20-F 1 a20-38587_820f.htm 20-F

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 20-F

 

(Mark One)

o       REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934

OR

x        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020
OR

o       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

OR

o       SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

Commission file number: 001-10306

NATWEST GROUP plc

(Exact name of Registrant as specified in its charter)

United Kingdom

(Jurisdiction of incorporation)

Gogarburn, PO Box 1000, Edinburgh EH12 1HQ, United Kingdom

(Address of principal executive offices)

Jan Cargill, Chief Governance Officer and Company Secretary,

Tel: +44 (0) 370 702 0135, Fax: +44 (0) 131 626 3081

 

PO Box 1000, Gogarburn, Edinburgh EH12 1HQ

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 


 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

 

 

Trading

 

 

Title of each class

 

Symbol (s)

 

Name of each exchange on which registered

American Depositary Shares, each representing 2 ordinary shares, nominal value £1 per share

 

RBS

 

New York Stock Exchange

Ordinary shares, nominal value £1 per share

 

 

 

New York Stock Exchange*

American Depositary Shares, Series U, each representing 1 Non-cumulative Dollar Preference Share, Series U

 

RBS

 

New York Stock Exchange

Dollar Perpetual Regulatory Tier 1 Securities

 

RBSP1

 

New York Stock Exchange

6.125%Senior Notes due 2021

 

RBS21

 

New York Stock Exchange

3.875% Senior Notes due 2023

 

RBS23B

 

New York Stock Exchange

6.125%Subordinated Tier 2 Notes due 2022

 

RBS22

 

New York Stock Exchange

6.000%Subordinated Tier 2 Notes due 2023

 

RBS23A

 

New York Stock Exchange

6.100%Subordinated Tier 2 Notes due 2023

 

RBS23

 

New York Stock Exchange

5.125%Subordinated Tier 2 Notes due 2024

 

RBS24

 

New York Stock Exchange

3.754%Fixed-to-fixed Reset Rate Subordinated Tier 2 Notes due 2029

 

RBS29A

 

New York Stock Exchange

3.032%Fixed-to-fixed Reset Rate Subordinated Tier 2 Notes due 2035

 

NWG35

 

New York Stock Exchange

3.498%Fixed Rate / Floating Rate Senior Notes due 2023

 

RBS23D

 

New York Stock Exchange

4.519%Fixed Rate / Floating Rate Senior Notes due 2024

 

RBS23A

 

New York Stock Exchange

2.359%Callable Fixed-to-fixed Reset Rate Green Senior Notes due 2024

 

RBS24C

 

New York Stock Exchange

4.269%Fixed Rate / Floating Rate Senior Notes due 2025

 

RBS25

 

New York Stock Exchange

3.073%Callable Fixed-to-fixed Reset Rate Senior Notes due 2028

 

RBS28

 

New York Stock Exchange

4.892%Fixed Rate / Floating Rate Senior Notes due 2029

 

RBS29

 

New York Stock Exchange

5.076%Fixed Rate / Floating Rate Senior Notes due 2030

 

RBS30

 

New York Stock Exchange

4.445%Fixed Rate / Floating Rate Senior Notes due 2030

 

RBS30A

 

New York Stock Exchange

Senior Floating Rate Notes due 2023

 

RBS23C

 

New York Stock Exchange

Senior Floating Rate Notes due 2024

 

RBS24B

 

New York Stock Exchange

 

 

* Not for trading, but only in connection with the registration of American Depositary Shares representing such ordinary shares pursuant to the requirements of the Securities and Exchange Commission.

 


 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None


Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Perpetual Subordinated Contingent Convertible Additional Tier 1 Capital Notes callable 2020 Irish Stock Exchange

Perpetual Subordinated Contingent Convertible Additional Tier 1 Capital Notes callable 2021 Irish Stock Exchange

Perpetual Subordinated Contingent Convertible Additional Tier 1 Capital Notes callable 2025 Irish Stock Exchange

Perpetual Subordinated Contingent Convertible Additional Tier 1 Capital Notes callable 2025 London Stock Exchange

Perpetual Subordinated Contingent Convertible Additional Tier 1 Capital Notes callable 2027 London Stock Exchange


Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2020, the close of the period covered by the annual report:

 

(Title of each class)

 

(Number of outstanding shares)

Ordinary shares of £1 each

 

12,129,165,477

11% cumulative preference shares

 

500,000

5½% cumulative preference shares

 

400,000

Non-cumulative dollar preference shares, Series U

 

10,130

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x   Yes     o   No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o   Yes     x   No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x   Yes     o   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x   Yes     o   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

(Check one):

 

Large accelerated filer    x    Accelerated filer  o     Non-Accelerated filer  o      Emerging growth companyo

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new ore revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.  o

 

†The term “new or revised financial accounting standard” refers to any update issues by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

o   U.S. GAAP

x   International Financial Reporting Standards as issued by the International Accounting Standards Board

o   Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o   Item 17        o  Item 18

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

x   Yes     o   No

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o   Yes     x   No

 


 

 ItemPages 1Identity of Directors, Senior Management and Offer Statistics and Expected TimetableNot applicable 3 7 Financial Information Consolidated statements and other financial information Significant changes 9 Expenses of the issue Additional information Quantitative and Qualitative Disclosure about Description of Securities other than Equity

GRAPHIC

 

SEC Form 20-F cross reference guide ItemPages [Reserved] Exemptions from the Listing StandardsNot applicabl 16ePurchases of Equity Securities by the Issuer and Change in Registrant’s Certifying AccountantNot ap Mine Safety DisclosureNot applicable PART III Financial StatementsNot applicable

GRAPHIC

 

 

Forward looking statements Cautionary statement regarding forward-looking stat Certain sections in this document contain ‘forward-such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘commit’, ‘be at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may particular, this document includes forward-looking profitability and performance, including financial including in relation to sustainable financing and relation to the refocusing of its NWM franchise and Limitations inherent to forward-looking statements These statements are based on current plans, expect Important factors that could affect the actual outc We caution you that a large number of important fac

GRAPHIC

 

Presentation of information Western European Corporate Portfolio In order to best serve its customers in an efficien corporate portfolio, principally including term fun Markets Plc or its subsidiaries. Some or all of the Plc. The timing and quantum of such transfers is un

GRAPHIC

 

Non-IFRS financial information As described in the Accounting policies, NatWest Group prepares its financial statements in accordance with the basis set out in the accounting policies, page 263 which constitutes a body of generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include: Performance metrics not defined under IFRS(1) Note: (1) Metric based on GAAP measures, included as not defined under IFRS and reported for compliance with ESMA adjusted performance measure rules. Recent developments [Placeholder]

 

NatWest Group plc Summary Risk Factors Principal risks and uncertainties Set out below is a summary of the principal risks and uncertainties that could adversely affect NatWest Group’s future results, its financial condition and prospects and cause them to be materially different from what is forecast or expected, and directly or indirectly impact the value of its securities in issue. This summary should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties; a fuller description of these and other risk factors is included on pages 347 to 366 of this report on Form 20-F and should be read together with NatWest Group’s other public disclosures. Any of the risks identified may have a material adverse effect on NatWest Group’s business, operations, financial condition or prospects. The current COVID-19 pandemic may exacerbate any of the risks described below. Risks relating to the COVID-19 pandemic The effects of the COVID-19 pandemic on the UK, global economies and financial markets, and NatWest Group’s customers, as well as its competitive environment may continue to have a material adverse effect on NatWest Group’s business, results of operations and outlook. The adverse impact of the COVID-19 pandemic on the credit quality of NatWest Group’s counterparties and the implementation of support schemes in response of the COVID-19 pandemic has increased NatWest Group’s exposure to counterparty risk, which may adversely affect its business, results of operations and outlook. The COVID-19 pandemic may adversely affect NatWest Group’s strategy and impair its ability to meet its targets and to achieve its strategic objectives. The COVID-19 pandemic has heightened NatWest Group’s operational risks as many of its employees are working remotely which may also adversely affect NatWest Group’s ability to maintain effective internal controls. The effects of the COVID-19 pandemic could affect NatWest Group’s ability to access sources of liquidity and funding, which may result in higher funding costs and failure to comply with regulatory capital, funding and leverage requirements. NatWest Group’s results could be adversely affected if the effects of the COVID-19 pandemic or other events trigger the recognition of a goodwill impairment. Economic and political risk Continuing uncertainty regarding the effects of the UK’s withdrawal from the European Union may continue to adversely affect NatWest Group and its operating environment. NatWest Group faces increased political and economic risks and uncertainty in the UK and global markets. Changes in interest rates have significantly affected and will continue to affect NatWest Group’s business and results. HM Treasury (or UKGI on its behalf) could exercise a significant degree of influence over NatWest Group and further offers or sales of NatWest Group’s shares held by HM Treasury may affect the price of securities issued by NatWest Group. Changes in foreign currency exchange rates may affect NatWest Group’s results and financial position. Strategic risk NatWest Group is currently implementing its Purpose-led Strategy, which carries significant execution and operational risks and may not achieve its stated aims and targeted outcomes. NatWest Group is in the process of refocusing its NWM franchise, which entails significant commercial, operational and execution risks and the intended benefits for NatWest Group may not be realised within the timeline and in the manner currently contemplated. Financial resilience risk NatWest Group may not meet targets and be in a position to continue to make discretionary capital distributions (including dividends to shareholders). NatWest Group operates in markets that are highly competitive, with increasing competitive pressures and technology disruption. NatWest Group has significant exposure to counterparty and borrower risk. NatWest Group may not meet the prudential regulatory requirements for capital and MREL, or manage its capital effectively, which could trigger the execution of certain management actions or recovery options. NatWest Group is subject to Bank of England oversight in respect of resolution, and NatWest Group could be adversely affected should the Bank of England deem NatWest Group’s preparations to be inadequate. NatWest Group may not be able to adequately access sources of liquidity and funding. Any reduction in the credit rating and/or outlooks assigned to NatWest Group plc, any of its subsidiaries or any of their respective debt securities could adversely affect the availability of funding for NatWest Group, reduce NatWest Group’s liquidity position and increase the cost of funding. NatWest Group may be adversely affected if it fails to meet the requirements of regulatory stress tests. NatWest Group could incur losses or be required to maintain higher levels of capital as a result of limitations or failure of various models. NatWest Group’s financial statements are sensitive to the underlying accounting policies, judgments, estimates and assumptions. Changes in accounting standards may materially impact NatWest Group’s financial results. The value or effectiveness of any credit protection that NatWest Group has purchased depends on the value of the underlying assets and the financial condition of the insurers and counterparties. NatWest Group may become subject to the application of UK statutory stabilisation or resolution powers which may result in, among other actions, the cancellation, transfer or dilution of ordinary shares, or the write-down or conversion of certain other of NatWest Group’s securities.

GRAPHIC

 

NatWest Group plc Summary Risk Factors continued Climate and sustainability-related risks NatWest Group and its customers may face significan adversely impact NatWest Group. NatWest Group’s Purpose-led Strategy includes one a business of NatWest Group which entails significant Any failure by NatWest Group to implement effective There are significant uncertainties inherent in acc A failure to adapt NatWest Group’s business strateg Any reduction in the ESG ratings of NatWest Group c Increasing levels of climate, environmental and sus NatWest Group may be subject to potential climate, Operational and IT resilience risk Operational risks (including reliance on third part businesses. NatWest Group is subject to increasingly sophistica NatWest Group operations and strategy are highly de NatWest Group’s operations are highly dependent on NatWest Group relies on attracting, retaining and d employee relations. A failure in NatWest Group’s risk management framew NatWest Group’s operations are subject to inherent Legal, regulatory and conduct risk NatWest Group’s businesses are subject to substanti NatWest Group is subject to various litigation matt undertakings, including conduct-related reviews, an to predict, and which could have an adverse effect NatWest Group may not effectively manage the transi NatWest Group operates in jurisdictions that are su The cost of implementing the Alternative Remedies Package (‘ARP’) could be more onerous than anticipat Changes in tax legislation or failure to generate f by NatWest Group.

GRAPHIC

 

 

 

Strategic report 2020 highlights and progress Approval of Strategic Report Building a purpose-led bank 19 February 2021 ChairmanHoward Davies Executive directorsAlison Rose (Group CEO) Katie Murray (Group CFO) Non-executive directorsFrank DangeardYasmin Jetha Patrick FlynnMike Rogers Morten FriisMark Seligman Robert GillespieLena Wilson Our stakeholders Risk management Governance and compliance

GRAPHIC

 

Our 2020 reporting suite Our 2020 reporting suite. Our 2020 reporting suite brings together NatWest Group’s financial, non-financial and risk performance for the year. The reports are designed primarily to meet the expectations of our investors and debt holders (including green, social and sustainability (GSS) bonds), as well as regulators, ESG conscious investors and our wider stakeholders, including customers, colleagues and society more broadly. The main reports within this suite and their focus areas are detailed below. Reports All contained within this document Company announcement and Financial supplement Our latest company information including our financial performance for the year with a focus on key metrics and measurement. The financial supplement provides key financial performance data for the nine quarters ended 31 December 2020. Climate-related disclosures report Details our progress in 2020 on our climate ambitions including an overview of our approach to climate related strategy, scenario analysis, risk management and metrics. ESG supplement Provides an overview of Our Purpose in action and key environmental, social and governance matters including progress in 2020. Due to be published in March 2021. Pillar 3 report Focuses on our regulatory reporting requirements and provides an explanation of our risk profile, including our capital adequacy, risk appetite and risk management. natwestgroup.com

GRAPHIC

 

2020 highlights and progress A relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities throughout the UK and Ireland can rebuild and thrive. If our customers succeed, so will we. DOING THE RIGHT THING Our Purpose We champion potential, helping people, families and business to thrive Areas of Focus There are three focus areas of Our Purpose where we can make a meaningful contribution to our customers, colleagues and communities. Our Strategy Our strategy is to deliver on Our Purpose and drive sustainable returns to shareholders through four strategic priorities. NatWest Group is the largest business and commercial bank in the UK, with a leading retail business. We are the biggest Supporting customers at every stage of their lives Simple to deal with Powered by innovation and partnerships Sharpened capital allocation Climate Leading the climate challenge Learning Building financial capability Enterprise Removing barriers to enterprise supporter of the business sector – banking around 1 in 4 businesses across the UK and Ireland, from start-ups to multi-nationals. We are closely connected to our 19 million customers across the UK and Ireland; through a comprehensive range of banking and financial services, and a strong local and regional footprint. This connection to customers and communities builds our trust and knowledge; enabling us to support our customers effectively, throughout their lives as their financial needs and priorities evolve. We champion their potential, by helping to identify and break down the barriers they may be facing. During this period of economic uncertainty and disruption, we have stepped up to support our customers in faster, more personal and digitally-enabled ways. Guided by our purpose and strategy, we have the proven intent and means to deepen our customer relationships, grow our business, balance the needs of all our stakeholders, and drive long-term, sustainable returns for our shareholders. In an ever-changing world it has never been more important to stand for something. Our Purpose is our North Star – it is the cornerstone of everything we do. It recognises that our business is made up of a network of relationships with multiple stakeholders with different interests. We know relationships run deeper than transactions and that we need to consider the interests of all our stakeholders. In 2020, Our Purpose could be seen in action, as we stepped up quickly to put in place extraordinary measures to support our customers, colleagues and communities through the COVID-19 pandemic. There are three focus areas of Our Purpose where we can make a meaningful contribution to our customers, colleagues and communities: climate, enterprise and learning. We will lead the fight against climate change by playing an active role in the transition to a low-carbon economy. As the champion of businesses in the UK and Ireland we will remove barriers to enterprise and help the economy build back better. And we will build financial capability by helping those who want to take control of their finances and their futures to make the most of their money. The strength of our culture underpins everything we do. We deliver on our promises and live by our values as one bank; serving customers, working together, doing the right thing and thinking long-term. Our strategy is to deliver on Our Purpose and drive sustainable returns to shareholders through four strategic priorities. We will support our customers at every stage of their lives by being more relevant to them and by building deeper relationships as we evolve our propositions to meet their needs throughout their lives. We will be much simpler as a bank and much simpler to deal with for our customers, through a focus on great customer service technology and improving customer journeys. We will be powered by innovation and partnerships by using new technology and digital expertise to deliver an excellent customer experience – harnessing our internal knowledge and experience and partnering with leading external organisations around the world. We will allocate our capital better to drive growth and optimise returns from a safe and secure base. We will deliver these priorities from a strong balance sheet and capital generative businesses, which give us the necessary flexibility to navigate an uncertain outlook, to support our customers, and deliver sustainable returns to shareholders.

GRAPHIC

2020 highlights and progress 2020 financial performance. The past year presented some extraordinary challenges for our customers, colleagues and communities. We provided exceptional levels of support to those who needed it, including the approval of over £14 billion of lending under UK Government schemes, demonstrating that we have truly put Our Purpose at the heart of this business. Being purpose-led isn’t just the right thing to do, it has a powerful commercial imperative and is fundamental to building sustainable value in our business. Despite reporting a loss for the year, NatWest Group delivered a resilient underlying performance in a challenging operating environment. The bank continued to grow in key areas such as mortgages and commercial lending and our balance sheet remains strong, with one of the highest capital ratios amongst our UK and European peers. We have today announced our intention to pay a final dividend whilst reaffirming our commitment to regular capital returns for shareholders in the future. We cannot be certain of the long-term impact of the pandemic. But we can be certain that our bank will continue to support those who need it most as we build back better. By championing potential and helping people, families and businesses to rebuild and thrive, we will succeed together. Alison Rose Group Chief Executive Officer Strategic Report Financial performance Total income decreased by £3,457 million, or 24.3%, compared with 2019. Excluding notable items (2020 – £(384) million; 2019 – £2,115 million) income decreased by £958 million, or 7.9%, due to reductions across the retail and commercial businesses, partially offset by higher NatWest Markets income reflecting increased customer activity as the market reacted to the spread of the COVID-19 virus.

GRAPHIC

 

2020 highlights and progress 2020 progress against our four strategic priorities. Simple to deal with Through simplification and driving efficiency, we will be much simpler as a bank, improving both customer experience and colleague engagement. Customer journeys account for c.30% of our cost base, simplifying and automating customer journeys makes us simpler to deal with and reduces our operating costs. 58% of our customers exclusively use digital channels to interact with us. 2019: 46% Net trust scores 6944 NatWestRoyal Bank of Scotland NatWest and and Royal Bank of Scotland improved, but targets missed by 1 point and 17 points respectively. 2019: 6239 Powered by innovation and partnerships By harnessing our internal knowledge and partnering with leading external organisations, we will use new technology and digital expertise to deliver an excellent customer experience.

GRAPHIC

 

 

2020 highlights and progress Sharpened capital allocation We will use and allocate our capital better to drive growth and optimise returns from a safe and secure base. Liquidity coverage ratio Return on tangible equity % % % The CET1 ratio of 18.5%, was 230 basis points higher than 2019, including c.100 basis points related to IFRS 9 transitional relief. The liquidity coverage ratio (LCR) of 165%, representing £72.1 billion headroom above 100%, increased by 13 percentage points in comparison to 2019. RWAs decreased by £8.9 billion in comparison to 2019, including a £11.0 billion reduction in NatWest Markets to £26.9 billion, partially offset by volume growth across the retail and commercial businesses with minimal levels of procyclical credit risk inflation. Note: (1) Excludes 2019 final dividend per share of 3p and special dividend per share of 5p proposed but not paid due to restrictions placed on UK banks by the PRA. Supporting customers at every stage of their lives Building deeper relationships and evolving our propositions to meet the needs of our customers throughout their lives. £328.8bn of net lending in our retail and commercial businesses, an increase of £20.9 billion. £14.1bn approved through government schemes of which £12.9 billion was drawndown. 258,000 customers helped in 2020 with a mortgage repayment holiday. 2019: £307.9bn2018: £296.7bn Supporting our customers and their financial health through COVID-19. £31.5bn gross new mortgage lending in Retail Banking, a flow share of 13.0%, up from 12.4% in 2019. 2019: £33.3bn2018: £30.4bn £5.0m cash delivered to customers in vulnerable situations. 74,000 payment holidays on business customer accounts.

GRAPHIC

 

2020 highlights and progress Chairman’s statement Dear shareholders, It is fair to say that 2020 was a year like no other. Politicians, regulators and industry leaders around the globe had to come together and find urgent solutions to a series of rapidly evolving public health and socio-economic challenges caused by the COVID-19 pandemic. And the United Kingdom left the European Union after nearly 50 years of membership. Effective oversight is especially critical at times like these. At NatWest Group, we quickly established a rhythm of weekly, virtual Board meetings to receive updates from the management team on our response to COVID-19 and how the implementation of Our Purpose was helping to meet the needs of customers. As a Board, we spent a considerable amount of time working to support Alison and her leadership team in the development of the new purpose for NatWest Group that was set out in February last year. Ultimately, however, we will be judged on our actions, not our words. And all of our leaders have measurable objectives specifically mapped to our three key areas of focus. By embedding Our Purpose at the core of our business, we have signalled our intent to deliver not only a sustainable financial performance for shareholders but to make a positive contribution to society. Group name change Last year also saw us change our group name from The Royal Bank of Scotland Group plc to NatWest Group plc. The Board decided that it was the right time to align our parent company name with the brand under which the majority of our business is delivered. Howard Davies Chairman 2020 was a year like no other. Politicians, regulators and industry leaders around the globe had to come together and find urgent solutions to a series of rapidly evolving public health and socio-economic challenges.

GRAPHIC

 

2020 highlights and progress We have signalled our intent to deliver not only a sustainable financial performance for shareholders but to make a positive contribution to society. Customers have seen no change to our products and services as a result of our name change and continue to be served through the brands they recognise, including NatWest in England and Wales, Royal Bank of Scotland in Scotland and Ulster Bank in Ireland. And while what we are called is important, it is how we do business that will define us. Outlook Throughout 2020, the UK Government and the Bank of England took unprecedented steps in both monetary and fiscal policy. Substantial government-backed interventions kept entire industries afloat and millions of people in work. These measures were generally welcome and necessary and there has been positive progress in developing and rolling out vaccines. But a return to anything approaching normality will take some time and be very different to what went before. At the last minute, the trade agreement with the European Union avoided a disorderly exit. But there is still a lot of work to do and significant uncertainty persists, particularly in areas such as financial services. It remains to be seen how cross-border entities will be regulated and what level of regulatory equivalence between the UK and EU will be secured. As a largely UK-focused bank, the direct impact of Brexit is not as significant for NatWest Group as it is for banks with larger EU or markets operations. We are as prepared as we can be through our well-capitalised and fully operational entities in the EU. Any wider economic impacts will, however, clearly have implications for the bank’s performance. Our focus continues to be on providing support for our customers as the new UK-EU trading relationship develops. Financial performance It is always disappointing to report a loss, even if our performance in 2020 was largely a reflection of the impact that COVID-19 had on our customers and the economy and the fact that we took a large provision under IFRS9 to cover potential future loan losses as the full impact of the pandemic becomes clearer. We also saw a significant decline in share prices across the UK banking sector, including our own. Again, this was to be expected given the prevailing economic conditions and there was a degree of positive momentum towards the end of the year as a Brexit deal was reached and a vaccination programme put in place. The persistently low interest rate environment and ongoing COVID-19 restrictions will continue to challenge financial performance amongst all UK banks for the foreseeable future. However, despite the tough operating environment, the bank is making good progress against its strategy. We continued to grow in key areas of focus and our strong levels of capital and liquidity mean we are well positioned to navigate the ongoing uncertainty. In spite of numerous lockdowns, 2020 was an extremely busy period for many of our colleagues, most of whom were working at home for much of the year. We received over 100,000 applications for the government-backed Bounce Back Loan Scheme in the five days following its launch. And, by the end of 2020, 22% of our mortgage customers had taken a mortgage repayment holiday at some point during the year. We also kept almost all of our branches open. For our colleagues, pay was protected until the end of September 2020, regardless of the need to take time off for COVID-19 related illness, dependants care, isolation or childcare. But our remuneration needs to reflect the difficult economic circumstances. Most of our colleagues do not receive annual bonuses, but for those who are eligible the overall pool has been cut back sharply by around a third. Sustainable returns In March 2020, following a formal request from the Prudential Regulation Authority (PRA), and in line with all our UK peers, the Board undertook not to make any dividend payments in 2020. We also undertook not to set out any distribution plans or to take part in a share buyback during the course of the year. We understand the actions taken by the regulator given the exceptional circumstances. However, these restrictions were clearly a disappointment for many shareholders and impacted the investability and share price performance of all UK banks. In December 2020, the PRA made the welcome announcement that it was lifting the restrictions on capital returns, subject to certain sensible guardrails. Following

GRAPHIC

 

2020 highlights and progress Against this extraordinary backdrop, we provided exceptional levels of support to the customers, colleagues and communities we serve whilst making strong progress against our strategic priorities and protecting the business in the face of significant and ongoing uncertainty. this decision, and having considered a range of factors, we have announced a final dividend of 3 pence per share and, subject to permission from the regulators, we plan to distribute at least £800 million per annum through to 2023 through a combination of ordinary and special dividends, maintaining our 40% pay-out ratio for ordinary dividends. With a CET1 ratio of 18.5% we are operating well above our target ratio of 13 to 14%. In addition to dividends, this gives us the capacity to participate in directed buy backs from the government for up to 4.99% of issued share capital a year. Any buyback of shares will be at the discretion of HM Treasury, but the Board continues to believe that it would be a positive use of our excess capital. Our intention remains to return capital to shareholders or pursue other options that create value and we have now set out a clear guidepath to reach our target CET1 ratio of 13 to 14% by 2023. Board changes and stakeholder engagement During the course of last year, there were a number of changes to the membership of the Board. Baroness Noakes DBE stepped down as a non-executive director in July 2020, with Morten Friis succeeding her as Chairman of the Group Board Risk Committee. Alison Davis stepped down as a non-executive director in March 2020. Yasmin Jetha was re-appointed as a non-executive director on 1 April 2020 and succeeded Alison as Chairman of the Technology and Innovation Committee as well as becoming a member of the Group Sustainable Banking Committee. I would like to thank Baroness Noakes and Alison Davis for their outstanding contributions to the Board over many years. I would also like to welcome Yasmin back to the Board and thank all of my colleagues for their continued dedication in the face of extremely challenging circumstances. Improving the quality and frequency of engagement with all our stakeholders, including our shareholders, remains a priority for the Board. During the course of last year we held virtual events for retail shareholders and Board sessions with institutional shareholders. A number of Board members also met colleagues in Colleague Advisory Panel meetings, chaired by Board Member, Lena Wilson, to hear their views directly. Conclusion We could not have imagined that Our Purpose-led approach would be put to the test so soon after it was announced in February last year. In the space of just a few weeks, the UK was in lockdown. Large parts of our economy came to a complete standstill and many of our customers urgently needed our help. Against this extraordinary backdrop, we provided exceptional levels of support to the customers, colleagues and communities we serve whilst making strong progress against our strategic priorities and protecting the business in the face of significant and ongoing uncertainty. Focus We continue to grow in key areas of focus and our strong levels of capital and liquidity mean we are well positioned to navigate the ongoing uncertainty.

GRAPHIC

 

2020 highlights and progress Supporting female entrepreneurs As the leading bank for UK business, we know that we have a crucial role to play in removing the barriers that women face when starting and scaling up their businesses. Published in 2019, the Rose Review, led by our CEO Alison Rose, demonstrated that removing these barriers could add £250 billion to the UK economy. We have over 600 Women in Business Specialists throughout the UK and are committed to using our expertise to support women to start up and grow their businesses. In 2020 we announced £1 billion of Female Entrepreneurship Funding, all of this funding has been allocated and we recently announced a further £1 billion in funding. Since 2018, 43% of entrepreneurs on our free NatWest Accelerator programme have identified as female, and we have teamed up with Be The Business to pilot the Rose Review Female Entrepreneurs Mentoring Programme, a free mentoring service for female entrepreneurs in Leeds and the West of England, with plans to expand in 2021. In response to COVID-19 we pivoted Dream Bigger, our fully-funded programme focused on developing transferable entrepreneurial skills in 16-18 year old females across the UK, to digital delivery. In 2020, the programme supported over 15,000 16-18 year old female entrepreneurs, working with Microsoft, Facebook and Young Enterprise Scotland. In our Experts in Residence partnership with 38 Local Enterprise Partnerships (LEPs), a NatWest expert spends up to 7 hours per week supporting female and diverse business owners. The programme sees us work alongside partners such as Amazon, Facebook, Microsoft and LinkedIn, with activity tailored to the needs of each LEP.

GRAPHIC

 

 

2020 highlights and progress Group Chief Executive Officer’s statement Dear shareholders, The past year presented some extraordinary challenges for our customers, colleagues and communities in the face of an ongoing global health crisis that led to a widespread economic crisis. Throughout the course of the year, we responded at pace, providing exceptional levels of support to those who needed it and demonstrating that we have truly put Our Purpose at the heart of this business. In the face of such trying circumstances, I am proud of the resilience, empathy and kindness exhibited by so many of my colleagues across the bank. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities up and down the country can rebuild and thrive. But COVID-19 has created opportunities as well as challenges, and it has accelerated a number of underlying trends in customer behaviour, our ways of working and the future shape of our economy. We look forward with renewed hope and positivity and although we cannot be certain of the long-term impact of the pandemic, this bank will continue to serve our customers and support those who need it most. We will succeed together and, as a result, NatWest Group will drive sustainable, long-term returns for our shareholders. Financial performance Despite reporting a loss for the year, NatWest Group delivered a resilient underlying performance through the strength of our core franchises and brands in a challenging operating environment. Our attributable loss of £753 million for 2020 reflects an impairment charge of £3.2 billion, a significant proportion of this impairment charge relates to potential future loan losses under IFRS 9. We continue to experience relatively Alison Rose Group Chief Executive Officer Support Throughout the course of the year, we provided exceptional levels of support to those who needed it and demonstrated that we have truly put Our Purpose at the heart of this business.

GRAPHIC

 

2020 highlights and progress Our robust balance sheet and sector-leading capital strength, underpinned by a resilient business with strong capacity for growth, gives us the flexibility to navigate the uncertain outlook, support our customers and deliver sustainable returns to shareholders. low levels of actual default in our lending book, which is well diversified with limited exposure to unsecured loans. Before impairments, NatWest Group made an operating profit of £2.9 billion. At 18.5% our CET1 ratio – the key measure of financial strength – is one of the highest amongst our UK and European peers. This capital strength gives us the flexibility to navigate the continuing uncertainty, return capital to shareholders and consider options for creating shareholder value. In the face of extreme disruption, we made determined progress against the strategy we set out in February 2020 and surpassed our financial targets. We are building a relationship bank for a digital world; a bank that supports customers at every stage of their lives, that is simple to deal with and that is powered by innovation and partnerships, with far sharper capital allocation. In December 2020, we supplemented the organic growth we continue to achieve in mortgages with the acquisition of a £3 billion mortgage book from Metro Bank plc. This was our first significant acquisition since the financial crisis and represented a positive use of our strong capital position in a key area of focus. Championing potential through COVID-19 Colleagues The safety and wellbeing of our colleagues has been, and remains, a priority for the bank throughout the pandemic. We introduced resources to maintain and enhance the physical and mental health of our colleagues, providing access to virtual GPs, the SilverCloud wellbeing platform and free physiotherapy advice. For almost 10,000 keyworker colleagues who have remained on the frontline, all of our offices and branches were made COVID-secure. Around 50,000 colleagues have been working from home since March last year, supported by the delivery of 37,000 tech bundles and over 25,000 chairs and desks. The timing of a phased return to our offices will be led by UK Government guidance and factors such as the progress of vaccinations. We continue to create opportunities for new talent from a range of backgrounds to join our organisation, including through our Social Mobility Apprenticeship Programme – one of the first of its kind in the UK – as well as providing existing colleagues with easy access to the very best learning through the NatWest Group Learning Academy. Customers From the start of the pandemic, it was clear that this was not business as usual. By pivoting our business at pace and collaborating with politicians, regulators and industry leaders, we were able to continue to serve our customers in the face of unprecedented demand. In total, we approved around £14 billion of loans for business customers under the different government schemes in 2020 and provided 258,000 mortgage holidays. We delivered £5.0 million of cash securely to our customers in vulnerable situations and made almost 480,000 calls to check up on them, whilst also introducing a Companion Card that allowed trusted volunteers to pay for their essential goods. Thanks to the extraordinary dedication of our colleagues, we have remained on the high street, supporting our customers and consistently keeping more than 95% of our branches open. We have more than 800 branches and 16,000 physical points of presence, including our ATM network and our relationship with the Post Office. These remain an important part of how we deliver services to our customers. The pandemic has also accelerated trends in how our customers want to bank with us. In particular, we have seen a rapid increase in digital adoption. We now have 9.4 million active digital users and 7.7 million active users of our mobile app. 58% of our retail customer base in the UK now exclusively uses digital channels to interact with us, an increase of 12% compared with 2019. For business customers, we were able to extend over £8 billion of Bounce Back Loans by creating an end to end digital application process within the space of a week. As we responded to COVID-19, we also migrated our enterprise support initiatives to be delivered digitally. Our 12 entrepreneur accelerator hubs held over 1,000 virtual events with 45,782 attendees since the start of lockdown.

GRAPHIC

 

2020 highlights and progress Communities As a relationship bank that sits at the heart of communities up and down the country, we have a responsibility to provide support to the most vulnerable people in society. Leveraging existing relationships, part of our Gogarburn HQ was transformed into a food bank distribution hub for the Social Bite, Trussell Trust and Cyrenians charities. We’ve supported these charities to produce over one million meals for those in need since the start of March 2020 and we became a vital distribution network for items such as 240,000 books and education packs, 250,000 items of essential clothing and over 200,000 items of toiletries, masks, hand sanitisers and snacks. Meanwhile, the roof garden at our Coutts office on The Strand donated produce to the Felix Project which delivers surplus food to food banks, schools and charities throughout London. The bank also raised £10 million by match-funding customer donations to the National Emergencies Trust and established a £5 million fund with the Prince’s Trust to help young entrepreneurs during the crisis. Working with SafeLives, we launched a review into how we can better support customers who have been victims of economic abuse and acquired coercive debt and announced a £1 million fund to support survivors of economic and domestic abuse. Our Purpose The COVID-19 pandemic has not distracted us from Our Purpose; we champion potential, helping people, families and businesses to thrive. Nor has it distracted us from the three key areas of focus we set out in February 2020. If anything, it has made them even more important. Our Purpose also has a powerful commercial imperative. If our customers succeed, so will we. By removing barriers, building financial capability, championing equality and helping to tackle climate change, we are determined to pave the way for a better future. Removing barriers to enterprise We are already the largest supporter of UK business, serving around 1 in 4 UK businesses. However, we know that setting up and running a business is harder than it should be for under-represented groups, including for female and Black, Asian and Minority Ethnic-led businesses. We want to remove these barriers. In 2020, as a result of the pandemic, we launched an SME response strategy that supported four million of our current customers to help them survive and thrive through the crisis. At the start of last year, we also created a £1 billion fund aligned to our focus on supporting female entrepreneurs. During the course of 2020, all of this fund was allocated, leading us to announce an additional £1 billion in funding to help support female-led businesses recover from the disruption caused by coronavirus. Building financial capability Developing good habits can help to transform people’s relationships with money, and this has never been more important given the economic disruption we continue to face. We helped 600,000 (1) customers to start saving with us in 2020, with a view to helping two million by 2023. Building financial confidence and capability is especially important for young people. Over the last 26 years, our flagship MoneySense financial education programme has reached more than nine million children in 1 in 3 UK schools and last year we reached more than 2.9 million people though our various financial capability interactions. We also launched Island Saver, the world’s first financial education mobile, console and PC game for children. With more than 2.3 million downloads, it has helped us to engage children from a young age in the importance of managing their money. Leading the climate challenge Climate change is the greatest challenge facing the planet. Tackling it requires collaboration across governments, industries and society. We are determined to play a leading role in driving positive change. In November 2020, we announced that NatWest Group will be one of the Principal Partners and banking sponsor of the 26th UN Climate Change Conference of the Parties (COP26), taking place in Glasgow later this year. There is much more we can do, both to get our own house in order and to help our customers in the transition to a low-carbon economy. We have set ourselves the ambitious goals of at least halving the climate impact of our financing by 2030 and making our own operations climate positive by 2025, having made them net carbon zero in 2020. As a founding signatory to the UN Principles for Responsible Banking we are committed to aligning our strategy with the 2015 Paris Agreement and UN Sustainable Development Goals. In 2020, we helped our business customers with £12 billion of new climate and sustainable financing and funding. We also launched our first ever Green Mortgage in October 2020 and are supporting the drive to decarbonise the UK transportation sector through the Future Mobility Group. Lord Stern was appointed as an independent adviser to NatWest Group to help us achieve our ambitions and James Close as our new Director, Climate Change, to co-ordinate and deliver our climate strategy. Our strategy NatWest Group will be a relationship bank for a digital world. Our strategy is to deliver on Our Purpose and drive sustainable returns to shareholders through our four strategic priorities. Supporting customers at every stage of their lives We will be more relevant to our customers by building deeper relationships and evolving our proposition to meet their needs throughout their lives. We benefit from having strong customer franchises across the business that provide multiple growth opportunities. For example, by bringing together our wealth businesses we can serve our customers better by focusing on the changing financial requirements through each stage of their lifetime. Powered by innovation and partnerships We invest around £1 billion each year to continuously improve our customers’ experience by harnessing our internal expertise and partnering with some of the most innovative companies from around the world. We have already created a strong culture of innovation with the Note: Includes instances where customers had existing savings with other banks and transferred them into their NatWest Group account.

GRAPHIC

 

2020 highlights and progress development of customer propositions such as Mettle. We have also partnered with Pollinate to produce the award-winning Tyl. And we established a new relationship with BlackRock to support our investment management processing activity. Simple to deal with We are becoming much simpler as a bank and much simpler to deal with for our customers. As part of our One Bank operating model, we are creating key Centres of Excellence in areas such as climate change, fraud and financial crime which bring together the expertise of colleagues from across NatWest Group for the benefit of our customers. By reducing complexity and improving efficiency, we continue to take costs out of our operating model, delivering £277 million of cost reductions in 2020, against our £250 million target. Sharpened capital allocation Our capital is a resource to be used across the bank, to drive growth and optimise returns from a safe and secure base. A crucial element of this plan is refocusing NatWest Markets to serve our corporate and commercial customers better. Risk weighted assets in NatWest Markets reduced by £11 billion to £26.9 billion in 2020, exceeding our target for 2020, with a further reduction to £20 billion planned for the medium term. NatWest Markets is far more closely aligned to the rest of NatWest Group and its market-leading role in providing customers with access to COVID-19 Corporate Financing Facilities and to environmental, social and governance (ESG) finance are further examples of the strength of this franchise. Ulster Bank RoI In recent years, our strategy for Ulster Bank in the Republic of Ireland has been to improve returns by growing the business, reducing costs and resolving legacy issues. I want to pay tribute to our colleagues who through their commitment and dedication have helped to transform this business. Our priority over the coming months will remain on supporting our customers, communities and colleagues through these difficult times. Following an extensive review and despite the progress that has been made, it has become clear Ulster Bank will not be able to generate sustainable long term returns for our shareholders. As a result, we are to begin a phased withdrawal from the Republic of Ireland over the coming years which will be undertaken with careful consideration of the impact on customers and our colleagues. Overview Overall, we delivered well against our strategy throughout 2020. Looking ahead, we have set a number of financial targets across a three year plan to 2023; to deliver lending growth above market rate, to reduce costs by around 4% each year and to operate with a CET1 capital ratio of 13% to 14% by 2023. Taken together, our four strategic priorities will drive sustainable, long-term returns to our shareholders and we are targeting a return on tangible equity of 9% to 10% by 2023. An additional priority throughout the year was to put in place a leadership structure to deliver our strategy. As a result, I made a number of important external appointments including David Lindberg as CEO, Retail Banking, Jen Tippin as Chief Transformation Officer, Nigel Prideaux as Chief Communications Officer and Marg Jobling as Chief Marketing Officer. Each brings considerable experience and expertise to their respective roles and we are already working closely together. Some of my former colleagues, including our CEO of Retail Banking, Les Matheson, left the bank to pursue opportunities elsewhere. I would like to thank them for their invaluable contributions over many years and wish them all the best for the future. A diverse and inclusive bank We continue to focus on building a more diverse and inclusive organisation. At the end of 2020, 39% of the roles in our top three leadership layers were held by female colleagues, a 10% uplift since our targets were introduced. 2020 also brought an increased focus on racial inequality with the tragic death of George Floyd and the rise of the Black Lives Matter movement. Following the establishment of a taskforce led by the co-chairs of our multicultural network, we published a report - Banking on Racial Equality: A Positive Roadmap for Change – looking at what more we could do to champion the potential of colleagues, customers and communities from Black, Asian and Minority Ethnic backgrounds. This built on the targets we put in place in 2018 to increase the number of colleagues from Black, Asian and Minority Ethnic backgrounds in our top four UK leadership layers in the bank to 14% by 2025. We currently have 10% Black, Asian and Minority Ethnic representation amongst our UK senior leaders, a 2% increase since the targets were introduced. Under our new commitments, we have launched a separate goal to have 3% Black colleagues in senior UK roles by 2025. A sustainable future Our robust balance sheet and sector-leading capital strength, underpinned by a resilient business with strong capacity for growth, gives us the flexibility to navigate the uncertain outlook, support our customers and deliver sustainable returns to shareholders. But we can only deliver these returns through our strong culture and values, with purpose at our core. We have passionate, motivated and engaged colleagues, despite all the challenges of COVID-19 and with most people working from home for a considerable period of time: 95% of colleagues think we’re doing a good job responding to the pandemic and 92% are proud of our contribution to community and society. These numbers mean a lot to me. They give me confidence that we are building a sustainable future for this bank. The way we live and work is changing. And people’s expectations of companies are changing as well. We won’t always get everything right. But by collaborating with others and demonstrating that we can play a positive role in society, we will help to create a greener, fairer and more inclusive economy for all, allowing us to deliver long-term sustainable value for all our shareholders.

GRAPHIC

 

Building a purpose-led bank Building a purpose-led bank. We will continue to champion potential to help the people, families and businesses we serve to recover, rebuild and ultimately to thrive. At NatWest Group, Our Purpose sits at the heart of our decision making, because we know that when our customers and communities succeed, our economy prospers and we too succeed, driving sustainable returns for shareholders. As we emerge from the COVID-19 pandemic and continue to support customers, colleagues and communities to rebuild, our key areas of focus will remain unchanged: removing barriers to enterprise; building financial confidence and playing a leading role in helping to tackle climate change.

GRAPHIC

 

 

Building a purpose-led bank NatWest Group is a relationship bank for a digital world. We will be guided by Our Purpose in all of our customer and colleague interactions and in how we execute our strategy. We believe we can make the most impact for our customers, our communities and our economy by driving forward Our Purpose agenda within our three areas of focus; Climate, Enterprise and Learning. DOING THE RIGHT THING Our Purpose We champion potential, helping people, families and businesses to thrive 19 million customers Support 1 in 4 business Our Strategy Our strategy is to deliver on Our Purpose and drive sustainable returns to shareholders through Supporting customers at every stage of their lives In every region in the UK and Ireland Powered by innovation and partnerships One Bank working across boundaries to serve our customers Climate Leading the climate challenge Areas of Focus There are three focus areas of Our Purpose where we can make a meaningful contribution to our four strategic priorities. Simple to Sharpened Halve £20bn + customers, colleagues and deal with capital the climate additional funding Make our Enterprise communities. allocation 2020 TARGETS impact of our financial activity by 2030 and financing for climate and sustainable finance by 2021 operations climate positive by 2025 Removing barriers to enterprise Help create an additional 50,000 new businesses by 2023, inspiring and supporting >500k people Cost reduction of: £250 million (2020) CET1 ratio: 13-14% (medium – long term) Learning Building financial capability 2.5m 60% female-led 20% 75% Risk Weighted Assets:ROTE: year to improve their financial capability South East £185-£195bn (2020) 9-11% (medium – long term) 2m 100% Our ValuesBecoming purpose-led We have put a common set of values at the heart of how we conduct ourselves in the delivery of Our Purpose-led strategy and strategic priorities. Our values are not new, but capture what we do when we are at our best: Serving customers We exist to serve customers. We earn their trust by focusing on their needs and delivering excellent service. Working together We care for each other and work best as one team. We bring the best of ourselves to work and support one another to realise our potential. In shaping Our Purpose-led strategy, we worked closely with A Blueprint for Better Business – an independent charity which aims to create a better society through better business. Guided by their Five Principles of a Purpose Driven Business, which are outlined below, Our Purpose recognises that our business is made up of a network of relationships with multiple stakeholders with different interests. The Five Principles est Group is a nship bank igital world. ential; breaking down barriers and building financial 19 million people, families and businesses we serve roughout the UK and Ireland can rebuild and thrive. ucceed, so will we. We do the right thing. We take risk seriously and manage it prudently. We prize fairness and diversity and exercise judgement with thought and integrity. Thinking long term We know we succeed only when our customers and communities succeed. Honest and fair with customers and suppliers A responsible and responsive employer A purpose which delivers long-term, sustainable performance A good citizen A guardian for future generations

GRAPHIC

 

Building a purpose-led bank Our strategy. Our strategic priorities Our strategy remains unchanged, to deliver on Our Purpose and drive sustainable returns to shareholders through four strategic priorities. These strategic priorities will deliver growth while taking costs out. Combined with a disciplined approach to capital allocation, this will deliver an improvement in returns over the longer-term. Supporting customers at every stage of their lives We will be more relevant to our customers by building deeper relationships and evolving our propositions to meet their needs throughout their lives, with the aim of growing the number of needs we meet per customer. Simple to deal with Through simplification and driving efficiency, we will be much simpler as a bank and much simpler to deal with for our customers, improving both customer experiences and colleague engagement. We will focus on great customer service technology and improving customer journeys. Supporting customers at every stage of their lives Simple to deal with Powered by innovation and partnerships Sharpened capital allocation Powered by innovation and partnerships We will use new technology and digital expertise to deliver an excellent customer experience by harnessing our internal knowledge and experience of partnering with leading external organisations around the world. Sharpened capital allocation We continually optimise our regulatory capital. And we manage our portfolios and use synthetic trades to reduce capital consumption, manage risk and drive sustainable returns. This includes refocusing NatWest Markets to support our commercial business better and a phased withdrawal from the Republic of Ireland. DOING THE RIGHT THING One Bank transformation means looking across the entire organisation and ensuring the right decision making and prioritisation will lead to delivery of the outcomes that really matter; better customer experience, meeting more customer needs, being simpler to deal with, and creating better value for our shareholders. Our Purpose We champion potential, helping people, families and businesses to thrive Our Purpose and strategic priorities will continue to support us, as we strive to be the leading relationship bank for a digital world. Whilst our strategy remains unchanged we have updated our targets. These targets will help us assess our progress against our strategic priorities. Priorities delivered through: n Sustainable growth with an intelligent approach to risk n Simplification and cost efficiency n Portfolio discipline and effective deployment of capital 2021 Targets n Cost reduction of c.4% per annum through to 2023 (1) n Lending growth above rate through to 2023 (2) n CET1 ratio of 13-14% by 2023 n ROTE of 9-10% by 2023 Climate Leading the climate challenge Learning Building financial capability Enterprise Removing barriers to enterprise

GRAPHIC

 

Building a purpose-led bank Our execution Our execution is centred around Our Purpose, achieving a holistic One Bank transformation and delivering our strategic priorities. We are building on our strengths, to meet our customers’ needs throughout their financial lives, enabling them to thrive. Simplification and Cost Efficiency Simple to deal with New technologies present opportunities to provide a more personalised experience to our customers. Through the re-engineering of our Growth, Simplification and Cost Efficiency. Powered by innovation and partnerships By making it quick and easy for companies to engage with us and by allocating investment processes and changes to our organisation, we will focus on building capabilities once and reusing those capabilities across the entire bank. This will result in simpler customer journeys, such as the development of a best-in-class account opening process, allowing us to stand out in a competitive market. efficiently, we can form partnerships and advance the innovations most relevant to our customers. Deployment of Capital Sharpened capital allocation The approach to allocating our capital will be refined and standardised. We will decide the markets we want to serve and what products Growth Supporting customers at every stage of their lives Using data, we will align ourselves to our customers to better understand their behaviour, we want to offer, based on how we can best support our customers. The significant reduction of RWAs in NatWest Markets and the decision to make a phased withdrawal from the Republic of Ireland represent two significant examples of this. ensuring we can adapt quickly to meet their needs. This includes expanding our digital service, to become the most accessible bank. We want our customers to be able to bank with us anytime, anywhere. Simple to deal with £277m 9.0m Powered by innovation and partnerships reduction in operating expenses, exceeding our target of £250 million for 2020.(1) 2019: £310m 2018: £278m conversations with Cora, our virtual assistant, a 68% increase on 2019. 40% of conversations required no human intervention. 2019: 5.4m BlackRock Established new relationship with BlackRock to support our investment management processing activity, enabling savings to be passed onto our clients. Payit We launched Payit our new payment platform in June 2020, which uses the UK’s Open Banking infrastructure to enable online payments direct from consumer bank accounts in close to real time. Sharpened capital allocation 18.5% CET 1 ratio, c.£7.7-9.4 billion (2.4)% Return on tangible equity. Supporting customers at every stage of their lives headroom to 13-14% targeted range, more than double our Maximum Distributable Amount. 2019: 16.2% 2018: 16.2% Target of a 9-11% return on tangible equity in the medium-long term. 2019: 9.4% 2018: 4.8% £328.8bn +7% net lending growth in our retail and commercial 480,000 customers in vulnerable situations contacted to £170.3bn Total risk-weighted assets below our 2020 targeted range of £185-£195 billion. 2019: £179.2bn 2018: £188.7bn businesses versus >3% target. 26.9 NatWest Markets risk-weighted assets versus a 2020 target of £32 billion. £11 billion reduction since 2019. 2019: £37.9bn 2018: £44.9bn check on their welfare.

GRAPHIC

 

Building a purpose-led bank Our Purpose areas of focus building long-term value. Our Purpose is to champion potential, helping people, families and businesses to thrive. By breaking down barriers, smashing glass ceilings, pushing for equality and fighting for the planet, we are going to pave the way for a better future. We currently have three areas of focus: to remove barriers to enterprise, build financial confidence and help to tackle climate change. Our Ambition Enterprise LearningClimate The biggest supporter of start-ups in the UK and Ireland Leading learning organisation; enhancing the financial capability of the UK and Ireland and the skills of colleagues Leading bank in the UK and Ireland helping to address the climate challenge 2.5m people reached through financial capability interactions each year. 2m additional customers helped to start saving by 2023. 100% front-line colleagues professionally accredited within first 18 months in role. UK Social Mobility Apprenticeship Programme extended across the UK. -50% At least halve the climate impact of our financing activity by 2030. 50% of our UK and Ireland customers’ homes at or above EPC or equivalent rating C by 2030. (1) £20bn additional funding and financing for climate and sustainable finance by 2021. + Climate Positive own operations by 2025. >15% Stop lending and underwriting to companies with >15% of activities related to coal (2, 3) and to all major oil and gas producers, unless they have a credible transition plan.(2) Full phase-out from coal by 2030. In line with the 2015 Paris Agreement

GRAPHIC

 

Building a purpose-led bank Our 2020 performance. Enterprise LearningClimate 1,926 incremental businesses created in 2020, below our 2020 target of 6,500 new businesses, reflecting the impact of COVID-19 on business creation.(1) 80% of 60,788 people inspired and supported identified as female.(1) 72% of 60,788 people inspired and supported were based outside London and the South East, slightly below our target of 75%. 26% of 60,788 people inspired and supported were Black, Asian and Minority Ethnic. (1) 52% of 60,788 people inspired and supported were social purpose-led. 45,000 We migrated our twelve accelerator hubs around the country to digital delivery with over 45,000 entrepreneurs attending 1,016 virtual events across the country. £1bn We supported female entrepreneurs in 2020 by creating a £1 billion fund, which has been fully deployed. We have added a further £1 billion to the fund in 2021. Note: 2.9m people reached through financial capability interactions.(*) 600,000 additional customers helped to start saving.(*) (2) 98% of frontline colleagues professionally qualified/ accredited within first 18 months in role. 2.3m downloads of Island Saver, our first ever educational video game teaching children money management skills. 760 Over 760 interns, graduates and apprentices hired during 2020 and a commitment made to hire a further 1,000 by the end of 2021. Award NatWest Group became the first UK bank awarded Corporate Chartered status by the Chartered Banker Institute. Learning Launched the NatWest Group Learning Academy bringing the very best learning together in one central online location for our colleagues. 36% of Retail Banking mortgages in England and Wales are at or above EPC rating C.(3) £315m Since launching in October 2020, we have received 1,229 applications for Green Mortgages, with a value of £315 million. These mortgages are only available on the most energy efficient properties. £12bn climate and sustainable financing and funding(*), enabling us to bring forward our £20 billion target from 2022 to 2021. We expect to exceed this target during 2021. £23bn NatWest Markets has helped our clients issue 36 green bonds totalling £23 billion to support their environmental activities . (4) COP26 NatWest Group is principal banking partner for this year’s COP26 summit, a clear demonstration tackling climate change is at the core of Our Purpose. A-We achieved a score of A-in the 2020 CDP Climate Change Survey, one of the strongest scores amongst our peers. Zero Data only tracked against select initiatives which included those focused on female and social purpose-led entrepreneurs. Includes instances where customers had existing savings with other banks and transferred them in to their NatWest Group account. Percentage of £92.9 billion mortgages in England and Wales for which EPC data is available. Includes £5 billion attributable to NatWest Markets, included in the £12 billion climate and sustainable funding and financing figure. Achieved Net Zero Carbon on our own direct operations and remain committed to making them Climate Positive by 2025.

GRAPHIC

 

 

Building a purpose-led bank Supporting our customers, colleagues and communities throughout the UK and Ireland through COVID-19. The past year has shown NatWest Group at its best as we responded to the challenges of COVID-19. The dramatic spread of COVID-19 has disrupted lives and livelihoods, with effects being experienced throughout communities and businesses worldwide. We moved quickly to set up the necessary infrastructure to support our customers, colleagues and communities. Throughout 2020 we have put in place extraordinary measures of financial and non-financial support, underpinned by something every bit as powerful – humanity, kindness and respect. There are challenging times ahead as the longer-term impacts of the pandemic become clear. NatWest Group is here to provide help and support to those who need it as we adapt to dramatic changes in the way we live and the way we work. Supporting our customers by pivoting our operations at pace. £14.1bn of lending approved through government schemes, with c.300,000 applications approved. NHS Dedicated phone lines for NHS staff. £5.0m cash delivered to vulnerable customers who couldn’t access ATMs. Supporting our colleagues has been a priority during the crisis. 95% of colleagues think we are doing a good job of responding to the pandemic. 37,500 Launched a Wellbeing Hub for colleagues with over 37,500 hits. 50,000 Home working quickly made Supporting our communities by helping the most vulnerable in society. 1million Edinburgh head office turned into a charity distribution hub helping Social Bite, Trussell Trust and Cyrenians to produce over 1 million meals for those in need since the start of March. £10m raised as we matched customer donations to the National Emergencies Trust (NET). £1m Coronavirus Response Fund distributed by bank supported charity, Social & Community Capital. 480,000 available to over 50,000 colleagues, with 37,000 technology customers in vulnerable situations, contacted to check on their welfare. 258,000 mortgage repayment holidays and payment holidays on over 74,000 business customer accounts. bundles delivered to colleagues’ homes. GP Access to virtual GP and SilverCloud wellbeing platform for all colleagues. £5m Enterprise relief fund launched with The Prince’s Trust. £1m donated to eight not-for-profit debt management organisations.

GRAPHIC

 

Building a purpose-led bank Building financial capability and confidence Note: (1) According to the Money and Pensions Service. Many people struggle to manage their finances and save for the future. Research shows that 22% of UK adults have less than £100 in savings.(1) Building good financial habits and improving relationships with money can transform people’s lives. To be a leading learning organisation is one of our three areas of focus, under Our Purpose-led strategy. Through our learning agenda, we encourage everyone to develop good money management skills. You’re never too young to start, that’s why we deliver free MoneySense lessons in schools, inspiring 5-18 year olds to grow in financial confidence. When face to face lessons were no longer possible, we launched MoneySense Mondays, interactive lessons streamed in real-time on Facebook Live, that could be joined by parents and children from their homes. Since its launch 26 years ago, MoneySense has helped more than nine million young people by providing activities, games and resources for students, teachers and parents to help teach children about money. To support customers of all ages, we held further Facebook Live events with Friends Against Scams talking about the latest coronavirus scams and how customers can protect themselves, together with events to explain ways to bank at home. These events helped our customers bank digitally with confidence and stay safe during lockdown. During national and local lockdowns many of our customers started to save for the first time. We introduced the new Digital Regular Saver to help our customers start and maintain a long-term savings habit. In the last four months of the year, we opened 215,000 Digital Regular Saver accounts, helping our customers build financial security for the future.

GRAPHIC

 

Building a purpose-led bank Our operating environment. This illustration of our operating environment provides an integrated materiality assessment of the most important considerations with the potential to influence our ability to serve customers and create value for the long term. In 2020 we added the Global Pandemic and Employment and Enterprise. The impact of COVID-19 runs through all considerations and is reflected in the definitions that follow. Operational Resilience Societal Megatrends Economic and Political Landscape Cyber Threats Global Pandemic Demographics Operating Environment Our Stakeholders Regulation Culture and Colleagues Our Purpose We champion potential, helping people, families and businesses to thrive Employment and Enterprise Financial Capability and Social Inclusion Top and Emerging Risks Considerations with the potential to influence our ability to serve customers and create value for the long term. Example factors that inform our integrated materiality assessment. Competition Technology and Innovation Customer Behaviour Reputation and Trust Climate Change United Nations Sustainable Development Goals Where to find out more:page Global Pandemic COVID-19 has had global ramifications on health, economies, societies and the environment. The pandemic has put Our Purpose-led strategy into action, as we supported individuals, families and businesses to deal with the immediate and longer-term impacts. We responded quickly to the elevated credit risks via active portfolio management including adjustment of risk appetite, proactive customer contact strategies and scenario analysis. Our participation in government initiatives supported customers during the crisis and included the Bounce Back Loan Scheme which could increase conduct, reputational and fraud risks. High uncertainty remains on the ultimate impact of the pandemic and across the economic landscape, and strategy is being adapted in response. ‘Build Back Better’ became the call from the UN and we support a focus on opportunities unlocked by the transition to a low carbon economy, progress on racial inequality, helping communities to thrive, as well as greater alignment with UN Sustainable Development Goals.

GRAPHIC

 

Building a purpose-led bank Economic and Political Landscape The economic environment in 2020 became and remains unusually uncertain as the COVID-19 crisis delivered an unprecedented shock to the UK and global economy. Support schemes for furloughed workers and government backed loans for businesses supported the economy as priorities were placed on public health, capacity of the NHS, and social distancing restrictions until the roll out of a vaccine. Significant risks remain regarding the extent of the economic contraction and weaker than expected recovery from COVID-19, elevated geopolitical risks and developments in relation to a Scottish independence referendum. In the longer term, demographic change, high levels of debt and inequality could all have financial impacts. As a result, we closely monitor these risks with strategic plans adapted as appropriate. Demographics Demographic shifts mean that the needs and behaviours of our customers are changing. In 2020 this was amplified by lockdowns and social distancing leading to some customer segments adopting new technologies for the first time. Key trends continue to impact our customers including retiring later and working longer, renting for longer or buying a house later in life and often with the support of family members and more focus on financial planning for retirement. We are committed to supporting the evolving needs of customers ranging from home ownership to digital banking and supporting customers at every stage of their lives. Employment and Enterprise Unemployment rose to its highest level since 2016 during 2020. Government support schemes were successful in limiting a more material impact on the labour market, while government-backed lending schemes provided liquidity across the SME and corporate sectors. We are the biggest supporter of UK businesses and Enterprise is one of our three areas of focus. We acted to support businesses throughout COVID-19 and continued to address barriers for start-ups in underrepresented groups including supporting female entrepreneurship, Black, Asian and Minority Ethnic businesses, areas outside of London and socially purposeful businesses in the drive toward a low carbon economy. Financial Capability and Social Inclusion Supporting financial capability and confidence sits within our three areas of focus. It goes beyond delivering fair products and great service. It means helping customers, wider society and future generations to develop good money management skills so they are empowered to make better financial decisions. Customers are supported by a diverse range of tailored banking services and products. In 2020 we increased focus on supporting customers facing financial difficulty, or in vulnerable situations, and helping more people to start saving. Climate Change We expect to face significant risks in connection with climate change and the transition to a low carbon economy. These risks are subject to rapidly increasing prudential and regulatory, political and societal focus, both in the UK and internationally. We have set an ambition to be a leading bank in the UK and RoI helping to address the climate challenge. Through engagement with key stakeholders, we are working to champion climate solutions and accelerate the speed of transition in line with the 2015 Paris Agreement. In 2020 we became a sponsor of COP26. Reputation and Trust Restoring trust and safeguarding reputation remains a key priority for most banks. We strive to build a reputation as a purpose-led bank: championing potential, helping people, families and businesses to thrive. As a relationship bank for an increasingly digital world, our strategic priorities are to be simple to deal with, supporting customers at every stage, powered by innovation and partnerships and sharpened capital allocation. Customer NPS and stakeholder engagement and advocacy act as measures of satisfaction, reputation and trust. Customer Behaviour Customers’ needs and behaviours are changing as a result of new technologies, demographic shifts and changing labour patterns. The impact of COVID-19 accelerated trends toward digital technology, changed ways of working, shopping, socialising and communication and how people use the physical spaces. We understand the importance of supporting customers' needs, being simple to deal with and supporting customers at every stage of their lives to tailor banking services and products that meet their evolving needs and expectations. Technology and Innovation Customer behaviours continue to change, and new business models emerge, through advancing technology. COVID-19 has increased our customers’ reliance on technology with a further shift to digital, reinforcing the need for modern capabilities and resilient systems. Our active digital users across both personal and business customers continued to grow in 2020 and we invested £581 million on technology. Our focus is to reduce year on year cost by simplifying processes, improving our resilience and stability whilst helping to deliver innovative solutions for our customers. Competition We operate in markets that are highly competitive raising the threat of a sustained loss of business volumes or sustained margin pressure related to changes in regulation, developments in financial technology (including digital money and competition from digital niche competitors) and major shifts in customer behaviour. We closely monitor the competitive environment and adapt strategy as appropriate to deliver innovative and compelling propositions for customers. The roll out of Tyl and the launch of Payit were significant milestones in the evolution of our competitive offering. Culture and Colleagues Building and nurturing a healthy culture where colleagues are engaged, and where our working environment is underpinned by robust risk behaviours, is critical to delivering on our purpose and strategy. In 2020 we supported colleagues as they transitioned to new ways of working, focusing on wellbeing while continuing to build an

GRAPHIC

 

Building a purpose-led bank inclusive bank which is a great place for all colleagues to work. Becoming a learning organisation sits within one of our three areas of focus as we prepare colleagues for the future and embed Our Purpose. Regulation We operate in a highly regulated market which continues to evolve in scope. Areas of regulatory focus include customers in vulnerable situations, climate change, financial crime, capital and liquidity management, use of models and the transition to alternative risk-free rates. We monitor regulatory change, implement new regulatory requirements where applicable and have regular engagement meetings with regulators to discuss key regulatory priorities. Cyber Threats We experience a constant threat from cyber-attacks both directly and to our supply chain, re-enforcing the importance of due diligence with the third parties on which we rely. We continue to invest significant resources in the development and evolution of cyber security controls and work to protect and educate our customers on fraud and scam activity. Operational Resilience To provide continuity of service for customers with minimal disruption, we continue to monitor and assess a diverse and evolving array of threats, both external and internal, as well as developing, strengthening or adapting existing control capability to be able to absorb and adapt to such disruptions. Human Rights and Modern Slavery At NatWest Group, we understand that respecting human rights is the right thing to do. We do not tolerate or condone abuse of human rights within our business, supply chain or within our sphere of influence. Our approach to respecting human rights is guided by the United Nations Guiding Principles on Business and Human Rights and aligned to Our Purpose-led strategy and Our Values of “Doing the Right Thing’ and “Thinking Long Term’. We supported the adoption of the Modern Slavery Act (2015) in the UK and seek to tackle modern slavery through a continued implementation of policies covering our customers, colleagues and suppliers, and by monitoring our financing and supply chain for this activity. In 2020 we published our 2019 Modern Slavery Act Statement and updated our Human Rights Statement. Visit natwest.com for further information. UN Principles for Responsible Banking As members of (UNEP FI) United Nations Environment Programme Finance Initiative we were proud to become a founding signatory to the UN Principles for Responsible Banking (PRB) in September 2019. We are committed to an ongoing process to align our strategy with the UN Sustainable Development Goals and the 2015 Paris Agreement and we are embedding the six principles across our business. Our first self-assessment reporting will be available in our ESG supplement expected to be published in March 2021. Principle 1: Alignment Principle 2: Impact & Target Setting Principle 3: Clients & Customers Principle 4: Stakeholders Principle 5: Governance & Culture Principle 6: Transparency & Accountability

GRAPHIC

 

 

Building a purpose-led bank We’ve set out commitments to racial equality In 2020, a colleague-led taskforce was brought together to help the bank listen, learn and better understand what more we can do to champion the potential of everyone. This work builds on the progress we have made over the past five years to create a more inclusive and diverse culture, whilst recognising we still have more to do. We have published ‘Banking on Racial Equality – A Roadmap for Positive Change’, our report on racial equality for our customers, colleagues and communities. The report includes a set of commitments and targets, to make a meaningful, positive difference to people from Black, Asian and Minority Ethnic backgrounds. As Black colleagues are particularly under-represented in senior roles across the UK, relative to the UK working population, we have introduced a new target to have 3% Black colleagues in our UK senior roles by 2025. This is in addition to our existing target to have at least 14% Black, Asian and Minority Ethnic leaders in senior UK roles by 2025. As at the 31 December 2020 we have on aggregate 10% Black, Asian and Minority Ethnic colleagues in our top four leadership layers in the UK, representing a 2% increase since targets were introduced. We are confident our report will spark reflection and action that will pull down the barriers that prevent too many from reaching their potential. We believe future employees of all ethnicities will read this report and aspire to work at NatWest Group because we are a diverse and inclusive place to work, one that works hard to enable everyone to bring the best of themselves to work and doesn’t leave anyone behind.

GRAPHIC

 

Building a purpose-led bank Outlook.(1) NatWest Group, as with all companies, continues to deal with a range of significant risks and uncertainties in the external economic, political and regulatory environment. Expectations regarding the rate of economic recovery continue to change rapidly in response to government measures to limit the spread of COVID-19, expectations around the rollout of COVID-19 vaccines and policy measures to support the recovery. The short and medium term outlook continues to be subject to significant uncertainty and we will continue to actively monitor and react to market conditions and refine our internal forecasts as the economic position evolves. We expect NatWest Markets exit and disposal costs and the impact of Commercial Banking capital management actions to total a combined £0.3 billion in 2021. Our full year 2020 impairment loss rate was 88 basis points of gross customer loans. We expect that the full year 2021 loss rate will be at or below our through the cycle guidance of 30-40 basis points, with losses driven by a combination of the developing economic outlook for the UK and Republic of Ireland and the level of economic distress experienced by our personal and commercial customers as government support measures scale down and restrictions ease. We are targeting above market rate lending growth across our UK and RBS International retail and commercial businesses, excluding UK Government financial support schemes. We expect NatWest Group RWAs, including Ulster Bank RoI, to be in the range of £185-195 billion, when including on a proforma basis the impact of Bank of England’s mortgage risk weight changes and other model changes introduced on 1 January 2022. The impact of the mortgage regulatory changes is expected to be around £12 billion, subject to the timing and quantum of any procyclicality before implementation and based on the current book size and weighting. The £12 billion equates to an anticipated book risk weight of 15% which is subject to change. In 2021 we also expect to achieve the majority of the remaining NatWest Markets RWA reduction towards the medium term target of £20 billion, but expect minimal reduction in RWAs in Ulster Bank RoI in 2021 as a result of the completion of the strategic review announced today. Other changes in RWAs will be driven by the level of procyclical inflation driven by the economic outlook, downgrades in the credit quality and assessments in the commercial book and ongoing demand for lending from our customers. NatWest Group capital and funding plans focus on issuing £3-5 billion of MREL-compliant instruments, with a continued focus on issuance under our Green, Social and Sustainability Bond Framework, around £1.0 billion of AT1 and around £2.0 billion of Tier 2 instruments. As in prior years, we will continue to target other funding sources to diversify our funding structure. Medium term outlook We expect to achieve a return on tangible equity of 9-10% and a CET1 capital ratio of 13-14% by 2023. Supporting this we are targeting above market rate lending growth per annum across our UK and RBS International retail and commercial businesses and expect annual cost reduction of around 4%, excluding the impact of the phased withdrawal from the Republic of Ireland, along with continued strategic cost reduction. As a result of the decision to withdraw from the Republic of Ireland announced today we would expect the level of RWAs to reduce in the coming years, and for this withdrawal to be capital accretive for NatWest Group across the multi-year process. NatWest Group capital distributions Subject to economic conditions being in line with, or better than, our central economic forecast, NatWest Group intends to maintain ordinary dividends of around 40% of attributable profit and aims to distribute a minimum of £800 million per annum from 2021 to 2023 via a combination of ordinary and special dividends. NatWest Group intends to maintain the required capacity to participate in directed buybacks of the UK Government stake and recognises that any exercise of this authority would be dependent upon HMT’s intentions and is limited to 4.99% of issued share capital in any 12 month period. Note: The guidance, targets, expectations and trends discussed in this section

GRAPHIC

 

Building a purpose-led bank SafeLives NatWest Group works with SafeLives, the UK-wide charity dedicated to ending domestic abuse, for everyone and for good. Through our relationship, SafeLives has consulted on bank policies and practices to improve outcomes for customers, leading to the innovation of our e-form for survivors to contact the bank safely and the introduction of video banking to prevent impersonation of victims. In 2020, NatWest Group launched a review into how it can better support customers who have been victims of economic abuse and acquired coercive debt and announced a £1 million fund to support survivors of economic and domestic abuse, the first bank in the UK to offer this amount of financial support. The review, conducted in conjunction with SafeLives, will look at internal processes, as well as preventive solutions and practical support available for customers affected. This new NatWest Group fund will be open to victims of economic and domestic abuse across the UK and will increase access to tools, support and financial assistance. SafeLives and NatWest Group will work together with survivors and specialist domestic abuse services to co-create the programme, making sure the lived experience of survivors influences its design, so it meets people’s needs and helps build financial confidence and independence.

GRAPHIC

 

Building a purpose-led bank How we create value. Our resources2. Our business activities Financial Our strategy We make appropriate use of shareholder capital and other forms of financial capital, including £431.7 billion in customer deposits. Human and Relationships We rely on an engaged, healthy and inclusive workforce to deliver our strategy to 19 million customers in the UK and Ireland. Our relationships with all stakeholder groups help to shape and support our strategy and operations. This includes our shareholders and regulators, suppliers, consumer and campaign groups, local communities and more. Natural Resources We understand we are part of the natural world, benefiting from resources including paper and water to conduct our business activities. We were jointly the first company worldwide to sign up to all the Climate Group initiatives on electric vehicles (EV100), energy productivity (EP100), and renewable power (RE100). Infrastructure Customer infrastructure includes online and mobile banking, video banking, our High Street branches, Post Office branches, intermediary channels, contact centres, telephony, webchat and cash management services, as well as self-service options such as ATMs and Cash Deposit Machines. We also depend on our property and technology Our customers We support our personal, business, commercial and institutional customers with financial services that meet their needs. Understanding and delivering help for what matters to our customers is what we seek to do every day. We believe in treating customers fairly, offering flexibility to our customers in how they choose to bank with us and providing extra help to customers in vulnerable situations or financial difficulty. This includes keeping their funds safe and secure, improving financial capability and supporting enterprise. Our business model We earn income from interest charged on lending to our customers and fees from transactions and other services. We pay interest to customers who place deposits with us and to investors who buy our debt securities. We also make reward payments on products like our Reward bank accounts and credit cards. The attributable profit generated is either returned to shareholders or retained and reinvested into new and improved products and services for our customers. Our products and services We support the financial lives of our customers and drive economic growth through our well-known brands. We provide a comprehensive range of banking and financial services to personal, business and commercial customers via our franchises. Examples include current and savings accounts, credit cards, mortgages and investments for our personal customers; to banking, lending, project finance, risk management and trading solutions for our large commercial customers. Our partners and networks infrastructure, and that of our supply chain, to run the bank’s systems and operations. Our critical technology systems have been available 99.98% of the time and typically over 95% of branches have been available each day during the pandemic, other service channels have remained fully available. We work with a diverse range of partners to help shape our business strategy and deliver positive outcomes for customers and society. This includes our supply chain, communities, academia, regulators, expert advisors, consumer groups and charities, as well as strategic partners. We are also members of, or signatories to, a large number of organisations, trade bodies and frameworks that help us create long-term value and balance the interests of stakeholders.

GRAPHIC

 

Building a purpose-led bank 3. How we create value for our customers and society We are a relationship bank for an increasingly digital world. We champion potential so the people, families and businesses we serve can thrive. We will break down barriers, build financial confidence, and help to tackle climate change. Our Purpose-led strategy has been developed using the five principles of the Blueprint for Better Business (1), considering the needs of all stakeholders in the way we operate. In addition, we are members of the UN Global Compact and founding signatories of the UN Principles for Responsible Banking, committing to an ongoing process to align our strategy with the 2015 Paris Agreement and the UN Sustainable Development Goals. Examples of how we create value include:

GRAPHIC

 

 

Building a purpose-led bank Learning through play NatWest Group launched Island Saver in 2020, its first ever educational video game which harnesses children’s enthusiasm for video games as an opportunity to teach them about money management. Created with the independent games developer Stormcloud Games, Island Saver is an open world, non-violent, first-person game, set on the idyllic Savvy Islands with an array of environments to explore. Designed for 7-12 year olds, players are armed with a ‘trash blaster’ and tasked with cleaning up the islands of litterbugs that have polluted paradise. Learning through play is at the heart of Island Saver and woven into the gameplay are a series of money and environmental learning points. These range from a simple work-to-earn loop, as characters earn coins by recycling litter, to saving money in bank accounts and using a PIN. As players progress through the game they’ll also be introduced to the more advanced money concepts including paying tax, bartering, borrowing money, scams and foreign exchange. Island Saver is available to download for free on PlayStation, Xbox One, Nintendo Switch, PC (via Steam), Android and iOS. The game has received great ratings on all platforms: 10/10 on Steam; 4.8/5 in the Apple App Store; 4.6/5 on Xbox; and 4.5/5 on PlayStation. It was also in the top 20 downloads on Nintendo Switch in Europe and North America in June 2020. In 2020, Island Saver was downloaded over 2.3 million times.

GRAPHIC

 

Building a purpose-led bank Our business performance Retail Banking We provide a comprehensive range of banking products and related financial services including current accounts, mortgages, personal unsecured lending and personal deposits. We're here for customers whenever and wherever they need us through a range of convenient ways to bank, from our mobile app and online banking through to our contact centres and high street and mobile branches. Offering 24/7 banking facilities, customers are served through the NatWest and Royal Bank of Scotland distribution channels. Ulster Bank RoI We provide a comprehensive range of financial services through Personal and Commercial Banking divisions. Personal Banking provides loan and deposit products through a network of branches and direct channels, including the internet, mobile and telephony. Commercial Banking provides services to business and corporate customers, including small and medium enterprises. Commercial Banking We offer comprehensive banking and financing solutions to start-up, SME, Commercial and Corporate customers in the UK. We are there for our customers as they start, grow and manage their businesses. Our innovative products and services help customers achieve their growth, environmental and social targets. We deliver a high-quality sales and service experience through our expertise and deep engagement, locally, regionally and nationally through face-to-face, direct and digital channels. We continue to support our customers through the Brexit transition period and beyond. Private Banking Through the Coutts and Adam & Company brands, we provide private banking and wealth management services to UK-connected high net worth individuals and their business interests. We continue to focus on delivering the best client experience through a proactive engagement model which supports clients across both sides of their balance sheet. Our client centric strategy is focused on improving returns by deepening client relationships and improving our digital banking capabilities to make it easier for clients to deal with us. RBS International NatWest Markets Depositary Services We are one of the largest banks operating in the local and institutional banking sectors in the Channel Islands, Isle of Man and Gibraltar. We serve international customers with a UK connection through our International Banking proposition. It also has wholesale branches and fund depositary services businesses in the UK and Luxembourg to further serve our institutional clients and protect investors. We help NatWest Group’s corporate and institutional customers manage their financial risks safely and achieve their short-term and long-term sustainable financial goals. We think and act as one bank for our customers, collaborating with teams across the NatWest Group to be the partner of choice for our customers and their financial markets needs. By focusing on the things we do best and that matter most to our customers, we help champion potential.

GRAPHIC

 

Building a purpose-led bank Retail Banking We’re focused on offering customers the best digital experience combined with seamless access to our highly professional and engaged colleagues. We’ve invested in our digital capability, extending our video banking service and introducing a range of new features on our mobile app to help customers improve their financial capability. We’ve progressed on our climate commitments and put in place a comprehensive package of measures to support customers in financial difficulty. 20202019 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 full year 2019 operating profit would have been to decrease total income by £44 million and other expenses by £8 million. The net impact on the Q4 2019 balance sheet would have been to decrease customer deposits by £0.2 billion. Includes instances where customers had existing savings with other banks and transferred them in to their NatWest Group account. >945k Financial Health Checks conducted in 2020. Throughout the COVID-19 pandemic, 95% of branches remained open and we continued supporting customers 24/7 through our contact centres with our virtual assistant Cora being named ‘Best Informational Bot’ at the 2020 AI Breakthrough Awards. Through Customer Care campaigns set up as a proactive response to the pandemic, we called nearly 600,000 customers to provide support, including almost 480,000 customers in vulnerable situations, in addition to launching dedicated carelines for these customers and NHS staff. We helped shielding customers to access cash and supported every customer to bank safely and conveniently through digital channels and virtual face-to-face appointments with Video Bankers. We helped over 250,000 customers access mortgage repayment holidays and we offered interest-free limits up to £500, removed fees, and deferred planned interest rate increases on customer overdrafts. Supporting our areas of focus: Learning: Our Community Bankers led financial education online during the pandemic, offering free weekly Facebook events including; ‘MoneySense Mondays’ for young people, and ‘Ways to Bank Wednesdays’ to help promote digital banking. We conducted over 945,000 Financial Health Checks to improve customers’ financial capability. Additionally, our Know My Credit Score tool in the mobile app, helped 3.1 million customers understand their credit score and how they can improve it. This practical support enabled 600,000(2) customers to start saving with us this year. Climate: Our Purpose-led response to climate change remains a priority and we have committed to ensuring 50% of our UK and RoI customers’ homes are at or above EPC or equivalent rating C by 2030. We launched an online ‘Go Green’ Hub in July 2020 to help customers reduce their environmental impact and we announced a ground breaking agreement with innovative technology and sustainability company CoGo, to help customers track and reduce their carbon footprint, a UK first. We introduced £100 thank you payments to customers borrowing money to make energy efficient home improvements as part of the UK Government’s Green Homes Grant and in October 2020 we launched Green Mortgages which offer lower interest rates for customers purchasing energy efficient homes. At the end of 2020 we agreed to purchase c.£3.0 billion of prime residential mortgages from Metro Bank plc. The sustainable returns delivered through this acquisition will complement the strong organic growth achieved through our current channels.

GRAPHIC

 

Building a purpose-led bank Bank anytime, anywhere More of our customers are accessing our services digitally – which is now more important than ever. We now have 9.4 million active digital users, up from 8.7 million in 2019 and we added 0.9 million newly active mobile users during 2020, taking the total to 7.7 million. By the end of 2020 we were holding 9,000 weekly video banking conversations with customers, compared to fewer than 100 per week in January 2020 – allowing our colleagues to support our customers with a highly personal service from the safety of their own homes. Our digital services are fast, simple and convenient, making it easy for our customers to manage and look after their money, especially during the disruption of 2020. Our digital offering continues to be powered by innovation. Cora, our 24/7 AI virtual assistant, had nine million customer conversations in 2020, and she played a crucial role during the pandemic. When payment holiday demands spiked, Cora stepped in, serving customers via our mobile app and online banking, so they didn’t need to go into a branch or wait on the phone. So far, she's had 370,000 customer requests for payment holidays, freeing up colleagues' time to support customers with more complex queries. Requesting a PIN reminder, changing address and even getting balance and recent transaction information can all now be done via Cora. Crucially, when Cora can't help, she can put customers straight through to a colleague, for a seamless experience.

GRAPHIC

 

Building a purpose-led bank Ulster (RoI) Bank Supporting our personal and business customers in the Republic of Ireland through COVID-19 has been a top priority in 2020. Following an extensive review and despite the progress that has been made, it has become clear Ulster Bank in the Republic of Ireland will not be able to generate sustainable long term returns for our shareholders. As a result, the Group will begin a phased withdrawal from the Republic of Ireland over the coming years which will be undertaken with careful consideration of the impact on customers and our colleagues. 2020 2019 Throughout 2020 we have demonstrated the depth of our commitment to customers, colleagues and communities affected by COVID-19. This support included putting in place mortgage payment breaks for over 12,400 customers, dedicated phonelines and branch opening hours for frontline workers and elderly customers, increased payment and ATM limits and a new companion card for our customers in a vulnerable situation due to COVID-19 and their trusted carers. We continued to re-shape our business and adapt to shifts in our operating environment. During 2020 we accelerated our digital capabilities to support increased customer demand for digital services. This included launching our new Video Banker service for personal customers and a new end-to-end digital onboarding and lending platform for business customers, including end-to-end digital lending up to c.£45,000 (€50,000) and the ability to apply online up to c.£450,000 (€500,000). Supporting our areas of focus: • Learning: We enhanced our focus on protecting customers from frauds and scams, raising awareness through a nationwide radio and social media campaign, supported by a series of virtual Friends against Scams events and free anti-malware software for customers. We also continued to support the financial capability of our customers through the launch of our new Home Saver regular savings account, helping savers on their journey to home ownership, and education initiatives such as MoneySense. • Enterprise: We worked with the Strategic Banking Corporation of Ireland (SBCI) to deliver a range of loan and working capital schemes for businesses impacted by COVID-19, providing £76 million (€85 million) in lending under these schemes and supporting over 4,500 business customers with payment breaks. • Climate: In addition to reducing our own environmental impact, we are committed to helping our customers transition to a low carbon future economy. In 2020 this included launching our new four-year fixed rate Green Mortgage for homes with a B2 Building Energy Rating (BER) or higher. We also recognise our role in helping local communities and have adapted our annual staff fundraising campaigns, including ‘Do Good Feel Good’ and other community support initiatives, for the unique challenges of 2020, raising over £62,000 (€70,000) for a wide range of charities across the Republic of Ireland. >12,400 customers supported with mortgage payment breaks. An operating loss of £226 million (€255 million) was primarily due to increased impairment losses and lower income as a result of COVID-19. Net loans to customers reduced by £0.2 billion (€1.4 billion) in comparison to 2019 reflecting lower levels of personal and commercial lending, and increased loan provisions, partially offset by FX movement. 40 Total income (m) £510 €574 £567 €647 Operating expenses (m) £(486) €(548) £(552) €(630) Impairment (losses)/releases (m) £(250) €(281) £34 €38 Operating (loss)/profit (m) £(226) €(255) £49 €55 Net loans to customers (bn) £18.0 €20.0 £18.2 €21.4 Risk-weighted assets (bn) £11.8 €13.2 £13.0 €15.3 Return on equity (%) (11.7) 2.3

 

 

Building a purpose-led bank Ulster Bank Hackathon Now in its fifth year, the Ulster Bank Hackathon has a reputation for attracting some of the best and brightest minds. Working with start-up hub Dogpatch Labs, the Ulster Bank Hackathon is one of Ireland’s most established Hackathons, bringing together coders, data scientists, designers, entrepreneurs and colleagues to ‘hack’ out new ideas and innovations, collaborating to disrupt the future of banking. This year it took place virtually, with an overwhelming energy and commitment from participants across the world. 50 hackers tuned in from Ireland, the UK, the US and from as far away as India, and took part in 11 teams along with 17 mentors, five industry Pitch Judges, and five Technical Judges. Teams accelerated their ideas with additional resources including Ulster Bank’s API Sandbox and Microsoft’s Power Platform, plus had first-hand access to a global network of mentors from a range of talented entrepreneurs and business people. The Ulster Bank Hackathon has a reputation for creating an exciting, disruptive, safe space for some of the best minds to come together and test their ideas using technology they wouldn’t otherwise have access to. The teams focused on financial confidence, climate and smart data, all with the same end goal in mind – how can we change things for our customers for the better?

GRAPHIC

 

Building a purpose-led bank Commercial Banking We have played a leading role in the COVID-19 crisis response, delivering on Our Purpose-led strategy by helping businesses with a comprehensive package of initiatives, including participation in the UK Government’s financial support schemes. Supporting customers has been our top priority, as we have accelerated our strategy to remain accessible through remote channels, providing digital frontline assistance as well as support from our relationship managers. Total income (£m) 3,958 4,318 Operating expenses (£m) (2,430) (2,600) Impairment losses (£m) (1,927) (391) Operating (loss)/profit (£m) (399) 1,327 Net loans to customers (£bn) 108.2 101.2 Risk-weighted assets (£bn) 75.1 72.5 Return on equity (%) (4.5) 8.4 £13.8bn approved UK Government scheme lending. Throughout the COVID-19 crisis we supported our customers by approving £13.8 billion in UK Government scheme lending, without the requirement for personal guarantees from the outset, providing payment holiday on over 74,000 customer accounts and extending our existing Growth Fund Package by £5 billion. We launched a £1 million Coronavirus Response Fund and donated £5 million to the Prince’s Trust fund for supporting young entrepreneurs across the UK affected by the crisis. We increased the number of frontline staff to support customers and introduced a range of digital solutions to adapt to changing customer needs. We provided further support for customers through Tyl, our merchant acquiring and payments solution, Mentor Live, our digital business support service, and Free Agent, our award-winning online accounting software. Supporting our areas of focus: Learning: We supported the British Chamber of Commerce with their ‘Restart Renew Rebuild’ campaign to champion economic recovery and we welcomed a new cohort of apprentices into our Social Mobility Apprenticeship Programme with the Leadership Through Sports and Business charity. Enterprise: We launched the digital business builder platform supporting start-ups and new businesses with access to learning resources, successfully reaching over 14,200 registrations, with 58% of those supported identifying as female. We also digitised our Dream Bigger programme, to support the next generation of female entrepreneurs. Our Entrepreneur Accelerators pivoted to a digital model, delivering over 10,000 bespoke coaching sessions as well as hosting 1,016 digital events reaching 45,782 attendees. In September 2020 we were endorsed by the Scale Up Institute and named as the ‘UK’s leading accelerator’ by Beauhurst. Climate: As a leading lender to the UK renewables sector, we supported £3.9 billion of Climate and Sustainable Funding and Financing in 2020 and are proud to support de-carbonisation in the UK. In October 2020, we launched a NatWest Climate Accelerator to provide support, coaching and access to our Climate Partner Panel for our businesses whose core offering is linked to sustainable environmental activities. As a testament to our passion for innovation, we won a range of awards in 2020: Payit, an Open Banking solution for e-commerce payments settlement launched in June and won the prestigious ‘Innovation Frontier Award’ at Celent Model Bank 2020; and Rapid Cash, our digital working capital solution won best ‘Innovation in the SME Finance Sector’ at the 2020 Business Moneyfacts awards. Challenging operating conditions, the low interest rate environment and subdued business activity due to COVID-19 resulted in a £399 million operating loss, including impairment losses of £1,927 million and £37 million fair value and disposal losses. Net loans to customers were £7.0 billion, or 6.9%, higher than 2019 as £12.6 billion UK Government scheme drawdowns were partially offset by increased loan provisions and lower specialised business lending.

GRAPHIC

 

Building a purpose-led bank Start. Scale. Succeed. Note: (1) By total number of attendances, Beauhurst – September 2020. In 2020 the NatWest Entrepreneur Accelerator Programme was recognised as the No.1 UK accelerator programme.(1) Entrepreneur Accelerator is our flagship programme, fully-funded by NatWest Group, to support high growth-potential businesses with ambitions to scale across the UK. We focus on giving entrepreneurs the best possible coaching, in world-class environments, while connecting them to our amazing networks. Since the beginning of the pandemic we have run 1,016 virtual events, with 45,782 attendees. By moving our Accelerator Programme from face-to-face to digital delivery, we continued to support our entrepreneurs at a time when they need us most. We are committed to creating and supporting new businesses and concentrate our efforts on under-represented groups and geographical inequality. The programme has supported 1,230 entrepreneurs, of which 43% were female, 18% were of Black, Asian and Minority Ethnic backgrounds and 81% were outside London and the South East of England. The resulting businesses have raised total investment of £56 million, generating £128 million of total turnover and creating more than 1,000 jobs. To support SMEs and entrepreneurs nationwide, we launched the ‘In Conversation With’ series. Available to both customers and non-customers alike, the series gives the UK’s six million SMEs an opportunity to hear directly from some of the most influential voices in industry. We hope the inspiration provided by these experts, alongside our full range of support, will help SMEs and entrepreneurs to survive, thrive and prosper in the wake of the unique challenges of 2020.

GRAPHIC

 

Building a purpose-led bank Private Banking Our relationship-led and digitally enabled strategy has ensured ongoing support to our clients through the COVID-19 crisis. We have led with purpose, improving client satisfaction scores to new highs, increasing client engagement and progressing on our climate commitments. Our newly formed relationship with BlackRock will support our investment management processing activity and enable savings to be passed on directly to our clients. 20202019 (1) Private Banking manages assets under management portfolios on behalf of Retail Banking and RBSI and receives a management fee in respect of providing this service (3) For the period from 1 January 2020 to 30 June 2020, with a baseline of 31 December 2019. 29%(3) average reduction in the carbon intensity of equity in our Asset Management business. We reacted quickly in the early stages of the COVID-19 crisis, supporting our most affected clients through the provision of mortgage and personal loan repayment deferrals in appropriate circumstances and by approving over £0.3 billion in UK Government scheme lending in 2020. Targeted training ensured appropriate steps were taken to meet regulatory standards whilst enabling us to continue to meet client needs. Supporting our areas of focus: Learning: Our award-winning Coutts Institute continued to support clients with their philanthropic needs. In 2020, we supported over 230 clients with a fraud awareness webinar and more than 4,000 clients attended our live ‘Coutts in Conversation’ speaker series. Internally, we launched a mentor scheme for our Black, Asian and Minority Ethnic colleagues and provided 220 frontline colleagues with sales skills training, using psychology and behavioural science. Enterprise: We have supported Entrepreneur clients through a dedicated service which provides capital and connections to business founders. Coutts Investment Club introduces financially sophisticated high net worth individuals to private companies, and in March 2020 agreed to collaborate with the Business Growth Fund (BGF) to develop the UK Enterprise Fund. Climate: In September 2020, Coutts became a signatory of the Green Finance Institute’s Green Home Retrofit principles and in November 2020 launched the Green Mortgage pilot, which will support our commitment to ensuring 50% of our clients’ homes achieve at or above EPC or equivalent rating C by 2030. Our Asset Management business reduced the carbon intensity of equity in its portfolios by an average of 29% (3), ahead of our 25% target reduction by 2021 and is on track to meet our target to reduce the carbon intensity across all portfolios by 50% by 2030, in line with the Intergovernmental Panel on Climate Change (IPCC) targets. In August 2020 we received an A+ accreditation from the Principles for Responsible Investment, the United Nations’ supported international network of investors, and in November 2020 Coutts received The Financial Times’ Banker Magazine and Professional Wealth Management award for best Private Bank for Millennials. Coutts is also currently working towards achieving Benefit corporation (B-corp) accreditation; having both changed its Articles of Association and begun measuring progress according to the B-Corp impact assessment in 2020.

GRAPHIC

 

Building a purpose-led bank How Coutts and its clients are making a difference A sustainable and responsible approach to investing is important because it can build a better world – and who doesn’t want that? In our first annual sustainability report Coutts show how we invest with purpose and integrity, and with a keen focus on sustainability. Coutts do it a little differently to many other investment houses. Others tackle it by providing one ethical investment product, but Coutts embed this thinking across our entire investment process and offering for all our clients. So those who invest with Coutts choose to fight against climate change, promote diversity and establish good working conditions for all. And crucially, it doesn’t cost our clients a penny. 2020 was Coutts second year as a signatory to Principles for Responsible Investment (PRI), a world-wide body that aims to address ESG issues and the role that investors can play in supporting this work. PRI makes an annual assessment of all signatories, which allows for comparisons with other investment managers at a local and global level. Coutts either improved or sustained our scores across all categories relative to 2019. Our Strategy and Governance score of A+ is the highest rating possible, higher than the industry median rating of A. This category rates an organisation's overarching approach to responsible investment and incorporation of ESG issues into its asset allocation, recognising the action Coutts are taking to create a better future.

GRAPHIC

 

 

Building a purpose-led bank RBS International (RBSI) We have accelerated our digital transformation to suit changing customer needs. Leading a digital transformation across the communities we operate in and becoming a bank that is easy to deal with is the best way to fulfil Our Purpose to champion potential. Total income (£m) 497 610 Operating expenses (£m) (291) (264) Impairment losses (£m) (107) (2) Operating profit (£m) 99 344 Net loans to customers (£bn) 13.3 14.1 Risk-weighted assets (£bn) 7.5 6.5 Return on equity (%) 6.1 25.7 68% Local Banking customers now registered with digital banking, +8 percentage points on 2019. We have worked closely with local governments to implement emergency policies to support local communities and businesses in light of COVID-19. We led the offshore banking sector in the creation of the loan Disruption Guarantee Scheme (DGS), providing financial support to our customers, with loan facilities totalling £858 million, through forbearance, the DGS and payment holidays in 2020. We have accelerated our digital transformation strategy and are now meeting the increasing customer demand for digital solutions. This change in customer behaviour has also led us to consolidate the branch network in our locations and allowed us to focus more investment into digital services. In 2020 eQ, our multicurrency banking platform for Corporate and Institutional banking customers, released online account opening and a mobile app. Supporting our areas of focus: Enterprise: In July 2020 we introduced the Woman in Business accreditation, with 46 colleagues completing the qualification. In tandem we nominated nine customers for the NatWest Everywoman Awards, championing their potential and helping to remove the barriers to business. In the second half of 2020 we selected six local, social enterprises to support with mentoring, sharing our knowledge and resources with our communities. We also held three virtual Business Builder events which were open to anyone in the community, a first for RBS International. We had 93 attendees, with a third signing up for further support. Climate: We continue to help drive the transition towards a low carbon economy. In the fourth quarter of 2020 we provided a €5 million investor backed loan facility (IBLF) for an energy transition fund focusing on clean energy production, energy efficiency enhancements and clean energy utilisation. We also provided a €30 million IBLF for a European fund; that invests in the development, construction and management of subsidy-free and sustainable renewable energy assets. Throughout 2020 we have sought to increase customer and colleague knowledge on climate by running education sessions on sustainability-linked loans, holding a Climate Awareness month and by enrolling over 100 colleagues on climate education courses; in conjunction with the University of Edinburgh and Cambridge Institute of Sustainability Leadership. Operating profit of £99 million was 71.2% lower than 2019 primarily due to the impact of interest rate reductions on deposit income, lower fee income and increased impairment losses reflecting the economic response to COVID-19. Net loans to customers decreased by £0.8 billion, or 5.7%, as Institutional Banking customers repaid facilities to position themselves in the uncertain environment.

GRAPHIC

 

Building a purpose-led bank Building for the future Through the strong relationships RBSI has built with housing trusts, developers and the local government on Jersey, RBSI is playing a leading role in tackling the issue of overcrowded accommodation on the island of Jersey. Lending provided by RBSI continues to support the development of social housing, affordable housing and first-time buyer properties in Jersey. And over the course of 2020, we went further, providing lending facilities totalling £92 million to support the building of homes for islanders, working with Les Vaux Housing Trust, CTJ Housing Trust and Andium Homes. By supporting the expansion of accessible and affordable housing on the island, we are demonstrating our commitment to championing the potential of Jersey residents. We know that increasing residents’ opportunities to have a place of their own to call home will help to build an even stronger and more empowered island community. NatWest Group has committed to £3 billion of new funding to the housing association sector by the end of 2022 to increase the provision of social housing, as well as to improve existing properties, ensuring that more people and families can have a sanctuary they can call home.

GRAPHIC

 

Building a purpose-led bank NatWest Markets We have played a key role in supporting NatWest Group’s customers during 2020. We have remained resilient in the face of volatile market conditions, delivering strong income performance and safely managing our balance sheet while continuing to support customers through the COVID-19 crisis. 20202019 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. Includes all green, social, sustainability and transition labelled debt. £7.2bn Climate and Sustainable Funding and Financing in 2020. Significant progress has been made in reshaping the business for the future and advancing our transformation to deliver the refocused business announced in February 2020. By accelerating this transformation we’re becoming a more integrated and sustainable part of NatWest Group, focusing on what we do best and what matters to our customers. RWAs have reduced and the business is ahead of its plan to achieve the medium-term reduction to £20 billion. We simplified our product offering and in the second quarter of 2020 we entered into an agreement with BNP Paribas for the provision of ‘house’ Futures and associated back office services. We have consolidated certain customer coverage, services and functional teams with their counterparts in NatWest Group, enhancing our collaborative approach to customers. We leveraged our risk management expertise to support required hedging for customers; helped governments access critical financing to support their pandemic response programmes and supported customers’ access to capital markets, including issuing COVID-19 response bonds and accessing the Covid Corporate Financing Facility (CCFF) in conjunction with Commercial Banking. In support of our Climate focus area we have continued to play a leading role in the development of the sustainable finance market through 2020. We supported Cadent Gas on the UK’s first ever transition bond as bookrunners for the deal, supporting the UK’s transition towards a low carbon economy. Our commitment to clients has been recognised by a number of awards and surveys in 2020 including: UK Corporates FX Service Quality Leader (Greenwich Associates, Global FX-Study, UK Corporates, 2019, awarded April 2020) #1 European Government Bonds by Estimated Notional Share – Gilts (Greenwich Associates European Fixed Income Rates 2020) Most Impressive FIG House in Sterling (GlobalCapital Bond Awards 2020) #1 lead manager for sustainability-labelled debt for UK corporates (2) (Dealogic, full year 2020) Most Accurate UK Economy Forecaster of 2019 – Ross Walker (Consensus Economics, awarded May 2020) An operating loss of £227 million compared with a £25 million operating loss in 2019, mainly reflecting the £444 million Alawwal bank merger gain in 2019 and £48 million higher disposal losses in 2020, partially offset by stronger business performance in the current year from increased customer activity as the market reacted to the spread of the COVID-19 virus. RWAs decreased by £11.0 billion to £26.9 billion as the business exceeded its target for RWA reductions over the course of 2020.

GRAPHIC

 

Building a purpose-led bank Supporting the construction of the world’s largest offshore wind farm (1) Source: Inframation Deals (Acuris). Based on the aggregated totals for the United Kingdom for the 10 year period 03/12/2010-03/12/2020. In 2020, NatWest Group delivered £12 billion of climate sustainable funding and financing to customers against our target to deliver £20 billion by the end of 2021. We are committed to tackling climate change, which is a core part of Our Purpose-led strategy and seek opportunities to demonstrate our leadership and contribution to a cleaner energy future. In 2020, NatWest Group acted as a lead arranger for the financing of the first two phases of Dogger Bank Wind Farm. Upon completion of all three phases in 2026, Dogger Bank Wind Farm will be the largest offshore windfarm in the world. The project is being developed by SSE, a leading developer, owner and operator of renewable energy across the UK and Ireland together with Norwegian firm Equinor, a leading energy provider, with each holding a 50% stake. Located over 130km off the north east coast of England, by 2026 Dogger Bank Wind Farm will support 320 new skilled jobs and produce enough electricity to supply 5% of the UK's demand - equivalent to powering six million UK homes each year. NatWest Group acted as a lead arranger of the transaction for the financing of the first two phases, comprising 29 banks and three export credit agencies providing £5.5 billion of financing facilities, making this the largest offshore wind project financing to date, globally. Renewable energy is a strategically important sector for NatWest Group, Dogger Bank marked our ninth offshore wind project finance transaction in the UK in the past four years. We have been the number one provider of finance to the UK renewables sector over the last 10 years – by total number of transactions over that period – with 79 transactions totaling £3.86 billion (1), supporting more than 8GW of offshore wind development.

GRAPHIC

 

Our stakeholders Stakeholder engagement. Listening, engaging and partnering with stakeholders helps us to address our business impacts and improve outcomes for customers, society and the environment. Who Our stakeholders How How we engaged with them in 2020 Customers Our retail, business, commercial and institutional customers. We pivoted our operations at pace in response to COVID-19, reacting quickly to support our customers’ financial health. We engaged with our customers face-to-face through our branch network, mobile branches, community bankers and business growth enablers. We also engaged digitally through webchats, Bankline, video banking, secure messaging and social media, in addition to telephony. We have prioritised providing a personal service to customers through these challenging times and ensured that customers were able to tell us about their experience by providing feedback through our customer surveys, including our Net Promoter Score survey framework, as well as syndicated surveys and customer listening focus groups for senior leadership. Our closed loop feedback and complaints system allowed us to identify and resolve issues quickly. Colleagues Our colleagues, who create and deliver products and services and are the face of our brands. We placed colleague wellbeing firmly at the centre of our COVID-19 response. The Our View opinion survey provided colleagues an opportunity to have their say on how it feels to work at NatWest Group and to shape the actions we take to champion potential. During the pandemic we ran additional COVID-19 pulse surveys to understand how colleagues were feeling and what more we could do to support them. Amidst the global events of 2020, we conducted our first survey on race, diversity and inclusion, to inform our approach in creating a truly inclusive organisation. The Colleague Advisory Panel allowed the Board to hear directly from colleagues on key issues, while Employee Led Networks continued to influence how NatWest Group is becoming more inclusive and accessible. Important conversations continued with our employee representatives, such as trade unions and work councils. Communities The communities in which we operate, and wider society. We worked with community partners and charities to support our local communities, helping the most vulnerable in society. We regularly shared information about NatWest Group and its Purpose-led strategy, providing opportunities for our communities to engage with our colleagues and customers. We were in constant contact with our communities, including through our regional boards, leveraging existing and forming new relationships to support society. Examples of how we engage with and support our community partners and charities include payroll giving, community cashback, employee fundraising, employee volunteering, ATM giving and disaster and emergency appeals. Investors Institutional equity and debt investors, UK Government, retail shareholders. Our investors take an interest in our success and sustainability, and we updated them regularly on business performance. We engaged with our retail shareholders through our Annual General Meeting, virtual shareholder events, and our Annual and Strategic Report communications. We interacted with institutional investors through quarterly results presentations, 1:1 and group meetings, including sessions with the Board, regular engagement with UK Government Investments and presentations at sector conferences. We engaged with socially responsible investors through an active programme of meetings with ESG analysts from institutional investors, presentations at ESG-focused conferences and enhanced engagement with sustainability rating agencies. Regulators Our regulators, who oversee our activities and undertake consultations and policy reform. We continued to prioritise an open and continuous dialogue with our regulators. We actively monitored changes in the regulatory landscape and engaged with regulatory consultations and on compliance with regulatory changes. We also attended regulatory engagement meetings on an ongoing basis. Suppliers Our suppliers, who support us to deliver products and services to our customers. Suppliers have played a critical role in ensuring continuity of service to our customers during the pandemic. We organised regular review meetings with key suppliers and regularly conducted supplier policy compliance reviews.

GRAPHIC

 

 

Our stakeholders What What we discussed Outcomes and further information What we did COVID-19 and the support needed. Customer satisfaction and trust. Lending, including fees and charges. Supporting businesses. Supporting customers in financial distress. Accessible banking. Security and fraud. Set up dedicated telephone lines for over-70s and NHS workers. Helped 258,000 customers secure a mortgage repayment holiday. Implemented Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme and waived fees. Removed the minimum monthly fee on our business accounts. Launched an online cashflow tool to help businesses through the pandemic. Introduced case owners to improve the account-opening journey. Support for colleagues and their families through COVID-19. Wellbeing of customers, colleagues and communities. Becoming an inclusive organisation. Living Our Purpose. Progress against our strategy. Home working was quickly made available to most colleagues, and for keyworker colleagues who remained on the frontline, all of our offices and branches were made COVID-secure. Set up a COVID-19 Wellbeing Hub for colleagues which received over 37,500 hits. Our View showed a further improvement in colleague sentiment. Our work on inclusion has been recognised through a number of external awards. We continue to support our c.23,000 – strong Employee Led Networks. Requests to raise awareness of charities, and enable employee volunteering and fundraising. Support with customer giving. UK and international disasters and emergencies response. Climate and conservation activity. Our Edinburgh head office was turned into a charity distribution hub. Over £3.2 million was raised for charity and 13,599 hours volunteered during worktime. Facilitated customer donations of £2.1 million through our Reward Account. Over £10 million was raised for the National Emergency Trust’s (NET) Coronavirus Appeal through colleagues and customer donations and matching from the bank. 30,000 trees were planted in a pioneering “tiny forest” in Dagenham with TCV (The Conservation Volunteers). COVID-19: economic impact and customer focus. Progress against purpose and strategy. Financial performance. Dividends and share price. Climate change and sustainable lending. Due to COVID-19, the 2020 AGM was attended by only the shareholders required to form a quorum. Shareholders were able to vote and submit questions in advance of the AGM. Positive feedback was received on three virtual shareholder events held in 2020. Mainstream investors received strategic and financial updates to enable them to make their investment decisions. The Board received feedback from investors on performance and strategy. Our position in sustainability benchmarking indices improved and we were the first UK bank to list a green bond on the London Stock Exchange (LSE). COVID-19 support measures and recovery. Brexit. ESG issues. Operational resilience. Access to cash. Consumer credit. Responded to various consultations and other requests for comment/input issued by government, regulatory and standard setting bodies. Engaged with regulators during the policy proposal phase on a number of occasions to help inform priorities – examples included climate change and operational resilience, both of which are being considered in new ways. Directors and senior management had regular engagement meetings with regulators to discuss key regulatory priorities. We requested forbearance across a number of regulatory change programmes as a result of implementing government schemes at pace to support our customers. Environmental and ethical sustainability. Innovation. Prompt payment. Being simpler to do business with. Launched our Supplier Charter, which sets out our aims and expectations in the areas of ethical business conduct, human rights, environmental sustainability, diversity and inclusion, the Living Wage and prompt payment. To support the Supplier Charter and our collaborative approach to improving performance in these areas, we identified and onboarded a new third party provider to undertake independent sustainability assessments of our suppliers – EcoVadis. To support our Supply Chain during the COVID-19 pandemic and beyond, we moved all UK and Ireland supplier payments to immediate release, to support all of our suppliers, including SMEs. Embedded a new supplier management system, simplifying how we engage with our supply chain.

GRAPHIC

 

Our stakeholders Section 172(1) statement. This section of the Strategic Report describes how the directors have had regard to the matters set out in section 172(1) (a) to (f), and forms the directors’ statement required under section 414CZA, of the Companies Act 2006. How stakeholder interests have influenced Board discussions and decision-making NatWest Group plc recognises the importance of engaging with stakeholders and understanding their views, to help inform its strategy and Board discussions and decision-making. In making its decisions, the Board considers the outcomes of relevant stakeholder engagement, as well as the need to maintain a reputation for high standards of business conduct, the need to act fairly between the members of the company and the long-term consequences of its decisions. In February 2020 the Board approved its annual objectives and confirmed the Board’s key stakeholder groups, as set out in this statement. Various steps were taken during the year to embed our purpose in Board discussions and decision-making, helping the Board to ensure different stakeholder needs were considered. The roles and responsibilities of the Board and its Committees were enhanced to ensure a strong focus on our purpose was built into their respective Terms of Reference. Board and Board Committee papers now include a dedicated section which explains how the proposal or update aligns to our purpose, which is complemented by a section detailing stakeholder impacts. These features, embedded within our Board paper format, help to ensure that our purpose and stakeholders remain firmly at the centre of Board discussions, and underpin the Board’s oversight of NatWest Group’s progress and performance as a purpose-led organisation. During the 2020 Board evaluation, directors commented positively on how our purpose guided Board discussions and decision-making during the pandemic. Customers During the year, the Board received regular updates on customer issues through reports from the Group CEO and business CEOs. Customer lifecycles were a key area of focus during Board and Group Executive Committee (ExCo) strategy discussions. Directors also received targeted management information on progress against customer service metrics including customer advocacy measures and complaints data. A dedicated Board session on customer experience helped to enhance directors’ customer insights further. This session covered NatWest Group's Net Promoter and CMA scores and directors provided input and feedback on management's plans to enhance customer experience outcomes. Directors were also regularly updated on the nature and extent of COVID-19 support provided to customers. The Group CEO and Group CFO met with customers throughout the year to enhance relationships and understand their views. The Group Sustainable Banking Committee held two sessions that included a focus on customers. The first of these addressed customer treatment in the context of COVID-19. The second session focused on enterprise, and the Committee heard customer testimonies alongside a spotlight from a customer on entrepreneurship and NatWest Group’s role in supporting the sector. Colleagues Colleague Advisory Panel Our Colleague Advisory Panel (CAP) provided an important two-way communication channel between the Board and colleagues during the pandemic. The CAP was set up in 2018 to help promote colleague voices in the boardroom and supports our compliance with the UK Corporate Governance Code in relation to workforce engagement. Its membership includes representatives from a range of our Employee Led Networks, unions, management teams and regional locations, as well as volunteer

GRAPHIC

 

Our stakeholders The Colleague Advisory Panel feedback loop in action members unconnected with existing groups. It continues to provide a valuable mechanism for colleagues to gain a greater understanding of the Board’s role and provide feedback to directors. Two-way communication is crucial for both colleagues and directors and embodies our open and inclusive culture. The CAP met four times in 2020 and all meetings were virtual. In addition to two scheduled sessions, there were two ad-hoc sessions which supported additional listening and discussion with directors in light of the challenges related to COVID-19. Topics discussed in 2020 in addition to COVID-19 colleague and customer support included embedding purpose, diversity and inclusion, innovation, executive pay and sustainable banking. At Board meetings the CAP Chair provided an update on issues discussed at the CAP, and raised specific questions for Board feedback. Afterwards, the CAP Chair shared the Board's views and feedback with CAP members. The diagram above illustrates the CAP feedback loop in action, on the topic of COVID-19 colleague support. Our culture The Board assesses and monitors NatWest Group’s culture in several ways. In February 2020, representatives from the Banking Standards Board (BSB) joined a Board meeting to present the results of their 2019 industry-wide survey and thematic reports, together with their 2019 Assessment report on NatWest Group. The Board also discussed an internal review of the BSB’s thematic reports on “Technology & Culture” and “Decision-Making” from a NatWest Group perspective, including impacts for customers and employees. In December 2020, the Group Sustainable Banking Committee considered a summary of the results of the BSB’s 2020 Assessment report on NatWest Group, in advance of a presentation by the BSB to the Board in February 2021. The Group Sustainable Banking Committee held a dedicated people and culture session in December 2020 which included culture measurement reporting, and this in turn helped to support the Board on assessing progress on building a healthy culture, and alignment between culture and purpose across NatWest Group. Colleague opinion survey results were another useful culture oversight tool available to the Board. Directors considered the results of colleague pulse surveys conducted in May and June 2020, and in October 2020, reviewed the results of the annual colleague opinion survey, Our View. Key themes noted and discussed by the Board were culture, inclusion, capability, resilience and wellbeing (including financial wellbeing and colleague advocacy). In December 2020, as part of a spotlight on colleagues, the Board received an update on future ways of working and how this might evolve in a way that is consistent with our purpose and strategy; continues to support colleagues; drives greater collaboration; and supports the long-term sustainability of NatWest Group. Executive talent and succession The Board is committed to staying connected with the executive talent population. Although COVID-19 restrictions meant that a planned face to face event for directors to meet senior management colleagues considered to be ‘rising stars’ was cancelled, a virtual session enabled this group to spend time together. Discussion topics included

GRAPHIC

 

Our stakeholders How the Board engaged with investors JanuaryFebruaryMarchApril 14th – 2019 annual results announced; investor presentation + Q&A Institutional investor meetings (Group CEO and Group CFO) 29th – Annual General Meeting & virtual shareholder event Corporate Governance meetings with investors (Chairman) August Institutional investor meetings (Group CEO and Group CFO) July 16th – virtual shareholder event 31st – H1 results announced; June Institutional investor meetings May 1st – Q1 results announced; investor presentation + Q&A investor presentation + Q&A (Chairman, Group CEO and Group CFO) September 8th – virtual shareholder event 30th – Board feedback session with three major institutional investors OctoberNovemberDecember 30th – Q3 results announced; investor presentation + Q&A Corporate Governance meetings with investors (Chairman) Institutional investor meetings (Group CEO and Group CFO) Institutional investor meetings (Chairman, Group CEO and Group CFO) how we could continue our momentum towards becoming a purpose-led organisation, and future opportunities for NatWest Group. The Board also held a separate session to discuss executive succession planning. Investors Our directors engaged with investors throughout the year, keeping them informed on our progress, strategy and financial performance. This helped the Board to build an understanding of what matters to our investors, and provided useful opportunities for questions and feedback. The timeline above provides an overview of key investor engagement activities during 2020. Communication with NatWest Group plc’s largest institutional shareholders continued throughout the year as part of the Investor Relations programme. The Chairman, Group CEO and Group CFO undertook an extensive engagement programme with our largest institutional shareholders, including UK Government Investments (UKGI). Members of the executive management team also took part in meetings with groups of institutional investors for sessions spotlighting their businesses. The Group CEO and Group CFO made additional outreach to major shareholders, ensuring they were kept up to date during the uncertainty caused by COVID-19, and virtual engagement activity was significantly stepped up in the absence of face to face options. The Chairman’s regular engagement with major shareholders allowed him to understand their views on governance and performance against strategy. The Chairman of the Group Performance and Remuneration Committee met with institutional shareholders to discuss remuneration matters, including the executive directors' The Board met virtually with representatives from three of our top 30 institutional shareholders, which provided our investors with an opportunity to give feedback and ask questions of the wider Board. Topics covered included our purpose, strategic priorities, dividends and capital. In addition, our Board Committee Chairs met with UKGI, who were undertaking a deep dive into the business as part of their stewardship responsibilities to the UK Government. Following each quarterly results announcement, executive management hosted an investor presentation in order to provide an update on our financial performance and strategy. All shareholders usually have the opportunity to ask questions at our Annual General Meeting (AGM) and any other General Meetings which may be held. In 2020 our AGM was held behind closed doors in accordance with requirements put in place in response to the COVID-19 pandemic, with only employee shareholders present to meet quorum requirements. We held an online shareholder event later in the day to allow shareholders to receive answers to pre-submitted questions. We also continued to hold online retail shareholder events, where shareholders could ask questions submitted in advance or live on the day of a panel of executives and non-executive directors and learn more about the business, our progress to date and our plans for the future. In addition to the virtual event held following the AGM we held two more online events during 2020. The first took place in July 2020, hosted by the Group CEO and covered our response to the COVID-19 pandemic and the launch of our purpose.

GRAPHIC

 

Our stakeholders A second event held in September 2020 hosted by the Chairman covered our half-year financial results. We plan to hold further similar events in 2021. Throughout the year, the Chairman provided regular updates to the Board on shareholder engagement and the Board also received regular updates on investor feedback from the Group CEO, Group CFO and Investor Relations at Board meetings and strategy sessions. Combined, these activities helped to ensure that the Board as a whole maintained a clear understanding of the views of all shareholders, and that directors continued to have regard to the need to act fairly as between members of the company in performing their duties, as required by section 172(1). Regulators The Board recognises the importance of open and continuous dialogue with our regulators. In 2020, the main focus of our regulatory engagement was inevitably on our COVID-19 response, and in particular the support we were offering to our customers, with other topics discussed by directors with the regulators including strategy, operational resilience, board effectiveness, dividends and financial crime. Representatives from the Prudential Regulation Authority (PRA) attended the July 2020 Board meeting to present and discuss the findings arising from its Periodic Summary Meeting for NatWest Group. In September 2020, representatives from the Financial Conduct Authority (FCA) joined the Board meeting to present and discuss its annual Firm Evaluation letter. The Chairman and executive directors have regular meetings with the PRA and FCA. In addition, individual non-executive directors engage with our regulators through Continuous Assessment and Proactive Engagement meetings. The Board also receives reports on regulatory matters from the Chief Legal Officer and General Counsel. Suppliers The Board is mindful of the role our suppliers play in ensuring we deliver a reliable service to our customers, and of the importance of our relationships with key suppliers, particularly in the current environment. Although directors were unable to meet with supplier representatives in person, as they have done previously, they were kept informed on progress against relevant key performance indicators, including payment practices, through management reporting. In particular, the Board Changing our Name In February 2020 we announced our intention to change the company’s name from The Royal Bank of Scotland Group plc to NatWest Group plc. The Board fully supported the move to align the parent company name with the brand under which the majority of our business is delivered but was also mindful of a range of stakeholder interests and how the announcement would be received, particularly from a Scottish perspective. In advance of the announcement, the Board considered both the rationale for changing the name as well as the potential impact of the name change for key stakeholder groups, particularly colleagues, customers and investors. The Board noted that changing the parent company name and brand would help remove the negative impact the RBS brand has had on the performance of our customer brands following the financial crisis of 2008. The Board acknowledged the potential long-term commercial benefits from doing this and, in particular, that it would allow us to move on from our legacy issues and focus on our customers and continuing to improve the products and services we offer them. The Board also reviewed in detail the proposed communications plan and the approach to engaging with key stakeholders as well as our regulators, the media and politicians. Acknowledging that there was likely to be some potential adverse reaction, particularly from those with a strong affinity to RBS and Royal Bank of Scotland, the Board noted that the communications plan had been developed to help to mitigate this reaction and manage the interests and sensitivities for colleagues, media, politicians, customers and investors. Colleague communications and messaging were shared with the Board emphasising that the jobs of our colleagues and the service provided to our customers in Scotland would not be impacted by the change of name. The Board also noted that there would be no impact on customers’ day-to-day banking experience, as they would continue to interact with their usual customer brand(s). The Board was strongly supportive of management demonstrating NatWest Group’s continuing commitment to Scotland and the Royal Bank of Scotland brand. From an investor perspective, the impact was also considered to be minimal. “NatWest Group” would be used as a brand when talking about the Group as a whole and with investors, but there was no anticipated share price or ratings impact. The Board also considered the costs of changing the name and introducing the new NatWest Group brand as well as the impact on technology and systems, property, legal documents and agreements and company documentation. After careful consideration and taking into account their duties under section 172(1), the Board approved the change of name in principle and the communication and engagement plans were put into action. A number of directors, including the Chairman and Group CEO, were directly involved in engaging with stakeholders following the announcement and the Board was subsequently updated on the response to the announcement including media coverage and colleague reaction. The project team then undertook an extensive programme of work to prepare for the legal change of name which was formally approved by the Board in July 2020 and subsequently implemented.

GRAPHIC

 

 

Our stakeholders noted the actions taken to support suppliers’ cashflow during 2020 (which consisted of moving all UK and Ireland supplier payments to immediate release). The Group Chief Administrative Officer provided regular updates to the Board, including on key external partnerships and supply chain resilience. The Board considered and approved NatWest Group’s 2019 Modern Slavery Act Statement, which sets out the steps that we are taking to tackle modern slavery and human trafficking within our business, supply chain and sphere of influence. Our Human Rights Statement was also reviewed by the Group Sustainable Banking Committee and approved by the Board during 2020. The Group Sustainable Banking Committee supported the Board by discussing our new Supplier Charter and approach to suppliers in relation to our Modern Slavery and Human Rights obligations. Community and environment Directors enhanced their knowledge and understanding of climate issues through a dedicated training session led by management which included a presentation by Lord Stern (NatWest Group's independent climate change adviser) on external developments as well as updates on climate change risks and opportunities. In addition, the Board received a foundational online learning module on the impact of climate change on financial services and directors have been offered further optional training from the Cambridge Institute for Sustainability Leadership. The Board were regularly updated on NatWest Group’s wider community engagement activities throughout the year, with particular emphasis on the COVID-19 support provided to our local communities. Supporting our Black, Asian and Minority Ethnic Commitments In June 2020, in response to the Black Lives Matter movement, the Group CEO asked the global co-chairs of NatWest Group’s Multicultural Network to set up a taskforce to listen, analyse and deliver a set of commitments to address the key barriers facing Black, Asian and Minority Ethnic colleagues, customers and communities (the “Taskforce”). The launch of the Taskforce was reported to the Board, which was keen to be kept informed of the Taskforce’s progress. The Board received regular updates from the Group CEO covering various aspects of the Taskforce’s work including the all-colleague listening survey, colleague communications and executive management’s engagement with the Taskforce as it worked to finalise its recommendations. The Group CEO also facilitated a discussion at the June 2020 meeting of the CAP on NatWest Group’s response to Black Lives Matter and the work of the Taskforce, the outputs of which were reported back to the Board in July 2020. The Taskforce co-leads were invited to attend a Board meeting in September 2020 to present directly to the Board on the work of the Taskforce. They explained to the Board how the 10 Commitments for engaging with Black, Asian and Minority Ethnic colleagues, customers and communities had been developed; how the outputs of the work would be communicated; and the learnings from the work and that there was clear alignment between the work of the Taskforce and NatWest Group’s purpose in terms of championing potential. Following engagement by the Taskforce with the Group CEO and the Group Executive Committee, a new target of 3% of Black colleagues in senior UK roles by 2025 had been agreed in response to there being a higher under-representation of Black colleagues in senior UK roles. This new target would be in addition to our existing target to have at least 14% Black, Asian and Minority Ethnic leaders in senior UK roles by 2025. The Taskforce co-leads also responded to questions from the Board on topics such as colleague experiences and support from non-Black, Asian and Minority Ethnic colleagues. The Board wholeheartedly endorsed the work of the Taskforce and confirmed its support for the 10 Commitments including the introduction of a new target to have 3% of Black colleagues in senior UK roles by 2025. A subsequent update to the Board was provided on the publication of the Taskforce’s report “Banking on Racial Equality; A Roadmap for Positive Change” including the key insights from the report.

GRAPHIC

 

Our stakeholders Our customers. We are a relationship bank for a digital world. Our customers come to us to support their day-to-day banking needs and to help them plan for bigger financial moments. At NatWest Group, championing the potential of the people, families and businesses we support is at the heart of everything we do. Through our branch network and digital channels, we support the financial health and capability of 19 million customers in every nation and region of the UK and Ireland. And as a champion of UK business, we support 1 in 4 UK businesses. From start-ups to multi-nationals, we have the knowledge, skills and capabilities to support business customers at every stage of their journey. Listening to our customers We respond to the needs of our customers by acting on the feedback we receive from them. We have in place a framework of customer feedback surveys that measure satisfaction with the services and products we offer across our franchises. We also look beyond our existing offering by engaging in continuous research to identify new opportunities for us to address the evolving needs of our customers. Insights from these surveys and research are reported at the most senior levels of the bank and play a crucial role in shaping the development of our strategy, services and products. Feedback from our customers played an invaluable role in shaping our response to COVID-19 in 2020: We introduced a Companion Card and set up dedicated telephony lines for over-70s and NHS workers. We also introduced Financial Health Checks targeted at helping customers through the coronavirus crisis. Active listening and research is helping us to bring forward the right propositions to support our customers at every stage of their lives. For example, because we know that more of our customers than ever before are renting, in 2020 we developed the Housemate app to help people in rented accommodation manage shared bills, build their credit score and build tenancy trust. Simplifying the customer experience We know that we can do even more to deepen the relationships we have with our customers. This starts with us being as simple as possible for our customers to deal with. Under the leadership of Jen Tippin, who joined NatWest Group in 2020 as Chief Transformation Officer, we are putting the simplification of customer journeys at the heart of our transformation agenda. Our brands are our main connection with customers. Each brand takes a clear and differentiated position to help us strengthen our relationship with our customers. For this reason, we measure customer advocacy by brand. The tables on the following pages show NPS and Trust scores for our key brands. Through data-led decision making, we are prioritising the journeys that will have the greatest impact on customer experience across the bank. As part of this work, we have put in place a robust measurement system to allow us to track progress against key goals; this includes improvements in customers’ feedback. Having listened to how customers feel about our core journeys, we have been working to: Migrate our account onboarding system to one that allows a much faster time between application and the customer being able to use their account. Digitise where possible the loan application journey for our Commercial Banking customers, in order to give quicker end-to-end times on application.

GRAPHIC

 

Our stakeholders 54 We are committed to finding innovative solutions that keep our customers safe and able to pay for the things they need, when they need them. In 2020, we launched 'Banking My Way', a free service that allows customers who need additional support or adjustments to request bespoke assistance to make banking easier. We share the information on our internal systems, so our customers don’t need to repeat requirements every time they interact with us. Since ‘Banking My Way’ was launched we have received instructions from over 40,000 customers. We also introduced the Companion Card, enabling customers in vulnerable situations and those in extended isolation to give trusted volunteers a way to pay for their essential goods. The card can by topped up by up to £100 every five days and given to a trusted person or carer to enable them to make purchases on behalf of the individual. We were the first UK bank to offer customers in vulnerable situations and those in extended isolation a fee-free cash delivery service to their door, with £5.0 million delivered to customers across the UK in 2020. Additionally, customers can request a ‘Get Cash’ code that enables a trusted third-party to make ATM withdrawals up to £100 on someone’s behalf from any NatWest, Royal Bank of Scotland or Ulster Bank ATM. These innovations have been introduced in response to the coronavirus crisis to help our customers and enhance their ability to pay for essentials whilst protecting themselves.

GRAPHIC

 

Our stakeholders Customer Trust and Advocacy Customer Trust We use independent experts to measure our customers’ trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat). Over the course of 2020, the net trust score improved for NatWest but we narrowly missed our target by 1 point. For the Royal Bank of Scotland, the net trust score also improved, but missed its target by 17 points.(1) Q4 2020Q4 2019 6962 Source: Yonder. Latest quarter’s data. Measured as a net % of those that trust NatWest/Royal Bank of Scotland to do the right thing, less those that do not. Latest base sizes: 547 for NatWest (England & Wales) and 202 for Royal Bank of Scotland (Scotland). 4439 Note: Targets run Q3-Q3. NatWest Q3’20 = 67, against target of 68. Royal Bank Q3’20 = 40 against target of 57. Customer Advocacy Scores We also track customer advocacy for our key brands using the net promoter score (NPS), a commonly used metric in banking and other industries across the world. This is measured through customer surveys in which customers are asked how likely they would be to recommend their bank to a friend or colleague, on a scale of 0-10, with a score of 10 being ‘extremely likely’ and 0 being ‘extremely unlikely’. The NPS is calculated by deducting the percentage of ‘detractors’ (0 to 6 on the scale) from the percentage of ‘promoters’ (9 and 10 on the scale), responses 7 to 8 on the scale are considered ‘passive’. Overall NPS Our improved NPS scores in Retail Banking reflect the commitment we have shown to our customers during the COVID-19 pandemic and the positive feedback we have received from customers, especially those supported from our frontline during this difficult period. Our Business Banking customers have told us they have felt well supported during 2020 and have appreciated our regular communication, the availability of financial support and, importantly, keeping our day-to-day operations going. In Commercial Banking, both NatWest and Royal Bank of Scotland are the highest rated banks by NPS score in their respective markets. Retail BankingBusiness BankingCommercial Banking Q4 2020 Q4 2019 Q4 2020 Q4 2019 Q4 2020 Q4 2019 74-2-7 2423 -9-16 -13 -25 279 55 -12 10 -18 Sources: Retail Banking: Strategic NPS 12 month rolling data. Question: “How likely are you to recommend [main bank] to a relative, friend or colleague in the next 12 months?”. Latest base sizes: NatWest: 9,633; Royal Bank: 2,263. Coyne Research 12 month rolling data. Question: “Please indicate to what extent you would be likely to recommend (brand) to you friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely”. Latest base sizes: 456 Northern Ireland; 998 Republic of Ireland. Business Banking: Savanta MarketVue Business Banking, YE Q4 2020. Based on interviews with businesses with an annual turnover up to £2 million. Latest base sizes: 1,072 for NatWest (England & Wales), 447 for Royal Bank of Scotland (Scotland). Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain. Commercial Banking: Savanta MarketVue Business Banking, YE Q4 2020. Based on interviews with businesses with an annual turnover over £2 million. Latest base sizes: 554 for NatWest (England & Wales), 92 for Royal Bank of Scotland (Scotland). Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.

GRAPHIC

 

Our stakeholders Customer Journey and Transformation NPS As we accelerate our focus on delivering digital services for our customers, it is essential that we bring everyone with us on the journey. For example, maintaining Mobile NPS through a period of unprecedented adoption of our digital channels shows that we have successfully managed to keep new adopters comfortable with the channel by prioritising ease of use in our mobile app. We continue to transform our key customer journeys across both Retail, Business and Commercial banking so that customers experience the best of digital mixed with the human touch when they need it. Feedback from customers shows that our frontline have delivered extremely well through COVID-19. The strength of our service proposition alongside a fully end-to-end digitised lending journey for businesses means that we have seen our Commercial Banking day-to-day servicing scores improve steadily throughout the year. Retail Banking Source: Strategic NPS. Question: “For NatWest's Current Account / Savings Account, how likely are you to recommend the experience of applying for & setting up the account?”. Latest base size: 1,014. Source: Strategic NPS. Question: “Thinking about your recent experiences with NatWest’s Mobile App, how likely are you to recommend their Mobile App to a relative, friend or colleague in the next 12 months?”. Latest base size: 4,415. Source: Strategic NPS. Question: “Thinking about your recent experiences with NatWest’s Online Banking, how likely are you to recommend their Online Banking to a relative, friend or colleague in the next 12 months?”. Latest base size: 5,601. Source: Operational NPS. Question: “Thinking about your recent experiences with NatWest’s video banking service, how likely are you to recommend the service to a friend, family member or colleague?”. Latest base size: 470. Note, this is a new metric so data not available for Dec 2019. Business and Commercial Banking Source: Operational NPS. Question: “Thinking about your recent experiences with [relationship manager name], how likely are you to recommend your relationship manager to a friend, family member or business associate?”. Latest base size: 573. Source: Operational NPS. Question: “Thinking about your recent experiences with NatWest’s [channel or service], how likely are you to recommend NatWest to a friend, family member or business associate?”. Latest base size: 6,718.

GRAPHIC

 

 

Our stakeholders Our colleagues. Engaging our colleagues is critical to delivering our purpose. By championing the potential of our colleagues we are better placed to help people, families and businesses to thrive. Employee Led Networks Our eight Group-wide Employee Led Networks (ELNs), with over 23,000 members and allies globally, support our commitment to creating a healthy, diverse, inclusive workplace for all colleagues. Sponsored overall by our CEO Alison Rose, each ELN has an individual Executive sponsor who provides direction, guidance, challenge and support. The ELN Chairs meet with our CEO on a quarterly basis and are invited to attend the Bank Executive Committee, on a rotational basis, to profile their work and provide oversight on their key initiatives. The eight ELNs are the Gender Network, the Multicultural Network, Rainbow – our LGBT+ Network, Enable – our Disability Network, the Families & Carers Network, the Armed Forces Network, the Aspire Network and the Sustainable Futures Network. In addition to supporting colleagues, running events, informing and educating, the combined expertise from the ELNs contributes to the development of inclusive products and services for customers and to the NatWest Group’s learning resources. The eight ELNs are: The Gender Network The Multicultural Network Rainbow – our LGBT+ Network Enable – our Disability Network The Families & Carers Network The Armed Forces Network The Aspire Network The Sustainable Futures Network

GRAPHIC

 

Our stakeholders Building a Healthy Culture One of our core priorities is building a healthy culture. We have clear goals which reinforce Our Values and form part of our leadership team's objectives. We gather feedback from our colleagues through our listening strategy, which includes our colleague opinion surveys, a Colleague Advisory Panel that connects colleagues directly with our Board and 'Workplace', our social media platform. We also track metrics and key performance indicators, and feedback from regulators and industry bodies, including the Banking Standards Board's (BSB) annual assessment of culture in UK banking. After three years of strong and broadly based increases in scores at NatWest Group, the pace of improvement eased back in 2020 across most characteristics of the BSB Assessment Framework to leave scores stable to slightly higher. Having ongoing discussion and engagement with our employee representatives such as trade unions and work councils is vital and we regularly discuss developments and updates on the progress of our strategic direction. Just under 50,000 (78%) of our colleagues completed our most recent opinion survey. The results showed a further improvement in colleague sentiment and NatWest Group is now at or above the global financial services norms (GFSN) and global high performing norms (GHPN) across all comparable survey categories. This is our strongest position to date and reflects our purpose and values coming to life in our response to the pandemic. We deepened our dialogue with colleagues in 2020, running 'COVID-19' pulse surveys in May and July as well as increasing our dialogue with colleagues relating to equality and inclusion through our 'Supporting Black, Asian and Minority Ethnic' survey in June. Speak-Up Colleagues can report concerns relating to wrong-doing or misconduct through Speak Up, our whistleblowing service. The service facilitates confidential and anonymous reporting, as well as monitoring of potential whistleblower detriment. When colleagues were asked if they feel safe to speak up 88% responded favourably, reflecting continued improvement in results for this question. In 2020, 441 cases were raised compared to 458 in 2019. Performance and Reward Our approach to performance management provides clarity for our colleagues about how their contribution links to our purpose and all our employees have goals set across a balanced scorecard of measures. We continue to ensure employees are paid fairly for the work they do and are supported by simple and transparent pay structures in line with industry best practices. We keep our HR policies and processes under review to ensure we do so. This clarity and certainty on how we pay is also helping to improve our colleague’s financial wellbeing, which is a core priority in our wellbeing plans. In the UK, our rates of pay continue to exceed the Living Wage foundation benchmarks and we ensure employees performing the same roles are paid fairly. We ensure colleagues have an awareness of the financial and economic factors affecting our performance through quarterly 'Results Explained' communications and Workplace Live events with our Group Chief Executive Officer and Group Chief Financial Officer. More information on our remuneration policies and employee share plans can be found in the 2020 Directors’ remuneration report. Developing Skills and Capabilities Becoming a purpose-led learning organisation is a strategic priority for us. To prepare colleagues for a sustainable future, we are committed to developing knowledge, skills and behaviours in a number of key critical capability areas that support our ambition and purpose. By encouraging a culture of continuous learning, knowledge sharing and reflective practice, we are ensuring that colleagues stay relevant and employable – and that we can adapt to the changing needs of our customers, communities and context. Our Leading on Purpose initiative began to immerse senior leaders and influencers in the aspects of personal and organisational change required to realise our Purpose-led strategy and culture. This programme will continue over multiple years, deepening awareness and purpose-led maturity. The NatWest Group Learning Academy provides access to a wide range of core, common and technical learning content to suit a range of learning styles and support our colleagues develop for their jobs today, and careers tomorrow. We are focused on helping our colleagues develop the right skills, mindsets and behaviours for the future and in 2019 we were the first UK bank to launch a Data Academy, to nurture and grow data expertise, innovation and collaboration. In 2020, it was recognised externally as Best Development Programme at the Data IQ awards. With over 7,220 individuals enrolled and 188 colleagues having completed and graduated from their c.16 -week programmes. Professional standards are important to us and we offer a wide range of learning to support professional development. We work closely with a wide range of professional bodies, government agencies and our peers to maintain and grow professional standards across the industry. We became the first bank to be awarded Corporate Chartered status by the Chartered Banker Institute in recognition of our continuing investment in professional development and our commitment to professional values and advocacy. Professional Career Development Programmes (PCDP) are funded by the apprenticeship levy and give our colleagues a great opportunity to learn practical skills that they can use in their current job and gain a professional qualification at the same time. Over 680 colleagues have completed or are currently undertaking a PCDP programme. To keep NatWest Group safe and secure, everyone who works for us must complete mandatory learning on different parts of our policies – including anti-bribery and corruption, health and safety, and inclusion. Some colleagues also complete additional mandatory learning that’s related to either where they work or the job they do. In early August 2020, we launched the NatWest Group Mobility Hub. The Hub is a key tool to support with redeploying colleagues and reskilling them for the future of work. The Hub offers support to build different skills, develop career plans and help colleagues move around internally or into opportunities outside the organisation. Our female, ethnicity and disability development initiatives focus on supporting our colleagues to reach their full

GRAPHIC

 

Our stakeholders potential and manage their careers effectively. These initiatives support our commitment to building a more inclusive bank. In June 2020, we launched our first ever bankwide Junior Management Team designed to provide disruptive challenge and reverse mentoring to our Group Executive Committee. We identified a diverse group of twelve representatives through a robust assessment process and they attended their first Executive Committee session in early September 2020. Our 2020 NextGen talent development proposition has 229 members and during an unprecedented year we continued to provide a blend of development opportunities for high potential colleagues at managerial level, helping them become our future leaders. The learning opportunities available through this programme align to our five critical people capabilities that help colleagues build the right knowledge, skills and behaviours. 10,000 We launched a new mandatory online mental health learning module for over 10,000 managers to help them support colleague wellbeing. To support our Purpose-led strategy we are working with Leadership Through Sport & Business to recruit young people who come from under-represented backgrounds for apprenticeships, recognising that many can thrive in major firms if they have access to skills building training prior to the recruitment process starting. In October 2020 we welcomed 60 individuals into our Social Mobility Apprenticeship Programme, as part of our overall goal to deliver c.400 additional apprentice hires over three years. Candidates applied for apprentice positions in digital, data, technology or customer service in London, Manchester and Edinburgh. Wellbeing As a strong component of making NatWest Group a purpose-led organisation, an established wellbeing strategy is key. Through our People Pledges we committed to support the wellbeing of our colleagues, customers and communities all of which was reinforced through our Group-wide People Strategy. Our work in wellbeing has been recognised externally, winning the Health and Wellbeing category at the HR Excellence Awards 2020. Understanding and caring for the changing and differing needs of our colleagues remained our priority during COVID-19. We flexed and evolved our original wellbeing plan and quickly built wellbeing and learning into our daily routines. Our "Live Well Being You" COVID-19 Wellbeing Plan placed colleague wellbeing firmly at the centre of our incident response. We developed a wellbeing plan which was reviewed and updated each quarter, and launched a Wellbeing COVID-19 hub, signposting colleagues to public health information, emotional wellbeing support, new physical health interventions, financial wellbeing guidance and support, community and volunteering opportunities, leadership support and guidance on managing bereavement and domestic abuse. Through our business facing teams we also offered support to our SME and personal customers. Investing in Colleagues Launched our People Pledge – a set of commitments made in response to what colleagues told us meant most to them. The pledge was split into five promises: Help you develop your skills, Support your wellbeing, Help customers thrive, Invest in our teams; Help you make a difference. Despite the challenges of 2020, we delivered against each of the promises, in many cases accelerating planned work, to provide a purpose-led response for colleagues. Some of the practical tools we provided include; 24/7 access to a virtual GP, launching a range of new emotional wellbeing support programmes and a new mandatory online module to help colleagues understand and improve their resilience. Several campaigns during the year also allowed us to focus on physical health (menopause, reproductive health and male mental health) and a focus on wellbeing throughout the seasons as we approached winter for our colleagues in the northern hemisphere. We continued to monitor the wellbeing of our colleagues throughout and our pulse surveys helped us understand the specific points of wellbeing impacting our colleagues. 90% of colleagues felt their line manager cared about their physical and mental health, and 45% of colleagues felt COVID-19 impacted their mental health. Our internal wellbeing index shows that we are 3% above other high performing companies and 9% above GFSN. During the year, we launched our Wellbeing Champion network which rapidly grew to over 1,000 colleagues who committed to providing wellbeing support to their teams, supported by enhanced learning and a deeper understanding of our wellbeing strategy. Unable to host our annual Mental Health Awareness Conference as a physical event, we created a virtual conference showcasing a number of expert speakers and activities for our colleagues. Note: References to “colleagues” in this Strategic Report, mean all members of our workforce (for example, contractors, agency workers).

GRAPHIC

 

Our stakeholders Diversity and Inclusion We are proud to be building a sustainably progressive, inclusive and diverse bank where we champion potential, helping people, families and businesses to thrive. Our inclusion guidelines apply to all our colleagues globally to make sure everyone feels included and valued, regardless of their background. As at 31 December 2020 our permanent headcount was 59,822. 51% were male and 49% female. Our Diversity and Inclusion plans apply globally and are formed around five key priorities: Gender Balanced Our Boardroom Inclusion Policy aims to promote diversity and inclusion in the composition of the Board and reflects the most recent industry targets. The Policy also acknowledges NatWest Group's ambition to aim for a full gender balance across the organisation by 2030. In our Executive Management team we have females in both our Chief Executive Officer and Chief Financial Officer roles, as well as our Chief Marketing Officer, Chief Transformation Officer, Chief Governance Officer and Company Secretary, and Chief Human Resources Officer all being female. In 2015 we set targets for our CEO and the Executive Committee to have at least 30% women in the global top three layers of each of their areas by the end of 2020 and to have full gender balance by 2030. At the end of 2020, we have, on aggregate, 39% women in our top three leadership layers, an increase of 10% since targets were introduced and our pipeline (c.4000 of our most senior roles) has 43%. 14 of our 15 business areas are at or exceeding 30 % women in their top three layers. The mean gender pay gap for NatWest Bank is 30.2% (median: 34.3%) and the mean gender bonus gap is 26.9% (median: 16.7%). The statutory bonus gap calculated in line with regulation is the number including recognition vouchers (mean 50.2%; median 92.8%). This means that even colleagues who received a small recognition award for example £10 – are included in the calculations. Most colleagues in our more junior jobs only receive fixed pay a change made to provide more certainty over earnings; and this means that many colleagues included in the statutory bonus gap calculations only received a recognition award. We currently have a higher proportion of women in these roles. We therefore believe the figures excluding recognition vouchers 26.9% (median: 16.7%) are the most accurate reflection of our gender bonus gap today. Our targets are supported by our positive action approach, which is benchmarked externally, helping to ensure that our people policies and processes are inclusive and accessible – from how we attract and recruit, to how we reward and engage colleagues. We are confident this approach is the right one and through time, it will help us achieve a better balance of diversity throughout the organisation. We have been rated in the top organisations in Bloomberg's Global Gender Equality Index, retained our position in The Times Top 50 Employers for Women and continued to report our progress to HMT Women in Finance Charter and the Hampton-Alexander Review. We demonstrated our social purpose, including supporting the Financial Alliance for Women to create a How-To Guide on Becoming the Employer of Choice for Women and became a signatory to the British Deputy High Commission’s ‘UK in India’ Network Gender Equality Charter. Disability Smart Our goal is to become a Disability Smart bank by ensuring accessibility features in all our products, services, behaviours and key processes. For our colleagues with disabilities we support them with workplace adjustments so that they can succeed. If a colleague becomes disabled we will, wherever possible, make adjustments to support them in their existing role or re-deploy them to a more suitable alternative role. We responded to the restrictions of the pandemic and provided development sessions online to continue to support the development and career progression of colleagues with disabilities by addressing common barriers they can face. We hold a gold rating in the Business Disability Forum (BDF) benchmark. We also hosted our second Disability Conference in partnership with the BDF. We continue to demonstrate our social purpose, including being founding signatories to the Valuable 500 Pledge, the global movement putting disability on the business leadership agenda and we are ranked as Leader level in the UK Government’s Disability Confident Scheme. Ethnically Diverse In 2018 we introduced a formal UK target to improve the representation of Black, Asian and Minority Ethnic colleagues in our top four UK leadership layers to at least 14% (in line with the working age UK Black, Asian and Minority Ethnic population identified by the Office for National Statistics) by 2025. In addition to this, as Black colleagues are under-represented in senior roles across the UK, in 2020 we introduced a new target to have 3% Black colleagues in our UK senior roles by 2025. As at the 31 December 2020 we have on aggregate 10% Black, Asian and Minority Ethnic colleagues in our top four leadership layers in the UK, representing a 2% increase since targets were introduced. We currently have c.1% of colleagues who identify as Black in our UK senior roles. Overall, we employ 16% Black, Asian and Minority Ethnic colleagues across the UK. Our disclosure rates remain high, with 83% of our colleagues in the UK

GRAPHIC

 

Our stakeholders disclosing their ethnicity. As with gender, our targets are supported by a positive action approach. For more information on our approach refer to natwestgroup.com. We were confirmed as a Top Ten Outstanding Employer in Investing in Ethnicity & Race Awards and continued to report our progress to the UK Government's Race at Work Charter. In June 2020, we established a Taskforce led by the Chairs of our Multi-Cultural Employee Led Network to help better understand what more we can do to break down barriers faced by many people, including those from Black, Asian and Minority Ethnic backgrounds. This culminated in the launch of our report, Banking on Racial Equality; A Roadmap for Positive Change, accompanied by a set of targets and commitments, which will set the standard for racial equality in NatWest Group. LGBT+ Innovative In 2020 we supported our People Pledge by establishing a programme of Inclusion Champions. With over 1,100 members, the champions form a global network of positive disrupters, who educate colleagues on Inclusion, and will work together to drive change on topics like ethnicity, LGBT+, gender balance, disability awareness and inclusivity. During 2020 we introduced "Inclusion with Purpose" our diversity and inclusion learning to support being a purpose-led organisation. The learning outlines the role – through intentional, positive and conscious efforts – that each one of our colleagues can play in helping to build a sustainably inclusive workplace. We continue to demonstrate our social purpose, including being founding signatories to the EHRc’s Working Forward, meeting the criteria for the London Mayor Good Work Standard accreditation, and ranking top 5 overall as well as in the top 5 for ethnicity, sexuality, socioeconomic status and parenthood in the McKenzie-Delis Packer Review. For more information on our Inclusion work, including our positive action approaches, refer to natwestgroup.com 2020 UK Ethnicity Profile (*) Our LGBT+ agenda continues to deliver a better experience for our LGBT+ colleagues and customers, reflected within our policies and ways of working, across our locations globally. While reflecting local legislation and jurisdictional requirements, we are clear that LGBT+ colleagues and customers are welcome at NatWest Group and will be supported. #Black, Asian and CEO-3 and above 43 609 7% CEO-4 255 2,108 11% CEO-5 778 4,765 14% Target Population (CEO-4 and above) 298 2,716 10% #White%Black, Asian and Minority Ethnic We have standardised our policies globally, placing us ahead of industry norms in some countries where we operate. In 2020, we had to reimagine the way we show support for Pride. Many of our events moved online; this included a panel discussion on 'Pride is still a protest', attending digital prides around the country and running a social media campaign across our digital channels. We also lit up our offices in Pride colours and raised money for LGBT+ charities. We were confirmed as a Stonewall Global Top Employer in the 2020 Global Stonewall Index and we are a Founding Partner of the 2020 LGBT Awards. Inclusive Culture At NatWest Group, we are committed to ensuring that all colleagues are given full and fair consideration Executive Employees 72 (73%) 27 (27%) *Director of Subsidiaries 203 (77%) 62 (23%) Note: We report to reflect our organisational (CEO) levels. This method more accurately describes ethnicity at leadership/pipeline levels. As well as being more reflective of our organisational structure, this enables comparison to be made externally. This report only includes colleagues who have disclosed their ethnicity. We report CEO to CEO-3 as a total to comply with GDPR restrictions. 2020 Global Gender Profile (*) #Women#Men%Women Note: We report to reflect our organisational (CEO) levels. This method more accurately describes our gender balance at leadership/pipeline levels. As well as being more reflective of our organisational structure, this enables comparison to be made externally. Colleague sentiment on inclusivity remains high at 90 points, 17 points above the GFSN and 13 points above GHPN. We continue to support our strong Employee Led Networks that have c.23,000 members. MaleFemale There were 364 senior managers (in accordance with the definition contained within the relevant Companies Act legislation), which comprises our executive population and individuals who are directors of our subsidiaries.

GRAPHIC

 

 

 

 

 

 Risk Overview. Effective risk management is vital to the successful delivery of the Group’s strategy and purpose. Risk is an inherent part of doing business. In day-to-day activities, all organisations must address a variety of risks. These may arise from the external factors such as the economic environment, competitor activity and changes in regulation or from internal factors such as transformation programmes and human error. NatWest Group faces a range of financial and non-financial risks from both external and internal factors. To address these, it operates an enterprise-wide risk management framework centred around the embedding of a strong risk culture. The framework ensures tools are in place to identify and manage both internal and external threats. It is organised around the Group’s principal risks: Principal financial risksPrincipal non-financial risks Credit RiskConduct Risk Market RiskFinancial Crime Risk Capital Adequacy RiskOperational Risk Liquidity & Funding RiskRegulatory Compliance Risk Pension RiskModel Risk Earnings Volatility RiskClimate Risk Reputational Risk Risk appetite defines the levels of risk the Group is willing to take as part of its business activities. Risk appetite is set in line with the Group’s overall strategy and approved by the Board. This ensures that effective risk management is integrated into the day-to-day course of business activities including strategic planning. Areas of focus in 2020 It was a priority to ensure the Group was able to safely support people, families and businesses through the unprecedented events of the coronavirus pandemic. Risk management activities were focused on the material threats arising from the pandemic itself, as well as those that strongly correlated with, or were intensified by, it. Several of the Group’s principal risks were directly affected by the pandemic – especially the credit risks, which deteriorated during the year, and operational risks which were heightened as the Group adapted to new ways of working due to lockdown protocols. Operational resilience, especially in terms of maintaining the continuity of key services, was a focus. There was also volatility in the financial markets and, at times, varying degrees of illiquidity as the effects of the pandemic began to emerge. This highlighted the Against this backdrop, the Group played a key role in ensuring that customers affected by the pandemic were able to access support through the government-backed loan schemes. These included the CBILS, BBLS, CLBILS and CCFF initiatives. The Group also facilitated payment holidays for affected customers, within the guidelines set by its regulators. In each case, risk management processes and decisioning were critical in ensuring this support was provided in a safe, sound and helpful way. While the Group’s risk profile relative to appetite continued to be reported regularly to the executive and the Board, additional regular reporting on the impacts of the pandemic was introduced. This ensured a clear and transparent view of the Group’s risk profile as it evolved through the crisis. Although impairment provisions were significant, driven by IFRS 9 forward-looking expected credit losses on performing assets in Stage 1 and Stage 2, actual Stage 3 defaults were relatively modest (the impairment charge for Stage 3 defaulted assets in 2020 was similar to 2019 at approximately £600 million). The Group anticipates further defaults across the portfolios once the various government support schemes for households and businesses are withdrawn, with the impact mitigated to some extent by the Stage 1 and Stage 2 provisions raised in 2020. Further pressure on UK GDP and an increase in unemployment could increase this risk. Scenario planning In order to help lenders focus on meeting the needs of UK households and businesses during the pandemic, the Bank of England cancelled its 2020 stress test. The European Banking Authority also decided to postpone its stress test. However, the Group continued with its own scenario planning, particularly with scenarios designed to incorporate the likely economic impacts of the pandemic. Three scenarios in particular were used to illustrate the consequences of modest, medium and extreme impacts. The second of these scenarios aligned relatively closely with the Bank of England’s published stress scenario. In all three cases, the Group was able to withstand the most severe impacts without breaching regulatory capital thresholds. The conduct risk profile was a key focus as the Group made sustained efforts to ensure that it was able to support, at pace, customers, families and businesses affected by the pandemic.

GRAPHIC

 

 Though the impact of the pandemic was a priority for the Group’s risk management activity, the uncertainties relating to the UK’s withdrawal from the European Union also continued to be a focus. Outcomes remain difficult to predict but oversight of planning for the economic, regulatory and legislative impacts remained a critical part of forward-looking risk management throughout the year. While the longer-term effects on the operating environment remain unpredictable, the potential second and third order effects on the Group and its customers continue to be an area of focus. This includes planning for the results of periodic financial volatility and slower economic growth. The ongoing low interest rate environment – including the possibility of negative rates – continues to present an industry-wide challenge. In combination with the deteriorated economic outlook resulting from the pandemic, sustained net interest margin compression increases risk to the achievement of the Group’s financial and strategic objectives. While some rebalancing of business activity can mitigate short-term impacts, the effect of prolonged low interest rates over the medium term intensifies threats to the business model. This highlights the importance of the Group’s strong capital position. Dynamic risk management, including consideration of funding structure and off-balance-sheet activities, remains crucial in ensuring that the business objectives remain achievable. Cyber security remained a consistent focus through the year – particularly given the importance of technological solutions to addressing customer needs during the pandemic. The Group continues to operate a multi-layered defence approach and continues to invest in control enhancements to ensure it minimises cyber-related risks. The impact of the pandemic intensified the threat of disruption to the Group’s business model, particularly in accelerating trends in new technology and customer behaviour. While the Group’s digital channels continue to evolve, anticipating developments in this area and seeking to mitigate related risks remain central to the Group’s risk management practices. Risk culture As part of its multi-year programme to enhance risk management capability at every level of the organisation, the Group continued to work towards embedding a generative risk culture across all three lines of defence. This supports intelligent risk-taking, better customer outcomes, stronger and more sustainable business as well as an improved cost base. While risk culture continued to improve in 2020, due to a number of factors – including the impact of COVID-19 – one area of the Group did not attain the desired “systematic” rating. As a result, the Group did not meet its risk culture target. Work will continue in 2021. LIBOR transition The Group is continuing its preparations for the transition from LIBOR to other interest-rate benchmarks by the end of 2021 and continues to work closely with regulators and industry bodies to manage the impact. Oversight of the Group-wide programme to prepare for the transition remains a priority along with activities across all three lines of defence to minimise risk and disruption to customers. Financial crime compliance and management The Group has continued to enhance the policies, processes and systems used to combat the continuously evolving threat of financial crime. During 2020, a new enterprise-wide Financial Crime Hub was established in the first line to detect and prevent financial crime. The Hub will facilitate a common, consistent approach to managing financial crime. A multi-year transformation plan has also been developed to ensure that - as changes in technology, the economy and wider society take place - risks relating to money laundering, terrorist financing, tax evasion, bribery and corruption and financial sanctions are managed, mitigated and controlled as effectively as possible. To support this, enhancements will also be made to management information. A new Financial Crime executive steering committee has been set up to provide oversight of the plan and its implementation. Anti-bribery and corruption (ABC) The Group is committed to ensuring it acts responsibly and ethically, both when pursuing its own business opportunities and when awarding business. Consequently, it has embedded appropriate policies, mandatory procedures and controls to ensure its employees, and any other parties it does business with, understand these obligations and abide by them whenever they act for the Group. ABC training is mandatory for all staff on an annual basis, with targeted training appropriate for certain roles. The Group considers ABC risk in its business processes including, but not limited to, corporate donations, charitable sponsorships, political activities and commercial sponsorships. Where appropriate, ABC contract clauses are required in written agreements. Risk-weighted assets (RWAs) RWAs reduced by £8.9 billion at 31 December 2020, ending the year at £170.3 billion (from £179.2 billion in 2019). This reduction mainly reflected de-risking activity in NatWest Markets together with a £1.9 billion decrease resulting from the COVID-19 amendment to the Capital Requirements Regulation and asset de-recognitions in Ulster Bank. The total also included a £1.2 billion increase relating to the acquisition of mortgages from Metro Bank plc. Common Equity Tier 1 ratio NatWest Group maintained a strong CET1 ratio of 18.5% (2019 – 16.2%). This reflected both a reduction in RWAs and the cancellation of the 2019 dividends and associated pension contribution, offset by the inclusion of the 2020 foreseeable dividends and charges (40 basis points) together with the introduction of the Article 36 CRR amendment on the prudential treatment of software assets as well as the adoption of IFRS 9 transitional arrangements on expected credit losses, offsetting associated impairment charges. Leverage ratios The CRR leverage ratio increased to 5.2% (2019 – 5.1%). The UK leverage ratio increased to 6.4% (2019 – 5.8%) due to a £3.3 billion increase in Tier 1 capital. Liquidity and funding The liquidity portfolio increased by £63 billion to £262 billion. Primary liquidity increased by £45 billion to £170 billion. The increase in primary liquidity resulted mainly from increased customer surplus in NatWest Holdings together with smaller increases in other subsidiaries. Litigation and conduct Litigation and conduct costs of £113 million represent £473 million of additional charges, mainly representing the increased cost of review and execution of Other Customer Redress as well as Litigation provisions, offset by various releases as programmes conclude, including a £277 million PPI release.

GRAPHIC

 

External COVID-19 The COVID-19 pandemic has had a material adverse impact on NatWest Group and its customers. The Group responded quickly to the elevated credit risks through active portfolio management including adjustment of risk appetite, proactive customer contact strategies and scenario analysis. NatWest Group has participated in government initiatives to support customers during the crisis including the Bounce-Back Loan Scheme which could increase conduct, reputational and fraud risks. High uncertainty remains on the future evolution of the virus and the ultimate impact of the pandemic. While the strategy is being adapted in response, the COVID-19 crisis could impede the Group’s ability to meet its targets and deliver its purpose-led strategy. Economic and Political Risks NatWest Group is exposed to the economic and political risks facing the UK including a weaker than expected economic recovery from Covid-19, the prospect of negative interest rate policy and the UK’s exit from the EU. A range of complementary approaches is used to mitigate these risks including scenario planning and stress testing. In 2020, the Group implemented plans to prepare for the UK’s withdrawal from the European Union and continues to monitor geopolitical risks alongside domestic political risk including developments in relation to a Scottish independence referendum. In the longer term, demographic change, high levels of debt and inequality could all have financial impacts. As a result, these risks are closely monitored with strategic plans adapted as appropriate. Climate-related Risks NatWest Group expects to face significant risks in connection with climate change and the transition to a low carbon economy. These risks are subject to rapidly increasing prudential and regulatory, political and societal focus, both in the UK and internationally. Embedding climate risk into the Group’s risk framework and adapting NatWest Group’s operations and business strategy to address the risks is in line with the Purpose-led strategy. Cyber Threats NatWest Group experiences a constant threat from cyber-attacks both directly and to its supply chain, underlining the importance of due diligence with the third parties on which the Group relies. The Group operates a multi-layered approach to its defences and continues to invest significant resources in the development of cyber security controls and capability designed to minimise the potential effect of cyber-attacks. Competitive Environment NatWest Group operates in markets that are highly competitive raising the threat of a loss of market share and reduced revenue and profitability. The risks mainly relate to changes in regulation, developments in financial technology (including digital currency), new entrants to the market and shifts in customer behaviour. The Group closely monitors the competitive environment and adapts strategy as appropriate to deliver innovative and compelling propositions for customers. Regulatory, Legal & Conduct Risks NatWest Group operates in a highly regulated market. Regulations are constantly evolving and could adversely impact the Group including capital, liquidity and funding requirements, enhanced data privacy requirements and the management of financial crime. This includes the possibility of dividend suspensions or restrictions. The Group implements new regulatory requirements, where applicable, and incorporates the implications of related changes in its strategic and financial plans. This includes the transition from the use of interbank offer rates (IBORs), including LIBOR, to alternative risk-free rates. While a programme to manage the transition is underway, uncertainties around the transition represent a number of risks including elevated legal and conduct risks. Internal Change Risk The implementation of NatWest Group’s Purpose-led strategy and the refocusing of NatWest Markets carry significant execution, operational and people risks. NatWest Group continues to manage and implement change in line with its strategic plans while assessing implementation risks and taking appropriate mitigating action. In addition, the Group continues to monitor and strengthen its control environment through robust governance and controls frameworks. Third Party Suppliers Operational risks arise from NatWest Group’s reliance on third party suppliers to provide a range of services including IT. The Group is diligent in its screening of suppliers to mitigate these risks with strict contractual obligations governing supplier relationships and activity. IT System Resilience NatWest Group continues to invest in IT infrastructure to prevent customer service disruption, which could result in reputational and regulatory damage. To mitigate these risks, a major investment programme has significantly improved the resilience of the systems and further progress is expected. Data Management

GRAPHIC

 

Governance at a glance. Our Board Board of directors Chairman Howard Davies Executive directors Alison Rose (Group CEO) Katie Murray (Group CFO) Non-executive directors* Frank Dangeard Patrick Flynn Morten Friis Robert Gillespie Yasmin Jetha Mike Rogers Mark Seligman (Senior Independent Director) Lena Wilson Company Secretary Jan Cargill The Board is collectively responsible for promoting the long-term success of NatWest Group plc, driving both shareholder value and contribution to wider society. Its role is to provide leadership of NatWest Group plc within a framework of prudent and effective controls which enables risk to be assessed and managed. In 2020, the Board and committee evaluation process was conducted by the Company Secretary. Our Board committees In order to provide effective oversight and leadership, the Board has established a number of Board committees with particular responsibilities. The work of the Board committees is discussed in their individual reports. The terms of reference for each of these committees is available on natwestgroup.com. Group Audit Committee Assists the Board in discharging its responsibilities for monitoring the quality of the financial disclosures of NatWest Group. Reviews the accounting policies, financial reporting and regulatory compliance practices of NatWest Group and its systems and standards of internal controls, as well as monitoring the work of internal audit and the external auditor. Group Board Risk Committee Provides oversight and advice to the Board in relation to current and potential future risk exposures of NatWest Group, future risk strategy, risk appetite and tolerance. Also responsible for promoting a risk awareness culture within NatWest Group. Group Sustainable Banking Committee Supports the Board in overseeing, supporting and challenging actions being taken by management to run NatWest Group as a sustainable business, capable of generating long term value for its stakeholders. Group Performance and Remuneration Committee Responsible for approving remuneration policy and reviewing the effectiveness of its implementation. Also considers senior executive remuneration and makes recommendations to the Board on the remuneration of executive directors. Group Nominations and Governance Committee Assists the Board in the formal selection and appointment of directors. Reviews the structure, size and composition of the Board, and membership and chairmanship of Board committees. Also has responsibility for monitoring NatWest Group's governance arrangements in order to ensure best corporate governance standards and practices are upheld. Technology and Innovation Committee Assists the Board in overseeing , supporting and challenging actions being taken by management in relation to technology and innovation. Group Executive Committee Supports the Group Chief Executive Officer (Group CEO) in managing NatWest Group's businesses. Considers strategic, financial, capital, risk and operational issues affecting NatWest Group.

GRAPHIC

 

 Non-financial information Statement. This Non-financial information Statement provides an overview of topics and related reporting references across our external reporting as required by Sections 414CA and 414CB of the Companies Act 2006. We integrate non-financial and Environmental, Social and Governance (ESG) information across the Strategic Report and wider reporting suite, thereby promoting cohesive reporting of non-financial and ESG matters. Further information on non-financial and ESG matters can be found in the following places within our reporting suite Climate-related disclosure report natwestgroup.com

GRAPHIC

 

 

 We recognise that climate change is a global issue which has significant implications for our customers, employees, suppliers, partners, investors and therefore NatWest Group itself. In February 2020, we announced our ambition to be a leading bank in the UK and RoI helping to address the climate challenge; by making our own operations Climate Positive by 2025, and by driving material reductions in the climate impact of our financing activity. We set ourselves the challenge to at least halve the climate impact of our financing activity by 2030, and to do what was necessary to achieve alignment with the 2015 Paris Agreement. Our ambition is supported by the following key areas of activity: Accelerating the speed of transition Helping to end the most harmful activity Championing climate solutions Embedding climate into our culture and decision making Making our own operations Climate Positive by 2025 Progress during 2020 includes: Achieved Net Zero Carbon across our own operations. 90% of our global electricity is from renewable sources. £12 billion climate and sustainable funding and financing. Reduced oil and gas lending exposure by £0.8 billion. Launched new products and initiatives to support customers transition to low carbon economy, including Green Mortgages.

GRAPHIC

 

 Climate-related disclosures – Strategy This section includes progress made during 2020 on each key area within our climate ambition. Refer to the 2020 Climate-related disclosures report for further details on our climate ambition. 1. Accelerating the speed of transition to a low carbon economy We have identified several potential climate-related opportunities over the short, medium and long term relating to the transition to a low carbon economy. The table below includes examples of the initiatives we worked on in 2020, to test and explore the potential of these opportunities to support our customers. Accelerating the speed of transition Green MortgagesResidential mortgage customers This product, launched in late October 2020, offers lower interest rates for customers purchasing homes with an Energy Performance Certificate (EPC) rating of A or B, rewarding them for playing their part in helping to drive the UK transition to a low carbon economy. Since launch, we have received 1,229 mortgage applications with the value of £315 million. Private Banking Green MortgagesResidential mortgage customers The Green Mortgage pilot was launched in November 2020. Customers qualify for a discount on 2 Year Base Rate Tracker mortgages by demonstrating that their property's Energy Efficiency Rating has increased to EPC rating A, B, or C. The Green Mortgage discount is available up to 12 months after completion, subject to the customer providing their relationship manager with an upgraded EPC certificate. Coutts Asset Management – Target to reduce the level of carbon intensity for the equity component of their funds and portfolios by 25% by end of 2021 Investments – All invested customers In the first half of 2020, Coutts Asset Management reduced the carbon intensity on equity holdings of all funds and portfolios by 29% on average. This includes the Personal Portfolio Funds (the investments for our NatWest Invest and Royal Bank Invest digital investment platforms), which saw a reduction of 33% on average. The 29% reduction resulted from deliberate action taken within the funds and portfolios to shift to lower-carbon investments and by engaging with the companies and funds we invest in to reduce their carbon emissions. Carbon intensity is calculated as carbon emissions per million dollar of sales. Currently, this is only measured for equity holdings as data availability for these holdings is better than for other assets in the funds and portfolio. On average, equity holdings make up 60% of the total assets in the funds. In addition, Coutts Asset Management has divested from high-impact fossil fuels in its Coutts funds managed by BlackRock. The Coutts funds exclude any companies that derive more than 5% revenue from thermal coal extraction, Arctic oil and gas exploration and tar sands, and more than 25% of revenue from thermal coal energy generation.

GRAPHIC

 

 Accelerating the speed of transition to a low carbon economy continued Future Mobility: enabling electric charging infrastructure Retail and commercial customers In February 2021, NatWest Group launched a partnership with Octopus Energy, the UK's fastest growing energy technology company, to help make it simple for customers and colleagues to move to electric vehicles (EVs). The partnership promotes infrastructure delivery by providing a single managed solution covering preferential pricing and encompassing full range of solutions from simple consumer installation to multi-site with solar panels, battery storage and green energy provision. The combination of NatWest Group's financing and Octopus’ energy innovation will help all our customers decarbonise their transport. Future Mobility: enabling fleet transition VariousNatWest Group has financed 73 pure e-buses by working with multiple operators and the emerging ‘as-a-service’ ecosystem. Benefits of electric transition were highlighted as part of NatWest Group’s colleague company car scheme resulting in 66% of new vehicles being wholly powered by battery; considerably ahead of the wider market. Over 2020 the Lombard Vehicle Solutions car fleet has doubled the number of vehicles that are wholly powered by battery. Commercial real estate lending standards CorporateFrom January 2021, new minimum standards have been introduced in commercial real estate lending appetite for residential new build lending, which requires properties to achieve a minimum EPC rating of B. In addition, standard lending terms for commercial real estate now include our preference for green leases to be used by commercial landlords. Green leases are a mechanism for landlords and tenants to agree to work together to improve the sustainability of a building. Green leases will encourage better alignment of key stakeholders involved in the commercial real estate sector, which we see as an important step in moving towards net zero buildings. NatWest Markets Thought leadership and education Corporate and Institutional customers NatWest Markets shared insights with customers and market participants, including rating agencies, regulators, corporates, investors and industry experts to address specific challenges in respect of climate change and related financing. New product innovation Corporate and Institutional customers NatWest Markets actively developed new and innovative products across the yield curve to support green activities and customers’ transition journeys. In collaboration with Commercial Banking, NatWest Markets structured the first synthetic green securitisation based on a renewable energy loan portfolio within the bank.

GRAPHIC

 

 Helping to end the most harmful activity Our ambitionOur Progress Helping to end the most harmful activity We plan to stop lending and underwriting to companies with more than 15% of activities related to thermal and lignite coal; unless they have a credible transition plan in line with the 2015 Paris Agreement in place by end of 2021. We plan a full phase-out from coal by 2030. Also, to stop lending and underwriting to major oil and gas producers unless they have a credible transition plan aligned with the 2015 Paris Agreement in place by the end of 2021. Oil and gas gross lending exposure has reduced by £0.8 billion during 2020 (December 2020 £4.1 billion; December 2019 £4.9 billion). Large corporate customers with gross lending exposure of £2 billion at December 2020 have been identified as requiring Paris aligned and Credible Transition Plans (CTP) by the end of 2021. This includes oil and gas majors and also customers engaged in coal (thermal and lignite) related to mining, power generation and trading activities. During 2020 we have worked with an external expert to define a methodology for CTP assessment. The methodology comprises: quantitative assessment using the climate scenario temperature alignment model to evaluate whether companies transition plans and resulting projections for Scope 1, 2 and 3 emissions are consistent with temperature scenarios that are aligned to the goals of the 2015 Paris Agreement. qualitative assessment of the credibility of customers’ transition plans through use of a questionnaire and scorecard to be filled in by relationship managers through public data and discussions with customers. A proof of concept was completed for two customers and customer facing teams are being trained to carry out CTP assessments. We expect to complete our review of in scope customers by the end of 2021. Championing climate solutions Championing climate solutions Climate-related opportunitiesCustomerOur progress Climate and Sustainable Funding and Financing: Additional £20 billion climate and sustainable funding and financing between 2020-2021. Non-personal customers During the year, £12 billion climate and sustainable funding and financing has been completed. The £12 billion comprises £7.2 billion in NatWest Markets, £3.9 billion in Commercial Banking, £0.8 billion in RBS International and £0.1 billion in other segments. We expect to exceed our £20 billion target during 2021. At least 25% of the spaces in our Accelerator Hubs will be reserved for businesses whose core offering supports sustainable environmental activities. EntrepreneursOf the 1,085 businesses on-boarded to the Entrepreneur Accelerator in 2020, 268 were businesses whose core offering supports sustainable activity, which meets our 25% ambition. Embedding climate into our culture and decision making Our ambitionOur progress Embedding climate into our culture and decision making Revising executive remuneration to reflect achievement of climate targets. Climate considerations were included in Senior Executive remuneration for the year 2020 and have been updated for 2021. Refer to the Governance and remuneration report for further details. We set ourselves the challenge to at least halve the climate impact of our financing activity by 2030, and intend to do what is necessary to achieve alignment with the 2015 Paris Agreement. To do this, we plan to quantify our climate impact and set sector-specific targets by 2022. We have developed financed emissions estimates for four sectors – residential mortgages, oil and gas, automotive and agriculture. Also, developed emissions intensity estimates for 2030 and 2050, for three of the four sectors. NatWest Group was the first major UK bank to join Partnership for Carbon Accounting Financials (PCAF). NatWest Group joined Science Based Targets initiative (SBTi) following the launch of the Financial Sector Science-based Targets Guidance in 2020. We will integrate the financial and non-financial risks arising from climate change into our EWRMF. During 2020, work has continued to integrate climate risk within the Enterprise Wide Risk Management Framework (EWRMF). As part of the Environmental, Social and Ethical framework, coal lending thresholds for the mining and metals, and power generation sectors were reduced from 40% to 15%. In addition, prohibitions on project financing for new exploration in the oil and gas sector, including fracking were put in place.

GRAPHIC

 

 Making our own operations Climate Positive by 2025 Our ambitionOur progress Making our own operations Climate Positive by 2025 Make our own operations Net Zero Carbon in 2020 and Climate Positive by 2025 NatWest Group achieved Net Zero Carbon across our own operations in 2020 (1). We achieved this through a combination of emissions reductions, in line with our 1.5-degree science-based target commitment, alongside offsetting residual Scope 1, 2 and 3 emissions through the purchase of internationally recognised TIST Carbon Credits. In recognition of the exceptional circumstances in 2020, we have also offset all emissions from home working. We plan to achieve Climate Positive by continuing to reduce emissions 25% by 2025 against a 2019 baseline, while maintaining carbon offsetting at 2019 residual levels. Use only renewable electricity in our direct global operations by 2025 (RE100) In 2020 we achieved our interim target of 90% renewable electricity coverage. This was achieved through a combination of: 91% of our UK and RoI electricity is from renewable sources. Purchasing Renewable Energy Certificates (RECs) for our landlord-supplied properties in India, Europe and the UK, where we are currently unable to specify a requirement for renewable electricity. Going forward, and in order to reach our target of 100% global renewable electricity by 2025, we will work with our principal landlords to advocate for renewable electricity provision for all properties, where possible. Install electric vehicle charging infrastructure in more than 600 spaces across our UK and RoI portfolio by 2030 (EV100) During 2020, 20 charge point connections were installed in Belfast and all remaining sites were surveyed ready to deliver the rest of the programme. We have engaged with a third party to support the programme roll out which will include the installation of over 250 chargers at our Gogarburn Headquarters. Upgrade our job need cars of around 300 vehicles to electric models by 2025 (EV100) During 2020 we set the strategy for transition and agreed vehicle criteria including price, specification and range. From 2021, upon lease expiry of current diesel vehicles and where homebased infrastructure allows, we will start providing colleagues with an electric vehicle and home charge point. Improve Energy Productivity 40% by 2025 against a 2015 baseline(EP100) We have increased energy productivity (FTE per GWh) by 36% since 2015. Our EP100 target is supported by a decrease in energy consumption. Across our global portfolio, electricity consumption decreased by 22% and natural gas consumption decreased by 14% when compared to 2019. (1) Our Own Operational Footprint reporting year runs from October 2019 to September 2020. Climate scenario analysis Refer to the 2020 Climate-related disclosures report for further details on climate scenario analysis. NatWest Group is taking significant steps to develop scenario analysis capabilities to better understand and act on the implications of climate-related risks and opportunities for our business and customers. This aligns with the increased regulatory supervisory expectations on the management of climate-related risks using forward looking climate scenarios. It will help to ensure we can meet the requirements of the Bank of England 2021 Climate Biennial Exploratory Scenario (CBES) regulatory stress test that will explore the resilience of the financial system to the physical and transition risks from climate change. This section summarises some of the risks we have identified by undertaking forward-looking climate scenario analysis and how we plan to manage these risks. During 2020, we have developed and tested a methodology to use scenario analysis to quantify the size of a range of climate-related risks and opportunities for our commercial and retail customers. Since climate-related risks are unevenly distributed and can be highly specific to either locations or individual companies and assets, we have taken a granular and customer specific modelling approach as recommended in the Bank of England CBES 2021 Discussion Paper (December 2019). This first generation of climate modelling will help to provide the foundation for our scenario analysis capability build to support execution of the CBES in June 2021. Scenario analysis allows us to test a range of possible future climate pathways and understand the nature and magnitude of the risks they present. The purpose of scenario analysis is not to forecast the future but to understand and prepare to manage risks that could arise. Climate data and sub-sector information availability, accessibility, and suitability for financial risk analysis, as well as climate-related risk modelling capabilities are still nascent and evolving. The activity carried out in 2020 has been the first step in what will be an ongoing development of NatWest Group’s data, modelling and risk management capabilities for managing climate-related risks. Our approach to climate scenario analysis is summarised below: Our starting point for modelling climate-related risks are three climate scenarios, each of which includes a trajectory of carbon prices and emissions over time, and an associated change in global temperature. These are drawn from a set of scenarios published by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). NGFS has developed the scenarios to provide a common starting point for the financial sector to analyse physical and transition climate-related risks.

GRAPHIC

 

 

 The three scenarios analysed were: Hot House World (no new policy action takes place to reduce greenhouse gas emissions, and as a result they continue to grow), Orderly (immediate and global action to reduce emissions in a measured way) and Disorderly (ambitious new climate policies are introduced, but only in 2030). We examined the impacts of these three scenarios on a selected sample from our balance sheet comprising wholesale and retail customers. Our analysis focused on both transition and physical risks. We translated each scenario into economic impacts for firms and households. This is done by modelling granular transition and physical risk shocks disaggregated by sector and geography, and integrating this into a micro-economic and financial model of firm-level impacts and response, accounting for abatement and adaptation action, and competitive dynamics within sectors. We used the resulting flow of costs and revenues to assess the impacts on the value of customers in the NatWest Group’s portfolio, and used the existing credit risk models (adapted to incorporate the climate-related risk factors) to evaluate the impact on credit risk for the individual customers. Based on preliminary insights from the scenario analysis work, we are working to develop response plans, a number of which will require direct engagement with our customers around their own mitigation plans. We modelled physical and transition risks over the period 2020-2050. Scenario analysis insights Recognising that the preliminary analysis carried out over 2020 was the first step in a multi-year development of capability and data with respect to climate scenario analysis, any insights and observations must be treated with appropriate caution. Sections below detail preliminary insights and progress in assessment of initial management plans to inform the development of the wider NatWest Group climate strategy and risk management. Wholesale insights Climate-related risks can vary considerably across sectors and companies. Among the sample tested so far, in scenarios with stronger climate action (‘Orderly’ and ‘Disorderly’), some companies see an increase in expected market value with others losing value. Since risks are distributed across sectors and companies, NatWest Group’s diversified lending portfolio is expected to limit the impact of these variations. While climate-related risks are distributed, some sectors are particularly exposed e.g. automotive, oil and gas, mining and metals. Companies in these sectors can experience large changes in creditworthiness and valuation in scenarios with stronger climate action. NatWest Group is progressing work to assess financed emissions related to loans and investment to these sectors. In addition, we are engaging with customers as part of the on-going work on CTP and other climate ambition initiatives. In scenarios with stronger climate action, there is potential for large variation in companies’ performance within the same sector: Among the companies tested, variation in climate impacts between companies in the same sector can be as large as variation between different sectors. Differences in individual companies’ performance is driven by factors such as differences in their current carbon footprint and product mix. Recognising these company-specific differences, NatWest Group will continue to develop its granular customer-level analysis of climate-related risks throughout its portfolio. In addition, work is on-going to train relationship managers as they engage with customers to both manage risk and support their transition. New growth sectors and new opportunities: Many companies perform significantly better in scenarios with stronger climate action, including low carbon utilities and cleantech manufacturers. As part of its climate ambition, NatWest Group continues to support customers through £20 billion climate and sustainable funding and financing and by reserving at least 25% of the spaces in our Entrepreneur Accelerator hubs for businesses where their core offering supports sustainable environmental activities (including climate solutions). In addition, Commercial Banking has introduced a framework to encourage activity that supports the sustainability and climate change agenda. As part of the capital allocation process, corporate customers that are aligned with sustainability and climate change benefit from a lower allocation of capital allowing more competitive pricing. This benefit can also be applied at an individual facility level where a customer seeks funding for a specific, Climate Positive activity (e.g. land transport business looking to fund a fleet of EVs). This will help to reshape NatWest Group’s portfolio as it moves towards more sustainable transactions and sectors. A disorderly transition would be most disruptive: with a greater impact on valuations in the Disorderly scenario than the Orderly scenario. In the disorderly scenario, the economy has to change at a much faster rate due to the action in cutting emissions commencing a decade later and therefore greatly impacting high-emitting sectors like energy. The impact on valuations also exceeded those observed in the Hot House World scenario. Retail insights 1. Future climate-related risks amplify current risks. Initial modelling with a limited sample indicates that physical and transition risks will intensify over a period of time, example properties with poor EPC ratings or those with existing risk of flooding. NatWest Group has launched various initiatives like Green Mortgages to support customers transition to low carbon economy. As part of its climate ambition, NatWest Group will work with customers who are particularly exposed to improve their energy efficiency. Geographical diversification helps contain the impact of physical risks. Since flood risk is highly geographically specific, NatWest Group’s regionally diverse mortgage portfolio limits exposure to a particular region in the UK.

GRAPHIC

 

 There is significant regional variation in physical hazards. Acknowledging this insight, in 2021 NatWest Group will build more granularity into our flood risk modelling to understand precisely where risks lie and prepare management plans to address these insights. Transition risks are more prevalent than flood risk, which is concentrated in certain regions or properties. This may impact property valuations as a result of rising energy bills and retrofit costs for inefficient properties. NatWest Group will continue to raise customers’ awareness of the importance of increasing the energy efficiency of their homes. Implications for risk management and decision-making We will continue to strengthen our ability to effectively manage climate-related risks during 2021 and beyond, by expanding our own analysis from an initial sample to cover NatWest Group’s balance sheet more comprehensively, in line with the 2021 CBES exercise requirements. We will also further develop both our analytical tools and implementation of climate-related risk insights into our strategy and decision making. Climate-related disclosures – Governance The Board and senior management team respectively oversee and manage NatWest Group’s response to climate change. Refer to the 2020 Climate-related disclosures report for further details on climate governance. Board oversight of climate-related risks and opportunities Board monitoring and oversight of climate-related risks and opportunities is supported by management reporting on climate, climate strategy, ambition and risk management activities, which feature on the Board and Board Committee agendas. In particular, The Board oversees progress made on our Purpose-led strategy announced in February 2020. In October 2020 the Board received a comprehensive update on NatWest Group’s progress towards becoming a purpose-led bank and progress against external sustainability commitments, including the climate ambition, covering achievements to date and future priorities. The Group Board Risk Committee discusses financial risk from climate change on a quarterly basis. These updates focus on risk-related matters such as scenario analysis and stress testing, data and investment challenges. The Group Sustainable Banking Committee’s annual deep dive session on climate change in June 2020 focussed on climate ambition this year, with external input from the Green Finance Institute followed by a challenge session with management on current progress and future opportunities. The Group Performance and Remuneration Committee oversaw the inclusion of Climate goals, performance measures and targets as part of Senior Executive remuneration for the 2020 financial year and updated targets have been set for 2021. The Group Audit Committee considers non-financial disclosures related to the broader ethical, social and governance agenda. Management’s role in assessing and managing climate-related risks and opportunities In October 2020 as part of a scheduled review, the Board approved the allocation of Senior Management Function responsibility for identifying and managing financial risks from climate change jointly to the CEO and the Group Chief Risk Officer. This updated accountability supports the CEO’s ownership of our strategic climate purpose across the organisation and will drive delivery across the three lines of defence. This responsibility includes ensuring that the financial risks from climate change are adequately reflected in risk management frameworks, and that the firm can identify, measure, monitor, manage, and report on its exposure to these risks. A Group-wide Climate Change Programme (GCCP) continues to support the delivery of NatWest Group’s climate-related objectives. The GCCP is overseen by an Executive Steering Group (GCCP ESG) which is responsible for coordinating the NatWest Group response across climate-related regulations, risks and opportunities. The GCCP ESG is co-chaired by the Group CEO and Group Chief Risk Officer, reflecting the materiality of this agenda. The GCCP ESG includes cross-franchise, functional and entity representatives from across NWH Group and NWM Group; and ensures alignment of underlying franchise initiatives and working groups. Climate-related disclosures – Risk management Climate risk is the risk of financial loss or adverse non-financial impacts associated with climate change and the political, economic and environmental responses to it. The risks associated with climate change are complex and pervasive. We recognise the cross-cutting causal nature of climate risk and during 2020, continued to integrate climate risk into the risk management framework. In addition, to provide immediate focus, we have adopted a dual approach and climate risk has also been recognised as a principal risk. Refer to the 2020 Climate-related disclosures report for further details on climate risk management. Managing climate-related risks During 2021 NatWest Group will assess and report on climate risk as a principal risk. The risk will have a dedicated policy, appetite statement and risk appetite measures implemented in accordance with the EWRMF. This approach supplements continued enhancements to risk management toolkits which will ensure comprehensive identification and assessment of climate risk impacts upon other principal risks. Some examples of work done during 2020 to incorporate climate as a causal factor into existing principal risks include: Guidance was issued to ensure appropriate consideration of climate-related risk in internal risk and control assessments. Climate risk was included as a factor in setting sector oversight classifications, which drive the frequency and level at which sector credit risk appetite is reviewed. Within the wholesale portfolio, thirteen sectors were identified as exposed to heightened climate risk based on this initial analysis of transition and physical risks.

GRAPHIC

 

 For the residential mortgage portfolio analysis was completed at property level to assess transition risk by reviewing energy efficiency of properties, and physical risk though exposure to flood risk. Within operational risk, a scenario analysis pilot was performed on the Group's operations in India to assess the potential effects of climate driven events including disruption to business services, damage to physical assets and health and safety. Enhancements have been made to the ESE Framework to mitigate reputational risk from carbon intensive sectors and support the transition to a low carbon economy. This includes reduction in coal lending thresholds for the mining and metals and power generation sectors from 40% to 15%. In addition, prohibitions on project financing for new exploration in the oil and gas sector, including fracking were put in place. Climate-related disclosures – Metrics and targets This section includes metrics used by NatWest Group to assess climate-related risks and opportunities. Refer to the 2020 Climate-related disclosures report for further details on climate metrics and targets. Heightened climate-related risk sectors The table below summarises exposures to sectors identified as exposed to heightened climate-related risk impacts. Total sector exposure comprises loans (gross loans and advances to customers and banks accounted at amortised cost and fair value through other comprehensive income) and related off balance sheet exposures. Amounts reported include all lending to customers including sustainable lending, as well as to environmentally responsible customers. Total exposure to heightened climate-related risk sectors has increased by £22.8 billion during 2020, primarily relating to the following: The increase in residential mortgages of £16.7 billion reflected strong customer demand as well as the £3.0 billion acquisition of an owner-occupied mortgage portfolio from Metro Bank. Exposure also increased in several wholesale sectors, primarily related to: Construction and land transport and logistics sectors increased by £1.7 billion and £1.4 billion respectively, reflecting the increased lending activity under the COVID-19 government lending schemes. Power utilities increased by £0.6 billion, primarily reflecting new lending for renewable energy and infrastructure projects. Housing associations increased by £1.1. billion, primarily reflecting support for development of affordable homes. Exposure to the oil and gas sector has decreased £0.8bilion, in line with tighter lending criteria and increased focus on credible transition plans now in place for this sector. At December 2020, exposure to oil and gas majors amounted £1.3 billion (December 2019: £1.4 billion).

GRAPHIC

 

 Climate and Sustainable Funding and Financing In February 2020, NatWest Group announced that it would support an additional £20 billion funding and financing (including underwriting but excluding mergers and acquisitions advisory activities) for climate and sustainable finance between 2020-2022. As a result of the progress made during 2020, the timeline for this target has been brought forward to 2021. We expect to exceed our £20 billion target during 2021. NatWest Group used its 2020 Climate and Sustainable Finance Inclusion Criteria (CSFI criteria) published in 2020 to determine the assets, activities and companies that are eligible to be counted towards this target. The CSFI criteria are currently focused on supporting a transition towards a low carbon and climate resilient economy. The assets and activities which are in scope of the CSFI criteria are in line with the eligibility criteria of one or more of the ICMA Green Bond Principles (2018), Loan Markets Association (“LMA”) Green Loan Principles, and relevant transactions (that include a specific carbon or climate-related metric) under the LMA’s Sustainability Linked Loan Principles. £12 billion climate and sustainable funding and financing during 2020 comprised £7.2 billion in NWM Group, £3.9 billion in Commercial Banking, £0.8 billion in RBS International and £0.1 billion in other segments. The table below shows our progress during 2020, compared with activity during 2018 and 2019 against previous target of £10 billion climate and sustainable funding and financing related to these years. This demonstrates the increased support provided to customers over the years to help transition to a low carbon economy. Climate and Sustainable Funding and Financing (1) 2020* 2018-2019 Number of deals £m Number of deals £m Green Wholesale lending (2): specific purpose lending to customers within scope of the CSFI criteria 101 2,528 269 3,366 Green bond public issuances and green private placements (3): underwriting of specific use of proceeds debt capital market issuances for projects and clients that meet the CSFI criteria 36 5,030 27 3,721 Sustainability Linked Loans: made to customers in line with LMA sustainability linked loan principles where loan targets include green performance indicators, aligned to the CSFI criteria 28 2,633 35 2,850 Other wholesale general purpose lending or wider financing within the CSFI criteria (4 ) 21 1,823 Total Climate and Sustainable Funding and Financing 186 12,014 331 9,937 Lending amounts represent total commitment and include any undrawn portion of committed credit limits. Green bond public issuance and green bond private placements represent the NWM Group share of the notional (total underwriting amount lead managed by NWM Group), based on the number of underwriters within a specific deal. Green bonds and private placements totalling a notional amount of £22.7 billion, account for approximately 4% of the total lead managed transactions by NWM Group during the year. In addition to transactions that directly meet CSFI criteria based on use of proceeds for green purposes, the CSFI criteria also includes certain general purpose loans and wider financing to a customer who can evidence (to NatWest Group’s satisfaction through review of the customers’ profit and loss statement) 50% or more revenues from the categories and sectors outlined in the criteria. In 2020, £1,823 million included above comprises loans of £428 million and bonds and private placements of £1,395 million.

GRAPHIC

 

 NatWest Group Own Operational Footprint We have met our ambition to be Net Zero Carbon (1) across our own operations in 2020 (2). We achieved this through a combination of emissions reductions, in line with our 1.5-degree science-based target commitment, alongside offsetting residual Scope 1, 2 and 3(3) emissions through the purchase of internationally recognised TIST Carbon Credits (4). NatWest Group understands that carbon offsetting is only an interim solution; however, we believe it’s the best way to take accountability for the carbon we emit until it can be eliminated at source. Climate Positive by 2025 Our priority now is to focus on becoming Climate Positive across our own operations by 2025, so that we offset more carbon than we emit. Last year we announced this would be achieved by maintaining our 2020 level of carbon offsetting and simultaneously reducing emissions from our own operations a further 25% by 2025 (2019 baseline). Due to the exceptional circumstances linked to the COVID-19 pandemic, we have already reduced emissions by 33% (against 2019 baseline), driven by reduced energy consumption and business travel. Additionally, with more than 50,000 colleagues working from home due to the COVID-19 pandemic, some emissions have transferred to colleague homes. In recognition of this exceptional year, we have: Calculated and offset all colleague home working and commuting emissions (37,596 tCO2e). These additional emissions offset in 2020 go beyond our current reporting boundary of emissions in our direct operational control. To calculate these emissions, we collaborated with EcoAct, Lloyds Banking Group and other organisations to launch the first ever open source home working emissions methodology. Set the minimum level of offsets that we will maintain through to 2025 to 120,000 tCO2e, aligned to our 2019 market based emissions; instead of 2020 emissions (93,144 tCO2e), which are lower than 2019. We will continue to pursue a 25% carbon reduction by 2025 (2019 baseline) due to an expected rebound in the future. Notes: NatWest Group define Net Zero Carbon as “a state where no incremental greenhouse gases are added to the atmosphere, with remaining emissions output being balanced by the removal of carbon from the atmosphere” Our Own Operational Footprint reporting year runs from October 2019 to September 2020. Scope 3 emissions from business travel, paper, waste and water. TIST projects remove carbon from the atmosphere through tree planting. All TIST carbon credits are dual-validated and verified under the Verified Carbon Standard (VCS) and Climate, Community and Biodiversity Standards (CCB). Streamlined Energy and Carbon Reporting Methodology: We have reported on all emission sources required under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. Our reporting year runs from October 2019 to September 2020. The emissions reporting boundary is defined as all entities and facilities either owned or under our operational control. (1) Offshore area as defined in The Companies (Directors Report) and Limited Liability Partnerships (Energy and Carbon) Regulations 2018. (2) Scope 1 Emissions from fluorinated gas losses and fuel combustion in NatWest Group premises/ vehicles, (3) Scope 2 Emissions from electricity, district heating and cooling used in NatWest Group premises, (4) Market-based Scope 2 Emissions and (5) Scope 3 Emissions associated with business travel by NatWest Group colleagues and paper, waste (UK and RoI) and water use have been calculated using the Greenhouse Gas Protocol Corporate Standard and associated guidance. When converting data to carbon emissions, we use Emission Factors from UK Government Emissions Conversion Factors for Greenhouse Gas Company Reporting (Department for Business, Energy & Industrial Strategy, 2020), CO2 Emissions from Fuel Combustion (International Energy Agency, 2019) or relevant local authorities as required. For more information, please see our website (natwestgroup.com).

GRAPHIC

 

 

 Energy Efficiency Although the pandemic has impacted and delayed the delivery of many energy efficiency and decarbonisation investment projects, a number of key projects were still completed in 2020. Notable highlights include: UK data centre environments – We replaced the chillers that provide the necessary internal space cooling at one of our data centres, reducing electricity use by more than 600,000 kWh annually. Lighting upgrades – We have implemented lighting upgrades at two of our major office buildings in Belfast and London, resulting in a c.420,000 kWh electricity reduction annually across both locations. UK and RoI retail branch upgrades – We have invested in upgrading the equipment that serves our retail branches during 2019-20, including boiler replacements to more energy efficient models, upgrades to air conditioning units and installation of building management systems (BMS). We estimate that the installation of a BMS in our branches, which optimises all the large energy-using equipment, saves on average 7,000 kWh annually, compared to not having a BMS installed. UK Stand-by generation replacements – We have removed older, more polluting diesel back-up generators at two of our office locations in London and the South East of England, as well as removing older generators at one of our data centres. These projects will both reduce carbon emissions and improve local air quality. Preliminary estimates of financed emissions In February 2020, we set ourselves the challenge to at least halve the climate impact of our financing activity by 2030 and to do what is necessary to achieve alignment with the 2015 Paris Agreement. Financing activity refers to the loans and investments (debt securities and equity shares) on NatWest Group’s balance sheet. We use financed emissions as a key metric to estimate the climate impact of our financing activity on the real economy. Financed emissions are absolute GHG emissions that NatWest Group finances through its lending and investment activity. These activities fall within Scope 3, category 15 of the GHG protocol. During 2020, we worked on developing our capabilities to estimate our financed emissions to enable us to enhance our understanding of climate-related risks and opportunities. We focused on estimating financed emissions and emissions intensities for four sectors: residential mortgages, agriculture (primary farming), automotive manufacturers and oil and gas extractors. These four sectors were selected based on their proportion of the NatWest Group’s total loans and investments as at 31 December 2019 in combination with climate impacts associated with the sector. Further considerations included whether appropriate methodologies for estimating emissions intensities were available. Refer to the NatWest Group 2020 Climate-related disclosures report for details on approach, standards and methodologies used for estimating financed emissions and emission intensities. Calculation of financed emissions Financed emissions refer to the total GHG emissions of an asset class or sector that is attributable to NatWest Group. In line with PCAF’s The global GHG accounting and reporting standard for the financial industry, we have calculated absolute emissions based on Scope 1 and 2 emissions attributable to those loans and investments analysed for the specified sector or sub-sector analysed. In addition, for our oil and gas extraction and automotive manufacturing sectors, we have included Scope 3 emissions based on downstream use of products sold as they constitute a large proportion of the overall estimated emissions in these sectors. In general, as per the PCAF standard, financed emissions are estimated based on the formula shown below: The attribution factor is calculated by determining the share of the outstanding amount of loans and investments of a financial institution over the total equity and debt of the borrower or investee company. We used total assets to calculate the attribution factor for automotive manufacturing and oil and gas, and original property valuation for residential mortgages. Currently, there are data limitations primarily related to lack of granular and sub-sector customer data availability. The PCAF standard provides guidance on data quality scoring methodology to help assess data quality challenges and recognise areas for improvement. PCAF’s ratings generally assign directly collected customer emissions data a better score and estimated or extrapolated achieve lower scoring. In practice, data limitations mean that sectors are generally footprinted using a mixture of customer specific and estimated data at a sub sector level. PCAF therefore suggests assigning a ‘weighted’ score to reported sectors based on the relative exposure associated with different methodologies. Financed emissions= i Attribution factor i x Emissions (with i = borrower or investee) Outstanding amount i Total equity + debt i

GRAPHIC

 

 The table below shows our preliminary estimates based on our work to date and should be read in conjunction with Risk factors included in this document and Section 5.7 (Caution about climate metrics) of the 2020 Climate-related disclosures report. The table below shows NatWest Group’s (i) estimated financed emissions, (ii) physical and economic emissions intensities (1) for the four sectors reviewed, (iii) preliminary physical emissions intensity estimates for year 2030 aligned to NatWest Group’s climate ambition to reduce climate impact of financing activity by 50%, as well as for Paris alignment, (iv) Paris alignment physical emissions intensity in 2050. We will continue to work on this in 2021 and further refine our estimates as we enhance our understanding, calculation methodologies and data. We have used a combination of methodologies (some of which are still under development) to calculate these emissions. Analysis performed during 2020 is based on NatWest Group loans and investments balances as at 31 December 2019. 19 kgCO2e/m Preliminary estimates of financed emissions and emission intensities 2019 (1) Preliminary emission intensity estimates 2030 and 2050 Sector Financed emissions (MtCO2e/y) (2) Physical emissions intensity (3) Economic emissions intensity (tCO2e/£M invested) (4) PCAF Data quality score Proposed 50% absolute emissions reduction intensity (2030) Paris alignment emissions intensity (2030) Paris alignment emissions intensity (2050) Scope 1 and 2 Scope 3 Scope 1 and 2 Scope 3 Residential mortgages (5) 2.2 39 kgCO2e/m2 12 4.1 2 20 kgCO2e/m2 0.1 kgCO2e/m2 Agriculture(6) (primary farming) 3.6 2,205 tCO2e/ £m revenue 940 4.3 1,103 tCO2e/£m revenue 1,449 tCO2e/£m revenue 1,165 tCO2e/£m revenue Automotive manufacturing(7) 0.01 0.53 168 gCO2/km 1,790 2.1 3.1 84 gCO2/km 121 gCO2/km 31 gCO2/km Oil and gas extraction (8) 0.08 1.9 75 tCO2e/TJ 3,054 2.4 2.6 38 tCO2e/TJ Guidance under development Guidance under development Million tonnes of carbon dioxide equivalent, a measure used to compare the emissions from different greenhouse gases. Physical emissions intensity: Financed emissions divided by an output value. Economic emissions intensity: Financed emissions divided by the loan and investment amount. This helps understand how the emissions intensity of different portfolios (or parts of portfolios) compare to each other per monetary unit. For residential mortgages, floorspace varies between properties and larger properties tend to produce a larger quantity of absolute emissions as a result, floorspace has been used as the metric for assessing physical emissions intensity kgCO2e/m2 is kilograms carbon of carbon dioxide equivalent emitted per square meter. Where detailed information on physical activity is not available, PCAF permits use of revenue-based intensity. We have used revenue based intensity metric for the agriculture sector. tCO2e/£M revenues is tonnes of carbon dioxide equivalent emitted per million of revenue. For automotive manufacturing, emissions intensity is based on kilometres travelled as this reflects the emissions for distance travelled. For automotive manufacturing, Scope 3 emissions and emission intensity estimates only relate to tailpipe emissions i.e. the emissions exclusively related to the burning of fuel in vehicles and do not take into account entire lifecycle emissions. gCO2/km is the grams of carbon dioxide emitted per kilometre. For oil and gas extraction, quantity of energy produced by each fuel source has been used to assess emissions intensity. tCO emitted per terajoule.

GRAPHIC

 

 Residential mortgages Reducing emissions associated with our residential mortgage portfolio will be critical to meeting our climate ambitions. The analysis presented is based on residential mortgages of £174 billion at December 2019. In February 2020, NatWest Group committed to support our UK and RoI mortgage customers to become more energy efficient with an ambition that 50% of our mortgage book is at or above EPC C or equivalent rating by 2030. To estimate financed emissions, we used EPC data as an estimate of the underlying climate impact. EPC assesses the energy efficiency of a property, graded from A (most efficient) to G (least efficient). EPC data is sourced from publicly available customer information for England and Wales for the year of inspection by qualified EPC surveyor. As EPC ratings only need to be updated every 10 years or after significant retrofits, point of sale or lease, not all properties have current EPC ratings. Financed emissions estimates: For the purpose of calculating financed emissions estimates, EPC data has not been adjusted for any assumed energy efficiency changes since the date of collection. For Scope 2 financed emissions estimates, EPC data collected prior to 2019 has been adjusted only for the decarbonisation of the UK grid between the year of inspection and 2019. PCAF data quality score: Our residential mortgages estimate achieves a weighted PCAF data quality score of 4.1. The weighting is based on two scores: Publicly available data: As at December 2019, EPC data was available for just under half of the residential mortgage portfolio which achieved a PCAF data quality score of 3. Extrapolated data: To estimate EPC ratings for properties which did not have publicly available EPC data, we used average emissions profile of properties for which EPC data was available. This is based on the assumption that properties without EPC ratings have the same emissions intensity profile as those with available EPC ratings. This results in PCAF data quality score of 5. Estimated 2030 and 2050 emissions intensity: Our preliminary estimates for the Paris aligned emissions intensities for 2030 and 2050 are based on the CCC's sixth Carbon Budget, “Balanced Net Zero”, emissions pathway and UK floorspace projections. We project floor space to 2050 using the CCC's estimates of “new homes” in the UK between 2019 and 2050, in conjunction with the UK’s housing stock in 2019.These are then multiplied by the average floorspace in the UK (as derived from the National EPC data). The current Scope 2 estimate is based on CCC’s estimated household electricity consumption and the overall emissions intensity of UK electricity. The intensity estimate was calculated using SBTi SDA. We estimate that by 2030, our average financed physical emissions intensity will need to fall significantly to be aligned with the 2015 Paris Agreement, from an estimated 39 kgCO2e/m2 in 2019 to 20 kgCO2e/m2 in 2030, and then further still to 0.1 kgCO2e/m2 in 2050. How we will support customers to transition Our ambition for Paris alignment for the residential mortgage portfolio is challenging. It reflects the fact that reducing the carbon emissions from residential property in the UK is a complex and challenging goal, which will require a systemic response from parties across the sector, including government, energy suppliers, housebuilders and lenders. We have a clear role to play within the ecosystem to engage and inform customers and provide product solutions to fund home improvements and continue to develop our plans. We are clear that we can play an important role engaging with our mortgage customers to inform and increase awareness of the benefits and options available, helping them to improve home energy efficiency through making home improvements. Building on the launch of our Green Mortgage product, we will continue to develop green financial products to reward and incentivise the purchase of the most energy efficient properties, measured by their EPC, but also to allow customers to fund home improvements that increase the energy efficiency of existing properties. We will also take a proactive stance to sector engagement, working with government, as well as across the finance sector with NGOs (e.g. Green Finance Institute) to align to industry standards and create consistency for customers regarding Green Financing. Agriculture Customers engaged in primary farming activity with lending and investments of £3.8 billion were reviewed to estimate financed emissions. Financed emissions estimate: As primary farming activities do not have a homogenous unit of output base (i.e. farmers sell different products), constructing an emissions intensity metric based on physical output is challenging. We have used UK-specific sector level revenue emissions intensity metrics from EXIOBASE 2011 and applied these to customer revenues to estimate absolute emissions. Availability of more detailed customer level data will allow us to use customer specific emissions factors. EXIOBASE is a global, detailed multi-regional environmentally extended supply use table and input-output table. EXIOBASE was developed by harmonizing and detailing supply use tables for a large number of countries, estimating emissions, and resource extractions by industry. We have included five GHGs (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs)) from EXIOBASE in our emissions estimates. In line with the CCC’s sixth carbon budget, we use the 'high' global warming potential (GWP) values with carbon-cycle feedbacks for methane and nitrous oxide from the IPCC 5th Assessment Report. Carbon cycle feedback refers to how the collection of processes that sees carbon exchanged between the atmosphere, land, ocean and organisms could change as the Earth warms and atmospheric CO2 concentrations rise.

GRAPHIC

 

 PCAF data quality score: Publicly available data: Emissions intensity for £2.5 billion of agriculture primary farming balances reviewed was estimated using sector level emissions factors from EXIOBASE, achieving data quality score of 4. Estimated data: For the remaining £1.3 billion balance, we applied the emissions intensity profile available in a above, achieving a data quality score of 5. This results in overall weighted data quality score of 4.3. To improve the quality of data inputs for the agriculture sector in future years, we plan to collect data on production and processes from agricultural customers to better measure their carbon footprint and track progress over time. According to the CCC’s sixth carbon budget, decreasing emissions in the agriculture sector will be driven by several decarbonisation strategies, such as improved soil management practices, improved livestock health and breeding, reductions in food waste and diet changes that will reduce the demand for and production of beef and thus, the associated emissions. Emission intensity estimates for 2030 and 2050: Currently, there is limited guidance on modelling Paris aligned emissions intensities for agriculture, with the SBTi guidance on agriculture, forestry and other land use (AFOLU) due to be released in Q2 2021. For the 2030 and 2050 preliminary emissions intensity estimates, we have used Scope 1 and 2 emissions pathways from the CCC sixth Carbon Budget. We constructed revenue projections for the agriculture sector in the UK to 2050 based on the assumption that food demand grows in line with the World Bank's population forecasts for the UK. Based on this approach, the emissions intensity of NatWest Group’s agriculture portfolio would need to reduce from 2,205 tCO2e/£m revenue to 1,449 tCO2e/£m revenue in 2030 to be on track to meet the 2015 Paris Agreement goals. From a wider market perspective, the UK National Farmers Union has set the ambitious goal of reaching net zero GHG emissions across the whole of agriculture in England and Wales by 2040, and are aligning measures under three broad headings: Improving farming’s productive efficiency; Improving land management and changing land use to capture more carbon; Boosting renewable energy and the wider bioeconomy. The NFU have stated that in reducing agriculture’s impact on climate, the UK must not achieve its climate change ambitions by exporting UK production, or our GHG emissions, to other countries. NatWest Group is actively exploring opportunities for GHG emissions reductions in agriculture aligned with the UK Agricultural Bill/Act and the transition to the Environmental Land Management Schemes (ELMSs) in England and corresponding schemes in the devolved nations. Possible options include assisting farmers in changes of land use and increasing sequestration uptake by our customers. NatWest Group is committed to supporting our specialist relationship managers with climate-related training, and climate-related questions are being added to our agriculture sector customer engagement. These measures will support the consistent coverage of climate issues in future collaborations with customers, with the aim to support and help them transition to a low carbon resilient economy. We are currently working on a pilot with individual farming customers to develop a universal approach in understanding the sustainability and climate impact of their farms. If successful, further development will enable the bank to understand the impact of our agriculture portfolio whilst providing our farming customers with individual support on their climate journey. Automotive manufacturing (cars and light commercial vehicles) Financed emissions estimates: NatWest Group absolute financed emissions in automotive manufacturing includes Scope 1, Scope 2 and Scope 3 tailpipe emissions. This is based on £0.3 billion loans and investments related to automotive manufacturers at December 2019. Scope 1 and Scope 2 emissions were taken directly from customers’ sustainability reports. In addition, Scope 3 tailpipe emissions have been included, aligned with the Katowice Banks guidance (1). Tailpipe emissions refer to emissions exclusively related to the burning of fuel in vehicles and do not take into account entire lifecycle emissions. As the reporting for Scope 3 tailpipe emissions is not uniform across all customers, we estimate it using average tailpipe emissions factors for car model and fuel combinations from the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), a global harmonised standard of drive cycle test to determine the tailpipe emissions and fuel efficiency of passenger cars. These tailpipe emissions factors are applied to global sales data (by model type) taken from customers’ annual reports to calculate Scope 3 tailpipe emissions. In line with guidance from Katowice banks, we also estimate the Scope 3 tailpipe emissions intensity (in gCO2/km) for our automotive manufacturing portfolio. This is calculated based on the estimated Scope 3 tailpipe emissions, data on customer financials and reported sales, and an assumption of average vehicle lifecycle of 150,000 kms based on the IEA Global EV Outlook report. (1) Katowice Banks refers to the five international banks that pledged at the 2018 COP24 in Katowice to develop an open-source methodology to progressively steer (or ‘align’) their lending portfolios with the goals of the 2015 Paris Agreement. In September 2020, 2 Degrees Investing Initiative (2DII) and the Katowice Banks launched their Credit Portfolio Alignment methodology for applying the 2015 Paris Agreement Capital Transition Assessment (PACTA) methodology to banks’ credit lending portfolios.

GRAPHIC

 

 PCAF data quality score: Scope 1 and Scope 2: Publicly available data: We were able to use data from customers’ externally available disclosures for 97% customers. This achieved data quality score of 2. Extrapolated data: For the remaining 3%, we estimated emissions data based on the emissions profile of the rest of the population, achieving data quality score of 5. This results in overall data quality score of 2.1. Scope 3: As above, for 97% of our Automotive manufacturing portfolio, we estimated the Scope 3 tailpipe financed emissions using emissions factors from WLTP and the reported global sales by customers. For the rest of the portfolio, we extrapolate Scope 3 tailpipe emissions based on the 97% population for which information is available. This achieved a data quality score of 3.1. Estimated 2030 and 2050 emissions intensity: The 2030 and 2050 preliminary intensity estimates are based on vehicle sales by fuel type using the global vehicle stock projections from the IEA Energy Technology Perspectives (ETP) Beyond 2 Degrees Scenario (B2DS). Key assumptions include those related to operational lifetime of vehicles and replacement rates by fuel type, based on the IEA Global EV Outlook. In addition, we have assumed a constant vehicle efficiency by fuel type i.e. that the grams of CO2 per km emitted by cars of a fuel type remains constant until 2050, informed by the 2019 BEIS emissions factors for an average vehicle (split by fuel type). Vehicle emission factors by fuel type are applied to construct a weighted average emissions intensity for new vehicles sales to 2050. The preliminary emissions intensity estimates suggest that EV sales would need to be approximately 45% (as a top-end estimate) of total global sales by 2030, to achieve Paris alignment, based on the assumptions listed above. A switch from internal combustion engine vehicles to EVs will play a key role in achieving Paris alignment in the automotive sector. In November 2020, the UK Government made a commitment to further support EV manufacturing as part of a £2.8 billion investment, which will greatly support the sector transition. In addition, the UK Government announced that new cars and vans powered wholly by petrol and diesel will not be sold in the UK from 2030. NatWest Group’s Future Mobility Group has launched various initiatives to support customers and colleagues. Oil and gas extraction Financed emissions estimate: In the oil and gas sector, we calculated financed emissions for customers engaged in extraction activities. In addition, we have included Scope 3 emissions in our financed emissions estimates for the oil and gas extraction sub-sector, as these have a high climate impact. This is in line with the Katowice Banks guidance. We used reported emissions and production data from our customers' annual reports (where available) to construct emissions intensity estimates for 2019. PCAF data quality score: Publicly available data: For 96% customers, we sourced Scope 1, Scope 2 and Scope 3 emissions data from their sustainability reports. Where any of this information was missing, we estimated the emissions using reported production and estimated emissions factors. For directly sourced emissions, we achieve a data quality score of 2 whereas for the portion of the portfolio that we estimate the emissions for, we achieve a data quality score of 3. Extrapolated data: For the rest of the portfolio (4%), we extrapolated the estimated financed emissions based on the population for which data is available. This achieved a data quality score of 5. This achieved overall data quality score of 2.4 for Scope 1 and 2, and 2.6 for Scope 3. We have not yet developed a Paris aligned emissions pathway to 2050, as SBTi guidance for the oil and gas sector is still under development. We continue to liaise with SBTi on this. During 2020, we have continued to reduce our loan and investments in the oil and gas sector from £2.1 billion to £1.6 billion primarily due to tighter lending criteria. During 2021, we will work with major oil and gas customers as part of the credible transition plan work to assess future actions. We expect further reductions in 2021 and beyond based on tighter lending criteria for the sector and the ongoing assessment of customers’ transition plans. We continue to support our selected customers in the North Sea oil and gas sector as they focus on reducing emissions, transitioning to low carbon energy solutions and decommissioning.

GRAPHIC

 

 

[LOGO]

GRAPHIC

 

 Entrants with new business models such as peer-to-peer lending platforms, while currently small, continue to grow rapidly and are emerging as significant competitors. Such competitors often target specific elements of the value chain, providing specialised services to particular customer segments. In the UK credit card market, large retailers and specialist card issuers are active in addition to the UK banks. In addition to physical distribution channels, providers compete through direct marketing activity and digital channels. NatWest Group distributes life assurance products to banking customers in competition with independent advisors and life assurance companies. Ulster Bank RoI In the Republic of Ireland, Ulster Bank RoI competes in retail and commercial banking with the major Irish banks, and with other UK and international banks in the market. Commercial Banking Competition for corporate, institutional and business customers in the UK is from UK banks, from specialised global and regional investment banks and from large foreign universal banks that offer combined investment and commercial banking capabilities as well as from new entrants and non-bank challengers. In asset finance and invoice finance, the bank competes with banks and specialist finance providers, both captive and non-captive. In the small business banking market, the bank competes with other UK banks, specialist finance providers and building societies. In all of these areas, entrants with new technology-based business model are also showing rapid growth. RBS International RBS International competes with other UK and international banks to offer offshore banking services as well as domestic banking services in the Channel Islands, Gibraltar and the Isle of Man. Private Banking Coutts and Adam & Company compete as private banks with UK clearing and private banks, asset managers and with international private banks. Competition in wealth management remains strong as banks maintain their focus on competing for affluent and high net worth customers. NatWest Markets NatWest Markets focuses on the needs of large corporates operating in the UK and Western Europe as well as global financial institution customers. NatWest Markets provides financing and risk management for these customers, and trades with financial institutions and counterparties for distribution and market making. There are sales and trading operations in Amsterdam, London, the US and Singapore and offices in a select number of countries. NatWest Markets, therefore, competes with large domestic banks, major international banks and a number of investment banks that offer risk management, trading solutions and debt financing to financial institutions and UK and European corporate customers. NatWest Group’s product proposition is built around its core strength of supporting customers across currencies, rates and financing. Key competitive factors in this market include the ability to develop digital innovation, such as automation across flow products, the expertise and markets insight of employees and delivering value-adding bespoke solutions for customers. With an evolving regulatory landscape and continued pressure on margins, competition in this market remains strong. Many market participants are also revising their strategy in order to ensure they deliver sustainable returns Business Developments In December 2020, we acquired a £3.0 billion portfolio of prime UK mortgages from Metro Bank plc. Growing the mortgage book is an important strategic priority, as NatWest Group builds a bank that delivers sustainable returns for shareholders. The addition of this loan book will supplement the strong organic growth that we continue to achieve.

GRAPHIC

 

 Financial summary NatWest Group’s financial statements are prepared in accordance with IFRS. Selected data under IFRS for each of the last five years is presented below. 2020 2019 2018 2017 2016 £m £m £m £m £m Performance key metrics and ratios20202019Variance Notes: Net interest margin is net interest income of the Group as a percentage of interest-earning assets. Net interest margin is net interest income of the banking business less the NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less the NWM element. Cost:income ratio is total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. 2020 2019 2018 2017 2016 £m £m £m £m £m *Prior period data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details.

 

 Financial summary NatWest Group’s financial statements are prepared in accordance with IFRS. Selected data under IFRS for each of the last five years is presented below. 2020 2019 2018 2017 2016 £m £m £m £m £m Performance key metrics and ratios20202019Variance Notes: Net interest margin is net interest income of the Group as a percentage of interest-earning assets. Net interest margin is net interest income of the banking business less the NatWest Markets (NWM) element as a percentage of interest-earning assets of the banking business less the NWM element. Cost:income ratio is total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. 2020 2019 2018 2017 2016 £m £m £m £m £m *Prior period data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details.

GRAPHIC

 

 Financial Summary continued 20202019Variance Income£m£m£m Notes: Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities. 2019 Includes £290 million arising on the completion of the Alawwal bank merger, £1,102 million arising on the liquidation of RFS Holdings and £67 million in relation to dividends from UBI DAC. IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS. 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. Prior period comparatives refer to the previously disclosed NatWest Markets legacy business disposal losses. 2020 compared with 2019 Total income decreased by £3,457 million, or 24.3%. Excluding notable items, income decreased by £958 million, or 7.9%, due to reductions across the retail and commercial businesses, partially offset by higher NatWest Markets income reflecting increased customer activity as the market reacted to the spread of the COVID-19 virus. Income across the retail and commercial businesses, excluding notable items, decreased by 10.0% reflecting the lower yield curve, mortgage margin dilution, subdued business activity and lower consumer spending. Increased lending, whilst maintaining a disciplined approach to risk, has partially offset, with gross new mortgage lending of £31.5 billion in Retail Banking and drawdowns against UK Government lending schemes in Commercial Banking. Net interest margin of 1.57% was 22 basis points lower than 2019. Bank net interest margin (NIM) of 1.71% was 28 basis points lower than 2019, principally reflecting the impact of the falling yield curve and mortgage margin dilution, although this partly receded in the latter part of the year. Structural hedges of £159 billion generated £1.1 billion of incremental net interest income for the year, compared with £0.6 billion of incremental net interest income on a balance of £159 billion in 2019.

GRAPHIC

 

 

 20202019Variance Operating expenses£m£m£m 2020 compared with 2019 Operating expenses decreased by £1,420 million, or 15.2%. Operating expenses excluding litigation and conduct costs, strategic costs and operating lease depreciation, decreased by £277 million, or 4.0%, reflecting the continued transition from physical to digital, the optimisation of our property footprint, lower investment spend and reductions in NatWest Markets in line with the strategic announcement in February 2020. Headcount reduced by c.4,100, or 6.4%. Strategic costs of £1,013 million included £256 million related to property charges, £173 million redundancy costs and a £154 million charge related to technology spend. Litigation and conduct costs of £113 million represent £473 million of additional charges offset by various releases as programmes conclude, including a £277 million PPI release, with final agreement reached on 18 February 2021 with the Official Receiver in relation to a portfolio of historical PPI claims. The additional charges mainly represent increased cost of review and execution of Other Customer Redress as well as Litigation provisions. 2020 2019* Variance £m £m £m *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. Note: (1) The table above summarises loans and related credit impairment measured on an IFRS 9 basis. Refer to Credit Risk - Banking activities in the Risk and capital management section for further details. 2020 compared with 2019 The net impairment loss of £3,242 million increased by £2,546 million compared with 2019, predominantly driven by stage one and two charges which reflected the expected deterioration in the economic environment. Stage three impairment losses were £616 million as government support measures mitigated defaults across lending portfolios and associated ECL stage migration. Total impairment provisions increased by £2.4 billion to £6.2 billion, mainly reflecting expected credit losses on non-defaulted portfolios, and the ECL coverage ratio increased from 1.13% to 1.66%. 20202019 Tax£m£m 2020 compared with 2019 A tax charge of £83 million for the year ended 31 December 2020 arises rather than the expected tax credit of £67 million based on the UK statutory tax rate of 19%. The higher tax charge reflects a reduction in the carrying value of the Group's deferred tax asset in respect of Irish tax losses, UK banking surcharge, and other non-deductible items such as UK bank levy. These factors have been partially offset by the impact on the Group's UK net deferred tax asset of the increased tax rate from 1 April 2020, enacted by the Finance Act 2020. Further details can be found in Note 7 to the consolidated financial statements.

GRAPHIC

 

 Financial summary continued Summary consolidated balance sheet as at 31 December 2020 20202019Variance £m£m£m Liabilities Other financial data20202019201820172016 Capital ratios Notes: Tangible net asset value per ordinary share represents tangible equity divided by the number of ordinary shares in issue. Fully diluted earnings per ordinary share in 2020 is (6.2p) (2019 – 25.9p). Return on average total assets represents profit/(loss) attributable to ordinary shareholders as a percentage of average total assets. Return on average total equity represents profit/(loss) attributable to equity owners expressed as a percentage of average shareholder funds. Return on average ordinary shareholders’ equity represents profit/(loss) attributable to ordinary shareholders expressed as a percentage of average ordinary shareholders’ equity. Calculated on a PRA transitional basis. *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details.

 

 Total assets of £799.5 billion as at 31 December 2020 increased by £76.5 billion, 11%, compared with 31 December 2019. This was primarily driven by increases in cash and balances at central banks, loans to customers and derivatives, partially offset by reductions in trading assets, settlement balances and other financial assets. Cash and balances at central banks increased by £43.5 billion, 54%, to £124.5 billion mainly as a result of a net customer funding surplus driven by significant deposit inflows from March 2020 due to the impact of the COVID-19 pandemic. Trading assets decreased by £7.8 billion, 10%, to £69.0 billion mainly driven by reductions in reverse repos and cash collateral. Trading liabilities decreased by £1.7 billion, 2%, to £72.3 billion due to reductions in repos. Derivative assets were up £16.5 billion, 11%, to £166.5 billion, and liabilities, increased by £13.8 billion, 9% to £160.7 billion. These movements were driven by an increase in underlying volumes, together with an increase in mark-to-market driven by a downward shift in interest rate yields and FX rate fluctuation across major currencies in the year. Loans to customers - amortised cost, increased by £33.6 billion, 10%, to £360.5 billion including £13.4 billion in Retail Banking, as a result of strong new gross mortgage lending and retention, £7.0 billion in Commercial Banking as £12.6 billion drawdowns against UK Government lending schemes were partially offset by lower specialised business lending and increased loan provisions and £12.5 billion in Treasury as part of liquidity management. Other financial assets include debt securities, equity shares and other loans, decreased by £6.3 billion, 10%, to £55.1 billion, primarily driven by reductions in debt securities. Customer deposits increased by £62.5 billion, 17%, to £431.7 billion including increases of £21.5 billion in Retail Banking, £32.7 billion in Commercial Banking and £3.8 billion in Private Banking as customers retained liquidity in light of economic uncertainty, combined with the impact of government and central bank actions in response to COVID-19 schemes. Other financial liabilities, which includes customer deposits at fair value through profit and loss and debt securities in issue, increased by £0.6 billion, 1%, to £45.8 billion. Subordinated liabilities have remained at £9.9 billion. Reflecting new issuances of £1.6 billion and a reclassification from equity of £1.6 billion, offset by redemptions of £3.1 billion. Other liabilities decreased by £1.2 billion, 15%, to £6.4 billion mainly due to reductions in provisions and accruals in the year. Owners’ equity increased by £0.3 billion, 1%, to £43.8 billion, driven by a net increase in paid-in equity, partially offset by the loss for the year, paid-in equity dividends paid and redemption and reclassification of paid-in equity.

GRAPHIC

 

 Segment performance Retail Banking 20202019Variance Income statement£m£m£m Performance ratios Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 14.5% (15% prior to Q1 2020) of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes), assuming 28% tax rate. 20202019Variance Capital and balance sheet£bn£bn£bn 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 full year 2019 operating profit would have been to decrease total income by £44 million and other expenses by £8 million. The net impact on the Q4 2019 balance sheet would have been to decrease customer deposits by £0.2 billion. 2020 compared with 2019 Throughout 2020 Retail Banking helped approximately 258,000 customers with a mortgage repayment holiday and as at 31 December 2020 had 16,000 active mortgage repayment holidays, representing 1% of the book by volume. Additionally, approximately 17,000, or 2% of Retail Banking personal loan customers were active on repayment holidays as at Q4 2020. NatWest Group acquired a £3.0 billion prime UK mortgage portfolio from Metro Bank plc on 18 December 2020. The impact on full year 2020 operating profit was a £58 million loss on acquisition, a £2 million increase in net interest income and a £9 million increase in impairment losses. The impact on the Q4 2020 balance sheet was to increase net loans to customers by £3.0 billion and RWAs by £1.2 billion. The portfolio will be earnings accretive within two years. Total income was £685 million, or 14.1%, lower as regulatory changes and COVID-19 support measures impacted fee income, combined with lower deposit returns and unsecured balances, partially offset by strong balance growth in mortgages and customer deposits. Net interest margin decreased by 34 basis points reflecting the impact of the lower yield curve on deposit returns, lower unsecured balances and mortgage margin pressure, as front book margins were lower than back book margins. Operating expenses decreased by £1,078 million, or 29.8%. Other expenses decreased by £108 million, or 4.5%, reflecting a significant reduction in headcount, enabled by digital transformation benefits and increased digital adoption, lower fraud costs and COVID-19 slowing down investment spend. Litigation and conduct costs were £19 million. Impairment losses of £792 million largely reflect significant Stage two ECL uplifts taken in H1 2020 for expected future economic deterioration. Net loans to customers increased by £13.4 billion, or 8.4%, as a result of strong gross new mortgage lending and retention. Gross new mortgage lending was £31.5 billion with flow share of 13%, supporting a stock share of 10.9%, up from 10.2% at Q4 2019. Personal advances and cards reduced by £1.2 billion and £0.5 billion respectively reflecting lower spend and higher repayments due to COVID-19 restrictions. Customer deposits increased by £21.5 billion, or 14.3%, as UK Government backed initiatives for COVID-19, combined with restrictions, resulted in lower customer spend and increased savings. RWAs decreased by £1.1 billion, or 2.9%, supported by lower personal unsecured balances.

GRAPHIC

 

Business review Segment performance continued Ulster Bank RoI 2020 €m 2019 Variance 2020 £m 2019 Variance Income statement €m €m £m £m Performance ratios Notes: (1) Return on equity is based on segmental operating profit after tax adjusted for preference share dividends divided by average notional equity based on 15.5% (15% prior to Q1 2020) of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes), assuming a nil tax rate. (2) Ratios have been presented on an individual currency basis. Comparatives have been restated. 2020 €bn 2019 Variance 2020 £bn 2019 Variance Capital and balance sheet €bn €bn £bn £bn 2020 compared with 2019  (€25 million, or 4.7%), reflecting a 6.9% headcount reduction following the scale-down of functional teams and lower marketing, back office and project costs, partially offset by higher pension costs due to a one-off credit in 2019. Impairment losses of £250 million (€281 million) reflect the charges taken in the first half of 2020 which were significantly impacted by the uncertain economic environment created by the COVID-19 pandemic. Net loans to customers decreased by £0.2 billion, or 1.1% (€1.4 billion, or 6.5%), as repayments exceeded gross new lending of £1.8 billion (€2.1 billion), combined with a £0.2 billion (€0.3 billion) de-recognition of non-performing loans (NPLs) from a sale agreed in Q4 2019, and increased loan provisions, partially offset by FX movement. Customer deposits increased by £1.1 billion, or 5.9% (€0.1 billion, or 0.5%), due to a large one-off placement at the end of the year and FX movement, partially offset by earlier reductions in commercial balances due to pricing changes, including the implementation of negative rates on large and mid-sized corporate customers and non-bank financial institutions. RWAs decreased by £1.2 bilion, or 9.2% (€2.1 billion, or 13.7%), reflecting the impact of NPL de-recognitions and lower lending volumes. Following an extensive review and despite the progress that has been made, it has become clear Ulster Bank will not be able to generate sustainable long term returns for our shareholders. As a result, we are to begin a phased withdrawal from the Republic of Ireland over the coming years which will be undertaken with careful consideration of the impact on customers and our colleagues. Throughout the difficulties and uncertainties of 2020, Ulster Bank RoI has continued to support its customers through this period of COVID-19 related uncertainty by keeping its branches, cash and call centres open throughout and by making significant improvements to its digital platforms. During 2020 almost 18,000 payment breaks were provided, with 82% returning to payment arrangements as at 31 December 2020. Additionally, Ulster Bank RoI continued to support its commercial customers by providing them assistance with the Future Growth Loan and Credit Guarantee schemes initiated by the Irish government. Total income decreased by £57 million, or 10.1% (€73 million, or 11.3%), reflecting lower lending volumes and fee income due to the impact of COVID-19, lower FX gains, lower hedging income and a one-off swap breakage benefit in 2019. Net Interest margin decreased by 9 basis points due to the impact of negative rates on increased liquid assets. Operating expenses decreased by £66 million, or 12.0% (€82 million, or 13%). Other expenses decreased by £16 million, or 3.4%         NatWest Group Annual Report on Form 20-F 95 Loans to customers (amortised cost) - mortgages - other lending 16.0(0.8)(5%) 6.3(0.6)(10%) 13.60.11% 5.4(0.3)(6%) 15.2 13.7 5.7 5.1 Total loans to customers (amortised cost) Loan impairment provisions 20.9 22.3(1.4)(6%) (0.9) —— 18.8 19.0(0.2)(1%) (0.8)— — (0.9) (0.8) Net loans to customers (amortised cost) Total assets Funded assets Customer deposits Risk-weighted assets 20.0 21.4(1.4)(7%) 29.8(0.2)(1%) 29.8(0.2)(1%) 21.70.10% 15.3(2.1)(14%) 18.0 18.2(0.2)(1%) 25.41.25% 25.41.25% 18.51.16% 13.0(1.2)(9%) 29.6 26.6 29.6 26.6 21.8 19.6 13.2 11.8 Spot exchange rate - €/£ 1.175 1.113 Return on equity (1) (2) Net interest margin (2) Cost:income ratio (2) (11.7%) 2.3%(14.0%) 1.59%(0.09%) 97.4%(1.9%) (11.7%) 2.3%(14.0%) 1.59%(0.09%) 97.4%(2.1%) 1.50% 1.50% 95.5% 95.3% Net interest income Non-interest income 444 456(12)(3%) 191(61)(32%) 395 400(5)(1%) 167(52)(31%) 130 115 Total income 574 647(73)(11%) 510 567(57)(10%) Other costs Strategic costs Litigation and conduct costs (512) (537) 25 (5%) (68) 40 (59%) (25) 17 (68%) (454) (470) 16 (3%) (60) 35 (58%) (22) 15 (68%) (28) (25) (8) (7) Operating expenses (548) (630)82(13%) (486) (552)66(12%) Impairment (losses)/releases (281) 38(319)(839%) (250) 34(284)(835%) Operating (loss)/profit Average exchange rate - €/£ (255) 55(310)(564%) (226) 49(275)(561%) 1.141 1.125

 

 

Commercial Banking 20202019Variance Income statement£m£m£m Performance ratios Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 11.5% (12% prior to Q1 2020) of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes), assuming 28% tax rate. 2020 2019 Variance £bn £bn £bn Notes: Segment reporting for loans to customers for Large Corporates & Institutions (LC&I) includes the Western European business segment. Real estate includes commercial real estate and housing associations. Other includes shipping and project finance. 2020 compared with 2019 Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government’s financial support schemes. During 2020, £8.6 billion BBLS, £3.9 billion CBILS and £1.3 billion CLBILS had been approved. Since 22 March 2020 Commercial Banking provided payment holidays on over 74,000 customer accounts and as at 31 December 2020 had active payment holidays on c.11,000 customer accounts, representing 4% of the lending book by value. Total income decreased by £360 million, or 8.3%, reflecting lower deposit returns and subdued transactional business activity, combined with a £21 million increase in fair value and disposal losses, primarily through risk mitigation actions. Net interest margin decreased by 27 basis points reflecting the impact of the lower yield curve on deposit returns and increased liquidity portfolio costs from higher deposit volumes, partially offset by deposit repricing. Operating expenses decreased by £170 million, or 6.5%. Other expenses, excluding OLD, increased by £18 million, or 0.9%, as £80 million higher back office operations costs, increased innovation spend and £19 million lower VAT recoveries were partially offset by a headcount reduction of 1.0% following operating model efficiencies in the second half of 2019 and COVID-19 slowing down investment spend. Impairment losses of £1,927 million primarily reflect the deterioration of the economic outlook as a result of the COVID-19 pandemic driving significant stage two charges, with total stage three charges of £318 million, including a small number of single name charges. Net loans to customers increased by £7.0 billion, or 6.9%, as £12.6 billion drawdowns against UK Government lending schemes were partially offset by lower specialised business lending and increased loan provisions. Revolving credit facility (RCF) utilisation decreased to c.22% of committed facilities, below Q4 2019 pre-COVID-19 levels of c.27% and significantly lower than the peak of c.40% in April 2020. Customer deposits increased by £32.7 billion, or 24.2%, as customers built and retained liquidity in light of economic uncertainty combined with the impact of government and central bank actions in light of COVID-19. RWAs increased by £2.6 billion, or 3.6%, reflecting volume growth and £2.4 billion higher risk parameters, partially offset by a £0.8 billion reduction related to active capital management 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.

GRAPHIC

 

Private Banking 2020 2019 Variance £m £m £bn Performance ratios 2020 2019 Variance £bn £bn £bn Notes: Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 12.5% (13.0% prior to Q1 2020 and 13.5% prior to Q1 2019) of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes), assuming 28% tax rate. Comprises assets under management, assets under custody and investment cash. Private Banking manages assets under administration portfolios on behalf of Retail Banking and RBSI and receives a management fee for providing this service. 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 full year 2019 operating profit would have been to increase total income by £44 million and other expenses by £8 million. The net impact on the Q4 2019 balance sheet would have been to increase customer deposits by £0.2 billion. AUMs would have been £4.6 billion higher, with a corresponding decrease in AUAs. Variances in the commentary below adjusted for the impact of this transfer are also shown. 2020 compared with 2019 Private Banking remains committed to supporting clients through a range of initiatives, including the provision of mortgage and personal loan repayment deferrals in appropriate circumstances and via participation in the UK Government’s financial support schemes. During 2020, £58 million BBLS, £237 million CBILS and £44 million CLBILS had been approved. Total income decreased by £14 million, or 1.8%. Total income, including transfers, decreased by £58 million, or 7.1%, primarily reflecting lower deposit funding benefits and a reduction in fee income partially offset by balance sheet growth. Net Interest margin decreased by 35 basis points reflecting lower deposit funding benefits and higher liquidity portfolio costs. Operating expenses decreased by £31 million, or 6.4%, and other expenses increased by £27 million, or 6.2%. Other expenses, including transfers, increased by £19 million, or 4.3%, reflecting higher investment spend focused on enhancing the client proposition and a number of one-off items partially offset by lower back office operations costs. Impairment losses of £100 million primarily reflect stage one and two charges due to the deterioration of the economic outlook, with total stage three charges of £15 million. Net loans to customers increased by £1.5 billion, or 9.7%, supported by £0.7 billion of mortgage lending growth and £0.3 billion drawdowns against UK Government lending schemes. RWAs increased by £0.8 billion, or 7.9%, primarily reflecting increased lending volumes. Customer deposits increased by £4.0 billion or 14.1%. Customer deposits, including transfers, increased by £3.8 billion, or 13.3%, reflecting £2.3 billion of commercial inflows and £1.5 billion of personal inflows. AUMAs increased by £1.7 billion, or 5.6%, reflecting positive investment performance of £0.9 billion and net new money inflows of £0.8 billion, which were impacted by EEA resident client outflows following the UK’s exit from the EU.

GRAPHIC

 

RBS International 20202019Variance Income statement£m£m£m Performance ratios Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 16% of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). 20202019Variance Capital and balance sheet£bn£bn£bn 2020 compared with 2019 As at 31 December 2020, RBS International has supported 1,240 mortgage repayment breaks, reflecting a mortgage value of £268 million, and has provided financial support for 622 business customers with working capital facilities, reflecting a value of £588 million, while continuing to suspend a range of fees and charges for its personal and business customers. Total income decreased by £113 million, or 18.5%, 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 43 basis points due to lower deposit funding benefits as a result of central bank interest rate reductions. Operating expenses decreased by £27 million, or 10.2%. Other expenses were stable as front office non-staff cost reduction actions and a 5.6% headcount reduction were offset by a higher bank levy charge. Impairment losses of £107 million primarily reflect a more uncertain economic environment and refreshed staging and maturity date analysis. Net loans to customers decreased by £0.8 billion, or 5.7%, as customers repaid facilities to position themselves in the uncertain environment, partially offset by increased investment activity in the latter part of 2020. Customer deposits increased by £1.2 billion, or 3.8%, due to short term placement inflows across both Institutional and Local Banking. RWAs increased by £1.0 billion, or 15.4%, due to customer maturities and higher lending facilities in the wholesale sector.

GRAPHIC

 

NatWest Markets(1) 20202019Variance Income statement£m£m£m Performance ratios 2020 2019 Variance £bn £bn £bn Notes: 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. 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. Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 15% of the period average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes), assuming 28% tax rate. 2020 compared with 2019 NatWest Markets has made significant progress in reshaping the business for the future and advancing its transformation to deliver the refocused strategy announced in February 2020. As progress has been made against the strategy, RWAs have reduced and the business is ahead of its plan to achieve the medium-term reduction to £20 billion. By accelerating its transformation to become a more integrated and sustainable part of NatWest Group, NatWest Markets has focussed on what it does best and what matters to NatWest Group’s customers. The product offering has been simplified and in Q2 2020 NatWest Markets entered an agreement with BNP Paribas to provide ‘house’ Futures and associated back office services. NatWest Markets has consolidated certain customer coverage teams and services and functional teams with their counterparts from across NatWest Group, enhancing our collaborative approach to customers. Total income decreased by £219 million, or 16.3%, reflecting the £444 million Alawwal bank merger gain in 2019 and an increase in disposal losses of £48 million partially offset by stronger business performance in the current year. Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £217 million, or 21.4%, reflecting a strong performance over the year, particularly in the first half of 2020 as customer activity increased as the market reacted to the spread of the COVID-19 virus. Operating expenses decreased by £108 million, or 7.6%. Other expenses decreased by £140 million, or 11.9%, reflecting continued reductions in line with the strategic announcement in February 2020. Impairment losses of £40 million reflect the impact of stage two charges taken in the first half of 2020 compared with a net impairment release of £51 million in the prior year for a small number of legacy cases. RWAs decreased by £11.0 billion, or 29.0%, as market risk and counterparty credit risk decreased by £3.6 billion and £3.5 billion respectively and credit risk decreased by £3.4 billion as the business exceeded its target for RWA reductions over the course of 2020.

GRAPHIC

 

 2020 2019 Variance £m £m £m Funding and operating costs have been allocated to operating segments based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one segment. Residual unallocated items relate to volatile corporate items that do not naturally reside within a segment. 2020 compared with 2019 Central items not allocated represented a £655 million operating loss in 2020 principally reflecting the day one loss on redemption of own debt of £324 million related to the repurchase of legacy instruments, property related strategic costs, litigation and conduct charges and other treasury income. 2019 included £1,459 million of FX recycling gains, a £169 million reimbursement under indemnification agreements relating to US residential mortgage-backed securities (RMBS) and strategic costs of £449 million, which were mainly property related.

GRAPHIC

 

 

Our Board 2 3 Re A RiN S Re A N Re S Ri Re 8 TS Re Underlined Group Audit Committee Group Nominations and Governance Committee Group Performance and Remuneration Committee Committee Chairman RiGroup Board Risk Committee Group Sustainable Banking Committee Technology and Innovation Committee 1 Howard Davies N Appointed: 14 July 2015 (Board), 1 September 2015 (Chairman) Experience: Howard was a non-executive director of Prudential plc from 2010 to 2020; Chair of the UK Airports Commission between 2012 and 2015; Chairman of Phoenix plc from 2012 to 2015; Director of the London School of Economics and Political Science from 2003 until May 2011; Chairman of the UK Financial Services Authority from 1997 to 2003; and Deputy Governor of the Bank of England from 1995 to 1997. He is also Professor of Practice at the Paris Institute of Political Science (Sciences Po) and author of several books on financial subjects. External appointments: Member of the Regulatory and Compliance Advisory Board of Millennium Management LLC; Chair of the International Advisory Council of the China Securities Regulatory Commission; Member of the International Advisory Council of the China Banking and Insurance Regulatory Commission; and Chairman of Inigo Limited. across the UK, and sponsors the bank’s employee-led networks. External appointments: Alison sits on the board of directors for the Institute of International Finance and is a member of the International Business Council for the World Economic Forum. Alison is a non-executive director of Great Portland Estates plc and sits on the board of the Coutts Charitable Foundation. 3 Katie Murray Appointed: 1 January 2019 Experience: Katie joined NatWest Group as Director of Finance in November 2015 and was appointed as Deputy Chief Financial Officer in March 2017. She was appointed as Chief Financial Officer in January 2019. Katie has worked in Finance and Accounting for nearly 30 years with experience in capital management, investor relations, financial planning and all areas of financial services. Katie was previously the Group Finance Director for Old Mutual Emerging Markets, based in Johannesburg from 2011 to 2015, having held various roles across Old Mutual from 2002. Prior to this Katie worked at Executive Officer of France Telecom. Prior to that he was Chairman of SG Warburg France and Managing Director of SG Warburg. Frank is a graduate of HEC and IEP in Paris and of Harvard Law School in the US. External appointments: Chairman of NortonLifeLock Inc; non-executive director of Arqiva Group Limited; and non-executive director of IHS Towers. Patrick Flynn ARiTN Appointed: 1 June 2018 Experience: Previously, Patrick was the Chief Financial Officer and a member of the Executive Board of ING Group from April 2009 to May 2017, and prior to that, he worked for HSBC for 20 years. Patrick is a Fellow of Chartered Accountants Ireland. External appointments: Senior independent director of Aviva plc and member of the Remuneration, Risk and Nominations Committees and Chair of the Audit Committee. Morten Friis RiAN Appointed: 10 April 2014 KPMG for 13 years. Experience: Prior to being appointed to the 2 Alison Rose Appointed: 1 November 2019 Experience: Alison has worked at NatWest Group for 27 years. Prior to her current role, Alison was Deputy CEO of NatWest Holdings and CEO of the Commercial and Private Banking business. She has held a number of senior roles across NatWest Group including Head of Europe, Middle East and Africa, Markets & International Banking, Global Head of International Banking Capital and Balance Sheet and Head of Leveraged Finance. Alison was invited by the UK Government to lead a review of the barriers to women starting a business and launched The Rose Review in March 2019. Alison also champions NatWest’s Entrepreneur Accelerator programme, an innovative Katie is a Chartered Accountant having trained in Scotland and is a member of the Institute of Chartered Accountants in Scotland. External appointments: None. Independent non-executive directors 4 Frank Dangeard ReT Appointed: 16 May 2016 Experience: Frank assumed the role of Chairman, NatWest Markets Plc on 30 April 2018. Previously, Frank served as a non-executive director of Crédit Agricole CIB, EDF, Home Credit, Orange, Sonaecom SGPS, and as Deputy Chairman and acting Chairman of Telenor ASA. During his executive career he held various roles at Board, Morten had a 34 year financial services career. He held various roles at Royal Bank of Canada and its subsidiaries including Associate Director at Orion Royal Bank; Vice President, Business Banking; and Vice President, Financial Institutions. In 1997, he was appointed as Senior Vice President, Group Risk Management and served as the Chief Credit Officer, then Chief Risk Officer, from 2004 to 2014. He was also previously a Director of RBC Bank (USA); Westbury Life Insurance Company; RBC Life Insurance Company; and RBC Dexia Investor Services Trust Company. External appointments: Member of the board of directors of the Harvard Business School Club of Toronto; and non-executive director of Jackson National Life Insurance Company. initiative supporting start-up businesses Thomson S.A., including Chairman and Chief Executive Officer, and was Deputy Chief

GRAPHIC

 

Our Board 7 Robert Gillespie Re ARiN External appointments: Non-executive 11 Lena Wilson, CBES RiRe Appointed: 2 December 2013 Experience: Robert had a long career in investment banking, specialising in corporate advisory work. He was Director General of the Takeover Panel from 2010 until 2013 and prior to that held a number of senior management positions at UBS including director of Guardian Media Group plc and member of its Remuneration Committee, and non-executive director of Nation Media Group Ltd and Chair of its HR and Remuneration Committee and member of its Strategy and Investment Committee. Appointed: 1 January 2018 Experience: Lena is an experienced CEO with an international career, who spent a significant proportion of her executive career with Scottish Enterprise, latterly as Chief Executive from 2009 until 2017. Prior to that, Lena held the role of Senior Investment being global head of investment banking 9 Mike Rogers SRe Advisor to The World Bank in Washington from 1999 until 2005, Chief Executive of UBS for EMEA from 2004 to 2006 and Vice Chairman of UBS Investment Bank from 2005 to 2008. He commenced his career at Price Waterhouse where he qualified as a Chartered Accountant and in 1981 joined S.G. Warburg which subsequently became part of UBS. External appointments: Chairman of the Boat Race Company Limited; non-executive director of Social Finance Limited; and non-executive director of Burford Capital Limited andamemberofitsAuditCommittee. Appointed: 26 January 2016 Experience: Mike was previously Chief Executive of Liverpool Victoria Group for 10 years. Mike has extensive experience in retail banking and financial services. He joined Barclays in 1986 where he undertook a variety of roles in the UK and overseas across business banking, wealth management and retail banking and was Managing Director of Small Business, Premier Banking and UK Retail Banking. External appointments: Chairman of Experian plc and Chairman of Aegon UK plc. DC. She is a visiting Professor at the University of Strathclyde and has previously served as a member of Scotland's Financial Services Advisory Board and as Chair of Scotland's Energy Jobs Taskforce. In June 2015 she received a CBE for services to economic development in Scotland. Lena chairs the Colleague Advisory Panel established by NatWest Group in 2018. External appointments: Non-executive director of Scottish Power Renewables Limited, visiting Professor, University of Strathclyde Business School and Senior Independent Director and Chair of the 8 Yasmin Jetha TS 10 Mark Seligman A NRe Nominations Committee of Argentex Group Appointed: 1 April 2020 Experience: During her executive career, Yasmin held Chief Information Officer roles at Bupa and also the Financial Times, where she became the Chief Operating Officer. She previously had a career spanning nearly 20 years at Abbey National PLC, latterly serving as an executive director on the board. In addition to being Vice Chair of the Board of Governors at the University of Bedfordshire from 2008 to 2011, Yasmin also served for over ten years, until April 2017, as Vice Chair of the National Committee of the Aga Khan Foundation (UK) Ltd, a non-denominational charity. Yasmin holds a Master of Science in Management Science from Imperial College London and a Bachelor of Science in Mathematics from the University of London. She is a Fellow of the Chartered Institute of Management Accountants, was awarded an honorary Doctor of Laws degree by the University of Leicester in 2005 and was made an honorary Fellow of the University of Bedfordshire in 2011. Appointed: 1 April 2017; Senior Independent Director since 1 January 2018 Experience: Mark is a former senior investment banker with broad financial services knowledge, has substantial FTSE 100 Board experience gained in various industry sectors, including as a Committee Chair and Senior Independent Director. During his executive career, he held various senior roles at Credit Suisse/BZW (including Deputy Chairman, CSFB Europe and Chairman, UK Investment Banking, CSFB); and previously SG Warburg (ultimately as Managing Director, Head of Advisory). He has also previously served as a non-executive Director of BG Group plc, as Deputy Chairman of G4S plc and as Senior Independent Director of Kingfisher plc. External appointments: Non-executive director and Chairman of the Audit Committee of Smiths Group plc. plc. Chair of the Advisory Board of Turtle Pack Limited and Chair of Chiene + Tait LLP. Chair and non-executive director of Picton Property Income Limited. Chief Governance Officer and Company Secretary 12 Jan Cargill Appointed: 5 August 2019 Experience: Jan is a chartered company secretary with over 20 years corporate governance experience. She was appointed Chief Governance Officer and Company Secretary in 2019, and prior to that held various roles in the legal and secretariat functions, including Head of Board and Shareholder Services. Jan has a law degree and is a Fellow of the Chartered Banker Institute. She is also an Associate of The Chartered Governance Institute and has an INSEAD Certificate in Corporate Governance.

GRAPHIC

 

Corporate governance Dear Shareholder, I am pleased to present the Corporate governance report for 2020. 2020 has been an extraordinary year. As the UK entered a national lockdown in March, our Board transitioned swiftly and smoothly to frequent virtual meetings. The Group Chief Executive Officer (Group CEO) and wider executive management team kept the Board informed on our pandemic response, supporting effective Board oversight and challenge as the organisation pivoted its operations at pace, focusing on our customers’ financial health, prioritising colleague safety and wellbeing, and helping our local communities. NatWest Group has made great strides as it focuses on becoming a purpose-led organisation. As a Board, we are working hard to embed our purpose in Board discussions and decision-making, ensuring different stakeholder needs are considered. Our section 172(1) statement on page 52 provides further information on our approach and includes case study examples. Further details on how the Board operated during 2020, including principal areas of Board focus, are set out on page 105. Board and committee changes Page Our Board 101 Corporate governance 103 Report of the Group Nominations and Governance Committee 110 Report of the Group Audit Committee 111 Report of the Group Board Risk Committee 116 Report of the Group Sustainable Banking Committee 120 Report of the Technology and Innovation Committee 122 Directors’ remuneration report 123 Compliance report 155 Report of the directors 158 Statement of directors’ responsibilities 161 On 1 April 2020 Yasmin Jetha re-joined the Board of NatWest Group plc, having first been appointed in June 2017. Yasmin stepped down in April 2018 in order to serve solely as a director of our key ring-fenced entities, and, like the majority of our directors, she continues to serve on these boards in addition to the Board of NatWest Group plc. The following Board Committee chair and membership changes were also made during 2020:-On 1 April 2020 Yasmin Jetha was appointed Chair of the Technology and Innovation Committee and joined the Group Sustainable Banking Committee. On 1 August 2020 Morten Friis assumed the Chair of the Group Board Risk Committee and joined the Group Nominations & Governance Committee. Lena Wilson stepped down as a member of the Technology and Innovation Committee on 31 March 2020; and joined the Group Performance and Remuneration Committee on 1 April 2020 and the Group Board Risk Committee on 1 August 2020. Robert Gillespie stepped down as a member of the Group Sustainable Banking Committee on 31 July 2020 and joined the Group Audit Committee on 1 August 2020. Board effectiveness In 2020, the Board and Committee evaluation was conducted by the Chief Governance Officer and Company Secretary. The review concluded that the Board and its Committees continue to operate effectively and within their terms of reference. Further information on the 2020 internal evaluation can be found on page 108. UK Corporate Governance Code 2018 All directors are committed to observing high standards of corporate governance, integrity and professionalism. Information on how the company has applied the Principles and complied with the Provisions of the UK Corporate Governance Code 2018 (the Code) can be found in this Corporate governance report under the Code’s 5 main section headings. A formal statement of compliance with the Code can be found on page 155. In conclusion I would like to thank my fellow Board members for their resilience and dedication throughout what has been an exceptional year. Howard Davies Chairman of the Board 19 February 2021

GRAPHIC

 

Corporate governance Board and Committee meetings The table below shows Board and Committee membership and directors’ attendance at scheduled meetings during 2020. There were six scheduled Board meetings during 2020, the same number as in 2019. In addition to scheduled meetings, additional meetings of the Board and its Committees were held on an ad hoc basis throughout the year to receive updates and deal with time-critical matters. There were 16 additional Board meetings held in 2020 compared to 6 additional meetings held in 2019. In response to the COVID-19 pandemic, the Board met virtually on a weekly basis in the initial stages, later moving to fortnightly and this accounted for 10 of the 16 additional meetings held in 2020. The following number of ad hoc Board Committee meetings also took place: one N&G meeting, two GAC meetings, three BRC meetings, two SBC meetings, one TIC meeting and eight RemCo meetings. In accordance with the Code, the Chairman and the non-executive directors met at least once without executive directors present. Group Group Group Nominations Sustainable Technology Performance and and Governance Group Audit Group Board Banking and Innovation Remuneration Committee Committee Risk Committee Committee Committee Committee Board (N&G) (GAC) (BRC) (SBC) (TIC) (RemCo) Notes: Morten Friis assumed the role of BRC Chair and was appointed to N&G on 1 August 2020. Robert Gillespie stepped down from SBC on 31 July 2020 and was appointed to GAC on 1 August 2020. Yasmin Jetha was appointed to the Board, SBC and TIC and assumed the role of TIC Chair on 1 April 2020. Lena Wilson stepped down from TIC on 31 March 2020, was appointed to RemCo on 1 April 2020 and appointed to BRC on 1 August 2020. Alison Davis resigned from the Board on 31 March 2020. Baroness Noakes resigned from the Board on 31 July 2020.

GRAPHIC

 

 How the Board operated in 2020 In March, reflecting the scale of the pandemic and lockdown restrictions, the Board’s operating rhythm was revised to facilitate regular updates from the Group CEO and executive management team. A cycle of weekly meetings, later moving to fortnightly, supplemented the Board’s scheduled meetings, and all meetings took place virtually. At each scheduled Board meeting the directors received reports from the Chairman, Board Committee Chairs, Group CEO, Group Chief Financial Officer (Group CFO) and other members of the executive management team, as appropriate. Other senior executives attended Board meetings throughout the year to present reports to the Board. This provided the Board with an opportunity to engage directly with management on key issues and supports succession planning. During 2020 there was continued focus on the Board and Group Executive Committee (ExCo) operating rhythm to support a proactive and transparent agenda planning and paper preparation process. This process includes the following key elements:-A pre-Board meeting with the Chairman, Group CEO, Group CFO and Chief Governance Officer and Company Secretary to ensure the Board and executive management are aligned on Board agendas. A post Board meeting with the Chairman, Group CEO and Chief Governance Officer and Company Secretary, to discuss what went well/could be improved after each meeting. A look ahead paper at each ExCo and Board meeting setting out key items that will be discussed at the next meeting. Principal areas of Board focus in 2020 As in 2019, a short set of Board Objectives was adopted, closely aligned to our purpose and strategic priorities. These have supported agenda planning and helped to guide how the Board spends its time, ensuring appropriate focus on the longer-term and strategic issues. An overview of the principal areas of Board focus during 2020 is set out below:-Purpose and Strategy Strategy development and implementation Consideration and approval of new purpose Company change of name Purpose and progress against external sustainability commitments Customers COVID-19 updates Business reviews from main customer businesses Customer experience Colleagues COVID-19 updates Executive appointments and executive succession planning Talent session Colleague opinion survey results Culture Banking Standards Board (BSB) culture assessment report Modern Slavery and Human Rights statements Risk & Conduct COVID-19 updates Risk reports Regulatory submissions Risk appetite framework Financial COVID-19 updates Capital distributions Financial plans (budget, cost and investment and scenario planning) Brexit updates Annual and quarterly results IFRS9 Legal, Governance & Regulatory Annual General Meeting (AGM) arrangements Board evaluation outcomes and Board objectives Legal and regulatory reports Material regulatory correspondence Annual review of the governance framework and terms of reference for the Board and its Committees The Board also held two strategy sessions with the executive management team, in June and October 2020. This provided an opportunity for the Board to assess opportunities and risks to the future success of the business, the sustainability of the company’s business model and how its governance contributes to the delivery of its strategy. Subsidiary governance and ring-fencing NatWest Group plc is a listed company with equity listed on the London and New York stock exchanges. NatWest Holdings Limited (NWH) is the holding company for our ring-fenced operations, which include our retail, commercial and wealth management services. A common board structure is operated such that directors of NWH are also directors of The Royal Bank of Scotland plc, National Westminster Bank Plc and Ulster Bank Limited. Known collectively as the NWH Sub Group, the boards of these four entities meet concurrently. An integral part of NatWest Group’s governance arrangements is the appointment of three Double Independent Non-Executive Directors (DINEDs) to the boards, and board committees, of the NWH Sub Group. The DINEDs are independent in two respects: independent of management as non-executives; and independent of the rest of NatWest Group by virtue of their NWH Sub Group-only directorships. The DINEDs play a critical role in NatWest Group’s ring-fencing governance structure, and are responsible for exercising appropriate oversight of the independence and effectiveness of the NWH Sub Group’s governance arrangements, including the ability of each board to take decisions independently. The DINEDs attend NatWest Group plc Board meetings in an observer capacity. The governance arrangements for the boards and board committees of NatWest Group plc and the NWH Sub Group have been designed to enable NatWest Group plc to exercise appropriate oversight and to ensure that, as far as is reasonably practicable, the NWH Sub Group is able to take decisions independently of the wider Group. NatWest Markets supports NatWest Group’s corporate and institutional customers through NatWest Markets Plc and its subsidiaries. RBS International serves retail, commercial and corporate customers and financial institutions and operates through The Royal Bank of Scotland International (Holdings) Limited and its subsidiaries. The Group Nominations and Governance Committee monitors the governance arrangements of NatWest Group plc and its subsidiaries and approves appointments to the boards of principal and material regulated subsidiaries, as described in the Group Nominations and Governance Committee report on page 110.

GRAPHIC

 

 

 2018 UK Corporate Governance Code Throughout the year the company has applied the Principles and complied with the Provisions of the Code, except in relation to: Provision 17 that the Group Nominations and Governance Committee should ensure plans are in place for orderly succession to both the board and senior management positions and oversee the development of a diverse pipeline for succession; and Provision 33 that the Group Performance and Remuneration Committee should have delegated responsibility for setting remuneration for the Chairman and executive directors. In both instances, the Board considers that these are matters which should rightly be reserved for the Board, as set out in more detail in our statement of compliance on page 155. In addition, the Board has delegated two particular aspects of the Code’s provisions to Board Committees, with regular updates provided to the Board as appropriate: The Group Audit Committee retains responsibility for reviewing and monitoring NatWest Group’s whistleblowing procedures. The Group Sustainable Banking Committee considers key workforce policies and practices (not related to pay) to ensure they are consistent with NatWest Group’s values and support long-term sustainable success. For further information please refer to the relevant Committee reports on the following pages. Further information on how the company has applied the Principles and complied with the Provisions of the Code is set out below under the Code’s 5 main section headings. Board leadership and company purpose Role of the Board The Board is collectively responsible for promoting the long-term sustainable success of the company, driving both shareholder value and contribution to wider society. The Board’s role is to provide leadership of the company within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board establishes NatWest Group’s purpose, values and strategy and leads the development of NatWest Group’s culture. The Board sets the strategic aims of the company and its subsidiaries, ensures that the necessary resources are in place for NatWest Group to meet its objectives, is responsible for the raising and allocation of capital and reviews business and financial performance. It ensures that the company’s obligations to its shareholders and other key stakeholders are understood and met. The Board terms of reference include a formal schedule of matters specifically reserved for the Board’s decision and are reviewed at least annually. They are available on natwestgroup.com. Board Committees The Board has established a number of Board Committees with particular responsibilities. Please refer to page 69 of the Strategic report for more details. Board committee terms of reference are available on natwestgroup.com. Purpose, values, strategy and culture In February 2020, and following an extensive period of stakeholder engagement, the Board approved NatWest Group’s purpose and strategy. Our purpose has been a galvanising force across the organisation as our response to the pandemic has evolved, acting as an important point of reference during Board discussions, debate and decision-making. In October 2020 the Board received an update on NatWest Group’s progress in becoming a purpose-led bank, covering achievements to date and future priorities. Further information on progress against our purpose and strategic priorities can be found on pages 10 to 11 of the Strategic report. The Board is responsible for leading the development of NatWest Group’s culture, values and standards. The Board assesses and monitors NatWest Group’s culture in several ways. In February 2020, representatives from the BSB joined a Board meeting to present the results of their 2019 industry-wide survey and thematic reports, together with their 2019 Assessment report on NatWest Group. The Board also discussed an internal review of the BSB’s thematic reports on ‘Technology & Culture’ and ‘Decision-Making’ from a NatWest Group perspective, including impacts for customers and employees. In December 2020, the Group Sustainable Banking Committee considered a summary of the results of the BSB’s 2020 Assessment report on NatWest Group, in advance of a presentation by the BSB to the Board in February 2021 The Group Sustainable Banking Committee held a dedicated people and culture session in December 2020 which included culture measurement reporting, and this in turn helped to support the Board on assessing progress on building a healthy culture, and alignment between culture and purpose across NatWest Group. For further information on the work of the Group Sustainable Banking Committee, refer to pages 120 to 121. Colleague opinion survey results were another useful culture oversight tool available to the Board. Directors considered the results of colleague pulse surveys conducted in May and June, and in October 2020, reviewed the results of the annual colleague opinion survey, Our View. Key themes noted and discussed by the Board were culture, inclusion, capability, resilience and wellbeing (including financial wellbeing and colleague advocacy). In December, as part of a spotlight on colleagues, the Board received an update on future ways of working and how this might evolve in a way that is consistent with our purpose and strategy; continues to support colleagues; drives greater collaboration; and supports the long-term sustainability of NatWest Group. Directors are mindful of their responsibility to set the ‘tone from the top’ and take every opportunity to role model the desired culture both within the boardroom and beyond. While opportunities for face to face interaction with colleagues were significantly curtailed during 2020, directors continued to engage with colleagues virtually where possible, for example through Colleague Advisory Panel events, Committee function visits and a virtual talent engagement session. The activities described above have supported the Board in meeting the Code requirement to satisfy itself that the company’s purpose, values, strategy and culture are aligned. Stakeholder engagement In February 2020, the Board approved its annual objectives and confirmed the Board’s key stakeholder groups. The Board’s agenda and engagement plans were structured to enhance the Board’s understanding of these stakeholders’ views and interests. This in turn has informed Board discussions and decision-making. NatWest Group’s Colleague Advisory Panel was set up in 2018 to help promote colleague voices in the boardroom and supports our compliance with Code requirements in relation to Board engagement with the workforce. For further details on Board engagement with shareholders and other stakeholders, including how planned engagement activity was adapted in light of COVID-19 restrictions and the role and activities of the Colleague Advisory Panel, refer to the section 172(1) statement on page 52 of the Strategic report.

GRAPHIC

 

 The effectiveness of Board stakeholder engagement mechanisms is considered during the annual Board evaluation. Further details of the outputs of the 2020 evaluation in relation to stakeholder engagement can be found on page 108. Further details on NatWest Group’s approach to investing in and rewarding its workforce can be found on page 61 of the Strategic report (Our Colleagues). Workforce policies and practices As referred to above, the Board has delegated certain Code provisions to Board Committees, with regular updates to the Board on relevant issues. The Group Sustainable Banking Committee considers key workforce policies and practices (not related to pay) to ensure they are consistent with NatWest Group’s values and support long term sustainable success. The Group Audit Committee retains responsibility for reviewing and monitoring NatWest Group’s whistleblowing procedures. Further details on Speak Up, NatWest Group’s whistleblowing service, can be found on page 62 of the Strategic report. Conflicts of interest The Directors’ Conflicts of Interest policy sets out procedures to ensure that the Board’s management of conflicts of interest and its powers for authorising certain conflicts are operating effectively. Each director is required to notify the Board of any actual or potential situational or transactional conflict of interest and to update the Board with any changes to the facts and circumstances surrounding such conflicts. Situational conflicts can be authorised by the Board in accordance with the Companies Act 2006 and the company’s Articles of Association. The Board considers each request for authorisation on a case by case basis and has the power to impose conditions or limitations on any authorisation granted as part of the process. Details of all directors’ conflicts of interest are recorded in a register which is maintained by the Chief Governance Officer and Company Secretary and reviewed annually by the Board. Division of responsibilities The Board has 11 directors comprising the Chairman, two executive directors and eight independent non-executive directors, one of whom is the Senior Independent Director. Director biographies and details of the Board Committees of which they are members can be found on pages 101 and 102. Non-executive director independence The Board considers that the Chairman was independent on appointment and that all current non-executive directors are independent for the purposes of the Code. Chairman and Group CEO The role of Chairman is distinct and separate from that of the Group CEO and there is a clear division of responsibilities, with the Chairman leading the Board and the Group CEO managing the business day to day. Senior Independent Director Throughout 2020, Mark Seligman, as Senior Independent Director, acted as a sounding board for the Chairman, and as an intermediary for other directors when necessary. He was also available to shareholders to discuss any concerns they may have had, as appropriate. Non-executive directors Along with the Chairman and executive directors, the non-executive directors are responsible for ensuring the Board fulfils its responsibilities under its terms of reference. The non-executive directors combine broad business and commercial experience with independent and objective judgement. They provide constructive challenge, strategic guidance, and specialist advice to the executive directors and the executive management team and hold management to account. The balance between non-executive and executive directors enables the Board to provide clear and effective leadership across NatWest Group’s business activities and ensures no one individual or small group of individuals dominates the Board’s decision-making. The Chairman and non-executive directors meet at least once every year without the executive directors present. Details of the key responsibilities of the Chairman, Group CEO, Senior Independent Director and non-executive directors are available on natwestgroup.com. The performance of the Chairman and non-executive directors is evaluated annually and further details of the process undertaken can be found on page 109. Chief Governance Officer and Company Secretary The Chief Governance Officer and Company Secretary, Jan Cargill, works closely with the Chairman to ensure effective and efficient functioning of the Board and appropriate alignment and information flows between the Board and its Committees. The Chief Governance Officer and Company Secretary is responsible for advising the Board and individual directors on all governance matters, and also facilitates Board induction and directors’ professional development. Executive Management The Group CEO is supported by Group ExCo, which considers strategic, financial, capital, risk and operational issues affecting NatWest Group and reviews relevant matters in advance of Board submission. Group ExCo’s membership comprises the Group CEO, Group CFO and the Group Chief Risk Officer; who are also members of the wider executive management team. Biographies of the executive management team can be found on natwestgroup.com. Time commitment It is anticipated that non-executive directors will allocate sufficient time to the company to discharge their responsibilities effectively and will devote such time as is necessary to fulfil their role. Directors have been briefed on the limits on the number of other directorships that they can hold under the requirements of the fourth Capital Requirements Directive. The Code emphasises the importance of ensuring directors have sufficient time to meet their board responsibilities. Prior to appointment, significant commitments require to be disclosed with an indication of the time involved. External appointments require prior Board approval, with the reasons for permitting significant appointments explained in the annual report. No such disclosures are required for 2020. The Board continues to monitor the commitments of the Chairman and directors and is satisfied that they are able to allocate sufficient time to enable them to discharge their duties and responsibilities effectively. Information All directors receive accurate, timely and clear information on all relevant matters and have access to the advice and services of the Chief Governance Officer and Company Secretary. In addition, all directors are able, if necessary, to obtain independent professional advice at the company’s expense. The format for Board and Board Committee papers was further enhanced during 2020 and now includes a dedicated section which explains how the proposal or update aligns to our purpose, alongside existing sections detailing stakeholder impacts. This ensures that due consideration is given to our purpose and our stakeholders in the boardroom and supports the Board’s oversight of NatWest Group’s progress and performance as a purpose-led organisation.

GRAPHIC

 

 Induction and professional development Each new director receives a formal induction on joining the Board, which is co-ordinated by the Chief Governance Officer and Company Secretary and tailored to suit the requirements of the individual concerned. This includes visits to NatWest Group’s major businesses and functions and meetings with directors and senior management. Meetings with external auditors, counsel and stakeholders are also arranged as appropriate. All new directors receive a copy of the NatWest Group Director Handbook. The Handbook operates as a consolidated governance support manual for directors of NatWest Group plc and the NWH Sub Group, providing both new and current directors with a single source of information relevant to their role. It covers a range of topics including NatWest Group’s corporate structure; the Board and Board Committee operating model; Board policies and processes and a range of technical guidance on relevant matters including directors’ duties, conflicts of interest, and the UK Senior Managers’ Regime. The Handbook forms part of a wider library of reference materials available via our resources portal. Directors have access to a wide range of briefing and training sessions and other professional development opportunities. Internal training relevant to the business of NatWest Group is also provided. Directors undertake the training they consider necessary to assist them in carrying out their duties and responsibilities. The non-executive directors discuss their training and professional development with the Chairman at least annually. With significant demands on Board time due to COVID-19, our Board training programme prioritised key areas of focus including financial crime and climate. Composition, succession and evaluation The Board is structured to ensure that the directors provide NatWest Group plc with the appropriate combination of skills, experience and knowledge as well as independence. Given the nature of NatWest Group’s businesses, experience of banking and financial services is clearly of benefit, and the Board has a number of directors with substantial experience in that area, including retail and commercial banking. In addition, the directors have relevant experience in customer service; government and regulatory matters; mergers and acquisitions; corporate recovery, resolution and insolvency; stakeholder management; environmental, social and governance, technology, digital and innovation; finance and accountancy; risk; and change management. Board Committees also comprise directors with a variety of skills and experience so that no undue reliance is placed on any one individual. Further information on Board appointments and succession planning can be found in the Group Nominations and Governance Committee report on page 110. Election and re-election of directors In accordance with the provisions of the Code, all directors stand for election or re-election by shareholders at the company’s AGM. In accordance with the UK Listing Rules, the election or re-election of independent directors also requires approval by a majority of independent shareholders. 2020 Board Evaluation In accordance with the Code, an external evaluation of the Board, its Committees and individual directors takes place every three years. An internal evaluation takes place in the intervening years. The last external evaluation was conducted in 2018. Progress following the 2019 evaluation A number of actions were progressed during 2020 in response to the findings of the 2019 internal performance evaluation. A set of Board objectives was agreed for the year. Similar to 2019, these guided agenda planning and helped to ensure appropriate focus on the longer-term and strategic issues. A comprehensive review of Board composition and succession planning was carried out by the Group Nominations and Governance Committee, including a review of the Board skills matrix and the overall balance of skills, knowledge, experience and diversity on the Board. Following this review, the Board approved the Board and Board Committee membership changes described earlier in this report. These changes addressed a number of focus areas identified during the 2019 evaluation, including reducing Board size, adding technology experience to the Board and improving Board diversity. Management reporting changes were introduced to provide consistent and concise information on key metrics and trends to the Board to support more focussed debate. Board paper templates were further enhanced to support purpose alignment. A virtual talent session enhanced the Board’s visibility of the executive talent pipeline. 2020 Performance evaluation The 2020 Board evaluation was internally facilitated by the Chief Governance Officer and Company Secretary, Jan Cargill, during Q4 2020. The process included: holding 1:1 interviews with directors; discussing key findings and recommendations for action with the Chairman; and presenting a final report to the Board. Key findings and recommendations The conclusion of the 2020 Board evaluation was that the Board operated effectively throughout the year and fulfilled its remit as set out in its terms of reference. Directors engaged fully with the evaluation exercise and commented positively in relation to many aspects of the Board’s operations. Key findings and recommendations included the following COVID-19 response - Directors felt that management had responded well to the pandemic. The Board had been kept regularly informed throughout, providing constructive challenge and support as appropriate, and virtual board meetings had worked efficiently. Purpose and strategy – Directors agreed that NatWest Group’s purpose was clear and compelling, and that it was starting to embed and guide Board discussions and decision-making. The annual Board objectives were considered useful, but directors said a shorter list of focus items would be more impactful. Board stakeholder engagement – Engagement activity during the year had been worthwhile, despite limited opportunities for face to face meetings. Board sessions with institutional investors had been particularly useful, and the Colleague Advisory Panel was working well. Directors were keen to explore different options to engage with customers and understand their views. They were also interested in deeper customer insights and further focus on key supplier relationships. Board composition and succession planning – The majority of directors felt the Board is now right-sized with no material skills gaps. Directors expressed a desire for greater visibility of ExCo successors. Board culture and dynamics – The 2019 evaluation had identified Board dynamics as an area for further improvement. In 2020, directors commented positively on Board culture and dynamics, noting an improvement over the past 12 months. Relationships were considered to be good, although directors missed the opportunity for informal interaction due to COVID-19 restrictions. Directors felt the balance of responsibilities between the Board and Board Committees was appropriate. How the Board operates - The Board’s operating rhythm and increased meeting frequency had worked well. Directors expressed an interest in more in-depth business discussions and some observed there was scope to streamline Committee Chair reporting. Directors appreciated the enhanced approach to management reporting and observed that Board paper templates continued to drive better and shorter papers.

GRAPHIC

 

 Actions Following Board discussion of the evaluation report, a number of actions were agreed for 2021, including the following: Agree a shorter and more focused set of Board objectives for 2021. Explore different options for directors to engage with customers. Review potential enhancements to Board Management Information on customers and suppliers. Enhance Board visibility of ExCo successors. Implementation of the 2020 Board evaluation actions will be overseen by the Group Nominations and Governance Committee during 2021. Committee evaluations Details of the Board Committee evaluations carried out during 2020 can be found in the Committee reports. Individual director and Chairman effectiveness reviews The Chairman met each director individually to discuss their own performance and continuing professional development and establish whether each director continues to contribute effectively to the company’s long-term sustainable success. The Chairman also shared peer feedback provided to the Chief Governance Officer and Company Secretary as part of the individual evaluation process. Separately, the Senior Independent Director sought feedback on the Chairman’s performance from the non-executive directors, executive directors and other key internal and external stakeholders and discussed it with the Chairman. Audit, Risk & Internal Control Information on how the company has applied the Principles and complied with the Provisions set out in this section of the Code can be found throughout the Annual Report on Form 20-F. The following sections are of particular relevance: the Group Audit Committee Chairman’s letter and the report of the Committee (on page 111) which sets out the process undertaken to evaluate the effectiveness of both the Internal Audit function and the external auditors in 2020, and the principal findings thereof. It also explains the approach taken to ensuring the integrity of financial and narrative statements, and confirms that it supports the Board in the assessment of the Group’s disclosures to be fair, balanced and understandable; the Compliance report (page 155), which explains the internal control framework in place; and the Board Risk Committee Chairman’s letter and report of the Committee (page 116) which explains how the Board oversees the principal risks facing NatWest Group and how management addresses these. Remuneration The directors’ remuneration report on pages 123 to 134 provides information on the activities of the Group Performance and Remuneration Committee, the decisions taken on remuneration during the year and why the Committee believes these are the right outcomes in the circumstances. The report also details how the remuneration policy for executive directors supports the delivery of the company’s strategic goals and purpose, with significant delivery in shares to provide long-term alignment with shareholders. Information is also included on wider workforce remuneration and the steps taken to ensure fair pay and a healthy culture.

GRAPHIC

 

Report of the Group Nominations and Governance Committee Letter from Howard Davies Chairman of the Group Nominations and Governance Committee Dear Shareholder, As Chairman of the Board and Chairman of the Group Nominations and Governance Committee I am pleased to present our report on the Committee's activity during 2020. Role and responsibilities The Committee is responsible for reviewing the structure, size and composition of the Board, and membership and chairmanship of Board Committees and recommends appointments to the Board. In addition, the Committee monitors NatWest Group’s governance arrangements to ensure that best corporate governance standards and practices are upheld and considers developments relating to banking reform and analogous issues affecting NatWest Group. The Committee makes recommendations to the Board in respect of any consequential amendments to NatWest Group’s operating model. The terms of reference of the Committee are reviewed annually, approved by the Board and are available at www.natwestgroup.com. Principal activity during 2020 As highlighted in the Board’s 2019 effectiveness review, the Committee acknowledges the tenure of a number of current Board directors and therefore made succession planning a priority in 2020. The Committee reviewed the contribution of a number of Board members under the Board Appointment Policy which sees non-executive directors appointed for an initial three year term, subject to annual re-election at the AGM. Following assessment by the Committee, they may then be appointed for a further three year term. Non-executive directors may continue to serve beyond six years, subject to a maximum tenure of nine years. In addition to reviewing the structure, size and composition of the NatWest Group plc Board, the Committee has also continued to oversee work aimed at further enhancing the Group’s subsidiary governance framework. A number of our material regulated subsidiaries made appointments to their boards during 2020, which the Committee has overseen. Spencer Stuart and Green Park have been engaged during the year to support NatWest Group’s subsidiary board search activity. The firms are members of the retained executive search panel of suppliers (managed by NatWest Executive Search). Spencer Stuart also provide leadership advisory and senior executive search and assessment services to the Human Resources function. In addition to succession planning, the Committee has overseen the process to reach agreement with the PRA in respect of the renewal of regulatory modifications which ensure the continuation of a governance model that is compatible with ring-fencing legislation. Membership and meetings At the same time as standing down from the Board, Baroness Noakes stepped down from the Committee with effect from 31 July 2020. Morten Friis joined the Committee on 1 August 2020 meaning that throughout 2020 the Committee comprised the Chairman of the Board and four independent non-executive directors. Graham Beale also observes meetings of the Committee in his capacity as Senior Independent Director of NWH Ltd and member of the NWH Ltd Nominations Committee. The Committee holds a minimum of four meetings per year and meets on an ad hoc basis as required. In 2020, there were five meetings – four scheduled meetings and one ad hoc. Individual attendance by directors at these meetings is shown in the table on page 104. Tenure of non-executive directors The tenure of non-executive directors as at 31 December 2020 is set out below. Performance evaluation The review of the effectiveness of the Board and its senior Committees was conducted internally in 2020. The Committee has considered and discussed the outcomes of the evaluation and accepts the findings. Overall, the review concluded that the Committee operated effectively with no material recommendations being identified for action. The Committee will continue to ensure that the full Board is appropriately sighted on the work of the Committee. The Committee will track progress during the year. Boardroom Inclusion Policy The Board operates a Boardroom Inclusion Policy which reflects the most recent industry targets and is aligned to the NatWest Inclusion Policy and Principles applying to the wider bank. This policy provides a framework to ensure that the Board attracts, motivates and retains the best talent and avoids limiting potential caused by bias, prejudice or discrimination. The policy currently applies to the most senior NatWest Group boards: NatWest Group plc, NWH Ltd, NWB Plc, RBS plc and Ulster Bank Limited. A copy of the Boardroom Inclusion Policy is available on natwestgroup.com>who we are. Objectives and targets The Boardroom Inclusion Policy’s objectives ensure that the Board, and any Committee to which it delegates nominations responsibilities, follows an inclusive process when making nomination decisions. That includes ensuring that the nomination process is based on the principles of fairness, respect and inclusion, that all nominations and appointments are made on the basis of individual competence, skills and expertise measured against identified objective criteria and that searches for Board candidates are conducted with due regard to the benefits of diversity and inclusion. The Boardroom Inclusion Policy contains a number of measurable objectives, targets and ambitions reflecting the ongoing commitment of the Board to inclusion progress. The Board aims to meet the highest industry standards and recommendations wherever possible. That includes, but is not limited to, aspiring to meet the targets set by the Hampton-Alexander Report: FTSE100 Women Leaders (33% female representation on the boards) and the Parker Report: Beyond 1 by ’21 (at least one director from an ethnic minority background on the boards) by 2020/2021. The policy supports our bank-wide ambition to aim for a 50/50 gender balance across all levels of the organisation by 2030. Monitoring and reporting The boards of NatWest Group plc and the NWH Group meet consecutively and share a largely common membership. When considered together, the director population across both boards currently meets the Parker target and exceeds the Hampton-Alexander target with a female representation of 36%. Notwithstanding the largely common membership between boards, NatWest remains committed to ensuring that the NatWest Group plc Board meets the targets on a standalone basis. The NatWest Group plc Board currently meets the Parker Target and, notwithstanding the departures of Alison Davis and Baroness Noakes during 2020, continues to exceed the Hampton-Alexander target with a board composition including 36% female representation. Diversity and inclusion progress, including information about the appointment process, will continue to be reported in the Group Nominations and Governance Committee’s report in the NatWest Group plc Annual Report on Form 20-F. The balance of skills, experience, independence, knowledge and diversity on the Board, and how the Board operates together as a unit is reviewed annually as part of the Board evaluation. Where appropriate, findings from the evaluation will be considered in the search, nomination and appointment process. Further details on NatWest Group’s approach to diversity can be found on page 64. Howard Davies Chairman of the Group Nominations and Governance Committee 19 February 2021

GRAPHIC

 

 

 Letter from Patrick Flynn Chairman of the Group Audit Committee Dear Shareholder, I am pleased to share with you a summary of the work undertaken by the Group Audit Committee (GAC) in 2020. The Committee is responsible for overseeing and challenging the processes undertaken by management in the preparation of the published quarterly financial information. It also assists the Group Board in carrying out its responsibilities relating to accounting policies and internal control functions. In 2020 the Committee’s primary focus has continued to be on reviewing the integrity and quality of NatWest Group’s published financial information, including the quarterly, interim and full year results announcements, Annual Report and Accounts, Pillar 3 and Form 20-F releases. In each case the Committee received detailed reports on the judgements applied by management in the preparation of the financial statements and legal and regulatory developments. Consideration was also given to management’s assessment of the internal controls over financial reporting and the GAC also received reports from both the internal auditors on the internal control environment and the external auditors on internal controls over financial reporting and key accounting and judgemental matters. Throughout nearly all its work in 2020 the COVID-19 pandemic has been a key consideration. Much time was dedicated to reviewing accounting judgements and the potential and actual impact on expected credit losses, including modelling methodologies, as well as impairment levels and guidance. The unprecedented impact the pandemic has had on the UK and global economies, coupled with the extensive government support for those affected by the pandemic, has presented challenges to all banks in modelling the likely impact under IFRS9. In the absence of relevant historic data points to model the impact of the crisis, the Committee found the benchmarking information provided by external parties particularly helpful. The Committee has supported enhancements to internal modelling processes implemented by management during 2020. In light of the economic conditions throughout the year it was necessary to overlay judgements to the modelled outputs. While such decisions are never easy, as by their nature they are highly subjective, the Committee was satisfied the approach taken by management to apply overlays and post-model adjustments was robust and consistently applied. The internal and external auditors also undertook work to provide comfort to the Committee in this respect. In addition, the Committee was satisfied with the assessments of the internal control environment, particularly given the challenges resulting from the COVID-19 pandemic, and supported management’s plans to further enhance it. As well as reviewing financial information, the Committee also considers NatWest Group’s non-financial reporting. In this respect, the Committee reviewed the climate-related disclosures published alongside this report. The Committee is satisfied that the information contained in the document is consistent with that published in the Annual Report on Form 20-F and subject to robust controls. “Throughout nearly all its work in 2020 the COVID-19 pandemic has been a key consideration” Oversight of the performance of the internal audit function and ensuring its independence is a key responsibility of the Committee. In order to maintain the perceived independence of the Chief Audit Executive, I oversaw the process to appoint a new individual to the role in 2020. I was pleased that there was a high-quality pool from which we selected a strong candidate, who takes on the role in February 2021. I am grateful to the outgoing Chief Audit Executive for his professionalism and support during the process and his significant contribution to the bank over the past 9 years. I would like to take this opportunity to thank all Committee members for their diligent contributions in 2020, including Baroness Noakes who stood down from the Board in July 2020. I was pleased to welcome Robert Gillespie to the Committee in August 2020, who brings with him a wealth of experience. Patrick Flynn Chairman of the Group Audit Committee 19 February 2021 Membership Full biographical details of the members of the Committee during 2020 are set out on pages 101 and 102. The members are all independent non-executive directors who also sit on other Board committees in addition to the GAC (as set out in their biographies). This common membership helps facilitate effective governance across all finance, risk and remuneration matters and ensures that agendas are aligned, and duplication of responsibilities is avoided. Members of the GAC are selected with a view to the expertise and experience of the Committee as a whole and with proper regard to the key issues and challenges facing the NatWest Group. The Board is satisfied that all GAC members have recent and relevant financial experience and are independent as defined in the SEC rules under the US Securities Exchange Act of 1934 (the ‘Exchange Act’) and related guidance. The Board has further determined that Patrick Flynn, Mark Seligman, Robert Gillespie and, during her tenure as a member of the Committee, Baroness Noakes, are all ‘financial experts’ for the purposes of compliance with the Exchange Act Rules and the requirements of the New York Stock Exchange, and that they have competence in accounting and/or auditing as required under the Disclosure Guidance and Transparency Rules. Meetings and visits Five scheduled meetings of the Committee were held in 2020, four of which took place immediately prior to the release of the financial results each quarter. During the year all members attended the scheduled meetings, one of which was held in person and the remainder via video conferencing facilities. Two ad hoc meetings were held to consider regulatory submissions, including additional Pillar 3 disclosures requested by the regulators to reflect the impact of the COVID-19 pandemic. The annual programme of visits to control functions – held in conjunction with the Board Risk Committee – was undertaken virtually this year in order to comply with social distancing requirements. Constructive and insightful discussions were held with Risk, Internal Audit and Finance. Performance evaluations The annual review of the effectiveness of the Board and its senior Committees, including the Audit Committee, was conducted internally in 2020. Themes focused on during the Committee’s discussion session included: operating rhythm; effectiveness and dynamics of meetings; and future priorities. It was determined that the GAC had continued to operate effectively during 2020. Certain areas to be strengthened were identified and will be progressed in 2021. The performance of the External Auditor and the Internal Audit function were monitored by the GAC in 2020 and assessed at the end of the year via an internal process. Feedback was provided by relevant stakeholders and a summary reviewed by the Committee. Progress made to address the recommendations of the previous year’s evaluations was welcomed.

GRAPHIC

 

 MatterContext of discussionHow the committee addressed the matter Financial and non-financial reporting The GAC considered a number of accounting judgements and reporting issues in the preparation of NatWest Group’s financial results throughout 2020. The GAC then recommended the quarterly, interim and full year results announcements, the Annual Report and Accounts, together with supporting documentation (including Pillar 3 reports, financial supplements and investor presentations) and the Form 20-F to the Group Board for approval. Expected Credit Losses – Judgements (including overlays) in relation to credit impairments and the impact of macro-economic risks on the credit environment, in particular those arising from the COVID-19 pandemic, were discussed throughout the year. The GAC focused on the key assumptions, methodologies and in-model and post-model adjustments applied to provisions under IFRS 9. The Committee discussed these in detail with management and was satisfied that they were reasonable in the exceptional circumstances and had been applied consistently. External benchmarking data, where available, and historic loss experience helped inform considerations in this respect. The economic uncertainty and unprecedented conditions not experienced since the implementation of IFRS 9 challenged the usefulness of model outputs. While the use of judgemental overlays and post-model adjustments should ideally be limited, their extensive use was deemed appropriate during 2020, and are likely to continue to be required in future reporting periods. Valuation methodologies – The GAC considered valuation methodologies and assumptions for; the impacts of the COVID-19 pandemic and resultant volatility, financial instruments carried at fair value and scrutinised judgements made by management in relation to the carrying value of intangible assets. Provisions and disclosures – The GAC debated the level and appropriateness of provisions for regulatory, litigation and conduct issues during the year and was satisfied with them. The Committee considered the various conduct provisions during the year and are satisfied that the levels are appropriate. The Committee supported the release of £277m of the provision for Payment Protection Insurance (PPI) during the year. Treatment of goodwill – Given the economic uncertainty caused by the COVID-19 pandemic, the Committee considered the treatment of goodwill throughout the year, in particular in Commercial Banking. Significant challenge and discussion took place in the context of the H1 interim and full year results with both management and the external auditor to ensure the most appropriate course of action was followed. The Committee was satisfied with the carrying value of goodwill and that appropriate disclosure was made and supported the ongoing close monitoring of goodwill by management in the context of the continued market disruption. Accounting Developments – The GAC studied the impact of various changes to accounting standards during 2020, including: the adoption of phase two of the IBOR guidance which includes amendments to IAS 39/ IFRS 9; the replacement of IAS 1; and the move to UK-based IFRS. The Committee has also considered any changes in accounting policy. Reporting matters – The Committee reflected on a number of proposed changes to reporting requirements – for example the recommendations of the Brydon Report – and in particular any elements which could be adopted early. The publication of climate-related disclosures aligned to the Taskforce for Climate related Financial Disclosures (TCFD) alongside this Annual Report on Form 20-F (ahead of the regulatory deadline) demonstrates NatWest Group’s commitment to early adoption of reporting requirements. Viability statement and the going concern basis of accounting – The GAC considered evidence of NatWest Group’s capital, liquidity and funding position and considered the process to support the assessment of principal risks, taking into account the additional industry guidance on the matter during the COVID-19 pandemic. The GAC reviewed the company’s prospects in light of its current position, the identified principal and emerging risks and the ongoing economic uncertainty resulting from the pandemic. A range of adverse economic scenarios were examined to understand the potential impacts of the pandemic on the bank, and peer comparisons considered to further inform the position. The GAC reviewed NatWest Group’s going concern and expanded viability statements and recommended them to the Board. (refer to the Report of the directors for further information.) Fair, balanced and understandable – The GAC oversaw the review process which supports the Committee and Board in concluding that the disclosures in the Annual Report on Form 20-F, taken as a whole, are fair, balanced and understandable and provided the information necessary for shareholders to assess the company’s position and performance, business model and strategy. The process included: central co-ordination of the Annual Report on Form 20-F by the Finance function; review of the Annual Report on Form 20-F by the Executive Disclosure Committee prior to consideration by the GAC; and a management certification process. Particular consideration was given to the way in which information around the impacts of the COVID-19 pandemic was presented. The External Auditor also considered the fair, balanced and understandable statement as part of the year end audit process. Non-financial reporting – As global focus on and publication of non-financial information increases the Committee has received a number of presentations on the firm’s approach to non-financial disclosures. It has put particular emphasis on the high standards of control expected to support the preparation of this information. The Committee was satisfied the non-financial disclosures and the processes undertaken by management in their preparation of these were robust and recommended the disclosures to the Group Board for approval prior to external release. These disclosures are published as part of a suite of year end documents, which is a move away from an all-encompassing Annual Report on Form 20-F.

GRAPHIC

 

 MatterContext of discussionHow the committee addressed the matter Systems of internal control Systems of internal control relating to financial management, reporting and accounting issues is a key area of focus for the Committee. In 2020 it received reports throughout the year on the topic and evaluated the effectiveness of NatWest Group’s internal control systems, including any significant failings or weaknesses. Sarbanes-Oxley Act of 2002 – The GAC considered NatWest Group’s compliance with the requirements of section 404 of the Sarbanes-Oxley Act of 2002. Following interim updates on the status of the bank’s internal controls over financial reporting during 2020 to monitor progress, the GAC was satisfied that there were no Material Weaknesses for NatWest Group at the year-end. Additional work was undertaken to monitor and address the challenges to the control environment resulting from COVID-19, in particular those related to the introduction of new products and the increased risk of fraud. The Committee also reviewed the process undertaken to support the CEO and CFO in providing the certifications required under sections 302, 404 and 906 of the Sarbanes-Oxley Act of 2002. Control Environment Certification – The GAC considered the control environment ratings of the businesses, functions and material subsidiaries and management’s actions to ensure that the control environment was maintained throughout new working arrangements brought about by the COVID-19 pandemic and plans to address areas of weakness. Notifiable Event Process – The GAC considered semi-annual reports on control breaches, captured by the internal notifiable event process. All Board directors were alerted to the most significant breaches as part of that process. Whistleblowing – The GAC monitored the effectiveness of the bank’s whistleblowing process and received updates on the volume of whistleblowing reports and any common themes. The results of the annual Our View survey indicated that colleagues’ awareness of how to raise concerns was high and that the majority of colleagues felt it safe to do so. The GAC Chairman acts as the Group Whistleblowers’ Champion, in line with PRA and FCA regulations, and meets regularly with the whistleblowing team. Discussions regarding subsidiary whistleblowing matters were held with the relevant subsidiary audit committee chairmen as required. Legal and Regulatory Reports – Quarterly reports on the material, current and emerging legal and regulatory investigations, risks and developments affecting NatWest Group enabled the Committee to assess the related disclosures in the financial statements. Taxation – The GAC received an update on the bank’s tax position and discussed matters including tax disclosures and provisions, tax risks, NatWest Group’s tax compliance status, the relationship with HMRC, employment tax matters, ongoing tax projects, the UK Bank Levy and emerging and forthcoming tax issues (including those relating to uncertain tax positions). Risk and Control Disclosure – The GAC also reviewed the disclosure on internal control matters in conjunction with the related guidance from the Financial Reporting Council. Capital – The GAC reviewed NatWest Group’s controls over the calculation and reporting of Risk Weighted Assets and related regulatory developments.

GRAPHIC

 

 MatterContext of discussionHow the committee addressed the matter Internal auditThe GAC is responsible for overseeing the Internal Audit function. In addition to considering quarterly opinions from Internal Audit, the GAC is required to monitor the function’s effectiveness and its independence. The GAC was fully satisfied in this regard. Opinions – Quarterly opinion reports were provided to the Committee by Internal Audit, setting out its view of the overall effectiveness of NatWest Group’s governance, risk management and internal control framework, current issues and the adequacy of remediation activity. Internal Audit also outlined material and emerging concerns identified through their audit work. The Committee noted the responses of management to the points highlighted by Internal Audit and welcomed their commitment to addressing any control environment weaknesses. The impact of manual processing on the control environment was a particular focus for the Committee, and efforts to increase automation, particularly in Finance, will be monitored in 2021. In addition, Internal Audit reviewed the consistency of disclosures in NatWest Group’s quarterly Pillar 3 reporting and their report was provided to the Committee Chairman prior to the disclosures being approved for release. Annual Plan and Budget – GAC considered and approved Internal Audit’s 2020 plan and budget at the end of 2019. In light of the COVID-19 pandemic the 2020 plan was revised and submitted to the Committee for approval in July 2020. At the end of 2020 the GAC considered and approved Internal Audit’s plan and budget for 2021. The Committee was satisfied that Internal Audit had and will have adequate budget and appropriate resources to deliver its plan. In addition, the Committee was satisfied that the audit universe appropriately reflects the challenges facing NatWest Group over the coming year. Internal Audit Charter and Independence – The GAC reviewed and approved the Internal Audit Charter and noted the Chief Audit Executive’s independence statement. In line with the revised industry guidance issued in September 2017, and in light of the current Chief Audit Executive (CAE) having been in role for 9 years, it was determined that it would be appropriate to appoint a new CAE in order to maintain the independence and perceived independence of both the role and the wider IA function. The recruitment process was overseen by the Chairman of the GAC and involved an internal and external search. The successful candidate joined the bank this month. Performance – In 2020 the CAE continued to report to the GAC Chairman, with a secondary reporting line to the Chief Executive for administrative purposes. The GAC assessed the annual performance (including risk performance) of the function and CAE. The remuneration arrangements for both the incoming and outgoing CAEs were also determined by the GAC Chairman with input from the Chief Executive and support of the wider Committee members. Visit – Together with the BRC, the GAC participated in a successful virtual deep dive session with members of the Internal Audit team during 2020. A variety of issues impacting the Internal Audit function were discussed, including operating during COVID-19, the function’s work on behavioural risk and financial crime, audit quality, and building capability in the function. Evaluation – The 2020 evaluation of the Internal Audit function was carried out internally. Key stakeholders across the bank, including the GAC members, attendees and the external auditors, provided feedback, identifying areas of particular strength and those for enhancement. The overall findings were positive, and the Internal Audit function was found to be operating effectively with continued improvement in most areas being noted. Certain areas for continued development were identified, including improving bench strength in certain areas and increasing use of analytic tools; progress will be overseen by the GAC.

GRAPHIC

 

 MatterContext of discussionHow the committee addressed the matter External auditErnst & Young LLP (EY) has been NatWest Group’s external auditor since 2016, following a tender process carried out in 2014. The GAC has responsibility for monitoring the independence and objectivity of the External Auditor, the effectiveness of the audit process and for reviewing the bank’s financial relationship with the External Auditor and fixing its remuneration. External Audit Reports – EY’s lead audit partner, Jonathan Bourne, reported to the GAC each quarter on the audit related work and conclusions of the External Auditor. This included EY’s view of the judgements made by management, their compliance with International Financial Reporting Standards and their observations and assessment of effectiveness of internal controls over financial reporting. The GAC also received helpful benchmarking information from EY during the course of the year and in particular relating to the accounting treatment of the impacts of the COVID-19 pandemic. The Committee received all communications from EY required by UK auditing standards, SEC and NYSE rules, including 2020 audit quality and transparency reports. Audit Plan and fees – The GAC considered EY’s 2020 plan and thereafter discussed the impact of the COVID-19 pandemic on the external audit. In line with the authority granted to the Committee by shareholders at the 2020 Annual General Meeting (AGM) to fix the remuneration of the External Auditor, the GAC approved the 2020 audit fees including the fee for the 2020 interim results. The Committee received confirmation from the external auditor that the fees were appropriate to enable delivery of the required procedures to a high quality. Annual Evaluation – An internal evaluation was carried out at the GAC’s request to assess the independence and objectivity of the External Auditor and the effectiveness of the audit process during 2020. The GAC members, attendees, Finance Directors of customer businesses and functions and key members of the Finance team were consulted as part of the evaluation. The process assessed the external auditor’s mindset and culture, skills, character and knowledge, quality control and judgement. The evaluation found that the External Auditor was operating effectively and with objectivity. Certain areas for consideration to further strengthen effectiveness were suggested including making greater use of industry knowledge and benchmarking, seeking to reduce the length of formal reports and being more vocal at audit committee meetings. Following the evaluation, the GAC recommended that the Board seek the reappointment of EY as external auditor at the next AGM. FCA Client Asset Rule Opinions – During 2020 the external auditor presented the results of its assurance procedures on compliance with the FCA’s Client Asset Rules for NatWest Group’s regulated legal entities for the year ended 31 December 2019. The GAC also considered the CASS Audit plan for 2020, the findings of which will be reported to the GAC once the audit is complete. External Auditor Report to the PRA – The GAC considered the outcome of EY’s written auditor report to the PRA under supervisory statement SS1/16 for the year ended 2019, noting that the matters identified were already being addressed by management. Audit Partner – Mr Bourne has been EY’s lead audit partner for NatWest Group since the 2016 year-end and will rotate off the audit after the publication of the 2020 financial results. He will be succeeded by Micha Missakian and in preparation for this there has been a transition period in which Micha has observed GAC meetings and met with members of the Committee and management. Audit and non-audit services NatWest Group has a policy in relation to the engagement of the external auditors to perform audit and non-audit services (the policy). The GAC reviews the policy annually to ensure it remains fit for purpose. All audit and non-audit services are pre-approved by, or on behalf of, the GAC to safeguard the external auditor’s independence and objectivity. The GAC reviews and approves NatWest Group’s non-audit services policy at least annually. Under the policy, audit related services and permitted non-audit service engagements may be approved by the Chief Financial Officer up to certain financial thresholds. Engagements in excess of these limits require the approval of the GAC chairman. Where the fee for a non-audit service engagement is expected to exceed £100,000, a competitive tender process must be held and approval of all GAC members is required. The policy permits the External Auditor to undertake engagements which are required by law or regulation or which relate to the provision of comfort letters in respect of debt issuances by the NatWest Group, provided prior approvals are in place in accordance with the policy. The policy also allows NatWest Group to receive services from EY which result from a customer’s banking relationship, provided prior approvals are in place in accordance with the policy. All such approvals are reported to the GAC bi-annually. During 2020, approval was granted under the policy for the external auditors to undertake one significant engagement which related to a review of regulatory reporting. The GAC was satisfied that the engagement did not impact the External Auditor’s independence. Further details of the non-audit services policy can be found on natwestgroup.com. Information on fees paid in respect of audit and non-audit services carried out by the External Auditor can be found in Note 6 to the consolidated accounts.

GRAPHIC

 

 

 Letter from Morten Friis Chairman of the Group Board Risk Committee “BRC has amended its focus during 2020 to ensure appropriate oversight of the management and mitigation of risks driven by COVID-19.” Dear Shareholder I am delighted to present my first report as Chairman of the Board Risk Committee (the Committee or BRC), a role which I assumed on 1 August 2020. I would like to thank Baroness Noakes for her diligence and dedication throughout her tenure as Chairman of the BRC, for which we are very grateful. I am also pleased to welcome Lena Wilson as a member of BRC. She joined the Committee in August 2020. The BRC has an important role in supporting the Board and overseeing the management of risk, and this report describes how the Committee fulfilled this responsibility during 2020. More detail on the remit of the Committee can also be found in its terms of reference which are reviewed annually and available at natwestgroup.com. 2020 has been an unprecedented period and BRC has amended its focus to ensure appropriate oversight of the management and mitigation of risks driven by COVID-19 whilst continuing to have oversight of the wider risk agenda. The cancellation of prescribed regulatory stress tests and a decision by the Regulator to delay certain other regulatory programmes ensured sufficient focus by BRC on key risk areas throughout the pandemic. This has included the control environment, operational risk and resilience, financial crime, fraud, incident management decisions impacting risk appetite, and the non-financial risks associated with the Government lending schemes and additional support measures. Further information on all the key topics considered by the Committee during the year is provided on the following pages. Part of the BRC’s role is to review reports and regulatory submissions on behalf of the Board and recommend them for approval. Where this is the case, the report on the following pages is annotated with an asterisk (*). COVID-19 headwinds will dominate our operating environment for some time, and I anticipate this will impact much of BRC’s work in 2021. BRC will also continue to focus on financial crime and the delivery of regulatory programmes due in 2021 (LIBOR transition and the Resolvability Self-Assessment) and regulatory stress tests (including the biennial exploratory scenario on the financial risks from climate and the 2021 Solvency Stress Test). 2020 has been an extraordinary year and I would like to thank my fellow Committee members for their continued commitment, support and challenge throughout the year. Morten Friis Chairman of the Group Board Risk Committee 19 February 2021 Membership BRC comprises four independent non-executive directors. The details of the members and their skills and experience are set out on pages 101 to 102. Patrick Flynn is chairman of the Group Audit Committee of which Robert Gillespie and I are also members. Robert is also chairman of the Group Performance and Remuneration Committee (RemCo) and Lena Wilson sits on this Committee. This common membership across Committees helps to ensure effective governance across the committees. Regular attendees at BRC meetings include: the Group Chairman, Group CEO, Group CFO, Group Chief Risk Officer, Group Chief Legal Officer and General Counsel, Group Chief Audit Executive, and the External Auditor. External advice is sought by the Committee where appropriate. Two non-executive directors of NWH Ltd (the ring-fenced bank) attended Committee meetings as observers in their capacity as members of NWH Ltd’s BRC. Meetings of the Group and NWH Ltd’s BRCs share much of a common agenda and are generally run in parallel. Meetings and visits There were eight scheduled meetings of the Committee held in 2020. In addition, three ad hoc meetings were arranged to consider time critical matters such as capital distributions and the impact of COVID-19 on NatWest Group’s risk profile. Meetings have been held virtually throughout the pandemic. Details of meeting attendance can be found on page 104. As in previous years, during 2020, members of the Committee undertook a programme of visits to the Risk, Internal Audit and Finance functions, in conjunction with members of the Group Audit Committee. The Committee also held in-depth meetings on risk reporting. Again, all these meeting were held virtually during 2020. Performance Evaluation The annual review of the effectiveness of the Board and its senior Committees, including BRC, was conducted internally in 2020. The Committee held a dedicated session to discuss its performance. The session was structured around a number of themes: operating rhythm; focus and priorities; effectiveness; and culture and dynamics. The Committee considered that it continued to operate effectively and identified some areas for potential enhancement. In 2021, there will be focus on streamlining and simplification of the Committee through prioritisation; reduction in volume of papers and length of meetings; improvement in paper quality; and an inclusive culture at meetings. The Committee will track progress during 2021.

GRAPHIC

 

 Key matters considered by the Committee in 2020

GRAPHIC

 

 MatterContext of discussionHow the Committee addressed the matter Control environment BRC continued its oversight of NatWest Group’s control environment, focusing on the impact of COVID-19, major change programmes and strategic initiatives. Transformation – BRC considered progress on the delivery of NatWest Group’s transformation and change programme and its position relative to risk appetite, including investment prioritisation and assessment of the impacts of COVID-19 and associated regulatory forbearance, on the portfolio. BRC placed particular attention on General Data Protection Regulation (GDPR) compliance, payment systems resilience, and work being undertaken to enhance models to meet European Banking Authority (EBA) standards. LIBOR Transition – BRC received reports on NatWest Group’s plans and preparedness for LIBOR transition to new risk-free rates. Consideration was given to the re-plan of LIBOR transition factoring in the impact of COVID-19, and steps being taken by management to assess and quantify potential conduct, litigation and other key risks and drive mitigating actions. Control Environment Certification and oversight – The Committee was provided with updates regarding the control environment ratings of the franchises, functions, Services and legal entities. The Committee considered the impact of crisis management decisions made in response to the COVID-19 crisis on the control environment and measures which had been put in place to ensure that the business could continue to operate safely whilst supporting customers. For 2020, the control environment rating across NatWest Group remained a 3, meaning the required target was not attained. Risk Culture – BRC considered the outcome of an externally facilitated exercise to benchmark progress against NatWest Group’s internal assessment of risk culture, noting areas of strength and actions underway to address issues identified and maximise opportunities, including realignment of a broader culture strategy to NatWest Group’s refreshed Purpose. Subsequently, management reported to the Committee on the new strategic workstream that has been established to link Purpose and Culture and drive a bank-wide holistic approach to culture development, including risk culture. Group-wide risks Regular monitoring of key risks is a pivotal part of BRC’s role both via routine risk reporting and via regular focused reports. Capital and Liquidity –In addition to reviewing the NatWest Group and NWH Ltd ICAAPS* and ILAAPs* as outlined above, BRC carefully monitored the impacts of COVID-19 upon NatWest Group’s capital and liquidity position. BRC received reports on NatWest Group’s approach to capital, liquidity and funding management and risk appetite targets, including double leverage implications and considered the risks associated with capital distribution proposals in advance of Board consideration. Financial crime – Management and oversight of financial crime risk continues to be a key priority of NatWest Group. NatWest Group’s programme to improve and remediate customer due diligence standards and build sustainable processes and controls for the future remains ongoing. BRC received regular updates, including on impacts of the COVID-19 pandemic on progress; revision of the management operating model to provide enhanced focus and oversight; and the return to appetite plan. BRC received reports on the new Enterprise-Wide Financial Crime Risk Assessment process launched in 2020, designed to provide a more dynamic and insightful understanding of financial crime risk profile, and considered the outputs of the first exercise. BRC also reviewed the annual Group Money Laundering Reporting Officer’s Report* and considered risk appetite metrics and performance relative thereto. Operational risk, resilience and cyber security – BRC received regular updates on NatWest Group’s operational risk profile and risk appetite, with a particular focus on resilience through COVID-19, outsourcing, information and change. The Committee considered the bank’s preparation for external regulatory developments in relation to operational resilience and an assessment of preparedness for certain scenarios relating to interconnected risks. In addition, separate updates on information security were reviewed and BRC dedicated time to the consideration of cyber risk, the external threat landscape, and action being taken by management in response. Reports were also received in relation to NatWest Group’s payments risk and control environment and fraud. Conduct and regulatory compliance risk – BRC reviewed conduct risk profile, including impacts of the COVID-19 pandemic and activity underway to improve performance relative to risk appetite. Similarly, it reviewed the regulatory compliance risk profile, including compliance with current regulatory requirements, identification and management of regulatory breaches, and plans to achieve compliance with future regulatory requirements. In particular, BRC oversaw management’s progress in demonstrating compliance with and embedding into business as usual of UK ring-fencing rules and completion of required remediation activity. Credit and Market risk – In addition to reporting on credit and market risk, with a particular focus on COVID-19 impacts, specific updates were received in relation to the non-financial risks associated with COVID-19 Government lending scheme products and additional support measures, including associated controls and assurance testing. BRC also reviewed separate reports on the retail and wholesale credit risk portfolios, which provided the Committee with insight to the portfolio profile, including asset quality, risk management approach and risk appetite.

GRAPHIC

 

 MatterContext of discussionHow the Committee addressed the matter Group-wide risks Regular monitoring of key risks is a pivotal part of BRC’s role both via routine risk reporting and via regular focused reports. Model risk management – Models remain fundamental to NatWest Group’s risk management processes and stress testing capability and BRC dedicated time to reviewing progress made by management to deliver improvements to model risk policy and governance. BRC received updates on model risk appetite, the model risk profile and future model risk management enhancements required to ensure the risk can be managed within appetite, noting future model risk challenges which will impact the risk profile from 2020 onwards. Data Management and GDPR - BRC received reports on data management risk profile, including the risk implications of proposed data strategy changes, required to support NatWest Group’s refreshed Purpose-led strategy. BRC considered management’s plans to enhance data management and capability, including updates on the use artificial intelligence and machine learning. The Committee also received regular updates on compliance with GDPR and BCBS239, including the impact of COVID-19 on progress. Financial Risk from climate change – The Committee reviewed NatWest Group’s progress relating to the management of the financial and non-financial risks arising from climate change, including progress made against regulatory commitments. Accountability and remuneration BRC continued to provide oversight over the risk dimension of performance and remuneration arrangements, working closely with RemCo. Accountability – The Committee regularly considered developments in significant material events and investigations. This included resultant accountability recommendations, with the Committee having the ability to advise RemCo on any concerns as to the appropriateness of the recommendations from a risk perspective. Remuneration – The risk and control goals of members and attendees of the NatWest Group Executive Committee (ExCo) were reviewed, with additional focus on underlying objectives for the Group Chief Risk Officer. In addition, the Committee reviewed the risk management performance and Long-Term Incentive performance conditions, pre-grant and pre-vest assessments for ExCo, ensuring fair reflection of risk management performance in award and vesting outcomes. More generally, the Committee made recommendations to RemCo on the NatWest Group bonus calculation, ensuring appropriate consideration of risk management performance. Further detail on how risk is taken into account in remuneration decisions can be found in the Report of RemCo from page 123.

GRAPHIC

 

Report of the Group Sustainable Banking Committee Letter from Mike Rogers Chairman of the Group Sustainable Banking Committee “The Committee has played a key role in supporting the Board in the organisation’s purpose-led journey” Dear Shareholder, I am pleased to present my third report as Chairman of the Group Sustainable Banking Committee (the Committee or SBC). Purpose Pillars This year, it was agreed that the Committee’s remit would be amended to focus on NatWest Group’s new Purpose framework and priorities, launched in February 2020 given their strategic importance. While the Board retains ownership of the overall strategic and purposeful direction, it was agreed that the Committee would oversee progress towards achieving NatWest Group’s purposeful commitments and ambitions on behalf of the Board. The refreshed pillars of sustainable banking for 2020 focussed on: Learning & Capability; Climate; Enterprise; Conduct & Ethics; and, People & Culture. This Purpose-focus informed our meeting structure and proved helpful in prioritising matters for which the Committee felt oversight and challenge, on behalf of the Board, was most valuable. In response to the COVID-19 pandemic, the April meeting of the Committee was re-purposed from Learning & Capability to focus on our response to the crisis and our treatment of customers. The Committee’s stakeholder engagement model involves integrated engagement sessions aligned to our pillars of sustainable banking and seeks to bring internal and external voices and challenging perspectives into the boardroom. We will continue to keep SBC’s focus and responsibilities under review. Driving the Sustainable banking agenda Sustainable banking and stakeholder engagement remain of vital importance as NatWest Group continues its transition to becoming purpose-led. With shareholder, regulatory and societal expectations intensifying, embedding sustainable banking principles and targets within NatWest Group’s broader strategic agenda will be critical. By continuing the Committee’s focus beyond traditional environmental, social and governance (ESG) matters we have sought to ensure that the SBC continues to play a forward-looking role. As a Committee we have continued to be reassured by the energy shown by colleagues across the organisation in driving the sustainable banking agenda. 2020 Highlights I am pleased to report that the Committee believe they have played a key role in supporting the Board in the organisation’s purpose-led journey, with the Committee benefitting from focussed discussion on matters such as Climate, Enterprise and our People & Culture. Below are the key discussion points and outcomes from the year: COVID-19 & Customer Treatment The Committee considered how the bank was approaching customer treatment in response to the COVID-19 pandemic. Key topics debated included the organisational response, franchise specific updates from Retail Banking and Commercial Banking, conduct implications, potential future areas of focus and ensuring that our response was aligned to our Purpose. This topic has continued to be re-visited, with particular updates on the COVID-19 response in our Retail, Commercial and Private Banking teams. The sessions provided insights into the ongoing support being provided to customers and plans for continued support as the pandemic’s impact on the economy progresses. Climate The Committee met to consider how we become a leading bank driving the UK’s transition to a low carbon economy, while also tracking broader ESG progress. Topics included progress against the climate risk agenda, future areas of focus and an update on progress against expectations in the UN Principles of Responsible Banking. Areas of debate and challenge included climate innovation, peer comparisons and industry collaboration, as well as the approach to disclosure. The Committee also received a further detailed update on best-in-class climate change action among European banks. We benefitted from external perspective provided by the Green Finance Institute who provided an overview of the relevant science, climate modelling and the case to de-carbonise. Enterprise The Committee has spent time understanding how the bank is approaching becoming the Champion of UK business and removing barriers to ensure everyone has the same opportunity to progress. Against notable disruption of the sector as a result of COVID-19, the Committee sought updates from management on the support being provided to customers and progress against our targets in this area. We discussed opportunities to support our customers across the Retail, Commercial and Private Banking areas, and some of the positive ways the organisation had pivoted to support Enterprise given the challenging climate, including via the Business Builder and Accelerator programmes. External insights from customers were shared with the Committee via recorded customer testimonies and a presentation by one of our Enterprise customers. Conduct & Ethics The Committee considered certain aspects of NatWest Group’s decision-making framework to support its oversight of the safety and soundness of NatWest Group’s commercial decisions. This included spotlights on Ethical Conduct by Colleagues and the new internal ‘Yes Check’. It also considered NatWest Group’s Modern Slavery and Human Rights obligations within the business and supply chain in support of discussion on the organisation’s role in shaping societal responses to these challenges. Areas of focus included measurement of the impact of the updated colleague framework and support, the introduction of a Supplier Charter and the extent of NatWest Group’s responsibilities in relation to Modern Slavery and Human Rights. We benefitted from the external perspectives provided by a speaker from Blueprint for Better Business who shared insights and challenges in relation to ethics and the interplay between organisational ethics and Purpose. People & Culture The Committee, on behalf of the Board, debated how NatWest Group builds an engaged workforce and healthy culture for the future, given the importance of both in supporting NatWest Group’s Purpose. The Committee noted management updates on progress and plans to embed culture, particularly given the impact of the COVID-19 pandemic on colleagues. Further to the Committee discussion, management provided additional peer comparison information to Members in support of the Committee’s role in overseeing Culture. The Committee was provided with a Culture Measurement Report providing insights to understand the status of culture across NatWest Group. The report now follows the ‘Five principles of a purpose driven business’ model and uses Banking Standards Board (BSB) survey results, culture measures, inclusion and wellbeing data. It was noted that there had been some improvement in BSB survey results year-on-year and the Committee acknowledged that progress had been made across culture dimensions in 2020 despite the challenges of the global pandemic. The Committee, on behalf of the Board, considered workforce policies and practices to ensure they are consistent with NatWest Group’s values and support long-term sustainable success. In particular, the Committee reviewed the fair pay charter, and received updates on pay gap reporting and the 5-year inclusion and diversity update report.

GRAPHIC

 

 

Report of the Group Sustainable Banking Committee Membership, Meetings and Escalation Robert Gillespie stepped down from his role on the SBC with effect from 31 July 2020. Thereafter, the Group SBC membership comprised three non-executive directors as members and two non-executive directors from our ring-fenced bank board observing, along with management attendees. More details of membership and attendance at meetings can be found on page 104 of the Corporate governance report. Meetings and escalation mechanisms have not changed since last year’s report. In many cases the Committee and the Sustainable Banking Committee of NatWest Holdings Limited met concurrently. Authority is delegated to Group SBC by the Board and a regular report of the Committee’s activities is provided. The terms of reference are available on natwestgroup.com and these are reviewed annually and approved by the Board. Performance evaluation The annual review of the effectiveness of the Board and its senior Committees was conducted internally in 2020. Overall, the feedback on the Committee was positive and it was agreed that the Committee was operating in accordance with its terms of reference. Areas of focus for 2021 will be to continue to oversee the embedding of Purpose across NatWest Group, consider focus on Customer Service & Experience at the Committee, and ensure appropriate challenge from external speakers. Conclusion In this first year of supporting the embedding of our Purpose, my fellow directors and I have had the opportunity to help shape and oversee NatWest Group’s future sustainable banking strategy and response to these important issues in the context of a challenging year. I want to take the opportunity to thank the Committee members, attendees and presenters for their continued contribution and support in 2020. 2021 presents challenges and opportunities for the sustainable banking agenda as it builds on the progress achieved in 2020 and seeks to support the recovery post-2020. I am looking forward to steering future SBC discussions in such an important area for NatWest Group’s strategy and to reporting on progress next year. Mike Rogers Chairman of the Group Sustainable Banking Committee 19 February 2021

GRAPHIC

 

Report of the Technology and Innovation Committee Letter from Yasmin Jetha Chairman of the Technology and Innovation Committee “Technology and innovation are enabling fundamental shifts in the way financial services are delivered. The Committee has had oversight of actions being taken to transform capabilities across the bank.” Dear Shareholder, I am delighted to present my first report as Chairman of the Technology and Innovation Committee (the Committee or TIC). Role and responsibilities During this unprecedented year, TIC has continued to support the Board in overseeing, monitoring and challenging the actions being taken by management in relation to technology and innovation and in doing so giving due consideration to NatWest Group’s purpose. Authority is delegated to TIC by the Board and a regular report of the Committee’s activities is provided to the Board. The terms of reference are available on natwestgroup.com. These are reviewed annually and approved by the NatWest Group Board. Principal activity during 2020 During 2020, TIC priorities were reset to focus on the following key themes: Digitising the Core – TIC has considered actions being taken in relation to existing technology to enhance customer and colleague experience and improve the resilience of IT systems. COVID-19 resulted in NatWest Group having to respond quickly to support colleagues and customers and ensure seamless uninterrupted delivery of all services. The Committee considered how technology has been an enabler throughout the pandemic and how previous investment in the portfolio allowed NatWest Group to react at pace. This included actions taken to allow colleagues globally to work from home where appropriate, and customers to bank safely remotely as well as use data and analytics capabilities to allow NatWest Group to support the Government Loan Schemes, mortgage repayment holidays and loan deferrals. It also highlighted how NatWest Group could collaborate as one-team to deliver digital enhancements, automated solutions and critical changes at pace for customers. NatWest Group’s cloud strategy provides capabilities to support customers and colleagues. TIC discussed the continued development, adoption and practical implementation of the cloud strategy and cloud technologies. It also considered the potential future use and opportunities presented by cloud. Future Ready – Technology and innovation are enabling fundamental shifts in the way financial services are delivered. This has been significantly accelerated due to COVID-19. TIC has had oversight of actions being taken to transform data and technology capabilities and deploy ‘forward-looking’ technology across the bank. It has received updates on the implementation of the One-Bank technology transformation strategy, which includes the consolidation of services and creation of centres of excellence. The Committee considered how technology services are provided from NWH to NatWest Markets and steps being taken to improve NatWest Group’s long-term data capabilities. Collaboration – TIC considered management’s new approach to the operating model overseeing innovation, partnerships and ventures. The framework will provide oversight across NatWest Group, driving alignment and a One-Bank approach. It will promote customer focussed innovation and partnerships and build on the innovation ecosystem that has been established. Ventures – to continue the bank’s journey to introduce new and innovative customer solutions, TIC considered the strategic options to deliver a digital bank. This included the viability assessment for Mettle (our digital banking proposition for small businesses to combine their current account with invoicing, payment chasing and bookkeeping capabilities) and Bó, (our digital bank pilot) and lessons learnt following the decision to close Bó. Innovation – TIC has continued to oversee the development and delivery of NatWest Group’s innovation approach supporting NatWest Group’s long-term strategic priorities. This included an overview of innovation activity underway from seed to scale and how innovation activity aligns to the bank’s broader purpose and strategy. The Committee also considered innovation investment prioritisation and how this has been informed. From a macro perspective, the Committee discussed top technology trends across the industry and areas which had been most impacted by the COVID-19 crisis and considered how NatWest Group might respond to these. TIC also considered emerging skills, capabilities and technologies critical to future success such as data management, greater use of cloud and increased opportunities to partner. External Insights Obtaining an external view of the industry, external trends, developments and competitor activity has been valuable to the Committee. It allows the Committee to better understand both opportunities and emerging threats from continued market disruption. During 2020, Michael Dell (Dell Technologies Inc.) joined the Committee and provided his views on external trends and challenges, including innovation priorities and the technology advances accelerated by COVID-19. Astro Teller, CEO and Captain of Moonshots of Alphabet's Google X, joined the Committee to share more about Google X and his perspectives on emerging and disruptive technologies. Membership and meetings Following Alison Davis’ departure from the Board on 31 March 2020, the Committee is comprised of three non-executive Director members; Frank Dangeard, Patrick Flynn and myself. More details of membership and attendance at meetings can be found on page 104 of the Corporate governance report. The Committee is supported by management and the CEO, Chief Administration Officer, Chief Risk Officer, CFO, Director of Innovation, Director of Strategy & Corporate Development and Chief Technology Officer are all standing attendees. The Committee held three scheduled meetings during 2020. An ad hoc meeting was also convened to consider the viability assessment of the Mettle and Bó propositions. All meetings were convened virtually. Details of meeting attendance can be found on page 104 of the Corporate governance report. Performance evaluation The Committee held a dedicated session to discuss its performance. The session was structured around themes, including effectiveness; focus and priorities; operating rhythm; and escalation. The Committee considered that it continued to operate effectively and act in accordance with its terms of reference. It agreed that in the coming year it would focus on digitisation of the core; transformation of data and technology capabilities; and ventures, partnerships and innovation. There would be deep dives on specific topics to support more focussed discussion. The Committee will track progress on the outcomes of the evaluation during 2021. Conclusion I am delighted to chair this Committee as it continues to support the Board in an area critical to the bank’s future strategy. Together with my fellow directors, we will retain our focus on monitoring the future technology and innovation landscape and its impact on NatWest Group. The Committee will continue to shape opportunities arising from management’s response to both threats and opportunities that align with NatWest Group’s purpose. I want to take the opportunity to thank the Committee members and attendees for their direction, enthusiasm and support in 2020. In particular, I would like to thank Alison Davis, my predecessor, for chairing the Committee since it was established in 2017. Her strong technology and innovation knowledge and experience provided great benefit to the Committee throughout her tenure. I would also like to thank Lena Wilson who stepped down from the Committee in March 2020. Yasmin Jetha Chairman of the Technology & Innovation Committee 19 February 2021

GRAPHIC

 

[LOGO]

GRAPHIC

 

 We recognise that the construct has some unique features which require explanation. Engagement with stakeholders, therefore, continued during 2020. Some investors highlighted that disclosing greater detail on the factors leading to LTI outcomes would be welcomed. As a result, the pre-grant disclosures in this report for performance year 2020 have been expanded with ratings to give an indication of the extent of over or underperformance against targets. I hope this enables shareholders to better understand our deliberations for this year and in future. Executive director pay for 2020 Alison Rose Ms Rose’s salary and pension was unchanged over the year while her fixed share allowance (FSA) was reduced from £1,100,000 to £673,922, as a result of her decision in April 2020 to forgo 25% of her total fixed pay for the rest of the year. NatWest Group made a comparable donation to the NET Coronavirus Appeal. While Ms Rose confirmed in April 2020 that she did not wish to receive a 2021 LTI award, the Committee was still required to assess her performance over the year. The Committee also agreed that, while it did not intend to grant Ms Rose a 2021 LTI, in line with her request, it was important to agree a notional 2021 LTI award for her, in order to assist with future benchmarking. The Committee agreed that Ms Rose’s first full year as CEO had been highly impressive. The effective launch of NatWest Group’s purpose-led strategy was a particular highlight. Ms Rose had displayed strong leadership and energy in helping to navigate the business through a remarkably challenging year, with significant progress having been made on key strategic priorities, including the implementation of the ‘one bank’ transformation programme and strengthening her executive team through internal and external hiring of talent. Against the pre-set 2020 performance targets, underlying financial performance was deemed very respectable, despite the impact of COVID-19 on full year results, and there had been progress on customer scores. People scores performed very strongly in a difficult year for colleagues and the new climate-related targets were all met. Understandably, the enterprise target relating to the creation of new businesses had not been achieved due to the pandemic, but a switch to support existing customers had been effective with 6.4m interventions aimed at helping customers survive and thrive throughout the pandemic having been logged. The risk control environment was one area where performance had not improved sufficiently to meet the target. Full details of the 2020 performance assessment for executive directors can be found on page 139 to 142. An assessment of performance against the pre-set and unadjusted 2020 performance targets resulted in a recommended LTI award level of £1,450,000, or 75% of Ms Rose’s maximum LTI award level. This grant was then subject to an overall pay restraint reduction of 38% to reflect the impact of COVID-19, resulting in a notional LTI award of £899,000 for Ms Rose, or 47% of her maximum LTI award level. Ms Rose had already indicated that she did not wish to accept an LTI award for this year and accordingly no award will be made. Katie Murray Ms Murray’s fixed pay remained unchanged during 2020. Ms Murray’s performance was assessed against the same core goals that applied to Ms Rose. The performance of the Finance function was also taken into account. The Committee agreed that Ms Murray had performed strongly during 2020. Highlights included management of crucial parts of the COVID-19 agenda, especially management of the capital, liquidity and funding plans, and delivery of annual cost reductions in line with target. There had also been improved management of investor engagement with positive feedback received. Ms Murray had also made a significant contribution to progress on key strategic priorities and had demonstrated excellent leadership, with good progress having been made on transforming the Finance function, its executive team and its inclusion agenda. An assessment of performance against the pre-set and unadjusted 2020 performance targets resulted in a recommended LTI award level of £1,100,000, or 73% of Ms Murray’s maximum LTI award level. This grant was then subject to an overall pay restraint reduction of 38% to reflect the impact of COVID-19, resulting in a LTI award for 2020 of £682,000, or 45% of her maximum LTI award level. The impact of these decisions against maximum levels is shown below. Executive directors also entitled to benefits in line with the policy, as detailed later in this report. Had Ms Rose not indicated that she would not accept an LTI award for 2020 her total compensation excluding benefits would have been £2,783,000. Looking ahead, no changes are proposed to remuneration levels for executive directors in 2021, while salaries for the wider workforce will be increased by around 2% on average. In making increases across the wider workforce, the majority of the funding is targeted to our more junior colleagues. 2018 LTI award vesting outcome Ms Rose received an LTI award in 2018 while CEO of Commercial & Private Banking. The pre-grant assessment of performance over 2017 led to a reduction of 13.33% from the maximum award level. Ms Murray was on a different remuneration construct at that time and did not receive a 2018 LTI award. The Committee undertook the pre-vest assessment at the end of 2020. It operates as a ‘look back’ to the performance year for which the award was made so we can consider whether anything has come to light since the grant that would change our original view of performance. A structured set of questions and evidence factors were used to guide discussions on whether we correctly assessed performance for 2017 and whether any further adjustment should be made prior to vesting. From the analysis, three areas were identified for further investigation covering share price, customer and risk performance. In considering the underperformance of the share price since 2017, we did not believe this was due to factors within management’s reasonable control. The reduction in our share price showed a clear correlation with other large UK banks over the period. While customer NPS had declined in three of the six areas since 2017, this was primarily due to management actions in subsequent years and had been accounted for in adjustments to the relevant LTI awards. Therefore, we did not believe any further adjustments were necessary for these areas.

GRAPHIC

 

 Turning to risk, there had been no decline in performance but the expected improvement in the control environment rating had not been attained in subsequent years as the progress envisaged on Customer Due Diligence and associated matters (CDD) had not been achieved. As a result, the Group Board Risk Committee (BRC) recommended that the Committee consider making a pre-vest adjustment to Ms Rose’s 2018 LTI award using the Risk & Control underpin. The Committee was advised that management had not fully appreciated the scale and complexity of the challenges relating to the remediation of CDD during 2017. While Ms Rose was not primarily responsible for the 2017 CDD remediation plan, she had associated responsibility as the CEO of one of the franchises in which remediation was required. The Committee agreed that this should result in a 5% pre-vest reduction on Ms Rose’s original maximum LTI award level. We have also made a pre-vest reduction of 7.5% of maximum to Ross McEwan’s award in relation to the same issue. The reduction in Mr McEwan’s 2018 LTI award was greater than Ms Rose’s as he was considered to have had supervisory oversight responsibility. Full details of the pre-vest assessment for both Ms Rose and Mr McEwan can be found on page 139. 2018 LTI award to Alison Rose MaximumGrantedShares to vest Shares564,122488,906460,700 Value£1.5m£1.3m£0.65m The £0.65m value reflects both an aggregate reduction of 18.33% of the maximum LTI award level for Ms Rose across pre-grant and pre-vest stages and also the fall in the share price over the performance period. While the performance cycle has completed, the shares from the 2018 LTI award will vest in tranches up to 2025 and remain subject to retention and malus and clawback provisions to ensure recipients maintain a long-term focus in their decision-making. Executive pay in a market context The Committee receives annual updates that compare executive remuneration at NatWest Group to a broad peer group, consisting primarily of UK and overseas-based banks but also some insurers. A further comparison is made against the FTSE30. The latest analysis shows that CEO target total compensation at NatWest Group remains at the lower quartile of the FTSE30 and is also at the lower end of the main UK banks. The position against the broad peer group is around median. The CFO is positioned slightly higher against the market with target total compensation at median against the FTSE30 but again at the lower end of the main UK banks. The position against the broad peer group is above median. Approach to windfall gains This has been a focal point for shareholders in 2020 due to share prices being highly volatile and we have given the matter a great deal of thought. Over an executive’s tenure it is likely that there will be some years where awards will be granted at times when the share price appears low compared with the long-run trend and other times where the opposite will occur. The key principle here is alignment with shareholders and our heavily share-based construct, with shares granted at different prices over the years, already creates close symmetry with market movements in either direction. The LTI awards granted in March 2020 were made at a time when the true impact of COVID-19 was just beginning to emerge. The share price fell significantly after the grant was made before recovering some of that ground by the end of the year. I wrote to our major shareholders before the AGM confirming that the Committee would consider any potential windfall gains prior to vesting and would use its discretion where appropriate. After considering a number of options, we continue to believe that assessing windfall gains prior to vesting, rather than at grant, is the optimal time to consider any adjustments. In order to help guide our judgement in these circumstances, and to reassure shareholders that there is rigour involved, a framework has been implemented to assess whether windfall gains have arisen over the period from grant to vest and the factors to consider in making any adjustments. For the 2021 LTI award this framework ensures the following factors are taken into account: the level of the grant price in comparison to pre COVID-19 levels; the level of share price appreciation (if any) over the period up to vest; consideration of whether share price appreciation was unique to NatWest Group and indicative of strong management performance; and whether any reduction had been applied to award levels at pre-grant. On the final point above, as set out earlier in this letter, the 2021 LTI award levels were significantly reduced to reflect the impact of COVID-19. The significant reductions applied prior to grant will, in line with the framework, be an important factor in determining whether any windfall gains have arisen prior to vesting. Other workforce considerations Fairness The Committee continued to review remuneration arrangements for the wider workforce during the year and worked closely with the Sustainable Banking Committee. A decision was taken to introduce a Fair Pay Charter for NatWest Group, which is based around ten key principles and builds on the existing elements of our fair pay approach. It is pleasing to see that the number of colleagues at NatWest Group who believe they are paid fairly increased again during 2020, to a level significantly above the Global Financial Services Norm. In the UK, our rates of pay continue to exceed the Living Wage foundation benchmarks. For our major hubs outside the UK, we continue to pay above the minimum and Living Wage rates in the Republic of Ireland as well as exceeding the minimum wage benchmarks in India and Poland. Gender and ethnicity The Committee considers gender and ethnicity pay gap metrics to be another important indicator and full details can be found in the Strategic report and on natwestgroup.com. This is the third year that we have published ethnicity pay gap information on a voluntary basis. We are confident that colleagues are paid fairly, and policies and processes are kept under review to make sure this continues to be the case. Financial wellbeing We also discussed the financial wellbeing of colleagues. Following a successful campaign over the last two years, the number of colleagues saving nothing for life after work has reduced by 13% and pension contributions have increased by over £31 million. Colleagues have access to a range of flexible benefits and in certain jurisdictions they can choose to join one of our employee share plans. The Committee agreed to the extension of our popular Sharesave plan to Poland and India for the first time. Engaging with colleagues I enjoyed attending another meeting with the Colleague Advisory Panel (CAP) during the year, which provides direct engagement between colleagues and Board members. I provided the CAP with an update on our approach to executive director remuneration and how it aligns with the wider company pay policy. Feedback was positive with members stating that the principles behind executive director pay were clear and fair. In addition to the commitment to maintain workforce pay at the outset of COVID-19 and not to place colleagues on furlough, measures were put in place to enable colleagues to work safely and productively, including home working support. A virtual GP service was also introduced together with a guided suite of wellbeing programmes to help support mental health. Steps were also taken to maintain internships and NatWest Group did not cut any apprenticeship programmes during 2020. Looking ahead NatWest Group will shortly publish an Environmental, Social and Governance (ESG) report, to provide additional information on ESG issues to investors, regulators, customers, suppliers, colleagues and other stakeholders. The report will be available on natwestgroup.com. Along with the Fair Pay Charter, this provides a further platform for us to explain how various aspects of wider workforce remuneration provide a link between culture, pay and ESG.

GRAPHIC

 

 

 The Committee has also approved targets for executive remuneration to support the updated strategic goals, with new measures on financial capability and return on equity. ESG measures form an integral part of our LTI goals. For 2021, there are targets related to our climate ambitions as well as supporting enterprise and building financial capability, aligned with our purpose. Response to shareholder feedback Priority areas have been identified for the first time to provide increased transparency to shareholders on the goals considered to be key deliverables for the year. This is intended to address stakeholder feedback on the level of discretion afforded to the Committee under our LTI construct. Together with the new ratings that have been introduced to indicate the extent of over or underperformance against targets, this will provide additional insight into how the Committee viewed performance over the year and the factors it regarded as having more of a bearing on executive pay decisions. The priority areas for 2021 include financial and risk performance as well as measures related to climate, enterprise, customers, shared purpose and culture. The revised remuneration requirements under the fifth Capital Requirements Directive (CRD V) will be another focus for the Committee during 2021. It will bring about some changes to remuneration arrangements for Material Risk Takers, including extending the minimum deferral period from three to four years for variable pay awards. I hope this letter and the rest of the report will help to explain the Committee’s approach to pay decisions for the year and why we believe these strike an appropriate balance. I would like to thank my fellow Committee members and all the stakeholders who provided valuable input during a most challenging and unusual year and look forward to our continued engagement in 2021. Robert Gillespie Chairman of the Group Performance and Remuneration Committee 19 February 2021

GRAPHIC

 

 What are the principles behind the executive directors’ remuneration policy? How will executive directors be paid for the 2021 performance year? Pay elementCEOCFOAdditional information

GRAPHIC

 

 Aligning wider workforce and executive pay Certain colleagues depending on location, grade or role Senior executives only Base salary and pension funding Benefits and share plans Role-based allowances Annual bonus LTI awards Base salary is intended to provide a competitive level of fixed cash remuneration. Base salaries are reviewed annually and reflect the talents, skills and competencies that the individual brings to the business. Colleagues are provided with additional funding which they can use to save in one of the company’s pension schemes. Colleagues in the UK receive pension funding at 10% of base salary, which is the same rate that applies to executive directors. Rates in other locations reflect local market practice. Individuals can access a range of flexible and competitive benefits. Benefits offered include private medical cover, dental cover, personal accident insurance, life assurance and critical illness insurance. Some colleagues receive funding which they can use towards the cost of benefits or take as cash. Individuals in some jurisdictions can also participate in one or more of the company’s share plans. This provides them with an efficient way to buy NatWest Group plc shares and aligns their interests with shareholders. Role-based allowances reflect the skills and experience required for certain roles. They form an element of fixed remuneration for regulatory purposes and are delivered in cash and/or shares depending on the level of the allowance and the seniority of the recipient. Shares are released in instalments over a three-year retention period. The purpose is to support a culture where individuals are rewarded for superior performance. The annual bonus pool is based on a balanced scorecard of measures including Finance, Risk, Customer and People & Culture measures. Allocation from the pool depends on performance of the business area and the individual. Awards are made in cash and/or shares with larger awards paid out over several years. Where appropriate, awards can be adjusted or cancelled through malus and clawback. LTI awards encourage the creation of a sustainable business. Executive directors and certain members of senior executive committees receive LTI awards rather than annual bonus. Awards are delivered entirely in shares based on progress against the scorecard of Finance, Risk, Customer and People & Culture measures, aligned with our purpose. Awards vest in equal tranches across years 3 to 7 following grant, followed by a 12-month retention period, and can be adjusted through malus and clawback. LTI participants are also subject to shareholding requirements. Fixed Pay Variable pay All colleagues

GRAPHIC

 

 Listening to colleagues There is a well-developed process in place to listen to the views of the workforce. This provides opportunities to improve by assessing colleague sentiment and checking progress in making NatWest Group a great place to work. * References to “colleagues” here includes all employees and, in some instances, it also captures other members of the wider workforce, for example, contractors and agency workers. Supporting colleagues throughout the COVID-19 pandemic From the outset, supporting colleagues has been a priority and a summary of the measures put in place is set out below: NatWest Group did not furlough any colleagues during 2020. Pay was protected until the end of September regardless of the need to take time off for COVID-19 related illness, dependants care, isolation or childcare. Steps were taken to ensure all physical distancing and protective measures were in place, including the use of static desks, recommendations on the use of face coverings and thermal imaging where appropriate. A commitment was made to pay expenses incurred to travel to work if normal public transport was disrupted or not safe. Home working was quickly made available to over 50,000 colleagues, who could also request equipment to work from home effectively. A virtual GP service was made available, allowing colleagues to access a doctor 24 hours a day. Silvercloud was launched, which contains a guided suite of wellbeing programmes to help support mental health. NatWest Group maintained all its internships and did not cut any apprenticeship programmes during 2020. Support continues for colleagues through a comprehensive employment policy suite. In particular, there are competitive leave and sickness absence policies, where all COVID-19 sickness absences continue to be fully paid. Further details on NatWest Group’s broader response to the pandemic and support for colleagues can be found in the Strategic report.

GRAPHIC

 

 Our approach to reward and fairness Reward is an important part of the colleague proposition at NatWest Group contributing to making colleagues feel valued, respected and recognised for the work that they do. Fair reward is one of the key things that NatWest Group is committed to in order to provide a great place to work for everyone. This means NatWest Group will pay colleagues fairly for the job they do and be clear on how they can make their pay and benefits work for them. This is underpinned by the Group’s Reward Policy – a global framework for the design of remuneration programmes in NatWest Group. The objective is to deliver reward in a way that is aligned to the current and future needs of the business, enabling managers to use reward as a business tool alongside other people initiatives. Our Fair Pay Charter Principles to support fairness for all our colleagues Financial Wellbeing Recognition Fixed Pay How do we define Reward? Benefits Variable Pay Saving for life after work The Our View survey compares responses to questions from colleagues at NatWest Group against the position in other companies, known as the Global Financial Services (GFS) Norm. The 2020 results show that sentiment on reward, benefits and recognition continues to be good. All areas are above the GFS Norm, significantly in some cases. The Total Reward category and three of the five specific questions improved during the year. Our View survey2020 favourable scoreVersus 2019Versus GFS Norm

GRAPHIC

 

 

 A great place to work In order to create a great place to work for everyone, NatWest Group is committed to providing: a fulfilling job; excellent development; fair rewards and great leadership; underpinned by a healthy and inclusive workplace where colleagues can be themselves. A fulfilling role in a great team A challenging but rewarding job where colleagues have the tools to succeed and a sense of direction and purpose Fair rewards Paying colleagues fairly for the work they do and being really clear on how they can make their pay work for them A healthy and inclusive environment Excellent development Help to build the capabilities needed to thrive and do a great job (both now and in the future) Great leadership Equipping all managers to give their teams the support and leadership they need to thrive Alignment with executive pay Targets to support building the capability of colleagues, strengthening culture and building a diverse workforce with an inclusive environment are part of the measures that impact the pay awarded to executive directors. See pages 139 to 142 for further details.

GRAPHIC

 

 Highlights of building a healthy and inclusive workplace in 2020Recognition Launched the NatWest Group Learning Academy to assist with learning in areas such as being purpose-led, climate and diversity & inclusion. Wellbeing hub created to support colleagues through COVID-19. Mandatory mental health awareness module for line managers. Creation of a Racial Equality Taskforce setting out new targets and commitments and help for teams to talk about racism. Developed a new mandatory learning module called ‘inclusion with purpose’ to help to educate on bias, power and privilege and micro aggressions to support behaviour change. Promoted greater ESG awareness for colleagues with tools on the intranet and a travel and home carbon calculator. Hosted our 2nd Disability Conference in Scotland in collaboration with the Business Disability Forum. Founding partners and category sponsor for the 2020 British LGBT Awards. Greater focus on financial wellbeing, with initiatives targeted at encouraging colleagues to save more for life after work. Met Hampton-Alexander and Parker Review Board requirements on gender and ethnicity. Won the 2020 REBA Wellbeing Award for Best Approach to Long-term Financial Wellbeing Founding signatory to HMT’s Women in Finance Charter Signatory to the UN Women Empowerment Principles A Times Top 50 Employer for Women (since 2005) Rated in the top organisations in Bloomberg’s Global Gender Equality Index Ranked Leader level in Govt.’s Disability Confident Scheme Rated Gold in the Business Disability Forum benchmark Founding signatory of UK Govt.’s Race Equality Charter Named as a Top 10 Outstanding Employer in the Investing in Race and Ethnicity 2020 Ethnicity 100+ list Top Global Stonewall Employer since benchmark’s inception Signatory to the UN Principles for Responsible Banking and 2030 UN Sustainability Development Expert Level in the Scottish Carer Positive campaign Ranked Top 5 overall in the McKenzie-Delis Packer Review Working Families UK Best Practice Awards (2020/2019) Diversity in Finance Awards (2020): Initiative of the Year and Championing Social Mobility Further information on NatWest Group’s approach to culture, developing colleagues and inclusion can be found in the Strategic report. Pay gaps and pay ratio disclosures The latest gender and ethnicity pay gap reporting for NatWest Group together with the steps being taken to address the position can be found in the ‘Our Colleagues’ section of the Strategic report and on natwestgroup.com. The CEO to employee pay ratios and further information on remuneration for the wider workforce can be found later in this report.

GRAPHIC

 

 How executive remuneration is linked to NatWest Group’s ESG approach and purpose In addition to financial targets, the 2020 performance goals used to determine variable pay for executive directors included a range of ESG measures. These were set to reflect the new strategy and key focus areas of Climate, Enterprise & Learning. New goals were created around climate (‘to be a leading bank helping to address the climate challenge’), enterprise (‘new business creation irrespective of gender, background or geography’) and people targets were focussed on shared purpose and building the capability of colleagues. The Blueprint for Better Business (BfBB) framework was used to complement the existing balanced scorecard. The ESG goals and measures for 2020 are set out below with details of the performance assessment against the targets on page 139 to 142. Purpose and BfBB alignmentPerformance goals2020 performance measures for 2021 LTI awards A guardian for future generations. E Honest & fair with customers and suppliers. A good citizen. A responsible and responsive Semployer. Has a purpose which delivers long-term sustainable Gperformance. To be a leading bank helping to address the climate challenge. Meaningful increase in customer advocacy. Build trust with our customers. Creation of new businesses. Build the capability of colleagues to realise their potential. Build up and strengthen a healthy culture. Embed our shared purpose across the business and brands. Develop a diverse workforce and inclusive environment. Maintain a robust control environment. Material progress towards desired risk culture. Run a safe and secure bank. Progress towards climate positive operations by 2025. Increase funding and financing for climate and sustainable finance. Set sector specific targets for emissions reduction. Achieve targets for Net Promoter Scores across top 5 customer journeys. Achieve improved net trust scores for NatWest and Royal Bank of Scotland. Creation of new businesses, ensuring everyone has the same opportunity to progress irrespective of gender, background or geography. Achieve the capability targets. Achieve the culture targets based on the Banking Standards Board assessment. Achieve the shared purpose targets. Progress on the number of women across the top three layers and number of Black, Asian and Minority Ethnic UK employees in the top four layers of NatWest Group. Achieve the inclusion targets. Achieve or maintain an effective control environment rating. Effective management of compliance with ring-fencing rules. Achieve or maintain a ‘systematic’ risk culture rating. Achieve CET1 ratio target for NatWest Group and NWH Group, with appropriate repatriation of capital to NatWest Group.

GRAPHIC

 

 Complying with the UK Corporate Governance Code (the ‘Code’) The table below supplements other information in this report in order to evidence compliance with Code requirements. The Committee continues to monitor and reflect on best practice when developing remuneration practices for NatWest Group. ProvisionNatWest Group approach to compliance A formal post-employment shareholding requirement was introduced for executive directors under the 2020 Post-employment shareholding requirement Pension rate aligned with the wider workforce Review workforce remuneration and alignment with culture Consider factors such as clarity, simplicity, risk, predictability, proportionality and alignment to culture when determining the policy Engagement with colleagues Discretion Malus and clawback policy, in order to fully comply with the Code and the Investment Association’s Principles of Remuneration. The requirement will apply for two years at a level equal to the lower of the shareholding requirement immediately prior to departure or the actual shareholding on departure. Procedures are in place to assist with the enforcement of the requirement, as described in the policy on the next page. The pension rate for executive directors has been aligned with the rate applicable to the wider workforce in the UK, currently 10% of base salary. The Committee considers a range of information on the broader workforce, for example, the Group-wide remuneration policy principles, annual pay outcomes including diversity information across the workforce, bonus pool allocations, the deferral policy, and the annual Sharesave offer for colleagues. Culture is part of a suite of measures used to assess progress in building a healthy and inclusive workplace and performance against culture targets directly impacts the variable pay of both senior executives and other colleagues. The governance of culture is clearly laid out with specific Senior Management Function roles having defined accountabilities, which is taken into account in their pay decisions. The Committee works closely with the Group Sustainable Banking Committee (SBC), which has a specific focus on people and culture. The decision to remove front-line incentives for large numbers of colleagues in recent years, in order to align with the desired culture, was something that both committees supported. In 2020, the committees held a joint session to review wider workforce remuneration focusing on the areas of colleague recognition, fair pay and financial wellbeing. Having a simplified construct for executive directors, with only one form of variable pay, was one of the main intents behind the current policy. The majority of the remuneration is share-based, creating clear alignment with shareholders. There is clarity for executives, by having performance conditions that they should reasonably be expected to achieve, and detailed disclosure to provide transparency for shareholders. Risk is taken into account at various stages of the performance assessment, supported by the use of underpins. Malus and clawback provide further tools to deliver risk-adjusted performance. The LTI construct is based on lower maximum award levels compared to typical market practice and reasonable performance expectations, which helps to create more predictable outcomes and encourage safe and secure growth. Variable pay cannot be awarded above the level of fixed pay which is considered to be a restrained and proportionate approach to executive remuneration. Any variable pay awarded is subject to the achievement of performance against strategic goals and delivered over a long time horizon. As set out above, culture is part of a balanced scorecard that is used to assess performance, and this includes consideration of both what has been achieved and how it has been achieved. The CAP provides a formal mechanism for engagement between the workforce and Board members. The Committee Chairman meets with the CAP each year to discuss executive remuneration and its alignment with the wider pay policy. The Chairman of the CAP is also a member of the Committee. If the CAP expresses any concerns on pay matters these would be raised with the Committee. Further information on the CAP and how colleagues’ views are taken into account is set out earlier in this report. Discretion can be applied under the company’s share plan rules where appropriate and the Committee has applied downwards discretion in the past, and also again this year, to LTI outcomes. Discretion is only used to ensure a fair outcome for the director and for shareholders and any use of discretion will be disclosed. When assessing performance, the Committee can exercise its judgement to determine the appropriate vesting of LTI awards, supported by the application of underpins, which helps to avoid any potentially unintended outcomes that might arise from the application of formulaic performance criteria. The Committee also has discretion to make minor amendments to the directors’ remuneration policy to reflect changing legal or regulatory requirements, provided there is no material advantage to the directors, and can also use discretion to apply malus and clawback to LTI awards. Malus allows the amount of any unvested variable pay awards to be reduced, potentially to zero, prior to payment. Clawback allows for recovery of variable pay awards that have already vested. The circumstances in which NatWest Group may apply malus or clawback include: conduct which results in significant financial losses for NatWest Group; the individual failing to meet appropriate standards of fitness and propriety; an individual’s misbehaviour or material error; NatWest Group or the individual’s business unit suffering a material failure of risk management; and for malus and in-year bonus reduction only, circumstances where there has been a material downturn in financial performance. The above list of circumstances is not exhaustive and NatWest Group may consider any further circumstances as it deems appropriate.

GRAPHIC

 

Directors’ remuneration policy Remuneration policy for executive directors The remuneration policy was approved at the AGM on 29 April 2020 and will apply until the 2023 AGM unless changes are required. There are no changes requiring shareholder approval at this time. The table summarises the key features of the policy. In the event of any conflict the approved policy, which can be found under the Governance section of natwestgroup.com, takes precedence over the information set out below.

GRAPHIC

 

 

Directors’ remuneration policy Remuneration for the Chairman and non-executive directors Other policy elements for directors ProvisionOperation Recruitment policy Notice and termination provisions A Boardroom Inclusion Policy is in place which aims to promote diversity and inclusion in the composition of the Board. The framework aims to ensure NatWest Group can attract, motivate and retain the best talent and avoid limiting potential caused by bias, prejudice or discrimination.The policy on the recruitment of new directors aims to be competitive and to structure pay in line with the framework applicable to current directors, recognising that some adjustment to quantum within that framework may be necessary to secure the preferred candidate. A buy-out policy exists to replace awards forfeited or payments foregone, which is in line with regulatory requirements. The Committee will minimise buy-outs wherever possible and ensure they are no more generous than, and on substantially similar terms to, the original awards or payments they are replacing. Executive directors As set out in executive directors’ service contracts, NatWest Group or the executive director is required to give 12 months’ notice to the other party to terminate the employment. There is discretion for NatWest Group to make a payment in lieu of notice (based on salary only) which is released in monthly instalments. The executive director must take all reasonable steps to find alternative work and any remaining instalments will be reduced as appropriate to offset income from any such work. Chairman and non-executive directors The Chairman and the non-executive directors do not have service contracts, they have letters of appointment. They do not have notice periods and no compensation would be paid in the event of termination of appointment, other than standard payments payable for the period served up to the termination date. Under the Board Appointment Policy, non-executive directors are appointed for an initial term of three years, subject to annual re-election by shareholders. At the end of this initial term, a further three-year term may be agreed. Non-executive directors may be invited to serve beyond six years, up to a maximum tenure of nine years. The Chairman is not subject to the Board Appointment Policy but is subject to the requirements relating to the maximum tenure period for chairs under the Code. All directors stand for annual election or re-election by shareholders at the company’s AGM. Howard Davies - 14 July 2015 Frank Dangeard – 16 May 2016 Yasmin Jetha - 21 June 2017* Alison Rose - 1 November 2019 Patrick Flynn – 1 June 2018 Mike Rogers – 26 January 2016 Katie Murray - 1 January 2019 Morten Friis – 10 April 2014 Mark Seligman – 1 April 2017 Robert Gillespie – 2 December 2013 Lena Wilson – 1 January 2018 Legacy arrangements Treatment of outstanding share plan awards on termination * Yasmin Jetha’s first appointment to the Board following which she stepped down in 2018 to serve solely as a director of key entities in preparation for the ring-fencing regime before re-joining the Board on 1 April 2020. NatWest Group can continue to honour any previous commitments or arrangements entered into with current or former directors that may have different terms, including terms agreed prior to appointment as an executive director. On termination, share awards will be treated in accordance with the relevant plan rules as approved by shareholders. LTI awards normally lapse on leaving unless the termination is for one of a limited number of specified good leaver reasons. Under the remuneration policy approved by shareholders at the 2017 and 2020 AGMs, LTI awards made in 2018 onwards will be pro-rated for the period worked prior to grant but following grant no further pro-rating will be applied to good leavers. No pro-rating after grant is fundamental to the LTI construct and allows for a fair level of value to be delivered to the executives whilst having significantly lower maximum variable pay levels compared to peers. NatWest Group operates an LTI only construct, whilst peers also offer annual bonus awards (which typically are also not subject to pro-rating after grant). Without the removal of pro-rating, executives at NatWest Group could potentially receive no variable pay for the year of joining, in line with regulatory requirements, or in the final year of employment. The main emphasis of the performance assessment is normally on the pre-grant test, which means the award has already been ‘earned’ to a large extent by the time of grant. The removal of pro-rating creates higher levels of shareholding for up to eight years post departure meaning executives can be held accountable for, and are financially exposed to, the long-term consequences of their actions, including through malus and clawback.

GRAPHIC

 

 Where indicated in the margins with a bracket, information is within the scope of the independent auditor’s report. Single total figure of remuneration for executive directors for 2020 2020 2019 2020 2019 £000 £000 £000 £000 Notes: Fixed remuneration for 2019 reflects a part-year position for Ms Rose as she joined the Board on 1 November 2019. The fixed share allowance is based on 100% of salary and, as part of fixed remuneration, is not subject to any performance conditions. In April 2020, Ms Rose announced she would forgo 25% of her fixed pay for the rest of the year. This was achieved through a reduction of £426,078 to her fixed share allowance. NatWest Group made a comparable donation to the NET Coronavirus Appeal. Includes standard benefit funding for all at £26,250 per annum. In addition, Ms Rose received travel assistance in connection with company business (£23,029) and an upgrade to the existing home security system (£31,793) with Katie Murray also receiving travel assistance (£3,952) and home security arrangements (£16,939). The executive directors receive a monthly cash allowance and can choose to participate in the company’s defined contribution pension arrangements. The 2020 value for Ms Rose relates to an LTI award granted in 2018, prior to becoming an executive director. The pre-vest performance assessment has now taken place as set out on the next page. No discretion was exercised by the Committee as a result of the share price changing over the performance period. The estimated value above for Ms Rose is £850,000 lower than the maximum award available in 2018 (£1.5m). Of that reduction, £275,000 is due to adjustments under the pre-grant and pre-vest performance assessments and the remaining £575,000 is as a result of the fall in share price over the period. No dividend equivalents were paid on the award prior to vesting. Ms Murray did not receive an LTI award in 2018 due to being on a different remuneration construct at that time. Scheme interests – LTI awards granted during 2020 Note: Conditional share awards were granted equating to c.136% of base salary for Ms Rose and c.147% of base salary for Ms Murray. The number of shares was calculated taking into account performance and the maximum potential award for each individual. The award price of £1.701 was based on the average share price over five business days prior to grant. Subject to the pre-vest assessment, these awards will be eligible to vest in equal amounts between years 2023 and 2027. Service conditions and malus provisions apply up until vest, and clawback provisions apply for a period of at least seven years from the date of grant.

GRAPHIC

 

 2018 LTI award - Pre-vest performance assessment framework LTI awards were made in early 2018 following an assessment of performance over the 2017 financial year. In accordance with the LTI construct, the Committee has undertaken a further review of performance for 2017 to consider whether anything has come to light which might call into question the original award. Any indication of underperformance is reviewed to assess whether it would be appropriate to make a reduction. The process that has been followed to determine whether sustainable performance has been delivered for the 2018 LTI award is set out below. An assessment of performance was provided by internal control functions and PwC provided an independent view to the Committee. Pre-vest test for 2018 LTI award - when looking back to performance for 2017, and ‘knowing what we know now’, has NatWest Group: Core questions Evidenced by Remained safe and secure, taking into account financial results and the capital position? Been a good bank for customers taking into account customer and advocacy performance? 4. Operated in a way that reflects its stated values? Has NatWest Group breached a minimum capital ratio over the period? NO No material deterioration but expected improvement to CEC2 rating not consistently achieved in subsequent years. NO Scores improved consistently since 2017. NO Engagement Index has increased steadily since 2017. Has there been a material fall in the NatWest Group share price over the period? Has Net Promoter Score (NPS) fallen across the business? Have there been indicators of a material deterioration in the risk culture or profile, taking into account annual assessments by the Risk function and the BRC? Has the BSB survey position fallen materially? Have colleague engagement scores fallen materially? YES The share price has fallen by just under 40% since the end of 2017. YES NPS has fallen since 2017 for three out of the six targeted customer areas. YESNO Where the answer is ‘Yes’, three further questions have been considered: Is the underperformance due to factors within management’s reasonable control in the circumstances? Can the underperformance be linked back to the performance year to which the award relates, rather than performance developments since? Is it appropriate to reflect the underperformance in the current pre-vest test (i.e. if the underperformance has not been adequately reflected in other ways such as subsequent pre-grant tests for awards granted in the interim)? If the answer to each of these questions is “Yes”, the Committee may decide that a further adjustment prior to vesting is appropriate, and it has the discretion to decide the amount. Further analysis Three areas were investigated - share price, customer and risk with a specific focus on Customer Due Diligence remediation. Supported by external opinion, it was concluded that share price underperformance was not due to factors within management’s reasonable control, given the close correlation in share price performance over the period with our main competitors. While NPS had declined in some areas and management’s decisions to close branches had a bearing, this had already been accounted for through adjustments to LTI awards in subsequent years. Whilst on risk there had been no material deterioration in risk culture or profile over the period, it was felt appropriate that consideration of management performance relating to Customer Due Diligence and associated matters (CDD) should be assessed using the Risk & Control underpin. Achievement of ‘threshold level of sustainable performance’ has been evidenced. No adjustment proposed, subject to the underpins below. Risk & Control and Stakeholder Perception underpins The underpins provide scope to consider significant risk, stakeholder or reputational matters not already captured in the performance assessment, taking into account advice from the BRC and the SBC. The underpins can also be used to consider events arising during the period between grant and the end of year three. Having reviewed the facts relating to management performance with regard to CDD, and recognising its significance, BRC agreed it would be appropriate for the Committee to consider an adjustment to 2018 LTI vest levels.

GRAPHIC

 

 BRC assessment and recommendation to invoke the Risk & Control underpin Following a detailed investigation by management, the BRC concluded that there had not been a full appreciation across management of the scale and complexity of the challenges related to the remediation of CDD during 2017. This had led to issues with the in-year remediation plan which had not been fully reflected at grant or in subsequent grants. Following the steps above, the BRC recommended that the Committee consider the application of the Risk & Control underpin for 2018 LTI awards. RemCo assessment and final outcome Following the recommendation from the BRC to consider the application of the Risk & Control underpin, it was agreed that the awards of four individuals holding 2018 LTI awards would be adjusted. Ross McEwan was viewed as having supervisory responsibility for the CDD remediation plan during 2017 and Alison Rose was considered to have had associated responsibility, in her role as CEO of Commercial and Private Banking during 2017. Of the two other recipients, one was also considered to have associated responsibility, with the other being considered primarily responsible for the 2017 plan. The Committee considered at length the differing level of involvement and responsibility for the CDD remediation programme in 2017 across the four individuals, to ensure fair and proportionate adjustments were made. Mr McEwan received an LTI award of 592,328 shares in 2018 following the application of the pre-grant performance assessment which resulted in a reduction of 10% from the maximum award level of 658,142 shares. Under the pre-vest assessment above, a further reduction of 7.5% of the maximum award was applied using the Risk & Control underpin, resulting in a balance of 542,968 shares. As a member of the Executive Committee at the time, Ms Rose received a 2018 LTI award of 488,906 shares following the pre-grant test, representing a 13.33% reduction from the maximum possible award. The Committee and the Board agreed that a further reduction of 5% on Ms Rose’s LTI maximum award level would be appropriate using the Risk & Control underpin. Applying a slightly lower reduction for Ms Rose compared to Mr McEwan was considered to be proportionate as while Ms Rose, as a franchise CEO, had associated responsibility for CDD remediation in 2017, Mr McEwan had supervisory oversight of the in-year remediation plan. Further details on Mr McEwan’s arrangements can be found in the payments to past directors section. A summary of the agreed award level for Ms Rose and the estimated vesting value is set out below. Note: (1) Based on a share price of £1.41, the average over the three-month period from October to December 2020. Pre-grant assessment of performance in 2020 (for LTI awards to be granted in 2021) For each of the core performance areas, the Committee considers whether the executive director has achieved what would reasonably have been expected over the performance year prior to grant. The achievement of reasonable or ‘target’ performance expectations can deliver full or nearly full pay-out of the LTI awards, as long as executives deliver good, sustainable performance. This approach reflects the significantly reduced level of LTI awards expected to be granted under the company’s LTI construct, in comparison to traditional LTI structures, which is designed to create more predictable outcomes and encourage safe and secure growth within risk appetite. The Committee follows a robust process to review performance against pre-set goals relevant to NatWest Group’s strategic aims for that year but applies its judgement without a formulaic range for vesting or mechanistic weightings. Performance is assessed taking into account circumstances applying over the period. Risk & Control and Stakeholder Perception underpins also apply under which the Committee can consider if there are any other factors that would lead to a downwards adjustment. Awards may be reduced, potentially down to zero, further to the application of either the pre-grant or pre-vest tests where there has been significant underperformance or risk management failings. In line with feedback received from some shareholders, ratings have been added to the table below to show the extent of under or overperformance.

GRAPHIC

 

[LOGO]

 

 

 Notes: Across the retail and commercial businesses net lending increased by £20.9 billion in comparison to 2019 supported by £12.9 billion drawdowns against UK Government lending schemes and £16.2 billion mortgage lending, including £3.0 billion related to the Metro Bank mortgage portfolio acquisition. Data only tracked against select initiatives which included those focused on female and social purpose-led entrepreneurs. For 2021 reporting will reflect all initiatives. Willis Towers Watson’s Global Financial Services Norm. The Banking Standards Board Norm is based on the average score across all participating banks. For the CFO, performance was assessed in line with the framework above and the performance of the Finance function was also taken into account.

 

 Outcome of the pre-grant assessment for the 2021 LTI award The Committee also received advice from the BRC and the SBC in making its final assessment. As part of its ‘performance in the round’ judgement, the Committee noted that targets had been met or exceeded for six of the areas above, one was partially met and four were missed, albeit narrowly in some cases. Of these areas the resilience of underlying financial performance, despite the exceptionally challenging environment, and the progress in embedding and demonstrating the Group’s purpose internally and externally were viewed as having a significant bearing on the overall view of performance. Whilst progress against the enterprise goal fell significantly short of target, the Committee acknowledged the response had been appropriate in prioritising support to existing customers over new business growth. Alison Rose Turning to individual performance, Ms Rose was considered to have had a highly impressive first full year in her CEO role. Despite it being a remarkably challenging year, an effective launch of the Group’s purpose and her strong leadership and energy through the pandemic had resulted in an excellent operating performance. There had been effective engagement with key external stakeholders, some progress on customer scores and good people scores in a difficult year. Underlying financial performance was viewed as very respectable despite the impact of COVID-19 on results. NatWest Group continued to be behind target on risk measures, although risk culture had continued to improve. Taking into account performance against the core goals as set out above and the uniquely challenging and unanticipated external events of 2020, the Committee agreed an LTI award level of £899,000 would be appropriate. This would equate to 82% of salary and 47% of the maximum LTI award level. This outcome included an exceptional COVID-19 reduction of 38% to reflect the impact of the pandemic on the wider economic environment and NatWest Group’s performance and affordability, otherwise performance against the pre-set and unadjusted 2020 performance targets would have resulted in an award level equal to 75% of Ms Rose’s maximum. This is below the long-term guidance of 80% for assumed average vesting over a CEO’s tenure. The Committee went on to acknowledge that Ms Rose had informed the Board in April that she did not wish to be considered for an LTI award for 2020 and, therefore, no award will be made. Katie Murray Ms Murray’s performance in 2020 was also considered to be strong, with highlights including managing crucial parts of the COVID-19 agenda, especially capital, liquidity and funding plans, and driving annual cost reductions in line with target. There had been improved management of investor engagement with positive feedback received and Ms Murray had demonstrated excellent leadership and had made progress on transforming the Finance function and its executive team as well as its inclusion agenda. In light of performance achieved, the Committee agreed that an LTI award of £682,000 would be appropriate, which equates to 90% of salary and 45% of the maximum award available. Again, this outcome included an exceptional COVID-19 reduction of 38%, otherwise performance against the pre-set unadjusted 2020 performance targets would have resulted in an award level equal to 73% of Ms Murray’s maximum. This is also below the long-term guidance of 80% for assumed average vesting. Note: (1) 2021 LTI award for Ms Murray represents a 38% reduction on her 2020 LTI award. Pre-vest performance assessment for 2021 LTI awards The pre-vest assessment for LTI awards due to be granted in March 2021 will operate in a similar way to the pre-vest framework in place for 2018 LTI awards, as described in detail on page 138. In early 2024, the Committee will look back to consider whether anything has come to light that would indicate that the pre-grant assessment based on the 2020 performance year did not represent a correct view of performance at that time, thereby requiring a reduction or cancellation in the vesting of the award. Underpins provide scope to consider significant risk and control, stakeholder or reputational matters not already captured in the performance assessment. Full details of the assessment will be disclosed prior to the first vesting taking place in 2024.

GRAPHIC

 

 Total remuneration for the Chairman and non-executive directors for 2020 There were no changes to the number of Committees during the year. One change was made to the level of fees, with the Chairman of the CAP receiving a temporary increase from £15,000 to £30,000 per annum to reflect the additional engagement with the workforce as a result of COVID-19. The increase applies for the period from 1 April 2020 to 31 March 2021. For NatWest Group plc Board directors who also serve on the boards and committees of NatWest Holdings Limited, National Westminster Bank Plc, The Royal Bank of Scotland plc and Ulster Bank Limited, the fees below reflect membership of all five boards and their respective board committees. Where appropriate, directors also received fees for membership of other subsidiary company boards and committees including NatWest Markets Plc, the value of which is included below. The year on year (YoY) percentage change for fees and benefits has been added below in line with new reporting regulations. Membership of Board Committees is reviewed regularly and changes in membership will impact the level of fees paid to non-executive directors from one year to the next. Two directors left during the year which had a further impact and the benefits figures have largely fallen due to there being significantly less travel in 2020. Total single figure of remuneration for the Chairman and non-executive directors during 2020 2020 2019YoY% 2020 2019YoY% 2020 2019 £000 £000 change £000 £000 change £000 £000 Chairman (composite fee) Board N&G GAC BRC RemCo SBCTICSID CAP Other2020 2019YoY% 2020 2019YoY% 2020 2019 Non-executive directors £000 £000 £000 £000£000 £000£000 £000 £000 £000£000 £000 change £000 £000 change £000 £000 No variable pay is provided to the Chairman and non-executive directors in line with the Code. Notes: The benefits column for Howard Davies, Chairman, includes private medical cover (£11,007) as well as life cover and expenses in connection with attendance at Board meetings (c.£1,000 in total). In April 2020, the Chairman announced he would donate 25% of his fees for the rest of the year to the NET Coronavirus Appeal. Non-executive directors are reimbursed expenses incurred in connection with travel and attendance at Board meetings. These expenses are taxable where the meetings take place at the company’s main offices and NatWest Group settles the tax on behalf of the non-executive directors. Under the ‘Other’ column, Frank Dangeard received a composite fee as Chairman of the NatWest Markets Plc (NWM Plc) Board. Alison Davis and Baroness Noakes stepped down from the Board on 31 March 2020 and 31 July 2020 respectively. Yasmin Jetha re-joined the Board on 1 April 2020 after previously stepping down in 2018 to serve solely as a director of key entities in preparation for the ring-fencing regime. Payments for loss of office There were no payments for loss of office made to directors in 2020. Payments to past directors Ross McEwan stepped down from the Board as CEO in October 2019. The Board agreed that Mr McEwan qualified for good leaver treatment, as per the requirements in the policy section of this report, in respect of his unvested LTI awards. In line with good leaver status, outstanding LTI awards granted in 2018, 2019 and 2020 will continue to vest on their scheduled vesting dates and pro-rating will not apply. All awards remain subject to a performance assessment prior to vesting and the potential application of malus and clawback provisions. As set out on page 139, Mr McEwan received an LTI award of 592,328 shares in 2018 which was reduced to 542,968 shares following the pre-vest assessment and the application of the Risk & Control underpin. The remaining shares are due to vest between 2021 and 2025, subject to the good leaver criteria continuing to be met and the potential application of malus and clawback provisions. The value of the shares is £765,585, based on the average share price over October to December 2020. Similar disclosures will be made in future reports for Mr McEwan’s 2019 and 2020 LTI awards, once the pre-vest assessment has taken place. In addition, Mr McEwan received assistance with his UK tax return in relation to a tax year during which he was still employed by NatWest Group, with a value of £2,108. There are no other payments to past directors to disclose for 2020.

GRAPHIC

 

 Engagement with shareholders Every year an extensive consultation is undertaken with major shareholders and other stakeholders prior to the Committee making any final decisions on remuneration and variable pay awards. In late 2020, meetings took place with a number of institutional shareholders, UK Government Investments (UKGI) and other stakeholders. A range of topics were discussed including the impact of COVID-19 on remuneration decisions, potential approaches to windfall gains and the disclosure framework for LTI awards. As part of the discussions on COVID-19, it was explained that NatWest Group had not placed any colleagues on furlough or sought other forms of government support. Shareholders were interested in the reasons for withdrawing dividend payments during the year and the Committee Chairman explained that NatWest Group remained very well capitalised, with the decision made at the request of regulators as a precaution. It was clear from the discussions that windfall gains from LTI awards was a key area of focus, due to the high volatility in share prices, although views on how such gains should be mitigated were not always aligned across investors. The Committee acknowledged these concerns and a new framework was established to address potential windfall gains as explained earlier in this report. Disclosure relating to LTI awards was another theme from the engagement meetings, with feedback that greater clarity on the factors the Committee had taken into account in exercising its discretion would be welcomed. As a result, the Committee agreed to make two enhancements to LTI disclosures: inclusion of a ratings system to give some indication of the extent of over or underperformance against the targets for the current year; and the identification of the measures the Committee is expecting to be priority areas for the performance year ahead. The intention is to provide shareholders with additional insight on how the Committee viewed performance over the year and which factors had more of a bearing than others in determining the final outcome. The first disclosures to incorporate these features are included in this report. More generally, meetings also take place with retail shareholders allowing Board members to hear directly from the wider shareholder base on any matters of importance. Three virtual retail shareholder events were held in 2020 providing shareholders with the opportunity to pose questions to a panel of executives and non-executive directors. Similar events are planned for 2021. Shareholders continue to play a vital role in developing remuneration practices and the Committee is very grateful for their involvement in the process. Implementation of remuneration policy in 2021 Details are set out below of remuneration to be awarded in 2021 to executive directors. The salary, benefits, pension and fixed share allowance for the CEO and CFO are unchanged. The LTI pre-grant assessment has been completed with the Committee making a recommendation to the Board on the CFO’s LTI award. The Board approved the recommendation, as set out below. Details of the performance measures and assessment relating to the CEO and CFO LTI awards can be found on pages 139 to 142. Executive directors’ remuneration to be awarded in 2021 Notes: Amount shown relates to standard benefit funding. Executive directors are also entitled to travel assistance and security arrangements in line with the policy. The value of benefits received will be disclosed each year. Fixed share allowance payable broadly in arrears, currently in four instalments per year, with shares released in equal amounts over a three-year period. If the maximum LTI award was made, the maximum remuneration receivable by the CEO and CFO would increase by £962,500 and £750,000 respectively from the amounts shown above in the event that there was a 50% increase in the NatWest Group plc share price over the period from grant to vest. The Committee agreed that, if Ms Rose had not indicated she did not wish to be considered for an award, it would have granted her an LTI award in 2021 of £899,000, which reflected adjustments for the performance assessment and a further exceptional reduction in light of the impact of COVID-19. Timing of payments to executive directors pre-grant assessment at the further assessment first vesting in 20% 20% Variable pay end of 2020 based on performance over year LTI award granted in March 2021 at the end of three years before any vesting takes place March 2024, then 12-month retention period applies 20% 20% 20%shares released over 2025 to 2029 due to a combination of vesting dates and a 12-month retention period following each vesting Fixed pay Fixed share allowance Pension & benefits 33% 33% 33%shares released over three years Base salary Year2020202120222023202420252026202720282029 Performance Goals for 2021 (for the pre-grant assessment of LTI awards to be made in 2022) Performance will be assessed across four core areas using a balanced scorecard and with measures that align with NatWest Group’s purpose. It should be noted that the pre-grant assessment for LTI awards operates over a one-year period based on strategic targets for that year and, in this respect, it has some similarities to the operation of annual bonus awards rather than traditional long-term incentive awards. Targets are disclosed in advance where these are not deemed commercially sensitive. There are no weightings set for the performance categories, however, the Committee follows a robust process to review performance against pre-set goals, measures and targets with certain ‘priority measures’ having been identified below for 2021. These priority measures will be a key focus for the Committee as it applies its judgement to the assessment of performance for the year. Full details of the targets and the assessment of performance against such targets will be set out in next year’s report. Priority measures for 2021 are highlighted in grey shading.

GRAPHIC

 

Core area and purpose Performance Goals for 2021 Measures for assessing pre-grant performance leading to 2022 LTI awards Scorecard Financial & Business Delivery Purpose alignment Has a purpose which delivers long-term sustainable performance Run a safe and secure bank. Achieve NatWest Group cost reduction target based on operating expense reduction. Reduce other expenses, excluding operating lease depreciation, by around 4% in comparison to 2020. Achieve CET1 ratio target for NatWest Group and NWH Group, with appropriate repatriation of capital to NatWest Group. Targets will be disclosed as part of the performance assessment in the 2021 Directors’ remuneration report (DRR). Achieve net lending growth target for retail and commercial franchises consisting of Retail Banking, Ulster Bank ROI, Commercial Banking, Private Banking and RBSI. Increase focus on climate lending. Above market rate lending growth across the retail and commercial businesses, excluding UK Government financial support schemes. Achieve RoTE target for NatWest Group. Targets will be disclosed as part of the performance assessment in the 2021 DRR. Progress towards execution of the NatWest Markets strategic review. To be measured with reference to RWA reduction and capital accretion. Achieve the majority of the remaining RWA reduction towards our medium-term target of £20bn by the end of 2021. Scorecard Risk & Control Purpose alignment Has a purpose which delivers long-term sustainable performance Maintain a robust control environment. Achieve or maintain an effective control environment rating. Ensure a safe, simple and smart approach is adopted in the execution of purpose-led strategic, operating model and cost change programmes. Positive progress against regulatory responsibilities and priorities. Effective management of compliance with the ring-fencing rules across NWH Group. NatWest Group and NWH Group to each achieve a control environment rating of ‘2’, with documented evidence to support progress against regulatory responsibilities and priorities. Compliance with minimum controls under ring-fencing rules. Material progress towards the desired risk culture target where ‘risk is part of the way we work and think’. Achieve or maintain a ‘systematic’ risk culture rating, as evidenced by intelligent risk taking and leadership role modelling in line with practices and behaviours set out in the Enterprise Wide Risk Management Framework (EWRMF). NatWest Group and NWH Group to each achieve a ‘2’ systematic risk culture rating as a minimum, with key EWRMF milestones delivered and decisions made through application of a ‘purpose’ lens. Scorecard Customer & Stakeholder Purpose alignment Honest & fair with customers and suppliers A good citizen Meaningful increase in customer advocacy for key customer journeys. Achievement of targets across the top 4 customer journeys to be prioritised in 2021. NPS improvement of: 6 points for NatWest Account Opening or be 4th or better; 2 points for NatWest Commercial Lending; 2 points for NatWest Day-to-Day Business Servicing. Maintain NPS for NatWest Mortgages or be 2nd or better. Increase the likelihood that customers will recommend our brands. Achievement of NPS targets for our core customer facing businesses. NPS improvement of: 1 point for NatWest Retail Main Bank or be 5th or better; points for NatWest Business Banking and be 3rd or better; points for Mid-Markets NPS or be first by 5 points. Improve the financial capability of our customers, colleagues and communities. Increase the number of customers who have saved at least £100. Help an additional 500,000 customers to start saving at least £100. Deliver financial capability interactions that require active engagement, give knowledge or skills and change behaviour. NatWest Group to reach 3.2 million individuals through agreed financial capability interactions. Remove barriers to UK enterprise growth. Support removal of barriers to UK enterprise growth through provision of learning, networking, and funding interventions. Support 35,000 businesses through enterprise programmes with 200,000 customer interactions to start, run and grow a business, with support being distributed: 75% to UK regions outside of London & South East; 60% to females; 20% to Black, Asian and Minority Ethnic individuals; 10% to people intending to create purpose-led businesses. Targets

GRAPHIC

 

 

 *Willis Towers Watson’s Global Financial Services Norm. The Banking Standards Board Norm is based on the average score across all participating banks. For the CFO, performance will be assessed in line with the framework above and the performance of the Finance function will also be taken into account. Chairman and non-executive directors’ annual fees for 2021 The fees are unchanged from those in place at the end of 2020. Fees for NatWest Group plc Board (1)Rates from 1 January 2021 Chairman (composite fee)£750,000 Non-executive director basic fee£80,000 Senior Independent Director£30,000 ApriltoDecember2021£15,000 Note: (1) No additional fees are payable where the director is also a member of the boards and respective board committees of NatWest Holdings Limited, National Westminster Bank Plc, The Royal Bank of Scotland plc and Ulster Bank Limited. Where appropriate, directors receive additional fees in respect of membership of other subsidiary company boards and committees including NatWest Markets Plc. The value of fees received will be disclosed in this report each year.

GRAPHIC

 

 Other external directorships Agreement from the Board must be sought before directors accept any additional roles outside of NatWest Group. Procedures are in place to make sure that regulatory limits on the number of directorships held are complied with. The Board would also consider whether it was appropriate for executive directors to retain any remuneration receivable in respect of any new external directorships, taking into account the nature of the appointment. Details of the directorships held by directors can be found in the biographies section of the Corporate governance report. CEO to employee pay ratios The ratios compare the total remuneration of the CEO, as set out in this report, against the remuneration of the median UK employee as well as employees at the lower and upper quartiles. A significant proportion of the CEO’s pay is delivered in LTI awards, where awards are linked to performance and share price movements over the longer term. Therefore, the ratios will depend significantly on LTI outcomes and may fluctuate from one year to the next. None of the three individuals identified at the 25th, 50th and 75th quartiles this year received LTI awards. The table also includes ratios based on salary only as well as remuneration values for further comparison. The pay ratios are reflective of a diverse range of roles and pay levels across NatWest Group as a large financial services company. The median employee identified for the 2020 comparison works in the Retail Banking division and the median pay ratio is believed to be consistent with the pay, reward and progression policies for UK employees taken as a whole. For each individual, NatWest Group is committed to paying a fair rate for the role performed, using consistent reward policies and with opportunities for progression. The steps that NatWest Group takes to ensure employees are paid fairly are set out earlier in this report. The change in total remuneration ratios since 2018 is largely driven by the more volatile nature of variable pay for the CEO. An additional factor that caused the ratio to fall in 2020 was the CEO’s decision in April 2020 to forgo 25% of her fixed pay for the rest of the year with NatWest Group making a comparable donation to the NET Coronavirus Appeal. The trend based on a comparison of salary only is more stable over the period. Supplementary information on pay ratio table: The data for 2020 is based on remuneration earned by Alison Rose, as set out in the single figure of remuneration table in this report. The employees at the 25th, 50th and 75th percentiles (lower, median and upper quartile) were determined as at 31 December of the relevant year, based on full-time equivalent remuneration for all UK employees. This includes fixed pay (salary, pension funding and where relevant benefit funding and other allowances) and also any variable pay where the amount to be paid has been used. For employees that work part-time, fixed pay is grossed up to the full-time equivalent. ‘Option A’ methodology was selected as this is considered the most statistically accurate method under the reporting regulations. UK employees receive a pension funding allowance set as a percentage of salary. Some employees, but not the CEO, continue to participate in the defined benefit pension scheme under which it would be possible to recognise a higher value, which would in turn reduce the ratios. However, for simplicity and consistency with regulatory disclosures, the pension funding allowance value has been included in the calculation for all employees. The data for the three employees identified has been considered and fairly reflects pay at the relevant quartiles amongst the UK employee population. Each of the three individuals was a full-time employee during the year and none received an exceptional award which would otherwise inflate their pay figures. Annual change in directors’ pay compared to average change in employee pay Under new reporting regulations, it is necessary to show a comparison of the annual change in director pay to the average pay of employees of the parent company. However, NatWest Group plc is a holding company and is not an employing entity, and therefore the disclosure below is made on a voluntary basis to compare any change with all employees based in the UK. In each case, remuneration is based on salary, benefits and annual bonus. The CEO and CFO receive fixed share allowances and are eligible for LTI awards rather than annual bonus. Non-executive directors receive fixed fees rather than salary and do not receive any variable pay. Fees for Board and Committee attendance have remained unchanged over the year other than an increase to the Chairman of the Colleague Advisory Panel. Further details on the fees and benefits for the Chairman and non-executive directors and the percentage change between 2019 and 2020 can be found on page 143. Annual change 2019 to 2020SalaryBenefits (2)Annual Bonus Notes: As highlighted in last year’s report, Alison Rose was appointed as CEO on 1 November 2019 on a salary of £1.1m, which was 10% higher than her predecessor. The change took place towards the end of the year and the table above is based on a full financial year comparison. Part of the 2019 salary increase was reflected in last year’s table with the remainder shown above. No change has been made to Ms Rose’s salary in 2020. Standard benefit funding for executive directors remained unchanged between 2019 and 2020. The figure above excludes any other benefits to executive directors such as travel assistance in connection with company business, the value of which is disclosed each year in the total remuneration table. The data above is based on full year average salary costs of UK based employees of NatWest Group, excluding the CEO and the CFO. This is considered to be the most representative comparator group as it covers the majority of employees and the CEO and CFO are based in the UK. Summary of remuneration levels for employees in 2020 43,144 employees earned total remuneration up to £50,000 12,606 employees earned total remuneration between £50,000 and £100,000 4,813 employees earned total remuneration between £100,000 and £250,000 803employees earnedtotalremunerationover£250,000

GRAPHIC

 

 Directors’ interests in NatWest Group plc shares and shareholding requirements The shareholding requirement is to hold shares to the value of 400% of salary for the CEO and 250% of salary for the CFO. A post-employment shareholding requirement was introduced at the 2020 AGM. Further details can be found in the policy section of this report. Shareholding requirements Note: (1) The calculation is based on a share price of £1.68 as at 31 December 2020. During the year the share price ranged from £0.93 to £2.44. Alison KatieHowardFrank Alison Patrick MortenRobert Yasmin Baroness MikeMarkLena Rose MurrayDavies Dangeard Davis Flynn Friis (5) Gillespie JethaNoakes Rogers Seligman (6)Wilson Notes: Shares owned beneficially as at 31 December 2020 or date of stepping down from the Board if earlier. The interests shown above include shares held by persons closely associated with the directors. As at 18 February 2021, there were no changes to the shares held shown above, other than the acquisition of 101 shares by Katie Murray at the end of January 2021 as part of one of the company’s share plans. Performance assessment has taken place but awards are still subject to deferral periods and employment conditions before vesting. These awards count on a net of tax basis towards meeting the shareholding requirement. Awards shown are still subject to the pre-vest performance assessment and also subject to deferral periods and employment conditions before vesting. Interests held under the Sharesave plan where colleagues can choose to save from their salary with an option to buy shares at the end of the savings period. The share interest held is over 10,000 American Depositary Receipts representing 20,000 ordinary shares. 10,000 shares are held in the name of M Seligman & Co Ltd, of which Mr Seligman and Louise Seligman are shareholders. Share interests under the company’s share plans Year of award Awards held atAwardsAwardAwards Awards lapsedAwardsAwards held at 1 January 2020granted price £ (1)vested for performanceforfeited31 December 2020 Expected vesting dates Notes: The award price is normally calculated based on the average share price over a period prior to grant. Performance assessment has taken place and outstanding awards remain subject to deferral periods and employment conditions before vesting. These awards count on a net of tax basis towards meeting the shareholding requirement. Awards shown are still subject to the LTI pre-vest performance assessment and also subject to deferral periods and employment conditions before vesting. The pre-vest assessment of the 2018 LTI award concluded in January 2021, as set out earlier in this report. Awards granted under the Sharesave plan where colleagues can choose to save from their salary with an option to buy shares at the end of the savings period. The award price is the option price at which shares can be bought at the end of the savings period. Sharesave options are normally exercisable for a period of six months from the maturity date.

GRAPHIC

 

 Shareholder dilution and share sourcing The company can use new issue, market purchase or treasury shares to satisfy the exercise of share options and the vesting of share awards under its share plans. NatWest Group’s share plans contain best practice dilution limits that govern the number of shares that may be issued to satisfy share plan awards. Such limits will continue to be monitored. Total Shareholder Return (TSR) performance The graph below shows the performance of NatWest Group over the past ten years in terms of TSR compared with that of the companies comprising the FTSE 100 Index. This index has been selected because it represents a cross-section of leading UK companies. The TSR for FTSE UK banks for the same period has been added as a further comparison. Source: Datastream 250 FTSE 100 FTSE UK Banks NatWest Group 200 TSR 100 50 0 20102011201220132014201520162017201820192020 Year end CEO pay over the same period 2011201220132014201520162017201820192020 Notes: For 2013 and 2019, the table reflects where more than one individual has served as CEO during the year. The CEOs are Alison Rose (AR), Ross McEwan (RM) and Stephen Hester (SH) with figures based on the single total figure of remuneration for the relevant year. The maximum opportunity is set according to the approved policy and, for LTI awards granted in 2015 and onwards, the regulatory cap. Relative importance of spend on pay The table below shows a comparison of remuneration expenditure against distributions to ordinary and preference shareholders. A change to the disclosure from last year is the removal of data on taxation and other charges. This was provided previously for additional context but is not required under the regulations and the change has been made to align with more standard market practice. Information on taxation payments made by NatWest Group is still available on natwestgroup.com. 20202019 £m£m Change Notes: Remuneration paid to all employees represents total staff expenses per Note 3 to the Financial Statements, exclusive of social security and other staff costs. Dividends that were proposed for payment during 2020 were withdrawn in line with regulatory requirements. The Board has confirmed its intention to pay a dividend of 3p per ordinary share in respect of financial year 2020, which is the maximum amount permitted under current regulatory requirements, subject to approval by shareholders at the Annual General Meeting on 28 April 2021.

GRAPHIC

 

 Membership of the Group Performance and Remuneration Committee All members of the Committee are independent non-executive directors. In order to be considered for the role of Committee Chairman, an individual must first have served on a remuneration committee for at least 12 months. The Committee held seven scheduled meetings in 2020 and a further eight ad hoc meetings. Details of members and attendance can be found in the Corporate governance report on page 104. The role and responsibilities of the Committee The Committee is responsible for: approving the remuneration policy for all colleagues and reviewing the effectiveness of its implementation; reviewing performance and making recommendations to the Board on arrangements for executive directors; approving performance and remuneration for a defined ‘in scope’ population capturing members and attendees of the Group and NWH Executive Committees, the direct reports of the CEO and heads of key legal entities, control function heads and the Company Secretary. The Committee also approves arrangements where individuals earn total compensation above £1 million; and setting the remuneration framework and principles for colleagues identified as Material Risk Takers (MRTs) falling within the scope of UK regulatory requirements. The remuneration policy operated broadly as intended during the year, with adjustments made for performance where appropriate. The Committee reviewed performance for senior executives and the implementation of the remuneration policy for all colleagues. The CEO’s decision to forgo part of her fixed pay and all of her variable pay for 2020 meant that total remuneration was lower than envisaged. Key tasks for the Committee in 2020 included securing approval from shareholders for the renewal of the directors’ remuneration policy and expanding its review of wider workforce remuneration and fair pay across the organisation. The Committee also considered the impact of COVID-19 on remuneration decisions. To mitigate potential conflicts of interest, directors are not involved in decisions regarding their own remuneration and remuneration advisers are appointed by the Committee rather than management. Attendees also play an important role in advising the Committee but are not present when their own remuneration is discussed. The Group Chief HR Officer may be present when discussions take place on senior executive pay, as there is considerable benefit from her participation, but is never present for discussions on her remuneration. The terms of reference of the Committee are reviewed annually and available on natwestgroup.com. Summary of the principal activity in 2020 Tasks undertaken by the Committee included reviewing and, where appropriate, approving: First half of 2020 2019 performance assessments and remuneration arrangements for the Committee’s ‘in scope’ population. 2020 performance objectives for the ‘in scope’ population. Assessments of vesting levels for LTI awards granted in 2017. Regulatory updates and submissions. Total pay spend across the wider workforce, including analysis by colleague level, geography and diversity. The directors’ remuneration policy with support from shareholders at the AGM. An enhancement to MRT identification and reporting for subsidiary entities. Second half of 2020 A ‘masterclass’ session with SBC to consider wider workforce remuneration. Half-year and year-end performance reviews for the ‘in scope’ population. Remuneration arrangements for the departing and incoming members of the Group’s Executive Committees. The plan to engage with stakeholders on remuneration proposals. Management’s assurance of the implementation of the Group-wide remuneration policy. Fixed pay proposals for the year ahead. The 2020 Sharesave offer. 2020 variable pay proposals and the 2020 Directors’ remuneration report. Performance evaluation The 2020 performance evaluation was conducted internally by the Chief Governance Officer and Company Secretary. This was structured around: operating rhythm; purpose & priorities; culture & dynamics; and input & support. The Committee was considered to have managed well in a difficult year and had been particularly supportive and responsive to multiple urgent requests from management. Ad hoc meetings aside, members agreed the operating rhythm was appropriate, with the Committee well sighted on wider workforce remuneration and also sufficiently engaged on the impact of COVID-19 on remuneration. Members continued to see the benefits of the masterclass, with broad support for annual joint engagement sessions with the SBC on areas of mutual interest around the changing nature of the workforce, diversity and inclusion and wider workforce remuneration. Some concerns were expressed over the granular detail often included within papers. However, it was acknowledged that this was principally driven by the heavily regulated nature of the banking sector. There was also a genuine appreciation for the Committee Chairman’s dedication to the role, with members noting significant time commitment required from the Chairman in liaising with key internal and external stakeholders in order to deliver the year end pay process. Actions arising from the evaluation will be tracked during 2021. Advisers to the Committee PricewaterhouseCoopers LLP (PwC) was first appointed as remuneration adviser by the Committee in 2010, following a review of potential advisers and the services provided. An annual review of the quality of advice and the associated level of fees was undertaken during 2020, following which the Committee agreed to retain the services of PwC. The Committee will continue to review the performance of its advisers each year. PwC is a signatory to the voluntary code of conduct in relation to remuneration consulting in the UK. As well as receiving advice from PwC, the Committee took account at meetings of the views of the Chairman; the CEO; the CFO; the Group Chief HR Officer; the Director of Reward & Employment; and the Group Chief Risk Officer. The Committee also received input from the BRC, the GAC and the SBC. Input was also received from Performance and Remuneration Committees for key legal entities across NatWest Group. PwC provides professional services in the ordinary course of business including assurance, advisory, tax and legal advice to NatWest Group subsidiaries. The Committee is satisfied that the advice received is independent and objective, and receives an annual statement setting out protocols that have been followed by PwC to maintain independence. There are no connections between PwC and individual directors to be disclosed. Fees paid to PwC for advising the Committee are based on a fixed fee structure to cover standard services with any exceptional items charged on a time/cost basis. Fees for 2020 in relation to directors’ remuneration amounted to £136,830 excluding VAT (2019 - £194,463). Statement of shareholder voting The tables below set out the latest resolutions to approve the directors’ remuneration policy and the Annual report on remuneration. Directors’ remuneration policy – 2020 VoteNo. of sharesPercentage Annual report on remuneration – 2020 VoteNo. of sharesPercentage Robert Gillespie Chairman of the Group Performance and Remuneration Committee 19 February 2021

GRAPHIC

 

 

 This section contains a number of disclosures which are required in accordance with Article 450 of the Capital Requirements Regulation, the Basel Committee on Banking Supervision Pillar 3 disclosure requirements and the European Banking Authority (EBA) guidelines on sound remuneration policies. This section should be read in conjunction with the Directors’ remuneration report starting on page 123. Remuneration policy for all colleagues The remuneration policy supports the business strategy and is designed to promote the long-term success of NatWest Group. It aims to reward the delivery of good performance provided this is achieved in a manner consistent with NatWest Group values and within acceptable risk parameters. The remuneration policy applies the same principles to everyone, including MRTs, with some minor adjustments to the policy where necessary to comply with local regulatory requirements. The key elements of the policy aresetout below. Base salary The purpose is to provide a competitive level of fixed cash remuneration. Operation Base salaries are reviewed annually and should reflect the talents, skills and competencies that the individual brings to the business. Role-based allowance Certain MRT roles receive a role-based allowance. The purpose is to provide fixed pay that reflects the skills and experience required for the role. Operation Role-based allowances are fixed allowances which form an element of overall fixed remuneration for regulatory purposes and are based on the role the individual performs. They are delivered in cash and/or shares depending on the level of the allowance and the seniority of the recipient. Shares are subject to a three-year retention period. Benefits and pension The purpose is to provide a range of flexible and competitive benefits. Operation In most jurisdictions, benefits or a cash equivalent are provided from a flexible benefits account. Pension funding forms part of fixed remuneration and NatWest Group does not actively provide discretionary pension benefits. Annual bonus The purpose is to support a culture where individuals recognise the importance of serving customers well and are rewarded for superior performance. Operation The annual bonus pool is based on a balanced scorecard of measures including Financial & Business Delivery, Customer, People & Culture and Risk & Control measures. Allocation from the pool depends on performance of the business area and the individual. Individual performance assessment is supported by a structured performance management framework. This is designed to assess performance against longer term business requirements across a range of financial and non-financial metrics as well as an evaluation of adherence to internal controls and risk management. A balanced scorecard is used to align with the business strategy. Each individual will have defined measures of success appropriate to their role. Risk and conduct performance is also taken into account. Control functions are assessed independently of the business units that they oversee, with the objectives and remuneration being set according to the priorities of the control area, not the targets of the businesses they support. The Group Chief Risk Officer and the Chief Audit Executive have the authority to escalate matters to Board level if management do not respond appropriately. Independent control functions exist for key legal entities outside the ring-fence (NWM Plc and RBS International), with dual solid reporting lines into both the legal entity CEO and the NatWest Group Control Function Head. For awards made in respect of the 2020 performance year, immediate cash awards continue to be limited to a maximum of £2,000. In line with regulatory requirements, a significant proportion of annual bonus awards for more senior roles is deferred and includes partial delivery in shares. The deferral period varies from three years for standard MRTs, rising to five years for individuals identified as Risk Manager MRTs and seven years for Senior Managers under the UK’s Senior Managers Regime. All awards are subject to malus and clawback provisions. For MRTs, a minimum of 50% of any annual bonus is delivered in shares and a twelve-month retention period will apply post vesting in line with regulatory requirements. The fifth Capital Requirements Directive (CRD V) took effect on 28 December 2020 which will impact remuneration requirements for the 2021 performance year. This includes extending the minimum deferral period from three to four years for MRTs and also some changes to the criteria for identifying MRTs. Further details will be included in next year’s report. Long-term incentive (LTI) awards The purpose and operation of LTI awards is explained in detail in the Directors’ remuneration report. Instead of an annual bonus, NatWest Group provides executive directors and certain members of NatWest Group’s senior executive committees with LTI awards. Any awards made are subject to a performance assessment prior to grant and again prior to vesting. Shareholding requirements The requirements promote long-term alignment between senior executives and shareholders. Operation Executive directors and certain members of NatWest Group’s senior executive committees are required to build up and hold a shareholding equivalent to a percentage of salary. There is a restriction on the number of shares that individuals can sell until the requirement is met. Company share plans The purpose is to provide an easy way for individuals to hold shares in NatWest Group plc, which helps to encourage long-term thinking and provides a direct involvement in NatWest Group’s performance. Operation Colleagues in certain jurisdictions are offered the opportunity to contribute from salary and acquire shares in NatWest Group plc through company share plans. This includes Sharesave and the Buy As You Earn plan in the UK. Any shares held are not subject to performance conditions. Criteria for identifying MRTs The EBA has issued criteria for identifying MRT roles, which captures those staff whose activities have a material influence over NatWest Group’s performance or risk profile. The criteria are both qualitative (based on the nature of the role) and quantitative (for example those who exceed the stipulated total remuneration threshold). In 2019, MRTs were identified for five key ‘institutions’ within NatWest Group but this has been expanded to eleven entities for 2020 to bring greater focus on MRT identification across subsidiary entities. The MRT criteria are applied for each of these institutions, and consequently some MRTs are identified in relation to more than one entity. The qualitative criteria can be summarised as: staff within the management body; senior management; other staff with key functional or managerial responsibilities; and staff who individually, or as part of a Committee, have authority to approve new business products or to commit to credit risk exposures and market risk transactions above certain levels.

GRAPHIC

 

 The quantitative criteria are: individuals earning €500,000 or more in the previous year; individuals in the top 0.3% of earners of the relevant legal entity for the previous year; and individuals who earned more than the lowest paid identified staff per certain qualitative criteria. In addition to the qualitative and quantitative criteria, NatWest Group has applied its own minimum standards to identify roles that are considered to have a material influence over its risk profile. Personal hedging strategies The conditions attached to discretionary share-based awards prohibit the use of any personal hedging strategies to lessen the impact of a reduction in value of such awards. These conditions are explicitly acknowledged and accepted by recipients when any share-based awards are granted. Risk in the remuneration process NatWest Group’s approach to remuneration promotes effective risk management through having a clear distinction between fixed remuneration, which reflects the role undertaken by an individual, and variable remuneration, which is directly linked to performance and can be risk-adjusted. Fixed pay is set at an appropriate level to discourage excessive risk-taking, and at a level which would allow NatWest Group to pay zero variable pay. Focus on risk is achieved through clear risk input into performance goals, performance reviews, the determination of variable pay pools, incentive plan design and the application of malus and clawback. The Committee is supported by the BRC and the Risk function. A robust process is used to assess risk performance. A range of measures are considered, specifically capital, liquidity and funding risk, credit risk, market risk, pension risk, compliance & conduct risk, financial crime, operational risk, business risk and reputational risk. Consideration is also given to overall risk culture. Remuneration arrangements are in line with regulatory requirements and the steps taken to ensure appropriate and thorough risk adjustment are also fully disclosed and discussed with the PRA and the FCA. Variable pay determination For the 2020 performance year, NatWest Group operated a robust multi-step process, which is control function led, to assess performance and determine the appropriate bonus pool by business area and function. At multiple points throughout the process, reference is made to Group-wide business performance (from both affordability and appropriateness perspectives) and the need to distinguish between go-forward and resolution activities. The process considers a balanced scorecard of performance assessments at the level of each business area or function, across financial, customer and people measures. Risk and conduct assessments at the same level are then undertaken to ensure that performance achieved without appropriate consideration of risk, risk culture and conduct controls, is not inappropriately rewarded. BRC reviews any material risk and conduct events and, if appropriate, an underpin may be applied to the individual business and function bonus pools or to the overall bonus pool. BRC may recommend a reduction of a bonus pool if it considers that risk and conduct performance is unacceptable or that the impact of poor risk management has yet to be fully reflected in the respective inputs. Following further review against overall performance and conduct, and taking into account input from the CFO on affordability, the CEO will make a final recommendation to the Committee, informed by all the previous steps in the process and her strategic view of the business. The Committee will then make an independent decision on the final bonus pool taking all of these earlier steps into account. The assessment process for LTI awards to executive directors and other recipients is also founded on a balanced scorecard approach. The scorecard is aligned with the multi-step bonus pool process, reflecting a consistent risk management performance assessment. Remuneration and culture NatWest Group continues to assess conduct and its impact on remuneration as part of the annual Group-wide bonus pool process and also via the accountability review framework. NatWest Group has taken steps in recent years to remove incentives for colleagues where this could drive unintended behaviours. The Committee will continue to review workforce remuneration and the alignment of incentives and reward with culture. The governance of culture is clearly laid out with Senior Management Function roles having clearly defined accountabilities, which is taken into account in their pay decisions. The Board and SBC also play key roles in building cultural priorities. Frameworks are in place to measure progress. Accountability review process and malus/clawback The accountability review process was introduced in 2012 to identify any material risk management, control and general policy breach failures, and to ensure accountability for those events. This allows NatWest Group to respond to instances where new information would change the variable pay decisions made in previous years and/or the decisions to be made in the current year. Potential outcomes under the accountability review process are: Malus - to reduce (to zero if appropriate) the amount of any unvested variable pay awards prior to payment; Clawback - to recover awards that have already vested; and In-year bonus reductions - to adjust variable pay that would have otherwise been awarded for the current year. As part of the acceptance of variable pay awards, MRTs must agree to terms that state that malus and clawback may be applied. Any variable pay awarded to MRTs in respect of the 2014 performance year onwards is subject to clawback for seven years from the date of grant. For awards made in respect of the 2016 performance year onwards, this period can be extended to ten years for MRTs who perform a ‘senior management function’ under the Senior Managers Regime where there are outstanding internal or regulatory investigations at the end of the normal seven-year clawback period. The circumstances in which malus, clawback or in-year bonus reduction may be applied can be found on page 134. During 2020 a number of issues and events were considered under the accountability review framework. The outcomes covered a range of actions including reduction (to zero where appropriate) of unvested awards through malus, and suspension of awards pending further investigation.

GRAPHIC

 

 Remuneration of MRTs The quantitative disclosures below are made in accordance with regulatory requirements in relation to 1,605 individuals who have been identified as MRTs for NatWest Group plc (NatWest Group). The number of MRTs identified has increased since last year due to the increase in the number of legal entities for which MRTs are identified. Identifying MRTs for additional entities results in the application of a lower threshold for certain MRT criteria (including the one relating to credit risk exposures), because the threshold to be used (as required by regulations) is set at 0.5% of the CET1 capital of each entity. In the course of carrying out MRT analysis in H1 2020 it was identified that the Business Approval Authority Framework used in some areas of the business referred to NatWest Holdings Limited but was otherwise silent on legal entity. A prudent approach was taken, applying the lowest applicable legal entity threshold to a broad population, even if the individual had not and would not be expected to expose that particular entity to credit risk. This issue and Aggregate remuneration expenditure Aggregate remuneration expenditure in respect of 2020 performance was as follows: AggregateSeniorOther remunerationmgmt MRTsTotal Number of beneficiaries211,5831,604 £m £m £m NatWest Group plc EDs 4.19 - 4.19 NatWest Group plc NEDs-2.53 2.53 Corporate Functions9.9751.11 61.08 Control Functions5.6781.09 86.76 NatWest Holdings4.77 110.45 115.22 NatWest Markets1.72 103.05 104.77 RBSInternational1.249.29 10.53 Total27.56 357.52 385.08 Fixed and variable remuneration Fixed remuneration paid in 2020 Fixed remuneration consisted of salaries, allowances, pension and benefit funding. SeniorOther Fixed remunerationmgmt MRTsTotal Number of beneficiaries211,5831,604 £m£m£m Variable remuneration for 2020 performance Variable remuneration consisted of a combination of annual bonus and long-term incentive awards, deferred over a three to seven year period in accordance with regulatory requirements. Under the NatWest Group bonus deferral structure, immediate cash awards are limited to £2,000 per person. Long-term incentive awards vest subject to the extent to which performance conditions were met and can result in zero payment. Senior Other Annual bonusmgmt MRTsTotal Number of beneficiaries8 1,307 1,315 £m £m £m NatWest Group plc EDs — — — NatWest Group plc NEDs — — — Corporate Functions Cash remuneration0.010.190.20 Deferred bonds0.273.974.24 Deferred shares1.605.026.62 Control Functions Cash remuneration0.000.710.71 Deferred bonds0.056.456.50 Number of Senior Other beneficiariesmgmt MRTs Total NatWest Group plc EDs 2 0 2 NatWest Group plc NEDs 0 11 11 Corporate Functions 9 154 163 Control Functions 4 459 463 NatWest Holdings 4 740 744 NatWest Markets 1 148 149 RBS International 1 72 73 Total 21 1,584 1,605 Control Functions1.07—1.07 NatWest Holdings0.83—0.83 NatWest Markets0.56—0.56 RBS International0.37—0.37 Total4.34—4.34 Definitions for tables One individual is included in the table above as they have been identified as an MRT in relation to a role within a subsidiary entity. However, they do not receive any remuneration for this role and are not an MRT in relation to their primary role for NatWest Group. Therefore, no remuneration is included for this individual in the remaining tables. NatWest Group plc EDs NatWest Group plc NEDs Executive directors of NatWest Group plc Non-executive directors of NatWest Group plc

GRAPHIC

 

 Outstanding deferred remuneration remuneration reduced during the year relates100% of the fixed component (except where €1.0 - €1.5 42 to long-term incentives lapsed when local jurisdictions apply a lower maximum €1.5 - €2.0 13 performance conditions were not met, long-ratio for variable pay). The average ratio €2.0 - €2.5 5 term incentives and deferred awards forfeited between fixed and variable remuneration for €2.5 - €3.0 3 on leaving and malus adjustments of prior 2020 is approximately 1 to 0.30. The majority €3.0 - €3.5 1 year deferred awards and long-term of MRTs were based in the UK. €3.5 - €4.0 0 6. Ratio between fixed and variable remuneration The variable component of total remuneration for MRTs at NatWest Group shall not exceed Total remuneration by band for all colleagues earning >€1 million Number of employees €million2020 incentives. Senior Other Ratio of fixed toSenior Other variablemgmt MRTs Total Morethan€4.00 Total 64 Category of deferred mgmt MRTs Total remuneration £m £m £m Unvested from prior year 34.25 139.31 173.56 Awarded during year12.76 108.68 121.43 Paid out (retained)6.94 42.32 49.26 Paid out (released)0.79 68.03 68.82 Reduced from prior years3.837.38 11.21 Unvested at year end35.45 130.26 165.71 5. Guaranteed Awards (including ‘Sign-on’ awards) and Severance Payments NatWest Group does not offer ‘Sign-on awards’. Guaranteed awards may only be granted to new hires in exceptional circumstances in compensation for awards forgone in their previous company and are limited to the first year of service. No new hire guarantees were made to MRTs in respect of the 2020 performance year. Severance payments and/or arrangements can be made to colleagues who leave NatWest Group in certain situations, including redundancy. Such payments are calculated by a pre-determined formula set out within the relevant social plans, policies, agreements or local laws. Where local laws permit, there is a cap on the maximum amount that can be awarded. No severance payments in excess of contractual payments, local policies, standards or statutory amounts were made to MRTs during the year, other than payments to four individuals of £50,000; £50,000; €55,836; and £460,000. The two non-standard payments of £50,000 related to enhanced outplacement support, one of which was to a senior management MRT. The two other payments were made to MRTs in commercial settlement of potential legal proceedings related to the termination of their respective employment. Severance payments do not reward failure or misconduct in line with regulatory requirements. Where required, remuneration is constrained within the limit of variable to fixed remuneration in accordance with EBA guidelines. Number of beneficiaries16 1,307 1,323 ratio ratio ratio NatWest Group plc EDs 1:0.43 - 1:0.43 NatWest Group plc NEDs - - - Corporate Functions 1:0.53 1:0.27 1:0.30 Control Functions1:0.43 1:0.18 1:0.19 NatWest Holdings1:0.42 1:0.20 1:0.21 NatWest Markets 1:0.49 1:0.59 1:0.59 RBSInternational1:0.43 1:0.22 1:0.24 Consolidated1:0.47 1:0.29 1:0.30 7. Discount Rate Under CRD IV regulations, a notional discount is available which allows variable pay to be awarded at a level that would otherwise exceed the 1:1 ratio, provided that at least 25% of variable pay is delivered ‘in instruments’ (shares) and deferred over five years or more. The discount rate was not used for remuneration awarded in respect of the 2020 performance year. Notes: (1) Total remuneration in the table above includes fixed pay, pension and benefit funding and variable pay. (2) Where applicable, the table is based on an average exchange rate of €1.12518 to £1 for 2020. Colleagues who earned total remuneration of over €1 million in 2020 represent just 0.1% of the workforce. These individuals include those who manage major businesses and functions with responsibility for significant assets, earnings or areas of strategic activity and can be grouped as follows: The CEOs responsible for each area and their direct reports. Those who manage large business areas. Income generators responsible for high levels of income including those involved in managing trading activity and supporting clients with more complex financial transactions, including financial restructuring. Those responsible for managing balance sheet and liquidity and funding positions across the business.

GRAPHIC

 

Compliance report Statement of compliance NatWest Group plc is committed to high standards of corporate governance, business integrity and professionalism in all its activities. Throughout the year ended 31 December 2020, NatWest Group plc has applied the Principles and complied with all of the Provisions of the UK Corporate Governance Code issued by the Financial Reporting Council dated July 2018 (the ‘Code’) except in relation to: Provision 17, in respect of the requirement that the Group Nominations and Governance Committee should ensure plans are in place for orderly succession to both the board and senior management positions and oversee the development of a diverse pipeline for succession; and Provision 33 that the Group Performance and Remuneration Committee (Group RemCo) should have delegated responsibility for setting remuneration for the Chairman and executive directors. In respect of Provision 17, the Board considers this is a matter of significant importance which should rightly be reserved for the full Board. Adopting this approach ensures that all directors have an opportunity to contribute to succession planning discussions for Board and senior management, in support of achieving an appropriate balance of skills, experience, knowledge and diversity at senior levels within NatWest Group and on the Board. It also means that all directors have an opportunity to review, consider and become familiar with the next generation of executive leaders. In respect of Provision 33, the Board also considers that this is a matter which should rightly be reserved for the Board and this is an approach the Board has adopted for a number of years. Remuneration for the executive directors is first considered by the Group RemCo which then makes recommendations to the Board for consideration. This approach allows all non-executive directors, and not just those who are members of the Group RemCo, to participate in decisions on the executive directors’ and the Chairman’s remuneration and also allows the executive directors to input to the decision on the Chairman’s remuneration. The Board believes this approach is very much in line with the spirit of the Code and no director is involved in decisions regarding his or her own remuneration. A copy of the Code can be found at www.frc.org.uk. The Board does not anticipate any changes to its approach on these aspects of the Code. Further information on how NatWest Group plc has applied the Principles, and complied with the Provisions, of the Code can be found in the Governance section of this Report, which includes cross-references to relevant sections of the Strategic Report and other related disclosures. NatWest Group plc has also implemented the recommendations arising from the Walker Review and complied in all material respects with the Financial Reporting Council Guidance on Audit Committees issued in September 2012 and April 2016. Under the US Sarbanes-Oxley Act of 2002, specific standards of corporate governance and business and financial disclosures and controls apply to companies with securities registered in the US. NatWest Group plc complies with all applicable sections of the US Sarbanes-Oxley Act of 2002, subject to a number of exceptions available to foreign private issuers. Internal control Management of NatWest Group is responsible for the system of internal controls that is designed to maintain effective and efficient operations, compliant with applicable laws and regulations. The system of internal controls is designed to manage, or mitigate, risk to an acceptable residual level rather than eliminate it entirely. Systems of internal control can only provide reasonable and not absolute assurance against material misstatement, fraud or loss. Ongoing processes for the identification, evaluation and management of the principal risks faced by NatWest Group operated throughout the period from 1 January 2020 to 4 March 2021, the date the directors approved the Annual Report on Form 20-F. These included the semi-annual Control Environment Certification process, which requires senior members of the executive and management to assess the adequacy and effectiveness of their internal control frameworks and certify that their business or function is compliant with the requirements of Sarbanes-Oxley Section 404 and the UK Corporate Governance Code Section C2. Policies are in place to govern these processes. Reports on internal controls arising from them are reviewed by the Board and meet the requirements of the Financial Reporting Council’s Guidance On Risk Management Internal Control & Related Financial & Business Reporting. NatWest Group operates a three lines of defence model, which provides a framework for responsibilities and accountabilities across the organisation. As part of its second line of defence role, the Risk function oversees and challenges the firm-wide management of risk and the efficacy of the related controls. In addition, the Risk function is responsible for developing material risk policies and strategic frameworks for the business to use. The effectiveness of NatWest Group’s internal controls is reviewed regularly by the Board, the Group Audit Committee and the Board Risk Committee. The Internal Audit function undertakes independent assurance activities and provides reports to the Board and executive management on the quality and effectiveness of governance, risk management and internal controls to monitor, manage and mitigate risks in achieving the bank’s objectives. In addition, the Board receives a risk management report at each scheduled Board meeting. Executive management committees in each of NatWest Group’s businesses also receive regular reports on significant risks facing their business and how these are being controlled. Details of the bank’s approach to risk management are given in the Risk & Capital Management section of the Annual Report on Form 20-F. While several planned activities designed to enhance the control environment were disrupted by the extensive impact of COVID-19 (thereby delaying the achievement of the NatWest Group’s control environment target), the control environment remained largely stable in 2020. There was continuing management focus on the delivery of regulatory programmes – including the internal transformation programme established in response to updated IRB regulation from the Prudential Regulatory Authority (PRA) and the European Banking Authority (EBA) – as well as a review of the controls and processes relating to certain regulatory reporting. There was also significant focus on work to enhance controls relating to financial crime risks – including ongoing work to strengthen customer due diligence standards. The focus of the of NatWest Group in establishing and maintaining a robust risk culture made a valuable contribution to the overall control environment. The remediation of known control issues remained a focus of the Group Audit Committee and the Board Risk Committee during 2020. For further information on their oversight of remediation of the most significant issues, please refer to the Report of the Group Audit Committee and the Report of the Board Risk Committee. The Group Audit Committee has received confirmation that management has taken, or is taking, action to remedy significant failings or weaknesses identified through NatWest Group’s control framework. The Group Audit Committee and the Board Risk Committee will continue to focus on such remediation activity, particularly in view of the transformation agenda. While not being part of the Group’s system of internal control, the Group’s independent auditors present to the Group Audit Committee reports that include details of any significant internal control deficiencies they have identified. Further, the system of internal controls is also subject to regulatory oversight in the UK and overseas. Additional details of regulatory oversight are given in the Risk & Capital Management section.

GRAPHIC

 

 

Compliance report Management’s report on internal control over financial reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for NatWest Group. NatWest Group’s internal control over financial reporting is a component of an overall system of internal control and is designed to provide reasonable assurance regarding the preparation, reliability and fair presentation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRS) and includes: Policies and procedures that relate to the maintenance of records that, in reasonable detail, fairly and accurately reflect the transactions and disposition of assets. Controls providing reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with IFRS, and that receipts and expenditures are being made only as authorised by management. Controls providing reasonable assurance regarding the prevention or timely detection of unauthorised acquisition, use or disposition of assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate. Management has assessed the effectiveness of its internal control over financial reporting as of 31 December 2020 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 publication of ‘Internal Control - Integrated Framework’. Based on its assessment, management has concluded that, as of 31 December 2019, NatWest Group’s internal control over financial reporting is effective. The effectiveness of NatWest Group’s internal control over financial reporting as of 31 December 2020 has been audited by Ernst & Young LLP, NatWest Group’s independent registered public accounting firm. The report of the independent registered public accounting firm to the directors of NatWest Group plc expresses an unqualified opinion on NatWest Group’s internal control over financial reporting as of the 31 December 2020. Disclosure controls and procedures As required by Exchange Act rules, management (including the Group CEO and Group CFO) have conducted an evaluation of the effectiveness and design of NatWest Group’s disclosure controls and procedures (as defined in the Exchange Act rules) as at 31 December 2020. Based on this evaluation, management (including the Group Chief Executive Officer and Chief Financial Officer) concluded that NatWest Group plc’s disclosure controls and procedures were effective as of the end of the period covered by this annual report. Changes in internal control There was no change in NatWest Group’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, NatWest Group’s internal control over financial reporting. The New York Stock Exchange As a foreign private issuer with American Depository Shares representing ordinary shares, preference shares and debt securities listed on the New York Stock Exchange (the NYSE), NatWest Group plc is not required to comply with all of the NYSE governance standards applicable to US domestic companies (the NYSE Standards) provided that it follows home country practice in lieu of the NYSE Standards and discloses any significant ways in which its corporate governance practices differ from the NYSE Standards. NatWest Group plc is also required to provide an Annual Written Affirmation to the NYSE of its compliance with the mandatory applicable NYSE Standards. In March 2020 NatWest Group plc submitted its most recent Annual Written Affirmation to the NYSE, and in August 2020 an interim written affirmation was submitted following a change in membership of the Group Audit Committee. Both affirmations confirmed NatWest Group plc’s full compliance with the applicable provisions. The Group Audit Committee fully complies with the mandatory provisions of the NYSE Standards (including by reference to the rules of the Exchange Act) that relate to the composition, responsibilities and operation of audit committees. More detailed information about the Group Audit Committee and its work during 2020 is set out in the Group Audit Committee report on pages 111 to 115. The Board has reviewed its corporate governance arrangements and is satisfied that these are consistent with the NYSE Standards, subject to the following departures: NYSE Standards require the majority of the Board to be independent. The NYSE Standards contain different tests from the Code for determining whether a director is independent. NatWest Group plc follows the Code’s requirements in determining the independence of its directors and currently has 8 independent non-executive directors, one of whom is the senior independent director. The NYSE Standards require non-management directors to hold regular sessions without management present, and that independent directors meet at least once a year. The Code requires the Chairman to hold meetings with non-executive directors without the executives present and non-executive directors are to meet without the Chairman present at least once a year to appraise the Chairman’s performance and NatWest Group plc complies with the requirements of the Code. The NYSE Standards require that the nominating/corporate governance committee of a listed company be composed entirely of independent directors. The Chairman of the Board is also the Chairman of the Group Nominations and Governance Committee, which is permitted under the Code (since the Chairman was considered independent on appointment). The terms of reference of the Group Nominations and Governance Committee differ in certain limited respects from the requirements set out in the NYSE Standards, including because the Group Nominations and Governance Committee does not have responsibility for overseeing the evaluation of management. The NYSE standards require that the compensation committee of a listed company be composed entirely of independent directors. Although the members of the Group RemCo are deemed independent in compliance with the provisions of the Code, the Board has not assessed the independence of the members of the Group RemCo and Group RemCo has not assessed the independence of any compensation consultant, legal counsel or other adviser, in each case, in accordance with the independence tests prescribed by the NYSE Standards. The NYSE Standards require that the compensation committee must have direct responsibility to review and approve the CEO’s remuneration. As stated at the start of this Compliance report, in the case of NatWest Group plc, the Board rather than the Group RemCo reserves the authority to make the final determination of the remuneration of the CEO. The NYSE Standards require listed companies to adopt and disclose corporate governance guidelines. Throughout the year ended 31 December 2020, NatWest Group plc has complied with all of the provisions of the Code (subject to the exception described above) and the Code does not require NatWest Group plc to disclose the full range of corporate governance guidelines with which it complies. The NYSE Standards require listed companies to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. NatWest Group has adopted a code of conduct which is supplemented by a number of key policies and guidance dealing with matters including, among others, anti-bribery and corruption, anti-money laundering, sanctions, confidentiality, inside information, health, safety and environment, conflicts of interest, market conduct and management records. This code of conduct applies to all officers and employees and is fully aligned to the PRA and FCA Conduct Rules which apply to all directors. The Code of Conduct is available to view on NatWest Group’s website at natwestgroup.com. This Compliance report forms part of the Corporate governance report and the Report of the directors.

GRAPHIC

 

 The directors present their report together with the audited accounts for the year ended 31 December 2020. Other information incorporated into this report by reference can be found at: Group structure During 2018 in preparation for ring-fencing a number of changes were made to the NatWest Group structure. Following these changes the company owns three main subsidiaries, NatWest Holdings Limited (the parent of the ring-fenced group which includes National Westminster Bank Plc, The Royal Bank of Scotland plc and Ulster Bank Ireland DAC), NatWest Markets Plc (the investment bank and the parent of NatWest Markets N.V.) and The Royal Bank of Scotland International (Holdings) Limited (the parent of The Royal Bank of Scotland International Limited). Further details of the principal subsidiary undertakings are shown in Note 9 and a full list of subsidiary undertakings and overseas branches is shown in Note 12 of the parent company accounts in NatWest Group’s 2020 Annual Report and Accounts. Following placing and open offers in December 2008 and in April 2009, HM Treasury (HMT) owned approximately 70.3% of the enlarged ordinary share capital of the company. In December 2009, the company issued a further £25.5 billion of new capital to HMT in the form of B shares. HMT sold 630 million of its holding of the company’s ordinary shares in August 2015. In October 2015 HMT converted its entire holding of 51 billion B shares into 5.1 billion new ordinary shares of £1 each in the company. HMT sold a further 925 million of its holding of the company’s ordinary shares in June 2018. At 31 December 2020, HMT’s holding in the company’s ordinary shares was 61.9%. Activities NatWest Group is engaged principally in providing a wide range of banking and other financial services. Further details of the organisational structure and business overview of NatWest Group, including the products and services provided by each of its operating segments and the markets in which they operate are contained in the Business review. Details of the strategy for delivering the company’s objectives can be found in the Strategic report. Results and dividends UK company law provides that dividends can only be paid if a company has sufficient distributable profits available to cover the dividend. A company’s distributable profits are its accumulated, realised profits not previously distributed or capitalised, less its accumulated, realised losses not previously written off in a reduction or re-organisation of capital. The loss attributable to the ordinary shareholders of NatWest Group plc for the year ended 31 December 2020 amounted to £753 million compared with a profit of £3,133 million for the year ended 31 December 2019, as set out in the consolidated income statement on page 257. In 2019 NatWest Group paid an interim dividend of £241 million, or 2.0p per ordinary share (2018 - £241 million, or 2.0p per ordinary share) and a special dividend of £1,449 million, or 12.0p per ordinary share (2018 – nil). In addition, the company had announced that the directors had recommended a final dividend of £364 million, or 3.0p per ordinary share (2018 – £422 million, or 3.5p per ordinary share), and a further special dividend of £606 million, or 5.0p per ordinary share (2018 £904 million, or 7.5p per ordinary share), both of which were subject to shareholders’ approval at the AGM on 29 April 2020. In response to a formal request from the Prudential Regulatory Authority, the Board cancelled the final ordinary and special dividend payments in relation to the 2019 financial year and did not submit them for approval at the AGM held on 29 April 2020. The company has announced that the directors have recommended a final dividend of £364 million, or 3p per ordinary share (2019 nil). The final dividend recommended by directors is subject to shareholders’ approval at the AGM on 28 April 2021. If approved, payment will be made on 4 May 2021 to shareholders on the register at the close of business on 26 March 2021. The ex-dividend date will be 25 March 2021. Subject to above mentioned condition, the payment of interim dividends on ordinary shares is at the discretion of the Board. Going concern NatWest Group’s business activities and financial position, the factors likely to affect its future development and performance and its objectives and policies in managing the financial risks to which it is exposed and its capital are discussed in the Business review. The risk factors which could materially affect NatWest Group’s future results are set out on pages 347 to 366. NatWest Group’s regulatory capital resources and significant developments in 2020 and anticipated future developments are detailed in the Capital, liquidity and funding section on pages 218 to 233. This section also describes NatWest Group’s funding and liquidity profile, including changes in key metrics and the build up of liquidity reserves. Having reviewed NatWest Group’s forecasts, projections and other relevant evidence, the directors have a reasonable expectation that the Group will continue in operational existence for a period of not less than twelve months. Accordingly, the financial statements of NatWest Group and of the company have been prepared on a going concern basis. UK Finance disclosure code NatWest Group plc’s 2020 financial statements have been prepared in compliance with the principles set out in the Code for Financial Reporting Disclosure published by the British Bankers' Association in 2010. The Code sets out five disclosure principles together with supporting guidance. The principles are that NatWest Group and other major UK banks will provide high quality, meaningful and decision-useful disclosures; review and enhance their financial instrument disclosures for key areas of interest to market participants; assess the applicability and relevance of good practice recommendations to their disclosures, acknowledging the importance of such guidance; seek to enhance the comparability of financial statement disclosures across the UK banking sector; and clearly differentiate in their annual reports between information that is audited and information that is unaudited. Enhanced Disclosure Task Force (EDTF) and Disclosures on Expected Credit Losses (DECL) Taskforce recommendations The EDTF, established by the Financial Stability Board, published its report ‘Enhancing the Risk Disclosures of Banks’ in October 2012, with an update in November 2015 covering IFRS 9 expected credit losses (ECL). The DECL Taskforce, jointly established by the Financial Conduct Authority, Financial Reporting Council and the Prudential Regulatory Authority, published its phase 2 report recommendations in December 2019.

GRAPHIC

 

Report of the directors NatWest Group plc’s 2020 Annual Report on Form 20-F and Pillar 3 Report reflect EDTF and have regard to DECL Taskforce recommendations. Authority to repurchase shares At the Annual General Meeting in 2020 shareholders authorised the company to make market purchases of up to 1,209,390,919 ordinary shares. The directors have not exercised this authority to date. Shareholders will be asked to renew this authorisation at the Annual General Meeting in 2021. On 6 February 2019 the company held a General Meeting and shareholders approved a special resolution to give the company authority to make off-market purchases of up to 4.99 per cent of its ordinary share capital in issuance from HM Treasury (or its nominee) at such times as the Directors may determine is appropriate. Full details of the proposal are set out in the Circular and Notice of General Meeting available on natwestgroup.com. This authority was renewed at the 2020 Annual General Meeting and Shareholders will be asked to renew this authorisation at the Annual General Meeting in 2021. Additional information Where not provided elsewhere in the Report of the directors, the following additional information is required to be disclosed by Part 6 of Schedule 7 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. The rights and obligations attached to the company’s ordinary shares and preference shares are set out in our Articles of Association, copies of which can be obtained from Companies House in the UK or can be found at natwestgroup.com. Non-cumulative preference share details are set out in Note 21 of the consolidated accounts. The cumulative preference shares represent less than 0.008% of the total voting rights of the company, the remainder being represented by the ordinary shares. On a show of hands at a General Meeting of the company, every holder of ordinary shares and cumulative preference shares, present in person or by proxy and entitled to vote, shall have one vote. On a poll, every holder of ordinary shares or cumulative preference shares present in person or by proxy and entitled to vote, shall have four votes for every share held. The notices of Annual General Meetings and General Meetings specify the deadlines for exercising voting rights and appointing a proxy or proxies to vote in relation to resolutions to be passed at the meeting. There are no restrictions on the transfer of ordinary shares in the company other than certain restrictions which may from time to time be imposed by laws and regulations (for example, insider trading laws). At the 2018 Annual General Meeting, shareholders gave authority to directors to offer a scrip dividend alternative on any dividend paid up to the conclusion of the Annual General Meeting in 2021. Shareholders will be asked to renew this authority at the Annual General Meeting in 2021. Pursuant to the UK Listing Rules, certain employees of the company require the approval of the company to deal in the company’s shares. The rules governing the powers of directors, including in relation to issuing or buying back shares and their appointment, are set out in our Articles of Association. It will be proposed at the 2021 Annual General Meeting that the directors’ authorities to allot shares under the Companies Act 2006 (the Companies Act) be renewed. The Articles of Association may only be amended by a special resolution at a general meeting of shareholders. The company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and/or voting rights. There are no persons holding securities carrying special rights with regard to control of the company. A number of the company’s employee share plans include restrictions on transfers of shares while shares are subject to the plans. Note 3 sets out a summary of the plans. Under the rules of certain employee share plans, voting rights are exercised by the Trustees of the plan on receipt of participants’ instructions. If a participant does not submit an instruction to the Trustee no vote is registered. For shares held in the company’s other Employee Share Trusts, the voting rights are exercisable by the Trustees. However, in accordance with investor protection guidelines, the Trustees abstain from voting. The Trustees would take independent advice before accepting any offer in respect of their shareholdings for the company in a takeover bid situation. The Trustees have chosen to waive their entitlement to the dividend on shares held by the Trusts. A change of control of the company following a takeover bid may cause a number of agreements to which the company is party to take effect, alter or terminate. All of the company’s employee share plans contain provisions relating to a change of control. In the context of the company as a whole, these agreements are not considered to be significant. Directors The names and brief biographical details of the current directors are shown on pages 101 and 102. Howard Davies, Frank Dangeard,, Patrick Flynn, Morten Friis, Robert Gillespie, Katie Murray, Mike Rogers, Alison Rose, Mark Seligman and Lena Wilson all served throughout the year and to the date of signing of the financial statements. Yasmin Jetha was appointed on 1 April 2020 Alison Davis resigned from the Board on 31 March 2020. Baroness Noakes resigned from the Board on 31 July 2020. All directors of the company are required to stand for election or re-election annually by shareholders at the Annual General Meeting and, in accordance with the UK Listing Rules, the election or re-election of independent directors requires approval by all shareholders and also by independent shareholders. Directors’ interests The interests of the directors in the shares of the company at 31 December 2020 are shown on page 148. None of the directors held an interest in the loan capital of the company or in the shares or loan capital of any of the subsidiary undertakings of the company, during the period from 1 January 2020 to 18 February 2021. Directors’ indemnities In terms of section 236 of the Companies Act, Qualifying Third Party Indemnity Provisions have been issued by the company to its directors, members of the NatWest Group and NWH Executive Committees, individuals authorised by the PRA/FCA, certain directors and/or officers of NatWest Group subsidiaries and all trustees of NatWest Group pension schemes. Controlling shareholder In accordance with the UK Listing Rules, the company has entered into an agreement with HM Treasury (the ‘Controlling Shareholder’) which is intended to ensure that the Controlling Shareholder complies with the independence provisions set out in the UK Listing Rules. The company has complied with the independence provisions in the relationship agreement and as far as the company is aware the independence and procurement provisions in the relationship agreement have been complied with in the period by the controlling shareholder. NatWest Group Annual Report on Form 20-F158

GRAPHIC

 

 Shareholdings The table below shows shareholders that have notified NatWest Group that they hold more than 3% of the total voting rights of the company at 31 December 2020. Solicitor For The Affairs of During 2020, NatWest Group made no political donations, nor incurred any political expenditure in the UK or EU and it is not proposed that NatWest Group’s longstanding policy of not making contributions to any political party be changed. Shareholders will be asked to renew this authorisation at the Annual General Meeting in 2021. Auditors Ernst & Young LLP (EY LLP) are the auditors and have indicated their willingness to continue in office. A resolution to re-appoint EY LLP as the company’s auditors will be proposed at the forthcoming Annual General Meeting. Her Majesty’s Treasury as Nominee for Her Majesty’s Treasury Ordinary Number of shares (millions) % of share class held % of total voting rights held Directors’ disclosure to auditors Each of the directors at the date of approval of this report confirms that: so far as the director is aware, there is no relevant audit information of which the By order of the Board shares7,50961.9161.91 As at 18 February 2021, there were no changes to the shareholdings shown in the table above. Listing Rule 9.8.4 The information to be disclosed in the Annual Report on Form 20-F under LR 9.8.4, is set out in this Directors’ report with the exception of details of contracts of significance under LR 9.8.4 (10) and (11) given in Additional Information on page 369. Political donations At the Annual General Meeting in 2020, shareholders gave authority under Part 14 of the Companies Act 2006, for a period of one year, for the company (and its subsidiaries) to make political donations and incur political expenditure up to a maximum aggregate sum of £100,000. This authorisation was taken as a precaution only, as the company has a longstanding policy of not making political donations or incurring political expenditure within the ordinary meaning of those words. company’s auditors are unaware; and the director has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act. Jan Cargill Company Secretary 19 February 2021 NatWest Group plc is registered in Scotland No. SC45551

GRAPHIC

 

Statement of directors’ responsibilities This statement should be read in conjunction with the responsibilities of the auditor set out in their report on pages 251 to 256. The directors are responsible for the preparation of the Annual Report on Form 20-F. The directors are required to prepare Group accounts, and as permitted by the Companies Act 2006 have elected to prepare company accounts, for each financial year in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. They are responsible for preparing accounts that present fairly the financial position, financial performance and cash flows of NatWest Group. In preparing those accounts, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; and state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of NatWest Group and to enable them to ensure that the Annual Report on Form 20-F complies with the Companies Act 2006. They are also responsible for safeguarding the assets of NatWest Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors confirm that to the best of their knowledge: the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and the Strategic report and Directors’ report (incorporating the Business review) include a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. In addition, the directors are of the opinion that the Annual Report on Form 20-F, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company’s position and performance, business model and strategy. By order of the Board Howard DaviesAlison Rose-SladeKatie Murray ChairmanGroup Chief Executive OfficerGroup Chief Financial Officer 19 February 2021 Board of directors ChairmanExecutive directorsNon-executive directors Howard DaviesAlison Rose Katie Murray Frank Dangeard Patrick Flynn Morten Friis Robert Gillespie Yasmin Jetha Mike Rogers Mark Seligman Lena Wilson

GRAPHIC

 

 

 Presentation of information Where indicated by a bracket in the margins, certain information in the Risk and capital management section (pages 161 to 249) is within the scope of the Independent auditor’s report. Update on COVID-19 The unprecedented challenge posed by the global pandemic – for families, businesses and governments around the world – also led to a number of significant risk management challenges. NatWest Group remained committed to supporting its customers while operating safely and soundly in line with its strategic objectives. Most notably, the credit risk profile was heightened due to deteriorating economic conditions. NatWest Group provided a significant level of payment holidays during the crisis, and facilitated a high volume of loans through the UK government CBILS, CLBILS and BBLS initiatives. This is detailed in the Credit risk section. In addition, NatWest Group’s operational risk profile became heightened due to the need to adapt working methods and practices to large-scale working from home and the requirement to respond to the crisis – and provide customer support – at pace. As a result of its strong balance sheet and prudent approach to risk management, NatWest Group remains well placed to withstand the impacts of the pandemic as well as providing support to customers when they need it most. Risk management framework Introduction NatWest Group operates an enterprise wide risk management framework, which is centred around the embedding of a strong risk culture. The framework ensures the governance, capabilities and methods are in place to facilitate risk management and decision-making across the organisation. The framework ensures that NatWest Group’s principal risks – which are detailed in this section – are appropriately controlled and managed. In addition, there is a process to identify and manage top risks, which are those which could have a significant negative impact on NatWest Group’s ability to meet its strategic objectives. A complementary process operates to identify emerging risks. Both top and emerging risks are reported to the Board on a regular basis alongside reporting on the principal risks. Risk appetite, supported by a robust set of principles, policies and practices, defines the levels of tolerance for a variety of risks and provides a structured approach to risk-taking within agreed boundaries. All NatWest Group colleagues share ownership of the way risk is managed, working together to make sure business activities and policies are consistent with risk appetite. The methodology for setting, governing and embedding risk appetite is being further enhanced with the aim of revising current risk appetite processes and increasing alignment with strategic planning and external threat assessments. Culture Culture is at the centre of both the risk management framework and risk management practice. NatWest Group’s risk culture target is to make risk part of the way employees work and think. A focus on leaders as role models and action to build clarity, develop capability and motivate employees to reach the required standards of behaviour are key to achieving the risk culture target. Colleagues are expected to: Take personal responsibility for understanding and proactively managing the risks associated with individual roles. Respect risk management and the part it plays in daily work. Understand the risks associated with individual roles. Align decision-making to NatWest Group’s risk appetite. Consider risk in all actions and decisions. Escalate risks and issues early; taking action to mitigate risks and learning from mistakes and near-misses. Challenge others’ attitudes, ideas and actions. Report and communicate risks transparently. The target risk culture behaviours are embedded in Our Standards and are clearly aligned to the core values of “serving customers”, “working together”, “doing the right thing” and “thinking long term”. These act as an effective basis for a strong risk culture because Our Standards are used for performance management, recruitment and development. Training A wide range of learning, both technical and behavioural, is offered across the risk disciplines. This training can be mandatory, role-specific or for personal development and enables colleagues to develop the capabilities and confidence to manage risk effectively. Our Code NatWest Group’s conduct guidance, Our Code, provides direction on expected behaviour and sets out the standards of conduct that support the values. The code explains the effect of decisions that are taken and describes the principles that must be followed. These principles cover conduct-related issues as well as wider business activities. They focus on desired outcomes, with practical guidelines to align the values with commercial strategy and actions. The embedding of these principles facilitates sound decision-making and a clear focus on good customer outcomes. If conduct falls short of NatWest Group’s required standards, the accountability review process is used to assess how this should be reflected in pay outcomes for those individuals concerned. The NatWest Group remuneration policy ensures that the remuneration arrangements for all employees reflect the principles and standards prescribed by the PRA rulebook and the FCA handbook. Any employee falling short of the expected standards would also be subject to internal disciplinary policies and procedures. If appropriate, the relevant authority would be notified.

GRAPHIC

 

 Risk management framework continued Governance Committee structure The diagram shows NatWest Group plc’s risk committee structure in 2020 and the main purposes of each committee. NatWest Group plc Board Considers material risks and approves, as appropriate, actions recommended by the Group Board Risk Committee. Monitors performance against risk appetite. Reviews and approves the risk appetite framework and qualitative statements of risk appetite for all key risks. Group Board Risk Committee Provides oversight and advice to the Board on current and future risk exposures, risk profile, risk appetite and risk culture. Reviews the design and implementation of the risk management framework and provides input to remuneration decisions. Group Audit Committee Assists the Board in carrying out its accounting, internal control and financial reporting responsibilities. Reviews the effectiveness of internal controls systems relating to financial management and compliance with financial reporting, asset safeguarding and accounting laws. Group Executive Risk Committee(1) Reviews, challenges and debates all material risk and control matters across the Group. Supports the CEO and other accountable executives in approval of the risk management framework, agrees executive approved risk appetite measures and discharges other risk management accountabilities. Group Executive Disclosure Committee(5) Group Executive Committee(2) Supports the Group CEO in discharging her individual accountabilities including matters relating to strategy, financials, capital, risk and operational issues. Monitors the implementation of culture change. Supports the Group CEO in forming recommendations to the Board and relevant board committees. Group Asset & Liability Management XX Committee(3, 4) Supports the Group CFO in overseeing the effective management of the Group’s current and future balance sheet in line with Board-approved strategy and risk appetite. Notes: The Group Executive Risk Committee is chaired by the Group Chief Executive Officer and supports her (and other accountable executives) in discharging risk management accountabilities. The Group Executive Committee is chaired by the Group Chief Executive Officer and supports her in discharging her individual accountabilities in accordance with the authority delegated to her by the Board. The Group Asset & Liability Management Committee is chaired by the Group Chief Financial Officer and supports her in discharging her individual accountabilities relating to treasury and balance sheet management. In addition, the Group Technical Asset & Liability Management Committee, chaired by the Group Treasurer, provides oversight of capital and balance sheet management in line with approved risk appetite under normal and stress conditions. Reviews and challenges the financial strategy, risk management, balance sheet and remuneration and policy implications of the Group’s pension schemes. The Group Executive Disclosure Committee is chaired by the Group Chief Financial Officer and supports her in discharging her accountabilities relating to the production and integrity of the Group’s financial information and disclosures.

GRAPHIC

 

Risk management structure The diagram shows NatWest Group’s risk management structure in 2020 and key risk management responsibilities. Group Chief Risk Officer Leads the NatWest Group Risk function. Defines and delivers the risk, conduct, compliance and financial crime strategies. Defines overall risk service provision requirements to enable delivery of NatWest Group strategies, including policies, governance, frameworks, oversight and challenge, risk culture and risk reporting. Contributes to the developments of strategy, transformation and culture as a member of the Executive Committee. Group Chief Executive Officer NWH Chief Executive Officer NWM Chief Executive Officer NWH Chief Risk Officer NWM Chief Risk Officer Leads the NWH Risk function. Responsibilities include policy, governance, frameworks, oversight and challenge, risk culture and reporting. Delivers risk services across NatWest Group governed by appropriate service level agreements. Contributes to NWH strategy as a member of the NWH Executive Committee. Leads the NWM Risk function. Responsibilities include policy, governance, frameworks, oversight and challenge, risk culture and reporting. Contributes to NWM strategy as a member of the NWM Executive Committee. RBSI Chief Executive Officer RBSI Chief Risk Officer Leads the RBSI Risk function. Responsibilities include policy, governance, frameworks, oversight and challenge, risk culture and reporting. Contributes to RBSI strategy as a member of the RBSI Executive Committee. Notes: The Group Chief Executive Officer also performs the NWH Chief Executive Officer role. The Group Chief Risk Officer also performs the NWH Chief Risk Officer role. The NWH Risk function provides risk management services across NWH, including to the NWH Chief Risk Officer and – where agreed – to NWM and RBSI Chief Risk Officers. These services are managed, as appropriate, through service level agreements. The NWH Risk function is independent of the NWH customer-facing franchises and support functions. Its structure is divided into three parts (Directors of Risk, Specialist Risk Directors and Chief Operating Officer) to facilitate effective management of the risks facing NWH. Risk committees in the customer businesses and key functional risk committees oversee risk exposures arising from management and business activities and focus on ensuring that these are adequately monitored and controlled. The Directors of Risk, (Retail Banking; Commercial Banking; wealth businesses; Financial & Strategic Risk; Non-Financial Risk & Frameworks and Compliance & Conduct) as well as the Director, Financial Crime Risk NatWest Holdings and the Chief Operating Officer report to the NWH Chief Risk Officer. The Director of Risk, Ulster Bank Ireland DAC reports to the Ulster Bank Ireland DAC Chief Executive. He also has a reporting line to the NWH Chief Risk Officer and to the Chair of the Ulster Bank Ireland DAC Board Risk Committee. The Chief Risk Officers for NWM and RBSI have dual reporting lines into the Group Chief Risk Officer and the respective Chief Executive Officers of their entities. There are additional reporting lines to the NWM and RBSI Board Risk Committee chairs and a right of access to the respective Risk Committees.

GRAPHIC

 

 Risk management framework continued Three lines of defence NatWest Group uses the industry-standard three lines of defence model to articulate accountabilities and responsibilities for managing risk. It supports the embedding of effective risk management throughout the organisation. All roles below the CEO sit within one of these three lines. The CEO ensures the efficient use of resources and the effective management of risks as stipulated in the risk management framework and is therefore considered to be outside the three lines of defence principles. First line of defence The first line of defence incorporates most roles in NatWest Group, including those in the customer-facing franchises, Technology and Services as well as support functions such as Human Resources, Legal and Finance. The first line of defence is empowered to take risks within the constraints of the risk management framework and policies as well as the risk appetite statements and measures set by the Board. The first line of defence is responsible for managing its direct risks. With the support of specialist functions such as Legal, HR and Technology, it is also responsible for managing its consequential risks by identifying, assessing, mitigating, monitoring and reporting risks. Second line of defence The second line of defence comprises the Risk function and is independent of the first line. The second line of defence is empowered to design and maintain the risk management framework and its components. It undertakes proactive risk oversight and continuous monitoring activities to confirm that NatWest Group engages in permissible and sustainable risk-taking activities. The second line of defence advises on, monitors, challenges, approves, escalates and reports on the risk-taking activities of the first line, ensuring that these are within the constraints of the risk management framework and policies as well as the risk appetite statements and measures set by the Board. Third line of defence The third line of defence is the Internal Audit function and is independent of the first and second lines. The third line of defence is responsible for providing independent and objective assurance to the Board, its subsidiary legal entity boards and executive management on the adequacy and effectiveness of key internal controls, governance and the risk management in place to monitor, manage and mitigate the key risks to NatWest Group and its subsidiary companies achieving their objectives. The third line of defence executes its duties freely and objectively in accordance with the Institute of Internal Auditors’ Code of Ethics & Standards. Risk appetite Risk appetite defines the level and types of risk NatWest Group is willing to accept, within risk capacity, in order to achieve strategic objectives and business plans. It links the goals and priorities to risk management in a way that guides and empowers staff to serve customers well and achieve financial targets. Strategic risks are those that threaten the safety and soundness of NatWest Group or its ability to achieve strategic objectives. For certain strategic risks, risk capacity defines the maximum level of risk NatWest Group can assume before breaching constraints determined by regulatory capital and liquidity requirements, the operational environment, and from a conduct perspective. Establishing risk capacity helps determine where risk appetite should be set, ensuring there is a buffer between internal risk appetite and NatWest Group’s ultimate capacity to absorb losses. Risk appetite framework The risk appetite framework bolsters effective risk management by promoting sound risk-taking through a structured approach, within agreed boundaries. It also ensures emerging risks and risk-taking activities that might be out of appetite are identified, assessed, escalated and addressed in a timely manner. To facilitate this, a detailed annual review of the framework is carried out. The review includes: Assessing the adequacy of the framework when compared to internal and external expectations. Ensuring the framework remains effective and acts as a strong control environment for risk appetite. Assessing the level of embedding of risk appetite across the organisation. The Board approves the risk appetite framework annually. Establishing risk appetite In line with NatWest Group’s risk appetite framework, risk appetite is maintained across NatWest Group through risk appetite statements. The risk appetite statements provide clarity on the scale and type of activities that can be undertaken in a manner that is easily conveyed to staff. Risk appetite statements consist of qualitative statements of appetite supported by risk limits and triggers that operate as a defence against excessive risk-taking. They are established at NatWest Group-wide level for all strategic risks and material risks, and at legal entity, business, and function level for all other risks. The annual process of establishing risk appetite statements is completed alongside the business and financial planning process. This ensures plans and risk appetite are appropriately aligned. The Board sets risk appetite for the most material risks to help ensure NatWest Group is well placed to meet its priorities and long-term targets even in challenging economic environments. It is the basis on which NatWest Group remains safe and sound while implementing its strategic business objectives. NatWest Group’s risk profile is frequently reviewed and monitored and management focus is concentrated on all strategic risks, material risks and emerging risk issues. Risk profile relative to risk appetite is reported regularly to the Board and senior management. Risk controls and their associated limits are an integral part of the risk appetite approach and a key part of embedding risk appetite in day-to-day risk management decisions. A clear tolerance for material risk types is set in alignment with business activities. NatWest Group policies directly support the qualitative aspects of risk appetite. They ensure that appropriate controls are set and monitored. Identification and measurement Identification and measurement within the risk management process comprise: Regular assessment of the overall risk profile, incorporating market developments and trends, as well as external and internal factors. Monitoring of the risks associated with lending and credit exposures. Assessment of trading and non-trading portfolios. Review of potential risks in new business activities and processes. Analysis of potential risks in any complex and unusual business transactions. The financial and non-financial risks that NatWest Group faces are detailed in the Risk Directory. This provides a common risk language to ensure consistent terminology is used across NatWest Group. The Risk Directory is subject to annual review. This ensures that it continues to provide a comprehensive and meaningful list of the inherent risks within NatWest Group.

GRAPHIC

 

Mitigation Mitigation is an important aspect of ensuring that risk profile remains within risk appetite. Risk mitigation strategies are discussed and agreed within NatWest Group. The process for stress testing consists of four broad stages: Identify specific vulnerabilities and risks. Define Define and calibrate scenarios to examine When evaluating possible strategies, costs and benefits, residual risks (risks that are retained) and secondary risks (those that are due to risk mitigation actions) are considered. Monitoring and review processes are in place to evaluate results. Early identification, and effective management of changes in legislation and regulation are critical to the successful mitigation of compliance and conduct risk. The effects of all changes are managed to ensure the timely achievement of compliance. Those changes assessed as having a high or medium-high impact are managed more closely. Significant and emerging risks that could affect future results and performance are reviewed and monitored. Action is taken to mitigate potential risks as and when required. Further in-depth analysis, including the stress testing of exposures relative to the risk, is also carried out. Testing and monitoring Targeted credit risk, compliance & conduct risk and financial crime risk activities are subject to testing and monitoring to confirm to both internal and external stakeholders – including the Board, senior management, the customer-facing businesses, Internal Audit and NatWest Group’s regulators – that policies and procedures are being correctly implemented and operating adequately and effectively. Selected key controls are also reviewed. Thematic reviews and deep dives are also carried out where appropriate. scenarios Assess impact Calculate results and assess implications Develop and agree management actions risks and vulnerabilities. Formal governance process to agree scenarios. Translate scenarios into risk drivers. Assess impact to current and projected P&L and balance sheet. Impact assessment captures input across NatWest Group. Aggregate impacts into overall results. Results form part of the risk management process. Scenario results are used to inform business and capital plans. Scenario results are analysed by subject matter experts. Appropriate management actions are then developed. Scenario results and management actions are reviewed and agreed by senior committees, including the Executive Risk Committee, the Board Risk Committee and the Board. The adequacy and effectiveness of selected key controls owned and operated by the second line of defence are also tested (with a particular focus on credit risk controls). Selected controls within the scope of Section 404 of the US Sarbanes-Oxley Act 2002, as well as selected controls supporting risk data aggregation and reporting, are also reviewed. Anti-money laundering, sanctions, anti-bribery and corruption and tax evasion processes and controls are also tested and monitored. This helps provide an independent understanding of the financial crime control environment, whether or not controls are adequate and effective and whether financial crime risk is appropriately identified, managed and mitigated. The Risk Testing & Monitoring Forum and methodology ensures a consistent approach to all aspects of the second-line review activities. The forum also monitors and validates the annual plan and ongoing programme of reviews. Stress testing Stress testing – capital management Stress testing is a key risk management tool and a fundamental component of NatWest Group’s approach to capital management. It is used to quantify and evaluate the potential impact of specified changes to risk factors on the financial strength of NatWest Group, including its capital position. Stress testing includes: Scenario testing, which examines the impact of a hypothetical future state to define changes in risk factors. Sensitivity testing, which examines the impact of an incremental change to one or more risk factors. Stress testing is used widely across NatWest Group. The diagram below summarises key areas of focus.

GRAPHIC

 

 

 Risk management framework continued Specific areas that involve capital management include: Strategic financial and capital planning – by assessing the impact of sensitivities and scenarios on the capital plan and capital ratios. Risk appetite – by gaining a better understanding of the drivers of, and the underlying risks associated with, risk appetite. Risk monitoring – by monitoring the risks and horizon scanning events that could potentially affect NatWest Group’s financial strength and capital position. Risk mitigation – by identifying actions to mitigate risks, or those that could be taken, in the event of adverse changes to the business or economic environment. Key risk mitigating actions are documented in NatWest Group’s recovery plan. Reverse stress testing is also carried out in order to identify circumstances that may lead to specific, defined outcomes such as business failure. Reverse stress testing allows potential vulnerabilities in the business model to be examined more fully. Capital sufficiency – going concern forward-looking view Going concern capital requirements are examined on a forward-looking basis – including as part of the annual budgeting process – by assessing the resilience of capital adequacy and leverage ratios under hypothetical future states. These assessments include assumptions about regulatory and accounting factors (such as IFRS 9). They are linked to economic variables and impairments and seek to demonstrate that NatWest Group and its operating subsidiaries maintain sufficient capital. A range of future states are tested. In particular, capital requirements are assessed: Based on a forecast of future business performance, given expectations of economic and market conditions over the forecast period. Based on a forecast of future business performance under adverse economic and market conditions over the forecast period. Scenarios of different severity may be examined. Capital allocation NatWest Group has mechanisms to allocate capital across its legal entities and businesses. These aim to optimise the use of capital resources taking into account applicable regulatory requirements, strategic and business objectives and risk appetite. The framework for allocating capital is approved by the Asset & Liability Management Committee. Governance Capital management is subject to substantial review and governance. The Board approves the capital plans, including those for key legal entities and businesses as well as the results of the stress tests relating to those capital plans. Stress testing – liquidity Liquidity risk monitoring and contingency planning A suite of tools is used to monitor, limit and stress test the risks on the balance sheet. Limit frameworks are in place to control the level of liquidity risk, asset and liability mismatches and funding concentrations. Liquidity risks are reviewed at significant legal entity and business levels daily, with performance reported to the Asset & Liability Management Committee on a regular basis. Liquidity Condition Indicators are monitored daily. This ensures any build-up of stress is detected early and the response escalated appropriately through recovery planning. Internal assessment of liquidity Under the liquidity risk management framework, NatWest Group maintains the Individual Liquidity Adequacy Assessment Process. This includes assessment of net stressed liquidity outflows under a range of severe but plausible stress scenarios. Each scenario evaluates either an idiosyncratic, market-wide or combined stress event as described in the table below. TypeDescription The market perceives NatWest Group to be The examination of capital requirements under normal economic and adverse market conditions enables NatWest Group to determine Idiosyncratic scenario suffering from a severe stress event, which results in an immediate assumption of increased credit risk or concerns over solvency. whether its projected business performance meets internal and regulatory capital requirements. The examination of capital requirements under adverse economic and market conditions is assessed through stress testing. The results of stress tests are not only used widely across NatWest Group but also by the regulators to set specific capital buffers. NatWest Group takes part in stress tests run by regulatory authorities to test industry-wide vulnerabilities under crystallising global and domestic systemic risks. Stress and peak-to-trough movements are used to help assess the amount of capital NatWest Group needs to hold in stress conditions in accordance with the capital risk appetite framework. Market-wide scenario Combined scenario A market stress event affecting all participants in a market through contagion, potential counterparty failure and other market risks. NatWest Group is affected under this scenario but no more severely than any other participants with equivalent exposure. This scenario models the combined impact of an idiosyncratic and market stress occurring at once, severely affecting funding markets and the liquidity of some assets. Internal assessment of capital adequacy An internal assessment of material risks is carried out annually to enable an evaluation of the amount, type and distribution of capital required to cover these risks. This is referred to as the Internal Capital Adequacy Assessment Process (ICAAP). The ICAAP consists of a point-in-time assessment of exposures and risks at the end of the financial year together with a forward-looking stress capital assessment. The ICAAP is approved by the Board and submitted to the PRA. The ICAAP is used to form a view of capital adequacy separately to the minimum regulatory requirements. The ICAAP is used by the PRA to assess NatWest Group’s specific capital requirements through the Pillar 2 framework. NatWest Group uses the most severe outcome to set the internal stress testing scenario which underpins its internal liquidity risk appetite. This complements the regulatory liquidity coverage ratio requirement.

GRAPHIC

 

Stress testing – recovery and resolution planning The NatWest Group recovery plan explains how NatWest Group and its subsidiaries – as a consolidated group – would identify and respond to a financial stress event and restore its financial position so that it remains viable on an ongoing basis. The recovery plan ensures risks that could delay the implementation of a recovery strategy are highlighted and preparations are made to minimise the impact of these risks. Preparations include: Developing a series of recovery indicators to provide early warning of potential stress events. Clarifying roles, responsibilities and escalation routes to minimise uncertainty or delay. Developing a recovery playbook to provide a concise description of the actions required during recovery. Detailing a range of options to address different stress conditions. Appointing dedicated option owners to reduce the risk of delay and capacity concerns. The plan is intended to enable NatWest Group to maintain critical services and products it provides to its customers, maintain its core business lines and operate within risk appetite while restoring NatWest Group’s financial condition. It is assessed for appropriateness on an ongoing basis and is updated annually. The plan is reviewed and approved by the Board prior to submission to the PRA each year. Individual recovery plans are also prepared for NatWest Holdings Limited, NatWest Markets Plc, RBS International (Holdings) Limited, Ulster Bank Ireland DAC and NatWest Markets N.V.. These plans detail the recovery options, recovery indicators and escalation routes for each entity. Fire drill simulations of possible recovery events are used to test the effectiveness of NatWest Group and individual legal entity recovery plans. The fire drills are designed to replicate possible financial stress conditions and allow senior management to rehearse the responses and decisions that may be required in an actual stress. The results and lessons learnt from the fire drills are used to enhance NatWest Group’s approach to recovery planning. Under the resolution assessment part of the PRA rulebook, NatWest Group is required to carry out an assessment of its preparations for resolution, submit a report of the assessment to the PRA and publish a summary of this report. Resolution would be implemented if NatWest Group was assessed by the UK authorities to have failed and the appropriate regulator put it into resolution. The process of resolution is owned and implemented by the Bank of England (as the UK resolution authority). A multi-year programme is in place to further develop resolution capability in line with regulatory requirements. Stress testing – climate NatWest Group will be carrying out climate scenario and stress-testing analysis as part of the Bank of England’s 2021 biennial exploratory scenario. The exercise will explore three distinct climate scenarios over a 30 year horizon to test the financial system’s resilience to climate-related risks. NatWest Group is also participating in the United Nations Environment Programme Finance Initiative focusing on analysis of how physical and transition risks could affect the agriculture and real estate sectors. Stress testing – market risk Non-traded market risk Non-traded exposures are reported to the PRA on a quarterly basis. This provides the regulator with an overview of NatWest Group’s banking book interest rate exposure. The report includes detailed product information analysed by interest rate driver and other characteristics, including accounting classification, currency and counterparty type. Scenario analysis based on hypothetical adverse scenarios is performed on non-traded exposures as part of the Bank of England and European Banking Authority stress exercises. NatWest Group also produces an internal scenario analysis as part of its financial planning cycles. Non-traded exposures are capitalised through the ICAAP. This covers gap risk, basis risk, credit spread risk, pipeline risk, structural foreign exchange risk, prepayment risk, equity risk and accounting volatility risk. The ICAAP is completed with a combination of value and earnings measures. The total non-traded market risk capital requirement is determined by adding the different charges for each sub risk type. The ICAAP methodology captures at least ten years of historical volatility, produced with a 99% confidence level. Methodologies are reviewed by NatWest Group Model Risk and the results are approved by the NatWest Group Technical Asset & Liability Management Committee. Non-traded market risk stress results are combined with those for other risks into the capital plan presented to the Board. The cross-risk capital planning process is conducted once a year, with a planning horizon of five years. The scenario narratives cover both regulatory scenarios and macroeconomic scenarios identified by NatWest Group. Vulnerability-based stress testing begins with the analysis of a portfolio and expresses its key vulnerabilities in terms of plausible, vulnerability scenarios under which the portfolio would suffer material losses. These scenarios can be historical, macroeconomic or forward-looking/hypothetical. Vulnerability-based stress testing is used for internal management information and is not subject to limits. The results for relevant scenarios are reported to senior management. Traded market risk NatWest Group carries out daily market risk stress testing to identify vulnerabilities and potential losses in excess of, or not captured in, value-at-risk. The calculated stresses measure the impact of changes in risk factors on the fair values of the trading and fair value through other comprehensive income portfolios. NatWest Group conducts historical, macroeconomic and vulnerability-based stress testing. Historical stress testing is a measure that is used for internal management. Using the historical simulation framework employed for value-at-risk, the current portfolio is stressed using historical data since 1 January 2005. This methodology simulates the impact of the 99.9 percentile loss that would be incurred by historical risk factor movements over the period, assuming variable holding periods specific to the risk factors and the businesses. Historical stress tests form part of the market risk limit framework and their results are reported daily to senior management. Macroeconomic stress tests are carried out periodically as part of the bank-wide, cross-risk capital planning process. The scenario narratives are translated into risk factor shocks using historical events and insights by economists, risk managers and the first line. Market risk stress results are combined with those for other risks into the capital plan presented to the Board. The cross-risk capital planning process is conducted once a year, with a planning horizon of five years. The scenario narratives cover both regulatory scenarios and macroeconomic scenarios identified by NatWest Group. Vulnerability-based stress testing begins with the analysis of a portfolio and expresses its key vulnerabilities in terms of plausible, vulnerability scenarios under which the portfolio would suffer material losses. These scenarios can be historical, macroeconomic or forward-looking/hypothetical. Vulnerability-based stress testing is used for internal management information and is not subject to limits. The results for relevant scenarios are reported to senior management.

GRAPHIC

 

 Risk management framework continued Internal scenarios During 2020, NatWest Group continuously refined and reviewed a series of internal scenarios – benchmarked against the Bank of England’s illustrative scenario – as the impact of COVID-19 evolved, including actual and potential effects on economic fundamentals. These scenarios included: The impact of travel restrictions, social distancing policies, self-isolation and sickness on GDP, employment and consumer spending. The impacts on business investment in critical sectors. The effect on house prices, commercial real estate values and major project finance. The effect of government interventions such as the Job Retention Scheme and the Coronavirus Business Interruption Loan Scheme. Applying the macro-scenarios to NatWest Group’s earnings, capital, liquidity and funding positions did not result in a breach of any regulatory thresholds. Regulatory stress testing NatWest Group has participated in the regulatory stress tests conducted annually by the Bank of England and biennially by the European Banking Authority (EBA). The results of these regulatory stress tests are carefully assessed and form part of the wider risk management of NatWest Group. However, in 2020 due to the impacts of COVID-19, the Bank of England and the EBA suspended their stress tests. Following the UK’s exit from the European Union on 31 December 2020, only relevant European subsidiaries of NatWest Group will take part in the EBA tests going forward. NatWest Group itself will not participate.

GRAPHIC

 

 Credit risk Definition Credit risk is the risk that customers and counterparties fail to meet their contractual obligation to settle outstanding amounts. Sources of risk The principal sources of credit risk for NatWest Group are lending, off-balance sheet products, derivatives and securities financing, and debt securities. NatWest Group is also exposed to settlement risk through foreign exchange, trade finance and payments activities. Key developments in 2020 The outlook for credit risk and asset quality deteriorated during the year driven by the unprecedented economic impact and disruption from COVID-19. The severity of the disruption impacted both Personal and Wholesale customers. The overall expected credit loss (ECL) charge increased materially as a result during 2020, largely during the second quarter of the year. The ECL charge was driven by Stage 2 where, due to the forward-looking nature of the IFRS 9 ECL model, there was a large migration of exposure into this category. Stage 3 ECL charges remained supressed as a result of government support schemes mitigating against defaults at this stage. NatWest Group participated in government backed support mechanisms, including granting payment holidays (also referred to as payment deferrals), originating loans and offering concessions where appropriate. As the various support schemes conclude, NatWest Group anticipates further credit deterioration in portfolios. Further details on the impact of COVID-19 on credit risk in NatWest Group are disclosed in the impact of COVID-19 section. Governance The Credit Risk function provides oversight of frontline credit risk management activities. Governance activities include: Defining credit risk appetite for the management of concentration risk and credit policy to establish the key causes of risk in the process of providing credit and the controls that must be in place to mitigate them. Approving and monitoring credit limits. Oversight of the first line of defence to ensure that credit risk remains within the appetite set by the Board and that controls are being operated adequately and effectively. Assessing the adequacy of ECL provisions including approving any necessary in-model and post model adjustments through NatWest Group and business unit provisions and model committees. Risk appetite Credit risk appetite aligns to the strategic risk appetite set by the Board and is set and monitored through risk appetite frameworks tailored to NatWest Group’s Personal and Wholesale segments. Personal The Personal credit risk appetite framework sets limits that measure and control the quality and concentration of both existing and new business for each relevant business segment. The actual performance of each portfolio is tracked relative to these limits and management action is taken where necessary. The limits apply to a range of credit risk-related measures including expected loss at both portfolio and product level, projected credit default rates across products and the loan-to-value (LTV) ratio of the mortgage portfolios. Wholesale For Wholesale credit, the framework has been designed to reflect factors that influence the ability to operate within risk appetite. Tools such as stress testing and economic capital are used to measure credit risk volatility and develop links between the framework and risk appetite limits. Four formal frameworks are used, classifying, measuring and monitoring credit risk exposure across single name, sector and country concentrations and product and asset classes with heightened risk characteristics. The framework is supported by a suite of transactional acceptance standards that set out the risk parameters within which businesses should operate. Credit policy standards are in place for both the Wholesale and Personal portfolios. They are expressed as a set of mandatory controls. Identification and measurement Credit stewardship Risks are identified through relationship management and credit stewardship of customers and portfolios. Credit risk stewardship takes place throughout the customer relationship, beginning with the initial approval. It includes the application of credit assessment standards, credit risk mitigation and collateral, ensuring that credit documentation is complete and appropriate, carrying out regular portfolio or customer reviews and problem debt identification and management. Additional stewardship measures were put in place in response to COVID-19. Refer to the Impact of COVID-19 section for further details. Asset quality All credit grades map to an asset quality (AQ) scale, used for financial reporting. Performing loans are defined as AQ1-AQ9 (where the probability of default (PD) is less than 100%) and defaulted non-performing loans as AQ10 or Stage 3 under IFRS 9 (where the PD is 100%). Loans are defined as defaulted when the payment status becomes 90 days past due, or earlier if there is clear evidence that the borrower is unlikely to repay, for example bankruptcy or insolvency. Counterparty credit risk Counterparty credit risk arises from the obligations of customers under derivative and securities financing transactions. NatWest Group mitigates counterparty credit risk through collateralisation and netting agreements, which allow amounts owed by NatWest Group to a counterparty to be netted against amounts the counterparty owes NatWest Group. Mitigation Mitigation techniques, as set out in the appropriate credit policies and transactional acceptance standards, are used in the management of credit portfolios across NatWest Group. These techniques mitigate credit concentrations in relation to an individual customer, a borrower group or a collection of related borrowers. Where possible, customer credit balances are netted against obligations. Mitigation tools can include structuring a security interest in a physical or financial asset, the use of credit derivatives including credit default swaps, credit-linked debt instruments and securitisation structures, and the use of guarantees and similar instruments (for example, credit insurance) from related and third parties. Property is used to mitigate credit risk across a number of portfolios, in particular residential mortgage lending and commercial real estate (CRE). The valuation methodologies for collateral in the form of residential mortgage property and CRE are detailed below.

GRAPHIC

 

 Credit risk continued Residential mortgages – NatWest Group takes collateral in the form of residential property to mitigate the credit risk arising from mortgages. NatWest Group values residential property during the loan underwriting process by either appraising properties individually or valuing them collectively using statistically valid models. NatWest Group updates residential property values quarterly using the relevant residential property index namely: RegionIndex used For lower risk transactions below specific thresholds, credit decisions can be approved through self-sanctioning within the business. This process is facilitated through an auto-decision making system, which utilises scorecards, strategies and policy rules. Such credit decisions must be within the approval authority of the relevant business sanctioner. For all other transactions, credit is only granted to customers following joint approval by an approver from the business and the credit risk UK (including Northern Ireland) Office for National Statistics House Price Index function or by two credit officers. The joint business and credit approvers act within a delegated approval authority under the Republic of IrelandCentral Statistics Office Residential Property Price Index The current indexed value of the property is a component of the ECL provisioning calculation. Commercial real estate valuations – NatWest Group has a panel of chartered surveying firms that cover the spectrum of geography and property sectors in which NatWest Group takes collateral. Suitable valuers for particular assets are contracted through a single service agreement to ensure consistency of quality and advice. Valuations are generally commissioned when an asset is taken as security; a material increase in a facility is requested; or a default event is anticipated or has occurred. In the UK, an independent third-party market indexation is applied to update external valuations once they are more than a year old and every three years a formal independent valuation is commissioned. In the Republic of Ireland, assets are revalued in line with the Central Bank of Ireland threshold requirements, which permits indexation for lower value residential assets, but demands regular Red Book valuations for higher value assets. Assessment and monitoring Practices for credit stewardship – including credit assessment, approval and monitoring as well as the identification and management of problem debts – differ between the Personal and Wholesale portfolios. Personal Personal customers are served through a lending approach that entails offering a large number of small-value loans. To ensure that these lending decisions are made consistently, NatWest Group analyses internal credit information as well as external data supplied by credit reference agencies (including historical debt servicing behaviour of customers with respect to both NatWest Group and other lenders). NatWest Group then sets its lending rules accordingly, developing different rules for different products. The process is then largely automated, with each customer receiving an individual credit score that reflects both internal and external behaviours and this score is compared with the lending rules set. For relatively high-value, complex personal loans, including some residential mortgage lending, specialist credit managers make the final lending decisions. These decisions are made within specified delegated authority limits that are issued dependent on the experience of the individual. Underwriting standards and portfolio performance are monitored on an ongoing basis to ensure they remain adequate in the current market environment and are not weakened materially to sustain growth. Wholesale Wholesale customers – including corporates, banks and other financial institutions – are grouped by industry sectors and geography as well as by product/asset class and are managed on an individual basis. Customers are aggregated as a single risk when sufficiently interconnected. A credit assessment is carried out before credit facilities are made available to customers. The assessment process is dependent on the complexity of the transaction. Credit approvals are subject to environmental, social and governance risk policies which restrict exposure to certain highly carbon intensive industries as well as those with potentially heightened reputational impacts. Wholesale Credit Authorities Framework Policy. The level of delegated authority held by approvers is dependent on their experience and expertise with only a small number of senior executives holding the highest approval authority. Both business and credit approvers are accountable for the quality of each decision taken, although the credit risk approver holds ultimate sanctioning authority. Transactional acceptance standards provide detailed transactional lending and risk acceptance metrics and structuring guidance. As such, these standards provide a mechanism to manage risk appetite at the customer/transaction level and are supplementary to the established credit risk appetite. Credit grades (PD) and loss given default (LGD) are reviewed and if appropriate re-approved annually. The review process assesses borrower performance, including reconfirmation or adjustment of risk parameter estimates; the adequacy of security; compliance with terms and conditions; and refinancing risk. Problem debt management Personal Early problem identification Pre-emptive triggers are in place to help identify customers that may be at risk of being in financial difficulty. These triggers are both internal, using NatWest Group data, and external using information from credit reference agencies. Proactive contact is then made with the customer to establish if they require help with managing their finances. By adopting this approach, the aim is to prevent a customer’s financial position deteriorating which may then require intervention from the Collections and Recoveries teams. Personal customers experiencing financial difficulty are managed by the Collections team. If the Collections team is unable to provide appropriate support after discussing suitable options with the customer, management of that customer moves to the Recoveries team. If at any point in the collections and recoveries process, the customer is identified as being potentially vulnerable, the customer will be separated from the regular process and supported by a specialist team to ensure the customer receives appropriate support for their circumstances. Collections When a customer exceeds an agreed limit or misses a regular monthly payment the customer is contacted by NatWest Group and requested to remedy the position. If the situation is not regularised then, where appropriate, the Collections team will become more fully involved and the customer will be supported by skilled debt management staff who endeavour to provide customers with bespoke solutions. Solutions include short-term account restructuring, refinance loans and forbearance which can include interest suspension and ‘breathing space’. In the event that an affordable/sustainable agreement with a customer cannot be reached, the debt will transition to the Recoveries team. For provisioning purposes, under IFRS 9, exposure to customers managed by the Collections team is categorised as Stage 2 and subject to a lifetime loss assessment, unless it is 90 days past due or has an interest non-accrual status, in which case it is categorised as Stage 3. In the Republic of Ireland, the relationship may pass to a specialist support team prior to any transfer to recoveries, depending on the outcome of customer financial assessment.

GRAPHIC

 

 

 Credit risk continued Recoveries The Recoveries team will issue a notice of intention to default to the customer and, if appropriate, a formal demand, while also registering the account with credit reference agencies where appropriate. Following this, the customer’s debt may then be placed with a third-party debt collection agency, or alternatively a solicitor, in order to agree an affordable repayment plan with the customer. An option that may also be considered, is the sale of unsecured debt. Exposures subject to formal debt recovery are defaulted and categorised as Stage 3 impaired. Wholesale Early problem identification Each segment and sector have defined early warning indicators to identify customers experiencing financial difficulty, and to increase monitoring if needed. Early warning indicators may be internal, such as a customer’s bank account activity, or external, such as a publicly-listed customer’s share price. If early warning indicators show a customer is experiencing potential or actual difficulty, or if relationship managers or credit officers identify other signs of financial difficulty, they may decide to classify the customer within the Risk of Credit Loss framework. Risk of Credit Loss framework The framework focuses on Wholesale customers whose credit profiles have deteriorated materially since origination. Expert judgement is applied by experienced credit risk officers to classify cases into categories that reflect progressively deteriorating credit risk to NatWest Group. There are two classifications which apply to non-defaulted customers within the framework – Heightened Monitoring and Risk of Credit Loss. For the purposes of provisioning, all exposures subject to the framework are categorised as Stage 2 and subject to a lifetime loss assessment. The framework also applies to those customers that have met NatWest Group’s default criteria (AQ10 exposures). Defaulted exposures are categorised as Stage 3 impaired for provisioning purposes. Heightened Monitoring customers are performing customers that have met certain characteristics, which have led to significant credit deterioration. Collectively, characteristics reflect circumstances that may affect the customer’s ability to meet repayment obligations. Characteristics include trading issues, covenant breaches, material PD downgrades and past due facilities. Heightened Monitoring customers require pre-emptive actions (outside the customer’s normal trading patterns) to return or maintain their facilities within NatWest Group’s current risk appetite prior to maturity. Risk of Credit Loss customers are performing customers that have met the criteria for Heightened Monitoring and also pose a risk of credit loss to NatWest Group in the next 12 months should mitigating action not be taken or not be successful. Once classified as either Heightened Monitoring or Risk of Credit Loss, a number of mandatory actions are taken in accordance with policies. Actions include a review of the customer’s credit grade, facility and security documentation and the valuation of security. Depending on the severity of the financial difficulty and the size of the exposure, the customer relationship strategy is reassessed by credit officers, by specialist credit risk or relationship management units in the relevant business, or by Restructuring. Agreed customer management strategies are regularly monitored by both the business and credit teams. The largest Risk of Credit Loss exposures are regularly reviewed by a Risk of Credit Loss Committee. The committee members are experienced credit, business and restructuring specialists. The purpose of the committee is to review and challenge the strategies undertaken for customers that pose the largest risk of credit loss to NatWest Group. Appropriate corrective action is taken when circumstances emerge that may affect the customer’s ability to service its debt (refer to Heightened Monitoring characteristics). Corrective actions may include granting a customer various types of concessions. Any decision to approve a concession will be a function of specific appetite, the credit quality of the customer, the market environment and the loan structure and security. All customers granted forbearance are classified Heightened Monitoring as a minimum. Other potential outcomes of the relationship review are to: remove the customer from the Risk of Credit Loss framework, offer additional lending and continue monitoring, transfer the relationship to Restructuring if appropriate, or exit the relationship. The Risk of Credit Loss framework does not apply to problem debt management for business banking customers. These customers are, where necessary, managed by specialist problem debt management teams, depending on the size of exposure or by the business banking recoveries team where a loan has been impaired. Restructuring Where customers are categorised as Risk of Credit Loss, relationships are mainly managed by the Restructuring team. The purpose of Restructuring is to protect NatWest Group’s capital. Restructuring does this by working with corporate and commercial customers in financial difficulty on their restructuring and repayment strategies. Restructuring will always aim to recover capital fairly and efficiently. Specialists in Restructuring work with customers experiencing financial difficulties and showing signs of financial stress. Throughout Restructuring’s involvement, the mainstream relationship manager will remain an integral part of the customer relationship, unless a repayment strategy is deemed appropriate. The objective is to find a mutually acceptable solution, including restructuring of existing facilities, repayment or refinancing. Where a solvent outcome is not possible, insolvency may be considered as a last resort. However, helping the customer return to financial health and restoring a normal banking relationship is always the preferred outcome. Forbearance Forbearance takes place when a concession is made on the contractual terms of a loan/debt in response to a customer’s financial difficulties. The aim of forbearance is to support and restore the customer to financial health while minimising risk. To ensure that forbearance is appropriate for the needs of the customer, minimum standards are applied when assessing, recording, monitoring and reporting forbearance. A credit exposure may be forborne more than once, generally where a temporary concession has been granted and circumstances warrant another temporary or permanent revision of the loan’s terms. In the Personal portfolio, loans are reported as forborne until they meet the exit criteria set out by the European Banking Authority. These include being classified as performing for two years since the last forbearance event, making regular repayments and the loan/debt being less than 30 days past due. Exit criteria are not currently applied for Wholesale portfolios. Types of forbearance Personal In the Personal portfolio, forbearance may involve payment concessions and loan rescheduling (including extensions in contractual maturity), capitalisation of arrears and, in the Republic of Ireland only, temporary interest-only or partial capital and interest arrangements. Forbearance support is provided for both mortgages and unsecured lending.

GRAPHIC

 

 Credit risk continued Wholesale In the Wholesale portfolio, forbearance may involve covenant waivers, amendments to margins, payment concessions and loan rescheduling (including extensions in contractual maturity), capitalisation of arrears, and debt forgiveness or debt-for-equity swaps. Monitoring of forbearance Personal For Personal portfolios, forborne loans are separated and regularly monitored and reported while the forbearance strategy is implemented, until they exit forbearance. Wholesale In the Wholesale portfolio, customer PDs and facility LGDs are reassessed prior to finalising any forbearance arrangement. The ultimate outcome of a forbearance strategy is highly dependent on the co-operation of the borrower and a viable business or repayment outcome. Where forbearance is no longer appropriate, NatWest Group will consider other options such as the enforcement of security, insolvency proceedings or both, although these are options of last resort. Provisioning requirements on forbearance are detailed in the Provisioning for forbearance section. Impact of COVID-19 COVID-19 has necessitated various changes to the “business as usual” credit risk management approaches set out above. Specific adjustments made to credit risk management as a result of COVID-19 are set out below. Risk appetite Personal The onset of COVID-19 resulted in a significant deterioration in the economic outlook and consequently the credit environment. In response, credit risk appetite was tightened including changes to credit score acceptance thresholds and certain credit policy criteria, for example, maximum loan-to-values on new mortgage business. The criteria were reviewed and adapted on an ongoing basis throughout the year. Wholesale At the outset of COVID-19, Wholesale Credit Risk undertook a vulnerability assessment of sectors and conducted more frequent monitoring of these portfolios, including sub-sector and single name analysis. Additional oversight forums for both new and existing customer requests linked to sector, customer viability and transaction value were also introduced. Monitoring of government support scheme lending, including tracking customer lending journeys to prioritise resources, ensured customers could be supported in a timely manner. Risk appetite limits were reduced to reflect current risks and remain under constant review. Identification and measurement Credit stewardship Wholesale Natwest Group’s credit stewardship included carrying out regular portfolio or customer reviews and problem debt identification and management. In line with existing credit policy parameters, relationship managers were able to defer annual reviews for a maximum of three months. These deferrals were used during 2020 to provide capacity to focus on supporting government lending scheme requests. Customer review meetings took place virtually unless a specific customer request was made, prior approval obtained and a risk assessment carried out. Mitigation Personal During the COVID-19 lockdown from April to June in the UK, valuers were prohibited from conducting physical property inspections. As a result, mortgage application processing was suspended where a physical valuation was required. Applications eligible for remote valuations (known as desktops) and automated valuations (AVM) were able to continue and NatWest Group increased its valuation capacity to provide an additional quality assurance benchmark for ongoing assessment of desktop and AVM standards. Following the April to June lockdown, the application backlog was cleared once valuers were able to safely return to physical property inspections. Commercial real estate valuations Commercial property valuations were not conducted during the initial national lockdown due to travel restrictions, during which time physical valuations were postponed. Following this period, government guidance across the UK nations in respect of local and national lockdowns, confirmed that full internal property inspections could continue subject to adopting COVID-19 secure protocols. However, this required the full co-operation of occupiers and in addition, some commercial premises remained closed. Due to the limitations of some property valuations, The Royal Institute for Chartered Surveyors introduced a Material Valuation Uncertainty Clause (MVUC) for use at the time. There was a general lifting of the MVUC for all UK real estate valuations in September. However, where there is still considerable uncertainty for a location or particular sub-sector (for example, assets valued with reference to their trading potential such as hotels), the MVUC may still apply. This position has not changed with second wave local or subsequent national lockdowns. Assessment and monitoring Personal Reflecting the deteriorated economic outlook, underwriting standards were tightened including additional information requirements from self-employed applicants. Customers requesting a COVID-19 related payment holiday were not subject to a credit assessment for those requests. Portfolio performance monitoring was expanded to include insight on customers accessing payment holiday support and their performance at the end of the payment holiday period. Wholesale NatWest Group established guidance on credit grading in response to COVID-19 to ensure consistent and fair outcomes for customers, whilst appropriately reflecting the economic outlook. Within the Wholesale portfolio, customer credit grades were reassessed when a request for financing was made, a scheduled customer credit review undertaken or a material event specific to that customer occurred. A request for support using one of the government-backed COVID-19 support schemes was not, in itself, a reason for a customer’s credit grade to be amended. Large or complex customers were graded using financial forecasts, incorporating both the effect of COVID-19 and the estimated length of time to return to within credit appetite metrics. All other customers who were not subject to any wider significant increase in credit risk (SICR) triggers and who were assessed as having the ability in the medium-term post-COVID-19 to be viable and meet credit appetite metrics were graded using audited accounts. NatWest Group identified those customers for whom additional borrowing would require remedial action to return to within risk appetite over the medium term, and customers who were exhibiting signs of financial stress before COVID-19. These customers were graded with reference to the impact COVID-19 had on their business. Tailored guidance applies to financial institutions and, where appropriate, specialist credit grading models such as CRE. For certain types of COVID-19 related lending under government support schemes, notably BBLs, in line with the requirements of those schemes, a credit assessment was not undertaken.

GRAPHIC

 

 Credit risk continued Within the Wholesale portfolio, additional monitoring was implemented to identify and monitor specific sectors which had been particularly adversely affected by COVID-19 and the use of government support schemes (refer to Wholesale support schemes for further details). Problem debt management Personal In accordance with regulatory guidance, Personal customers were able to obtain a payment holiday of up to three months, twice, if requested. Such payment holidays would not necessarily have been considered forbearance (refer to Forbearance below). In addition, NatWest Group suspended new formal repossession recovery action for Personal customers. Wholesale In response to COVID-19, a new framework was introduced to categorise clients in a consistent manner across the Wholesale portfolio, based on the impact of COVID-19 on their financial position and outlook in relation to the sector risk appetite. This framework was extended to all Wholesale customers and supplemented the Risk of Credit Loss framework in assessing whether customers exhibited a SICR, and if support was considered to be granting forbearance. Tailored approaches were also introduced for business banking, commercial real estate and financial institutions customers. Forbearance Personal In the absence of any other forbearance or SICR triggers, customers granted COVID-19 related payment holidays were not considered forborne and were not subject to Collections team engagement. However, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2. Any support provided beyond the completion of a second payment holiday is considered forbearance, provided the customer’s circumstances met the definitions for forbearance as described above. Wholesale Customers seeking COVID-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium term post-COVID-19 to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. ECL modelling The unprecedented nature of COVID-19 required various interventions in ECL modelling to ensure reasonable and supportable ECL estimates. These are detailed in the Model monitoring and enhancement section. Credit grading models Credit grading models is the collective term used to describe all models, frameworks and methodologies used to calculate PD, exposure at default (EAD), LGD, maturity and the production of credit grades. Credit grading models are designed to provide: An assessment of customer and transaction characteristics. A meaningful differentiation of credit risk. Accurate internal default, loss and EAD estimates that are used in the capital calculation or wider risk management purposes. Impairment, provisioning and write-offs In the overall assessment of credit risk, impairment provisioning and write-offs are used as key indicators of credit quality. NatWest Group’s IFRS 9 provisioning models, which used existing Basel models as a starting point, incorporate term structures and forward-looking information. Regulatory conservatism within the Basel models has been removed as appropriate to comply with the IFRS 9 requirement for unbiased ECL estimates. Five key areas may materially influence the measurement of credit impairment under IFRS 9 – two of these relate to model build and three relate to model application: Model build: The determination of economic indicators that have most influence on credit loss for each portfolio and the severity of impact (this leverages existing stress testing models which are reviewed annually). The build of term structures to extend the determination of the risk of loss beyond 12 months that will influence the impact of lifetime loss for assets in Stage 2. Model application: The assessment of the SICR and the formation of a framework capable of consistent application. The determination of asset lifetimes that reflect behavioural characteristics while also representing management actions and processes (using historical data and experience). The choice of forward-looking economic scenarios and their respective probability weights. Refer to Accounting policy 13 for further details. IFRS 9 ECL model design principles Modelling of ECL for IFRS 9 follows the conventional approach to divide the problem of estimating credit losses for a given account into its component parts of PD, LGD and EAD. To meet IFRS 9 requirements, the PD, LGD and EAD parameters differ from their Pillar 1 internal ratings based counterparts in the following aspects: Unbiased – material regulatory conservatism has been removed from IFRS 9 parameters to produce unbiased estimates. Point-in-time – IFRS 9 parameters reflect actual economic conditions at the reporting date instead of long-run average or downturn conditions. Forward-looking – IFRS 9 PD estimates and, where appropriate, EAD and LGD estimates reflect forward-looking economic conditions. Tenor – IFRS 9 PD, LGD and EAD are provided as multi-period term structures up to exposure lifetimes instead of a fixed one-year horizon. IFRS 9 requires that at each reporting date, an entity shall assess whether the credit risk on an account has increased significantly since initial recognition. Part of this assessment requires a comparison to be made between the current lifetime PD (i.e. the PD over the remaining lifetime at the reporting date) with the equivalent lifetime PD as determined at the date of initial recognition. For assets originated before IFRS 9 was introduced, comparable lifetime origination PDs did not exist. These have been retrospectively created using the relevant model inputs applicable at initial recognition. PD estimates Personal models Personal PD models use the Exogenous, Maturity and Vintage (EMV) approach to model default rates. The EMV approach separates portfolio default risk trends into three components: vintage effects (quality of new business over time), maturity effects (changes in risk relating to time on book) and exogenous effects (changes in risk relating to changes in macro-economic conditions). The EMV methodology has been widely adopted across the industry because it enables forward-looking economic information to be systematically incorporated into PD estimates. However, the unprecedented nature of COVID-19 required certain modelling interventions that are detailed in the UK economic uncertainty section.

GRAPHIC

 

 Credit risk continued Wholesale models Wholesale PD models use a point-in-time/through-the-cycle framework to convert one-year regulatory PDs into point-in-time estimates that accurately reflect economic conditions observed at the reporting date. The framework utilises credit cycle indices (CCIs) across a comprehensive set of region/industry segments. Further detail on CCIs is provided in the Economic loss drivers section. One year point-in-time PDs are subsequently extended to forward-looking lifetime PDs using a conditional transition matrix approach and a set of econometric models. LGD estimates The general approach for the IFRS 9 LGD models is to leverage corresponding Basel LGD models with bespoke adjustments to ensure estimates are unbiased and where relevant, forward-looking. Personal Forward-looking information has only been incorporated for the secured portfolios, where changes in property prices can be readily accommodated. Analysis has shown minimal impact of economic conditions on LGDs for the other Personal portfolios. For Ulster Bank RoI, a bespoke IFRS 9 mortgage LGD model is used, reflecting its specific regional market. Wholesale Forward-looking economic information is incorporated into LGD estimates using the existing CCI framework. For low default portfolios, including sovereigns and banks, loss data is too scarce to substantiate estimates that vary with economic conditions. Consequently, for these portfolios, LGD estimates are assumed to be constant throughout the projection horizon. EAD estimates Personal The IFRS 9 Personal modelling approach for EAD is dependent on product type. Revolving products use the existing Basel models as a basis, with appropriate adjustments incorporating a term structure based on time to default. Amortising products use an amortising schedule, where a formula is used to calculate the expected balance based on remaining terms and interest rates. There is no EAD model for Personal loans. Instead, debt flow (i.e. combined PD x EAD) is modelled directly. Analysis has indicated that there is minimal impact on EAD arising from changes in the economy for all Personal portfolios except mortgages. Therefore, forward-looking information is only incorporated in the mortgage EAD model (through forecast changes in interest rates). Wholesale For Wholesale, EAD values are projected using product specific credit conversion factors (CCFs), closely following the product segmentation and approach of the respective Basel model. However, the CCFs are estimated over multi-year time horizons to produce unbiased model estimates. No explicit forward-looking information is incorporated, on the basis that analysis has shown that temporal variations in CCFs are mainly attributable to changes in exposure management practices rather than economic conditions. Governance and post model adjustments 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 (PMAs) were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All PMAs were subject to formal approval through provisioning governance, and were categorised as follows (business level commentary is provided below): Deferred model calibrations – ECL adjustments where PD model monitoring indicated that losses were being over predicted but where it was judged that an implied ECL release was not supportable. As a consequence, any potential ECL release was deferred and retained on the balance sheet. Economic uncertainty – ECL adjustments primarily arising from uncertainties associated with multiple economic scenarios (also for 2019) and credit outcomes as a result of the effect of COVID-19 and the consequences of government interventions. In both cases, management judged that additional ECL was required until further credit performance data became available on the behavioural and loss consequences of COVID-19. ECL post model adjustments Retail Ulster Commercial 2020 Banking £m Bank RoI £m Banking £m Other £m Total £m Note: (1) For 2019, the PMA for model calibrations of approximately £22 million was reported on a different basis. At that time, the value was based on the required ECL uplift pending systematic updates to model parameters, although the adjustment value was included in the reported ECL. For 2020, the value of PD calibration releases that were deemed not supportable and retained on the balance sheet is disclosed. Therefore, to be consistent in approach, the PMA value for 2019 has been reported as nil. For LGD, where model monitoring outcomes were less clear, and emerged over an extended period, monitoring focused on assessing the adequacy of loss estimates, and was duly assured and governed at the year end.

GRAPHIC

 

 Credit risk continued Retail Banking – The PMA for deferred model calibrations of £34 million (of which £25 million was in mortgages) reflected management’s judgement that the beneficial modelling impact, and implied ECL decrease, arising from underlying portfolio performance, that had been influenced by the various customer support mechanisms, was not supportable. The PMA for economic uncertainty included an ECL uplift of £63 million (of which £39 million was in mortgages) on a subset of customers who had accessed payment holiday support where their risk profile was identified as relatively high risk. In addition, there was a holdback of a modelled ECL release of £69 million, again due to the delayed default emergence reflective of the various customer support mechanisms (£15 million related to mortgages and £54 million related to unsecured lending). The overlay as at 31 December 2019 was reflective of the uncertainty associated with Brexit, subsequently systematically incorporated within the multiple economic scenarios. The 2020 overlay also included an ECL uplift on buy-to-let mortgages of £15 million (2019 – £8 million) to mitigate the risk of a disproportionate credit deterioration in challenging economic circumstances. Other judgmental overlays included £13 million (2019 – £15 million) in respect of the repayment risk not captured in the models, that a proportion of customers on interest-only mortgages would not be able to repay the capital element of their loan at the end of term, as well as a £7 million overlay for an identified weakness in the mortgage PD model pending remediation. Ulster Bank RoI – The PMA for economic uncertainty included an adjustment of £103 million in the mortgage portfolio reflecting concerns that expected losses arising from defaults in the year ahead would be significantly higher than modelled. Like Commercial Banking (further detail below), there was an overlay of £30 million in the Wholesale portfolio relative to concerns about debt recovery values and the risk of idiosyncratic credit outcomes. It also included adjustments of £10 million in respect of high risk payment break mortgage customers and £31 million in the SME portfolio reflective of the elevated risk for this sector. These two overlays were also associated with a collective migration of exposures to Stage 2. Refer to the Stage 2 decomposition analysis for further details. Other judgemental overlays included a Stage 3 ECL uplift of £25 million in the mortgage portfolio to address concerns that the loss outcome under the forecast macro-economic scenarios would be higher than modelled. Similar to Retail Banking and Commercial Banking, there was also a PMA for deferred model calibrations of £2 million in the retail unsecured and business banking portfolios. Commercial Banking – The PMA for economic uncertainty included an overlay of £409 million (£450 million across NatWest Group’s Wholesale portfolio) based on a judgemental thesis, reflecting concern that the unprecedented nature of COVID-19 could result in longer debt recovery periods and lower values than history suggested, and also the risk of idiosyncratic credit outcomes. It also included an overlay of £52 million in respect of elevated concerns around borrowers’ ability to refinance facilities at the end of the contractual term. Additionally, it included overlays to address the effects of customer support mechanisms. Similar to Retail Banking, the overlay as at 31 December 2019 was reflective of the uncertainty associated with Brexit, subsequently systematically incorporated within the multiple economic scenarios. There was also a PMA for deferred model calibrations on the business banking portfolio reflecting management’s judgement that the beneficial modelling impact, and implied ECL decrease, was not supportable again whilst portfolio performance was being under-pinned by the various support mechanisms. Other adjustments included an overlay of £19 million to mitigate the effect of operational timing delays in the identification and flagging of a SICR. Other – The PMAs in the other businesses were for similar reasons as those described above. Significant increase in credit risk (SICR) Exposures that are considered significantly credit deteriorated since initial recognition are classified in Stage 2 and assessed for lifetime ECL measurement (exposures not considered deteriorated carry a 12 month ECL). NatWest Group has adopted a framework to identify deterioration based primarily on relative movements in lifetime PD supported by additional qualitative backstops. The principles applied are consistent across NatWest Group and align to credit risk management practices, where appropriate. The framework comprises the following elements: IFRS 9 lifetime PD assessment (the primary driver) – on modelled portfolios, the assessment is based on the relative deterioration in forward-looking lifetime PD and is assessed monthly. To assess whether credit deterioration has occurred, the residual lifetime PD at balance sheet date (which PD is established at date of initial recognition (DOIR)) is compared to the current PD. If the current lifetime PD exceeds the residual origination PD by more than a threshold amount, deterioration is assumed to have occurred and the exposure transferred to Stage 2 for a lifetime loss assessment. For Wholesale, a doubling of PD would indicate a SICR subject to a minimum PD uplift of 0.1%. For Personal portfolios, the criteria vary by risk band, with lower risk exposures needing to deteriorate more than higher risk exposures, as outlined in the following table: Qualitative high-risk backstops – the PD assessment is complemented with the use of qualitative high-risk backstops to further inform whether significant deterioration in lifetime risk of default has occurred. The qualitative high-risk backstop assessment includes the use of the mandatory 30+ days past due backstop, as prescribed by IFRS 9 guidance, and other features such as forbearance support, Wholesale exposures managed within the Risk of Credit Loss framework, and adverse credit bureau results for Personal customers. Where a Personal customer was granted a payment holiday (also referred to as a payment deferral) in response to COVID-19, they were not automatically transferred into Stage 2. However, a subset of Personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2 (if not in Stage 2 already). Any support provided beyond completion of the second payment holiday was considered forbearance. Wholesale customers accessing the various COVID-19 support mechanisms were assessed as detailed in the Impact of COVID-19 section. Persistence (Personal and business banking customers only) – the persistence rule ensures that accounts which have met the criteria for PD driven deterioration are still considered to be significantly deteriorated for three months thereafter. This additional rule enhances the timeliness of capture in Stage 2. The persistence rule is applied to PD driven deterioration only. The criteria are based on a significant amount of empirical analysis and seek to meet three key objectives: Criteria effectiveness – the criteria should be effective in identifying significant credit deterioration and prospective default population. Stage 2 stability – the criteria should not introduce unnecessary volatility in the Stage 2 population. Portfolio analysis – the criteria should produce results which are intuitive when reported as part of the wider credit portfolio.

GRAPHIC

 

 

 Credit risk continued Provisioning for forbearance Personal The methodology used for provisioning in respect of Personal forborne loans will differ depending on whether the loans are performing or non-performing and which business is managing them due to local market conditions. Granting forbearance will only change the arrears status of the loan in specific circumstances, which can include capitalisation of principal and interest in arrears, where the loan may be returned to the performing book if the customer has demonstrated an ability to meet regular payments and is likely to continue to do so. The loan would continue to be reported as forborne until it meets the exit criteria set out by the European Banking Authority. Additionally, for some forbearance types, a loan may be transferred to the performing book if a customer makes payments that reduce loan arrears below 90 days (Retail Banking collections function). For ECL provisioning, all forborne but performing exposures are categorised as Stage 2 and are subject to a lifetime loss provisioning assessment. For non-performing forborne loans, the Stage 3 loss assessment process is the same as for non-forborne loans. In the absence of any other forbearance or SICR triggers, customers granted COVID-19 related payment holidays were not considered forborne. However, any support provided beyond completion of a second payment holiday is considered forbearance. Wholesale Provisions for forborne loans are assessed in accordance with normal provisioning policies. The customer’s financial position and prospects as well as the likely effect of the forbearance, including any concessions granted, and revised PD or LGD gradings – are considered in order to establish whether an impairment provision increase is required. Wholesale loans granted forbearance are individually assessed in most cases. Performing loans subject to forbearance treatment are categorised as Stage 2 and subject to a lifetime loss assessment. Forbearance may result in the value of the outstanding debt exceeding the present value of the estimated future cash flows. This difference will lead to a customer being classified as non-performing. In the case of non-performing forborne loans, an individual loan impairment provision assessment generally takes place prior to forbearance being granted. The amount of the loan impairment provision may change once the terms of the forbearance are known, resulting in an additional provision charge or a release of the provision in the period the forbearance is granted. The transfer of Wholesale loans from impaired to performing status follows assessment by relationship managers and credit. When no further losses are anticipated and the customer is expected to meet the loan’s revised terms, any provision is written-off or released and the balance of the loan returned to performing status. This is not dependent on a specified time period and follows the credit risk manager’s assessment. Customers seeking COVID-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium term post-COVID-19 to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. Refer to the Impact of COVID-19 section for further details. Asset lifetimes The choice of initial recognition and asset duration is another critical judgement in determining the quantum of lifetime losses that apply. The date of initial recognition reflects the date that a transaction (or account) was first recognised on the balance sheet; the PD recorded at that time provides the baseline used for subsequent determination of SICR as detailed above. For asset duration, the approach applied (in line with IFRS 9 requirements) is: Term lending – the contractual maturity date, reduced for behavioural trends where appropriate (such as, expected prepayment and amortisation). Revolving facilities – for Personal portfolios (except credit cards), asset duration is based on behavioural life and this is normally greater than contractual life (which would typically be overnight). For Wholesale portfolios, asset duration is based on annual counterparty review schedules and will be set to the next review date. In the case of credit cards, the most significant judgement is to reflect the operational practice of card reissuance and the associated credit assessment as enabling a formal re-origination trigger. As a consequence, a capped lifetime approach of up to 36 months is used on credit card balances. If the approach was uncapped the ECL impact is estimated at approximately £110 million (2019 – £90 million). However, credit card balances originated under the 0% balance transfer product, and representing approximately 12% of drawn cards balances, have their ECL calculated on a behavioural life-time approach as opposed to being capped at a maximum of three years. The capped approach reflects NatWest Group practice of a credit-based review of customers prior to credit card issuance and complies with IFRS 9. Benchmarking information indicates that peer UK banks use behavioural approaches in the main for credit card portfolios with average durations between three and ten years. Across Europe, durations are shorter and are, in some cases, as low as one year.

GRAPHIC

 

 Credit risk continued Economic loss drivers Introduction The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by product or asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors, (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement. The most material economic loss drivers for the Personal portfolio include unemployment rates, house price indices and the Bank of England and the European Central Bank base rates. For the Wholesale portfolio, in addition to interest and unemployment rates, national GDP, stock price indices and world GDP are primary loss drivers. Economic scenarios As at 31 December 2020, the range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. They comprised upside, base case, downside and extreme downside scenarios. The scenarios primarily reflect a range of outcomes for the path of COVID-19 and associated effects on labour and asset markets. The scenarios were consistent with the UK-EU Trade and Cooperation Agreement and are summarised as follows: Upside – This scenario assumes a very strong recovery through 2021, facilitated by a very rapid rollout of the vaccine. Economic output regains its pre-COVID-19 peak by the end of the year. The rebound in consumer spending from an easing in lockdown restrictions is rapid, enabling a more successful reabsorption of furloughed labour compared to the base case. That limits the rise in unemployment. Consequently, the effect on asset prices is more limited compared to the base case. Base case – The current lockdown restrictions are gradually loosened enabling a recovery over the course of 2021. The rollout of the vaccines proceeds as planned. Consumer spending rebounds as accumulated household savings are spent, providing support to the recovery in consumer-facing service sectors. Unemployment rises through to the second half of 2021, peaking at 7%, before gradually retreating. Housing activity slows in the second half of 2021 with a very limited decline in prices. Downside – This scenario assumes the rollout of the COVID-19 vaccine is slower compared to base case, leading to a more sluggish recovery. Business confidence is slower to return while households remain more cautious. This scenario assumes that the labour market and asset market damage is greater than in the base case. Unemployment peaks at 9.4%, surpassing the financial crisis peak and causing more scarring. Extreme downside – This scenario assumes a new variant of COVID-19 necessitates a new vaccine, which substantially slows the speed of rollout, prolonging the recovery. There is a renewed sharp downturn in the economy in 2021. Firms react by shedding labour in significant numbers, leading to a very difficult recovery with the unemployment rate surpassing the levels seen in the 1980s. There are very sharp declines in asset prices. The recovery is tepid throughout the five-year period, meaning only a gradual decline in joblessness. In contrast, as at 31 December 2019, NatWest Group used five discrete scenarios to characterise the distribution of risks in the economic outlook. For 2020, 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, asset price falls and the degree of permanent damage to the economy, around which there are pronounced levels of uncertainty at this stage. The tables and commentary below provide details of the key economic loss drivers under the four scenarios. The main macroeconomic variables for each of the four scenarios used for ECL modelling are set out in the main macroeconomic variables table below. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for unemployment and the Bank of England base rate. The House Price Inflation and commercial real estate figures show the total change in each asset over five years. Main macroeconomic variables20202019 UpsideBase caseDownside downside Upside 2 Upside 1 Base case Downside 1 Downside 2 %%% % % %%%% Five-year summary Note: (1) The five year period starts at Q3 2020 for 2020 and Q3 2019 for 2019.

GRAPHIC

 

 Credit risk continued Economic loss drivers UK gross domestic product 115 105 95 85 75 Q4 2019Q4 2020Q4 2021Q4 2023Q4 2024Q4 2025Q4 2026 2020 (9.3) (10.9) (11.1) (12.3) 2021 9.0 4.5 2.6 (4.6) 2022 2.6 4.2 4.6 6.1 2023 2.2 3.2 3.2 4.0 2024 2.3 2.8 3.1 2.3 2025 2.3 2.4 2.6 2.3 2020 (1.6) (2.2) (2.7) (4.9) 2021 9.9 5.2 0.8 (6.4) 2022 5.2 5.2 4.6 8.4 2023 3.1 3.5 3.9 5.9 2024 1.9 2.7 3.8 2.5 2025 2.1 2.6 3.8 2.4 2020 4.4 4.4 4.9 5.4 2021 5.6 6.3 8.5 12.3 2022 4.5 6.3 7.7 12.0 2023 3.8 5.5 6.7 9.0 2024 3.8 5.1 6.2 7.5 2025 3.9 5.1 6.2 7.3 2020 11.6 11.9 12.1 13.0 2021 7.2 9.4 11.4 14.9 2022 5.1 7.4 9.6 11.7 2023 4.4 6.5 8.6 9.6 2024 4.5 6.2 7.8 8.6 2025 4.6 6.1 7.2 8.5 Upside Base case Downside downside Upside Base case Downside downside % % % % Republic of Ireland % % % % 2020 2.3 (0.1) (0.8) (3.2) 2021 3.6 (4.1) (12.9) (24.9) 2022 3.3 3.8 3.4 7.4 2023 2.9 4.1 5.9 7.4 2024 3.3 4.9 7.6 5.7 2025 4.2 4.6 5.4 5.5 Commercial real estate price - four quarter growthExtreme Upside Base case Downside downside UK%%%%

GRAPHIC

 

Worst points The worst points refer to the worst four-quarter rate of change for GDP, House Price Inflation and commercial real estate price and the worst quarterly figures for unemployment between 2020 and 2025. 31December202031 December 2019 Upside Base case Downside downside Downside 1 Downside 2 %% % %% UK 31December202031 December 2019 Upside Base case Downside downside Downside 1 Downside 2 %% % %% Republic of Ireland Peak (Q3 2020 to trough)31 December 2020 Extreme 31 December 2020 Extreme

GRAPHIC

 

 Credit risk continued Economic loss drivers Probability weightings of scenarios NatWest Group’s approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. The scale of the economic impact of COVID-19 and the range of recovery paths necessitates a change of approach to assigning probability weights from that used in recent updates. Previously GDP paths for NatWest Group’s scenarios were compared against a set of 1,000 model runs, following which a percentile in the distribution was established that most closely corresponded to the scenario. This approach does not produce meaningful outcomes in the current circumstances because GDP is highly volatile and highly uncertain. Instead, NatWest Group has subjectively applied probability weights, reflecting expert views within NatWest Group. The probability weight assignment was judged to present good coverage to the central scenarios and the potential for a far more robust recovery on the upside and exceptionally challenging outcomes on the downside. A 20% weighting was applied to the upside scenario, a 40% weighting applied to the base case scenario, a 30% weighting applied to the downside scenario and a 10% weighting applied to the extreme downside scenario. NatWest Group judged a downside-biased weighting as appropriate given the risk to the outlook posed by the numerous factors influencing the path of COVID-19, the rollout of the vaccine and the pace at which social distancing restrictions can be relaxed. Use of the scenarios in Personal lending Personal lending follows a discrete scenario approach which means that for each account, PD and LGD values are calculated as probability weighted averages across the individual, discrete economic scenarios. The PD values for each discrete scenario are in turn calculated using product specific econometric models that aggregate forecasts of the relevant economic loss drivers into forecasts of the exogenous component of the respective PD models (refer to IFRS 9 ECL model design principles). Use of the scenarios in Wholesale lending The Wholesale lending methodology is based on the concept of CCIs. The CCIs represent, similar to the exogenous component in Personal, all relevant economic loss drivers for a region/industry segment aggregated into a single index value that describes the loss rate conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to loss rates at long-run average levels, a positive CCI value corresponds to loss rates below long-run average levels and a negative CCI value corresponds to loss rates above long-run average levels. The four economic scenarios are translated into forward-looking projections of CCIs using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then overlaid with an additional mean reversion assumption, i.e. that after one to two years into the forecast horizon the CCI gradually revert to their long-run average of zero. Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection. The rationale for the Wholesale approach is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NatWest Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from using the discrete macro-economic scenarios alone. Business banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal lending rather than the Wholesale lending methodology. UK economic uncertainty Treatment of COVID-19 relief mechanisms Use of COVID-19 relief mechanisms (for example, payment holidays, CBILS and BBLS) will not automatically merit identification of SICR and trigger a Stage 2 classification in isolation. However, a subset of Personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk were collectively migrated to Stage 2 (if not already captured by other SICR criteria). For Wholesale customers, NatWest Group continues to provide support, where appropriate, to existing customers. Those who are deemed either (a) to require a prolonged timescale to return to within NatWest Group’s risk appetite, (b) not to have been viable pre-COVID-19, or (c) not to be able to sustain their debt once COVID-19 is over, will trigger a SICR and, if concessions are sought, be categorised as forborne, in line with regulatory guidance. As some of the government support mechanisms conclude, NatWest Group anticipates further credit deterioration in the portfolios. There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. A key factor would be a more adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates, but also, among others: The timing and nature of governmental exit plans from lockdown, notably in the UK and the Republic of Ireland, and any future repeated lockdown requirements. The progress of COVID-19, with potential for changes in worker/consumer behaviour and sickness levels. The efficacy of the various government support initiatives in terms of their ability to defray customer defaults is yet to be proven, notably over an extended period. Any further damage to certain supply chains, most notably in the case of any re-tightening of lockdown rules but also delays caused by social distancing measures and possible export/import controls. The level of revenues lost by corporate clients and pace of recovery of those revenues may affect NatWest Group’s clients’ ability to service their borrowing, especially in those sectors most exposed to the impacts of COVID-19. Higher unemployment if companies fail to restart jobs after periods of staff furlough. This could potentially lead to further ECL increases. However, the income statement impact of this will be mitigated to some extent by the forward-looking provisions taken as at 31 December 2020.

GRAPHIC

 

 

Model monitoring and enhancement The abrupt and prolonged interruption of a wide range of economic activities due to COVID-19 and the subsequent government interventions to support businesses and individuals, has resulted in patterns in the data of key economic loss drivers and loss outcomes, that are markedly different from those that NatWest Group’s models have been built on. To account for these structural changes, model adjustments have been applied and model changes have been implemented. Government support Most notably as a result of various government support measures, the increase in model-predicted defaults caused by the sharp contraction in GDP and consumer spending in Q2 2020 has to date not materialised. Accordingly, model-projected default rates in Wholesale and Personal have been adjusted by introducing lags of up to 12 months. These lags are based partly on objective empirical data (i.e. the absence of increases in realised default rates by the reporting date) and partly judgmental, based on the extension of government support measures into 2021 and their expected effectiveness. In Wholesale lending, most importantly business and commercial banking, model-projected default rates have also been scaled down based on the expectation that credit extended under various government support loan schemes will allow many businesses, not only to delay, but to sustainably mitigate their default risk profile. Extreme GDP movements – Wholesale only Due to the specific nature of COVID-19, GDP year-on-year movements in both directions are extremely sharp, many multiples of their respective extremes observed previously. This creates a risk of overstretched, invalid extrapolations in statistical models. Therefore, all Wholesale econometric models were updated to make them robust against extreme GDP movements by capping projected CCI values at levels corresponding to three times the default rates observed at the peak of the global financial crisis and using quarterly averages rather than spot values for CCI projections. Industry sector detail – Wholesale only The economic impact of COVID-19 is highly differentiated by industry sector, with hospitality and other contact-based leisure, service, travel and passenger transport activities significantly more affected than the overall economy. On the other hand, the corporate and commercial econometric forecasting models used in Wholesale are sector agnostic. Sector performance was therefore monitored throughout the year and additional adjustments were applied when PDs were deemed inconsistent with expected loss outcomes at sector level. No such interventions were necessary at the year end. Scenario sensitivity – Personal only For the Personal lending portfolio, the forward-looking components of the IFRS 9 PD models were modified, leveraging existing econometric models used in stress testing to ensure that PDs appropriately reflect the forecasts for unemployment and house prices in particular. All in-model adjustments described have been applied by correcting the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform SICR identification and ECL measurement. Additionally, post model ECL adjustments were made in Personal to ensure that the ECL was adjusted for known model over and under-predictions pre-existing COVID-19, pending the systematic re-calibration of the underlying models. Government guarantees During 2020, the UK government launched a series of temporary schemes designed to support businesses deal with the impact of COVID-19. The BBLS, CBILS and CLBILS lending products are originated by NatWest Group but are covered by government guarantees. These are to be set against the outstanding balance of a defaulted facility after the proceeds of the business assets have been applied. The government guarantee is 80% for CBILS and CLBILS and 100% for BBLS. NatWest Group recognises lower LGDs for these lending products as a result, with 0% applied to the government guaranteed part of the exposure. Notwithstanding the government guarantees, NatWest Group’s measurements of PD are unaffected and NatWest Group continues to move exposures to Stage 2 and Stage 3 where a significant deterioration in credit risk or a default is identified. Wholesale support schemes The table below shows the uptake of Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) in Wholesale, by sector. BBLSCBILSCLBILS ApprovedDrawdown% of BBLS to ApprovedDrawdown % of CBILS to ApprovedDrawdown % of CLBILS to 2020volumeamount (£m)sector loansvolumeamount (£m)sector loansvolumeamount (£m)sector loans Notes: The UK government has extended these support schemes to 31 March 2021 and NatWest Group continues to lend under the schemes to customers who meet the applicable lending criteria. The table contains some cases which as at 31 December 2020 were approved but not yet drawn down. Approved limits as at 31 December 2020 were as follows: BBLS – £8.6 billion (96% drawn); CBILS – £4.2 billion (91% drawn); and CLBILS – £1.3 billion (62% drawn).

GRAPHIC

 

 Credit risk continued Measurement uncertainty and ECL sensitivity analysis The recognition and measurement of ECL is complex and involves the use of significant judgement and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate. The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact as at 31 December 2020. 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 have not been considered in this analysis. The impact arising from the upside, downside and extreme downside scenarios has been simulated. These scenarios are three of the four discrete scenarios used in the methodology for Personal 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 thus serving as a single economic scenario. These scenarios have been applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Modelled overlays present in the underlying ECL estimates are also sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for economic uncertainty, were not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit. NatWest Group’s core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact. The simulated ECL impacts in the December 2020 sensitivity analysis were significantly higher than in the sensitivity analysis carried out at December 2019 (refer to the NatWest Group plc (formerly The Royal Bank of Scotland Group plc) 2019 Annual Report on Form 20-F for further details). The relative ECL movements across the scenarios were reflective of a higher actual reported ECL, including certain treatments to capture the idiosyncratic risk of COVID-19, with the economics in the extreme downside scenario significantly more adverse than in the 2019 downside 2 scenario.

GRAPHIC

 

Measurement uncertainty and ECL sensitivity analysis Extreme 2020ActualUpsideDownsidedownside Notes: 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 31 December 2020 and therefore does not include variation in future undrawn exposure values. Reflects ECL for all modelled exposure in scope for IFRS 9; in addition to loans this includes bonds and cash. The analysis excludes non-modelled portfolios and exposure relating to bonds and cash. 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 31 December 2020. 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. Refer to the Economic loss drivers section for details of economic scenarios. 2019 comparatives are not included as the sensitivity scenario analysis relates to the 31 December 2020 balance sheet position. Refer to the NatWest Group plc (formerly The Royal Bank of Scotland Group plc) 2019 Annual Report on Form 20-F for the sensitivity analysis carried out at that time.

GRAPHIC

 

 Credit risk continued Key points During 2020, ECL increased materially as a result of COVID-19 disruption and a negative economic outlook. Downside risk persisted and was reflected in the scenario weightings with heavier weighting to the downside than to the upside. Judgemental ECL post model adjustments reflected heightened uncertainty and expectation of increased defaults in 2021 and beyond. To a certain extent, these adjustments dampen the ECL uplift in the downside scenario, particularly in Wholesale which had already observed a larger proportionate increase in actual reported ECL and coverage. If the economics were as negative as observed in the extreme downside, overall Stage 1 and Stage 2 ECL was simulated to increase by over 60%. The non-linearity was more apparent in the Personal portfolio driven by mortgages, with the ECL mitigation impact of Wholesale portfolio securitisations observed in downside scenarios, where ECL did not increase to the same extent. The relatively small ECL uplift in the downside scenario (£246 million, 7% of actual) reflected the weighting within the multiple economic scenarios used in the actual reported ECL to the downside. In the upside scenario, the simulated ECL reduction (£844 million, 24% of actual) was lower than the uplift observed in the extreme downside (£2.2 billion), again reflecting the expectation that the non-linearity of losses was skewed to the downside. The simulated value of exposures in Stage 2 increased significantly in the extreme downside and was the key driver of the simulated ECL increase. The movement in Stage 2 balances in the other simulations was less marked, with the exception of Wholesale, where a significant reduction was observed in the upside scenario reflecting the sensitivity of SICR criteria to relatively small movements in PD. In a separate simulation covering the base case economic scenario (one of the multiple economic scenarios), and assuming a 100% weighting to that scenario, the total Stage 1 and Stage 2 ECL was simulated to be approximately 8% lower than the actual reported ECL. Credit risk – Banking activities Introduction This section details the credit risk profile of NatWest Group’s banking activities. Refer to Accounting policy 13 and Note 14 to the consolidated financial statements for policies and critical judgements relating to impairment loss determination. Financial instruments within the scope of the IFRS 9 ECL framework Refer to Note 11 to the consolidated financial statements for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment. Financial assets 20202019* £bn£bn Out of scope of IFRS 9 ECL framework6.2 8.8 *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. 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 £4.1 billion (2019 – £6.1 billion). These were assessed as having no ECL unless there was evidence that they were credit impaired. Equity shares of £0.3 billion (2019 – £0.9 billion) as not within the IFRS 9 ECL framework by definition. Fair value adjustments on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope – £1.4 billion (2019 – £1.1 billion). NatWest Group-originated securitisations, where ECL was captured on the underlying loans of £0.4 billion (2019 – £0.4 billion). Contingent liabilities and commitments In addition to contingent liabilities and commitments disclosed in Note 26 to the consolidated financial statements – reputationally-committed limits are also included in the scope of the IFRS 9 ECL framework. These are offset by £0.2 billion (2019 – £2.6 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 £133.6 billion (2019 – £127.9 billion) comprised Stage 1 £107.4 billion (2019 – £121.7 billion); Stage 2 £25.2 billion (2019 – £5.6 billion) and Stage 3 £1.0 billion (2019 – £0.6 billion).

GRAPHIC

 

Portfolio summary – segment analysis The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework. Retail Ulster Bank Commercial PrivateRBS NatWest Central items Banking RoI Banking Banking International Markets & other Total £m £m £m £m£m £m £m £m For the notes to this table refer to the following page.

GRAPHIC

 

 

Portfolio summary – segment analysis RetailUlster BankCommercialPrivateRBSNatWest Central items BankingRoIBankingBanking InternationalMarkets& otherTotal 2019*£m£m£m£m£m£m£m£m Loans - amortised cost and FVOCI Stage 1144,51315,40988,10014,95614,8349,27315,282302,367 Stage 213,5581,64211,353587545180327,868 Stage 31,9022,0372,162207121169—6,598 Of which: individual—681,497207121158—2,051 Ofwhich:collective1,9021,969665——11—4,547 159,97319,088101,61515,75015,5009,62215,285 336,833 ECL provisions (1) Stage 11142915274106 322 Stage 246753214765— 752 Stage 38236931,0212921131—2,718 Of which: individual—226022921122— 796 Ofwhich:collective823671419——9—1,922 1,4047751,387433114663,792 ECL provisions coverage (2,3) Stage 1 (%)0.080.190.170.050.030.110.04 0.11 Stage 2 (%)3.443.231.881.191.102.78— 2.70 Stage3(%)43.2734.0247.2214.0117.3677.51—41.19 0.884.061.360.270.201.520.041.13 Impairment losses ECL charge (4)393(34)391(6)2(51)1696 Stage 1(90)(37)(66)(14)(5)——(212) Stage 2256(35)99—5(8)1318 Stage 32273835882(43)—590 Of which: individual——32882(35)—303 Ofwhich:collective2273830——(8)—287 ECL loss rate - annualised (basis points) (3)25(15)38(4)1(53)120 Amounts written-off235854501516—792 Of which: individual—53451516—372 Ofwhich:collective23580105————420 *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. Notes: Includes £6 million (2019 – £4 million) related to assets classified as FVOCI. ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans – amortised cost and FVOCI. Includes a £12 million charge (2019 – £2 million) related to other financial assets, of which £2 million (2019 – £1 million release) related to assets classified as FVOCI; and £28 million (2019 – nil) related to contingent liabilities. The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to the Financial instruments within the scope of the IFRS 9 ECL framework section for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £122.7 billion (2019 – £79.2 billion) and debt securities of £53.8 billion (2019 – £59.4 billion). Key points The ECL requirement increased significantly year-on-year, primarily in Stage 1 and Stage 2, in expectation of credit deterioration reflecting the severity of the economic impact arising from COVID-19. The deteriorated economic outlook also resulted in a significant migration of exposures from Stage 1 to Stage 2, consequently moving from a 12 month to a life-time ECL requirement. The various customer support mechanisms continued to mitigate against flows to default during the year. Hence, there was a more limited impact on Stage 3 ECL requirements which reduced slightly year-on-year reflecting the lower Stage 3 stock of exposures, driven by the sale of legacy non-performing mortgages in Ulster Bank RoI. Reflecting the continued high level of uncertainty arising from COVID-19, management judged that certain ECL post model adjustments were necessary. Refer to the Governance and post model adjustments section for further detail. Reflective of the economic environment, the annualised loss rate was elevated and significantly above the previously advised view of NatWest Group’s normalised blended long-term loss rate of 30 to 40 basis points. Business level commentary is provided in the Segmental loans and impairment metrics section.

GRAPHIC

 

Segmental loans and impairment metrics The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework. GrossloansECL provisions(2) Stage2(1)Stage 2 (1) Not pastNot past Retail Banking Ulster Bank RoI Personal Wholesale Commercial Banking Private Banking Personal Wholesale RBS International Personal Wholesale NatWest Markets Central items & other 139,956 30,714 1,080 620 32,414 1,891 174,261 134 762 70 65 897 806 1,837 14,380 2,964 144 194 3,302 1,236 18,918 45 227 15 23 265 492 802 11,117 1,500 115 130 1,745 1,064 13,926 27 74 9 13 96 392 515 3,263 1,464 29 64 1,557 172 4,992 18 153 6 10 169 100 287 70,685 36,451 589 304 37,344 2,551 110,580 270 1,648 44 21 1,713 1,069 3,052 15,321 1,908 17 14 1,939 298 17,558 31 67 — 1 68 39 138 12,799 116 17 11 144 263 13,206 7 2 — — 2 19 28 2,522 1,792 — 3 1,795 35 4,352 24 65 — 1 66 20 110 12,143 2,176 46 20 2,242 211 14,596 14 72 1 1 74 48 136 2,676 18 17 14 49 70 2,795 3 1 — — 1 11 15 9,467 2,158 29 6 2,193 141 11,801 11 71 1 1 73 37 121 7,780 1,457 — 109 1,566 171 9,517 12 49 — — 49 132 193 26,859 110 — — 110 — 26,969 13 15 — — 15 — 28 Total loans Of which: Personal Wholesale 287,124 75,780 1,876 1,261 78,917 6,358 372,399 519 2,840 130 111 3,081 2,586 6,186 166,548 32,348 1,229 775 34,352 3,288 204,188 171 839 79 78 996 1,228 2,395 120,576 43,432 647 486 44,565 3,070 168,211 348 2,001 51 33 2,085 1,358 3,791 Wholesale132,567 12,268270296 12,834 2,562 147,963 192228129249 1,269 1,710 *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. For the notes to this table refer to the following page.

GRAPHIC

 

Segmental loans and impairment metrics The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework. ECL provisionscoverageECL Stage 2 (1,2) Stage 1 due 1-30 DPD >30 DPD Total Stage 3 Total chargeLoss rate written-off % % % % % % % £m basis points£m 2020 Retail Banking 0.08 3.15 4.35 7.79 3.44 43.27 0.88 393 25 235 Ulster Bank RoI 0.19 2.78 5.77 6.02 3.23 34.02 4.06 (34) (15) 85 Personal 0.11 2.12 6.25 5.71 2.79 31.49 4.57 (16) (12) 69 Wholesale 0.37 4.12 — 7.14 4.23 63.75 2.69 (18) (22) 16 Commercial Banking 0.17 1.80 4.72 2.67 1.88 47.22 1.36 391 38 450 Private Banking 0.05 1.26 — 2.17 1.19 14.01 0.27 (6) (4) 1 Personal 0.03 1.11 — 2.44 1.07 11.98 0.24 5 4 1 Wholesale 0.12 1.34 — — 1.31 40.00 0.38 (11) (30) — RBS International 0.03 1.15 — — 1.10 17.36 0.20 2 1 5 Personal 0.04 3.70 — — 2.00 18.46 0.48 — — 5 Wholesale 0.02 1.01 — — 1.01 16.07 0.14 2 2 — NatWest Markets 0.11 2.84 — — 2.78 77.51 1.52 (51) (53) 16 Central items & other 0.04 — — — — — 0.04 1 1 — Total loans Of which: Personal 0.11 0.08 2.47 3.04 4.27 4.23 5.99 7.15 2.70 3.35 41.19 35.90 1.13 1.10 696 382 20 20 792 310 Wholesale0.141.864.443.041.9449.531.1631421482 *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. Notes: 30 DPD – 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR. ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios. Key points Retail Banking – Balance sheet growth was primarily due to mortgages. This reflected strong customer demand as well as the £3.0 billion acquisition of an owner-occupied mortgage portfolio from Metro Bank (for which a Stage 1 ECL charge of £9 million was incurred on acquisition). Unsecured lending balances decreased reflecting reduced customer demand and the pay down of existing borrowing as well as a more restrictive risk appetite reflective of the uncertain external environment. The deteriorated economic outlook, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to 2019, a larger proportion of customer accounts exhibited a significant increase in credit risk (SICR) which caused a migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. While the granting of a COVID-19 related payment holiday did not automatically trigger a migration to Stage 2, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2 and their ECL uplifted (refer to the Governance and post model adjustments section for further details). The various COVID-19 related customer support mechanisms (loan repayment holidays, government job retention scheme) continued to mask actual portfolio deterioration in the short-term, with the days past due, and flows to Stage 3 metrics, yet to be impacted. Provisions coverage increased overall. However, coverage in Stage 2 alone reduced, mainly due to a proportionately higher share of mortgage exposures where coverage levels were lower. This reflected the secured nature of the borrowing. The loss rate was significantly higher than in the prior year.

GRAPHIC

 

Ulster Bank RoI – Balances remained broadly flat year-on-year. Further drawdowns on existing facilities and new lending across both the Wholesale and Personal portfolios were offset by ongoing reduction of the non-performing mortgage portfolio through the execution of a portfolio sale agreed in 2019. The deteriorated economic outlook included forecast increases in unemployment, reductions in property prices and GDP, which resulted in increased IFRS 9 PDs across all portfolios. Consequently, compared to 2019, a larger proportion of the exposures exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL increased. The various COVID-19 related customer support mechanisms (for example, loan payment breaks, government job retention scheme) masked actual portfolio deterioration in the short-term, with the days past due, and flows to Stage 3, yet to be materially affected. The loss rate was significantly higher than in the prior year. Commercial Banking – Balance sheet growth was primarily due to further drawdowns on existing facilities and new lending under the COVID-19 government lending schemes. The deteriorated economic outlook, including significant reductions in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to 2019, a larger proportion of the exposures exhibited a SICR which caused a migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. Reflecting the continued high level of uncertainty arising from COVID-19, management judged that certain ECL post model adjustments were necessary, refer to the Governance and post model adjustments section for further details. The increase in Stage 2 assets due to PD deterioration was also the primary driver of the increase in the Stage 2 exposures less than 30 days past due. A small number of large cases resulted in the increase in the 1-30 DPD category. The various COVID-19 related customer support mechanisms mitigated against flows into default in the short-term. Increased coverage in Stage 1 and Stage 2 was mainly due to the increased ECL, primarily as a result of the deteriorated economic outlook, which was partially offset by a decrease in Stage 3 coverage driven by a small number of individual cases with low ECL. The loss rate was significantly higher than in the prior year. Other businesses – The drivers of the increased ECL requirement were similar to those described above.

GRAPHIC

 

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. Credit Other Mortgages (1) cards personal Total Property Corporate FI Sovereign Total £m £m £m £m £m £m £m £m £m £m 2020 **Not within audit scope. For the notes to this table refer to page 193.

GRAPHIC

 

 

 PersonalWholesaleTotal Mortgages (1) cards personal Total Property Corporate FI Sovereign Total £m £m£m £m£m£m £m£m £m £m 2020 For the notes to this table refer to page 193.

GRAPHIC

 

 PersonalWholesaleTotal CreditOther Loans by geography174,003 4,478 10,389 188,870 36,371 71,042 36,266 4,284 147,963 336,833 - UK 160,431 4,383 10,176 174,990 33,644 58,666 22,564 3,479 118,353 293,343 - RoI 13,572 95 213 13,880 1,310 4,169 513 32 6,024 19,904 - Other Europe — — — — 921 4,350 5,120 328 10,719 10,719 - RoW — — — — 496 3,857 8,069 445 12,867 12,867 Loans by asset quality (2)174,003 4,478 10,389 188,870 36,371 71,042 36,266 4,284 147,963 336,833 -AQ1 3,837 — 665 4,502 4,474 2,272 17,841 1,931 26,518 31,020 -AQ2 2,866 — — 2,866 2,490 496 1,763 1,780 6,529 9,395 -AQ3 277 — — 277 2,465 5,561 2,939 385 11,350 11,627 -AQ4 92,520 375 625 93,520 6,574 14,660 9,979 41 31,254 124,774 -AQ5 58,051 786 1,708 60,545 10,419 19,584 2,027 107 32,137 92,682 -AQ6 5,253 1,211 3,344 9,808 5,809 13,470 811 3 20,093 29,901 -AQ7 5,326 1,531 2,328 9,185 2,853 11,404 867 30 15,154 24,339 -AQ8 1,379 393 792 2,564 302 1,478 20 2 1,802 4,366 - AQ9 1,217 66 284 1,567 90 468 6 — 564 2,131 - AQ10 3,277 116 643 4,036 895 1,649 13 5 2,562 6,598 Loans by stage174,003 4,478 10,389 188,870 36,371 71,042 36,266 4,284 147,963 336,833 - Stage 1 159,261 3,103 7,436 169,800 32,896 59,689 35,707 4,275 132,567 302,367 - Stage 2 11,465 1,259 2,310 15,034 2,580 9,704 546 4 12,834 27,868 - Stage 3 3,277 116 643 4,036 895 1,649 13 5 2,562 6,598 - of which: individual 235 — 21 256 646 1,137 7 5 1,795 2,051 - of which: collective 3,042 116 622 3,780 249 512 6 — 767 4,547 Loans - past due analysis (3,4)174,003 4,478 10,389 188,870 36,371 71,042 36,266 4,284 147,963 336,833 - Not past due 169,536 4,313 9,473 183,322 35,445 68,730 36,214 4,230 144,619 327,941 - Past due 1-30 days 1,578 43 164 1,785 317 1,339 36 54 1,746 3,531 - Past due 31-89 days 955 36 123 1,114 82 271 7 — 360 1,474 - Past due 90-180 days 495 30 84 609 26 148 — — 174 783 - Past due >180 days 1,439 56 545 2,040 501 554 9 — 1,064 3,104 Loans - Stage 2 11,465 1,259 2,310 15,034 2,580 9,704 546 4 12,834 27,868 - Not past due 9,798 1,204 2,070 13,072 2,466 9,266 534 4 12,270 25,342 - Past due 1-30 days 1,050 29 128 1,207 49 214 5 — 268 1,475 - Past due 31-89 days 617 26 112 755 65 224 7 — 296 1,051 Weighted average life** - ECL measurement (years) 9 2 6 5 6 6 3 1 6 6 Weighted average 12 months PDs** - IFRS 9 (%) 0.31 3.86 2.98 0.54 0.63 0.98 0.13 0.05 0.60 0.56 - Basel (%) 0.81 3.59 3.75 1.03 0.96 1.25 0.20 0.07 0.83 0.94 ECL provisions by geography 964 261 857 2,082 494 1,181 28 7 1,710 3,792 - UK 342 259 846 1,447 424 800 14 4 1,242 2,689 - RoI 622 2 11 635 39 117 3 1 160 795 - Other Europe — — — — 28 130 9 1 168 168 - RoW — — — — 3 134 2 1 140 140 ECL provisions by stage 964 261 857 2,082 494 1,181 28 7 1,710 3,792 - Stage 1 25 40 65 130 45 124 16 7 192 322 - Stage 2 118 132 253 503 47 198 4 — 249 752 - Stage 3 821 89 539 1,449 402 859 8 — 1,269 2,718 - of which: individual 24 — 11 35 236 521 4 — 761 796 - of which: collective 797 89 528 1,414 166 338 4 — 508 1,922 ECL provisions coverage (%) 0.55 5.83 8.25 1.10 1.36 1.66 0.08 0.09 1.13 1.12 - Stage 1 (%) 0.02 1.29 0.87 0.08 0.14 0.21 0.04 0.09 0.14 0.11 - Stage 2 (%) 1.03 10.48 10.95 3.35 1.82 2.04 0.73 — 1.94 2.70 - Stage 3 (%) 25.05 76.72 83.83 35.90 44.92 52.09 61.54 — 49.53 41.19 ECL charge 25 104 253 382 33 283 (4) 2 314 696 - UK 28 105 261 394 64 230 (4) 2 292 686 - RoI (3) (1) (8) (12) (2) (16) 1 — (17) (29) - Other Europe — — — — (29) 117 — — 88 88 - RoW — — — — — (48) (1) — (49) (49) ECL loss rate (%) 0.01 2.32 2.44 0.20 0.09 0.40 (0.01) 0.05 0.21 0.21 Amounts written-off787615631025021913—482792 *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. **Not within audit scope. For the notes to this table refer to the following page.

GRAPHIC

 

 PersonalWholesaleTotal CreditOther Loans by residual maturity 174,003 4,478 10,389 188,870 36,371 71,042 36,266 4,284 147,963 336,833 - <1 year 3,996 2,750 3,480 10,226 7,318 24,539 27,299 2,342 61,498 71,724 - 1-5 year 8,771 1,728 5,769 16,268 19,774 31,215 7,922 1,164 60,075 76,343 - 5 year 161,236 — 1,140 162,376 9,279 15,288 1,045 778 26,390 188,766 Other financial assets by asset quality (2) — — — — — 110 12,185 126,305 138,600 138,600 - AQ1-AQ4 — — — — — 110 11,742 126,041 137,893 137,893 - AQ5-AQ8 — — — — — — 441 264 705 705 - AQ9 — — — — — — 2 — 2 2 Off-balance sheet 14,348 16,686 12,332 43,366 15,383 51,390 16,742 1,022 84,537 127,903 - Loan commitments 14,345 16,686 12,285 43,316 14,739 47,883 15,417 1,021 79,060 122,376 - Financial guarantees 3 — 47 50 644 3,507 1,325 1 5,477 5,527 Off-balance sheet by asset quality (2) 14,348 16,686 12,332 43,366 15,383 51,390 16,742 1,022 84,537 127,903 - AQ1-AQ4 13,506 3,818 10,049 27,373 11,364 34,852 15,397 984 62,597 89,970 - AQ5-AQ8 832 12,588 2,271 15,691 3,948 16,228 1,340 38 21,554 37,245 - AQ9 1 4 12 17 11 49 4 — 64 81 -AQ109276—285602611—322607 Notes: Includes a portion of secured lending in Private Banking, in line with ECL calculation methodology. Private Banking and RBS International mortgages are reported in UK, which includes crown dependencies, reflecting the country of lending origination. AQ bandings are based on Basel PDs and mapping is as follows: AQ10100%D £0.3 billion (2019 – £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. AQ10 includes £0.4 billion (2019 – £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3. 30 DPD – 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR. Days past due – Personal products: at a high level, for amortising products, the number of days past due is derived from the arrears amount outstanding and the monthly repayment instalment. For credit cards, it is based on payments missed, and for current accounts the number of continual days in excess of borrowing limit. Wholesale products: the number of days past due for all products is the number of continual days in excess of borrowing limit.

GRAPHIC

 

Sector analysis The table below shows ECL by stage, for the Personal portfolios and key sectors of the Wholesale portfolios, that continue to be affected by COVID-19. Loans - amortised costOff-balance sheet Stage 1 Stage 2 Stage 3 Total commitments (1) liabilities Stage 1 Stage 2 Stage 3 Total £m £m £m £m £m £m £m £m £m £m 2020 *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. Notes: Includes £3.7 billion of commercial cards related balances which were brought into the scope of ECL calculations during 2020. Airlines and aerospace Stage 3 ECL at 31 December 2019 included £27 million of ECL related to contingent liabilities. Wholesale forbearance Property FI Other corporate Total £m £m £m £m Forbearance (flow) Forbearance (stock) Heightened Monitoring and Risk of Credit Loss 1,597 68 4,201 5,866 1,744 92 4,983 6,819 1,600 155 5,771 7,526

GRAPHIC

 

Portfolio summary – sector analysis Key points Loans by geography – In the Personal portfolio, exposures continued to be concentrated in the UK and heavily weighted to mortgages; the vast majority of exposures in the Republic of Ireland remained in mortgages. Balance sheet growth was within mortgages including the acquisition by Retail Banking of the owner-occupied portfolio detailed earlier; unsecured lending balances reduced also as described earlier. In the Wholesale portfolio, exposures remained heavily weighted to the UK. Balance sheet growth was driven by additional drawings on existing facilities and new lending under the various government supported lending schemes which are primarily to UK customers. Loans by asset quality (based on Basel II PD) – In the Personal portfolio, the asset quality distribution deteriorated slightly in credit cards, with balance reductions in higher asset quality bands. In the Wholesale portfolio, Basel II PDs were based on a through-the-cycle approach. The asset quality distribution demonstrated some deterioration across the portfolio consistent with the wider impacts of COVID-19. Lending under government-backed COVID-19 related support schemes was mostly in the AQ8 band. Increased exposure in the AQ2 band in financial institutions is related to Treasury activities as customer deposit levels have increased. In addition, some AQ migration within financial institutions occurred as a result of the downgrade of the UK sovereign. For further details refer to the Asset quality section. Loans by stage – In both the Personal and Wholesale portfolios, the deteriorated economic outlook resulted in increased account level IFRS 9 PDs. Consequently, compared to 2019, a larger proportion of accounts exhibited a SICR with an associated migration of exposures from Stage 1 to Stage 2, the vast majority of which were up-to-date with payments. In the absence of any other forbearance or SICR triggers, customers granted COVID-19 related payment holidays were not considered forborne and did not result in an automatic trigger to Stage 2. However, a subset of personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2. Loans – Past due analysis and Stage 2 – The various COVID-19 related customer support mechanisms (capital repayment holidays, government job retention scheme, government supported lending schemes) are mitigating actual portfolio deterioration in the short term, although there have been some increases in past due exposures in the Wholesale portfolio. Weighted average 12 months PDs – In Personal, the Basel II point-in-time PDs have yet to be materially affected by COVID-19. The forward-looking IFRS 9 PDs increased reflecting the deteriorated economics. The IFRS 9 PDs for both unsecured loans (reported within other personal) and mortgages were under-predicting and the ECL was adjusted upwards pending the model parameters being systematically updated. In the Wholesale portfolio, the Basel II PDs were based on a through-the-cycle approach and increased less than the forward looking IFRS 9 PDs which increased, reflecting the deteriorated economic outlook. ECL provision by geography – In line with loans by geography, the vast majority of ECL related to exposures in the UK and the Republic of Ireland. ECL provisions by stage – Stage 1 and Stage 2 provisions increased reflecting the deteriorated economic outlook. As outlined above, Stage 3 provisions have yet to be materially impacted by COVID-19, being mitigated by the various customer support mechanisms detailed earlier. In mortgages, the Stage 3 ECL reduction was primarily a result of a debt sale in Ulster Bank RoI, where the exposure value also reduced. ECL provisions coverage – Overall provisions coverage increased. In Stage 2 alone, at a total Personal level, coverage reduced, due to a proportionately higher share of mortgage exposures where coverage levels were lower reflecting the secured nature of the borrowing. In Wholesale, overall provisions coverage increased, primarily due to the effect of the deteriorated economic conditions. Stage 1 and Stage 2 coverage increased, particularly in those sectors suffering the most disruption as a result of COVID-19. The decrease in Stage 3 coverage was due to a small number of individual cases with low ECL. The ECL charge and loss rate – Reflecting the deteriorated economic outlook, the impairment charge was elevated, with the loss rate significantly higher than the prior year. Loans by residual maturity – In mortgages, the vast majority of exposures remained greater than five years. In unsecured lending – credit cards and other – exposures were concentrated in less than five years. In Wholesale, with the exception of financial institutions where new lending was concentrated in less than 1 year, the majority of new lending was for residual maturity of one-five years, with some greater than five years in line with lending under the government support schemes. Other financial assets by asset quality – Consisting almost entirely of cash and balances at central banks and debt securities, held in the course of treasury related management activities, these assets were mainly within the AQ1-AQ4 category. Off-balance sheet exposures by asset quality – In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts and reduced reflecting an initiative to right-size customer unutilised borrowing limits. Additionally, the mortgage portfolio had undrawn exposure, where a formal offer had been made to a customer but had not yet been drawn down. There was also a legacy portfolio of flexible mortgages where a customer had the right and ability to draw down further funds. The asset quality distribution in mortgages remained heavily weighted to the highest quality bands AQ1-AQ4, with credit card concentrated in the risk bands AQ5-AQ8. In Wholesale, undrawn exposures increased reflecting the effect of COVID-19 and the utilisation of the various government support schemes. The vast majority of new corporate loan commitments were in the AQ5-AQ8 asset quality bands. Wholesale forbearance – The value of Wholesale forbearance increased significantly during the year. Customers seeking COVID-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium term post-COVID-19 to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. The leisure, CRE and automotive sectors represented the largest share of forbearance flow in the Wholesale portfolio by value, with the increase in automotive resulting from forbearance completed on individually significant exposures. In addition, within the retail sector, there was a high volume of lower value forbearance. Payment holidays and covenant waivers were the most common forms of forbearance granted. Heightened Monitoring and Risk of Credit Loss – Consistent with the effects of COVID-19, increased flows into Heightened Monitoring and Risk of Credit Loss were noted across a number of sectors. The most material increases in both volumes and value were seen within other corporate and particularly in leisure, land transport & logistics and automotive sectors. In the CRE sector, inflows by value increased, but by volume remained largely stable.

GRAPHIC

 

Credit risk enhancement and mitigation The table below shows exposures of modelled portfolios within the scope of the ECL framework and related credit risk enhancement and mitigation (CREM). GrossMaximum credit riskCREM by typeCREM coverageExposure post CREM exposure ECL Total Stage 3 Financial (1) Property Other (2) Total Stage 3 Total Stage 3 £bn £bn £bn £bn£bn£bn£bn £bn £bn £bn £bn *2019 data has been retrospectively revised to reflect reclassification of balances held with central banks. Refer to Accounting policies Note 1 for further details. Notes: Includes cash and securities collateral. Includes guarantees, charges over trade debtors, other asset finance related physical collateral as well as the amount by which credit risk exposure is reduced through netting arrangements, mainly cash management pooling, which give NatWest Group a legal right to set off the financial asset against a financial liability due to the same counterparty. NatWest Group holds collateral in respect of individual loans – amortised cost to banks and customers. This collateral includes mortgages over property (both personal and commercial); charges over business assets such as plant and equipment; inventories and trade debtors; and guarantees of lending from parties other than the borrower. NatWest Group obtains collateral in the form of securities in reverse repurchase agreements. Collateral values are capped at the value of the loan. Stage 3 mortgage exposures have relatively limited uncovered exposure reflecting the security held. On unsecured credit cards and other personal borrowing, the residual uncovered amount reflects historical experience of continued cash recovery post default through on going engagement with customers. Stage 3 exposures post credit risk enhancement and mitigation in Wholesale mainly represent enterprise value and the impact of written down collateral values; an individual assessment to determine ECL will consider multiple scenarios and in some instances allocate a probability weighting to a collateral value in excess of the written down value. £0.3 billion (2019 – £0.3 billion) Personal Stage 3 balances primarily relate to loan commitments, the draw down of which is effectively prohibited. The Personal gross exposure value includes £10.0 billion (2019 – £9.6 billion) in respect of pipeline mortgages where a committed offer has been made to a customer but where the funds have not yet been drawn down. When drawn down, the exposure would be covered by a security over the borrower’s property.

GRAPHIC

 

Personal portfolio Disclosures in the Personal portfolio section include drawn exposure (gross of provisions). Retail Ulster PrivateRBS Retail Ulster PrivateRBS Banking Bank RoI Banking International Total Banking Bank RoI Banking International Total £m £m £m£m £m £m £m £m£m £m Personal lending Notes: 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. Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios. Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature. Retail Banking excludes additional lending to existing customers. Key points Although the economic outlook deteriorated, reflected in the IFRS 9 stage migrations and ECL described earlier, the overall credit risk profile and underlying performance of the Personal portfolio remained stable during 2020. Personal lending increased during 2020 primarily due to mortgage growth and, in Retail Banking the acquisition of a £3 billion portfolio of owner occupied mortgages from Metro Bank. Unsecured lending reduced due to lower credit cards and overdraft usage during COVID-19. New mortgage lending was slightly lower than in 2019. COVID-19 restrictions affected volumes in the second and third quarters of the year. 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. These criteria were appropriately amended during the year to manage the effects of COVID-19 on the credit risk profile and underwriting standards were maintained. As at 31 December 2020, £2 billion (1%) of the UK Retail Banking mortgage portfolio had active COVID-19 payment holidays. This compared with £37 billion (22%) which had requested a payment holiday during 2020. Mortgage growth was driven by the owner occupied portfolio. By value, the proportion of mortgages on interest only and mixed terms (capital and interest only) reduced. This was mainly due to low proportions of buy-to-let and owner occupier interest only new business. 37% of the stock of lending was in Greater London and the South East (2019 – 35%). The average weighted loan-to-value for these regions was 54% (2019 – 52%) compared to all regions 56%. In the Retail Banking mortgage portfolio, 83% of customer balances were on fixed rates (61% of these on five-year deals). In addition, 99% of all new mortgage completions were fixed rate deals (45% of these on five-year deals). Unsecured balances declined, with the decrease primarily a result of reductions in overdrafts and credit card utilisation in Retail Banking, following the COVID-19 lockdown. NatWest Group also responded to COVID-19 with a more cautious approach to new lending, to protect NatWest Group and customers from potentially unaffordable borrowing. As detailed previously, the deteriorated economic outlook, including forecast increases in unemployment and declines in house prices, resulted in an increased ECL requirement.

GRAPHIC

 

Personal portfolio Mortgage LTV distribution by stage The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value. MortgagesECL provisionsECL provisionscoverage (2) Not withinOf IFRS 9which; Retail BankingECLgross new Stage 1 Stage 2 Stage 3scopeTotallendingStage 1 Stage 2 Stage 3 Total (1)Stage 1 Stage 2 Stage 3Total 2020£m£m£m£m£m£m£m£m£m£m%%%% Other2131—25224——110.14.2 81.23.2 Total135,768 10,135 1,254332 147,489 31,8571083216309—0.817.10.2 Ulster Bank RoI 2020 <50% 4,107 308 475 — 4,890 107 4 7 97 108 0.1 2.3 20.5 2.2 >50% and <70% 3,382 274 409 — 4,065 231 3 7 90 100 0.1 2.6 22.0 2.5 >70% and <80% 1,381 151 219 — 1,751 356 2 4 60 66 0.1 3.0 27.5 3.8 >80% and <90% 1,132 145 217 — 1,494 484 1 5 76 82 0.1 3.0 35.1 5.5 >90% and <100% 381 102 188 — 671 3 1 3 72 76 0.2 2.9 38.6 11.3 >100% and <110% 167 57 151 — 375 2 — 2 67 69 0.3 3.5 44.0 18.4 >110% and <130% 82 36 152 — 270 1 — 2 78 80 0.3 4.9 51.3 29.7 >130% and <150% 8 3 46 — 57 — — — 30 30 0.6 4.1 64.7 51.9 >150%7315—25———11110.38.2 71.4 44.6 Total with LTVs10,647 1,079 1,872— 13,5981,18411305816220.12.831.04.6 Notes: Excludes a non-material amount of provisions held on relatively small legacy portfolios. ECL provisions coverage is ECL provisions divided by mortgages. Key points ECL coverage rates increased through the LTV bands with both Retail Banking and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for Retail Banking included the effect of time-discounting on expected recoveries. Additionally, this also reflected the modelling approach that recognised an element of expected loss on mortgages that were not subject to formal repossession activity. Credit risk – Banking activities continued The deteriorated economic outlook resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR with an associated migration of exposures from Stage 1 to Stage 2.

 

 Personal portfolio Retail Banking mortgage LTV distribution by region The table below shows gross mortgage lending by LTV band for Retail Banking, by geographical region. Note: (1) 2020 regional data was based on the Office for National Statistics mapping (previously Halifax), therefore 2019 data has been represented on the same basis. Commercial real estate (CRE) The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions and risk transfer). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives – the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral. Investment 4,507 462 27 4,996 Residential (2) 4,507360144,881 Office (3) 3,386226283,640 2,916 183 83 3,182 Retail (4) 5,423681185,609 5,277 63 62 5,402 Industrial (5) 2,773182022,993 2,457 18 115 2,590 Mixed/other (6) 2,688154742,916 3,672 187 56 3,915 18,777 826 436 20,039 18,829 913 343 20,085 Development 2,464 165 5 2,634 Residential (2) 2,68520032,888 Office (3) 12330—153 78 17 — 95 Retail (4) 126——126 134 2 1 137 Industrial (5) 1252—127 85 2 — 87 Mixed/other (6) 242—26 16 2 — 18 3,083 234 3 3,320 2,777 188 6 2,971 Total 21,860 1,060 439 23,359 21,606 1,101 349 23,056 UK RoI Other Total UK RoI Other Total £m £m £m £m £m £m £m £m Notes: Geographical splits are based on country of collateral risk. Properties including houses, flats and student accommodation. Properties including offices in central business districts, regional headquarters and business parks. Properties including high street retail, shopping centres, restaurants, bars and gyms. Properties including distribution centres, manufacturing and warehouses. Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.

 

Commercial real estate (CRE) CRE LTV distribution by stage The table below shows CRE current exposure and related ECL by LTV band. Currentexposure(grossofprovisions)(1,2)ECL provisionsECL provisionscoverage (4) Not within IFRS 9 ECL Stage 1 Stage 2 Stage 3scope (3)TotalStage 1 Stage 2 Stage 3 Total (1)Stage 1 Stage 2 Stage 3Total 2020£m£m£m£m£m£m£m£m£m%%%% <50%4,918 4,538138— 9,59446145242150.93.217.42.2 >50% and <70%2,815 3,266226— 6,30732112632071.13.427.93.3 >70% and <80%3922223—2841177252.67.730.48.8 >80% and <90%843536—1552411172.411.430.611.0 >90% and <100%462665—137—23335—7.750.825.5 >100% and <110%6663—75—11011—16.715.914.7 >110% and <130%922117—148—24547—9.138.531.8 >130% and <150%121210—34—156—8.350.017.6 >150%2324105—152—25355—8.350.536.2 The exposure in Stage 3 mainly related to legacy assets. Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives. ECL provisions coverage is ECL provisions divided by current exposure. Relates mainly to business banking, rate risk management products and unsecured corporate lending. The low Stage 3 ECL provisions coverage was driven by a single large exposure, which was written down to the expected recoverable amount. Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity. Key points Overall – The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy remained aligned across the segments. 2020 trends – The portfolio remained broadly unchanged in composition although a migration of some assets from the mixed/other sub-sector was noted, following a reclassification carried out during the year. While new activity in 2020 was subdued due to COVID-19, NatWest Group supported existing customers with capital repayment holidays, interest roll-ups and extensions using CRE specific criteria and government backed COVID-19 support schemes. Demand for scheme support reduced in the latter part of the year. The retail and leisure sectors were heavily affected by the lockdown, resulting in low rental payments, and these sectors remained under stress. The office sector was more resilient overall, albeit the smaller serviced-office sub-sector came under some stress given the short-term nature of income and site closures. Demand for office space in the medium-term was expected to decline, with flexible working trends continuing post COVID-19. Market sentiment remained negative for most retail assets, but there were tentative signs of improvement for retail warehousing (accounting for approximately 15% of the retail sub-sector) where investment in industrial assets was demonstrating increased demand. The residential development sector continued to attract institutional capital and was generally performing well. Credit quality – Despite significant challenges across the CRE sector, with customers utilising COVID-19 related government support measures, Heightened Monitoring inflows by volume were stable. By value however, Heightened Monitoring and Risk of Credit Loss exposures increased, with a rise of migration into AQ10. This increase was largely due to individually significant names, particularly in the retail sub-sector. Risk appetite – Appetite in CRE remained cautious. Pre-COVID-19 conservative lending criteria remained in place, including lower leverage required for new London office originations and parts of the retail sector. From January 2021, new minimum standards were introduced for CRE lending appetite for residential new build lending, which requires properties to achieve a minimum Energy Performance Certificate rating of B. In addition, standard lending terms for CRE now include NatWest Group’s preference for green leases to be used by commercial landlords. Green leases are a mechanism for landlords and tenants to work together to improve the sustainability of a building.

GRAPHIC

 

 Credit risk – Banking activities continued Flow statements The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures in this section may therefore 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 impact. Other points to note: Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included. Stage transfers (for example, exposures moving from Stage 1 to Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage. Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down. Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements. Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity. There were small ECL flows from Stage 3 to Stage 1. This does not, however, indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period. The effect of any change in PMAs during the year is typically reported under changes in risk parameters, as are any impacts arising from changes to the underlying models. Refer to the section on Governance and post model adjustments for further details. All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments. Stage1Stage2Stage3Total

GRAPHIC

 

 Key points The increase in ECL in Stage 2 was primarily due to the deterioration in the economic outlook, causing both PDs and LGDs to increase. Stage 1 ECL increased reflecting the economic environment, and also approximately £9 million of ECL resulted from the acquisition of the owner-occupied mortgage portfolio from Metro Bank. The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL. While the granting of a COVID-19 related payment holiday did not automatically trigger a migration to Stage 2, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2 and their ECL uplifted, refer to the Governance and post model adjustments section for further details. In Stage 3, reflecting the various customer support mechanisms available, ECL was less affected than in Stage 2. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments when previously in Stage 2. Refer to the Governance and post model adjustments section for further details. In Stage 3, the ECL cost within changes in risk parameters included the monthly assessment of the loss requirement, capturing underlying portfolio movements. Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. Write-off would typically be within five years from default but can be longer.

GRAPHIC

 

 Credit risk – Banking activities continued Flow statements Stage1Stage2Stage3Total Key points The increase in ECL in Stage 1 and Stage 2 was primarily due to the deterioration in the economic outlook, causing PDs to increase. The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL. In Stage 3, reflecting the various customer support mechanisms available, new flows to default were suppressed and consequently the ECL requirement reduced. Charge-off (analogous to partial write-off) typically occurs after 12 missed payments. Stage1Stage2Stage3Total Key points The increase in ECL in Stage 2 was primarily due to the deterioration in the economic outlook, causing PDs to increase. The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL. While the granting of a COVID-19 related payment holiday did not automatically trigger a migration to Stage 2, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2 and their ECL uplifted, refer to the Governance and post model adjustments section for further details. In Stage 3, reflecting the various customer support mechanisms available that mitigated against defaults, ECL was affected relatively less. In addition, debt sales also contributed to a slight ECL reduction year-on-year. 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.

GRAPHIC

 

Flow statements Stage1Stage2Stage3Total Key points The increase in ECL in Stage 1 and Stage 2 was primarily due to the deterioration in the economic outlook. The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12-month ECL to a lifetime ECL. The reduction in ECL in Stage 3 reflected ongoing deleveraging of the Ulster Bank RoI mortgage non-performing portfolio through the execution of a portfolio sale agreed in 2019. In Stage 3, the ECL cost within changes in risk parameters included the forward-looking effect of forecast reductions in house prices and the application of post-model adjustments. Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding or when the loan is sold to a third party. Key points The increase in ECL in Stage 1 and Stage 2 was primarily due to the deterioration in the economic outlook, causing both PDs and LGDs to increase. The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL. Flows into Stage 3 were mainly due to a relatively small number of individual cases. Government support mechanisms continued to suppress a higher level of flows into Stage 3. Stage 3 recovery values started to show evidence of being negatively affected by deteriorated market conditions, leading to higher ECL charges. Other changes in net exposures increased in Stage 1 as customers drew down on existing facilities and undertook new lending supported by government schemes.

GRAPHIC

 

Flow statements Stage1Stage2Stage3Total Key points The increase in ECL in Stage 1 and Stage 2 was primarily due to the deterioration in the economic outlook, causing both PDs and LGDs to increase. The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL. Flows of defaulted exposure into Stage 3 were suppressed reflecting the various government customer support mechanisms available, with ECL reducing during the year including the effect of a debt sale. Other changes in net exposures increased in Stage 1 as customers drew down on existing facilities and undertook new lending supported by government schemes. The portfolio continued to benefit from cash recoveries post write-off, which are reported as other (P&L only items). Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than five years after default.

GRAPHIC

 

Flow statements Key points The increase in ECL in Stage 1 and Stage 2 was primarily due to the deterioration in the economic outlook, causing both PDs and LGDs to increase. The updated economics also resulted in the migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL. The migration of exposures from Stage 2 to Stage 1 included the effect of the slight reduction in PDs arising from the relative improvement in the multiple economic scenarios in the second half of the year compared to the mid-year point, partially reversing some migrations into Stage 2 in the first half of 2020. For flows into Stage 3, defaults were suppressed reflecting the various government customer support mechanisms available. Other changes in net exposures increased in Stage 1 as customers drew down on existing facilities and undertook new borrowings supported by the government schemes. Stage1Stage2Stage3Total Note: (1)Reflects the NatWest Markets segment and includes NWM N.V.. Key point The increase in ECL in Stage 1 and Stage 2 was primarily due to the deterioration in the economic outlook, causing both PDs and LGDs to increase.

GRAPHIC

 

Stage 2 decomposition – arrears status and contributing factors The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios. Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL £m £m £m £m £m £m £m £m £m £m 2020 Key points The deteriorated economic outlook, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to 2019, a larger proportion of accounts exhibited a SICR causing Stage 2 exposures to increase significantly. In the absence of PD deterioration or other backstop SICR triggers, the granting of a COVID-19 related payment holiday did not automatically result in a migration to Stage 2. However, a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk, were collectively migrated to Stage 2. For mortgages, in Retail Banking, approximately £1 billion of exposures were collectively migrated from Stage 1 to Stage 2, and approximately £340 million in Ulster Bank RoI. The impact of collective migrations on unsecured lending was much more limited. As expected, ECL coverage was higher in accounts that were more than 30 days past due than those in Stage 2 for other reasons. PropertyCorporateFinancial OtherTotal institutions Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL £m £m £m £m £m £m £m £m £m £m -Otherdriver(forbearance,RoCLetc)1,09216 3,2194316911— 4,48160 Total Stage 22,580479,70419854644— 12,834249 Key points The deteriorated economic outlook due to COVID-19, including significant reductions in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to 2019, a larger proportion of the exposures exhibited a SICR causing Stage 2 exposures to increase significantly. PD deterioration remained the primary trigger for identifying a SICR and Stage 2 treatment, although there was also an increase in arrears. There was an increase in flows on to the Risk of Credit Loss framework. However, these were recorded under PD deterioration if the Stage 2 trigger was also met. In Ulster Bank RoI, approximately £400 million of exposures relating to small and medium size enterprises were collectively migrated from Stage 1 to Stage 2 reflective of the elevated risk for this sector.

GRAPHIC

 

Stage 2 decomposition by a significant increase in credit risk trigger UKmortgages RoImortgages CreditcardsOtherTotal 2020£m%£m%£m%£m%£m% 2019 PD movement 4,583 44.0 223 20.7 742 59.0 1,538 66.6 7,086 47.1 PD persistence 1,815 17.5 252 23.4 422 33.5 542 23.5 3,031 20.2 Adverse credit bureau recorded with credit reference agency 3,236 31.2 — — 59 4.7 102 4.4 3,397 22.6 Forbearance support provided 163 1.6 3 0.3 — — 10 0.4 176 1.2 Customers in collections 137 1.3 74 6.9 3 0.2 36 1.6 250 1.7 Other reasons 339 3.3 525 48.7 33 2.6 56 2.4 953 6.3 Dayspast due>301151.1————261.11410.9 10,3881001,0771001,2591002,310100 15,034100 For the note to this table refer to the following page. Key points The primary driver of credit deterioration was PD which, including persistence, accounted for the majority of movements into Stage 2. There was also a collective migration of a subset of customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk. The increase in exposures in Stage 2 due to persistence, primarily within UK mortgages, reflected the slight reduction in PDs arising from the relative improvement in the multiple economic scenarios in the second half of the year compared to the mid-year point; exposures cannot migrate back to Stage 1 until their PD has been back within the criteria threshold for three consecutive months. High risk back-stops, for example, forbearance and adverse credit bureau, provide additional valuable discrimination. However, with a larger proportion of exposures triggering PD deterioration following the deteriorated economic outlook, the proportion of accounts triggering high risk backstops alone decreased.

GRAPHIC

 

 PropertyCorporateFinancial OtherTotal institutions 2020£m%£m%£m%£m%£m% 2019 Wholesale trigger (1) Notes: 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. Includes customers where a PD assessment cannot be undertaken due to missing PDs. Key points PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 to Stage 2. As the economic outlook deteriorated, it accounted for a higher proportion of the balances migrated to Stage 2. 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 trigger decreased over the period as more exposures were captured under the PD deterioration Stage 2 trigger. PD persistence relates to the business banking portfolio only, with the reason for the year-on-year increase the same as described above for the Personal portfolio. NatWest Group continued to appraise its IFRS 9 SICR rules in the context of effectiveness, volatility and industry consistency. The recent PD driven increase in Stage 2 exposures in the Wholesale portfolio, highlighted the gradual diminished impact on ECL of the threshold for better quality portfolios under stress, suggesting possible conservatism in the SICR rules for these portfolios. As an illustration, an increase of the de minimus PD threshold to 0.75% (from 0.1%) in the SICR rules could decrease the Wholesale portfolio Stage 2 exposure by 11% with only a four basis point reduction on good book ECL coverage.

GRAPHIC

 

Stage 3 vintage analysis The table below shows estimated vintage analysis of the material Stage 3 portfolios totalling 83% of the Stage 3 loans of £6.4 billion. 20202019 Retail Banking Ulster Bank RoIRetail Banking Ulster Bank RoI Stage 3 loans (£bn) Vintage (time in default): <1 year 1-3 years 3-5 years 5-10 years >10 years 1.3 1.1 2.9 25% 6% 46% 32% 18% 16% 11% 23% 7% 22% 36% 31% 10% 17% — 100% 100% 100% 1.3 1.9 2.3 32% 13% 37% 23% 12% 14% 11% 23% 9% 26% 44% 40% 8% 8%— 100%100%100% Key points Retail Banking and Ulster Bank RoI mortgages – The proportion of the Stage 3 defaulted population which have been in default for over five years reflected NatWest Group’s support for customers in financial difficulty. When customers continue to engage constructively with NatWest Group, making regular payments, NatWest Group continues to support them. NatWest Group’s provisioning approach retains customers in Stage 3 for a life-time loss provisioning calculation, even when their arrears status reverts to below 90 days past due. Wholesale – The increase in the proportion of loans in Stage 3 for less than one year was mainly due to individually large exposures within the CRE sector, which were new into Stage 3. Exposures which were in Stage 3 for in excess of five years were mainly related to customers being in a protracted formal insolvency process or subject to litigation or a complaints process. Asset quality The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio. GrossloansECL provisionsECL provisionscoverage For the note to this table refer to the following page.

GRAPHIC

 

 

 Credit risk – Banking activities continued Asset quality GrossloansECLprovisionsECL provisions coverage Stage 1Stage 2Stage 3TotalStage 1Stage 2Stage 3TotalStage 1Stage 2Stage 3Total 2019 £m£m£m£m£m£m£m£m%%%% AQ1-AQ4 90,494 2,579 — 93,073 6 7 — 13 0.01 0.27 — 0.01 AQ5-AQ8 58,039 6,939 — 64,978 8 55 — 63 0.01 0.79 — 0.10 AQ9 96 870 — 966 — 25 — 25 — 2.87 — 2.59 AQ10—— 1,414 1,414——240240—— 16.97 16.97 148,629 10,388 1,414 160,431 14 87 240 341 0.01 0.84 16.97 0.21 RoI mortgages AQ1-AQ4 6,215 212 — 6,427 4 4 — 8 0.06 1.89 — 0.12 AQ5-AQ8 4,416 615 — 5,031 7 19 — 26 0.16 3.09 — 0.52 AQ9 1 250 — 251 — 8 — 8 — 3.20 — 3.19 AQ10(1)—— 1,863 1,863——581581—— 31.19 31.19 10,632 1,077 1,863 13,57211315816230.102.88 31.194.59 AQ1-AQ4 364 11 — 375 1 1 — 2 0.27 9.09 — 0.53 AQ5-AQ8 2,734 1,187 — 3,921 39 112 — 151 1.43 9.44 — 3.85 AQ9 5 61 — 66 — 19 — 19 — 31.15 — 28.79 AQ10 — — 116 116 — — 89 89 — — 76.72 76.72 3,103 1,259 116 4,478 40 132 89 261 1.29 10.48 76.72 5.83 Other personal AQ1-AQ4 1,231 59 — 1,290 4 5 — 9 0.32 8.47 — 0.70 AQ5-AQ8 6,127 2,045 — 8,172 59 195 — 254 0.96 9.54 — 3.11 AQ9 78 206 — 284 2 53 — 55 2.56 25.73 — 19.37 AQ10——643643——539539—— 83.83 83.83 7,436 2,310643 10,389652535398570.87 10.95 83.838.25 AQ1-AQ4 98,304 2,861 — 101,165 15 17 — 32 0.02 0.59 — 0.03 AQ5-AQ8 71,316 10,786 — 82,102 113 381 — 494 0.16 3.53 — 0.60 AQ9 180 1,387 —1,567 2 105 — 107 1.11 7.57 — 6.83 AQ10—— 4,036 4,036—— 1,449 1,449—— 35.90 35.90 169,800 15,0344,036 188,8701305031,4492,0820.083.3535.90 1.10 Note: (1) AQ10 includes £0.4 billion (2019 – £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3. Key points In the Personal portfolio, the asset quality distribution overall was broadly stable with the Basel II point-in-time PDs yet to reflect the expected credit deterioration. The majority of exposures were in AQ1-AQ4, with a significant proportion in AQ5-AQ8. As expected, mortgage exposures had a higher proportion in AQ1-AQ4 than unsecured borrowing. The high level of Stage 3 impaired assets (AQ10) in RoI mortgages, reflected the legacy mortgage portfolio and the residual effects from the global financial crisis. The reduction in the year was a result of deleveraging through the execution of a portfolio sale agreed in 2019 and improvements in the portfolio. In other personal, the relatively high level of exposures in AQ10 reflected that impaired assets can be held on the balance sheet, with commensurate ECL provision, for up to six years after default. ECL provisions coverage showed the expected trend with increased coverage in the poorer asset quality bands, and also by stage.

GRAPHIC

 

Asset quality The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio. Gross loansECL provisionsECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total £m £m £m £m £m £m £m £m % % % % 2019 Property AQ1-AQ4 15,590 413 — 16,003 7 6 — 13 0.04 1.45 — 0.08 AQ5-AQ8 17,268 2,115 — 19,383 38 36 — 74 0.22 1.70 — 0.38 AQ9 38 52 — 90 — 5 — 5 — 9.62 — 5.56 AQ10——895895——402402—— 44.92 44.92 32,896 2,580 895 36,371 45 47 402 494 0.14 1.82 44.92 1.36 Corporate AQ1-AQ4 22,373 616 — 22,989 12 11 — 23 0.05 1.79 — 0.10 AQ5-AQ8 37,133 8,803 — 45,936 111 169 — 280 0.30 1.92 — 0.61 AQ9 183 285 — 468 1 18 — 19 0.55 6.32 — 4.06 59,689 9,704 1,649 71,042124198859 1,1810.212.04 52.091.66 AQ1-AQ4 32,297 225 — 32,522 7 1 — 8 0.02 0.44 — 0.02 AQ5-AQ8 3,406 319 — 3,725 9 2 — 11 0.26 0.63 — 0.30 AQ9 4 2 — 6 — 1 — 1 — 50.00 — 16.67 AQ10 — — 13 13 — — 8 8 — — 61.54 61.54 35,707 546 13 36,266 16 4 8 28 0.04 0.73 61.54 0.08 Sovereign AQ1-AQ4 4,133 4 — 4,137 7 — — 7 0.17 — — 0.17 AQ5-AQ8 142 — — 142 — — — — — — — — AQ9 — — — — — — — — — — — — AQ10——55———————— 4,27545 4,2847——70.16——0.16 AQ1-AQ4 74,393 1,258 — 75,651 33 18 — 51 0.04 1.43 — 0.07 AQ5-AQ8 57,949 11,237 — 69,186 158 207 — 365 0.27 1.84 — 0.53 AQ9 225 339 — 564 1 24 — 25 0.44 7.08 — 4.43 AQ10—— 2,562 2,562—— 1,269 1,269—— 49.53 49.53 132,567 12,8342,562 147,9631922491,2691,7100.141.9449.53 1.16

GRAPHIC

 

 Credit risk – Banking activities continued Key points Across the Wholesale portfolio, the asset quality band distribution differed, reflecting the diverse nature of the sectors. Asset quality deterioration, however, was observed across most sectors as the impacts of COVID-19 affected customers’ operations and markets. The level of asset quality deterioration was mitigated by government support schemes in relation to COVID-19. The increase in AQ10 exposure in property was largely due to individually significant commercial real estate customers, particularly in the retail sub-sector. Within the Wholesale portfolio, customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was undertaken or a material event specific to that customer occurred. As previously noted, a request for support using one of the government-backed COVID-19 support schemes would prompt credit grades to be reassessed but was not, in itself, a reason for a customer’s credit grade to be amended. For further details, refer to the Impact of COVID-19 section. ECL provisions coverage showed the expected trend with increased coverage in the poorer asset quality bands, and also by stage. The relatively low provision coverage for Stage 3 loans in the property sector reflected the secured nature of the exposures. Credit risk – Trading activities This section details the credit risk profile of NatWest Group’s trading activities. Securities financing transactions and collateral The table below shows securities funding transactions in NatWest Markets and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9. Outside Outside Of which: netting Of which: netting Total can be offset arrangements Total can be offset arrangements £m £m £m £m £m £m 2020

GRAPHIC

 

 Credit risk – Trading activities continued Derivatives The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS 9. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table also includes hedging derivatives in Treasury. 20202019 Notional Net exposure 4,776 3,664 4,3555,610 Asset quality of uncollateralised derivative assets AQ1-AQ4 3,464 3,361 AQ5-AQ8 1,283 972 AQ9-AQ10 29 22 Net exposure 4,776 4,355 Notes: Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions for example China where the collateral agreements are not deemed to be legally enforceable. Transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group’s external rating. Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting. Sovereigns and supranational entities with one-way collateral agreements in their favour.

GRAPHIC

 

 Credit risk – Trading activities continued Derivatives: settlement basis and central counterparties The table below shows the third party derivative notional and fair value by trading and settlement method. NotionalAsset LiabilityTraded over the counter Traded on Settled Not settled Traded on Traded Traded on Traded recognised by central by central recognised over the recognised over the exchanges counterparties counterparties Total exchanges counter exchanges counter £bn £bn £bn £bn £m £m £m £m 2019 Interest rate 1,593 7,090 2,610 11,293 — 104,957 — 99,331 Exchange rate 3 — 3,747 3,750 — 44,792 — 47,141 Credit — — 17 17 — 280 — 359 Debt securities The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor’s, Moody’s and Fitch. A significant proportion (more than 95%) of these positions are trading securities in NatWest Markets. UK US Other institutions Corporate Total £m £m £m £m £m £m AAA AA to AA+ A to AA-BBB-to A-Non-investment grade Unrated — — 3,114 1,113 — 4,227 — 5,149 3,651 576 49 9,425 4,184 — 1,358 272 81 5,895 — — 8,277 444 656 9,377 — — 36 127 53 216 — — — 150 5 155 Total 4,184 5,149 16,436 2,682 844 29,295 Short positions (5,704) (1,123) (18,135) (1,761) (56) (26,779) Note: The UK’s credit rating declined from AA to AA-as rated by Fitch during 2020. Moody’s and Standard & Poor’s ratings remain unchanged.

GRAPHIC

 

 

 Credit risk – Cross border exposure Cross border exposures comprise both banking and trading activities, including reverse repurchase agreements. Exposures comprise loans and advances, including finance leases and instalment credit receivables, and other monetary assets, such as debt securities. The geographical breakdown is based on the country of domicile of the borrower or guarantor of ultimate risk. Cross border exposures include non-local currency claims of overseas offices on local residents but exclude exposures to local residents in local currencies. The table shows cross border exposures greater than 0.5% of NatWest Group’s total assets. Western Europe Of which: France Germany Italy Spain United States 23,651 9,232 21,091 53,974 18,756 35,218 5,098 1,574 6,270 12,942 2,465 10,477 4,913 4,020 2,343 11,276 3,833 7,443 4,985 319 791 6,095 3,583 2,512 2,980 731 1,120 4,831 3,773 1,058 12,430 4,316 7,186 23,932 1,239 22,693 Short Net of short Government Banks Other Total positions positions £m £m £m £m £m £m Japan2,7222,6853025,709125,697

GRAPHIC

 

 Capital, liquidity and funding risk NatWest Group continually ensures a comprehensive approach is taken to the management of capital, liquidity and funding, underpinned by frameworks, risk appetite and policies, to manage and mitigate capital, liquidity and funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring NatWest Group operates within its regulatory requirements and risk appetite. Definitions Regulatory capital consists of reserves and instruments issued, have a degree of permanency and are capable of absorbing losses. A number of strict conditions set by regulators must be satisfied to be eligible as capital. Capital adequacy risk is the risk that there is or will be insufficient capital and other loss-absorbing debt instruments to operate effectively including meeting minimum regulatory requirements, operating within Board approved risk appetite and supporting its strategic goals. Liquidity consists of assets that can be readily converted to cash within a short timeframe at a reliable value. Liquidity risk is the risk of being unable to meet financial obligations as and when they fall due. Funding consists of on-balance sheet liabilities that are used to provide cash to finance assets. Funding risk is the risk of not maintaining a diversified, stable and cost-effective funding base. Liquidity and funding risks arise in a number of ways, including through the maturity transformation role that banks perform. The risks are dependent on factors such as: Maturity profile; Composition of sources and uses of funding; The quality and size of the liquidity portfolio; Wholesale market conditions; and Depositor and investor behaviour. Sources of risk Capital The eligibility of instruments and financial resources as regulatory capital is laid down by applicable regulation. Capital is categorised under two tiers (Tier 1 and Tier 2) according to the ability to absorb losses, degree of permanency and the ranking of absorbing losses on either a going or gone concern basis. There are three broad categories of capital across these two tiers: CET1 capital. CET1 capital must be perpetual and capable of unrestricted and immediate use to cover risks or losses as soon as these occur. This includes ordinary shares issued and retained earnings. Additional Tier 1 (AT1) capital. This is the second type of loss absorbing capital and must be capable of absorbing losses on a going concern basis. These instruments are either written down or converted into CET1 capital when the CET1 ratio falls below a pre-specified level. Tier 2 capital. Tier 2 capital is NatWest Group’s supplementary capital and provides loss absorption on a gone concern basis. Tier 2 capital absorbs losses after Tier 1 capital. It typically consists of subordinated debt securities with a minimum maturity of five years. Minimum requirement for own funds and eligible liabilities (MREL) In addition to capital, other specific loss-absorbing instruments, including senior notes issued by NatWest Group, may be used to cover certain gone concern capital requirements which, is referred to as MREL. Gone concern refers to the situation in which resources must be available to enable an orderly resolution, in the event that the Bank of England (BoE) deems that NatWest Group has failed or is likely to fail. Liquidity NatWest Group maintains a prudent approach to the definition of liquidity resources. NatWest Group manages its liquidity to ensure it is always available when and where required, taking into account regulatory, legal and other constraints. Following ring-fencing legislation, liquidity is no longer considered fungible across NatWest Group. Principal liquidity portfolios are maintained in the UK Domestic Liquidity Sub-Group (UK DoLSub) (primarily in NatWest Bank Plc), UBI DAC, NatWest Markets Plc, RBS International Limited and NWM N.V.. Some disclosures in this section where relevant are presented, on a consolidated basis, for NatWest Group, the UK DoLSub and on a solo basis for NatWest Markets Plc. Liquidity resources are divided into primary and secondary liquidity as follows: Primary liquid assets include cash and balances at central banks, Treasury bills and other high quality government and supranational securities. Secondary liquid assets are eligible as collateral for local central bank liquidity facilities. These assets include own-issued securitisations or whole loans that are retained on balance sheet and pre-positioned with a central bank so that they may be converted into additional sources of liquidity at very short notice. Funding NatWest Group maintains a diversified set of funding sources, including customer deposits, wholesale deposits and term debt issuance. NatWest Group also retains access to central bank funding facilities. For further details on capital constituents and the regulatory framework covering capital, liquidity and funding requirements, please refer to the NatWest Group Pillar 3 Report 2020 Capital, liquidity and funding section.

GRAPHIC

 

 Capital, liquidity and funding risk continued Capital management Capital management ensures that there is sufficient capital and other loss-absorbing instruments to operate effectively including meeting minimum regulatory requirements, operating within Board-approved risk appetite, maintaining its credit rating and supporting its strategic goals. Capital management is critical in supporting the businesses and is enacted through an end-to-end framework across businesses and the legal entities. Capital is managed within the organisation at the following levels; NatWest Group consolidated, NWH Group sub consolidated, NatWest Markets Plc, NatWest Markets N.V. and RBS International Limited. The subsidiaries within NWH Group are governed by the same principles, processes and management as NatWest Group. Note that although the aforementioned entities are regulated in line with Basel III principles, local implementation of the framework differs across geographies. Capital planning is integrated into NatWest Group’s wider annual budgeting process and is assessed and updated at least monthly. Regular returns are submitted to the PRA which include a two-year rolling forecast view. Other elements of capital management, including risk appetite and stress testing, are set out on pages 164 and 165. Capital plans are produced for NatWest Group, its key operating entities and its businesses over a five year planning horizon under expected and Liquidity risk management NatWest Group manages its liquidity risk taking into account regulatory, legal and other constraints to ensure sufficient liquidity is available where required to cover liquidity stresses. The principal levels at which liquidity risk is managed are: NatWest Group NatWest Holdings Group UK DoLSub UBI DAC NatWest Markets Plc NatWest Markets Securities Inc. RBS International Limited NWM N.V. The UK DoLSub is PRA regulated and comprises NatWest Group’s four licensed deposit-taking UK banks: National Westminster Bank Plc (NWB Plc), The Royal Bank of Scotland plc (RBS plc), Coutts & Company and Ulster Bank Limited. NatWest Group categorises its liquidity portfolio, including its locally managed liquidity portfolios, into primary and secondary liquid assets. The size of the liquidity portfolios are determined by referencing NatWest Group’s liquidity risk appetite. NatWest Group retains a prudent approach to setting the composition of the liquidity portfolios, which is subject to internal policies applicable to all entities and limits over quality of counterparty, maturity mix and currency mix. Produce capital plans Assess capital adequacy Inform capital actions stress conditions. Stressed capital plans are produced to support internal stress testing in the ICAAP for regulatory purposes. Shorter term forecasts are developed frequently in response to actual performance, changes in internal and external business environment and to manage risks and opportunities. Capital plans are developed to maintain capital of sufficient quantity and quality to support NatWest Group’s business, its subsidiaries and strategic plans over the planning horizon within approved risk appetite, as determined via stress testing, and minimum regulatory requirements. Capital resources and capital requirements are assessed across a defined planning horizon. Impact assessment captures input from across NatWest Group including from businesses. Capital planning informs potential capital actions including buy backs, redemptions, dividends and new issuance to external investors or via internal transactions. Decisions on capital actions will be influenced by strategic and regulatory requirements, risk appetite, costs and prevailing market conditions. As part of capital planning, NatWest Group will monitor its portfolio of external capital securities and assess the optimal blend and most cost effective means of financing. RBS International Limited, NWM N.V. and UBI DAC hold locally managed portfolios that comply with local regulations that may differ from PRA rules. The liquidity value of the portfolio is determined by taking current market prices and applying a discount or haircut, to give a liquidity value that represents the amount of cash that can be generated by the asset. Funding risk management NatWest Group manages funding risk through a comprehensive framework which measures and monitors the funding risk on the balance sheet including quantitative and qualitative analysis of the behavioural aspects of its assets and liabilities as well as the funding concentration. Capital planning is one of the tools that NatWest Group uses to monitor and manage capital risk on a going and gone concern basis, including the risk of excessive leverage.

GRAPHIC

 

Relief measures The economic impact of COVID-19 during the year 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. In response to COVID-19, a number of relief measures to alleviate the financial stability impact have been announced and recommended by regulatory and supervisory bodies. One significant announcement in the year 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 FY 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 31 December 2020 is £1.7 billion. 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 Bounce Back Loans (BBL) 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.£2.3 billion and £8.3 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.£2.3 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 billion for SMEs and c.£0.9 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.£120 million. Market Risk Value-at-risk (VaR) model capital multiplier – the CRR COVID-19 amendment allowed for back-testing exceptions due to the exceptional levels of market volatility caused by COVID-19 to be excluded from the capital multiplier. This approach resulted in c.£1.4 billion benefit. Capital buffers – Many countries 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. Software Assets – The CRR COVID-19 amendment accelerated the change to the regulatory treatment of software assets so this revision came in prior to the year end. The change introduces the concept of prudential amortisation for software assets so that unamortised software is no longer deducted from CET1. By applying this amendment the impact to NatWest Group is an increase of 23 bps to CET1 and an 8 bps increase to the UK leverage ratio.

GRAPHIC

 

Key points CET1 Ratio 202018.5% 201916.2% LAC Increase of 230 bps, of which 140 bps is due to an increase in CET1 capital and 90 bps due to a decrease in Risk Weighted Assets. Key drivers in the CET1 capital increase; cancellation of 2019 dividends and associated pension contribution offset by the inclusion of the 2020 foreseeable dividends and charges (40 bps), reduction in the regulatory intangibles deduction due to implementation of CRR2 amended Article 36 for the prudential treatment of software assets (23 bps), and adoption of IFRS 9 transitional arrangements on expected credit losses (100 bps) offsetting associated impairment charges through the attributable loss of £753 million (-40 bps). 2020£63.9bn 2019£59.7bn RWA Loss absorbing capital increased by £4.2 billion to £63.9 billion primarily due to an increase in CET1 (explained above), new issuance of $1.6 billion Senior debt, AT1 issuances of $1.5 billion and £1.0 billion, and Tier 2 issuances of £1.0 billion and $0.85 billion. These were partially offset by the redemption of a $2.0 billion AT1 instrument and a $0.5 billion partial redemption of a Tier 2 instrument, FX movements and Tier 2 regulatory amortisation. 2020£170.3bn 2019£179.2bn Leverage RWAs reduced by £8.9 billion in 2020, reflecting reductions in market risk (£3.6 billion), counterparty credit risk (£3.5 billion) and credit risk RWAs (£1.1 billion) mainly in NatWest Markets as the business seeks to reduce RWAs through capital optimisation and exit activity. RWAs also decreased by c.£1.9 billion due to the CRR COVID-19 amendment for the SME & Infrastructure supporting factors, and NPL de-recognitions in Ulster Bank ROI. The acquisition of prime UK mortgages from Metro Bank resulted in a £1.2 billion increase in credit risk RWAs. 20205.2% 20195.1% CRR leverage ratio increased by c.10 basis points driven by a £3.3 billion increase in Tier 1 capital which is partially offset by a £59.2 billion increase in the leverage exposure driven by balance sheet exposures. UK Leverage 20206.4% 20195.8% The UK leverage ratio has increased by c.60 basis points driven by a £3.3 billion increase in Tier 1 capital. Liquidity portfolio 2020£262.3bn 2019£199.4bn Liquidity Coverage Ratio The liquidity portfolio increased by £63 billion in 2020 to £262 billion, with primary liquidity increasing by £45 billion to £170 billion. The increase in primary liquidity is driven primarily by an increased customer surplus in NatWest Holdings with smaller increases in other Group entities. The increase in secondary liquidity is driven by collateral pool top-ups along with unencumbrance of assets following Term Funding Scheme (TFS) repayments during the year. 2020165% 2019152% NSFR The Liquidity Coverage Ratio (LCR) increased by 13% during the year to 165% driven by an increase in the liquidity portfolio offset with a lower level of increased net outflows. The increased liquidity portfolio was primarily driven by significant growth in customer deposits in NatWest Holdings which outstripped growth in customer lending during the year. 2020151% The net stable funding ratio (NSFR) for FY 2020 was 151% compared to 141% in prior year. The increase is mainly due to deposits growth. 2019141%

GRAPHIC

 

Minimum requirements Maximum Distributable Amount (MDA) and Minimum Capital Requirements NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress. Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments, known as the MDA. Note that different capital requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable. The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements. TypeCET1Total Tier 1Total capital Notes: Many countries 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. Pillar 2A requirements for NatWest Group are set on a nominal capital basis which result in an implied 8.9% MDA. 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. TypeCET1Total Tier 1 Notes: (1) (2) The countercyclical leverage ratio buffer is set at 35% of NatWest Group’s CCyB. As noted above the UK CCyB decreased from 1% to 0% on 11 March 2020 in response to COVID-19. Foreign exposures may be subject to different CCyB rates depending on the rate set in those jurisdictions. Following the joint announcement of UK Treasury, PRA and FCA on 16 November 2020, we expect the PRA to consult on the application of leverage ratios to individual legal entities and Groups during 2021. Liquidity and funding ratios The table below summarises the minimum requirements for key liquidity and funding metrics, under the relevant legislative framework. Type Note: (1) NSFR reported in line with CRR2 regulations finalised in June 2019. Following the joint announcement of UK Treasury, PRA and FCA on 16 November 2020 to postpone the future EU CRR2 element of the Basel 3 package, we understand the PRA is due to consult on a binding Net Stable Funding ratio (NSFR) requirement to be introduced from January 2022.

GRAPHIC

 

Measurement Capital, risk-weighted assets and leverage: Key metrics The table below sets out the key capital and leverage ratios. Refer to Note 25 to the consolidated financial statements for a more detailed breakdown of regulatory capital. 20202019 End pointPRA transitionalEnd point PRA transitional CRR basis (1)basisCRR basis (1)basis £m£m£m£m RWAs£m£m£m£m Capital adequacy ratios%%%% Leverage ratios£m£m£m£m Notes: CRR as implemented by the Prudential Regulation Authority in the UK. End point CRR basis includes the IFRS 9 transitional uplift to capital of £1.7 billion and £0.2 billion uplift to RWAs. Excluding this adjustment, the CET1 ratio would be 17.5% and CRR leverage ratio would be 4.9%. Based on the daily average of on-balance sheet items and three month-end average of off-balance sheet items. 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 6.1%. Capital flow statement The table below analyses the movement in CRR CET1, AT1 and Tier 2 capital for the year. CET1AT1Tier 2Total £m£m£m£m 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 31 December 2020 is £1.7 billion. Cancellation of 2019 dividends and associated pension contribution offset by the inclusion of the 2020 foreseeable dividends and charges resulted in an increase in CET1 of £0.7 billion. The implementation of CRR2 amended Article 36 for the prudential treatment of software assets has resulted in an increase to CET1 of £0.5 billion. Foreign exchange movements include a £0.4 billion charge, in relation to a $2 billion AT1 redemption announcement on 28 June 2020.