6-K 1 a6924d.htm Q3 INTERIM MANAGEMENT STATEMENT a6924d
 
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 October 30, 2020
Commission File Number: 001-10306
 
NatWest Group plc
 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ
 
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
   Form 20-F X Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________
 
 
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes ___ No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________
 
 
 
 
The following information was issued as Company announcements in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K: 
 
 
 
 
 
 
 
 
Q3 2020
Interim Management Statement
 
 
 
 
 
 
 
 
                          www.natwestgroup.com
 
 
 
 
 
 
 
 
 
NatWest Group plc
Q3 2020 Interim Management Statement
 
Alison Rose, Chief Executive Officer, commented:
 
"These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty. Our sector-leading capital position, strong levels of liquidity and intelligent and consistent approach to risk mean we can continue to provide our customers and communities with the support they need.
 
Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear. Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.
 
We continue to deliver well against our strategy, building a bank that champions potential and has the capability to grow. By building deeper relationships with our customers at every stage of their lives, simplifying the bank further, investing in innovation and partnerships and allocating capital well, we will deliver sustainable returns to our shareholders."
 
Financial performance in a challenging environment
Q3 2020 operating profit before tax of £355 million and an attributable profit to ordinary shareholders of £61 million including a £324 million loss on redemption of own debt.
In comparison to Q3 2019, across the retail and commercial businesses income decreased by 12.1%. Within NatWest Markets (NWM), the level of primary issuance and market activity eased in Q3 2020, compared to the first half of the year.
Bank net interest margin (NIM) of 1.65% was 2 basis points lower than Q2 2020 principally reflecting reduced structural hedge income as a result of lower swap rates and the contraction of the yield curve. Mortgage front book new business and switcher completion margins were approximately 140 basis points, broadly in line with the overall book margin.
Strategic costs of £223 million in Q3 2020 include £90 million redundancy costs, a £34 million charge related to technology spend and a £21 million property charge.
Other expenses, excluding operating lease depreciation (OLD), were £152 million lower than Q3 2019, with a £193 million cost reduction achieved for the year to date. We remain on track to achieve our £250 million target for full year 2020.
Net impairment losses of £254 million in Q3 2020, or 28 basis points of gross customer loans, resulted in an expected credit loss (ECL) coverage ratio of 1.72%.
 
Robust balance sheet with strong capital and liquidity levels
 
CET1 ratio of 18.2% was 100 basis points higher than Q2 2020 mainly reflecting a £7.6 billion reduction in RWAs, principally in NatWest Markets. Excluding IFRS 9 transitional relief, the CET1 ratio was 17.2%.
The liquidity coverage ratio (LCR) remains strong at 157%, representing £61.8 billion headroom above 100%, which includes the impact of a £5.0 billion term funding scheme (TFS) repayment within the quarter.
Across the retail and commercial businesses net lending increased by £0.4 billion during Q3 2020, as £2.9 billion drawdowns against UK Government lending initiatives and £2.4 billion related to mortgages was partially offset by net revolving credit facility (RCF) repayments of £3.1 billion and lower lending across Large Corporate & Institutions and Specialised business.
Customer deposits of £418.4 billion increased by £10.1 billion during Q3 2020, with retail and commercial balances £6.6 billion higher as consumer spending continued to be impacted by government restrictions and customers retained liquidity. 
 
Outlook(1)
We retain the outlook guidance provided in the 2020 Interim Results with the exception of the following updates, noting the continued significant economic uncertainty.
 
We believe the full year impairment charge is likely to be at the lower end of the £3.5-4.5 billion range following the limited level of defaults across lending portfolios and associated ECL stage migration within the third quarter.
 
We now expect NatWest Group RWAs to be below our previously guided range of £185-195 billion at the end of 2020 following the relatively low level of procyclical inflation experienced to date, with previously expected uplifts delayed to 2021, whilst also now targeting NatWest Markets RWAs of around £30 billion by the end of 2020.
 
 
 
Note:
(1)   The guidance, targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc "Risk Factors" as described on pages 108-109 of its Interim Results 2020, pages 29-31 of its Q1 2020 IMS and pages 281-295 of its 2019 Annual Report & Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.
 
 
 
Our Purpose in action - we champion potential, helping people, families and businesses to thrive
 
Helping our customers, colleagues and communities through the impacts of Covid-19
Provided lending support to our customers with a disciplined approach to risk and value creation:
●      Approved £13.0 billion through the government lending initiatives(1).
●      Facilitated approximately £8.8 billion of Covid-19 Corporate Financing Facilities (CCFF) issuances(2).
 
Supported the financial health of our customers:
●      Helped approximately 250,000 customers with an initial mortgage repayment holiday and provided payment holidays on over 72,000 business customer accounts(3).
●      Launched 'Banking My Way' service, enabling customers who need additional support to request bespoke assistance, with 38,500 registrations since its launch(4).
 
Long-term investment plan is powering our operational effectiveness:
●      Increased digital adoption with 9.3 million active digital users as at Q3 2020 (9.0 million as at Q3 2019), 6 million interactions with our AI chat bot Cora in the first nine months of 2020 (3.9 million in the first nine months of 2019) and c.9,000 weekly video banking conversations now taking place, compared to less than 100 a week in January 2020(5). 
●      Announced a new relationship with BlackRock to support our investment management processing activity, enabling savings to be passed onto our clients.
 
Partnered to proactively respond and support UK communities:
●      NatWest Social and Community Capital launched a £1 million Coronavirus Response Fund offering grants to organisations across the UK that employ people from vulnerable or disadvantaged groups.
●      Launched a review with SafeLives into supporting survivors of economic abuse and acquired coercive debt.
 
Prioritised the wellbeing of our colleagues:
●      Continued to enable more than 50,000 colleagues to work from home, delivering office furniture and computer equipment, including 31,000 tech bundles to homes(6).
●      Enhanced our free mental health support through a new partnership with Silvercloud, providing substantial, sector-leading support to any colleague who needs it and provided all leaders access to extended mental health awareness support.
 
 
Q3 2020 progress against areas of focus
Enterprise - addressing barriers to enterprise and business creation:
●      NatWest Entrepreneur Accelerator Programme ranked the top UK accelerator by total attendances(7). The programme has run 800 virtual events with 33,000 attendees since the start of lockdown(2).
●      Over half of the £1 billion of debt funding to support female entrepreneurs announced in February 2020 has been committed as part of our ambition to help create new businesses in the UK(2).
 
Learning - skill building, particularly around financial confidence:
●      Reached 2.4 million people through financial capability interactions including live MoneySense lessons on social media(6).
●      Island Saver, the world's first financial education console, PC and mobile game, has been downloaded over 1.7 million times since its launch(8).
 
Climate - supporting the necessary transition to a low carbon economy:
●      As part of our membership of the Green Finance Institute's 'Coalition for the Energy Efficiency of Buildings', we have signed up to their Green Home Retrofit Principles.
●      Progress in sustainability has been recognised by leading ESG rating agencies: Sustainalytics substantially improved our Risk Score to 20.5 (from 27.5) in July 2020 and MSCI upgraded our ESG rating to A (from BBB) in October 2020.
 
Diversity and inclusion - building an open and inclusive bank where everyone can thrive:
●      In addition to our existing target of at least 14% BAME representation in senior UK roles by 2025, we have introduced a new target to have 3% Black colleagues in senior UK roles by 2025.
●      Included in 'The Times' Top 50 employers for women.
 
 
 
Notes:
(1)   As at 30 September 2020, inclusive of Commercial Banking and Private Banking: Bounce Back Loan Scheme (BBLS) - £7.9 billion; Coronavirus Business Interruption Loan Scheme (CBILS) - £3.9 billion, Coronavirus Large Business Interruption Loan Scheme (CLBILS) - £1.2 billion.
(2)   As at 30 September 2020.
(3)   For the nine months ended 30 September 2020 in Retail Banking and since 22 March 2020 in Commercial Banking. As at 30 September 2020, there were 37,000 active mortgage repayment holidays and approximately 55,000 active payment holidays on business customer accounts.
(4)   From launch date of 19 August 2020 to 9 October 2020.
(5)   Weekly conversation volumes, as at week commencing 12 October 2020.
(6)   For the nine months ended 30 September 2020.
(7)   Beauhurst report 'Accelerating Growth'- September 2020.
(8)   From launch date of 13 May 2020 to 30 September 2020.
 
 
 
Business performance summary
 
 
Nine months ended
 
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
Performance key metrics and ratios
2020
2019
 
2020
2020
2019
Profit before impairment losses
£2,697m
£3,222m
 
£609m
£767m
£205m
Operating (loss)/profit before tax
(£415m)
£2,686m
 
£355m
(£1,289m)
(£8m)
(Loss)/profit attributable to ordinary shareholders
(£644m)
£1,723m
 
£61m
(£993m)
(£315m)
Bank net interest margin
 
 
 
 
 
 
 (NatWest Group NIM excluding NWM) (1)
1.73%
2.02%
 
1.65%
1.67%
1.97%
Bank average interest earning assets
 
 
 
 
 
 
  (NatWest Group excluding NWM) (1)
£449bn
£410bn
 
£468bn
£458bn
£416bn
Cost:income ratio (1)
66.9%
67.5%
 
74.5%
70.9%
92.9%
Loan impairment rate (1)
115bps
22bps
 
28bps
229bps
26bps
Earnings per share
 
 
 
 
 
 
  - basic
(5.3p)
14.3p
 
0.5p
(8.2p)
(2.6p)
  - basic fully diluted
(5.3p)
14.2p
 
0.5p
(8.2p)
(2.6p)
Return on tangible equity (1)
(2.7%)
6.8%
 
0.8%
(12.4%)
(3.8%)
Average tangible equity
£32bn
£34bn
 
£32bn
£32bn
£33bn
Average number of ordinary shares
 
 
 
 
 
 
  outstanding during the period (millions)
 
 
 
 
 
 
  - basic
12,090
12,064
 
12,110
12,085
12,075
  - fully diluted (2)
12,112
12,099
 
12,133
12,107
12,106
 
 
30 September
30 June
31 December
Balance sheet key metrics and ratios
2020
2020
2019
Total assets
£791.6bn
£806.9bn
£723.0bn
Funded assets (1)
£627.3bn
£623.5bn
£573.0bn
Loans to customers - amortised cost
£353.7bn
£352.3bn
£326.9bn
Impairment provisions
£6.1bn
£6.1bn
£3.7bn
Customer deposits
£418.4bn
£408.3bn
£369.2bn
 
 
 
 
Liquidity coverage ratio (LCR)
157%
166%
152%
Liquidity portfolio
£243bn
£243bn
£199bn
Net stable funding ratio (NSFR) (3)
147%
144%
141%
Loan:deposit ratio (1)
85%
86%
89%
Total wholesale funding
£75bn
£86bn
£75bn
Short-term wholesale funding
£25bn
£22bn
£19bn
 
 
 
 
Common Equity Tier (CET1) ratio (4)
18.2%
17.2%
16.2%
Total capital ratio
23.7%
22.5%
21.2%
Pro forma CET1 ratio, pre dividend accrual (5)
18.2%
17.2%
17.0%
Risk-weighted assets (RWAs)
£173.9bn
£181.5bn
£179.2bn
CRR leverage ratio
5.2%
5.1%
5.1%
UK leverage ratio
6.2%
6.0%
5.8%
 
 
 
 
Tangible net asset value (TNAV) per ordinary share
265p
264p
268p
Tangible net asset value (TNAV) per ordinary share - fully diluted (1,2)
264p
263p
267p
Tangible equity
£32,093m
£32,006m
£32,371m
Number of ordinary shares in issue (millions)
12,127
12,125
12,094
Number of ordinary shares in issue (millions) - fully diluted (2,6)
12,149
12,147
12,138
 
Notes:
(1)   Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS financial and performance measures.
(2)   Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for the nine months ended 30 September 2020 were 22 million shares; Q3 2020 -  23 million shares (nine months ended 30 September 2019 - 35 million shares; Q2 2020 - 22 million shares; Q3 2019 - 31 million shares) and as at 30 September 2020 were 22 million shares (as at 30 June 2020 - 22 million shares; as at 31 December 2019 - 44 million shares).
(3)   NSFR reported in line with CRR2 regulations finalised in June 2019.
(4)   At September and June 2020 there is no charge in CET1 for foreseeable dividends or charges. The pro forma CET1 ratio at 31 December 2019 excluded foreseeable charges of £968 million for ordinary dividends (3p per share final dividend and 5p per share special dividend) and £365 million pension contribution.
(5)   Based on CRR end point including the IFRS 9 transitional adjustment of £1.7 billion. Excluding this adjustment, the CET1 ratio would be 17.2%.
(6)   Includes 16 million shares held by the Employee Benefit Trust (30 June 2020 - 16 million shares; 31 December 2019 - 15 million shares).
                                 
 
Non-IFRS financial measures
This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations, where applicable, refer to the Appendix.
 
 
 
Summary consolidated income statement for the period ended 30 September 2020
 
 
Nine months ended
 
Quarter ended
 
30 September
30 September
 
30 September
30 June
30 September
 
2020
2019
 
2020
2020
2019
 
£m 
£m 
 
£m 
£m 
£m 
Net interest income
5,778
6,010
 
1,926
1,910
2,006
Own credit adjustments
19
(58)
 
(34)
(102)
(12)
Other non-interest income
2,464
4,068
 
531
868
909
Non-interest income
2,483
4,010
 
497
766
897
Total income
8,261
10,020
 
2,423
2,676
2,903
Litigation and conduct costs
81
(810)
 
(8)
85
(750)
Strategic costs
(687)
(844)
 
(223)
(333)
(215)
Other expenses
(4,958)
(5,144)
 
(1,583)
(1,661)
(1,733)
Operating expenses
(5,564)
(6,798)
 
(1,814)
(1,909)
(2,698)
Profit before impairment losses
2,697
3,222
 
609
767
205
Impairment losses
(3,112)
(536)
 
(254)
(2,056)
(213)
Operating (loss)/profit before tax
(415)
2,686
 
355
(1,289)
(8)
Tax credit/(charge)
1
(395)
 
(207)
396
(201)
(Loss)/profit for the period
(414)
2,291
 
148
(893)
(209)
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
Ordinary shareholders
(644)
1,723
 
61
(993)
(315)
Preference shareholders
21
30
 
5
8
10
Paid-in equity holders
272
277
 
80
95
95
Non-controlling interests
(63)
261
 
2
(3)
1
 
Notable items within total income
 
 
 
 
 
 
Alawwal bank merger gain in NatWest Markets
-
444
 
-
-
-
FX recycling (loss)/gain in Central items & other
(39)
290
 
64
(39)
-
Legacy liability release in Central items & other
-
256
 
-
-
-
Loss on redemption of own debt
(324)
-
 
(324)
-
-
Liquidity Asset Bond sale gain/(loss)
111
(8)
 
1
17
(19)
IFRS volatility in Central items & other
38
(34)
 
49
55
(51)
NatWest Markets asset disposals/strategic risk reduction
(75)
(35)
 
(12)
(63)
(8)
Share of losses under equity accounting for
 
 
 
 
 
 
    Business Growth Fund
(28)
-
 
(43)
(1)
-
 
 
 
 
 
 
Business performance summary
Retail Banking (formerly UK Personal Banking)
 
Quarter ended
 
 
As at
 
30 September
30 June
30 September
 
 
30 September
30 June
31 December
 
2020
2020
2019
 
 
2020
2020
2019
 
£m
£m
£m
 
 
£bn
£bn
£bn
Total income (1)
1,022
1,035
1,224
 
Net loans to customers -
 
 
 
Operating expenses (1)
(647)
(546)
(1,601)
 
   amortised cost
166.7
164.5
158.9
Impairment losses
(70)
(360)
(131)
 
Customer deposits (1)
164.9
161.0
150.3
Operating profit/(loss)
305
129
(508)
 
RWAs
36.3
36.7
37.8
Return on equity
15.3%
5.7%
(26.8%)
 
 
 
 
 
Net interest margin
2.05%
2.18%
2.44%
 
 
 
 
 
Cost:income ratio
63.3%
52.8%
130.8%
 
 
 
 
 
Loan impairment rate
17bps
87bps
34bps
 
 
 
 
 
 
Note:
(1)   Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on Q3 2019 operating profit would have been to decrease total income by £11 million and operating expenses by £2 million. The net impact on the Q3 2019 balance sheet would have been to decrease customer deposits by £0.2 billion.
Retail Banking customer activity levels in Q3 2020 improved significantly compared with Q2 2020 with debit and credit card spend levels 30% and 43% higher respectively and mortgage applications increased by 91%. In the nine months ended 30 September 2020, Retail Banking helped approximately 250,000 customers with an initial mortgage repayment holiday and as at Q3 2020 had 37,000 active mortgage repayment holidays, representing 3% of the book by volume. Additionally, Retail Banking had approximately 40,000, or 4%, of personal loan customers on active repayment holidays as at Q3 2020.
 
Total income decreased by £202 million, or 16.5%, in comparison to Q3 2019 due to lower fee income on overdrafts, lower deposit returns, mortgage margin dilution and lower international spend related fee income, partially offset by strong balance growth in mortgages and customer deposits. Total income decreased by £13 million compared with Q2 2020, reflecting a 13 basis point reduction in net interest margin largely due to the deferred impact of the lower yield curve on deposit margins. Mortgage book margin stabilised in Q3 2020 as front book new business and switcher completion margins were approximately 140 basis points, broadly in line with the overall book margin. In Q3 2020, application margins were around 160 basis points as spreads in the market continued to widen.
Excluding strategic, litigation and conduct costs, operating expenses decreased by £49 million, or 8.0%, compared with Q3 2019, predominantly reflecting a reduction in staff costs associated with a 10.3% reduction in headcount.
Impairment losses of £70 million in Q3 2020 primarily reflect stage three default charges driven by personal advances.
Net loans to customers increased by £2.2 billion compared with Q2 2020. Gross new mortgage lending was £6.7 billion in Q3 2020, with market flow share of approximately 11% and strong retention supporting a stock share of approximately 10.6%. Unsecured balances remained stable in Q3 2020, compared with a reduction of £0.8 billion in Q2 2020.
Customer deposits increased by £3.9 billion in Q3 2020, compared with an £8.2 billion increase in Q2 2020, predominantly driven by increasing current account balances, however growth slowed in Q3 2020 as customer spend levels increased towards pre-Covid-19 levels.
 
 
 
 
Business performance summary
Ulster Bank RoI
 
Quarter ended
 
 
As at
 
30 September
30 June
30 September
 
 
30 September
30 June
31 December
 
2020
2020
2019
 
 
2020
2020
2019
 
€m
€m
€m
 
 
€bn
€bn
€bn
Total income
145
135
161
 
Net loans to customers -
 
 
 
Operating expenses
(138)
(140)
(146)
 
   amortised cost
20.2
20.5
21.4
Impairment (losses)/
 
 
 
 
Customer deposits
21.6
22.0
21.7
   releases
(6)
(246)
19
 
RWAs
13.3
14.1
15.3
Operating profit/(loss)
1
(251)
34
 
 
 
 
 
Return on equity
0.2%
(45.5%)
5.8%
 
 
 
 
 
Net interest margin
1.47%
1.49%
1.54%
 
 
 
 
 
Cost:income ratio
95.2%
103.7%
90.7%
 
 
 
 
 
Loan impairment rate
11bps
460bps
(34)bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note:
(1)   Ratios have been presented on a Euro basis. Comparatives have been restated.
 
Our strategy to grow our Ulster Bank business in the Republic of Ireland organically and safely remains unchanged. We continue to evaluate the impact of Covid-19 and the challenges to the economy and we are reviewing our strategy appropriately and responsibly in light of these events.
 
 
In the event of any changes being made to our strategy, these would be undertaken with full consideration of any impact on customers, colleagues and shareholders in the first instance. Our priority now is to continue to remain focused on supporting our colleagues in serving our customers in these difficult times.
 
As at Q3 2020, Ulster Bank RoI had approved over 17,000 payment breaks and, of those who have rolled off their initial payment break, approximately 46% have opted for a second payment break, representing around 8% of the lending book by value.
 
 
Total income decreased by €16 million, or 9.9%, compared with Q3 2019 primarily due to lower lending income, reduced transaction volumes and fee income resulting from the impact of Covid-19. Total income increased by €10 million in comparison to Q2 2020, reflecting higher fee income from a return to more normalised transaction levels. Net interest margin decreased by 2 basis points in comparison to Q2 2020 reflecting the continued impact of negative rates on increased liquid assets.
Impairment losses were €6 million in Q3 2020, with payment breaks in part mitigating the full impact of credit losses attributable to the Covid-19 pandemic.
Net loans to customers decreased by €0.3 billion compared with Q2 2020 as repayments continued to exceed gross new lending, combined with a further derecognition of the non-performing loan (NPL) sale agreed in 2019. Gross new lending of €0.4 billion was broadly in line with Q2 2020.
Customer deposits decreased by €0.4 billion in comparison to Q2 2020 mainly due to the introduction of negative rates on certain commercial deposit categories.
RWAs decreased by €0.8 billion in comparison to Q2 2020 reflecting the €0.2 billion impact of the NPL sale derecognition, lower volumes and improved credit metrics.
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Business performance summary
Commercial Banking
 
Quarter ended
 
 
As at
 
30 September
30 June
30 September
 
 
30 September
30 June
31 December
 
2020
2020
2019
 
 
2020
2020
2019
 
£m
£m
£m
 
 
£bn
£bn
£bn
Total income
1,004
995
1,077
 
Net loans to customers -
 
 
 
Operating expenses
(553)
(611)
(638)
 
   amortised cost
110.0
112.0
101.2
Impairment losses
(127)
(1,355)
(108)
 
Customer deposits
161.3
159.6
135.0
Operating profit/(loss)
324
(971)
331
 
RWAs
76.5
78.3
72.5
Return on equity
9.2%
(32.5%)
8.4%
 
 
 
 
 
Net interest margin
1.65%
1.70%
1.90%
 
 
 
 
 
Cost:income ratio
53.4%
59.9%
57.9%
 
 
 
 
 
Loan impairment rate
45bps
472bps
42bps
 
 
 
 
 
 
Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government's financial support schemes. As at Q3 2020, £7.9 billion BBLS, £3.7 billion CBILS and £1.2 billion CLBILS had been approved. Since 22 March 2020 Commercial Banking provided payment holidays on over 72,000 customer accounts and as at Q3 2020 had active payment holidays on c.55,000 customer accounts, representing c.8% of the lending book by value.
 
Total income decreased by £73 million, or 6.8%, compared with Q3 2019 as the continued contraction of the yield curve and lower business activity was partially offset by increased lending volumes. Net interest margin decreased by 5 basis points in comparison to Q2 2020 as a result of lower deposit funding benefits.
Other expenses, excluding OLD, were £36 million, or 6.8%, lower than Q3 2019 mainly due to a reduction in back office operations costs and a 3.0% reduction in headcount.
Impairment losses of £127 million in Q3 2020 primarily reflect stage one and two movements related to the expected deterioration in the economic environment, with total stage three charges of £53 million, including a small number of single name charges.
 
Net loans to customers decreased by £2.0 billion compared with Q2 2020 as £3.1 billion net RCF repayments and lower lending across Large Corporate & Institutions and Specialised business lending more than offset drawdowns against UK Government lending schemes, including £1.7 billion related to BBLS, £0.8 billion related to CBILS and £0.4 billion related to CLBILS. RCF utilisation decreased to c.26% of committed facilities, broadly in line with pre-Covid-19 levels.
Customer deposits increased by £1.7 billion compared with Q2 2020 as customers continued to retain liquidity.
RWAs decreased by £1.8 billion compared with Q2 2020 as lower lending volumes and a c.£1.5 billion reduction reflecting the CRR Covid-19 amendment to accelerate the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor,  partially offset by risk parameter changes.
 
 
 
 
 
 
 
 
 
 
 

 
Business performance summary
Private Banking - (commentary adjusted for transfers)
 
Quarter ended
 
 
As at
 
30 September
30 June
30 September
 
 
30 September
30 June
31 December
 
2020
2020
2019
 
 
2020
2020
2019
 
£m
£m
£m
 
 
£bn
£bn
£bn
Total income
187
191
198
 
Net loans to customers -
 
 
 
Operating expenses
(112)
(129)
(119)
 
   amortised cost
16.5
16.0
15.5
Impairment
 
 
 
 
Customer deposits
30.3
29.8
28.4
   (losses)/releases
(18)
(27)
2
 
RWAs
10.6
10.4
10.1
Operating profit
57
35
81
 
Assets Under Management
 
 
 
Return on equity
11.2%
6.6%
16.8%
 
   (AUMs)
27.3
27.1
23.2
Net interest margin
1.99%
2.14%
2.35%
 
Assets Under Administration
 
 
 
Cost:income ratio
59.9%
67.5%
60.1%
 
   (AUAs) (1)
2.8
2.7
7.2
Loan impairment rate
43bps
67bps
(5)bps
 
Total Assets Under
 
 
 
 
 
 
 
 
   Management and
 
 
 
 
 
 
 
 
   Administration (AUMA)
30.1
29.8
30.4
 
Notes:
(1)   Private Banking manages assets under administration portfolios on behalf of Retail Banking and RBSI and receives a management fee in respect of providing this service.
(2)   Comparisons with prior periods are impacted by the transfer of the Private Client Advice business from Retail Banking from 1 January 2020. The net impact on Q3 2019 operating profit would have been to increase total income by £11 million and operating expenses by £2 million. The net impact on the Q3 2019 balance sheet would have been to increase customer deposits by £0.2 billion. AUMs would have been £4.5 billion higher, with a corresponding decrease in AUAs. Variances in the commentary below have been adjusted for the impact of this transfer.
 
Private Banking remains committed to supporting clients through a range of initiatives, including the provision of mortgage and loan repayment breaks and via participation in UK Government lending initiatives, with c.£0.3 billion approved as at Q3 2020.
 
Total income was £22 million, or 10.5%, lower than Q3 2019 mainly reflecting lower deposit funding benefits, a reduction in fee income and one-off benefits related to hedging income gains in Q3 2019, partially offset by balance sheet growth. Net interest margin decreased by 15 basis points in comparison to Q2 2020 primarily due to lower deposit funding benefits.
Impairment losses of £18 million largely reflected stage one and two charges.
Net loans to customers increased by £0.5 billion in comparison to Q2 2020 reflecting mortgage growth and drawdowns against UK Government lending schemes.
Total AUMAs overseen by Private Banking increased by £0.3 billion compared with Q2 2020 reflecting positive investment performance.
 
RBS International
 
Quarter ended
 
 
As at
 
30 September
30 June
30 September
 
 
30 September
30 June
31 December
 
2020
2020
2019
 
 
2020
2020
2019
 
£m
£m
£m
 
 
£bn
£bn
£bn
Total income
112
115
150
 
Net loans to customers -
 
 
 
Operating expenses
(53)
(65)
(62)
 
   amortised cost
12.8
12.7
14.1
Impairment losses
(34)
(31)
-
 
Customer deposits
30.4
29.5
30.1
Operating profit
25
19
88
 
RWAs
7.0
6.8
6.5
Return on equity
6.4%
4.3%
26.0%
 
 
 
 
 
Net interest margin
1.07%
1.15%
1.55%
 
 
 
 
 
Cost:income ratio
47.3%
56.5%
41.3%
 
 
 
 
 
Loan impairment rate
105bps
97bps
-
 
 
 
 
 
 
 
As at Q3 2020, RBS International had 322 active mortgage repayment breaks, reflecting a mortgage value of £82 million, and is providing support for 566 business customers with working capital facilities, reflecting a value of £503 million, while continuing to suspend a range of fees and charges for its personal and business customers.
 
Total income decreased by £38 million, or 25.3%, compared with Q3 2019 primarily due to the impact of the interest rate reductions on deposit income and lower fee income reflecting the economic response to Covid-19. Net interest margin decreased by 8 basis points compared with Q2 2020 due to reduced funding benefits.
Excluding strategic, litigation and conduct costs, operating expenses decreased by £7 million, or 12.3%, compared with Q3 2019 mainly due to lower staff costs as a result of a 5.6% headcount reduction and lower project spend.
Impairment losses were £34 million higher than Q3 2019 due to revised economic scenarios, refreshed staging and maturity date analysis.
Customer deposits were £0.9 billion higher than Q2 2020 due to short term placements in the Institutional Banking Sector.
RWAs increased by £0.2 billion compared with Q2 2020 due to customer maturities and higher lending balances in the wholesale sector.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business performance summary
NatWest Markets(1)
 
Quarter ended
 
 
As at
 
30 September
30 June
30 September
 
 
30 September
30 June
31 December
 
2020
2020
2019
 
 
2020
2020
2019
 
£m
£m
£m
 
 
£bn
£bn
£bn
Total income
234
273
150
 
Funded Assets
121.3
122.9
116.2
of which:
 
 
 
 
RWAs
30.0
35.1
37.9
   - Income excluding
 
 
 
 
 
 
 
 
         asset disposals/strategic
 
 
 
 
 
 
 
 
         risk reduction and own
 
 
 
 
 
 
 
 
        credit adjustments
280
438
161
 
 
 
 
 
   - Asset disposals/strategic
 
 
 
 
 
 
 
 
       risk reduction (2)
(12)
(63)
-
 
 
 
 
 
   - Own credit adjustments
(34)
(102)
(11)
 
 
 
 
 
Operating expenses
(302)
(365)
(348)
 
 
 
 
 
Impairment releases/(losses)
2
(45)
5
 
 
 
 
 
Operating (loss)
(66)
(137)
(193)
 
 
 
 
 
Return on equity
(4.7%)
(7.1%)
(8.7%)
 
 
 
 
 
Cost:income ratio
129.1%
133.7%
232.0%
 
 
 
 
 
 
Notes:
(1)    The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). For 2019, NWM Group includes NatWest Markets N.V. (NWM N.V.) from 29 November 2019 only. For periods prior to Q4 2019, NWM N.V. was excluded from the NWM Group. In both 2019 and 2020 the NatWest Markets segment excludes the Central items & other segment.
(2)    Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020.
 
During Q3 2020 NatWest Markets made further progress on reshaping the business for the future, putting purpose at its core. The front office operating model was reorganised to increase focus on NatWest Group's customers. A Capital Management Unit has also been established to safely manage capital reduction and optimisation. Further refinements to the product suite were also communicated, to focus resources on developing product capability in the areas that matter most to NatWest Group's customers. This included exiting Distressed and Emerging Markets Credit trading and making changes to simplify the Rates business. In line with the strategy announced in February, NatWest Markets has continued to reduce RWAs, particularly within counterparty credit and market risk, and are now targeting RWAs of around £30 billion by the end of 2020.
 
Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £111 million, or 65.7%, in comparison to Q3 2019. Although market activity and the level of primary issuance eased in Q3 2020 compared to the first half of the year, income was significantly higher than Q3 2019 due to elevated hedging costs in the prior period.
Excluding strategic, litigation and conduct costs, operating expenses decreased by £57 million, or 20.2%, in comparison to Q3 2019 reflecting continued reductions in line with the strategic announcement in February 2020.
RWAs were £5.1 billion lower than Q2 2020 as counterparty credit risk decreased by £2.2 billion and market risk decreased by £2.2 billion due to capital optimisation actions.
 
 
 
Central items & other
 
Quarter ended
 
 
30 September
30 June
30 September
 
 
 
 
2020
2020
2019
 
 
 
 
£m
£m
£m
 
 
 
Central items not allocated
(285)
(146)
162
 
 
 
 
A £285 million operating loss within central items not allocated in Q3 2020 principally reflects the day one loss on redemption of own debt of £324 million related to the repurchase of legacy instruments which will result in annual net interest savings of c.£74 million. Q3 2019 principally reflected a £162 million reimbursment under indemnification agreements relating to residential mortgage-backed securities.
 
 
 

 
Segment performance
 
Nine months ended 30 September 2020
Retail
Ulster
Commercial
Private
RBS
NatWest
Central items
Total NatWest
 
Banking
Bank RoI
Banking
Banking
International
Markets
& other (1)
Group
 
£m
£m
£m
£m
£m
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
Net interest income
2,919
294
2,073
371
286
(55)
(110)
5,778
Non-interest income
288
85
934
208
85
1,086
(222)
2,464
Own credit adjustments
-
-
-
-
-
19
-
19
Total income
3,207
379
3,007
579
371
1,050
(332)
8,261
Direct expenses
 
 
 
 
 
 
 
 
  - staff costs
(399)
(150)
(497)
(137)
(92)
(434)
(914)
(2,623)
  - other costs
(152)
(65)
(211)
(61)
(37)
(131)
(1,678)
(2,335)
Indirect expenses
(1,178)
(139)
(958)
(149)
(42)
(229)
2,695
-
Strategic costs
 
 
 
 
 
 
 
 
  - direct
(46)
(9)
(5)
(4)
(8)
(187)
(428)
(687)
  - indirect
(138)
(10)
(111)
(10)
(3)
(24)
296
-
Litigation and conduct costs
191
1
8
(3)
3
(4)
(115)
81
Operating expenses
(1,722)
(372)
(1,774)
(364)
(179)
(1,009)
(144)
(5,564)
Operating profit/(loss)before impairment (losses)/releases
1,485
7
1,233
215
192
41
(476)
2,697
Impairment (losses)/releases
(727)
(251)
(1,917)
(74)
(80)
(38)
(25)
(3,112)
Operating profit/(loss)
758
(244)
(684)
141
112
3
(501)
(415)
Additional information
 
 
 
 
 
 
 
 
Return on equity (2)
12.2%
(16.6%)
(8.7%)
9.2%
10.0%
(0.8%)
nm
(2.7%)
Cost:income ratio (2)
53.7%
98.2%
57.4%
62.9%
48.2%
96.1%
nm
66.9%
Total assets (£bn)
189.5
27.4
186.9
24.9
32.7
283.2
47.0
791.6
Funded assets (£bn)
189.5
27.4
186.9
24.9
32.7
121.3
44.6
627.3
Net loans to customers - amortised cost (£bn)
166.7
18.3
110.0
16.5
12.8
10.1
19.3
353.7
Loan impairment rate (2)
57bps
175bps
226bps
59bps
83bps
nm
nm
115bps
Impairment provisions (£bn)
(1.9)
(0.8)
(3.0)
(0.1)
(0.1)
(0.2)
-
(6.1)
Impairment provisions - stage 3 (£bn)
(0.9)
(0.5)
(1.1)
-
-
(0.2)
-
(2.7)
Customer deposits (£bn)
164.9
19.6
161.3
30.3
30.4
4.7
7.2
418.4
Risk-weighted assets (RWAs) (£bn)
36.3
12.1
76.5
10.6
7.0
30.0
1.4
173.9
RWA equivalent (RWAe) (£bn)
36.3
12.1
76.6
10.6
7.1
32.0
1.4
176.1
Employee numbers (FTEs - thousands)
16.6
2.8
9.6
2.1
1.7
2.8
26.0
61.6
Average interest earning assets (£bn)
179.8
26.2
160.8
23.3
31.3
38.4
nm
487.8
Net interest margin
2.17%
1.50%
1.72%
2.12%
1.22%
(0.19%)
nm
1.58%
Third party customer asset rate (3)
2.92%
2.29%
2.93%
2.59%
2.57%
nm
nm
nm
Third party customer funding rate (3)
(0.23%)
(0.12%)
(0.20%)
(0.18%)
(0.03%)
nm
nm
nm
 
 
Refer to page 14 for the notes to this table. nm = not meaningful.
 
 
 
Segment performance
 
Nine months ended 30 September 2019
 
Retail
Ulster
Commercial
Private
RBS
NatWest
Central items
Total NatWest
 
Banking
Bank RoI
Banking
Banking
International
Markets
 & other (1)
Group
 
£m
£m
£m
£m
£m
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
Net interest income
3,118
302
2,127
391
361
(184)
(105)
6,010
Non-interest income
553
125
1,115
191
99
890
60
3,033
Own credit adjustments
-
1
-
-
-
(58)
(1)
(58)
Strategic disposals
-
-
-
-
-
444
591
1,035
Total income
3,671
428
3,242
582
460
1,092
545
10,020
Direct expenses
 
 
 
 
 
 
 
 
  - staff costs
(431)
(156)
(521)
(122)
(89)
(508)
(905)
(2,732)
  - other costs
(217)
(70)
(223)
(52)
(37)
(128)
(1,685)
(2,412)
Indirect expenses
(1,113)
(134)
(915)
(145)
(40)
(246)
2,593
-
Strategic costs
 
 
 
 
 
 
 
 
  - direct
(8)
(12)
(20)
-
(9)
(104)
(691)
(844)
  - indirect
(143)
(19)
(171)
(30)
(6)
(37)
406
-
Litigation and conduct costs
(918)
(21)
(50)
(2)
-
(3)
184
(810)
Operating expenses
(2,830)
(412)
(1,900)
(351)
(181)
(1,026)
(98)
(6,798)
Operating profit/(loss) before impairment (losses)/releases
841
16
1,342
231
279
66
447
3,222
Impairment (losses)/releases
(312)
38
(310)
5
3
41
(1)
(536)
Operating profit/(loss)
529
54
1,032
236
282
107
446
2,686
Additional information
 
 
 
 
 
 
 
 
Return on equity (2)
7.8%
3.4%
8.7%
16.7%
28.5%
(2.2%)
nm
6.8%
Cost:income ratio (2)
77.1%
96.3%
57.2%
60.3%
39.3%
94.0%
nm
67.5%
Total assets (£bn)
176.7
26.1
166.6
22.6
31.2
318.3
35.0
776.5
Funded assets (£bn)
176.7
26.0
166.6
22.6
31.2
142.7
34.9
600.7
Net loans to customers - amortised cost (£bn)
154.6
19.0
101.5
15.2
13.8
9.1
6.3
319.5
Loan impairment rate (2)
27bps
(26)bps
40bps
(4)bps
(3)bps
nm
nm
22bps
Impairment provisions (£bn)
(1.4)
(0.8)
(1.3)
-
-
(0.2)
(0.1)
(3.8)
Impairment provisions - stage 3 (£bn)
(0.8)
(0.8)
(1.0)
-
-
(0.2)
-
(2.8)
Customer deposits (£bn)
147.9
18.8
135.7
28.2
29.1
3.3
6.7
369.7
Risk-weighted assets (RWAs) (£bn)
37.5
13.3
77.0
10.0
6.5
43.8
1.4
189.5
RWA equivalent (RWAe) (£bn)
38.4
13.6
78.1
10.0
6.6
48.9
1.7
197.3
Employee numbers (FTEs - thousands)
18.5
3.0
9.9
1.9
1.8
5.1
25.5
65.7
Average interest earning assets (£bn)
165.3
25.2
145.8
21.5
29.3
35.1
nm
445.1
Net interest margin
2.52%
1.60%
1.95%
2.44%
1.65%
(0.70%)
nm
1.81%
Third party customer asset rate (3)
3.27%
2.29%
3.37%
2.95%
2.93%
nm
nm
nm
Third party customer funding rate (3)
(0.37%)
(0.15%)
(0.35%)
(0.44%)
(0.14%)
nm
nm
nm
 
 
Refer to page 14 for the notes to this table. nm = not meaningful.
 
 
 
Segment performance
 
Quarter ended 30 September 2020
Retail
Ulster
Commercial
Private
RBS
NatWest
Central items
Total NatWest
 
Banking
Bank RoI
Banking
Banking
International
Markets
& other (1)
Group
 
£m
£m
£m
£m
£m
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
Net interest income
937
100
703
120
85
(21)
2
1,926
Non-interest income
85
30
301
67
27
289
(268)
531
Own credit adjustments
-
-
-
-
-
(34)
-
(34)
Total income
1,022
130
1,004
187
112
234
(266)
2,423
Direct expenses
 
 
 
 
 
 
 
 
  - staff costs
(131)
(50)
(156)
(44)
(27)
(108)
(311)
(827)
  - other costs
(49)
(23)
(71)
(14)
(10)
(37)
(552)
(756)
Indirect expenses
(380)
(47)
(300)
(48)
(13)
(80)
868
-
Strategic costs
 
 
 
 
 
 
 
 
  - direct
(45)
(5)
(3)
(4)
(5)
(67)
(94)
(223)
  - indirect
(35)
(2)
(38)
-
2
(8)
81
-
Litigation and conduct costs
(7)
-
15
(2)
-
(2)
(12)
(8)
Operating expenses
(647)
(127)
(553)
(112)
(53)
(302)
(20)
(1,814)
Operating profit/(loss)before impairment (losses)/releases
375
3
451
75
59
(68)
(286)
609
Impairment (losses)/releases
(70)
(8)
(127)
(18)
(34)
2
1
(254)
Operating profit/(loss)
305
(5)
324
57
25
(66)
(285)
355
Additional information
 
 
 
 
 
 
 
 
Return on equity (2)
15.3%
(1.0%)
9.2%
11.2%
6.4%
(4.7%)
nm
0.8%
Cost:income ratio (2)
63.3%
97.7%
53.4%
59.9%
47.3%
129.1%
nm
74.5%
Total assets (£bn)
189.5
27.4
186.9
24.9
32.7
283.2
47.0
791.6
Funded assets (£bn)
189.5
27.4
186.9
24.9
32.7
121.3
44.6
627.3
Net loans to customers - amortised cost (£bn)
166.7
18.3
110.0
16.5
12.8
10.1
19.3
353.7
Loan impairment rate (2)
17bps
17bps
45bps
43bps
105bps
nm
nm
28bps
Impairment provisions (£bn)
(1.9)
(0.8)
(3.0)
(0.1)
(0.1)
(0.2)
-
(6.1)
Impairment provisions - stage 3 (£bn)
(0.9)
(0.5)
(1.1)
-
-
(0.2)
-
(2.7)
Customer deposits (£bn)
164.9
19.6
161.3
30.3
30.4
4.7
7.2
418.4
Risk-weighted assets (RWAs) (£bn)
36.3
12.1
76.5
10.6
7.0
30.0
1.4
173.9
RWA equivalent (RWAe) (£bn)
36.3
12.1
76.6
10.6
7.1
32.0
1.4
176.1
Employee numbers (FTEs - thousands)
16.6
2.8
9.6
2.1
1.7
2.8
26.0
61.6
Average interest earning assets (£bn)
182.2
27.3
169.3
24.0
31.5
39.2
nm
507.3
Net interest margin
2.05%
1.46%
1.65%
1.99%
1.07%
(0.21%)
nm
1.51%
Third party customer asset rate (3)
2.82%
2.32%
2.73%
2.43%
2.41%
nm
nm
nm
Third party customer funding rate (3)
(0.13%)
(0.11%)
(0.03%)
(0.02%)
0.03%
nm
nm
nm
 
 
Refer to page 14 for the notes to this table. nm = not meaningful.
 
Segment performance
 
Quarter ended 30 June 2020
 
Retail
Ulster
Commercial
Private
RBS
NatWest
Central items
Total NatWest
 
Banking
Bank RoI
Banking
Banking
International
Markets
 & other (1)
Group
 
£m
£m
£m
£m
£m
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
Net interest income
975
97
696
124
90
6
(78)
1,910
Non-interest income
60
23
299
67
25
369
25
868
Own credit adjustments
-
-
-
-
-
(102)
-
(102)
Total income
1,035
120
995
191
115
273
(53)
2,676
Direct expenses
 
 
 
 
 
 
 
 
  - staff costs
(133)
(52)
(167)
(46)
(33)
(159)
(287)
(877)
  - other costs
(45)
(18)
(67)
(23)
(13)
(37)
(581)
(784)
Indirect expenses
(399)
(46)
(337)
(54)
(15)
(75)
926
-
Strategic costs
 
 
 
 
 
 
 
 
  - direct
(1)
(3)
-
-
(2)
(86)
(241)
(333)
  - indirect
(69)
(4)
(34)
(5)
(2)
(8)
122
-
Litigation and conduct costs
101
1
(6)
(1)
-
-
(10)
85
Operating expenses
(546)
(122)
(611)
(129)
(65)
(365)
(71)
(1,909)
Operating profit/(loss) before impairment (losses)/releases
489
(2)
384
62
50
(92)
(124)
767
Impairment (losses)/releases
(360)
(216)
(1,355)
(27)
(31)
(45)
(22)
(2,056)
Operating profit/(loss)
129
(218)
(971)
35
19
(137)
(146)
(1,289)
Additional information
 
 
 
 
 
 
 
 
Return on equity (2)
5.7%
(44.5%)
(32.5%)
6.6%
4.3%
(7.1%)
nm
(12.4%)
Cost:income ratio (2)
52.8%
101.7%
59.9%
67.5%
56.5%
133.7%
nm
70.9%
Total assets (£bn)
187.1
27.6
186.0
23.9
31.5
303.8
47.0
806.9
Funded assets (£bn)
187.1
27.6
186.0
23.9
31.5
122.9
44.5
623.5
Net loans to customers - amortised cost (£bn)
164.5
18.7
112.0
16.0
12.7
11.4
17.0
352.3
Loan impairment rate (2)
87bps
441bps
472bps
67bps
97bps
nm
nm
229bps
Impairment provisions (£bn)
(1.9)
(0.9)
(3.0)
(0.1)
-
(0.2)
-
(6.1)
Impairment provisions - stage 3 (£bn)
(0.9)
(0.6)
(1.2)
-
-
(0.1)
-
(2.8)
Customer deposits (£bn)
161.0
20.0
159.6
29.8
29.5
5.5
2.9
408.3
Risk-weighted assets (RWAs) (£bn)
36.7
12.8
78.3
10.4
6.8
35.1
1.4
181.5
RWA equivalent (RWAe) (£bn)
36.7
12.8
78.4
10.4
6.9
37.2
1.5
183.9
Employee numbers (FTEs - thousands)
17.1
2.8
9.6
2.0
1.8
5.0
24.4
62.7
Average interest earning assets (£bn)
179.8
26.4
164.6
23.3
31.5
39.9
nm
497.4
Net interest margin
2.18%
1.48%
1.70%
2.14%
1.15%
0.06%
nm
1.54%
Third party customer asset rate (3)
2.88%
2.27%
2.88%
2.53%
2.58%
nm
nm
nm
Third party customer funding rate (3)
(0.20%)
(0.12%)
(0.25%)
(0.14%)
(0.01%)
nm
nm
nm
 
 
Refer to page 14 for the notes to this table. nm = not meaningful.
 
 
 
 
Segment performance
 
Quarter ended 30 September 2019
 
Retail
Ulster
Commercial
Private
RBS
NatWest
Central items
Total NatWest
 
Banking
Bank RoI
Banking
Banking
International
Markets
& other (1)
Group
 
£m
£m
£m
£m
£m
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
Net interest income
1,034
102
703
130
119
(62)
(20)
2,006
Non-interest income
190
43
374
68
31
223
(20)
909
Own credit adjustments
-
-
-
-
-
(11)
(1)
(12)
Total income
1,224
145
1,077
198
150
150
(41)
2,903
Direct expenses
 
 
 
 
 
 
 
 
  - staff costs
(143)
(52)
(172)
(40)
(30)
(159)
(295)
(891)
  - other costs
(81)
(22)
(72)
(17)
(14)
(42)
(594)
(842)
Indirect expenses
(385)
(44)
(317)
(49)
(13)
(81)
889
-
Strategic costs
 
 
 
 
 
 
 
 
  - direct
(12)
(3)
10
-
(4)
(55)
(151)
(215)
  - indirect
(68)
(9)
(83)
(13)
(1)
(7)
181
-
Litigation and conduct costs
(912)
(1)
(4)
-
-
(4)
171
(750)
Operating expenses
(1,601)
(131)
(638)
(119)
(62)
(348)
201
(2,698)
Operating profit/(loss) before impairment (losses)/releases
(377)
14
439
79
88
(198)
160
205
Impairment (losses)/releases
(131)
17
(108)
2
-
5
2
(213)
Operating profit/(loss)
(508)
31
331
81
88
(193)
162
(8)
Additional information
 
 
 
 
 
 
 
 
Return on equity (2)
(26.8%)
5.8%
8.4%
16.8%
26.0%
(8.7%)
nm
(3.8%)
Cost:income ratio (2)
130.8%
90.3%
57.9%
60.1%
41.3%
232.0%
nm
92.9%
Total assets (£bn)
176.7
26.1
166.6
22.6
31.2
318.3
35.0
776.5
Funded assets (£bn)
176.7
26.0
166.6
22.6
31.2
142.7
34.9
600.7
Net loans to customers - amortised cost (£bn)
154.6
19.0
101.5
15.2
13.8
9.1
6.3
319.5
Loan impairment rate (2)
34bps
(34)bps
42bps
(5)bps
-
nm
nm
26bps
Impairment provisions (£bn)
(1.4)
(0.8)
(1.3)
-
-
(0.2)
(0.1)
(3.8)
Impairment provisions - stage 3 (£bn)
(0.8)
(0.8)
(1.0)
-
-
(0.2)
-
(2.8)
Customer deposits (£bn)
147.9
18.8
135.7
28.2
29.1
3.3
6.7
369.7
Risk-weighted assets (RWAs) (£bn)
37.5
13.3
77.0
10.0
6.5
43.8
1.4
189.5
RWA equivalent (RWAes) (£bn)
38.4
13.6
78.1
10.0
6.6
48.9
1.7
197.3
Employee numbers (FTEs - thousands)
18.5
3.0
9.9
1.9
1.8
5.1
25.5
65.7
Average interest earning assets (£bn)
168.1
26.2
146.7
22.0
30.4
38.6
nm
454.4
Net interest margin
2.44%
1.55%
1.90%
2.35%
1.55%
(0.64%)
nm
1.75%
Third party customer asset rate (3)
3.23%
2.26%
3.31%
2.92%
2.91%
nm
nm
nm
Third party customer funding rate (3)
(0.37%)
(0.14%)
(0.36%)
(0.44%)
(0.14%)
nm
nm
nm
 
Notes:
(1)   Central items & other includes unallocated transactions, including volatile items under IFRS, items related to Alawwal bank merger and RMBS related charges.
(2)   Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant.
(3)   Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. Third party customer funding rate reflects interest payable on third-party customer deposits. This excludes intragroup items, loans to banks and liquid asset portfolios. Intragroup items, bank deposits and debt securities in issue are excluded for customer funding rate calculation. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets without these exclusions.
 
 
 
Capital and risk management
 
Page
Capital, liquidity and funding risk
15
Credit risk
 
     Segmental exposure
21
     Sector analysis
25
     Wholesale support schemes
27
 
Capital, liquidity and funding risk
Introduction
The economic impact of the Covid-19 pandemic was significant. While liquidity, capital and funding were closely monitored
throughout, NatWest Group benefited from its strong positions, particularly in relation to CET1, going into the crisis. Prudent
risk management continues to be important as the full economic effects of the global pandemic unfold. 
 
Key developments
The CET1 ratio increased by 200 basis points to 18.2%. There was a release of £1.3 billion following the cancellation of the proposed 2019 dividend payments and associated pension contribution in Q1 2020, as announced by the Board in response to Covid-19. The attributable loss in the period was £644 million however the IFRS 9 transitional arrangements on expected credit losses provided relief of £1,719 million.
Total RWAs decreased by £5.3 billion during the period, mainly reflecting reductions in Market Risk RWAs of £3.6 billion and Counterparty Credit Risk RWAs of £2.4 billion. Operational Risk RWAs reduced by £0.7 billion following the annual recalculation in Q1 2020.  The reduction in Market Risk RWAs was due to movements in Risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as well as a reduction in non-modelled market risk.  There were offsetting increases in Credit Risk RWAs of £1.4 billion.
The CRR leverage ratio increased to 5.2% due to a £2.5 billion increase in Tier 1 capital which is partially offset by a £44.4 billion increase in the leverage exposure driven by balance sheet exposures.
 
In response to the Covid-19 pandemic, a number of relief measures to alleviate the financial stability impact have been announced and recommended by regulatory and supervisory bodies. One significant announcement was on 26 June when the European Parliament passed an amended regulation to the CRR in response to the Covid-19 pandemic ("the CRR Covid-19 amendment"); NatWest Group has applied a number of the CRR amendments for Q3 2020 reporting. The impact on capital and leverage of the CRR amendment and other relief measures are set out below.
 
IFRS 9 Transition - NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9; it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS 9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 September 2020 is £1,719 million.  Excluding this adjustment, the CET1 ratio would be 17.2%.
UK Leverage exposure - The Prudential Regulation Authority (PRA) announced the ability for firms to apply for a modification by consent to permit the netting of regular-way purchase and sales settlement balances. The PRA also offered a further modification that gave an exclusion from the UK Leverage Exposure for BBLS and other 100% guaranteed government Covid-19 lending schemes. NatWest Group has received permission to apply these and it has reduced the UK leverage exposure by c.£9.8 billion and £7.5 billion respectively.
CRR Leverage exposure - The CRR Covid-19 amendment accelerated a change in CRR2 to allow the netting of regular-way purchase and sales settlement balances. NatWest Group has applied this, and it has reduced the CRR leverage exposure by c.£9.8 billion.
Infrastructure and SME RWA supporting factors - The CRR Covid-19 amendment allowed an acceleration of the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor. NatWest Group has implemented these beneficial changes to supporting factors which have reduced RWAs by c.£1.0 billion for SMEs and £0.8 billion for Infrastructure.
Prudential Valuation Adjustment (PVA) - The European Commission amended the prudent valuation Regulatory Technical Standard such that, due to the exceptional levels of market volatility, the aggregation factor was increased from 50% to 66% until 31 December 2020 inclusive. This has reduced NatWest Group's PVA deduction by c.£100 million.
Market Risk Value-at-risk (VaR) model capital multiplier - Earlier in the year, the PRA and De Nederlandsche Bank (DNB) announced temporary approaches in relation to the exceptional levels of market volatility which resulted in an increase in VaR model back-testing exceptions in NatWest Markets Plc and NatWest Markets N.V.. Under the PRA temporary approach, capital multiplier increases due to new back-testing exceptions which have resulted in an increase in capital requirements could be offset through a commensurate reduction in RNIV capital requirements. The PRA announced that this temporary approach will cease to apply from 1 October 2020, and be replaced by the measures announced in the CRR Covid-19 amendment where back-testing exceptions due to the exceptional levels of market volatility due to Covid-19 can be excluded from the capital multiplier. The application of this CRR Covid-19 measure is subject to approval by the PRA, which NatWest Markets Plc has applied for. The PRA approach resulted in c.£1.3 billion benefit.
Capital buffers - Many countries have announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020.
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.  
 
Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments, known as the MDA. Note that different requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.
 
The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements.
 
Type
CET1
Total Tier 1
Total capital
Pillar 1 requirements
4.5%
6.0%
8.0%
Pillar 2A requirements
1.9%
2.6%
3.4%
Minimum Capital Requirements
6.4%
8.6%
11.4%
Capital conservation buffer
2.5%
2.5%
2.5%
Countercyclical capital buffer (1) 
0.0%
0.0%
0.0%
G-SIB buffer (2)
-
 
-
-
MDA Threshold (3)
8.9%
 
na
 
na
Subtotal
8.9%
11.1%
13.9%
Capital ratios at 30 September 2020
18.2%
20.5%
23.7%
Headroom (4)
9.3%
9.4%
9.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
Many countries have announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020.
(2)
(3)
(4)
In November 2018 the Financial Stability Board announced that NatWest Group is no longer a G-SIB. From 1 January 2020, NatWest Group was released from this global buffer requirement.
The prevailing combined buffer requirements for NatWest Group equate to the aggregate of the capital conservation buffer and countercyclical buffer. The PRA informed a revised Pillar 2A requirement on a nominal capital basis effective from 5 October 2020 which results in an implied 9.1% MDA.
The headroom does not reflect excess distributable capital and may vary over time.
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios.
 
CRR basis (1)
 
30 September
30 June
31 December
Capital adequacy ratios
2020
2020
2019
CET1 (%)
18.2
17.2
16.2
Tier 1 (%)
20.5
19.4
18.5
Total (%)
23.7
22.5
21.2
 
 
 
 
Capital
£m
£m
£m
Tangible equity
32,093
32,006
32,371
 
 
 
 
Expected loss less impairment provisions
-
-
(167)
Prudential valuation adjustment
(341)
(370)
(431)
Deferred tax assets
(835)
(844)
(757)
Own credit adjustments
(154)
(244)
(118)
Pension fund assets
(590)
(588)
(474)
Cash flow hedging reserve
(300)
(341)
(35)
Foreseeable ordinary and special dividends
-
-
(968)
Foreseeable charges
                        -
-
(365)
Adjustments under IFRS 9 transitional arrangements
1,719
1,578
-
Other deductions
-
-
(2)
Total deductions
(501)
(809)
(3,317)
 
 
 
 
CET1 capital
31,592
31,197
29,054
AT1 capital
3,990
3,990
4,051
Tier 1 capital
35,582
35,187
33,105
Tier 2 capital
5,710
5,596
4,900
 
 
 
 
Total regulatory capital
41,292
40,783
38,005
 
 
 
 
Risk-weighted assets
 
 
 
Credit risk
132,387
135,657
131,012
Counterparty credit risk
10,170
12,354
12,631
Market risk
9,399
11,517
12,930
Operational risk
21,930
21,930
22,599
Total RWAs
173,886
181,458
179,172
 
 
 
 
Leverage
 
 
 
Cash and balances at central banks
106,388
100,281
77,858
Trading assets
70,820
72,402
76,745
Derivatives
164,311
183,419
150,029
Financial assets
424,291
428,040
399,088
Other assets
25,751
22,745
19,319
Total assets
791,561
806,887
723,039
 
 
 
 
Derivatives
 
 
 
  - netting and variation margin
(172,389)
(194,387)
(157,778)
  - potential future exposures
40,439
44,019
43,004
Securities financing transactions gross up
1,193
1,312
2,224
Other off balance sheet items
44,650
43,484
42,363
Regulatory deductions and other adjustments
(17,167)
(14,579)
(8,978)
CRR leverage exposure
688,287
686,736
643,874
 
 
 
 
CRR leverage ratio % (2)
5.2
5.1
5.1
 
 
 
 
UK leverage exposure
576,889
585,115
570,330
UK leverage ratio % (3)
6.2
6.0
5.8
                                                       
Notes:
(1)   Based on CRR end point including the IFRS 9 transitional adjustment of £1,719 million. Excluding this adjustment, the CET1 ratio would be 17.2%.
(2)   Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment) and leverage exposure under the CRR Delegated Act. Excluding the IFRS 9 transitional adjustment, the leverage ratio would be 4.9%.
(3)   Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment). The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.9%.
 
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the nine months ended 30 September 2020.
 
CET1
AT1
Tier 2
Total
 
£m
£m
£m
£m
At 1 January 2020
29,054
4,051
4,900
38,005
Attributable loss for the period
(644)
-
-
(644)
Own credit
(36)
-
-
(36)
Foreign exchange reserve
415
-
-
415
FVOCI reserve
(174)
-
-
(174)
Goodwill and intangibles deduction
22
-
-
22
Deferred tax assets
(78)
-
-
(78)
Prudential valuation adjustments
90
-
-
90
Expected loss less impairment
167
-
-
167
New issues of capital instruments
-
1,216
1,654
2,870
Redemption of capital instruments
-
(1,277)
(751)
(2,028)
Net dated subordinated debt/grandfathered instruments
-
-
(579)
(579)
Foreign exchange movements
(355)
-
103
(252)
Foreseeable ordinary and special dividends
968
-
-
968
Foreseeable charges
365
-
-
365
Adjustment under IFRS 9 transitional arrangements
1,719
-
-
1,719
Other movements
79
-
383
462
At 30 September 2020
31,592
3,990
5,710
41,292
 
Key points
●     NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9; it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS 9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 September 2020 is £1,719 million. 
●     Foreign exchange movements in CET1 include a £345 million charge in relation to a $2 billion AT1 redemption announcement on 28 June 2020.
 
 
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Risk-weighted assets
The table below analyses the movement in RWAs during the period, by key drivers.
 
 
 
Counterparty
 
Operational
 
 
Credit risk
credit risk
Market risk
 risk
Total
 
£bn
£bn
£bn
£bn
£bn
At 1 January 2020
131.0
12.6
13.0
22.6
179.2
Foreign exchange movement
1.6
0.2
-
-
1.8
Business movement
-
(1.6)
(2.1)
(0.7)
(4.4)
Risk parameter changes (1)
0.3
0.2
-
-
0.5
Methodology changes (2)
(1.4)
(0.1)
-
-
(1.5)
Model updates
0.9
-
(0.2)
-
0.7
Other movements (3)
-
(1.1)
(1.3)
-
(2.4)
At 30 September 2020
132.4
10.2
9.4
21.9
173.9
 
The table below analyses segmental RWAs.
 
 
 
 
 
 
 
 
Central
 
 
Retail
Ulster
Commercial
Private
RBS
NatWest
items &
 
 
Banking
Bank RoI
Banking
Banking
International
Markets
 other
Total
Total RWAs
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2020
37.8
13.0
72.5
10.1
6.5
37.9
1.4
179.2
Foreign exchange movement
-
0.7
0.5
-
0.1
0.5
-
1.8
Business movement
(0.3)
(1.0)
2.4
0.6
0.4
(6.2)
(0.3)
(4.4)
Risk parameter changes (1)
(1.2)
(0.7)
1.9
-
-
0.5
-
0.5
Methodology changes (2)
-
(0.1)
(1.8)
(0.1)
-
0.2
0.3
(1.5)
Model updates
-
0.2
0.7
-
-
(0.2)
-
0.7
Other movements (3)
-
-
0.3
-
-
(2.7)
-
(2.4)
At 30 September 2020
36.3
12.1
76.5
10.6
7.0
30.0
1.4
173.9
 
 
 
 
 
 
 
 
 
Credit risk
28.7
11.0
67.6
9.3
6.0
8.4
1.4
132.4
Counterparty credit risk
0.1
-
0.2
0.1
-
9.8
-
10.2
Market risk
0.1
0.1
0.2
-
-
9.0
-
9.4
Operational risk
7.4
1.0
8.5
1.2
1.0
2.8
-
21.9
Total RWAs
36.3
12.1
76.5
10.6
7.0
30.0
1.4
173.9
 
Notes:
(1)
Risk parameter changes relate to changes in credit quality metrics of customers and counterparties (such as probability of default and loss given default) as well as internal ratings based model changes relating to counterparty credit risk in line with European Banking Authority Pillar 3 Guidelines.
(2)
(a) The new securitisation framework has been fully implemented from 1 January 2020 and all positions have moved to the new framework.
(b) Methodology changes also reflect the CRR Covid-19 amendment which allowed an acceleration of the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor.
(3)
Other movements include:
(a) The temporary reduction permitted by the PRA to offset the impact of multiplier increases (included in business movement). The offset covers all metrics affected by the multiplier increase, including CVAs.
(b) Hedging activity on counterparty credit risk in NatWest Markets.
(c) A transfer of Insurance related assets from NatWest Markets to Commercial Banking.
 
 
Key point
Total RWAs decreased by £5.3 billion during the period, mainly reflecting reductions in Market Risk RWAs of £3.6 billion and Counterparty Credit Risk RWAs of £2.4 billion. Operational Risk RWAs reduced by £0.7 billion following the annual recalculation in Q1 2020.  The reduction in Market Risk RWAs was due to movements in Risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as well as a reduction in non-modelled market risk. The reduction in Counterparty Credit Risk RWAs was driven by hedging activity and trade novations. There were increases in Credit Risk RWAs of £1.4 billion mainly attributed to increases due to foreign exchange movements of £1.6 billion and model changes of £0.9 billion, which were partially offset by the beneficial CRR changes to supporting factors which have reduced RWAs by c.£1.8 billion. The £0.3 billion increase in Credit Risk RWAs due to risk parameters mainly reflected PD deteriorations for customers in Commercial, partly offset by improved risk metrics for Retail Banking products.
 
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Credit risk exposure at default (EAD) and Risk-weighted assets (RWAs)
The table below analyses credit risk RWAs and EADs during the period, by on and off balance sheet.
 
 
 
Retail
Ulster
Commercial
Private
RBS
NatWest
Central items
 
 
Banking
Bank RoI
Banking
Banking
International
Markets
& other
Total
30 September 2020
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
EAD
On balance sheet
239.9
28.0
149.8
22.2
32.2
38.2
0.9
511.2
Off balance sheet
28.1
2.3
30.4
0.3
4.8
6.2
0.1
72.2
Total
268.0
30.3
180.2
22.5
37.0
44.4
1.0
583.4
 
 
 
 
 
 
 
 
 
 
RWAs
On balance sheet
26.1
9.9
53.7
9.1
4.7
6.2
1.4
111.1
Off balance sheet
2.6
1.1
13.9
0.2
1.3
2.2
-
21.3
Total
28.7
11.0
67.6
9.3
6.0
8.4
1.4
132.4
30 June 2020
 
 
 
 
 
 
 
 
EAD
On balance sheet
235.6
28.3
152.6
21.4
31.1
40.7
0.7
510.4
Off balance sheet
27.2
2.2
29.9
0.3
4.8
6.2
0.4
71.0
Total
262.8
30.5
182.5
21.7
35.9
46.9
1.1
581.4
 
 
 
 
 
 
 
 
 
 
RWAs
On balance sheet
26.4
10.6
56.3
8.9
4.5
7.0
1.3
115.0
Off balance sheet
2.7
1.1
13.2
0.2
1.3
2.1
0.1
20.7
Total
29.1
11.7
69.5
9.1
5.8
9.1
1.4
135.7
31 December 2019
 
 
 
 
 
 
 
 
EAD
On balance sheet
221.8
26.0
131.4
20.3
31.7
35.4
0.7
467.3
Off balance sheet
30.2
2.2
27.2
0.3
3.3
7.5
0.4
71.1
Total
252.0
28.2
158.6
20.6
35.0
42.9
1.1
538.4
 
 
 
 
 
 
 
 
 
 
RWAs
On balance sheet
27.1
10.8
50.8
8.7
4.7
6.4
1.3
109.8
Off balance sheet
3.1
1.1
12.5
0.2
1.0
3.2
0.1
21.2
Total
30.2
11.9
63.3
8.9
5.7
9.6
1.4
131.0
 
Liquidity portfolio
The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory liquidity coverage ratio (LCR) categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes.
 
 
Liquidity value
 
30 September 2020
 
30 June 2020
 
31 December 2019
 
NatWest
 
NatWest
 
NatWest
 
Group (1)
 
Group (1)
 
Group (1)
 
£m
 
£m
 
£m
Cash and balances at central banks
103,198
 
97,201