NatWest : CFO Round Table

Q3 2020

Interim Management Statement

www.natwestgroup.com

NatWest Group plc

Q3 2020 Interim Management Statement

Alison Rose, Chief Executive Officer, commented:

"These results demonstrate the resilience of our underlying business and the strength of our balance sheet in the face of significant continued uncertainty. Our sector-leading capital position, strong levels of liquidity and intelligent and consistent approach to risk mean we can continue to provide our customers and communities with the support they need.

Although impairments were relatively low in the quarter and we have seen some positive trends across our customer base, the full impact of Covid-19 remains very unclear. Challenging times lie ahead, especially as the current government support schemes come to an end and as new Covid-19 related restrictions are introduced.

We continue to deliver well against our strategy, building a bank that champions potential and has the capability to grow. By building deeper relationships with our customers at every stage of their lives, simplifying the bank further, investing in innovation and partnerships and allocating capital well, we will deliver sustainable returns to our shareholders."

Financial performance in a challenging environment

• Q3 2020 operating profit before tax of £355 million and an attributable profit to ordinary shareholders of £61 million including a £324 million loss on redemption of own debt.
• In comparison to Q3 2019, across the retail and commercial businesses income decreased by 12.1%. Within NatWest Markets (NWM), the level of primary issuance and market activity eased in Q3 2020, compared to the first half of the year.
• Bank net interest margin (NIM) of 1.65% was 2 basis points lower than Q2 2020 principally reflecting reduced structural hedge income as a result of lower swap rates and the contraction of the yield curve. Mortgage front book new business and switcher completion margins were approximately 140 basis points, broadly in line with the overall book margin.
• Strategic costs of £223 million in Q3 2020 include £90 million redundancy costs, a £34 million charge related to technology spend and a £21 million property charge.
• Other expenses, excluding operating lease depreciation (OLD), were £152 million lower than Q3 2019, with a £193 million cost reduction achieved for the year to date. We remain on track to achieve our £250 million target for full year 2020.
• Net impairment losses of £254 million in Q3 2020, or 28 basis points of gross customer loans, resulted in an expected credit loss (ECL) coverage ratio of 1.72%.

Robust balance sheet with strong capital and liquidity levels

• CET1 ratio of 18.2% was 100 basis points higher than Q2 2020 mainly reflecting a £7.6 billion reduction in RWAs, principally in NatWest Markets. Excluding IFRS 9 transitional relief, the CET1 ratio was 17.2%.
• The liquidity coverage ratio (LCR) remains strong at 157%, representing £61.8 billion headroom above 100%, which includes the impact of a £5.0 billion term funding scheme (TFS) repayment within the quarter.
• Across the retail and commercial businesses net lending increased by £0.4 billion during Q3 2020, as £2.9 billion drawdowns against UK Government lending initiatives and £2.4 billion related to mortgages was partially offset by net revolving credit facility (RCF) repayments of £3.1 billion and lower lending across Large Corporate & Institutions and Specialised business.
• Customer deposits of £418.4 billion increased by £10.1 billion during Q3 2020, with retail and commercial balances £6.6 billion higher as consumer spending continued to be impacted by government restrictions and customers retained liquidity.

Outlook(1)

We retain the outlook guidance provided in the 2020 Interim Results with the exception of the following updates, noting the continued significant economic uncertainty.

We believe the full year impairment charge is likely to be at the lower end of the £3.5-4.5 billion range following the limited level of defaults across lending portfolios and associated ECL stage migration within the third quarter.

We now expect NatWest Group RWAs to be below our previously guided range of £185-195 billion at the end of 2020 following the relatively low level of procyclical inflation experienced to date, with previously expected uplifts delayed to 2021, whilst also now targeting NatWest Markets RWAs of around £30 billion by the end of 2020.

Note:

1. The guidance, targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc "Risk Factors" as described on pages 108-109 of its Interim Results 2020, pages 29-31 of its Q1 2020 IMS and pages 281-295 of its 2019 Annual Report & Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

NatWest Group - Q3 Results 2020

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Our Purpose in action - we champion potential, helping people, families and businesses to thrive

Helping our customers, colleagues and communities through the impacts of Covid-19Provided lending support to our customers with a disciplined approach to risk and value creation:

• Approved £13.0 billion through the government lending initiatives(1).
• Facilitated approximately £8.8 billion of Covid-19 Corporate Financing Facilities (CCFF) issuances(2).

Supported the financial health of our customers:

• Helped approximately 250,000 customers with an initial mortgage repayment holiday and provided payment holidays on over 72,000 business customer accounts(3).
• Launched 'Banking My Way' service, enabling customers who need additional support to request bespoke assistance, with 38,500 registrations since its launch(4).

Long-term investment plan is powering our operational effectiveness:

• Increased digital adoption with 9.3 million active digital users as at Q3 2020 (9.0 million as at Q3 2019), 6 million interactions with our AI chat bot Cora in the first nine months of 2020 (3.9 million in the first nine months of 2019) and c.9,000 weekly video banking conversations now taking place, compared to less than 100 a week in January 2020(5).
• Announced a new relationship with BlackRock to support our investment management processing activity, enabling savings to be passed onto our clients.

Partnered to proactively respond and support UK communities:

• NatWest Social and Community Capital launched a £1 million Coronavirus Response Fund offering grants to organisations across the UK that employ people from vulnerable or disadvantaged groups.
• Launched a review with SafeLives into supporting survivors of economic abuse and acquired coercive debt.

Prioritised the wellbeing of our colleagues:

• Continued to enable more than 50,000 colleagues to work from home, delivering office furniture and computer equipment, including 31,000 tech bundles to homes(6).
• Enhanced our free mental health support through a new partnership with Silvercloud, providing substantial, sector-leading support to any colleague who needs it and provided all leaders access to extended mental health awareness support.

Q3 2020 progress against areas of focus

Enterprise - addressing barriers to enterprise and business creation:

• NatWest Entrepreneur Accelerator Programme ranked the top UK accelerator by total attendances(7). The programme has run 800 virtual events with 33,000 attendees since the start of lockdown(2).
• Over half of the £1 billion of debt funding to support female entrepreneurs announced in February 2020 has been committed as part of our ambition to help create new businesses in the UK(2).

Learning - skill building, particularly around financial confidence:

• Reached 2.4 million people through financial capability interactions including live MoneySense lessons on social media(6).
• Island Saver, the world's first financial education console, PC and mobile game, has been downloaded over 1.7 million times since its launch(8).

Climate - supporting the necessary transition to a low carbon economy:

• As part of our membership of the Green Finance Institute's 'Coalition for the Energy Efficiency of Buildings', we have signed up to their Green Home Retrofit Principles.
• Progress in sustainability has been recognised by leading ESG rating agencies: Sustainalytics substantially improved our Risk Score to 20.5 (from 27.5) in July 2020 and MSCI upgraded our ESG rating to A (from BBB) in October 2020.

Diversity and inclusion - building an open and inclusive bank where everyone can thrive:

• In addition to our existing target of at least 14% BAME representation in senior UK roles by 2025, we have introduced a new target to have 3% Black colleagues in senior UK roles by 2025.
• Included in 'The Times' Top 50 employers for women.

Notes:

1. As at 30 September 2020, inclusive of Commercial Banking and Private Banking: Bounce Back Loan Scheme (BBLS) - £7.9 billion; Coronavirus Business Interruption Loan Scheme (CBILS) - £3.9 billion, Coronavirus Large Business Interruption Loan Scheme (CLBILS) - £1.2 billion.
2. As at 30 September 2020.
3. For the nine months ended 30 September 2020 in Retail Banking and since 22 March 2020 in Commercial Banking. As at 30 September 2020, there were 37,000 active mortgage repayment holidays and approximately 55,000 active payment holidays on business customer accounts.
4. From launch date of 19 August 2020 to 9 October 2020.
5. Weekly conversation volumes, as at week commencing 12 October 2020.
6. For the nine months ended 30 September 2020.
7. Beauhurst report 'Accelerating Growth'- September 2020.
8. From launch date of 13 May 2020 to 30 September 2020.

NatWest Group - Q3 Results 2020

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Business performance summary

		Nine months ended		Quarter ended
		30 September	30 September		30 September	30 June	30 September
Performance key metrics and ratios	2020	2019	2020		2020		2019
Profit before impairment losses		£2,697m	£3,222m		£609m		£767m		£205m
Operating (loss)/profit before tax		(£415m)	£2,686m		£355m		(£1,289m)		(£8m)
(Loss)/profit attributable to ordinary shareholders		(£644m)	£1,723m		£61m		(£993m)		(£315m)
Bank net interest margin		1.73%			1.65%		1.67%
(NatWest Group NIM excluding NWM) (1)		2.02%				1.97%
Bank average interest earning assets		£449bn			£468bn		£458bn		£416bn
(NatWest Group excluding NWM) (1)		£410bn
Cost:income ratio (1)		66.9%	67.5%		74.5%		70.9%		92.9%
Loan impairment rate (1)		115bps	22bps		28bps		229bps		26bps
Earnings per share		(5.3p)			0.5p		(8.2p)		(2.6p)
- basic		14.3p
- basic fully diluted		(5.3p)	14.2p		0.5p		(8.2p)		(2.6p)
Return on tangible equity (1)		(2.7%)	6.8%		0.8%		(12.4%)		(3.8%)
Average tangible equity		£32bn	£34bn		£32bn		£32bn		£33bn
Average number of ordinary shares
outstanding during the period (millions)		12,090			12,110		12,085		12,075
- basic		12,064
- fully diluted (2)		12,112	12,099		12,133		12,107		12,106
					30 September	30 June	31 December
Balance sheet key metrics and ratios			2020	2020	2019
Total assets				£791.6bn	£806.9bn	£723.0bn
Funded assets (1)				£627.3bn	£623.5bn	£573.0bn
Loans to customers - amortised cost				£353.7bn	£352.3bn	£326.9bn
Impairment provisions				£6.1bn	£6.1bn	£3.7bn
Customer deposits				£418.4bn	£408.3bn	£369.2bn
Liquidity coverage ratio (LCR)				157%	166%	152%
Liquidity portfolio				£243bn	£243bn	£199bn
Net stable funding ratio (NSFR) (3)				147%	144%	141%
Loan:deposit ratio (1)				85%	86%	89%
Total wholesale funding				£75bn	£86bn	£75bn
Short-term wholesale funding				£25bn	£22bn	£19bn
Common Equity Tier (CET1) ratio (4)				18.2%	17.2%	16.2%
Total capital ratio				23.7%	22.5%	21.2%
Pro forma CET1 ratio, pre dividend accrual (5)				18.2%	17.2%	17.0%
Risk-weighted assets (RWAs)				£173.9bn	£181.5bn	£179.2bn
CRR leverage ratio				5.2%	5.1%	5.1%
UK leverage ratio				6.2%	6.0%	5.8%
Tangible net asset value (TNAV) per ordinary share				265p	264p	268p
Tangible net asset value (TNAV) per ordinary share - fully diluted (1,2)			264p	263p	267p
Tangible equity				£32,093m	£32,006m	£32,371m
Number of ordinary shares in issue (millions)				12,127	12,125	12,094
Number of ordinary shares in issue (millions) - fully diluted (2,6)				12,149	12,147	12,138

Notes:

1. Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS financial and performance measures.
2. Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for the nine months ended 30 September 2020 were 22 million shares; Q3 2020 - 23 million shares (nine months ended 30 September 2019 - 35 million shares; Q2 2020 - 22 million shares; Q3 2019 - 31 million shares) and as at 30 September 2020 were 22 million shares (as at 30 June 2020 - 22 million shares; as at 31 December 2019 - 44 million shares).
3. NSFR reported in line with CRR2 regulations finalised in June 2019.
4. At September and June 2020 there is no charge in CET1 for foreseeable dividends or charges. The pro forma CET1 ratio at 31 December 2019 excluded foreseeable charges of £968 million for ordinary dividends (3p per share final dividend and 5p per share special dividend) and £365 million pension contribution.
5. Based on CRR end point including the IFRS 9 transitional adjustment of £1.7 billion. Excluding this adjustment, the CET1 ratio would be 17.2%.
6. Includes 16 million shares held by the Employee Benefit Trust (30 June 2020 - 16 million shares; 31 December 2019 - 15 million shares).

Non-IFRS financial measures

This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations, where applicable, refer to the Appendix.

NatWest Group - Q3 Results 2020

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