customers continuing to build and retain liquidity.

● AUMAs increased by £2.6 billion, or 8.1%, in H1 2021 largely due to AUM net new money inflows of £1.4 billion and AUM positive investment performance of £1.2 billion.

Q2 2021 performance

● Total income decreased by £2 million compared to Q1 2021 as lower fee income was partially offset by continued balance growth. In comparison to Q2 2020, total income decreased by £8 million, or 4.2%, as lower deposit returns were partially offset by strong balance growth. Net interest margin decreased by 4 basis points compared with Q1 2021 reflecting higher liquidity portfolio costs.

● Net loans to customers increased by £0.5 billion compared with Q1 2021 supported by £0.4 billion of mortgage lending growth.

● AUMAs increased by £2.1 billion compared with Q1 2021 largely due to AUM net new money inflows of £0.8 billion and AUM positive investment performance of £1.2 billion.

NatWest Group – Form 6-K Interim Results 2021 12

Business performance summary

Commercial Banking

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Total income	1,923	2,003	982	941	995
Operating expenses	(1,152)	(1,221)	(569)	(583)	(611)
of which: Other expenses (excluding OLD)	(983)	(1,066)	(470)	(513)	(534)
Impairment releases/(losses)	568	(1,790)	451	117	(1,355)
Operating profit/(loss)	1,339	(1,008)	864	475	(971)
Return on equity	21.9%	(17.9%)	29.3%	14.9%	(32.5%)
Net interest margin	1.57%	1.76%	1.60%	1.54%	1.70%
Cost:income ratio	58.4%	59.5%	56.4%	60.5%	59.9%
Loan impairment rate	(107)bps	311bps	(170)bps	(43)bps	472bps

	As at
	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Net loans to customers (amortised cost)	103.8	106.6	108.2
Customer deposits	176.0	169.4	167.7
RWAs	69.5	71.6	75.1

Note:

(1) EU Divestment balances from Q2 2021 integrated within business banking (Q4 2020 - £1.1 billion, Q1 2021 - £1.7 billion) and SME & mid corporates (Q4 2020 - £4.8 billion, Q1 2021 - £4.1 billion), as the Incentivised Switching Scheme (ISS) closed at the end of June 2021.

Commercial Banking delivered a solid performance in H1 2021 as business activity increased. The £1,339 million operating profit includes a £568 million impairment release, largely reflecting the improved economic outlook. During H1 2021 Commercial Banking delivered £2.5 billion towards NatWest Group’s Climate and Sustainable Funding and Financing 2021 target.

Commercial Banking continues to support its customers with active payment holidays on c.3,000 customer accounts, representing 1% of the lending book by value as at 30 June 2021. c.92% of BBLS customers due to commence loan repayments had begun repayments on, or ahead of, schedule and c.5% of all BBLS customers had repaid in full as at 30 June 2021.

H1 2021 performance

● Total income decreased by £80 million, or 4.0%, compared with H1 2020 as lower deposit returns and lower transactional banking activity were partially offset by higher other non-interest income.

● Operating expenses decreased by £69 million, or 5.7%, compared with H1 2020. Other expenses, excluding OLD, decreased by £83 million, or 7.8%, compared with H1 2020, reflecting cost reduction actions, lower staff costs and a reduction in back office operations costs.

● A net impairment release of £568 million in H1 2021 mainly reflects ECL releases related to the improved economic outlook, with limited defaults. Excluding amounts related to economic uncertainty held within the PMA, the ECL coverage ratio was 1.65%.

● Net loans to customers decreased by £4.4 billion, or 4.1%, in H1 2021 mainly reflecting reductions across Large Corporates & Institutions, SME & mid-corporates and Real Estate Finance related to net revolving credit facility (RCF) repayments of £1.5 billion, active capital management of £0.6 billion and targeted sector reductions partially offset by £0.8 billion lower loan provisions.

● Customer deposits increased by £8.3 billion, or 4.9%, in H1 2021 as customers continued to build and retain liquidity in light of economic uncertainty and the continued impact of UK Government initiatives.

● RWAs decreased by £5.6 billion, or 7.5%, in H1 2021 mainly reflecting business movements, excluding active capital management, of £3.0 billion, active capital management of £0.8 billion, a £0.8 billion reduction reflecting a CRR COVID-19 amendment related to a Housing Association supporting factor, £0.2 billion lower risk parameters, and FX movements of £0.4 billion.

Q2 2021 performance

● Total income increased by £41 million compared with Q1 2021 mainly reflecting tax variable lease repricing and a partial recovery in transactional banking volumes, partially offset by lower lending volumes. In comparison to Q2 2020 total income decreased by £13 million, or 1.3%, primarily reflecting lower deposit returns. Net interest margin increased by 6 basis points compared with Q1 2021 mainly reflecting tax variable lease repricing following the enactment of future corporation tax rate changes. Underlying net interest margin decreased by 2 basis points reflecting lower deposit returns.

● Operating expenses decreased by £14 million, or 2.4%, compared with Q1 2021. Other expenses, excluding OLD, decreased by £43 million compared with Q1 2021 mainly reflecting the transfer of remediation costs to Litigation and conduct costs.

● A net impairment release of £451 million in Q2 2021 mainly reflects ECL releases related to the improved economic outlook.

● Net loans to customers decreased by £2.8 billion compared with Q1 2021 as net RCF repayments of £1.2 billion, net UK Government financial support scheme repayments of £0.4 billion and targeted sector reductions were partially offset by £0.6 billion lower loan provisions. RCF utilisation was c.20% of committed facilities, significantly below the COVID-19 peak of c.40%.

● Customer deposits increased by £6.6 billion compared with Q1 2021 as customers continued to build and retain liquidity.

● RWAs decreased by £2.1 billion compared with Q1 2021 mainly reflecting business movements, excluding active capital management, of £1.1 billion, a £0.8 billion reduction reflecting the CRR COVID-19 amendment and active capital management of £0.2 billion.

NatWest Group – Form 6-K Interim Results 2021 13

Business performance summary

International Banking & Markets

RBS International

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Total income	256	259	133	123	115
Operating expenses	(112)	(126)	(55)	(57)	(65)
of which: Other expenses	(104)	(121)	(52)	(52)	(61)
Impairment releases/(losses)	29	(46)	27	2	(31)
Operating profit	173	87	105	68	19
Return on equity	22.1%	11.8%	26.5%	17.5%	4.3%
Net interest margin	1.04%	1.30%	1.02%	1.06%	1.15%
Cost:income ratio	43.8%	48.6%	41.4%	46.3%	56.5%
Loan impairment rate	(38)bps	72bps	(71)bps	(5)bps	97bps

	As at
	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Net loans to customers (amortised cost)	15.1	14.7	13.3
Customer deposits	33.9	33.3	31.3
RWAs	7.6	7.7	7.5
Depositary assets (1)	460.4	452.0	427.5

Note:

(1) Assets held by RBSI as an independent trustee and in a depositary service capacity.

During H1 2021 RBSI delivered £256 million of income, supported by customer lending growth and contributed £0.6 billion towards NatWest Group’s Climate and Sustainable Funding and Financing 2021 target. RBSI also implemented a range of new payment features on the mobile app for both personal and business customers, including the introduction of face biometrics to authorise payments and the ability to deposit cheques.

As at 30 June 2021, RBSI was supporting 22 mortgage repayment breaks, reflecting a mortgage value of £4.8 million, and was providing 161 business customers with working capital facilities, reflecting a value of £434 million, whilst continuing to suspend some fees.

H1 2021 performance

● Total income was £3 million, or 1.2%, lower than H1 2020 with net interest income £19 million lower, impacted by lower deposit funding benefits partially offset by higher customer lending volumes and depositary fees in non-interest income.

● Operating expenses decreased by £14 million, or 11.1% compared with H1 2020. Other expenses were £17 million, or 14.0%, lower than H1 2020 due to a 11% reduction in headcount from simplifying the business and the non-repeat of COVID-19 related costs last year.

● A net impairment release of £29 million in H1 2021 mainly reflects Stage 1 and Stage 2 releases. Stage 3 defaults remain low.

● Net loans to customers increased by £1.8 billion, or 13.5%, in H1 2021 due to higher demand from customers in the Institutional Banking sector.

● Customer deposits increased by £2.6 billion, or 8.3%, in H1 2021 due to £2.3 billion of short-term placement inflows in the Institutional Banking sector and a £0.6 billion increase in Notice products as clients switched from short-term call products to longer term products.

● Depositary assets have increased by £32.9 billion in H1 2021 in both operating jurisdictions, Luxembourg and UK, as a result of increases in fund performance and new business.

Q2 2021 performance

● Total income was £10 million, or 8.1%, higher than Q1 2021 due to higher average lending and deposit volumes in the Institutional Banking sector and was £18 million, or 15.7%, higher than Q2 2020 principally due to higher depositary and non-utilisation fees. Net interest margin decreased by 4 basis points compared with Q1 2021 largely due to lower returns from higher surplus deposits.

● A net impairment release of £27 million in Q2 2021, mainly reflects Stage 1 and Stage 2 releases. Stage 3 defaults remain low.

● Net loans to customers increased by £0.4 billion compared with Q1 2021 due to higher demand from customers in the Institutional Banking sector.

● Customer deposits increased by £0.6 billion compared with Q1 2021 following an inflow of short term call deposits in the Institutional Banking sector as customer activity increased.

NatWest Group – Form 6-K Interim Results 2021 14

Business performance summary

International Banking and Markets

NatWest Markets⁽¹⁾

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Total income	295	816	106	189	273
of which:
- Income excluding asset disposals/strategic risk
reduction and own credit adjustments	334	826	143	191	438
- Asset disposals/strategic risk reduction (2)	(40)	(63)	(36)	(4)	(63)
- Own credit adjustments	1	53	(1)	2	(102)
Operating expenses	(560)	(707)	(285)	(275)	(365)
of which: Other expenses	(456)	(569)	(216)	(240)	(271)
Impairment releases/(losses)	16	(40)	10	6	(45)
Operating (loss)/profit	(249)	69	(169)	(80)	(137)
Return on equity	(9.2)%	0.8%	(12.1)%	(6.3)%	(7.1)%
Cost:income ratio	189.8%	86.6%	268.9%	145.5%	133.7%

	As at
	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Funded assets	111.8	105.7	105.9
RWAs	26.9	26.5	26.9

Notes:

(1)The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). The NatWest Markets segment excludes the Central items & other segment.

(2)Asset disposals/strategic risk reduction relates to the cost of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020.

NatWest Markets continued to support customers with innovative financial solutions and to deliver on plans to become a more sustainable part of NatWest Group. NatWest Markets has further developed its capability to offer better integrated solutions, particularly in foreign exchange and funds financing, targeted to the investment management community. NatWest Markets continued to build momentum in Climate and Sustainable Funding and Financing, with a strong performance during the first half of 2021, delivering £6.3 billion towards NatWest Group’s 2021 target.

H1 2021 performance

● Total income decreased by £521 million, or 63.8% compared with H1 2020. Income excluding asset disposals/strategic risk reduction and OCA decreased by £492 million, or 59.6%, compared with H1 2020 reflecting the exceptional level of market activity generated by the spread of the COVID-19 virus in the prior period, together with weaker performance and reshaping of the Fixed Income business in the current period. Capital Markets and Currencies performed broadly in line with expectations.The H1 2021 results also included a £20 million loss from a liability management exercise which thereafter reduces the cost of funding.

● Operating expenses decreased by £147 million, or 20.8%, compared with H1 2020. Other expenses decreased by £113 million, or 19.9%, compared with H1 2020 reflecting continued reductions in line with the strategic announcement in February 2020.

● RWAs were in line with 31 December 2020 however, following the announcement of GBP LIBOR cessation in March 2021, market risk RWAs became elevated by £2.5 billion as a result of including modelled GBP LIBOR basis risk post 4 January 2022. Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021. If this model approval was back dated to Q2 2021 the reported RWAs would have been £24.4 billion. Underlying levels of market risk were low and progress continues to be made on asset disposals in line with the strategy.

Q2 2021 performance

● Total income decreased by £83 million, or 43.9%, compared with Q1 2021. Income excluding asset disposals/strategic risk reduction and OCA decreased by £48 million compared with Q1 2021 reflecting a weaker performance in Fixed Income and a reduction in Currencies as volatility decreased. In comparison to Q2 2020, income excluding asset disposals/strategic risk reduction and OCA decreased by £295 million, or 67.4%, reflecting more normalised levels of customer activity, with the prior period impacted by exceptional levels of market activity generated by the spread of the COVID-19 virus.

● Operating expenses increased by £10 million, or 3.64%, compared with Q1 2021. Other expenses decreased by £24 million compared with Q1 2021 reflecting the timing of discretionary expense and continued reductions in line with the strategic announcement in February 2020.

● RWAs increased by £0.4 billion compared with Q1 2021 reflecting the impact of GBP LIBOR cessation highlighted above. Underlying levels of market risk were low and progress continues to be made on asset disposals in line with the strategy.

NatWest Group – Form 6-K Interim Results 2021 15

Business performance summary

Ulster Bank RoI

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Total income	243	249	119	124	120
Operating expenses	(261)	(245)	(136)	(125)	(122)
of which: Other expenses	(245)	(234)	(130)	(115)	(116)
Impairment releases/(losses)	11	(243)	(1)	12	(216)
Operating (loss)/profit	(7)	(239)	(18)	11	(218)
Return on equity	(0.8)%	(24.2)%	(4.3)%	2.5%	(44.5)%
Net interest margin	1.46%	1.52%	1.45%	1.48%	1.48%
Cost:income ratio	107.4%	98.4%	114.3%	100.8%	101.7%
Loan impairment rate	(13)bps	248bps	2bps	(27)bps	441bps

	As at
	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Net loans to customers (amortised cost)	16.7	16.9	18.0
Customer deposits	18.5	18.4	19.6
RWAs	10.5	11.1	11.8

In June 2021, UBIDAC entered into a binding agreement with Allied Irish Banks p.l.c. for the sale of around €4.2 billion of gross performing commercial lending and associated undrawn exposures of around €2.8 billion. The timing of completion remains uncertain and the sale is subject to obtaining regulatory and other approvals. In July 2021, NatWest Group plc and UBIDAC entered into a non-binding Memorandum of Understanding with Permanent TSB Group Holdings p.l.c. for the proposed sale of a perimeter comprising performing non-tracker mortgages, performing micro-SME loans, UBIDAC’s asset finance business and 25 branch locations. The proposed perimeter included approximately €7.6 billion gross performing loans as at 31 March 2021. Ulster Bank RoI remains focused on supporting its customers as it continues its withdrawal from the Republic of Ireland.

H1 2021 performance

● Total income decreased by £6 million (€6 million), or 2.4% (2.1% in euro terms), compared with H1 2020 primarily reflecting lower lending levels and fee income as a result of the continued impact of COVID-19 and the recent announcement to commence a phased withdrawal from the Republic of Ireland, partially offset by increased FX gains.

● Operating expenses were £16 million (€16 million), or 6.5% (5.7% in euro terms) higher compared with H1 2020. Other expenses were £11 million (€10 million), or 4.7% (3.7% in euro terms), higher than H1 2020 due to increased regulatory levies and higher VAT charges, partially offset by a 7.1% reduction in headcount and lower back office operations costs.

● A net impairment release of £11 million (€13 million) in H1 2021 reflects improvements in the mortgage portfolio, including releases related to the final de-recognition of assets from a non-performing loan (NPL) sale agreed in Q4 2019, offset by post model adjustments to reflect loan disposal strategies not captured within loss modelling.

● Net loans to customers decreased by £1.3 billion (€0.6 billion), or 7.2% (3.0% in euro terms), in H1 2021 as repayments exceeded gross new lending of £0.7 billion (€0.8 billion).

● Customer deposits decreased by by £1.1 billion, or 5.6%, largely due to the weakening of the euro. In euro terms, customer deposits decreased by €0.2 billion, or 0.9%, in H1 2021 due to a large short term placement at the end of 2020 partially offset by increased personal balances.

Q2 2021 performance

● Total income decreased by £5 million (€5 million) compared with Q1 2021 due to lower lending income and reduced FX gains. Net interest margin decreased by 3 basis points (6 basis points in euro terms) compared with Q1 2021 reflecting lower lending volumes and a stable deposit base, resulting in higher liquid assets in a negative interest rate environment.

● Operating expenses increased by £11 million (€13 million) compared with Q1 2021. Other expenses increased by £15 million (€17 million) compared with Q1 2021 mainly due to increased Single Resolution Fund (SRF) levies, much of which relates to prior years, and higher VAT charges, partially offset by a 3.7% reduction in headcount.

● Net loans to customers decreased by £0.2 billion (€0.4 billion) compared with Q1 2021.

● Customer deposits increased by £0.1 billion due to the strengthening of the euro. In euro terms, customer deposits decreased by €0.1 billion compared with Q1 2021 resulting in loan:deposit ratio of 90% compared with 92% in Q1 2021.

● RWAs decreased by £0.6 billion (€0.9 billion) compared with Q1 2021 mainly due to improvements in asset quality, lower lending volumes and the impact of the NPL de-recognition.

NatWest Group – Form 6-K Interim Results 2021 16

Business performance summary

Central items & other

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Central items not allocated	83	(216)	110	(27)	(146)

· An £83 million operating profit within central items not allocated mainly reflects a £129 million share of associate profits for the Business Growth Fund, a litigation and conduct release and IFRS volatility, partially offset by a £138 million day one loss on redemption of own debt related to the repurchase of legacy instruments, which will result in annual net interest savings of c.£51 million.

NatWest Group – Form 6-K Interim Results 2021 17

Segment performance

	Half year ended 30 June 2021
				International Banking & Markets			Central	Total
	Retail	Private	Commercial	RBS	NatWest	Ulster	items &	NatWest
	Banking	Banking	Banking	International	Markets	Bank RoI	other	Group
	£m	£m	£m	£m	£m	£m	£m	£m
Income statement
Net interest income	1,976	232	1,308	182	(3)	187	34	3,916
Own credit adjustments	—	—	—	—	1	—	(1)	—
Other non-interest income	174	136	615	74	297	56	51	1,403
Total income	2,150	368	1,923	256	295	243	84	5,319
Direct expenses - staff costs	(232)	(67)	(280)	(52)	(188)	(94)	(768)	(1,681)
- other costs	(111)	(20)	(131)	(24)	(64)	(68)	(1,108)	(1,526)
Indirect expenses	(759)	(155)	(642)	(28)	(204)	(83)	1,871	—
Strategic costs - direct	(16)	(5)	(39)	(6)	(90)	(1)	(175)	(332)
- indirect	(60)	(7)	(23)	(2)	(16)	(2)	110	—
Litigation and conduct costs	(9)	5	(37)	—	2	(13)	70	18
Operating expenses	(1,187)	(249)	(1,152)	(112)	(560)	(261)	—	(3,521)
Operating profit/(loss) before impairment releases/(losses)	963	119	771	144	(265)	(18)	84	1,798
Impairment releases/(losses)	57	27	568	29	16	11	(1)	707
Operating profit/(loss)	1,020	146	1,339	173	(249)	(7)	83	2,505
Additional information
Return on tangible equity (1)	na	na	na	na	na	na	na	11.7%
Return on equity (1)	27.5%	14.2%	21.9%	22.1%	(9.2)%	(0.8)%	nm	na
Cost:income ratio (1)	55.2%	67.7%	58.4%	43.8%	189.8%	107.4%	nm	65.7%
Total assets (£bn)	204.2	27.7	185.8	37.0	219.4	25.4	76.4	775.9
Funded assets (£bn) (1)	204.2	27.7	185.8	36.9	111.8	25.4	74.5	666.3
Net loans to customers - amortised cost (£bn)	178.1	18.0	103.8	15.1	6.3	16.7	24.7	362.7
Loan impairment rate (1)	(6)bps	(30)bps	(107)bps	(38)bps	nm	(13)bps	nm	(38)bps
Impairment provisions (£bn)	(1.6)	(0.1)	(2.1)	(0.1)	(0.1)	(0.7)	—	(4.7)
Impairment provisions - Stage 3 (£bn)	(0.8)	—	(0.8)	(0.1)	(0.1)	(0.4)	—	(2.2)
Customer deposits (£bn)	184.1	34.7	176.0	33.9	2.5	18.5	17.5	467.2
Risk-weighted assets (RWAs) (£bn)	35.6	11.2	69.5	7.6	26.9	10.5	1.7	163.0
RWA equivalent (RWAe) (£bn)	35.6	11.3	69.5	7.7	28.6	10.5	1.8	165.0
Employee numbers (FTEs - thousands)	15.3	1.9	9.1	1.6	1.6	2.6	27.1	59.2
Third party customer asset rate (2)	2.70%	2.36%	2.74%	2.23%	nm	2.28%	nm	nm
Third party customer funding rate (2)	(0.07)%	(0.00)%	(0.01)%	0.07%	nm	0.01%	nm	nm
Average interest earning assets (£bn) (1)	192.5	26.4	168.2	35.3	32.3	25.8	nm	519.2
Bank net interest margin (1)	2.07%	1.77%	1.57%	1.04%	na	1.46%	nm	1.62%

nm = not meaningful, na = not applicable.

For the notes to this table, refer to page 22.

NatWest Group – Form 6-K Interim Results 2021 18

Segment performance

	Half year ended 30 June 2020
				International Banking & Markets			Central	Total
	Retail	Private	Commercial	RBS	NatWest	Ulster	items &	NatWest
	Banking	Banking	Banking	International	Markets	Bank RoI	other	Group
	£m	£m	£m	£m	£m	£m	£m	£m
Income statement
Net interest income	1,982	251	1,370	201	(34)	194	(112)	3,852
Own credit adjustments	—	—	—	—	53	—	—	53
Other non-interest income	203	141	633	58	797	55	46	1,933
Total income	2,185	392	2,003	259	816	249	(66)	5,838
Direct expenses - staff costs	(268)	(79)	(341)	(65)	(326)	(100)	(617)	(1,796)
- other costs	(103)	(25)	(140)	(27)	(94)	(42)	(1,148)	(1,579)
Indirect expenses	(798)	(137)	(658)	(29)	(149)	(92)	1,863	—
Strategic costs - direct	(1)	—	(2)	(3)	(120)	(4)	(334)	(464)
- indirect	(103)	(10)	(73)	(5)	(16)	(8)	215	—
Litigation and conduct costs	198	(1)	(7)	3	(2)	1	(103)	89
Operating expenses	(1,075)	(252)	(1,221)	(126)	(707)	(245)	(124)	(3,750)
Operating profit/(loss) before impairment losses	1,110	140	782	133	109	4	(190)	2,088
Impairment losses	(657)	(56)	(1,790)	(46)	(40)	(243)	(26)	(2,858)
Operating profit/(loss)	453	84	(1,008)	87	69	(239)	(216)	(770)
Additional information
Return on tangible equity (1)	na	na	na	na	na	na	na	(4.4)%
Return on equity (1)	10.7%	8.2%	(17.9)%	11.8%	0.8%	(24.2)%	nm	na
Cost:income ratio (1)	49.2%	64.3%	59.5%	48.6%	86.6%	98.4%	nm	63.8%
Total assets (£bn)	187.1	23.9	186.0	31.5	303.8	27.6	47.0	806.9
Funded assets (£bn) (1)	187.1	23.9	186.0	31.5	122.9	27.6	44.5	623.5
Net loans to customers - amortised cost (£bn)	164.5	16.0	112.0	12.7	11.4	18.7	17.0	352.3
Loan impairment rate (1)	79bps	70bps	311bps	72bps	nm	248bps	nm	159bps
Impairment provisions (£bn)	(1.9)	(0.1)	(3.0)	—	(0.2)	(0.9)	—	(6.1)
Impairment provisions - Stage 3 (£bn)	(0.9)	—	(1.2)	—	(0.1)	(0.6)	—	(2.8)
Customer deposits (£bn)	161.0	29.8	159.6	29.5	5.5	20.0	2.9	408.3
Risk-weighted assets (RWAs) (£bn)	36.7	10.4	78.3	6.8	35.1	12.8	1.4	181.5
RWA equivalent (RWAe) (£bn)	36.7	10.4	78.4	6.9	37.2	12.8	1.5	183.9
Employee numbers (FTEs - thousands)	17.1	1.8	9.6	1.8	5.0	2.8	24.6	62.7
Third party customer asset rate (2)	2.97%	2.67%	3.04%	2.65%	nm	2.27%	nm	nm
Third party customer funding rate (2)	(0.28)%	(0.21)%	(0.15)%	(0.05)%	nm	(0.07)%	nm	nm
Average interest earning assets (£bn) (1)	178.6	23.0	156.5	31.2	38.0	25.7	nm	477.9
Bank net interest margin (1)	2.23%	2.20%	1.76%	1.30%	na	1.52%	nm	1.78%

nm = not meaningful, na = not applicable.

For the notes to this table, refer to page 22.

NatWest Group – Form 6-K Interim Results 2021 19

Segment performance

	Quarter ended 30 June 2021
				International Banking & Markets			Central	Total
	Retail	Private	Commercial	RBS	NatWest	Ulster	items &	NatWest
	Banking	Banking	Banking	International	Markets	Bank RoI	other	Group
	£m	£m	£m	£m	£m	£m	£m	£m
Income statement
Net interest income	1,003	117	665	93	4	93	10	1,985
Own credit adjustments	—	—	—	—	(1)	—	(1)	(2)
Other non-interest income	91	66	317	40	103	26	34	677
Total income	1,094	183	982	133	106	119	43	2,660
Direct expenses- staff costs	(116)	(33)	(139)	(26)	(77)	(47)	(371)	(809)
- other costs	(50)	(11)	(65)	(11)	(35)	(45)	(542)	(759)
Indirect expenses	(379)	(76)	(301)	(15)	(104)	(38)	913	—
Strategic costs - direct	(5)	(5)	(13)	(2)	(60)	(1)	(86)	(172)
- indirect	(43)	(3)	(14)	(1)	(11)	(1)	73	—
Litigation and conduct costs	(7)	—	(37)	—	2	(4)	80	34
Operating expenses	(600)	(128)	(569)	(55)	(285)	(136)	67	(1,706)
Operating profit/(loss) before impairment losses	494	55	413	78	(179)	(17)	110	954
Impairment releases/(losses)	91	27	451	27	10	(1)	—	605
Operating profit/(loss)	585	82	864	105	(169)	(18)	110	1,559
Additional information
Return on tangible equity (1)	na	na	na	na	na	na	na	15.6%
Return on equity (1)	32.0%	15.9%	29.3%	26.5%	(12.1)%	(4.3)%	nm	na
Cost:income ratio (1)	54.8%	69.9%	56.4%	41.5%	268.9%	114.3%	nm	63.7%
Total assets (£bn)	204.2	27.7	185.8	37.0	219.4	25.4	76.4	775.9
Funded assets (£bn) (1)	204.2	27.7	185.8	36.9	111.8	25.4	74.5	666.3
Net loans to customers - amortised cost (£bn)	178.1	18.0	103.8	15.1	6.3	16.7	24.7	362.7
Loan impairment rate (1)	(20)bps	(60)bps	(170)bps	(71)bps	nm	2bps	nm	(66)bps
Impairment provisions (£bn)	(1.6)	(0.1)	(2.1)	(0.1)	(0.1)	(0.7)	—	(4.7)
Impairment provisions - Stage 3 (£bn)	(0.8)	—	(0.8)	(0.1)	(0.1)	(0.4)	—	(2.2)
Customer deposits (£bn)	184.1	34.7	176.0	33.9	2.5	18.5	17.5	467.2
Risk-weighted assets (RWAs) (£bn)	35.6	11.2	69.5	7.6	26.9	10.5	1.7	163.0
RWA equivalent (RWAe) (£bn)	35.6	11.3	69.5	7.7	28.6	10.5	1.8	165.0
Employee numbers (FTEs - thousands)	15.3	1.9	9.1	1.6	1.6	2.6	27.1	59.2
Third party customer asset rate (2)	2.67%	2.36%	2.82%	2.18%	nm	2.28%	nm	nm
Third party customer funding rate (2)	(0.06)%	(0.00)%	(0.02)%	0.09%	nm	0.01%	nm	nm
Average interest earning assets (£bn) (1)	193.8	26.8	167.1	36.4	32.3	25.8	nm	526.1
Bank net interest margin (1)	2.08%	1.75%	1.60%	1.02%	na	1.45%	nm	1.61%

nm = not meaningful, na = not applicable.

For the notes to this table, refer to page 22.

NatWest Group – Form 6-K Interim Results 2021 20

Segment performance

	Quarter ended 31 March 2021
				International Banking & Markets			Central	Total
	Retail	Private	Commercial	RBS	NatWest	Ulster	items &	NatWest
	Banking	Banking	Banking	International	Markets	Bank RoI	other	Group
	£m	£m	£m	£m	£m	£m	£m	£m
Income statement
Net interest income	973	115	643	89	(7)	94	24	1,931
Own credit adjustments	—	—	—	—	2	—	—	2
Other non-interest income	83	70	298	34	194	30	17	726
Total income	1,056	185	941	123	189	124	41	2,659
Direct expenses-staff costs	(116)	(34)	(141)	(26)	(111)	(47)	(397)	(872)
- other costs	(61)	(9)	(66)	(13)	(29)	(23)	(566)	(767)
Indirect expenses	(380)	(79)	(341)	(13)	(100)	(45)	958	-
Strategic costs - direct	(11)	—	(26)	(4)	(30)	—	(89)	(160)
- indirect	(17)	(4)	(9)	(1)	(5)	(1)	37	—
Litigation and conduct costs	(2)	5	—	—	—	(9)	(10)	(16)
Operating expenses	(587)	(121)	(583)	(57)	(275)	(125)	(67)	(1,815)
Operating profit/(loss) before impairment (losses)/releases	469	64	358	66	(86)	(1)	(26)	844
Impairment (losses)/releases	(34)	—	117	2	6	12	(1)	102
Operating profit/(loss)	435	64	475	68	(80)	11	(27)	946
Additional information
Return on tangible equity (1)	na	na	na	na	na	na	na	7.9%
Return on equity (1)	23.0%	12.4%	14.9%	17.5%	(6.3)%	2.5%	nm	na
Cost:income ratio (1)	55.6%	65.4%	60.5%	46.3%	145.5%	100.8%	nm	67.8%
Total assets (£bn)	199.2	26.9	187.1	36.7	226.8	25.9	67.2	769.8
Funded assets (£bn) (1)	199.2	26.9	187.1	36.7	105.7	25.9	65.3	646.8
Net loans to customers - amortised cost (£bn)	174.8	17.5	106.6	14.7	7.5	16.9	20.7	358.7
Loan impairment rate (1)	8bps	—	(43)bps	(5)bps	nm	(27)bps	nm	(11)bps
Impairment provisions (£bn)	(1.8)	(0.1)	(2.7)	(0.1)	(0.1)	(0.7)	(0.1)	(5.6)
Impairment provisions - Stage 3 (£bn)	(0.8)	—	(0.9)	—	(0.1)	(0.5)	(0.1)	(2.4)
Customer deposits (£bn)	179.1	33.5	169.4	33.3	2.4	18.4	17.2	453.3
Risk-weighted assets (RWAs) (£bn)	35.0	11.2	71.6	7.7	26.5	11.1	1.6	164.7
RWA equivalent (RWAe) (£bn)	35.0	11.2	71.7	7.7	29.2	11.1	1.7	167.6
Employee numbers (FTEs - thousands)	15.8	1.9	9.5	1.6	2.1	2.7	26.0	59.6
Third party customer asset rate (2)	2.73%	2.36%	2.65%	2.28%	nm	2.28%	nm	nm
Third party customer funding rate (2)	(0.08)%	(0.00)%	(0.01)%	0.05%	nm	0.00%	nm	nm
Average interest earning assets (£bn) (1)	191.2	26.0	169.4	34.1	32.4	25.8	nm	512.2
Bank net interest margin (1)	2.06%	1.79%	1.54%	1.06%	na	1.48%	nm	1.64%

nm = not meaningful, na = not applicable.

For the notes to this table, refer to the following page.

NatWest Group – Form 6-K Interim Results 2021 21

Segment performance

	Quarter ended 30 June 2020
				International Banking & Markets			Central	Total
	Retail	Private	Commercial	RBS	NatWest	Ulster	items &	NatWest
	Banking	Banking	Banking	International	Markets	Bank RoI	other	Group
	£m	£m	£m	£m	£m	£m	£m	£m
Income statement
Net interest income	975	124	696	90	6	97	(78)	1,910
Own credit adjustments	—	—	—	—	(102)	—	—	(102)
Other non-interest income	60	67	299	25	369	23	25	868
Total income	1,035	191	995	115	273	120	(53)	2,676
Direct expenses-staff costs	(133)	(40)	(167)	(33)	(159)	(52)	(293)	(877)
- other costs	(45)	(9)	(67)	(13)	(37)	(18)	(595)	(784)
Indirect expenses	(399)	(74)	(337)	(15)	(75)	(46)	946	—
Strategic costs - direct	(1)	—	—	(2)	(86)	(3)	(241)	(333)
- indirect	(69)	(5)	(34)	(2)	(8)	(4)	122	—
Litigation and conduct costs	101	(1)	(6)	—	—	1	(10)	85
Operating expenses	(546)	(129)	(611)	(65)	(365)	(122)	(71)	(1,909)
Operating profit/(loss) before impairment losses	489	62	384	50	(92)	(2)	(124)	767
Impairment losses	(360)	(27)	(1,355)	(31)	(45)	(216)	(22)	(2,056)
Operating profit/(loss)	129	35	(971)	19	(137)	(218)	(146)	(1,289)
Additional information
Return on tangible equity (1)	na	na	na	na	na	na	na	(12.4)%
Return on equity (1)	5.7%	6.6%	(32.5)%	4.3%	(7.1)%	(44.5)%	nm	na
Cost:income ratio (1)	52.8%	67.5%	59.9%	56.5%	133.7%	101.7%	nm	70.9%
Total assets (£bn)	187.1	23.9	186.0	31.5	303.8	27.6	47.0	806.9
Funded assets (£bn) (1)	187.1	23.9	186.0	31.5	122.9	27.6	44.5	623.5
Net loans to customers - amortised cost (£bn)	164.5	16.0	112.0	12.7	11.4	18.7	17.0	352.3
Loan impairment rate (1)	87bps	67bps	472bps	97bps	nm	441bps	nm	229bps
Impairment provisions (£bn)	(1.9)	(0.1)	(3.0)	—	(0.2)	(0.9)	—	(6.1)
Impairment provisions - Stage 3 (£bn)	(0.9)	—	(1.2)	—	(0.1)	(0.6)	—	(2.8)
Customer deposits (£bn)	161.0	29.8	159.6	29.5	5.5	20.0	2.9	408.3
Risk-weighted assets (RWAs) (£bn)	36.7	10.4	78.3	6.8	35.1	12.8	1.4	181.5
RWA equivalent (RWAe) (£bn)	36.7	10.4	78.4	6.9	37.2	12.8	1.5	183.9
Employee numbers (FTEs - thousands)	17.1	1.8	9.6	1.8	5.0	2.8	24.6	62.7
Third party customer asset rate (2)	2.88%	2.53%	2.88%	2.58%	nm	2.27%	nm	nm
Third party customer funding rate (2)	(0.20)%	(0.12)%	(0.13)%	(0.01)%	nm	(0.07)%	nm	nm
Average interest earning assets (£bn) (1)	179.8	23.3	164.6	31.5	39.9	26.4	nm	497.4
Bank net interest margin (1)	2.18%	2.14%	1.70%	1.15%	na	1.48%	nm	1.67%

nm = not meaningful, na = not applicable.

Notes:

(1) Refer to Non-IFRS financial measures Appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics where relevant.

(2) Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, loans to banks and liquid asset portfolios. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. Comparatives have been restated. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets without these exclusions.

NatWest Group – Form 6-K Interim Results 2021 22

Risk and capital management

	Page
Credit risk	21
Economic loss drivers	21
UK economic uncertainty	24
Measurement uncertainty and ECL sensitivity analysis	27
Measurement uncertainty and ECL adequacy	29
Credit risk – Banking activities	31
Segment analysis	31
Sector analysis	36
Wholesale forbearance	41
Personal portfolio	43
Commercial real estate	46
Flow statements	48
Stage 2 decomposition by a significant increase in credit risk trigger
Asset quality	59
Credit risk – Trading activities	63
Capital, liquidity and funding risk	66
Market risk
Non-traded	76
Traded	80
Other risks	81

NatWest Group – Form 6-K Interim Results 2021 23

Risk and capital management

Credit risk

Economic loss drivers

Introduction

The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by product or asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors, (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement.

The most material economic loss drivers are shown in the table below.

Portfolio	Economic loss drivers
UK retail mortgages	UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income
UK retail unsecured	UK unemployment rate, sterling swap rate, UK household debt to income
UK large corporates	World GDP, UK unemployment rate, sterling swap rate, stock price index
UK commercial	UK GDP, UK unemployment rate, sterling swap rate
UK commercial real estate	UK GDP, UK property price indices, sterling swap rate
RoI retail mortgages	RoI unemployment rate, European Central Bank base rate, RoI house price index

Note:

(1) This is not an exhaustive list of economic loss drivers but shows the most material drivers for the most material models/portfolios.

Economic scenarios

There was improvement in the economic outlook for the UK since 31 December 2020, which was reflected in a more optimistic base case scenario as at 30 June 2021. The main drivers of the improvement were as follows:

● Rapid roll-out of the COVID-19 vaccination in the UK and in other developed countries, leading to relaxation of restrictions.

● The success of various government support measures in containing the fallout from lockdown.

● Faster than expected economic recovery, with GDP having made material gains since the lifting of restrictions, and labour and housing markets in particular showing continued signs of resiliency.

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 reflect a range of outcomes for the path of COVID-19 as well as recovery, and the associated effects on labour and asset markets.

The four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. The scenarios were developed to provide sufficient coverage across potential changes in unemployment, asset price and the degree of permanent damage to the economy, around which there are pronounced levels of uncertainty at this stage.

The tables below provide details of the key economic parameters under the four scenarios.

The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the table below. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for unemployment and the Bank of England base rate. The House Price Index and commercial real estate figures show the total change in each asset over five years.

Main macroeconomic variables	30 June 2021				31 December 2020
				Extreme				Extreme
	Upside	Base case	Downside	downside	Upside	Base case	Downside	downside
Five-year summary	%	%	%	%	%	%	%	%
UK
GDP - CAGR	3.9	3.5	2.9	2.5	3.6	3.1	2.8	1.3
Unemployment - average	4.1	4.6	5.8	8.1	4.4	5.7	7.1	9.7
House price index - total change	23.4	14.2	4.9	(0.8)	12.5	7.6	4.4	(19.0)
Bank of England base rate - average	0.9	0.4	—	(0.5)	0.2	—	(0.1)	(0.5)
Commercial real estate price - total change	13.6	4.7	0.1	(8.7)	4.3	0.7	(12.0)	(31.5)
Republic of Ireland
GDP - CAGR	3.8	3.2	2.5	1.8	4.2	3.5	3.0	1.6
Unemployment - average	5.1	6.8	9.1	10.9	5.6	7.5	9.3	11.2
House price index - total change	25.4	18.0	11.3	2.6	21.0	13.3	6.8	(7.0)
European Central Bank base rate - average	0.2	0.1	—	—	0.1	—	—	—
World GDP - CAGR	3.8	3.5	2.7	1.8	3.5	3.4	2.9	2.8
Probability weight	35.0	40.0	20.0	5.0	20.0	40.0	30.0	10.0

Notes:

(1) The five year period starts at Q1 2021 for 30 June 2021 and Q3 2020 for 31 December 2020.

(2) The Republic of Ireland unemployment rate in table above and following tables corresponds to the mid-point of the Irish Central Statistics Office lower and upper bound unemployment rate measures.

NatWest Group – Form 6-K Interim Results 2021 24

Risk and capital management

Credit risk continued

Annual figures

GDP - annual growth

		Base		Extreme			Base		Extreme
	Upside	case	Downside	downside		Upside	case	Downside	downside
UK	%	%	%	%	Republic of Ireland	%	%	%	%
2021	10.1	7.3	2.7	0.1	2021	9.1	4.8	1.8	(0.3)
2022	5.4	5.8	4.3	—	2022	5.0	4.9	2.2	(3.7)
2023	1.6	1.6	4.4	7.7	2023	3.0	3.6	5.4	7.5
2024	1.6	1.6	2.2	3.7	2024	2.6	3.0	3.2	5.2
2025	1.6	1.6	1.5	1.7	2025	2.7	2.9	2.8	3.1

Unemployment rate - annual average

		Base		Extreme			Base		Extreme
	Upside	case	Downside	downside		Upside	case	Downside	downside
UK	%	%	%	%	Republic of Ireland	%	%	%	%
2021	4.7	5.3	5.4	5.9	2021	9.0	11.7	14.2	14.9
2022	4.3	4.8	7.0	11.8	2022	5.8	7.5	12.7	13.9
2023	4.0	4.5	6.5	10.4	2023	4.7	6.1	7.6	12.4
2024	3.8	4.5	5.4	7.1	2024	4.4	5.7	7.0	9.0
2025	3.8	4.3	4.8	5.2	2025	4.2	5.4	6.3	6.6

House price index - four quarter growth

		Base		Extreme			Base		Extreme
	Upside	case	Downside	downside		Upside	case	Downside	downside
UK	%	%	%	%	Republic of Ireland	%	%	%	%
2021	8.0	2.0	(2.4)	(5.4)	2021	10.9	3.6	(4.7)	(3.5)
2022	1.7	0.5	(3.0)	(27.0)	2022	4.9	3.6	1.3	(21.4)
2023	2.8	1.9	1.3	12.2	2023	2.4	3.3	4.0	10.3
2024	4.8	4.8	4.8	19.5	2024	2.8	3.5	5.8	17.6
2025	4.0	4.0	4.0	6.2	2025	3.2	3.4	5.3	4.7

Commercial real estate price - four quarter growth

		Base		Extreme
	Upside	case	Downside	downside
UK	%	%	%	%
2021	7.0	(1.4)	(8.4)	(13.4)
2022	2.1	2.0	(1.3)	(18.2)
2023	1.7	1.7	5.8	15.7
2024	1.3	1.3	2.3	5.4
2025	1.2	1.2	2.3	5.1

Worst points	30 June 2021				31 December 2020
				Extreme				Extreme
	Upside	Base case	Downside	downside	Upside	Base case	Downside	downside
UK	%	%	%	%	%	%	%	%
GDP	—	—	—	(10.2)	—	(1.8)	(5.1)	(10.4)
Unemployment rate (peak)	5.0	5.5	7.0	11.9	5.9	7.0	9.4	13.9
House price index	—	—	(6.1)	(33.1)	—	(3.6)	(11.2)	(32.0)
Commercial real estate price	—	(2.1)	(14.1)	(33.1)	(3.4)	(10.1)	(28.9)	(40.4)
Republic of Ireland
GDP	—	—	(5.3)	(13.3)	(0.6)	(3.0)	(5.5)	(13.8)
Unemployment rate (peak)	15.0	15.0	15.0	17.2	16.5	16.5	16.5	18.1
House price index	—	—	(10.1)	(26.5)	—	(4.2)	(13.3)	(27.0)

Note:

(1) For the unemployment rate, the figures show the peak levels between 2021 and 2026 for 30 June 2021, and between 2020 and 2025 for 31 December 2020. For the other parameters, the figures show falls relative to the starting periods mentioned under the five-year summary table above.

NatWest Group – Form 6-K Interim Results 2021 25

Risk and capital management

Credit risk continued

Probability weightings of scenarios

NatWest Group’s approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. The scale of the economic impact of COVID-19 and the range of recovery paths necessitates a change of approach to assigning probability weights from that used in recent updates. Prior to 2020, GDP paths for NatWest Group’s scenarios were compared against a set of 1,000 model runs, following which a percentile in the distribution was established that most closely corresponded to the scenario.

Instead, NatWest Group has subjectively applied probability weights, reflecting expert views within NatWest Group. The probability weight assignment was judged to present good coverage to the central scenarios and the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. A 35% weighting was applied to the upside scenario, a 40% weighting applied to the base case scenario, a 20% weighting applied to the downside scenario and a 5% weighting applied to the extreme downside scenario. NatWest Group assessed the downside risk posed by COVID-19 to be diminishing over the course of 2021, with the vaccination roll-out and positive economic data being observed since the gradual relaxing of lockdown restrictions.NatWest Group therefore judged it was appropriate to apply a higher probability to upside-biased scenarios than at December 2020.

Use of the scenarios in Personal lending

Personal lending follows a discrete scenario approach. The probability of default (PD) and loss given default (LGD) values for each discrete scenario are calculated using product specific econometric models. Each account has a PD and LGD calculated as probability weighted averages across the suite of economic scenarios.

Use of the scenarios in Wholesale lending

The Wholesale lending ECL methodology is based on the concept of credit cycle indices (CCIs). The CCIs represent, similar to the exogenous component in Personal, all relevant economic loss drivers for a region/industry segment aggregated into a single index value that describes the loss rate conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to loss rates at long-run average levels, a positive CCI value corresponds to loss rates below long-run average levels and a negative CCI value corresponds to loss rates above long-run average levels.

The four 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 overlaid with an additional mean reversion assumption, i.e. that after one to two years into the forecast horizon the CCIs gradually revert to their long-run average of zero.

Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection.

The rationale for the Wholesale approach is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NatWest Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from using the discrete macro-economic scenarios alone.

Business banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal lending rather than the Wholesale lending methodology.

UK economic uncertainty

Treatment of COVID-19 relief mechanisms

Use of COVID-19 relief mechanisms (for example, payment holidays, Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS)) does not automatically merit identification of significant increase in credit risk (SICR) and trigger a Stage 2 classification in isolation. However, a subset of Personal customers who had accessed payment holiday support, and where their risk profile has been identified as relatively high risk continue to be collectively migrated to Stage 2 (if not already captured by other SICR criteria).

For Wholesale customers, NatWest Group continues to provide support, where appropriate, to existing customers. Those who are deemed either (a) to require a prolonged timescale to return to within NatWest Group’s risk appetite, (b) not to have been viable pre-COVID-19, or (c) not to be able to sustain their debt once COVID-19 is over, will trigger a SICR and, if concessions are sought, be categorised as forborne, in line with regulatory guidance. Payment holiday extensions beyond an aggregate of 12 months in an 18 month period to cover continuing COVID-19 business interruption are categorised as forbearance, including for customers where no other SICR triggers are present.

NatWest Group – Form 6-K Interim Results 2021 26

Risk and capital management

Credit risk continued

In February 2021, the British Business Bank announced details of Pay As You Grow (PAYG) options for borrowers of BBLS. The scheme options include the extension of lending terms, periods of reduced repayments and six month payment holidays. PAYG options are a feature of BBLS rather than a concession granted by NatWest Group. It is therefore not automatically considered significant credit deterioration and a Stage 2 trigger. NatWest Group relies on both customer attestations and existing credit monitoring procedures to identify significant financial difficulty. Should signs of financial stress be identified, a review is performed. If credit deterioration is confirmed, existing problem debt management journeys are followed and forbearance (if a concession is granted) is marked in line with existing processes. This will result in Stage 2 transfer.

Model monitoring and enhancement

The abrupt and prolonged interruption of a wide range of economic activities due to COVID-19 and the subsequent government interventions to support businesses and individuals, has resulted in patterns in the data of key economic loss drivers and loss outcomes, that are markedly different from those that NatWest Group’s models have been built on. To account for these structural changes, model adjustments have been applied and model changes have been implemented.

All in-model adjustments described have been applied by correcting the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform SICR identification and ECL measurement.

Government support

Most notably as a result of various government support measures, model-projected default rates in Wholesale and Personal have been adjusted by introducing lags between 6 to 12 months. These lags are based partly on objective empirical data (i.e. the absence of increases in realised default rates by the reporting date) and partly judgmental, based on remaining government support measures and their expected effectiveness.

Extreme GDP movements – Wholesale only

Due to the specific nature of COVID-19, GDP year-on-year movements in both directions are extremely sharp, many multiples of their respective extremes observed previously.

This creates a risk of overstretched, invalid extrapolations in statistical models. Therefore, all Wholesale econometric models were updated to make them robust against extreme GDP movements by capping projected CCI values at levels corresponding to three times the default rates observed at the peak of the global financial crisis and using quarterly averages rather than spot values for CCI projections.

Scenario sensitivity – Personal only

For the Personal lending portfolio, the forward-looking components of the IFRS 9 PD models were modified, leveraging existing econometric models used in stress testing to ensure that PDs appropriately reflect the forecasts for unemployment and house prices in particular.

Additionally, post model ECL adjustments were made in Personal to ensure that the ECL was adjusted for known model over and underpredictions pre-dating COVID-19, pending the systematic recalibration of the underlying models.

NatWest Group – Form 6-K Interim Results 2021 27

Risk and capital management

Credit risk continued

Governance and post model adjustments

The IFRS 9 PD, exposure at default and LGD models are subject to NatWest Group’s model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments (PMAs) were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All PMAs were subject to formal approval through provisioning governance, and were categorised as follows:

● Deferred model calibrations – ECL adjustments where PD model monitoring indicated that actual defaults were below estimated levels but where it was judged that an implied ECL release was not supportable, as these were being judged to have been distorted by government support schemes. As a consequence, any potential ECL release was deferred and retained on the balance sheet.

● Economic uncertainty – ECL adjustments primarily arising from uncertainties associated with MES and credit outcomes as a result of the effect of COVID-19 and the consequences of government interventions. In both cases, management judged that additional ECL was required until further credit performance data became available on the behavioural and loss consequences of COVID-19.

● Other adjustments – ECL adjustments where it was judged that the modelled ECL required to be amended.

PMAs will remain a key focus area of NatWest Group’s ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends, particularly with more observable outcomes from the unwinding of COVID-19 support mechanisms during the remainder of 2021.

ECL post model adjustments	Retail	Commercial	Ulster
	Banking	Banking	Bank RoI	Other	Total
30 June 2021	£m	£m	£m	£m	£m
Deferred model calibrations	103	51	(2)	—	152
Economic uncertainty	197	493	114	30	834
Other adjustments	22	19	118	4	163
	322	563	230	34	1,149
31 December 2020
Deferred model calibrations	34	13	2	—	49
Economic uncertainty	158	526	176	18	878
Other adjustments	20	19	26	3	68
	212	558	204	21	995

Retail Banking – The PMA for deferred model calibrations increased to £103 million from £34 million at 31 December 2020. This reflected management’s judgement that the implied ECL decreases that continued to manifest themselves through the standard PD model monitoring process during H1 2021, were not fully supportable as they were viewed as being temporarily distorted by government support mechanisms. Management retained this view on the basis that underlying portfolio performance had been influenced by the various customer support mechanisms and further outcome data is required.

The PMA for economic uncertainty increased to £197 million from £158 million at 31 December 2020. This was primarily due to the addition of a further £47 million of post model adjustments to hold back modelled LGD reductions on certain unsecured portfolio segements. The total included an ECL uplift of £55 million (a reduction from £63 million at 31 December 2020 due to PD improvements) on a subset of customers who had accessed payment holiday support where their risk profile was identified as relatively high risk. In addition, NatWest Group continues to retain a holdback of a modelled ECL release of £69 million, again due to the delayed default emergence reflective of the various customer support mechanisms (£15 million related to mortgages and £54 million related to unsecured lending). The H1 2021 overlay also included an ECL uplift on buy-to-let mortgages of £14 million (31 December 2020 – £15 million) to mitigate the risk of a disproportionate credit deterioration in challenging economic circumstances.

Other judgmental overlays included £15 million (31 December 2020 – £13 million) in respect of the repayment risk not captured in the models, that a proportion of customers on interest-only mortgages would not be able to repay the capital element of their loan at the end of term, as well as a £7 million overlay for an identified weakness in the mortgage PD model pending remediation.

NatWest Group – Form 6-K Interim Results 2021 28

Risk and capital management

Credit risk continued

Commercial Banking – The PMA for economic uncertainty included an overlay of £409 million (£450 million across NatWest Group’s Wholesale portfolio) based on a judgemental thesis, reflecting concern that the unprecedented nature of COVID-19 could result in longer debt recovery periods and lower values than history suggested, and also the risk of idiosyncratic credit outcomes. It also included an overlay of £23 million in respect of elevated concerns around borrowers’ ability to refinance facilities at the end of the contractual term. Additionally, it included overlays to address the effects of customer support mechanisms.

There was also a PMA for deferred model calibrations on the business banking portfolio reflecting management’s judgement that the beneficial modelling impact, and implied ECL decrease, was not supportable again while portfolio performance was being under-pinned by the various support mechanisms. Other adjustments included an overlay of £19 million to mitigate the effect of operational timing delays in the identification and flagging of a SICR.

Ulster Bank RoI – The PMA for economic uncertainty included an adjustment of £49 million in the mortgage portfolio reflecting concerns that losses arising from defaults during 2021 would be higher than modelled. There was a PMA of £30 million in the Wholesale portfolio, reflecting concern that the unprecedented nature of COVID-19 could result in longer debt recovery periods and lower recovery values than history suggested. It also included PMAs of £9 million in respect of high risk payment break mortgage customers and £23 million in the SME portfolio reflective of the elevated risk for this sector. The increase in other PMAs reflects the judgment that continuing actions on the phased withdrawal of Ulster Bank RoI from the Irish market will lead to higher/earlier crystallisation of losses.

Government guarantees

In April 2021, the UK government launched the Recovery Loan Scheme, replacing previous support schemes which are now closed. Consistent with CBILS and the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the government guarantee is 80%. NatWest Group recognises lower LGDs for these lending products as a result, with 0% applied to the government-guaranteed part of the exposure.

NatWest Group does not directly adjust the measurement of PD due to the government guarantee and continues to move exposures to Stage 2 and Stage 3 where a significant deterioration in credit risk or a default is identified.

Wholesale support schemes

The table below shows the uptake of BBLS, CBILS and CLBILS by Wholesale customers, by sector, which ended for new applications on 31 March 2021.

	BBLS			CBILS			CLBILS
	Approved	Drawdown	% of BBLS to	Approved	Drawdown	% of CBILS to	Approved	Drawdown	% of CLBILS to
30 June 2021	volume	amount (£m)	sector loans	volume	amount (£m)	sector loans	volume	amount (£m)	sector loans
Wholesale lending by sector
Airlines and aerospace	260	6	0.35%	18	9	0.53%	4	16	0.93%
Automotive	12,839	409	6.78%	578	143	2.37%	26	44	0.73%
Education	2,050	52	3.36%	121	76	4.91%	10	32	2.07%
Health	10,248	302	5.46%	630	101	1.82%	3	19	0.34%
Land transport and logistics	8,996	255	5.35%	399	99	2.08%	1	5	0.10%
Leisure	32,721	982	10.74%	2,182	568	6.21%	39	228	2.49%
Oil and gas	329	9	0.61%	15	7	0.47%
Retail	32,652	1,060	12.29%	1,655	399	4.63%	26	115	1.33%
Property	71,422	1,993	5.55%	2,491	676	1.88%	37	81	0.23%
Other (including Business
Banking)	127,787	3,181	3.49%	8,918	1,844	2.02%	84	328	0.36%
Total	299,304	8,249	4.97%	17,007	3,922	2.36%	230	868	0.52%

Notes:

(1) The table contains some cases which as at 30 June 2021 were approved but not yet drawn down. Approved limits as at 30 June 2021 were as follows: BBLS £9.2 billion (90% drawn); CBILS – £4.2 billion (93% drawn); and CLBILS – £1.3 billion (66% drawn).

(2) The Recovery Loan Scheme, a successor to the now closed BBLS, CBILS, and CLBILS was launched on 6 April 2021. Uptake of the new scheme was minimal with 192 customers having drawn down £13.7 million as at 2 July 2021.

NatWest Group – Form 6-K Interim Results 2021 29

Risk and capital management

Credit risk continued

Measurement uncertainty and ECL sensitivity analysis

The recognition and measurement of ECL is complex and involves the use of significant judgement 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 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 as at 30 June 2021. Scenario impacts on a SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.

Stage 3 provisions are not subject to the same level of measurement uncertainty – default is an observed event as at the balance sheet date. Stage 3 provisions therefore have not been considered in this analysis.

The impact arising from the upside, downside and extreme downside scenarios has been simulated. These scenarios are three of the four discrete scenarios used in the methodology for Personal MES as described in the Economic loss drivers section. In the simulations, NatWest Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a combined total 100% probability weighting and therefore serving as a single economic scenario.

These scenarios have been applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Modelled PMAs present in the underlying ECL estimates are also sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for 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.

NatWest Group’s core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact.

NatWest Group – Form 6-K Interim Results 2021 30

Risk and capital management

Credit risk continued

					Extreme
30 June 2021	Actual	Base case	Upside	Downside	downside
Stage 1 modelled exposure (£m)
Retail Banking	152,428	152,412	152,510	152,128	141,758
Ulster Bank RoI Personal & Business Banking	10,989	10,989	11,022	10,556	10,373
Wholesale	113,315	115,403	116,189	113,405	98,561
	276,732	278,804	279,721	276,089	250,692
Stage 1 modelled ECL (£m)
Retail Banking	110	112	112	113	113
Ulster Bank RoI Personal & Business Banking	25	24	22	27	27
Wholesale	262	269	269	273	287
	397	405	403	413	427
Stage 1 coverage (%)
Retail Banking	0.07%	0.07%	0.07%	0.07%	0.08%
Ulster Bank RoI Personal & Business Banking	0.22%	0.22%	0.20%	0.26%	0.26%
Wholesale	0.23%	0.23%	0.23%	0.24%	0.29%
	0.14%	0.15%	0.14%	0.15%	0.17%
Stage 2 modelled exposure (£m)
Retail Banking	19,435	19,451	19,353	19,735	30,105
Ulster Bank RoI Personal & Business Banking	1,387	1,387	1,354	1,820	2,003
Wholesale	33,405	31,317	30,531	33,315	48,159
	54,227	52,155	51,238	54,870	80,267
Stage 2 modelled ECL (£m)
Retail Banking	710	722	671	799	1,042
Ulster Bank RoI Personal & Business Banking	76	76	71	93	107
Wholesale	1,479	1,368	1,316	1,485	2,347
	2,265	2,166	2,058	2,377	3,496
Stage 2 coverage (%)
Retail Banking	3.65%	3.71%	3.46%	4.05%	3.46%
Ulster Bank RoI Personal & Business Banking	5.51%	5.49%	5.22%	5.10%	5.32%
Wholesale	4.43%	4.37%	4.31%	4.46%	4.87%
	4.18%	4.15%	4.01%	4.33%	4.35%
Stage 1 and Stage 2 modelled exposure (£m)
Retail Banking	171,863	171,863	171,863	171,863	171,863
Ulster Bank RoI Personal & Business Banking	12,376	12,376	12,376	12,376	12,376
Wholesale	146,720	146,720	146,720	146,720	146,720
	330,959	330,959	330,959	330,959	330,959
Stage 1 and Stage 2 modelled ECL (£m)
Retail Banking	820	834	783	912	1,155
Ulster Bank RoI Personal & Business Banking	101	100	93	120	134
Wholesale	1,741	1,637	1,584	1,758	2,635
	2,662	2,571	2,460	2,790	3,924
Stage 1 and Stage 2 coverage (%)
Retail Banking	0.48%	0.49%	0.46%	0.53%	0.67%
Ulster Bank RoI Personal & Business Banking	0.82%	0.81%	0.75%	0.97%	1.08%
Wholesale	1.19%	1.12%	1.08%	1.20%	1.80%
	0.80%	0.78%	0.74%	0.84%	1.19%
Reconciliation to Stage 1 and Stage 2 ECL (£m)
ECL on modelled exposures	2,662	2,571	2,461	2,790	3,923
ECL on non-modelled exposures	70	70	70	70	70
Total Stage 1 and Stage 2 ECL	2,732	2,641	2,530	2,860	3,994
Variance – (lower)/higher to actual total Stage 1 and Stage 2 ECL		(91)	(202)	128	1,262

Notes:

(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 2021 and therefore does not include variation in future undrawn exposure values.

(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios and exposure relating to bonds and cash.

(3) 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 2021. 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 Group 2020 Annual Report on Form 20-F for 31 December 2020 comparatives.

NatWest Group – Form 6-K Interim Results 2021 31

Risk and capital management

Credit risk continued

Key points

● During H1 2021, both the Stage 2 size and overall modelled ECL reduced as a result of the improved economic outlook and scenario weightings, together with stable portfolio performance. Judgemental ECL PMAs continued to reflect residual economic uncertainty with the expectation of increased defaults later in 2021 and beyond, now representing 23% of total ECL (31 December 2020 - 18%). These combined factors, in conjunction with a less severe suite of economics in the H1 2021 extreme downside scenario, contributed to a smaller range of ECL sensitivities at H1 2021 compared to the 2020 year end.

● If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by £1.3 billion (approximately 45%). 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.

● The small ECL uplift in the downside scenario, particularly in Wholesale, reflected the net effect of the MES weightings towards the downside for ECL, observable when comparing to the ECL scenario with 100% weight on the base case.

● For the downside scenario, the ECL result was not materially different to actual ECL due to mean reversion of default rates and the recovery trajectory in the downside. Compared to the base case, Wholesale Stage 1 and Stage 2 ECL was over 7% higher in the downside scenario. In Retail Banking, similar scenario shape dynamics led to minimal difference between the base case sensitivity and actual ECL.

● In the upside scenario, the simulated ECL reduction (£0.2 billion, 8% of actual) was lower than the uplift observed in the extreme downside, again reflecting the expectation that the non-linearity of losses was skewed to the downside. In Retail Banking this is partly due to the effect of PD persistence, where Stage 2 will not be affected immediately by PD reductions.

Measurement uncertainty and ECL adequacy

The improvement in the economic outlook and scenarios used in the IFRS 9 MES framework at H1 2021 resulted in a release of modelled ECL. Given continued uncertainty remains due to COVID-19 despite the improved economic outlook, NatWest Group utilised a framework of quantitative and qualitative measures to support the directional change and levels of ECL coverage, including economic data, credit performance insights and problem debt trends. This was particularly important for consideration of post model adjustments.

As government support mechanisms continue to conclude during 2021, NatWest Group anticipates further credit deterioration in the portfolios. However, the income statement effect of this will be mitigated by the forward-looking provisions retained on the balance sheet as at 30 June 2021.

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. A key factor would be a more adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates, but also, among others:

● The ongoing trajectory of lockdown restriction relaxation within the UK and the Republic of Ireland, and any future repeated lockdown requirements.

● The progress of the COVID-19 vaccination roll-out and its effectiveness against new variants.

● The efficacy of the various government support initiatives in terms of their ability to defray customer defaults is yet to be proven, notably over an extended period.

● Higher unemployment if companies fail to retain jobs after the UK furlough scheme concludes in Q3 2021.

● The level of revenues lost by corporate clients and pace of recovery of those revenues may affect NatWest Group’s clients’ ability to service their borrowing, especially in those sectors most exposed to the effects of COVID-19.

Movement in ECL provision

The table below shows the main ECL provision movements during H1 2021.

	ECL provision
	£m
At 1 January 2021	6,186
Changes in economic forecasts	(363)
Changes in risk metrics and exposure: Stage 1 and Stage 2	(483)
Changes in risk metrics and exposure: Stage 3	43
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3	155
Write-offs and other	(613)
At 30 June 2021	4,925

NatWest Group – Form 6-K Interim Results 2021 32

Risk and capital management

Credit risk – Banking activities

Introduction

This section details the credit risk profile of NatWest Group’s banking activities.

Financial instruments within the scope of the IFRS 9 ECL framework

Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.

Financial assets

	30 June 2021			31 December 2020
	Gross	ECL	Net	Gross	ECL	Net
	£bn	£bn	£bn	£bn	£bn	£bn
Balance sheet total gross amortised cost and FVOCI	586.1			555.0
In scope of IFRS 9 ECL framework	575.9			548.8
% in scope	98%			99%
Loans to customers - in scope - amortised cost	367.0	4.7	362.3	365.5	6.0	359.5
Loans to customers - in scope - FVOCI	0.7	—	0.7	—	—	—
Loans to banks - in scope - amortised cost	7.9	—	7.9	6.8	—	6.8
Total loans - in scope	375.6	4.7	370.9	372.3	6.0	366.3
Stage 1	316.7	0.4	316.3	287.1	0.5	286.6
Stage 2	53.2	2.2	51.0	78.9	3.0	75.9
Stage 3	5.7	2.1	3.6	6.3	2.5	3.8
Other financial assets - in scope - amortised cost	159.2	—	159.2	132.1	—	132.1
Other financial assets - in scope - FVOCI	41.1	—	41.1	44.4	—	44.4
Total other financial assets - in scope	200.3	—	200.3	176.5	—	176.5
Stage 1	199.5	—	199.5	175.5	—	175.5
Stage 2	0.8	—	0.8	1.0	—	1.0
Out of scope of IFRS 9 ECL framework	10.2	na	10.2	6.2	na	6.2
Loans to customers - out of scope - amortised cost	0.4	na	0.4	1.0	na	1.0
Loans to banks - out of scope - amortised cost	0.3	na	0.3	0.1	na	0.1
Other financial assets - out of scope - amortised cost	9.2	na	9.2	4.6	na	4.6
Other financial assets - out of scope - FVOCI	0.3	na	0.3	0.5	na	0.5

na = not applicable

The assets outside the IFRS 9 ECL framework were as follows:

●Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £8.5 billion (31 December 2020 – £4.1 billion). These were assessed as having no ECL unless there was evidence that they were credit impaired.

●Equity shares of £0.3 billion (31 December 2020 – £0.3 billion) as not within the IFRS 9 ECL framework by definition.

●Fair value adjustments on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope – £1.0 billion (31 December 2020 – £1.4 billion).

●NatWest Group originated securitisations, where ECL was captured on the underlying loans of £0.4 billion (31 December 2020 – £0.4 billion).

Contingent liabilities and commitments

In addition to contingent liabilities and commitments disclosed in Note 11, reputationally-committed limits, are also included in the scope of the IFRS 9 ECL framework. These are offset by nil (31 December 2020 – £0.2 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as amortised cost or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £127.6 billion (31 December 2020 – £133.6 billion) comprised Stage 1 £110.6 billion (31 December 2020 – £107.4 billion); Stage 2 £16.2 billion (31 December 2020 – £25.2 billion); and Stage 3 £0.8 billion (31 December 2020 – £1.0 billion).

The ECL relating to contingent liabilities is £0.2 billion (31 December 2020 - £0.2 billion). The total ECL in the remainder of the credit risk section of £4.9 billion includes ECL for both balance sheet exposure and contingent liabilities.

NatWest Group – Form 6-K Interim Results 2021 33

Risk and capital management

Credit risk – Banking activities continued

Segment analysis – portfolio summary

The table below shows gross loans and related credit impairment measures, within the scope of the IFRS 9 ECL framework.

			International Banking & Markets
	Retail	Private	Commercial	RBS	NatWest	Ulster	Central items
	Banking	Banking	Banking	International	Markets	Bank RoI	& other	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Loans - amortised cost and FVOCI
Stage 1	158,989	16,728	75,713	15,027	7,019	13,732	29,493	316,701
Stage 2	18,866	1,444	27,895	1,342	721	2,821	99	53,188
Stage 3	1,921	307	2,226	206	108	935	—	5,703
Of which: individual	—	307	1,202	206	98	38	—	1,851
Of which: collective	1,921	—	1,024	—	10	897	—	3,852
	179,776	18,479	105,834	16,575	7,848	17,488	29,592	375,592
ECL provisions (1)
Stage 1	120	21	208	15	10	44	15	433
Stage 2	709	49	1,222	46	36	225	13	2,300
Stage 3	811	36	812	47	88	398	—	2,192
Of which: individual	—	36	386	47	79	12	—	560
Of which: collective	811	—	426	—	9	386	—	1,632
	1,640	106	2,242	108	134	667	28	4,925
ECL provisions coverage (2,3)
Stage 1 (%)	0.08	0.13	0.27	0.10	0.14	0.32	0.05	0.14
Stage 2 (%)	3.76	3.39	4.38	3.43	4.99	7.98	13.13	4.32
Stage 3 (%)	42.22	11.73	36.48	22.82	81.48	42.57	—	38.44
	0.91	0.57	2.12	0.65	1.71	3.81	0.09	1.31
Half year ended 30 June 2021
Impairment losses
ECL (release)/charge (4)	(57)	(27)	(568)	(29)	(16)	(11)	1	(707)
Stage 1	(195)	(27)	(405)	(23)	(8)	(43)	—	(701)
Stage 2	45	(4)	(141)	(4)	(5)	8	1	(100)
Stage 3	93	4	(22)	(2)	(3)	24	—	94
Of which: individual	—	4	(29)	(2)	1	1	—	(25)
Of which: collective	93	—	7	—	(4)	23	—	119
ECL loss rate - annualised
(basis points) (3)	(6)	(29)	(107)	(35)	(41)	(13)	1	(38)
Amounts written-off	138	5	257	1	40	76	—	517
Of which: individual	—	5	210	1	40	—	—	256
Of which: collective	138	—	47	—	—	76	—	261

For the notes to this table refer to the following page.

NatWest Group – Form 6-K Interim Results 2021 34

Risk and capital management

Credit risk – Banking activities continued

Segment analysis – portfolio summary

			International Banking & Markets
	Retail	Private	Commercial	RBS	NatWest	Ulster	Central items
	Banking	Banking	Banking	International	Markets	Bank RoI	& other	Total
31 December 2020	£m	£m	£m	£m	£m	£m	£m	£m
Loans - amortised cost and FVOCI
Stage 1	139,956	15,321	70,685	12,143	7,780	14,380	26,859	287,124
Stage 2	32,414	1,939	37,344	2,242	1,566	3,302	110	78,917
Stage 3	1,891	298	2,551	211	171	1,236	—	6,358
Of which: individual	—	298	1,578	211	162	43	—	2,292
Of which: collective	1,891	—	973	—	9	1,193	—	4,066
	174,261	17,558	110,580	14,596	9,517	18,918	26,969	372,399
ECL provisions (1)
Stage 1	134	31	270	14	12	45	13	519
Stage 2	897	68	1,713	74	49	265	15	3,081
Stage 3	806	39	1,069	48	132	492	—	2,586
Of which: individual	—	39	607	48	124	13	—	831
Of which: collective	806	—	462	—	8	479	—	1,755
	1,837	138	3,052	136	193	802	28	6,186
ECL provisions coverage (2,3)
Stage 1 (%)	0.10	0.20	0.38	0.12	0.15	0.31	0.05	0.18
Stage 2 (%)	2.77	3.51	4.59	3.30	3.13	8.03	13.64	3.90
Stage 3 (%)	42.62	13.09	41.91	22.75	77.19	39.81	—	40.67
	1.05	0.79	2.76	0.93	2.03	4.24	0.10	1.66
Half year ended 30 June 2020
Impairment losses
ECL charge (4)	657	56	1,790	46	40	243	26	2,858
Stage 1	24	16	231	4	10	12	11	308
Stage 2	524	39	1,323	20	43	186	15	2,150
Stage 3	109	1	236	22	(13)	45	—	400
Of which: individual	—	1	114	22	(4)	(2)	—	131
Of which: collective	109	—	122	—	(9)	47	—	269
ECL loss rate - annualised
(basis points) (3)	79	69	312	63	63	197	25	154
Amounts written-off	117	1	120	2	4	164	—	408
Of which: individual	—	1	34	2	4	-	—	41
Of which: collective	117	—	86	—	—	164	—	367

Notes:

(1) Includes £6 million (31 December 2020 – £6 million) related to assets classified as FVOCI.

(2) ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI.

(3) ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans – amortised cost and FVOCI. The half year ECL charge is annualised by multiplying by two.

(4) Includes a £4 million charge (30 June 2020 – £5 million) related to other financial assets, of which nil (30 June 2020 – £4 million) related to assets classified as FVOCI; and £2 million (30 June 2020 – £8 million) related to contingent liabilities.

(5) The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 33 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £150.5 billion (31 December 2020 – £122.7 billion) and debt securities of £49.8 billion (31 December 2020 – £53.8 billion).

(6) The stage allocation of the ECL charge was aligned to the stage transition approach that underpins the analysis in the Flow statement section.

Key points

● ECL reduced significantly on Stage 1 and Stage 2 exposures, reflecting a more positive economic outlook, commensurate with reduced levels of uncertainty due to vaccination progress and economic rebound as lockdown eases.

● The various customer support mechanisms which continue to be available mitigate against flows to default in the short-term. Hence, there was a limited effect on Stage 3 ECL requirements during H1 2021.

● Reflecting the improved economic environment and resultant ECL releases across all key businesses, the annualised loss rate has reduced to negative 38bps.

NatWest Group – Form 6-K Interim Results 2021 35

Risk and capital management

Credit risk – Banking activities continued

Segment loans and impairment metrics

The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.

	Gross loans							ECL provisions (2)
		Stage 2 (1)							Stage 2 (1)
		Not past	1-30	>30						Not past	1-30	>30
	Stage 1	due	DPD	DPD	Total	Stage 3	Total	Stage 1		due	DPD	DPD	Total	Stage 3	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m		£m	£m	£m	£m	£m	£m
Retail Banking	158,989	17,478	895	493	18,866	1,921	179,776	120		626	44	39	709	811	1,640
Private Banking	16,728	1,376	38	30	1,444	307	18,479	21		49	—	—	49	36	106
Personal	13,783	114	38	27	179	267	14,229	6		2	—	—	2	17	25
Wholesale	2,945	1,262	—	3	1,265	40	4,250	15		47	—	—	47	19	81
Commercial Banking	75,713	26,569	876	450	27,895	2,226	105,834	208		1,155	49	18	1,222	812	2,242
International Banking
& Markets
RBS International	15,027	1,311	17	14	1,342	206	16,575	15		45	—	1	46	47	108
Personal	2,686	19	14	7	40	68	2,794	2		1	—	1	2	12	16
Wholesale	12,341	1,292	3	7	1,302	138	13,781	13		44	—	—	44	35	92
NatWest Markets	7,019	709	—	12	721	108	7,848	10		36	—	—	36	88	134
Ulster Bank RoI	13,732	2,636	85	100	2,821	935	17,488	44		205	9	11	225	398	667
Personal	10,798	1,166	78	85	1,329	773	12,900	24		59	6	8	73	301	398
Wholesale	2,934	1,470	7	15	1,492	162	4,588	20		146	3	3	152	97	269
Central items & other	29,493	99	—	—	99	—	29,592	15		13	—	—	13	—	28
Total loans	316,701	50,178	1,911	1,099	53,188	5,703	375,592	433		2,129	102	69	2,300	2,192	4,925
Of which:
Personal	186,256	18,777	1,025	612	20,414	3,029	209,699	152		688	50	48	786	1,141	2,079
Wholesale	130,445	31,401	886	487	32,774	2,674	165,893	281		1,441	52	21	1,514	1,051	2,846
31 December 2020
Retail Banking	139,956	30,714	1,080	620	32,414	1,891	174,261	134		762	70	65	897	806	1,837
Private Banking	15,321	1,908	17	14	1,939	298	17,558	31		67	—	1	68	39	138
Personal	12,799	116	17	11	144	263	13,206	7		2	—	—	2	19	28
Wholesale	2,522	1,792	—	3	1,795	35	4,352	24		65	—	1	66	20	110
Commercial Banking	70,685	36,451	589	304	37,344	2,551	110,580	270		1,648	44	21	1,713	1,069	3,052
International Banking
& Markets
RBS International	12,143	2,176	46	20	2,242	211	14,596	14		72	1	1	74	48	136
Personal	2,676	18	17	14	49	70	2,795	3		1	—	—	1	11	15
Wholesale	9,467	2,158	29	6	2,193	141	11,801	11		71	1	1	73	37	121
NatWest Markets	7,780	1,457	—	109	1,566	171	9,517	12		49	—	—	49	132	193
Ulster Bank RoI	14,380	2,964	144	194	3,302	1,236	18,918	45		227	15	23	265	492	802
Personal	11,117	1,500	115	130	1,745	1,064	13,926	27		74	9	13	96	392	515
Wholesale	3,263	1,464	29	64	1,557	172	4,992	18		153	6	10	169	100	287
Central items & other	26,859	110	—	—	110	—	26,969	13		15	—	—	15	—	28
Total loans	287,124	75,780	1,876	1,261	78,917	6,358	372,399	519		2,840	130	111	3,081	2,586	6,186
Of which:
Personal	166,548	32,348	1,229	775	34,352	3,288	204,188	171		839	79	78	996	1,228	2,395
Wholesale	120,576	43,432	647	486	44,565	3,070	168,211	348		2,001	51	33	2,085	1,358	3,791

For the notes to this table refer to the following page.

NatWest Group – Form 6-K Interim Results 2021 36

Risk and capital management

Credit risk – Banking activities continued

Segment loans and impairment metrics

The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework.

	ECL provisions coverage							Half year ended 30 June 2021
		Stage 2 (1,2)						ECL
		Not past						Total		Amounts
	Stage 1	due	1-30 DPD	>30 DPD	Total	Stage 3	Total	(release)/charge	Loss rate	written-off
30 June 2021	%	%	%	%	%	%	%	£m	basis points	£m
Retail Banking	0.08	3.58	4.92	7.91	3.76	42.22	0.91	(57)	(6)	138
Private Banking	0.13	3.56	—	—	3.39	11.73	0.57	(27)	(29)	5
Personal	0.04	1.75	—	—	1.12	6.37	0.18	(4)	(6)	(1)
Wholesale	0.51	3.72	—	—	3.72	47.50	1.91	(23)	(108)	6
Commercial Banking	0.27	4.35	5.59	4.00	4.38	36.48	2.12	(568)	(107)	257
International Banking
& Markets
RBS International	0.10	3.43	—	7.14	3.43	22.82	0.65	(29)	(35)	1
Personal	0.07	5.26	—	14.29	5.00	17.65	0.57	—	—	—
Wholesale	0.11	3.41	—	—	3.38	25.36	0.67	(29)	(42)	1
NatWest Markets	0.14	5.08	—	—	4.99	81.48	1.71	(16)	(41)	40
Ulster Bank RoI	0.32	7.78	10.59	11.00	7.98	42.57	3.81	(11)	(13)	76
Personal	0.22	5.06	7.69	9.41	5.49	38.94	3.09	(11)	(17)	71
Wholesale	0.68	9.93	42.86	20.00	10.19	59.88	5.86	—	—	5
Central items & other	0.05	13.13	—	—	13.13	—	0.09	1	1	—
Total loans	0.14	4.24	5.34	6.28	4.32	38.44	1.31	(707)	(38)	517
Of which:
Personal	0.08	3.66	4.88	7.84	3.85	37.67	0.99	(72)	(7)	208
Wholesale	0.22	4.59	5.87	4.31	4.62	39.30	1.72	(635)	(77)	309
	ECL provisions coverage							Half year ended 30 June 2020
		Stage 2 (1,2)						ECL
		Not past						Total		Amounts
	Stage 1	due	1-30 DPD	>30 DPD	Total	Stage 3	Total	charge/(release)	Loss rate	written-off
31 December 2020	%	%	%	%	%	%	%	£m	basis points	£m
Retail Banking	0.10	2.48	6.48	10.48	2.77	42.62	1.05	657	79	117
Private Banking	0.20	3.51	—	7.14	3.51	13.09	0.79	56	69	1
Personal	0.05	1.72	—	—	1.39	7.22	0.21	3	5	—
Wholesale	0.95	3.63	—	33.33	3.68	57.14	2.53	53	273	1
Commercial Banking	0.38	4.52	7.47	6.91	4.59	41.91	2.76	1,790	312	120
International Banking
& Markets
RBS International	0.12	3.31	2.17	5.00	3.30	22.75	0.93	46	63	2
Personal	0.11	5.56	—	—	2.04	15.71	0.54	(3)	(21)	2
Wholesale	0.12	3.29	3.45	16.67	3.33	26.24	1.03	49	83	—
NatWest Markets	0.15	3.36	—	—	3.13	77.19	2.03	40	63	4
Ulster Bank RoI	0.31	7.66	10.42	11.86	8.03	39.81	4.24	243	197	164
Personal	0.24	4.93	7.83	10.00	5.50	36.84	3.70	120	168	162
Wholesale	0.55	10.45	20.69	15.63	10.85	58.14	5.75	123	236	2
Central items & other	0.05	13.64	—	—	13.64	—	0.10	26	25	—
Total loans	0.18	3.75	6.93	8.80	3.90	40.67	1.66	2,858	154	408
Of which:
Personal	0.10	2.59	6.43	10.06	2.90	37.35	1.17	777	79	281
Wholesale	0.29	4.61	7.88	6.79	4.68	44.23	2.25	2,081	238	127

Notes:

(1) 30 DPD – 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for a SICR.

(2) ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.

NatWest Group – Form 6-K Interim Results 2021 37

Risk and capital management

Credit risk – Banking activities continued

Segment loans and impairment metrics

Key points

● Retail Banking – Balance sheet growth during H1 2021 was mainly due to mortgages. In line with the market, mortgage demand was strong during the first six months of the year, supported by the extension of the stamp duty holiday and overall improvements in economic conditions. The improved economic outlook captured in the updated MES scenarios, including a more positive forecast on unemployment levels, resulted in reduced account level PDs compared to the year end. Unsecured lending balances reduced over the same period as customer spend and demand for borrowing has been subdued during COVID-19 restrictions, particularly in the first quarter of 2021. Lending criteria were selectively relaxed in H1 2021 to support growing demand for secured and unsecured borrowing, as lockdown restrictions eased.

● Portfolio performance remained stable, for further details refer to the Personal portfolio section below. Arrears levels in both the mortgage and unsecured portfolios remained low overall, however, a small number of customers who had utilised their full payment holiday support did migrate into late arrears during H1 2021. With the vast majority of payment holidays now complete, this trend stabilised by the end of H1 2021 and new inflows to arrears were below pre-COVID-19 levels. The improved economic conditions alongside continued benign credit performance in the portfolio, resulted in a smaller proportion of customer accounts triggering SICR and an associated migration of assets from Stage 2 to Stage 1, resulting in reduced ECL. The various COVID-19 related customer support mechanisms (e.g. loan repayment holidays, government job retention scheme) have mitigated actual portfolio deterioration in the short term, with the days past due and flows to Stage 3 yet to be materially affected. Provisions coverage reduced overall mirroring the positive trajectory of the COVID-19 vaccination, labour market trends and portfolio performance. The annualised loss rate for H1 2021 was significantly lower than in 2020.

● Commercial Banking – Balance sheet reduction occurred across the key sectors of the portfolio that continue to be affected by COVID-19, including off-balance sheet exposures in the Land Transport & Logistics, Oil and Gas, Automotive and Retail sectors. Sector appetite continued to be regularly reviewed with oversight classifications adjusted based on updated financial performance and economic outlook for the sectors. The improved economic outlook, including positive movement in GDP and commercial real estate valuations, resulted in lower IFRS 9 PDs. Consequently, there was a reduction in exposures exhibiting a SICR which caused a migration of assets from Stage 2 to Stage 1. As a result, the ECL requirement decreased. Reflecting the residual uncertainty arising from COVID-19, management judged it appropriate to maintain certain ECL post model adjustments. The various COVID-19 related customer support mechanisms continued to mitigate against flows into default. The Stage 2 exposure reduced with PMAs dampening the associated ECL reduction. The loss rate was significantly lower in H1 2021 than in the prior year.

● Ulster Bank RoI –Balance sheet reductions since the 2020 year end were a result of diminished credit demand caused by COVID-19 disruption and the announcement of the phased withdrawal of Ulster Bank RoI from the Irish market. The weakening of the euro against sterling further contributed to this balance sheet reduction. Decreases in ECL reflected ongoing deleveraging of the non-performing mortgage portfolio through the execution of the final tranche of a 2019 debt sale. The various COVID-19 related customer support mechanisms are mitigating actual portfolio deterioration in the short term, with the days past due and flows to Stage 3 yet to be materially impacted. The annualised loss rate for H1 2021 was significantly lower than in 2020.

NatWest Group – Form 6-K Interim Results 2021 38

Risk and capital management

Credit risk – Banking activities continued

Sector analysis – portfolio summary

The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region.

	Personal				Wholesale					Total
		Credit	Other
	Mortgages (1)	cards	personal	Total	Property	Corporate	FI	Sovereign	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Loans by geography	196,708	3,727	9,264	209,699	35,941	74,122	50,072	5,758	165,893	375,592
- UK	184,046	3,660	9,093	196,799	33,825	63,855	36,774	4,223	138,677	335,476
- RoI	12,662	67	171	12,900	1,137	3,677	321	27	5,162	18,062
- Other Europe	—	—	—	—	621	3,759	4,799	878	10,057	10,057
- RoW	—	—	—	—	358	2,831	8,178	630	11,997	11,997
Loans by stage	196,708	3,727	9,264	209,699	35,941	74,122	50,072	5,758	165,893	375,592
- Stage 1	177,630	2,562	6,064	186,256	28,105	49,050	47,694	5,596	130,445	316,701
- Stage 2	16,750	1,083	2,581	20,414	6,782	23,478	2,361	153	32,774	53,188
- Stage 3	2,328	82	619	3,029	1,054	1,594	17	9	2,674	5,703
- Of which: individual	315	—	20	335	706	791	10	9	1,516	1,851
- Of which: collective	2,013	82	599	2,694	348	803	7	—	1,158	3,852
Loans - past due analysis (2,3)	196,708	3,727	9,264	209,699	35,941	74,122	50,072	5,758	165,893	375,592
- Not past due	193,185	3,618	8,457	205,260	34,889	71,810	48,943	5,488	161,130	366,390
- Past due 1-30 days	1,317	25	129	1,471	398	1,495	1,110	269	3,272	4,743
- Past due 30-90 days	697	24	93	814	251	250	13	1	515	1,329
- Past due 90-180 days	433	23	72	528	39	41	—	—	80	608
- Past due >180 days	1,076	37	513	1,626	364	526	6	—	896	2,522
Loans - Stage 2	16,750	1,083	2,581	20,414	6,782	23,478	2,361	153	32,774	53,188
- Not past due	15,331	1,053	2,393	18,777	6,330	22,599	2,320	152	31,401	50,178
- Past due 1-30 days	903	14	108	1,025	211	647	28	-	886	1,911
- Past due 30-90 days	516	16	80	612	241	232	13	1	487	1,099
Weighted average life*
- ECL measurement (years)	9	2	5	6	4	6	3	1	5	5
Weighted average 12 months PDs*
- IFRS 9 (%)	0.34	5.94	3.51	0.56	2.31	2.91	0.41	0.13	1.91	1.18
- Basel (%)	0.77	3.33	3.22	0.91	1.23	1.87	0.27	0.14	1.18	1.03
ECL provisions by geography	853	289	937	2,079	797	1,885	143	21	2,846	4,925
- UK	469	287	925	1,681	678	1,482	86	15	2,261	3,942
- RoI	384	2	12	398	73	187	13	2	275	673
- Other Europe	—	—	—	—	38	97	38	1	174	174
- RoW	—	—	—	—	8	119	6	3	136	136
ECL provisions by stage	853	289	937	2,079	797	1,885	143	21	2,846	4,925
- Stage 1	43	47	62	152	93	149	21	18	281	433
- Stage 2	249	183	354	786	313	1,085	115	1	1,514	2,300
- Stage 3	561	59	521	1,141	391	651	7	2	1,051	2,192
- Of which: individual	19	-	10	29	222	304	3	2	531	560
- Of which: collective	542	59	511	1,112	169	347	4	-	520	1,632
ECL provisions coverage (%)	0.43	7.75	10.11	0.99	2.22	2.54	0.29	0.36	1.72	1.31
- Stage 1 (%)	0.02	1.83	1.02	0.08	0.33	0.30	0.04	0.32	0.22	0.14
- Stage 2 (%)	1.49	16.90	13.72	3.85	4.62	4.62	4.87	0.65	4.62	4.32
- Stage 3 (%)	24.10	71.95	84.17	37.67	37.10	40.84	41.18	22.22	39.30	38.44
ECL (release)/charge	(53)	(17)	(2)	(72)	(195)	(465)	22	3	(635)	(707)
- UK	(40)	(17)	(3)	(60)	(224)	(373)	28	2	(567)	(627)
- RoI	(13)	—	1	(12)	40	(49)	9	1	1	(11)
- Other Europe	—	—	—	—	(20)	(10)	(8)	—	(38)	(38)
- RoW	—	—	—	—	9	(33)	(7)	—	(31)	(31)
ECL loss rate (%)	(0.05)	(0.91)	(0.04)	(0.07)	(1.09)	(1.25)	0.09	0.10	(0.77)	(0.38)
Amounts written-off	74	45	89	208	120	187	2	—	309	517

For the notes to this table refer to page 42.

NatWest Group – Form 6-K Interim Results 2021 39

Risk and capital management

Credit risk – Banking activities continued

Sector analysis – portfolio summary

	Personal				Wholesale					Total
	Credit	Other
	Mortgages (1)	cards	personal	Total	Property	Corporate	FI	Sovereign	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Loans by residual maturity	196,708	3,727	9,264	209,699	35,941	74,122	50,072	5,758	165,893	375,592
- <1 year	3,761	2,420	3,080	9,261	9,876	22,159	39,865	2,713	74,613	83,874
- 1-5 year	12,075	1,307	5,286	18,668	17,145	35,795	9,147	1,714	63,801	82,469
- 5 year	180,872	—	898	181,770	8,920	16,168	1,060	1,331	27,479	209,249
Other financial assets by asset quality (4)	—	—	—	—	93	12	10,764	189,412	200,281	200,281
- AQ1-AQ4	—	—	—	—	—	12	10,263	189,375	199,650	199,650
- AQ5-AQ8	—	—	—	—	93	—	501	37	631	631
Off-balance sheet	12,825	14,470	10,251	37,546	17,591	55,538	15,585	1,358	90,072	127,618
- Loan commitments	12,822	14,470	10,212	37,504	17,083	52,626	14,659	1,356	85,724	123,228
- Financial guarantees	3	—	39	42	508	2,912	926	2	4,348	4,390
Off-balance sheet by asset quality (4)	12,825	14,470	10,251	37,546	17,591	55,538	15,585	1,358	90,072	127,618
- AQ1-AQ4	12,021	185	8,514	20,720	13,130	30,984	14,148	1,212	59,474	80,194
- AQ5-AQ8	795	13,991	1,718	16,504	4,368	24,071	1,434	146	30,019	46,523
- AQ9	—	9	7	16	8	38	—	—	46	62
- AQ10	9	285	12	306	85	445	3	—	533	839

For the notes to this table refer to page 42.

NatWest Group – Form 6-K Interim Results 2021 40

Risk and capital management

Credit risk – Banking activities continued

Sector analysis – portfolio summary

	Personal				Wholesale					Total
		Credit	Other
	Mortgages (1)	cards	personal	Total	Property	Corporate	FI	Sovereign	Total
31 December 2020	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Loans by geography	190,516	3,895	9,777	204,188	38,076	77,533	47,643	4,959	168,211	372,399
- UK	176,866	3,816	9,580	190,262	35,617	65,968	34,847	3,776	140,208	330,470
- RoI	13,650	79	197	13,926	1,241	4,056	348	30	5,675	19,601
- Other Europe	—	—	—	—	772	4,132	4,535	538	9,977	9,977
- RoW	—	—	—	—	446	3,377	7,913	615	12,351	12,351
Loans by stage	190,516	3,895	9,777	204,188	38,076	77,533	47,643	4,959	168,211	372,399
- Stage 1	158,387	2,411	5,750	166,548	23,733	48,090	44,002	4,751	120,576	287,124
- Stage 2	29,571	1,375	3,406	34,352	13,021	27,716	3,624	204	44,565	78,917
- Stage 3	2,558	109	621	3,288	1,322	1,727	17	4	3,070	6,358
- Of which: individual	308	—	26	334	987	958	9	4	1,958	2,292
- Of which: collective	2,250	109	595	2,954	335	769	8	—	1,112	4,066
Loans - past due analysis (2,3)	190,516	3,895	9,777	204,188	38,076	77,533	47,643	4,959	168,211	372,399
- Not past due	186,592	3,770	8,868	199,230	36,818	75,690	47,195	4,689	164,392	363,622
- Past due 1-30 days	1,482	29	192	1,703	348	990	328	270	1,936	3,639
- Past due 30-90 days	863	26	135	1,024	260	251	113	—	624	1,648
- Past due 90-180 days	456	20	66	542	161	67	—	—	228	770
- Past due >180 days	1,123	50	516	1,689	489	535	7	—	1,031	2,720
Loans - Stage 2	29,571	1,375	3,406	34,352	13,021	27,716	3,624	204	44,565	78,917
- Not past due	27,893	1,340	3,115	32,348	12,708	27,036	3,484	204	43,432	75,780
- Past due 1-30 days	1,038	18	173	1,229	160	457	30	—	647	1,876
- Past due 30-90 days	640	17	118	775	153	223	110	—	486	1,261
Weighted average life*
- ECL measurement (years)	9	2	5	6	4	6	4	—	5	5
Weighted average 12 months PDs*
- IFRS 9 (%)	0.72	6.17	4.82	1.03	3.99	3.70	0.51	0.13	2.73	1.81
- Basel (%)	0.85	3.40	3.82	1.03	1.66	2.51	0.32	0.15	1.54	1.25
ECL provisions by geography	1,005	354	1,036	2,395	1,175	2,478	121	17	3,791	6,186
- UK	506	351	1,024	1,881	1,069	1,907	60	12	3,048	4,929
- RoI	499	3	12	514	41	277	3	1	322	836
- Other Europe	—	—	—	—	53	125	46	1	225	225
- RoW	—	—	—	—	12	169	12	3	196	196
ECL provisions by stage	1,005	354	1,036	2,395	1,175	2,478	121	17	3,791	6,186
- Stage 1	51	53	67	171	123	188	23	14	348	519
- Stage 2	319	225	452	996	507	1,487	90	1	2,085	3,081
- Stage 3	635	76	517	1,228	545	803	8	2	1,358	2,586
- Of which: individual	18	—	12	30	360	436	3	2	801	831
- Of which: collective	617	76	505	1,198	185	367	5	—	557	1,755
ECL provisions coverage (%)	0.53	9.09	10.60	1.17	3.09	3.20	0.25	0.34	2.25	1.66
- Stage 1 (%)	0.03	2.20	1.17	0.10	0.52	0.39	0.05	0.29	0.29	0.18
- Stage 2 (%)	1.08	16.36	13.27	2.90	3.89	5.37	2.48	0.49	4.68	3.90
- Stage 3 (%)	24.82	69.72	83.25	37.35	41.23	46.50	47.06	50.00	44.23	40.67
Half year ended 30 June 2020
ECL charge	243	164	370	777	568	1,439	73	1	2,081	2,858
- UK	136	163	358	657	501	1,238	26	1	1,766	2,423
- RoI	107	1	12	120	47	77	1	—	125	245
- Other Europe	—	—	—	—	16	50	36	—	102	102
- RoW	—	—	—	—	4	74	10	—	88	88
ECL loss rate (%)	0.27	8.59	7.40	0.79	2.81	3.52	0.34	0.02	2.38	1.54
Amounts written-off	169	49	63	281	21	104	2	—	127	408

For the notes to this table refer to the following page.

NatWest Group – Form 6-K Interim Results 2021 41

Risk and capital management

Credit risk – Banking activities continued

Sector analysis - portfolio summary

	Personal				Wholesale					Total
	Credit	Other
	Mortgages (1)	cards	personal	Total	Property	Corporate	FI	Sovereign	Total
31 December 2020	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Loans by residual maturity	190,516	3,895	9,777	204,188	38,076	77,533	47,643	4,959	168,211	372,399
- <1 year	3,831	2,557	3,249	9,637	8,669	23,015	38,203	2,196	72,083	81,720
- 1-5 year	12,193	1,338	5,509	19,040	20,029	36,640	8,340	1,590	66,599	85,639
- 5 year	174,492	—	1,019	175,511	9,378	17,878	1,100	1,173	29,529	205,040
Other financial assets by asset quality (4)	—	—	—	—	98	116	11,093	165,209	176,516	176,516
- AQ1-AQ4	—	—	—	—	—	116	10,734	165,184	176,034	176,034
- AQ5-AQ8	—	—	—	—	98	—	359	25	482	482
Off-balance sheet	14,557	14,262	10,186	39,005	17,397	58,635	17,011	1,587	94,630	133,635
- Loan commitments	14,554	14,262	10,144	38,960	16,829	55,496	15,935	1,585	89,845	128,805
- Financial guarantees	3	—	42	45	568	3,139	1,076	2	4,785	4,830
Off-balance sheet by asset quality (4)	14,557	14,262	10,186	39,005	17,397	58,635	17,011	1,587	94,630	133,635
- AQ1-AQ4	13,610	148	8,008	21,766	12,917	33,939	15,460	1,404	63,720	85,486
- AQ5-AQ8	937	13,809	2,152	16,898	4,372	24,065	1,544	183	30,164	47,062
- AQ9	1	8	9	18	13	76	1	—	90	108
- AQ10	9	297	17	323	95	555	6	—	656	979

Notes:

(1)Includes a portion of secured lending in Private Banking, in line with ECL calculation methodology. Private Banking and RBS International mortgages are reported in UK, which includes crown dependencies, reflecting the country of lending origination.

(2)30 DPD – 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR.

(3)Days past due – Personal products: at a high level, for amortising products, the number of days past due is derived from the arrears amount outstanding and the monthly repayment instalment. For credit cards, it is based on payments missed, and for current accounts the number of continual days in excess of borrowing limit. Wholesale products: the number of days past due for all products is the number of continual days in excess of borrowing limit.

(4)AQ bandings are based on Basel PDs and the mapping is as follows:

Internal asset quality band	Probability of default range	Indicative S&P rating
AQ1	0% - 0.034%	AAA to AA
AQ2	0.034% - 0.048%	AA to AA-
AQ3	0.048% - 0.095%	A+ to A
AQ4	0.095% - 0.381%	BBB+ to BBB-
AQ5	0.381% - 1.076%	BB+ to BB
AQ6	1.076% - 2.153%	BB- to B+
AQ7	2.153% - 6.089%	B+ to B
AQ8	6.089% - 17.222%	B- to CCC+
AQ9	17.222% - 100%	CCC to C
AQ10	100%	D

£0.3 billion (31 December 2020 – £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. AQ10 includes £0.3 billion (31 December 2020 – £0.4 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3.

NatWest Group – Form 6-K Interim Results 2021 42

Risk and capital management

Credit risk – Banking activities continued

Sector analysis - COVID-19 impact

The table below shows ECL, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19.

					Off-balance sheet
	Loans - amortised cost & FVOCI				Loan	Contingent	ECL provisions
	Stage 1	Stage 2	Stage 3	Total	commitments	liabilities	Stage 1	Stage 2	Stage 3	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Personal	186,256	20,414	3,029	209,699	37,504	42	152	786	1,141	2,079
Mortgages	177,630	16,750	2,328	196,708	12,822	3	43	249	561	853
Credit cards	2,562	1,083	82	3,727	14,470	—	47	183	59	289
Other personal	6,064	2,581	619	9,264	10,212	39	62	354	521	937
Wholesale	130,445	32,774	2,674	165,893	85,724	4,348	281	1,514	1,051	2,846
Property	28,105	6,782	1,054	35,941	17,083	508	93	313	391	797
Financial institutions	47,694	2,361	17	50,072	14,659	926	21	115	7	143
Sovereign	5,596	153	9	5,758	1,356	2	18	1	2	21
Corporate	49,050	23,478	1,594	74,122	52,626	2,912	149	1,085	651	1,885
Of which:
Airlines and aerospace	635	1,017	60	1,712	1,805	209	2	33	27	62
Automotive	4,214	1,617	201	6,032	3,897	98	15	60	14	89
Education	864	616	68	1,548	1,144	17	2	22	18	42
Health	3,136	2,276	123	5,535	650	12	12	116	47	175
Land transport and logistics	3,131	1,578	53	4,762	3,061	170	7	83	30	120
Leisure	3,264	5,578	305	9,147	2,106	123	15	323	142	480
Oil and gas	1,005	415	60	1,480	1,663	339	3	11	31	45
Retail	6,133	2,303	191	8,627	5,339	468	13	112	80	205
Total	316,701	53,188	5,703	375,592	123,228	4,390	433	2,300	2,192	4,925
31 December 2020
Personal	166,548	34,352	3,288	204,188	38,960	45	171	996	1,228	2,395
Mortgages	158,387	29,571	2,558	190,516	14,554	3	51	319	635	1,005
Credit cards	2,411	1,375	109	3,895	14,262	—	53	225	76	354
Other personal	5,750	3,406	621	9,777	10,144	42	67	452	517	1,036
Wholesale	120,576	44,565	3,070	168,211	89,845	4,785	348	2,085	1,358	3,791
Property	23,733	13,021	1,322	38,076	16,829	568	123	507	545	1,175
Financial institutions	44,002	3,624	17	47,643	15,935	1,076	23	90	8	121
Sovereign	4,751	204	4	4,959	1,585	2	14	1	2	17
Corporate	48,090	27,716	1,727	77,533	55,496	3,139	188	1,487	803	2,478
Of which:
Airlines and aerospace	753	1,213	41	2,007	1,888	215	2	42	25	69
Automotive	4,383	1,759	161	6,303	4,205	102	17	63	17	97
Education	821	754	63	1,638	1,016	16	2	41	17	60
Health	2,694	2,984	131	5,809	616	14	13	164	48	225
Land transport and logistics	2,868	1,823	111	4,802	3,782	197	8	98	32	138
Leisure	3,299	6,135	385	9,819	2,199	125	22	439	204	665
Oil and gas	1,178	300	83	1,561	2,225	346	4	20	59	83
Retail	6,702	2,282	187	9,171	5,888	512	18	112	101	231
Total	287,124	78,917	6,358	372,399	128,805	4,830	519	3,081	2,586	6,186

NatWest Group – Form 6-K Interim Results 2021 43

Risk and capital management

Credit risk – Banking activities continued

Sector analysis – COVID-19 impact

The table below shows ECL, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19. It also includes 2019 data to allow a pre-COVID19 comparison.

	ECL provisions
	30 June 2021				31 December 2020				31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Personal	152	786	1,141	2,079	171	996	1,228	2,395	130	503	1,449	2,082
Mortgages	43	249	561	853	51	319	635	1,005	25	118	821	964
Cards	47	183	59	289	53	225	76	354	40	132	89	261
Other Personal	62	354	521	937	67	452	517	1,036	65	253	539	857
Wholesale	281	1,514	1,051	2,846	348	2,085	1,358	3,791	192	249	1,269	1,710
Property	93	313	391	797	123	507	545	1,175	45	47	402	494
Financial institutions	21	115	7	143	23	90	8	121	16	4	8	28
Sovereigns	18	1	2	21	14	1	2	17	7	—	—	7
Corporate	149	1,085	651	1,885	188	1,487	803	2,478	124	198	859	1,181
Of which:
Airlines and aerospace (1)	2	33	27	62	2	42	25	69	2	3	55	60
Automotive	15	60	14	89	17	63	17	97	12	11	15	38
Education	2	22	18	42	2	41	17	60	2	4	1	7
Health	12	116	47	175	13	164	48	225	9	16	52	77
Land transport & logistics	7	83	30	120	8	98	32	138	6	12	21	39
Leisure	15	323	142	480	22	439	204	665	25	27	175	227
Oil and gas	3	11	31	45	4	20	59	83	5	3	55	63
Retail	13	112	80	205	18	112	101	231	13	16	180	209
Total	433	2,300	2,192	4,925	519	3,081	2,586	6,186	322	752	2,718	3,792

The table below shows ECL provisions coverage, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19. It also includes 2019 data to allow a pre-COVID19 comparison.

	ECL provisions coverage
	30 June 2021				31 December 2020				31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	%	%	%	%	%	%	%	%	%	%	%	%
Personal	0.08	3.85	37.67	0.99	0.10	2.90	37.35	1.17	0.08	3.35	35.90	1.10
Mortgages	0.02	1.49	24.10	0.43	0.03	1.08	24.82	0.53	0.02	1.03	25.05	0.55
Cards	1.83	16.90	71.95	7.75	2.20	16.36	69.72	9.09	1.29	10.48	76.72	5.83
Other Personal	1.02	13.72	84.17	10.11	1.17	13.27	83.25	10.60	0.87	10.95	83.83	8.25
Wholesale	0.22	4.62	39.30	1.72	0.29	4.68	44.23	2.25	0.14	1.94	49.53	1.16
Property	0.33	4.62	37.10	2.22	0.52	3.89	41.23	3.09	0.14	1.82	44.92	1.36
Financial institutions	0.04	4.87	41.18	0.29	0.05	2.48	47.06	0.25	0.04	0.73	61.54	0.08
Sovereigns	0.32	0.65	22.22	0.36	0.29	0.49	50.00	0.34	0.16	—	—	0.16
Corporate	0.30	4.62	40.84	2.54	0.39	5.37	46.50	3.20	0.21	2.04	52.09	1.66
Of which:
Airlines and aerospace	0.31	3.24	45.00	3.62	0.27	3.46	60.98	3.44	0.14	1.15	137.50	3.50
Automotive	0.36	3.71	6.97	1.48	0.39	3.58	10.56	1.54	0.24	0.96	75.00	0.61
Education	0.23	3.57	26.47	2.71	0.24	5.44	26.98	3.66	0.14	2.60	8.33	0.44
Health	0.38	5.10	38.21	3.16	0.48	5.50	36.64	3.87	0.19	1.90	31.14	1.35
Land transport & logistics	0.22	5.26	56.60	2.52	0.28	5.38	28.83	2.87	0.17	3.80	39.62	1.01
Leisure	0.46	5.79	46.56	5.25	0.67	7.16	52.99	6.77	0.40	2.15	46.42	2.85
Oil and gas	0.30	2.65	51.67	3.04	0.34	6.67	71.08	5.32	0.26	2.14	63.95	2.93
Retail	0.21	4.86	41.88	2.38	0.27	4.91	54.01	2.52	0.20	1.25	83.69	2.65
Total	0.14	4.32	38.44	1.31	0.18	3.90	40.67	1.66	0.11	2.70	41.19	1.13

Note:

(1) Airlines and aerospace Stage 3 ECL as at 31 December 2019 included £27 million of ECL related to contingent liabilities.

NatWest Group – Form 6-K Interim Results 2021 44

Risk and capital management

Credit risk – Banking activities continued

Wholesale forbearance

The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on page 47.

The exposure in this section is based on current exposure gross of provisions but reflecting risk transfer where exposure is guaranteed by a third party. Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives - the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral. Where exposure is guaranteed by a third party not in forbearance, heightened monitoring, or risk of credit loss it will not feature in the table.

	Property	FI	Other corporate	Total
30 June 2021	£m	£m	£m	£m
Forbearance (flow)	974	41	3,290	4,305
Forbearance (stock)	1,466	60	5,868	7,394
Heightened Monitoring and Risk of Credit Loss	1,542	206	5,816	7,564
31 December 2020
Forbearance (flow)	1,597	68	4,201	5,866
Forbearance (stock)	1,744	92	4,983	6,819
Heightened Monitoring and Risk of Credit Loss	1,600	155	5,771	7,526

Key points

●Loans by geography – In Personal, exposures continued to be concentrated in the UK and heavily weighted to mortgages and the vast majority of exposures in the Republic of Ireland remained in mortgages. Balance sheet growth since the 2020 year end was mainly in mortgages. Unsecured lending balances reduced in H1 2021 as noted previously. In Wholesale, exposures were mainly in the UK. Balance sheet reduction was primarily due to lower levels of business activity in the period.

●Loans by asset quality (based on Basel II PD) – In Personal, asset quality improved from the 2020 year end, supported by actions taken at the outset of COVID-19 to maintain credit quality. In Wholesale, Basel II PDs were based on a through-the-cycle approach. The asset quality distribution demonstrated mild improvements across the portfolio consistent with the improvement in the economic outlook for the UK since 31 December 2020. For further details refer to the Asset quality section.

●Loans by stage – In both Wholesale and Personal, the improved economic outlook resulted in reduced IFRS 9 PDs compared to the 2020 year end. This, alongside continued benign credit performance of the portfolio, resulted in a smaller proportion of accounts to exhibit a SICR and thereby an associated migration of exposures from Stage 2 to Stage 1. In the absence of any other forbearance or SICR triggers, customers granted COVID-19 related payment holidays were not considered forborne and did not result in an automatic trigger to Stage 2. However, a subset of Personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high, continued to be collectively migrated to Stage 2. In Wholesale, BBLS customers granted PAYG options, including the extension of lending terms, periods of reduced repayments and six month payment holidays, were not automatically considered significantly credit deteriorated. PAYG options are a feature of BBLS rather than a concession granted by NatWest Group.

●Loans – past due analysis and Stage 2 – The various COVID-19 related customer support mechanisms (capital repayment holidays, government job retention scheme, government supported lending schemes) are mitigating actual portfolio deterioration in the short term, although there have been some increases in past due exposures.

●Weighted average PDs – In Personal, the Basel II point-in-time PDs improved during H1 2021. The forward-looking IFRS 9 PDs reduced reflecting the improved economics. PD reductions were most evident in Personal mortgages due to benign arrears performance (catalysed by COVID-19 support mechanisms) combined with the improved economic outlook, which is connected to the need for collective SICR migration and judgemental post model adjustments. In Wholesale, the Basel II PDs were based on a through-the-cycle approach and decreased less than the forward-looking IFRS 9 PDs which reduced, reflecting the improved economic outlook.

●ECL provisions by geography – In line with the point relating to loans by geography above, the vast majority of ECL related to exposures in the UK and the Republic of Ireland.

●ECL provisions by stage – Stage 1 and Stage 2 provisions have reduced reflecting the improved economic outlook. As outlined above, Stage 3 provisions have yet to be materially affected, mitigated by the various customer support mechanisms noted previously. In Ulster Bank RoI, the Stage 3 ECL reduction was mainly due to a debt sale where the exposure value also reduced.

●ECL provisions coverage – Overall provisions coverage reduced, mainly due to the improvement in economic outlook and scenario weightings. The base economic scenario improved compared with H2 2020 reflecting the faster than expected vaccination roll-out, better than expected actual economic data and the persisting strong government support. Stage 2 coverage increased during the period for some Wholesale sectors due to the inclusion of the recovery risk overlay and lower Stage 2 balances.

●ECL charge and loss rate – Reflecting the improved economic outlook, the impairment charge was significantly lower, with the annualised loss rate for H1 2021 materially reduced compared with the 2020 year end.

NatWest Group – Form 6-K Interim Results 2021 45

Risk and capital management

Credit risk – Banking activities continued

●Loans by residual maturity – In mortgages, the vast majority of exposures remained greater than five years. In unsecured lending – cards and other – exposures were concentrated in less than five years. In Wholesale, with the exception of financial institutions where new lending was concentrated in less than one year, the majority of new lending was for residual maturity of one to five years, with some greater than five years in line with lending under the government support schemes.

●Other financial assets by asset quality – Consisting almost entirely of cash and balances at central banks and debt securities, held in the course of treasury related management activities, these assets were mainly within the AQ1-AQ4 bands.

●Off-balance sheet by asset quality – In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts and they increased slightly as drawn exposures reduced. Additionally, the mortgage portfolio had undrawn exposures, where a formal offer had been made to a customer but had not yet drawn down; the value decreased in line with a reduction in the pipeline of offers. There was also a legacy portfolio of flexible mortgages where a customer had the right and ability to draw down further funds. The asset quality distribution in mortgages remained heavily weighted to the highest quality bands AQ1-AQ4, with credit cards and other Personal concentrated in the AQ5-AQ8 bands. In Wholesale, undrawn exposures declined in line with muted credit demand, with customers repaying revolving credit and working capital facilities to optimise liquidity. In addition, sector appetite adjustments in Land Transport and Logistics, Oil & Gas and Retail reduced off-balance sheet exposures to these sectors.

●Wholesale forbearance – Customers seeking COVID-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium term post-COVID-19 to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. Customers seeking a payment holiday extension beyond an aggregate of 12 months in an 18 month period are considered to have been granted forbearance and are classed as heightened monitoring. This classification does not apply to customers with Bounce Back Loans taking a PAYG payment holiday option. For Wholesale, forbearance flow increased in the first half of 2021 compared to the second half of 2020. This was mainly related to a small number of large value customers. Volumes of completed forbearance were lower. The Leisure sector represented the largest share of forbearance flow in the half year due to ongoing restrictions, followed by the Property and Land Transport & Logistics sectors. Payment holidays and covenant waivers were the most common forms of forbearance granted.

●Heightened Monitoring and Risk of Credit Loss – Inflows reduced during H1 2021 compared to the first half of 2020. The reduction in value was mainly due to a small number of high value customers as, by volume, inflows and outflows were closely matched. Whilst noting the reduced flows into Heightened Monitoring and Risk of Credit Loss, the volume and value of cases remained significantly higher than pre-COVID-19 levels. The sector breakdown of exposures remained consistent with prior periods.

NatWest Group – Form 6-K Interim Results 2021 46

Risk and capital management

Credit risk – Banking activities continued

Personal portfolio

Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).

	30 June 2021					31 December 2020
	Retail	Private	RBS	Ulster		Retail	Private	RBS	Ulster
	Banking	Banking	International	Bank RoI	Total	Banking	Banking	International	Bank RoI	Total
Personal lending	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Mortgages	169,300	11,838	2,508	12,688	196,334	163,107	10,910	2,517	13,678	190,212
Of which:
Owner occupied	155,136	10,469	1,645	11,887	179,137	148,614	9,601	1,676	12,781	172,672
Buy-to-let	14,164	1,369	863	801	17,197	14,493	1,309	841	897	17,540
Interest only - variable	4,534	4,575	357	151	9,617	5,135	4,375	347	159	10,016
Interest only - fixed	13,729	5,337	225	10	19,301	13,776	4,758	233	10	18,777
Mixed (1)	8,039	1	18	43	8,101	7,321	1	20	56	7,398
Impairment provisions (2)	445	5	8	384	842	483	5	9	499	996
Other personal lending (3)	10,542	1,722	280	238	12,782	11,116	1,613	279	276	13,284
Impairment provisions (2)	1,188	17	3	14	1,222	1,348	20	1	15	1,384
Total personal lending	179,842	13,560	2,788	12,926	209,116	174,223	12,523	2,796	13,954	203,496
Mortgage LTV ratios
Total portfolio	55%	59%	57%	56%	55%	56%	58%	57%	59%	57%
- Stage 1	55%	59%	56%	55%	55%	55%	58%	57%	57%	55%
- Stage 2	58%	58%	62%	61%	58%	66%	61%	64%	65%	66%
- Stage 3	50%	65%	76%	62%	56%	53%	64%	75%	67%	60%
Buy-to-let	51%	57%	53%	56%	52%	52%	56%	53%	59%	53%
- Stage 1	51%	57%	53%	53%	52%	51%	56%	53%	55%	52%
- Stage 2	54%	56%	50%	65%	55%	60%	59%	53%	69%	61%
- Stage 3	53%	57%	59%	69%	59%	56%	54%	61%	74%	62%
Gross new mortgage lending (4)	18,862	1,692	197	338	21,089	30,551	2,148	249	910	33,858
Of which:
Owner occupied	18,289	1,528	111	335	20,263	29,608	1,922	167	908	32,605
Weighted average LTV	69%	67%	67%	73%	68%	69%	66%	66%	74%	69%
Buy-to-let	573	164	86	3	826	943	227	82	2	1,254
Weighted average LTV	63%	65%	63%	58%	63%	62%	62%	63%	54%	62%
Interest only - variable rate	15	551	-	—	566	81	1,082	7	—	1,170
Interest only - fixed rate	984	826	45	—	1,855	1,501	695	35	—	2,231
Mixed (1)	1,193	—	1	—	1,194	1,630	—	2	—	1,632
Forbearance flow	284	7	4	40	335	550	50	10	127	737
Forbearance stock	1,273	3	10	1,326	2,612	1,293	18	10	1,627	2,948
Current	651	1	6	939	1,597	648	13	9	1,070	1,740
1-3 months in arrears	292	2	1	70	365	360	3	—	105	468
> 3 months in arrears	330	—	3	317	650	285	2	1	452	740

Notes:

(1) Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.

(2) Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios.

(3) Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.

(4) Retail Banking excludes additional lending to existing customers.

Key points

●New mortgage lending in H1 2021 reflected a strong demand in lending, particularly in property purchases, following the easing of COVID-19 restrictions and the extension of the stamp duty holiday. The existing mortgage stock and new business were closely monitored against agreed parameters. These included loan-to-value ratios, buy-to-let concentrations, new-build concentrations and credit quality.

●Unsecured balances fell slightly during H1 2021 as COVID-19 restrictions persisted, however, later in H1 2021, the value of new business began to increase as restrictions started to ease.

●Across both mortgages and unsecured products, NatWest Group responded to COVID-19 with a more cautious approach to new lending, to protect both NatWest Group and customers from potentially unaffordable borrowing. With growing consumer confidence and improved economic conditions, lending criteria have been selectively relaxed during H1 2021 taking into account observed portfolio performance.

●At the end of the half year, the value and volume of customers with an active COVID-19 payment holiday was immaterial across both the mortgages and unsecured portfolios.

●Impairment provisions – as noted previously, the improved economic outlook including a more positive forecast on unemployment and house prices, resulted in reduced ECL.

●Mortgage forbearance stock in Retail Banking remained stable, with inflows to collections and recoveries below pre-COVID-19 levels during H1 2021, as customers who would have been supported through forbearance previously, were able to utilise COVID-19 payment holidays. With new payment holidays no longer available from 31 March 2021, customers are being supported through forbearance where appropriate.

●The reduction in Ulster Bank RoI forbearance stock was mainly due to an asset sale executed during the period as well as forbearance exits and closures outweighing new forbearance flows.

NatWest Group – Form 6-K Interim Results 2021 47

Risk and capital management

Credit risk – Banking activities continued

Personal portfolio

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 within		Of which:
Retail Banking				IFRS 9		gross new
	Stage 1	Stage 2	Stage 3	ECL scope	Total	lending	Stage 1	Stage 2	Stage 3	Total(1)	Stage 1	Stage 2	Stage 3	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%
≤50%	54,791	4,808	604	66	60,269	2,493	4	60	129	193	—	1.2	21.4	0.3
>50% and ≤70%	63,017	5,772	509	13	69,311	5,105	6	74	89	169	—	1.3	17.6	0.2
>70% and ≤80%	27,713	2,869	121	1	30,704	7,544	6	31	21	58	—	1.1	17.1	0.2
>80% and ≤90%	6,854	1,581	35	1	8,471	3,565	2	14	6	22	—	0.9	18.0	0.3
>90% and ≤100%	474	22	5	—	501	29	—	—	1	1	—	1.5	27.3	0.3
>100% and ≤110%	4	6	1	—	11	—	—	—	—	—	—	2.9	32.0	5.0
>110% and ≤130%	4	4	1	—	9	—	—	—	—	—	—	4.4	32.0	4.0
>130% and ≤150%	3	2	—	—	5	—	—	—	—	—	—	2.1	45.2	4.3
Total with LTVs	152,860	15,064	1,276	81	169,281	18,736	18	179	246	443	—	1.2	19.4	0.3
Other	16	2	1	—	19	126	—	—	1	1	0.1	8.5	100.0	6.0
Total	152,876	15,066	1,277	81	169,300	18,862	18	179	247	444	—	1.2	19.5	0.3
31 December 2020
≤50%	50,170	5,009	554	124	55,857	4,207	4	43	107	154	—	0.8	19.4	0.3
>50% and ≤70%	55,263	7,416	488	35	63,202	9,083	7	66	81	154	—	0.9	16.5	0.2
>70% and ≤80%	19,994	9,555	141	8	29,698	11,060	7	56	26	89	—	0.6	18.5	0.3
>80% and ≤90%	8,029	5,552	52	6	13,639	5,175	3	52	11	66	—	0.9	20.3	0.5
>90% and ≤100%	368	137	13	2	520	865	—	5	3	8	0.1	3.4	26.8	1.6
>100% and ≤110%	19	31	6	1	57	—	—	2	1	3	0.1	6.2	22.1	5.6
>110% and ≤130%	23	45	6	1	75	—	—	3	2	5	0.3	7.6	31.1	7.3
>130% and ≤150%	5	20	5	—	30	—	—	1	1	2	—	7.2	23.0	8.5
>150%	1	3	3	—	7	—	—	—	1	1	0.1	9.4	44.4	22.6
Total with LTVs	133,872	27,768	1,268	177	163,085	30,390	21	228	233	482	—	0.8	18.5	0.3
Other	17	4	1	—	22	161	—	—	1	1	0.1	3.6	71.9	3.3
Total	133,889	27,772	1,269	177	163,107	30,551	21	228	234	483	—	0.8	18.5	0.3

For the notes to this table refer to the following page.

NatWest Group – Form 6-K Interim Results 2021 48

Risk and capital management

Credit risk – Banking activities continued

Personal portfolio

	Mortgages				ECL provisions				ECL provisions coverage (2)
Ulster Bank RoI					Of which:
					gross new
	Stage 1	Stage 2	Stage 3	Total	lending	Stage 1	Stage 2	Stage 3	Total(1)	Stage 1	Stage 2	Stage 3	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%
≤50%	4,266	429	306	5,001	33	9	22	118	149	0.2	5.0	38.7	3.0
>50% and ≤70%	3,435	375	163	3,973	81	8	20	55	83	0.2	5.3	34.1	2.1
>70% and ≤80%	1,521	172	81	1,774	146	3	9	31	43	0.2	5.5	37.8	2.4
>80% and ≤90%	1,060	131	67	1,258	76	2	8	25	35	0.2	5.6	38.3	2.8
>90% and ≤100%	240	81	58	379	—	1	5	23	29	0.3	6.0	40.0	7.6
>100% and ≤110%	87	50	41	178	1	—	3	18	21	0.3	6.4	43.1	11.8
>110% and ≤130%	37	30	28	95	—	—	2	14	16	0.4	7.4	47.1	16.5
>130% and ≤150%	4	3	11	18	—	—	—	5	5	0.4	7.8	50.1	31.2
>150%	6	2	4	12	1	—	—	3	3	0.4	8.0	62.6	23.0
Total	10,656	1,273	759	12,688	338	23	69	292	384	0.2	5.4	38.5	3.0
31 December 2020
≤50%	4,156	504	354	5,014	78	10	24	105	139	0.2	4.8	29.7	2.8
>50% and ≤70%	3,453	453	230	4,136	194	8	23	66	97	0.2	5.1	28.7	2.3
>70% and ≤80%	1,569	232	114	1,915	346	4	12	40	56	0.3	5.2	35.1	2.9
>80% and ≤90%	1,214	190	105	1,509	286	3	11	40	54	0.2	5.8	38.1	3.6
>90% and ≤100%	372	145	88	605	1	1	9	40	50	0.3	6.2	45.5	8.3
>100% and ≤110%	119	76	74	269	4	1	5	37	43	0.8	6.6	50.0	16.0
>110% and ≤130%	53	63	64	180	1	—	5	35	40	—	7.9	54.7	22.2
>130% and ≤150%	6	8	17	31	—	—	1	10	11	—	12.5	58.8	35.5
>150%	5	4	10	19	—	—	1	8	9	—	25.0	80.0	47.4
Total with LTVs	10,947	1,675	1,056	13,678	910	27	91	381	499	0.2	5.4	36.1	3.6

Notes:

(1)Excludes a non-material amount of provisions held on relatively small legacy portfolios.

(2)ECL provisions coverage is ECL provisions divided by mortgages.

Key points

● Within the Retail Banking portfolio, LTV distribution improved with strong house price growth in the UK in the first half of the year and the more cautious approach to LTV for new lending, adopted in response to COVID-19, which has seen a reduction in exposure to higher LTV bands.

● ECL coverage rates increased through the LTV bands with both Retail Banking and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for Retail Banking included the effect of time-discounting on expected recoveries. Additionally, this also reflected the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity.

NatWest Group – Form 6-K Interim Results 2021 49

Risk and capital management

Credit risk – Banking activities continued

Commercial real estate (CRE)

The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub sector). The sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions and risk transfer). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives – the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral.

	30 June 2021				31 December 2020
	UK	RoI	Other	Total	UK	RoI	Other	Total
By geography and sub sector (1)	£m	£m	£m	£m	£m	£m	£m	£m
Investment
Residential (2)	4,360	372	20	4,752	4,507	360	14	4,881
Office (3)	3,152	210	35	3,397	3,386	226	28	3,640
Retail (4)	4,903	78	87	5,068	5,423	68	118	5,609
Industrial (5)	2,604	14	154	2,772	2,773	18	202	2,993
Mixed/other (6)	2,101	131	80	2,312	2,688	154	74	2,916
	17,120	805	376	18,301	18,777	826	436	20,039
Development
Residential (2)	2,151	103	2	2,256	2,685	200	3	2,888
Office (3)	83	31	—	114	123	30	—	153
Retail (4)	64	—	—	64	126	—	—	126
Industrial (5)	100	1	—	101	125	2	—	127
Mixed/other (6)	24	2	—	26	24	2	—	26
	2,422	137	2	2,561	3,083	234	3	3,320
Total	19,542	942	378	20,862	21,860	1,060	439	23,359

Notes:

(1) Geographical splits are based on country of collateral risk.

(2) Properties including houses, flats and student accommodation.

(3) Properties including offices in central business districts, regional headquarters and business parks.

(4) Properties including high street retail, shopping centres, restaurants, bars and gyms.

(5) Properties including distribution centres, manufacturing and warehouses.

(6) Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.

NatWest Group – Form 6-K Interim Results 2021 50

Risk and capital management

Credit risk – Banking activities continued

Commercial real estate

CRE LTV distribution by stage

The table below shows CRE current exposure and related ECL by LTV band.

	Current exposure (gross of provisions) (1,2)					ECL provisions				ECL provisions coverage (4)
				Not within
				IFRS 9 ECL
	Stage 1	Stage 2	Stage 3	scope (3)	Total	Stage 1	Stage 2	Stage 3	Total(1)	Stage 1		Stage 2		Stage 3		Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m	£m		%		%		%		%
≤50%	7,099	1,230	143	—	8,472	26	46	26	98	0.4		3.7		18.2		1.2
>50% and ≤70%	4,345	1,189	176	—	5,710	21	54	56	131	0.5		4.5		31.8		2.3
>70% and ≤80%	245	309	21	—	575	2	26	3	31	0.8		8.4		14.3		5.4
>80% and ≤90%	30	37	36	—	103	—	3	12	15	—		8.1		33.3		14.6
>90% and ≤100%	71	14	51	—	136	—	2	19	21	—		14.3		37.3		15.4
>100% and ≤110%	10	2	60	—	72	—	—	7	7	—		—		11.7		9.7
>110% and ≤130%	24	23	31	—	78	—	1	10	11	—		4.3		32.3		14.1
>130% and ≤150%	7	2	8	—	17	—	—	3	3	—		—		37.5		17.6
>150%	75	10	140	—	225	1	2	61	64	1.3		20.0		43.6		28.4
Total with LTVs	11,906	2,816	666	—	15,388	50	134	197	381	0.4		4.8		29.6		2.5
Total portfolio average LTV	45%	49%	101%	—	47%
Other (5)	1,771	739	101	302	2,913	6	53	42	101	0.3		7.2		41.6		3.9
Development (6)	1,699	757	91	14	2,561	16	22	53	91	0.9		2.9		58.2		3.6
Total	15,376	4,312	858	316	20,862	72	209	292	573	0.5		4.8		34.0		2.8
31 December 2020
≤50%	4,918	4,538	138	—	9,594	46	145	24	215	0.9		3.2		17.4		2.2
>50% and ≤70%	2,815	3,266	226	—	6,307	32	112	63	207	1.1		3.4		27.9		3.3
>70% and ≤80%	39	222	23	—	284	1	17	7	25	2.6		7.7		30.4		8.8
>80% and ≤90%	84	35	36	—	155	2	4	11	17	2.4		11.4		30.6		11
>90% and ≤100%	46	26	65	—	137	—	2	33	35	—		7.7		50.8		25.5
>100% and ≤110%	6	6	63	—	75	—	1	10	11	—		16.7		15.9		14.7
>110% and ≤130%	9	22	117	—	148	—	2	45	47	—		9.1		38.5		31.8
>130% and ≤150%	12	12	10	—	34	—	1	5	6	—		8.3		50.0		17.6
>150%	23	24	105	—	152	—	2	53	55	—		8.3		50.5		36.2
Total with LTVs	7,952	8,151	783	—	16,886	81	286	251	618	1.0		3.5		32.1		3.7
Total portfolio average LTV	45%	47%	93%	—	48%
Other (5)	1,776	511	159	707	3,153	6	40	93	139	0.3		7.8		58.5		5.7
Development (6)	1,362	1,767	161	30	3,320	15	58	70	143	1.1		3.3		43.5		4.3
Total	11,090	10,429	1,103	737	23,359	102	384	414	900	0.9		3.7		37.5		4.0

Notes:

(1) Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as part of the overall CRE portfolio.

(2) The exposure in Stage 3 mainly relates to legacy assets.

(3) Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives.

(4) ECL provisions coverage is ECL provisions divided by current exposure.

(5) Relates mainly to business banking, rate risk management products and unsecured corporate lending.

(6) Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.

NatWest Group – Form 6-K Interim Results 2021 51

Risk and capital management

Credit risk – Banking activities continued

Key points

·Overall – The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy remained aligned across the segments.

·2021 trends – The reduction in the size of the portfolio was a consequence of active portfolio management to reduce the size and composition of the CRE portfolio as the economy recovers from the disruption associated with COVID-19. In addition, customer appetite to borrow was muted particularly amongst larger customers. At a sub sector level the Residential market has been resilient; the Retail sector has exhibited mixed performance in line with changing consumer habits; the Industrial market has performed strongly; with uncertainty continuing in the Office sub sector as occupiers move to a more flexible way of working, new business in the Office sub sector has been selective.

·Credit quality – Heightened Monitoring inflows by volume have been muted with overall CRE exposures on the Risk of Credit Loss Framework having reduced since the 2020 year end. NatWest Group entered the COVID-19 period with a conservatively positioned CRE portfolio, which has helped to mitigate the impact of COVID-19. However, in the Retail sub sector, structural change, which was already underway, has been exacerbated by COVID-19, and a number of defaulted loans were seen during 2020, mainly related to shopping centres, this trend has not however continued during H1 2021. Outside of Retail, there has been limited distress as noted, uncertainty still remains, particularly in relation to the Office sub sector and the portfolio continues to be actively reviewed and managed.

·Risk appetite – Lending appetite has been gradually and selectively increased by sub sector during 2021 albeit below pre-COVID-19 levels.

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 affect. Other points to note:

·Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included.

·Stage transfers (for example, exposures moving from Stage 1 to 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 debt sale activity.

·There were small ECL flows from Stage 3 to Stage 1. This does not, however, indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period.

·The impact of any change in PMAs during the year is typically reported under changes in risk parameters, as are any impacts 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
NatWest Group total	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	446,666	519	81,667	3,081	6,524	2,586	534,857	6,186
Currency translation and other adjustments	(3,369)	(2)	(302)	(12)	67	(52)	(3,604)	(66)
Transfers from Stage 1 to Stage 2	(21,925)	(104)	21,925	104	—	—	—	—
Transfers from Stage 2 to Stage 1	36,688	712	(36,688)	(712)	—	—	—	—
Transfers to Stage 3	(256)	(1)	(1,211)	(165)	1,467	166	—	—
Transfers from Stage 3	155	13	654	107	(809)	(120)	—	—
Net re-measurement of ECL on stage transfer		(585)		524		154		93
Changes in risk parameters (model inputs)		(174)		(345)		89		(430)
Other changes in net exposure	34,739	55	(10,546)	(281)	(875)	(74)	23,318	(300)
Other (P&L only items)		3		2		(75)		(70)
Income statement (releases)/charges		(701)		(100)		94		(707)
Amounts written-off	—	—	(1)	(1)	(516)	(516)	(517)	(517)
Unwinding of discount	—	—				(41)		(41)
At 30 June 2021	492,698	433	55,498	2,300	5,858	2,192	554,054	4,925
Net carrying amount	492,265		53,198		3,666		549,129
At 1 January 2020	428,604	322	28,630	752	7,135	2,718	464,369	3,792
2020 movements	(16,119)	147	72,132	2,273	257	142	56,270	2,562
At 30 June 2020	412,485	469	100,762	3,025	7,392	2,860	520,639	6,354
Net carrying amount	412,016		97,737		4,532		514,285

NatWest Group – Form 6-K Interim Results 2021 52

Risk and capital management

Credit risk – Banking activities 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	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	132,390	23	28,079	227	1,291	236	161,760	486
Currency translation and other adjustments	—	—	—	—	7	7	7	7
Transfers from Stage 1 to Stage 2	(6,168)	(1)	6,168	1	—	—	—	—
Transfers from Stage 2 to Stage 1	16,906	80	(16,906)	(80)	—	—	—	—
Transfers to Stage 3	(9)	—	(337)	(13)	346	13	—	—
Transfers from Stage 3	6	—	157	11	(163)	(11)	—	—
Net re-measurement of ECL on stage transfer		(77)		64		4		(9)
Changes in risk parameters (model inputs)		(6)		(16)		27		5
Other changes in net exposure	6,180	—	(1,592)	(14)	(126)	(8)	4,462	(22)
Other (P&L only items)	—	—				(13)		(13)
Income statement (releases)/charges		(83)		34		10		(39)
Amounts written-off	—	—	—	—	(3)	(3)	(3)	(3)
Unwinding of discount	—	—				(15)		(15)
At 30 June 2021	149,305	19	15,569	180	1,352	250	166,226	449
Net carrying amount	149,286		15,389		1,102		165,777
At 1 January 2020	135,625	12	10,283	86	1,289	215	147,197	313
2020 movements	(7,420)	5	13,789	106	52	15	6,421	126
At 30 June 2020	128,205	17	24,072	192	1,341	230	153,618	439
Net carrying amount	128,188		23,880		1,111		153,179

Key points

· Despite the strong portfolio growth during H1 2021, ECL levels for mortgages reduced during the same period. The decrease in ECL was primarily a result of reduced PDs and LGDs reflecting the improved economic outlook and stable portfolio performance, resulting in lower levels of SICR identification and ECL requirement.

· More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after the 2020 year end.

· With various customer support mechanisms available and the revised economic outlook, Stage 3 ECL remained stable as new inflows remaining subdued. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments when previously in Stage 2. Refer to the Governance and post model adjustments section for further details.

· Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given the moratorium on repossession activity, write-offs remained at a subdued level.

NatWest Group – Form 6-K Interim Results 2021 53

Risk and capital management

Credit risk – Banking activities 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	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	2,250	52	1,384	220	114	75	3,748	347
Currency translation and other adjustments	—	(1)	—	2	(1)	(1)	(1)	—
Transfers from Stage 1 to Stage 2	(460)	(25)	460	25	—	—	—	—
Transfers from Stage 2 to Stage 1	565	70	(565)	(70)	—	—	—	—
Transfers to Stage 3	(8)	—	(44)	(18)	52	18	—	—
Transfers from Stage 3	—	—	4	2	(4)	(2)	—	—
Net re-measurement of ECL on stage transfer		(43)		89		15		61
Changes in risk parameters (model inputs)		(15)		(33)		2		(46)
Other changes in net exposure	(5)	8	(148)	(36)	(27)	(2)	(180)	(30)
Other (P&L only items)	—	—				(2)		(2)
Income statement (releases)/charges		(50)		20		13		(17)
Amounts written-off	—	—	—	—	(45)	(45)	(45)	(45)
Unwinding of discount	—	—				(3)		(3)
At 30 June 2021	2,342	46	1,091	181	89	57	3,522	284
Net carrying amount	2,296		910		32		3,238
At 1 January 2020	2,804	38	1,246	131	127	88	4,177	257
2020 movements	(627)	7	74	109	—	(3)	(553)	113
At 30 June 2020	2,177	45	1,320	240	127	85	3,624	370
Net carrying amount	2,132		1,080		42		3,254

Key points

● The overall decrease in ECL was mainly due to the reduction in Stage 2 ECL reflecting the improved economic outlook and stable portfolio performance, causing both PDs and LGDs to decrease and resulting in reduced levels of SICR identification and ECL requirement.

● More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after 2020 year end.

● In line with industry trends in the UK, credit card balances reduced further during H1 2021, which has amplified the ECL reductions within the portfolio. This has stabilised as UK lockdown restrictions have eased and borrowing demand increased.

● With various customer support mechanisms available and the improved economic outlook, Stage 3 inflows have remained subdued and therefore Stage 3 ECL movement was minimal during H1 2021.

● Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.

NatWest Group – Form 6-K Interim Results 2021 54

Risk and capital management

Credit risk – Banking activities continued

Flow statements

	Stage 1		Stage 2		Stage 3		Total
	Financial		Financial		Financial		Financial
	assets	ECL	assets	ECL	assets	ECL	assets	ECL
Retail Banking - other personal unsecured	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	3,385	59	3,487	450	596	495	7,468	1,004
Currency translation and other adjustments	—	—	—	(1)	—	2	—	1
Transfers from Stage 1 to Stage 2	(876)	(21)	876	21	—	—	—	—
Transfers from Stage 2 to Stage 1	1,109	75	(1,109)	(75)	—	—	—	—
Transfers to Stage 3	(5)	—	(194)	(73)	199	73	—	—
Transfers from Stage 3	3	4	57	35	(60)	(39)	—	—
Net re-measurement of ECL on stage transfer		(58)		74		53		69
Changes in risk parameters (model inputs)		(9)		(38)		39		(8)
Other changes in net exposure	204	5	(593)	(45)	(52)	(21)	(441)	(61)
Other (P&L only items)	—	—				(1)		(1)
Income statement (releases)/charges		(62)		(9)		70		(1)
Amounts written-off	—	—	—	—	(90)	(90)	(90)	(90)
Unwinding of discount	—	—				(8)		(8)
At 30 June 2021	3,820	55	2,524	348	593	504	6,937	907
Net carrying amount	3,765		2,176		89		6,030
At 1 January 2020	5,417	63	2,250	252	608	518	8,275	833
2020 movements	(1,272)	30	942	217	94	68	(236)	315
At 30 June 2020	4,145	93	3,192	469	702	586	8,039	1,148
Net carrying amount	4,052		2,723		116		6,891

Key points

● The overall reduction in ECL was mainly due to the reduction in Stage 2 ECL reflecting the improved economic outlook and stable portfolio performance, causing both PDs and LGDs to decrease and resulting in reduced levels of SICR identification and ECL requirement.

● More specifically, the reduced PDs alongside muted portfolio deterioration resulted in a net migration of assets from Stage 2 to Stage 1 with an associated decrease from lifetime ECL to a 12 month ECL. The updated economics at the 2020 year end also contributed to this migration back to Stage 1 once the PD persistence period had expired three months after the 2020 year end.

● In line with industry trends in the UK, unsecured balances reduced further during H1 2021, which has amplified the ECL reductions within the portfolio. This has stabilised as UK lockdown restrictions have eased and borrowing demand increased.

● With various customer support mechanisms available and the improved economic outlook, Stage 3 inflows have remained subdued and therefore Stage 3 ECL movement was minimal during H1 2021.

● 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.

NatWest Group – Form 6-K Interim Results 2021 55

Risk and capital management

Credit risk – Banking activities continued

Flow statements

	Stage 1		Stage 2		Stage 3		Total
	Financial		Financial		Financial		Financial
	assets	ECL	assets	ECL	assets	ECL	assets	ECL
Commercial Banking - commercial real estate	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	17,269	90	10,380	364	1,118	428	28,767	882
Currency translation and other adjustments	(8)	—	(3)	—	(1)	3	(12)	3
Inter-group transfers	—	—	—	—	—	—	—	—
Transfers from Stage 1 to Stage 2	(1,832)	(15)	1,832	15	—	—	—	—
Transfers from Stage 2 to Stage 1	5,366	147	(5,366)	(147)	—	—	—	—
Transfers to Stage 3	(6)	—	(95)	(4)	101	4	—	—
Transfers from Stage 3	5	—	74	7	(79)	(7)	—	—
Net re-measurement of ECL on stage transfer		(109)		25		5		(79)
Changes in risk parameters (model inputs)		(65)	—			(36)		(101)
Other changes in net exposure	356	16	(1,654)	(45)	(175)	(1)	(1,473)	(30)
Other (P&L only items)		(1)		2		1		2
Income statement releases		(159)		(18)		(31)		(208)
Amounts written-off	—	—	—	—	(115)	(115)	(115)	(115)
Unwinding of discount	—	—				(2)		(2)
At 30 June 2021	21,150	64	5,168	215	849	279	27,167	558
Net carrying amount	21,086		4,953		570		26,609
At 1 January 2020	25,556	31	2,218	28	895	306	28,669	365
2020 movements	(5,896)	66	8,136	246	181	95	2,421	407
At 30 June 2020	19,660	97	10,354	274	1,076	401	31,090	772
Net carrying amount	19,563		10,080		675		30,318

Key points

· The decrease in ECL in Stage 1 and Stage 2 was primarily due to the improvement in the economic outlook. This resulted in a reduction in IFRS 9 PDs and a flow of exposure from Stage 2 to Stage 1. Total exposure reduced with repayment of existing debt and lower demand for new facilities following significant growth during 2020 driven by government support schemes.

· The migration of assets from Stage 2 to Stage 1 resulted in more assets attracting a 12 month ECL and release of lifetime ECL in Stage 2.

· Flows to Stage 3 during H1 2021 were low, as government support continued to mitigate against defaults in the Wholesale portfolio. Stage 3 ECL reduced in the period due to the write-off of previously defaulted debt which also resulted in an ECL release in the period.

NatWest Group – Form 6-K Interim Results 2021 56

Risk and capital management

Credit risk – Banking activities continued

Flow statements

	Stage 1		Stage 2		Stage 3		Total
	Financial		Financial		Financial		Financial
	assets	ECL	assets	ECL	assets	ECL	assets	ECL
Commercial Banking - business banking	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	12,122	41	2,184	145	250	173	14,556	359
Currency translation and other adjustments	—	—	—	—	(7)	(5)	(7)	(5)
Transfers from Stage 1 to Stage 2	(2,250)	(9)	2,250	9	—	—	—	—
Transfers from Stage 2 to Stage 1	1,200	60	(1,200)	(60)	—	—	—	—
Transfers to Stage 3	(46)	—	(79)	(16)	125	16	—	—
Transfers from Stage 3	6	1	15	4	(21)	(5)	—	—
Net re-measurement of ECL on stage transfer		(57)		119		10		72
Changes in risk parameters (model inputs)		(4)		(46)		3		(47)
Other changes in net exposure	710	(3)	(199)	(13)	(19)	(2)	492	(18)
Other (P&L only items)	—			1		(17)		(16)
Income statement (releases)/charges		(64)		61		(6)		(9)
Amounts written-off	—	—	—	—	(21)	(21)	(21)	(21)
Unwinding of discount	—	—				(3)		(3)
At 30 June 2021	11,742	29	2,971	142	307	166	15,020	337
Net carrying amount	11,713		2,829		141		14,683
At 1 January 2020	6,338	28	767	45	257	200	7,362	273
2020 movements	2,862	4	832	53	(5)	(10)	3,689	47
At 30 June 2020	9,200	32	1,599	98	252	190	11,051	320
Net carrying amount	9,168		1,501		62		10,731

Key points

· Total ECL reduced marginally during H1 2021 primarily due to the improvement in the economic outlook, causing both PDs and LGDs to decrease. The increase in Stage 2 loans was mainly due to an appropriately conservative approach to government support scheme exposure as customers reached the end of the initial payment holiday period. Due to the guarantees in place, related ECL did not see a proportionate increase.

· Flows of defaulted exposure into Stage 3 remained suppressed reflecting the various government customer support mechanisms available, with ECL reducing during H1 2021.

· The portfolio continued to benefit from cash recoveries post write-off, which are reported as other (P&L only items). Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than five years after default.

NatWest Group – Form 6-K Interim Results 2021 57

Risk and capital management

Credit risk – Banking activities continued

Flow statements

	Stage 1		Stage 2		Stage 3		Total
	Financial		Financial		Financial		Financial
	assets	ECL	assets	ECL	assets	ECL	assets	ECL
Commercial Banking - other	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	39,279	139	25,981	1,204	1,249	468	66,509	1,811
Currency translation and other adjustments	(257)	1	(88)	—	76	3	(269)	4
Inter-group transfers	—	—	—	—	—	—	—	—
Transfers from Stage 1 to Stage 2	(4,447)	(21)	4,447	21	—	—	—	—
Transfers from Stage 2 to Stage 1	6,076	174	(6,076)	(174)	—	—	—	—
Transfers to Stage 3	(43)	—	(343)	(29)	386	29	—	—
Transfers from Stage 3	19	5	190	27	(209)	(32)	—	—
Net re-measurement of ECL on stage transfer		(152)		98		60		6
Changes in risk parameters (model inputs)		(51)		(173)		(15)		(239)
Other changes in net exposure	300	20	(3,372)	(109)	(249)	(22)	(3,321)	(111)
Other (P&L only items)		1	—			(8)		(7)
Income statement (releases)/charges		(182)		(184)		15		(351)
Amounts written-off	—	—	—	—	(121)	(121)	(121)	(121)
Unwinding of discount	—	—				(3)		(3)
At 30 June 2021	40,927	115	20,739	865	1,132	367	62,798	1,347
Net carrying amount	40,812		19,874		765		61,451
At 1 January 2020	53,722	94	8,788	143	1,386	516	63,896	753
2020 movements	(32,838)	(7)	39,333	1,200	202	83	6,697	1,276
At 30 June 2020	20,884	87	48,121	1,343	1,588	599	70,593	2,029
Net carrying amount	20,797		46,778		989		68,564

Key points

· The decrease in ECL in Stage 1 and Stage 2 was primarily due to the improvement in the economic outlook and the change in scenario weightings. Underlying PD’s and LGDs improved as a result. The updated economics resulted in the migration of assets from Stage 2 to Stage 1 with a consequential reduction in Stage 2 lifetime ECL.

· Changes in net exposure reduced in Stage 1 and 2 with repayment of existing debt which was not fully replaced by new lending in the period due to muted demand.

· Flows to Stage 3 remained suppressed reflecting the various government customer support mechanisms. Stage 3 assets and ECL reduced in the period due to the write-off of previously defaulted debt

NatWest Group – Form 6-K Interim Results 2021 58

Risk and capital management

Credit risk – Banking activities continued

Flow statements

	Stage 1		Stage 2		Stage 3		Total
	Financial		Financial		Financial		Financial
	assets	ECL	assets	ECL	assets	ECL	assets	ECL
NatWest Markets (1)	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	33,327	12	1,671	49	168	132	35,166	193
Currency translation and other adjustments	(700)	—	(36)	—	(3)	(1)	(739)	(1)
Inter-group transfers	(3)	—	—	—	—	—	(3)	—
Transfers from Stage 1 to Stage 2	(484)	(1)	484	1	—	—	—	—
Transfers from Stage 2 to Stage 1	1,150	7	(1,150)	(7)	—	—	—	—
Transfers to Stage 3	—	—	—	—	—	—	—	—
Net re-measurement of ECL on stage transfer		(5)		3		—		(2)
Changes in risk parameters (model inputs)		(3)		(8)		(1)		(12)
Other changes in net exposure	(1,978)	—	(226)	(2)	(23)	(2)	(2,227)	(4)
Other (P&L only items)	—			2	—			2
Income statement (releases)/charges		(8)		(5)		(3)		(16)
Amounts written-off	—	—	—	—	(40)	(40)	(40)	(40)
Unwinding of discount	—	—	—	—
At 30 June 2021	31,312	10	743	36	102	88	32,157	134
Net carrying amount	31,302		707		14		32,023
At 1 January 2020	32,892	10	188	5	183	131	33,263	146
2020 movements	5,355	8	2,609	48	(1)	5	7,963	61
At 30 June 2020	38,247	18	2,797	53	182	136	41,226	207
Net carrying amount	38,229		2,744		46		41,019

Note:

(1) Reflects the NatWest Markets segment and includes NWM N.V..

Key points

· The decrease in Stage 1 and Stage 2 ECL was primarily due to the improvement in economic forecasts

· The updated economics resulted in the migration of assets from Stage 2 to Stage 1 with a consequential reduction in Stage 2 lifetime ECL.

· Amounts written-off in the period largely related to a small number of legacy defaulted exposures.

NatWest Group – Form 6-K Interim Results 2021 59

Risk and capital management

Credit risk – Banking activities continued

Flow statements

	Stage 1		Stage 2		Stage 3		Total
	Financial		Financial		Financial		Financial
	assets	ECL	assets	ECL	assets	ECL	assets	ECL
Ulster Bank RoI - mortgages	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2021	10,919	27	1,682	91	1,061	381	13,662	499
Currency translation and other adjustments	(489)	(1)	(71)	(4)	(44)	(37)	(604)	(42)
Transfers from Stage 1 to Stage 2	(473)	(1)	473	1	—	—	—	—
Transfers from Stage 2 to Stage 1	827	34	(827)	(34)	—	—	—	—
Transfers to Stage 3	(2)	—	(43)	(5)	45	5	—	—
Transfers from Stage 3	13	—	136	19	(149)	(19)	—	—
Net re-measurement of ECL on stage transfer		(31)		8		4		(19)
Changes in risk parameters (model inputs)		(4)		(6)		33		23
Other changes in net exposure	(147)	(1)	(73)	—	(81)	(2)	(301)	(3)
Other (P&L only items)	—			(1)		(13)		(14)
Income statement (releases)/charges		(36)		1		22		(13)
Amounts written-off	—	—	(1)	(1)	(68)	(68)	(69)	(69)
Unwinding of discount	—	—				(5)		(5)
At 30 June 2021	10,648	23	1,276	69	764	292	12,688	384
Net carrying amount	10,625		1,207		472		12,304
At 1 January 2020	10,603	11	1,084	30	1,875	581	13,562	622
2020 movements	(238)	5	1,134	68	(500)	(124)	396	(51)
At 30 June 2020	10,365	16	2,218	98	1,375	457	13,958	571
Net carrying amount	10,349		2,120		918		13,387

Key points

● The decrease in ECL reflected ongoing deleveraging of the non-performing mortgage portfolio through the execution of the final tranche of a 2019 debt sale.

● Updated economics resulted in a net migration of assets from Stage 2 to Stage 1.

● Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding or when the loan is sold to a third party.

NatWest Group – Form 6-K Interim Results 2021 60

Risk and capital management

Credit risk – Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

	UK mortgages		RoI mortgages		Credit cards		Other		Total
30 June 2021	£m	%	£m	%	£m	%	£m	%	£m	%
Personal trigger (1)
PD movement	3,412	22.0	185	14.6	583	53.8	1,520	58.9	5,700	27.9
PD persistence	6,458	41.8	55	4.3	404	37.3	842	32.6	7,759	38.0
Adverse credit bureau recorded
with credit reference agency	3,449	22.3	—	—	54	5.0	60	2.3	3,563	17.5
Forbearance support provided	147	0.9	12	0.9	1	0.1	22	0.9	182	0.9
Customers in collections	50	0.3	44	3.5	4	0.4	9	0.3	107	0.5
Collective SICR and other reasons (2)	1,877	12.1	970	76.5	37	3.4	121	4.7	3,005	14.7
Days past due >30	89	0.6	2	0.2	—	—	7	0.3	98	0.5
	15,482	100	1,268	100	1,083	100	2,581	100	20,414	100
31 December 2020
Personal trigger (1)
PD movement	13,520	48.4	751	45.0	911	66.2	2,310	67.8	17,492	51.0
PD persistence	9,977	35.8	46	2.8	350	25.5	968	28.4	11,341	33.0
Adverse credit bureau recorded
with credit reference agency	2,936	10.5	—	—	51	3.7	46	1.4	3,033	8.8
Forbearance support provided	138	0.5	7	0.4	1	0.1	9	0.3	155	0.5
Customers in collections	131	0.5	30	1.8	2	0.1	14	0.4	177	0.5
Collective SICR and other reasons (2)	1,165	4.2	832	49.9	60	4.4	55	1.6	2,112	6.1
Days past due >30	36	0.1	2	0.1	—	—	4	0.1	42	0.1
	27,903	100	1,668	100	1,375	100	3,406	100	34,352	100

For the notes to the table refer to the following page.

Key points

● The improved economic outlook, including a more optimistic forecast for unemployment, resulted in decreased account level IFRS 9 PDs. Consequently, compared to the 2020 year end, a smaller proportion of accounts exhibited PD deterioration at H1 2021.

● Since the 2020 year end, large populations of Stage 2 have been migrated to Stage 1, reflecting the PD persistence roll-off three months after the PD reductions at the end of 2020. Furthermore, continued reductions in PDs as a result of stable portfolio performance during H1 2021, have supported the Stage 2 reductions.

● In the absence of PD deterioration or other backstop SICR triggers, the granting of a COVID-19 related payment holiday did not automatically result in a migration to Stage 2.

● However, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2. In Retail Banking (primarily on mortgages), approximately £1.6 billion of exposures were collectively migrated from Stage 1 to Stage 2, and approximately £0.4 million in Ulster Bank RoI mortgages. The effect of collective migrations on unsecured lending was much more limited.

● PD persistence made up a larger proportion of Stage 2 for UK mortgages than at the 2020 year end, supporting the use of the collective SICR migration approach described above.

● As expected, ECL coverage was higher in accounts that were more than 30 days past due than those in Stage 2 for other reasons.

NatWest Group – Form 6-K Interim Results 2021 61

Risk and capital management

Credit risk – Banking activities continued

Stage 2 decomposition by a significant increase in credit risk trigger

	Property		Corporate		FI		Other		Total
	Loans	ECL	Loans	ECL	Loans	ECL	Loans	ECL	Loans	ECL
30 June 2021	£m	%	£m	%	£m	%	£m	%	£m	%
Wholesale trigger (1)
PD movement	4,619	68.1	17,782	75.8	2,246	95.2	89	58.1	24,736	75.4
PD persistence	278	4.1	1,122	4.8	10	0.4	2	1.3	1,412	4.3
Risk of Credit Loss	651	9.6	2,493	10.6	53	2.2	56	36.6	3,253	9.9
Forbearance support provided	93	1.4	288	1.2	5	0.2	—	—	386	1.2
Customers in collections	20	0.3	63	0.3	—	—	—	—	83	0.3
Collective SICR and other reasons (2)	908	13.4	1,677	7.1	35	1.5	5	3.3	2,625	8.0
Days past due >30	213	3.1	53	0.2	12	0.5	1	0.7	279	0.9
	6,782	100	23,478	100	2,361	100	153	100	32,774	100
31 December 2020
Wholesale trigger (1)
PD movement	11,849	91.1	23,403	84.3	3,183	87.9	97	47.6	38,532	86.6
PD persistence	162	1.2	624	2.3	7	0.2	—	—	793	1.8
Risk of Credit Loss	394	3.0	2,106	7.6	66	1.8	39	19.1	2,605	5.8
Forbearance support provided	73	0.6	133	0.5	27	0.7	—	—	233	0.5
Customers in collections	30	0.2	115	0.4	1	—	—	—	146	0.3
Collective SICR and other reasons (2)	462	3.5	1,262	4.6	231	6.4	68	33.3	2,023	4.5
Days past due >30	51	0.4	73	0.3	109	3.0	—	—	233	0.5
	13,021	100	27,716	100	3,624	100	204	100	44,565	100

Notes:

(1) The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.

(2) Includes customers where a PD assessment cannot be undertaken due to missing PDs.

Key points

·The improved economic outlook, including improvement in forecasts of GDP and UK property price indices, resulted in a reduction in IFRS 9 PDs. Consequently, compared to 2020, a smaller proportion of exposures exhibited a SICR which resulted in a reduction in Stage 2 exposures. The decrease in Stage 2 was larger in Property, which saw a relatively higher increase during 2020 following the onset of COVID-19.

· PD deterioration remained the primary trigger for identifying a SICR and Stage 2 treatment.

●While noting the reduced flows into Heightened Monitoring and Risk of Credit Loss, there was an increase in Risk of Credit Loss as a SICR trigger at H1 2021. This was due to the reduction in underlying IFRS 9 PDs where exposures did not meet the PD SICR criteria but were captured by the Risk of Credit Loss backstop.

● Use of COVID-19 relief mechanisms did not automatically merit identification of SICR and trigger a Stage 2 classification in isolation (refer to Treatment of COVID-19 relief mechanisms for further details).

● In Ulster Bank RoI, £0.4 billion of exposures relating to small and medium size enterprises were collectively migrated from Stage 1 to Stage 2 reflective of the elevated risk for this sector.

NatWest Group – Form 6-K Interim Results 2021 62

Risk and capital management

Credit risk – Banking activities continued

Asset quality

The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.

	Gross loans				ECL provisions				ECL provisions coverage
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%
UK mortgages
AQ1-AQ4	118,191	6,163	—	124,354	7	64	—	71	0.01	1.04	—	0.06
AQ5-AQ8	48,554	8,543	—	57,097	13	94	—	107	0.03	1.10	—	0.19
AQ9	251	776	—	1,027	—	22	—	22	—	2.84	—	2.14
AQ10	—	-	1,568	1,568	—	—	269	269	—	—	17.16	17.16
	166,996	15,482	1,568	184,046	20	180	269	469	0.01	1.16	17.16	0.25
RoI mortgages
AQ1-AQ4	8,134	615	—	8,749	17	31	—	48	0.21	5.04	—	0.55
AQ5-AQ8	2,492	371	—	2,863	6	22	—	28	0.24	5.93	—	0.98
AQ9	8	282	—	290	—	16	—	16	—	5.67	—	5.52
AQ10	—	—	760	760	—	—	292	292	—	—	38.42	38.42
	10,634	1,268	760	12,662	23	69	292	384	0.22	5.44	38.42	3.03
Credit cards
AQ1-AQ4	25	9	—	34	1	2	—	3	4.00	22.22	—	8.82
AQ5-AQ8	2,532	1,040	—	3,572	46	169	—	215	1.82	16.25	—	6.02
AQ9	5	34	—	39	—	12	—	12	—	35.29	—	30.77
AQ10	—	—	82	82	—	—	59	59	—	—	71.95	71.95
	2,562	1,083	82	3,727	47	183	59	289	1.83	16.90	71.95	7.75
Other Personal
AQ1-AQ4	1,035	105	—	1,140	8	25	—	33	0.77	23.81	—	2.89
AQ5-AQ8	4,997	2,301	—	7,298	53	279	—	332	1.06	12.13	—	4.55
AQ9	32	175	—	207	1	50	—	51	3.13	28.57	—	24.64
AQ10	—	—	619	619	—	—	521	521	—	—	84.17	84.17
	6,064	2,581	619	9,264	62	354	521	937	1.02	13.72	84.17	10.11
Total
AQ1-AQ4	127,385	6,892	—	134,277	33	122	—	155	0.03	1.77	—	0.12
AQ5-AQ8	58,575	12,255	—	70,830	118	564	—	682	0.20	4.60	—	0.96
AQ9	296	1,267	—	1,563	1	100	—	101	0.34	7.89	—	6.46
AQ10	—	—	3,029	3,029	—	—	1,141	1,141	—	—	37.67	37.67
	186,256	20,414	3,029	209,699	152	786	1,141	2,079	0.08	3.85	37.67	0.99

NatWest Group – Form 6-K Interim Results 2021 63

Risk and capital management

Credit risk – Banking activities continued

Asset quality

	Gross loans				ECL provisions				ECL provisions coverage
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
31 December 2020	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%
UK mortgages
AQ1-AQ4	108,869	6,634	—	115,503	10	33	—	43	0.01	0.50	—	0.04
AQ5-AQ8	38,347	20,254	—	58,601	14	146	—	160	0.04	0.72	—	0.27
AQ9	240	1,015	—	1,255	—	49	—	49	—	4.83	—	3.90
AQ10	—	—	1,507	1,507	—	—	254	254	—	—	16.85	16.85
	147,456	27,903	1,507	176,866	24	228	254	506	0.02	0.82	16.85	0.29
RoI mortgages
AQ1-AQ4	8,247	777	—	9,024	20	38	—	58	0.24	4.89	—	0.64
AQ5-AQ8	2,677	560	—	3,237	7	34	—	41	0.26	6.07	—	1.27
AQ9	7	331	—	338	—	19	—	19	—	5.74	—	5.62
AQ10	—	—	1,051	1,051	—	—	381	381	—	—	36.25	36.25
	10,931	1,668	1,051	13,650	27	91	381	499	0.25	5.46	36.25	3.66
Credit cards
AQ1-AQ4	23	4	—	27	1	2	—	3	4.35	50.00	—	11.11
AQ5-AQ8	2,384	1,329	—	3,713	52	208	—	260	2.18	15.65	—	7.00
AQ9	4	42	—	46	—	15	—	15	—	35.71	—	32.61
AQ10	—	—	109	109	—	—	76	76	—	—	69.72	69.72
	2,411	1,375	109	3,895	53	225	76	354	2.20	16.36	69.72	9.09
Other Personal
AQ1-AQ4	1,234	59	—	1,293	8	9	—	17	0.65	15.25	—	1.31
AQ5-AQ8	4,461	3,020	—	7,481	58	336	—	394	1.30	11.13	—	5.27
AQ9	55	327	—	382	1	107	—	108	1.82	32.72	—	28.27
AQ10	—	—	621	621	—	—	517	517	—	—	83.25	83.25
	5,750	3,406	621	9,777	67	452	517	1,036	1.17	13.27	83.25	10.6
Total
AQ1-AQ4	118,373	7,474	—	125,847	39	82	—	121	0.03	1.1	—	0.10
AQ5-AQ8	47,869	25,163	—	73,032	131	724	—	855	0.27	2.88	—	1.17
AQ9	306	1,715	—	2,021	1	190	—	191	0.33	11.08	—	9.45
AQ10	—	—	3,288	3,288	—	—	1,228	1,228	—	—	37.35	37.35
	166,548	34,352	3,288	204,188	171	996	1,228	2,395	0.10	2.90	37.35	1.17

Key points

● In the Personal portfolio, the asset quality distribution overall improved with high quality new business written during H1 2021 and no material deterioration in existing portfolio quality.

● The majority of exposures were in AQ1-AQ4, with a significant proportion in AQ5-AQ8. As expected, mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing.

● The slight increase in AQ10 exposure in UK mortgages related to a small number of customers who took extended COVID-19 payment holidays and had subsequently moved from arrears to default during the period. Repossession and formal recovery activities were paused to support customers during COVID-19, also contributing to late arrears and therefore an increase in AQ10 balances.

● In other Personal, the relatively high level of exposures in AQ10 reflected that impaired assets can be held on the balance sheet, with commensurate ECL provision for up to six years after default.

● ECL provisions coverage shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage.

● As noted previously, across all asset quality bands, migration from Stage 2 to Stage 1 was observed as the effect of improved economic scenarios enhanced IFRS 9 PDs and therefore reduced Stage 2 exposure.

NatWest Group – Form 6-K Interim Results 2021 64

Risk and capital management

Credit risk – Banking activities continued

Asset quality

The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.

	Gross loans					ECL provisions				ECL provisions coverage
	Stage 1		Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
30 June 2021	£m		£m	£m	£m	£m	£m	£m	£m	%	%	%	%
Property
AQ1-AQ4	13,097		721	—	13,818	11	11	—	22	0.08	1.53	—	0.16
AQ5-AQ8	14,966		5,953	—	20,919	82	292	—	374	0.55	4.91	—	1.79
AQ9	42		108	—	150	—	10	—	10	—	9.26	—	6.67
AQ10	—		—	1,054	1,054	—	—	391	391	—	—	37.10	37.10
	28,105		6,782	1,054	35,941	93	313	391	797	0.33	4.62	37.10	2.22
Corporate
AQ1-AQ4	17,252		1,710	—	18,962	15	34	—	49	0.09	1.99	—	0.26
AQ5-AQ8	31,542		21,388	—	52,930	134	1,014	—	1,148	0.42	4.74	—	2.17
AQ9	256		380	—	636	—	37	—	37	—	9.74	—	5.82
AQ10	—		—	1,594	1,594	—	—	651	651	—	—	40.84	40.84
	49,050		23,478	1,594	74,122	149	1,085	651	1,885	0.30	4.62	40.84	2.54
Financial institutions
AQ1-AQ4	46,160		1,050	—	47,210	13	9	—	22	0.03	0.86	—	0.05
AQ5-AQ8	1,533		1,146	—	2,679	8	76	—	84	0.52	6.63	—	3.14
AQ9	1		165	—	166	—	30	—	30	—	18.18	—	18.07
AQ10	—		—	17	17	—	—	7	7	—	—	41.18	41.18
	47,694		2,361	17	50,072	21	115	7	143	0.04	4.87	41.18	0.29
Sovereign
AQ1-AQ4	5,582		58	—	5,640	18	—	—	18	0.32	—	—	0.32
AQ5-AQ8	14		95	—	109	—	1	—	1	—	1.05	—	0.92
AQ 9	—		—	—	—	—	—	—	—	—	—	—	—
AQ10		—	—	9	9	—	—	2	2	—	—	22.22	22.22
	5,596		153	9	5,758	18	1	2	21	0.32	0.65	22.22	0.36
Total
AQ1-AQ4	82,091		3,539	—	85,630	57	54	—	111	0.07	1.53	—	0.13
AQ5-AQ8	48,055		28,582	—	76,637	224	1,383	—	1,607	0.47	4.84	—	2.10
AQ9	299		653	—	952	—	77	—	77	—	11.79	—	8.09
AQ10	—		—	2,674	2,674	—		1,051	1,051	—	—	39.30	39.30
	130,445		32,774	2,674	165,893	281	1,514	1,051	2,846	0.22	4.62	39.30	1.72

NatWest Group – Form 6-K Interim Results 2021 65

Risk and capital management

Credit risk – Banking activities continued

Asset quality

	Gross loans				ECL provisions				ECL provisions coverage
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
31 December 2020	£m	£m	£m	£m	£m	£m	£m	£m	%	%	%	%
Property
AQ1-AQ4	12,694	2,079	—	14,773	20	40	—	60	0.16	1.92	—	0.41
AQ5-AQ8	10,785	10,780	—	21,565	103	450	—	553	0.96	4.17	—	2.56
AQ9	254	162	—	416	—	17	—	17	—	10.49	—	4.09
AQ10	—	—	1,322	1,322	—	—	545	545	—	—	41.23	41.23
	23,733	13,021	1,322	38,076	123	507	545	1,175	0.52	3.89	41.23	3.09
Corporate
AQ1-AQ4	17,757	2,726	—	20,483	20	51	—	71	0.11	1.87	—	0.35
AQ5-AQ8	29,405	24,430	—	53,835	167	1,374	—	1,541	0.57	5.62	—	2.86
AQ9	928	560	—	1,488	1	62	—	63	0.11	11.07	—	4.23
AQ10	—	—	1,727	1,727	—	—	803	803	—	—	46.5	46.5
	48,090	27,716	1,727	77,533	188	1,487	803	2,478	0.39	5.37	46.5	3.20
Financial institutions
AQ1-AQ4	42,222	1,985	—	44,207	13	13	—	26	0.03	0.65	—	0.06
AQ5-AQ8	1,776	1,453	—	3,229	10	39	—	49	0.56	2.68	—	1.52
AQ9	4	186	—	190	—	38	—	38	—	20.43	—	20.00
AQ10	—	—	17	17	—	—	8	8	—	—	47.06	47.06
	44,002	3,624	17	47,643	23	90	8	121	0.05	2.48	47.06	0.25
Sovereign
AQ1-AQ4	4,731	106	—	4,837	14	1	—	15	0.30	0.94	—	0.31
AQ5-AQ8	17	98	—	115	—	—	—	—	—	—	—	—
AQ9	3	—	—	3	—	—	—	—	—	—	—	—
AQ10	—	—	4	4	—	—	2	2	—	—	50.00	50.00
	4,751	204	4	4,959	14	1	2	17	0.29	0.49	50.00	0.34
Total
AQ1-AQ4	77,404	6,896	—	84,300	67	105	—	172	0.09	1.52	—	0.20
AQ5-AQ8	41,983	36,761	—	78,744	280	1,863	—	2,143	0.67	5.07	—	2.72
AQ9	1,189	908	—	2,097	1	117	—	118	0.08	12.89	—	5.63
AQ10	—	—	3,070	3,070	—	—	1,358	1,358	—	—	44.23	44.23
	120,576	44,565	3,070	168,211	348	2,085	1,358	3,791	0.29	4.68	44.23	2.25

Key points

● Across the Wholesale portfolio, the asset quality band distribution differed, reflecting the diverse nature of the sectors. However, improvements were observed across the portfolio consistent with the improvement in the economic outlook for the UK since the 2020 year end.

● Increased exposure in the AQ1-AQ4 band in financial institutions was related to repo transactions as part of treasury activities.

● Remaining government support measures in relation to COVID-19 continued to mitigate against flows to default in the short-term.

● Within the Wholesale portfolio, customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was performed or a material event specific to that customer occurred.

● As previously noted, a request for support using one of the government-backed COVID-19 support schemes would prompt credit grades to be reassessed but was not, in itself, a reason for a customer’s credit grade to be amended.

● ECL provisions coverage showed the expected trend with increased coverage in the poorer asset quality bands, and also by stage. Overall provisions coverage reduced, mainly due to the improvement in economic outlook and scenario weightings. The base economic scenario improved compared with H2 2020 reflecting the faster than expected vaccination roll-out, better than expected actual economic data and the persisting strong government support.

● The lower provision coverage for Stage 3 loans in the Property sector reflected the secured nature of the exposures.

NatWest Group – Form 6-K Interim Results 2021 66

Risk and capital management

Credit risk – Trading activities

This section details the credit risk profile of NatWest Group’s trading activities.

Securities financing transactions and collateral

The table below shows securities financing transactions in NatWest Markets and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9.

	Reverse repos			Repos
			Outside			Outside
		Of which:	netting		Of which:	netting
	Total	can be offset	arrangements	Total	can be offset	arrangements
30 June 2021	£m	£m	£m	£m	£m	£m
Gross	86,079	85,070	1,009	83,005	81,873	1,132
IFRS offset	(38,273)	(38,273)	—	(38,273)	(38,273)	—
Carrying value	47,806	46,797	1,009	44,732	43,600	1,132
Master netting arrangements	(2,838)	(2,838)	—	(2,838)	(2,838)	—
Securities collateral	(43,440)	(43,440)	—	(40,694)	(40,694)	—
Potential for offset not recognised under IFRS	(46,278)	(46,278)	—	(43,532)	(43,532)	—
Net	1,528	519	1,009	1,200	68	1,132
31 December 2020
Gross	80,388	80,025	363	66,493	64,793	1,700
IFRS offset	(35,820)	(35,820)	—	(35,820)	(35,820)	—
Carrying value	44,568	44,205	363	30,673	28,973	1,700
Master netting arrangements	(929)	(929)	—	(929)	(929)	—
Securities collateral	(43,204)	(43,204)	—	(28,044)	(28,044)	—
Potential for offset not recognised under IFRS	(44,133)	(44,133)	—	(28,973)	(28,973)	—
Net	435	72	363	1,700	—	1,700

Key points

● Reverse repos and repos increased on both gross and carrying value basis when compared to 2020. These trends are consistent with trading assets and liabilities having been managed within limits at 31 December 2020.

● Reverse repo and repo transactions are primarily backed by highly-rated sovereign, supranational and agency collateral.

NatWest Group – Form 6-K Interim Results 2021 67

Risk and capital management

Credit risk – Trading activities continued

Derivatives

The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS 9. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table also includes hedging derivatives in Treasury.

	30 June 2021							31 December 2020
	Notional
	GBP	USD	Euro	Other	Total	Assets	Liabilities	Notional	Assets	Liabilities
	£bn	£bn	£bn	£bn	£bn	£m	£m	£bn	£m	£m
Gross exposure						117,434	112,464		177,330	172,245
IFRS offset						(7,878)	(8,472)		(10,807)	(11,540)
Carrying value	3,835	3,843	4,930	1,413	14,021	109,556	103,992	14,047	166,523	160,705
Of which:
Interest rate (1)
Interest rate swaps						60,918	53,667		93,587	85,022
Options purchased						14,664	—		20,527	—
Options written						—	14,804		—	20,190
Futures and forwards						—	—		1	2
Total	3,472	2,304	4,304	425	10,505	75,582	68,471	10,703	114,115	105,214
Exchange rate
Spot, forwards and futures						22,260	22,148		34,924	35,309
Currency swaps						6,931	8,116		10,038	12,136
Options purchased						4,562	—		7,277	—
Options written						—	4,825		—	7,662
Total	361	1,535	615	988	3,499	33,753	35,089	3,328	52,239	55,107
Credit	2	4	11	—	17	221	431	15	161	376
Equity and commodity	—	—	—	—	—	—	1	1	8	8
Carrying value					14,021	109,556	103,992	14,047	166,523	160,705
Counterparty mark-to-market netting						(87,322)	(87,322)		(137,086)	(137,086)
Cash collateral						(14,009)	(10,368)		(19,608)	(15,034)
Securities collateral						(4,170)	(3,125)		(5,053)	(4,921)
Net exposure						4,055	3,177		4,776	3,664
Of which outside netting arrangements						999	962		905	631
Banks (2)						311	683		206	557
Other financial institutions (3)						1,647	1,371		1,436	1,931
Corporate (4)						1,993	957		2,985	1,082
Government (5)						104	166		149	94
Net exposure						4,055	3,177		4,776	3,664
UK						2,445	780		2,914	1,627
Europe						822	1,188		1,091	1,118
US						573	945		470	644
RoW						215	264		301	275
Net exposure						4,055	3,177		4,776	3,664
Asset quality of uncollateralised derivative assets
AQ1-AQ4						3,150			3,464
AQ5-AQ8						847			1,283
AQ9-AQ10						58			29
Net exposure						4,055			4,776

Notes:

(1) The notional amount of interest rate derivatives included £7,330 billion (31 December 2020 – £7,390 billion) in respect of contracts cleared through central clearing counterparties.

(2) Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions for example China where the collateral agreements are not deemed to be legally enforceable.

(3) Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group’s external rating.

(4) Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting.

(5) Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour.

NatWest Group – Form 6-K Interim Results 2021 68

Risk and capital management

Credit risk – Trading activities continued

Debt securities

The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor’s, Moody’s and Fitch. A significant proportion (more than 95%) of these positions are trading securities in NatWest Markets.

	Central and local government			Financial
	UK	US	Other	institutions	Corporate	Total
30 June 2021	£m	£m	£m	£m	£m	£m
AAA	—	—	2,469	1,013	—	3,482
AA to AA+	—	4,088	4,829	1,010	44	9,971
A to AA-	5,121	—	1,781	397	75	7,374
BBB- to A-	—	—	9,235	386	518	10,139
Non-investment grade	—	—	33	252	105	390
Unrated	—	—	—	10	4	14
Total	5,121	4,088	18,347	3,068	746	31,370
Short positions	(5,487)	(2,303)	(22,185)	(2,030)	(106)	(32,111)
31 December 2020
AAA	—	—	3,114	1,113	—	4,227
AA to AA+	—	5,149	3,651	576	49	9,425
A to AA-	4,184	—	1,358	272	81	5,895
BBB- to A-	—	—	8,277	444	656	9,377
Non-investment grade	—	—	36	127	53	216
Unrated	—	—	—	150	5	155
Total	4,184	5,149	16,436	2,682	844	29,295
Short positions	(5,704)	(1,123)	(18,135)	(1,761)	(56)	(26,779)

NatWest Group – Form 6-K Interim Results 2021 69

Risk and capital management

Capital, liquidity and funding risk

Introduction

NatWest Group continually ensures a comprehensive approach is taken to the management of Capital, Liquidity and Funding, underpinned by frameworks, risk appetite and policies, to manage and mitigate Capital, Liquidity and Funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that NatWest Group operates within its regulatory requirements and risk appetite.

Within the 2020 Annual Report on Form 20-F, NatWest Group outlined a number of COVID-19 specific relief measures which impacted capital and leverage ratios during the year, one of which was a temporary change to the Prudential Valuation Adjustment (PVA). From 1 January 2021 the aggregation factor reverted back to 50% from 66%. This has increased NatWest Group’s PVA deduction by c.£120 million.

Key developments

CET1 (CRR end-point)	In the first half of 2021, the CET1 ratio decreased by 30 basis points to 18.2%. The CET1 decrease is primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion (72 bps), foreseeable dividend accrual of £0.5 billion (33 bps) and foreseeable charges and pension contributions of £0.9 billion (58 bps). The attributable profit in the period of £1.8 billion has been partially utilised by the foreseeable dividends and charges. There was a £0.5 billion decrease in the IFRS 9 transitional arrangements on expected credit losses however this offset the impact of impairment releases.
LAC (MREL)	LAC (MREL) ratio as percentage of risk weighted assets increased to 38.9% from 37.5% primarily due to the £7.3 billion decrease in RWAs and remains well above the minimum of 23%. In the first half of 2021, there were new issuances of $1.5 billion and €1.0 billion Senior debt, AT1 issuances of $0.75 billion and £0.4 billion and Tier 2 issuances of £1.0 billion. These were partially offset by the redemption of $2.1 billion, $0.2 billion and €0.2 billion Tier 2 instruments.
Total RWAs	RWAs reduced by £7.3 billion in H1 2021, primarily reflecting reductions in credit risk RWAs of £7.4 billion due to repayments and expired facilities of c.£4 billion in Commercial Banking, a reduction of c.£0.8 billion due to improved risk metrics in Retail Banking and reduced exposures in Ulster Bank RoI in line with the current exit strategy. The decreases in credit risk also included a £0.8 billion benefit as a result of the CRR COVID-19 amendment for Infrastructure Supporting factor. Operational risk RWAs reduced by £0.9 billion following the annual recalculation in Q1 2021. Counterparty credit risk RWAs reduced by £0.5 billion as a result of lower exposures in NatWest Markets. There were offsetting increases in market risk RWAs of £1.5 billion, mainly reflecting an increase in modelled market risk following the announcement of GBP LIBOR cessation in March 2021 as a result of including modelled GBP LIBOR basis risk post 4 January 2022. Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021.
UK leverage ratio	The UK leverage ratio decreased by c.20 basis points from 6.4% to 6.2% predominantly driven by a decrease in Tier 1 capital.
Liquidity portfolio	The liquidity portfolio increased by £15 billion in H1 2021 to £277 billion, with primary liquidity increasing by £17 billion to £187 billion. The increase in primary liquidity was mainly driven by customer deposits, cash proceeds from new issuance and the methodology change to include UBIDAC cash at central banks. This is offset by the TFSME repayment, buyback of shares owned by UK Government, pension fund contributions, liability management exercise and the purchase of additional mortgages. Secondary liquidity is lower due to monthly repayments on underlying assets.

NatWest Group – Form 6-K Interim Results 2021 70

Risk and capital management

Capital, liquidity and funding risk continued

Maximum Distributable Amount (MDA) and Minimum Capital Requirements

NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.

Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments, known as the MDA. Note that different capital requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.

The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements.

Type	CET1	Total Tier 1	Total capital
Pillar 1 requirements	4.5%	6.0%	8.0%
Pillar 2A requirements	2.0%	2.7%	3.6%
Minimum Capital Requirements	6.5%	8.7%	11.6%
Capital conservation buffer	2.5%	2.5%	2.5%
Countercyclical capital buffer (1)	—	—	—
MDA threshold (2)	9.0%	n/a	n/a
Subtotal	9.0%	11.2%	14.1%
Capital ratios at 30 June 2021	18.2%	21.8%	24.9%
Headroom (3)	9.2%	10.6%	10.8%

Notes:

(1) In response to COVID-19 many countries reduced their CCyB rates. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% and the CBI also announced a reduction in the Republic of Ireland rate from 1% to 0%.

(2) Pillar 2A requirements for NatWest Group are set on a nominal capital basis.

(3) The headroom does not reflect excess distributable capital and may vary over time.

NatWest Group – Form 6-K Interim Results 2021 71

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios

The table below sets out the key capital and leverage ratios.

	30 June		31 December
	2021		2020
Capital adequacy ratios (1)		%	%
CET1	18.2		18.5
Tier 1	21.8		21.4
Total	24.9		24.5
Capital	£m		£m
Tangible equity	30,751		31,712
Prudential valuation adjustment	(285)		(286)
Deferred tax assets	(832)		(760)
Own credit adjustments	22		(1)
Pension fund assets	(384)		(579)
Cash flow hedging reserve	77		(229)
Foreseeable ordinary dividends	(500)		(364)
Foreseeable charges	(750)		—
Foreseeable pension contributions	(174)		(266)
Prudential amortisation of software development costs	537		473
Adjustments under IFRS 9 transitional arrangements	1,198		1,747
Total deductions	(1,091)		(265)
CET1 capital	29,660		31,447
AT1 capital	5,916		4,983
Tier 1 capital	35,576		36,430
Tier 2 capital	4,973		5,255
Total regulatory capital	40,549		41,685
Risk-weighted assets
Credit risk	122,475		129,914
Counterparty credit risk	8,619		9,104
Market risk	10,845		9,362
Operational risk	21,031		21,930
Total RWAs	162,970		170,310
Leverage
Cash and balances at central banks	151,511		124,489
Trading assets	70,195		68,990
Derivatives	109,556		166,523
Financial assets	422,356		422,647
Other assets	22,240		16,842
Total assets	775,858		799,491
Derivatives
- netting and variation margin	(112,441)		(172,658)
- potential future exposures	37,468		38,171
Securities financing transactions gross up	1,486		1,179
Other off balance sheet items	43,979		45,853
Regulatory deductions and other adjustments	(13,831)		(8,943)
Claims on central banks	(148,644)		(122,252)
Exclusion of bounce back loans	(8,239)		(8,283)
UK leverage exposure	575,636		572,558
UK leverage ratio % (2)	6.2		6.4

Notes:

(1) Based on CRR end-point including an IFRS 9 transitional adjustment of £1.2 billion (31 December 2020 - £1.7 billion). Excluding this adjustment, the CET1 ratio would be 17.5% (31 December 2020 - 17.5%). The amended article for the prudential treatment of software assets was implemented in December 2020. Excluding this adjustment the CET1 ratio at 30 June 2021 would be 17.9% (31 December 2020 - 18.2%).

(2) The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding an IFRS 9 transitional adjustment, the UK leverage ratio would be 6.0% (31 December 2020 – 6.1%). The amended article for the prudential treatment of software assets was implemented in December 2020. Excluding this adjustment, the UK leverage ratio at 30 June 2021 would be 6.1% (31 December 2020 – 6.3%).

NatWest Group – Form 6-K Interim Results 2021 72

Risk and capital management

Capital, liquidity and funding risk continued

Capital flow statement

The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2021.

	CET1	AT1	Tier 2	Total
	£m	£m	£m	£m
At 1 January 2021	31,447	4,983	5,255	41,685
Attributable profit for the period	1,842	—	—	1,842
Own credit	23	—	—	23
Share capital and reserve movements in respect of employee share schemes	23	—	—	23
Directed buyback	(1,231)	—	—	(1,231)
Foreign exchange reserve	(304)	—	—	(304)
FVOCI reserve	(121)	—	—	(121)
Goodwill and intangibles deduction	25	—	—	25
Deferred tax assets	(72)	—	—	(72)
Prudential valuation adjustments	1	—	—	1
New issues of capital instruments	—	933	996	1,929
Redemption of capital instruments	—	—	(1,456)	(1,456)
Net dated subordinated debt instruments	—	—	292	292
Foreign exchange movements	—	—	(77)	(77)
Foreseeable ordinary dividends	(500)	—	—	(500)
Foreseeable charges	(750)	—	—	(750)
Foreseeable pension contributions	(174)	—	—	(174)
Adjustment under IFRS 9 transitional arrangements	(549)	—	—	(549)
Other movements	—	—	(37)	(37)
At 30 June 2021	29,660	5,916	4,973	40,549

Key points

· The CET1 decrease is primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion, foreseeable dividend accrual of £0.5 billion and foreseeable charges and pension contributions of £0.9 billion offset by an increase in attributable profit.

· AT1 reflects the £400 million 4.5% Reset Perpetual Subordinated Contingent Convertible Notes issued in March 2021 and $750m 4.600% Reset Perpetual Subordinated Contingent Convertible notes in June 2021.

· The Tier 2 movement is primarily due to the redemption of own debt of £1.5 billion in March 2021 and a £1.0 billion issuance of subordinated Tier 2 notes in May 2021.

NatWest Group – Form 6-K Interim Results 2021 73

Risk and capital management

Capital, liquidity and funding risk continued

Capital resources

	PRA transitional basis
	30 June	31 December
	2021	2020
	£m	£m
Shareholders' equity (excluding non-controlling interests)
Shareholders' equity	43,875	43,860
Preference shares - equity	(494)	(494)
Other equity instruments	(5,936)	(4,999)
	37,445	38,367
Regulatory adjustments and deductions
Own credit	22	(1)
Defined benefit pension fund adjustment	(384)	(579)
Cash flow hedging reserve	77	(229)
Deferred tax assets	(832)	(760)
Prudential valuation adjustments	(285)	(286)
Goodwill and other intangible assets	(6,157)	(6,182)
Foreseeable ordinary and special dividends	(500)	(364)
Foreseeable charges	(750)	—
Foreseeable pension contributions	(174)	(266)
Adjustment under IFRS 9 transitional arrangements	1,198	1,747
	(7,785)	(6,920)
CET1 capital	29,660	31,447
Additional Tier (AT1) capital
Qualifying instruments and related share premium	5,916	4,983
Qualifying instruments and related share premium to phase out	569	690
Qualifying instruments issued by subsidiaries and held by third parties subject to phase out	—	140
AT1 capital	6,485	5,813
Tier 1 capital	36,145	37,260
Qualifying Tier 2 capital
Qualifying instruments and related share premium	4,570	4,882
Qualifying instruments issued by subsidiaries and held by third parties	581	1,191
Other regulatory adjustments	362	400
Tier 2 capital	5,513	6,473
Total regulatory capital	41,658	43,733

NatWest Group – Form 6-K Interim Results 2021 74

Risk and capital management

Capital, liquidity and funding risk continued

Loss absorbing capital

The following table illustrates the components of estimated loss absorbing capital (LAC) in NatWest Group plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.

	30 June 2021				31 December 2020
		Balance				Balance
	Par	sheet	Regulatory	LAC	Par	sheet	Regulatory	LAC
	value (1)	value	value (2)	value (3)	value	value	value	value
	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
CET1 capital (4)	29.7	29.7	29.7	29.7	31.4	31.4	31.4	31.4
Tier 1 capital: end-point CRR compliant AT1
of which: NatWest Group plc (holdco)	6.0	5.9	5.9	5.9	5.0	5.0	5.0	5.0
of which: NatWest Group plc operating
subsidiaries (opcos)	—	—	—	—	—	—	—	—
	6.0	5.9	5.9	5.9	5.0	5.0	5.0	5.0
Tier 1 capital: end-point CRR non-compliant
of which: holdco	0.6	0.6	0.5	0.5	0.7	0.7	0.7	0.5
of which: opcos	0.1	0.1	—	—	0.1	0.1	0.1	0.1
	0.7	0.7	0.5	0.5	0.8	0.8	0.8	0.6
Tier 2 capital: end-point CRR compliant
of which: holdco	6.3	6.5	4.6	5.4	6.9	7.2	4.8	5.7
of which: opcos	0.4	0.4	0.1	—	0.4	0.4	0.1	0.1
	6.7	6.9	4.7	5.4	7.3	7.6	4.9	5.8
Tier 2 capital: end-point CRR non-compliant
of which: holdco	—	—	—	—	0.1	0.1	0.1	0.1
of which: opcos	1.3	1.6	0.4	0.2	1.6	1.9	1.1	1.0
	1.3	1.6	0.4	0.2	1.7	2.0	1.2	1.1
Senior unsecured debt securities
of which: holdco	21.2	22.0	—	21.2	19.6	20.9	—	19.6
of which: opcos	20.7	20.7	—	—	20.9	21.5	—	—
	41.9	42.7	—	21.2	40.5	42.4	—	19.6
Tier 2 capital:
Other regulatory adjustments	—	—	0.4	0.4	—	—	0.4	0.4
	—	—	0.4	0.4	—	—	0.4	0.4
Total	86.3	87.5	41.6	63.3	86.7	89.2	43.7	63.9
RWAs				163.0				170.3
UK leverage exposure				575.6				572.6
LAC as a ratio of RWAs				38.9%				37.5%
LAC as a ratio of UK leverage exposure				11.0%				11.2%

Notes:

(1) Par value reflects the nominal value of securities issued.

(2) Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.

(3) LAC value reflects NatWest Group’s interpretation of the Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such NatWest Group’s estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.

(4) Corresponding shareholders’ equity was £43.9 billion (31 December 2020 - £43.9 billion).

(5) Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

NatWest Group – Form 6-K Interim Results 2021 75

Risk and capital management

Capital, liquidity and funding risk continued

Loss absorbing capital

The following table illustrates the components of the stock of outstanding issuance in NatWest Group plc and its operating subsidiaries including external and internal issuances.

			NatWest					NatWest	NWM	RBS
		NatWest	Holdings	NWB	RBS	UBI	NWM	Markets	Securities	International
		Group plc	Limited	Plc	plc	DAC	Plc	N.V.	Inc.	Limited
		£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Tier 1 (Inclusive of AT1)	Externally issued	6.5	—	0.1	—	—	—	—	—	—
Tier 1 (Inclusive of AT1)	Internally issued	—	3.7	2.4	1.0	—	1.1	0.2	—	0.3
		6.5	3.7	2.5	1.0	—	1.1	0.2	—	0.3
Tier 2	Externally issued	6.5	—	0.9	—	0.1	0.5	0.6	—	—
Tier 2	Internally issued	—	4.7	3.1	1.4	0.5	1.5	0.1	0.3	—
		6.5	4.7	4.0	1.4	0.6	2.0	0.7	0.3	—
Senior unsecured	Externally issued	22.0	—	—	—	—	—	—	—	—
Senior unsecured	Internally issued	—	10.5	5.7	0.4	0.5	3.9	—	—	—
		22.0	10.5	5.7	0.4	0.5	3.9	—	—	—
Total outstanding issuance		35.0	18.9	12.2	2.8	1.1	7.0	0.9	0.3	0.3

Notes:

(1) The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude, for example, issuance costs and fair value movements, whilst dated capital is required to be amortised on a straight-line basis over the final five years of maturity.

(2) Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.

(3) Internal issuance for NWB Plc, RBS plc and UBIDAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc.

(4) Senior unsecured debt does not include CP, CD and short /medium term notes issued from NatWest Group operating subsidiaries.

(5) Tier 1 (inclusive of AT1) does not include CET1 numbers.

NatWest Group – Form 6-K Interim Results 2021 76

Risk and capital management

Capital, liquidity and funding risk continued

Risk-weighted assets

The table below analyses the movement in RWAs during the half year, by key drivers.

		Counterparty		Operational
	Credit risk	credit risk	Market risk	risk	Total
	£bn	£bn	£bn	£bn	£bn
At 1 January 2021	129.9	9.1	9.4	21.9	170.3
Foreign exchange movement	(1.0)	(0.2)	—	—	(1.2)
Business movement	(3.4)	(0.2)	1.8	(0.9)	(2.7)
Risk parameter changes (1)	(1.3)	(0.1)	—	—	(1.4)
Model updates	(0.7)	—	(0.3)	—	(1.0)
Other movements (2)	(0.8)	—	—	—	(0.8)
Acquisitions & Disposals (3)	(0.2)	—	—	—	(0.2)
At 30 June 2021	122.5	8.6	10.9	21.0	163.0

The table below analyses segmental RWAs.

				International Banking & Markets			Central
	Retail	Private	Commercial	RBS	NatWest	Ulster	items
	Banking	Banking	Banking	International	Markets	Bank RoI	& other	Total
Total RWAs	£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
At 1 January 2021	36.7	10.9	75.1	7.5	26.9	11.8	1.4	170.3
Foreign exchange movement	—	—	(0.4)	(0.1)	(0.3)	(0.4)	—	(1.2)
Business movement	(0.3)	0.3	(3.6)	0.2	0.8	(0.3)	0.2	(2.7)
Risk parameter changes (1)	(0.8)	—	(0.2)	—	(0.1)	(0.4)	0.1	(1.4)
Model updates	—	—	(0.7)	—	(0.3)	—	—	(1.0)
Other movements (2)	—	—	(0.7)	—	(0.1)	—	—	(0.8)
Acquisitions & Disposals (3)	—	—	-	—	-	(0.2)	—	(0.2)
At 30 June 2021	35.6	11.2	69.5	7.6	26.9	10.5	1.7	163.0
Credit risk	28.2	9.8	60.8	6.6	5.9	9.5	1.7	122.5
Counterparty credit risk	0.2	0.1	0.3	—	8.0	—	—	8.6
Market risk	0.2	—	0.4	—	10.2	0.1	—	10.9
Operational risk	7.0	1.3	8.0	1.0	2.8	0.9	—	21.0
Total RWAs	35.6	11.2	69.5	7.6	26.9	10.5	1.7	163.0

Notes:

(1)Risk parameter changes relate to changes in credit quality metrics of customers and counterparties (such as probability of default and loss given default) as well as internal ratings based model changes relating to counterparty credit risk in line with European Banking Authority Pillar 3 Guidelines.

(2)The movements in Other include the following:

a. RWA benefit of £0.8 billion as a result of the CRR COVID-19 amendment for Infrastructure Supporting Factor.

b. Asset transfers from NatWest Markets to Commercial.

(3)The movement in Acquisitions & Disposals reflected a portfolio sale of non-performing loans in Ulster Bank RoI.

Key points

Total RWAs decreased by £7.3 billion during the period due to the following:

● Credit risk RWAs decreased by £7.4 billion due to repayments and expired facilities of c.£4 billion in Commercial Banking, a reduction of c.£0.8 billion due to improved risk metrics in Retail Banking and reduced exposures in Ulster Bank RoI in line with the current exit strategy. In addition, favourable foreign exchange movements resulted in further reductions.

● Operational risk RWAs reduced by £0.9 billion following the annual recalculation in Q1 2021.

● Counterparty credit risk RWAs reduced by £0.5 billion as a result of lower exposures in NatWest Markets.

● The £1.5 billion increase in market risk RWAs mainly reflected an increase in modelled market risk following the announcement of GBP LIBOR cessation in March 2021 as a result of including modelled GBP LIBOR basis risk post 4 January 2022. Regulatory approval has been obtained in July 2021 to update the VaR model and this will remove this impact in Q3 2021.

NatWest Group – Form 6-K Interim Results 2021 77

Risk and capital management

Capital, liquidity and funding risk continued

Funding sources

The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9.

	30 June 2021			31 December 2020
	Short-term	Long-term		Short-term	Long-term
	less than	more than		less than	more than
	1 year	1 year	Total	1 year	1 year	Total
	£m	£m	£m	£m	£m	£m
Bank deposits
Repos	4,261	—	4,261	6,470	—	6,470
Other bank deposits (1)	7,156	2,977	10,133	5,845	8,291	14,136
	11,417	2,977	14,394	12,315	8,291	20,606
Customer deposits
Repos	16,750	—	16,750	5,167	—	5,167
Non-bank financial institutions	56,430	115	56,545	53,475	147	53,622
Personal	221,480	1,042	222,522	208,046	1,183	209,229
Corporate	171,327	70	171,397	163,595	126	163,721
	465,987	1,227	467,214	430,283	1,456	431,739
Trading liabilities (2)
Repos (3)	23,720	—	23,720	19,036	—	19,036
Derivative collateral	17,165	—	17,165	23,229	—	23,229
Other bank customer deposits	920	726	1,646	819	985	1,804
Debt securities in issue - Medium term notes	378	827	1,205	527	881	1,408
	42,183	1,553	43,736	43,611	1,866	45,477
Other financial liabilities
Customer deposits	546	172	718	616	180	796
Debt securities in issue:
Commercial papers and certificates of deposit	7,327	143	7,470	7,086	168	7,254
Medium term notes	6,492	27,605	34,097	4,648	29,078	33,726
Covered bonds	25	2,890	2,915	53	2,967	3,020
Securitisation	—	918	918	—	1,015	1,015
	14,390	31,728	46,118	12,403	33,408	45,811
Subordinated liabilities	1,106	7,590	8,696	365	9,597	9,962
Total funding	535,083	45,075	580,158	498,977	54,618	553,595
Of which: available in resolution (4)	—	28,412	28,412	—	28,823	28,823

Notes:

(1) Includes nil (31 December 2020 – £5.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation and £2.6 billion (31 December 2020 - £2.8 billion) relating to NatWest Group’s participation in central bank financing operations under the European Central Bank’s targeted Long-term financing operations.

(2) Excludes short positions of £32.1 billion (31 December 2020 - £26.8 billion).

(3) Comprises central & other bank repos of £1.3 billion (31 December 2020 - £1.0 billion), other financial institution repos of £20.5 billion (31 December 2020 - £16.0 billion) and other corporate repos of £1.9 billion (31 December 2020 - £2.0 billion).

(4) Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £22.0 billion (31 December 2020 - £20.9 billion) under debt securities in issue (senior MREL) and £6.4 billion (31 December 2020 - £7.9 billion) under subordinated liabilities.

NatWest Group – Form 6-K Interim Results 2021 78

Risk and capital management

Capital, liquidity and funding risk continued

Liquidity portfolio

The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes.

	Liquidity value
	30 June 2021			31 December 2020
	NatWest	NWH	UK DoL	NatWest	NWH	UK DoL
	Group (1)	Group (2)	Sub (3)	Group	Group	Sub
	£m	£m	£m	£m	£m	£m
Cash and balances at central banks	148,904	117,162	111,310	115,820	86,575	86,575
AAA to AA- rated governments	34,639	25,254	24,490	50,901	37,086	35,875
A+ and lower rated governments	38	—	—	79	—	—
Government guaranteed issuers, Public sector entities and
Government sponsored entities	265	265	140	272	272	141
International organisations and multilateral development
banks	3,175	2,247	1,874	3,140	2,579	2,154
LCR level 1 bonds	38,117	27,766	26,504	54,392	39,937	38,170
LCR level 1 assets	187,021	144,928	137,814	170,212	126,512	124,745
LCR level 2 assets	116	—	—	124	—	—
Non-LCR eligible assets	—	—	—	—	—	—
Primary liquidity	187,137	144,928	137,814	170,336	126,512	124,745
Secondary liquidity (4)	89,909	89,685	86,445	91,985	91,761	88,774
Total liquidity value	277,046	234,613	224,259	262,321	218,273	213,519

Notes:

(1)NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(2)NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(3)UK DoLSub comprises NatWest Group’s four licensed deposit-taking UK banks within the ring-fenced bank: NWB Plc, RBS plc, Coutts & Company and Ulster Bank Limited.

(4)Comprises assets eligible for discounting at the Bank of England and other central banks.

(5)NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement.

(6)Following a change in methodology in our internal stressed outflow coverage metric, cash placed at Central Bank of Ireland within UBIDAC is now reported in the liquidity portfolio.

NatWest Group – Form 6-K Interim Results 2021 79

Risk and capital management

Non-traded market risk

Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates.

Key developments

· The global economy showed progression towards recovery in H1 2021 as COVID-19 vaccination programmes gathered pace and economies opened up. Market concerns turned to the impact of central bank actions in supporting recovery and managing inflation. Yield curves rose higher in anticipation of earlier rises in central bank policy rates and/or action to reduce quantitative easing.

· The five-year sterling swap rate increased to 0.47% at the end of June 2021 from – (0.01)% at the end of December 2020. The ten-year sterling swap rate also increased, to 0.71% from 0.16%.

● The structural hedge notional increased by £21 billion from £169 billion to £190 billion, mainly due to the increase in deposit volumes realised through the pandemic. The structural hedge yield fell over the same period to 0.80% from 1.00% as new hedges were booked at current market rates and maturing hedges were replaced.

· During H1 2021, NatWest Group continued to progress its transition from LIBOR to alternative risk-free rates. Income allocated to sterling product and equity hedges is now almost entirely benchmarked against the SONIA swap rate rather than LIBOR.

· Sterling strengthened against both the US dollar and the euro over the period. Against the dollar, sterling was 1.38 at 30 June 2021 compared to 1.37 at 31 December 2020. Against the euro, it was 0.85 at 30 June 2021 compared to 0.90 at 31 December 2020. Structural foreign currency exposure decreased, in sterling equivalent terms, by £459 million over the period.

Non-traded internal VaR (1-day 99%)

The following table shows one-day internal banking book Value-at-Risk (VaR) at a 99% confidence level, split by risk type.

	Half year ended
	30 June 2021				30 June 2020				31 December 2020
				Period				Period				Period
	Average	Maximum	Minimum	end	Average	Maximum	Minimum	end	Average	Maximum	Minimum	end
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Interest rate	11.7	13.0	9.2	12.8	12.8	16.9	8.0	16.9	15.5	17.7	12.3	12.3
Credit spread	103.6	113.5	99.6	99.6	99.6	121.1	63.7	114.7	106.7	111.7	103.1	111.5
Structural foreign
exchange rate	11.0	12.8	9.2	12.8	11.9	14.7	9.8	14.7	9.6	10.5	9.1	8.9
Equity	11.3	11.7	11.1	11.7	30.6	33.5	25.3	31.6	26.3	35.4	24.9	11.6
Pipeline risk (1)	0.3	0.4	0.3	0.4	0.5	0.7	0.3	0.5	0.4	0.7	0.3	0.3
Diversification (2)	(3.4)	—		(8.5)	(28.6)			(25.8)	(20.3)			4.2
Total	134.5	147.1	128.8	128.8	126.8	159.9	70.8	152.6	138.2	159.9	70.8	148.8

Notes:

(1) Pipeline risk is the risk of loss arising from Personal customers owning an option to draw down a loan – typically a mortgage – at a committed rate, where interest rate changes may result in greater or fewer customers than anticipated taking up the committed offer.

(2) NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

Key points

● Non-traded VaR was broadly constant over H1 2021 compared to the prior period, reflecting a largely stable portfolio.

● The decrease in equity VaR, on an average basis, reflected the disposal of SABB during Q4 2020.

NatWest Group – Form 6-K Interim Results 2021 80

Risk and capital management

Non-traded market risk continued

Structural hedging

NatWest Group has a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity and money transmission accounts. These balances are usually hedged, either by investing directly in longer-term fixed-rate assets (such as fixed-rate mortgages or UK Government gilts) or by using interest rate swaps, which are generally booked as cash flow hedges of floating rate assets, in order to provide a consistent and predictable revenue stream.

After hedging the net interest rate exposure externally, NatWest Group allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution to products and interest rate returns. The programme aims to track a time series of medium-term swap rates, but the yield will be affected by changes in product volumes and NatWest Group’s capital composition.

The table below shows the total income and total yield, incremental income relative to short-term cash rates, and the period-end and average notional balances associated with structural hedges in NatWest Group.

	Half year ended
	30 June 2021					30 June 2020					31 December 2020
			Period					Period					Period
	Incremental	Total	-end	Average	Total	Incremental	Total	-end	Average	Total	Incremental	Total	-end	Average	Total
	income	income	notional	notional	yield	income	income	notional	notional	yield	income	income	notional	notional	yield
	£m	£m	£bn	£bn	%	£m	£m	£bn	£bn	%	£m	£m	£bn	£bn	%
Equity structural
hedging	235	244	23	23	2.13	209	294	24	25	2.39	269	286	23	23	2.46
Product structural
hedging	360	412	146	135	0.61	146	503	114	112	0.90	397	455	125	118	0.77
Other structural
hedging	74	62	21	22	0.56	42	78	20	20	0.78	77	72	21	21	0.69
Total	669	718	190	180	0.80	397	875	158	157	1.12	743	813	169	162	1.00

Equity structural hedges refer to income allocated primarily to equity and reserves. At 30 June 2021, the equity structural hedge notional was allocated between NWH Group and NWM Plc in a ratio of approximately 80/20 respectively.

Product structural hedges refer to income allocated to customer products by NWH Treasury, mainly current accounts and customer deposits in Commercial Banking and UK Retail Banking. Other structural hedges refer to hedges managed by UBIDAC, Private Banking and RBS International. Hedges associated with Ulster Bank Limited were moved from other structural hedges to product hedges in H1 2021 as Ulster Bank Limited products migrated to NatWest Bank Plc.

At 30 June 2021, approximately 93% by notional of total structural hedges were sterling-denominated.

The following table presents the incremental income associated with product structural hedges at segment level.

	Half year ended
	30 June	30 June	31 December
	2021	2020	2020
	£m	£m	£m
Retail Banking	168	66	185
Commercial Banking	192	80	212
Total	360	146	397

Key points

● Expectations of an economic recovery after the pandemic led to rising yield curves. The five-year sterling swap rate rose to 0.47% at 30 June 2021 from (0.01)% at 31 December 2020. The ten-year sterling swap rate also rose, to 0.71% from 0.16%.

● The yield of the structural hedge fell in H1 2021. The hedge notional increased, resulting in new hedges being written at current market rates. Maturing hedges were replaced with new hedges at lower rates.

● Short-term rates fell in 2020 as a result of the COVID-19 pandemic. That led to incremental income increasing in H2 2020, compare to H1, 2020, and remaining high in H1 2021.

● The increase in structural hedge notional mainly resulted from hedging Personal and Commercial deposits, which increased through the pandemic.

NatWest Group – Form 6-K Interim Results 2021 81

Risk and capital management

Non-traded market risk continued

Sensitivity of net interest earnings

Net interest earnings are sensitive to changes in the level of interest rates, mainly because maturing structural hedges are replaced at higher or lower rates and changes to coupons on managed rate customer products do not always match changes in market rates of interest or central bank policy rates.

Earnings sensitivity is derived from a market-implied forward rate curve. A simple scenario is shown that projects forward earnings based on the 30 June 2021 balance sheet, which is assumed to remain constant. A base-case earnings forecast is derived from the market-implied curve, which is then subject to interest rate shocks. The difference between the base-case forecast and the shock gives an indication of underlying sensitivity to interest rate movements.

Reported sensitivities should not be considered a forecast of future performance in these rate scenarios. Actions that could reduce interest earnings sensitivity include changes in pricing strategies on customer loans and deposits as well as hedging. Management action may also be taken to stabilise total income also taking into account non-interest income.

Three-year 25 basis point sensitivity table

The table below shows the sensitivity of net interest earnings – for both structural hedges and managed rate accounts - on a one, two and three-year forward-looking basis to an upward or downward interest rate shift of 25 basis points.

In the upward rate scenario, yield curves were assumed to move in parallel, at both year-ends.

The downward rate scenarios at both 30 June 2021 and 31 December 2020 allow interest rates to fall to negative rates.

	+25 basis points upward shift			-25 basis points downward shift
	Year 1	Year 2 (1)	Year 3 (1)	Year 1	Year 2 (1)	Year 3 (1)
30 June 2021	£m	£m	£m	£m	£m	£m
Structural hedges	39	127	215	(39)	(127)	(215)
Managed margin	414	365	287	(374)	(420)	(395)
Other	(3)			7
Total	450	492	502	(406)	(547)	(610)
31 December 2020
Structural hedges	37	118	199	(37)	(118)	(199)
Managed margin	319	380	387	(258)	(285)	(292)
Other	15			(20)
Total	371	498	586	(315)	(403)	(491)

Note:

(1) The projections for Year 2 and Year 3 consider only the main drivers of earnings sensitivity, namely structural hedging and margin management.

Key points

● Structural hedge sensitivities are affected by structural hedging volumes. Managed margin sensitivities are affected by loan and deposit volumes and by the level of interest rates.

● The higher volume of customer deposits and structural hedging at 30 June 2021 compared to 31 December 2020 was a key driver of changes in sensitivities between the two dates.

● Adverse sensitivity to the 25-basis-point downward scenario was greater at 30 June 2021 than at 31 December 2020. This was mainly because assumptions regarding the extent to which negative rates would be passed through to loans and deposits in this scenario had less impact.

● At 30 June 2021, the higher level of rates in the base case affected estimates of the extent to which base rate rises are passed through to managed rate deposits in upward rate shift scenarios (notably in year 3 of the 25-basis-point upward shift).

One-year 25 and 100 basis point sensitivity table

The following table analyses the one-year scenarios by currency and, in addition, shows the impact over one year of a 100-basis-point upward shift in all interest rates.

	Shifts in yield curve
	30 June 2021			31 December 2020
	+25 basis	-25 basis	+100 basis	+25 basis	-25 basis	+100 basis
	points	points	points	points	points	points
	£m	£m	£m	£m	£m	£m
Euro	6	(11)	97	7	(6)	99
Sterling	405	(358)	1,253	336	(287)	1,109
US dollar	37	(35)	147	26	(22)	102
Other	2	(2)	14	2	—	7
Total	450	(406)	1,511	371	(315)	1,317

NatWest Group – Form 6-K Interim Results 2021 82

Risk and capital management

Non-traded market risk continued

Foreign exchange risk

The table below shows structural foreign currency exposures.

			Structural
	Net		foreign currency		Residual
	investments	Net	exposures		structural
	in foreign	investment	pre-economic	Economic	foreign currency
	operations	hedges	hedges	hedges (1)	exposures
30 June 2021	£m	£m	£m	£m	£m
US dollar	1,291	—	1,291	(1,291)	—
Euro	6,286	(1,022)	5,264	—	5,264
Other non-sterling	996	(331)	665	—	665
Total	8,573	(1,353)	7,220	(1,291)	5,929
31 December 2020
US dollar	1,299	(3)	1,296	(1,296)	—
Euro	6,485	(829)	5,656	—	5,656
Other non-sterling	1,077	(350)	727	—	727
Total	8,861	(1,182)	7,679	(1,296)	6,383

Note:

(1) Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available. Economic hedges of other currency net investments in foreign operations represent monetary liabilities that are not booked as net investment hedges.

Key points

● Sterling strengthened against the US dollar and the euro over the period.

● The increase in euro hedging related to NatWest Bank’s investment in its German branch.

● Changes in foreign currency exchange rates affect equity in proportion to structural foreign currency exposure. For example, a 5% strengthening or weakening in foreign currencies against sterling would result in a gain or loss of £0.4 billion in equity respectively.

NatWest Group – Form 6-K Interim Results 2021 83

Risk and capital management

Traded market risk

Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices.

Traded VaR (1-day 99%)

The table below shows one-day internal value-at-risk (VaR) for NatWest Group’s trading portfolios, split by exposure type.

	Half year ended
	30 June 2021				30 June 2020				31 December 2020
				Period				Period				Period
	Average	Maximum	Minimum	end	Average	Maximum	Minimum	end	Average	Maximum	Minimum	end
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Interest rate	11.3	19.0	4.5	17.4	10.1	20.2	6.1	6.1	7.3	11.4	4.8	6.3
Credit spread	11.0	13.4	9.4	11.2	16.3	27.2	8.7	17.7	14.4	18.8	10.0	10.3
Currency	3.9	9.4	2.0	2.4	4.2	8.4	2.1	3.9	4.1	7.0	2.1	3.0
Equity	0.5	0.8	0.2	0.2	0.8	2.0	0.3	0.3	0.4	0.8	0.2	0.7
Commodity	0.2	0.5	—	—	0.1	0.3	—	0.1	0.2	0.6	—	0.2
Diversification (1)	(13.5)			(15.5)	(14.8)			(9.6)	(10.9)			(10.3)
Total	13.4	23.9	9.5	15.7	16.7	25.7	10.1	18.5	15.5	22.2	10.2	10.2

Note:

(1) NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

Key points

● The increase in average interest rate VaR, compared to the prior period, reflected a rise in tenor basis risk in sterling flow trading. This related to the transition from LIBOR to alternative risk-free rates. The regulator has approved an update of the VaR model, which will remove this impact during Q3 2021.

● The decrease in average credit spread VaR mostly reflected a tightening of credit spreads over the period.

● Traded VaR remained within appetite throughout the period.

NatWest Group – Form 6-K Interim Results 2021 84

Risk and capital management

Other risks

Operational risk

· Management attention focused heavily on operational resilience to ensure that planning, controls and operational activities remained robust and appropriate. There was also continuing focus on the potential operational risks arising from changes in working practices.

· The security threat and the potential for cyber-attacks on NatWest Group and its supply chain is closely monitored. There is continuous enhancement of NatWest Group’s defences against the evolving threat and ongoing focus on assuring the security of the supply chain.

Conduct & compliance risk

· The impact of the pandemic on NatWest Group’s conduct and regulatory compliance risk profiles remained an important area of focus. This included oversight of NatWest Group’s diverse initiatives to support its customers throughout the crisis. While NatWest Group acted to ensure customer needs were met at pace, the associated conduct and compliance risks were carefully assessed and monitored throughout.

· In addition, there was a sustained emphasis on oversight of NatWest Group’s pricing, payment and forbearance treatment strategies to support customers in recent months, as well as prioritising the delivery of mandatory and regulatory change programmes.

· NatWest Group remains committed to ensuring its transition from LIBOR to risk-free rates by the end of 2021 is appropriately managed and controlled to ensure the best outcomes for NatWest Group and its customers.

Climate risk

● A qualitative statement of appetite for climate risk was also approved by NatWest Group Board in April 2021. The appetite statement reflects the ambitions of NatWest Group to support customers while managing the carbon impact and risk exposure of the organisation in line with its commitments.

● Throughout the first half of 2021, NatWest Group continued to develop its data and modelling capability to assess the impact of its customers’ physical and transition risks, and collaborated with a range of industry initiatives to support the wider development of climate risk scenario analysis. Following this work, NatWest Group will undertake the Bank of England’s Climate Biennial Exploratory Scenario during H2 2021.

NatWest Group – Form 6-K Interim Results 2021 85

Condensed consolidated income statement for the period ended 30 June 2021 (unaudited)

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Interest receivable	4,782	5,190
Interest payable	(866)	(1,338)
Net interest income	3,916	3,852
Fees and commissions receivable	1,312	1,430
Fees and commissions payable	(285)	(392)
Income from trading activities	231	802
Other operating income	145	146
Non-interest income	1,403	1,986
Total income	5,319	5,838
Staff costs	(1,902)	(1,955)
Premises and equipment	(502)	(651)
Other administrative expenses	(703)	(696)
Depreciation and amortisation	(414)	(448)
Operating expenses	(3,521)	(3,750)
Profit before impairment releases/(losses)	1,798	2,088
Impairment releases/(losses)	707	(2,858)
Operating profit/(loss) before tax	2,505	(770)
Tax (charge)/credit	(435)	208
Profit/(loss) for the period	2,070	(562)
Attributable to:
Ordinary shareholders	1,842	(705)
Preference shareholders	9	16
Paid-in equity holders	178	192
Non-controlling interests	41	(65)
	2,070	(562)
Earnings per ordinary share	15.6p	(5.8p)
Earnings per ordinary share - fully diluted	15.5p	(5.8p)

NatWest Group – Form 6-K Interim Results 2021 86

Condensed consolidated statement of comprehensive income for the period ended 30 June 2021 (unaudited)

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Profit/(loss) for the period	2,070	(562)
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes (1)	(734)	68
(Loss)/profit on fair value of credit in financial liabilities designated at FVTPL due to own credit risk	(25)	83
FVOCI financial assets	8	(120)
Tax	182	—
	(569)	31
Items that do qualify for reclassification
FVOCI financial assets	(145)	(111)
Cash flow hedges	(365)	417
Currency translation	(288)	575
Tax	65	(179)
	(733)	702
Other comprehensive (loss)/income after tax	(1,302)	733
Total comprehensive income for the period	768	171
Attributable to:
Ordinary shareholders	535	14
Preference shareholders	9	16
Paid-in equity holders	178	192
Non-controlling interests	46	(51)
	768	171

Note:

(1) Following the purchase of ordinary shares from UKGI in March 2021, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)). In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period, are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year.

NatWest Group – Form 6-K Interim Results 2021 87

Condensed consolidated balance sheet as at 30 June 2021 (unaudited)

	30 June	31 December
	2021	2020
	£m	£m
Assets
Cash and balances at central banks	151,511	124,489
Trading assets	70,195	68,990
Derivatives	109,556	166,523
Settlement balances	7,793	2,297
Loans to banks - amortised cost	8,176	6,955
Loans to customers - amortised cost	362,711	360,544
Other financial assets	51,469	55,148
Intangible assets	6,694	6,655
Other assets	7,753	7,890
Total assets	775,858	799,491
Liabilities
Bank deposits	14,394	20,606
Customer deposits	467,214	431,739
Settlement balances	7,119	5,545
Trading liabilities	75,847	72,256
Derivatives	103,992	160,705
Other financial liabilities	46,118	45,811
Subordinated liabilities	8,696	9,962
Notes in circulation	2,906	2,655
Other liabilities	5,687	6,388
Total liabilities	731,973	755,667
Equity
Ordinary shareholders' interests	37,445	38,367
Other owners' interests	6,430	5,493
Owners’ equity	43,875	43,860
Non-controlling interests	10	(36)
Total equity	43,885	43,824
Total liabilities and equity	775,858	799,491

NatWest Group – Form 6-K Interim Results 2021 88

Condensed consolidated statement of changes in equity for the period ended 30 June 2021 (unaudited)

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Called-up share capital - at beginning of period	12,129	12,094
Ordinary shares issued	38	31
Share cancellation (1)	(391)	—
At end of period	11,776	12,125
Paid-in equity - at beginning of period	4,999	4,058
Redeemed/reclassified (2)	—	(1,277)
Securities issued during the period (3)	937	1,220
At end of period	5,936	4,001
Share premium account - at beginning of period	1,111	1,094
Ordinary shares issued	50	16
At end of period	1,161	1,110
Merger reserve - at beginning and end of period	10,881	10,881
FVOCI reserve - at beginning of period	360	138
Unrealised losses	(113)	(123)
Realised gains	(23)	(107)
Tax	15	12
At end of period	239	(80)
Cash flow hedging reserve - at beginning of period	229	35
Amount recognised in equity	(323)	445
Amount transferred from equity to earnings	(42)	(28)
Tax	59	(111)
At end of period	(77)	341
Foreign exchange reserve - at beginning of period	1,608	1,343
Retranslation of net assets	(336)	527
Foreign currency gains/(losses) on hedges of net assets	43	(63)
Tax	(11)	(95)
Recycled to profit or loss on disposal of businesses (4)	—	97
At end of period	1,304	1,809
Capital redemption reserve - at beginning of period	—	—
Share cancellation (1)	390	—
Redemption of preference shares	24	—
At end of period	414	—

Retained earnings - at beginning of period	12,567	13,946
Profit/(loss) attributable to ordinary shareholders and other equity owners	2,029	(497)
Equity preference dividends paid	(9)	(16)
Paid-in equity dividends paid	(178)	(192)
Ordinary dividends paid	(347)	—
Shares repurchased during the year (1)	(748)	—
Redemption of preference shares	(24)	—
Redemption/reclassification of paid-in equity (2)	—	(355)
Realised losses in period on FVOCI equity shares	(1)	(1)
Remeasurement of the retirement benefit schemes (5)
- gross	(734)	68
- tax	182	23
Changes in fair value of credit in financial liabilities designated at fair value through profit or loss
- gross	(25)	83
- tax	2	(8)
Shares issued under employee share schemes	—	(11)
Share-based payments	(82)	(100)
At end of period	12,632	12,940

NatWest Group – Form 6-K Interim Results 2021 89

Condensed consolidated statement of changes in equity for the period ended 30 June 2021 (unaudited) continued

Own shares held - at beginning of period	(24)	(42)
Shares issued under employee share schemes	17	95
Own shares acquired (1)	(384)	(77)
At end of period	(391)	(24)
Owners' equity at end of period	43,875	43,103
Non-controlling interests - at beginning of period	(36)	9
Currency translation adjustments and other movements	5	14
Profit/(loss) attributable to non-controlling interests	41	(65)
At end of period	10	(42)
Total equity at end of period	43,885	43,061
Attributable to:
Ordinary shareholders	37,445	38,608
Preference shareholders	494	494
Paid-in equity holders	5,936	4,001
Non-controlling interests	10	(42)
	43,885	43,061

Notes:

(1) In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI), at 190.5p per share for the total consideration of £1.13 billion. NatWest Group cancelled 391 million of the purchased ordinary shares, amounting to £744 million excluding fees, and held the remaining 200 million in own shares held, amounting to £381 million excluding fees. The nominal value of the share cancellation has been transferred to the capital redemption reserve.

(2) In June 2020, paid-in equity reclassified to liabilities as the result of a call of US$2 billion AT1 notes.

(3) AT1 capital notes totalling US$750 million less fees were issued in June 2021 (£400 million less fees were issued in March 2021). In June 2020, AT1 capital notes totalling US$1.5 billion less fees were issued.

(4) In 2020, the completion of the Alawwal bank merger resulted in the derecognition of the associate investment in Alawwal bank and recognition of a new investment in SABB held at fair value through other comprehensive income (FVOCI).

(5) Following the a purchase of ordinary shares from UKGI in March 2021 which triggered NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million.There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)). In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period, are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year.

NatWest Group – Form 6-K Interim Results 2021 90

Condensed consolidated cash flow statement for the period ended 30 June 2021 (unaudited)

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Operating activities
Operating profit/(loss) before tax	2,505	(770)
Adjustments for non-cash items	2,635	1,271
Net cash flows from trading activities	5,140	501
Changes in operating assets and liabilities	25,745	14,281
Net cash flows from operating activities before tax	30,885	14,782
Income taxes paid	(259)	(231)
Net cash flows from operating activities	30,626	14,551
Net cash flows from investing activities	(790)	2,035
Net cash flows from financing activities	(359)	2,748
Effects of exchange rate changes on cash and cash equivalents	(1,935)	2,752
Net increase in cash and cash equivalents	27,542	22,086
Cash and cash equivalents at beginning of period	139,199	100,588
Cash and cash equivalents at end of period	166,741	122,674

NatWest Group – Form 6-K Interim Results 2021 91

Notes

1. Basis of preparation

The condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and UK adopted IAS 34 ‘Interim Financial Reporting’. They should be read in conjunction with NatWest Group plc’s 2020 Annual Report on Form 20-F which were prepared in accordance with International Financial Reporting Standards in conformity with the requirements of the Companies Act 2006 and with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. NatWest Group plc 2021 Annual Report on Form 20-F will be prepared in accordance with UK adopted with International Financial Reporting Standards.

Going concern

Having reviewed NatWest Group’s forecasts, projections, the potential impact of COVID-19, and other relevant evidence, the directors have a reasonable expectation that NatWest Group will continue in operational existence for a period of not less than twelve months. Accordingly, the results for the period ended 30 June 2021 have been prepared on a going concern basis.

2. Accounting policies

NatWest Group’s principal accounting policies are as set out on pages 263 to 267 of the NatWest Group plc 2020 Annual Report on Form 20-F. Changes to accounting policies from 1 January 2021 had no material effect on NatWest Group plc’s accounts.

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of NatWest Group’s financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgements are referenced on page 267 of the NatWest Group plc 2020 Annual Report on Form 20-F. Estimation uncertainty has been affected by the COVID-19 pandemic. Management’s consideration of this source of uncertainty is outlined in the relevant sections of the NatWest Group plc 2020 Annual Report on Form 20-F, including the ECL estimate for the period in the Risk and capital management section contained in the NatWest Group plc 2020 Annual Report on Form 20-F.

Information used for significant estimates

The COVID-19 pandemic has continued to cause significant economic and social disruption. Key financial estimates are based on a range of anticipated future economic conditions described by internally developed scenarios. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods. Refer to the NatWest Group plc Risk factors section in the 2020 Annual Report on Form 20-F.

NatWest Group – Form 6-K Interim Results 2021 92

3. Analysis of income, expenses and impairment losses

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Loans to customers - amortised cost	4,433	4,698
Loans to banks - amortised cost	217	189
Other financial assets	132	303
Interest receivable	4,782	5,190
Deposits by banks	99	89
Customer deposits	319	432
Other financial liabilities	314	481
Subordinated liabilities	130	218
Internal funding of trading businesses	4	118
Interest payable	866	1,338
Net interest income	3,916	3,852

Net fees and commissions	1,027	1,038
Foreign exchange	183	344
Interest rate	(6)	472
Credit	54	(68)
Own credit adjustment	—	53
Equity, commodities and other	—	1
Income from trading activities	231	802
Loss on redemption of own debt (1)	(138)	—
Operating lease and other rental income	108	119
Changes in fair value of financial assets or liabilities designated at fair value through profit or loss (2)	(4)	(21)
Changes in fair value of other financial assets at fair value through profit or loss	—	(10)
Hedge ineffectiveness	13	(10)
Loss on disposal of amortised assets	(6)	(16)
Profit on disposal of fair value through other comprehensive income assets	24	108
Profit on sale of property, plant and equipment	6	11
Share of profit of associated entities	129	12
Profit/(loss) on disposal of subsidiaries and associates	1	(99)
Other income (3)	12	52
Other operating income	145	146
Total non-interest income	1,403	1,986
Total income	5,319	5,838

Salaries	1,192		1,290
Bonus awards	142		179
Temporary and contract costs	114		148
Social security costs	152		153
Pension costs	177		164
- defined benefit schemes	110		101
- defined contribution schemes	67		63
Other	125		21
Staff costs	1,902		1,955
Premises and equipment (4)	502		651
Depreciation and amortisation (5)	414		448
Other administrative expenses (6)	703		696
Administrative expenses	1,619		1,795
Operating expenses	3,521		3,750
Impairment releases/(losses)	707		(2,858)
Impairments as a % of gross loans to customers	0.38	%	1.59	%

Notes:

(1)     Representing day one loss on redemption of own debt related to the repurchase of legacy instruments.

(2)     Includes related derivatives.

(3)     Includes income from activities other than banking.

(4)    30 June 2021 includes cost of £20 million including accelerated depreciation of £12 million (30 June 2020 - £102 million including £40 million accelerated depreciation) in relation to the planned reduction of the property portfolio (30 June 2021 – freehold £1 million; leasehold £19 million; 30 June 2020 - leasehold £102 million).

(5)    30 June 2021 includes a £23 million charge relating to the reduction in property portfolio, leasehold £19 million and freehold £4 million (30 June 2020 - £43 million charge, leasehold £43 million).

(6)    Includes litigation and conduct costs.

NatWest Group – Form 6-K Interim Results 2021 93

4. Segmental analysis

The business is organised into the following reportable segments: Personal Banking, Private Banking, Commercial Banking, RBS International (RBSI), NatWest Markets, Ulster Bank RoI and Central items & other.

Analysis of operating profit/(loss) before tax

The following tables provide a segmental analysis of operating profit/(loss) before tax by the main income statement captions.

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	other (1)	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Net interest income	1,976	232	1,308	182	(3)	187	34	3,916
Net fees and commissions	173	124	560	59	83	38	(10)	1,027
Other non-interest income	1	12	55	15	215	18	60	376
Total income	2,150	368	1,923	256	295	243	84	5,319
Operating expenses	(1,187)	(249)	(1,152)	(112)	(560)	(261)	—	(3,521)
Impairment releases/(losses)	57	27	568	29	16	11	(1)	707
Operating profit/(loss)	1,020	146	1,339	173	(249)	(7)	83	2,505
Half year ended 30 June 2020
Net interest income	1,982	251	1,370	201	(34)	194	(112)	3,852
Net fees and commissions	204	130	552	43	76	44	(11)	1,038
Other non-interest income	(1)	11	81	15	774	11	57	948
Total income	2,185	392	2,003	259	816	249	(66)	5,838
Operating expenses	(1,075)	(252)	(1,221)	(126)	(707)	(245)	(124)	(3,750)
Impairment losses	(657)	(56)	(1,790)	(46)	(40)	(243)	(26)	(2,858)
Operating profit/(loss)	453	84	(1,008)	87	69	(239)	(216)	(770)

Note:

(1) 30 June 2021 predominantly relates to interest receivable in Treasury and 30 June 2020 predominantly related to interest receivable in Treasury and strategic disposals in Functions.

Total revenue⁽¹⁾

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	Other	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
External	2,667	358	1,861	278	523	275	508	6,470
Inter-segmental	14	60	43	3	17	—	(137)	—
Total	2,681	418	1,904	281	540	275	371	6,470
Half year ended 30 June 2020
External	2,764	358	2,009	269	1,328	277	563	7,568
Inter-segmental	24	99	47	3	4	—	(177)	—
Total	2,788	457	2,056	272	1,332	277	386	7,568

Note:

(1) Total revenue comprises interest receivable, fees and commissions receivable, income from trading activities and other operating income.

NatWest Group – Form 6-K Interim Results 2021 94

Notes

4. Segmental analysis continued

Analysis of net fees and commissions

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items
	Banking	Banking	Banking	International	Markets	RoI	& other	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Fees and commissions receivable
- Payment services	145	16	255	6	10	28	—	460
- Credit and debit card fees	149	4	69	1	—	8	—	231
- Lending and financing	6	4	242	28	34	7	—	321
- Investment management, trustee and fiduciary services	1	113	—	22	—	1	—	137
- Underwriting fees	—	—	—	—	77	—	—	77
- Other	32	19	63	3	25	—	(56)	86
Total	333	156	629	60	146	44	(56)	1,312
Fees and commissions payable	(160)	(32)	(69)	(1)	(63)	(6)	46	(285)
Net fees and commissions	173	124	560	59	83	38	(10)	1,027
Half year ended 30 June 2020
Fees and commissions receivable
- Payment services	129	14	256	9	9	28	—	445
- Credit and debit card fees	144	4	60	1	—	10	—	219
- Lending and financing	37	2	241	15	46	7	—	348
- Investment management, trustee and fiduciary services	1	113	—	17	—	1	—	132
- Underwriting fees	—	—	—	—	124	—	—	124
- Other	34	18	48	2	98	2	(40)	162
Total	345	151	605	44	277	48	(40)	1,430
Fees and commissions payable	(141)	(21)	(53)	(1)	(201)	(4)	29	(392)
Net fees and commissions	204	130	552	43	76	44	(11)	1,038

Total assets and liabilities

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	other	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Assets	204,167	27,686	185,757	36,953	219,447	25,422	76,426	775,858
Liabilities	187,851	34,808	183,837	34,843	206,160	21,872	62,602	731,973
31 December 2020
Assets	197,618	26,206	187,413	33,984	270,147	26,620	57,503	799,491
Liabilities	178,617	32,457	174,251	31,989	254,098	22,993	61,262	755,667

NatWest Group – Form 6-K Interim Results 2021 95

Notes

5. Tax

The actual tax charge differs from the expected tax charge computed by applying the standard UK corporation tax rate of 19% (2020 - 19%), as analysed below:

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Profit/(loss) before tax	2,505	(770)
Expected tax (charge)/credit	(476)	146
Losses and temporary differences in period where no deferred tax assets recognised	(6)	(38)
Foreign profits taxed at other rates	4	(24)
Items not allowed for tax:
- losses on disposals and write-downs	(3)	(14)
- UK bank levy	(11)	(15)
- regulatory and legal actions	3	20
- other disallowable items	(10)	(23)
Non-taxable items	25	68
Taxable foreign exchange movements	—	(2)
Losses bought forward and utilised	6	23
Decrease in the carrying value of deferred tax assets in respect of:
- UK losses	(5)	(56)
- Ireland losses	(35)	(20)
Banking surcharge	(173)	52
Tax on paid-in equity	32	38
UK tax rate change impact	206	75
Adjustments in respect of prior periods	8	(22)
Actual tax (charge)/credit	(435)	208

At 30 June 2021, NatWest Group has recognised a deferred tax asset of £1,150 million (31 December 2020 - £901 million) and a deferred tax liability of £303 million (31 December 2020 - £291 million). These include amounts recognised in respect of UK trading losses of £972 million (31 December 2020 - £862 million). Under UK tax legislation, these UK losses can be carried forward indefinitely. NatWest Group has considered the carrying value of this asset as at 30 June 2021 and concluded that it is recoverable based on future profit projections.

It was announced in the UK Government’s Budget on 3 March 2021 that the main UK corporation tax rate will increase from 19% to 25% from 1 April 2023. This legislative change was enacted on 10 June 2021. NatWest Group’s closing deferred tax assets and liabilities have therefore been recalculated taking into account this change of rate and the applicable period the deferred tax assets and liabilities are expected to crystallise. As a result, the net deferred tax asset position in NatWest Group has increased by £176 million, with a £206 million credit included in the income statement (refer to reconciling item above), and a £30 million charge included in other comprehensive income. There is an ongoing HM Treasury review of the bank surcharge rate to ensure that the combined rate of corporation tax applicable to banking entities remains competitive.

NatWest Group – Form 6-K Interim Results 2021 96

6. Trading assets and liabilities

Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.

	30 June	31 December
	2021	2020
Assets	£m	£m
Loans
Reverse repos	24,718	19,404
Collateral given	12,955	18,760
Other loans	1,154	1,611
Total loans	38,827	39,775
Securities
Central and local government
- UK	5,121	4,184
- US	4,088	5,149
- other	18,347	16,436
Financial institutions and corporate	3,812	3,446
Total securities	31,368	29,215
Total	70,195	68,990
Liabilities
Deposits
Repos	23,720	19,036
Collateral received	17,165	23,229
Other deposits	1,646	1,804
Total deposits	42,531	44,069
Debt securities in issue	1,205	1,408
Short positions	32,111	26,779
Total	75,847	72,256

NatWest Group – Form 6-K Interim Results 2021 97

Notes

7. Financial instruments

Financial instruments: classification

The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments on an IFRS 9 basis. Assets and liabilities outside the scope of IFRS 9 are shown within other assets and other liabilities.

			Amortised	Other
	MFVTPL	FVOCI	cost	assets	Total
Assets	£m	£m	£m	£m	£m
Cash and balances at central banks			151,511		151,511
Trading assets	70,195				70,195
Derivatives (1)	109,556				109,556
Settlement balances			7,793		7,793
Loans to banks - amortised cost (2)			8,176		8,176
Loans to customers - amortised cost (3)			362,711		362,711
Other financial assets	340	42,085	9,044		51,469
Intangible assets				6,694	6,694
Other assets				7,753	7,753
30 June 2021	180,091	42,085	539,235	14,447	775,858
Cash and balances at central banks			124,489		124,489
Trading assets	68,990				68,990
Derivatives (1)	166,523				166,523
Settlement balances			2,297		2,297
Loans to banks - amortised cost (2)			6,955		6,955
Loans to customers - amortised cost (3)			360,544		360,544
Other financial assets	440	44,902	9,806		55,148
Intangible assets				6,655	6,655
Other assets				7,890	7,890
31 December 2020	235,953	44,902	504,091	14,545	799,491

	Held-for-		Amortised	Other
	trading	DFV	cost	liabilities	Total
Liabilities	£m	£m	£m	£m	£m
Bank deposits (4)			14,394		14,394
Customer deposits			467,214		467,214
Settlement balances			7,119		7,119
Trading liabilities	75,847				75,847
Derivatives (1)	103,992				103,992
Other financial liabilities		1,961	44,157		46,118
Subordinated liabilities		744	7,952		8,696
Notes in circulation			2,906		2,906
Other liabilities (5)			1,818	3,869	5,687
30 June 2021	179,839	2,705	545,560	3,869	731,973
Bank deposits (4)			20,606		20,606
Customer deposits			431,739		431,739
Settlement balances			5,545		5,545
Trading liabilities	72,256				72,256
Derivatives (1)	160,705				160,705
Other financial liabilities		2,403	43,408		45,811
Subordinated liabilities		793	9,169		9,962
Notes in circulation			2,655		2,655
Other liabilities (5)			1,882	4,506	6,388
31 December 2020	232,961	3,196	515,004	4,506	755,667

Notes:

(1) Includes net hedging derivatives assets of £42 million (31 December 2020 - £93 million) and net hedging derivatives liabilities of £136 million (31 December 2020 - £130 million).

(2) Includes items in the course of collection from other banks of £275 million (31 December 2020 - £148 million).

(3) Includes finance lease receivables of £8,765 million (31 December 2020 - £9,061 million).

(4) Includes items in the course of transmission to other banks of £92 million (31 December 2020 - £12 million).

(5) Includes lease liabilities of £1,652 million (31 December 2020 - £1,698 million).

NatWest Group – Form 6-K Interim Results 2021 98

Notes

7. Financial instruments continued

NatWest Group's financial assets and liabilities include:

	30 June	31 December
	2021	2020
	£m	£m
Reverse repos
Trading assets	24,718	19,404
Loans to banks - amortised cost	382	153
Loans to customers - amortised cost	22,706	25,011
Repos
Bank deposits	4,261	6,470
Customer deposits	16,751	5,167
Trading liabilities	23,720	19,036

Interest rate benchmark reform

NatWest Group continues to implement its entity-wide IBOR reform programme with the aim of being ready for the various transition events which are expected to occur prior to the cessation of the vast majority of the IBOR benchmark rates at the end of 2021 and of the USD IBOR in 2023.

NatWest Group continues to develop new products across its different segments that reference the new alternative risk-free rates and continues to work with customers to assess their readiness and ability to adopt new products, transition existing products or take the necessary steps to ensure that products can transition at IBOR cessation. A comprehensive review of the effect of IBOR reform on funding, liquidity and risk management has also been conducted and NatWest Group will continue to adapt its key systems, methodologies and processes to meet the requirements of the new risk-free rates. This is expected to be fully implemented over the course of 2021 and by June 2023 for USD IBOR.

NatWest Group expects that the vast majority of non-derivative instruments will transition in H2 2021 or the first reset date of the interest rate after cessation via renegotiation with clients or fallback provisions. Derivatives that are subject to clearing are expected to transition in line with the relevant clearing house transition approaches while other derivatives are expected to transition using the ISDA fallback protocol.

NatWest Group also remains engaged with regulators, standard setters and other market participants on key matters related to the IBOR reform. It is expected that the programme will meet all timelines set by the regulators.

NatWest Group – Form 6-K Interim Results 2021 99

Notes

7. Financial instruments continued

Financial instruments - valuation hierarchy

Disclosures relating to the control environment, valuation techniques and related aspects pertaining to financial instruments measured at fair value are included in the NatWest Group plc 2020 Annual Report on Form 20-F. Valuation, sensitivity methodologies and inputs at 30 June 2021 are consistent with those described in Note 12 to the NatWest Group plc 2020 Annual Report on Form 20-F.

The tables below show financial instruments carried at fair value on the balance sheet by valuation hierarchy - level 1, level 2 and level 3 and valuation sensitivities for level 3 balances.

	30 June 2021				31 December 2020
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Assets
Trading assets
Loans	—	38,664	163	38,827	—	39,550	225	39,775
Securities	22,048	9,205	115	31,368	21,535	7,599	81	29,215
Derivatives	—	108,622	934	109,556	—	165,441	1,082	166,523
Other financial assets
Loans	—	394	588	982	—	185	168	353
Securities	32,422	8,827	194	41,443	35,972	8,850	167	44,989
Total financial assets held at fair value	54,470	165,712	1,994	222,176	57,507	221,625	1,723	280,855
Liabilities
Trading liabilities
Deposits	—	42,528	3	42,531	—	44,062	7	44,069
Debt securities in issue	—	1,205	—	1,205	—	1,408	—	1,408
Short positions	23,659	8,451	1	32,111	19,045	7,734	—	26,779
Derivatives	—	103,311	681	103,992	—	159,818	887	160,705
Other financial liabilities
Debt securities in issue	—	1,243	—	1,243	—	1,607	—	1,607
Other deposits	—	718	—	718	—	796	—	796
Subordinated liabilities	—	744	—	744	—	793	—	793
Total financial liabilities held at fair value	23,659	158,200	685	182,544	19,045	216,218	894	236,157

Notes:

(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. Examples include most government agency securities, investment-grade corporate bonds, certain mortgage products, including CLOs, most bank loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most notes issued, and certain money market securities and 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 cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, certain emerging markets and derivatives with unobservable model inputs.

(2) Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred. There were no significant transfers between level 1 and level 2.

(3) For an analysis of debt securities held at mandatorily fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital management – Credit risk.

(4) The determination of an instrument’s level cannot be made at a global product level as a single product type can be in more than one level. For example, a single name corporate credit default swap could be in level 2 or level 3 depending on whether the reference counterparty’s obligations are liquid or illiquid.

NatWest Group – Form 6-K Interim Results 2021 100

Notes

7. Financial instruments continued

Financial instruments: sensitivity analysis

	30 June 2021			31 December 2020
	Level 3	Favourable	Unfavourable	Level 3	Favourable	Unfavourable
	£m	£m	£m	£m	£m	£m
Assets
Trading assets
Loans	163	10	—	225	10	—
Securities	115	10	—	81	—	—
Derivatives	934	60	(70)	1,082	80	(80)
Other financial assets
Loans	588	30	(50)	168	20	(10)
Securities	194	30	(20)	167	30	(20)
Total financial assets held at fair value	1,994	140	(140)	1,723	140	(110)
Liabilities
Trading liabilities
Deposits	3	—	—	7	—	—
Short Positions	1	—	—	—	—	—
Derivatives	681	40	(40)	887	50	(40)
Total financial liabilities held at fair value	685	40	(40)	894	50	(40)

Reasonably plausible alternative assumptions of unobservable inputs are determined based on a specified target level of certainty of 90%. The assessments recognise different favourable and unfavourable valuation movements where appropriate. Each unobservable input within a product is considered separately and sensitivity is reported on an additive basis.

Alternative assumptions are determined with reference to all available evidence including consideration of the following: quality of independent pricing information taking into account consistency between different sources, variation over time, perceived tradability or otherwise of available quotes; consensus service dispersion ranges; volume of trading activity and market bias (e.g. one-way inventory); day 1 profit or loss arising on new trades; number and nature of market participants; market conditions; modelling consistency in the market; size and nature of risk; length of holding of position; and market intelligence.

Movement in level 3 portfolios

The following table shows the movement in level 3 assets and liabilities.

	Half year ended 30 June 2021				Half year ended 30 June 2020
		Other				Other
	Trading	financial	Total	Total	Trading	financial	Total	Total
	assets (1)	assets (2)	assets	liabilities	assets (1)	assets (2)	assets	liabilities
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	1,388	335	1,723	894	2,233	321	2,554	1,317
Amount recorded in the income statement (3)	(125)	3	(122)	(98)	313	(1)	312	97
Amount recorded in the statement of comprehensive income	—	17	17	—	—	62	62	—
Level 3 transfers in	42	428	470	15	133	207	340	6
Level 3 transfers out	(68)	—	(68)	(116)	(101)	—	(101)	(337)
Purchases	168	10	178	114	366	10	376	100
Settlements	(36)	(4)	(40)	(15)	(113)	—	(113)	(14)
Sales	(156)	(4)	(160)	(107)	(933)	(1)	(934)	(164)
Foreign exchange and other adjustments	(1)	(3)	(4)	(2)	5	8	13	3
At 30 June	1,212	782	1,994	685	1,903	606	2,509	1,008
Amounts recorded in the income statement in respect of balances held at year end - unrealised	(125)	3	(122)	(98)	313	(1)	312	97

Notes:

(1) Trading assets comprise assets held at fair value in trading portfolios.

(2) Other financial assets comprise fair value through other comprehensive income, designated at fair value through profit or loss and other fair value through profit or loss.Movement in the period primarily reflects increase in loan positions classified as HTC&S under IFRS 9 and fair valued through other comprehensive income.

(3) £27 million net losses on trading assets and liabilities (30 June 2020 - £215 million net gains) were recorded in income from trading activities. Net gains on other instruments of £3 million (30 June 2020 - nil gains) were recorded in other operating income and interest income as appropriate.

NatWest Group – Form 6-K Interim Results 2021 101

Notes

7. Financial instruments continued

Valuation reserves

When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, funding and credit risk. These adjustments are presented in the table below:

	30 June	31 December
	2021	2020
	£m	£m
Funding - FVA	79	140
Credit - CVA	385	390
Bid - Offer	108	148
Product and deal specific	163	172
	735	850

● Valuation reserves comprising of credit valuation adjustments (CVA), funding valuation adjustment (FVA), bid-offer and product and deal specific reserves, decreased to £735 million at 30 June 2021 (31 December 2020 – £850 million).

● There was a reallocation of FVA to CVA during the period following an update to the risk management of certain exposures.

● The net decrease across CVA, FVA and bid-offer reserves was driven by reduced exposures, due to increases in interest rates and trade exit activity, and reduced risk.

NatWest Group – Form 6-K Interim Results 2021 102

Notes

7. Financial instruments continued

Financial instruments: fair value of financial instruments measured at amortised cost

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 value hierarchy level
	carrying value	value	Fair value	Level 1	Level 2	Level 3
30 June 2021	£bn	£bn	£bn	£bn	£bn	£bn
Financial assets
Cash and balances at central banks	151.5
Settlement balances	7.8
Loans to banks	0.3	7.9	7.9		5.0	2.9
Loans to customers		362.7	359.8		25.3	334.5
Other financial assets
Securities		9.0	9.1	5.4	0.9	2.8
Financial liabilities
Bank deposits	5.9	8.5	8.5		3.7	4.8
Customer deposits	388.1	79.1	79.1		20.7	58.4
Settlement balances	7.1
Other financial liabilities
Debt securities in issue		44.2	45.3	—	34.9	10.4
Subordinated liabilities		8.0	8.5	—	8.4	0.1
Notes in circulation	2.9
31 December 2020
Financial assets
Cash and balances at central banks	124.5
Settlement balances	2.3
Loans to banks	0.1	6.9	6.9	—	3.8	3.1
Loans to customers		360.5	359.2	—	25.2	334.0
Other financial assets
Securities		9.8	10.1	5.9	1.2	3.0
Financial liabilities
Bank deposits	4.4	16.2	16.2	—	11.3	4.9
Customer deposits	371.7	60.0	60.1	—	10.1	50.0
Settlement balances	5.5
Other financial liabilities
Debt securities in issue		43.4	44.6	—	34.7	9.9
Subordinated liabilities		9.2	9.8	—	9.7	0.1
Notes in circulation	2.7

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Quoted market values are used where available; otherwise, fair values have been estimated based on discounted expected future cash flows and other valuation techniques. These techniques involve uncertainties and require assumptions and judgments covering prepayments, credit risk and discount rates. Furthermore, there is a wide range of potential valuation techniques. Changes in these assumptions would affect estimated fair values. The fair values reported would not necessarily be realised in an immediate sale or settlement.

NatWest Group – Form 6-K Interim Results 2021 103

8. Provisions for liabilities and charges

		Litigation and		Financial
	Customer	other		commitments
	redress (1)	regulatory	Property	and guarantees	Other (2)	Total
	£m	£m	£m	£m	£m	£m
At 1 January	749	365	270	179	289	1,852
Expected credit losses impairment charge	—	—	—	6	—	6
Currency translation and other movements	(3)	(5)	—	(1)	(2)	(11)
Charge to income statement	17	8	13	—	60	98
Release to income statement	(4)	(10)	(8)	—	(9)	(31)
Provisions utilised	(222)	(11)	(10)	—	(55)	(298)
At 31 March	537	347	265	184	283	1,616
Expected credit losses impairment release	—	—	—	(18)	—	(18)
Currency translation and other movements	—	—	1	—	(8)	(7)
Charge to income statement	32	1	22	—	42	97
Release to income statement	(7)	(68)	(20)	—	(10)	(105)
Provisions utilised	(87)	(20)	(8)	—	(62)	(177)
At 30 June	475	260	260	166	245	1,406

Notes:

(1) Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.

(2) 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 2020 final dividend was approved by shareholders at the Annual General Meeting on 28 April 2021 and the payment made on 4 May 2021 to shareholders on the register at the close of business on 26 March 2021. NatWest Group plc announces an interim dividend for 2021 of £347 million, or 3p per ordinary share. The interim dividend will be paid on 17 September 2021 to shareholders on the register at close of business on 13 August 2021. The ex-dividend date will be 12 August 2021.

NatWest Group – Form 6-K Interim Results 2021 104

10. Loan impairment provisions

Loan exposure and impairment metrics

The table below summarises loans and related credit impairment measures on an IFRS 9 basis.

	30 June	31 December
	2021	2020
	£m	£m
Loans - amortised cost and FVOCI
Stage 1	316,701	287,124
Stage 2	53,188	78,917
Stage 3	5,703	6,358
Of which: individual	1,851	2,292
Of which: collective	3,852	4,066
	375,592	372,399
ECL provisions (1)
Stage 1	433	519
Stage 2	2,300	3,081
Stage 3	2,192	2,586
Of which: individual	560	831
Of which: collective	1,632	1,755
	4,925	6,186
ECL provisions coverage (2, 3)
Stage 1 (%)	0.14	0.18
Stage 2 (%)	4.32	3.90
Stage 3 (%)	38.44	40.67
	1.31	1.66
	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Impairment losses
ECL (release)/charge (4)	(707)	2,858
Stage 1	(701)	308
Stage 2	(100)	2,150
Stage 3	94	400
Of which: individual	(25)	131
Of which: collective	119	269
ECL loss rate - annualised (basis points) (3)	(38)	154
Amounts written off	517	408
Of which: individual	256	41
Of which: collective	261	367

Notes:

(1)     Includes £6 million (31 December 2020 - £6 million) related to assets classified as FVOCI.

(2)     ECL provisions coverage is calculated as ECL provisions divided by loans.

(3)     ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans. The half year ECL charge is annualised by multiplying by two.

(4)     Includes a £4 million charge (30 June 2020 – £5 million charge) related to other financial assets, of which nil (30 June 2020 – £4 million) related to assets classified as FVOCI; and £2 million (30 June 2020 - £8 million) related to contingent liabilities.

(5)     The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 33 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £150.5 billion (31 December 2020 – £122.7 billion) and debt securities of £49.8 billion (31 December 2020 – £53.8 billion).

Notes

11. 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 2021. Although NatWest Group is exposed to credit risk in the event of a customer’s failure to meet its obligations, the amounts shown do not, and are not intended to, provide any indication of NatWest Group’s expectation of future losses.

	30 June	31 December
	2021	2020
	£m	£m
Guarantees	2,005	2,244
Other contingent liabilities	2,117	2,321
Standby facilities, credit lines and other commitments	119,387	124,167
Contingent liabilities and commitments	123,509	128,732

Contingent liabilities arise in the normal course of NatWest Group's business; credit exposure is subject to the bank’s normal controls.

NatWest Group – Form 6-K Interim Results 2021 105

12.Litigation and regulatory matters

NatWest Group plc and certain members of NatWest 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.

NatWest 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 NatWest 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. NatWest 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 NatWest 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 NatWest 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.

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 NatWest Group has recognised. Where (and as far as) liability cannot be reasonably estimated, no provision has been recognised. NatWest 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.

For a discussion of certain risks associated with NatWest Group’s litigation and regulatory matters (including investigations and customer redress programmes), see the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 363 of NatWest Group plc’s 2020 Annual Report on Form 20-F.

Litigation

Residential mortgage-backed securities (RMBS) litigation in the US

NatWest Group companies continue to defend RMBS-related claims in the US in which plaintiffs allege that certain disclosures made in connection with the relevant offerings of RMBS contained materially false or misleading statements and/or omissions regarding the underwriting standards pursuant to which the mortgage loans underlying the RMBS were issued. The remaining RMBS lawsuits against NatWest Group companies consist of cases filed by the Federal Deposit Insurance Corporation and the State of New Mexico that together involve the issuance of less than US$400 million of RMBS issued primarily from 2005 to 2007. In addition, NWMSI previously agreed to settle a purported RMBS class action entitled New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et al. for US$55.3 million. This was paid into escrow pending court approval of the settlement, which was granted in March 2019, but which is now the subject of an appeal by a class member who does not want to participate in the settlement.

London Interbank Offered Rate (LIBOR) and other rates litigation

NWM Plc and certain other members of NatWest Group, including NatWest Group plc, are defendants in a number of class actions and individual claims pending in the United States District Court for the Southern District of New York (SDNY) with respect to the setting of LIBOR and certain other benchmark interest rates. The complaints allege that certain members of NatWest Group and other panel banks violated various federal laws, including the US commodities and antitrust laws, and state statutory and common law, as well as contracts, by manipulating LIBOR and prices of LIBOR-based derivatives in various markets through various means.

Several class actions relating to USD LIBOR, as well as more than two dozen non-class actions concerning USD LIBOR, are part of a co-ordinated proceeding in the SDNY. In December 2016, the SDNY held that it lacks personal jurisdiction over NWM Plc with respect to certain claims. As a result of that and other decisions, all NatWest Group companies have been dismissed from each of the USD LIBOR-related class actions (including class actions on behalf of over-the-counter plaintiffs, exchange-based purchaser plaintiffs, bondholder plaintiffs, and lender plaintiffs), but seven non-class cases in the co-ordinated proceeding remain pending against NatWest Group defendants. The dismissal of NatWest Group companies for lack of personal jurisdiction is the subject of a pending appeal to the United States Court of Appeals for the Second Circuit. In March 2020, NatWest Group companies finalised a settlement resolving the class action on behalf of bondholder plaintiffs (those who held bonds issued by non-defendants on which interest was paid from 2007 to 2010 at a rate expressly tied to USD LIBOR). The amount of the settlement (which was covered by an existing provision) has been paid into escrow pending court approval of the settlement.

NatWest Group – Form 6-K Interim Results 2021 106

Notes

12. Litigation and regulatory matters continued

Among the non-class claims dismissed by the SDNY in December 2016 were claims that the Federal Deposit Insurance Corporation (FDIC) had asserted on behalf of certain failed US banks. In July 2017, the FDIC, on behalf of 39 failed US banks, commenced substantially similar claims against NatWest Group companies and others in the High Court of Justice of England and Wales. The action alleges that the defendants breached English and European competition law, as well as asserting common law claims of fraud under US law.

In addition, there are two class actions relating to JPY LIBOR and Euroyen TIBOR. The first class action, which relates to Euroyen TIBOR futures contracts, was dismissed by the SDNY in September 2020 on legal grounds, and the plaintiffs have commenced an appeal to the United States Court of Appeals for the Second Circuit. The second class action, which relates to other derivatives allegedly tied to JPY LIBOR and Euroyen TIBOR, is the subject of a motion to dismiss that remains pending in the SDNY.

In addition to the above, five other class action complaints were filed against NatWest Group companies in the SDNY, each relating to a different reference rate. The SDNY dismissed all claims against NWM Plc in the case relating to Euribor for lack of personal jurisdiction in February 2017. The SDNY also dismissed, for various reasons, the case relating to Pound Sterling LIBOR in August 2019, the case relating to Swiss Franc LIBOR in September 2019, and the case relating to the Singapore Interbank Offered Rate and Singapore Swap Offer Rate (‘SIBOR / SOR’) in July 2019. Plaintiffs appealed each of these four dismissals to the United States Court of Appeals for the Second Circuit. The appeals in the Euribor, Pound Sterling LIBOR and Swiss Franc LIBOR cases remain pending, but in June 2021, NWM Plc and the plaintiffs in the Swiss Franc LIBOR class action finalised a settlement resolving that case. The amount of the settlement (which was covered by an existing provision) has been paid into escrow pending court approval of the settlement. The appeal in the SIBOR / SOR case was decided on 17 March 2021, when the United States Court of Appeals for the Second Circuit reversed the SDNY’s prior dismissal, such that the case will now return to the SDNY. In the fifth class action, which relates to the Australian Bank Bill Swap Reference Rate, the SDNY in February 2020 declined to dismiss the amended complaint as against NWM Plc and certain other defendants, but dismissed it as to other members of NatWest Group (including NatWest Group plc). The claims against non-dismissed defendants (including NWM Plc) are now proceeding in discovery.

NWM Plc was also named as a defendant in a motion to certify a class action relating to LIBOR in the Tel Aviv District Court in Israel. NWM Plc filed a motion for cancellation of service, which was granted in July 2020. The claimants appealed that decision and in November 2020 the appeal was refused and the claim dismissed by the Appellate Court. The claim could in future be recommenced depending on the outcome of a separate case under appeal to Israel’s Supreme Court.

In January 2019, a class action antitrust complaint was filed in the SDNY alleging that the defendants (USD ICE LIBOR panel banks and affiliates) have conspired to suppress USD ICE LIBOR from 2014 to the present by submitting incorrect information to ICE about their borrowing costs. The NatWest Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The defendants made a motion to dismiss this case, which was granted by the court in March 2020. Plaintiffs’ appeal of the dismissal is pending in the United States Court of Appeals for the Second Circuit.

In August 2020, a complaint was filed in the United States District Court for the Northern District of California by several United States consumer borrowers against the USD ICE LIBOR panel banks and their affiliates, alleging that the normal process of setting USD ICE LIBOR amounts to illegal price-fixing, and also that banks in the United States have illegally agreed to use LIBOR as a component of price in variable consumer loans. The NatWest Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The plaintiffs seek damages and to prevent the enforcement of LIBOR-based instruments through injunction. Defendants intend to seek dismissal.

NatWest Group – Form 6-K Interim Results 2021 107

Notes

12. Litigation and regulatory matters continued

FX litigation

NWM Plc, NWMSI and / or NatWest Group plc are defendants in several cases relating to NWM Plc’s foreign exchange (FX) business. In 2015, NWM Plc paid US$255 million to settle the consolidated antitrust class action filed in the SDNY on behalf of persons who entered into over-the-counter FX transactions with defendants or who traded FX instruments on exchanges. In 2018, some members of the settlement class who opted out of that class action settlement filed their own non-class complaint in the SDNY asserting antitrust claims against NWM Plc, NWMSI and other banks. Those opt-out claims are proceeding in discovery.

In April 2019, some of the same claimants in the opt-out case described above, as well as others, served proceedings (which are ongoing) in the High Court of Justice of England and Wales, asserting competition claims against NWM Plc and several other banks.

An FX-related class action, on behalf of ‘consumers and end-user businesses’, is proceeding in the SDNY against NWM Plc and others. Plaintiffs have filed a motion for class certification, which defendants are opposing.

In May 2019, a cartel class action was filed in the Federal Court of Australia against NWM Plc and four other banks on behalf of persons who bought or sold currency through FX spots or forwards between 1 January 2008 and 15 October 2013 with a total transaction value exceeding AUD $0.5 million. The claimant has alleged that the banks, including NWM Plc, contravened Australian competition law by sharing information, coordinating conduct, widening spreads and manipulating FX rates for certain currency pairs during this period. NatWest Group plc has been named in the action as an ‘other cartel participant’, but is not a respondent. The claim was served in June 2019. The claimant sought permission to amend its claim to strengthen its claim of alleged breaches of competition law, but this was refused by the court in the form sought by the claimant. The claimant is now seeking a further opportunity to amend its claim, which is being opposed by NWM Plc and the other respondents.

In July and December 2019, two separate applications seeking opt-out collective proceedings orders were filed in the UK Competition Appeal Tribunal against NatWest Group plc, NWM Plc and other banks. Both applications have been brought on behalf of persons who, between 18 December 2007 and 31 January 2013, entered into a relevant FX spot or outright forward transaction in the EEA with a relevant financial institution or on an electronic communications network. A hearing to determine class certification and which of the applications should be permitted to represent the class took place in July 2021 and judgment is awaited.

In November 2020, proceedings were issued in the High Court of Justice of England and Wales against NWM Plc by a claimant who seeks an account of profits and/or damages in respect of alleged historical FX trading misconduct. The claimant has also issued similar proceedings against a number of other banks. The claim against NWM Plc makes allegations of breaches of contract, fiduciary duties, duties of confidence and other matters. The claim was served on NWM Plc in March 2021.

Two motions to certify FX-related class actions were filed in the Tel Aviv District Court in Israel in September and October 2018, and were subsequently consolidated into one motion. The consolidated motion, which names The Royal Bank of Scotland plc (now NWM Plc) as the defendant, was served on NWM Plc in May 2020. NWM Plc has filed a motion for cancellation of service outside the jurisdiction, which remains pending.

Certain other foreign exchange transaction related claims have been or may be threatened. NatWest Group cannot predict whether all or any of these claims will be pursued.

Government securities antitrust litigation

NWMSI and certain other US broker-dealers are defendants in a consolidated antitrust class action pending in the SDNY on behalf of persons who transacted in US Treasury securities or derivatives based on such instruments, including futures and options. The plaintiffs allege that defendants rigged the US Treasury securities auction bidding process to deflate prices at which they bought such securities and colluded to increase the prices at which they sold such securities to plaintiffs. The complaint was dismissed in March 2021. Plaintiffs have filed an amended complaint, which defendants will again seek to have dismissed.

NatWest Group – Form 6-K Interim Results 2021 108

Notes

12. Litigation and regulatory matters continued

Class action antitrust claims commenced in March 2019 are pending in the SDNY against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds issued by European central banks (EGBs). The complaint alleges a conspiracy among dealers of EGBs to widen the bid-ask spreads they quoted to customers, thereby increasing the prices customers paid for the EGBs or decreasing the prices at which customers sold the bonds. The class consists of those who purchased or sold EGBs in the US between 2007 and 2012. The defendants filed a motion to dismiss this matter, which was granted by the court in respect of NWM Plc and NWMSI in July 2020. Plaintiffs have filed an amended complaint which defendants are seeking to have dismissed.

Swaps antitrust litigation

NWM Plc and other members of NatWest Group , including NatWest Group plc, as well as a number of other interest rate swap dealers, are defendants in several cases pending in the SDNY alleging violations of the US antitrust laws in the market for interest rate swaps. There is a consolidated class action complaint on behalf of persons who entered into interest rate swaps with the defendants, as well as non-class action claims by three swap execution facilities (TeraExchange, Javelin, and trueEx). The plaintiffs allege that the swap execution facilities would have successfully established exchange-like trading of interest rate swaps if the defendants had not unlawfully conspired to prevent that from happening through boycotts and other means. Discovery in these cases is complete, and the plaintiffs' motion for class certification remains pending.

In addition, in June 2017, TeraExchange filed a complaint against NatWest Group companies, including NatWest Group plc, as well as a number of other credit default swap dealers, in the SDNY. TeraExchange alleges it would have established exchange-like trading of credit default swaps if the defendant dealers had not engaged in an unlawful antitrust conspiracy. In October 2018, the court dismissed all claims against NatWest Group companies.

On 30 June 2021, a class action antitrust complaint was filed against a number of credit default swap dealers in New Mexico federal court on behalf of persons who, from 2005 onwards, settled credit default swaps in the United States by reference to the ISDA credit default swap auction protocol. The complaint alleges that the defendants conspired to manipulate that benchmark through various means in violation of the antitrust laws and the Commodity Exchange Act. The defendants include several NatWest Group companies, including NatWest Group plc.

Odd lot corporate bond trading antitrust litigation

NWMSI is the subject of a class action antitrust complaint filed in the SDNY against NWMSI and several other securities dealers. The complaint alleges that, from August 2006 to the present, the defendants conspired artificially to widen spreads for odd lots of corporate bonds bought or sold in the United States secondary market and to boycott electronic trading platforms that would have allegedly promoted pricing competition in the market for such bonds. Defendants filed a motion to dismiss the operative complaint in this matter in December 2020.

Madoff

NWM N.V. is a defendant in two actions filed by Irving Picard, as trustee for the bankruptcy estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, in bankruptcy court in New York. In both cases, the trustee alleges that certain transfers received by NWM N.V. amounted to fraudulent conveyances that should be clawed back for the benefit of the Madoff estate.

In the primary action, filed in December 2010, the trustee is seeking to clawback a total of US$276.3 million in redemptions that NWM N.V. allegedly received from certain Madoff feeder funds and certain swap counterparties. In March 2020, the bankruptcy court denied the trustee’s request for leave to amend its complaint to include additional allegations against NWM N.V., holding that, even with the proposed amendments, the complaint would fail as a matter of law to state a valid claim against NWM N.V. The trustee has commenced an appeal of the bankruptcy court’s decision, which has been stayed pending the result of appeals in different proceedings, against different defendants, that involve similar issues. In the second action, filed in October 2011, the trustee seeks to recover an additional US$21.8 million. This action has been stayed pending the result of the appeal in the primary action.

Interest rate hedging products and similar litigation

NatWest Group continues to deal with a small number of active litigation claims in the UK relating to the alleged mis-selling of interest rate hedging products.

Separately, NWM Plc is defending claims filed in France by two French local authorities relating to structured interest rate swaps. The plaintiffs allege, among other things, that the swaps are void for being illegal transactions, that they were mis-sold, and that information / advisory duties were breached. One of the claims has been appealed to the Supreme Court and judgment is awaited. The other has been remitted from the Supreme Court to the Court of Appeal for reconsideration of one aspect. NWM N.V. was a defendant in the latter case but has been dismissed from the proceedings.

EUA trading litigation

HMRC issued a tax assessment in 2012 against NatWest Group plc for approximately £86 million regarding a value-added-tax (VAT) matter in relation to the trading of European Union Allowances (EUAs) by the subsidiary of a joint venture partnership in 2009. NatWest Group plc lodged an appeal challenging the assessment before the First-tier Tribunal (Tax), a specialist tax tribunal, (the ‘Tax Dispute’). The matter was resolved in July 2021.

NatWest Group – Form 6-K Interim Results 2021 109

Notes

12. Litigation and regulatory matters continued

Separately, NWM Plc was a named defendant in civil proceedings before the High Court of Justice of England and Wales brought in 2015 by ten companies (all in liquidation) (the 'Liquidated Companies') and their respective liquidators (together, 'the Claimants'). The Liquidated Companies previously traded in EUAs in 2009 and were alleged to be defaulting traders within (or otherwise connected to) the EUA supply chains forming the subject of the Tax Dispute. The Claimants claimed approximately £71.4 million plus interest and costs and alleged that NWM Plc dishonestly assisted the directors of the Liquidated Companies in the breach of their statutory duties and/or knowingly participated in the carrying on of the business of the Liquidated Companies with intent to defraud creditors. The trial in that matter concluded in July 2018 and judgment was issued in March 2020. The court held that NWM Plc and Mercuria Energy Europe Trading Limited ('Mercuria') were liable for dishonestly assisting and knowingly being a party to fraudulent trading during a seven business day period in 2009. In October 2020, the High Court quantified damages against NWM Plc at £45 million plus interest and costs, and permitted it to appeal to the Court of Appeal. On 10 May 2021 the Court of Appeal set aside the High Court’s judgment and ordered that a retrial take place before a different High Court judge. The claimants have sought permission from the Supreme Court to appeal. The Court of Appeal also dismissed an appeal by Mercuria against the finding by the High Court that NWM Plc and Mercuria were both vicariously liable. Mercuria has sought permission from the Supreme Court to appeal that decision.

Offshoring VAT assessments

HMRC issued protective tax assessments in 2018 against NatWest Group plc totalling £143 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 the £143 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.

US Anti-Terrorism Act litigation

NWB Plc is a defendant in lawsuits filed in the United States District Court for the Eastern District of New York by a number of US nationals (or their estates, survivors, or heirs) who were victims of terrorist attacks in Israel. The plaintiffs allege that NWB Plc is liable for damages arising from those attacks pursuant to the US Anti-Terrorism Act because NWB Plc previously maintained bank accounts and transferred funds for the Palestine Relief & Development Fund, an organisation which plaintiffs allege solicited funds for Hamas, the alleged perpetrator of the attacks.

In October 2017, the trial court dismissed claims against NWB Plc with respect to two of the 18 terrorist attacks at issue. In March 2018, the trial court granted a request by NWB Plc for leave to file a renewed summary judgment motion in respect of the remaining claims, and in March 2019, the court granted summary judgment in favour of NWB Plc. In April 2021, the United States Court of Appeals for the Second Circuit affirmed the trial court’s judgment in favour of NWB Plc, subject to the right of the plaintiffs to seek discretionary review by the United States Supreme Court.

NWM N.V. and certain other financial institutions are defendants in several actions pending in the United States District Courts for the Eastern and Southern Districts of New York, filed by a number of US nationals (or their estates, survivors, or heirs), most of whom are or were US military personnel, who were killed or injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant in some of these cases.

NatWest Group – Form 6-K Interim Results 2021 110

Notes

12. Litigation and regulatory matters continued

The attacks at issue in the cases were allegedly perpetrated by Hezbollah and certain Iraqi terror cells allegedly funded by the Islamic Republic of Iran. According to the plaintiffs’ allegations, the defendants are liable for damages arising from the attacks because they allegedly conspired with Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells, in violation of the US Anti-Terrorism Act, by agreeing to engage in ‘stripping’ of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected.

The first of these actions was filed in the United States District Court for the Eastern District of New York in November 2014. In September 2019, the district court dismissed the case, finding that the claims were deficient for several reasons, including lack of sufficient allegations as to the alleged conspiracy and causation. The plaintiffs are appealing the decision to the United States Court of Appeals for the Second Circuit. Another action, filed in the SDNY in 2017, was dismissed in March 2019 on similar grounds, but remains subject to appeal to the United States Court of Appeals for the Second Circuit. Other follow-on actions that are substantially similar to the two that have now been dismissed are pending in the same courts.

Securities underwriting litigation

NWMSI is an underwriter defendant in several securities class actions in the US in which plaintiffs generally allege that an issuer of public debt or equity securities, as well as the underwriters of the securities (including NWMSI), are liable to purchasers for misrepresentations and omissions made in connection with the offering of such securities.

1MDB litigation

Recent media reports suggest that a claim for a material sum has recently been issued in Malaysia by 1MDB against Coutts & Co Ltd for alleged losses in connection with the 1MDB fund. Coutts & Co Ltd is a company registered in Switzerland and is in wind-down following the announced sale of its business assets in 2015.

Regulatory matters (including investigations and customer redress programmes)

NatWest Group’s businesses and financial condition can be affected by the actions of various governmental and regulatory authorities in the UK, the US, the EU and elsewhere. NatWest Group has 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.

The NatWest Markets business in particular has been providing, and continues to provide, information regarding a variety of matters, including, for example, offering of securities, the setting of benchmark rates and related derivatives trading, conduct in the foreign exchange market, product mis-selling and various issues relating to the issuance, underwriting, and sales and trading of fixed-income securities, including structured products and government securities, some of which have resulted, and others of which may result, in investigations or proceedings.

NatWest Group – Form 6-K Interim Results 2021 111

Notes

12. Litigation and regulatory matters continued

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 NatWest Group, remediation of systems and controls, public or private censure, restriction of NatWest 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 NatWest 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.

NatWest Group is co-operating fully with the matters described below.

Investigations

US investigations relating to fixed-income securities

In October 2017, NWMSI entered into a non-prosecution agreement (NPA) with the United States Attorney for the District of Connecticut (USAO) in connection with alleged misrepresentations to counterparties relating to secondary trading in various forms of asset-backed securities. In the NPA, the USAO agreed not to file criminal charges relating to certain conduct and information described in the NPA, conditioned on NWMSI and affiliated companies complying with the NPA’s reporting and conduct requirements during its term, including by not engaging in conduct during the NPA that the USAO determines was a felony under federal or state law or a violation of the anti-fraud provisions of the United States securities law.

NatWest Group – Form 6-K Interim Results 2021 112

Notes

12. Litigation and regulatory matters continued

The NatWest Markets business is currently responding to a separate criminal investigation by the USAO and the US Department of Justice (DoJ) concerning unrelated trading by certain NatWest Markets former traders involving alleged spoofing. The NPA (referred to above) has been extended as the criminal investigation has progressed and related discussions with the USAO and the DoJ, including relating to the impact of such alleged conduct on the status of the NPA and the potential consequences thereof, have been ongoing. The duration and outcome of these matters remain uncertain, including in respect of whether settlement may be reached. Material adverse collateral consequences, in addition to further substantial costs and the recognition of further provisions, may occur depending on the outcome of the investigations, as further described in the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 363 of NatWest Group plc’s 2020 Annual Report on Form 20-F.

Foreign exchange related investigations

In recent years, NWM Plc paid significant penalties to resolve investigations into its FX business by the FCA, the Commodity Futures Trading Commission, the DoJ, the Board of Governors of the Federal Reserve System, the European Commission (EC) and others. NWM Plc continues to co-operate with ongoing investigations from competition authorities on similar issues relating to past FX trading. The exact timing and amount of future financial penalties, related risks and collateral consequences remain uncertain and may be material.

EGB investigation

On 20 May 2021, the EC announced that it had adopted a decision in relation to an investigation into potential competition law violations in the primary and secondary market trading of EGBs between 2007 and 2011 which involved the NatWest Markets business and six other banks. NatWest Group revealed the conduct to the EC and co-operated throughout the EC’s investigation. NatWest Group was granted immunity by the EC and was not fined.

FCA investigation into NatWest Group’s compliance with the Money Laundering Regulations 2007

In July 2017, the FCA notified NatWest Group that it was undertaking an investigation into NatWest Group’s compliance with the UK Money Laundering Regulations 2007 (‘MLR 2007’) in relation to certain money service businesses and related parties. The investigation is assessing both criminal and civil culpability. NatWest Group is co-operating with the investigation, including responding to information requests from the FCA.

On 15 March 2021, the FCA notified NatWest Group that it had commenced criminal proceedings against NWB Plc for offences under regulation 45(1) of the MLR 2007 for alleged failures to comply with regulations 8(1), 8(3) and 14(1) of the MLR 2007 between 11 November 2011 and 19 October 2016, arising from the handling of the accounts of a UK incorporated customer. These regulations require the firm to determine, conduct and demonstrate risk sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering. NWB Plc will be required to attend an initial hearing at Westminster Magistrates’ Court on 15 September 2021. Material adverse collateral consequences, in addition to further substantial costs and the recognition of provisions, may occur as a result of any conviction.

Systematic Anti-Money Laundering Programme assessment

In December 2018, the FCA commenced a Systematic Anti-Money Laundering Programme assessment of NatWest Group. In August 2019, the FCA instructed NatWest Group to appoint a Skilled Person under section 166 of the Financial Services and Markets Act 2000 to provide assurance on financial crime governance arrangements in relation to two financial crime change programmes. NatWest Group is co-operating with the Skilled Person’s review, which is ongoing.

FCA mortgages market study

In December 2016, the FCA launched a market study into the provision of mortgages. In March 2019 the final report was published. This found that competition was working well for many customers but also proposed remedies to help customers shop around more easily for mortgages. A period of consultation remains ongoing and the FCA has indicated that it intends to provide updates on the remedies in due course.

Customer redress programmes

FCA review of NatWest Group’s treatment of SMEs

In 2014, the FCA appointed an independent Skilled Person under section 166 of the Financial Services and Markets Act 2000 to review NatWest Group’s treatment of SME customers whose relationship was managed by NatWest Group’s Global Restructuring Group (GRG) in the period 1 January 2008 to 31 December 2013.

In response to the Skilled Person’s final report and update in 2016, NatWest Group announced redress steps for SME customers in the UK and the Republic of Ireland that were in GRG between 2008 and 2013. These steps were (i) an automatic refund of certain complex fees; and (ii) a new complaints process, overseen by an independent third party. The complaints process has since closed to new complaints.

NatWest Group’s remaining provisions in relation to these matters at 30 June 2021 were £22 million.

NatWest Group – Form 6-K Interim Results 2021 113

Notes

12. Litigation and regulatory matters continued

Investment advice review

During 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 now concluded and, after discussion with the FCA, NatWest Group is now conducting additional review / remediation work. NatWest Group recognised an increased provision in relation to these matters at 31 December 2020.

Review and investigation of treatment of tracker mortgage customers in Ulster Bank Ireland DAC

In December 2015, correspondence was received from the CBI setting out an industry examination framework in respect of the sale of tracker mortgages from approximately 2001 until the end of 2015. The redress and compensation phase has concluded, although an appeals process is currently anticipated to run until at least the end of 2021. NatWest Group has made provisions totalling €350 million (£300 million), of which €328 million (£282 million) had been utilised by 30 June 2021 in respect of redress and compensation.

In April 2016, the CBI commenced an investigation into suspected breaches by UBIDAC of specified provisions of the Consumer Protection Code 2006 in its treatment of certain tracker mortgage customers. On 23 March 2021, UBIDAC agreed with the CBI to pay a fine of €37.8 million for breaches of its regulatory obligations in respect of its treatment of tracker mortgage customers. The fine was substantially covered by existing provisions.

UBIDAC previously identified further legacy business issues, as an extension to the tracker mortgage review. These remediation programmes are ongoing. NatWest Group has made provisions of €163 million (£140 million), of which €151 million (£130 million) had been utilised by 30 June 2021 for these programmes.

NatWest Group – Form 6-K Interim Results 2021 114

13. Related party transactions

UK Government

The UK Government and bodies controlled or jointly controlled by the UK Government and bodies over which it has significant influence are related parties of NatWest Group.

NatWest Group’s other transactions with the UK Government include the payment of taxes, principally UK corporation tax and value added tax; national insurance contributions; local authority rates; and regulatory fees and levies (including the bank levy and FSCS levies).

Bank of England facilities

In the ordinary course of business, NatWest 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, NatWest Group companies provide development and other types of capital support to businesses. In some instances, the investment may extend to ownership or control over 20% or more of the voting rights of the investee company. However, these investments are not considered to give rise to transactions of a materiality requiring disclosure under IAS 24.

(b)NatWest Group recharges The NatWest Group Pension Fund with the cost of administration services incurred by it. The amounts involved are not material to NatWest Group.

Full details of NatWest Group’s related party transactions for the year ended 31 December 2020 are included in NatWest Group plc’s 2020 Annual Report on Form 20-F.

14. UBIDAC significant transactions

On 28 June 2021, UBIDAC and NWH entered into a binding agreement with Allied Irish Banks p.l.c. (AIB) for the sale of c.€ 4.2 billion gross performing commercial lending and associated undrawn exposures of c.€ 2.8 billion. Approximately 280 colleagues will transfer from UBIDAC to AIB with the final number of roles confirmed as the deal completes. RWAs in relation to these total balances are estimated at c.€ 4 billion. This transaction is subject to regulatory approvals. On completion, it is estimated that a small gain on disposal will be recognised, based on the net carrying value of the lending as at 31 December 2020. The exact impacts of disposal will depend on movements in the book between now and transfer, the timing of which remains uncertain.

On 23 July 2021, NatWest Group and UBIDAC have entered into a non-binding Memorandum of Understanding (MOU) with Permanent TSB Group Holdings p.l.c. (PTSB) for the proposed sale of a perimeter comprising performing non-tracker mortgages, performing micro-SME loans, UBIDAC's asset finance business and 25 of its branch locations. The TUPE principle will apply to staff wholly or mainly assigned to the agreed in-scope perimeter. The proposed perimeter included approximately € 7.6 billion of gross performing loans as at 31 March 2021, the majority relating to non-tracker mortgages. As part of the consideration for the proposed transaction, it is proposed that NatWest Group would receive a minority non-consolidating equity stake in PTSB. The proposed sale may not be concluded on the terms contemplated in the MoU, or at all. No estimate of any financial effect of the potential transaction can be made at the date of approval of these accounts.

15. Post balance sheet events

NatWest Group has announced plans to commence an ordinary share buy-back programme of up to £750 million in the second half of the year.

Other than as disclosed in this document, there have been no significant events between 30 June 2021 and the date of approval of this announcement which would require a change to, or additional disclosure, in the announcement.

16. Date of approval

This announcement was approved by the Board of Directors on 29 July 2021.

NatWest Group – Form 6-K Interim Results 2021 115

NatWest Group 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 NatWest 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 347 to 366 of its Annual Report on Form 20-F. Any of the risks identified may have a material adverse effect on NatWest Group’s business, operations, financial condition or prospects. The current COVID-19 pandemic may exacerbate any of the risks described below.

Risks relating to the COVID-19 pandemic

· The effects of the COVID-19 pandemic on the UK, global economies and financial markets, and NatWest Group’s customers, as well as its competitive environment may continue to have a material adverse effect on NatWest Group’s business, results of operations and outlook.

· The adverse impact of the COVID-19 pandemic on the credit quality of NatWest Group’s counterparties and the implementation of support schemes in response of the COVID-19 pandemic has increased NatWest Group’s exposure to counterparty risk, which may adversely affect its business, results of operations and outlook.

· The COVID-19 pandemic may adversely affect NatWest Group’s strategy and impair its ability to meet its targets and to achieve its strategic objectives.

· The COVID-19 pandemic has heightened NatWest Group’s operational risks as many of its employees are working remotely which may also adversely affect NatWest Group’s ability to maintain effective internal controls.

· The effects of the COVID-19 pandemic could affect NatWest Group’s ability to access sources of liquidity and funding, which may result in higher funding costs and failure to comply with regulatory capital, funding and leverage requirements.

· NatWest Group’s results could be adversely affected if the effects of the COVID-19 pandemic or other events trigger the recognition of a goodwill impairment.

Economic and political risk

· Continuing uncertainty regarding the effects of the UK’s withdrawal from the European Union may continue to adversely affect NatWest Group and its operating environment.

· NatWest Group faces political and economic risks and uncertainty in the UK and global markets.

· Changes in interest rates have significantly affected and will continue to affect NatWest Group’s business and results.

· HM Treasury (or UKGI on its behalf) could exercise a significant degree of influence over NatWest Group and further offers or sales of NatWest Group’s shares held by HM Treasury may affect the price of securities issued by NatWest Group.

· Changes in foreign currency exchange rates may affect NatWest Group’s results and financial position.

Strategic risk

· NatWest Group is currently implementing its Purpose-led Strategy, which carries significant execution and operational risks and may not achieve its stated aims and targeted outcomes.

· NatWest Group is in the process of refocusing its NWM franchise and implementing a phased withdrawal from ROI, which entails significant commercial, operational and execution risks and the intended benefits for NatWest Group may not be realised within the timeline and in the manner currently contemplated.

Financial resilience risk

· NatWest Group may not meet targets and be in a position to continue to make discretionary capital distributions (including dividends to shareholders).

· NatWest Group operates in markets that are highly competitive, with increasing competitive pressures and technology disruption.

· NatWest Group has significant exposure to counterparty and borrower risk.

· NatWest Group may not meet the prudential regulatory requirements for capital and MREL, or manage its capital effectively, which could trigger the execution of certain management actions or recovery options.

· NatWest Group is subject to Bank of England oversight in respect of resolution, and NatWest Group could be adversely affected should the Bank of England deem NatWest Group’s preparations to be inadequate.

· NatWest Group may not be able to adequately access sources of liquidity and funding.

· Any reduction in the credit rating and/or outlooks assigned to NatWest Group plc, any of its subsidiaries or any of their respective debt securities could adversely affect the availability of funding for NatWest Group, reduce NatWest Group’s liquidity position and increase the cost of funding.

· NatWest Group may be adversely affected if it fails to meet the requirements of regulatory stress tests.

· NatWest Group could incur losses or be required to maintain higher levels of capital as a result of limitations or failure of various models.

· NatWest Group’s financial statements are sensitive to the underlying accounting policies, judgments, estimates and assumptions.

NatWest Group – Form 6-K Interim Results 2021 116

NatWest Group plc Summary Risk Factors

Financial resilience risk continued

· Changes in accounting standards may materially impact NatWest Group’s financial results.

· The value or effectiveness of any credit protection that NatWest Group has purchased depends on the value of the underlying assets and the financial condition of the insurers and counterparties.

· NatWest Group may become subject to the application of UK statutory stabilisation or resolution powers which may result in, among other actions, the cancellation, transfer or dilution of ordinary shares, or the write-down or conversion of certain other of NatWest Group’s securities.

Climate and sustainability-related risks

· NatWest Group and its customers may face significant climate-related risks, including in transitioning to a low-carbon economy, which may adversely impact NatWest Group.

· NatWest Group’s Purpose-led Strategy includes one area of focus on climate change that is likely to require material changes to the business of NatWest Group which entails significant execution risk.

· Any failure by NatWest Group to implement effective and compliant climate change resilient systems, controls and procedures could adversely affect NatWest Group’s ability to manage climate-related risks.

· There are significant uncertainties inherent in accurately modelling the impact of climate-related risks.

· A failure to adapt NatWest Group’s business strategy, governance, procedures, systems and controls to manage emerging sustainability-related risks and opportunities may have a material adverse effect on NatWest Group’s reputation, business, results of operations and outlook.

· Any reduction in the ESG ratings of NatWest Group could have a negative impact on NatWest Group’s reputation and on investors’ risk appetite.

· Increasing levels of climate, environmental and sustainability-related laws, regulation and oversight may adversely affect NatWest Group’s business and expose NatWest Group to increased costs of compliance, regulatory sanction and reputational damage.

· NatWest Group may be subject to potential climate, environmental and other sustainability-related litigation, enforcement proceedings, investigations and conduct risk.

Operational and IT resilience risk

· Operational risks (including reliance on third party suppliers and outsourcing of certain activities) are inherent in NatWest Group’s businesses.

· NatWest Group is subject to increasingly sophisticated and frequent cyberattacks.

· NatWest Group operations and strategy are highly dependent on the accuracy and effective use of data.

· NatWest Group’s operations are highly dependent on its complex IT systems (including those that enable remote working) and any IT failure could adversely affect NatWest Group.

· NatWest Group relies on attracting, retaining and developing senior management and skilled personnel, and is required to maintain good employee relations.

· A failure in NatWest Group’s risk management framework could adversely affect NatWest Group, including its ability to achieve its strategic objectives.

· NatWest Group’s operations are subject to inherent reputational risk.

Legal, regulatory and conduct risk

· NatWest Group’s businesses are subject to substantial regulation and oversight, which are constantly evolving and may adversely affect NatWest Group.

· NatWest Group is subject to 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 NatWest Group.

· NatWest Group may not effectively manage the transition of LIBOR and other IBOR rates to alternative risk-free rates.

· NatWest Group operates in jurisdictions that are subject to intense scrutiny by the competition authorities.

· The cost of implementing the Alternative Remedies Package (‘ARP’) could be more onerous than anticipated.

· Changes in tax legislation or failure to generate future taxable profits may impact the recoverability of certain deferred tax assets recognised by NatWest Group.

NatWest Group – Form 6-K Interim Results 2021 117

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	Alison Rose-Slade	Katie Murray
Chairman	Group Chief Executive Officer	Group Chief Financial Officer

29 July 2021

Board of directors

Chairman	Executive directors	Non-executive directors
Howard Davies	Alison Rose-Slade Katie Murray	Frank Dangeard Patrick Flynn Morten Friis Robert Gillespie Yasmin Jetha Mike Rogers Mark Seligman Lena Wilson

NatWest Group – Form 6-K Interim Results 2021 118

MAR – Inside Information

This announcement contains information that qualified or may have qualified as inside information for NatWest Group plc, for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 for NatWest Group plc. This announcement is made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.

Non-IFRS financial measures

NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). The 2021 Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures.

Statutory results

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 2020 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.

Condensed consolidated financial statements

The unaudited condensed consolidated financial statements for the half year ended 30 June 2021 comprise the following sections of this document:

· Statutory results on pages 86 to 114 comprising the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and the related notes 1 to 16.

· Risk and capital management section on pages 23 to 85 as indicated within the scope of the independent review.

NatWest Group – Form 6-K Interim Results 2021 119

Additional information

Share information

	30 June	31 March	31 December
	2021	2021	2020
Ordinary share price (pence)	203.20	196.25	167.65
Number of ordinary shares in issue (millions)	11,776	11,776	12,129

Other financial data

The following table shows NatWest Group’s issued and fully paid share capital, owners’ equity and indebtedness on a consolidated basis in accordance with IFRS as at 30 June 2021.

	As at
	30 June
	2021
	£m
Share capital - allotted, called up and fully paid
Ordinary shares of £1	11,776
Retained income and other reserves	32,099
Owners’ equity	43,875
NatWest Group indebtedness
Trading liabilities - debt securities in issue	1,205
Other financial liabilities – debt securities in issue	45,400
Subordinated liabilities	8,696
Total indebtedness	55,301
Total capitalisation and indebtedness	99,176

Under IFRS, certain preference shares are classified as debt and are included in subordinated liabilities in the table above.

The information contained in the table above has not changed materially since 30 June 2021.

			Year ended 31 December
	Half year ended
	and as at
	30 June
	2021		2020		2019		2018		2017		2016
Return on average total assets (1)	0.5	%	(0.1)	%	0.4	%	0.2	%	0.1	%	(0.8)	%
Return on average ordinary shareholders’ equity (2)	9.7	%	(2.0)	%	7.9	%	4.0	%	1.9	%	(15.3)	%
Average total equity as a percentage of average total assets	5.7	%	5.4	%	6.2	%	7.2	%	7.0	%	6.2	%
Dividend payout ratio	18.8	%	—		96.3	%	14.9	%	—		—

Notes:

(1) Return on average total assets represents profit attributable to ordinary shareholders as a percentage of average total assets.

(2) Return on average ordinary shareholders’ equity represents profit attributable to ordinary shareholders as a percentage of average ordinary shareholders’ equity.

NatWest Group – Form 6-K Interim Results 2021 120

Appendix

Non-IFRS financial measures

Appendix Non-IFRS financial measures

NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). The 2021 Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believes are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:

Non-IFRS financial measures

Measure	Basis of preparation	Additional analysis or reconciliation
NatWest Group return on tangible equity	Annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding non-controlling interests (NCI) less average intangible assets and average other owners’ equity.	Table 1
Segmental return on equity	Segmental operating profit or loss adjusted for tax and for preference share dividends divided by average notional tangible equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).	Table 2
Operating expenses analysis – management view	The management analysis of operating expenses shows strategic costs and litigation and conduct costs in separate lines. Depreciation and amortisation, and other administrative expenses attributable to these costs are included in strategic costs and litigation and conduct costs lines for management analysis. These amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis.	Table 3
Cost:income ratio	Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.	Table 4
Commentary – adjusted periodically for specific items	NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as such as notable items, operating lease depreciation, strategic costs and litigation and conduct costs.	Notable items - page 9 Operating lease depreciation, Strategic, litigation and conduct costs - pages 18 to 22
Income across UK and RBSI retail and commercial businesses	Comprises income in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding notable items.	Table 7
Net lending in the UK and RBSI retail and commercial businesses	Comprises customer loans in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding UK Government support schemes.	Table 8
Deposits across UK and RBSI retail and commercial businesses	Comprises customer deposits in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments.	Table 9
Bank net interest margin (NIM)	Net interest income of the banking business less NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less NWM element.	Table 5
Bank net interest margin (NIM) excluding Liquid Asset Buffer	Net interest income of the banking business less NWM element as a percentage of interest-earning assets of the banking business less NWM element and Liquid Asset Buffer.	Table 5

NatWest Group – Form 6-K Interim Results 2021 2

Appendix Non-IFRS financial measures

Performance metrics not defined under IFRS

Measure	Basis of preparation	Additional analysis or reconciliation
Loan:deposit ratio	Net customer loans held at amortised cost divided by total customer deposits.	Table 6
Tangible net asset value (TNAV)	Tangible equity divided by the number of ordinary shares in issue (excluding own shares held). Tangible equity is ordinary shareholders’ equity less intangible assets.	Page 8
NIM	Net interest income as a percentage of interest-earning assets.	Pages 18 to 22
Funded assets	Total assets less derivatives.	Pages 18 to 22
Loan impairment rate	The annualised loan impairment charge divided by gross customer loans.	Pages 18 to 22
Third party customer asset rate	Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin.	Pages 18 to 22
Third party customer funding rate	Third party customer funding rate is calculated as annualised interest payable or receivable on third-party customer deposits as a percentage of third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, bank deposits, debt securities in issue and subordinated liabilities.	Pages 18 to 22
Assets under management and administration (AUMA)	AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) serviced through the Private Banking franchise. AUMs comprise assets where the investment management is undertaken by Private Banking on behalf of Private Banking, Retail Banking and RBSI customers. AUAs comprise third party assets held on an execution-only basis in custody by Private Banking, Retail Banking and RBSI for their customers accordingly, for which the execution services are supported by Private Banking. Private Banking receive a fee in respect of providing investment management and execution services to Retail Banking and RBSI franchises.	Page 12
Depositary assets	Assets held by RBSI as an independent trustee and in a depositary service capacity.	Page 14

NatWest Group – Form 6-K Interim Results 2021 3

Appendix Non-IFRS financial measures

1. Return on tangible equity

	Half year ended and
	as at		Quarter ended and as at
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
Profit/(loss) attributable to ordinary shareholders (£m)	1,842	(705)	1,222	620	(993)
Annualised profit/(loss) attributable to ordinary shareholders (£m)	3,684	(1,410)	4,888	2,480	(3,972)
Average total equity excluding NCI (£m)	43,375	44,026	43,011	43,566	44,068
Adjustment for other owners equity and intangibles (£m)	(11,934)	(11,911)	(11,712)	(12,333)	(11,987)
Adjusted total tangible equity (£m)	31,441	32,115	31,299	31,233	32,081
Return on tangible equity (%)	11.7%	(4.4)%	15.6%	7.9%	(12.4)%

2. Segmental return on equity

				International Banking & Markets
	Retail	Private	Commercial		RBS	NatWest	Ulster
Half year ended 30 June 2021	Banking	Banking	Banking		International	Markets	Bank RoI
Operating profit/(loss) (£m)	1,020	146	1,339		173	(249)	(7)
Preference share cost allocation (£m)	(40)	(10)	(76)		(10)	(31)	—
Adjustment for tax (£m)	(274)	(38)	(354)		(29)	78	—
Adjusted attributable profit/(loss) (£m)	706	98	909		134	(202)	(7)
Annualised adjusted attributable profit/(loss) (£m)	1,412	196	1,818		268	(404)	(14)
Average RWAe (£bn)	35.4	11.0	72.1		7.6	29.2	11.1
Equity factor	14.5%	12.5%	11.5%		16.0%	15.0%	15.5%
RWAe applying equity factor (£bn)	5.1	1.4	8.3		1.2	4.4	1.7
Return on equity (%)	27.5%	14.2%	21.9%		22.1%	(9.2)%	(0.8)%
Half year ended 30 June 2020
Operating profit/(loss) (£m)	453	84	(1,008)		87	69	(239)
Preference share cost allocation (£m)	(44)	(11)	(76)		(10)	(34)	—
Adjustment for tax (£m)	(115)	(20)	304		(11)	(10)	—
Adjusted attributable profit /(loss) (£m)	294	53	(780)		66	25	(239)
Annualised adjusted attributable profit/(loss) (£m)	588	106	(1,560)		132	50	(478)
Average RWAe (£bn)	38.0	10.2	75.9		7.0	41.9	12.7
Equity factor	14.5%	12.5%	11.5%		16.0%	15.0%	15.5%
RWAe applying equity factor (£bn)	5.5	1.3	8.7		1.1	6.3	2.0
Return on equity (%)	10.7%	8.2%	(17.9)%		11.8%	0.8%	(24.2)%

NatWest Group – Form 6-K Interim Results 2021 4

Appendix Non-IFRS financial measures

2. Segmental return on equity continued

				International Banking & Markets
	Retail	Private	Commercial		RBS	NatWest	Ulster
Quarter ended 30 June 2021	Banking	Banking	Banking		International	Markets	Bank RoI
Operating profit/(loss) (£m)	585	82	864		105	(169)	(18)
Preference share cost allocation (£m)	(20)	(5)	(38)		(5)	(15)	—
Adjustment for tax (£m)	(158)	(22)	(231)		(18)	52	—
Adjusted attributable profit/(loss) (£m)	407	55	595		83	(132)	(18)
Annualised adjusted attributable profit/(loss) (£m)	1,628	220	2,380		332	(528)	(72)
Monthly average RWAe (£bn)	35.1	11.1	70.6		7.8	29.2	10.8
Equity factor	14.5%	12.5%	11.5%		16.0%	15.0%	15.5%
RWAe applying equity factor (£bn)	5.1	1.4	8.1		1.2	4.4	1.7
Return on equity (%)	32.0%	15.9%	29.3%		26.5%	(12.1)%	(4.3)%
Quarter ended 31 March 2021
Operating profit/(loss)(£m)	435	64	475		68	(80)	11
Preference share cost allocation (£m)	(20)	(5)	(38)		(5)	(16)	—
Adjustment for tax (£m)	(116)	(17)	(122)		(11)	27	—
Adjusted attributable profit/(loss) (£m)	299	42	315		52	(69)	11
Annualised adjusted attributable profit/(loss) (£m)	1,196	168	1,260		208	(276)	44
Average RWAe (£bn)	35.8	11.0	73.6		7.4	29.2	11.4
Equity factor	14.5%	12.5%	11.5%		16.0%	15.0%	15.5%
RWAe applying equity factor (£bn)	5.2	1.4	8.5		1.2	4.4	1.8
Return on equity (%)	23.0%	12.4%	14.9%		17.5%	(6.3)%	2.5%
Quarter ended 30 June 2020
Operating profit/(loss) (£m)	129	35	(971)		19	(137)	(218)
Preference share cost allocation (£m)	(22)	(5)	(38)		(5)	(17)	—
Adjustment for tax (£m)	(30)	(8)	283		(2)	43	—
Adjusted attributable profit/(loss) (£m)	77	22	(726)		12	(111)	(218)
Annualised adjusted attributable profit/(loss) (£m)	308	88	(2,904)		48	(444)	(872)
Average RWAe (£bn)	37.4	10.3	77.8		7.1	41.8	12.6
Equity factor	14.5%	12.5%	11.5%		16.0%	15.0%	15.5%
RWAe applying equity factor (£bn)	5.4	1.3	8.9		1.1	6.3	2.0
Return on equity (%)	5.7%	6.6%	(32.5)%		4.3%	(7.1)%	(44.5)%

NatWest Group – Form 6-K Interim Results 2021 5

Appendix Non-IFRS financial measures

3. Operating expenses analysis

Statutory analysis (1,2)

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
Operating expenses	£m	£m	£m	£m	£m
Staff costs	1,902	1,955	917	985	963
Premises and equipment	502	651	254	248	393
Other administrative expenses	703	696	326	377	298
Depreciation and amortisation	414	448	209	205	255
Total operating expenses	3,521	3,750	1,706	1,815	1,909

Non-statutory analysis

	Half year ended
	30 June 2021				30 June 2020
		Litigation				Litigation
		and		Statutory		and		Statutory
	Strategic	conduct	Other	operating	Strategic	conduct	Other	operating
	costs	costs	expenses	expenses	costs	costs	expenses	expenses
Operating expenses	£m	£m	£m	£m	£m	£m	£m	£m
Staff costs	215	—	1,687	1,902	160	—	1,795	1,955
Premises and equipment	32	—	470	502	148	—	503	651
Other administrative expenses	64	(18)	657	703	100	(89)	685	696
Depreciation and amortisation	21	—	393	414	56	—	392	448
Total	332	(18)	3,207	3,521	464	(89)	3,375	3,750

	Quarter ended
	30 June 2021
		Litigation
		and		Statutory
	Strategic	conduct	Other	operating
	costs	costs	expenses	expenses
Operating expenses	£m	£m	£m	£m
Staff costs	104	—	813	917
Premises and equipment	16	—	238	254
Other administrative expenses	41	(34)	319	326
Depreciation and amortisation	11	—	198	209
Total	172	(34)	1,568	1,706

	Quarter ended
	31 March 2021
		Litigation
		and		Statutory
	Strategic	conduct	Other	operating
	costs	costs	expenses	expenses
Operating expenses	£m	£m	£m	£m
Staff costs	111	—	874	985
Premises and equipment	16	—	232	248
Other administrative expenses	23	16	338	377
Depreciation and amortisation	10	—	195	205
Total	160	16	1,639	1,815

	Quarter ended
	30 June 2020
		Litigation
		and		Statutory
	Strategic	conduct	Other	operating
	costs	costs	expenses	expenses
Operating expenses	£m	£m	£m	£m
Staff costs	87	—	876	963
Premises and equipment	135	—	258	393
Other administrative expenses	57	(85)	326	298
Depreciation and amortisation	54	—	201	255
Total	333	(85)	1,661	1,909

Notes:

(1) On a statutory, or GAAP, basis strategic costs are included within staff costs, premises and equipment, depreciation and amortisation and other administrative expenses. Strategic costs relate to restructuring provisions, related costs and projects that are transformational in nature.

(2) On a statutory, or GAAP, basis litigation and conduct costs are included within other administrative expenses.

NatWest Group – Form 6-K Interim Results 2021 6

Appendix Non-IFRS financial measures

4. Cost:income ratio

				International Banking & Markets			Central
	Retail	Private	Commercial	RBS	NatWest	Ulster	items	NatWest
	Banking	Banking	Banking	International	Markets	Bank RoI	& other	Group
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Operating expenses	(1,187)	(249)	(1,152)	(112)	(560)	(261)	—	(3,521)
Operating lease depreciation	—	—	70	—	—	—	—	70
Adjusted operating expenses	(1,187)	(249)	(1,082)	(112)	(560)	(261)	—	(3,451)
Total income	2,150	368	1,923	256	295	243	84	5,319
Operating lease depreciation	—	—	(70)	—	—	—	—	(70)
Adjusted total income	2,150	368	1,853	256	295	243	84	5,249
Cost:income ratio (%)	55.2%	67.7%	58.4%	43.8%	189.8%	107.4%	nm	65.7%
Half year ended 30 June 2020
Operating expenses	(1,075)	(252)	(1,221)	(126)	(707)	(245)	(124)	(3,750)
Operating lease depreciation	—	—	73	—	—	—	—	73
Adjusted operating expenses	(1,075)	(252)	(1,148)	(126)	(707)	(245)	(124)	(3,677)
Total income	2,185	392	2,003	259	816	249	(66)	5,838
Operating lease depreciation	—	—	(73)	—	—	—	—	(73)
Adjusted total income	2,185	392	1,930	259	816	249	(66)	5,765
Cost:income ratio (%)	49.2%	64.3%	59.5%	48.6%	86.6%	98.4%	nm	63.8%
Quarter ended 30 June 2021
Operating expenses	(600)	(128)	(569)	(55)	(285)	(136)	67	(1,706)
Operating lease depreciation	—	—	35	—	—	—	—	35
Adjusted operating expenses	(600)	(128)	(534)	(55)	(285)	(136)	67	(1,671)
Total income	1,094	183	982	133	106	119	43	2,660
Operating lease depreciation	—	—	(35)	—	—	—	—	(35)
Adjusted total income	1,094	183	947	133	106	119	43	2,625
Cost income ratio (%)	54.8%	69.9%	56.4%	41.4%	268.9%	114.3%	nm	63.7%
Quarter ended 31 March 2021
Operating expenses	(587)	(121)	(583)	(57)	(275)	(125)	(67)	(1,815)
Operating lease depreciation	—	—	35	—	—	—	—	35
Adjusted operating expenses	(587)	(121)	(548)	(57)	(275)	(125)	(67)	(1,780)
Total income	1,056	185	941	123	189	124	41	2,659
Operating lease depreciation	—	—	(35)	—	—	—	—	(35)
Adjusted total income	1,056	185	906	123	189	124	41	2,624
Cost income ratio (%)	55.6%	65.4%	60.5%	46.3%	145.5%	100.8%	nm	67.8%
Quarter ended 30 June 2020
Operating expenses	(546)	(129)	(611)	(65)	(365)	(122)	(71)	(1,909)
Operating lease depreciation	—	—	37	—	—	—	—	37
Adjusted operating expenses	(546)	(129)	(574)	(65)	(365)	(122)	(71)	(1,872)
Total income	1,035	191	995	115	273	120	(53)	2,676
Operating lease depreciation	—	—	(37)	—	—	—	—	(37)
Adjusted total income	1,035	191	958	115	273	120	(53)	2,639
Cost income ratio (%)	52.8%	67.5%	59.9%	56.5%	133.7%	101.7%	nm	70.9%

NatWest Group – Form 6-K Interim Results 2021 7

Appendix Non-IFRS financial measures

5. Net interest margin

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
NatWest Group net interest income	3,916	3,852	1,985	1,931	1,910
Less NWM net interest income	3	34	(4)	7	(6)
Net interest income excluding NWM	3,919	3,886	1,981	1,938	1,904
Annualised NatWest Group net interest income	7,897	7,746	7,962	7,831	7,682
Annualised net interest income excluding NWM	7,903	7,815	7,946	7,860	7,658
Average interest earning assets (IEA)	519,219	477,898	526,124	512,237	497,440
Less NWM average IEA	32,346	37,994	32,263	32,429	39,874
Bank average IEA	486,873	439,904	493,861	479,808	457,566
Less liquid asset buffer average IEA	157,524	124,333	163,437	151,603	136,468
Bank average IEA excluding liquid asset buffer	329,349	315,571	330,424	328,205	321,098
Net interest margin	1.52%	1.62%	1.51%	1.53%	1.54%
Bank net interest margin (NatWest Group NIM excluding NWM)	1.62%	1.78%	1.61%	1.64%	1.67%
Bank net interest margin excluding liquid asset buffer	2.40%	2.48%	2.40%	2.39%	2.38%

Note:

(1) Liquid asset buffer is defined as the stock of liquid assets held by the bank, such as central bank reserves or high-quality government debt that can be easily used to repay obligations as they fall due. They are available to meet unexpected changes in cash flows.

6. Loan:deposit ratio

	As at
	30 June	31 March	30 June
	2021	2021	2020
	£bn	£bn	£bn
Loans to customers - amortised cost	362,711	358,728	352,341
Customer deposits	467,214	453,308	408,268
Loan:deposit ratio (%)	78%	79%	86%

7. UK and RBSI retail and commercial businesses income excluding notable items

	Half year ended		Quarter ended
	30 June	30 June	30 June	31 March	30 June
	2021	2020	2021	2021	2020
	£m	£m	£m	£m	£m
Retail Banking	2,150	2,185	1,094	1,056	1,035
Private Banking	368	392	183	185	191
Commercial Banking	1,923	2,003	982	941	995
RBS International	256	259	133	123	115
Income	4,697	4,839	2,392	2,305	2,336
Less notable items	(10)	8	(24)	14	(11)
Total UK and RBSI retail and commercial businesses
income excluding notable items	4,687	4,847	2,368	2,319	2,325

NatWest Group – Form 6-K Interim Results 2021 8

Appendix Non-IFRS financial measures

8. UK and RBSI retail and commercial businesses net lending excluding UK Government support schemes

	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Retail Banking	178.1	174.8	172.3
Private Banking	18.0	17.5	17.0
Commercial Banking	103.8	106.6	108.2
RBS International	15.1	14.7	13.3
Loans to customers	315.0	313.6	310.8
Less UK Government support schemes	(13.0)	(13.5)	(12.9)
Total UK and RBSI retail and commercial businesses
net lending excluding UK Government support schemes	302.0	300.1	297.9

9. UK and RBSI retail and commercial businesses customer deposits

	30 June	31 March	31 December
	2021	2021	2020
	£bn	£bn	£bn
Retail Banking	184.1	179.1	171.8
Private Banking	34.7	33.5	32.4
Commercial Banking	176.0	169.4	167.7
RBS International	33.9	33.3	31.3
Total UK and RBSI retail and commercial businesses customer deposits	428.7	415.3	403.2

Legal Entity Identifier: 2138005O9XJIJN4JPN90

NatWest Group – Form 6-K Interim Results 2021 9

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.

NatWest Group plc

Registrant

/s/ Katie Murray

Group Chief Financial Officer

30 July 2021

NatWest Group – Form 6-K Interim Results 2021 10

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Document and Entity Information	6 Months Ended
	Jun. 30, 2021
Cover [Abstract]
Entity Registrant Name	NatWest Group plc
Entity Central Index Key	0000844150
Document Type	6-K
Document Period End Date	Jun. 30, 2021
Amendment Flag	false
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021

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Condensed consolidated income statement - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Condensed consolidated income statement
Interest receivable	£ 4,782	£ 5,190
Interest payable	(866)	(1,338)
Net interest income	3,916	3,852
Fees and commissions receivable	1,312	1,430
Fees and commissions payable	(285)	(392)
Income from trading activities	231	802
Other operating income	145	146
Total non-interest income	1,403	1,986
Total income	5,319	5,838
Staff costs	(1,902)	(1,955)
Premises and equipment	(502)	(651)
Other administrative expenses	(703)	(696)
Depreciation and amortisation	(414)	(448)
Operating expenses	(3,521)	(3,750)
Profit before impairment releases/(losses)	1,798	2,088
Impairment releases/(losses)	707	(2,858)
Operating profit/(loss) before tax	2,505	(770)
Tax (charge)/credit	(435)	208
Profit/(loss) for the period	2,070	(562)
Attributable to:
Ordinary shareholders	1,842	(705)
Preference shareholders	9	16
Paid-in equity holders	178	192
Non-controlling interests	41	(65)
Profit/(loss) for the period	£ 2,070	£ (562)
Per ordinary share
Earnings per ordinary share	£ 0.156	£ (0.058)
Earnings per ordinary share - fully diluted	£ 0.155	£ (0.058)

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Condensed consolidated statement of comprehensive income - GBP (£) £ in Millions		6 Months Ended
		Jun. 30, 2021	Jun. 30, 2020
Condensed consolidated statement of comprehensive income
Profit/(loss) for the period		£ 2,070	£ (562)
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes	[1]	(734)	68
(Loss)/profit on fair value of credit in financial liabilities designated at FVTPL due to own credit risk		(25)	83
FVOCI financial assets		8	(120)
Tax		182
Total - Items that do not qualify for reclassification		(569)	31
Items that do qualify for reclassification
FVOCI financial assets		(145)	(111)
Cash flow hedges		(365)	417
Currency translation		(288)	575
Tax		65	(179)
Total - Items that do qualify for reclassification		(733)	702
Other comprehensive (loss)/income after tax		(1,302)	733
Total comprehensive income for the period		768	171
Attributable to:
Ordinary shareholders		535	14
Preference shareholders		9	16
Paid-in equity holders		178	192
Non-controlling interests		46	(51)
Total comprehensive income for the period		£ 768	£ 171

[1] Following the purchase of ordinary shares from UKGI in March 2021, NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million. There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)).

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Consolidated statement of comprehensive income (Parenthetical) € in Millions, £ in Millions	1 Months Ended	6 Months Ended
	Mar. 31, 2021 GBP (£)	Jun. 30, 2021 GBP (£)	Jun. 30, 2021 EUR (€)	Jun. 30, 2020 GBP (£)	Jun. 30, 2020 EUR (€)
UBI DAC
Disclosure of transactions between related parties [line items]
Net (loss) gain as a result of significant movements in underlying actuarial assumptions		£ 176	€ 205	£ (90)	€ (101)
Main Scheme
Disclosure of transactions between related parties [line items]
Contribution under the MoU to strengthen funding of the Main section	£ 500
Increase (decrease) in equity	£ (365)
UK Government Investments Ltd | UBI DAC
Disclosure of transactions between related parties [line items]
Net (loss) gain as a result of significant movements in underlying actuarial assumptions				£ (90)

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Condensed consolidated balance sheet - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Assets
Cash and balances at central banks	£ 151,511	£ 124,489
Trading assets	70,195	68,990
Derivatives	109,556	166,523
Settlement balances	7,793	2,297
Loans to banks - amortised cost	8,176	6,955
Loans to customers - amortised cost	362,711	360,544
Other financial assets	51,469	55,148
Intangible assets	6,694	6,655
Other assets	7,753	7,890
Total assets	775,858	799,491
Liabilities
Bank deposits	14,394	20,606
Customer deposits	467,214	431,739
Settlement balances	7,119	5,545
Trading liabilities	75,847	72,256
Derivatives	103,992	160,705
Other financial liabilities	46,118	45,811
Subordinated liabilities	8,696	9,962
Notes in circulation	2,906	2,655
Other liabilities	5,687	6,388
Total liabilities	731,973	755,667
Equity
Ordinary shareholders' interests	37,445	38,367
Other owners' interests	6,430	5,493
Owners' equity	43,875	43,860
Non-controlling interests	10	(36)
Total equity	43,885	43,824
Total liabilities and equity	£ 775,858	£ 799,491

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Condensed consolidated statement of changes in equity - GBP (£) £ in Millions		Called-up share capital	Paid-in equity	Share premium account	Merger reserve	FVOCI reserve	Cash flow hedging reserve	Foreign exchange reserve	Capital redemption reserve	Retained earnings	Own shares held	Shareholders' equity	Non-controlling interests	Ordinary shareholders	Preference shareholders	Total
Balance at Dec. 31, 2019		£ 12,094	£ 4,058	£ 1,094	£ 10,881	£ 138	£ 35	£ 1,343		£ 13,946	£ (42)		£ 9
Ordinary shares issued		31		16
Redemption/reclassification of paid-in equity (2)	[1]		(1,277)							(355)
Securities issued during the period (3)	[2]		1,220
Profit/(loss) attributable to ordinary shareholders and other equity owners										(497)
Equity preference dividends paid										(16)
Paid-in equity dividends paid										(192)
Realised losses in period on FVOCI equity shares										(1)
Unrealised losses						(123)
Realised gains						(107)
Tax						12
Amount recognized in equity							445
Amount transferred from equity to earnings							(28)
Tax							(111)
Retranslation of net assets								527
Foreign currency gains/(losses) on hedges of net assets								(63)
Tax								(95)
Recycled to profit or loss on disposal of businesses (4)	[3]							97
Remeasurement of the retirement benefit schemes-gross	[4]									68
Remeasurement of the retirement benefit schemes, tax	[4]									23
Changes in fair value of credit in financial liabilities designated at fair value through profit or loss, gross										83						£ 83
Changes in fair value of credit in financial liabilities designated at fair value through profit or loss, tax										(8)
Shares issued under employee share schemes										(11)	95
Share based payments										(100)
Own shares acquired	[5]										(77)
Currency translation adjustments and other movements													14
Profit/(loss) attributable to non-controlling interests													(65)
Balance at Jun. 30, 2020		12,125	4,001	1,110	10,881	(80)	341	1,809		12,940	(24)	£ 43,103	(42)	£ 38,608	£ 494	43,061
Balance at Dec. 31, 2020		12,129	4,999	1,111	10,881	360	229	1,608		12,567	(24)		(36)			43,824
Ordinary shares issued		38		50
Securities issued during the period (3)	[2]		937
Profit/(loss) attributable to ordinary shareholders and other equity owners										2,029
Equity preference dividends paid										(9)
Paid-in equity dividends paid										(178)
Ordinary dividends paid										(347)
Redemption of preference shares									£ 24	(24)
Realised losses in period on FVOCI equity shares										(1)
Unrealised losses						(113)
Realised gains						(23)
Tax						15
Amount recognized in equity							(323)
Amount transferred from equity to earnings							(42)
Tax							59
Retranslation of net assets								(336)
Foreign currency gains/(losses) on hedges of net assets								43
Tax								(11)
Remeasurement of the retirement benefit schemes-gross	[4]									(734)
Remeasurement of the retirement benefit schemes, tax	[4]									182
Changes in fair value of credit in financial liabilities designated at fair value through profit or loss, gross										(25)						(25)
Changes in fair value of credit in financial liabilities designated at fair value through profit or loss, tax										2
Shares issued under employee share schemes											17
Share based payments										(82)
Own shares acquired	[5]									(748)	(384)
Currency translation adjustments and other movements													5
Profit/(loss) attributable to non-controlling interests													41
Share cancellation	[5]	(391)							390
Balance at Jun. 30, 2021		£ 11,776	£ 5,936	£ 1,161	£ 10,881	£ 239	£ (77)	£ 1,304	£ 414	£ 12,632	£ (391)	£ 43,875	£ 10	£ 37,445	£ 494	£ 43,885

[1] In June 2020, paid-in equity reclassified to liabilities as the result of a call of US$2 billion AT1 notes.

[2] AT1 capital notes totalling US$750 million less fees were issued in June 2021 (£400 million less fees were issued in March 2021). In June 2020, AT1 capital notes totalling US$1.5 billion less fees were issued.

[3] In 2020, the completion of the Alawwal bank merger resulted in the derecognition of the associate investment in Alawwal bank and recognition of a new investment in SABB held at fair value through other comprehensive income (FVOCI).

[4] Following the a purchase of ordinary shares from UKGI in March 2021 which triggered NatWest Group contributed £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million.There was also a pre tax loss of £176 million (€205 million) in relation to the interim re-measurement of the Ulster Bank Pension Scheme (Republic of Ireland), as a result of significant movements in underlying actuarial assumptions (June 2020: net gain of £90 million (€101 million)). In line with our policy, the present value of defined benefit obligations and the fair value of plan assets at the end of the interim reporting period, are assessed to identity significant market fluctuations and one-off events since the end of the prior financial year.

[5] In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI), at 190.5p per share for the total consideration of £1.13 billion. NatWest Group cancelled 391 million of the purchased ordinary shares, amounting to £744 million excluding fees, and held the remaining 200 million in own shares held, amounting to £381 million excluding fees. The nominal value of the share cancellation has been transferred to the capital redemption reserve.

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Condensed consolidated statement of changes in equity (Parenthetical) € in Millions, £ in Millions, shares in Millions, $ in Millions	1 Months Ended	6 Months Ended
	Mar. 31, 2021 GBP (£) £ / shares shares	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)
AT1 capital notes called | $			$ 2,000
Main Scheme
Contribution under the MoU to strengthen funding of the Main section	£ 500
Increase (decrease) in equity	(365)
AT1 capital notes
Issue of AT1 capital notes	£ 400	$ 750	$ 1,500
UK Government Investments Ltd
Ordinary shares acquired (in shares) | shares	591
Ordinary shares purchase price per share | £ / shares	£ 1.905
Value of purchased ordinary shares	£ 1,130
NatWest Group
Number of purchased ordinary shares cancelled | shares	391
Share cancellation	£ 744
Treasury stock, own shares held | shares	200
Value of ordinary shares purchased and held	£ 381

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Condensed consolidated cash flow statement - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Operating activities
Operating profit/(loss) before tax	£ 2,505	£ (770)
Adjustments for non-cash items	2,635	1,271
Net cash flows from trading activities	5,140	501
Changes in operating assets and liabilities	25,745	14,281
Net cash flows from operating activities before tax	30,885	14,782
Income taxes paid	(259)	(231)
Net cash flows from operating activities	30,626	14,551
Net cash flows from investing activities	(790)	2,035
Net cash flows from financing activities	(359)	2,748
Effects of exchange rate changes on cash and cash equivalents	(1,935)	2,752
Net increase in cash and cash equivalents	27,542	22,086
Cash and cash equivalents at beginning of period	139,199	100,588
Cash and cash equivalents at end of period	£ 166,741	£ 122,674

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Basis of preparation

6 Months Ended

Jun. 30, 2021

Basis of preparation

Basis of preparation

1. Basis of preparation

The condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and UK adopted IAS 34 ‘Interim Financial Reporting’. They should be read in conjunction with NatWest Group plc’s 2020 Annual Report on Form 20-F which were prepared in accordance with International Financial Reporting Standards in conformity with the requirements of the Companies Act 2006 and with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. NatWest Group plc 2021 Annual Report on Form 20-F will be prepared in accordance with UK adopted with International Financial Reporting Standards.

Going concern

Having reviewed NatWest Group’s forecasts, projections, the potential impact of COVID-19, and other relevant evidence, the directors have a reasonable expectation that NatWest Group will continue in operational existence for a period of not less than twelve months. Accordingly, the results for the period ended 30 June 2021 have been prepared on a going concern basis.

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Accounting policies

6 Months Ended

Jun. 30, 2021

Accounting policies

Accounting policies

2. Accounting policies

NatWest Group’s principal accounting policies are as set out on pages 263 to 267 of the NatWest Group plc 2020 Annual Report on Form 20-F. Changes to accounting policies from 1 January 2021 had no material effect on NatWest Group plc’s accounts.

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of NatWest Group’s financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgements are referenced on page 267 of the NatWest Group plc 2020 Annual Report on Form 20-F. Estimation uncertainty has been affected by the COVID-19 pandemic. Management’s consideration of this source of uncertainty is outlined in the relevant sections of the NatWest Group plc 2020 Annual Report on Form 20-F, including the ECL estimate for the period in the Risk and capital management section contained in the NatWest Group plc 2020 Annual Report on Form 20-F.

Information used for significant estimates

The COVID-19 pandemic has continued to cause significant economic and social disruption. Key financial estimates are based on a range of anticipated future economic conditions described by internally developed scenarios. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods. Refer to the NatWest Group plc Risk factors section in the 2020 Annual Report on Form 20-F.

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Analysis of income, expenses and impairment losses

6 Months Ended

Jun. 30, 2021

Analysis of income, expenses and impairment losses.

Analysis of income, expenses and impairment losses

3. Analysis of income, expenses and impairment losses

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Loans to customers - amortised cost	4,433	4,698
Loans to banks - amortised cost	217	189
Other financial assets	132	303
Interest receivable	4,782	5,190
Deposits by banks	99	89
Customer deposits	319	432
Other financial liabilities	314	481
Subordinated liabilities	130	218
Internal funding of trading businesses	4	118
Interest payable	866	1,338
Net interest income	3,916	3,852

Net fees and commissions	1,027	1,038
Foreign exchange	183	344
Interest rate	(6)	472
Credit	54	(68)
Own credit adjustment	—	53
Equity, commodities and other	—	1
Income from trading activities	231	802
Loss on redemption of own debt (1)	(138)	—
Operating lease and other rental income	108	119
Changes in fair value of financial assets or liabilities designated at fair value through profit or loss (2)	(4)	(21)
Changes in fair value of other financial assets at fair value through profit or loss	—	(10)
Hedge ineffectiveness	13	(10)
Loss on disposal of amortised assets	(6)	(16)
Profit on disposal of fair value through other comprehensive income assets	24	108
Profit on sale of property, plant and equipment	6	11
Share of profit of associated entities	129	12
Profit/(loss) on disposal of subsidiaries and associates	1	(99)
Other income (3)	12	52
Other operating income	145	146
Total non-interest income	1,403	1,986
Total income	5,319	5,838

Salaries	1,192		1,290
Bonus awards	142		179
Temporary and contract costs	114		148
Social security costs	152		153
Pension costs	177		164
- defined benefit schemes	110		101
- defined contribution schemes	67		63
Other	125		21
Staff costs	1,902		1,955
Premises and equipment (4)	502		651
Depreciation and amortisation (5)	414		448
Other administrative expenses (6)	703		696
Administrative expenses	1,619		1,795
Operating expenses	3,521		3,750
Impairment releases/(losses)	707		(2,858)
Impairments as a % of gross loans to customers	0.38	%	1.59	%

Notes:

(1)     Representing day one loss on redemption of own debt related to the repurchase of legacy instruments.

(2)     Includes related derivatives.

(3)     Includes income from activities other than banking.

(4)    30 June 2021 includes cost of £20 million including accelerated depreciation of £12 million (30 June 2020 - £102 million including £40 million accelerated depreciation) in relation to the planned reduction of the property portfolio (30 June 2021 – freehold £1 million; leasehold £19 million; 30 June 2020 - leasehold £102 million).

(5)    30 June 2021 includes a £23 million charge relating to the reduction in property portfolio, leasehold £19 million and freehold £4 million (30 June 2020 - £43 million charge, leasehold £43 million).

(6)    Includes litigation and conduct costs.

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Segmental analysis

6 Months Ended

Jun. 30, 2021

Segmental analysis

Segmental analysis

4. Segmental analysis

The business is organised into the following reportable segments: Personal Banking, Private Banking, Commercial Banking, RBS International (RBSI), NatWest Markets, Ulster Bank RoI and Central items & other.

Analysis of operating profit/(loss) before tax

The following tables provide a segmental analysis of operating profit/(loss) before tax by the main income statement captions.

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	other (1)	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Net interest income	1,976	232	1,308	182	(3)	187	34	3,916
Net fees and commissions	173	124	560	59	83	38	(10)	1,027
Other non-interest income	1	12	55	15	215	18	60	376
Total income	2,150	368	1,923	256	295	243	84	5,319
Operating expenses	(1,187)	(249)	(1,152)	(112)	(560)	(261)	—	(3,521)
Impairment releases/(losses)	57	27	568	29	16	11	(1)	707
Operating profit/(loss)	1,020	146	1,339	173	(249)	(7)	83	2,505
Half year ended 30 June 2020
Net interest income	1,982	251	1,370	201	(34)	194	(112)	3,852
Net fees and commissions	204	130	552	43	76	44	(11)	1,038
Other non-interest income	(1)	11	81	15	774	11	57	948
Total income	2,185	392	2,003	259	816	249	(66)	5,838
Operating expenses	(1,075)	(252)	(1,221)	(126)	(707)	(245)	(124)	(3,750)
Impairment losses	(657)	(56)	(1,790)	(46)	(40)	(243)	(26)	(2,858)
Operating profit/(loss)	453	84	(1,008)	87	69	(239)	(216)	(770)

Note:

(1) 30 June 2021 predominantly relates to interest receivable in Treasury and 30 June 2020 predominantly related to interest receivable in Treasury and strategic disposals in Functions.

Total revenue⁽¹⁾

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	Other	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
External	2,667	358	1,861	278	523	275	508	6,470
Inter-segmental	14	60	43	3	17	—	(137)	—
Total	2,681	418	1,904	281	540	275	371	6,470
Half year ended 30 June 2020
External	2,764	358	2,009	269	1,328	277	563	7,568
Inter-segmental	24	99	47	3	4	—	(177)	—
Total	2,788	457	2,056	272	1,332	277	386	7,568

Note:

(1) Total revenue comprises interest receivable, fees and commissions receivable, income from trading activities and other operating income.

Notes

4. Segmental analysis continued

Analysis of net fees and commissions

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items
	Banking	Banking	Banking	International	Markets	RoI	& other	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Fees and commissions receivable
- Payment services	145	16	255	6	10	28	—	460
- Credit and debit card fees	149	4	69	1	—	8	—	231
- Lending and financing	6	4	242	28	34	7	—	321
- Investment management, trustee and fiduciary services	1	113	—	22	—	1	—	137
- Underwriting fees	—	—	—	—	77	—	—	77
- Other	32	19	63	3	25	—	(56)	86
Total	333	156	629	60	146	44	(56)	1,312
Fees and commissions payable	(160)	(32)	(69)	(1)	(63)	(6)	46	(285)
Net fees and commissions	173	124	560	59	83	38	(10)	1,027
Half year ended 30 June 2020
Fees and commissions receivable
- Payment services	129	14	256	9	9	28	—	445
- Credit and debit card fees	144	4	60	1	—	10	—	219
- Lending and financing	37	2	241	15	46	7	—	348
- Investment management, trustee and fiduciary services	1	113	—	17	—	1	—	132
- Underwriting fees	—	—	—	—	124	—	—	124
- Other	34	18	48	2	98	2	(40)	162
Total	345	151	605	44	277	48	(40)	1,430
Fees and commissions payable	(141)	(21)	(53)	(1)	(201)	(4)	29	(392)
Net fees and commissions	204	130	552	43	76	44	(11)	1,038

Total assets and liabilities

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	other	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Assets	204,167	27,686	185,757	36,953	219,447	25,422	76,426	775,858
Liabilities	187,851	34,808	183,837	34,843	206,160	21,872	62,602	731,973
31 December 2020
Assets	197,618	26,206	187,413	33,984	270,147	26,620	57,503	799,491
Liabilities	178,617	32,457	174,251	31,989	254,098	22,993	61,262	755,667

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Tax

6 Months Ended

Jun. 30, 2021

Tax

Tax

5. Tax

The actual tax charge differs from the expected tax charge computed by applying the standard UK corporation tax rate of 19% (2020 - 19%), as analysed below:

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Profit/(loss) before tax	2,505	(770)
Expected tax (charge)/credit	(476)	146
Losses and temporary differences in period where no deferred tax assets recognised	(6)	(38)
Foreign profits taxed at other rates	4	(24)
Items not allowed for tax:
- losses on disposals and write-downs	(3)	(14)
- UK bank levy	(11)	(15)
- regulatory and legal actions	3	20
- other disallowable items	(10)	(23)
Non-taxable items	25	68
Taxable foreign exchange movements	—	(2)
Losses bought forward and utilised	6	23
Decrease in the carrying value of deferred tax assets in respect of:
- UK losses	(5)	(56)
- Ireland losses	(35)	(20)
Banking surcharge	(173)	52
Tax on paid-in equity	32	38
UK tax rate change impact	206	75
Adjustments in respect of prior periods	8	(22)
Actual tax (charge)/credit	(435)	208

At 30 June 2021, NatWest Group has recognised a deferred tax asset of £1,150 million (31 December 2020 - £901 million) and a deferred tax liability of £303 million (31 December 2020 - £291 million). These include amounts recognised in respect of UK trading losses of £972 million (31 December 2020 - £862 million). Under UK tax legislation, these UK losses can be carried forward indefinitely. NatWest Group has considered the carrying value of this asset as at 30 June 2021 and concluded that it is recoverable based on future profit projections.

It was announced in the UK Government’s Budget on 3 March 2021 that the main UK corporation tax rate will increase from 19% to 25% from 1 April 2023. This legislative change was enacted on 10 June 2021. NatWest Group’s closing deferred tax assets and liabilities have therefore been recalculated taking into account this change of rate and the applicable period the deferred tax assets and liabilities are expected to crystallise. As a result, the net deferred tax asset position in NatWest Group has increased by £176 million, with a £206 million credit included in the income statement (refer to reconciling item above), and a £30 million charge included in other comprehensive income. There is an ongoing HM Treasury review of the bank surcharge rate to ensure that the combined rate of corporation tax applicable to banking entities remains competitive.

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Trading assets and liabilities

6 Months Ended

Jun. 30, 2021

Trading assets and liabilities

Trading assets and liabilities

6. Trading assets and liabilities

Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.

	30 June	31 December
	2021	2020
Assets	£m	£m
Loans
Reverse repos	24,718	19,404
Collateral given	12,955	18,760
Other loans	1,154	1,611
Total loans	38,827	39,775
Securities
Central and local government
- UK	5,121	4,184
- US	4,088	5,149
- other	18,347	16,436
Financial institutions and corporate	3,812	3,446
Total securities	31,368	29,215
Total	70,195	68,990
Liabilities
Deposits
Repos	23,720	19,036
Collateral received	17,165	23,229
Other deposits	1,646	1,804
Total deposits	42,531	44,069
Debt securities in issue	1,205	1,408
Short positions	32,111	26,779
Total	75,847	72,256

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Financial instruments: classification

6 Months Ended

Jun. 30, 2021

Financial instruments: classification

Financial instruments: classification

Notes

7. Financial instruments

Financial instruments: classification

The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments on an IFRS 9 basis. Assets and liabilities outside the scope of IFRS 9 are shown within other assets and other liabilities.

			Amortised	Other
	MFVTPL	FVOCI	cost	assets	Total
Assets	£m	£m	£m	£m	£m
Cash and balances at central banks			151,511		151,511
Trading assets	70,195				70,195
Derivatives (1)	109,556				109,556
Settlement balances			7,793		7,793
Loans to banks - amortised cost (2)			8,176		8,176
Loans to customers - amortised cost (3)			362,711		362,711
Other financial assets	340	42,085	9,044		51,469
Intangible assets				6,694	6,694
Other assets				7,753	7,753
30 June 2021	180,091	42,085	539,235	14,447	775,858
Cash and balances at central banks			124,489		124,489
Trading assets	68,990				68,990
Derivatives (1)	166,523				166,523
Settlement balances			2,297		2,297
Loans to banks - amortised cost (2)			6,955		6,955
Loans to customers - amortised cost (3)			360,544		360,544
Other financial assets	440	44,902	9,806		55,148
Intangible assets				6,655	6,655
Other assets				7,890	7,890
31 December 2020	235,953	44,902	504,091	14,545	799,491

	Held-for-		Amortised	Other
	trading	DFV	cost	liabilities	Total
Liabilities	£m	£m	£m	£m	£m
Bank deposits (4)			14,394		14,394
Customer deposits			467,214		467,214
Settlement balances			7,119		7,119
Trading liabilities	75,847				75,847
Derivatives (1)	103,992				103,992
Other financial liabilities		1,961	44,157		46,118
Subordinated liabilities		744	7,952		8,696
Notes in circulation			2,906		2,906
Other liabilities (5)			1,818	3,869	5,687
30 June 2021	179,839	2,705	545,560	3,869	731,973
Bank deposits (4)			20,606		20,606
Customer deposits			431,739		431,739
Settlement balances			5,545		5,545
Trading liabilities	72,256				72,256
Derivatives (1)	160,705				160,705
Other financial liabilities		2,403	43,408		45,811
Subordinated liabilities		793	9,169		9,962
Notes in circulation			2,655		2,655
Other liabilities (5)			1,882	4,506	6,388
31 December 2020	232,961	3,196	515,004	4,506	755,667

Notes:

(1) Includes net hedging derivatives assets of £42 million (31 December 2020 - £93 million) and net hedging derivatives liabilities of £136 million (31 December 2020 - £130 million).

(2) Includes items in the course of collection from other banks of £275 million (31 December 2020 - £148 million).

(3) Includes finance lease receivables of £8,765 million (31 December 2020 - £9,061 million).

(4) Includes items in the course of transmission to other banks of £92 million (31 December 2020 - £12 million).

(5) Includes lease liabilities of £1,652 million (31 December 2020 - £1,698 million).

Notes

7. Financial instruments continued

NatWest Group's financial assets and liabilities include:

	30 June	31 December
	2021	2020
	£m	£m
Reverse repos
Trading assets	24,718	19,404
Loans to banks - amortised cost	382	153
Loans to customers - amortised cost	22,706	25,011
Repos
Bank deposits	4,261	6,470
Customer deposits	16,751	5,167
Trading liabilities	23,720	19,036

Interest rate benchmark reform

NatWest Group continues to implement its entity-wide IBOR reform programme with the aim of being ready for the various transition events which are expected to occur prior to the cessation of the vast majority of the IBOR benchmark rates at the end of 2021 and of the USD IBOR in 2023.

NatWest Group continues to develop new products across its different segments that reference the new alternative risk-free rates and continues to work with customers to assess their readiness and ability to adopt new products, transition existing products or take the necessary steps to ensure that products can transition at IBOR cessation. A comprehensive review of the effect of IBOR reform on funding, liquidity and risk management has also been conducted and NatWest Group will continue to adapt its key systems, methodologies and processes to meet the requirements of the new risk-free rates. This is expected to be fully implemented over the course of 2021 and by June 2023 for USD IBOR.

NatWest Group expects that the vast majority of non-derivative instruments will transition in H2 2021 or the first reset date of the interest rate after cessation via renegotiation with clients or fallback provisions. Derivatives that are subject to clearing are expected to transition in line with the relevant clearing house transition approaches while other derivatives are expected to transition using the ISDA fallback protocol.

NatWest Group also remains engaged with regulators, standard setters and other market participants on key matters related to the IBOR reform. It is expected that the programme will meet all timelines set by the regulators.

Notes

7. Financial instruments continued

Financial instruments - valuation hierarchy

Disclosures relating to the control environment, valuation techniques and related aspects pertaining to financial instruments measured at fair value are included in the NatWest Group plc 2020 Annual Report on Form 20-F. Valuation, sensitivity methodologies and inputs at 30 June 2021 are consistent with those described in Note 12 to the NatWest Group plc 2020 Annual Report on Form 20-F.

The tables below show financial instruments carried at fair value on the balance sheet by valuation hierarchy - level 1, level 2 and level 3 and valuation sensitivities for level 3 balances.

	30 June 2021				31 December 2020
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Assets
Trading assets
Loans	—	38,664	163	38,827	—	39,550	225	39,775
Securities	22,048	9,205	115	31,368	21,535	7,599	81	29,215
Derivatives	—	108,622	934	109,556	—	165,441	1,082	166,523
Other financial assets
Loans	—	394	588	982	—	185	168	353
Securities	32,422	8,827	194	41,443	35,972	8,850	167	44,989
Total financial assets held at fair value	54,470	165,712	1,994	222,176	57,507	221,625	1,723	280,855
Liabilities
Trading liabilities
Deposits	—	42,528	3	42,531	—	44,062	7	44,069
Debt securities in issue	—	1,205	—	1,205	—	1,408	—	1,408
Short positions	23,659	8,451	1	32,111	19,045	7,734	—	26,779
Derivatives	—	103,311	681	103,992	—	159,818	887	160,705
Other financial liabilities
Debt securities in issue	—	1,243	—	1,243	—	1,607	—	1,607
Other deposits	—	718	—	718	—	796	—	796
Subordinated liabilities	—	744	—	744	—	793	—	793
Total financial liabilities held at fair value	23,659	158,200	685	182,544	19,045	216,218	894	236,157

Notes:

(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. Examples include most government agency securities, investment-grade corporate bonds, certain mortgage products, including CLOs, most bank loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most notes issued, and certain money market securities and 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 cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, certain emerging markets and derivatives with unobservable model inputs.

(2) Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred. There were no significant transfers between level 1 and level 2.

(3) For an analysis of debt securities held at mandatorily fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital management – Credit risk.

(4) The determination of an instrument’s level cannot be made at a global product level as a single product type can be in more than one level. For example, a single name corporate credit default swap could be in level 2 or level 3 depending on whether the reference counterparty’s obligations are liquid or illiquid.

Notes

7. Financial instruments continued

Financial instruments: sensitivity analysis

	30 June 2021			31 December 2020
	Level 3	Favourable	Unfavourable	Level 3	Favourable	Unfavourable
	£m	£m	£m	£m	£m	£m
Assets
Trading assets
Loans	163	10	—	225	10	—
Securities	115	10	—	81	—	—
Derivatives	934	60	(70)	1,082	80	(80)
Other financial assets
Loans	588	30	(50)	168	20	(10)
Securities	194	30	(20)	167	30	(20)
Total financial assets held at fair value	1,994	140	(140)	1,723	140	(110)
Liabilities
Trading liabilities
Deposits	3	—	—	7	—	—
Short Positions	1	—	—	—	—	—
Derivatives	681	40	(40)	887	50	(40)
Total financial liabilities held at fair value	685	40	(40)	894	50	(40)

Reasonably plausible alternative assumptions of unobservable inputs are determined based on a specified target level of certainty of 90%. The assessments recognise different favourable and unfavourable valuation movements where appropriate. Each unobservable input within a product is considered separately and sensitivity is reported on an additive basis.

Alternative assumptions are determined with reference to all available evidence including consideration of the following: quality of independent pricing information taking into account consistency between different sources, variation over time, perceived tradability or otherwise of available quotes; consensus service dispersion ranges; volume of trading activity and market bias (e.g. one-way inventory); day 1 profit or loss arising on new trades; number and nature of market participants; market conditions; modelling consistency in the market; size and nature of risk; length of holding of position; and market intelligence.

Movement in level 3 portfolios

The following table shows the movement in level 3 assets and liabilities.

	Half year ended 30 June 2021				Half year ended 30 June 2020
		Other				Other
	Trading	financial	Total	Total	Trading	financial	Total	Total
	assets (1)	assets (2)	assets	liabilities	assets (1)	assets (2)	assets	liabilities
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	1,388	335	1,723	894	2,233	321	2,554	1,317
Amount recorded in the income statement (3)	(125)	3	(122)	(98)	313	(1)	312	97
Amount recorded in the statement of comprehensive income	—	17	17	—	—	62	62	—
Level 3 transfers in	42	428	470	15	133	207	340	6
Level 3 transfers out	(68)	—	(68)	(116)	(101)	—	(101)	(337)
Purchases	168	10	178	114	366	10	376	100
Settlements	(36)	(4)	(40)	(15)	(113)	—	(113)	(14)
Sales	(156)	(4)	(160)	(107)	(933)	(1)	(934)	(164)
Foreign exchange and other adjustments	(1)	(3)	(4)	(2)	5	8	13	3
At 30 June	1,212	782	1,994	685	1,903	606	2,509	1,008
Amounts recorded in the income statement in respect of balances held at year end - unrealised	(125)	3	(122)	(98)	313	(1)	312	97

Notes:

(1) Trading assets comprise assets held at fair value in trading portfolios.

(2) Other financial assets comprise fair value through other comprehensive income, designated at fair value through profit or loss and other fair value through profit or loss.Movement in the period primarily reflects increase in loan positions classified as HTC&S under IFRS 9 and fair valued through other comprehensive income.

(3) £27 million net losses on trading assets and liabilities (30 June 2020 - £215 million net gains) were recorded in income from trading activities. Net gains on other instruments of £3 million (30 June 2020 - nil gains) were recorded in other operating income and interest income as appropriate.

Notes

7. Financial instruments continued

Valuation reserves

When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, funding and credit risk. These adjustments are presented in the table below:

	30 June	31 December
	2021	2020
	£m	£m
Funding - FVA	79	140
Credit - CVA	385	390
Bid - Offer	108	148
Product and deal specific	163	172
	735	850

● Valuation reserves comprising of credit valuation adjustments (CVA), funding valuation adjustment (FVA), bid-offer and product and deal specific reserves, decreased to £735 million at 30 June 2021 (31 December 2020 – £850 million).

● There was a reallocation of FVA to CVA during the period following an update to the risk management of certain exposures.

● The net decrease across CVA, FVA and bid-offer reserves was driven by reduced exposures, due to increases in interest rates and trade exit activity, and reduced risk.

Notes

7. Financial instruments continued

Financial instruments: fair value of financial instruments measured at amortised cost

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 value hierarchy level
	carrying value	value	Fair value	Level 1	Level 2	Level 3
30 June 2021	£bn	£bn	£bn	£bn	£bn	£bn
Financial assets
Cash and balances at central banks	151.5
Settlement balances	7.8
Loans to banks	0.3	7.9	7.9		5.0	2.9
Loans to customers		362.7	359.8		25.3	334.5
Other financial assets
Securities		9.0	9.1	5.4	0.9	2.8
Financial liabilities
Bank deposits	5.9	8.5	8.5		3.7	4.8
Customer deposits	388.1	79.1	79.1		20.7	58.4
Settlement balances	7.1
Other financial liabilities
Debt securities in issue		44.2	45.3	—	34.9	10.4
Subordinated liabilities		8.0	8.5	—	8.4	0.1
Notes in circulation	2.9
31 December 2020
Financial assets
Cash and balances at central banks	124.5
Settlement balances	2.3
Loans to banks	0.1	6.9	6.9	—	3.8	3.1
Loans to customers		360.5	359.2	—	25.2	334.0
Other financial assets
Securities		9.8	10.1	5.9	1.2	3.0
Financial liabilities
Bank deposits	4.4	16.2	16.2	—	11.3	4.9
Customer deposits	371.7	60.0	60.1	—	10.1	50.0
Settlement balances	5.5
Other financial liabilities
Debt securities in issue		43.4	44.6	—	34.7	9.9
Subordinated liabilities		9.2	9.8	—	9.7	0.1
Notes in circulation	2.7

The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Quoted market values are used where available; otherwise, fair values have been estimated based on discounted expected future cash flows and other valuation techniques. These techniques involve uncertainties and require assumptions and judgments covering prepayments, credit risk and discount rates. Furthermore, there is a wide range of potential valuation techniques. Changes in these assumptions would affect estimated fair values. The fair values reported would not necessarily be realised in an immediate sale or settlement.

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Provisions for liabilities and charges

6 Months Ended

Jun. 30, 2021

Provision for liabilities and charges

Provisions for liabilities and charges

8. Provisions for liabilities and charges

		Litigation and		Financial
	Customer	other		commitments
	redress (1)	regulatory	Property	and guarantees	Other (2)	Total
	£m	£m	£m	£m	£m	£m
At 1 January	749	365	270	179	289	1,852
Expected credit losses impairment charge	—	—	—	6	—	6
Currency translation and other movements	(3)	(5)	—	(1)	(2)	(11)
Charge to income statement	17	8	13	—	60	98
Release to income statement	(4)	(10)	(8)	—	(9)	(31)
Provisions utilised	(222)	(11)	(10)	—	(55)	(298)
At 31 March	537	347	265	184	283	1,616
Expected credit losses impairment release	—	—	—	(18)	—	(18)
Currency translation and other movements	—	—	1	—	(8)	(7)
Charge to income statement	32	1	22	—	42	97
Release to income statement	(7)	(68)	(20)	—	(10)	(105)
Provisions utilised	(87)	(20)	(8)	—	(62)	(177)
At 30 June	475	260	260	166	245	1,406

Notes:

(1) Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.

(2) 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.

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Dividends

6 Months Ended

Jun. 30, 2021

Dividends

Dividends

9. Dividends

The 2020 final dividend was approved by shareholders at the Annual General Meeting on 28 April 2021 and the payment made on 4 May 2021 to shareholders on the register at the close of business on 26 March 2021. NatWest Group plc announces an interim dividend for 2021 of £347 million, or 3p per ordinary share. The interim dividend will be paid on 17 September 2021 to shareholders on the register at close of business on 13 August 2021. The ex-dividend date will be 12 August 2021.

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Loan impairment provisions

6 Months Ended

Jun. 30, 2021

Loan impairment provisions

Loan impairment provisions

10. Loan impairment provisions

Loan exposure and impairment metrics

The table below summarises loans and related credit impairment measures on an IFRS 9 basis.

	30 June	31 December
	2021	2020
	£m	£m
Loans - amortised cost and FVOCI
Stage 1	316,701	287,124
Stage 2	53,188	78,917
Stage 3	5,703	6,358
Of which: individual	1,851	2,292
Of which: collective	3,852	4,066
	375,592	372,399
ECL provisions (1)
Stage 1	433	519
Stage 2	2,300	3,081
Stage 3	2,192	2,586
Of which: individual	560	831
Of which: collective	1,632	1,755
	4,925	6,186
ECL provisions coverage (2, 3)
Stage 1 (%)	0.14	0.18
Stage 2 (%)	4.32	3.90
Stage 3 (%)	38.44	40.67
	1.31	1.66
	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Impairment losses
ECL (release)/charge (4)	(707)	2,858
Stage 1	(701)	308
Stage 2	(100)	2,150
Stage 3	94	400
Of which: individual	(25)	131
Of which: collective	119	269
ECL loss rate - annualised (basis points) (3)	(38)	154
Amounts written off	517	408
Of which: individual	256	41
Of which: collective	261	367

Notes:

(1)     Includes £6 million (31 December 2020 - £6 million) related to assets classified as FVOCI.

(2)     ECL provisions coverage is calculated as ECL provisions divided by loans.

(3)     ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans. The half year ECL charge is annualised by multiplying by two.

(4)     Includes a £4 million charge (30 June 2020 – £5 million charge) related to other financial assets, of which nil (30 June 2020 – £4 million) related to assets classified as FVOCI; and £2 million (30 June 2020 - £8 million) related to contingent liabilities.

(5)     The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 33 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £150.5 billion (31 December 2020 – £122.7 billion) and debt securities of £49.8 billion (31 December 2020 – £53.8 billion).

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Contingent liabilities and commitments

6 Months Ended

Jun. 30, 2021

Contingent liabilities and commitments

Contingent liabilities and commitments

Notes

11. 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 2021. Although NatWest Group is exposed to credit risk in the event of a customer’s failure to meet its obligations, the amounts shown do not, and are not intended to, provide any indication of NatWest Group’s expectation of future losses.

	30 June	31 December
	2021	2020
	£m	£m
Guarantees	2,005	2,244
Other contingent liabilities	2,117	2,321
Standby facilities, credit lines and other commitments	119,387	124,167
Contingent liabilities and commitments	123,509	128,732

Contingent liabilities arise in the normal course of NatWest Group's business; credit exposure is subject to the bank’s normal controls.

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Litigation and regulatory matters

6 Months Ended

Jun. 30, 2021

Litigation and regulatory matters

Litigation and regulatory matters

12.Litigation and regulatory matters

NatWest Group plc and certain members of NatWest 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.

NatWest 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 NatWest 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. NatWest 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 NatWest 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 NatWest 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.

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 NatWest Group has recognised. Where (and as far as) liability cannot be reasonably estimated, no provision has been recognised. NatWest 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.

For a discussion of certain risks associated with NatWest Group’s litigation and regulatory matters (including investigations and customer redress programmes), see the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 363 of NatWest Group plc’s 2020 Annual Report on Form 20-F.

Litigation

Residential mortgage-backed securities (RMBS) litigation in the US

NatWest Group companies continue to defend RMBS-related claims in the US in which plaintiffs allege that certain disclosures made in connection with the relevant offerings of RMBS contained materially false or misleading statements and/or omissions regarding the underwriting standards pursuant to which the mortgage loans underlying the RMBS were issued. The remaining RMBS lawsuits against NatWest Group companies consist of cases filed by the Federal Deposit Insurance Corporation and the State of New Mexico that together involve the issuance of less than US$400 million of RMBS issued primarily from 2005 to 2007. In addition, NWMSI previously agreed to settle a purported RMBS class action entitled New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et al. for US$55.3 million. This was paid into escrow pending court approval of the settlement, which was granted in March 2019, but which is now the subject of an appeal by a class member who does not want to participate in the settlement.

London Interbank Offered Rate (LIBOR) and other rates litigation

NWM Plc and certain other members of NatWest Group, including NatWest Group plc, are defendants in a number of class actions and individual claims pending in the United States District Court for the Southern District of New York (SDNY) with respect to the setting of LIBOR and certain other benchmark interest rates. The complaints allege that certain members of NatWest Group and other panel banks violated various federal laws, including the US commodities and antitrust laws, and state statutory and common law, as well as contracts, by manipulating LIBOR and prices of LIBOR-based derivatives in various markets through various means.

Several class actions relating to USD LIBOR, as well as more than two dozen non-class actions concerning USD LIBOR, are part of a co-ordinated proceeding in the SDNY. In December 2016, the SDNY held that it lacks personal jurisdiction over NWM Plc with respect to certain claims. As a result of that and other decisions, all NatWest Group companies have been dismissed from each of the USD LIBOR-related class actions (including class actions on behalf of over-the-counter plaintiffs, exchange-based purchaser plaintiffs, bondholder plaintiffs, and lender plaintiffs), but seven non-class cases in the co-ordinated proceeding remain pending against NatWest Group defendants. The dismissal of NatWest Group companies for lack of personal jurisdiction is the subject of a pending appeal to the United States Court of Appeals for the Second Circuit. In March 2020, NatWest Group companies finalised a settlement resolving the class action on behalf of bondholder plaintiffs (those who held bonds issued by non-defendants on which interest was paid from 2007 to 2010 at a rate expressly tied to USD LIBOR). The amount of the settlement (which was covered by an existing provision) has been paid into escrow pending court approval of the settlement.

Notes

12. Litigation and regulatory matters continued

Among the non-class claims dismissed by the SDNY in December 2016 were claims that the Federal Deposit Insurance Corporation (FDIC) had asserted on behalf of certain failed US banks. In July 2017, the FDIC, on behalf of 39 failed US banks, commenced substantially similar claims against NatWest Group companies and others in the High Court of Justice of England and Wales. The action alleges that the defendants breached English and European competition law, as well as asserting common law claims of fraud under US law.

In addition, there are two class actions relating to JPY LIBOR and Euroyen TIBOR. The first class action, which relates to Euroyen TIBOR futures contracts, was dismissed by the SDNY in September 2020 on legal grounds, and the plaintiffs have commenced an appeal to the United States Court of Appeals for the Second Circuit. The second class action, which relates to other derivatives allegedly tied to JPY LIBOR and Euroyen TIBOR, is the subject of a motion to dismiss that remains pending in the SDNY.

In addition to the above, five other class action complaints were filed against NatWest Group companies in the SDNY, each relating to a different reference rate. The SDNY dismissed all claims against NWM Plc in the case relating to Euribor for lack of personal jurisdiction in February 2017. The SDNY also dismissed, for various reasons, the case relating to Pound Sterling LIBOR in August 2019, the case relating to Swiss Franc LIBOR in September 2019, and the case relating to the Singapore Interbank Offered Rate and Singapore Swap Offer Rate (‘SIBOR / SOR’) in July 2019. Plaintiffs appealed each of these four dismissals to the United States Court of Appeals for the Second Circuit. The appeals in the Euribor, Pound Sterling LIBOR and Swiss Franc LIBOR cases remain pending, but in June 2021, NWM Plc and the plaintiffs in the Swiss Franc LIBOR class action finalised a settlement resolving that case. The amount of the settlement (which was covered by an existing provision) has been paid into escrow pending court approval of the settlement. The appeal in the SIBOR / SOR case was decided on 17 March 2021, when the United States Court of Appeals for the Second Circuit reversed the SDNY’s prior dismissal, such that the case will now return to the SDNY. In the fifth class action, which relates to the Australian Bank Bill Swap Reference Rate, the SDNY in February 2020 declined to dismiss the amended complaint as against NWM Plc and certain other defendants, but dismissed it as to other members of NatWest Group (including NatWest Group plc). The claims against non-dismissed defendants (including NWM Plc) are now proceeding in discovery.

NWM Plc was also named as a defendant in a motion to certify a class action relating to LIBOR in the Tel Aviv District Court in Israel. NWM Plc filed a motion for cancellation of service, which was granted in July 2020. The claimants appealed that decision and in November 2020 the appeal was refused and the claim dismissed by the Appellate Court. The claim could in future be recommenced depending on the outcome of a separate case under appeal to Israel’s Supreme Court.

In January 2019, a class action antitrust complaint was filed in the SDNY alleging that the defendants (USD ICE LIBOR panel banks and affiliates) have conspired to suppress USD ICE LIBOR from 2014 to the present by submitting incorrect information to ICE about their borrowing costs. The NatWest Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The defendants made a motion to dismiss this case, which was granted by the court in March 2020. Plaintiffs’ appeal of the dismissal is pending in the United States Court of Appeals for the Second Circuit.

In August 2020, a complaint was filed in the United States District Court for the Northern District of California by several United States consumer borrowers against the USD ICE LIBOR panel banks and their affiliates, alleging that the normal process of setting USD ICE LIBOR amounts to illegal price-fixing, and also that banks in the United States have illegally agreed to use LIBOR as a component of price in variable consumer loans. The NatWest Group defendants are NatWest Group plc, NWM Plc, NWMSI and NWB Plc. The plaintiffs seek damages and to prevent the enforcement of LIBOR-based instruments through injunction. Defendants intend to seek dismissal.

Notes

12. Litigation and regulatory matters continued

FX litigation

NWM Plc, NWMSI and / or NatWest Group plc are defendants in several cases relating to NWM Plc’s foreign exchange (FX) business. In 2015, NWM Plc paid US$255 million to settle the consolidated antitrust class action filed in the SDNY on behalf of persons who entered into over-the-counter FX transactions with defendants or who traded FX instruments on exchanges. In 2018, some members of the settlement class who opted out of that class action settlement filed their own non-class complaint in the SDNY asserting antitrust claims against NWM Plc, NWMSI and other banks. Those opt-out claims are proceeding in discovery.

In April 2019, some of the same claimants in the opt-out case described above, as well as others, served proceedings (which are ongoing) in the High Court of Justice of England and Wales, asserting competition claims against NWM Plc and several other banks.

An FX-related class action, on behalf of ‘consumers and end-user businesses’, is proceeding in the SDNY against NWM Plc and others. Plaintiffs have filed a motion for class certification, which defendants are opposing.

In May 2019, a cartel class action was filed in the Federal Court of Australia against NWM Plc and four other banks on behalf of persons who bought or sold currency through FX spots or forwards between 1 January 2008 and 15 October 2013 with a total transaction value exceeding AUD $0.5 million. The claimant has alleged that the banks, including NWM Plc, contravened Australian competition law by sharing information, coordinating conduct, widening spreads and manipulating FX rates for certain currency pairs during this period. NatWest Group plc has been named in the action as an ‘other cartel participant’, but is not a respondent. The claim was served in June 2019. The claimant sought permission to amend its claim to strengthen its claim of alleged breaches of competition law, but this was refused by the court in the form sought by the claimant. The claimant is now seeking a further opportunity to amend its claim, which is being opposed by NWM Plc and the other respondents.

In July and December 2019, two separate applications seeking opt-out collective proceedings orders were filed in the UK Competition Appeal Tribunal against NatWest Group plc, NWM Plc and other banks. Both applications have been brought on behalf of persons who, between 18 December 2007 and 31 January 2013, entered into a relevant FX spot or outright forward transaction in the EEA with a relevant financial institution or on an electronic communications network. A hearing to determine class certification and which of the applications should be permitted to represent the class took place in July 2021 and judgment is awaited.

In November 2020, proceedings were issued in the High Court of Justice of England and Wales against NWM Plc by a claimant who seeks an account of profits and/or damages in respect of alleged historical FX trading misconduct. The claimant has also issued similar proceedings against a number of other banks. The claim against NWM Plc makes allegations of breaches of contract, fiduciary duties, duties of confidence and other matters. The claim was served on NWM Plc in March 2021.

Two motions to certify FX-related class actions were filed in the Tel Aviv District Court in Israel in September and October 2018, and were subsequently consolidated into one motion. The consolidated motion, which names The Royal Bank of Scotland plc (now NWM Plc) as the defendant, was served on NWM Plc in May 2020. NWM Plc has filed a motion for cancellation of service outside the jurisdiction, which remains pending.

Certain other foreign exchange transaction related claims have been or may be threatened. NatWest Group cannot predict whether all or any of these claims will be pursued.

Government securities antitrust litigation

NWMSI and certain other US broker-dealers are defendants in a consolidated antitrust class action pending in the SDNY on behalf of persons who transacted in US Treasury securities or derivatives based on such instruments, including futures and options. The plaintiffs allege that defendants rigged the US Treasury securities auction bidding process to deflate prices at which they bought such securities and colluded to increase the prices at which they sold such securities to plaintiffs. The complaint was dismissed in March 2021. Plaintiffs have filed an amended complaint, which defendants will again seek to have dismissed.

Notes

12. Litigation and regulatory matters continued

Class action antitrust claims commenced in March 2019 are pending in the SDNY against NWM Plc, NWMSI and other banks in respect of Euro-denominated bonds issued by European central banks (EGBs). The complaint alleges a conspiracy among dealers of EGBs to widen the bid-ask spreads they quoted to customers, thereby increasing the prices customers paid for the EGBs or decreasing the prices at which customers sold the bonds. The class consists of those who purchased or sold EGBs in the US between 2007 and 2012. The defendants filed a motion to dismiss this matter, which was granted by the court in respect of NWM Plc and NWMSI in July 2020. Plaintiffs have filed an amended complaint which defendants are seeking to have dismissed.

Swaps antitrust litigation

NWM Plc and other members of NatWest Group , including NatWest Group plc, as well as a number of other interest rate swap dealers, are defendants in several cases pending in the SDNY alleging violations of the US antitrust laws in the market for interest rate swaps. There is a consolidated class action complaint on behalf of persons who entered into interest rate swaps with the defendants, as well as non-class action claims by three swap execution facilities (TeraExchange, Javelin, and trueEx). The plaintiffs allege that the swap execution facilities would have successfully established exchange-like trading of interest rate swaps if the defendants had not unlawfully conspired to prevent that from happening through boycotts and other means. Discovery in these cases is complete, and the plaintiffs' motion for class certification remains pending.

In addition, in June 2017, TeraExchange filed a complaint against NatWest Group companies, including NatWest Group plc, as well as a number of other credit default swap dealers, in the SDNY. TeraExchange alleges it would have established exchange-like trading of credit default swaps if the defendant dealers had not engaged in an unlawful antitrust conspiracy. In October 2018, the court dismissed all claims against NatWest Group companies.

On 30 June 2021, a class action antitrust complaint was filed against a number of credit default swap dealers in New Mexico federal court on behalf of persons who, from 2005 onwards, settled credit default swaps in the United States by reference to the ISDA credit default swap auction protocol. The complaint alleges that the defendants conspired to manipulate that benchmark through various means in violation of the antitrust laws and the Commodity Exchange Act. The defendants include several NatWest Group companies, including NatWest Group plc.

Odd lot corporate bond trading antitrust litigation

NWMSI is the subject of a class action antitrust complaint filed in the SDNY against NWMSI and several other securities dealers. The complaint alleges that, from August 2006 to the present, the defendants conspired artificially to widen spreads for odd lots of corporate bonds bought or sold in the United States secondary market and to boycott electronic trading platforms that would have allegedly promoted pricing competition in the market for such bonds. Defendants filed a motion to dismiss the operative complaint in this matter in December 2020.

Madoff

NWM N.V. is a defendant in two actions filed by Irving Picard, as trustee for the bankruptcy estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, in bankruptcy court in New York. In both cases, the trustee alleges that certain transfers received by NWM N.V. amounted to fraudulent conveyances that should be clawed back for the benefit of the Madoff estate.

In the primary action, filed in December 2010, the trustee is seeking to clawback a total of US$276.3 million in redemptions that NWM N.V. allegedly received from certain Madoff feeder funds and certain swap counterparties. In March 2020, the bankruptcy court denied the trustee’s request for leave to amend its complaint to include additional allegations against NWM N.V., holding that, even with the proposed amendments, the complaint would fail as a matter of law to state a valid claim against NWM N.V. The trustee has commenced an appeal of the bankruptcy court’s decision, which has been stayed pending the result of appeals in different proceedings, against different defendants, that involve similar issues. In the second action, filed in October 2011, the trustee seeks to recover an additional US$21.8 million. This action has been stayed pending the result of the appeal in the primary action.

Interest rate hedging products and similar litigation

NatWest Group continues to deal with a small number of active litigation claims in the UK relating to the alleged mis-selling of interest rate hedging products.

Separately, NWM Plc is defending claims filed in France by two French local authorities relating to structured interest rate swaps. The plaintiffs allege, among other things, that the swaps are void for being illegal transactions, that they were mis-sold, and that information / advisory duties were breached. One of the claims has been appealed to the Supreme Court and judgment is awaited. The other has been remitted from the Supreme Court to the Court of Appeal for reconsideration of one aspect. NWM N.V. was a defendant in the latter case but has been dismissed from the proceedings.

EUA trading litigation

HMRC issued a tax assessment in 2012 against NatWest Group plc for approximately £86 million regarding a value-added-tax (VAT) matter in relation to the trading of European Union Allowances (EUAs) by the subsidiary of a joint venture partnership in 2009. NatWest Group plc lodged an appeal challenging the assessment before the First-tier Tribunal (Tax), a specialist tax tribunal, (the ‘Tax Dispute’). The matter was resolved in July 2021.

Notes

12. Litigation and regulatory matters continued

Separately, NWM Plc was a named defendant in civil proceedings before the High Court of Justice of England and Wales brought in 2015 by ten companies (all in liquidation) (the 'Liquidated Companies') and their respective liquidators (together, 'the Claimants'). The Liquidated Companies previously traded in EUAs in 2009 and were alleged to be defaulting traders within (or otherwise connected to) the EUA supply chains forming the subject of the Tax Dispute. The Claimants claimed approximately £71.4 million plus interest and costs and alleged that NWM Plc dishonestly assisted the directors of the Liquidated Companies in the breach of their statutory duties and/or knowingly participated in the carrying on of the business of the Liquidated Companies with intent to defraud creditors. The trial in that matter concluded in July 2018 and judgment was issued in March 2020. The court held that NWM Plc and Mercuria Energy Europe Trading Limited ('Mercuria') were liable for dishonestly assisting and knowingly being a party to fraudulent trading during a seven business day period in 2009. In October 2020, the High Court quantified damages against NWM Plc at £45 million plus interest and costs, and permitted it to appeal to the Court of Appeal. On 10 May 2021 the Court of Appeal set aside the High Court’s judgment and ordered that a retrial take place before a different High Court judge. The claimants have sought permission from the Supreme Court to appeal. The Court of Appeal also dismissed an appeal by Mercuria against the finding by the High Court that NWM Plc and Mercuria were both vicariously liable. Mercuria has sought permission from the Supreme Court to appeal that decision.

Offshoring VAT assessments

HMRC issued protective tax assessments in 2018 against NatWest Group plc totalling £143 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 the £143 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.

US Anti-Terrorism Act litigation

NWB Plc is a defendant in lawsuits filed in the United States District Court for the Eastern District of New York by a number of US nationals (or their estates, survivors, or heirs) who were victims of terrorist attacks in Israel. The plaintiffs allege that NWB Plc is liable for damages arising from those attacks pursuant to the US Anti-Terrorism Act because NWB Plc previously maintained bank accounts and transferred funds for the Palestine Relief & Development Fund, an organisation which plaintiffs allege solicited funds for Hamas, the alleged perpetrator of the attacks.

In October 2017, the trial court dismissed claims against NWB Plc with respect to two of the 18 terrorist attacks at issue. In March 2018, the trial court granted a request by NWB Plc for leave to file a renewed summary judgment motion in respect of the remaining claims, and in March 2019, the court granted summary judgment in favour of NWB Plc. In April 2021, the United States Court of Appeals for the Second Circuit affirmed the trial court’s judgment in favour of NWB Plc, subject to the right of the plaintiffs to seek discretionary review by the United States Supreme Court.

NWM N.V. and certain other financial institutions are defendants in several actions pending in the United States District Courts for the Eastern and Southern Districts of New York, filed by a number of US nationals (or their estates, survivors, or heirs), most of whom are or were US military personnel, who were killed or injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant in some of these cases.

Notes

12. Litigation and regulatory matters continued

The attacks at issue in the cases were allegedly perpetrated by Hezbollah and certain Iraqi terror cells allegedly funded by the Islamic Republic of Iran. According to the plaintiffs’ allegations, the defendants are liable for damages arising from the attacks because they allegedly conspired with Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells, in violation of the US Anti-Terrorism Act, by agreeing to engage in ‘stripping’ of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected.

The first of these actions was filed in the United States District Court for the Eastern District of New York in November 2014. In September 2019, the district court dismissed the case, finding that the claims were deficient for several reasons, including lack of sufficient allegations as to the alleged conspiracy and causation. The plaintiffs are appealing the decision to the United States Court of Appeals for the Second Circuit. Another action, filed in the SDNY in 2017, was dismissed in March 2019 on similar grounds, but remains subject to appeal to the United States Court of Appeals for the Second Circuit. Other follow-on actions that are substantially similar to the two that have now been dismissed are pending in the same courts.

Securities underwriting litigation

NWMSI is an underwriter defendant in several securities class actions in the US in which plaintiffs generally allege that an issuer of public debt or equity securities, as well as the underwriters of the securities (including NWMSI), are liable to purchasers for misrepresentations and omissions made in connection with the offering of such securities.

1MDB litigation

Recent media reports suggest that a claim for a material sum has recently been issued in Malaysia by 1MDB against Coutts & Co Ltd for alleged losses in connection with the 1MDB fund. Coutts & Co Ltd is a company registered in Switzerland and is in wind-down following the announced sale of its business assets in 2015.

Regulatory matters (including investigations and customer redress programmes)

NatWest Group’s businesses and financial condition can be affected by the actions of various governmental and regulatory authorities in the UK, the US, the EU and elsewhere. NatWest Group has 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.

The NatWest Markets business in particular has been providing, and continues to provide, information regarding a variety of matters, including, for example, offering of securities, the setting of benchmark rates and related derivatives trading, conduct in the foreign exchange market, product mis-selling and various issues relating to the issuance, underwriting, and sales and trading of fixed-income securities, including structured products and government securities, some of which have resulted, and others of which may result, in investigations or proceedings.

Notes

12. Litigation and regulatory matters continued

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 NatWest Group, remediation of systems and controls, public or private censure, restriction of NatWest 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 NatWest 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.

NatWest Group is co-operating fully with the matters described below.

Investigations

US investigations relating to fixed-income securities

In October 2017, NWMSI entered into a non-prosecution agreement (NPA) with the United States Attorney for the District of Connecticut (USAO) in connection with alleged misrepresentations to counterparties relating to secondary trading in various forms of asset-backed securities. In the NPA, the USAO agreed not to file criminal charges relating to certain conduct and information described in the NPA, conditioned on NWMSI and affiliated companies complying with the NPA’s reporting and conduct requirements during its term, including by not engaging in conduct during the NPA that the USAO determines was a felony under federal or state law or a violation of the anti-fraud provisions of the United States securities law.

Notes

12. Litigation and regulatory matters continued

The NatWest Markets business is currently responding to a separate criminal investigation by the USAO and the US Department of Justice (DoJ) concerning unrelated trading by certain NatWest Markets former traders involving alleged spoofing. The NPA (referred to above) has been extended as the criminal investigation has progressed and related discussions with the USAO and the DoJ, including relating to the impact of such alleged conduct on the status of the NPA and the potential consequences thereof, have been ongoing. The duration and outcome of these matters remain uncertain, including in respect of whether settlement may be reached. Material adverse collateral consequences, in addition to further substantial costs and the recognition of further provisions, may occur depending on the outcome of the investigations, as further described in the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 363 of NatWest Group plc’s 2020 Annual Report on Form 20-F.

Foreign exchange related investigations

In recent years, NWM Plc paid significant penalties to resolve investigations into its FX business by the FCA, the Commodity Futures Trading Commission, the DoJ, the Board of Governors of the Federal Reserve System, the European Commission (EC) and others. NWM Plc continues to co-operate with ongoing investigations from competition authorities on similar issues relating to past FX trading. The exact timing and amount of future financial penalties, related risks and collateral consequences remain uncertain and may be material.

EGB investigation

On 20 May 2021, the EC announced that it had adopted a decision in relation to an investigation into potential competition law violations in the primary and secondary market trading of EGBs between 2007 and 2011 which involved the NatWest Markets business and six other banks. NatWest Group revealed the conduct to the EC and co-operated throughout the EC’s investigation. NatWest Group was granted immunity by the EC and was not fined.

FCA investigation into NatWest Group’s compliance with the Money Laundering Regulations 2007

In July 2017, the FCA notified NatWest Group that it was undertaking an investigation into NatWest Group’s compliance with the UK Money Laundering Regulations 2007 (‘MLR 2007’) in relation to certain money service businesses and related parties. The investigation is assessing both criminal and civil culpability. NatWest Group is co-operating with the investigation, including responding to information requests from the FCA.

On 15 March 2021, the FCA notified NatWest Group that it had commenced criminal proceedings against NWB Plc for offences under regulation 45(1) of the MLR 2007 for alleged failures to comply with regulations 8(1), 8(3) and 14(1) of the MLR 2007 between 11 November 2011 and 19 October 2016, arising from the handling of the accounts of a UK incorporated customer. These regulations require the firm to determine, conduct and demonstrate risk sensitive due diligence and ongoing monitoring of its relationships with its customers for the purposes of preventing money laundering. NWB Plc will be required to attend an initial hearing at Westminster Magistrates’ Court on 15 September 2021. Material adverse collateral consequences, in addition to further substantial costs and the recognition of provisions, may occur as a result of any conviction.

Systematic Anti-Money Laundering Programme assessment

In December 2018, the FCA commenced a Systematic Anti-Money Laundering Programme assessment of NatWest Group. In August 2019, the FCA instructed NatWest Group to appoint a Skilled Person under section 166 of the Financial Services and Markets Act 2000 to provide assurance on financial crime governance arrangements in relation to two financial crime change programmes. NatWest Group is co-operating with the Skilled Person’s review, which is ongoing.

FCA mortgages market study

In December 2016, the FCA launched a market study into the provision of mortgages. In March 2019 the final report was published. This found that competition was working well for many customers but also proposed remedies to help customers shop around more easily for mortgages. A period of consultation remains ongoing and the FCA has indicated that it intends to provide updates on the remedies in due course.

Customer redress programmes

FCA review of NatWest Group’s treatment of SMEs

In 2014, the FCA appointed an independent Skilled Person under section 166 of the Financial Services and Markets Act 2000 to review NatWest Group’s treatment of SME customers whose relationship was managed by NatWest Group’s Global Restructuring Group (GRG) in the period 1 January 2008 to 31 December 2013.

In response to the Skilled Person’s final report and update in 2016, NatWest Group announced redress steps for SME customers in the UK and the Republic of Ireland that were in GRG between 2008 and 2013. These steps were (i) an automatic refund of certain complex fees; and (ii) a new complaints process, overseen by an independent third party. The complaints process has since closed to new complaints.

NatWest Group’s remaining provisions in relation to these matters at 30 June 2021 were £22 million.

Notes

12. Litigation and regulatory matters continued

Investment advice review

During 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 now concluded and, after discussion with the FCA, NatWest Group is now conducting additional review / remediation work. NatWest Group recognised an increased provision in relation to these matters at 31 December 2020.

Review and investigation of treatment of tracker mortgage customers in Ulster Bank Ireland DAC

In December 2015, correspondence was received from the CBI setting out an industry examination framework in respect of the sale of tracker mortgages from approximately 2001 until the end of 2015. The redress and compensation phase has concluded, although an appeals process is currently anticipated to run until at least the end of 2021. NatWest Group has made provisions totalling €350 million (£300 million), of which €328 million (£282 million) had been utilised by 30 June 2021 in respect of redress and compensation.

In April 2016, the CBI commenced an investigation into suspected breaches by UBIDAC of specified provisions of the Consumer Protection Code 2006 in its treatment of certain tracker mortgage customers. On 23 March 2021, UBIDAC agreed with the CBI to pay a fine of €37.8 million for breaches of its regulatory obligations in respect of its treatment of tracker mortgage customers. The fine was substantially covered by existing provisions.

UBIDAC previously identified further legacy business issues, as an extension to the tracker mortgage review. These remediation programmes are ongoing. NatWest Group has made provisions of €163 million (£140 million), of which €151 million (£130 million) had been utilised by 30 June 2021 for these programmes.

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Related party transactions

6 Months Ended

Jun. 30, 2021

Related party transactions

Related party transactions

13. Related party transactions

UK Government

The UK Government and bodies controlled or jointly controlled by the UK Government and bodies over which it has significant influence are related parties of NatWest Group.

NatWest Group’s other transactions with the UK Government include the payment of taxes, principally UK corporation tax and value added tax; national insurance contributions; local authority rates; and regulatory fees and levies (including the bank levy and FSCS levies).

Bank of England facilities

In the ordinary course of business, NatWest 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, NatWest Group companies provide development and other types of capital support to businesses. In some instances, the investment may extend to ownership or control over 20% or more of the voting rights of the investee company. However, these investments are not considered to give rise to transactions of a materiality requiring disclosure under IAS 24.

(b)NatWest Group recharges The NatWest Group Pension Fund with the cost of administration services incurred by it. The amounts involved are not material to NatWest Group.

Full details of NatWest Group’s related party transactions for the year ended 31 December 2020 are included in NatWest Group plc’s 2020 Annual Report on Form 20-F.

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UBIDAC significant transactions

6 Months Ended

Jun. 30, 2021

UBIDAC significant transactions

UBIDAC significant transactions

14. UBIDAC significant transactions

On 28 June 2021, UBIDAC and NWH entered into a binding agreement with Allied Irish Banks p.l.c. (AIB) for the sale of c.€ 4.2 billion gross performing commercial lending and associated undrawn exposures of c.€ 2.8 billion. Approximately 280 colleagues will transfer from UBIDAC to AIB with the final number of roles confirmed as the deal completes. RWAs in relation to these total balances are estimated at c.€ 4 billion. This transaction is subject to regulatory approvals. On completion, it is estimated that a small gain on disposal will be recognised, based on the net carrying value of the lending as at 31 December 2020. The exact impacts of disposal will depend on movements in the book between now and transfer, the timing of which remains uncertain.

On 23 July 2021, NatWest Group and UBIDAC have entered into a non-binding Memorandum of Understanding (MOU) with Permanent TSB Group Holdings p.l.c. (PTSB) for the proposed sale of a perimeter comprising performing non-tracker mortgages, performing micro-SME loans, UBIDAC's asset finance business and 25 of its branch locations. The TUPE principle will apply to staff wholly or mainly assigned to the agreed in-scope perimeter. The proposed perimeter included approximately € 7.6 billion of gross performing loans as at 31 March 2021, the majority relating to non-tracker mortgages. As part of the consideration for the proposed transaction, it is proposed that NatWest Group would receive a minority non-consolidating equity stake in PTSB. The proposed sale may not be concluded on the terms contemplated in the MoU, or at all. No estimate of any financial effect of the potential transaction can be made at the date of approval of these accounts.

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Post balance sheet events

6 Months Ended

Jun. 30, 2021

Post balance sheet events

Post balance sheet events

15. Post balance sheet events

NatWest Group has announced plans to commence an ordinary share buy-back programme of up to £750 million in the second half of the year.

Other than as disclosed in this document, there have been no significant events between 30 June 2021 and the date of approval of this announcement which would require a change to, or additional disclosure, in the announcement.

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Date of approval

6 Months Ended

Jun. 30, 2021

Date of approval

Date of approval

16. Date of approval

This announcement was approved by the Board of Directors on 29 July 2021.

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Accounting policies (Policies)

6 Months Ended

Jun. 30, 2021

Accounting policies

Critical accounting policies and key sources of estimation uncertainty

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of NatWest Group’s financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgements are referenced on page 267 of the NatWest Group plc 2020 Annual Report on Form 20-F. Estimation uncertainty has been affected by the COVID-19 pandemic. Management’s consideration of this source of uncertainty is outlined in the relevant sections of the NatWest Group plc 2020 Annual Report on Form 20-F, including the ECL estimate for the period in the Risk and capital management section contained in the NatWest Group plc 2020 Annual Report on Form 20-F.

Information used for significant estimates

Information used for significant estimates

The COVID-19 pandemic has continued to cause significant economic and social disruption. Key financial estimates are based on a range of anticipated future economic conditions described by internally developed scenarios. Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods. Refer to the NatWest Group plc Risk factors section in the 2020 Annual Report on Form 20-F.

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Analysis of income, expenses and impairment losses (Tables)

6 Months Ended

Jun. 30, 2021

Analysis of income, expenses and impairment losses.

Summary of analysis of income, expenses and impairment losses

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Loans to customers - amortised cost	4,433	4,698
Loans to banks - amortised cost	217	189
Other financial assets	132	303
Interest receivable	4,782	5,190
Deposits by banks	99	89
Customer deposits	319	432
Other financial liabilities	314	481
Subordinated liabilities	130	218
Internal funding of trading businesses	4	118
Interest payable	866	1,338
Net interest income	3,916	3,852

Net fees and commissions	1,027	1,038
Foreign exchange	183	344
Interest rate	(6)	472
Credit	54	(68)
Own credit adjustment	—	53
Equity, commodities and other	—	1
Income from trading activities	231	802
Loss on redemption of own debt (1)	(138)	—
Operating lease and other rental income	108	119
Changes in fair value of financial assets or liabilities designated at fair value through profit or loss (2)	(4)	(21)
Changes in fair value of other financial assets at fair value through profit or loss	—	(10)
Hedge ineffectiveness	13	(10)
Loss on disposal of amortised assets	(6)	(16)
Profit on disposal of fair value through other comprehensive income assets	24	108
Profit on sale of property, plant and equipment	6	11
Share of profit of associated entities	129	12
Profit/(loss) on disposal of subsidiaries and associates	1	(99)
Other income (3)	12	52
Other operating income	145	146
Total non-interest income	1,403	1,986
Total income	5,319	5,838

Salaries	1,192		1,290
Bonus awards	142		179
Temporary and contract costs	114		148
Social security costs	152		153
Pension costs	177		164
- defined benefit schemes	110		101
- defined contribution schemes	67		63
Other	125		21
Staff costs	1,902		1,955
Premises and equipment (4)	502		651
Depreciation and amortisation (5)	414		448
Other administrative expenses (6)	703		696
Administrative expenses	1,619		1,795
Operating expenses	3,521		3,750
Impairment releases/(losses)	707		(2,858)
Impairments as a % of gross loans to customers	0.38	%	1.59	%

Notes:

(1)     Representing day one loss on redemption of own debt related to the repurchase of legacy instruments.

(2)     Includes related derivatives.

(3)     Includes income from activities other than banking.

(4)    30 June 2021 includes cost of £20 million including accelerated depreciation of £12 million (30 June 2020 - £102 million including £40 million accelerated depreciation) in relation to the planned reduction of the property portfolio (30 June 2021 – freehold £1 million; leasehold £19 million; 30 June 2020 - leasehold £102 million).

(5)    30 June 2021 includes a £23 million charge relating to the reduction in property portfolio, leasehold £19 million and freehold £4 million (30 June 2020 - £43 million charge, leasehold £43 million).

(6)    Includes litigation and conduct costs.

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Segmental analysis (Tables)

6 Months Ended

Jun. 30, 2021

Segmental analysis

Schedule of operating segments

Analysis of operating profit/(loss) before tax

The following tables provide a segmental analysis of operating profit/(loss) before tax by the main income statement captions.

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	other (1)	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Net interest income	1,976	232	1,308	182	(3)	187	34	3,916
Net fees and commissions	173	124	560	59	83	38	(10)	1,027
Other non-interest income	1	12	55	15	215	18	60	376
Total income	2,150	368	1,923	256	295	243	84	5,319
Operating expenses	(1,187)	(249)	(1,152)	(112)	(560)	(261)	—	(3,521)
Impairment releases/(losses)	57	27	568	29	16	11	(1)	707
Operating profit/(loss)	1,020	146	1,339	173	(249)	(7)	83	2,505
Half year ended 30 June 2020
Net interest income	1,982	251	1,370	201	(34)	194	(112)	3,852
Net fees and commissions	204	130	552	43	76	44	(11)	1,038
Other non-interest income	(1)	11	81	15	774	11	57	948
Total income	2,185	392	2,003	259	816	249	(66)	5,838
Operating expenses	(1,075)	(252)	(1,221)	(126)	(707)	(245)	(124)	(3,750)
Impairment losses	(657)	(56)	(1,790)	(46)	(40)	(243)	(26)	(2,858)
Operating profit/(loss)	453	84	(1,008)	87	69	(239)	(216)	(770)

Note:

(1) 30 June 2021 predominantly relates to interest receivable in Treasury and 30 June 2020 predominantly related to interest receivable in Treasury and strategic disposals in Functions.

Total revenue⁽¹⁾

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	Other	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
External	2,667	358	1,861	278	523	275	508	6,470
Inter-segmental	14	60	43	3	17	—	(137)	—
Total	2,681	418	1,904	281	540	275	371	6,470
Half year ended 30 June 2020
External	2,764	358	2,009	269	1,328	277	563	7,568
Inter-segmental	24	99	47	3	4	—	(177)	—
Total	2,788	457	2,056	272	1,332	277	386	7,568

Note:

(1) Total revenue comprises interest receivable, fees and commissions receivable, income from trading activities and other operating income.

Notes

4. Segmental analysis continued

Analysis of net fees and commissions

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items
	Banking	Banking	Banking	International	Markets	RoI	& other	Total
Half year ended 30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Fees and commissions receivable
- Payment services	145	16	255	6	10	28	—	460
- Credit and debit card fees	149	4	69	1	—	8	—	231
- Lending and financing	6	4	242	28	34	7	—	321
- Investment management, trustee and fiduciary services	1	113	—	22	—	1	—	137
- Underwriting fees	—	—	—	—	77	—	—	77
- Other	32	19	63	3	25	—	(56)	86
Total	333	156	629	60	146	44	(56)	1,312
Fees and commissions payable	(160)	(32)	(69)	(1)	(63)	(6)	46	(285)
Net fees and commissions	173	124	560	59	83	38	(10)	1,027
Half year ended 30 June 2020
Fees and commissions receivable
- Payment services	129	14	256	9	9	28	—	445
- Credit and debit card fees	144	4	60	1	—	10	—	219
- Lending and financing	37	2	241	15	46	7	—	348
- Investment management, trustee and fiduciary services	1	113	—	17	—	1	—	132
- Underwriting fees	—	—	—	—	124	—	—	124
- Other	34	18	48	2	98	2	(40)	162
Total	345	151	605	44	277	48	(40)	1,430
Fees and commissions payable	(141)	(21)	(53)	(1)	(201)	(4)	29	(392)
Net fees and commissions	204	130	552	43	76	44	(11)	1,038

Total assets and liabilities

				International Banking & Markets		Ulster	Central
	Retail	Private	Commercial	RBS	NatWest	Bank	items &
	Banking	Banking	Banking	International	Markets	RoI	other	Total
30 June 2021	£m	£m	£m	£m	£m	£m	£m	£m
Assets	204,167	27,686	185,757	36,953	219,447	25,422	76,426	775,858
Liabilities	187,851	34,808	183,837	34,843	206,160	21,872	62,602	731,973
31 December 2020
Assets	197,618	26,206	187,413	33,984	270,147	26,620	57,503	799,491
Liabilities	178,617	32,457	174,251	31,989	254,098	22,993	61,262	755,667

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Tax (Tables)

6 Months Ended

Jun. 30, 2021

Tax

Schedule of reconciliation of actual tax charge from the expected tax charge

	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Profit/(loss) before tax	2,505	(770)
Expected tax (charge)/credit	(476)	146
Losses and temporary differences in period where no deferred tax assets recognised	(6)	(38)
Foreign profits taxed at other rates	4	(24)
Items not allowed for tax:
- losses on disposals and write-downs	(3)	(14)
- UK bank levy	(11)	(15)
- regulatory and legal actions	3	20
- other disallowable items	(10)	(23)
Non-taxable items	25	68
Taxable foreign exchange movements	—	(2)
Losses bought forward and utilised	6	23
Decrease in the carrying value of deferred tax assets in respect of:
- UK losses	(5)	(56)
- Ireland losses	(35)	(20)
Banking surcharge	(173)	52
Tax on paid-in equity	32	38
UK tax rate change impact	206	75
Adjustments in respect of prior periods	8	(22)
Actual tax (charge)/credit	(435)	208

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Trading assets and liabilities (Tables)

6 Months Ended

Jun. 30, 2021

Trading assets and liabilities

Schedule of trading assets and liabilities

	30 June	31 December
	2021	2020
Assets	£m	£m
Loans
Reverse repos	24,718	19,404
Collateral given	12,955	18,760
Other loans	1,154	1,611
Total loans	38,827	39,775
Securities
Central and local government
- UK	5,121	4,184
- US	4,088	5,149
- other	18,347	16,436
Financial institutions and corporate	3,812	3,446
Total securities	31,368	29,215
Total	70,195	68,990
Liabilities
Deposits
Repos	23,720	19,036
Collateral received	17,165	23,229
Other deposits	1,646	1,804
Total deposits	42,531	44,069
Debt securities in issue	1,205	1,408
Short positions	32,111	26,779
Total	75,847	72,256

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Financial instruments: classification (Tables)

6 Months Ended

Jun. 30, 2021

Financial instruments: classification

Schedule of classification for financial assets and liabilities

			Amortised	Other
	MFVTPL	FVOCI	cost	assets	Total
Assets	£m	£m	£m	£m	£m
Cash and balances at central banks			151,511		151,511
Trading assets	70,195				70,195
Derivatives (1)	109,556				109,556
Settlement balances			7,793		7,793
Loans to banks - amortised cost (2)			8,176		8,176
Loans to customers - amortised cost (3)			362,711		362,711
Other financial assets	340	42,085	9,044		51,469
Intangible assets				6,694	6,694
Other assets				7,753	7,753
30 June 2021	180,091	42,085	539,235	14,447	775,858
Cash and balances at central banks			124,489		124,489
Trading assets	68,990				68,990
Derivatives (1)	166,523				166,523
Settlement balances			2,297		2,297
Loans to banks - amortised cost (2)			6,955		6,955
Loans to customers - amortised cost (3)			360,544		360,544
Other financial assets	440	44,902	9,806		55,148
Intangible assets				6,655	6,655
Other assets				7,890	7,890
31 December 2020	235,953	44,902	504,091	14,545	799,491

	Held-for-		Amortised	Other
	trading	DFV	cost	liabilities	Total
Liabilities	£m	£m	£m	£m	£m
Bank deposits (4)			14,394		14,394
Customer deposits			467,214		467,214
Settlement balances			7,119		7,119
Trading liabilities	75,847				75,847
Derivatives (1)	103,992				103,992
Other financial liabilities		1,961	44,157		46,118
Subordinated liabilities		744	7,952		8,696
Notes in circulation			2,906		2,906
Other liabilities (5)			1,818	3,869	5,687
30 June 2021	179,839	2,705	545,560	3,869	731,973
Bank deposits (4)			20,606		20,606
Customer deposits			431,739		431,739
Settlement balances			5,545		5,545
Trading liabilities	72,256				72,256
Derivatives (1)	160,705				160,705
Other financial liabilities		2,403	43,408		45,811
Subordinated liabilities		793	9,169		9,962
Notes in circulation			2,655		2,655
Other liabilities (5)			1,882	4,506	6,388
31 December 2020	232,961	3,196	515,004	4,506	755,667

Notes:

(1) Includes net hedging derivatives assets of £42 million (31 December 2020 - £93 million) and net hedging derivatives liabilities of £136 million (31 December 2020 - £130 million).

(2) Includes items in the course of collection from other banks of £275 million (31 December 2020 - £148 million).

(3) Includes finance lease receivables of £8,765 million (31 December 2020 - £9,061 million).

(4) Includes items in the course of transmission to other banks of £92 million (31 December 2020 - £12 million).

(5) Includes lease liabilities of £1,652 million (31 December 2020 - £1,698 million).

Notes

7. Financial instruments continued

Schedule of financial assets and liabilities

	30 June	31 December
	2021	2020
	£m	£m
Reverse repos
Trading assets	24,718	19,404
Loans to banks - amortised cost	382	153
Loans to customers - amortised cost	22,706	25,011
Repos
Bank deposits	4,261	6,470
Customer deposits	16,751	5,167
Trading liabilities	23,720	19,036

Schedule of financial assets and liabilities at fair value by valuation hierarchy

	30 June 2021				31 December 2020
	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Assets
Trading assets
Loans	—	38,664	163	38,827	—	39,550	225	39,775
Securities	22,048	9,205	115	31,368	21,535	7,599	81	29,215
Derivatives	—	108,622	934	109,556	—	165,441	1,082	166,523
Other financial assets
Loans	—	394	588	982	—	185	168	353
Securities	32,422	8,827	194	41,443	35,972	8,850	167	44,989
Total financial assets held at fair value	54,470	165,712	1,994	222,176	57,507	221,625	1,723	280,855
Liabilities
Trading liabilities
Deposits	—	42,528	3	42,531	—	44,062	7	44,069
Debt securities in issue	—	1,205	—	1,205	—	1,408	—	1,408
Short positions	23,659	8,451	1	32,111	19,045	7,734	—	26,779
Derivatives	—	103,311	681	103,992	—	159,818	887	160,705
Other financial liabilities
Debt securities in issue	—	1,243	—	1,243	—	1,607	—	1,607
Other deposits	—	718	—	718	—	796	—	796
Subordinated liabilities	—	744	—	744	—	793	—	793
Total financial liabilities held at fair value	23,659	158,200	685	182,544	19,045	216,218	894	236,157

Notes:

(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. Examples include most government agency securities, investment-grade corporate bonds, certain mortgage products, including CLOs, most bank loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most notes issued, and certain money market securities and 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 cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, certain emerging markets and derivatives with unobservable model inputs.

(2) Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred. There were no significant transfers between level 1 and level 2.

(3) For an analysis of debt securities held at mandatorily fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital management – Credit risk.

(4) The determination of an instrument’s level cannot be made at a global product level as a single product type can be in more than one level. For example, a single name corporate credit default swap could be in level 2 or level 3 depending on whether the reference counterparty’s obligations are liquid or illiquid.

Schedule of financial instruments carried at fair value on the balance sheet by valuation sensitivities for level 3 balances

	30 June 2021			31 December 2020
	Level 3	Favourable	Unfavourable	Level 3	Favourable	Unfavourable
	£m	£m	£m	£m	£m	£m
Assets
Trading assets
Loans	163	10	—	225	10	—
Securities	115	10	—	81	—	—
Derivatives	934	60	(70)	1,082	80	(80)
Other financial assets
Loans	588	30	(50)	168	20	(10)
Securities	194	30	(20)	167	30	(20)
Total financial assets held at fair value	1,994	140	(140)	1,723	140	(110)
Liabilities
Trading liabilities
Deposits	3	—	—	7	—	—
Short Positions	1	—	—	—	—	—
Derivatives	681	40	(40)	887	50	(40)
Total financial liabilities held at fair value	685	40	(40)	894	50	(40)

Schedule of movement in level 3 assets and liabilities

	Half year ended 30 June 2021				Half year ended 30 June 2020
		Other				Other
	Trading	financial	Total	Total	Trading	financial	Total	Total
	assets (1)	assets (2)	assets	liabilities	assets (1)	assets (2)	assets	liabilities
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	1,388	335	1,723	894	2,233	321	2,554	1,317
Amount recorded in the income statement (3)	(125)	3	(122)	(98)	313	(1)	312	97
Amount recorded in the statement of comprehensive income	—	17	17	—	—	62	62	—
Level 3 transfers in	42	428	470	15	133	207	340	6
Level 3 transfers out	(68)	—	(68)	(116)	(101)	—	(101)	(337)
Purchases	168	10	178	114	366	10	376	100
Settlements	(36)	(4)	(40)	(15)	(113)	—	(113)	(14)
Sales	(156)	(4)	(160)	(107)	(933)	(1)	(934)	(164)
Foreign exchange and other adjustments	(1)	(3)	(4)	(2)	5	8	13	3
At 30 June	1,212	782	1,994	685	1,903	606	2,509	1,008
Amounts recorded in the income statement in respect of balances held at year end - unrealised	(125)	3	(122)	(98)	313	(1)	312	97

Notes:

(1) Trading assets comprise assets held at fair value in trading portfolios.

(2) Other financial assets comprise fair value through other comprehensive income, designated at fair value through profit or loss and other fair value through profit or loss.Movement in the period primarily reflects increase in loan positions classified as HTC&S under IFRS 9 and fair valued through other comprehensive income.

(3) £27 million net losses on trading assets and liabilities (30 June 2020 - £215 million net gains) were recorded in income from trading activities. Net gains on other instruments of £3 million (30 June 2020 - nil gains) were recorded in other operating income and interest income as appropriate.

Notes

7. Financial instruments continued

Valuation reserves

Schedule of financial instruments valuation adjustments

	30 June	31 December
	2021	2020
	£m	£m
Funding - FVA	79	140
Credit - CVA	385	390
Bid - Offer	108	148
Product and deal specific	163	172
	735	850

● Valuation reserves comprising of credit valuation adjustments (CVA), funding valuation adjustment (FVA), bid-offer and product and deal specific reserves, decreased to £735 million at 30 June 2021 (31 December 2020 – £850 million).

● There was a reallocation of FVA to CVA during the period following an update to the risk management of certain exposures.

● The net decrease across CVA, FVA and bid-offer reserves was driven by reduced exposures, due to increases in interest rates and trade exit activity, and reduced risk.

Schedule of carrying value and fair value of financial instruments carried at amortised cost on the balance sheet

	Items where fair value
	approximates	Carrying		Fair value hierarchy level
	carrying value	value	Fair value	Level 1	Level 2	Level 3
30 June 2021	£bn	£bn	£bn	£bn	£bn	£bn
Financial assets
Cash and balances at central banks	151.5
Settlement balances	7.8
Loans to banks	0.3	7.9	7.9		5.0	2.9
Loans to customers		362.7	359.8		25.3	334.5
Other financial assets
Securities		9.0	9.1	5.4	0.9	2.8
Financial liabilities
Bank deposits	5.9	8.5	8.5		3.7	4.8
Customer deposits	388.1	79.1	79.1		20.7	58.4
Settlement balances	7.1
Other financial liabilities
Debt securities in issue		44.2	45.3	—	34.9	10.4
Subordinated liabilities		8.0	8.5	—	8.4	0.1
Notes in circulation	2.9
31 December 2020
Financial assets
Cash and balances at central banks	124.5
Settlement balances	2.3
Loans to banks	0.1	6.9	6.9	—	3.8	3.1
Loans to customers		360.5	359.2	—	25.2	334.0
Other financial assets
Securities		9.8	10.1	5.9	1.2	3.0
Financial liabilities
Bank deposits	4.4	16.2	16.2	—	11.3	4.9
Customer deposits	371.7	60.0	60.1	—	10.1	50.0
Settlement balances	5.5
Other financial liabilities
Debt securities in issue		43.4	44.6	—	34.7	9.9
Subordinated liabilities		9.2	9.8	—	9.7	0.1
Notes in circulation	2.7

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Provisions for liabilities and charges (Tables)

6 Months Ended

Jun. 30, 2021

Provision for liabilities and charges

Schedule for provisions for liabilities and charges

		Litigation and		Financial
	Customer	other		commitments
	redress (1)	regulatory	Property	and guarantees	Other (2)	Total
	£m	£m	£m	£m	£m	£m
At 1 January	749	365	270	179	289	1,852
Expected credit losses impairment charge	—	—	—	6	—	6
Currency translation and other movements	(3)	(5)	—	(1)	(2)	(11)
Charge to income statement	17	8	13	—	60	98
Release to income statement	(4)	(10)	(8)	—	(9)	(31)
Provisions utilised	(222)	(11)	(10)	—	(55)	(298)
At 31 March	537	347	265	184	283	1,616
Expected credit losses impairment release	—	—	—	(18)	—	(18)
Currency translation and other movements	—	—	1	—	(8)	(7)
Charge to income statement	32	1	22	—	42	97
Release to income statement	(7)	(68)	(20)	—	(10)	(105)
Provisions utilised	(87)	(20)	(8)	—	(62)	(177)
At 30 June	475	260	260	166	245	1,406

Notes:

(1) Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.

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Loan impairment provisions (Tables)

6 Months Ended

Jun. 30, 2021

Loan impairment provisions

Schedule of loan exposure and impairment metrics

	30 June	31 December
	2021	2020
	£m	£m
Loans - amortised cost and FVOCI
Stage 1	316,701	287,124
Stage 2	53,188	78,917
Stage 3	5,703	6,358
Of which: individual	1,851	2,292
Of which: collective	3,852	4,066
	375,592	372,399
ECL provisions (1)
Stage 1	433	519
Stage 2	2,300	3,081
Stage 3	2,192	2,586
Of which: individual	560	831
Of which: collective	1,632	1,755
	4,925	6,186
ECL provisions coverage (2, 3)
Stage 1 (%)	0.14	0.18
Stage 2 (%)	4.32	3.90
Stage 3 (%)	38.44	40.67
	1.31	1.66
	Half year ended
	30 June	30 June
	2021	2020
	£m	£m
Impairment losses
ECL (release)/charge (4)	(707)	2,858
Stage 1	(701)	308
Stage 2	(100)	2,150
Stage 3	94	400
Of which: individual	(25)	131
Of which: collective	119	269
ECL loss rate - annualised (basis points) (3)	(38)	154
Amounts written off	517	408
Of which: individual	256	41
Of which: collective	261	367

Notes:

(1)     Includes £6 million (31 December 2020 - £6 million) related to assets classified as FVOCI.

(2)     ECL provisions coverage is calculated as ECL provisions divided by loans.

(3)     ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans. The half year ECL charge is annualised by multiplying by two.

(4)     Includes a £4 million charge (30 June 2020 – £5 million charge) related to other financial assets, of which nil (30 June 2020 – £4 million) related to assets classified as FVOCI; and £2 million (30 June 2020 - £8 million) related to contingent liabilities.

(5)     The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 33 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £150.5 billion (31 December 2020 – £122.7 billion) and debt securities of £49.8 billion (31 December 2020 – £53.8 billion).

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Contingent liabilities and commitments (Tables)

6 Months Ended

Jun. 30, 2021

Contingent liabilities and commitments

Schedule of contingent liabilities and commitments

	30 June	31 December
	2021	2020
	£m	£m
Guarantees	2,005	2,244
Other contingent liabilities	2,117	2,321
Standby facilities, credit lines and other commitments	119,387	124,167
Contingent liabilities and commitments	123,509	128,732

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Analysis of income, expenses and impairment losses (Details) - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Analysis of income, expenses and impairment losses
Loans to customers - amortised cost	£ 4,433	£ 4,698
Loans to banks - amortised cost	217	189
Other financial assets	132	303
Interest receivable	4,782	5,190
Deposists by banks	99	89
Customer deposits	319	432
Other financial liabilities	314	481
Subordinated liabilities	130	218
Internal funding of trading businesses	4	118
Interest payable	866	1,338
Net interest income	3,916	3,852
Net fees and commissions	1,027	1,038
Income from trading activities
Foreign exchange	183	344
Interest rate	(6)	472
Credit	54	(68)
Own credit adjustments		53
Equity, commodities and other		1
Income from trading activities	231	802
Loss on redemption of own debt	(138)
Operating lease and other rental income	108	119
Changes in fair value of financial assets or liabilities designated at fair value through profit or loss	(4)	(21)
Changes in fair value of other financial assets fair value through profit or loss		(10)
Hedge ineffectiveness	13	(10)
Loss on disposal of amortised assets	(6)	(16)
Profit on disposal of fair value through other comprehensive income assets	24	108
Profit on sale of property, plant and equipment	6	11
Share of profit of associated entities	129	12
Profit/(loss) on disposal of subsidiaries and associates	1	(99)
Other income	12	52
Other operating income	145	146
Total non-interest income	1,403	1,986
Total income	5,319	5,838
Operating expenses
Salaries	1,192	1,290
Bonus awards	142	179
Temporary and contract costs	114	148
Social security costs	152	153
Pension costs	177	164
- defined benefit schemes	110	101
- defined contribution schemes	67	63
Other	125	21
Staff costs	1,902	1,955
Premises and equipment	502	651
Depreciation and amortisation	414	448
Other administrative expenses	703	696
Administrative expenses	1,619	1,795
Operating expenses	3,521	3,750
Impairment releases/(losses)	£ 707	£ (2,858)
Impairments as a % of gross loans to customers	0.38%	1.59%
Cost related to reduction in property portfolio included in premises and equipment	£ 20	£ 102
Accelerated depreciation	12	40
Charge relating to reduction in property portfolio, included in depreciation and amortization	23	43
Freehold
Operating expenses
Cost related to reduction in property portfolio included in premises and equipment	1
Charge relating to reduction in property portfolio, included in depreciation and amortization	4
Leasehold
Operating expenses
Cost related to reduction in property portfolio included in premises and equipment	19	102
Charge relating to reduction in property portfolio, included in depreciation and amortization	£ 19	£ 43

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Segmental analysis - Operating profit/(loss) before tax (Details) - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Segmental analysis
Net interest income	£ 3,916	£ 3,852
Net fees and commissions	1,027	1,038
Other non-interest income	376	948
Total income	5,319	5,838
Operating expenses	(3,521)	(3,750)
Impairment releases/(losses)	707	(2,858)
Operating profit/(loss) before tax	2,505	(770)
Retail Banking
Segmental analysis
Net interest income	1,976	1,982
Net fees and commissions	173	204
Other non-interest income	1	(1)
Total income	2,150	2,185
Operating expenses	(1,187)	(1,075)
Impairment releases/(losses)	57	(657)
Operating profit/(loss) before tax	1,020	453
Ulster Bank RoI
Segmental analysis
Net interest income	187	194
Net fees and commissions	38	44
Other non-interest income	18	11
Total income	243	249
Operating expenses	(261)	(245)
Impairment releases/(losses)	11	(243)
Operating profit/(loss) before tax	(7)	(239)
Private Banking
Segmental analysis
Net interest income	232	251
Net fees and commissions	124	130
Other non-interest income	12	11
Total income	368	392
Operating expenses	(249)	(252)
Impairment releases/(losses)	27	(56)
Operating profit/(loss) before tax	146	84
Commercial Banking
Segmental analysis
Net interest income	1,308	1,370
Net fees and commissions	560	552
Other non-interest income	55	81
Total income	1,923	2,003
Operating expenses	(1,152)	(1,221)
Impairment releases/(losses)	568	(1,790)
Operating profit/(loss) before tax	1,339	(1,008)
RBS International
Segmental analysis
Net interest income	182	201
Net fees and commissions	59	43
Other non-interest income	15	15
Total income	256	259
Operating expenses	(112)	(126)
Impairment releases/(losses)	29	(46)
Operating profit/(loss) before tax	173	87
NatWest Markets
Segmental analysis
Net interest income	(3)	(34)
Net fees and commissions	83	76
Other non-interest income	215	774
Total income	295	816
Operating expenses	(560)	(707)
Impairment releases/(losses)	16	(40)
Operating profit/(loss) before tax	(249)	69
Central items and other
Segmental analysis
Net interest income	34	(112)
Net fees and commissions	(10)	(11)
Other non-interest income	60	57
Total income	84	(66)
Operating expenses		(124)
Impairment releases/(losses)	(1)	(26)
Operating profit/(loss) before tax	£ 83	£ (216)

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Segmental analysis - Total revenue (Details) - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Segmental analysis
Revenue	£ 6,470	£ 7,568
Retail Banking
Segmental analysis
Revenue	2,681	2,788
Ulster Bank RoI
Segmental analysis
Revenue	275	277
Commercial Banking
Segmental analysis
Revenue	1,904	2,056
Private Banking
Segmental analysis
Revenue	418	457
RBS International
Segmental analysis
Revenue	281	272
NatWest Markets
Segmental analysis
Revenue	540	1,332
Central items and other
Segmental analysis
Revenue	371	386
Operating segment
Segmental analysis
Revenue	6,470	7,568
Operating segment | Retail Banking
Segmental analysis
Revenue	2,667	2,764
Operating segment | Ulster Bank RoI
Segmental analysis
Revenue	275	277
Operating segment | Commercial Banking
Segmental analysis
Revenue	1,861	2,009
Operating segment | Private Banking
Segmental analysis
Revenue	358	358
Operating segment | RBS International
Segmental analysis
Revenue	278	269
Operating segment | NatWest Markets
Segmental analysis
Revenue	523	1,328
Operating segment | Central items and other
Segmental analysis
Revenue	508	563
Inter segment | Retail Banking
Segmental analysis
Revenue	14	24
Inter segment | Commercial Banking
Segmental analysis
Revenue	43	47
Inter segment | Private Banking
Segmental analysis
Revenue	60	99
Inter segment | RBS International
Segmental analysis
Revenue	3	3
Inter segment | NatWest Markets
Segmental analysis
Revenue	17	4
Inter segment | Central items and other
Segmental analysis
Revenue	£ (137)	£ (177)

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Segmental analysis - Net fees and commissions (Details) - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Fees and commissions receivable
Payment services	£ 460	£ 445
Credit and debit card fees	231	219
Lending and financing	321	348
Investment management, trustee and fiduciary services	137	132
Underwriting fees	77	124
Other	86	162
Total	1,312	1,430
Fees and commissions payable	(285)	(392)
Net fees and commissions	1,027	1,038
Retail Banking
Fees and commissions receivable
Payment services	145	129
Credit and debit card fees	149	144
Lending and financing	6	37
Investment management, trustee and fiduciary services	1	1
Other	32	34
Total	333	345
Fees and commissions payable	(160)	(141)
Net fees and commissions	173	204
Ulster Bank RoI
Fees and commissions receivable
Payment services	28	28
Credit and debit card fees	8	10
Lending and financing	7	7
Investment management, trustee and fiduciary services	1	1
Other		2
Total	44	48
Fees and commissions payable	(6)	(4)
Net fees and commissions	38	44
Commercial Banking
Fees and commissions receivable
Payment services	255	256
Credit and debit card fees	69	60
Lending and financing	242	241
Other	63	48
Total	629	605
Fees and commissions payable	(69)	(53)
Net fees and commissions	560	552
Private Banking
Fees and commissions receivable
Payment services	16	14
Credit and debit card fees	4	4
Lending and financing	4	2
Investment management, trustee and fiduciary services	113	113
Other	19	18
Total	156	151
Fees and commissions payable	(32)	(21)
Net fees and commissions	124	130
RBS International
Fees and commissions receivable
Payment services	6	9
Credit and debit card fees	1	1
Lending and financing	28	15
Investment management, trustee and fiduciary services	22	17
Other	3	2
Total	60	44
Fees and commissions payable	(1)	(1)
Net fees and commissions	59	43
NatWest Markets
Fees and commissions receivable
Payment services	10	9
Lending and financing	34	46
Underwriting fees	77	124
Other	25	98
Total	146	277
Fees and commissions payable	(63)	(201)
Net fees and commissions	83	76
Central items and other
Fees and commissions receivable
Other	(56)	(40)
Total	(56)	(40)
Fees and commissions payable	46	29
Net fees and commissions	£ (10)	£ (11)

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Segmental analysis - Assets and liabilities (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Segmental analysis
Assets	£ 775,858	£ 799,491
Liabilities	731,973	755,667
Retail Banking
Segmental analysis
Assets	204,167	197,618
Liabilities	187,851	178,617
Ulster Bank RoI
Segmental analysis
Assets	25,422	26,620
Liabilities	21,872	22,993
Commercial Banking
Segmental analysis
Assets	185,757	187,413
Liabilities	183,837	174,251
Private Banking
Segmental analysis
Assets	27,686	26,206
Liabilities	34,808	32,457
RBS International
Segmental analysis
Assets	36,953	33,984
Liabilities	34,843	31,989
NatWest Markets
Segmental analysis
Assets	219,447	270,147
Liabilities	206,160	254,098
Central items and other
Segmental analysis
Assets	76,426	57,503
Liabilities	£ 62,602	£ 61,262

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Tax - Reconciliation (Details) - GBP (£) £ in Millions		6 Months Ended
	Apr. 01, 2023	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Tax reconciliation
UK corporation tax		19.00%	19.00%
Profit/(loss) before tax		£ 2,505	£ (770)
Expected tax (charge)/credit		(476)	146
Losses and temporary differences in period where no deferred tax assets recognised		(6)	(38)
Foreign profits taxed at other rates		4	(24)
losses on disposals and write-downs		(3)	(14)
UK bank levy		(11)	(15)
regulatory and legal actions		3	20
other disallowable items		(10)	(23)
Non-taxable items		25	68
Taxable foreign exchange movements			(2)
Losses brought forward and utilised		6	23
Banking surcharge		(173)	52
Tax on paid-in equity		32	38
UK tax rate change impact		206	75
Adjustments in respect of prior periods		8	(22)
Actual tax (charge)/credit		(435)	208
Deferred tax asset		1,150		£ 901
Deferred tax liability		£ 303		291
UK
Tax reconciliation
UK corporation tax		19.00%
Reduction in the carrying value of deferred tax assets		£ (5)	(56)
UK tax rate change impact		206
Trading losses carried forward		972		£ 862
Increase in deferred tax asset		176
Deferred tax asset included in other comprehensive income		30
UK | Forecast
Tax reconciliation
UK corporation tax	25.00%
Ireland
Tax reconciliation
Reduction in the carrying value of deferred tax assets		£ (35)	£ (20)

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Trading assets and liabilities (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Loans
Reverse repos	£ 24,718	£ 19,404
Collateral given	12,955	18,760
Other loans	1,154	1,611
Total loans	38,827	39,775
Securities
Financial institutions and corporate	3,812	3,446
Total securities	31,368	29,215
Total	70,195	68,990
Deposits
Repos	23,720	19,036
Collateral received	17,165	23,229
Other deposits	1,646	1,804
Total deposits	42,531	44,069
Debt securities in issue	1,205	1,408
Short positions	32,111	26,779
Total	75,847	72,256
UK
Securities
Central and local government securities	5,121	4,184
USA
Securities
Central and local government securities	4,088	5,149
Other
Securities
Central and local government securities	£ 18,347	£ 16,436

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Financial instruments: classification - Assets (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Financial instruments
Assets	£ 775,858	£ 799,491
Financial Assets	775,858	799,491
Cash and balances at central banks
Financial instruments
Financial Assets	151,511	124,489
Trading assets
Financial instruments
Financial Assets	70,195	68,990
Derivatives
Financial instruments
Net hedging derivative assets	42	93
Financial Assets	109,556	166,523
Settlement balances
Financial instruments
Financial Assets	7,793	2,297
Loans to banks - amortised cost
Financial instruments
Items in course of collection from other banks	275	148
Financial Assets	8,176	6,955
Loans to customers - amortised cost
Financial instruments
Financial Assets	362,711	360,544
Other financial assets
Financial instruments
Financial Assets	51,469	55,148
Intangible assets
Financial instruments
Financial Assets	6,694	6,655
Other assets
Financial instruments
Financial Assets	7,753	7,890
MFVPL
Financial instruments
Financial Assets	180,091	235,953
MFVPL | Trading assets
Financial instruments
Financial Assets	70,195	68,990
MFVPL | Derivatives
Financial instruments
Financial Assets	109,556	166,523
MFVPL | Other financial assets
Financial instruments
Financial Assets	340	440
FVOCI
Financial instruments
Financial Assets	42,085	44,902
FVOCI | Other financial assets
Financial instruments
Financial Assets	42,085	44,902
Amortised cost
Financial instruments
Financial Assets	539,235	504,091
Amortised cost | Cash and balances at central banks
Financial instruments
Financial Assets	151,511	124,489
Amortised cost | Settlement balances
Financial instruments
Financial Assets	7,793	2,297
Amortised cost | Loans to banks - amortised cost
Financial instruments
Financial Assets	8,176	6,955
Amortised cost | Loans to customers - amortised cost
Financial instruments
Financial Assets	362,711	360,544
Amortised cost | Other financial assets
Financial instruments
Financial Assets	9,044	9,806
Other assets
Financial instruments
Financial Assets	14,447	14,545
Other assets | Intangible assets
Financial instruments
Financial Assets	6,694	6,655
Other assets | Other assets
Financial instruments
Financial Assets	£ 7,753	£ 7,890

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Financial instruments: classification - Liabilities (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Financial instruments
Liabilities	£ 731,973	£ 755,667
Financial Liabilities	731,973	755,667
Finance lease receivable	8,765	9,061
Lease liabilities
Financial instruments
Financial Liabilities	1,652	1,698
Bank deposits
Financial instruments
Financial Liabilities	14,394	20,606
Items in course of transmission to other banks	92	12
Customer deposits
Financial instruments
Financial Liabilities	467,214	431,739
Settlement balances
Financial instruments
Financial Liabilities	7,119	5,545
Trading liabilities
Financial instruments
Financial Liabilities	75,847	72,256
Derivatives
Financial instruments
Financial Liabilities	103,992	160,705
Net hedging derivative liabilities	136	130
Other financial liabilities
Financial instruments
Financial Liabilities	46,118	45,811
Subordinated liabilities
Financial instruments
Financial Liabilities	8,696	9,962
Notes in circulation
Financial instruments
Financial Liabilities	2,906	2,655
Other liabilities
Financial instruments
Financial Liabilities	5,687	6,388
Items where fair values approximates carrying value | Bank deposits
Financial instruments
Financial Liabilities	5,900	4,400
Items where fair values approximates carrying value | Customer deposits
Financial instruments
Financial Liabilities	388,100	371,700
Items where fair values approximates carrying value | Settlement balances
Financial instruments
Financial Liabilities	7,100	5,500
Items where fair values approximates carrying value | Notes in circulation
Financial instruments
Financial Liabilities	2,900	2,700
Held-for-trading | Trading liabilities
Financial instruments
Financial Liabilities	75,847	72,256
Held-for-trading | Derivatives
Financial instruments
Financial Liabilities	103,992	160,705
Held-for-trading | Financial Assets and Liabilities, Category
Financial instruments
Financial Liabilities	179,839	232,961
DFV | Other financial liabilities
Financial instruments
Financial Liabilities	1,961	2,403
DFV | Subordinated liabilities
Financial instruments
Financial Liabilities	744	793
DFV | Financial Assets and Liabilities, Category
Financial instruments
Financial Liabilities	2,705	3,196
Amortised cost | Bank deposits
Financial instruments
Financial Liabilities	14,394	20,606
Amortised cost | Customer deposits
Financial instruments
Financial Liabilities	467,214	431,739
Amortised cost | Settlement balances
Financial instruments
Financial Liabilities	7,119	5,545
Amortised cost | Other financial liabilities
Financial instruments
Financial Liabilities	44,157	43,408
Amortised cost | Subordinated liabilities
Financial instruments
Financial Liabilities	7,952	9,169
Amortised cost | Notes in circulation
Financial instruments
Financial Liabilities	2,906	2,655
Amortised cost | Other liabilities
Financial instruments
Financial Liabilities	1,818	1,882
Amortised cost | Financial Assets and Liabilities, Category
Financial instruments
Financial Liabilities	545,560	515,004
Other liabilities | Other liabilities
Financial instruments
Financial Liabilities	3,869	4,506
Other liabilities | Financial Assets and Liabilities, Category
Financial instruments
Financial Liabilities	£ 3,869	£ 4,506

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Financial instruments: classification - Gains and losses (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Financial instruments
Financial Assets	£ 775,858	£ 799,491
Financial Liabilities	731,973	755,667
Bank deposits
Financial instruments
Financial Liabilities	4,261	6,470
Customer deposits
Financial instruments
Financial Liabilities	16,751	5,167
Trading liabilities
Financial instruments
Financial Liabilities	23,720	19,036
Trading assets
Financial instruments
Financial Assets	24,718	19,404
Loans to banks - amortised cost
Financial instruments
Financial Assets	382	153
Loans to customers - amortised cost
Financial instruments
Financial Assets	£ 22,706	£ 25,011

XML

Financial instruments: classification - Hierarchy of assets (Details) - Recurring - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020	Dec. 31, 2019
Fair value of assets
Assets	£ 222,176	£ 280,855
Loans
Fair value of assets
Assets	38,827	39,775
Securities
Fair value of assets
Assets	31,368	29,215
Derivatives
Fair value of assets
Assets	109,556	166,523
Other loans
Fair value of assets
Assets	982	353
Securities
Fair value of assets
Assets	41,443	44,989
Level 1
Fair value of assets
Assets	54,470	57,507
Level 1 | Securities
Fair value of assets
Assets	22,048	21,535
Level 1 | Securities
Fair value of assets
Assets	32,422	35,972
Level 2
Fair value of assets
Assets	165,712	221,625
Level 2 | Loans
Fair value of assets
Assets	38,664	39,550
Level 2 | Securities
Fair value of assets
Assets	9,205	7,599
Level 2 | Derivatives
Fair value of assets
Assets	108,622	165,441
Level 2 | Other loans
Fair value of assets
Assets	394	185
Level 2 | Securities
Fair value of assets
Assets	8,827	8,850
Level 3
Fair value of assets
Assets	1,994	1,723	£ 2,509	£ 2,554
Level 3 | Loans
Fair value of assets
Assets	163	225
Level 3 | Securities
Fair value of assets
Assets	115	81
Level 3 | Derivatives
Fair value of assets
Assets	934	1,082
Level 3 | Other loans
Fair value of assets
Assets	588	168
Level 3 | Securities
Fair value of assets
Assets	£ 194	£ 167

XML

Financial instruments: classification - Hierarchy of liabilities (Details) - Recurring - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020	Dec. 31, 2019
Fair value of liabilities
Liabilities	£ 182,544	£ 236,157
Deposits
Fair value of liabilities
Liabilities	42,531	44,069
Debt securities in issue
Fair value of liabilities
Liabilities	1,205	1,408
Short positions
Fair value of liabilities
Liabilities	32,111	26,779
Derivatives
Fair value of liabilities
Liabilities	103,992	160,705
Other financial liabilities - Debt securities in issue
Fair value of liabilities
Liabilities	1,243	1,607
Other deposits
Fair value of liabilities
Liabilities	718	796
Subordinated liabilities
Fair value of liabilities
Liabilities	744	793
Level 1
Fair value of liabilities
Liabilities	23,659	19,045
Level 1 | Short positions
Fair value of liabilities
Liabilities	23,659	19,045
Level 2
Fair value of liabilities
Liabilities	158,200	216,218
Level 2 | Deposits
Fair value of liabilities
Liabilities	42,528	44,062
Level 2 | Debt securities in issue
Fair value of liabilities
Liabilities	1,205	1,408
Level 2 | Short positions
Fair value of liabilities
Liabilities	8,451	7,734
Level 2 | Derivatives
Fair value of liabilities
Liabilities	103,311	159,818
Level 2 | Other financial liabilities - Debt securities in issue
Fair value of liabilities
Liabilities	1,243	1,607
Level 2 | Other deposits
Fair value of liabilities
Liabilities	718	796
Level 2 | Subordinated liabilities
Fair value of liabilities
Liabilities	744	793
Level 3
Fair value of liabilities
Liabilities	685	894	£ 1,008	£ 1,317
Level 3 | Deposits
Fair value of liabilities
Liabilities	3	7
Level 3 | Debt securities in issue
Fair value of liabilities
Liabilities	1
Level 3 | Short positions
Fair value of liabilities
Liabilities	1
Level 3 | Derivatives
Fair value of liabilities
Liabilities	£ 681	£ 887

XML

Financial instruments: classification - Level 3 Sensitivities of Assets (Details) - Recurring - GBP (£) £ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020	Dec. 31, 2019
Fair value of assets
Assets	£ 222,176	£ 280,855
Sensitivity favourable	140	140
Sensitivity unfavourable	(140)	(110)
Loans
Fair value of assets
Assets	38,827	39,775
Sensitivity favourable	10	10
Securities
Fair value of assets
Assets	31,368	29,215
Sensitivity favourable	10
Derivatives
Fair value of assets
Assets	109,556	166,523
Sensitivity favourable	60	80
Sensitivity unfavourable	(70)	(80)
Other loans
Fair value of assets
Assets	982	353
Sensitivity favourable	30	20
Sensitivity unfavourable	(50)	(10)
Securities
Fair value of assets
Assets	41,443	44,989
Sensitivity favourable	30	30
Sensitivity unfavourable	(20)	(20)
Level 3
Fair value of assets
Assets	1,994	1,723	£ 2,509	£ 2,554
Level 3 | Loans
Fair value of assets
Assets	163	225
Level 3 | Securities
Fair value of assets
Assets	115	81
Level 3 | Derivatives
Fair value of assets
Assets	934	1,082
Level 3 | Other loans
Fair value of assets
Assets	588	168
Level 3 | Securities
Fair value of assets
Assets	£ 194	£ 167

XML

Financial instruments: classification - Level 3 Sensitivities of Liabilities (Details) - GBP (£) £ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020	Dec. 31, 2019
Fair value of liabilities
Specified target level of certainty for assumptions of unobservable inputs	90.00%
Recurring
Fair value of liabilities
Liabilities	£ 182,544	£ 236,157
Sensitivity favourable	40	50
Sensitivity unfavourable	(40)	(40)
Recurring | Deposits
Fair value of liabilities
Liabilities	42,531	44,069
Recurring | Debt securities in issue
Fair value of liabilities
Liabilities	1,205	1,408
Recurring | Derivatives
Fair value of liabilities
Liabilities	103,992	160,705
Sensitivity favourable	40	50
Sensitivity unfavourable	(40)	(40)
Recurring | Other financial liabilities - Debt securities in issue
Fair value of liabilities
Liabilities	1,243	1,607
Recurring | Level 3
Fair value of liabilities
Liabilities	685	894	£ 1,008	£ 1,317
Recurring | Level 3 | Deposits
Fair value of liabilities
Liabilities	3	7
Recurring | Level 3 | Debt securities in issue
Fair value of liabilities
Liabilities	1
Recurring | Level 3 | Derivatives
Fair value of liabilities
Liabilities	£ 681	£ 887

XML

Financial instruments: classification - Movement in Level 3 portfolios - Assets (Details) - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Held-for-trading
Movement in level 3 assets
Amounts recorded in the income statement	£ 27	£ 215
Level 3 | Other
Movement in level 3 assets
Amounts recorded in the income statement	3	0
Recurring
Movement in level 3 assets
At 1 January	280,855
At 30 June	222,176
Recurring | Level 3
Movement in level 3 assets
At 1 January	1,723	2,554
Amounts recorded in the income statement	(122)	312
Amounts recorded in the statement of comprehensive income	17	62
Level 3 transfers in	470	340
Level 3 transfers out	(68)	(101)
Purchases	178	376
Settlements	(40)	(113)
Sales	(160)	(934)
Foreign exchange and other adjustments	(4)	13
At 30 June	1,994	2,509
Recurring | Level 3 | Trading assets
Movement in level 3 assets
At 1 January	1,388	2,233
Amounts recorded in the income statement	(125)	313
Level 3 transfers in	42	133
Level 3 transfers out	(68)	(101)
Purchases	168	366
Settlements	(36)	(113)
Sales	(156)	(933)
Foreign exchange and other adjustments	(1)	5
At 30 June	1,212	1,903
Recurring | Level 3 | Other financial assets
Movement in level 3 assets
At 1 January	335	321
Amounts recorded in the income statement	3	(1)
Amounts recorded in the statement of comprehensive income	17	62
Level 3 transfers in	428	207
Purchases	10	10
Settlements	(4)
Sales	(4)	(1)
Foreign exchange and other adjustments	(3)	8
At 30 June	£ 782	£ 606

XML

Financial instruments: classification - Movement in Level 3 portfolios - Liabilities (Details) - Recurring - GBP (£) £ in Millions	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Movement in level 3 liabilities
Liabilities at beginning of period	£ 236,157
Liabilities at end of period	182,544
Level 3
Movement in level 3 liabilities
Liabilities at beginning of period	894	£ 1,317
Amounts recorded in the income statement	(98)	97
Level 3 transfers in	15	6
Level 3 transfers out	(116)	(337)
Purchases	114	100
Settlements	(15)	(14)
Sales	(107)	(164)
Foreign exchange and other adjustments	(2)	3
Liabilities at end of period	£ 685	£ 1,008

XML

Financial instruments: classification - Adjustments (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Financial instruments: classification
Funding - FVA	£ 79	£ 140
Credit - CVA	385	390
Bid - Offer	108	148
Product and deal specific	163	172
Financial instruments valuation adjustments	£ 735	£ 850

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Financial instruments: classification - Assets at Amortised Cost (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Fair value of assets
Other financial assets - securities	£ 775,858	£ 799,491
Carrying value, Financial liabilities	731,973	755,667
Cash and balances at central banks
Fair value of assets
Other financial assets - securities	151,511	124,489
Items where fair values approximates carrying value | Cash and balances at central banks
Fair value of assets
Other financial assets - securities	151,500	124,500
Items where fair values approximates carrying value | Settlement balances
Fair value of assets
Other financial assets - securities	7,800	2,300
Items where fair values approximates carrying value | Loans to banks - amortised cost
Fair value of assets
Other financial assets - securities	300	100
Carrying value | Loans to banks - amortised cost
Fair value of assets
Other financial assets - securities	7,900	6,900
Carrying value | Loans to customers - amortised cost
Fair value of assets
Other financial assets - securities	362,700	360,500
Carrying value | Securities
Fair value of assets
Other financial assets - securities	9,000	9,800
Fair value | Loans to banks - amortised cost
Fair value of assets
Other financial assets - securities	7,900	6,900
Fair value | Loans to banks - amortised cost | Level 2
Fair value of assets
Other financial assets - securities	5,000	3,800
Fair value | Loans to banks - amortised cost | Level 3
Fair value of assets
Other financial assets - securities	2,900	3,100
Fair value | Loans to customers - amortised cost
Fair value of assets
Other financial assets - securities	359,800	359,200
Fair value | Loans to customers - amortised cost | Level 2
Fair value of assets
Other financial assets - securities	25,300	25,200
Fair value | Loans to customers - amortised cost | Level 3
Fair value of assets
Other financial assets - securities	334,500	334,000
Fair value | Securities
Fair value of assets
Other financial assets - securities	9,100	10,100
Fair value | Securities | Level 1
Fair value of assets
Other financial assets - securities	5,400	5,900
Fair value | Securities | Level 2
Fair value of assets
Other financial assets - securities	900	1,200
Fair value | Securities | Level 3
Fair value of assets
Other financial assets - securities	£ 2,800	£ 3,000

XML

Financial instruments: classification - Liabilities at Amortised Cost (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Fair value of liabilities
Carrying value, Financial liabilities	£ 731,973	£ 755,667
Bank deposits
Fair value of liabilities
Carrying value, Financial liabilities	14,394	20,606
Customer deposits
Fair value of liabilities
Carrying value, Financial liabilities	467,214	431,739
Settlement balances
Fair value of liabilities
Carrying value, Financial liabilities	7,119	5,545
Subordinated liabilities
Fair value of liabilities
Carrying value, Financial liabilities	8,696	9,962
Notes in circulation
Fair value of liabilities
Carrying value, Financial liabilities	2,906	2,655
Items where fair values approximates carrying value | Bank deposits
Fair value of liabilities
Carrying value, Financial liabilities	5,900	4,400
Items where fair values approximates carrying value | Customer deposits
Fair value of liabilities
Carrying value, Financial liabilities	388,100	371,700
Items where fair values approximates carrying value | Settlement balances
Fair value of liabilities
Carrying value, Financial liabilities	7,100	5,500
Items where fair values approximates carrying value | Notes in circulation
Fair value of liabilities
Carrying value, Financial liabilities	2,900	2,700
Carrying value | Bank deposits
Fair value of liabilities
Carrying value, Financial liabilities	8,500	16,200
Carrying value | Customer deposits
Fair value of liabilities
Carrying value, Financial liabilities	79,100	60,000
Carrying value | Debt securities in issue
Fair value of liabilities
Carrying value, Financial liabilities	44,200	43,400
Carrying value | Subordinated liabilities
Fair value of liabilities
Carrying value, Financial liabilities	8,000	9,200
Fair value | Bank deposits
Fair value of liabilities
Fair value, Financial liabilities	8,500	16,200
Fair value | Bank deposits | Level 2
Fair value of liabilities
Fair value, Financial liabilities	3,700	11,300
Fair value | Bank deposits | Level 3
Fair value of liabilities
Fair value, Financial liabilities	4,800	4,900
Fair value | Customer deposits
Fair value of liabilities
Fair value, Financial liabilities	79,100	60,100
Fair value | Customer deposits | Level 2
Fair value of liabilities
Fair value, Financial liabilities	20,700	10,100
Fair value | Customer deposits | Level 3
Fair value of liabilities
Fair value, Financial liabilities	58,400	50,000
Fair value | Debt securities in issue
Fair value of liabilities
Fair value, Financial liabilities	45,300	44,600
Fair value | Debt securities in issue | Level 2
Fair value of liabilities
Fair value, Financial liabilities	34,900	34,700
Fair value | Debt securities in issue | Level 3
Fair value of liabilities
Fair value, Financial liabilities	10,400	9,900
Fair value | Subordinated liabilities
Fair value of liabilities
Fair value, Financial liabilities	8,500	9,800
Fair value | Subordinated liabilities | Level 2
Fair value of liabilities
Fair value, Financial liabilities	8,400	9,700
Fair value | Subordinated liabilities | Level 3
Fair value of liabilities
Fair value, Financial liabilities	£ 100	£ 100

XML

Provisions for liabilities and charges (Details) - GBP (£) £ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2021
Provisions for liabilities and charges
Balance at beginning of the period	£ 1,616	£ 1,852	£ 1,852
Expected credit losses impairment charge	(18)	6
Currency translation and other movements	(7)	(11)
Charge to income statement	97	98
Release to income statement	(105)	(31)
Provisions utilised	(177)	(298)
Balance at end of the period	1,406	1,616	1,406
Customer redress
Provisions for liabilities and charges
Balance at beginning of the period	537	749	749
Currency translation and other movements		(3)
Charge to income statement	32	17
Release to income statement	(7)	(4)
Provisions utilised	(87)	(222)
Balance at end of the period	475	537	475
Property
Provisions for liabilities and charges
Balance at beginning of the period	265	270	270
Currency translation and other movements	1
Charge to income statement	22	13
Release to income statement	(20)	(8)
Provisions utilised	(8)	(10)
Balance at end of the period	260	265	260
Financial commitments and guarantees
Provisions for liabilities and charges
Balance at beginning of the period	184	179	179
Expected credit losses impairment charge	(18)	6
Currency translation and other movements		(1)
Balance at end of the period	166	184	166
Other
Provisions for liabilities and charges
Balance at beginning of the period	283	289	289
Currency translation and other movements	(8)	(2)
Charge to income statement	42	60
Release to income statement	(10)	(9)
Provisions utilised	(62)	(55)
Balance at end of the period	245	283	245
Litigation and other regulatory (incl. RMBS)
Provisions for liabilities and charges
Balance at beginning of the period	347	365	365
Currency translation and other movements		(5)
Charge to income statement	1	8
Release to income statement	(68)	(10)
Provisions utilised	(20)	(11)
Balance at end of the period	£ 260	£ 347	£ 260

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Dividends (Details) £ / shares in Units, £ in Millions	6 Months Ended
	Jun. 30, 2021 GBP (£) £ / shares
Dividends
Interim dividend announced | £	£ 347
Interim dividend per share | £ / shares	£ 0.03

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Loan impairment provisions (Details) - GBP (£) £ in Millions	6 Months Ended		12 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Loan impairment provisions
Financial Assets	£ 775,858		£ 799,491
ECL provisions	£ 4,925		£ 6,186
Expected Credit Loss, Provision Coverage	1.31%		1.66%
ECL (release)/charge	£ (707)	£ 2,858
ECL loss rate - annualised (basis points)	(0.38%)	1.54%
Amounts written off	£ 517	£ 408
Contingent liabilities
Loan impairment provisions
ECL (release)/charge	2	8
Other financial assets
Loan impairment provisions
Financial Assets	51,469		£ 55,148
ECL (release)/charge	4	5
FVOCI
Loan impairment provisions
Financial Assets	42,085		44,902
ECL provisions	6		6
FVOCI | Other financial assets
Loan impairment provisions
Financial Assets	42,085		44,902
ECL (release)/charge	0	4
Loans and advances
Loan impairment provisions
Financial Assets	375,592		372,399
Cash at central banks
Loan impairment provisions
Financial Assets	150,500		122,700
Secured
Loan impairment provisions
Financial Assets	49,800		53,800
Stage 1
Loan impairment provisions
ECL provisions	£ 433		£ 519
Expected Credit Loss, Provision Coverage	0.14%		0.18%
ECL (release)/charge	£ (701)	308
Stage 1 | Loans and advances
Loan impairment provisions
Financial Assets	316,701		£ 287,124
Stage 2
Loan impairment provisions
ECL provisions	£ 2,300		£ 3,081
Expected Credit Loss, Provision Coverage	4.32%		3.90%
ECL (release)/charge	£ (100)	2,150
Stage 2 | Loans and advances
Loan impairment provisions
Financial Assets	53,188		£ 78,917
Stage 3
Loan impairment provisions
ECL provisions	£ 2,192		£ 2,586
Expected Credit Loss, Provision Coverage	38.44%		40.67%
ECL (release)/charge	£ 94	400
Stage 3 | Loans and advances
Loan impairment provisions
Financial Assets	5,703		£ 6,358
Of which: individual
Loan impairment provisions
ECL provisions	560		831
ECL (release)/charge	(25)	131
Amounts written off	256	41
Of which: individual | Loans and advances
Loan impairment provisions
Financial Assets	1,851		2,292
Of which: collective
Loan impairment provisions
ECL provisions	1,632		1,755
ECL (release)/charge	119	269
Amounts written off	261	£ 367
Of which: collective | Loans and advances
Loan impairment provisions
Financial Assets	£ 3,852		£ 4,066

XML

Contingent liabilities and commitments (Details) - GBP (£) £ in Millions	Jun. 30, 2021	Dec. 31, 2020
Contingent liabilities and commitments
Standby facilities, credit lines and other commitments	£ 119,387	£ 124,167
Contingent liabilities and commitments	123,509	128,732
Guarantees
Contingent liabilities and commitments
Estimated net exposure	2,005	2,244
Other contingent liabilities
Contingent liabilities and commitments
Estimated net exposure	£ 2,117	£ 2,321

XML

Litigation and regulatory matters (Details) € in Millions, $ in Millions, $ in Millions		1 Months Ended								2 Months Ended	3 Months Ended		6 Months Ended				12 Months Ended
	May 20, 2021 GBP (£)	Dec. 31, 2020 GBP (£)	Oct. 31, 2020 GBP (£)	May 31, 2020 GBP (£)	May 31, 2019 AUD ($) GBP (£)	Oct. 31, 2017 item	Dec. 31, 2016 action	Oct. 31, 2011 USD ($)	Dec. 31, 2010 USD ($)	Oct. 31, 2018 item	Jun. 30, 2021 GBP (£) lawsuit	Mar. 31, 2021 GBP (£)	Jun. 30, 2021 GBP (£) lawsuit item action	Jun. 30, 2021 USD ($) action lawsuit item	Jun. 30, 2021 EUR (€) action lawsuit item	Dec. 31, 2019 GBP (£)	Dec. 31, 2018 GBP (£)	Dec. 31, 2015 GBP (£) company	Dec. 31, 2015 USD ($) company	Dec. 31, 2012 GBP (£)	Jun. 30, 2021 EUR (€) lawsuit	Mar. 23, 2021 EUR (€)	Jul. 31, 2017 item
UK 2008 rights issue shareholder litigation
Tax Assessments																	£ 143,000,000
Payments for tax assessments		£ 143,000,000
Provisions utilised											£ 177,000,000	£ 298,000,000
Treatment of tracker mortgage customers
UK 2008 rights issue shareholder litigation
Total aggregate provisions											300,000,000		£ 300,000,000								€ 350.0
Provisions utilised													282,000,000		€ 328.0
Agreed fine payable | €																						€ 37.8
Internal review from treatment of tracker mortgage customers
UK 2008 rights issue shareholder litigation
Total aggregate provisions											130,000,000		£ 130,000,000								151.0
EC
UK 2008 rights issue shareholder litigation
Number of other parties subject to lawsuit or legal investigation	6
Residential mortgage-backed securities (RMBS) litigation in the US, issued by Nomura Holding America Inc and subsidiaries
Litigation, investigations and reviews
Final settlement amount | $														$ 400.0
UK 2008 rights issue shareholder litigation
Settlement amount paid | $														$ 55.3
London Interbank Offered Rate (LIBOR)
UK 2008 rights issue shareholder litigation
Number of non-class action | action							24
Number of non-class actions pending | action							7
Number of failed US banks | item																							39
JPY LIBOR and Euroyen TIBOR
UK 2008 rights issue shareholder litigation
Number of class action lawsuits													2
Different Reference Rates
UK 2008 rights issue shareholder litigation
Number of class action lawsuits													5
Number of class actions dismissed but appealed													4
FX antitrust litigation
UK 2008 rights issue shareholder litigation
Settlement amount paid | $																			$ 255.0
Federal Court of Australia FX antitrust litigation
UK 2008 rights issue shareholder litigation
Maximum Total Transaction Value | $					$ 0.5
Number of other parties subject to lawsuit or legal investigation					4
UK Competition Appeal Tribunal
UK 2008 rights issue shareholder litigation
Number of applications for opt-out collective proceedings																2
Tel Aviv District Court FX antitrust litigations [Member]
UK 2008 rights issue shareholder litigation
Number of class action lawsuits				1
Numer of motions to certify FX-related class actions | item										2
Swaps antitrust litigation
UK 2008 rights issue shareholder litigation
Number of swap execution facilities | item													3	3	3
Madoff
UK 2008 rights issue shareholder litigation
Number of class action lawsuits | action													2	2	2
Damages claimed | $								$ 21.8	$ 276.3
SMEs | FCA
UK 2008 rights issue shareholder litigation
Total aggregate provisions											22,000,000		£ 22,000,000
Tax dispute
UK 2008 rights issue shareholder litigation
Damages claimed																		£ 71,400,000
Damages Awarded			£ 45,000,000
Value-added-tax																				£ 86,000,000
Number of claimants | company																		10	10
NatWest
UK 2008 rights issue shareholder litigation
Number of terrorist attacks claims dismissed | item						2
Number of terrorist attacks claimed | item						18
NatWest | Internal review from treatment of tracker mortgage customers
UK 2008 rights issue shareholder litigation
Total aggregate provisions											£ 140,000,000		£ 140,000,000								€ 163.0
NatWest | France local authorities
UK 2008 rights issue shareholder litigation
Number of complaints filed | lawsuit													2	2	2
Number of claims appealed | lawsuit											1		1								1

XML

Related party transactions (Details)	6 Months Ended
	Jun. 30, 2021
Other related parties
Related party transactions
Percentage of ownership interest	20.00%

XML

UBIDAC significant transactions (Details) € in Billions	Jun. 28, 2021 EUR (€) item	Mar. 31, 2021 EUR (€) item
Allied Irish Banks, p.l.c
Post balance sheet events
Sale of financial assets	€ 4.2
Undrawn exposure	€ 2.8
Approximate number of employees to transfer | item	280
Estimated balance	€ 4.0
Permanent TSB Group Holdings p.l.c.
Post balance sheet events
Number of branch locations | item		25
Gross performing loans		€ 7.6

XML

Post balance sheet events (Details) £ in Millions	6 Months Ended
	Dec. 31, 2021 GBP (£)
Potential ordinary share transactions
Post balance sheet events
Ordinary share buy-back programme	£ 750