6-K 1 a5427h.htm NWG H1 23 INTERIM MANAGEMENT STATEMENT-PART 1 OF 2 a5427h
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 July 28, 2023
Commission File Number: 001-10306
 
NatWest Group plc
 
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 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:
 
 
 
 

 
 
 
NatWest Group
Interim Results 2023
 
 
                                                                            natwestgroup.com
 

NatWest Group Interim Results 2023    
Page
Highlights
3
Our Purpose in action
4
Business performance summary
5
  Chief Financial Officer review
6
  Retail Banking
8
  Private Banking
9
  Commercial & Institutional
10
  Central items & other
11
  Segment performance
12
Risk and capital management
 
  Credit risk
18
  Credit risk – banking activities
29
  Credit risk – trading activities
58
  Capital, liquidity and funding risk
61
  Market risk
71
  Other risks
76
Condensed consolidated financial statements
77
Notes to the financial statements
83
Independent review report to NatWest Group plc
102
Summary of Principal Risks and Uncertainties
103
Statement of directors’ responsibilities
105
Additional information
106
Appendix – Non-IFRS financial measures
109

 
NatWest Group plc
Interim results for the period ended 30 June 2023
Chief Financial Officer, Katie Murray, commented
“NatWest Group’s strong performance for the first half of the year is underpinned by our robust balance sheet, with a high-quality deposit base, high levels of liquidity and a well-diversified loan book. As a result, we are able to continue lending to our customers and delivering sustainable returns and distributions to our shareholders, even in the current uncertain economic environment.
 
Although arrears remain low, we know that people, families and businesses are anxious about their finances and many are really struggling. We are being proactive in our support for those who are hardest hit, helping to build the financial resilience of the customers and communities we serve.”
 
Group Chief Executive Officer
On 25 July 2023, Alison Rose stepped down as Chief Executive Officer and as a Director of NatWest Group plc. Paul Thwaite was appointed as Chief Executive Officer and as a Director of NatWest Group plc for an initial period of 12 months, subject to regulatory approval.
 
Strong H1 2023 performance
  -
H1 2023 attributable profit of £2,299 million and a return on tangible equity of 18.2%.
  -
Total income, excluding notable items(1), increased by £1,485 million, or 25.2%, compared with H1 2022 principally reflecting the impact of lending growth and yield curve movements.
  -
Bank net interest margin (NIM) of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally reflecting asset margin pressure and changes in deposit mix from non-interest bearing to interest bearing balances.
  -
Other operating expenses were £323 million, or 9.3%, higher than H1 2022. The cost:income ratio (excl. litigation and conduct) was 49.3% for the first half of the year compared with 56.0% in H1 2022.
  -
A net impairment charge of £223 million in H1 2023, or 12 basis points of gross customer loans, principally reflects an increase in post model adjustments driven by increased economic uncertainty notwithstanding a £98 million modelled release. Defaults remain stable and at low levels across the portfolio.
 
Robust balance sheet underpinning growth
  -
Net loans to customers excluding central items increased by £6.0 billion to £352.7 billion during H1 2023 primarily reflecting £5.9 billion of mortgage growth in Retail Banking.
  -
Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025.
  -
Customer deposit balances were stable in the second quarter following the outflows in the first quarter. Customer deposits excluding central items decreased by £11.8 billion to £421.1 billion during H1 2023.
  -
The loan:deposit ratio (LDR) (excl. repos and reverse repos) was 83%, with customer deposits exceeding net loans to customers by around £71 billion.
  -
The liquidity coverage ratio (LCR) of 141%, representing £45.3 billion headroom above 100% minimum requirement, increased by 2 percentage points compared with Q1 2023 primarily due to increased wholesale funding and UBIDAC asset sale offset by capital distributions.
 
Shareholder return supported by strong capital generation
  -
We are pleased to announce an interim dividend of 5.5 pence per share and intend to commence an on-market buyback programme of up to £500 million in the second half of 2023 in addition to the £1.3 billion directed buyback completed in Q2 2023 bringing total distributions deducted from capital to £2.5 billion for H1 2023.
  -
Common Equity Tier (CET1) ratio of 13.5% was 70 basis points lower than at 31 December 2022 principally reflecting distributions deducted from capital of c.140 basis points and an increase in RWAs, partially offset by the attributable profit.
  -
RWAs increased by £1.4 billion during the first half of the year to £177.5 billion.
 
Outlook(2)
We retain the guidance provided in the 2022 Annual Report and Accounts with the exception of full year 2023 Bank NIM which is now expected to be less than 3.20%, with a current view of around 3.15%. This remains subject to market conditions including the assumption of a Bank of England base rate of 5.50% from Q3 2023 through to the end of the year.
 
(1)
Refer to the Non-IFRS financial measures appendix for details of notable items.
(2)
The guidance, targets, expectations, and trends discussed in this section represent NatWest Group plc management’s current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors section in the 2022 Annual Report and Accounts and Form 20-F and the Summary Risk Factors in this announcement. 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. By working to benefit our customers, colleagues, and communities, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements in H1 2023 include:
 
People and families
  -
We announced a new ambition to support 10 million people with their financial wellbeing every year by the end of 2027; starting with 6.5 million people in 2023 and increasing on an annual basis between 2024 and 2027, to reach 10 million a year by 2027. In H1 2023, we carried out c.341,000 financial health checks and extended our free Know Your Credit Score tool to everyone in the UK.
  -
From the end of April 2023, we stopped all fees and charges for personal mortgage customers in persistent financial difficulty who are receiving help from our specialist Financial Health and Support teams.
  -
We announced our collaboration with Places for People, British Gas Centrica and Schneider Electric – coordinated by Pineapple Sustainable Partnerships – to show that retrofitting homes at scale can be an achievable and affordable goal.
 
Businesses
  -
We announced our aim to provide an additional £1 billion of lending to the UK manufacturing sector by the end of 2030, aiming to stimulate growth and help manufacturers invest in cleaner, more efficient forms of energy generation and use(1).
  -
We announced strategic partnerships with WWF-UK to mobilise investment in climate and nature-friendly farming, and with food manufacturer McCain to reduce financial barriers for farmers transitioning to sustainable agricultural practices.
  -
As part of our ambition to remove the barriers for women in business, in March 2023 we became the first bank in Europe to issue a bond with the intention to use the net proceeds to lend to businesses identified as women-led. The nominal amount of the bond is €500 million (£446 million), as at 7 March 2023.
 
Colleagues
  -
With the National Youth Agency, we announced a new employee volunteering programme, which will enable our colleagues to deliver NatWest Thrive in their local youth clubs.
  -
We launched our new Women in Entrepreneurship learning programme, open to all colleagues across the bank, to help them offer practical advice and support to women entrepreneurs.
  -
We were included in The Times 2023 Top 50 Employers for Gender Equality list, run by business network, Business in the Community.
 
Communities
  -
We announced £5.7 million in cost of living donations to charities and strategic partners, including £1 million to the Trussell Trust to further support the Help through Hardship scheme and over £1.6 million to the debt advice sector.
  -
With the University of Edinburgh, we launched the Centre for Purpose-Driven Innovation in Banking, which will use business insights from NatWest Group to improve how data is used to benefit customers, researchers and policymakers.
  -
We launched the Royal Bank Regenerate Fund with giving platform, Neighbourly, to support schools, charities and community groups based in Scotland to deliver sustainability projects.
 
Driving targeted growth
We’re driving our strategy forward through three areas of growth:
Delivering personalised solutions throughout our customers' lifecycle
 
We’re focused on customer lifetime value to deliver growth: c.20% of youth accounts are held with NatWest Group(2) and in H1 2023 we attracted c.93,000 new NatWest Rooster card holders.
 
According to a survey by Savanta, we have a 17.7% share of the start-up market, up from 13.0% at the same time last year, with c.55,000 new accounts opened in H1 2023(3).
 
Supporting our customers' sustainability transitions
  -
During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, bringing the cumulative contribution to £48.6 billion at 30 June 2023 against our target to provide £100 billion between 1 July 2021 and the end of 2025(4).
  -
As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023, we provided £2.3 billion in lending for residential properties with EPC ratings A and B. 
 
Embedding our services in our customers' digital lives
  -
We’re scaling up digital and payment offerings for our business customers: Mettle has grown its customer base to almost 100,000 with c.17,000 new accounts opened in H1 2023; £2.2 billion transactions were processed by Tyl by NatWest, a 64% year-on-year increase, and c.8,000 new merchants onboarded.
  -
We launched a whole-of-market(5) credit card offering: our credit card share is 9.6%(6), up from 5.7% this time last year, with c.309,000 cards issued in the year to date and c.76,000 new-to-bank customers.
 
(1) The £1 billion manufacturing fund lending package will be deployed through a variety of routes, including loans, asset finance and increased overdrafts.
(2) As at April 2023. Source: CACI – UK youth flow share max age 18, cash card and no overdraft and Rooster 11+ overlay (12 months rolling).
(3) Based on the % of 771 businesses, less than 2 years old, that name a NatWest Group brand as their main bank. Compared to other banks with a presence on the high street. Source: MarketVue Business Banking from Savanta at Q2 2023. Excludes those using personal bank accounts.
(4) NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements.
(5) Whole-of-market primarily comprises retail customers who do not currently hold a current account with NatWest Group.
(6) Source: eBenchmarkers 3 month rolling average to end May.
 
 
Business performance summary
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2023
2022
 
2023
2023
2022
Summary consolidated income statement
£m
£m
 
£m
£m
£m
Net interest income
5,726
4,334
 
2,824
2,902
2,307
Non-interest income
2,001
1,885
 
1,027
974
904
Total income
7,727
6,219
 
3,851
3,876
3,211
Litigation and conduct costs
(108)
(169)
 
(52)
(56)
(67)
Other operating expenses
(3,807)
(3,484)
 
(1,875)
(1,932)
(1,766)
Operating expenses
(3,915)
(3,653)
 
(1,927)
(1,988)
(1,833)
Profit before impairment losses/releases
3,812
2,566
 
1,924
1,888
1,378
Impairment (losses)/releases
(223)
54
 
(153)
(70)
18
Operating profit before tax
3,589
2,620
 
1,771
1,818
1,396
Tax charge
(1,061)
(795)
 
(549)
(512)
(409)
Profit from continuing operations
2,528
1,825
 
1,222
1,306
987
(Loss)/profit from discontinued operations, net of tax
(108)
190
 
(143)
35
127
Profit for the period
2,420
2,015
 
1,079
1,341
1,114
Performance key metrics and ratios
 
 
 
 
 
 
Notable items within total income (1)
£344m
£321m
 
£288m
£56m
£97m
Total income excluding notable items (1)
£7,383m
£5,898m
 
£3,563m
£3,820m
£3,114m
Bank net interest margin (1)
3.20%
2.58%
 
3.13%
3.27%
2.71%
Bank average interest earning assets (1)
£361bn
£338bn
 
£362bn
£360bn
£342bn
Cost:income ratio (excl. litigation and conduct) (1)
49.3%
56.0%
 
48.7%
49.8%
55.0%
Loan impairment rate (1)
12bps
(3bps)
 
16bps
7bps
(2bps)
Profit attributable to ordinary shareholders
£2,299m
£1,891m
 
£1,020m
£1,279m
£1,050m
Total earnings per share attributable to ordinary shareholders - basic (2)
24.3p
18.7p
 
11.0p
13.2p
10.8p
Return on tangible equity (RoTE) (1)
18.2%
13.1%
 
16.4%
19.8%
15.2%
Climate and sustainable funding and financing (3)
£16.0bn
£11.9bn
 
£8.4bn
£7.6bn
£6.4bn
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2023
2023
2022
Balance sheet
 
 
 
£bn
£bn
£bn
Total assets
 
 
 
702.6
695.6
720.1
Net loans to customers - amortised cost
 
 
 
373.9
374.2
366.3
Net loans to customers excluding central items (1)
 
 
 
352.7
352.4
346.7
Loans to customers and banks - amortised cost and FVOCI 
 
 
 
385.2
385.8
377.1
Total impairment provisions (4)
 
 
 
3.4
3.4
3.4
Expected credit loss (ECL) coverage ratio 
 
 
 
0.9%
0.9%
0.9%
Assets under management and administration (AUMAs) (1)
 
 
 
37.9
35.2
33.4
Customer deposits
 
 
 
432.5
430.5
450.3
Customer deposits excluding central items (1,5)
 
 
 
421.1
421.8
432.9
Liquidity and funding
 
 
 
 
 
 
Liquidity coverage ratio (LCR)
 
 
 
141%
139%
145%
Liquidity portfolio
 
 
 
227
210
226
Net stable funding ratio (NSFR)
 
 
 
138%
141%
145%
Loan:deposit ratio (excl. repos and reverse repos)  (1)
 
 
 
83%
83%
79%
Total wholesale funding
 
 
 
81
79
74
Short-term wholesale funding
 
 
 
28
25
21
Capital and leverage
 
 
 
 
 
 
Common Equity Tier (CET1) ratio (6)
 
 
 
13.5%
14.4%
14.2%
Total capital ratio (6)
 
 
 
18.8%
19.6%
19.3%
Pro forma CET1 ratio (excl. foreseeable items) (7)
 
 
 
14.2%
15.7%
15.4%
Risk-weighted assets (RWAs)
 
 
 
177.5
178.1
176.1
UK leverage ratio
 
 
 
5.0%
5.4%
5.4%
Tangible net asset value (TNAV) per ordinary share (1,8)
 
 
 
262p
278p
264p
Number of ordinary shares in issue (millions) (8)
 
 
 
8,929
9,581
9,659
 
(1)
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
(2)
On 30 August 2022 issued ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares for earnings per share has been adjusted retrospectively.
(3)
NatWest Group uses its climate and sustainable funding and financing inclusion criteria to determine the assets, activities and companies that are eligible to be included within its climate and sustainable funding and financing targets. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of services for underwriting issuances and private placements. Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this, we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, which included £2.3 billion in lending for residential properties with EPC ratings A and B.
(4)
Includes £0.1 billion relating to off-balance sheet exposures (31 March 2023 - £0.1 billion; 31 December 2022 - £0.1 billion).
(5)
Central items includes Treasury repo activity and Ulster Bank Republic of Ireland.
(6)
Refer to the Capital, liquidity and funding risk section for details of the basis of preparation.
(7)
The pro forma CET1 ratio at 30 June 2023 excludes foreseeable items of £1,280 million: £780 million for ordinary dividends and £500 million foreseeable charges. (31 March 2023 excludes foreseeable items of £2,351 million: £1,479 million for ordinary dividends and £872 million foreseeable charges. 31 December 2022 excludes foreseeable charges of £2,132 million: £967 million for ordinary dividends and £1,165 million foreseeable charges).
(8)
The number of ordinary shares in issue excludes own shares held. Comparatives for the number of shares in issue and TNAV per ordinary share have not been adjusted for the effect of the share consolidation referred to in footnote 2 above.
 
 
Business performance summary
Chief Financial Officer review
We delivered a strong operating performance in the first half of the year with a RoTE of 18.2%. Total Income, excluding notable items, of £7.4 billion, was up by 25.2% on prior year and levels of default remain low across our portfolio.
 
The strength of our balance sheet has allowed us to continue to lend to our personal and business customers and we have seen customer deposit balances stabilise in the second quarter following the reduction in quarter one. We remain in a strong liquidity position, with an LCR of 141%, representing £45.3 billion headroom above 100% minimum requirement, and an LDR of 83%.
 
Our CET1 ratio remains strong at 13.5% with total distributions from capital of £2.5 billion.
 
We are pleased to announce an interim dividend of 5.5 pence per share and intend to commence an on-market buyback programme of up to £500 million in the second half of 2023. We have announced distributions of £2.3 billion to shareholders in the first half of the year and accrued a further £0.3 billion towards the final dividend payment in Q2 2023, bringing total distributions deducted from capital to £2.5 billion for H1 2023.
 
Financial performance
Total income increased by 24.2% to £7,727 million compared with H1 2022. Total income, excluding notable items, was 25.2% higher than H1 2022 principally driven by lending growth and favourable yield curve movements partially offset by the change in mix of deposits from non-interest bearing to interest bearing and lower deposit balances. These factors continued to impact in the quarter where net interest income fell by 2.7% compared with Q1 2023 driven by the ongoing change in mix of customer deposits, lower average balances and the impact of higher pass-through rates coupled with mortgage income reductions. We expect these factors to continue to be a feature of our results largely offsetting the positive gains of interest rate rises throughout 2023.
 
Bank NIM of 3.20% in H1 2023 compared with 2.58% in H1 2022 with the increase reflecting favourable yield curve movements. Q2 2023 Bank NIM of 3.13% was 14 basis points lower than Q1 2023 principally reflecting asset margin pressure of 9 basis points, changes in deposit mix from non-interest bearing to interest bearing balances and the impact and timing of pass-through of rate rises on deposits, 5 basis points.
 
In line with our expectations, other operating expenses were £323 million, or 9.3%, higher than H1 2022 principally reflecting increased staff costs due to inflation and a one-off cost of living payment, increased strategic investment costs, such as Financial Crime and Data, and a property impairment. We remain committed to delivering on our full year cost guidance.
 
A net impairment charge of £223 million principally reflects an increase in post model adjustments driven by increased economic uncertainty notwithstanding a £98 million modelled release. Defaults remain stable and at low levels across the portfolio. Compared with Q1 2023, our ECL provision increased by £0.1 billion to £3.6 billion and our ECL coverage ratio has increased from 0.89% to 0.92%. We retain post model adjustments of £0.5 billion related to economic uncertainty, or 13% of total impairment provisions. Whilst we are comfortable with the strong credit performance of our book, we will continue to assess this position regularly and are closely monitoring the impacts of inflationary pressures on the UK economy and our customers.
 
As a result, we are pleased to report an attributable profit for H1 2023 of £2,299 million, with earnings per share of 24.3 pence and a RoTE of 18.2%.
 
Net loans to customers excluding central items increased by £6.0 billion over the first half of the year. Retail Banking mortgage lending increased by £5.9 billion and unsecured lending increased by £1.0 billion due to strong customer demand. Gross new mortgage lending was £17.1 billion in H1 2023 compared with £18.9 billion in H1 2022 and £22.5 billion in H2 2022. Commercial & Institutional net loans to customers decreased by £0.7 billion which was primarily driven by UK Government scheme repayments of £1.4 billion and subdued activity in funds lending, partially offset by an increase in term loan facilities.
 
Up to 30 June 2023 we have provided £48.6 billion against our target to provide £100 billion climate and sustainable funding and financing between 1 July 2021 and the end of 2025. As part of this we aim to provide at least £10 billion in lending for residential properties with Energy Performance Certificate (EPC) ratings A and B between 1 January 2023 and the end of 2025. During H1 2023 we provided £16.0 billion climate and sustainable funding and financing, which included £2.3 billion in lending for residential properties with EPC ratings A and B.
 
During Q2 2023 customer deposits were stable following the outflows experienced in the first quarter. Customer deposits excluding central items reduced by £11.8 billion during H1 2023 reflecting customer tax payments which were significantly higher than previous years, competition for deposits and an overall market liquidity contraction.
 
TNAV per share reduced by 2 pence in H1 2023 to 262 pence primarily reflecting the full year ordinary dividend payment, movements in cash flow hedging reserves and other reserves partially offset by the attributable profit for the period.
 
 
Business performance summary
Chief Financial Officer review continued
Capital
The CET1 ratio remains strong at 13.5%, or 13.4% excluding IFRS 9 transitional relief. The 70 basis points reduction compared with Q4 2022 principally reflects total distributions deducted from capital of £2.5 billion and increased RWAs of £1.4 billion, partially offset by the attributable profit. NatWest Group’s minimum requirement for own funds and eligible liabilities (MREL) ratio was 31.2%.
 
We have completed the £800 million share buyback programme announced as part of our 2022 annual results. In Q2 2023 we completed a £1.3 billion directed buyback and we intend to commence an on-market buyback programme of up to £500 million in the remainder of the year which, including the ordinary dividend accrual, brings total distributions deducted from capital to £2.5 billion for H1 2023.
 
We have continued to make good progress with our withdrawal from the Republic of Ireland with a €800 million dividend from Ulster Bank Ireland DAC declared in Q2 2023.
 
RWAs increased by £1.4 billion in H1 2023 to £177.5 billion largely reflecting lending growth and a £1.1 billion increase associated with the annual update to operational risk balances partially offset by reductions associated with our exit from the Republic of Ireland.
 
Funding and liquidity
The LCR increased by 2 percentage points to 141% in the quarter, representing £45.3 billion headroom above 100% minimum requirement, primarily due to increased wholesale funding and UBIDAC asset sale offset by capital distributions. Our primary liquidity as at 30 June 2023 was £147.5 billion and £119.6 billion or 81% of this was cash at central banks. Total wholesale funding increased by £1.8 billion in the quarter to £81.2 billion.
 
 
Business performance summary
Retail Banking
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2023
2022
 
2023
2023
2022
 
£m
£m
 
£m
£m
£m
Total income
3,120
2,554
 
1,516
1,604
1,337
Operating expenses
(1,367)
(1,242)
 
(671)
(696)
(597)
   of which: Other operating expenses
(1,343)
(1,184)
 
(650)
(693)
(593)
Impairment losses
(193)
(26)
 
(79)
(114)
(21)
Operating profit
1,560
1,286
 
766
794
719
 
 
 
 
 
 
 
Return on equity (1)
29.1%
26.3%
 
28.2%
30.0%
29.5%
Net interest margin (1)
2.88%
2.53%
 
2.78%
2.99%
2.62%
Cost:income ratio (excl. litigation and conduct) (1)
43.0%
46.4%
 
42.9%
43.2%
44.4%
Loan impairment rate (1)
19bps
3bps
 
15bps
22bps
4bps
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2023
2023
2022
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost)
 
 
 
204.4
201.7
197.6
Customer deposits
 
 
 
183.1
184.0
188.4
RWAs
 
 
 
57.3
55.6
54.7
 
(1) Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
 
During H1 2023, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 29.1% and an operating profit of £1,560 million.
 
Retail Banking provided £2.2 billion of climate and sustainable funding and financing in H1 2023.
 
H1 2023 performance
  -
Total income was £566 million, or 22.2%, higher than H1 2022 reflecting continued strong loan growth and higher deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins, lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as well as increased capital issuance and funding costs.
  -
Net interest margin was 35 basis points higher than H1 2022 reflecting higher deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins, lower deposit balances with mix shift from non-interest bearing to interest bearing balances, as well as higher treasury funding costs.
  -
Other operating expenses were £159 million, or 13.4%, higher than H1 2022 reflecting continued investment in the business and higher pay awards to support our colleagues with cost of living challenges, increased data costs and increased restructuring costs. This was partly offset by a 3.0% headcount reduction as a result of continued digitalisation, automation and improvement of end-to-end customer journeys.
  -
A net impairment charge of £193 million in H1 2023 largely reflects Stage 3 defaults, which remain stable, as well as good book charges driven by strong unsecured lending growth, partly offset by the benefits from the updated economic outlook.
  -
Net loans to customers increased by £6.8 billion, or 3.4%, in H1 2023 mainly reflecting continued mortgage growth of £5.9 billion, or 3.2%, with gross new mortgage lending of £17.1 billion, representing flow share of around 16%. Cards balances increased by £0.7 billion, or 15.9%, and personal advances increased by £0.3 billion, or 3.9%, in H1 2023 with strong customer demand.
  -
Customer deposits decreased by £5.3 billion, or 2.8%, in H1 2023 reflecting the impact of customer tax payments which were higher than previous years, lower household liquidity and increased competition for savings balances. Personal current account balances decreased by £5.5 billion, partially offset by an increase in personal savings of £0.2 billion in H1 2023. We have seen strong growth in our fixed term savings products in H1 2023.
  -
RWAs increased by £2.6 billion, or 4.8%, primarily reflecting lending volume growth.
 
Q2 2023 performance
  -
Total income was £88 million, or 5.5%, lower than Q1 2023 reflecting a reduction in mortgage margins and lower deposit balances with mix shift from non-interest bearing to interest bearing balances, partly offset by lending growth and benefit of higher rates on deposit income.
  -
Net interest margin was 21 basis points lower than Q1 2023 reflecting lower mortgage margins and lower deposit balances with mix shift from non-interest bearing to interest bearing balances, partly offset by the impact of rate rises on deposit income.
  -
Other operating expenses were £43 million, or 6.2%, lower than Q1 2023 reflecting non repeat of Q1 2023 one-off cost of living payment, and lower restructuring costs, partially offset by the impact of April 2023 pay award and timing of investment and other non-staff costs.
  -
A net impairment charge of £79 million in Q2 2023 largely reflects Stage 3 defaults, which remain stable, as well as good book charges driven by strong unsecured lending growth, partly offset by benefits from the updated economic outlook.
  -
Net loans to customers increased by £2.7 billion, or 1.3%, in Q2 2023 mainly reflecting continued mortgage growth of £2.0 billion, or 1.0%, with gross new mortgage lending of £7.6 billion, representing flow share of around 15%. Cards balances increased by £0.5 billion, or 10.9%, and personal advances increased by £0.2 billion, or 2.6%, reflecting strong customer demand.
  -
Customer deposits decreased by £0.9 billion, or 0.5%, in Q2 2023 as growth in fixed term savings deposits was offset by lower instant access savings and current accounts.
   
 
 
  -
RWAs increased by £1.7 billion, or 3.1%, in Q2 2023 primarily reflecting strong lending volume growth and a small increase in risk parameters.
 
 
Business performance summary
Private Banking
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2023
2022
 
2023
2023
2022
 
£m
£m
 
£m
£m
£m
Total income
567
461
 
271
296
245
Operating expenses
(322)
(285)
 
(167)
(155)
(146)
   of which: Other operating expenses
(311)
(284)
 
(159)
(152)
(146)
Impairment (losses)/releases
(11)
11
 
(3)
(8)
6
Operating profit
234
187
 
101
133
105
 
 
 
 
 
 
 
Return on equity (1)
24.7%
20.9%
 
20.8%
28.5%
23.5%
Net interest margin (1)
4.50%
3.34%
 
4.17%
4.83%
3.60%
Cost:income ratio (excl. litigation and conduct) (1)
54.9%
61.6%
 
58.7%
51.4%
59.6%
Loan impairment rate (1)
11bps
(12)bps
 
6bps
17bps
(13)bps
Net new money (£bn) (1)
1.0
1.4
 
0.4
0.6
0.6
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2023
2023
2022
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost)
 
 
 
19.1
19.2
19.2
Customer deposits
 
 
 
36.5
37.3
41.2
RWAs
 
 
 
11.5
11.4
11.2
Assets under management (AUMs) (1)
 
 
 
30.0
29.6
28.3
Assets under administration (AUAs) (1)
 
 
 
7.9
5.6
5.1
Total assets under management and administration (AUMAs) (1)
 
 
37.9
35.2
33.4
(1)
Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
During H1 2023, Private Banking delivered a strong return on equity of 24.7%, and an operating profit of £234 million.
 
NatWest Group completed the acquisition of a majority shareholding in Cushon on 1 June 2023. The acquisition of the workplace savings and pensions fintech resulted in a £1.9 billion increase to the NatWest Group AUMAs on the date of acquisition.
 
Private Banking provided £0.1 billion of climate and sustainable funding and financing in H1 2023.
 
H1 2023 performance
 -
Total income was £106 million, or 23.0%, higher than H1 2022 reflecting increased deposit income supported by interest rate rises, partially offset by a reduction in mortgage margins.
 
-
Net interest margin was 116 basis points higher than H1 2022 reflecting higher deposit income, supported by interest rate rises, partially offset by a reduction in lending margins, lower deposit balances, as well as increased capital issuance and funding costs.
 
 -
Other operating expenses were £27 million, or 9.5% higher than H1 2022 due to the impact of pay awards to support colleagues with cost of living challenges and the impact of one-offs including a £7 million property revaluation and an £8 million technology cost.
 -
A net impairment charge of £11 million in H1 2023 reflected higher good book charges and a small level of Stage 3 defaults.
 -
Net loans to customers decreased by £0.1 billion in H1 2023 as gross new lending of £1.4 billion, of which £0.9 billion related to mortgages, was offset by higher repayments.
 -
Customer deposits decreased by £4.7 billion, or 11.4% in H1 2023 reflecting the impact of customer tax payments which were higher than previous years, as well as increased competition for savings balances. Current account and instant access savings account balances decreased by £7.0 billion partially offset by an increase in term savings products.
 -
AUMAs increased by £4.5 billion, or 13.5%, in H1 2023 primarily reflecting AUM net new money of £1.0 billion, which represents 6.0% of opening AUMA balances, positive market movements, and acquisition of Cushon which contributes £2.0 billion(1).
 
Q2 2023 performance
-  
Total income was £25 million, or 8.4%, lower than Q1 2023 reflecting lower deposit balances and higher pass-through of rate rises on customer deposits partially offset by the benefit of higher interest rates.
 
-
Net interest margin was 66 basis points lower than Q1 2023 reflecting lower deposit volumes, changes in deposit mix from non-interest bearing to interest bearing balances and increased funding costs.
 
-
A net impairment charge of £3 million in Q2 2023 reflected benefits from the updated economic outlook with Stage 3 defaults remaining stable.
 
   -
Customer deposits decreased by £0.8 billion, or 2.1% in Q2 2023 as growth in fixed term savings deposits was offset by lower instant access savings and current accounts combined with repayment of debt.
   -
AUMAs increased by £2.7 billion, or 7.7%, in Q2 2023 primarily reflecting AUM net new money of £0.4 billion and positive investment market movements. The acquisition of Cushon contributes £2.0 billion(1) to the increase in AUMAs.
 
(1) Cushon AUMAs at 30 June 2023 were £2.0 billion and £1.9 billion as at date of acquisition. AUMAs are reported within the Private Banking segment as the Investment Centre of Expertise, and the financials are within Central items & other.
 
Business performance summary
Commercial & Institutional
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2023
2022
 
2023
2023
2022
 
£m
£m
 
£m
£m
£m
Net interest income
2,504
1,764
 
1,243
1,261
961
Non-interest income
1,244
1,173
 
552
692
601
Total income
3,748
2,937
 
1,795
1,953
1,562
 
 
 
 
 
 
 
Operating expenses
(1,987)
(1,820)
 
(984)
(1,003)
(898)
   of which: Other operating expenses
(1,893)
(1,734)
 
(934)
(959)
(854)
Impairment (losses)/releases
(20)
59
 
(64)
44
48
Operating profit
1,741
1,176
 
747
994
712
 
 
 
 
 
 
 
Return on equity (1)
16.9%
11.4%
 
14.3%
19.5%
14.0%
Net interest margin (1)
3.84%
2.84%
 
3.79%
3.90%
3.09%
Cost:income ratio (excl. litigation and conduct) (1)
50.5%
59.0%
 
52.0%
49.1%
54.7%
Loan impairment rate (1)
3bps
(9)bps
 
20bps
(13)bps
(15)bps
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2023
2023
2022
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost)
 
 
 
129.2
131.5
129.9
Customer deposits
 
 
 
201.5
200.5
203.3
Funded assets (1)
 
 
 
320.6
320.4
306.3
RWAs
 
 
 
103.6
104.8
103.2
 
(1)
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
 
During H1 2023, Commercial & Institutional delivered a strong performance with a return on equity of 16.9% and operating profit of £1,741 million.
 
Commercial & Institutional provided £13.8 billion of climate and sustainable funding and financing in H1 2023.
 
H1 2023 performance
 - 
Total income was £811 million, or 27.6%, higher than H1 2022 primarily reflecting higher deposit returns from an improved interest rate environment, credit and debit card fees and higher markets income(1).
 
 - 
Net interest margin was 100 basis points higher than H1 2022 reflecting higher deposit returns supported by interest rate rises, partly offset by lower deposits balances, evolving deposit and lending mix impacts and higher treasury funding costs.
 
- 
Other operating expenses were £159 million, or 9.2%, higher than H1 2022 due to higher pay awards to support our colleagues with cost of living challenges and continued investment in the business.
 
 - 
An impairment charge of £20 million in H1 2023 compared with an impairment release of £59 million in H1 2022 driven by an increase in post model adjustments to reflect increased inflationary and liquidity risk impacts to our customers offset by benefits of modelled releases to reflect benefits from the revised economic outlook. Stage 3 charges remain low.
-  
Net loans to customers decreased by £0.7 billion, or 0.5%, in H1 2023 due to UK Government scheme repayments of £1.4 billion and subdued activity within funds lending, partly offset by an increase in term loan facilities including revolving credit facilities and asset finance.
 
 - 
Customer deposits decreased by £1.8 billion, or 0.9%, in H1 2023 primarily due to overall market liquidity contraction, particularly sight deposits with strong growth in term deposit balances.
 
-  
RWAs increased by £0.4 billion, or 0.4%, in H1 2023 primarily reflecting an evolving book mix of lending growth and UK Government scheme repayments, partially offset by foreign exchange benefits and lower market risk.
 
Q2 2023 performance
-  
Total income was £158 million, or 8.1%, lower than Q1 2023 largely reflecting lower markets income(1) mainly driven by challenging market conditions and additional treasury costs.
 
-  
Net interest margin was 11 basis points lower than Q1 2023 reflecting increased treasury costs and lower deposit balances, partly offset by higher deposit margins.
 
-  
Other operating expenses were £25 million, or 2.6%, lower than Q1 2023 reflecting non-repeat of the Q1 2023 one-off cost of living payments partly offset by continued investment in the business.
 
 - 
A net impairment charge of £64 million in Q2 2023 reflected an increase in post model adjustments to reflect inflationary and liquidity risk impacts to our customers offset by benefits of modelled releases to reflect benefits from the revised economic outlook. Stage 3 charges remain low.
 
 - 
Net loans to customers decreased by £2.3 billion, or 1.7%, in Q2 2023 largely due to lower funds activity and UK Government scheme repayments of £0.7 billion.
 
 - 
Customer deposits increased by £1.0 billion, or 0.5%, in Q2 2023 primarily due to growth in the Corporate & Institutions business. We have seen continued strong growth in term deposit balances.
 
 - 
RWAs decreased by £1.2 billion, or 1.1%, in Q2 2023 primarily reflecting foreign exchange benefits and lower lending balances.
 
(1)
Markets income excludes own credit risk adjustments and central items.
 
Business performance summary
Central items & other
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2023
2022
 
2023
2023
2022
 
£m
£m
 
£m
£m
£m
Continuing operations
 
 
 
 
 
 
Total income
292
267
 
269
23
67
Operating expenses (1)
(239)
(306)
 
(105)
(134)
(192)
   of which: Other operating expenses
(260)
(282)
 
(132)
(128)
(173)
   of which: Ulster Bank RoI direct expenses
(163)
(145)
 
(63)
(100)
(81)
Impairment releases/(losses)
1
10
 
(7)
8
(15)
Operating profit/(loss)
54
(29)
 
157
(103)
(140)
   of which: Ulster Bank RoI
(295)
(213)
 
(136)
(159)
(150)
 
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2023
2023
2022
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost) (2)
 
 
 
21.2
21.8
19.6
Customer deposits
 
 
 
11.4
8.7
17.4
RWAs
 
 
 
5.1
6.3
7.0
(1)
Includes withdrawal-related direct program costs of £64 million for the half year ended 30 June 2023 (30 June 2022 - £26 million) and £15 million for the quarter ended 30 June 2023 (31 March 2023 - £49 million; 30 June 2022 - £16 million).
(2)
Excludes £0.4 billion of loans to customers held at fair value through profit or loss (31 March 2023 - £0.5 billion; 31 December 2022 - £0.5 billion).

 
H1 2023 performance
 
Total income was £25 million higher than H1 2022 reflecting one-off items that broadly offset including foreign exchange recycling gains, partially offset by lower gains on interest and foreign exchange risk management derivatives not in hedge accounting relationships, gains on liquidity asset bond sales in the prior year and the effect of the continued withdrawal of our operations from the Republic of Ireland.
 
Customer deposits decreased by £6.0 billion in H1 2023 primarily reflecting the continued withdrawal of our operations from the Republic of Ireland. Ulster Bank RoI customer deposit balances were £0.4 billion as at H1 2023.
 
Net loans to customers increased £1.6 billion in H1 2023 mainly due to reverse repo activity in Treasury.
 
Q2 2023 performance
 
Customer deposits increased by £2.7 billion during Q2 2023 primarily reflecting repo activity in Treasury partially offset by the continued withdrawal of our operations from the Republic of Ireland.
 
 
Segment performance
 
 
Half year ended 30 June 2023
 
 
 
 
 
Central
Total
 
 
Retail
Private
Commercial &
items &
NatWest
 
 
Banking
Banking
Institutional
other
Group
 
 
£m
£m
£m
£m
£m
Continuing operations
 
 
 
 
 
Income statement 
 
 
 
 
 
Net interest income
2,908
428
2,504
(114)
5,726
Own credit adjustments
—
—
9
—
9
Other non-interest income
212
139
1,235
406
1,992
Total income 
3,120
567
3,748
292
7,727
Direct expenses
 
(394)
(109)
(737)
(2,567)
(3,807)
Indirect expenses
(949)
(202)
(1,156)
2,307
—
Other operating expenses
(1,343)
(311)
(1,893)
(260)
(3,807)
Litigation and conduct costs
(24)
(11)
(94)
21
(108)
Operating expenses
(1,367)
(322)
(1,987)
(239)
(3,915)
Operating profit before impairment losses/releases (1)
1,753
245
1,761
53
3,812
Impairment (losses)/releases
(193)
(11)
(20)
1
(223)
Operating profit (1)
1,560
234
1,741
54
3,589
 
 
 
 
 
 
 
Income excluding notable items (1)
3,120
567
3,739
(43)
7,383
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
Return on tangible equity (1)
na
na
na
na
18.2%
Return on equity (1)
29.1%
24.7%
16.9%
nm
na
Cost:income ratio (excl. litigation and conduct) (1)
43.0%
54.9%
50.5%
nm
49.3%
Total assets (£bn)
229.1
27.3
401.5
44.7
702.6
Funded assets (£bn) (1)
229.1
27.3
320.6
43.7
620.7
Net loans to customers - amortised cost (£bn)
204.4
19.1
129.2
21.2
373.9
Loan impairment rate (1)
19bps
11bps
3bps
nm
12bps
Impairment provisions (£bn)
(1.7)
(0.1)
(1.5)
(0.1)
(3.4)
Impairment provisions - stage 3 (£bn)
(1.0)
—
(0.8)
(0.1)
(1.9)
Customer deposits (£bn)
183.1
36.5
201.5
11.4
432.5
Risk-weighted assets (RWAs) (£bn)
57.3
11.5
103.6
5.1
177.5
RWA equivalent (RWAe) (£bn)
57.3
11.5
104.9
5.8
179.5
Employee numbers (FTEs - thousands)
13.5
2.2
12.5
33.3
61.5
Third party customer asset rate (1)
3.03%
4.24%
5.61%
nm
nm
Third party customer funding rate (1)
(1.02%)
(1.43%)
(1.03%)
nm
nm
Bank average interest earning assets (£bn) (1)
203.4
19.2
131.4
na
361.1
Bank net interest margin (1)
2.88%
4.50%
3.84%
na
3.20%
nm = not meaningful, na = not applicable.
 
(1)
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
 
 
Segment performance
 
 
Half year ended 30 June 2022
 
 
 
 
 
Central
Total
 
 
Retail
Private
Commercial &
items &
NatWest
 
 
Banking
Banking
Institutional
other
Group
 
 
£m
£m
£m
£m
£m
Continuing operations
 
 
 
 
 
Income statement 
 
 
 
 
 
Net interest income
2,340
315
1,764
(85)
4,334
Own credit adjustments
— 
— 
52
— 
52
Other non-interest income
214
146
1,121
352
1,833
Total income 
2,554
461
2,937
267
6,219
Direct expenses
 
(320)
(102)
(736)
(2,326)
(3,484)
Indirect expenses
(864)
(182)
(998)
2,044
— 
Other operating expenses
(1,184)
(284)
(1,734)
(282)
(3,484)
Litigation and conduct costs
(58)
(1)
(86)
(24)
(169)
Operating expenses
(1,242)
(285)
(1,820)
(306)
(3,653)
Operating profit/(loss) before impairment losses/releases (1)
1,312
176
1,117
(39)
2,566
Impairment (losses)/releases
(26)
11
59
10
54
Operating profit/(loss) (1)
1,286
187
1,176
(29)
2,620
 
 
 
 
 
 
 
Income excluding notable items (1)
2,554
461
2,930
(47)
5,898
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
Return on tangible equity (1)
na
na
na
na
13.1%
Return on equity (1)
26.3%
20.9%
11.4%
nm
na
Cost:income ratio (excl. litigation and conduct) (1)
46.4%
61.6%
59.0%
nm
56.0%
Total assets (£bn)
216.2
30.0
451.5
108.8
806.5
Funded assets (£bn) (1)
216.2
30.0
343.4
107.5
697.1
Net loans to customers - amortised cost (£bn)
188.7
18.8
127.3
27.8
362.6
Loan impairment rate (1)
3bps
(12)bps
(9)bps
nm
(3)bps
Impairment provisions (£bn)
(1.5)
(0.1)
(1.4)
(0.4)
(3.4)
Impairment provisions - stage 3 (£bn)
(0.9)
— 
(0.7)
(0.4)
(2.0)
Customer deposits (£bn)
190.5
41.6
223.2
36.8
492.1
Risk-weighted assets (RWAs) (£bn)
53.0
11.3
103.0
12.5
179.8
RWA equivalent (RWAe) (£bn)
53.0
11.3
101.4
13.0
178.7
Employee numbers (FTEs - thousands)
13.9
2.0
11.8
31.2
58.9
Third party customer asset rate (1)
2.59%
2.65%
3.01%
nm
nm
Third party customer funding rate (1)
(0.07%)
(0.07%)
(0.06%)
nm
nm
Bank average interest earning assets (£bn) (1)
186.8
19.0
125.2
na
338.5
Bank net interest margin (1)
2.53%
3.34%
2.84%
na
2.58%
nm = not meaningful, na = not applicable.
 
(1)
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
 
 
Segment performance
 
 
Quarter ended 30 June 2023
 
 
 
 
 
Central
Total
 
 
Retail
Private
Commercial &
 items &
NatWest
 
 
Banking
Banking
Institutional
other
Group
 
 
£m
£m
£m
£m
£m
Continuing operations
 
 
 
 
 
Income statement 
 
 
 
 
 
Net interest income
1,416
199
1,243
(34)
2,824
Own credit adjustments
—
—
3
—
3
Other non-interest income
100
72
549
303
1,024
Total income 
1,516
271
1,795
269
3,851
Direct expenses
 
(185)
(53)
(379)
(1,258)
(1,875)
Indirect expenses
(465)
(106)
(555)
1,126
—
Other operating expenses
(650)
(159)
(934)
(132)
(1,875)
Litigation and conduct costs
(21)
(8)
(50)
27
(52)
Operating expenses
(671)
(167)
(984)
(105)
(1,927)
Operating profit before impairment losses/releases (1)
845
104
811
164
1,924
Impairment (losses)
(79)
(3)
(64)
(7)
(153)
Operating profit (1)
766
101
747
157
1,771
 
 
 
 
 
 
 
Income excluding notable items (1)
1,516
271
1,792
(16)
3,563
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
Return on tangible equity (1)
na
na
na
na
16.4%
Return on equity (1)
28.2%
20.8%
14.3%
nm
na
Cost:income ratio (excl. litigation and conduct) (1)
42.9%
58.7%
52.0%
nm
48.7%
Total assets (£bn)
229.1
27.3
401.5
44.7
702.6
Funded assets (£bn) (1)
229.1
27.3
320.6
43.7
620.7
Net loans to customers - amortised cost (£bn)
204.4
19.1
129.2
21.2
373.9
Loan impairment rate (1)
15bps
6bps
20bps
nm
16bps
Impairment provisions (£bn)
(1.7)
(0.1)
(1.5)
(0.1)
(3.4)
Impairment provisions - stage 3 (£bn)
(1.0)
—
(0.8)
(0.1)
(1.9)
Customer deposits (£bn)
183.1
36.5
201.5
11.4
432.5
Risk-weighted assets (RWAs) (£bn)
57.3
11.5
103.6
5.1
177.5
RWA equivalent (RWAe) (£bn)
57.3
11.5
104.9
5.8
179.5
Employee numbers (FTEs - thousands)
13.5
2.2
12.5
33.3
61.5
Third party customer asset rate (1)
3.11%
4.41%
5.84%
nm
nm
Third party customer funding rate (1)
(1.20%)
(1.71%)
(1.18%)
nm
nm
Bank average interest earning assets (£bn) (1)
204.6
19.2
131.4
na
362.3
Bank net interest margin (1)
2.78%
4.17%
3.79%
na
3.13%
nm = not meaningful, na = not applicable.
 
(1)
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
 
 
Segment performance
 
 
Quarter ended 31 March 2023
 
 
 
 
 
Central
Total
 
 
Retail
Private
Commercial &
items &
NatWest
 
 
Banking
Banking
Institutional
other
Group
 
 
£m
£m
£m
£m
£m
Continuing operations
 
 
 
 
 
Income statement 
 
 
 
 
 
Net interest income
1,492
229
1,261
(80)
2,902
Own credit adjustments
—
—
6
—
6
Other non-interest income
112
67
686
103
968
Total income 
1,604
296
1,953
23
3,876
Direct expenses
 
(209)
(56)
(358)
(1,309)
(1,932)
Indirect expenses
(484)
(96)
(601)
1,181
—
Other operating expenses
(693)
(152)
(959)
(128)
(1,932)
Litigation and conduct costs
(3)
(3)
(44)
(6)
(56)
Operating expenses
(696)
(155)
(1,003)
(134)
(1,988)
Operating profit/(loss) before impairment losses/releases (1)
908
141
950
(111)
1,888
Impairment (losses)/releases
(114)
(8)
44
8
(70)
Operating profit/(loss) (1)
794
133
994
(103)
1,818
 
 
 
 
 
 
 
Income excluding notable items (1)
1,604
296
1,947
(27)
3,820
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
Return on tangible equity (1)
na
na
na
na
19.8%
Return on equity (1)
30.0%
28.5%
19.5%
nm
na
Cost:income ratio (excl. litigation and conduct) (1)
43.2%
51.4%
49.1%
nm
49.8%
Total assets (£bn)
227.2
28.1
399.0
41.3
695.6
Funded assets (£bn) (1)
227.2
28.1
320.4
40.5
616.2
Net loans to customers - amortised cost (£bn)
201.7
19.2
131.5
21.8
374.2
Loan impairment rate (1)
22bps
17bps
(13)bps
nm
7bps
Impairment provisions (£bn)
(1.7)
(0.1)
(1.5)
(0.1)
(3.4)
Impairment provisions - stage 3 (£bn)
(1.0)
—
(0.7)
(0.1)
(1.8)
Customer deposits (£bn)
184.0
37.3
200.5
8.7
430.5
Risk-weighted assets (RWAs) (£bn)
55.6
11.4
104.8
6.3
178.1
RWA equivalent (RWAe) (£bn)
56.4
11.4
106.2
6.9
180.9
Employee numbers (FTEs - thousands)
13.9
2.2
12.4
33.3
61.8
Third party customer asset rate (1)
2.94%
4.07%
5.38%
nm
nm
Third party customer funding rate (1)
(0.83%)
(1.15%)
(0.87%)
nm
nm
Bank average interest earning assets (£bn) (1)
202.1
19.2
131.3
na
360.0
Bank net interest margin (1)
2.99%
4.83%
3.90%
na
3.27%
nm = not meaningful, na = not applicable.
 
(1)
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measures and performance metrics.
 
  
Segment performance
 
 
Quarter ended 30 June 2022
 
 
 
 
 
Central
Total
 
 
Retail
Private
Commercial &
items &
NatWest
 
 
Banking
Banking
Institutional
other
Group
 
 
£m
£m
£m
£m
£m
Continuing operations
 
 
 
 
 
Income statement 
 
 
 
 
 
Net interest income
1,228
172
961
(54)
2,307
Own credit adjustments
—
—
34
—
34
Other non-interest income
109
73
567
121
870
Total income 
1,337
245
1,562
67
3,211
Direct expenses
 
(159)
(53)
(329)
(1,225)
(1,766)
Indirect expenses
(434)
(93)
(525)
1,052
—
Other operating expenses
(593)
(146)
(854)
(173)
(1,766)
Litigation and conduct costs
(4)
—
(44)
(19)
(67)
Operating expenses
(597)
(146)
(898)
(192)
(1,833)
Operating profit/(loss) before impairment losses/releases (1)
740
99
664
(125)
1,378
Impairment (losses)/releases
(21)
6
48
(15)
18
Operating profit/(loss) (1)
719
105
712
(140)
1,396
 
 
 
 
 
 
 
Income excluding notable items (1)
1,337
245
1,573
(41)
3,114
 
 
 
 
 
 
 
Additional information
 
 
 
 
 
Return on tangible equity (1)
na
na
na
na
15.2%
Return on equity (1)
29.5%
23.5%
14.0%
nm
na
Cost:income ratio (excl. litigation and conduct) (1)
44.4%
59.6%
54.7%
nm
55.0%
Total assets (£bn)
216.2
30.0
451.5
108.8
806.5
Funded assets (£bn) (1)
216.2
30.0
343.4
107.5
697.1
Net loans to customers - amortised cost (£bn)
188.7
18.8
127.3
27.8
362.6
Loan impairment rate (1)
4bps
(13)bps
(15)bps
nm
(2)bps
Impairment provisions (£bn)
(1.5)
(0.1)
(1.4)
(0.4)
(3.4)
Impairment provisions - stage 3 (£bn)
(0.9)
—
(0.7)
(0.4)
(2.0)
Customer deposits (£bn)
190.5
41.6
223.2
36.8
492.1
Risk-weighted assets (RWAs) (£bn)
53.0
11.3
103.0
12.5
179.8
RWA equivalent (RWAe) (£bn)
53.0
11.3
101.4
13.0
178.7
Employee numbers (FTEs - thousands)
13.9
2.0
11.8
31.2
58.9
Third party customer asset rate (1)
2.59%
2.77%
3.19%
nm
nm
Third party customer funding rate (1)
(0.10%)
(0.13%)
(0.09%)
nm
nm
Bank average interest earning assets (£bn) (1)
188.1
19.1
124.9
na
341.5
Bank net interest margin (1)
2.62%
3.60%
3.09%
na
2.71%
nm - not meaningful, na - not applicable
 
(1)
Refer to the Non-IFRS financial measures appendix for details of the basis of preparation and reconciliation of non-IFRS financial measurements and performance metrics.
 
 
 
Risk and capital management
 
 
Page
Credit risk
 
   Economic loss drivers
18
   UK economic uncertainty
23
   Wholesale support schemes
25
   Measurement uncertainty and ECL sensitivity analysis
26
   Measurement uncertainty and ECL adequacy
28
Credit risk – Banking activities
 
    Financial instruments within the scope of the IFRS 9 ECL framework
29
    Segment analysis
30
    Segment loans and impairment metrics
33
    Sector analysis
34
    Wholesale forbearance
39
    Personal portfolio
40
    Commercial real estate
42
    Flow statements
44
    Stage 2 decomposition by a significant increase in credit risk trigger
52
    Asset quality
54
Credit risk – Trading activities
58
Capital, liquidity and funding risk
61
Market risk
 
    Non-traded
71
    Traded
75
Other risks
76
 
Certain disclosures in the Risk and capital management section are within the scope of EY’s review report and are marked as reviewed in the section header.
 
 
 
Risk and capital management
Credit risk
Economic loss drivers (reviewed)
Introduction
The portfolio segmentation and selection of economic loss drivers for IFRS 9 follows the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by product or asset class and, where relevant, industry sector and region) are based on a selected, small number of economic variables (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement.
 
The most significant economic loss drivers for the most material portfolios are shown in the table below:
 
Portfolio
Economic loss drivers
UK Personal mortgages
UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income
UK Personal unsecured
UK unemployment rate, sterling swap rate, UK household debt to income
UK corporates
UK stock price index, UK gross domestic product (GDP), Bank of England base rate
UK commercial real estate
UK stock price index, UK commercial property price index, UK GDP, Bank of England base rate
 
Economic scenarios
At 30 June 2023, the range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflected the current risks faced by the economy, particularly related to persistently high inflation and interest rate environment, resulting in a fall in real household income, economic slowdown, a rise in unemployment and asset price declines.
 
For 30 June 2023, the four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. These four scenarios were developed to provide sufficient coverage across potential rises in unemployment, inflation, asset price declines and the degree of permanent damage to the economy, around which there remains pronounced levels of uncertainty.
 
Upside – This scenario assumes robust growth as inflation falls sharply and rates are lowered. Consumer spending is supported by savings built up since COVID-19 and further helped by fiscal support and strong business investment. The labour market remains resilient, with the unemployment rate remaining below pre-COVID-19 levels. The housing market slows down compared to the previous year but remains robust.
 
Base case – In the midst of high inflation and significant monetary policy tightening, the economic growth remains muted. However, recession is avoided as only a small proportion of households are directly affected by the rise in the mortgage costs. The unemployment rate rises modestly but job losses are contained. Inflation moderates over the medium-term and falls to target level of 2%. The housing market experiences price decline and lower activity but the extent of the decline is lower than that experienced during prior stresses.
 
Since 31 December 2022, the economic outlook has improved as energy prices fell sharply and the labour market remained resilient. However, the inflation outlook remains elevated due to higher core inflation pressure. As a result, interest rates need to rise higher than assumed previously. The base case now assumes muted growth in 2023 as opposed to a mild recession assumed previously. The unemployment rate still rises but the peak is lower, reflecting the labour market’s recent resilience. The peak to trough house price correction remains broadly similar to the previous assumption.
 
Downside – Inflation remains persistently high. The economy experiences a recession as consumer confidence weakens due to a fall in real income. Interest rates are raised higher than the base case and remain elevated for longer. High rates are assumed to have a more significant impact on the labour market. Unemployment is higher than the base case scenario while house prices experience declines comparable to previous episodes of stress.
 
The previous year’s downside scenario also included a deep recession, labour market deterioration and asset price falls, but the current downside scenario explores these risks in a persistently high inflation, high rates environment.
 
Extreme downside – This scenario assumes high and persistent inflation. Households see the highest recorded decline in real income. Interest rates rise to levels last observed in early 2000. Resulting economic recession is deep and leads to widespread job losses. House prices lose approximately a third of their value while the unemployment rate rises to a level above that observed during the 2008 financial crisis.
 
The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the main macroeconomic variables table below.
 
 
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Main macroeconomic variables
30 June 2023
 
31 December 2022
 
 
 
 
 
Extreme
Weighted
 
 
 
 
Extreme
Weighted
 
 
Upside
Base case
Downside
downside
average
 
Upside
Base case
Downside
downside
average
 
Five-year summary
%
%
%
%
%
 
%
%
%
%
%
 
GDP
1.8
0.9
0.4
(0.2)
0.8
 
2.2
1.3
0.8
0.4
1.2
 
Unemployment
3.5
4.2
4.9
6.6
4.6
 
3.9
4.5
4.9
6.7
4.8
 
House price index
3.8
0.3
(0.8)
(6.0)
—
 
5.1
0.8
(0.7)
(4.4)
0.6
 
Commercial real estate price
3.3
0.2
(2.7)
(7.6)
(0.7)
 
1.2
(1.9)
(2.8)
(9.1)
(2.5)
 
Consumer price index
1.7
2.3
4.2
3.7
2.8
 
3.6
4.2
4.4
8.2
4.8
 
Bank of England base rate
2.6
4.2
5.0
5.1
4.2
 
2.4
3.1
1.5
4.5
2.8
 
UK stock price index
5.8
4.3
1.8
0.1
3.5
 
3.0
1.4
(1.1)
(3.7)
0.5
 
World GDP
3.7
3.1
2.7
1.0
2.8
 
3.7
3.3
1.7
1.1
2.7
 
Probability weight
19.5
45.0
21.5
14.0
 
 
18.6
45.0
20.8
15.6
 
 
 
(1) The five-year summary runs from 2023-2027 for 30 June 2023.
(2) The table shows five calendar year CAGR for GDP, average for unemployment and Bank of England base rate and 20-quarter CAGR for other parameters.
(3) Comparatives have been aligned with the current calculation approach.
 
Probability weightings of scenarios
NatWest Group’s quantitative approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. This quantitative approach is used for 30 June 2023.
 
The approach involves comparing UK GDP paths for NatWest Group’s scenarios against a set of 1,000 model runs, following which, a percentile in the distribution is established that most closely corresponded to the scenario. Probability weight for base case is set first based on judgement, while probability weights for the alternate scenarios are assigned based on these percentiles scores.
 
The assigned probability weights were judged to be aligned with the subjective assessment of balance of the risks in the economy. The weights were broadly comparable to those used at 31 December 2022. Since then, the outlook has improved across key areas of the economy. However, the risks still remain elevated and there is considerable uncertainty in the economic outlook, particularly with respect to persistence and the range of outcomes on inflation. Given that backdrop, NatWest Group judges it appropriate that downside-biased scenarios have higher probability weights than the upside-biased scenario. It presents good coverage to the range of outcomes assumed in the scenarios, including the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. A 19.5% weighting was applied to the upside scenario, a 45.0% weighting applied to the base case scenario, a 21.5% weighting applied to the downside scenario and a 14.0% weighting applied to the extreme downside scenario.
 

 
 
Risk and capital management
Credit risk continued
Climate transition
During 2023, NatWest Group continued to align its financial planning process with the climate transition planning process. This included adding climate policy and technology related transition assumptions into NatWest Group’s base case macroeconomic scenario used for financial planning and assessment of ECL in this IFRS 9 reporting period. This resulted in an increase in ECL of £4 million.
 
As in the initial iteration of the Climate transition plan, included in NatWest Group’s 2022 Climate-related Disclosures Report, NatWest Group assesses the effects of climate transition policies within the base case macroeconomic scenario, using the UK Climate Change Committee (CCC) Balanced Net Zero (BNZ) scenario, aligned with the UK CCC sixth carbon budget, as a starting point. In addition, NatWest Group included estimated average policy delay into the climate economic assumptions for IFRS 9 purposes, based on the credibility ratings for sectoral policies provided by the UK CCC 2022 Progress Report to Parliament, to reflect estimated time delays based on credibility ratings as follows:
 
 
Credible policies – estimated zero years of delayed adjustment to the BNZ pathway for the associated policy.
 
Policies with some or significant risk – estimated three and five years of delay respectively for the associated policy.
 
Policies with insufficient plans – estimated ten years of delay for the associated policy.
 
The base case macroeconomic scenario now explicitly includes assumptions about the changes in transition policy expressed as an additional implicit carbon price. Implicit carbon price is an additional cost related to greenhouse gas emissions as a result of climate transition policy. NatWest Group assumes that between now and 2028, the transition policy will change slowly, and the implicit carbon price will increase modestly by £10.5/tCO2e, which is consistent with the UK CCC BNZ scenario. The base case macroeconomic scenario also included assumptions about abatement technology development and specific sectors’ transition, for example, the switch from fossil fuels to renewable energy sources. NatWest Group will continue to enhance this analysis, including updates in the UK CCC 2023 Progress Report to Parliament published in June 2023.
 
While previous NatWest Group IFRS 9 base case scenarios included some climate transition considerations, they were based on all enacted policies and available technologies. The new approach described here applies to explicitly identifying the effect of additional climate transition policy.
 
NatWest Group and its customers have a dependency on timely and appropriate government policies to provide the necessary impetus for technology development and customer behaviour changes, to enable the UK’s successful transition to net zero. Policy delays and risks outlined in the UK CCC 2022 and 2023 Progress Reports, if not adequately addressed in a timely manner, put at risk the UK’s net zero transition and in turn that of NatWest Group and its customers.
 
For this first iteration of climate economic assumptions included within the base case macroeconomic scenario, NatWest Group focused on policy and technology related transition risks. It is assumed that in more extreme scenarios it is likely that climate policy changes would offset adverse/benign economic conditions. NatWest Group’s tools, methodologies and assessment of climate risks will continue to evolve to further align financial planning and climate transition planning processes.
 
 
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Annual figures 

 
 
 
Extreme
Weighted
 
Upside
Base case
Downside
downside
average
GDP - annual growth
%
%
%
%
%
2023
1.4
0.3
—
(0.3)
0.3
2024
3.8
0.8
(1.4)
(4.1)
0.3
2025
1.4
1.0
1.0
0.9
1.1
2026
1.2
1.3
1.2
1.2
1.2
2027
1.2
1.4
1.3
1.2
1.3
2028
1.2
1.4
1.3
1.2
1.3
 
 
 
 
 
 
 
 
 
 
Extreme
Weighted
 
Upside
Base case
Downside
downside
average
Unemployment rate - annual average
%
%
%
%
%
2023
3.9
3.9
4.1
4.3
4.0
2024
3.3
4.2
5.1
7.3
4.7
2025
3.3
4.4
5.3
7.7
4.8
2026
3.4
4.3
5.1
7.1
4.7
2027
3.4
4.3
4.9
6.5
4.6
2028
3.4
4.3
4.7
6.0
4.4
 
 
 
 
 
 
 
 
 
 
Extreme
Weighted
 
Upside
Base case
Downside
downside
average
House price index - four quarter change 
%
%
%
%
%
2023
(3.3)
(6.9)
(6.2)
(8.2)
(6.2)
2024
10.4
(1.0)
(13.2)
(14.1)
(3.1)
2025
6.1
2.9
0.9
(16.4)
0.9
2026
3.1
3.4
8.5
4.3
4.4
2027
3.5
3.4
7.9
6.8
4.7
2028
3.4
3.4
5.5
5.0
4.0
 
 
 
 
 
 
 
 
 
 
Extreme
Weighted
 
Upside
Base case
Downside
downside
average
Commercial real estate price - four quarter change 
%
%
%
%
%
2023
1.1
(5.8)
(7.8)
(10.7)
(5.6)
2024
5.5
0.5
(13.4)
(35.3)
(6.1)
2025
4.6
2.5
2.5
2.5
3.0
2026
3.8
2.5
3.6
6.3
3.4
2027
1.8
1.3
3.0
6.9
2.3
2028
1.5
1.3
2.2
4.2
1.8
 
 
 
 
 
 
 
 
 
 
Extreme
Weighted
 
Upside
Base case
Downside
downside
average
Consumer price index - four quarter change
%
%
%
%
%
2023
1.6
3.4
5.5
7.0
4.0
2024
1.1
2.3
4.3
6.8
3.2
2025
1.8
1.9
3.9
1.7
2.3
2026
1.9
1.9
3.8
1.2
2.2
2027
1.9
1.9
3.7
2.1
2.3
2028
1.9
1.9
3.2
2.1
2.2
 
 
 
 
 
 
 
 
 
 
Extreme
Weighted
 
Upside
Base case
Downside
downside
average
Bank of England base rate - annual average
%
%
%
%
%
2023
4.3
4.8
4.7
4.8
4.7
2024
3.0
5.0
5.5
6.0
4.9
2025
2.3
4.2
5.0
5.7
4.2
2026
2.0
3.7
4.9
4.9
3.8
2027
1.6
3.3
4.7
4.1
3.4
2028
1.5
3.2
4.5
3.4
3.2
 
 
 
 
 
 
 
 
 
 
Extreme
Weighted
 
Upside
Base case
Downside
downside
average
UK stock price index - four quarter change
%
%
%
%
%
2023
13.0
9.1
(9.2)
(26.6)
0.9
2024
5.7
3.1
(1.9)
(9.4)
1.4
2025
4.1
3.1
9.7
21.2
6.2
2026
3.6
3.1
6.5
12.9
4.9
2027
3.2
3.1
5.3
10.2
4.3
2028
3.0
3.1
5.3
6.4
3.9
 
 
Risk and capital management
Credit risk continued
Economic loss drivers (reviewed)
Worst points
 
30 June 2023
 
31 December 2022
 
 
 
Extreme
 
Weighted
 
 
 
Extreme
 
Weighted
 
Downside
 
downside
 
average
 
Downside
 
downside
 
average
 
%
Quarter
%
Quarter
%
 
%
Quarter
%
Quarter
%
GDP
(1.7)
Q2 2024
(4.9)
Q2 2024
0.1
 
(3.2)
Q4 2023
(4.7)
Q4 2023
(0.8)
Unemployment rate - peak
5.4
Q1 2025
8.0
Q4 2024
4.9
 
6.0
Q1 2024
8.5
Q3 2024
5.4
House price index
(18.9)
Q1 2025
(34.3)
Q1 2026
(9.2)
 
(15.0)
Q1 2025
(26.2)
Q3 2025
(3.4)
Commercial real estate price
(20.1)
Q4 2024
(42.6)
Q1 2025
(11.3)
 
(21.8)
Q4 2023
(46.8)
Q3 2024
(16.4)
Consumer price index
 
 
 
 
 
 
 
 
 
 
 
   - highest four quarter change
10.1
Q1 2023
10.1
Q1 2023
10.1
 
15.7
Q1 2023
17.0
Q4 2023
11.7
Bank of England base rate
 
 
 
 
 
 
 
 
 
 
 
   - extreme level
5.8
Q1 2024
6.0
Q1 2024
5.3
 
4.0
Q1 2023
6.0
Q1 2024
4.1
UK stock price index
(15.5)
Q2 2024
(40.9)
Q2 2024
(1.1)
 
(26.0)
Q4 2023
(48.7)
Q4 2023
(14.1)
 
(1)
Unless specified otherwise, the figures show falls relative to the starting period. The calculations are performed over five years, with a starting point of Q4 2022 for 30 June 2023 scenarios.
(2)
Comparatives have been aligned with the current calculation approach.
 
Use of the scenarios in Personal lending
Personal lending follows a discrete scenario approach. The probability of default (PD), exposure at default (EAD), loss given default (LGD) and resultant ECL for each discrete scenario is calculated using product specific economic response models. Probability weighted averages across the suite of economic scenarios are then calculated for each of the model outputs, with the weighted PD being used for staging purposes.
 
Business Banking utilises the Personal lending methodology rather than the Wholesale lending methodology.
 
Use of the scenarios in Wholesale lending
The Wholesale lending scenario methodology is based on the concept of credit cycle indices (CCIs). The CCIs represent, similar to the exogenous component in Personal, all relevant economic drivers for a region/industry segment aggregated into a single index value that describes the credit conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to credit conditions at long-run average levels, a positive CCI value corresponds to credit conditions below long run average levels and a negative CCI value corresponds to credit conditions above long-run average levels.
 
The individual economic scenarios are translated into forward-looking projections of CCIs using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then extended with an additional mean reversion assumption to gradually revert to the long-run average CCI value of zero in the outer years of the projection horizon.
 
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection.
 
UK economic uncertainty
The high inflation environment alongside rapidly rising interest rates and supply chain disruption are presenting significant headwinds for some businesses and consumers. These are a result of various factors and in many cases are compounding and look set to remain a feature of the economic environment into 2024. NatWest Group has considered where these are most likely to affect the customer base, with the rising cost of borrowing during 2023 for both businesses and consumers presenting an additional affordability challenge for many borrowers in recent months.
 
The effects of these risks are not expected to be fully captured by forward-looking credit modelling, particularly given the high inflation environment, low unemployment base case outlook. Any incremental ECL effects for these risks will be captured via post model adjustments and are detailed further in the Governance and post model adjustments section.
 
 
Risk and capital management
Credit risk continued
UK economic uncertainty
Governance and post model adjustments (reviewed)
The IFRS 9 PD, EAD and LGD models are subject to NatWest Group’s model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All post model adjustments were subject to formal approval through provisioning governance, and were categorised as follows (business level commentary is provided below):
 
  -
Deferred model calibrations – ECL adjustments where model monitoring and similar analyses indicates that model adjustments will be required to ensure ECL adequacy. As a consequence, an estimate of the ECL impact is recorded on the balance sheet until modelled ECL levels are affirmed by new model parallel runs or similar analyses.
  -
Economic uncertainty – ECL adjustments primarily arising from uncertainties associated with high inflation and rapidly rising interest rates as well as supply chain disruption, along with the residual effects from COVID-19 Government support schemes. In all cases, management judged that additional ECL was required until further credit performance data became available as the observable effects of these issues crystallise.
  -
Other adjustments – ECL adjustments where it was judged that the modelled ECL required amendment.
 
Post model adjustments will remain a key focus area of NatWest Group’s ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends with a particular focus on segments of the portfolio (both commercial and consumer) that are likely to be more susceptible to high inflation, rapidly rising interest rates and supply chain disruption.
 
ECL post model adjustments
The table below shows ECL post model adjustments.
 
Retail Banking
 
Private
Commercial &
Central items
 
 
Mortgages
Other
 
Banking
Institutional
& other
Total
30 June 2023
£m
£m
 
£m
£m
£m
£m
Deferred model calibrations
—
—
 
1
22
—
23
Economic uncertainty
116
43
 
12
289
2
462
Other adjustments
7
—
 
—
12
36
55
Total
123
43
 
13
323
38
540
 
 
 
 
 
 
 
 
Of which:
 
 
 
 
 
 
 
- Stage 1
74
19
 
6
113
20
232
- Stage 2
34
24
 
7
206
17
288
- Stage 3
15
—
 
—
4
1
20
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
Economic uncertainty
102
51
 
6
191
2
352
Other adjustments
8
20
 
—
16
15
59
Total
110
71
 
6
207
17
411
 
 
 
 
 
 
 
 
Of which:
 
 
 
 
 
 
 
- Stage 1
62
27
 
3
63
—
155
- Stage 2
32
44
 
3
139
16
234
- Stage 3
16
—
 
—
5
1
22

 
 
Risk and capital management
Credit risk continued
UK economic uncertainty
Post model adjustments increased since 31 December 2022, with a notable shift in economic uncertainty reflecting rapidly rising interest rates and high inflation.
 
 -Retail Banking – The post model adjustment for economic uncertainty increased from £153 million at 31 December 2022 to £159 million at 30 June 2023, with recent interest rate rises resulting in higher levels of mortgage customers at risk of financial difficulties and prompting an uplift in the cost of living post model adjustment (up from £127 million to £134 million). The cost of living post model adjustment captures the risk on segments in the Retail Banking portfolio that are more susceptible to the effects of cost of living rises, focusing on key affordability lenses, including customers with lower incomes in fuel poverty, over-indebted borrowers and customers vulnerable to a potential mortgage rate shock effect on their affordability.
- The £20 million other judgemental overlay for EAD modelling dynamics in credit cards was no longer required.
-Commercial & Institutional – The post model adjustment for economic uncertainty increased from £191 million at 31 December 2022 to £289 million at 30 June 2023. It still includes an overlay of £79 million to cover the residual risks from COVID-19, including the risk that government support schemes could affect future recoveries and concerns surrounding associated debt, to customers that have utilised government support schemes. The inflation and supply chain post model adjustment has been maintained with a mechanistic adjustment, via a sector-level downgrade, being applied to the sectors that were considered most at risk from these headwinds. A number of additional sectors have been included in the sector-level downgrade reflecting the pressures from inflation plus broader concerns around liquidity and reducing cash reserves across many sectors. The impact of the sector-level downgrades is a post model adjustment increase from £83 million at 31 December 2022 to £210 million at 30 June 2023, reflecting the significant headwinds for a number of sectors which are not fully captured in the models.
 -The £22 million judgemental overlay for deferred model calibrations relates to refinance risk with the existing mechanistic modelling approach not fully capturing the risk on deteriorated exposures.
 -Other adjustments includes an overlay of £10 million to mitigate the effect of operational timing delays in the identification and flagging of a SICR.
 -Other – The post model adjustments in Central items & other increased from £17 million at 31 December 2022 to £38 million at 30 June 2023 with the rise attributable to the divestment risk of the phased withdrawal of Ulster Bank RoI from the Republic of Ireland.
 
 
 
 
 
Risk and capital management
Credit risk continued
Wholesale support schemes
The table below shows the sector split for the Bounce Back Loan Scheme (BBLS) as well as associated debt split by stage. Associated debt refers to non-BBLS lending to customers who also have BBLS lending.
 
 
Gross carrying amount
 
BBL
 
Associated debt
 
ECL on associated debt
 
Stage 1 
Stage 2
Stage 3
Total
 
Stage 1 
Stage 2
Stage 3
Total
 
Stage 1
Stage 2 
Stage 3
30 June 2023
£m
£m
£m
£m
 
£m
£m
£m
£m
 
£m
£m
£m
Wholesale 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property 
864
173
40
1,077
 
805
225
71
1,101
 
9
17
25
Financial institutions
20
3
—
23
 
8
2
—
10
 
—
—
—
Sovereign
4
1
—
5
 
1
—
—
1
 
—
—
—
Corporate
2,638
550
334
3,522
 
2,169
879
153
3,201
 
26
56
91
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
  Agriculture
184
68
4
256
 
762
338
21
1,121
 
6
15
9
  Airlines and aerospace
3
1
—
4
 
2
1
—
3
 
—
—
—
  Automotive
185
30
8
223
 
103
29
7
139
 
2
3
4
  Chemicals 
5
1
—
6
 
8
1
—
9
 
—
—
—
  Health
139
20
4
163
 
255
84
14
353
 
2
4
6
  Industrials 
109
18
5
132
 
72
23
5
100
 
1
1
3
  Land transport and logistics
101
22
6
129
 
43
24
4
71
 
1
2
3
  Leisure
386
94
24
504
 
322
143
23
488
 
5
12
16
  Mining and metals
4
1
—
5
 
6
—
—
6
 
—
—
—
  Oil and gas
5
1
—
6
 
4
1
—
5
 
—
—
—
  Power utilities
3
1
—
4
 
3
3
1
7
 
—
—
—
  Retail
460
88
22
570
 
256
104
17
377
 
4
8
12
  Shipping 
2
—
—
2
 
1
—
—
1
 
—
—
—
  Water and waste
12
2
1
15
 
9
2
2
13
 
—
—
1
Total
3,526
727
374
4,627
 
2,983
1,106
224
4,313
 
35
73
116
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
 
 
 
 
Wholesale 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property 
1,029
197
51
1,277
 
908
217
61
1,186
 
10
15
27
Financial institutions
24
4
—
28
 
9
2
—
11
 
—
—
1
Sovereign
5
1
1
7
 
2
—
—
2
 
—
—
—
Corporate
3,165
629
338
4,132
 
2,302
872
116
3,290
 
26
56
69
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
  Agriculture
221
74
4
299
 
819
297
22
1,138
 
6
14
11
  Airlines and aerospace
3
1
—
4
 
—
1
—
1
 
—
—
—
  Automotive
221
34
10
265
 
100
37
5
142
 
1
2
3
  Chemicals 
6
1
—
7
 
9
1
—
10
 
—
—
—
  Health
165
23
4
192
 
271
92
9
372
 
2
4
4
  Industrials 
131
21
5
157
 
77
20
4
101
 
1
2
2
  Land transport and logistics
122
25
8
155
 
51
16
4
71
 
1
2
3
  Leisure
471
108
28
607
 
336
161
27
524
 
5
12
16
  Mining and metals
5
1
—
6
 
5
1
—
6
 
—
—
—
  Oil and gas
6
1
—
7
 
2
2
—
4
 
—
—
—
  Power utilities
3
1
—
4
 
3
4
—
7
 
—
—
—
  Retail
554
102
26
682
 
283
94
14
391
 
4
7
10
  Shipping 
2
—
—
2
 
1
3
—
4
 
—
—
—
  Water and waste
15
2
1
18
 
10
3
—
13
 
—
—
—
Total
4,223
831
390
5,444
 
3,221
1,091
177
4,489
 
36
71
97
 
 

 
Risk and capital management
 Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
The recognition and measurement of ECL is complex and involves the use of significant judgment and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate.
 
The impact arising from the base case, upside, downside and extreme downside scenarios was simulated. These scenarios are used in the methodology for Personal multiple economic scenarios as described in the Economic loss drivers section. In the simulations, NatWest Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a 100% probability weighting and therefore serving as a single economic scenario.
 
These scenarios were applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Post model adjustments included in the ECL estimates that were modelled were sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for deferred model calibrations and economic uncertainty, were not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit.
 
The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact at 30 June 2023. Scenario impacts on SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.
 
Stage 3 provisions are not subject to the same level of measurement uncertainty – default is an observed event as at the balance sheet date. Stage 3 provisions therefore were not considered in this analysis.
 
NatWest Group’s core criterion to identify a SICR is founded on PD deterioration. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact.
 
 
 
Risk and capital management
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)  

 
 
Moderate
Moderate
Extreme
 
 
Base
upside
 downside
downside
30 June 2023
Actual
scenario
scenario
scenario
scenario
Stage 1 modelled loans (£m)
 
 
 
 
 
Retail Banking - mortgages
168,723 
168,198 
169,272 
168,676 
160,339 
Retail Banking - unsecured
8,256 
8,296 
8,562 
8,102 
7,393 
Wholesale - property
27,157 
27,445 
27,594 
26,830 
17,541 
Wholesale - non-property
110,583 
112,316 
113,020 
109,447 
84,290 
 
314,719 
316,255 
318,448 
313,055 
269,563 
Stage 1 modelled ECL (£m)
 
 
 
 
 
Retail Banking - mortgages
85 
84 
81 
87 
83 
Retail Banking - unsecured
191 
193 
192 
191 
169 
Wholesale - property
98 
76 
60 
128 
131 
Wholesale - non-property
250 
220 
193 
305 
310 
 
624 
573 
526 
711 
693 
Stage 2 modelled loans (£m)
 
 
 
 
 
Retail Banking - mortgages
19,653 
20,178 
19,104 
19,700 
28,037 
Retail Banking - unsecured
3,400 
3,360 
3,094 
3,554 
4,263 
Wholesale - property
3,942 
3,654 
3,505 
4,269 
13,558 
Wholesale - non-property
16,854 
15,121 
14,417 
17,990 
43,147 
 
43,849 
42,313 
40,120 
45,513 
89,005 
Stage 2 modelled ECL (£m)
 
 
 
 
 
Retail Banking - mortgages
64 
64 
44 
64 
114 
Retail Banking - unsecured
376 
369 
304 
404 
515 
Wholesale - property
113 
92 
74 
134 
584 
Wholesale - non-property
405 
336 
279 
483 
1,234 
 
958 
861 
701 
1,085 
2,447 
Stage 1 and Stage 2 modelled loans (£m)
 
 
 
 
 
Retail Banking - mortgages
188,376 
188,376 
188,376 
188,376 
188,376 
Retail Banking - unsecured
11,656 
11,656 
11,656 
11,656 
11,656 
Wholesale - property
31,099 
31,099 
31,099 
31,099 
31,099 
Wholesale - non-property
127,437 
127,437 
127,437 
127,437 
127,437 
 
358,568 
358,568 
358,568 
358,568 
358,568 
Stage 1 and Stage 2 modelled ECL (£m)
 
 
 
 
 
Retail Banking - mortgages
149 
148 
125 
151 
197 
Retail Banking - unsecured
567 
562 
496 
595 
684 
Wholesale - property
211 
168 
134 
262 
715 
Wholesale - non-property
655 
556 
472 
788 
1,544 
 
1,582 
1,434 
1,227 
1,796 
3,140 
Stage 1 and Stage 2 coverage (%)
 
 
 
 
 
Retail Banking - mortgages
0.08 
0.08 
0.07 
0.08 
0.10 
Retail Banking - unsecured
4.86 
4.82 
4.26 
5.10 
5.87 
Wholesale - property
0.68 
0.54 
0.43 
0.84 
2.30 
Wholesale - non-property
0.51 
0.44 
0.37 
0.62 
1.21 
 
0.44 
0.40 
0.34 
0.50 
0.88 
Reconciliation to Stage 1 and Stage 2 ECL (£m)
 
 
 
 
 
ECL on modelled exposures
1,582 
1,434 
1,227 
1,796 
3,140 
ECL on UBIDAC modelled exposures
32 
32 
32 
32 
32 
ECL on non-modelled exposures
38 
38 
38 
38 
38 
 
 
 
 
 
 
Total Stage 1 and Stage 2 ECL
1,652 
1,504 
1,297 
1,866 
3,210 
Variance to actual total Stage 1 and Stage 2 ECL
 
(148)
(355)
214 
1,558 
 
 
 
Risk and capital management 
Credit risk continued
Measurement uncertainty and ECL sensitivity analysis (reviewed)
 
 
 
Moderate
Moderate
Extreme
 
 
Base
upside
 downside
downside
30 June 2023
Actual
scenario
scenario
scenario
scenario
Reconciliation to Stage 1 and Stage 2 flow exposure (£m)
 
 
 
 
 
Modelled loans
358,568
358,568
358,568
358,568
358,568
UBIDAC loans
565
565
565
565
565
Non-modelled loans
20,993
20,993
20,993
20,993
20,993
Other asset classes
145,405
145,405
145,405
145,405
145,405
 
 
(1) Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 30 June 2023 and therefore does not include variation in future undrawn exposure values.
(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios.
(3) Exposures related to Ulster Bank RoI continuing operations have not been included in the simulations. The current Ulster Bank RoI ECL has been included across all scenarios to enable reconciliation to other disclosures.
(4) All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 30 June 2023. The simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static.
(5) Refer to the Economic loss drivers section for details of economic scenarios.
(6) Refer to the NatWest Group 2022 Annual Report and Accounts for 31 December 2022 comparatives.
 
Measurement uncertainty and ECL adequacy (reviewed)
  -
During H1 2023, overall modelled ECL remained stable reflecting portfolio growth coupled with stable portfolio performance offset by the H1 2023 economics update ECL reduction at 30 June 2023. Judgemental ECL post model adjustments, increased from 31 December 2022, reflecting the increased economic uncertainty and the expectation of increased defaults in H2 2023 and beyond, and represented 15% of total ECL (31 December 2022 – 12%).
  -
If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by £1.6 billion (approximately 94%). In this scenario, Stage 2 exposure increased significantly and was the key driver of the simulated ECL rise. The movement in Stage 2 balances in the other simulations was less significant.
  -
In the Wholesale portfolio, there was a significant increase in ECL under both a moderate and extreme downside scenario. The Wholesale property ECL increase was mainly due to commercial real estate prices which show negative growth until 2024 and significant deterioration in the stock index. The non-property increase was mainly due to GDP contraction and significant deterioration in the stock index.
  -
The changes in the economic outlook and scenarios used in the IFRS 9 MES framework at 30 June 2023 resulted in a decrease in modelled ECL. Given that continued uncertainty remains due to high inflation, rapidly rising interest rates and supply chain disruption, NatWest Group utilised a framework of quantitative and qualitative measures to support the levels of ECL coverage, including economic data, credit performance insights, supply chain contagion analysis and problem debt trends. This was particularly important for consideration of post model adjustments.
  -
As the effects of high inflation, rapidly rising interest rates and supply chain disruption evolve during 2023 and into 2024, there is a risk of credit deterioration. However, the income statement effect of this should have been mitigated by the forward-looking provisions retained on the balance sheet at 30 June 2023.
  -
There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. Such factors which could impact the IFRS 9 models, include an adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates.
 
Movement in ECL provision
The table below shows the main ECL provision movements during H1 2023.
 
ECL provision
 
£m
At 1 January 2023
3,434
Changes in economic forecasts
(98)
Changes in risk metrics and exposure: Stage 1 and Stage 2
(48)
Changes in risk metrics and exposure: Stage 3
263
Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3
129
Write-offs and other
(123)
At 30 June 2023
3,557
 
  -
ECL increased during H1 2023, reflecting a stable level of good book ECL alongside increases in Stage 3 ECL levels.
  -
Stage 3 default flows in the Personal portfolios remained stable, although there were modest increases in line with growth and post-COVID-19 lending strategy. For the Wholesale portfolios, with the exception of BBLS, default levels were lower than historic trends as the effects of high inflation, rapidly rising interest rates and supply chain disruption has to date not led to a significant change in defaults.
  -
Stage 3 balances increased due to default flows, as described above, alongside reduced write-off activity in H1 2023.
  -
The update to the economic scenarios at 30 June 2023 resulted in a modelled decrease in ECL of £98 million. While broader portfolio performance continued to be stable, the additional uncertainty due to high inflation and rapidly rising interest rates led to an increase in post model adjustments being required to ensure provision adequacy.
 

 
 
Risk and capital management
Credit risk – Banking activities
Introduction
This section details the credit risk profile of NatWest Group’s banking activities.
 
Financial instruments within the scope of the IFRS 9 ECL framework (reviewed)
Refer to Note 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. The table below excludes loans in disposal groups of £0.6 billion (31 December 2022 – £1.5 billion).
 Financial assets
 
30 June 2023
 
31 December 2022
 
Gross
ECL
Net
 
Gross
ECL
Net
 
£bn
£bn
£bn
 
£bn
£bn
£bn
Balance sheet total gross amortised cost and FVOCI
554.3
 
 
 
554.3
 
 
 
 
 
 
 
 
 
 
In scope of IFRS 9 ECL framework
541.7
 
 
 
550.3
 
 
% in scope
98%
 
 
 
99%
 
 
 
 
 
 
 
 
 
 
Loans to customers - in scope - amortised cost
377.9
3.5
374.4
 
370.1
3.3
366.8
Loans to customers - in scope - FVOCI
0.1
—
0.1
 
0.1
—
0.1
Loans to banks - in scope - amortised cost
7.2
—
7.2
 
6.9
—
6.9
Total loans - in scope
385.2
3.5
381.7
 
377.1
3.3
373.8
  Stage 1
336.4
0.6
335.8
 
325.2
0.6
324.6
  Stage 2
43.4
1.0
42.4
 
46.8
0.9
45.9
  Stage 3
5.4
1.9
3.5
 
5.1
1.8
3.3
 
 
 
 
 
 
 
 
Other financial assets - in scope - amortised cost
138.5
—
138.5
 
156.4
—
156.4
Other financial assets - in scope - FVOCI
18.0
—
18.0
 
16.8
—
16.8
Total other financial assets - in scope
156.5
—
156.5
 
173.2
—
173.2
  Stage 1
156.4
—
156.4
 
172.4
—
172.4
  Stage 2
0.1
—
0.1
 
0.8
—
0.8
 
 
 
 
 
 
 
 
Out of scope of IFRS 9 ECL framework
12.6
na
12.6
 
 4.0
na
4.0
Loans to customers - out of scope - amortised cost
(0.6)
na
(0.6)
 
(0.4)
na
(0.4)
Loans to banks - out of scope - amortised cost
0.1
na
0.1
 
0.2
na
0.2
Other financial assets - out of scope - amortised cost
13.0
na
13.0
 
4.1
na
4.1
Other financial assets - out of scope - FVOCI
0.1
na
0.1
 
0.1
na
0.1
na = not applicable
 
The assets outside the IFRS 9 ECL framework were as follows:
 
-  
Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £12.5 billion (31 December 2022 – £4.3 billion). These were assessed as having no ECL unless there was evidence that they were defaulted.
 
-  
Equity shares of £0.3 billion (31 December 2022 – £0.4 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 of £0.9 billion (31 December 2022 – £(0.6) billion).
 
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 13, reputationally-committed limits were also included in the scope of the IFRS 9 ECL framework. These were offset by £0.1 billion (31 December 2022 – £(0.1) 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 £136.2 billion (31 December 2022 – £137.2 billion) comprised Stage 1 £123.1 billion (31 December 2022 – £119.2 billion); Stage 2 £12.5 billion (31 December 2022 – £17.3 billion); and Stage 3 £0.7 billion (31 December 2022 – £0.7 billion).
 
The ECL relating to off-balance sheet exposures was £0.1 billion (31 December 2022 – £0.1 billion). The total ECL in the remainder of the Credit risk section of £3.6 billion (31 December 2022 – £3.4 billion) included ECL for both on and off-balance sheet exposures for non-disposal groups.
 
 
Risk and capital management
Credit risk – Banking activities continued
Segment analysis – portfolio summary (reviewed)
The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
 
 
Retail
Private
Commercial &
Central items
 
 
Banking
Banking
Institutional
& other
Total
30 June 2023
£m
£m
£m
£m
£m
Loans - amortised cost and FVOCI (1)
 
 
 
 
 
Stage 1
180,293
18,075
112,341
25,653
336,362
Stage 2
22,686
988
19,676
90
43,440
Stage 3
2,826
254
2,246
124
5,450
Of which: individual
—
203
1,017
27
1,247
Of which: collective
2,826
51
1,229
97
4,203
Subtotal excluding disposal group loans
205,805
19,317
134,263
25,867
385,252
Disposal group loans
 
 
 
573
573
Total 
 
 
 
26,440
385,825
ECL provisions (2)
 
 
 
 
 
Stage 1
282
23
333
23
661
Stage 2 
439
17
507
28
991
Stage 3
1,038
31
765
71
1,905
Of which: individual
—
31
260
4
295
Of which: collective
1,038
—
505
67
1,610
Subtotal excluding ECL provisions on disposal group loans
1,759
71
1,605
122
3,557
ECL provisions on disposal group loans
 
 
 
31
31
Total 
 
 
 
153
3,588
ECL provisions coverage (3)
 
 
 
 
 
Stage 1 (%)
0.16
0.13
0.30
0.09
0.20
Stage 2 (%)
1.94
1.72
2.58
31.11
2.28
Stage 3 (%)
36.73
12.20
34.06
57.26
34.95
ECL provisions coverage excluding disposal group loans
0.85
0.37
1.20
0.47
0.92
ECL provisions coverage on disposal group loans
 
 
 
5.41
5.41
Total 
 
 
 
0.58
0.93
Impairment (releases)/losses (4)
 
 
 
 
 
ECL (release)/charge
193
11
20
(1)
223
Stage 1
(88)
(1)
(124)
4
(209)
Stage 2
188
8
98
2
296
Stage 3
93
4
46
(7)
136
Of which: individual
—
4
13
(4)
13
Of which: collective
93
—
33
(3)
123
Continuing operations
193
11
20
(1)
223
Discontinued operations
 
 
 
(1)
(1)
Total
 
 
 
(2)
222
 
 
 
 
 
 
Amounts written-off 
63
1
50
8
122
Of which: individual
—
1
19
2
22
Of which: collective
63
—
31
6
100
 
 
 
 
 
 
For the notes to this table refer to the following page.
 
 
Risk and capital management 
Credit risk – Banking activities continued
Segment analysis – portfolio summary (reviewed)
 
Retail
Private
Commercial &
Central items
 
 
Banking
Banking
Institutional
& other
Total
31 December 2022
£m
£m
£m
£m
£m
Loans - amortised cost and FVOCI (1)
 
 
 
 
 
Stage 1
174,727
18,367
108,791
23,339
325,224
Stage 2
21,561
801
24,226
245
46,833
Stage 3
2,565
242
2,166
123
5,096
Of which: individual
—
168
905
48
1,121
Of which: collective
2,565
74
1,261
75
3,975
Subtotal excluding disposal group loans
198,853
19,410
135,183
23,707
377,153
Disposal group loans
 
 
 
1,502
1,502
Total 
 
 
 
25,209
378,655
ECL provisions (2)
 
 
 
 
 
Stage 1
251
21
342
18
632
Stage 2 
450
14
534
45
1,043
Stage 3
917
26
747
69
1,759
Of which: individual
—
26
251
10
287
Of which: collective
917
—
496
59
1,472
Subtotal excluding ECL provisions on disposal group loans
1,618
61
1,623
132
3,434
ECL provisions on disposal group loans
 
 
 
53
53
Total 
 
 
 
185
3,487
ECL provisions coverage (3)
 
 
 
 
 
Stage 1 (%)
0.14
0.11
0.31
0.08
0.19
Stage 2 (%)
2.09
1.75
2.20
18.37
2.23
Stage 3 (%)
35.75
10.74
34.49
56.10
34.52
ECL provisions coverage excluding disposal group loans
0.81
0.31
1.20
0.56
0.91
ECL provisions coverage on disposal group loans
 
 
 
3.53
3.53
Total 
 
 
 
0.73
0.92
 
 
 
 
 
 
Half year ended 30 June 2022
 
 
 
 
 
Impairment (releases)/losses (4)
 
 
 
 
 
ECL (release)/charge
26
(11)
(59)
(10)
(54)
Stage 1
(125)
(6)
(204)
(7)
(342)
Stage 2
86
(7)
108
18
205
Stage 3
65
2
37
(21)
83
Of which: individual
—
2
—
(3)
(1)
Of which: collective
65
—
37
(18)
84
Continuing operations
26
(11)
(59)
(10)
(54)
Discontinued operations
 
 
 
(62)
(62)
Total
 
 
 
(70)
(116)
 
 
 
 
 
 
Amounts written-off
106
1
94
14
215
Of which: individual
—
1
57
—
58
Of which: collective
106
—
37
14
157
 
 
(1)
Includes loans to customers and banks.
(2)
Includes £4 million (31 December 2022 – £3 million) related to assets classified as FVOCI and £0.1 billion (31 December 2022 – £0.1 billion) related to off-balance sheet exposures.
(3)
ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
(4)
Includes a £5 million release (30 June 2022 – £2 million release) related to other financial assets, of which £1 million (30 June 2022 – nil) related to assets classified as FVOCI; and £3 million release (30 June 2022 – £3 million release) related to contingent liabilities.
(5)
The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to 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 £121.9 billion (31 December 2022 – £143.3 billion) and debt securities of £34.7 billion (31 December 2022 – £29.9 billion).
 
  -
Stage 1 and Stage 2 modelled ECL remained broadly unchanged with stable portfolio performance and latest MES scenario update modelled ECL reduction being offset by increased post model adjustments to reflect growing economic uncertainty due to high inflation and rapidly rising interest rates.
  -
Stage 2 loans decreased during H1 2023, primarily within Wholesale portfolios, in line with the modelled ECL reduction, linked to the update of MES forward-looking economics at H1 2023. The latest MES scenario update captures a lower unemployment peak and better GDP outlook, offset by higher inflation and interest rates.
  -
Stage 3 loans increased, primarily due to reduced write-off activity in H1 2023.
  -
As previously mentioned, in Personal, the flows into default remained relatively stable and broadly in-line with post-COVID-19 lending strategy expectations and for Wholesale portfolios, with the exception of BBLS, default levels were lower than historic trends. However, it is expected that defaults will increase as growing inflationary pressures on businesses, consumers and the broader economy continue to evolve, particularly given the rapid rise in interest rates.
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Segment analysis – portfolio summary (reviewed)
The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these exposures.
 
 
 
 
Off-balance sheet 
 
 
 
 
 
 
Loans - amortised cost and FVOCI
 
Loan
Contingent
 
ECL provisions
 
Stage 1
Stage 2
Stage 3
Total
 
commitments 
liabilities
 
Stage 1
Stage 2
Stage 3
Total
30 June 2023
£m
£m
£m
£m
 
£m
£m
 
£m
£m
£m
£m
Personal
—
—
—
—
 
—
—
 
—
—
—
—
Wholesale
517
49
7
573
 
87
10
 
17
9
5
31
Total
517
49
7
573
 
87
10
 
17
9
5
31
 
 
31 December 2022
 
 
 
 
 
 
 
 
 
 
 
 
Personal
—
—
—
—
 
—
—
 
—
—
—
—
Wholesale
1,269
193
40
1,502
 
413
19
 
17
19
17
53
Total
1,269
193
40
1,502
 
413
19
 
17
19
17
53
 
Segment loans and impairment metrics (reviewed)
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework.
 
 
Gross loans
 
ECL provisions (2)
 
 
Stage 2 (1)
 
 
 
 
Stage 2 (1)
 
 
 
 
Not
 
 
 
 
 
 
 
Not
 
 
 
 
 
 
 
past
1-30
>30
 
 
 
 
 
past
1-30
>30
 
 
 
 
Stage 1
due
DPD
DPD
Total
Stage 3
Total
 
Stage 1
due
DPD
DPD
Total
Stage 3
Total
30 June 2023
£m
£m
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
£m
£m
Retail Banking
180,293
21,610
709
367
22,686
2,826
205,805
 
282
394
14
31
439
1,038
1,759
Private Banking
18,075
913
46
29
988
254
19,317
 
23
17
—
—
17
31
71
Personal
14,929
118
43
16
177
198
15,304
 
7
2
—
—
2
19
28
Wholesale
3,146
795
3
13
811
56
4,013
 
16
15
—
—
15
12
43
Commercial 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  & Institutional
112,341
17,808
957
911
19,676
2,246
134,263
 
333
456
33
18
507
765
1,605
Personal 
2,374
16
16
10
42
46
2,462
 
3
—
—
1
1
13
17
Wholesale
109,967
17,792
941
901
19,634
2,200
131,801
 
330
456
33
17
506
752
1,588
Central items 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  & other
25,653
80
4
6
90
124
25,867
 
23
24
2
2
28
71
122
Personal 
10
57
2
5
64
19
93
 
1
11
—
2
13
16
30
Wholesale
25,643
23
2
1
26
105
25,774
 
22
13
2
—
15
55
92
Total loans
336,362
40,411
1,716
1,313
43,440
5,450
385,252
 
661
891
49
51
991
1,905
3,557
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Personal
197,606
21,801
770
398
22,969
3,089
223,664
 
293
407
14
34
455
1,086
1,834
   Wholesale
138,756
18,610
946
915
20,471
2,361
161,588
 
368
484
35
17
536
819
1,723
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail Banking
174,727
20,653
605
303
21,561
2,565
198,853
 
251
406
14
30
450
917
1,618
Private Banking
18,367
730
39
32
801
242
19,410
 
21
14
—
—
14
26
61
Personal
15,182
122
35
16
173
207
15,562
 
5
1
—
—
1
17
23
Wholesale
3,185
608
4
16
628
35
3,848
 
16
13
—
—
13
9
38
Commercial 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  & Institutional
108,791
22,520
956
750
24,226
2,166
135,183
 
342
491
26
17
534
747
1,623
Personal 
2,475
17
17
7
41
46
2,562
 
3
1
—
—
1
12
16
Wholesale
106,316
22,503
939
743
24,185
2,120
132,621
 
339
490
26
17
533
735
1,607
Central items
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  & other
23,339
234
4
7
245
123
23,707
 
18
42
1
2
45
69
132
Personal 
54
70
3
6
79
13
146
 
1
11
1
2
14
11
26
Wholesale
23,285
164
1
1
166
110
23,561
 
17
31
—
—
31
58
106
Total loans
325,224
44,137
1,604
1,092
46,833
5,096
377,153
 
632
953
41
49
1,043
1,759
3,434
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Personal
192,438
20,862
660
332
21,854
2,831
217,123
 
260
419
15
32
466
957
1,683
   Wholesale
132,786
23,275
944
760
24,979
2,265
160,030
 
372
534
26
17
577
802
1,751
 
For the notes to this table refer to the following page.
 
 
Risk and capital management
Credit risk – Banking activities continued
Segment loans and impairment metrics (reviewed)
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework.
 
 
ECL provisions coverage
Half year ended 30 June 2023
 
 
Stage 2 (1,2)
 
 
ECL
 
 
Not past
 
 
 
 
 
Total
Amounts
 
Stage 1
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
(release)/charge
written-off
30 June 2023
%
%
%
%
%
%
%
£m
£m
Retail Banking
0.16
1.82
1.97
8.45
1.94
36.73
0.85
193
63
Private Banking
0.13
1.86
—
—
1.72
12.20
0.37
11
1
Personal
0.05
1.69
—
—
1.13
9.60
0.18
4
1
Wholesale
0.51
1.89
—
—
1.85
21.43
1.07
7
—
Commercial & Institutional
0.30
2.56
3.45
1.98
2.58
34.06
1.20
20
50
Personal 
0.13
—
—
10.00
2.38
28.26
0.69
1
1
Wholesale
0.30
2.56
3.51
1.89
2.58
34.18
1.20
19
49
Central items & other
0.09
30.00
50.00
33.33
31.11
57.26
0.47
(1)
8
Personal 
10.00
19.30
—
40.00
20.31
84.21
32.26
5
1
Wholesale
0.09
56.52
100.00
—
57.69
52.38
0.36
(6)
7
Total loans
0.20
2.20
2.86
3.88
2.28
34.95
0.92
223
122
Of which:
 
 
 
 
 
 
 
 
 
   Personal
0.15
1.87
1.82
8.54
1.98
35.16
0.82
203
66
   Wholesale
0.27
2.60
3.70
1.86
2.62
34.69
1.07
20
56
 
 
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
 
Retail Banking
 0.14
 1.97
 2.31
 9.90
 2.09
 35.75
 0.81
 26
 106
Private Banking
 0.11
 1.92
—
—
 1.75
 10.74
 0.31
(11)
 1
Personal
 0.03
 0.82
—
—
 0.58
 8.21
 0.15
(2)
 1
Wholesale
 0.50
 2.14
—
—
 2.07
 25.71
 0.99
(9)
—
Commercial & Institutional
 0.31
 2.18
 2.72
 2.27
 2.20
 34.49
 1.20
(59)
 94
Personal
 0.12
 5.88
—
—
 2.44
 26.09
 0.62
 1
 1
Wholesale
 0.32
 2.18
 2.77
 2.29
 2.20
 34.67
 1.21
(60)
 93
Central items & other
 0.08
 17.95
 25.00
 28.57
 18.37
 56.10
 0.56
(10)
 14
Personal
 1.85
 15.71
 33.33
 33.33
 17.72
 84.62
 17.81
(7)
 6
Wholesale
 0.07
 18.90
—
—
 18.67
 52.73
 0.45
(3)
 8
Total loans
 0.19
 2.16
 2.56
 4.49
 2.23
 34.52
 0.91
(54)
 215
Of which:
 
 
 
 
 
 
 
 
 
   Personal
 0.14
 2.01
 2.27
 9.64
 2.13
 33.80
 0.78
 18
 116
   Wholesale
 0.28
 2.29
 2.75
 2.24
 2.31
 35.41
 1.09
(72)
 99
 
(1)
30 DPD – 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
(2)
ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
 
-
Retail Banking – Balance sheet growth during H1 2023 mainly reflected continued mortgage growth. Unsecured balances growth, primarily in credit cards, was mainly a result of strong customer demand alongside disciplined credit risk appetite. Total ECL coverage increased. The increase in coverage was reflective of increased Stage 3 ECL on unsecured portfolios, mainly due to reduced write-off activity. Stable good book coverage reflected continued stable portfolio performance alongside the ECL release from the H1 2023 MES update. This was counterbalanced by an increased level of post model adjustments to capture increased affordability pressures on customers due to high inflation and rapidly rising interest rates. Stage 2 balances increased during H1 2023 as a result of the forecast rise in unemployment, therefore increasing IFRS 9 probability of defaults on a forward-looking basis during H1 2023. The expected peak in unemployment rate reduced as a result of the latest MES update at 30 June 2023, dampening the levels of PD SICR deterioration, but Stage 2 balance levels were maintained through three month PD persistence rules. 
Commercial & Institutional – The balance sheet was broadly stable. Sector appetite continues to be reviewed regularly, with particular focus on sector clusters and sub-sectors that are vulnerable to cost of living, supply chain or inflationary pressures, or deemed to represent a heightened risk. Total coverage remained broadly stable with reductions in ECL and exposure. Stage 1 and Stage 2 ECL decreased due to improvements in forward-looking economics and some positive portfolio performance more than offsetting increases in post model adjustments.
-
Central items & other – The balance sheet increase in H1 2023 was due to an increase in central items held in the course of treasury related management activities.
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary (reviewed)
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region.
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages (1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
30 June 2023
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by geography
208,689
5,150
9,825
223,664
 
32,925
73,975
49,199
5,489
161,588
 
385,252
  - UK
208,689
5,134
9,748
223,571
 
32,482
62,026
33,498
4,105
132,111
 
355,682
  - RoI
—
16
77
93
 
32
1,009
48
—
1,089
 
1,182
  - Other Europe
—
—
—
—
 
269
4,907
6,433
473
12,082
 
12,082
  - RoW
—
—
—
—
 
142
6,033
9,220
911
16,306
 
16,306
Loans by stage 
208,689
5,150
9,825
223,664
 
32,925
73,975
49,199
5,489
161,588
 
385,252
  - Stage 1
186,983
3,526
7,097
197,606
 
28,183
56,770
48,468
5,335
138,756
 
336,362
  - Stage 2
19,653
1,501
1,815
22,969
 
3,990
15,660
695
126
20,471
 
43,440
  - Stage 3
2,053
123
913
3,089
 
752
1,545
36
28
2,361
 
5,450
  - Of which: individual
177
—
15
192
 
398
606
24
27
1,055
 
1,247
  - Of which: collective
1,876
123
898
2,897
 
354
939
12
1
1,306
 
4,203
Loans - past due analysis (2)
208,689
5,150
9,825
223,664
 
32,925
73,975
49,199
5,489
161,588
 
385,252
  - Not past due
206,026
5,014
8,838
219,878
 
31,818
70,389
48,516
5,416
156,139
 
376,017
  - Past due 1-30 days
1,091
31
91
1,213
 
404
2,370
620
71
3,465
 
4,678
  - Past due 31-90 days
633
35
106
774
 
361
572
35
2
970
 
1,744
  - Past due 90-180 days
376
27
96
499
 
56
47
3
—
106
 
605
  - Past due >180 days
563
43
694
1,300
 
286
597
25
—
908
 
2,208
Loans - Stage 2
19,653
1,501
1,815
22,969
 
3,990
15,660
695
126
20,471
 
43,440
  - Not past due
18,648
1,460
1,693
21,801
 
3,541
14,292
653
124
18,610
 
40,411
  - Past due 1-30 days
694
19
57
770
 
112
827
7
—
946
 
1,716
  - Past due 31-90 days
311
22
65
398
 
337
541
35
2
915
 
1,313
Weighted average life (4)
 
 
 
 
 
 
 
 
 
 
 
 
   - ECL measurement (years)
9
3
6
6
 
5
6
2
2
5
 
6
Weighted average 12 months  
 
 
 
 
 
 
 
 
 
 
 
 
PDs (4)
 
 
 
 
 
 
 
 
 
 
 
 
  - IFRS 9 (%)
0.50
3.09
4.96
0.74
 
1.46
1.67
0.20
0.20
1.13
 
0.90
  - Basel (%)
0.66
3.29
3.24
0.82
 
1.02
1.33
0.18
0.20
0.87
 
0.84
ECL provisions by geography
413
293
1,128
1,834
 
445
1,200
60
18
1,723
 
3,557
  - UK
413
288
1,103
1,804
 
415
988
32
11
1,446
 
3,250
  - RoI
—
5
25
30
 
14
57
1
—
72
 
102
  - Other Europe
—
—
—
—
 
9
95
8
2
114
 
114
  - RoW
—
—
—
—
 
7
60
19
5
91
 
91
ECL provisions by stage 
413
293
1,128
1,834
 
445
1,200
60
18
1,723
 
3,557
  - Stage 1
92
60
141
293
 
99
220
36
13
368
 
661
  - Stage 2
65
148
242
455
 
115
410
10
1
536
 
991
  - Stage 3
256
85
745
1,086
 
231
570
14
4
819
 
1,905
  - Of which: individual
23
—
10
33
 
79
169
10
4
262
 
295
  - Of which: collective
233
85
735
1,053
 
152
401
4
—
557
 
1,610
ECL provisions coverage (%)
0.20
5.69
11.48
0.82
 
1.35
1.62
0.12
0.33
1.07
 
0.92
  - Stage 1 (%)
0.05
1.70
1.99
0.15
 
0.35
0.39
0.07
0.24
0.27
 
0.20
  - Stage 2 (%)
0.33
9.86
13.33
1.98
 
2.88
2.62
1.44
0.79
2.62
 
2.28
  - Stage 3 (%)
12.47
69.11
81.60
35.16
 
30.72
36.89
38.89
14.29
34.69
 
34.95
ECL (release)/charge
23
70
110
203
 
29
(2)
(6)
(1)
20
 
223
  - UK
23
68
107
198
 
29
28
(11)
(1)
45
 
243
  - RoI
—
2
3
5
 
5
(5)
—
—
—
 
5
  - Other Europe
—
—
—
—
 
(5)
16
1
—
12
 
12
  - RoW
—
—
—
—
 
—
(41)
4
—
(37)
 
(37)
Amounts written-off 
8
34
24
66
 
20
36
—
—
56
 
122
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the notes to this table refer to page 37.
 
 
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary (reviewed)
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages (1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
30 June 2023
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by residual maturity
208,689
5,150
9,825
223,664
 
32,925
73,975
49,199
5,489
161,588
 
385,252
 - <1 year 
3,349
2,867
3,261
9,477
 
7,359
23,585
37,554
2,898
71,396
 
80,873
 - 1-5 year
10,383
2,283
5,534
18,200
 
17,164
31,815
9,927
1,670
60,576
 
78,776
 - 5 year
194,957
—
1,030
195,987
 
8,402
18,575
1,718
921
29,616
 
225,603
Other financial assets by
 
 
 
 
 
 
 
 
 
 
 
 
  asset quality (3)
—
—
—
—
 
39
90
16,985
139,464
156,578
 
156,578
  - AQ1-AQ4
—
—
—
—
 
—
12
16,452
139,464
155,928
 
155,928
  - AQ5-AQ8
—
—
—
—
 
39
78
533
—
650
 
650
Off-balance sheet
15,474
16,572
8,688
40,734
 
16,048
58,800
19,898
724
95,470
 
136,204
  - Loan commitments
15,474
16,572
8,643
40,689
 
15,604
56,181
18,610
570
90,965
 
131,654
  - Financial guarantees
—
—
45
45
 
444
2,619
1,288
154
4,505
 
4,550
Off-balance sheet by
 
 
 
 
 
 
 
 
 
 
 
 
  asset quality (3)
15,474
16,572
8,688
40,734
 
16,048
58,800
19,898
724
95,470
 
136,204
  - AQ1-AQ4
14,791
536
7,403
22,730
 
12,486
36,034
18,318
644
67,482
 
90,212
  - AQ5-AQ8
666
15,732
1,255
17,653
 
3,532
22,475
1,580
63
27,650
 
45,303
  - AQ9 
1
6
6
13
 
5
9
—
—
14
 
27
  - AQ10
16
298
24
338
 
25
282
—
17
324
 
662
 
For the notes to this table refer to page 37.
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary (reviewed)
 
Personal
 
Wholesale
 
Total
 
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
 
Mortgages (1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
 
31 December 2022
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
 
Loans by geography
202,957
4,460
9,706
217,123
 
32,574
73,677
48,138
5,641
160,030
 
377,153
 
  - UK
202,957
4,420
9,602
216,979
 
31,452
62,318
32,480
4,285
130,535
 
347,514
 
  - RoI
—
40
104
144
 
34
1,102
74
—
1,210
 
1,354
 
  - Other Europe
—
—
—
—
 
623
4,670
6,967
475
12,735
 
12,735
 
  - RoW
—
—
—
—
 
465
5,587
8,617
881
15,550
 
15,550
 
Loans by stage
202,957
4,460
9,706
217,123
 
32,574
73,677
48,138
5,641
160,030
 
377,153
 
  - Stage 1
182,245
3,275
6,918
192,438
 
27,542
53,048
46,738
5,458
132,786
 
325,224
 
  - Stage 2
18,787
1,076
1,991
21,854
 
4,316
19,153
1,353
157
24,979
 
46,833
 
  - Stage 3
1,925
109
797
2,831
 
716
1,476
47
26
2,265
 
5,096
 
  - Of which: individual
172
—
13
185
 
314
564
33
25
936
 
1,121
 
  - Of which: collective
1,753
109
784
2,646
 
402
912
14
1
1,329
 
3,975
 
Loans - past due analysis (2)
202,957
4,460
9,706
217,123
 
32,574
73,677
48,138
5,641
160,030
 
377,153
 
  - Not past due
200,634
4,335
8,825
213,794
 
31,366
70,034
47,824
5,633
154,857
 
368,651
 
  - Past due 1-30 days
916
33
86
1,035
 
608
2,490
278
1
3,377
 
4,412
 
  - Past due 31-90 days
510
29
104
643
 
302
551
5
7
865
 
1,508
 
  - Past due 90-180 days
380
24
79
483
 
49
34
24
—
107
 
590
 
  - Past due >180 days
517
39
612
1,168
 
249
568
7
—
824
 
1,992
 
Loans - Stage 2
18,787
1,076
1,991
21,854
 
4,316
19,153
1,353
157
24,979
 
46,833
 
  - Not past due
17,951
1,039
1,872
20,862
 
3,866
17,915
1,344
150
23,275
 
44,137
 
  - Past due 1-30 days
588
19
53
660
 
185
754
5
—
944
 
1,604
 
  - Past due 31-90 days
248
18
66
332
 
265
484
4
7
760
 
1,092
 
Weighted average life (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
   - ECL measurement (years)
8
2
6
5
 
4
6
3
1
5
 
5
 
Weighted average 12 months PDs (4)
 
 
 
 
 
 
 
 
 
 
 
 
  - IFRS 9 (%)
0.50
2.62
4.78
0.71
 
1.88
2.11
0.23
0.19
1.41
 
1.01
 
  - Basel (%)
0.65
2.97
3.11
0.79
 
1.03
1.44
0.16
0.19
0.92
 
0.85
 
ECL provisions by geography
376
257
1,050
1,683
 
441
1,228
63
19
1,751
 
3,434
 
  - UK
376
254
1,027
1,657
 
404
985
42
14
1,445
 
3,102
 
  - RoI
—
3
23
26
 
13
66
1
—
80
 
106
 
  - Other Europe
—
—
—
—
 
16
72
7
1
96
 
96
 
  - RoW
—
—
—
—
 
8
105
13
4
130
 
130
 
ECL provisions by stage 
376
257
1,050
1,683
 
441
1,228
63
19
1,751
 
3,434
 
  - Stage 1
81
62
117
260
 
107
218
32
15
372
 
632
 
  - Stage 2
62
122
282
466
 
105
457
14
1
577
 
1,043
 
  - Stage 3
233
73
651
957
 
229
553
17
3
802
 
1,759
 
  - Of which: individual
18
—
10
28
 
80
163
13
3
259
 
287
 
  - Of which: collective
215
73
641
929
 
149
390
4
—
543
 
1,472
 
ECL provisions coverage (%)
0.19
5.76
10.82
0.78
 
1.35
1.67
0.13
0.34
1.09
 
0.91
 
  - Stage 1 (%)
0.04
1.89
1.69
0.14
 
0.39
0.41
0.07
0.27
0.28
 
0.19
 
  - Stage 2 (%)
0.33
11.34
14.16
2.13
 
2.43
2.39
1.03
0.64
2.31
 
2.23
 
  - Stage 3 (%)
12.10
66.97
81.68
33.80
 
31.98
37.47
36.17
11.54
35.41
 
34.52
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Half year ended 30 June 2022
 
 
 
 
 
 
 
 
 
 
 
 
ECL (release)/charge
(80)
20
78
18
 
21
(61)
(31)
(1)
(72)
 
(54)
 
  - UK
(75)
20
78
23
 
30
(66)
(34)
(1)
(71)
 
(48)
 
  - RoI
(5)
—
—
(5)
 
2
(7)
(3)
—
(8)
 
(13)
 
  - Other Europe
—
—
—
—
 
(12)
10
1
—
(1)
 
(1)
 
  - RoW
—
—
—
—
 
1
2
5
—
8
 
8
 
Amounts written-off
27
33
54
114
 
17
84
—
—
101
 
215
 
 
For the notes to this table refer to the following page.

 
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary (reviewed)
 
 
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages (1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
31 December 2022
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by residual maturity
202,957
4,460
9,706
217,123
 
32,574
73,677
48,138
5,641
160,030
 
377,153
 - <1 year 
3,347
2,655
3,368
9,370
 
6,740
24,297
36,192
2,958
70,187
 
79,557
 - 1-5 year
10,968
1,805
5,387
18,160
 
17,523
32,127
10,380
1,819
61,849
 
80,009
 - 5 year
188,642
—
951
189,593
 
8,311
17,253
1,566
864
27,994
 
217,587
Other financial assets by
 
 
 
 
 
 
 
 
 
 
 
 
  asset quality (3)
—
—
—
—
 
49
25
14,704
158,416
173,194
 
173,194
  - AQ1-AQ4
—
—
—
—
 
—
11
14,156
158,416
172,583
 
172,583
  - AQ5-AQ8
—
—
—
—
 
49
14
548
—
611
 
611
Off-balance sheet
18,782
15,848
8,547
43,177
 
15,793
57,791
19,555
710
93,849
 
137,026
  - Loan commitments
18,782
15,848
8,496
43,126
 
15,302
54,651
18,223
710
88,886
 
132,012
  - Financial guarantees
—
—
51
51
 
491
3,140
1,332
—
4,963
 
5,014
Off-balance sheet by
 
 
 
 
 
 
 
 
 
 
 
 
  asset quality (3)
18,782
15,848
8,547
43,177
 
15,793
57,791
19,555
710
93,849
 
137,026
  - AQ1-AQ4
17,676
436
7,353
25,465
 
12,477
35,960
17,899
606
66,942
 
92,407
  - AQ5-AQ8
1,089
15,048
1,170
17,307
 
3,282
21,496
1,655
84
26,517
 
43,824
  - AQ9 
2
74
4
80
 
5
24
—
—
29
 
109
  - AQ10
15
290
20
325
 
29
311
1
20
361
 
686
 
(1)
Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are reported in UK reflecting the country of lending origination, and includes crown dependencies.
(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)
AQ bandings are based on Basel PDs and the mapping is as follows:Internal asset quality bandProbability of default rangeIndicative S&P ratingAQ10% - 0.034%AAA to AAAQ20.034% - 0.048%AA to AA-AQ30.048% - 0.095%A+ to AAQ40.095% - 0.381%BBB+ to BBB-AQ50.381% - 1.076%BB+ to BBAQ61.076% - 2.153%BB- to B+AQ72.153% - 6.089%B+ to BAQ86.089% - 17.222%B- to CCC+AQ917.222% - 100%CCC to CAQ10100%D£0.3 billion (31 December 2022 – £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited.
(4)
Not within the scope of EY's review report.
 

 
Risk and capital management
Credit risk – Banking activities continued
Sector analysis – portfolio summary (reviewed)
The table below shows ECL by stage, for the Personal portfolios and selected sectors of the Wholesale portfolios.
 
Loans - amortised cost and FVOCI
Off-balance sheet 
 
ECL provisions
 
 
Loan
Contingent
 
 
 
Stage 1
Stage 2
Stage 3
Total
commitments
liabilities
 
Stage 1
Stage 2
Stage 3
Total
30 June 2023
£m
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
Personal
197,606
22,969
3,089
223,664
40,689
45
 
293
455
1,086
1,834
Mortgages (1)
186,983
19,653
2,053
208,689
15,474
—
 
92
65
256
413
Credit cards
3,526
1,501
123
5,150
16,572
—
 
60
148
85
293
Other personal
7,097
1,815
913
9,825
8,643
45
 
141
242
745
1,128
Wholesale
138,756
20,471
2,361
161,588
90,965
4,505
 
368
536
819
1,723
Property
28,183
3,990
752
32,925
15,604
444
 
99
115
231
445
Financial institutions
48,468
695
36
49,199
18,610
1,288
 
36
10
14
60
Sovereigns
5,335
126
28
5,489
570
154.0
 
13
1
4
18
Corporate
56,770
15,660
1,545
73,975
56,181
2,619
 
220
410
570
1,200
Of which:
 
 
 
 
 
 
 
 
 
 
 
      Agriculture
3,707
1,169
112
4,988
922
23
 
16
35
43
94
Airlines and aerospace
1,262
596
13
1,871
1,609
251
 
4
11
7
22
Automotive
6,642
837
30
7,509
4,120
86
 
21
18
12
51
Chemicals
390
55
1
446
806
12
 
2
1
1
4
Health
3,831
995
138
4,964
528
10
 
17
33
48
98
Industrials
2,407
811
79
3,297
3,080
182
 
9
20
21
50
Land transport and logistics
4,163
942
68
5,173
3,299
182
 
12
19
19
50
Leisure
3,973
3,145
240
7,358
2,021
171
 
30
109
91
230
Mining and metals 
433
39
5
477
404
5
 
1
—
4
5
Oil and gas
915
94
29
1,038
1,912
258
 
3
2
28
33
Power utilities
4,597
355
46
4,998
8,979
528
 
11
14
7
32
Retail
5,505
1,797
232
7,533
4,515
358
 
22
39
87
148
Shipping
181
93
3
277
78
28
 
—
3
3
6
Water and waste
3,425
406
15
3,846
2,012
96
 
4
5
4
13
Total
336,362
43,440
5,450
385,252
131,654
4,550
 
661
991
1,905
3,557
 
31 December 2022 
 
 
 
 
 
 
 
 
 
 
 
Personal
192,438
21,854
2,831
217,123
43,126
51
 
260
466
957
1,683
Mortgages (1)
182,245
18,787
1,925
202,957
18,782
—
 
81
62
233
376
Credit cards
3,275
1,076
109
4,460
15,848
—
 
62
122
73
257
Other personal
6,918
1,991
797
9,706
8,496
51
 
117
282
651
1,050
Wholesale
132,786
24,979
2,265
160,030
88,886
4,963
 
372
577
802
1,751
Property
27,542
4,316
716
32,574
15,302
491
 
107
105
229
441
Financial institutions
46,738
1,353
47
48,138
18,223
1,332
 
32
14
17
63
Sovereigns
5,458
157
26
5,641
710
—
 
15
1
3
19
Corporate
53,048
19,153
1,476
73,677
54,651
3,140
 
218
457
553
1,228
Of which:
 
 
 
 
 
 
 
 
 
 
 
   Agriculture
3,646
1,034
93
4,773
968
24
 
21
31
43
95
Airlines and aerospace
483
1,232
19
1,734
1,715
174
 
2
40
8
50
Automotive
5,776
1,498
30
7,304
4,009
99
 
18
18
11
47
Chemicals
384
117
1
502
650
12
 
1
2
1
4
Health
3,974
1,008
141
5,123
475
8
 
19
30
48
97
Industrials
2,148
1,037
82
3,267
3,135
195
 
10
16
24
50
Land transport and logistics
3,788
1,288
66
5,142
3,367
190
 
13
33
17
63
Leisure
3,416
3,787
260
7,463
1,907
102
 
27
147
115
289
Mining and metals 
173
230
5
408
545
5
 
—
1
5
6
Oil and gas
953
159
60
1,172
2,157
248
 
3
3
31
37
Power utilities
4,228
406
6
4,640
6,960
1,182
 
9
11
1
21
Retail
6,497
1,746
150
8,393
4,682
416
 
21
29
68
118
Shipping
161
151
14
326
110
22
 
—
7
6
13
Water and waste
3,026
335
7
3,368
2,143
101
 
4
4
4
12
Total
325,224
46,833
5,096
377,153
132,012
5,014
 
632
1,043
1,759
3,434
 
(1)
As at 30 June 2023, £143.5 billion, 69%, of the total residential mortgages portfolio had Energy Performance Certificate (EPC) data available (31 December 2022 – £138.8 billion, 68%). Of which, 43% were rated as EPC A to C (31 December 2022 – 42%).
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Wholesale forbearance (reviewed)
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed in the Personal portfolio section. This table shows current exposure but reflects risk transfers where there is a guarantee by another customer.
 
 
Financial 
 
Other 
 
 
Property
institution
Sovereign
corporate
Total
30 June 2023
£m
£m
£m
£m
£m
Forbearance (flow)
843
82
24
1,614
2,563
Forbearance (stock)
1,077
122
24
3,704
4,927
Heightened Monitoring and Risk of Credit Loss
1,198
304
—
4,183
5,685
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
Forbearance (flow)
746
105
—
2,575
3,426
Forbearance (stock)
933
107
—
4,709
5,749
Heightened Monitoring and Risk of Credit Loss
976
112
—
3,445
4,533
 
Loans by geography – In line with NatWest Group’s strategic focus, exposures continued to be mainly in the UK. Exposure to the Republic of Ireland continued to reduce during H1 2023 as part of the phased withdrawal of Ulster Bank RoI.  Loans by stage – There was an increase in Stage 1 exposure due to mortgage growth in Personal. An improvement in forward-looking economics meant a smaller proportion of Wholesale accounts exhibited a SICR compared to 2022, resulting in a migration of exposures from Stage 2 into Stage 1 during H1 2023. 
Loans – Past due analysis – In Personal, the value of arrears increased during H1 2023 as expected with portfolio growth and subsequent adjustments to lending criteria following the COVID-19 pandemic. In Wholesale, overall the past due profile remained broadly stable. 
Weighted average 12 months PDs – Basel II PDs remained relatively unchanged during H1 2023, reflecting stable credit performance in the portfolios. IFRS 9 PDs also remained broadly stable overall, with some modest increases in Personal portfolios, most notably in credit cards which had a PD model update. In Wholesale, some reductions were observed in PDs in corporate and property portfolios, linked to the economic scenario update at 30 June 2023. 
ECL provision by geography – In line with loans by geography, the vast majority of ECL related to exposures in the UK. 
ECL provisions by stage – Stage 2 provisions reduced during H1 2023, reflecting continued strong credit performance of the portfolios and the effect of H1 2023 MES scenario updates. Book growth was the key driver behind an increase in Stage 1 provisions. As outlined above, Stage 3 provisions have yet to be materially affected by the customer affordability risks linked to the current economic uncertainty prevalent in the UK. However, there has been an increase in Stage 3 linked to a modest rise in default levels and reduced write-off activity. 
ECL provisions coverage – Overall provisions coverage remained broadly consistent with 31 December 2022, mainly a result of continued stable portfolio performance and MES economics-driven modelled ECL releases contrasted with increased economic uncertainty, captured in ECL through post model adjustments.  
The ECL charge and loss rate – The impairment charge for H1 2023 of £223 million primarily reflected the underlying Stage 3 charges as good book ECL levels remaining broadly stable since 31 December 2022. The annualised loss rate at 30 June 2023 was 12bps with the expectation that this will rise in H2 2023 due to increased customer defaults.
   
Loans by residual maturity – The maturity profile of the portfolios remained consistent with prior periods. In mortgages, as expected, the vast majority of exposures were greater than five years. In unsecured lending – cards and other – exposures were concentrated in less than five years. In Wholesale, financial institutions and sovereigns lending was concentrated in less than one year. For the rest of Wholesale, most of the lending was residual maturity of one to five years.
 
   
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 exposures by asset quality – In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts. 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 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 was aligned to the wider portfolio. In Wholesale, growth was primarily loan commitments to corporates in the AQ5-AQ8 bands.
 
   
Wholesale forbearance – Forbearance flow and stock decreased in H1 2023. The retail and leisure, property and services sectors continued to represent the largest share of forbearance. The high inflation environment, cost of living, and supply chain issues continue to weigh on these sectors. Payment holidays and covenant waivers were the most common forms of forbearance granted.
 
   
Heightened Monitoring and Risk of Credit Loss – Economic headwinds continued to drive an uncertain outlook. Heightened Monitoring and Risk of Credit Loss stock increased in H1 2023. The sector breakdown of exposures within the framework remained consistent with prior periods.
 
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Personal portfolio (reviewed)
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
 
30 June 2023
 
31 December 2022
 
 
 
 
Central
 
 
 
 
 
Central
 
 
Retail
Private
Commercial &
items
 
 
Retail
Private
Commercial &
items
 
 
Banking
Banking
Institutional
& other
Total
 
Banking
Banking
Institutional
& other
Total
Personal lending
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
Mortgages
192,924
13,542
2,281
—
208,747
 
186,891
13,709
2,357
—
202,957
Of which:
 
 
 
 
 
 
 
 
 
 
 
  Owner occupied
174,247
11,948
1,504
—
187,699
 
168,790
12,096
1,541
—
182,427
  Buy-to-let
18,677
1,594
777
—
21,048
 
18,101
1,613
816
—
20,530
  Interest only - variable
3,534
3,508
239
—
7,281
 
3,515
3,286
258
—
7,059
  Interest only - fixed
18,217
8,404
249
—
26,870
 
17,954
8,591
261
—
26,806
  Mixed (1)
10,160
1
12
—
10,173
 
9,768
1
16
—
9,785
 ECL provisions (2)
388
8
8
—
404
 
355
9
6
—
370
Other personal lending (3)
12,915
1,761
251
93
15,020
 
11,935
1,853
267
143
14,198
ECL provisions (2)
1,365
21
2
30
1,418
 
1,257
15
3
26
1,301
Total personal lending
205,839
15,303
2,532
93
223,767
 
198,826
15,562
2,624
143
217,155
Mortgage LTV ratios
 
 
 
 
 
 
 
 
 
 
 
  Total portfolio
55%
59%
56%
—
55%
 
52%
59%
56%
—
53%
      - Stage 1
55%
59%
55%
—
55%
 
52%
59%
56%
—
53%
      - Stage 2
56%
61%
59%
—
56%
 
52%
61%
60%
—
52%
      - Stage 3
48%
60%
72%
—
49%
 
45%
59%
74%
—
47%
  Buy-to-let
53%
59%
53%
—
53%
 
50%
59%
53%
—
51%
      - Stage 1
53%
59%
52%
—
53%
 
51%
59%
53%
—
52%
      - Stage 2
52%
56%
50%
—
52%
 
49%
53%
48%
—
49%
      - Stage 3
49%
55%
56%
—
51%
 
47%
55%
57%
—
50%
Gross new mortgage lending 
17,348
812
89
—
18,249
 
41,227
2,968
327
—
44,522
   Of which:
 
 
 
 
 
 
 
 
 
 
 
Owner occupied 
16,171
738
66
—
16,975
 
36,305
2,701
221
—
39,227
Weighted average LTV (4)
69%
64%
68%
—
69%
 
69%
65%
65%
—
69%
Buy-to-let
1,177
74
23
—
1,274
 
4,922
267
106
—
5,295
Weighted average LTV (4)
58%
65%
55%
—
58%
 
64%
66%
60%
—
64%
Interest only - variable rate
130
335
7
—
472
 
24
329
11
—
364
Interest only - fixed rate
1,334
366
7
—
1,707
 
5,299
2,335
51
—
7,685
Mixed (1)
912
—
—
—
912
 
2,309
—
2
—
2,311
Mortgage forbearance
 
 
 
 
 
 
 
 
 
 
 
Forbearance flow (5)
111
11
6
—
128
 
182
7
4
—
193
Forbearance stock
1,032
17
13
—
1,062
 
1,015
16
8
—
1,039
  Current
623
6
7
—
636
 
649
8
6
—
663
  1-3 months in arrears
171
8
3
—
182
 
133
—
2
—
135
  > 3 months in arrears
238
4
3
—
245
 
233
8
—
—
241
 
(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)
New mortgage lending LTV reflects the LTV at the time of lending.
(5)
Forbearance flows only include an account once per year, although some accounts may be subject to multiple forbearance deals. Forbearance deals post default are excluded from these flows.
 
-  
Overall, mortgage portfolio growth continued in H1 2023, although new business volumes fluctuated in line with uncertainty regarding interest rate environment and product availability across the market.
 -
Portfolio LTV increased, partly due to the higher relative proportion of new business from recent years’ strong lending performance, but also, specifically in H1 2023, easing of house prices reflected in house price indices.
 - 
Credit quality of new business was maintained. Lending criteria and affordability calculations and assumptions for new lending were adjusted during H1 2023, considering inflationary pressure and interest rate rises, to maintain credit quality in line with appetite and ensure customers are assessed fairly.
 - 
The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, buy-to-let concentrations, new-build concentrations and credit quality.
 - 
Other personal lending balances increased in H1 2023 mainly a result of credit card new business. Lending criteria were carefully managed and the credit quality (based on new business PD) of the new business written in H1 2023 improved.
 - 
Flows into forbearance increased gradually in H1 2023 as NatWest Group continues to support customers, with portfolio growth also being a driver of increased forbearance flows overall.
 - 
As noted previously, ECL increased. For further details on the movements in ECL provisions at product level, refer to the Flow statements section.
 
 
Risk and capital management
Credit risk – Banking activities continued
Personal portfolio (reviewed)
Mortgage LTV distribution by stage
The table below shows gross mortgage lending and related ECL by LTV band for the Retail Banking portfolio. Mortgage lending not within the scope of Governance and post-model adjustments reflected portfolios carried at fair value.
Retail banking
 
Mortgages
 
ECL provisions
 
ECL provisions coverage (2)
 
 
 
 
Not
 
Of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
within
 
which:
 
 
 
 
 
 
 
 
 
 
 
Stage
Stage
Stage
IFRS 9
 
gross new
 
Stage
Stage
Stage
Total
 
Stage
Stage
Stage
 
 
1
2
3
ECL scope
Total
lending
 
1
2
3
(1)
 
1
2
3
Total
30 June 2023
£m
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
66,183
7,523
1,019
53
74,778
2,809
 
26
18
122
166
 
0.0
0.2
12.0
0.2
>50% and ≤70%
66,810
7,816
704
7
75,337
4,854
 
35
28
81
144
 
0.1
0.4
11.5
0.2
>70% and ≤80%
22,503
2,181
105
—
24,789
4,018
 
12
8
15
35
 
0.1
0.4
14.3
0.1
>80% and ≤90%
11,464
1,448
31
1
12,944
3,199
 
9
7
6
22
 
0.1
0.5
19.4
0.2
>90% and ≤100%
4,434
513
12
—
4,959
2,461
 
5
3
3
11
 
0.1
0.6
25.0
0.2
>100%
45
7
13
—
65
7
 
2
—
6
8
 
4.4
—
46.2
12.3
Total with LTVs
171,439
19,488
1,884
61
192,872
17,348
 
89
64
233
386
 
0.1
0.3
12.4
0.2
Other
110
1
1
—
112
—
 
2
—
1
3
 
1.8
—
100.0
2.7
Total
171,549
19,489
1,885
61
192,984
17,348
 
91
64
234
389
 
0.1
0.3
12.4
0.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤50%
71,321
8,257
1,036
61
80,675
7,467
 
26
20
121
167
 
—
0.2
11.7
0.2
>50% and ≤70%
68,178
7,792
616
7
76,593
14,088
 
32
30
71
133
 
—
0.4
11.5
0.2
>70% and ≤80%
17,602
1,602
62
1
19,267
11,154
 
7
6
11
24
 
—
0.4
17.7
0.1
>80% and ≤90%
7,918
944
17
1
8,880
7,127
 
6
5
5
16
 
0.1
0.5
29.4
0.2
>90% and ≤100%
1,409
18
6
—
1,433
1,389
 
3
—
2
5
 
0.2
—
33.3
0.3
>100%
35
7
10
—
52
2
 
2
—
4
6
 
5.7
—
40.0
11.5
Total with LTVs
166,463
18,620
1,747
70
186,900
41,227
 
76
61
214
351
 
—
0.3
12.3
0.2
Other
59
1
1
—
61
—
 
3
—
1
4
 
5.1
—
100.0
6.6
Total
166,522
18,621
1,748
70
186,961
41,227
 
79
61
215
355
 
—
0.3
12.3
0.2
 
(1)
Excludes a non-material amount of provisions held on relatively small legacy portfolios.
(2)
ECL provisions coverage is ECL provisions divided by mortgages
(3)
LTVs used in this table reflect the LTV at the reporting date, including changes in LTV after the date of new business due to repayments and indexation of property.
 
 
 
Overall LTV for the portfolio increased during H1 2023, reflecting the easing of UK house prices, which was reflected in the increased exposure in the higher LTV bands. ECL coverage levels were maintained across the LTV bands.
 
 
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).
 
 
30 June 2023
 
31 December 2022
 
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)
4,698
4
6
4,708
 
4,583
2
13
4,598
Office (3)
2,682
4
—
2,686
 
2,781
10
—
2,791
Retail (4)
3,582
1
—
3,583
 
3,754
—
—
3,754
Industrial (5)
3,137
—
128
3,265
 
2,939
—
184
3,123
Mixed/other (6)
919
7
44
970
 
876
7
46
929
 
15,018
16
178
15,212
 
14,933
19
243
15,195
Development
 
 
 
 
 
 
 
 
 
Residential (2)
1,752
2
—
1,754
 
1,693
7
—
1,700
Office (3)
46
—
—
46
 
81
—
—
81
Retail (4)
58
—
—
58
 
56
—
—
56
Industrial (5)
56
—
—
56
 
90
—
—
90
Mixed/other (6)
12
1
—
13
 
14
1
—
15
 
1,924
3
—
1,927
 
1,934
8
—
1,942
Total 
16,942
19
178
17,139
 
16,867
27
243
17,137
 
(1)
Geographical splits are based on country of collateral risk.
(2)
Properties including houses, flats and student accommodation.
(3)
Properties including offices in central business districts, regional headquarters and business parks.
(4)
Properties including high street retail, shopping centres, restaurants, bars and gyms.
(5)
Properties including distribution centres, manufacturing and warehouses.  
(6)
Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.  
 
Risk and capital management
Credit risk – Banking activities continued
Commercial real estate (reviewed)
CRE LTV distribution by stage 
The table below shows CRE current exposure and related ECL by LTV band.
 
Gross loans
 
ECL provisions
 
ECL provisions coverage (2)
 
 
 
 
Not within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS 9
 
 
 
 
 
 
 
 
 
 
 
 
Stage
Stage
Stage
ECL
 
 
Stage
Stage
Stage
 
 
Stage
Stage
Stage
 
1
2
3
scope (1)
Total
 
1
2
3
Total
 
1
2
3
Total
30 June 2023
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
7,136
951
61
3
8,151
 
34
14
12
60
 
0.5
1.5
19.7
0.7
>50% and ≤70%
3,399
582
66
2
4,049
 
20
26
18
64
 
0.6
4.5
27.3
1.6
>70% and ≤100%
182
114
200
2
498
 
2
3
31
36
 
1.1
2.6
15.5
7.2
>100%
216
17
41
—
274
 
1
1
14
16
 
0.5
5.9
34.1
5.8
Total with LTVs
10,933
1,664
368
7
12,972
 
57
44
75
176
 
0.5
2.6
20.4
1.4
Total portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  average LTV%
47%
50%
80%
50%
48%
 
 
 
 
 
 
 
 
 
 
Other (3)
1,703
493
51
64
2,311
 
7
18
22
47
 
0.4
3.7
43.1
2.0
Development (4)
1,733
141
53
3
1,930
 
14
4
24
42
 
0.8
2.8
45.3
2.2
Total
14,369
2,298
472
74
17,213
 
78
66
121
265
 
0.5
2.9
25.6
1.5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤50%
7,010
658
57
67
7,792
 
36
12
16
64
 
0.5
1.8
28.1
0.8
>50% and ≤70%
3,515
798
43
19
4,375
 
23
18
12
53
 
0.7
2.3
27.9
1.2
>70% and ≤100%
259
82
156
7
504
 
1
3
42
46
 
0.4
3.7
26.9
9.1
>100%
102
10
23
1
136
 
1
1
14
16
 
1.0
10.0
60.9
11.8
Total with LTVs
10,886
1,548
279
94
12,807
 
61
34
84
179
 
0.6
2.2
30.1
1.4
Total portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  average LTV%
45%
52%
75%
44%
47%
 
 
 
 
 
 
 
 
 
 
Other (3)
1,800
627
55
86
2,568
 
9
15
27
51
 
0.5
2.4
49.1
2.0
Development (4)
1,553
332
57
7
1,949
 
13
8
28
49
 
0.8
2.4
49.1
2.5
Total
14,239
2,507
391
187
17,324
 
83
57
139
279
 
0.6
2.3
35.6
1.6
 
(1)
Includes exposures relating to non-modelled portfolios and other exposures carried at fair value.
(2)
ECL provisions coverage is ECL provisions divided by gross loans.
(3)
Relates mainly to business banking, rate risk management products and unsecured corporate lending.
(4)
Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.
 
-
Overall – The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy is aligned across NatWest Group.
-
2023 trends – H1 commenced with a fairly positive outlook as commercial property markets had observed a relatively quick repricing in late 2022 with investors keen to commence purchase and sale activity. However, as the economic outlook deteriorated over Q1 with higher interest rates, investor sentiment weakened. This resulted in very limited market activity, with residential build-to-rent being the exception.
-
Credit quality – The CRE portfolio has been resilient to date despite the fall in capital values and increase in rates, with no significant increase to movements onto the Risk of Credit Loss framework.
-
Risk appetite – Lending appetite is subject to regular review and is adjusted to prevailing and projected market conditions.  Following recent market re-pricing, appetite increased for certain specific sub-sectors. As a cashflow lender in the current interest rate environment, leverage is typically capped by interest cover considerations.  
 
 

Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed)
The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL effect. Other points to note:
 
  -
Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included.
  -
Stage transfers (for example, exposures moving from Stage 1 into Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage.
  -
Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down.
  -
Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements.
  -
Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity.
  -
There were flows from Stage 1 into Stage 3 including transfers due to unexpected default events.
  -
The effect of any change in post model adjustments during the year is typically reported under changes in risk parameters, as are any effects arising from changes to the underlying models. Refer to the section on Governance and post model adjustments for further details.
 
All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments.
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
NatWest Group total
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
507,539
632
 
48,482
1,043
 
5,231
1,759
 
561,252
3,434
Currency translation and other adjustments
(3,085)
4
 
(259)
(4)
 
52
67
 
(3,292)
67
Transfers from Stage 1 to Stage 2
(25,420)
(161)
 
25,420
161
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
23,485
380
 
(23,485)
(380)
 
—
—
 
—
—
Transfers to Stage 3
(156)
(3)
 
(1,723)
(146)
 
1,879
149
 
—
—
Transfers from Stage 3
185
18
 
320
27
 
(505)
(45)
 
—
—
Net re-measurement of ECL on stage transfer
 
(277)
 
 
406
 
 
129
 
 
258
Changes in risk parameters (model inputs)
 
(33)
 
 
(14)
 
 
123
 
 
76
Other changes in net exposure
(21,643)
101
 
(4,134)
(96)
 
(1,003)
(94)
 
(26,780)
(89)
Other (P&L only items)
 
—
 
 
—
 
 
(22)
 
 
(22)
Income statement (releases)/charges
 
(209)
 
 
296
 
 
136
 
 
223
Transfers to disposal groups
11
—
 
(4)
(4)
 
11
4
 
18
—
Amounts written-off
—
—
 
(2)
(2)
 
(120)
(120)
 
(122)
(122)
Unwinding of discount
 
—
 
 
—
 
 
(67)
 
 
(67)
At 30 June 2023
480,916
661
 
44,615
991
 
5,545
1,905
 
531,076
3,557
Net carrying amount
480,255
 
 
43,624
 
 
3,640
 
 
527,519
 
At 1 January 2022
546,178
302
 
35,557
1,478
 
5,238
2,026
 
586,973
3,806
2022 movements
(2,063)
106
 
(6,017)
(356)
 
769
(41)
 
(7,311)
(291)
At 30 June 2022
544,115
408
 
29,540
1,122
 
6,007
1,985
 
579,662
3,515
Net carrying amount
543,707
—
 
28,418
—
 
4,022
—
 
576,147
—
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed)
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Retail Banking - mortgages
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
165,264
79
 
18,831
61
 
1,762
215
 
185,857
355
Currency translation and other adjustments
—
—
 
—
—
 
34
34
 
34
34
Transfers from Stage 1 to Stage 2
(9,502)
(7)
 
9,502
7
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
7,105
15
 
(7,105)
(15)
 
—
—
 
—
—
Transfers to Stage 3
(20)
—
 
(467)
(3)
 
487
3
 
—
—
Transfers from Stage 3
22
1
 
149
3
 
(171)
(4)
 
—
—
Net re-measurement of ECL on stage transfer
 
(10)
 
 
14
 
 
3
 
 
7
Changes in risk parameters (model inputs)
 
18
 
 
(1)
 
 
36
 
 
53
Other changes in net exposure
6,922
(5)
 
(1,245)
(2)
 
(258)
(24)
 
5,419
(31)
Other (P&L only items)
 
—
 
 
(1)
 
 
(7)
 
 
(8)
Income statement (releases)/charges
 
3
 
 
10
 
 
8
 
 
21
Amounts written-off
—
—
 
—
—
 
(7)
(7)
 
(7)
(7)
Unwinding of discount
 
—
 
 
—
 
 
(22)
 
 
(22)
At 30 June 2023
169,791
91
 
19,665
64
 
1,847
234
 
191,303
389
Net carrying amount
169,700
 
 
19,601
 
 
1,613
 
 
190,914
 
At 1 January 2022
159,966
24
 
10,748
155
 
1,267
250
 
171,981
429
2022 movements
6,169
33
 
(1,763)
(79)
 
501
(38)
 
4,907
(84)
At 30 June 2022
166,135
57
 
8,985
76
 
1,768
212
 
176,888
345
Net carrying amount
166,078
—
 
8,909
—
 
1,556
—
 
176,543
—
 
  -
ECL levels for mortgages increased during H1 2023, reflecting continued strong growth. While portfolio performance remained stable, increased economic uncertainty is captured through ECL post model adjustments (reflected in changes in risk parameters).
  -
There were net flows into Stage 2 from Stage 1 as PDs increased due to moving closer to the forecasted unemployment peak, noting the latest MES update reduction in unemployment peak will not result in exits from Stage 2 until Q3 2023 (due to the three month PD persistence rule in stage allocation).
  -
The increase in the cost of living post model adjustment at 30 June 2023 proportionately allocated more ECL to Stage 1 given the forward-looking nature of the cost of living and inflation threat. Refer to the Governance and post model adjustments section for more information.
  -
The Stage 3 inflows remained broadly stable but there was a modest increase in Stage 3 ECL overall, partly linked to recent house price index deterioration. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments, when previously in the good book. Refer to the Governance and post model adjustments section for further details.
  -
Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given repossession activity remains subdued relative to pre-COVID-19 levels, write-offs remained at a lower level.
 

Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed) 

Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Retail Banking - credit cards
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
3,062
61
 
1,098
120
 
113
71
 
4,273
252
Currency translation and other adjustments
—
—
 
—
—
 
2
3
 
2
3
Transfers from Stage 1 to Stage 2
(862)
(21)
 
862
21
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
330
24
 
(330)
(24)
 
—
—
 
—
—
Transfers to Stage 3
(11)
—
 
(54)
(23)
 
65
23
 
—
—
Transfers from Stage 3
1
1
 
3
1
 
(4)
(2)
 
—
—
Net re-measurement of ECL on stage transfer
 
(15)
 
 
77
 
 
17
 
 
79
Changes in risk parameters (model inputs)
 
6
 
 
(2)
 
 
8
 
 
12
Other changes in net exposure
660
3
 
(59)
(25)
 
(17)
(1)
 
584
(23)
Other (P&L only items)
 
—
 
 
1
 
 
(1)
 
 
—
Income statement (releases)/charges
 
(6)
 
 
51
 
 
23
 
 
68
Amounts written-off
—
—
 
—
—
 
(33)
(33)
 
(33)
(33)
Unwinding of discount
 
—
 
 
—
 
 
(3)
 
 
(3)
At 30 June 2023
3,180
59
 
1,520
145
 
126
83
 
4,826
287
Net carrying amount
3,121
 
 
1,375
 
 
43
 
 
4,539
 
At 1 January 2022
2,740
58
 
947
141
 
91
60
 
3,778
259
2022 movements
64
6
 
77
(28)
 
17
8
 
158
(14)
At 30 June 2022
2,804
64
 
1,024
113
 
108
68
 
3,936
245
Net carrying amount
2,740
—
 
911
—
 
40
—
 
3,691
—
 
   -    The overall increase in ECL was mainly due to the increase in Stage 2 ECL.
   -    While portfolio performance remained stable, a net flow into Stage 2 from Stage 1 is observed as PDs increase as the forecasted unemployment peak moves closer and PD modelling updates capture more economic downside.
   -Credit card balances have continued to grow since the 2022 year end, in line with industry trends in the UK, reflecting strong customer demand, while sustaining robust risk appetite.
   -Reflecting the strong credit performance observed during H1 2023, Stage 3 inflows remained stable and therefore Stage 3 ECL movement was modest in H1 2023.
   -Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.
 

 
Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed)
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Retail Banking - other personal unsecured
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
4,784
111
 
2,028
269
 
779
631
 
7,591
1,011
Currency translation and other adjustments
—
(1)
 
—
—
 
12
12
 
12
11
Transfers from Stage 1 to Stage 2
(1,450)
(59)
 
1,450
59
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
1,178
165
 
(1,178)
(165)
 
—
—
 
—
—
Transfers to Stage 3
(25)
(1)
 
(162)
(64)
 
187
65
 
—
—
Transfers from Stage 3
3
2
 
11
4
 
(14)
(6)
 
—
—
Net re-measurement of ECL on stage transfer
 
(118)
 
 
165
 
 
26
 
 
73
Changes in risk parameters (model inputs)
 
(22)
 
 
(10)
 
 
49
 
 
17
Other changes in net exposure
586
55
 
(268)
(28)
 
(51)
(18)
 
267
9
Other (P&L only items)
 
—
 
 
—
 
 
5
 
 
5
Income statement (releases)/charges
 
(85)
 
 
127
 
 
62
 
 
104
Amounts written-off
—
—
 
—
—
 
(23)
(23)
 
(23)
(23)
Unwinding of discount
 
—
 
 
—
 
 
(15)
 
 
(15)
At 30 June 2023
5,076
132
 
1,881
230
 
890
721
 
7,847
1,083
Net carrying amount
4,944
 
 
1,651
 
 
169
 
 
6,764
 
At 1 January 2022
4,548
52
 
1,967
294
 
629
540
 
7,144
886
2022 movements
272
11
 
(194)
(64)
 
104
75
 
182
22
At 30 June 2022
4,820
63
 
1,773
230
 
733
615
 
7,326
908
Net carrying amount
4,757
—
 
1,543
—
 
118
—
 
6,418
—
 
 -Total ECL increased mainly in Stage 3. While default levels were stable, they were higher than in 2022 in absolute terms. This increase was in line with post-COVID-19 portfolio growth alongside robust risk appetite and, given   write-off levels are lower during 2023 so far, ECL levels have also risen.
-While portfolio performance remains stable, a net flow into Stage 2 from Stage 1 is observed as PDs increase as the forecasted unemployment peak moves closer. The lower forecast unemployment peak in the latest MES economics dampened the net effect of stage migrations on ECL, primarily through reducing PDs on existing Stage 2 cases.
 -Unsecured retail balances have grown since the 2022 year end, in line with industry trends in the UK, as unsecured borrowing demand continues.
   -Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than six years after default.
 
 

 
Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Commercial & Institutional total
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
160,352
342
 
24,711
534
 
2,198
747
 
187,261
1,623
Currency translation and other adjustments
(2,069)
2
 
(249)
(2)
 
9
18
 
(2,309)
18
Inter-group transfers
—
—
 
—
—
 
—
—
 
—
—
Transfers from Stage 1 to Stage 2
(12,526)
(69)
 
12,526
69
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
13,546
167
 
(13,546)
(167)
 
—
—
 
—
—
Transfers to Stage 3
(45)
(1)
 
(900)
(40)
 
945
41
 
—
—
Transfers from Stage 3
111
16
 
147
16
 
(258)
(32)
 
—
—
Net re-measurement of ECL on stage transfer
 
(128)
 
 
136
 
 
76
 
 
84
Changes in risk parameters (model inputs)
 
(41)
 
 
(11)
 
 
31
 
 
(21)
Other changes in net exposure
2,802
45
 
(2,345)
(27)
 
(572)
(43)
 
(115)
(25)
Other (P&L only items)
 
—
 
 
—
 
 
(18)
 
 
(18)
Income statement releases
 
(124)
 
 
98
 
 
46
 
 
20
Amounts written-off
—
—
 
(1)
(1)
 
(49)
(49)
 
(50)
(50)
Unwinding of discount
 
—
 
 
—
 
 
(24)
 
 
(24)
At 30 June 2023
162,171
333
 
20,343
507
 
2,273
765
 
184,787
1,605
Net carrying amount
161,838
 
 
19,836
 
 
1,508
 
 
183,182
 
At 1 January 2022
152,224
129
 
19,731
785
 
2,155
750
 
174,110
1,664
2022 movements
10,103
56
 
(2,962)
(154)
 
199
(44)
 
7,340
(142)
At 30 June 2022
162,327
185
 
16,769
631
 
2,354
706
 
181,450
1,522
Net carrying amount
162,142
—
 
16,138
—
 
1,648
—
 
179,928
—
 
 -There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty.
-Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs and led to significant transfers of exposure and ECL from Stage 2 into Stage 1. The ECL reduction was partially offset by charges, the majority of which were from increases in post model adjustments, with the PD downgrade adjustment resulting in transfers from Stage 1 into Stage 2 and increased ECL on stage transfer, from moving from a 12 month ECL to a lifetime ECL.
-Stage 3 inflows remained stable. There was a modest increase in Stage 3 ECL overall with increases from transfers and charges largely offset by write-offs.
 
 

 
Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Commercial & Institutional - corporate
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
49,288
210
 
18,779
423
 
1,397
497
 
69,464
1,130
Currency translation and other adjustments
(455)
3
 
(198)
(3)
 
11
10
 
(642)
10
Inter-group transfers
3
—
 
(17)
—
 
(7)
(1)
 
(21)
(1)
Transfers from Stage 1 to Stage 2
(9,015)
(52)
 
9,015
52
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
9,322
127
 
(9,322)
(127)
 
—
—
 
—
—
Transfers to Stage 3
(35)
(1)
 
(642)
(31)
 
677
32
 
—
—
Transfers from Stage 3
74
12
 
112
12
 
(186)
(24)
 
—
—
Net re-measurement of ECL on stage transfer
 
(99)
 
 
98
 
 
58
 
 
57
Changes in risk parameters (model inputs)
 
(21)
 
 
(20)
 
 
22
 
 
(19)
Other changes in net exposure
5,386
32
 
(2,179)
(18)
 
(433)
(35)
 
2,774
(21)
Other (P&L only items)
 
—
 
 
(1)
 
 
(18)
 
 
(19)
Income statement (releases)/charges
 
(88)
 
 
59
 
 
27
 
 
(2)
Amounts written-off
—
—
 
(1)
(1)
 
(26)
(26)
 
(27)
(27)
Unwinding of discount
 
—
 
 
—
 
 
(18)
 
 
(18)
At 30 June 2023
54,568
211
 
15,547
385
 
1,433
515
 
71,548
1,111
Net carrying amount
54,357
 
 
15,162
 
 
918
 
 
70,437
 
 
- There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty.
 -Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs, with the net effect of stage transfers leading to a reduction in ECL. The ECL reduction was partially offset by charges, the majority of which, were from increases in post model adjustments.
- Stage 3 inflows remained stable with the small increase in exposure largely attributable to government scheme lending. There was a modest increase in Stage 3 ECL overall with increases from transfers and charges partially offset by write-offs.
 
 

 
Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Commercial & Institutional - property
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
26,134
100
 
4,301
96
 
642
220
 
31,077
416
Currency translation and other adjustments
(8)
—
 
(10)
—
 
—
7
 
(18)
7
Inter-group transfers
2
—
 
12
—
 
7
1
 
21
1
Transfers from Stage 1 to Stage 2
(2,567)
(15)
 
2,567
15
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
2,290
30
 
(2,290)
(30)
 
—
—
 
—
—
Transfers to Stage 3
(9)
(1)
 
(248)
(9)
 
257
10
 
—
—
Transfers from Stage 3
27
3
 
32
4
 
(59)
(7)
 
—
—
Net re-measurement of ECL on stage transfer
 
(21)
 
 
33
 
 
17
 
 
29
Changes in risk parameters (model inputs)
 
(16)
 
 
9
 
 
3
 
 
(4)
Other changes in net exposure
440
11
 
(454)
(7)
 
(97)
(7)
 
(111)
(3)
Other (P&L only items)
 
—
 
 
—
 
 
1
 
 
1
Income statement (releases)/charges
 
(26)
 
 
35
 
 
14
 
 
23
Amounts written-off
—
—
 
—
—
 
(19)
(19)
 
(19)
(19)
Unwinding of discount
 
—
 
 
—
 
 
(5)
 
 
(5)
At 30 June 2023
26,309
91
 
3,910
111
 
731
220
 
30,950
422
Net carrying amount
26,218
 
 
3,799
 
 
511
 
 
30,528
 
 
-There was a modest increase in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics offset by increases in post model adjustments to capture increased economic uncertainty.
 -Stage 2 exposure reduced reflecting improving economic variables and risk metrics which lowered PDs, with the net effect of stage transfers leading to a reduction in ECL.
 -Stage 2 ECL increased due to economic uncertainty post model adjustments which more than offset reductions from stage transfers.
 -Stage 3 inflows increased due to an uptick in defaults but this did not lead to a change in ECL with increases from transfers and charges offset by write-offs.
 
 

 
 
Risk and capital management
Credit risk – Banking activities continued
Flow statements (reviewed)
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Commercial & Institutional - other
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2023
84,930
32
 
1,631
15
 
159
30
 
86,720
77
Currency translation and other adjustments
(1,606)
—
 
(40)
—
 
(2)
2
 
(1,648)
2
Inter-group transfers
(5)
—
 
5
—
 
—
—
 
—
—
Transfers from Stage 1 to Stage 2
(944)
(2)
 
944
2
 
—
—
 
—
—
Transfers from Stage 2 to Stage 1
1,934
10
 
(1,934)
(10)
 
—
—
 
—
—
Transfers to Stage 3
—
—
 
(11)
—
 
11
—
 
—
—
Transfers from Stage 3
10
1
 
3
—
 
(13)
(1)
 
—
—
Net re-measurement of ECL on stage transfer
 
(9)
 
 
5
 
 
1
 
 
(3)
Changes in risk parameters (model inputs)
 
(3)
 
 
—
 
 
5
 
 
2
Other changes in net exposure
(3,025)
2
 
288
(1)
 
(41)
(1)
 
(2,778)
—
Other (P&L only items)
 
—
 
 
—
 
 
—
 
 
—
Income statement (releases)/charges
 
(10)
 
 
4
 
 
5
 
 
(1)
Amounts written-off
—
—
 
—
—
 
(5)
(5)
 
(5)
(5)
Unwinding of discount
 
—
 
 
—
 
 
(1)
 
 
(1)
At 30 June 2023
81,294
31
 
886
11
 
109
30
 
82,289
72
Net carrying amount
81,263
 
 
875
 
 
79
 
 
82,217
 
 
-There was a modest decrease in ECL levels during H1 2023, with reductions in modelled ECL from improving economic variables and risk metrics partially offset by increases in post model adjustments to capture increased economic uncertainty.
-Stage 2 exposure and ECL reduced, reflecting improving economic variables and risk metrics which lowered PDs and led to significant transfers of exposure and ECL from Stage 2 into Stage 1.
 
 

 
Risk and capital management
Credit risk – Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
The tables that follow show decomposition for the Personal and Wholesale portfolios.
 
 
 
UK mortgages
 
Credit cards
 
Other
 
Total
30 June 2023
 
 
£m
%
 
£m
%
 
£m
%
 
£m
%
Personal trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
 
 
9,799
49.9
 
1,163
77.4
 
937
51.6
 
11,899
51.8
PD persistence
 
 
8,349
42.5
 
265
17.7
 
417
23.0
 
9,031
39.3
Adverse credit bureau recorded with
 
 
 
 
 
 
 
 
 
 
 
  credit reference agency
935
4.8
 
49
3.3
 
89
4.9
 
1,073
4.7
Forbearance support provided
98
0.5
 
1
0.1
 
12
0.7
 
111
0.5
Customers in collections
185
0.9
 
2
0.1
 
6
0.3
 
193
0.8
Collective SICR and other reasons (2)
183
0.9
 
21
1.4
 
337
18.6
 
541
2.4
Days past due >30
104
0.5
 
—
—
 
17
0.9
 
121
0.5
 
 
 
19,653
100
 
1,501
100
 
1,815
100
 
22,969
100
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
 
 
 
 
Personal trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
 
 
16,477
87.7
 
814
75.7
 
1,129
56.7
 
18,420
84.3
PD persistence
 
 
866
4.6
 
200
18.6
 
186
9.3
 
1,252
5.7
Adverse credit bureau recorded with
 
 
 
 
 
 
 
 
 
 
 
  credit reference agency
929
4.9
 
52
4.8
 
96
4.8
 
1,077
4.9
Forbearance support provided
101
0.5
 
1
0.1
 
17
0.9
 
119
0.5
Customers in collections
153
0.8
 
2
0.2
 
4
0.2
 
159
0.7
Collective SICR and other reasons (2)
195
1.0
 
7
0.7
 
546
27.4
 
748
3.4
Days past due >30
66
0.4
 
—
—
 
13
0.7
 
79
0.4
 
 
 
18,787
100
 
1,076
100
 
1,991
100
 
21,854
100
 
For the notes to the table refer to the following page.
 
-The levels of PD driven deterioration decreased in H1 2023, mainly in the mortgage portfolio. The economic scenario update at H1 2023 resulted in a reduction in lifetime PDs for the mortgage and personal loan portfolios, which has driven a segment of lower risk cases out of PD SICR deterioration (and now captured in three month PD persistence).
-The PD modelling update on the credit card portfolio resulted in more downside risk captured through modelled ECL and lead to more PD SICR deterioration being captured at 30 June 2023.
 
 

Risk and capital management
Credit risk – Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
 
Property
 
Corporate
 
Financial institutions
 
Sovereign
 
Total
30 June 2023
£m
%
 
£m
%
 
£m
%
 
£m
%
 
£m
%
Wholesale trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
2,633
65.9
 
11,733
74.9
 
406
58.4
 
1
0.8
 
14,773
72.3
PD persistence
119
3.0
 
329
2.1
 
5
0.7
 
—
—
 
453
2.2
Risk of credit loss
722
18.1
 
2,016
12.9
 
146
21.0
 
104
82.5
 
2,988
14.6
Forbearance support provided
40
1.0
 
418
2.7
 
—
—
 
—
—
 
458
2.2
Customers in collections
8
0.2
 
35
0.2
 
—
—
 
—
—
 
43
0.2
Collective SICR and other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   reasons (2)
198
5.0
 
751
4.8
 
84
12.1
 
19
15.1
 
1,052
5.1
Days past due >30
270
6.8
 
378
2.4
 
54
7.8
 
2
1.6
 
704
3.4
 
3,990
100
 
15,660
100
 
695
100
 
126
100
 
20,471
100
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wholesale trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
2,807
65.0
 
15,645
81.7
 
1,231
91.0
 
79
50.3
 
19,762
79.2
PD persistence
88
2.0
 
263
1.4
 
5
0.4
 
—
—
 
356
1.4
Risk of credit loss
618
14.4
 
1,587
8.3
 
32
2.4
 
55
35.0
 
2,292
9.2
Forbearance support provided
44
1.0
 
473
2.5
 
19
1.4
 
—
—
 
536
2.1
Customers in collections
13
0.3
 
44
0.2
 
—
—
 
—
—
 
57
0.2
Collective SICR and other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   reasons (2)
575
13.3
 
946
4.9
 
64
4.7
 
16
10.2
 
1,601
6.4
Days past due >30
171
4.0
 
195
1.0
 
2
0.1
 
7
4.5
 
375
1.5
 
4,316
100
 
19,153
100
 
1,353
100
 
157
100
 
24,979
100
 
(1)
The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.
(2)
Includes cases where a PD assessment cannot be made and accounts where the PD has deteriorated beyond a prescribed backstop threshold aligned to risk management practices.
 
-PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 into Stage 2. There was a reduction in cases triggering PD deterioration reflecting the economic scenario update at H1 2023 and positive portfolio performance which lowered PDs. Customers that triggered SICR due to post model adjustments for sector-level downgrades were also captured in the PD movement category.
- Moving exposures on to the Risk of Credit Loss framework remained an important backstop indicator of a SICR. The exposures classified under the Stage 2 Risk of Credit Loss framework increased over the period reflecting economic headwinds and the lower capture in PD deterioration category.
-There was an increase in customers meeting the >30 days past due trigger where since the regulatory definition of default changes all customer borrowing was categorised as past due.
 

 
Risk and capital management
Credit risk – Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.
 
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 2023
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
UK mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
116,722
8,845
—
125,567
 
54
24
—
78
 
0.05
0.27
—
0.06
AQ5-AQ8
70,112
10,114
—
80,226
 
38
37
—
75
 
0.05
0.37
—
0.09
AQ9 
149
694
—
843
 
—
4
—
4
 
—
0.58
—
0.47
AQ10 
—
—
2,053
2,053
 
—
—
256
256
 
—
—
12.47
12.47
 
186,983
19,653
2,053
208,689
 
92
65
256
413
 
0.05
0.33
12.47
0.20
Credit cards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
143
—
—
143
 
1
—
—
1
 
0.70
—
—
0.70
AQ5-AQ8
3,375
1,454
—
4,829
 
58
137
—
195
 
1.72
9.42
—
4.04
AQ9 
8
47
—
55
 
1
11
—
12
 
12.50
23.40
—
21.82
AQ10 
—
—
123
123
 
—
—
85
85
 
—
—
69.11
69.11
 
3,526
1,501
123
5,150
 
60
148
85
293
 
1.70
9.86
69.11
5.69
Other personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
966
118
—
1,084
 
12
17
—
29
 
1.24
14.41
—
2.68
AQ5-AQ8
6,090
1,564
—
7,654
 
125
185
—
310
 
2.05
11.83
—
4.05
AQ9 
41
133
—
174
 
4
40
—
44
 
9.76
30.08
—
25.29
AQ10 
—
—
913
913
 
—
—
745
745
 
—
—
81.60
81.60
 
7,097
1,815
913
9,825
 
141
242
745
1,128
 
1.99
13.33
81.60
11.48
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
117,831
8,963
—
126,794
 
67
41
—
108
 
0.06
0.46
—
0.09
AQ5-AQ8
79,577
13,132
—
92,709
 
221
359
—
580
 
0.28
2.73
—
0.63
AQ9 
198
874
—
1,072
 
5
55
—
60
 
2.53
6.29
—
5.60
AQ10 
—
—
3,089
3,089
 
—
—
1,086
1,086
 
—
—
35.16
35.16
 
197,606
22,969
3,089
223,664
 
293
455
1,086
1,834
 
0.15
1.98
35.16
0.82
 
 
Risk and capital management
Credit risk – Banking activities continued
Asset quality (reviewed)
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
31 December 2022
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
UK mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
116,559
9,208
—
125,767
 
45
24
—
69
 
0.04
0.26
—
0.05
AQ5-AQ8
65,510
8,962
—
74,472
 
36
34
—
70
 
0.05
0.38
—
0.09
AQ9 
176
617
—
793
 
—
4
—
4
 
—
0.65
—
0.50
AQ10 
—
—
1,925
1,925
 
—
—
233
233
 
—
—
12.10
12.10
 
182,245
18,787
1,925
202,957
 
81
62
233
376
 
0.04
0.33
12.10
0.19
Credit cards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
98
—
—
98
 
—
—
—
—
 
—
—
—
—
AQ5-AQ8
3,172
1,036
—
4,208
 
61
112
—
173
 
1.92
10.81
—
4.11
AQ9 
5
40
—
45
 
1
10
—
11
 
20.00
25.00
—
24.44
AQ10 
—
—
109
109
 
—
—
73
73
 
—
—
66.97
66.97
 
3,275
1,076
109
4,460
 
62
122
73
257
 
1.89
11.34
66.97
5.76
Other personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
1,047
128
—
1,175
 
11
17
—
28
 
1.05
13.28
—
2.38
AQ5-AQ8
5,843
1,732
—
7,575
 
104
224
—
328
 
1.78
12.93
—
4.33
AQ9 
28
131
—
159
 
2
41
—
43
 
7.14
31.30
—
27.04
AQ10 
—
—
797
797
 
—
—
651
651
 
—
—
81.68
81.68
 
6,918
1,991
797
9,706
 
117
282
651
1,050
 
1.69
14.16
81.68
10.82
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
117,704
9,336
—
127,040
 
56
41
—
97
 
0.05
0.44
—
0.08
AQ5-AQ8
74,525
11,730
—
86,255
 
201
370
—
571
 
0.27
3.15
—
0.66
AQ9 
209
788
—
997
 
3
55
—
58
 
1.44
6.98
—
5.82
AQ10 
—
—
2,831
2,831
 
—
—
957
957
 
—
—
33.80
33.80
 
192,438
21,854
2,831
217,123
 
260
466
957
1,683
 
0.14
2.13
33.80
0.78
 
 - 
In the Personal portfolio, the majority of exposures were in AQ4 and AQ5 within mortgages. The higher proportion of UK mortgage loans in bands AQ5-AQ8 was reflected in the overall average Basel PD for mortgages marginally increasing from 0.65% to 0.66%. AQ band distributions for unsecured lending remained stable.
 - 
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.
 
 
 
 
 
 
Risk and capital management
Credit risk – Banking activities continued
Asset quality (reviewed)
The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.
 
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 2023
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
Property
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
14,402
655
—
15,057
 
13
6
—
19
 
0.09
0.92
—
0.13
AQ5-AQ8
13,770
3,223
—
16,993
 
86
100
—
186
 
0.62
3.10
—
1.09
AQ9 
11
112
—
123
 
—
9
—
9
 
—
8.04
—
7.32
AQ10 
—
—
752
752
 
—
—
231
231
 
—
—
30.72
30.72
 
28,183
3,990
752
32,925
 
99
115
231
445
 
0.35
2.88
30.72
1.35
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
20,919
2,963
—
23,882
 
26
24
—
50
 
0.12
0.81
—
0.21
AQ5-AQ8
35,818
12,450
—
48,268
 
194
368
—
562
 
0.54
2.96
—
1.16
AQ9 
33
247
—
280
 
—
18
—
18
 
—
7.29
—
6.43
AQ10 
—
—
1,545
1,545
 
—
—
570
570
 
—
—
36.89
36.89
 
56,770
15,660
1,545
73,975
 
220
410
570
1,200
 
0.39
2.62
36.89
1.62
Financial institutions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
45,714
332
—
46,046
 
23
1
—
24
 
0.05
0.30
—
0.05
AQ5-AQ8
2,746
353
—
3,099
 
13
9
—
22
 
0.47
2.55
—
0.71
AQ9 
8
10
—
18
 
—
—
—
—
 
—
—
—
—
AQ10 
—
—
36
36
 
—
—
14
14
 
—
—
38.89
38.89
 
48,468
695
36
49,199
 
36
10
14
60
 
0.07
1.44
38.89
0.12
Sovereign
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
5,115
123
—
5,238
 
13
1
—
14
 
0.25
0.81
—
0.27
AQ5-AQ8
220
3
—
223
 
—
—
—
—
 
—
—
—
—
AQ 9
—
—
—
—
 
—
—
—
—
 
—
—
—
—
AQ10 
—
—
28
28
 
—
—
4
4
 
—
—
14.29
14.29
 
5,335
126
28
5,489
 
13
1
4
18
 
0.24
0.79
14.29
0.33
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
86,150
4,073
—
90,223
 
75
32
—
107
 
0.09
0.79
—
0.12
AQ5-AQ8
52,554
16,029
—
68,583
 
293
477
—
770
 
0.56
2.98
—
1.12
AQ9 
52
369
—
421
 
—
27
—
27
 
—
7.32
—
6.41
AQ10 
—
—
2,361
2,361
 
—
—
819
819
 
—
—
34.69
34.69
 
138,756
20,471
2,361
161,588
 
368
536
819
1,723
 
0.27
2.62
34.69
1.07
 
 

 
Risk and capital management
Credit risk – Banking activities continued
Asset quality (reviewed)
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
31 December 2022
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
Property
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
14,818
600
—
15,418
 
17
4
—
21
 
0.11
0.67
—
0.14
AQ5-AQ8
12,712
3,618
—
16,330
 
90
95
—
185
 
0.71
2.63
—
1.13
AQ9 
12
98
—
110
 
—
6
—
6
 
—
6.12
—
5.45
AQ10 
—
—
716
716
 
—
—
229
229
 
—
—
31.98
31.98
 
27,542
4,316
716
32,574
 
107
105
229
441
 
0.39
2.43
31.98
1.35
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
17,447
5,184
—
22,631
 
23
37
—
60
 
0.13
0.71
—
0.27
AQ5-AQ8
35,567
13,643
—
49,210
 
195
398
—
593
 
0.55
2.92
—
1.21
AQ9 
34
326
—
360
 
—
22
—
22
 
—
6.75
—
6.11
AQ10 
—
—
1,476
1,476
 
—
—
553
553
 
—
—
37.47
37.47
 
53,048
19,153
1,476
73,677
 
218
457
553
1,228
 
0.41
2.39
37.47
1.67
Financial institutions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
44,257
914
—
45,171
 
18
5
—
23
 
0.04
0.55
—
0.05
AQ5-AQ8
2,479
429
—
2,908
 
14
9
—
23
 
0.56
2.10
—
0.79
AQ9 
2
10
—
12
 
—
—
—
—
 
—
—
—
—
AQ10 
—
—
47
47
 
—
—
17
17
 
—
—
36.17
36.17
 
46,738
1,353
47
48,138
 
32
14
17
63
 
0.07
1.03
36.17
0.13
Sovereign
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
5,319
75
—
5,394
 
15
1
—
16
 
0.28
1.33
—
0.30
AQ5-AQ8
139
82
—
221
 
—
—
—
—
 
—
—
—
—
AQ9 
—
—
—
—
 
—
—
—
—
 
—
—
—
—
AQ10 
—
—
26
26
 
—
—
3
3
 
—
—
11.54
11.54
 
5,458
157
26
5,641
 
15
1
3
19
 
0.27
0.64
11.54
0.34
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
81,841
6,773
—
88,614
 
73
47
—
120
 
0.09
0.69
—
0.14
AQ5-AQ8
50,897
17,772
—
68,669
 
299
502
—
801
 
0.59
2.82
—
1.17
AQ9 
48
434
—
482
 
—
28
—
28
 
—
6.45
—
5.81
AQ10 
—
—
2,265
2,265
 
—
—
802
802
 
—
—
35.41
35.41
 
132,786
24,979
2,265
160,030
 
372
577
802
1,751
 
0.28
2.31
35.41
1.09
 
- Across the Wholesale portfolio, asset quality remained stable. The majority of the portfolio is within the AQ1-AQ4, and AQ5-AQ8 bands. Distribution differs across segments reflective of the underlying quality of counterparties, with financial institutions and sovereigns mostly in the AQ1-AQ4 bands, and property and corporates mostly in the AQ5-AQ8 bands.
- Customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was performed or a material credit event specific to that customer occurred. Credit grades are reassessed for all customers at least annually.
- ECL provisions coverage showed the expected trend, with increased coverage in the weaker asset quality bands within Stage 2 compared to Stage 1, and again within Stage 3 compared to Stage 2.
 
 
 
Risk and capital management
Credit risk – Trading activities
This section details the credit risk profile of NatWest Group’s trading activities.
Securities financing transactions and collateral (reviewed)
The table below shows securities financing transactions in Commercial & Institutional and Central items & Other. Balance sheet captions include balances held at all classifications under IFRS. 
 
Reverse repos
 
Repos
 
 
Of which:
Outside
 
 
Of which:
Outside
 
 
can be
netting
 
 
can be
netting
 
Total
offset
arrangements
 
Total
offset
arrangements
30 June 2023
£m
£m
£m
 
£m
£m
£m
Gross
76,144
75,855
289
 
72,458
71,945
513
IFRS offset
(33,097)
(33,097)
—
 
(33,097)
(33,097)
—
Carrying value
43,047
42,758
289
 
39,361
38,848
513
 
 
 
 
 
 
 
 
Master netting arrangements
(2,045)
(2,045)
—
 
(2,045)
(2,045)
—
Securities collateral
(39,091)
(39,091)
—
 
(36,803)
(36,803)
—
Potential for offset not recognised under IFRS
(41,136)
(41,136)
—
 
(38,848)
(38,848)
—
Net
1,911
1,622
289
 
513
—
513
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
Gross
61,775
61,241
534
 
55,226
50,743
4,483
IFRS offset
(20,211)
(20,211)
—
 
(20,211)
(20,211)
—
Carrying value
41,564
41,030
534
 
35,015
30,532
4,483
 
 
 
 
 
 
 
 
Master netting arrangements
(2,445)
(2,445)
—
 
(2,445)
(2,445)
—
Securities collateral
(38,387)
(38,387)
—
 
(28,087)
(28,087)
—
Potential for offset not recognised under IFRS
(40,832)
(40,832)
—
 
(30,532)
(30,532)
—
Net
732
198
534
 
4,483
—
4,483
 
 Risk and capital management
Credit risk – Trading activities continued
Derivatives (reviewed)
The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS. A significant proportion of the derivatives relate to trading activities in Commercial & Institutional. The table also includes hedging derivatives in Central items & Other.
 
 
30 June 2023
 
31 December 2022
 
Notional
 
 
 
 
 
 
 
 
GBP
USD
EUR
Other
Total
Assets
Liabilities
 
Notional
Assets
Liabilities
 
£bn
£bn
£bn
£bn
£bn
£m
£m
 
£bn
£m
£m
Gross exposure
 
 
 
 
 
104,122
102,983
 
 
118,275
116,158
IFRS offset
 
 
 
 
 
(22,249)
(25,737)
 
 
(18,730)
(22,111)
Carrying value
3,194
3,728
5,773
1,121
13,816
81,873
77,246
 
13,925
99,545
94,047
Of which:
 
 
 
 
 
 
 
 
 
 
 
Interest rate (1)
2,900
2,373
5,277
261
10,811
50,730
46,895
 
10,742
53,480
48,535
Exchange rate
292
1,352
488
860
2,992
30,938
30,106
 
3,168
45,829
45,237
Credit
2
3
8
—
13
205
245
 
15
236
275
Carrying value
 
 
 
 
13,816
81,873
77,246
 
13,925
99,545
94,047
 
 
 
 
 
 
 
 
 
 
 
 
Counterparty mark-to-market netting
 
 
 
 
 
(62,547)
(62,547)
 
 
(77,365)
(77,365)
Cash collateral
 
 
 
 
 
(12,380)
(7,580)
 
 
(14,079)
(9,761)
Securities collateral
 
 
 
 
 
(4,465)
(1,540)
 
 
(4,571)
(1,185)
Net exposure
 
 
 
 
 
2,481
5,579
 
 
3,530
5,736
 
 
 
 
 
 
 
 
 
 
 
 
Banks (2)
 
 
 
 
 
263
806
 
 
648
711
Other financial institutions (3)
 
 
 
 
 
1,252
1,899
 
 
1,732
1,969
Corporate (4)
 
 
 
 
 
910
2,840
 
 
1,068
2,969
Government (5)
 
 
 
 
 
56
34
 
 
82
87
Net exposure
 
 
 
 
 
2,481
5,579
 
 
3,530
5,736
 
 
 
 
 
 
 
 
 
 
 
 
UK
 
 
 
 
 
1,111
3,150
 
 
1,271
2,878
Europe
 
 
 
 
 
672
1,690
 
 
1,196
2,015
US
 
 
 
 
 
592
546
 
 
753
626
RoW
 
 
 
 
 
106
193
 
 
310
217
Net exposure
 
 
 
 
 
2,481
5,579
 
 
3,530
5,736
 
 
 
 
 
 
 
 
 
 
 
 
Asset quality of uncollateralised
 
 
 
 
 
 
 
 
 
 
 
  derivative assets
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
 
 
 
 
 
2,056
 
 
 
3,014
 
AQ5-AQ8
 
 
 
 
 
422
 
 
 
500
 
AQ9-AQ10
 
 
 
 
 
3
 
 
 
16
 
Net exposure
 
 
 
 
 
2,481
 
 
 
3,530
 
 
(1) The notional amount of interest rate derivatives included £8,006 billion (31 December 2022 – £8,065 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 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 (reviewed)
The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor’s, Moody’s and Fitch.
 
 
Central and local government
Financial
 
 
 
UK
US
Other
institutions
Corporate
Total
30 June 2023
£m
£m
£m
£m
£m
£m
AAA
—
—
1,452
936
—
2,388
AA to AA+
—
5,478
1,596
1,290
3
8,367
A to AA-
2,703
—
382
511
102
3,698
BBB- to A-
—
—
1,415
227
645
2,287
Non-investment grade
—
—
—
58
61
119
Unrated
—
—
—
1
—
1
Total
2,703
5,478
4,845
3,023
811
16,860
 
 
 
 
 
 
 
Short positions
(2,377)
(2,493)
(4,293)
(1,911)
(137)
(11,211)
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
AAA
—
—
469
766
3
1,238
AA to AA+
—
2,345
1,042
1,114
21
4,522
A to AA-
2,205
—
372
77
29
2,683
BBB- to A-
—
—
916
149
296
1,361
Non-investment grade
—
—
—
65
49
114
Unrated
—
—
—
1
3
4
Total
2,205
2,345
2,799
2,172
401
9,922
 
 
 
 
 
 
 
Short positions
(2,313)
(1,293)
(3,936)
(1,875)
(107)
(9,524)
 
 

 
Risk and capital management
Capital, liquidity and funding risk
Introduction
NatWest Group takes a comprehensive approach 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.
 
Key developments since 31 December 2022
CET1 ratio
The CET1 ratio decreased by 70 basis points to 13.5%. The decrease in CET1 ratio was due to a £1.0 billion decrease in CET1 capital and a £1.4 billion increase in RWAs.
The CET1 decrease is mainly driven by:
   the directed buyback of £1.3 billion;
   a foreseeable ordinary dividend accrual of £0.8 billion;
   a foreseeable charge for the on-market ordinary share buyback programme of £0.5 billion;
   a £0.1 billion decrease in the IFRS 9 transitional adjustment, primarily due to the annual update in the dynamic stage transition percentage and the end of transition on the static and historic stages;
   an increase in the intangible assets deduction of £0.3 billion; and
   other movements on reserves and regulatory adjustments of £0.3 billion.
These reductions were partially offset by the £2.3 billion attributable profit in the period.
MREL
MREL ratio as a percentage of risk-weighted assets decreased to 31.2% from 31.5% due to a £1.4 billion increase in RWAs and £0.2 billion decrease in MREL resources. The ratio remains well above the minimum of 22%, calculated as 2 x (Pillar 1 + Pillar 2A).
 
 
In the first half of 2023 there were new issues of $3.3 billion and €1.5 billion senior unsecured debt and €0.7 billion Tier 2 instruments. These were partially offset by redemptions of $2.6 billion senior unsecured debt and £0.2 billion Tier 2 instruments.
 
Total RWAs
Total RWAs increased by £1.4 billion to £177.5 billion during H1 2023 reflecting:
   an increase in operational risk RWAs of £1.1 billion following the annual recalculation.
   an increase in counterparty credit risk RWAs of £1.0 billion, primarily due to the removal of credit risk mitigation for a particular trade in Q2 2023.
   an increase in credit risk RWAs of £0.7 billion, primarily due to increased exposures within Retail Banking and Commercial & Institutional, in addition to model adjustments applied as a result of new regulations applied to IRB models. This was partially offset by reduced exposures within Ulster Bank RoI as a result of the phased withdrawal from the Irish market.
   a reduction in market risk RWAs of £1.3 billion, primarily due to lower volatility than in Q4 2022, and further reductions in the capital multiplier for NWM Plc in Q2, driven by a fall in the VaR back-testing exception count.
UK leverage ratio
The leverage ratio decreased by 40 basis points to 5.0%. The decrease was due to a £1.0 billion decrease in Tier 1 capital and an £18.0 billion increase in leverage exposure. The key driver of the increase in leverage exposure was an increase in other financial assets, central bank exposures and other off balance sheet items.
 
Liquidity portfolio
The liquidity portfolio increased by £1.4 billion to £226.9 billion. Primary liquidity decreased by £14.1 billion to £147.5 billion, driven by a reduction in customer deposits, increased lending and capital distributions, partially
offset by increase in wholesale funding. Secondary liquidity increased £15.5 billion due to an increase in pre-positioned collateral at the Bank of England.  
 
 

 
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 (including AT1 coupons), 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 NatWest Group’s minimum requirements and its MDA threshold requirements.
 
Type
CET1
Total Tier 1
Total capital
Pillar 1 requirements
4.5%
6.0%
8.0%
Pillar 2A requirements
1.7%
2.3%
3.0%
Minimum Capital Requirements
6.2%
8.3%
11.0%
Capital conservation buffer
2.5%
2.5%
2.5%
Countercyclical capital buffer (1,2) 
0.9%
0.9%
0.9%
MDA threshold (3)
9.6%
 
n/a
 
n/a
Overall capital requirement
9.6%
11.7%
14.4%
Capital ratios at 30 June 2023
13.5%
15.7%
18.8%
Headroom (4)
3.9%
4.0%
4.4%
 
(1) The Financial Policy Committee announced an increase in the UK CCyB rate from 1% to 2% effective from 5 July 2023.
(2) The Central Bank of Ireland (CBI) announced the CCyB on Irish exposures will increase from 0.5% to 1.0% from 24 November 2023. A further increase to 1.5% will be effective June 2024.
(3) Pillar 2A requirements for NatWest Group are set as a variable amount with the exception of some fixed add-ons.
(4) The headroom does not reflect excess distributable capital and may vary over time.
 
Leverage ratios
The table below summarises the minimum ratios of capital to leverage exposure under the binding PRA UK leverage framework applicable for NatWest Group.
Type
CET1
Total Tier 1
Minimum ratio
2.44%
3.25%
Countercyclical leverage ratio buffer (1)
0.3%
0.3%
Total
2.74%
3.55%
 
(1)The countercyclical leverage ratio buffer is set at 35% of NatWest Group’s CCyB. As noted above the UK CCyB will increase from 1% to 2% from 5 July 2023. Foreign exposure may be subject to different CCyB rates depending on the rates set in those jurisdictions.
 
 
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. NatWest Group is subject to the requirements set out in the UK CRR therefore the capital and leverage ratios are presented under these frameworks on a transitional basis.
 
30 June
31 December
 
2023
2022
Capital adequacy ratios (1)
%
%
CET1
13.5
14.2
Tier 1
15.7
16.4
Total
18.8
19.3
 
 
 
Capital
£m
£m
Tangible equity
23,415
25,482
 
 
 
Prudential valuation adjustment
(271)
(275)
Deferred tax assets
(742)
(912)
Own credit adjustments
(49)
(58)
Pension fund assets
(243)
(227)
Cash flow hedging reserve
3,344
2,771
Foreseeable ordinary dividends
(780)
(967)
Adjustment for trust assets (2)
(365)
(365)
Foreseeable charges - on-market ordinary share buyback programme
(500)
(800)
Adjustments under IFRS 9 transitional arrangements
223
361
Insufficient coverage for non-performing exposures
(19)
(18)
Total regulatory adjustments
598
(490)
 
 
 
CET1 capital
24,013
24,992
 
 
 
Additional AT1 capital
3,875
3,875
Tier 1 capital
27,888
28,867
 
 
 
End-point Tier 2 capital
5,364
4,978
Grandfathered instrument transitional arrangements
73
75
Tier 2 capital
5,437
5,053
Total regulatory capital
33,325
33,920
 
 
 
Risk-weighted assets
 
 
Credit risk
142,704
141,963
Counterparty credit risk
7,680
6,723
Market risk
6,962
8,300
Operational risk
20,198
19,115
Total RWAs
177,544
176,101
 
(1) Includes the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. The impact of the IFRS 9 transitional adjustments at 30 June 2023 was £0.2 billion for CET1 capital, £35 million for total capital and £37 million RWAs (31 December 2022 - £0.4 billion CET1 capital, £36 million total capital and £71 million RWAs). Excluding these adjustments, the CET1 ratio would be 13.4% (31 December 2022 14.0%). The transitional relief on grandfathered instruments at 30 June 2023 was £0.1 billion (31 December 2022 - £0.1 billion). Excluding both the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1 capital ratio would be 15.6% (31 December 2022 – 16.2%) and the end-point Total capital ratio would be 18.8% (31 December 2022 – 19.2%).
(2) Prudent deduction in respect of agreement with the pension fund to establish new legal structure.
 
 
 
 
Risk and capital management
Capital, liquidity and funding risk continued
Capital and leverage ratios continued
 
30 June
31 December
 
2023
2022
Leverage
£m
£m
Cash and balances at central banks
123,022
144,832
Trading assets
48,893
45,577
Derivatives
81,873
99,545
Financial assets
416,739
404,374
Other assets
27,499
18,864
Assets of disposal groups
4,575
6,861
Total assets
702,601
720,053
Derivatives
 
 
   - netting and variation margin
(82,798)
(100,356)
   - potential future exposures
16,654
18,327
Securities financing transactions gross up
2,013
4,147
Other off balance sheet items
48,668
46,144
Regulatory deductions and other adjustments
(15,663)
(7,114)
Claims on central banks
(114,253)
(141,144)
Exclusion of bounce back loans
(4,627)
(5,444)
UK leverage exposure 
552,595
534,613
UK leverage ratio (%) (1)
5.0
5.4
 
(1) Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.0% (31 December 2022 – 5.3%).
 
 
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2023. It is presented on a transitional basis based on current PRA rules.
 
CET1
AT1
Tier 2
Total
 
£m
£m
£m
£m
At 31 December 2022
24,992
3,875
5,053
33,920
Attributable profit for the period
2,299
—
—
2,299
Directed buyback
(1,259)
—
—
(1,259)
Foreseeable ordinary dividends 
(780)
—
—
(780)
Foreseeable charges - on-market share buyback 
(500)
—
—
(500)
Foreign exchange reserve
(492)
—
—
(492)
FVOCI reserve
60
—
—
60
Own credit
9
—
—
9
Share capital and reserve movements in respect of employee share
 
 
 
 
   schemes
62
—
—
62
Goodwill and intangibles deduction
(337)
—
—
(337)
Deferred tax assets
170
—
—
170
Prudential valuation adjustments
4
—
—
4
Net dated subordinated debt instruments
—
—
348
348
Foreign exchange movements
—
—
(121)
(121)
Adjustment under IFRS 9 transitional arrangements
(138)
—
—
(138)
Other movements
(77)
—
157
80
At 30 June 2023
24,013
3,875
5,437
33,325
 
● 
The CET1 decrease is mainly driven by the directed buyback of £1.3 billion, a foreseeable ordinary dividend accrual of £0.8 billion, a foreseeable charge for additional on-market ordinary share buyback programme of £0.5 billion, a £0.1 billion decrease in the IFRS 9 transitional adjustment, an increase in the intangible assets deduction of £0.3 billion and other movements in reserves and regulatory adjustments of £0.3 billion, partially offset by an attributable profit in the period of £2.3 billion.
● 
The Tier 2 movements include €700 million 5.763% Fixed to Fixed Reset Tier 2 Notes 2034 issued in February 2023, the derecognition of the £0.2 billion in respect of the cash tender offer for the outstanding 5.125% Subordinated Tier 2 Notes 2024 announced in March 2023 and maturity of Subordinated Notes with minimum regulatory value. Within Tier 2, there was also a £0.2 billion increase in the Tier 2 surplus provisions.
 

 
Risk and capital management
Capital, liquidity and funding risk continued
Capital resources (reviewed)
NatWest Group’s regulatory capital is assessed against minimum requirements that are set out under the UK CRR to determine the strength of its capital base. This note shows a reconciliation of shareholders’ equity to regulatory capital.
 
30 June
31 December
 
2023
2022
 
£m
£m
Shareholders' equity (excluding non-controlling interests)
 
 
Shareholders' equity
 34,758
 36,488
Preference shares - equity
—
—
Other equity instruments
(3,890)
(3,890)
 
 30,868
 32,598
Regulatory adjustments and deductions
 
 
Own credit
(49)
(58)
Defined benefit pension fund adjustment
(243)
(227)
Cash flow hedging reserve 
 3,344
 2,771
Deferred tax assets
(742)
(912)
Prudential valuation adjustments
(271)
(275)
Goodwill and other intangible assets
(7,453)
(7,116)
Foreseeable ordinary dividends
(780)
(967)
Adjustment for trust assets (1)
(365)
(365)
Foreseeable charges - on-market share buyback programme
(500)
(800)
Adjustment under IFRS 9 transitional arrangements 
 223
 361
Insufficient coverage for non-performing exposures
(19)
(18)
 
(6,855)
(7,606)
 
 
 
CET1 capital
 24,013
 24,992
Additional Tier (AT1) capital
 
 
Qualifying instruments and related share premium
 3,875
 3,875
Qualifying instruments and related share premium subject to phase out
—
—
AT1 capital
 3,875
 3,875
Tier 1 capital
 27,888
 28,867
Qualifying Tier 2 capital
 
 
Qualifying instruments and related share premium
 5,189
 4,953
Qualifying instruments issued by subsidiaries and held by third parties
 73
 82
Other regulatory adjustments
 175
 18
Tier 2 capital
 5,437
 5,053
Total regulatory capital
 33,325
 33,920
 
(1) Prudent deduction in respect of agreement with the pension fund to establish new legal structure.
 
 

Risk and capital management
Capital, liquidity and funding risk continued
Minimum requirements of own funds and eligible liabilities (MREL)
The following table illustrates the components of estimated Minimum requirements of own funds and eligible liabilities (MREL) in NatWest Group and operating subsidiaries and includes external issuances only.
 
30 June 2023
 
31 December 2022
 
 
Balance
 
 
 
 
Balance
 
 
 
Par
sheet
Regulatory
MREL
 
Par
sheet
Regulatory
MREL
 
 value (1)
value
value (2,5)
value (3)
 
value 
value
value
value
 
£bn
£bn
£bn
£bn
 
£bn
£bn
£bn
£bn
CET1 capital (4)
24.0
24.0
24.0
24.0
 
25.0
25.0
25.0
25.0
 
 
 
 
 
 
 
 
 
 
Tier 1 capital:
 
 
 
 
 
 
 
 
 
   end-point CRR compliant AT1
 
 
 
 
 
 
 
 
 
   of which: NatWest Group plc (holdco)
3.9
3.9
3.9
3.9
 
3.9
3.9
3.9
3.9
   of which: NatWest Group plc operating 
 
 
 
 
 
 
 
 
 
      subsidiaries (opcos)
—
—
—
—
 
—
—
—
—
 
3.9
3.9
3.9
3.9
 
3.9
3.9
3.9
3.9
 
 
 
 
 
 
 
 
 
 
Tier 1 capital:
 
 
 
 
 
 
 
 
 
   end-point CRR non-compliant (6)
 
 
 
 
 
 
 
 
 
   of which: holdco
—
—
—
—
 
—
—
—
—
   of which: opcos
0.1
0.1
—
—
 
0.1
0.1
—
—
 
0.1
0.1
—
—
 
0.1
0.1
—
—
 
 
 
 
 
 
 
 
 
 
Tier 2 capital: end-point CRR 
 
 
 
 
 
 
 
 
 
   compliant
 
 
 
 
 
 
 
 
 
   of which: holdco
5.7
5.2
5.1
5.1
 
6.0
5.5
4.9
5.4
   of which: opcos
—
—
—
—
 
0.1
0.1
—
—
 
5.7
5.2
5.1
5.1
 
6.1
5.6
4.9
5.4
 
 
 
 
 
 
 
 
 
 
Tier 2 capital:
 
 
 
 
 
 
 
 
 
   end-point CRR non-compliant (6)
 
 
 
 
 
 
 
 
 
   of which: holdco
0.4
0.4
—
—
 
—
—
—
—
   of which: opcos
0.2
0.3
0.1
—
 
0.3
0.5
0.1
—
 
0.6
0.7
0.1
—
 
0.3
0.5
0.1
—
 
 
 
 
 
 
 
 
 
 
Senior unsecured debt securities 
 
 
 
 
 
 
 
 
 
   of which: holdco
23.0
21.8
—
22.1
 
23.4
22.3
—
21.2
   of which: opcos
34.0
30.7
—
—
 
26.1
22.9
—
—
 
57.0
52.5
—
22.1
 
49.5
45.2
—
21.2
 
 
 
 
 
 
 
 
 
 
Tier 2 capital
 
 
 
 
 
 
 
 
 
   Other regulatory adjustments
—
—
0.2
0.2
 
—
—
—
—
 
—
—
0.2
0.2
 
—
—
—
—
 
 
 
 
 
 
 
 
 
 
Total
91.3
86.4
33.3
55.3
 
84.9
80.3
33.9
55.5
 
 
 
 
 
 
 
 
 
 
RWAs
 
 
 
177.5
 
 
 
 
176.1
UK leverage exposure
 
 
 
552.6
 
 
 
 
534.6
 
 
 
 
 
 
 
 
 
 
MREL as a ratio of RWAs
 
 
 
31.2%
 
 
 
 
31.5%
MREL as a ratio of UK leverage exposure
 
 
 
10.0%
 
 
 
 
10.4%
 
(1) 
Par value reflects the nominal value of securities issued.
(2) 
Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments incudes grandfathered instruments as per the transitional provisions allowed under CRR2 (until 28 June 2025).
(3) 
MREL 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 December 2021 (Updating June 2018). Liabilities excluded from MREL 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 MREL calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.
(4) 
Corresponding shareholders’ equity was £34.8 billion (31 December 2022 - £36.5 billion).
(5) 
Regulatory amount includes grandfathered instrument from operating companies as per the transitional provisions allowed under CRR2 (until 28 June 2025). On 30 June 2023, only 3 Tier 2 instruments from UBIDAC were classified as grandfathered.
(6) 
CRR2 non-compliant instruments - From January 2022, All Tier 1 and Tier 2 instruments that were grandfathered under CRR2 compliance (until 28 June 2025) are reported under "Tier 1 capital: end-point CRR non-compliant" and "Tier 2 capital: end-point CRR non-compliant" category.
 

 
Risk and capital management
Capital, liquidity and funding risk continued
Minimum requirements of own funds and eligible liabilities (MREL)
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
Additional Tier 1
Externally issued
3.9
—
0.1
—
—
—
—
—
—
Additional Tier 1
Internally issued
—
3.7
2.5
1.0
—
0.9
0.2
—
0.3
 
 
3.9
3.7
2.6
1.0
—
0.9
0.2
—
0.3
Tier 2
Externally issued
5.6
—
—
—
0.1
—
0.2
—
—
Tier 2
Internally issued
—
5.1
3.4
1.4
—
1.0
0.1
0.3
—
 
 
5.6
5.1
3.4
1.4
0.1
1.0
0.3
0.3
—
Senior unsecured
Externally issued
21.8
—
—
—
—
—
—
—
—
Senior unsecured
Internally issued
—
10.2
6.3
1.4
0.5
3.0
—
—
0.3
 
 
21.8
10.2
6.3
1.4
0.5
3.0
—
—
0.3
Total outstanding issuance
31.3
19.0
12.3
3.8
0.6
4.9
0.5
0.3
0.6
 
(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, while 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) The above table 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 31 December 2022
142.0
6.7
8.3
19.1
176.1
Foreign exchange movement
(1.0)
(0.1)
—
—
(1.1)
Business movement
3.7
0.2
(1.3)
1.1
3.7
Risk parameter changes
(2.2)
—
—
—
(2.2)
Methodology changes
0.5
—
—
—
0.5
Model updates
0.6
—
—
—
0.6
Other changes
—
0.9
—
—
0.9
Acquisitions and disposals 
(1.0)
—
—
—
(1.0)
At 30 June 2023
142.6
7.7
7.0
20.2
177.5
 
The table below analyses segmental RWAs.
 
 
 
 
 
Total 
 
Retail
Private
Commercial &
Central items 
NatWest
 
Banking
Banking
Institutional 
& other (1)
Group
Total RWAs
£bn
£bn
£bn
£bn
£bn
At 31 December 2022
54.7
11.2
103.2
7.0
176.1
Foreign exchange movement
—
—
(1.0)
(0.1)
(1.1)
Business movement
2.1
0.3
2.1
(0.8)
3.7
Risk parameter changes 
(0.3)
—
(1.9)
—
(2.2)
Methodology changes
0.2
—
0.3
—
0.5
Model updates
0.6
—
—
—
0.6
Other changes
—
—
0.9
—
0.9
Acquisitions and disposals
—
—
—
(1.0)
(1.0)
At 30 June 2023
               57.3 
11.5
103.6
5.1
177.5
 
 
 
 
 
 
Credit risk
49.7
10.1
78.5
4.3
142.6
Counterparty credit risk
0.2
—
7.5
—
7.7
Market risk
0.2
—
6.8
—
7.0
Operational risk
7.2
1.4
10.8
0.8
20.2
Total RWAs
57.3
11.5
103.6
5.1
177.5
 
 
(1)
£3.5 billion of Central items & other relates to Ulster Bank RoI.
 
 
Total RWAs increased by £1.4 billion to £177.5 billion during the period mainly reflecting:
 
  -
Business movements totalling £3.7 billion, driven by increased credit risk exposures within Retail Banking and Commercial & Institutional and the impact of the operational risk recalculation.
  -
An increase in other changes of £0.9 billion, driven by the early termination of portfolio credit default swap resulting in a decrease to the CRM benefit.
  -
Model update increase of £0.6 billion, driven by model adjustments as a result of new regulations applied to IRB models within Retail Banking.
 
Methodology changes totalling £0.5 billion, driven by revised LGD approach for non UK covered bonds.
  -
A decrease in risk parameters of £2.2 billion, primarily reflecting improved risk metrics within Commercial & Institutional in addition to changes in regulatory treatment for certain structured transactions.
  -
Disposals relating to the phased withdrawal from the Republic of Ireland, reducing RWAs by £1.0 billion.
 
 
 
 
Risk and capital management
Capital, liquidity and funding risk continued
Funding sources (reviewed)
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 2023
 
31 December 2022
 
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
2,231
— 
2,231
 
1,446
— 
1,446
   Other bank deposits (1)
6,181
13,309
19,490
 
6,353
12,642
18,995
 
8,412
13,309
21,721
 
7,799
12,642
20,441
Customer deposits
 
 
 
 
 
 
 
   Repos
9,083
239
9,322
 
9,575
254
9,829
   Non-bank financial institutions
50,733
59
50,792
 
50,226
9
50,235
   Personal
212,486
4,111
216,597
 
224,706
1,209
225,915
   Corporate
155,735
86
155,821
 
164,314
25
164,339
 
428,037
4,495
432,532
 
448,821
1,497
450,318
Trading liabilities (2)
 
 
 
 
 
 
 
   Repos (3)
27,554
254
27,808
 
23,740
— 
23,740
   Derivative collateral
15,234
— 
15,234
 
17,680
— 
17,680
   Other bank customer deposits
775
440
1,215
 
413
654
1,067
   Debt securities in issue - Medium term notes
353
361
714
 
54
743
797
 
43,916
1,055
44,971
 
41,887
1,397
43,284
Other financial liabilities
 
 
 
 
 
 
 
   Customer deposits
144
940
1,084
 
253
797
1,050
   Debt securities in issue:
 
 
 
 
 
 
 
      Commercial paper and certificates of deposit
13,195
141
13,336
 
5,587
85
5,672
      Medium term notes
5,170
33,258
38,428
 
6,934
31,750
38,684
      Covered bonds
2,043
— 
2,043
 
804
2,038
2,842
      Securitisation (5)
— 
857
857
 
— 
859
859
 
20,552
35,196
55,748
 
13,578
35,529
49,107
Subordinated liabilities
968
5,052
6,020
 
974
5,286
6,260
Total funding
501,885
59,107
560,992
 
513,059
56,351
569,410
   Of which: available in resolution (4)
 
 
25,634
 
 
 
24,899
 
(1) 
Includes £12.0 billion (31 December 2022 – £12.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation.
(2) 
Excludes short positions of £11.2 billion (31 December 2022 - £9.5 billion).
(3) 
Comprises central & other bank repos of £2.5 billion (31 December 2022 - £1.6 billion), other financial institution repos of £22.7 billion (31 December 2022 - £19.4 billion) and other corporate repos of £2.6 billion (31 December 2022 - £2.7 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 December 2021 (updating June 2018). The balance consists of £21.0 billion (31 December 2022 - £20.0 billion) under debt securities in issue (senior MREL) and £4.6 billion (31 December 2022 - £4.9 billion) under subordinated liabilities.
(5) 
NatWest Group transfers credit risk on originated loans and mortgages without the transfer of assets to a structured entity, whereby it enters credit derivative and financial guarantee contracts with consolidated structured entities and they in turn issue debt securities to investors. This funding is legally ringfenced in the structured entity and is restricted to specifically cover investor credit protection claim payments in respect of the associated loans and mortgages.
 
 

 
Risk and capital management
Capital, liquidity and funding risk continued
Liquidity portfolio (reviewed)
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. In addition, a reconciliation has been provided between the liquidity portfolio for internal stressed outflow coverage and high quality liquid assets on a regulatory LCR basis.
 
 
Liquidity value
 
30 June 2023
 
31 December 2022
 
NatWest
NWH
UK DoL
 
NatWest
NWH
UK DoL
 
Group (1)
Group (2)
Sub
 
Group 
Group
Sub 
 
£m
£m
£m
 
£m
£m
£m
Cash and balances at central banks 
 119,612
 79,423
 78,916
 
 140,820
 106,869
 103,708
   AAA to AA- rated governments
 23,813
 15,872
 15,872
 
 18,589
 9,843
 9,843
   A+ and lower rated governments
 1,172
 187
 187
 
 317
—
—
   Government guaranteed issuers, public sector entities 
 
 
 
 
   
 
 
      and government sponsored entities
 229
 229
 208
 
 134
 120
 100
   International organisations and multilateral
 
 
 
 
 
 
 
      development banks
 2,674
 1,521
 1,437
 
 1,734
 1,112
 1,021
LCR level 1 bonds
 27,888
 17,809
 17,704
 
 20,774
 11,075
 10,964
LCR level 1 assets
 147,500
 97,232
 96,620
 
 161,594
 117,944
 114,672
LCR level 2 assets
—
—
—
 
—
—
—
Non-LCR eligible assets
—
—
—
 
—
—
—
Primary liquidity 
 147,500
 97,232
 96,620
 
 161,594
 117,944
 114,672
Secondary liquidity (3)
 79,424
 79,389
 79,388
 
 63,917
 63,849
 63,849
Total liquidity value
 226,924
 176,621
 176,008
 
 225,511
 181,793
 178,521
 
 
 
30 June 2023
 
 
 
NatWest
NWH
UK DoL
 
 
 
 
Stressed outflow coverage (SOC) to liquidity 
Group (1)
Group (2)
Sub
 
 
 
 
   coverage ratio (LCR) reconciliation*
£m
£m
£m
 
 
 
 
SOC primary liquidity (from table above)
147,500
97,232
96,620
 
 
 
 
   Level 1 assets excluded (4)
4,180
3,467
3,447
 
 
 
 
   Level 2 assets excluded (5)
3,133
2,951
2,721
 
 
 
 
   Methodology difference (6)
960
1,135
1,081
 
 
 
 
Total LCR high quality liquid assets
155,773
104,785
103,869
 
 
 
 
 
* Table not within the scope of EY’s review report.
 
(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 and NatWest Bank Europe GmbH who hold managed portfolios that comply with local regulations that may differ from PRA rules.
(3) Comprises assets eligible for discounting at the Bank of England and other central banks.
(4) LCR level 1 assets include extremely high quality covered bonds, government guaranteed bonds, and other LCR level 1 assets, which are not included as primary liquidity, but included as inflows in stressed outflow coverage.
(5) LCR level 2 assets include high quality covered bonds, asset backed securities and other level 2 assets which are not included as primary liquidity but included as inflows in stressed outflow coverage.
(6) Methodology differences include cash in tills which is classified as LCR level 1 but not included in stressed outflow coverage, JPY bonds which are classified as level 1 for stressed outflow coverage but level 2 for LCR and weighting differences between stressed outflow coverage and LCR.
(7) NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement.
 
 
 
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
 
In the UK, the base rate rose from 3.5% at 31 December 2022 to 5.0% at 30 June 2023 as inflation pressures persisted.
 
The five-year sterling swap rate increased to 5.09% at the end of June 2023 from 4.10% at the end of December 2022. The ten-year sterling swap rate also increased, to 4.36% from 3.75%.
 
The structural hedge notional decreased by £6 billion from £231 billion to £225 billion, due to lower current account and instant access savings deposits. The structural hedge yield rose over the same period to 1.38% from 1.14% as maturing hedges were replaced with new hedges at higher rates.
 
The sensitivity of net interest earnings to parallel shifts in the yield curve reduced in H1 2023. Sensitivity to an upward 25-basis-point parallel shift in all rates was £135 million at 30 June 2023 compared to £198 million at 31 December 2022. 
 
The main driver was reduced sensitivity to managed margin products. This resulted from lower managed rate savings volumes – including the impact of migration from instant access accounts to term savings accounts – and from greater pass-through of future rate rises to depositors.
 
Sterling strengthened against both the US dollar and the euro over the period. Against the dollar, sterling was 1.27 at 30 June 2023 compared to 1.21 at 31 December 2022. Against the euro, it was 1.17 at 30 June 2023 compared to 1.13 at 31 December 2022.
 
Net investments in foreign operations decreased by £1.4 billion over the period, mainly reflecting the UBIDAC wind-down. However, residual structural foreign currency exposures after hedging were broadly stable, decreasing, in sterling equivalent terms, by £0.2 billion over the period.
 
Non-traded internal VaR (1-day 99%) (reviewed)
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 2023
30 June 2022
31 December 2022
 
 
 
 
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
40.5
63.2
30.1
63.2
17.0
37.8
7.6
37.8
43.8
60.7
34.2
37.7
Credit spread
23.6
29.7
20.9
29.7
48.8
86.6
33.4
34.6
23.8
29.1
19.9
20.3
Structural foreign 
 
 
 
 
 
 
 
 
 
 
 
 
   exchange rate
11.3
13.6
8.4
12.3
8.8
10.9
5.4
7.0
9.1
11.3
7.4
11.3
Equity
16.7
19.0
13.0
13.0
18.9
22.2
13.7
18.8
17.4
19.3
14.7
14.7
Pipeline risk (1)
3.1
4.4
1.4
3.4
1.0
2.9
0.3
2.9
1.9
4.5
0.6
2.4
Diversification (2)
(35.3)
 
 
(38.1)
(33.4)
 
 
(48.1)
(40.4)
 
 
(34.9)
Total
59.9
83.5
52.1
83.5
61.1
91.2
52.3
53.0
55.6
66.3
45.5
51.5
 
(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.
 
   On an average basis, total non-traded VaR for H1 2023 was broadly similar to H1 2022 and H2 2022.
   Total non-traded VaR increased during H1 2023, driven by an increase in interest rate risk VaR. This reflects further interest rate volatility compared to H2 2022, particularly in sterling.
   Credit spread VaR was slightly higher than in H2 2022, driven by an increase in the holding of bonds in the liquidity portfolio. However, the holding of bonds in this portfolio is still considerably lower than in H1 2022.
 
 

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, current accounts and instant access savings. A proportion of these balances are hedged, either by investing directly in longer-term fixed-rate assets (usually fixed-rate mortgages) 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, 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, particularly to products such as current accounts and instant access savings. The programme aims to track a time series of medium-term swap rates, so that at any point in time the total yield may be higher or lower than the current market yield. Additionally, the closeness of the yield to average swap rates in recent years is also affected by changes in the composition of the hedge caused by changes in product volumes or equity capital resources.
 
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 allocated to equity and products in respect of the structural hedges managed by NatWest Group.
 
 
Half year ended
 
30 June 2023
 
30 June 2022
 
31 December 2022
 
 
 
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 
(246)
204
23
22
1.83
 
111
182
21
21
1.71
 
(48)
189
23
22
1.72
Product
(2,773)
1,362
202
205
1.33
 
61
662
204
188
0.70
 
(1,135)
1,118
208
206
1.08
Total
(3,019)
1,566
225
227
1.38
 
172
844
225
209
0.81
 
(1,183)
1,307
231
228
1.14
 
(1)
Incremental income represents the difference between total income (i.e. hedged income) and an unhedged return that is based on short-term cash rates. For example, the sterling overnight index average (SONIA) is used to estimate incremental income from sterling structural hedges.
(2)
The basis of preparation of the table above has changed since December 2022. UBIDAC is no longer included. In addition, the ‘Other’ category is no longer used: hedges booked in Coutts & Co. have now been allocated between product hedges and equity hedges, while hedges booked in RBS International have been allocated to product hedges.
 
Equity structural hedges refer to income allocated primarily to equity and reserves. At 30 June 2023, the equity structural hedge notional was allocated between NWH Group and NWM Group in a ratio of approximately 77%/23% respectively.
 
Product structural hedges refer to income allocated to customer products, mainly current accounts and customer deposits in Commercial & Institutional, Retail Banking and Private Banking.
 
At 30 June 2023, approximately 94% 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
 
2023
2022
2022
 
£m
£m
£m
Retail Banking
(1,156)
12
(475)
Commercial & Institutional 
(1,415)
39
(576)
Private Banking & Other
(202)
10
(84)
Total
(2,773)
61
(1,135)
-The structural hedge notional fell, mainly due to lower deposit volume. 
-The five-year sterling swap rate rose to 5.09% at 30 June 2023 from 4.10% at 31 December 2022. The ten-year sterling swap rate also rose, to 4.36% from 3.75%. The structural hedge yield also rose to 1.38% in H1 2023 from 1.14% in H2 2022.
-Despite the increase in total yield, incremental income fell. This highlights the relative stability of the total yield of the structural hedge compared to an unhedged portfolio that would earn short-term cash rates. Compared to the 24-basis-point increase in the structural hedge total yield, SONIA increased 150 basis points to 4.93% at 30 June 2023 from 3.43% at 31 December 2022.
 
 
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, which will incorporate expected changes in central bank policy rates such as the Bank of England base rate. A simple scenario is shown that projects forward earnings based on the 30 June 2023 balance sheet, which is assumed to remain constant. An earnings projection is derived from the market-implied curve, which is then subject to interest rate shocks. The difference between the market-implied projection 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.
 
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.
 
 
+25 basis points upward shift
 
-25 basis points downward shift
 
Year 1 
Year 2 
Year 3
 
Year 1 
Year 2 
Year 3
30 June 2023
£m
£m
£m
 
£m
£m
£m
Structural hedges
 49
 151
 249
 
(49)
(151)
(248)
Managed margin
 86
 76
 157
 
(121)
(75)
(168)
Total
 135
 227
 406
 
(170)
(226)
(416)
 
 
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
 
 
Structural hedges
50
158
260
 
(50)
(158)
(260)
Managed margin
148
141
136
 
(170)
(140)
(129)
Total
198
299
396
 
(220)
(298)
(389)
(1) Earnings sensitivity considers only the main drivers, namely structural hedging and margin management, and excludes UBIDAC.
 
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 and downward shift in all interest rates.
 
 
Shifts in yield curve
 
30 June 2023
 
 
31 December 2022
 
+25 basis 
-25 basis 
+100 basis
-100 basis
 
+25 basis 
-25 basis 
+100 basis
-100 basis
 
points
points
points
points
 
points
points
points
points
 
£m
£m
£m
£m
 
£m
£m
£m
£m
Euro
13
(15)
56
(57)
 
13
(12)
48
(50)
Sterling
108
(137)
431
(574)
 
172
(194)
698
(784)
US dollar
8
(13)
37
(47)
 
10
(11)
42
(53)
Other
6
(5)
23
(15)
 
3
(3)
13
(16)
Total
135
(170)
547
(693)
 
198
(220)
801
(903)
 
(1) The table excludes UBIDAC.
 
 
 
The overall reduction in net interest income sensitivity in all scenarios reflects lower managed rate deposit volumes. This includes changes to the deposit mix, where customers have moved balances into fixed-term savings from managed rate savings accounts.
 
Changes in pass-through assumptions for managed rate savings products also contributed to the lower sensitivity.
 

 
Risk and capital management
Non-traded market risk continued
Foreign exchange risk (reviewed)
The table below shows structural foreign currency exposures.
 
 
 
Structural
 
 
 
Net
 
foreign currency
 
Residual
 
investments
Net
exposures
 
structural
 
in foreign
investment
pre-economic
Economic
foreign currency
 
operations
hedges
hedges
hedges (1)
exposures
30 June 2023
£m
£m
£m
£m
£m
US dollar
1,215
(287)
928
(928)
—
Euro
4,913
(3,101)
1,812
—
1,812
Other non-sterling
938
(406)
532
—
532
Total
7,066
(3,794)
3,272
(928)
2,344
 
 
 
 
 
 
31 December 2022
 
 
 
 
 
US dollar
1,278
(303)
975
(975)
—
Euro
6,189
(4,164)
2,025
—
2,025
Other non-sterling
996
(431)
565
—
565
Total
8,463
(4,898)
3,565
(975)
2,590
 
(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.
 
   
Euro net investments in foreign operations and euro net investment hedges fell in H1 2023, mainly due to the wind-down of UBIDAC. Overall, residual structural foreign currency exposures fell. 
   
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 £0.2 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%) (reviewed)
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 2023
 
30 June 2022
 
31 December 2022
 
 
 
 
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
 9.0
 19.3
 4.3
 16.5
 
 7.4
 12.6
 4.1
 6.0
 
 7.3
 12.5
 4.5
 9.0
Credit spread
 5.9
 6.9
 4.9
 6.1
 
 8.5
 12.0
 6.5
 6.9
 
 7.2
 8.6
 6.0
 6.4
Currency
 2.1
 4.9
 1.0
 1.5
 
 2.8
 8.0
 1.2
 2.3
 
 3.3
 6.9
 1.5
 1.5
Equity
—
 0.1
—
—
 
 0.1
 0.3
—
—
 
—
 0.3
—
—
Commodity
—
—
—
—
 
—
—
—
—
 
—
—
—
—
Diversification (1)
(6.8)
 
 
(6.3)
 
(8.3)
 
 
(6.0)
 
(7.0)
 
 
(6.8)
Total
 10.2
 17.8
 6.6
 17.8
 
 10.5
 15.1
 7.2
 9.2
 
 10.8
 13.7
 8.3
 10.1
 
(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.
 
−
On an average basis, total traded VaR remained at similar levels in H1 2023 compared to 2022.
−
The increase in average interest rate VaR, compared to 2022, reflected an increase in yield curve risk in sterling and euro flow trading.
−
The decrease in average credit spread VaR reflected lower credit spread volatility in H1 2023.
 

Risk and capital management
Other risks
Operational risk 
Risk management continued to focus on material risk areas. Key focus over the period has been the management of the large change portfolio, in particular the regulatory change initiatives relating to preparedness for Consumer Duty and ISO 20022, as well as addressing vulnerabilities in relation to the infrastructure requiring remediation. Linked to the focus on remediation, security, data and outsourcing remain key pillars for the ongoing management of the risk profile, operational integrity and continuity of service.
 
Compliance & conduct risk 
The ring-fencing attestation was completed and submitted to the PRA on 31 March 2023. Implementation of Consumer Duty has been a key focus, with customer journeys being enhanced in line with the new standard which complements our purpose ‘to champion potential, helping people, families, and businesses to thrive’ and aligns with our strategy ‘supporting customers at every stage of their lives’. NatWest Markets has a program in place to review, remediate, and enhance certain areas of its business. Resources were agreed in February 2023. The results of this work will be shared with the Department of Justice Monitor and other regulators, with the ongoing work plan continuing to be assessed for potential impact.
 
The cost of living challenge continues to be a key priority for the conduct and regulatory compliance agenda as mortgage interest rates continue to increase in the UK. There has been continued oversight of delivery of the mandatory and regulatory change programmes, including the Mortgage Charter - a set of measures aimed at supporting residential mortgage customers concerned by rising interest rates.
 
Climate risk 
NatWest Group continued to embed climate considerations in its risk management framework throughout the reporting period. This is focused on making iterative advancements in capabilities towards quantitative techniques in risk assessment. Particular attention continues to be paid to developing the next version of the NatWest Group Climate Transition Plan. Work is also underway to evolve NatWest Group’s customer-level climate risk assessments, including development of capability to assess customer climate plans. In-house modelling and scenario analysis capabilities continue to be developed to support the assessment of NatWest Group’s exposure to physical and transition risks.
 
 

 
Date: 28 July 2023
 
 
 
NATWEST GROUP plc (Registrant)
 
 
 
By: /s/ Jan Cargill
 
 
 
Name: Jan Cargill
 
Title: Chief Governance Officer and Company Secretary