NatWest : 2020 GSIB Indicators

Annual Results

For the year ended 31 December 2020

natwestgroup.com

NatWest Group plc

2020 NatWest Group performance summary Alison Rose, Chief Executive Officer:

"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 made strong progress in executing the strategy we set out in February 2020 as we build a relationship bank for a digital world; a bank that will meet the rapidly evolving needs of our customers at different stages of their lives through an ever- increasing focus on digital and transformation. In turn, this will drive sustainable, long-term returns to our shareholders.

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."

Financial performance in a challenging environment

• Full year 2020 operating loss of £351 million and an attributable loss of £753 million. Q4 2020 operating profit before tax of £64 million and an attributable loss of £109 million.
• Full year 2020 net impairment losses of £3,242 million, or 88 basis points of gross customer loans, resulted in an expected credit loss (ECL) coverage ratio of 1.66%.
• In comparison to 2019, income across the retail and commercial businesses, excluding notable items, decreased by 10.0% as the lower yield curve, subdued business activity and lower consumer spending were partially offset by strong balance growth.
• 2020 Bank net interest margin (NIM) of 1.71% decreased by 28 basis points compared with 2019. Q4 2020 Bank NIM of 1.66% increased by 1 basis point in comparison to Q3 2020 as lower average central liquidity and improved asset margins more than offset reduced structural hedge income as a result of lower swap rates.
• A cost reduction of £277 million was achieved during 2020, ahead of our £250 million target for the year.

Robust balance sheet with strong capital and liquidity levels

• CET1 ratio of 18.5%, was 230 basis points higher than 2019, including c.100 basis points related to IFRS 9 transitional relief. The CET1 ratio increased by 30 basis points in comparison to Q3 2020 as the £3.6 billion reduction in RWAs and a 23 basis point software intangible benefit were partially offset by the 3 pence proposed final dividend, 21 basis points, and linked pension contribution, 16 basis points.
• The liquidity coverage ratio (LCR) of 165%, representing £72.1 billion headroom above 100%, increased by 13 percentage points in comparison to 2019. In comparison to Q3 2020 LCR increased by 8 percentage points reflecting the continued growth in customer deposits.
• Net lending across the retail and commercial businesses increased by £20.9 billion in 2020 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 plc mortgage portfolio acquisition. This growth has been partially offset by lower unsecured balances, which were impacted by lower spend and higher repayments, subdued business activity and increased loan provisions. In Q4 2020, net lending across the retail and commercial businesses increased by £4.5 billion as mortgage growth of £6.2 billion and £1.6 billion of lending against UK Government lending schemes more than offset £2.4 billion net revolving credit facility (RCF) repayments.
• Customer deposits increased by £62.5 billion in comparison to 2019, with retail and commercial balances £60.5 billion higher as consumer spending was impacted by government restrictions and customers retained liquidity. In Q4 2020, customer deposits increased by £13.3 billion.
• RWAs decreased by £8.9 billion in comparison to 2019, including an £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. RWAs reduced by £3.6 billion in Q4 2020, largely in NatWest Markets.

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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-19

Provided lending support to our customers with a disciplined approach to risk:

• Approved £14.1 billion through the government lending initiatives.(1)
• Facilitated approximately £9.5 billion of COVID-19 Corporate Financing Facilities (CCFF) issuances.(2)

Supported the financial health of our customers:

• Helped customers with approximately 258,000 mortgage repayment holidays and provided payment holidays on over 74,000 business customer accounts.(3)
• 95% of branches have been kept open during the pandemic and a new 'virtual queuing system' developed, with software developer Qudini, so customers who need to visit one of our branches can do so as safely as possible.

Long-term investment plan is powering our operational effectiveness:

• Increased digital adoption with 9.4 million active digital users (2019 - 8.7 million), and with video banking now available across our entire network, interactions have increased from fewer than 100 per week in January 2020 to almost 9,000 per week by the end of 2020.
• Announced an integration with global small business platform Xero, allowing its users to apply for NatWest Rapid Cash, a flexible line of credit based on outstanding invoices up to the value of £300,000, providing simple, swift support to a number of key businesses during the pandemic.

Prioritised the wellbeing of our colleagues:

• Continued to support more than 50,000 colleagues to work from home. The timing of a phased return to our offices will be led by UK Government guidance and factors such as the progress of vaccinations.
• Introduced a new digital physiotherapy offering, giving colleagues free access to physiotherapy advice, complementing existing resources to maintain and enhance colleague health, such as virtual GPs and the SilverCloud wellbeing platform.

Partnered and responded proactively to support UK communities:

• Extended our support for vulnerable customers through a joint referral service with Citizens Advice, offering support to customers who need assistance to address the root cause of their financial vulnerability.
• Launched the Winter Sparkle campaign, sending food, clothes, basic home supplies and toys from the Gogarburn food bank and charity distribution centres to people experiencing winter poverty across the UK.

Progress against areas of focus

Enterprise - addressing barriers to enterprise and business creation:

• Launched an SME Transformation Taskforce, co-chaired by NatWest Group and the Federation of Small Businesses, bringing together policymakers, business groups and other stakeholders to share insights and discuss recommendations of support to spark growth back into this crucial part of the UK economy.
• In January 2020, we announced £1 billion of funding for female entrepreneurs, which has all been committed, we have now doubled this funding to £2 billion to help support female-led businesses to recover from the disruption caused by the coronavirus.

Learning - skill building, particularly around financial confidence:

• Reached 2.9 million people through financial capability interactions in 2020.
• Launched Financial Flex campaign to encourage Brits - especially younger generations - to start talking more openly and honestly about their finances to combat growing worries around money.

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

• Supported our customers with £12.0 billion of Climate and Sustainable Funding and Financing in 2020.
• Launched Green Mortgages offering a preferential interest rate to new or existing customers who are purchasing an energy efficient property.
• Announced we will be the banking sponsor of the 26th UN Climate Change Conference of the Parties (COP26).

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

• 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 in 2015.
• 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 to improve representation to at least 14% by 2025.

Notes:

1. As at 31 December 2020, inclusive of Commercial Banking and Private Banking: Bounce Back Loan Scheme (BBLS) - £8.6 billion; Coronavirus Business Interruption Loan Scheme (CBILS) - £4.2 billion, Coronavirus Large Business Interruption Loan Scheme (CLBILS) - £1.3 billion.
2. As at 31 December 2020.
3. For the year ended 31 December 2020 in Retail Banking and since 22 March 2020 in Commercial Banking, there were c.16,000 active mortgage repayment holidays and c.11,000 active payment holidays on business customer accounts.

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Chief Executive's Statement

We champion potential, helping people, families and businesses to thrive.

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 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.

We have significant capacity to grow, with activity levels increasing across both our retail and commercial businesses. Net lending grew 7% in 2020, while our gross new mortgage lending represented a share of around 13%, taking our stock share to almost 11%.

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.

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Chief Executive's Statement continued

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 £5.2 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.

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.

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