6-K 1 a0011h.htm INTERIM RESULTS - NATWEST GROUP (PART 1 OF 2) a0011h
 
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For 30 July 2021
Commission File Number: 001-10306
 
NatWest Group plc
 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ
 
(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 X 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- ________
 
 
 
 
The following information was issued as Company announcements in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K: 
 
 
 
 
 
 
 
 
 
 
Interim Results 2021
 
 
 
 
                      natwestgroup.com
 
 
 
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 per share and share buy-back of up to £750 million. We are also increasing our minimum annual 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 attributable profit of £1,842 million.
●
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) 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.
●
Bank net interest margin (NIM) of 1.61% decreased by 3 basis points compared with Q1 2021 principally reflecting increased levels of liquidity.
●
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 20 to 23. 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 billion 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 112 and 113 of this announcement, pages 345 to 362 of the NatWest Group plc 2020 Annual Report and Accounts, pages 48 and 49 of the NatWest Markets Plc 2021 Interim Results announcement and on pages 156 to 172 of the NatWest Markets Plc 2020 Annual Report and Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.
 
 
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 11th 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.
 
 
 
 
 
 
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 5 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.
 
 
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.
 
 
 
 
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. 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. 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.
 
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. 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.
 
 
 
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.
●
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 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.
●
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.
 
 
 
 
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.
●
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.
 
 
 
 
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.
●
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.
●
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.
 
 
 
 
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.
●
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.
 
 
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
●
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.
●
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
●
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.
●
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.
 
 
 
 
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
279
285
 
137
142
135
Operating expenses
(299)
(283)
 
(156)
(143)
(140)
 of which: Other expenses
(281)
(271)
 
(149)
(132)
(134)
Impairment releases/(losses)
13
(278)
 
(1)
14
(246)
Operating (loss)/profit
(7)
(276)
 
(20)
13
(251)
Return on equity
(0.7%)
(24.3%)
 
(4.1%)
2.6%
(45.5%)
Net interest margin
1.46%
1.52%
 
1.43%
1.49%
1.49%
Cost:income ratio
107.2%
99.3%
 
113.9%
100.7%
103.7%
Loan impairment rate
(13)bps
260bps
 
2bps
(27)bps
460bps
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2021
2021
2020
 
 
 
 
€bn
€bn
€bn
Net loans to customers (amortised cost)
 
 
 
19.4
19.8
20.0
Customer deposits
 
 
 
21.6
21.7
21.8
RWAs
 
 
 
12.2
13.1
13.2
 
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, or 2.1%, 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.
●
Other expenses were €10 million, or 3.7%, 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 €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 €0.6 billion, or 3.0%, in H1 2021 as repayments exceeded gross new lending of €0.8 billion.
●
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 compared with Q1 2021 due to lower lending income and reduced FX gains. Net interest margin decreased by 6 basis points compared with Q1 2021 reflecting lower lending volumes and a stable deposit base, resulting in higher liquid assets in a negative interest rate environment.
●
Other expenses increased by €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 €0.4 billion compared with Q1 2021.
●
Customer deposits decreased by €0.1 billion compared with Q1 2021 resulting in loan:deposit ratio of 90% compared with 91% in Q1 2021.
●
RWAs decreased by €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.
 
 
 
 
 
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.
 
 
 
 
 
 
Segment performance
 
 
 
Half year ended 30 June 2021
 
 
 

  International Banking & Markets

 
 
 
Retail
Private
Commercial
RBS
NatWest
Ulster
Central items &
Total 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 18.
 
 
Segment performance
 
 
 
Half year ended 30 June 2020
 
 
 

  International Banking & Markets

 
 
 
Retail
Private
Commercial
RBS
NatWest
Ulster
Central items &
Total 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 18.
 
 
 
 
Segment performance
 
 
 
Quarter ended 30 June 2021
 
 
 

  International Banking & Markets

 
 
 
Retail
Private
Commercial
RBS
NatWest
Ulster
Central
  items &
Total 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 releases/(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%
41.4%
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 18.
 
 
Segment performance
 
 
 
Quarter ended 31 March 2021
 
 
 

  International Banking & Markets

 
 
 
Retail
Private
Commercial
RBS
NatWest
Ulster
Central items &
Total 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.
 
 
 
Segment performance
 
 
 
Quarter ended 30 June 2020
 
 
 

  International Banking & Markets

 
 
 
Retail
Private
Commercial
RBS
NatWest
Ulster
Central items &
Total 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.
 
 
 
Risk and capital management
 
Page
Credit risk
 
     Economic loss drivers
20
     UK economic uncertainty
22
     Measurement uncertainty and ECL sensitivity analysis
 
26
     Measurement uncertainty and ECL adequacy
 
 
Credit risk – Banking activities
 
     Segment analysis
30
     Sector analysis
35
     Wholesale forbearance
 
     Personal portfolio
43
     Commercial real estate
46
     Flow statements
48
     Stage 2 decomposition by a significant increase in credit risk trigger
 
57
     Asset quality
59
Credit risk – Trading activities
63
Capital, liquidity and funding risk
66
Market risk
 
     Non-traded
76
     Traded
 
Other risks
81
 
Certain disclosures in the Risk and capital management section are within the scope of EY’s review report and are marked accordingly by a bracket in the right-hand margin.

 
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.
 
 
Risk and capital management
Credit risk continued
 
 
 
 
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.
 
 
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.
 
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.
 
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 segments. 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.
 
 
Risk and capital management
Credit risk continue
 
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.
 
 
 
 
 
 
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.
 
 
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.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 and Accounts for 31 December 2020 comparatives.
 
Risk and capital management
Credit risk continued
 
● 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
 
 
 
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 
 
● 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.
 
 
 
 
Risk and capital management
Credit risk – Banking activities continued
 
 
 
 
 
 
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.
 
 
 
Risk and capital management
Credit risk – Banking activities continued
 
 
 
 
 
 
 
 
 
 
 
 
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 29 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.
 
 
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 
996 
2,395 
 
 
     
Wholesale
120,576 
43,432 
647 
486 
44,565 
3,070 
168,211 
 
348 
2,001 
51 
33 
2,085 
2,085 
3,791 
 
 
     
 
For the notes to this table refer to the following page.    
Risk and capital management Credit risk – Banking activities continued  
 Segment loans and impairment metrics
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.      
 
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.
 
 
 
 
 
 
 
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
 
 
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 38
 
 
 
 
 
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
 
Not within the scope of EY's review report.
 
For the notes to this table refer to the following page.
 
 
 
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary
 
 
 
 
 
 
 
 
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.
    
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
 
 
 
 
 
 
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 43.
 
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.
 
Risk and capital management
Credit risk - Banking activities continued
Key points
 
●
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.
 
 
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.
 
 
 
 
 
 
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)
 
 
 
 
 
Retail Banking
 
 
Not within
 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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.
 
 
 
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 
80.8 
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.
 
 
 
 
 
 
 
 
 
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. 
 
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.
 
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.
 
 
 
Risk and capital management
Credit risk – Banking activities continued
 
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
 
 
 
 
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
 
 
Retail Banking - mortgages
£m
£m
 
£m
£m
 
£m
£m
 
£m
 
 
At 1 January 2021
132,390
23
 
28,079
227
 
1,291
236
 
161,760
 
 
Currency translation and other adjustments
-
-
 
-
-
 
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
 
 
 
 
Changes in risk parameters (model inputs)
 
(6)
 
 
(16)
 
 
27
 
 
 
 
Other changes in net exposure
6,180
-
 
(1,592)
(14)
 
(126)
(8)
 
4,462
 
 
Other (P&L only items)
 
-
 
 
-
 
 
(13)
 
 
 
 
Income statement (releases)/charges
 
(83)
 
 
34
 
 
10
 
 
 
 
Amounts written-off
-
-
 
-
-
 
(3)
(3)
 
(3)
 
 
Unwinding of discount
 
-
 
 
-
 
 
(15)
 
 
 
 
At 30 June 2021
149,305
19
 
15,569
180
 
1,352
250
 
166,226
 
 
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
 
 
2020 movements
(7,420)
5
 
13,789
106
 
52
15
 
6,421
 
 
At 30 June 2020
128,205
17
 
24,072
192
 
1,341
230
 
153,618
 
 
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.
 
 
 
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.
 
 
 
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.
 
 
 
 
Risk and capital management
Credit risk – Banking activities continued
 
Flow statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
 
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
 
Commercial Banking
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
 
  - 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.
 
   
 
 
 
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.   
 
 
 
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.
 
 
 
 
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.  
 
   
 
 
 
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.
 
   
 
 
 
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.
 
 
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.
 
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
 
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.
 
   
 
 
 
 
 
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
 
 
 
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.
 
 
 
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.
 
 
 
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. 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.
 
 
 
 
 
 
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)
 
 
 
 
 
 
 
 
 
 
 
 
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 and Accounts, 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.
 
 
 
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.
 
 
 
 
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%).
 
 
 
 
 
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.
 
 
 
Risk and capital management
Capital, liquidity and funding risk continued
 
 
 
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
 
 
 
 
 
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.
 
 
 
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.
 
 
 
 
 
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.
 
 
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.
 
 
 
 
 
 
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 andUlster 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.
 
 
 
 
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.
 
 
 
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, compared 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.
 
 
 
 
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.
 
 
●
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
 
 
 
 
 
 
 
Risk and capital management
Non-traded market risk continued
 
 
 
 
 
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.
 
 
 
 
 
 
 
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.
 
 
 
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.
 
 
Date: 30 July 2021
 
 
 
NATWEST GROUP plc (Registrant)
 
 
 
By: /s/ Jan Cargill
 
 
 
Name: Jan Cargill
 
Title: Chief Governance Officer and Company Secretary