FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For July, 2020
Commission File Number: 001-10306
 
NatWest Group plc
 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ
 
(Address of principal executive offices)
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
   Form 20-F X Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________
 
 
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes ___ No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________
 
 
 
 
The following information was issued as Company announcements in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K: 
 
 
 
 
 
 
 
 
 
 
                                                Interim Results 2020
                
 
 
 
 
 
 
                     www.natwestgroup.com
 
 
 
 
 
NatWest Group plc
Interim Results for the period ending 30 June 2020
 
Alison Rose, Chief Executive Officer, commented:
"Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of Covid-19. However, NatWest Group has a robust capital position, underpinned by a resilient, capital generative and well diversified business.
 
Throughout this crisis we have provided exceptional levels of support to our customers, colleagues and the communities we serve. I am proud that our colleagues have consistently shown they are putting our purpose at the heart of everything they do.
 
Through our strong balance sheet and prudent approach to risk, we are well placed not only to withstand Covid-19 related impacts but also to provide the right support to those who will need it most in the tough times to come.
 
Our purposeful strategy will help our customers, colleagues and communities to recover, rebuild and, ultimately, to thrive. We are building a sustainable business that will generate lasting value for all our stakeholders, as we work together to create a greener, fairer and more inclusive economy."
 
Financial performance in a challenging environment
H1 2020 operating loss before tax of £770 million and operating profit before impairment losses of £2,088 million.
 
Net impairment losses of £2,858 million in H1 2020, or 159 basis points of gross customer loans, resulted in an expected credit loss (ECL) coverage ratio of 1.72% across the Personal and Wholesale portfolios.
 
In comparison to H1 2019, across the retail and commercial businesses income decreased by 9.0% whilst NatWest Markets income excluding asset disposals/strategic risk reduction, own credit adjustments (OCA) and notable items increased by 44.4%.
 
Bank net interest margin (NIM) of 1.67% was 22 basis points lower than Q1 2020 reflecting the contraction of the yield curve, 10 basis points, the impact of a change in the mix of lending, 5 basis points, and excess levels of central liquidity, 7 basis points.
 
Other expenses, excluding operating lease depreciation (OLD), were £41 million lower than H1 2019.
 
Robust balance sheet with strong capital and liquidity levels
●We have maintained absolute and relative capital strength and retain significant headroom above the regulatory minimum. CET1 ratio of 17.2% was 60 basis points higher than Q1 2020, benefiting from a £3.7 billion reduction in RWAs. In addition, the attributable loss for the quarter was more than offset by a c.70 basis point increase in IFRS 9 transitional relief.
●The liquidity coverage ratio (LCR) is strong at 166%, 14 percentage points higher than Q1 2020 reflecting the significant increase in customer deposits.
●Across the retail and commercial businesses net lending increased by £16.0 billion during H1 2020, of which £8.4 billion  related to drawdowns against UK Government lending initiatives and £7.6 billion was due to mortgages.
●Customer deposits increased by £39.1 billion in H1 2020 to £408.3 billion, as customers sought to retain liquidity and reduced spending as a result of government measures in relation to Covid-19.
 
Outlook(1)
 
We remain committed to achieving a £250 million cost reduction in 2020 and expect strategic costs to be within our £0.8-1.0 billion guidance after recognising property related charges in Q2 2020.
 
We believe the full year 2020 impairment charge is likely to be in the range of £3.5-4.5 billion. Impairment charges in the second half of 2020 will be driven by a combination of the developing economic outlook for the UK and Republic of Ireland, along with the effectiveness of government support schemes in delaying and reducing the level of economic distress experienced by our personal and commercial customers, and the absolute level of defaults across lending portfolios and associated ECL stage migration.
 
We expect RWAs to be in the range of £185-195 billion at the end of 2020. Changes in RWAs in the second half of 2020 will be driven by the delivery of targeted reductions in NatWest Markets, 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.
 
We continue to target a reduction in NatWest Markets RWAs to £32 billion by the end of 2020, with income disposal losses of around £0.2 billion, subject to market conditions. We are now intending to achieve the majority of the expected medium term reduction in NatWest Markets RWAs by the end of 2021, while managing the associated income disposal losses to around £0.6 billion over the two years.
 
We continue to monitor events closely and assess potential scenarios and outcomes. The multiple economic scenarios underpinning our guidance are disclosed on pages 28-35. The impacts of Covid-19 on the economy and the mitigating benefits of government support schemes remain uncertain and could result in changes to our financial results in upcoming periods, including the possible impairment of goodwill. 
 
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 "Risk Factors" section on pages 108 and 109 of this announcement, pages 29-31 of NatWest Group plc's (formerly The Royal Bank of Scotland Group plc) Q1 IMS and pages 281 to 295 of NatWest Group plc's 2019 Annual Report & Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.
 
 
 
Our Purpose in action - we champion potential, helping people, families and businesses to thrive
 
Helping our colleagues and customers through the impacts of Covid-19
 
Provided lending support to our customers with a disciplined approach to risk and value creation:
●  Approved £10.1 billion through the government lending initiatives(1,2).
●  Facilitated approximately £7.4 billion of Covid-19 Corporate Financing Facilities (CCFF) issuances(2).
 
Supported the financial health of our customers:
●      Helped approximately 240,000 customers with an initial three month mortgage repayment holiday and provided payment holidays, of up to twelve months, on approximately 71,000 business customer accounts(2).
●      Delivered approximately £2.0 million of cash to vulnerable customers' homes(2)
 
Long-term investment plan is powering our operational effectiveness:
●      Increased digital adoption with over 500,000 new mobile app downloads and over 485,000 new online banking customers(2).
●      Launched digital credit scoring in our mobile app with a net promoter score of +52(3).
 
Partnered to proactively respond and support UK communities:
●      Supported the National Emergencies Trust by raising £10 million through matched customer donations.
●      Donated £1 million to eight existing debt management not-for-profit partners.
 
Prioritised the wellbeing of our colleagues;
●      Enabled over 50,000 colleagues to work from home, including over three quarters of our contact centre colleagues.
●      Ensured that all colleagues continue to be paid as normal until September if they need to take some time to look after their families, are unable to work from home or if they are ill.
 
H1 2020 progress against our three chosen areas of focus
 
Enterprise - addressing barriers to enterprise and business creation:
●      Migrated our twelve accelerator hubs to digital channel delivery.
●      Digitised our Dream Bigger programme which supports the next generation of female entrepreneurs.
●      Launched a £5 million Enterprise Relief Fund in partnership with The Prince's Trust.
 
Learning - skill building, particularly around financial confidence:
●      Reached approximately two million people through financial capability interactions including live MoneySense lessons on social media platforms(2).
●      Helped approximately 305,000 additional customers to start saving(2).
●      Over 1 million downloads of Island Saver, the world's first financial education console and PC game.  
 
Climate - supporting the necessary transition to a low carbon economy:
●      NatWest Group plc issued a green MREL bond, the first green bond issued in USD by a UK bank, with $600 million of proceeds allocated to renewable energy projects.
●      NatWest Group has recently joined the UNEP FI PRB Collective Commitment on Climate Action and is the first major UK bank to join the Partnership for Carbon Accounting (PCAF), two important global initiatives that signal our level of commitment to measuring and reducing our climate impact in accordance with the 2015 Paris Agreement.
●      Helped our customers through c.£4.0 billion of new sustainable financing and funding for H1 2020.
 
 
 
 
 
 
 
 
Notes:
(1)   Inclusive of Commercial Banking and Private Banking: Bounce Back Loan Scheme (BBLS) - £6.1 billion; Coronavirus Business Interruption Loan Scheme (CBILS) - £3.3 billion; Coronavirus Large Business Interruption Loan Scheme (CLBILS) - £0.7 billion.
(2)   As at 30 June 2020.
(3)   As at 3 April 2020.
 
 
Business performance summary
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
Performance key metrics and ratios
2020
2019
 
2020
2020
2019
Profit before impairment losses
£2,088m
£3,017m
 
£767m
£1,321m
£1,918m
Operating (loss)/profit before tax
(£770m)
£2,694m
 
(£1,289m)
£519m
£1,681m
(Loss)/profit attributable to ordinary shareholders
(£705m)
£2,038m
 
(£993m)
£288m
£1,331m
Bank net interest margin (NatWest Group NIM
 
 
 
 
 
 
   excluding NWM) (1)
1.78%
2.04%
 
1.67%
1.89%
2.02%
Bank average interest earning assets (NatWest Group
 
 
 
 
 
 
   excluding NWM) (1)
£440bn
£407bn
 
£458bn
£422bn
£410bn
Cost:income ratio (1)
63.8%
57.2%
 
70.9%
57.7%
52.6%
Loan impairment rate (1)
159bps
21bps
 
229bps
90bps
30bps
Earnings per share
 
 
 
 
 
 
    - basic
(5.8p)
16.9p
 
(8.2p)
2.4p
11.0p
    - basic fully diluted
(5.8p)
16.8p
 
(8.2p)
2.4p
11.0p
Return on tangible equity (1)
(4.4%)
12.1%
 
(12.4%)
3.6%
15.8%
Average tangible equity
£32bn
£34bn
 
£32bn
£32bn
£34bn
Average number of ordinary shares
 
 
 
 
 
 
  outstanding during the period (millions)
 
 
 
 
 
 
    - basic
12,079
12,058
 
12,085
12,074
12,069
    - basic fully diluted (2)
12,101
12,096
 
12,107
12,100
12,104
 
 
 
 
 
 
 
 
 
 
 
30 June
31 March
31 December
Balance sheet related key metrics and ratios
 
 
 
2020
2020
2019
Total assets
 
 
 
£806.9bn
£817.6bn
£723.0bn
Funded assets (1)
 
 
 
£623.5bn
£608.9bn
£573.0bn
Loans to customers - amortised cost
 
 
 
£352.3bn
£351.3bn
£326.9bn
Impairment provisions
 
 
 
£6.1bn
£4.2bn
£3.7bn
Customer deposits
 
 
 
£408.3bn
£384.8bn
£369.2bn
 
 
 
 
 
 
 
Liquidity coverage ratio (LCR)
 
 
 
166%
152%
152%
Liquidity portfolio
 
 
 
£243bn
£201bn
£199bn
Net stable funding ratio (NSFR) (3)
 
 
 
144%
138%
141%
Loan:deposit ratio (1)
 
 
 
86%
91%
89%
Total wholesale funding
 
 
 
£86bn
£86bn
£75bn
Short-term wholesale funding
 
 
 
£22bn
£32bn
£19bn
 
 
 
 
 
 
 
Common equity tier (CET1) ratio (4)
 
 
 
17.2%
16.6%
16.2%
Total capital ratio
 
 
 
22.5%
21.4%
21.2%
Pro forma CET1 ratio, pre dividend accrual (5)
 
 
 
17.2%
16.6%
17.0%
Risk-weighted assets (RWAs)
 
 
 
£181.5bn
£185.2bn
£179.2bn
CRR leverage ratio
 
 
 
5.1%
5.1%
5.1%
UK leverage ratio
 
 
 
6.0%
5.8%
5.8%
 
 
 
 
 
 
 
Tangible net asset value (TNAV) per ordinary share
 
 
 
264p
273p
268p
Tangible net asset value (TNAV) per ordinary share - fully diluted (1,2)
 
 
263p
272p
267p
Tangible equity
 
 
 
£32,006m
£32,990m
£32,371m
Number of ordinary shares in issue (millions)
 
 
 
12,125
12,094
12,094
Number of ordinary shares in issue (millions) - fully diluted (2,6)
 
 
12,147
12,116
12,138
 
 
Notes:
(1)   Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS financial and performance measures where relevant.
(2)   Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for H1 2020 were 22 million shares and for Q2 2020 were 22 million shares; (Q1 2020 - 26 million shares, H1 2019 - 38 million shares; Q2 2019 - 35 million shares), and as at 30 June 2020 were 22 million shares (31 March 2020 - 22 million shares; 31 December 2019 - 44 million shares).
(3)   NSFR reported in line with CRR2 regulations finalised in June 2019.
(4)   Based on CRR end point including the IFRS 9 transitional adjustment of £1.6 billion. Excluding this adjustment, the CET 1 ratio would be 16.3%.
(5)   At June 2020 and March 2020 there was no charge in CET1 for foreseeable dividends or charges. The pro forma CET 1 ratio at 31 December 2019 excludes foreseeable charges of £968 million for ordinary dividends (3p per share final dividend and 5p per share special dividend) and £365 million pension contribution.
(6)   Includes 16 million shares held by the Employee Benefit Trust (31 March 2020 -18 million shares; 31 December 2019 - 15 million shares).
               
 
 
 
Summary consolidated income statement for the period ended 30 June 2020
 
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
Net interest income
3,852
4,004
 
1,910
1,942
1,971
 
 
 
 
 
 
 
Own credit adjustments
53
(46)
 
(102)
155
(3)
Strategic disposals
-
1,035
 
-
-
1,035
Other non-interest income
1,933
2,124
 
868
1,065
1,077
 
 
 
 
 
 
 
Non-interest income
1,986
3,113
 
766
1,220
2,109
 
 
 
 
 
 
 
Total income
5,838
7,117
 
2,676
3,162
4,080
 
 
 
 
 
 
 
Litigation and conduct costs
89
(60)
 
85
4
(55)
Strategic costs
(464)
(629)
 
(333)
(131)
(434)
Other expenses
(3,375)
(3,411)
 
(1,661)
(1,714)
(1,673)
 
 
 
 
 
 
 
Operating expenses
(3,750)
(4,100)
 
(1,909)
(1,841)
(2,162)
 
 
 
 
 
 
 
Profit before impairment losses
2,088
3,017
 
767
1,321
1,918
Impairment losses
(2,858)
(323)
 
(2,056)
(802)
(237)
 
 
 
 
 
 
 
Operating (loss)/profit before tax
(770)
2,694
 
(1,289)
519
1,681
Tax credit/(charge)
208
(194)
 
396
(188)
22
 
 
 
 
 
 
 
(Loss)/profit for the period
(562)
2,500
 
(893)
331
1,703
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
Ordinary shareholders
(705)
2,038
 
(993)
288
1,331
Preference shareholders
16
20
 
8
8
10
Paid-in equity shareholders
192
182
 
95
97
92
Non-controlling interests
(65)
260
 
(3)
(62)
270
 
 
 
 
 
 
 
Notable items within total income
 
 
 
 
 
 
Alawwal bank merger gain in NatWest Markets
-
444
 
-
-
444
FX recycling (loss)/gain in Central items & other
(103)
290
 
(39)
(64)
290
Legacy liability release in Central items & other
-
256
 
-
-
256
Liquidity Asset Bond sale gain
110
11
 
17
93
1
IFRS volatility in Central items & other
(11)
17
 
55
(66)
21
NatWest Markets asset disposals/strategic risk reduction (1)
(63)
(27)
 
(63)
-
(23)
 
Note:
(1)
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.
 
 
 
 
 
Income statement overview
H1 2020 compared with H1 2019
Income across the retail and commercial businesses decreased by 9.0% reflecting the contraction of the yield curve, mortgage margin dilution, lower business activity and lower consumer spending, resulting from government measures in response to Covid-19. Partially offsetting, we have seen strong gross new mortgage lending in UK Personal Banking with drawdowns against UK Government lending initiatives and increased utilisation of revolving credit facilities (RCFs) in Commercial Banking, whilst maintaining a disciplined approach to risk.
NatWest Markets income excluding asset disposals/strategic risk reduction, OCA and notable items increased by 44.4% reflecting increased customer activity as the market reacted to the spread of the Covid-19 virus, partially offset by the impact of credit market write-downs.
Litigation and conduct costs included a £250 million PPI release reflecting lower than predicted valid complaints volumes, partially offset by other charges.
Strategic costs of £464 million in H1 2020 included an £83 million charge related to technology spend, £155 million related to property charges and a £120 million direct charge in NatWest Markets primarily related to restructuring activity.
Other expenses, excluding OLD, decreased by £41 million, or 1.2%, and headcount reduced by c.3,900, or 5.9%. We have maintained a focus on driving underlying cost reductions and efficiencies across the business through the continued shift from physical to digital, process improvements and property savings.
The net impairment loss of £2,858 million, 159 basis points of gross customer loans, reflected the deterioration of the economic outlook. As a result the ECL coverage ratio across the Personal and Wholesale portfolios increased from 1.02% to 1.72%.
 
 
Q2 2020 compared with Q1 2020
Income across the retail and commercial businesses decreased by £176 million reflecting the contraction of the yield curve, reduced business activity and lower consumer spending, resulting from government measures in response to Covid-19. Partially offsetting, we have seen strong balance growth in Commercial Banking, largely relating to drawdowns against UK Government lending initiatives.
NatWest Markets income excluding asset disposals/strategic risk reduction and OCA increased by £50 million. Income from Financing increased as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased.
Strategic costs of £333 million in Q2 2020 included a £44 million charge related to technology spend, £148 million related to property charges and an £86 million direct charge in NatWest Markets primarily related to restructuring activity.
Other expenses, excluding OLD, decreased by £54 million reflecting reduced investment spend and other cost saving initiatives. Headcount decreased by c.500.
The net impairment loss of £2,056 million, 229 basis points of gross customer loans, reflected the deterioration of the economic outlook. As a result the ECL coverage ratio across the Personal and Wholesale portfolios increased from 1.18% to 1.72%.
 
 
Q2 2020 compared with Q2 2019
Income across the retail and commercial businesses decreased by 11.4% whilst NatWest Markets income excluding asset disposals/strategic risk reduction, OCA and notable items increased by 62.2%.
Other expenses, excluding OLD, decreased by £15 million, or 0.9%.
 
 
 
 
 
 
 
Business performance summary
UK Personal Banking
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
 
£m
£m
 
£m
£m
£m
Total income
2,185
2,447
 
1,035
1,150
1,202
Operating expenses
(1,075)
(1,229)
 
(546)
(529)
(594)
Impairment losses
(657)
(181)
 
(360)
(297)
(69)
Operating profit
453
1,037
 
129
324
539
Return on equity
10.7%
25.6%
 
5.7%
15.5%
26.5%
Net interest margin
2.23%
2.57%
 
2.18%
2.28%
2.51%
Cost:income ratio
49.2%
50.2%
 
52.8%
46.0%
49.4%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2020
2020
2019
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost)
 
 
 
164.5
163.7
158.9
Customer deposits
 
 
 
161.0
152.8
150.3
RWAs
 
 
 
36.7
38.2
37.8
Loan impairment rate
 
 
 
87bps
72bps
20bps
 
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 H1 2019 operating profit would have been to decrease total income by £22 million and operating expenses by £4 million. The net impact on the H1 2019 balance sheet would have been to decrease customer deposits by £0.3 billion. The net impact on Q2 2019 operating profit would have been to decrease total income by £11 million and operating expenses by £2 million. The net impact on the Q4 2019 balance sheet would have been to decrease customer deposits by £0.2 billion.
 
 
UK Personal Banking continues to support customers whose income has been impacted by Covid-19. We had 240,000 mortgage customers request an initial three month mortgage repayment holiday, representing 20% of the book by volume. To support mortgage customers who continue to be impacted, we are offering a range of options from a full payment holiday to part payments for a further three months; of those who have rolled off their initial repayment holiday, and who have reviewed their options and taken action, approximately one third have requested a further extension. Additionally, we offered the option of three month payment deferrals on loans, with 72,000, or 7%, of loan customers taking up the offer.
 
 
H1 2020 compared with H1 2019
Total income decreased by £262 million, or 10.7%, due to lower deposit hedge income, mortgage margin dilution and lower fee income on overdrafts, partially offset by strong balance growth.
Excluding strategic, litigation and conduct costs, operating expenses increased by £17 million, or 1.5%, due to one-off releases in Q2 2019 partially offset by a reduction in staff costs associated with a 9.3% reduction in headcount.
Litigation and conduct costs include a £250 million PPI release reflecting lower than predicted valid complaints volumes.
Impairment losses of £657 million increased by £476 million primarily reflecting stage two charges linked to a forecast rise in unemployment and decline in HPI under a deteriorating economic outlook.
Net loans to customers increased by £12.6 billion, or 8.3%, as a result of strong gross new mortgage lending and lower redemptions. Gross new mortgage lending was £16.5 billion with market flow share of approximately 14%, supporting a stock share of approximately 10.5%. Personal advances and cards reduced by £0.2 billion and £0.3 billion respectively, reflecting lower spend and higher repayments as a result of Covid-19.
Customer deposits increased by £13.5 billion, or 9.2%, with stronger than normal growth as government backed initiatives for Covid-19, combined with lockdown restrictions, resulted in lower customer spend and increased savings.
RWAs remained broadly stable as mortgage lending growth was largely offset by lower unsecured balances, with no pro-cyclicality evident to date.
Q2 2020 compared with Q1 2020
Total income decreased by £115 million due to lower overdraft fees, Covid-19 support measures, significantly reduced card spend, which resulted in lower fees and lower unsecured balances, and the non-repeat of the annual insurance profit share. Net interest margin decreased by 10 basis points reflecting lower personal advances and cards balances and continued structural pressure in the mortgage business, as blended front book margins of around 124 basis points remain lower than the back book margin of approximately 138 basis points, partially offset by lower customer deposit rates payable. In the latter part of June 2020 blended front book application margins were around 130 basis points as spreads in the market continued to widen.
Impairment losses of £360 million increased by £63 million, primarily reflecting stage two charges linked to a forecast rise in unemployment and decline in HPI under a deteriorating economic outlook.
Net loans to customers increased by £0.8 billion due to mortgage growth of £1.9 billion, with lower consumer demand and increased repayments impacting unsecured. Personal advances and cards reduced by £0.4 billion respectively, as customers spent less and made repayments.
Customer deposits increased by £8.2 billion as customer spend reduced and savings increased as a result of Covid-19.
Q2 2020 compared with Q2 2019
Total income decreased by £167 million, or 13.9%, primarily reflecting lower overdraft fees, lower deposit hedge income and mortgage margin dilution.
 
 
Business performance summary
Ulster Bank RoI
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
 
€m
€m
 
€m
€m
€m
Total income
285
324
 
135
150
158
Operating expenses
(283)
(322)
 
(140)
(143)
(166)
Impairment losses/releases
(278)
24
 
(246)
(32)
11
Operating (loss)/profit
(276)
26
 
(251)
(25)
3
Return on equity
(24.2%)
2.1%
 
(44.5%)
(4.2%)
0.6%
Net interest margin
1.52%
1.63%
 
1.48%
1.56%
1.62%
Cost:income ratio
98.4%
99.3%
 
101.7%
95.3%
105.1%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2020
2020
2019
 
 
 
 
€bn
€bn
€bn
Net loans to customers (amortised cost)
 
 
 
20.5
21.2
21.4
Customer deposits
 
 
 
22.0
21.9
21.7
RWAs
 
 
 
14.1
14.4
15.3
Loan impairment rate
 
 
 
460bps
58bps
9bps
 
Ulster Bank RoI continues to support all customers, including those who have been impacted by Covid-19. We have launched our digital Home Buying Platform, supporting customers to complete a mortgage application online, temporarily reduced our overdraft charges and we continue to support our vulnerable and elderly customers through our Companion card, dedicated helpline, priority banking hours and proactive outbound care calls. We have also provided mortgage payment breaks for approximately 12,000 customers, with over 4,000 extensions approved as at 30 June 2020. In our commercial business, we have provided payment breaks for approximately 3,000 customers and we continue to work closely with the Irish Government in providing customers with assistance through existing support schemes and the Credit Guarantee Scheme launched in July 2020.
 
H1 2020 compared with H1 2019
Total income decreased by €39 million, or 12.0%, reflecting lower business activity resulting from the impact of Covid-19 on our customers and our business, the non-repeat of €11 million income relating to the restructure of interest rate swaps on free funds, and interest rate and foreign exchange movements.
Excluding strategic, litigation and conduct costs, operating expenses decreased by €6 million, or 2.2%, reflecting a 9.7% headcount reduction, including the scale down of our services and other functional teams, and lower project costs, which in H1 2019 included costs related to the improvement of the Ulster Bank RoI risk management framework.
Impairment losses of €278 million increased by €302 million due to the impact across all portfolios from the deterioration in the economic outlook caused by Covid-19.
Net loans to customers decreased by €0.7 billion, or 3.3%, which included the net de-recognition of €0.2 billion of non-performing loans (NPL) from a sale agreed in Q4 2019, and an increase in loan provisions against the remaining loans. Gross new lending of €1.1 billion was 29.0% lower, with Q2 2020 impacted by lower demand primarily related to Covid-19 factors.
Customer deposits increased by €0.7 billion, or 3.3%, supporting a reduction in the loan:deposit ratio to 93% from 100%.
RWAs decreased by €1.7 billion, or 10.8%, largely due to model recalibrations and the de-recognition of NPLs in H1 2020.
 
Q2 2020 compared with Q1 2020
Total income decreased by €15 million mainly due to lower personal and commercial fees. Net interest margin decreased by 8 basis points reflecting the impact of negative rates on increased liquid assets.
Excluding strategic, litigation and conduct costs, operating expenses were €3 million lower due to reduced marketing and administration costs and foreign exchange movements.
Impairment losses increased by €214 million due to the deterioration in the economic outlook.
Net loans to customers decreased by €0.7 billion due to an increase in provisions together with loan repayments outweighing gross new lending, which was adversely impacted by lower demand largely as a result of Covid-19. Gross new lending was €0.4 billion, €0.3 billion lower than Q1 2020.
RWAs decreased by €0.3 billion due to model recalibrations and the impact of the NPL sale.
 
Q2 2020 compared with Q2 2019
Total income decreased by €23 million reflecting the impact of Covid-19, particularly on fee income due to lower transaction levels and implementation of waivers on both personal and commercial products.
 
 
Business performance summary
Commercial Banking
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
 
£m
£m
 
£m
£m
£m
Total income
2,003
2,165
 
995
1,008
1,083
Operating expenses
(1,221)
(1,262)
 
(611)
(610)
(622)
Impairment losses
(1,790)
(202)
 
(1,355)
(435)
(197)
Operating (loss)/profit
(1,008)
701
 
(971)
(37)
264
Return on equity
(17.9%)
8.8%
 
(32.5%)
(2.5%)
6.2%
Net interest margin
1.76%
1.98%
 
1.70%
1.83%
1.97%
Cost:income ratio
59.5%
56.9%
 
59.9%
59.1%
56.1%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2020
2020
2019
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost)
 
 
 
112.0
109.2
101.2
Customer deposits
 
 
 
159.6
143.9
135.0
RWAs
 
 
 
78.3
76.9
72.5
Loan impairment rate
 
 
 
472bps
157bps
32bps
 
Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government's financial support schemes. As at H1 2020, £6.1 billion BBLS loans, £3.2 billion of CBILS loans and £0.7 billion of CLBILS loans had been approved and payment holidays, for up to twelve months, provided on c.71,000 customer accounts, representing c.12% of the lending book by value.
 
H1 2020 compared with H1 2019
Total income decreased by £162 million, or 7.5%, reflecting £108 million lower non interest income due to reduced business activity and £54 million lower net interest income as a result of the contraction of the yield curve, partially offset by balance sheet growth.
Excluding strategic, litigation and conduct costs, operating expenses increased by £41 million, or 3.7%, reflecting a number of one-off releases in Q2 2019, higher innovation spend and a £5 million increase in OLD, partially offset by a 1.9% reduction in headcount following operating model efficiencies in H2 2019 and lower non staff costs.
Impairment losses of £1,790 million primarily from stage one and two charges reflecting the deterioration in the economic outlook, with total stage three charges of £236 million, including a small number of single name charges.
Net loans to customers increased by £10.6 billion, or 10.5%, with a £10.8 billion increase in H1 2020 reflecting drawdowns against UK Government lending schemes and £4.1 billion increased RCF utilisation.
Customer deposits increased by £26.2 billion, or 19.6%, principally due to a £24.6 billion increase in H1 2020 as customers sought to retain liquidity in light of Covid-19 uncertainty.
RWAs increased by £0.5 billion, or 0.6%, due to increased lending volumes and risk parameter changes, partially offset by a £4.5 billion reduction related to model improvements and active capital management, with limited procyclicality evident to date
 
Q2 2020 compared with Q1 2020
Total income decreased by £13 million as lower deposit funding benefits and reduced business activity offset balance sheet growth. Net interest margin decreased by 13 basis points mainly reflecting lower deposit funding benefits and higher liquidity portfolio costs.
Excluding strategic, litigation and conduct costs, operating expenses remained broadly stable as higher back office operations costs and a £1 million increase in OLD were partially offset by lower non-staff costs.
Impairment losses of £1,355 million primarily from stage one and two charges reflecting the deterioration in the economic outlook, with total stage three charges of £169 million, including a small number of single name charges.
Net loans to customers increased by £2.8 billion reflecting drawdowns against UK Government lending schemes, including £5.8 billion related to BBLS, £2.3 billion related to CBILS and £0.2 billion related to CLBILS, partially offset by £2.3 billion net RCF repayments, lower specialised business lending and increased loan provisions. RCF utilisation decreased to c.32% of committed facilities following increased drawdowns in March and April 2020, but remained above pre-Covid-19 levels.
Customer deposits increased by £15.7 billion as customers sought to retain liquidity in light of Covid-19 uncertainty, including the retention of UK Government lending scheme drawdowns.
RWAs increased by £1.4 billion due to increased lending volumes, risk parameter changes and business transfers of £0.4 billion from NatWest Markets.
 
Q2 2020 compared with Q2 2019
Total income decreased by £88 million, or 8.1%, reflecting reduced business activity and the contraction of the yield curve, partially offset by balance sheet growth and an £8 million fair value and disposal gain in Q2 2020, compared with a £15 million loss in Q2 2019.
Excluding strategic, litigation and conduct costs, operating expenses increased by £47 million, or 9.0%, reflecting a number of one-off releases in Q2 2019, higher innovation spend and £3 million higher OLD, partially offset by a 1.9% reduction in headcount following operating model efficiencies in H2 2019 and lower non-staff costs.
 
 
Business performance summary
Private Banking (commentary adjusted for transfers)
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
 
£m
£m
 
£m
£m
£m
Total income
392
384
 
191
201
191
Operating expenses
(252)
(232)
 
(129)
(123)
(115)
Impairment (losses)/releases
(56)
3
 
(27)
(29)
(1)
Operating profit
84
155
 
35
49
75
Return on equity
8.2%
16.6%
 
6.6%
9.8%
15.9%
Net interest margin
2.20%
2.48%
 
2.14%
2.25%
2.44%
Cost:income ratio
64.3%
60.4%
 
67.5%
61.2%
60.2%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2020
2020
2019
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost)
 
 
 
16.0
15.8
15.5
Customer deposits
 
 
 
29.8
29.0
28.4
RWAs
 
 
 
10.4
10.3
10.1
Assets Under Management (AUMs)
 
 
 
27.1
24.3
23.2
Assets Under Administration (AUAs) (1)
 
 
 
2.7
2.4
7.2
Total Assets Under Management and Administration (AUMA)
 
 
 
29.8
26.7
30.4
Loan impairment rate
 
 
 
67bps
73bps
(3)bps
 
Notes:
(1)    Private Banking manages assets under management portfolios on behalf of UK Personal Banking and RBSI and receives a management fee in respect of providing this service.
(2)    Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on H1 2019 operating profit would have been to increase total income by £22 million and operating expenses by £4 million. The net impact on the H1 2019 balance sheet would have been to increase AUMs by £4.5 billion and customer deposits by £0.3 billion. The net impact on Q2 2019 operating profit would have been to increase total income by £11 million and operating expenses by £2 million. The net impact on the Q4 2019 balance sheet would have been to increase AUMs by £4.6 billion and customer deposits by £0.2 billion. Variances in the commentary below have been adjusted for the impact of this transfer.
 
Private Banking remains committed to supporting clients through a range of initiatives during this period of significant uncertainty, including the provision of mortgage and loan repayment breaks and via participation in the UK Government's CBILS financial support scheme, with £146 million approved as at H1 2020.
 
H1 2020 compared with H1 2019
Total income decreased by £14 million, or 3.4%, primarily reflecting £11 million lower net interest income due to lower deposit income and asset margin compression, partially offset by balance sheet growth.
Excluding strategic, litigation and conduct costs, operating expenses increased by £24 million, or 11.1%, reflecting higher investment spend and a number of one-off items.
Impairment losses of £56 million, mainly reflected stage one and two charges linked to the deterioration of the economic outlook.
Net loans to customers increased by £1.3 billion, or 8.8%, reflecting mortgage lending and other loans growth. RWAs increased by £0.7 billion, or 7.2%, primarily reflecting increased lending volumes.
Customer deposits increased by £1.5 billion, or 5.3%, principally due to a £1.2 billion increase in H1 2020 reflecting an increase in instant access savings and current accounts.
Total AUMAs overseen by Private Banking increased by £0.9 billion, or 3.1%, reflecting net new business inflows of £1.2 billion partially offset by adverse market movements of £0.3 billion.
 
Q2 2020 compared with Q1 2020
Total income decreased by £10 million, primarily reflecting asset margin compression and a reduction in fee income, partially offset by balance sheet growth. Net interest margin decreased by 11 basis points mainly due to asset margin compression, lower deposit income and higher liquidity portfolio costs.
Excluding strategic, litigation and conduct costs, operating expenses increased by £5 million reflecting higher investment spend and a number of one-off items.
Impairment losses of £27 million, mainly reflected stage one and two charges linked to the deterioration of the economic outlook, partially offset by a single name release.
Customer deposits increased by £0.8 billion reflecting an increase in instant access savings and current accounts.
Total AUMAs overseen by Private Banking increased by £3.1 billion, reflecting positive investment performance of £2.9 billion and net new business inflows of £0.2 billion.
 
Q2 2020 compared with Q2 2019
Total income decreased by £11 million, or 5.4%, primarily reflecting lower deposit income, asset margin compression and a reduction in fee income, partially offset by balance sheet growth.
Excluding strategic, litigation and conduct costs, operating expenses increased by £18 million, or 17.1%, primarily reflecting higher investment spend and a number of one-off items.
 
 
Business performance summary
RBS International
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
 
£m
£m
 
£m
£m
£m
Total income
259
310
 
115
144
159
Operating expenses
(126)
(119)
 
(65)
(61)
(60)
Impairment (losses)/releases
(46)
3
 
(31)
(15)
2
Operating profit
87
194
 
19
68
101
Return on equity
11.8%
29.7%
 
4.3%
19.4%
30.8%
Net interest margin
1.30%
1.69%
 
1.15%
1.45%
1.68%
Cost:income ratio
48.6%
38.4%
 
56.5%
42.4%
37.7%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2020
2020
2019
 
 
 
 
£bn
£bn
£bn
Net loans to customers (amortised cost)
 
 
 
12.7
13.6
14.1
Customer deposits
 
 
 
29.5
32.3
30.1
RWAs
 
 
 
6.8
6.8
6.5
Loan impairment rate
 
 
 
97bps
44bps
14bps
 
During H1 2020, RBS International supported 1,282 personal customers with mortgage repayment breaks, reflecting a mortgage value of £275 million, and 418 business customers with working capital facilities, reflecting a value of £452 million, while continuing to suspend a range of fees and charges for its personal and business customers.
 
H1 2020 compared with H1 2019
Total income decreased by £51 million, or 16.5%, primarily due to the impact of interest rate reductions on deposit income as well as £2 million lower payments income with the waiving of personal and commercial banking fees in Q2 2020 to support customers during Covid-19. 
Excluding strategic, litigation and conduct costs, operating expenses increased by £12 million, or 11.0%, mainly due to £6 million higher investment spend to enhance the digital proposition, £2 million Covid-19 incident costs and £3 million higher technology costs.
Impairment losses of £46 million included £25 million stage one and stage two charges reflecting the deterioration in the economic outlook and a £19 million charge related to a single client.
Net loans to customers decreased by £0.9 billion, or 6.6%, as Institutional Banking customers repaid facilities to position themselves in the uncertain environment.
Customer deposits increased by £1.4 billion, or 5.0%, as Institutional Banking customers sought to build liquidity in response to Covid-19 uncertainty.
 
Q2 2020 compared with Q1 2020
Total income decreased £29 million primarily due to £23 million lower deposit income resulting from the full quarter impact of the central bank rate reductions and £4 million lower lending income. Net interest margin decreased by 30 basis points due to lower deposit funding benefits as a result of interest rate changes by central banks.
Impairment losses of £31 million included £17 million stage one and two charges reflecting the deterioration in the economic outlook and a £13 million charge related to a single client.
Net loans to customers decreased by £0.9 billion as Institutional Banking customers responded to the uncertain economic outlook by repaying facilities.
Customer deposits decreased £2.8 billion due to lower call balances in the Institutional Banking sector as significant Q1 2020 inflows were used to fund loan repayments. Deposits in Local Banking increased by £0.4 billion, most notably in Local Corporate and Everyday Banking.
 
Q2 2020 compared with Q2 2019
Total income decreased by £44 million, or 27.7%, due to lower deposit funding benefits, and lower fee income reflecting the economic response to Covid-19 with central bank rate reductions and fee waivers.
Excluding strategic, litigation and conduct costs, operating expenses increased by £7 million, or 13.0%, reflecting higher investment spend and Covid-19 incident costs.
 
 
 
 
Business performance summary
NatWest Markets(1)
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
 
£m
£m
 
£m
£m
£m
Total income
816
942
 
273
543
686
of which:
 
 
 
 
 
 
   - Income excluding asset disposals/strategic risk
 
 
 
 
 
 
      reduction and own credit adjustments
826
989
 
438
388
691
   - Asset disposals/strategic risk reduction (2)
(63)
-
 
(63)
-
-
   - Own credit adjustments
53
(47)
 
(102)
155
(5)
Operating expenses
(707)
(678)
 
(365)
(342)
(344)
Impairment (losses)/releases
(40)
36
 
(45)
5
20
Operating profit/(loss)
69
300
 
(137)
206
362
Return on equity
0.8%
1.0%
 
(7.1%)
8.7%
4.4%
Cost:income ratio
86.6%
72.0%
 
133.7%
63.0%
50.1%
 
 
 
 
 
 
 
 
 
 
 
As at
 
 
 
 
30 June
31 March
31 December
 
 
 
 
2020
2020
2019
 
 
 
 
£bn
£bn
£bn
Funded Assets
 
 
 
122.9
129.6
116.2
RWAs
 
 
 
35.1
38.9
37.9
 
Notes:
(1)   The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). For 2019, NWM Group includes NatWest Markets N.V. (NWM N.V.) from 29 November 2019 only. For periods prior to Q4 2019, NWM N.V. was excluded from the NWM Group. In both 2019 and 2020 the NatWest Markets segment excludes the Central items & other segment.
(2)   Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020.
Progress on strategic change
NatWest Markets continues to progress its strategy to refocus towards NatWest Group's corporate and institutional customers and reduce RWAs. During H1 2020, further refinements have been made to simplify the customer product suite, including exiting the Custom Index Trading business and the reduction of the third party market making offering in flow asset backed securities (ABS), residential mortgage backed securities (RMBS) and collateralised loan obligations (CLO). Additionally, NatWest Markets selected BNP Paribas as a strategic partner for the provision of execution and clearing of listed derivatives, following the decision to no longer offer these services for certain exchange traded derivatives, as announced in Q1 2020.
NatWest Markets continues to identify efficiency improvements. During Q2 2020 changes were made to the regional operating models in the US and APAC and actions were taken to drive closer alignment with NatWest Group, such as leveraging NatWest Group Technology infrastructure.
NatWest Markets has also actively identified and progressed RWA reduction, with a number of asset exits completed during Q2 2020. NatWest Markets continues to target an RWA reduction to £32 billion at the end of 2020.
 
H1 2020 compared with H1 2019
Total income decreased by £126 million, or 13.4%, reflecting a £444 million gain from the merger of Alawwal bank with Saudi British Bank (SABB) in H1 2019, partially offset by heightened customer activity and OCA movements. An OCA credit of £53 million compared with a £47 million charge in H1 2019 reflected the significant widening of credit spreads.
Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £254 million, or 44.4%, reflecting increased customer activity as the market reacted to the spread of the Covid-19 virus, resulting in higher levels of primary issuance from governments and increased secondary market activity in both the Rates and Currencies businesses, partially offset by the impact of credit market write-downs.
Excluding strategic, litigation and conduct costs, operating expenses decreased by £31 million, or 5.2%, primarily reflecting lower back office operational costs and initial reductions following the strategic announcement in February 2020.
RWAs decreased by £6.3 billion, or 15.2%, reflecting lower levels of counterparty and market risk which, despite recent turbulence, have trended downwards as the business seeks to reduce its RWAs.
 
Q2 2020 compared with Q1 2020
Income excluding asset disposals/strategic risk reduction and OCA increased by £50 million. Income from Financing increased as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased. Asset disposal/strategic risk reduction losses of £63 million included a £40 million loss related to a single significant transaction.
Excluding strategic, litigation and conduct costs, operating expenses decreased by £27 million reflecting initial reductions following the strategic announcement in February 2020.
RWAs decreased by £3.8 billion as the business works towards its full year RWA target. Counterparty credit risk decreased by £1.5 billion reflecting the exit of specific positions and market risk decreased by £1.5 billion, as markets normalised. A reduction in credit risk of £0.8 billion included £0.4 billion of business transfers to Commercial Banking.
Q2 2020 compared with Q2 2019
Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by £168 million, or 62.2%, reflecting heightened levels of customer activity in Q2 2020, as markets reacted to the Covid-19 pandemic.
 
Business performance summary
Central items & other
 
Half year ended
 
Quarter ended
 
30 June
30 June
 
30 June
31 March
30 June
 
2020
2019
 
2020
2020
2019
 
£m
£m
 
£m
£m
£m
Central items not allocated
(216)
284
 
(146)
(70)
337
 
Central items not allocated represented a £216 million operating loss in H1 2020 principally due to property related strategic costs, litigation and conduct charges and other treasury income. This compares with a £284 million gain in H1 2019 which primarily reflected FX recycling gains of £290 million and a legacy liability release of £256 million, both relating to the Alawwal bank merger.
 
 
 
Segment performance
 
 
Half year ended 30 June 2020
 
 
 
 
 
 
 
Central
Total
 
 
UK Personal
Ulster
 
Commercial
Private
RBS
 
NatWest
 items &
NatWest
 
 
Banking
Bank RoI
 
Banking
Banking
International
 
Markets
other (1)
Group
 
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
 
 
Net interest income
1,982
194
 
1,370
251
201
 
(34)
(112)
3,852
Other non-interest income
203
55
 
633
141
58
 
797
46
1,933
Own credit adjustments
-
-
 
-
-
-
 
53
-
53
Total income
2,185
249
 
2,003
392
259
 
816
(66)
5,838
Direct expenses
- staff costs
(280)
(100)
 
(360)
(93)
(65)
 
(326)
(572)
(1,796)
 
- other costs
(104)
(42)
 
(149)
(47)
(27)
 
(94)
(1,116)
(1,579)
Indirect expenses
(785)
(92)
 
(630)
(101)
(29)
 
(149)
1,786
-
Strategic costs
- direct
(1)
(4)
 
(5)
-
(3)
 
(120)
(331)
(464)
 
- indirect
(103)
(8)
 
(70)
(10)
(5)
 
(16)
212
-
Litigation and conduct costs
198
1
 
(7)
(1)
3
 
(2)
(103)
89
Operating expenses
(1,075)
(245)
 
(1,221)
(252)
(126)
 
(707)
(124)
(3,750)
Operating profit/(loss) before impairment losses
1,110
4
 
782
140
133
 
109
(190)
2,088
Impairment losses
(657)
(243)
 
(1,790)
(56)
(46)
 
(40)
(26)
(2,858)
Operating profit/(loss)
453
(239)
 
(1,008)
84
87
 
69
(216)
(770)
Additional information
 
 
 
 
 
 
 
 
 
 
Return on equity (2)
10.7%
(24.2%)
 
(17.9%)
8.2%
11.8%
 
0.8%
nm
(4.4%)
Cost:income ratio (2)
49.2%
98.4%
 
59.5%
64.3%
48.6%
 
86.6%
nm
63.8%
Total assets (£bn)
187.1
27.6
 
186.0
23.9
31.5
 
303.8
47.0
806.9
Funded assets (£bn)
187.1
27.6
 
186.0
23.9
31.5
 
122.9
44.5
623.5
Net loans to customers - amortised cost (£bn)
164.5
18.7
 
112.0
16.0
12.7
 
11.4
17.0
352.3
Loan impairment rate (2)
79bps
248bps
 
311bps
70bps
72bps
 
nm
nm
159bps
Impairment provisions (£bn)
(1.9)
(0.9)
 
(3.0)
(0.1)
-
 
(0.2)
-
(6.1)
Impairment provisions - Stage 3 (£bn)
(0.9)
(0.6)
 
(1.2)
-
-
 
(0.1)
-
(2.8)
Customer deposits (£bn)
161.0
20.0
 
159.6
29.8
29.5
 
5.5
2.9
408.3
Risk-weighted assets (RWAs) (£bn)
36.7
12.8
 
78.3
10.4
6.8
 
35.1
1.4
181.5
RWA equivalent (RWAe) (£bn)
36.7
12.8
 
78.4
10.4
6.9
 
37.2
1.5
183.9
Employee numbers (FTEs - thousands)
17.5
2.8
 
10.2
2.0
1.8
 
5.0
23.4
62.7
Average interest earning assets (£bn)
178.6
25.7
 
156.5
23.0
31.2
 
38.0
nm
477.9
Net interest margin
2.23%
1.52%
 
1.76%
2.20%
1.30%
 
(0.18%)
nm
1.62%
Third party customer asset rate (3)
2.96%
2.27%
 
2.86%
2.65%
2.65%
 
nm
nm
nm
Third party customer funding rate (3)
(0.28%)
(0.12%)
 
(0.37%)
(0.25%)
(0.06%)
 
nm
nm
nm
 
For the notes to this table, refer to page 18.
 
 
Segment performance
 
 
Half year ended 30 June 2019
 
 
 
 
 
 
 
Central
Total
 
 
UK Personal
Ulster
 
Commercial
Private
RBS
 
NatWest
 items &
NatWest
 
 
Banking
Bank RoI
 
Banking
Banking
International
 
Markets
other (1)
Group
 
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
 
 
Net interest income
2,084
200
 
1,424
261
242
 
(122)
(85)
4,004
Other non-interest income
363
82
 
741
123
68
 
667
80
2,124
Own credit adjustments
-
1
 
-
-
-
 
(47)
-
(46)
Strategic disposals
-
-
 
-
-
-
 
444
591
1,035
Total income
2,447
283
 
2,165
384
310
 
942
586
7,117
Direct expenses
- staff costs
(300)
(104)
 
(356)
(82)
(59)
 
(349)
(591)
(1,841)
 
- other costs
(136)
(48)
 
(155)
(35)
(23)
 
(86)
(1,087)
(1,570)
Indirect expenses
(716)
(90)
 
(587)
(96)
(27)
 
(165)
1,681
-
Strategic costs
- direct
4
(9)
 
(32)
-
(5)
 
(49)
(538)
(629)
 
- indirect
(75)
(10)
 
(86)
(17)
(5)
 
(30)
223
-
Litigation and conduct costs
(6)
(20)
 
(46)
(2)
-
 
1
13
(60)
Operating expenses
(1,229)
(281)
 
(1,262)
(232)
(119)
 
(678)
(299)
(4,100)
Operating profit before impairment (losses)/releases
1,218
2
 
903
152
191
 
264
287
3,017
Impairment (losses)/releases
(181)
21
 
(202)
3
3
 
36
(3)
(323)
Operating profit
1,037
23
 
701
155
194
 
300
284
2,694
Additional information
 
 
 
 
 
 
 
 
 
 
Return on equity (2)
25.6%
2.1%
 
8.8%
16.6%
29.7%
 
1.0%
nm
12.1%
Cost:income ratio (2)
50.2%
99.3%
 
56.9%
60.4%
38.4%
 
72.0%
nm
57.2%
Total assets (£bn)
173.9
26.4
 
165.6
21.9
30.4
 
278.9
32.8
729.9
Funded assets (£bn)
173.9
26.4
 
165.6
21.9
30.4
 
133.4
32.7
584.3
Net loans to customers - amortised cost (£bn)
151.9
19.0
 
101.4
14.7
13.6
 
9.3
0.7
310.6
Loan impairment rate (2)
24bps
(21)bps
 
39bps
(4)bps
(4)bps
 
nm
nm
21bps
Impairment provisions (£bn)
(1.3)
(0.9)
 
(1.3)
-
-
 
(0.2)
-
(3.7)
Impairment provisions - Stage 3 (£bn)
(0.8)
(0.8)
 
(1.0)
-
-
 
(0.2)
-
(2.8)
Customer deposits (£bn)
147.5
19.0
 
133.4
28.0
28.1
 
2.8
2.8
361.6
Risk-weighted assets (RWAs) (£bn)
37.0
14.2
 
77.8
9.7
6.9
 
41.4
1.5
188.5
RWA equivalent (RWAe) (£bn)
38.1
14.5
 
79.3
9.7
7.0
 
46.1
1.8
196.5
Employee numbers (FTEs - thousands)
19.3
3.1
 
10.4
1.9
1.8
 
5.0
25.1
66.6
Average interest earning assets (£bn)
163.8
24.7
 
145.3
21.2
28.8
 
33.3
nm
440.3
Net interest margin
2.57%
1.63%
 
1.98%
2.48%
1.69%
 
(0.73%)
nm
1.83%
Third party customer asset rate (3)
3.28%
2.30%
 
3.20%
2.95%
1.75%
 
nm
nm
nm
Third party customer funding rate (3)
(0.37%)
(0.17%)
 
(0.43%)
(0.44%)
(0.14%)
 
nm
nm
nm
 
For the notes to this table, refer to page 18.
 
 
 
 
Segment performance
 
 
Quarter ended 30 June 2020
 
 
 
 
 
 
 
Central
Total
 
 
UK Personal
Ulster
 
Commercial
Private
RBS
 
NatWest
 items &
NatWest
 
 
Banking
Bank RoI
 
Banking
Banking
International
 
Markets
other (1)
Group
 
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
 
 
Net interest income
975
97
 
696
124
90
 
6
(78)
1,910
Other non-interest income
60
23
 
299
67
25
 
369
25
868
Own credit adjustments
-
-
 
-
-
-
 
(102)
-
(102)
Total income
1,035
120
 
995
191
115
 
273
(53)
2,676
Direct expenses
- staff costs
(139)
(52)
 
(176)
(46)
(33)
 
(159)
(272)
(877)
 
- other costs
(45)
(18)
 
(71)
(23)
(13)
 
(37)
(577)
(784)
Indirect expenses
(393)
(46)
 
(324)
(54)
(15)
 
(75)
907
-
Strategic costs
- direct
(1)
(3)
 
-
-
(2)
 
(86)
(241)
(333)
 
- indirect
(69)
(4)
 
(34)
(5)
(2)
 
(8)
122
-
Litigation and conduct costs
101
1
 
(6)
(1)
-
 
-
(10)
85
Operating expenses
(546)
(122)
 
(611)
(129)
(65)
 
(365)
(71)
(1,909)
Operating profit/(loss) before impairment losses
489
(2)
 
384
62
50
 
(92)
(124)
767
Impairment losses
(360)
(216)
 
(1,355)
(27)
(31)
 
(45)
(22)
(2,056)
Operating profit/(loss)
129
(218)
 
(971)
35
19
 
(137)
(146)
(1,289)
Additional information
 
 
 
 
 
 
 
 
 
 
Return on equity (2)
5.7%
(44.5%)
 
(32.5%)
6.6%
4.3%
 
(7.1%)
nm
(12.4%)
Cost:income ratio (2)
52.8%
101.7%
 
59.9%
67.5%
56.5%
 
133.7%
nm
70.9%
Total assets (£bn)
187.1
27.6
 
186.0
23.9
31.5
 
303.8
47.0
806.9
Funded assets (£bn)
187.1
27.6
 
186.0
23.9
31.5
 
122.9
44.5
623.5
Net loans to customers - amortised cost (£bn)
164.5
18.7
 
112.0
16.0
12.7
 
11.4
17.0
352.3
Loan impairment rate (2)
87bps
441bps
 
472bps
67bps
97bps
 
nm
nm
229bps
Impairment provisions (£bn)
(1.9)
(0.9)
 
(3.0)
(0.1)
-
 
(0.2)
-
(6.1)
Impairment provisions - Stage 3 (£bn)
(0.9)
(0.6)
 
(1.2)
-
-
 
(0.1)
-
(2.8)
Customer deposits (£bn)
161.0
20.0
 
159.6
29.8
29.5
 
5.5
2.9
408.3
Risk-weighted assets (RWAs) (£bn)
36.7
12.8
 
78.3
10.4
6.8
 
35.1
1.4
181.5
RWA equivalent (RWAe) (£bn)
36.7
12.8
 
78.4
10.4
6.9
 
37.2
1.5
183.9
Employee numbers (FTEs - thousands)
17.5
2.8
 
10.2
2.0
1.8
 
5.0
23.4
62.7
Average interest earning assets (£bn)
179.8
26.4
 
164.6
23.3
31.5
 
39.9
nm
497.4
Net interest margin
2.18%
1.48%
 
1.70%
2.14%
1.15%
 
0.06%
nm
1.54%
Third party customer asset rate (3)
2.86%
2.27%
 
2.70%
2.52%
2.58%
 
nm
nm
nm
Third party customer funding rate (3)
(0.20%)
(0.12%)
 
(0.33%)
(0.13%)
(0.01%)
 
nm
nm
nm
 
For the notes to this table, refer to page 18.
 
 
 
Segment performance
 
 
Quarter ended 31 March 2020
 
 
 
 
 
 
 
Central
Total
 
 
UK Personal
Ulster
 
Commercial
Private
RBS
 
NatWest
 items &
NatWest
 
 
Banking
Bank RoI
 
Banking
Banking
International
 
Markets
other (1)
Group
 
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
 
 
Net interest income
1,007
97
 
674
127
111
 
(40)
(34)
1,942
Other non-interest income
143
32
 
334
74
33
 
428
21
1,065
Own credit adjustments
-
-
 
-
-
-
 
155
-
155
Total income
1,150
129
 
1,008
201
144
 
543
(13)
3,162
Direct expenses
- staff costs
(141)
(48)
 
(184)
(47)
(32)
 
(167)
(300)
(919)
 
- other costs
(59)
(24)
 
(78)
(24)
(14)
 
(57)
(539)
(795)
Indirect expenses
(392)
(46)
 
(306)
(47)
(14)
 
(74)
879
-
Strategic costs
- direct
-
(1)
 
(5)
-
(1)
 
(34)
(90)
(131)
 
- indirect
(34)
(4)
 
(36)
(5)
(3)
 
(8)
90
-
Litigation and conduct costs
97
-
 
(1)
-
3
 
(2)
(93)
4
Operating expenses
(529)
(123)
 
(610)
(123)
(61)
 
(342)
(53)
(1,841)
Operating profit/(loss) before impairment (losses)/releases
621
6
 
398
78
83
 
201
(66)
1,321
Impairment (losses)/releases
(297)
(27)
 
(435)
(29)
(15)
 
5
(4)
(802)
Operating profit/(loss)
324
(21)
 
(37)
49
68
 
206
(70)
519
Additional information
 
 
 
 
 
 
 
 
 
 
Return on equity (2)
15.5%
(4.2%)
 
(2.5%)
9.8%
19.4%
 
8.7%
nm
3.6%
Cost:income ratio (2)
46.0%
95.3%
 
59.1%
61.2%
42.4%
 
63.0%
nm
57.7%
Total assets (£bn)
186.3
26.3
 
178.3
23.4
33.2
 
335.7
34.4
817.6
Funded assets (£bn)
186.3
26.3
 
178.3
23.4
33.2
 
129.6
31.8
608.9
Net loans to customers - amortised cost (£bn)
163.7
18.7
 
109.2
15.8
13.6
 
12.2
18.1
351.3
Loan impairment rate (2)
72bps
56bps
 
157bps
73bps
44bps
 
nm
nm
90bps
Impairment provisions (£bn)
(1.6)
(0.7)
 
(1.7)
(0.1)
-
 
(0.1)
-
(4.2)
Impairment provisions - Stage 3 (£bn)
(0.9)
(0.6)
 
(1.0)
-
-
 
(0.1)
-
(2.6)
Customer deposits (£bn)
152.8
19.3
 
143.9
29.0
32.3
 
5.7
1.8
384.8
Risk-weighted assets (RWAs) (£bn)
38.2
12.7
 
76.9
10.3
6.8
 
38.9
1.4
185.2
RWA equivalent (RWAe) (£bn)
38.2
12.7
 
77.0
10.3
7.1
 
42.2
1.7
189.2
Employee numbers (FTEs - thousands)
17.8
2.9
 
10.0
2.0
1.8
 
5.1
23.6
63.2
Average interest earning assets (£bn)
177.4
24.9
 
148.4
22.7
30.9
 
36.1
nm
458.5
Net interest margin
2.28%
1.56%
 
1.83%
2.25%
1.45%
 
(0.45%)
nm
1.70%
Third party customer asset rate (3)
3.06%
2.28%
 
3.03%
2.77%
2.79%
 
nm
nm
nm
Third party customer funding rate (3)
(0.37%)
(0.13%)
 
(0.42%)
(0.38%)
(0.11%)
 
nm
nm
nm
 
For the notes to this table, refer to page 18.
 
 
 
Segment performance
 
 
Quarter ended 30 June 2019
 
 
 
 
 
 
 
Central
Total
 
 
UK Personal
Ulster
 
Commercial
Private
RBS
 
NatWest
 items &
NatWest
 
 
Banking
Bank RoI
 
Banking
Banking
International
 
Markets
other (1)
Group
 
 
£m
£m
 
£m
£m
£m
 
£m
£m
£m
Income statement
 
 
 
 
 
 
 
 
 
 
Net interest income
1,032
102
 
716
129
125
 
(91)
(42)
1,971
Other non-interest income
170
35
 
367
62
34
 
338
71
1,077
Own credit adjustments
-
1
 
-
-
-
 
(5)
1
(3)
Strategic disposals
-
-
 
-
-
-
 
444
591
1,035
Total income
1,202
138
 
1,083
191
159
 
686
621
4,080
Direct expenses
- staff costs
(148)
(53)
 
(175)
(41)
(31)
 
(176)
(281)
(905)
 
- other costs
(77)
(22)
 
(80)
(17)
(10)
 
(38)
(524)
(768)
Indirect expenses
(317)
(42)
 
(269)
(45)
(13)
 
(76)
762
-
Strategic costs
- direct
4
(4)
 
(12)
-
(3)
 
(31)
(388)
(434)
 
- indirect
(49)
(5)
 
(50)
(10)
(3)
 
(17)
134
-
Litigation and conduct costs
(7)
(19)
 
(36)
(2)
-
 
(6)
15
(55)
Operating expenses
(594)
(145)
 
(622)
(115)
(60)
 
(344)
(282)
(2,162)
Operating profit/(loss) before impairment (losses)/releases
608
(7)
 
461
76
99
 
342
339
1,918
Impairment (losses)/releases
(69)
10
 
(197)
(1)
2
 
20
(2)
(237)
Operating profit
539
3
 
264
75
101
 
362
337
1681
Additional information
 
 
 
 
 
 
 
 
 
 
Return on equity (2)
26.5%
0.6%
 
6.2%
15.9%
30.8%
 
4.4%
nm
15.8%
Cost:income ratio (2)
49.4%
105.1%
 
56.1%
60.2%
37.7%
 
50.1%
nm
52.6%
Total assets (£bn)
173.9
26.4
 
165.6
21.9
30.4
 
278.9
32.8
729.9
Funded assets (£bn)
173.9
26.4
 
165.6
21.9
30.4
 
133.4
32.7
584.3
Net loans to customers - amortised cost (£bn)
151.9
19.0
 
101.4
14.7
13.6
 
9.3
0.7
310.6
Loan impairment rate (2)
18bps
(20)bps
 
77bps
3bps
(6)bps
 
nm
nm
30bps
Impairment provisions (£bn)
(1.3)
(0.9)
 
(1.3)
-
-
 
(0.2)
-
(3.7)
Impairment provisions - Stage 3 (£bn)
(0.8)
(0.8)
 
(1.0)
-
-
 
(0.2)
-
(2.8)
Customer deposits (£bn)
147.5
19.0
 
133.4
28.0
28.1
 
2.8
2.8
361.6
Risk-weighted assets (RWAs) (£bn)
37.0
14.2
 
77.8
9.7
6.9
 
41.4
1.5
188.5
RWA equivalent (RWAe) (£bn)
38.1
14.5
 
79.3
9.7
7.0
 
46.1
1.8
196.5
Employee numbers (FTEs - thousands)
19.3
3.1
 
10.4
1.9
1.8
 
5.0
25.1
66.6
Average interest earning assets (£bn)
164.8
25.3
 
146.1
21.2
29.8
 
34.4
nm
444.8
Net interest margin
2.51%
1.62%
 
1.97%
2.44%
1.68%
 
(1.05%)
nm
1.78%
Third party customer asset rate (3)
3.25%
2.29%
 
3.18%
2.89%
1.79%
 
nm
nm
nm
Third party customer funding rate (3)
(0.38%)
(0.15%)
 
(0.42%)
(0.45%)
(0.13%)
 
nm
nm
nm
 
Notes:
(1)   Central items & other includes unallocated transactions, including volatile items under IFRS, items related to the Alawwal bank merger (2019 only) and RMBS related items.
(2)   Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant.
(3)   Ulster Bank Ireland DAC(UBI DAC) and RBS International manage their funding and liquidity requirements locally. Their liquidity asset portfolios and non-customer related funding sources are included within their net interest margin, but excluded from their third party asset and liability rates.
 
 
 
 
 
Capital and risk management
 
Page
Capital, liquidity and funding risk
19
Credit risk
 
     Economic loss drivers
28
Credit risk - Banking activities
 
     Segmental exposure
37
     Sector analysis
42
     Personal portfolio
49
     CRE
52
     Flow statements
54
     Asset quality
66
Credit risk - Trading activities
70
Market risk
 
     Non-traded
73
     Traded
76
Other risks
77
 
Certain disclosures in this section are within the scope of EY's review report and are marked accordingly by a bracket in the right hand margin.
 
Capital, liquidity and funding risk  
Introduction
The economic impact of the Covid-19 pandemic was significant. While liquidity, capital and funding were closely monitored throughout, NatWest Group benefited from its strong positions - particularly in relation to CET1 - going into the crisis. Prudent risk management continues to be important as the full economic effects of the global pandemic unfold.
 
Key developments
The CET1 ratio increased by 100 basis points to 17.2% primarily due to the release of £1.3 billion following the cancellation of the proposed 2019 dividend payments and associated pension contribution in Q1 2020, as announced by the Board in response to Covid-19. The attributable loss in the period was £705 million however the IFRS 9 transitional arrangements on expected credit losses provided relief of £1,578 million.
RWAs increased by £2.3 billion in H1 2020. Credit Risk RWAs increased by £4.7 billion largely due to increased utilisation of existing facilities, new lending under the Government lending initiatives and revision of risk parameters in Commercial Banking. There were offsetting credit risk reductions in UK Personal Banking and NatWest Markets segments. Market Risk RWAs decreased by £1.5 billion, primarily reflecting movements in risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as well as a reduction in non-modelled market risk during the period.
The CRR leverage ratio remained as 5.1% due to an increase in Tier 1 capital being offset by increases in balance sheet exposures.
The total loss absorbing capital ratio of 36.8% is above the Bank of England (BOE) requirement of 21.9% at 1 January 2020, including CRDIV combined buffer requirements.
In the first half of 2020, NatWest Group plc issued $1.6 billion (£1.3 billion) new MREL eligible senior debt, $1.5 billion (£1.2 billion) of AT1 and £1.0 billion Tier 2 securities. NatWest Group plc made a redemption announcement on $2 billion (£1.3 billion) AT1 in June 2020 which have been excluded from capital and will be redeemed in August 2020. CET1 reduced by £345 million due to the FX impact on the redemption announcement. In subsidiaries, a £1.25 billion covered bond from National Westminster Bank Plc matured and NatWest Markets Plc issued two benchmark transactions, in the form of a €1.0 billion five - year fixed rate EMTN and a $1.0 billion three -  year fixed rate US Rule 144A programme issuance.
NatWest Group participation in the BOE Term Funding Scheme (TFS) reduced by £5 billion and the Group drew down £5 billion under the BOE Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME) during H1 2020.
UBI DAC borrowed €3.1 billion from the European Central Bank (ECB) Targeted longer-term refinancing operation (TLTRO 3) and repaid €2.0 billion of TLTRO 2.
H1 2020 published LCR ratio of 166% is 14% higher than FY 2019 driven by increased deposits in NatWest Holdings Limited and Treasury issuance including AT1, Tier 2 and MREL, partially offset by NatWest Holdings Limited lending growth driven by mortgages and government schemes lending.
The net stable funding ratio was at 144% compared to 141% for FY 2019. The increase is mainly due to deposits growth.
 
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
In response to the Covid-19 pandemic, a number of relief measures to alleviate the financial stability impact have been announced and recommended by regulatory and supervisory bodies. One significant announcement was on 26 June when the European Parliament passed an amended regulation to the CRR in response to the Covid-19 pandemic ("the CRR Covid-19 amendment"); NatWest Group has applied a number of the CRR amendments for H1 2020 reporting. The impact on capital and leverage of the CRR amendment and other relief measures are set out below.
 
IFRS 9 Transition - NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9; it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS 9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 June 2020 is £1.6 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.  The NatWest Group has received permission to apply these and it has reduced the UK leverage exposure by approximately £6.9 billion and £5.2 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. The NatWest Group has applied this and it has reduced the CRR leverage exposure by approximately £6.9 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, with these now being applicable with immediate effect. NatWest Group intends to implement these beneficial changes which will reduce RWAs but has not yet concluded the required operational change project to implement.
 
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. This has reduced NatWest Group's PVA deduction by approximately £100 million.
 
Market Risk Value-at-risk (VaR) model capital multiplier - The PRA and De Nederlandsche Bank (DNB) have announced temporary approaches in relation to the exceptional levels of market volatility which has resulted in an increase in VaR model back testing exceptions in NatWest Markets Plc and NatWest Markets N.V.. Under the PRA temporary approach, capital multiplier increases due to new back testing exceptions which have resulted in an increase in capital requirements can be offset through a commensurate reduction in RNIV capital requirements. Under the DNB approach, back testing exceptions have been allowed to be excluded from the capital multiplier. The PRA approach resulted in approximately £2,300 million benefit and the DNB approach a benefit of approximately €100 million.
Capital buffers - Many countries have recently announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020.
 
 
 
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress.
 
Where the CET 1 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.
Type
CET1
Total Tier 1
Total capital
Pillar 1 requirements
4.5%
6.0%
8.0%
Pillar 2A requirements
1.9%
2.6%
3.4%
Minimum Capital Requirements
6.4%
8.6%
11.4%
Capital conservation buffer
2.5%
2.5%
2.5%
Countercyclical capital buffer (1) 
0.0%
0.0%
0.0%
G-SIB buffer (2)
-      
 
                         -
                                  -
MDA Threshold
8.9%
 
                      na
          
                      na
Subtotal (3)
8.9%
11.1%
13.9%
Capital ratios at 30 June 2020
17.2%
19.4%
22.5%
Headroom (4)
8.3%
8.3%
8.6%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes:
(1)
Many countries have recently announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020.
(2)
 
(3)
 
(4)
In November 2018 the Financial Stability Board announced that NatWest Group is no longer a G-SIB. From 1 January 2020, NatWest Group was released from this global buffer requirement.
The prevailing combined buffer requirements for NatWest Group equate to the aggregate of the capital conservation buffer and countercyclical buffer. 8.9% CET1 represents the MDA threshold for NatWest Group.
The headroom does not reflect excess distributable capital and may vary over time.
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Capital and leverage ratios
The table below sets out the key capital and leverage ratios.
 
CRR basis (1)
 
30 June
31 December
Capital adequacy ratios
2020
2019
CET1 (%)
17.2
16.2
Tier 1 (%)
19.4
18.5
Total (%)
22.5
21.2
 
 
 
Capital
£m
£m
Tangible equity
32,006
32,371
 
 
 
Expected loss less impairment provisions
-
(167)
Prudential valuation adjustment
(370)
(431)
Deferred tax assets
(844)
(757)
Own credit adjustments
(244)
(118)
Pension fund assets
(588)
(474)
Cash flow hedging reserve
(341)
(35)
Foreseeable ordinary and special dividends
-
(968)
Foreseeable charges
-
(365)
Adjustments under IFRS 9 transitional arrangements
1,578
-
Other deductions
-
(2)
Total deductions
(809)
(3,317)
 
 
 
CET1 capital
31,197
29,054
AT1 capital
3,990
4,051
Tier 1 capital
35,187
33,105
Tier 2 capital
5,596
4,900
 
 
 
Total regulatory capital
40,783
38,005
 
 
 
Risk-weighted assets
 
 
Credit risk
135,700
131,000
Counterparty credit risk
12,400
12,600
Market risk
11,500
13,000
Operational risk
21,900
22,600
Total RWAs
181,500
179,200
 
 
 
Leverage
 
 
Cash and balances at central banks
100,300
77,900
Trading assets
72,400
76,700
Derivatives
183,400
150,000
Financial assets
428,100
399,100
Other assets
22,700
19,300
Total assets
806,900
723,000
 
 
 
Derivatives
 
 
  - netting and variation margin
(194,400)
(157,800)
  - potential future exposures
44,000
43,000
Securities financing transactions gross up
1,300
2,200
Other off balance sheet items
43,500
42,500
Regulatory deductions and other adjustments
(14,600)
(9,000)
CRR leverage exposure
686,700
643,900
 
 
 
CRR leverage ratio % (2)
5.1
5.1
 
 
 
UK leverage exposure
585,100
570,300
UK leverage ratio % (3)
6.0
5.8
 
 
 
Notes:
(1)   Based on CRR end point including the IFRS 9 transitional adjustment of £1.6 billion. Excluding this adjustment, the CET 1 ratio would be 16.3%.
(2)   Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment) and leverage exposure under the CRR Delegated Act. Excluding the IFRS 9 transitional adjustment, the leverage ratio would be 4.9%.
(3)   Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment). The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.8%.
 
 
 
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Capital flow statement
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2020.
 
CET1
AT1
Tier 2
Total
 
£m
£m
£m
£m
At 1 January 2020
29,054
4,051
4,900
38,005
Attributable loss for the period
(705)
-
-
(705)
Own credit
(126)
-
-
(126)
Share capital and reserve movements in respect of employee share schemes
(46)
-
-
(46)
Foreign exchange reserve
466
-
-
466
FVOCI reserves
(218)
-
-
(218)
Goodwill and intangibles deduction
20
-
-
20
Deferred tax assets
(87)
-
-
(87)
Prudential valuation adjustments
61
-
-
61
Expected loss less impairment
167
-
-
167
New issues of capital instruments
-
1,216
1,000
2,216
Redemption of capital instruments
-
(1,277)
-
(1,277)
Net dated subordinated debt/grandfathered instruments
-
-
(756)
(756)
Foreign exchange movements
(355)
-
452
97
Foreseeable ordinary and special dividends
968
-
-
968
Foreseeable charges
365
-
-
365
Adjustment under IFRS 9 transitional arrangements
1,578
-
-
1,578
Other movements
55
-
-
55
At 30 June 2020
31,197
3,990
5,596
40,783
 
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 IFRS9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 June 2020 is £1.6 billion.
●     
Foreign exchange movements include a £345 million charge, in relation to a $2 billion AT1 redemption announcement on 28 June 2020.
Risk-weighted assets
The table below analyses the movement in RWAs during the half year, by key drivers.
 
 
Counterparty
 
Operational
 
 
Credit risk
credit risk
Market risk
risk
Total
 
£bn
£bn
£bn
£bn
£bn
At 1 January 2020
131.0
12.6
13.0
22.6
179.2
Foreign exchange movement
2.1
0.4
-
-
2.5
Business movement
2.8
(0.6)
1.0
(0.7)
2.5
Risk parameter changes (1)
(0.6)
-
-
-
(0.6)
Methodology changes (2)
0.3
-
(0.1)
-
0.2
Model updates
0.1
-
-
-
0.1
Other movements (3)
-
-
(2.4)
-
(2.4)
At 30 June 2020
135.7
12.4
11.5
21.9
181.5
 
The table below analyses segmental RWAs.
 
 
UK Personal
Ulster
Commercial
Private
 
NatWest
Central
 
 
Banking
Bank RoI
Banking
Banking
RBSI
Markets
items & other
Total
Total RWAs
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
At 1 January 2020
37.8
13.0
72.5
10.1
6.5
37.9
1.4
179.2
Foreign exchange movement
-
0.7
0.8
-
0.1
0.9
-
2.5
Business movement
(0.3)
(0.5)
4.5
0.3
0.2
(1.4)
(0.3)
2.5
Risk parameter changes (1)
(0.8)
(0.6)
0.6
-
-
0.2
-
(0.6)
Methodology changes (2)
-
-
(0.3)
-
-
0.2
0.3
0.2
Model updates
-
0.2
(0.1)
-
-
-
-
0.1
Other movements (3)
-
-
0.3
-
-
(2.7)
-
(2.4)
At 30 June 2020
36.7
12.8
78.3
10.4
6.8
35.1
1.4
181.5
 
 
 
 
 
 
 
 
 
Credit risk
29.1
11.7
69.5
9.1
5.8
9.1
1.4
135.7
Counterparty credit risk
0.1
-
0.2
0.1
-
12.0
-
12.4
Market risk
0.1
0.1
0.1
-
-
11.2
-
11.5
Operational risk
7.4
1.0
8.5
1.2
1.0
2.8
-
21.9
Total RWAs
36.7
12.8
78.3
10.4
6.8
35.1
1.4
181.5
 
Notes:
(1)
Risk parameter changes relate to changes in credit quality metrics of customers and counterparties (such as probability of default and loss given default) as well as internal ratings based model changes relating to counterparty credit risk in line with European Banking Authority Pillar 3 Guidelines.
(2)
The new securitisation framework has been fully implemented from 1 January 2020 and all positions have moved to the new framework.
(3)
The decrease in Other movements reflects the temporary reduction permitted by the PRA to offset the impact of multiplier increases (included in Business
movement). The offset covers all metrics affected by the multiplier increase, including CVAs. Other movements also reflect transfers between segments, primarily reflecting a transfer of Insurance related assets from NatWest Markets to Commercial Banking. 
 
Capital and risk management
Capital, liquidity and funding risk continued
Key point
●      RWAs increased by £2.3 billion in H1 2020, mainly reflecting increases in credit risk of £4.7 billion. There were offsetting decreases in market risk by £1.5 billion, operational risk by £0.7 billion and counterparty credit risk by £0.2 billion. The increase in credit risk RWAs primarily reflected increases in Commercial Banking due to drawdowns on existing facilities, new lending under the Government lending initiatives and deterioration of risk parameters. There were offsetting credit risk reductions in Personal Banking mainly due to revision of risk parameters as well as in the NatWest Markets segment in line with business strategy. Market Risk RWAs decreased by £1.5 billion, primarily reflecting movements in RNIVs and IRC as well as a reduction in non-modelled market risk during the period.
 
Credit risk exposure at default (EAD) and risk-weighted assets (RWAs)
The table below analyses credit risk RWAs and EADs, by on and off balance sheet.
 
 
 
UK Personal
Ulster
Commercial
Private
RBS
NatWest
Central items
 
 
 
Banking
Bank RoI
Banking
Banking
International
Markets
& other
Total
30 June 2020
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
EAD
On balance sheet
235.6
28.3
152.6
21.4
31.1
40.7
0.7
510.4
Off balance sheet
27.2
2.2
29.9
0.3
4.8
6.2
0.4
71.0
Total
262.8
30.5
182.5
21.7
35.9
46.9
1.1
581.4
 
 
 
 
 
 
 
 
 
 
RWAs
On balance sheet
26.4
10.6
56.3
8.9
4.5
7.0
1.3
115.0
Off balance sheet
2.7
1.1
13.2
0.2
1.3
2.1
0.1
20.7
Total
29.1
11.7
69.5
9.1
5.8
9.1
1.4
135.7
 
 
 
 
 
 
 
 
 
 
31 December 2019
 
 
 
 
 
 
 
 
EAD
On balance sheet
221.8
26.0
131.4
20.3
31.7
35.4
0.7
467.3
Off balance sheet
30.2
2.2
27.2
0.3
3.3
7.5
0.4
71.1
Total
252.0
28.2
158.6
20.6
35.0
42.9
1.1
538.4
 
 
 
 
 
 
 
 
 
 
RWAs
On balance sheet
27.1
10.8
50.8
8.7
4.7
6.4
1.3
109.8
Off balance sheet
3.1
1.1
12.5
0.2
1.0
3.2
0.1
21.2
Total
30.2
11.9
63.3
8.9
5.7
9.6
1.4
131.0
 
 
  Capital resources
PRA transitional basis
 
 
30 June
31 December
 
 
2020
2019
 
 
£m
£m
 
Shareholders' equity (excluding non-controlling interests)
 
 
 
Shareholders' equity
43,103
43,547
Preference shares - equity
(494)
(496)
Other equity instruments
(4,001)
(4,058)
 
38,608
38,993
 
Regulatory adjustments and deductions
 
 
 
Own credit
(244)
(118)
Defined benefit pension fund adjustment
(588)
(474)
Cash flow hedging reserve
(341)
(35)
Deferred tax assets
(844)
(757)
Prudential valuation adjustments
(370)
(431)
Goodwill and other intangible assets
(6,602)
(6,622)
Expected losses less impairments
-
(167)
Foreseeable ordinary and special dividends
-
(968)
Foreseeable charges
-
(365)
Adjustment under IFRS9 transition arrangements
1,578
-
Other regulatory adjustments
-
(2)
 
(7,411)
(9,939)
 
CET1 capital
31,197
29,054
 
 
 
 
 
Additional Tier (AT1) capital
 
 
 
Qualifying instruments and related share premium
3,990
4,051
Qualifying instruments and related share premium to phase out
1,424
1,366
Qualifying instruments issued by subsidiaries and held by third parties subject to phase out
140
140
AT1 capital
5,554
5,557
 
Tier 1 capital
36,751
34,611
 
 
 
 
 
Qualifying Tier 2 capital
 
 
 
Qualifying instruments and related share premium
5,588
4,867
Qualifying instruments issued by subsidiaries and held by third parties
1,348
1,345
 
 
 
 
Tier 2 capital
6,936
6,212
 
Total regulatory capital
43,687
40,823
 
 
Capital and risk management                                                                                                                                                                          
Capital, liquidity and funding risk continued
Loss absorbing capital 
The following table illustrates the components of estimated loss absorbing capital (LAC) in NatWest Group plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria.
 
 
30 June 2020
 
31 December 2019
 
 
Balance
 
 
 
 
Balance
 
 
 
Par
sheet
Regulatory
LAC
 
Par
sheet
Regulatory
LAC
 
 value (1)
value
value (2)
value (3)
 
value (1)
value
value (2)
value (3)
 
£bn
£bn
£bn
£bn
 
£bn
£bn
£bn
£bn
CET1 capital (4)
31.2
31.2
31.2
31.2
 
29.1
29.1
29.1
29.1
 
 
 
 
 
 
 
 
 
 
Tier 1 capital: end-point CRR compliant AT1
 
 
 
 
 
 
 
 
 
  of which: NatWest Group (holdco)
4.0
4.0
4.0
4.0
 
4.0
4.0
4.0
4.0
  of which: NatWest Group operating
 
 
 
 
 
 
 
 
 
      subsidiaries (opcos)
-
-
-
-
 
-
-
-
-
 
4.0
4.0
4.0
4.0
 
4.0
4.0
4.0
4.0
Tier 1 capital: end-point CRR non compliant
 
 
 
 
 
 
 
 
 
  of which: holdco
1.5
1.7
1.5
0.5
 
1.4
1.6
1.4
0.5
  of which: opcos
0.1
0.1
0.1
0.1
 
0.1
0.1
0.1
0.1
 
1.6
1.8
1.6
0.6
 
1.5
1.7
1.5
0.6
Tier 2 capital: end-point CRR compliant
 
 
 
 
 
 
 
 
 
  of which: holdco
9.3
9.7
5.5
6.2
 
6.2
6.4
4,8
4.7
  of which: opcos
0.5
0.5
0.1
0.4
 
0.5
0.5
0.1
0.4
 
9.8
10.2
5.6
6.6
 
6.7
6.9
4.9
5.1
Tier 2 capital: end-point CRR non compliant
 
 
 
 
 
 
 
 
 
  of which: holdco
0.1
0.1
0.1
0.1
 
0.1
0.1
0.1
0.1
  of which: opcos
1.6
1.9
1.2
1.7
 
1.6
1.8
1.2
1.6
 
1.7
2.0
1.3
1.8
 
1.7
1.9
1.3
1.7
Senior unsecured debt securities issued by:
 
 
 
 
 
 
 
 
 
  NatWest Group holdco
21.0
22.5
-
22.5
 
18.6
19.2
-
19.2
  NatWest Group opcos
22.5
23.0
-
-
 
21.1
20.7
-
-
 
43.5
45.5
-
22.5
 
39.7
39.9
-
19.2
Total
91.8
94.7
43.7
66.7
 
82.7
83.5
40.8
59.7
 
 
 
 
 
 
 
 
 
 
RWAs
 
 
 
181.5
 
 
 
 
179.2
UK leverage exposure
 
 
 
585.1
 
 
 
 
570.3
 
 
 
 
 
 
 
 
 
 
LAC as a ratio of RWAs
 
 
 
36.8%
 
 
 
 
33.3%
LAC as a ratio of UK leverage exposure
 
 
 
11.4%
 
 
 
 
10.5%
 
Notes:
(1)
Par value reflects the nominal value of securities issued.
(2)
Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.
(3)
LAC value reflects NatWest Group's interpretation of the Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such NatWest Group estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes eligible Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.
(4)
Corresponding shareholders' equity was £43.1 billion (2019 - £43.5 billion).
(5)
Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.
(6)
NatWest Group is no longer recognised as a G-SII from 1 January 2020 and is therefore not subject to the CRR MREL requirement as of this date which references CRR2 leverage exposure. To aid comparison the leverage exposure, and resulting ratio, is disclosed according to the BoE leverage framework for all time periods.
 
 
 
Capital and risk management
Capital, liquidity and funding risk continued
Loss absorbing capital 
The following table illustrates the components of the stock of outstanding issuance in NatWest Group and its operating subsidiaries including external and Internal issuances.
 
 
 
NatWest
 
 
 
 
NatWest
NWM
 
 
 
NatWest
Holdings
NWB
RBS
UBI
NWM
Markets
Securities
RBSI
 
 
Group plc
Limited
Plc
plc
DAC
Plc
N.V.
Inc.
Limited
 
 
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Tier 1 (Inclusive of AT1)
Externally issued
5.8
-
0.1
-
-
-
-
-
-
Tier 1 (Inclusive of AT1)
Internally issued
-
3.7
2.4
1.0
-
1.1
0.2
-
0.3
 
 
5.8
3.7
2.5
1.0
-
1.1
0.2
-
0.3
Tier 2
Externally issued
9.8
-
1.2
-
0.1
0.6
0.6
-
-
Tier 2
Internally issued
0.0
5.4
3.5
1.6
0.5
2.0
0.1
0.3
-
 
 
9.8
5.4
4.7
1.6
0.6
2.6
0.7
0.3
-
Senior unsecured
Externally issued
22.5
-
-
-
-
-
-
-
-
Senior unsecured
Internally issued
-
9.8
4.4
0.4
0.5
5.6
-
-
-
 
 
22.5
9.8
4.4
0.4
0.5
5.6
-
-
-
Total outstanding issuance
38.1
18.9
11.6
3.0
1.1
9.3
0.9
0.3
0.3
 
Notes:
(1)   The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude, for example, issuance costs and fair value movements, while dated capital is required to be amortised on a straight-line basis over the final five years of maturity.
(2)   Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.
(3)   Internal issuance for NWB Plc, RBS plc and UBI DAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc.
(4)   Senior unsecured debt category does not include CP, CD and short term/medium notes issued from NatWest Group operating subsidiaries. 
(5)   Tier 1 (inclusive of AT1) category does not include CET 1 numbers.
 
Funding sources
The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9.
 
 
30 June 2020
 
31 December 2019
 
 
Short-term
Long-term
 
 
Short-term
Long-term
 
 
 
less than
more than
 
 
less than
more than
 
 
 
1 year
1 year
Total
 
1 year
1 year
Total
 
 
£m
£m
£m
 
£m
£m
£m
 
Bank deposits
 
 
 
 
 
 
 
 
Repos
627
-
627
 
2,598
-
2,598
Other bank deposits (1)
6,706
13,786
20,492
 
6,688
11,207
17,895
 
7,333
13,786
21,119
 
9,286
11,207
20,493
 
Customer deposits
 
 
 
 
 
 
 
 
Repos
1,337
-
1,337
 
1,765
-
1,765
Non-bank financial institutions
54,015
146
54,161
 
48,759
352
49,111
Personal
196,312
904
197,216
 
183,124
1,210
184,334
Corporate
155,460
94
155,554
 
133,450
587
134,037
 
407,124
1,144
408,268
 
367,098
2,149
369,247
 
Trading liabilities (2)
 
 
 
 
 
 
 
 
Repos (3)
23,767
-
23,767
 
27,885
-
27,885
Derivative collateral
27,139
-
27,139
 
21,509
-
21,509
Other bank customer deposits
1,111
981
2,092
 
710
896
1,606
Debt securities in issue - Medium term notes
829
1,255
2,084
 
659
1,103
1,762
 
52,846
2,236
55,082
 
50,763
1,999
52,762
 
Other financial liabilities
 
 
 
 
 
 
 
 
Customer deposits
168
182
350
 
-
-
-
Debt securities in issue:
 
 
 
 
 
 
 
   Commercial papers and certificates of deposit
6,656
97
6,753
 
4,272
6
4,278
   Medium term notes
4,072
32,585
36,657
 
4,592
29,262
33,854
   Covered bonds
1,907
2,991
4,898
 
3,051
2,897
5,948
   Securitisation
-
1,023
1,023
 
-
1,140
1,140
 
12,803
36,878
49,681
 
11,915
33,305
45,220
 
Subordinated liabilities
1,798
11,760
13,558
 
160
9,819
9,979
 
Total funding
481,904
65,804
547,708
 
439,222
58,479
497,701
 
Of which: available in resolution (4)
-
31,063
31,063
 
-
26,168
26,168
 
Notes:
(1)
Includes £5.0 billion (31 December 2019 - £10.0 billion) relating to Term Funding Scheme participation, £5.0 billion (31 December 2019 – nil) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation and £2.8 billion (31 December 2019 - £1.7 billion) relating to NatWest Group’s participation in central bank financing operations under the European Central Bank’s targeted Long-term financing operations.
(2)
Excludes short positions of £20.5 billion (31 December 2019 - £21.2 billion).
(3)
Comprises central & other bank repos of £2.1 billion (31 December 2019 - £6.6 billion), other financial institution repos of £19.4 billion (31 December 2019 - £19.0 billion) and other corporate repos of £2.3 billion (31 December 2019 - £2.3 billion).
(4)  Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £22.6 billion (31 December 2019 - £19.2 billion) under debt securities in issue (senior MREL) and £8.5 billion (31 December 2019 - £6.9 billion) under subordinated liabilities.
 
Capital and risk management
Capital, liquidity and funding risk continued
 
Liquidity portfolio
The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes.
 
Liquidity value
 
 
30 June 2020
 
31 December 2019
 
 
 
 
 
 
 
NatWest
NWH
UK Dol
 
NatWest
NWH
UK Dol
 
 
Group (1)
Group (2)
Sub (3)
 
Group (1)
Group (2)
Sub (3)
 
 
£m
£m
£m
 
£m
£m
£m
 
Cash and balances at central banks
97,201
67,783
67,783
 
74,289
51,080
51,080
 
  AAA to AA- rated governments
56,234
44,738
43,334
 
46,622
35,960
34,585
  A+ and lower rated governments
1,040
-
-
 
1,277
-
-
  Government guaranteed issuers, Public sector entities and
 
 
 
 
 
 
 
        Government sponsored entities
261
261
96
 
251
251
90
   International Organisations and Multilateral development
 
 
 
 
 
 
 
        banks
2,799
2,458
1,994
 
2,393
2,149
1,717
LCR level 1 bonds
60,334
47,457
45,424
 
50,543
38,360
36,392
 
LCR level 1 Assets
157,535
115,240
113,207
 
124,832
89,440
87,472
 
LCR level 2 Assets
127
-
-
 
-
-
-
 
Non-LCR Eligible Assets
-
-
-
 
88
-
-
 
Primary liquidity
157,662
115,240
113,207
 
124,920
89,440
87,472
 
Secondary liquidity (4)
84,910
84,427
81,835
 
74,431
74,187
73,332
 
Total liquidity value
242,572
199,667
195,042
 
199,351
163,627
160,804
 
 
Notes:
(1)
NatWest Group includes UK DoLSub, NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.
(2)
NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.
(3)
UK DoLSub comprises NatWest Group’s four licensed deposit-taking UK banks within the ring-fenced bank: NWB Plc, RBS plc, Coutts & Company and
Ulster Bank Limited.
(4)
Comprises assets eligible for discounting at the Bank of England and other central banks.
(5)
Liquidity portfolio table approach has been aligned to the ILAAP methodology with effect from December 2019.
(6)
NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement.
 
 
 
Capital and risk management
Credit risk
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 asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors, (typically two 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 the unemployment rate, house price indices as well as the Bank of England and the European Central Bank base rates. For the Wholesale portfolio, in addition to interest and unemployment rates, national gross domestic product (GDP), stock price indices and world GDP are primary loss drivers.
 
Economic scenarios
The range of anticipated future economic conditions is described by a set of four internally developed scenarios and their respective probabilities. In a change from previous quarters, two scenarios are used instead of a single base case to describe the central outlook. This reflects increased uncertainty as a result of Covid-19 and the difficulty in identifying a consensus among economic forecasters. Those two central scenarios are complemented by an upside and a downside scenario.
 
As at 31 December 2019, NatWest Group used five discrete scenarios to characterise the distribution of risks in the economic outlook. In contrast, the four scenarios set out below 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 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 average over the five-year horizon (2020 to 2024) for the two central scenarios and upside and downside scenarios used for expected credit loss (ECL) modelling, are set out below. It is compared with the five-year average (2020 to 2024) of the 2019 scenarios.
 
The scenarios are specified on a quarterly frequency. The extreme points refer to worst four-quarter rate of change for GDP and house price inflation and worst quarterly figures for unemployment.
 
Five-year average
30 June 2020
 
31 December 2019
 
Upside
Central 1
Central 2
Downside
 
Upside 2
Upside 1
Base case
Downside 1
Downside 2
 
 %
 %
 %
 %
 
%
%
%
%
%
UK
 
 
 
 
 
 
 
 
 
 
GDP - change
1.4
1.5
0.6
(0.4)
 
2.4
2.2
1.6
1.3
0.9
Unemployment
5.1
5.5
7.4
9.9
 
3.6
3.9
4.4
4.7
5.2
House Price Inflation - change
2.0
1.4
0.5
(4.5)
 
4.1
3.3
1.6
0.8
(1.0)
Bank of England base rate
0.2
0.2
0.1
(0.2)
 
1.0
0.7
0.3
-
-
Commercial real estate price
 
 
 
 
 
 
 
 
 
 
  - change
(0.5)
(1.2)
(2.3)
(8.6)
 
2.7
1.7
(0.1)
(1.0)
(3.0)
 
 
 
 
 
 
 
 
 
 
 
Republic of Ireland
 
 
 
 
 
 
 
 
 
 
GDP - change
2.9
2.6
1.8
0.2
 
3.9
3.6
2.8
2.4
1.9
Unemployment
5.8
6.9
9.3
11.8
 
3.9
4.3
4.8
5.7
6.9
House Price Inflation - change
2.3
2.2
1.1
(0.9)
 
5.3
4.7
2.9
2.2
1.0
European Central Bank base rate
-
-
-
-
 
1.6
0.9
-
-
-
 
 
 
 
 
 
 
 
 
 
 
World GDP - change
2.8
2.9
2.0
1.3
 
3.8
3.3
2.8
2.5
2.1
 
 
 
 
 
 
 
 
 
 
 
Probability weight
20.0
35.0
35.0
10.0
 
12.7
14.8
30.0
29.7
12.7
 
Note:
(1)
Probability weights for the Republic of Ireland were symmetrical with 15% on the upside and downside. Weightings for Ulster Bank RoI reflect the relative severity of scenarios in a Republic of Ireland context.
 
 
 
Capital and risk management
Credit risk continued
 
GDP - annual growth
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upside
Central 1
Central 2
Downside
 
 
Upside
Central 1
Central 2
Downside
UK
%
%
%
%
 
Republic of Ireland
%
%
%
%
2020
(8.9)
(14.3)
(14.1)
(16.9)
 
2020
(8.9)
(10.5)
(16.3)
(20.3)
2021
10.1
15.4
11.2
5.3
 
2021
14.2
9.9
16.4
5.5
2022
2.7
3.4
2.3
6.4
 
2022
4.1
6.3
3.6
8.1
2023
1.6
1.6
2.0
1.7
 
2023
2.6
4.9
3.1
5.3
2024
1.6
1.6
1.6
1.6
 
2024
2.4
2.4
2.4
2.4
 
 
 
 
 
 
 
 
 
 
 
Unemployment rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upside
Central 1
Central 2
Downside
 
 
Upside
Central 1
Central 2
Downside
UK
%
%
%
%
 
Republic of Ireland
%
%
%
%
Q4 2020
7.4
9.2
9.8
14.4
 
Q4 2020
8.2
9.7
13.2
16.6
Q4 2021
4.8
5.0
7.8
10.9
 
Q4 2021
5.5
7.3
10.0
13.7
Q4 2022
4.1
4.0
6.7
9.1
 
Q4 2022
4.7
5.6
8.3
11.0
Q4 2023
4.1
4.0
6.0
7.6
 
Q4 2023
4.8
5.0
6.9
8.7
Q4 2024
4.1
4.0
5.9
6.9
 
Q4 2024
4.9
5.1
6.8
8.5
 
 
 
 
 
 
 
 
 
 
 
House Price Inflation - annual growth
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upside
Central 1
Central 2
Downside
 
 
Upside
Central 1
Central 2
Downside
UK
%
%
%
%
 
Republic of Ireland
%
%
%
%
2020
(0.1)
(8.9)
(9.3)
(11.5)
 
2020
(3.4)
(6.0)
(10.1)
(13.6)
2021
0.6
3.6
(5.1)
(14.9)
 
2021
(1.6)
(6.8)
(9.8)
(17.3)
2022
2.4
6.4
7.1
0.7
 
2022
7.2
11.8
11.1
9.7
2023
3.5
3.2
6.4
1.5
 
2023
5.8
7.9
7.9
9.8
2024
3.8
2.6
3.5
1.6
 
2024
3.7
4.0
6.5
7.2
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate price - annual change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upside
Central 1
Central 2
Downside
 
 
 
 
 
 
UK
%
%
%
%
 
 
 
 
 
 
2020
(7.5)
(16.0)
(22.1)
(20.9)
 
 
 
 
 
 
2021
2.2
1.9
(0.7)
(20.3)
 
 
 
 
 
 
2022
1.3
6.3
7.3
(8.1)
 
 
 
 
 
 
2023
0.4
1.5
2.2
3.2
 
 
 
 
 
 
2024
1.0
0.6
1.6
3.2
 
 
 
 
 
 
 
 
Extreme points
Worst points
 
H1 2020
 
H2 2019
 
 
 
 
 
 
Upside
Central 1
Central 2
Downside
 
Downside 1
Downside 2
UK
%
%
%
%
 
%
%
GDP (year-on-year)
(17.1)
(27.7)
(26.6)
(28.0)
 
(0.2)
(1.8)
Unemployment
7.6
9.5
12.0
15.1
 
4.9
5.5
House Price Inflation (year-on-year)
(0.7)
(13.7)
(14.9)
(20.4)
 
(3.5)
(8.4)
Commercial real estate price (year-on-year)
(10.2)
(21.2)
(27.2)
(31.0)
 
(8.2)
(12.6)
 
 
 
 
 
 
 
 
 
Worst points
 
 
 
 
 
 
 
 
 
H1 2020
 
H2 2019
 
 
 
 
 
 
Upside
Central 1
Central 2
Downside
 
Downside 1
Downside 2
Republic of Ireland
%
%
%
%
 
%
%
GDP (year-on-year)
(19.0)
(20.6)
(32.7)
(34.7)
 
0.5
(2.1)
Unemployment
9.0
14.8
16.9
17.7
 
5.8
7.3
House Price Inflation (year-on-year)
(8.0)
(15.1)
(22.3)
(30.8)
 
(2.6)
(8.4)
 
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.
 
Capital and risk management
Credit risk continued
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 outcome on the downside. A 20% weighting was applied to the upside scenario, a 35% weighting on each central scenario and a 10% weighting on the downside scenario. NatWest Group judged a downside-biased weighting as placing too much weight on negative outcomes.
 
Use of the scenarios in Personal Banking
Personal Banking follows a discrete scenario approach which means that ECL is calculated based on the probability of default (PD) and loss given default (LGD) values that arise directly from the probability weighted averages across all four economic scenarios.
 
Use of the scenarios in Wholesale Lending
The Wholesale Lending methodology is based on the concept of credit cycle indices (CCI). The CCI represents all relevant economic loss drivers for a region/industry segment aggregated into a single index value describing the loss rate conditions in the respective segment relative to its long run average. That means 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 outlined above are translated into individual projections of CCIs for each region/industry segment which are then subsequently aggregated into a single central CCI projection by calculating a weighted average according to the given scenario probabilities. The CCI projection for each economic scenario, and by extension the weighted central CCI projection, are overlaid with an additional assumption that after one to two years into the forecast period credit cycle conditions gradually revert to long-run average conditions, i.e. CCI values mean revert to zero.
 
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from a large number of CCI paths simulated around the central CCI projection calculated as above.
 
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 the discrete macro-economic scenarios alone.
 
Business Banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal Banking rather than the Wholesale Lending methodology.
 
Covid-19 - estimating ECL in uncertain times
Almost all areas of the global economy, in terms of both individuals and businesses, have been adversely affected by the unprecedented economic and social disruption resulting from Covid-19. The impact of the virus has led to the creation of significant government and central bank mechanisms to support businesses and individuals. Uncertainty remained elevated during H1 2020 and the severity of the economic impact becomes increasingly observable in key economic data such as GDP and unemployment. This crisis has created an unprecedented challenge for IFRS 9 ECL modelling, given the severity of economic shock and associated uncertainty for the future economic path coupled with the scale of government and central bank intervention and Covid-19 relief mechanisms that have altered the relationships between economic drivers and default.  
 
The NatWest Group approach to dealing with this challenge is to leverage stress test modelling insights to inform IFRS 9 model refinements to enable modelled ECL estimates. Management review of modelling approaches and outcomes continues to inform any necessary adjustments to the ECL estimates through the form of in-model adjustments or overlays/underlays, based on expert judgement including the use of available information. Management considerations included the potential severity and duration of the economic shock, including the mitigating effects of government support actions, as well the potential trajectory of the subsequent recovery. NatWest Group also considered differential impacts on portfolio and sector classes, including pronouncements from regulatory bodies regarding IFRS 9 application in the context of Covid-19, notably on significant increase in credit risk (SICR) identification.
 
The modelling interventions described above and the severity of the MES scenarios underpinning the ECL estimate have alleviated the need for a dedicated economic uncertainty overlay. Consequently, the existing overlay for economic uncertainty at Q1 2020 of £798 million was absorbed through the H1 2020 modelled ECL estimate.
 
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. For Personal products, where detailed information surrounding the customer situation may not be readily available, movements in account PD - which includes the effect of customer account behaviour as well as forward-looking economics - continued to be the key determinant of a SICR. This assessment was supplemented by an analysis of high-risk identifiers.
 
 
 
Capital and risk management
Credit risk continued
For Wholesale customers, at H1 2020, lifetime PD deterioration remains the primary driver of SICR identification, amplified by the forward-looking economics. NatWest Group continues to provide support, where appropriate, to existing customers. Those who are deemed either to require a) a prolonged timescale to return within NatWest Group's risk appetite or b) not to be viable pre-crisis or c) not to be able to sustain their debt once the crisis 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 UK and the Republic of Ireland, and any future repeated lockdown requirements.
●    The progress of the pandemic, 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 at H1 2020.
 
Model performance
To date, model performance monitoring has not identified any noticeable increases in default or loss rates in Wholesale Lending or Personal Banking. This is not unexpected given the recent impact of Covid-19 and the implementation of government interventions aiming to delay and/or mitigate its impact on the economy. As a result, it is too early to meaningfully assess model performance against the actual impact.
 
Nonetheless, Covid-19 has already had a significant impact on the forward-looking economic information used by the IFRS 9 models in calculating ECL. While the central scenario used previously implied largely a continuation of current conditions, the central scenarios assumed now forecast a dramatic deterioration in conditions on a magnitude typically observed for severe stresses but with the deterioration and subsequent recovery compressed into a much shorter time frame than typical economic cycles. This extreme and unusual nature of the scenarios considered has highlighted several limitations in the components of the Wholesale methodology that translate projected economic loss drivers into aggregate default and loss rate conditions at portfolio level. To account for these limitations, a number of refinements and changes have been applied to the respective model components to ensure that the ECL outcome is reasonable, not only in aggregate, but at industry sector level and with regard to the timing in which deteriorating economics translate into default and loss outcomes. More specifically, the following key adjustments have been applied to the modelled forward-looking economic conditions for the Wholesale portfolios:
●    Scenario profile - The previously unseen, extreme movements and quarterly variations in some economic loss drivers (most notably year-on-year change in UK GDP) are extrapolated by some Wholesale models into unrealistically high default rate outcomes. Where necessary, judgement was applied to adjust model outcomes to more appropriate levels based on peak default rates observed in previous crises and other existing stress scenario analysis, including the 2019 Bank of England annual cyclical scenario.
●    Government support - The temporal profile of projected default and loss conditions was further adjusted to account for the expected impact of government interventions where those are not already reflected in the scenario's economic loss drivers. These adjustments result in both a delay and a reduction in the peak level of default and loss rates that would have been expected under the projected economic loss drivers without government intervention. The specification of the parameters of the adjustments - while guided by the level and characteristics of loans extended under the various government guarantee schemes - involve a considerable level of expert judgement.
●    Industry sector detail - The current suite of models for the Wholesale portfolios provides limited differentiation by industry sector. This approach is based on the data from the global financial crisis which exhibited a very high correlation across industry sectors. In contrast, the impact from Covid-19 is highly differentiated by industry sector and accordingly adjustments have been applied to implement an appropriate differentiation in the severity of projected default rate conditions for different sectors. The categorisation of industry sectors and scale of adjustments have been informed by a combination of expert judgement and external market data.
 
 
 
 
 
Capital and risk management
Credit risk continued
For the UK Personal Banking portfolio, the forward-looking components of the IFRS 9 PD models were also modified leveraging existing stress testing models to ensure that PDs appropriately reflect the forecasts for unemployment and house prices in particular. Additionally, post model ECL adjustments were made to ensure that the ECL was adjusted for known model over and under-predictions pending the systematic calibration of the underlying models.
 
The in-model adjustments have been applied in order to weight the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform stage allocation and ECL quantification.
 
Government guarantees
During March and April 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 BBLS, CBILS and CLBILS in Wholesale, by sector.
 
BBL
 
CBIL
 
CLBIL
 
 
Drawdown
% of BBIL to
 
 
Drawdown
% of CBIL to
 
 
Drawdown
% of CLBIL to
30 June 2020
Volume
amount (£m)
Sector loans
 
Volume
amount (£m)
Sector loans
 
Volume
amount (£m)
Sector loans
Wholesale lending by sector
 
 
 
 
 
 
 
 
 
 
 
  Airlines and aerospace
175
5
0.21%
 
17
4
0.17%
 
-
-
-
  Automotive
9,267
309
4.07%
 
495
111
1.46%
 
26
22
0.29%
  Education
1,347
36
2.11%
 
83
21
1.23%
 
4
30
1.76%
  Health
6,976
222
3.78%
 
543
69
1.17%
 
2
5
0.09%
  Land transport and logistics
6,222
181
3.94%
 
306
66
1.44%
 
2
3
0.07%
  Leisure
22,776
715
7.13%
 
1,697
305
3.04%
 
16
11
0.11%
  Oil and gas
197
6
0.29%
 
13
5
0.24%
 
-
-
-
  Retail
23,824
808
10.19%
 
1,395
328
4.14%
 
13
48
0.61%
  Shipping
113
4
0.34%
 
15
3
0.25%
 
2
-
-
  Textiles
844
25
13.37%
 
94
18
9.63%
 
2
-
-
  Property
12,284
402
0.99%
 
327
64
0.16%
 
4
10
0.02%
  Other (including Business
 
 
 
 
 
 
 
 
 
 
 
    Banking)
116,382
3,082
3.40%
 
8,742
1,406
1.55%
 
72
52
0.06%
Total
200,408
5,795
3.32%
 
13,727
2,400
1.38%
 
143
181
0.10%
 
Notes:
(1)   The table contains some cases which as at 30 June 2020 were approved but not yet drawn upon.
(2)   Approved limits as at 30 June 2020 were as follows: BBLS - £6.1 billion; CBILS - £3.3 billion; and CLBILS - £0.7 billion.
 
 
 
Capital and risk management
Credit risk continued
Mortgage payment holidays/breaks by stage
The tables below show payment holidays in UK Personal Banking and payment breaks in Ulster Bank RoI, by loan-to-value (LTV) band and by stage. They show live payment holidays as at 30 June 2020, including any agreed second payment holidays. They exclude cases which have been completed prior to this date.
 
UK Personal Banking
Mortgages
 
ECL
 
Proportion of mortgage portfolio
 
 
 
 
Not within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS 9 ECL
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
Stage 2
Stage 3
scope
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
30 June 2020
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
4,441
661
31
4
5,137
 
-
4
5
9
 
9.2
14.7
5.8
9.6
>50% and ≤70%
6,722
1,226
30
1
7,979
 
1
8
4
13
 
13.7
19.4
6.2
14.3
>70% and ≤80%
3,159
1,447
11
-
4,617
 
1
9
2
12
 
15.8
21.3
6.2
17.1
>80 and ≤90%
1,727
1,356
6
-
3,089
 
-
13
1
14
 
16.8
23.8
7.8
19.3
>90% and ≤100%
378
121
1
-
500
 
-
2
-
2
 
18.5
25.1
2.3
19.7
>100% and ≤110%
1
4
-
-
5
 
-
1
-
1
 
3.4
9.8
-
7.3
>110% and ≤130%
2
3
-
-
5
 
-
-
-
-
 
5.6
6.3
-
5.8
>130 and ≤150%
-
2
-
-
2
 
-
-
-
-
 
-
9.0
-
5.5
>150%
-
-
-
-
-
 
-
-
-
-
 
-
-
-
-
Total
16,430
4,820
79
5
21,334
 
2
37
12
51
 
12.7
20.1
6.0
13.8
 
Note:
(1)    Total payment holidays in the period up until 30 June 2020 were £33.6 billion (22% of the UK Personal Banking mortgage portfolio).
 
Ulster Bank RoI
Mortgages
 
ECL
 
Proportion of mortgage portfolio
 
 
 
 
Not within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS 9 ECL
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
Stage 2
Stage 3
scope
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
30 June 2020
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
148
115
49
-
312
 
-
5
13
18
 
3.5
21.4
11.9
6.1
>50% and ≤70%
139
119
44
-
302
 
-
5
11
16
 
4.1
21.9
14.8
7.2
>70% and ≤80%
47
62
23
-
132
 
-
3
7
10
 
3.4
19.0
15.1
7.1
>80 and ≤90%
40
53
21
-
114
 
-
3
7
10
 
3.8
15.7
14.1
7.4
>90% and ≤100%
2
42
16
-
60
 
-
2
6
8
 
0.8
17.3
12.4
9.3
>100% and ≤110%
1
17
13
-
31
 
-
1
5
6
 
0.9
12.5
13.2
9.5
>110% and ≤130%
-
13
9
-
22
 
-
1
4
5
 
-
15.8
9.0
9.8
>130 and ≤150%
-
1
3
-
4
 
-
-
2
2
 
-
21.2
10.8
11.3
>150%
-
1
-
-
1
 
-
-
-
-
 
-
8.2
4.1
4.8
Total
377
423
178
-
978
 
-
20
55
75
 
3.6
19.1
13.0
7.0
 
Note:
(1)   Total payment breaks in the period up until 30 June 2020 were £1.8 billion (13% of the Ulster Bank RoI mortgage portfolio).
 
 
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 the H1 2020 balance sheet date.
 
Stage 3 provisions are not subject to the same level of measurement uncertainty - default is an observed event as at the balance sheet date, unsecured portfolio LGDs do not vary between scenarios, plus repossession periods in the UK mean that short term volatility in HPI does not translate directly to additional loss. Stage 3 provisions therefore have not been considered in this analysis.
 
The impact arising from the downside, upside and the central 1 scenarios has been simulated. These scenarios are three of the four discrete scenarios used in the methodology for Personal MES. 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. 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, policy changes by lenders that might impact on the wider availability of credit.
 
 
 
 
 
Capital and risk management
Credit risk continued
NatWest Group’s core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs increase and result in exposures moving from Stage 1 to Stage 2 contributing to the ECL impact.
 
30 June 2020
Actual
Upside
Central 1
Downside
Stage 1 modelled exposure (£m)
 
 
 
 
UK Personal Banking
134,398
146,496
142,448
100,658
Ulster Bank RoI Personal & Business Banking
10,766
11,300
11,268
9,367
Wholesale
235,333
263,206
242,672
223,386
 
 
 
 
 
Stage 1 modelled ECL (£m)
 
 
 
 
UK Personal Banking
154
154
159
114
Ulster Bank RoI Personal & Business Banking
18
16
18
19
Wholesale
274
289
278
284
 
 
 
 
 
Stage 1 coverage (%)
 
 
 
 
UK Personal Banking
0.11%
0.11%
0.11%
0.11%
Ulster Bank RoI Personal & Business Banking
0.17%
0.14%
0.16%
0.20%
Wholesale
0.12%
0.11%
0.11%
0.13%
 
 
 
 
 
Stage 2 modelled exposure (£m)
 
 
 
 
UK Personal Banking
28,575
16,477
20,525
62,314
Ulster Bank RoI Personal & Business Banking
2,352
1,819
1,850
3,751
Wholesale
65,908
38,034
58,569
77,855
 
 
 
 
 
Stage 2 modelled ECL (£m)
 
 
 
 
UK Personal Banking
900
630
760
1,641
Ulster Bank RoI Personal & Business Banking
110
83
91
174
Wholesale
1,984
891
1,661
3,071
 
 
 
 
 
Stage 2 coverage (%)
 
 
 
 
UK Personal Banking
3.15%
3.82%
3.70%
2.63%
Ulster Bank RoI Personal & Business Banking
4.69%
4.58%
4.89%
4.63%
Wholesale
3.01%
2.34%
2.84%
3.94%
 
 
 
 
 
Stage 1 and Stage 2 modelled exposure (£m)
 
 
 
 
UK Personal Banking
162,973
162,973
162,973
162,973
Ulster Bank RoI Personal & Business Banking
13,118
13,118
13,118
13,118
Wholesale
301,240
301,240
301,240
301,240
 
 
 
 
 
Stage 1 and Stage 2 modelled ECL (£m)
 
 
 
 
UK Personal Banking
1,054
784
919
1,755
Ulster Bank RoI Personal & Business Banking
129
99
109
193
Wholesale
2,258
1,180
1,939
3,355
 
 
 
 
 
Stage 1 and Stage 2 coverage (%)
 
 
 
 
UK Personal Banking
0.65%
0.48%
0.56%
1.08%
Ulster Bank RoI Personal & Business Banking
0.98%
0.76%
0.83%
1.47%
Wholesale
0.75%
0.39%
0.64%
1.11%
 
 
 
 
 
Reconciliation to Stage 1 and Stage 2 ECL (£m)
 
 
 
 
ECL on modelled exposures
3,441
2,063
2,967
5,303
ECL on non-modelled exposures
53
53
53
53
 
 
 
 
 
Total Stage 1 and Stage 2 ECL
3,494
2,116
3,020
5,356
Variance to actual total Stage 1 and Stage 2 ECL
 
(1,378)
(474)
1,862
 
Notes:
(1)
Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is as at 30 June 2020 and therefore does not include variation in future undrawn exposure values.
(2)
The table above 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.
(3)
All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact at the H1 2020 balance sheet date.
(4)
Refer to page 28 for details of economic scenarios.
(5)
2019 comparatives are not included as the sensitivity scenario analysis relates to the H1 2020 balance sheet position. Refer to the NatWest Group plc (formerly The Royal Bank of Scotland Group plc) 2019 Annual Report and Accounts for the sensitivity analysis carried out at that time.
 
 
 
Capital and risk management
Credit risk continued
Key points
The outlook for the financial year 2020 ECL charge (disclosed on page 2) is £3.5 billion to £4.5 billion. However, the economic outcomes are very uncertain and if the economics are as adverse as the downside scenario, the Stage 1 and Stage 2 charge would be at least £1.9 billion higher.
In the downside scenario, UK Personal and Wholesale portfolios reached a similar level of coverage (1.08% and 1.11% respectively), however, this represented a greater increase in provision for the UK Personal portfolio.
In arriving at the H1 2020 ECL position, Wholesale portfolios had already observed a larger proportionate increase in ECL and coverage, driven by a larger rise in Stage 2 size relative to Personal, which typically carries a higher level of Stage 2 through-the-cycle provision. Additionally, Personal portfolios, especially mortgages, are particularly responsive to changes in unemployment rate, leading to a greater increase in ECLs in the downside simulations in comparison to the Wholesale portfolio, where relative impacts of GDP and dampening effects of base rate resulted in a lower proportionate uplift.
The upside release and the downside uplift were more symmetrical in Wholesale portfolios. This was at least partly due to the impact of credit mitigation by way of portfolio securitisations, which dampened the downside impacts. Additionally, the higher proportion of Stage 2 in the Wholesale portfolio at H1 2020 resulted in a larger benefit to the upside scenario. The impacts on retail reflected a more standard view of non-linearity of losses to the downside. 
Central 1 presented a marginal upside to the weighted average, but a step change in Stage 2 retail assets for the UK and the Republic of Ireland was noted. This reflected that a number of assets classed as Stage 2 under the weighted average had only just hurdled the SICR threshold.
A higher coverage rate was observed in the Republic of Ireland portfolio compared with the UK Personal portfolio.  This was due to higher coverage rates in the Republic of Ireland mortgage portfolio as compared with the UK mortgage portfolio. The Republic of Ireland portfolio appeared more responsive to economic simulations than the UK Personal portfolio. A larger upside benefit was observed, since the Republic of Ireland portfoliowas heavily weighted towards mortgages and mortgage assets benefit more than personal unsecured lending in upside scenarios. The downside simulation indicated a larger uplift for the Republic of Ireland portfolio, reflecting the particular sensitivity of this portfolio to adverse unemployment rates and house price forecasts.
 
 
 
 
Capital and risk management
Credit risk - Banking activities
Introduction
This section details the credit risk profile of NatWest Group's banking activities.
Financial instruments within the scope of the IFRS 9 ECL framework
Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost (AC) or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.
Financial assets
 
30 June
31 December
 
2020
2019
 
£bn
£bn
Balance sheet total gross AC and FVOCI
541.6
484.3
In scope of IFRS 9 ECL framework
530.0
475.5
% in scope
98%
98%
Loans - in scope
370.4
340.0
  Stage 1
266.4
305.5
  Stage 2
97.0
27.9
  Stage 3
7.0
6.6
Other financial assets - in scope
159.6
135.5
  Stage 1
158.2
135.5
  Stage 2
1.4
-
Out of scope of IFRS 9 ECL framework
11.6
8.8
 
Those assets outside the framework were as follows:
Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £8.9 billion (31 December 2019 – £6.1 billion). These were assessed as having no ECL unless there was evidence that they were credit impaired.
Equity shares of £0.8 billion (31 December 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 – £1.5 billion (31 December 2019 – £1.1 billion).
NatWest Group originated securitisations, where ECL was captured on the underlying loans of £0.4 billion (31 December 2019 – £0.4 billion).
Commercial cards which operate in a similar manner to charge cards, with balances repaid monthly via mandated direct debit with the underlying risk of loss captured within the customer’s linked current account of nil (31 December 2019 – £0.3 billion).
 
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 13 – reputationally-committed limits, are also included in the scope of the IFRS 9 ECL framework. These are offset by £0.1 billion (31 December 2019 – £2.6 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as AC or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £135.5 billion (31 December 2019 – £127.9 billion) comprised Stage 1 £89.0 billion (31 December 2019 – £121.7 billion); Stage 2 £45.7 billion (31 December 2019 – £5.6 billion); and Stage 3 £0.8 billion (31 December 2019 – £0.6 billion).
 
 
 
Capital and risk management
Credit risk - Banking activities continued
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.
 
 
UK Personal
Ulster
Commercial
Private
RBS
NatWest
Central items
 
 
Banking
Bank RoI
Banking
Banking
International
Markets
& other
Total
30 June 2020
£m
£m
£m
£m
£m
£m
£m
£m
Loans - amortised cost and FVOCI
 
 
 
 
 
 
 
 
Stage 1
136,065
18,642
53,514
14,465
12,697
10,197
20,864
266,444
Stage 2
28,270
4,478
58,374
1,567
1,825
2,381
115
97,010
Stage 3
2,052
1,547
2,806
256
195
178
 -  
7,034
Of which: individual
 -  
22
1,727
256
195
172
 -  
2,372
Of which: collective
2,052
1,525
1,079
 -  
 -  
6
 -  
4,662
 
166,387
24,667
114,694
16,288
14,717
12,756
20,979
370,488
ECL provisions (1)
 
 
 
 
 
 
 
 
Stage 1
155
42
217
21
9
18
7
469
Stage 2
901
262
1,714
49
25
53
21
3,025
Stage 3
902
567
1,184
29
42
136
 -  
2,860
Of which: individual
 -  
4
701
29
42
129
 -  
905
Of which: collective
902
563
483
 -  
 -  
7
 -  
1,955
 
1,958
871
3,115
99
76
207
28
6,354
ECL provisions coverage (2,3)
 
 
 
 
 
 
 
 
Stage 1 (%)
0.11
0.23
0.41
0.15
0.07
0.18
0.03
0.18
Stage 2 (%)
3.19
5.85
2.94
3.13
1.37
2.23
18.26
3.12
Stage 3 (%)
43.96
36.65
42.20
11.33
21.54
76.40
-
40.66
 
1.18
3.53
2.72
0.61
0.52
1.62
0.13
1.72
 
 
 
 
 
 
 
 
 
Half year ended 30 June 2020
 
 
 
 
 
 
 
 
Impairment losses
 
 
 
 
 
 
 
 
ECL charge (4)
657
243
1,790
56
46
40
26
2,858
Stage 1
24
12
231
16
4
10
11
308
Stage 2
524
186
1,323
39
20
43
15
2,150
Stage 3
109
45
236
1
22
(13)
-
400
Of which: individual
-
(2)
114
1
22
(4)
-
131
Of which: collective
109
47
122
 -  
 -  
(9)
-
269
ECL loss rate - annualised (basis points) (3)
78.97
197.02
312.13
68.76
62.51
62.72
24.79
154.28
Amounts written-off
117
164
120
1
2
4
-
408
Of which: individual
-
 -  
34
1
2
4
-
41
Of which: collective
117
164
86
-
-
-
-
367
 
For the notes to this table refer to the following page.
Capital and risk management
Credit risk – Banking activities continued
Portfolio summary – segment analysis
 
UK Personal
Ulster
Commercial
Private
RBS
NatWest
Central items
 
 
Banking
Bank RoI
Banking
Banking
International
Markets
& other
Total
31 December 2019
£m
£m
£m
£m
£m
£m
£m
£m
Loans - amortised cost and FVOCI
 
 
 
 
 
 
 
 
Stage 1
144,513
18,544
88,100
14,956
14,834
9,273
15,282
305,502
Stage 2
13,558
1,642
11,353
587
545
180
3
27,868
Stage 3
1,902
2,037
2,162
207
121
169
-
6,598
Of which: individual
-
68
1,497
207
121
158
-
2,051
Of which: collective
1,902
1,969
665
-
-
11
-
4,547
 
159,973
22,223
101,615
15,750
15,500
9,622
15,285
339,968
ECL provisions (1)
 
 
 
 
 
 
 
 
Stage 1
114
29
152
7
4
10
6
322
Stage 2
467
53
214
7
6
5
-
752
Stage 3
823
693
1,021
29
21
131
-
2,718
Of which: individual
-
22
602
29
21
122
-
796
Of which: collective
823
671
419
-
-
9
-
1,922
 
1,404
775
1,387
43
31
146
6
3,792
ECL provisions coverage (2,3)
 
 
 
 
 
 
 
 
Stage 1 (%)
0.08
0.16
0.17
0.05
0.03
0.11
0.04
0.11
Stage 2 (%)
3.44
3.23
1.88
1.19
1.10
2.78
-
2.70
Stage 3 (%)
43.27
34.02
47.22
14.01
17.36
77.51
-
41.19
 
0.88
3.49
1.36
0.27
0.20
1.52
0.04
1.12
 
 
 
 
 
 
 
 
 
Half year ended 30 June 2019
 
 
 
 
 
 
 
 
Impairment losses
 
 
 
 
 
 
 
 
ECL charge (4)
181
(21)
202
(3)
(3)
(36)
3
323
Stage 1
(53)
(24)
(55)
(5)
(3)
(2)
2
(140)
Stage 2
103
(38)
38
(1)
-
(2)
1
101
Stage 3
131
41
219
3
-
(32)
-
362
Of which: individual
 -  
(4)
200
3
-
(29)
-
170
Of which: collective
131
45
19
-
-
(3)
-
192
ECL loss rate - annualised (basis points) (3)
23.70
(17.88)
39.66
(4.03)
(3.86)
(68.68)
9.98
19.88
Amounts written-off
90
72
276
1
2
11
-
452
Of which: individual
-
2
227
1
2
11
-
243
Of which: collective
90
70
49
-
-
-
-
209
 
Notes:
(1)
Includes £8 million (31 December 2019 – £4 million) related to assets classified as FVOCI.
(2)
ECL provisions coverage is calculated as ECL provisions divided by loans.
(3)
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. The half year ECL charge is annualised by multiplying by two.
(4)
Includes a £5 million charge (30 June 2019 – £30 million charge) related to other financial assets, of which £4 million (30 June 2019 – nil) related to assets classified as FVOCI; and £8 million (30 June 2019 – £28 million) related to contingent liabilities.
(5)
 
The table above shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 90 for Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £99.2 billion and debt securities of £60.5 billion (31 December 2019 – £76.1 billion and £59.4 billion respectively).
 
Key points
The ECL requirement increased significantly, primarily in Stage 1 and Stage 2 exposures, in anticipation of credit deterioration, reflecting the severity of the economic impact arising from Covid-19.
The various customer support mechanisms available mitigate against flows to default in the short-term. Hence, there was a more limited impact on Stage 3 ECL requirements.
Reflecting the deteriorated economic environment, the annualised loss rate was significantly above the previously advised view of a normalised blended long-term loss rate.
 
Capital and risk management
Credit risk - Banking activities continued
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.
 
Gross loans
 
ECL provisions (2)
 
 
Stage 2 (1)
 
 
 
 
Stage 2 (1)
 
 
 
 
 
 
 
 
 
 
Not past
1-29
>30
 
 
 
 
 
Not past
1-29
>30
 
 
 
 
Stage 1
due
DPD
DPD
Total
Stage 3
Total
 
Stage 1
due
DPD
DPD
Total
Stage 3
Total
30 June 2020
£m
£m
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
£m
£m
UK Personal Banking
136,065
26,597
1,017
656
28,270
2,052
166,387
 
155
766
61
74
901
902
1,958
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank RoI
18,642
4,122
150
206
4,478
1,547
24,667
 
42
234
12
16
262
567
871
Personal (3)
10,602
2,015
131
133
2,279
1,384
14,265
 
18
82
10
13
105
467
590
Wholesale
8,040
2,107
19
73
2,199
163
10,402
 
24
152
2
3
157
100
281
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Banking
53,514
55,593
1,934
847
58,374
2,806
114,694
 
217
1,614
72
28
1,714
1,184
3,115
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Banking
14,465
1,545
14
8
1,567
256
16,288
 
21
48
 -  
1
49
29
99
Personal
11,972
168
12
7
187
243
12,402
 
4
3
 -  
 -  
3
26
33
Wholesale
2,493
1,377
2
1
1,380
13
3,886
 
17
45
 -  
1
46
3
66
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RBS International
12,697
1,792
15
18
1,825
195
14,717
 
9
25
 -  
 -  
25
42
76
Personal
2,793
18
13
11
42
68
2,903
 
1
1
 -  
 -  
1
9
11
Wholesale
9,904
1,774
2
7
1,783
127
11,814
 
8
24
 -  
 -  
24
33
65
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NatWest Markets
10,197
2,363
 -  
18
2,381
178
12,756
 
18
53
 -  
 -  
53
136
207
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Central items & other
20,864
115
 -  
 -  
115
 -  
20,979
 
7
21
 -  
 -  
21
 -  
28
Total loans
266,444
92,127
3,130
1,753
97,010
7,034
370,488
 
469
2,761
145
119
3,025
2,860
6,354
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
161,432
28,798
1,173
807
30,778
3,747
195,957
 
178
852
71
87
1,010
1,404
2,592
Wholesale
105,012
63,329
1,957
946
66,232
3,287
174,531
 
291
1,909
74
32
2,015
1,456
3,762
 
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UK Personal Banking
144,513
11,921
1,034
603
13,558
1,902
159,973
 
114
375
45
47
467
823
1,404
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank RoI
18,544
1,405
104
133
1,642
2,037
22,223
 
29
39
6
8
53
693
775
Personal (3)
10,858
944
96
105
1,145
1,877
13,880
 
12
20
6
6
32
591
635
Wholesale
7,686
461
8
28
497
160
8,343
 
17
19
-
2
21
102
140
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Banking
88,100
10,837
254
262
11,353
2,162
101,615
 
152
195
12
7
214
1,021
1,387
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Private Banking
14,956
478
63
46
587
207
15,750
 
7
6
-
1
7
29
43
Personal
11,630
180
60
41
281
192
12,103
 
3
2
-
1
3
23
29
Wholesale
3,326
298
3
5
306
15
3,647
 
4
4
-
-
4
6
14
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RBS International
14,834
520
18
7
545
121
15,500
 
4
6
-
-
6
21
31
Personal
2,799
27
17
6
50
65
2,914
 
1
1
-
-
1
12
14
Wholesale
12,035
493
1
1
495
56
12,586
 
3
5
-
-
5
9
17
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NatWest Markets
9,273
176
4
-
180
169
9,622
 
10
5
-
-
5
131
146
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Central items & other
15,282
3
-
-
3
-
15,285
 
6
-
-
-
-
-
6
Total loans
305,502
25,340
1,477
1,051
27,868
6,598
339,968
 
322
626
63
63
752
2,718
3,792
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
169,800
13,072
1,207
755
15,034
4,036
188,870
 
130
398
51
54
503
1,449
2,082
Wholesale
135,702
12,268
270
296
12,834
2,562
151,098
 
192
228
12
9
249
1,269
1,710
 
For the notes to this table refer to the following page.
 
 
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
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 provision coverage
 
Half year ended 30 June
 
 
Stage 2 (1,2)
 
 
 
ECL
 
 
 
 
 
 
 
 
Not past
 
 
 
 
 
 
Total
 
Amounts
 
Stage 1
due
1-29 DPD
>30 DPD
Total
Stage 3
Total
 
charge
Loss rate
written-off
30 June 2020
%
%
%
%
%
%
%
 
£m
basis points
£m
UK Personal Banking
0.11
2.88
6.00
11.28
3.19
43.96
1.18
 
657
78.97
117
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank RoI
0.23
5.68
8.00
7.77
5.85
36.65
3.53
 
243
197.02
164
Personal (3)
0.17
4.07
7.63
9.77
4.61
33.74
4.14
 
120
168.24
162
Wholesale
0.30
7.21
10.53
4.11
7.14
61.35
2.70
 
123
236.49
2
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Banking
0.41
2.90
3.72
3.31
2.94
42.20
2.72
 
1,790
312.13
120
 
 
 
 
 
 
 
 
 
 
 
 
Private Banking
0.15
3.11
-
12.50
3.13
11.33
0.61
 
56
68.76
1
Personal
0.03
1.79
-
-
1.60
10.70
0.27
 
3
4.84
 -
Wholesale
0.68
3.27
-
100.00
3.33
23.08
1.70
 
53
272.77
1
 
 
 
 
 
 
 
 
 
 
 
 
RBS International
0.07
1.40
-
-
1.37
21.54
0.52
 
46
62.51
2
Personal
0.04
5.56
-
-
2.38
13.24
0.38
 
(3)
(20.67)
2
Wholesale
0.08
1.35
-
-
1.35
25.98
0.55
 
49
82.95
 -
 
 
 
 
 
 
 
 
 
 
 
 
NatWest Markets
0.18
2.24
-
-
2.23
76.40
1.62
 
40
62.72
4
 
 
 
 
 
 
 
 
 
 
 
 
Central items & other
0.03
18.26
-
-
18.26
 -  
0.13
 
26
24.79
 -
Total loans
0.18
3.00
4.63
6.79
3.12
40.66
1.72
 
2,858
154.28
408
Of which:
 
 
 
 
 
 
 
 
 
 
 
Personal
0.11
2.96
6.05
10.78
3.28
37.47
1.32
 
777
79.30
281
Wholesale
0.28
3.01
3.78
3.38
3.04
44.30
2.16
 
2,081
238.47
127
 
 
 
 
 
 
 
 
 
 
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
UK Personal Banking
0.08
3.15
4.35
7.79
3.44
43.27
0.88
 
181
23.70
90
 
 
 
 
 
 
 
 
 
 
 
 
Ulster Bank RoI
0.16
2.78
5.77
6.02
3.23
34.02
3.49
 
(21)
(17.88)
72
Personal (3)
0.11
2.12
6.25
5.71
2.79
31.49
4.57
 
(10)
(13.87)
64
Wholesale
0.22
4.12
-
7.14
4.23
63.75
1.68
 
(11)
(24.26)
8
 
 
 
 
 
 
 
 
 
 
 
 
Commercial Banking
0.17
1.80
4.72
2.67
1.88
47.22
1.36
 
202
39.66
276
 
 
 
 
 
 
 
 
 
 
 
 
Private Banking
0.05
1.26
-
2.17
1.19
14.01
0.27
 
(3)
(4.03)
1
Personal
0.03
1.11
-
2.44
1.07
11.98
0.24
 
(3)
(5.11)
1
Wholesale
0.12
1.34
-
-
1.31
40.00
0.38
 
-
-
-
 
 
 
 
 
 
 
 
 
 
 
 
RBS International
0.03
1.15
-
-
1.10
17.36
0.20
 
(3)
(3.86)
2
Personal
0.04
3.70
-
-
2.00
18.46
0.48
 
(1)
(7.30)
2
Wholesale
0.02
1.01
-
-
1.01
16.07
0.14
 
(2)
(3.13)
-
 
 
 
 
 
 
 
 
 
 
 
 
NatWest Markets
0.11
2.84
-
-
2.78
77.51
1.52
 
(36)
(68.68)
11
 
 
 
 
 
 
 
 
 
 
 
 
Central items & other
0.04
-
-
-
-
-
0.04
 
3
9.98
-
Total loans
0.11
2.47
4.27
5.99
2.70
41.19
1.12
 
323
19.88
452
Of which:
 
 
 
 
 
 
 
 
 
 
 
Personal
0.08
3.04
4.23
7.15
3.35
35.90
1.10
 
167
18.39
157
Wholesale
0.14
1.86
4.44
3.04
1.94
49.53
1.13
 
156
21.76
295
 
Notes:
(1)
30 DPD – 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for a SICR.
(2)
ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
(3)  Includes a £7 million charge and a £1 million write-off (31 December 2019 – £5 million release and £3 million write-off) related to the business banking
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Segmental loans and impairment metrics
Key points
●   Personal Banking - Balance sheet growth since the 2019 year-end was driven by mortgages, primarily pre-Covid-19, in the first quarter of the year. Unsecured lending balances reduced in the second quarter as customer spend and demand for borrowing reduced whilst in lockdown and customers have made repayments. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of customer accounts exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. Additionally, forecast declines in house prices increased the ECL requirement on the mortgage portfolio. The various Covid-19 related customer support mechanisms (loan repayment holidays, government job retention scheme) are mitigating actual portfolio deterioration in the short term, with the days past due, and flows to Stage 3 metrics, yet to be materially impacted. Provisions coverage increased overall but coverage on Stage 2 alone has reduced driven by a proportionately higher share of mortgage exposures where coverage levels are lower, reflecting the secured nature of the borrowing. The annualised loss rate for H1 2020 was significantly higher than in 2019.
●   Commercial Banking - Balance sheet growth since the 2019 year-end was mainly due to further drawdowns on existing facilities and new lending under the Covid-19 government lending schemes. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including significant falls in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to the 2019 year-end, 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 requirement increased. The increase in Stage 2 assets due to PD deterioration was also the primary driver for the increase in the Stage 2 exposures less than 30 days past due. The various Covid-19 related customer support mechanisms are providing some mitigation against flows in to defaults in the short-term. Increased coverage in Stage 1 and Stage 2 was driven by the increased ECL, mainly as a result of the deteriorated economic outlook, which was partially offset by a slight decrease in Stage 3 coverage. The annualised loss rate for H1 2020 was significantly higher than in 2019.
●   Ulster Bank RoI - Balance sheet growth since the 2019 year-end was mainly due to further drawdowns on existing facilities and new lending across both the commercial and personal banking portfolios, offset by ongoing deleveraging of the Ulster Bank RoI mortgage non-performing portfolio through the execution of two tranches of a portfolio sale. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, included forecast increases in unemployment, falls in property prices and GDP, which resulted in increased IFRS 9 PDs across all portfolios. Consequently, compared to the 2019 year-end, 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 requirement increased. The various Covid-19 related customer support mechanisms (loan repayment breaks, government job retention scheme) provided by Ulster Bank RoI are mitigating actual portfolio deterioration in the short-term, with the days past due, and flows to Stage 3 metrics, yet to be materially impacted. The annualised loss rate for H1 2020 was significantly higher than in 2019.
 
 
 
 
 
 
 
 
 
 
Capital and risk management
Portfolio summary – sector analysis
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 based on the country of operation of the customer.
 
Personal
 
Wholesale
 
Total
 
 
 
 
 
 
 
 
 
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages(1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
30 June 2020
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by geography
182,142
3,818
9,997
195,957
 
40,441
81,715
42,932
9,443
174,531
 
370,488
  - UK
168,163
3,743
9,786
181,692
 
37,546
66,125
29,575
3,566
136,812
 
318,504
  - RoI
13,979
75
211
14,265
 
1,375
4,312
288
4,994
10,969
 
25,234
  - Other Europe
-
-
-
-
 
829
5,706
4,260
382
11,177
 
11,177
  - RoW
-
-
-
-
 
691
5,572
8,809
501
15,573
 
15,573
Loans by asset quality (2)
182,142
3,818
9,997
195,957
 
40,441
81,715
42,932
9,443
174,531
 
370,488
  - AQ1
2,552
-
554
3,106
 
4,602
1,919
23,299
2,054
31,874
 
34,980
  - AQ2
4,496
-
-
4,496
 
2,324
647
1,954
1,824
6,749
 
11,245
  - AQ3
276
-
-
276
 
2,924
6,502
1,644
5,300
16,370
 
16,646
  - AQ4
98,997
42
377
99,416
 
7,268
15,830
9,977
96
33,171
 
132,587
  - AQ5
59,995
907
1,405
62,307
 
10,048
20,605
1,798
106
32,557
 
94,864
  - AQ6
4,066
994
3,969
9,029
 
6,539
14,905
706
3
22,153
 
31,182
  - AQ7
5,627
1,374
1,697
8,698
 
3,596
12,018
3,258
44
18,916
 
27,614
  - AQ8
1,610
335
868
2,813
 
1,086
4,566
268
5
5,925
 
8,738
  - AQ9
1,620
56
393
2,069
 
795
2,711
18
5
3,529
 
5,598
  - AQ10
2,903
110
734
3,747
 
1,259
2,012
10
6
3,287
 
7,034
Loans by stage
182,142
3,818
9,997
195,957
 
40,441
81,715
42,932
9,443
174,531
 
370,488
  - Stage 1
152,947
2,387
6,098
161,432
 
26,782
29,661
39,133
9,436
105,012
 
266,444
  - Stage 2
26,292
1,321
3,165
30,778
 
12,400
50,042
3,789
1
66,232
 
97,010
  - Stage 3
2,903
110
734
3,747
 
1,259
2,012
10
6
3,287
 
7,034
  - Of which: individual
290
-
21
311
 
860
1,196
2
3
2,061
 
2,372
  - Of which: collective
2,613
110
713
3,436
 
399
816
8
3
1,226
 
4,662
Loans - past due analysis (3,4)
182,142
3,818
9,997
195,957
 
40,441
81,715
42,932
9,443
174,531
 
370,488
  - Not past due
177,991
3,663
8,989
190,643
 
38,890
78,439
42,651
8,476
168,456
 
359,099
  - Past due 1-29 days
1,495
25
155
1,675
 
604
1,964
200
967
3,735
 
5,410
  - Past due 30-89 days
954
46
132
1,132
 
435
599
75
-
1,109
 
2,241
  - Past due 90-180 days
494
30
84
608
 
29
88
-
-
117
 
725
  - Past due >180 days
1,208
54
637
1,899
 
483
625
6
-
1,114
 
3,013
Loans - Stage 2
26,292
1,321
3,165
30,778
 
12,400
50,042
3,789
1
66,232
 
97,010
  - Not past due
24,624
1,267
2,907
28,798
 
11,636
47,992
3,700
1
63,329
 
92,127
  - Past due 1-29 days
1,020
17
136
1,173
 
395
1,548
14
-
1,957
 
3,130
  - Past due 30-89 days
648
37
122
807
 
369
502
75
-
946
 
1,753
Weighted average life*
 
 
 
 
 
 
 
 
 
 
 
 
   - ECL measurement (years)
9
3
5
6
 
4
5
4
-
5
 
5
Weighted average 12 months PDs*
 
 
 
 
 
 
 
 
 
 
 
 
  - IFRS 9 (%)
0.71
4.14
4.88
0.98
 
3.78
4.07
0.52
0.06
2.74
 
1.69
  - Basel (%)
0.89
3.75
4.14
1.10
 
1.61
2.52
0.29
0.09
1.55
 
1.30
ECL provisions by geography
1,032
376
1,184
2,592
 
1,031
2,625
96
10
3,762
 
6,354
  - UK
461
373
1,168
2,002
 
895
2,010
37
7
2,949
 
4,951
  - RoI
571
3
16
590
 
82
219
3
1
305
 
895
  - Other Europe
-
-
-
-
 
47
182
42
1
272
 
272
  - RoW
-
-
-
-
 
7
214
14
1
236
 
236
ECL provisions by stage
1,032
376
1,184
2,592
 
1,031
2,625
96
10
3,762
 
6,354
  - Stage 1
34
47
97
178
 
126
133
22
10
291
 
469
  - Stage 2
292
243
475
1,010
 
392
1,554
69
-
2,015
 
3,025
  - Stage 3
706
86
612
1,404
 
513
938
5
-
1,456
 
2,860
  - Of which: individual
20
-
15
35
 
305
565
-
-
870
 
905
  - Of which: collective
686
86
597
1,369
 
208
373
5
-
586
 
1,955
ECL provisions coverage (%)
0.57
9.85
11.84
1.32
 
2.55
3.21
0.22
0.11
2.16
 
1.72
  - Stage 1 (%)
0.02
1.97
1.59
0.11
 
0.47
0.45
0.06
0.11
0.28
 
0.18
  - Stage 2 (%)
1.11
18.40
15.01
3.28
 
3.16
3.11
1.82
-
3.04
 
3.12
  - Stage 3 (%)
24.32
78.18
83.38
37.47
 
40.75
46.62
50.00
-
44.30
 
40.66
ECL charge
243
164
370
777
 
568
1,439
73
1
2,081
 
2,858
  - UK
136
163
358
657
 
501
1,238
26
1
1,766
 
2,423
  - RoI
107
1
12
120
 
47
77
1
-
125
 
245
  - Other Europe
-
-
-
-
 
16
50
36
-
102
 
102
  - RoW
-
-
-
-
 
4
74
10
-
88
 
88
ECL loss rate (%)
0.27
8.59
7.40
0.79
 
2.81
3.52
0.34
0.02
2.38
 
1.54
Amounts written-off
169
49
63
281
 
21
104
2
-
127
 
408
 
*Not within the scope of EY's review report.
 
For the notes to this table refer to page 45.
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Portfolio summary – sector analysis
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages(1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
30 June 2020
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by residual maturity
182,142
3,818
9,997
195,957
 
40,441
81,715
42,932
9,443
174,531
 
370,488
 - <1 year
3,820
2,357
3,129
9,306
 
8,930
25,187
33,226
7,322
74,665
 
83,971
 - 1-5 year
9,103
1,461
5,724
16,288
 
21,932
39,324
8,790
1,317
71,363
 
87,651
 - 5 year
169,219
 -  
1,144
170,363
 
9,579
17,204
916
804
28,503
 
198,866
Other financial assets by asset quality (2)
-
-
-
-
 
37
129
13,213
146,272
159,651
 
159,651
  - AQ1-AQ4
-
-
-
-
 
-
128
12,734
146,236
159,098
 
159,098
  - AQ5-AQ8
-
-
-
-
 
37
1
479
36
553
 
553
Off-balance sheet
11,161
17,481
12,685
41,327
 
16,030
58,398
18,630
1,131
94,189
 
135,516
  - Loan commitments
11,158
17,481
12,640
41,279
 
15,423
55,099
17,500
1,129
89,151
 
130,430
  - Financial guarantees
3
 -  
45
48
 
607
3,299
1,130
2
5,038
 
5,086
Off-balance sheet by asset quality (2)
11,161
17,481
12,685
41,327
 
16,030
58,398
18,630
1,131
94,189
 
135,516
  - AQ1-AQ4
10,537
278
10,362
21,177
 
11,837
35,657
17,083
1,092
65,669
 
86,846
  - AQ5-AQ8
614
16,910
2,307
19,831
 
4,116
22,210
1,543
39
27,908
 
47,739
  - AQ9
1
9
16
26
 
12
46
-
-
58
 
84
  - AQ10
9
284
-
293
 
65
485
4
-
554
 
847
 
 
For the notes to this table refer to page 45.
 
Capital and risk management
Credit risk – Banking activities continued
  Portfolio summary – sector analysis
 
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages(1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
31 December 2019
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by geography
174,003
4,478
10,389
188,870
 
36,371
71,042
36,266
7,419
151,098
 
339,968
  - 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
3,167
9,159
 
23,039
  - 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
7,419
151,098
 
339,968
  - 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
3,520
14,485
 
14,762
  - 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 stage
174,003
4,478
10,389
188,870
 
36,371
71,042
36,266
7,419
151,098
 
339,968
  - Stage 1
159,261
3,103
7,436
169,800
 
32,896
59,689
35,707
7,410
135,702
 
305,502
  - 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
7,419
151,098
 
339,968
  - Not past due
169,536
4,313
9,473
183,322
 
35,445
68,730
36,214
7,365
147,754
 
331,076
  - Past due 1-29 days
1,578
43
164
1,785
 
317
1,339
36
54
1,746
 
3,531
  - Past due 30-89 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 1-29 days
1,050
29
128
1,207
 
49
214
5
-
268
 
1,475
  - Past due 30-89 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
 
0.54
  - Basel (%)
0.81
3.59
3.75
1.03
 
0.96
1.25
0.20
0.07
0.83
 
0.92
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
 
 
 
 
 
 
 
 
 
 
 
 
 
Half year ended 30 June 2019
 
 
 
 
 
 
 
 
 
 
 
 
ECL charge
3
26
138
167
 
22
134
(2)
2
156
 
323
  - UK
15
26
136
177
 
22
165
(1)
1
187
 
364
  - RoI
(12)
-
2
(10)
 
-
(11)
-
-
(11)
 
(21)
  - Other Europe
-
-
-
-
 
-
(25)
(1)
-
(26)
 
(26)
  - RoW
-
-
-
-
 
-
5
-
1
6
 
6
ECL loss rate (%)
-
1.24
2.78
0.18
 
0.12
0.37
(0.01)
0.05
0.22
 
0.20
Amounts written-off
71
35
51
157
 
173
112
10
-
295
 
452
 
*Not within the scope of EY's review report.
 
For the notes to this table refer to the following page.
 
Capital and risk management
Credit risk - Banking activities continued
Portfolio summary – sector analysis
 
 
Personal
 
Wholesale
 
Total
 
 
Credit
Other
 
 
 
 
 
 
 
 
 
 
Mortgages(1)
cards
personal
Total
 
Property
Corporate
FI
Sovereign
Total
 
 
31 December 2019
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
£m
Loans by residual maturity
174,003
4,478
10,389
188,870
 
36,371
71,042
36,266
7,419
151,098
 
339,968
 - <1 year
3,996
2,750
3,480
10,226
 
7,318
24,539
27,299
5,477
64,633
 
74,859
 - 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
123,170
135,465
 
135,465
  - AQ1-AQ4
-
-
-
-
 
-
110
11,742
122,906
134,758
 
134,758
  - 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
  - AQ10
9
276
-
285
 
60
261
1
-
322
 
607
 
Notes:
(1)
Includes a portion of secured lending in Private Banking, in line with ECL calculation methodology. Private Banking and RBSI mortgages are reported in UK, reflecting the country of lending origination.
(2)
AQ bandings are based on Basel PDs and the mapping is as follows:Internal asset quality bandProbability of default rangeIndicative S&P ratingAQ10% - 0.034%AAA to AAAQ20.034% - 0.048%AA to AA-AQ30.048% - 0.095%A+ to AAQ40.095% - 0.381%BBB+ to BBB-AQ50.381% - 1.076%BB+ to BBAQ61.076% - 2.153%BB- to B+AQ72.153% - 6.089%B+ to BAQ86.089% - 17.222%B- to CCC+AQ917.222% - 100%CCC to CAQ10100%D£0.3 billion (31 December 2019 – £0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. AQ10 includes £0.5 billion (31 December 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.
(3)
30 DPD – 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR.
(4)
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.
 
 
Capital and risk management
Credit risk - Banking activities continued
 
Sector analysis
The table below shows ECL by stage, for key sectors in the Personal and Wholesale portfolios impacted by Covid-19.
 
 
 
Off-balance sheet
 
 
 
Loans - amortised cost & FVOCI (1)
 
Loan
Contingent
 
ECL provisions
 
 
 
 
 
 
 
 
Stage 1
Stage 2
Stage 3
Total
 
commitments (1)
liabilities
 
Stage 1
Stage 2
Stage 3
Total
30 June 2020
£m
£m
£m
£m
 
£m
£m
 
£m
£m
£m
£m
Personal
161,432
30,778
3,747
195,957
 
41,279
48
 
178
1,010
1,404
2,592
  Mortgages
152,947
26,292
2,903
182,142
 
11,158
3
 
34
292
706
1,032
  Credit cards
2,387
1,321
110
3,818
 
17,481
-
 
47
243
86
376
  Other personal
6,098
3,165
734
9,997
 
12,640
45
 
97
475
612
1,184
Wholesale
105,012
66,232
3,287
174,531
 
89,151
5,038
 
291
2,015
1,456
3,762
  Property
26,782
12,400
1,259
40,441
 
15,423
607
 
126
392
513
1,031
  Financial institutions
39,133
3,789
10
42,932
 
17,500
1,130
 
22
69
5
96
  Sovereign
9,436
1
6
9,443
 
1,129
2
 
10
-
-
10
  Corporate
29,661
50,042
2,012
81,715
 
55,099
3,299
 
133
1,554
938
2,625
    Of which:
 
 
 
 
 
 
 
 
 
 
 
 
        Airlines and aerospace
495
1,839
38
2,372
 
1,829
233
 
4
53
26
83
        Automotive
2,000
5,437
146
7,583
 
3,547
93
 
8
108
19
135
        Education
704
919
83
1,706
 
725
19
 
2
27
16
45
        Health
2,055
3,650
168
5,873
 
515
13
 
9
145
60
214
        Land transport and logistics
1,149
3,334
110
4,593
 
3,919
206
 
6
96
43
145
        Leisure
2,755
6,739
534
10,028
 
1,841
126
 
22
303
249
574
        Oil and gas
465
1,535
89
2,089
 
2,627
382
 
4
55
61
120
        Retail
2,647
5,059
221
7,927
 
5,858
507
 
13
158
170
341
        Shipping
293
877
21
1,191
 
219
38
 
2
90
11
103
        Textiles
73
111
3
187
 
65
9
 
-
2
2
4
Total
266,444
97,010
7,034
370,488
 
130,430
5,086
 
469
3,025
2,860
6,354
 
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
Personal
169,800
15,034
4,036
188,870
 
43,316
50
 
130
503
1,449
2,082
  Mortgages
159,261
11,465
3,277
174,003
 
14,345
3
 
25
118
821
964
  Credit cards
3,103
1,259
116
4,478
 
16,686
-
 
40
132
89
261
  Other personal
7,436
2,310
643
10,389
 
12,285
47
 
65
253
539
857
Wholesale
135,702
12,834
2,562
151,098
 
79,060
5,477
 
192
249
1,269
1,710
  Property
32,896
2,580
895
36,371
 
14,739
644
 
45
47
402
494
  Financial institutions
35,707
546
13
36,266
 
15,417
1,325
 
16
4
8
28
  Sovereign
7,410
4
5
7,419
 
1,021
1
 
7
-
-
7
  Corporate
59,689
9,704
1,649
71,042
 
47,883
3,507
 
124
198
859
1,181
    Of which:
 
 
 
 
 
 
 
 
 
 
 
 
        Airlines and aerospace (2)
1,412
261
40
1,713
 
1,716
271
 
2
3
55
60
        Automotive
5,062
1,143
20
6,225
 
3,815
98
 
12
11
15
38
        Education
1,426
154
12
1,592
 
654
18
 
2
4
1
7
        Health
4,695
844
167
5,706
 
534
17
 
9
16
52
77
        Land transport and logistics
3,477
316
53
3,846
 
3,301
249
 
6
12
21
39
        Leisure
6,323
1,253
377
7,953
 
2,876
135
 
25
27
175
227
        Oil and gas
1,923
140
86
2,149
 
2,400
358
 
5
3
55
63
        Retail
6,397
1,279
215
7,891
 
5,383
560
 
13
16
180
209
        Shipping
474
725
20
1,219
 
313
53
 
1
37
5
43
        Textiles
134
29
3
166
 
93
6
 
-
1
2
3
Total
305,502
27,868
6,598
339,968
 
122,376
5,527
 
322
752
2,718
3,792
 
Notes:
(1)
Loan commitments as at 30 June 2020 includes £4.1 billion of commercial cards related balances which were brought into scope of ECL calculations in H1 2020.
(2)
Airlines and aerospace Stage 3 ECL at 31 December 2019 included £27 million of ECL related to contingent liabilities.
 
 
Capital and risk management
Credit risk - Banking activities continued
 
Sector performance in Wholesale portfolios
The nature of the Covid-19 crisis is such that the impact on customers varies significantly by industry sector. NatWest Group has adopted a nuanced response to capture the sector ECL impact by using sector specific CCIs in its Wholesale methodology. The CCIs observed at the reporting date are based on average default probability estimates for publicly-listed companies, in a set of comprehensive sector/region segments derived from the stock market valuation, asset volatility and capital structure of each company. Forward-looking CCIs are projected based on the economic loss drivers in the scenarios (refer to the Use of the scenarios in Wholesale section) and have been adjusted by sector group specific CCI changes observed throughout H1 2020 to make them more sector specific (refer to the industry detail in the Model performance section). Since both, current and projected CCI are driving PD and LGD, NatWest Group obtains modelled ECL outcomes which are significantly differentiated by sector. As a result, the impact on ECL is more pronounced for those sectors which have suffered a more significant disruption from Covid-19.
Wholesale forbearance
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on page 49.
 
FI
Property
Sovereign
Other corporate
Total
30 June 2020
£m
£m
£m
£m
£m
Forbearance (flow)
80
730
-
2,648
3,458
Heightened Monitoring and Risk of Credit Loss
154
1,333
-
5,960
7,447
31 December 2019
 
 
 
 
 
Forbearance (flow)
35
546
-
2,254
2,835
Heightened Monitoring and Risk of Credit Loss
107
1,209
-
4,207
5,523
 
 
 
Capital and risk management
Credit risk - Banking activities continued
 
Key points
Loans by geography – In the Personal portfolios, exposures continued to be concentrated in the UK and heavily weighted to mortgages and the vast majority of exposures in the Republic of Ireland remained in mortgages. Balance sheet growth since the 2019 year-end was driven by mortgages, primarily pre-Covid-19, in the first quarter of the year. Unsecured lending balances reduced as described earlier. In the Wholesale portfolios, balance sheet growth was driven by additional drawings on existing facilities and new lending under the various government-supported lending schemes which are predominantly to UK customers.
Loans by asset quality (based on Basel II PD) – In the Personal portfolios, asset quality distribution deteriorated slightly in credit cards and other personal since the year-end, with the Basel II point-in-time PDs yet to reflect the expected credit deterioration. In the Wholesale portfolios, Basel II PDs are based on a through-the-cycle approach. The asset quality distribution was relatively stable with only modest deterioration. For further details refer to the Asset quality section.
Loans by stage – In both the Personal and Wholesale portfolios, the deteriorated economic outlook, as detailed in the Covid-19 – estimating ECL in uncertain times section, 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.
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.
Weighted average PDs – In Personal, the Basel II point-in-time PDs have yet to be materially affected. The forward-looking IFRS 9 PDs increased reflecting the deteriorated economics. The cards PD had been significantly over-predicting defaults at the 2019 year-end but has now been addressed, hence the relatively small movement. The over-prediction had been mitigated by a downward ECL overlay, now discontinued. The IFRS 9 PDs for both loans and mortgages were under-predicting and an upward ECL overlay adjustment was held in mitigation. In the Wholesale portfolios, the Basel II PDs are based on a through-the-cycle approach and have been relatively stable. The increase in the IFRS 9 PDs reflected the impact of the deteriorated economic outlook.
ECL provisions by geography – In line with exposures 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 have increased reflecting the deteriorated economic outlook. As outlined above, Stage 3 provisions have yet to be materially impacted mitigated by the various customer support mechanisms discussed earlier. In mortgages, the Stage 3 ECL reduction was driven by 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 slightly, driven by 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 impact 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.
ECL charge and loss rate – Reflecting the deteriorated economic outlook, the impairment charge was elevated, with the annualised loss rate for H1 2020 significantly higher than the 2019 outcome.
Loans by residual maturity – In mortgages, the vast majority of exposures remained greater than five years. In unsecured lending – cards and other – exposures were concentrated in less than five years. In Wholesale, the vast 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 by asset quality – In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts and have increased slightly as drawn exposures have reduced. Additionally, the mortgage portfolio had undrawn exposure, where a formal offer had been made to a customer but had not yet been drawn down; the value has reduced in line with a reduction in the pipeline of offers. There was also a legacy portfolio of flexible mortgages where a customer had the right and ability to draw down further funds. The asset quality 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 additional lending facilities were agreed, primarily as a result of the Covid-19 crisis. The vast majority of new corporate loan commitments were in the AQ5-AQ8 asset quality bands.
Wholesale forbearance – Customers seeking Covid-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who are assessed as having the ability in the medium term post-crisis to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. Completed forbearance flow in H1 2020 for other corporate was £2.6 billion. Retail and leisure continued to represent the largest share of this forbearance flow. Following the outbreak of Covid-19, the flow of forbearance rose significantly in the property and transport sectors, with the rise in transport resulting from forbearance completed on individually significant exposures. Payment holidays and covenant waivers were the most common forms of forbearance granted.
Heightened Monitoring and Risk of Credit Loss – Exposure increased to £7.4 billion (31 December 2019 – £5.5 billion). Consistent with the impacts of Covid-19, increased flows into Heightened Monitoring and Risk of Credit Loss have been noted across a number of sectors. The most material increases in both volumes and exposure was seen within other corporate and particularly in retail and leisure.
 
Capital and risk management
Credit risk - Banking activities continued
Personal portfolio
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).

 
 
30 June 2020
 
31 December 2019
 
 
UK Personal
Ulster
Private
RBS
 
 
UK Personal
Ulster
Private
RBS
 
 
 
Banking
Bank RoI
Banking
International
Total
 
Banking
Bank RoI
Banking
International
Total
 
Personal lending
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
£m
 
Mortgages
154,909
14,007
10,238
2,596
181,750
 
147,489
13,598
9,955
2,620
173,662
 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
  Owner occupied
140,372
13,038
8,991
1,728
164,129
 
132,698
12,593
8,714
1,747
155,752
  Buy-to-let
14,537
969
1,247
868
17,621
 
14,791
1,005
1,241
874
17,911
  Interest only - variable
5,650
166
3,965
349
10,130
 
6,279
165
3,646
371
10,461
  Interest only - fixed
13,277
9
4,570
248
18,104
 
12,891
9
4,604
241
17,745
  Mixed (1)
6,689
59
1
20
6,769
 
6,288
61
1
20
6,370
  Impairment provisions (2)
437
571
12
10
1,030
 
309
622
13
11
955
Other personal lending (3)
11,650
286
1,943
290
14,169
 
12,778
308
1,767
280
15,133
 
Impairment provisions (2)
1,515
18
21
2
1,556
 
1,087
13
16
1
1,117
Total personal lending
166,559
14,293
12,181
2,886
195,919
 
160,267
13,906
11,722
2,900
188,795
 
Mortgage LTV ratios
 
 
 
 
 
 
 
 
 
 
 
  Total portfolio
57%
59%
57%
58%
57%
 
57%
60%
57%
58%
57%
      - Stage 1
56%
55%
57%
57%
56%
 
57%
57%
57%
57%
57%
      - Stage 2
67%
69%
61%
66%
67%
 
58%
67%
60%
64%
59%
      - Stage 3
55%
69%
69%
75%
63%
 
55%
73%
70%
80%
66%
  Buy-to-let
52%
60%
55%
52%
53%
 
53%
61%
54%
53%
54%
 
      - Stage 1
51%
54%
55%
52%
51%
 
52%
57%
54%
53%
52%
 
      - Stage 2
60%
74%
65%
50%
62%
 
57%
69%
57%
51%
59%
 
      - Stage 3
58%
75%
54%
62%
64%
 
59%
75%
58%
66%
67%
 
Gross new mortgage lending (4)
15,849
400
814
124
17,187
 
31,857
1,184
2,112
355
35,508
 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
Owner occupied
15,368
399
732
82
16,581
 
30,779
1,175
1,889
248
34,091
Weighted average LTV
69%
75%
67%
72%
69%
 
69%
75%
65%
71%
69%
Buy-to-let
481
1
82
42
606
 
1,078
10
222
107
1,417
Weighted average LTV
62%
60%
64%
64%
62%
 
60%
58%
60%
63%
60%
Interest only - variable rate
51
-
394
-
445
 
56
-
688
4
748
Interest only - fixed rate
714
-
279
19
1,012
 
1,275
-
993
51
2,319
Mixed (1)
674
-
-
1
675
 
1,074
1
-
4
1,079
 
 
 
 
 
 
 
 
 
 
 
 
 
Forbearance flow
255
24
14
6
299
 
450
177
4
5
636
 
Forbearance stock
1,207
1,870
14
13
3,104
 
1,212
2,229
2
11
3,454
 
  Current
650
1,130
9
9
1,798
 
623
1,149
1
9
1,782
 
  1-3 months in arrears
273
132
3
-
408
 
338
157
-
1
496
 
  > 3 months in arrears
284
608
2
4
898
 
251
923
1
1
1,176
 
 
Notes:
(1)
Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.
(2)
For UK Personal Banking this excludes a non-material amount of provisions held on relatively small legacy portfolios.
(3)
Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.
(4)
UK Personal Banking excludes additional lending to existing customers.
 
 
Key points
New mortgage lending was higher than in H1 2019, reflecting strong lending before the Covid-19 lockdown. 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. Underwriting standards were maintained during the period.
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 driven by low proportions of buy-to-let and owner occupier interest only new business.
In the UK Personal Banking mortgage portfolio, 88% of customer balances were on fixed rates (57% on five-year deals). In addition, 99% of all new mortgage completions were fixed rate deals (41% of these were five-year deals).
43% of the stock of UK Personal Banking lending was in Greater London and the South East (31 December 2019 – 43%). The average weighted loan-to-value for these regions was 54% (31 December 2019 – 53%) compared to all regions 57%.
Impairment provisions – as detailed earlier, the deteriorated economic outlook including forecast increases in unemployment and declines in house prices, resulted in an increased ECL requirement.
Unsecured balances fell, with the decrease driven principally by reductions in overdrafts and credit card borrowing in the UK Personal Banking segment. Overdraft and credit card usage decreased significantly following the Covid-19 lockdown. NatWest Group also responded to Covid-19 with a more cautious approach in new lending, to protect the bank and customers from potentially unaffordable borrowing.
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
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.
 
 
Mortgages
 
ECL provisions
 
ECL provisions coverage (2)
UK Personal Banking
 
 
Not within
 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage
Stage
Stage
IFRS 9
 
gross new
 
Stage
Stage
Stage
 
 
Stage
Stage
Stage
 
 
1
2
3
ECL scope
Total
lending
 
1
2
3
Total(1)
 
1
2
3
Total
30 June 2020
£m
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
48,176
4,505
544
125
53,350
2,361
 
3
28
98
129
 
-
0.6
18.0
0.2
>50% and ≤70%
48,897
6,325
487
38
55,747
4,758
 
6
49
74
129
 
-
0.8
15.2
0.2
>70% and ≤80%
20,039
6,796
163
8
27,006
4,763
 
3
45
29
77
 
-
0.7
17.8
0.3
>80% and ≤90%
10,261
5,691
80
6
16,038
3,262
 
3
53
16
72
 
-
0.9
20.4
0.4
>90% and ≤100%
2,038
483
19
3
2,543
632
 
1
10
5
16
 
-
2.1
26.5
0.6
>100% and ≤110%
22
40
7
1
70
-
 
-
2
2
4
 
0.1
5.3
23.5
5.3
>110% and ≤130%
27
49
8
1
85
-
 
-
3
2
5
 
0.2
6.8
30.4
6.8
>130% and ≤150%
10
24
5
-
39
-
 
-
2
1
3
 
0.1
7.0
26.1
7.9
>150%
1
4
3
-
8
-
 
-
-
1
1
 
0.1
10.6
42.6
20.5
Total with LTVs
129,471
23,917
1,316
182
154,886
15,776
 
16
192
228
436
 
-
0.8
17.4
0.3
Other
16
6
1
-
23
73
 
-
-
1
1
 
0.1
5.0
75.3
3.9
Total
129,487
23,923
1,317
182
154,909
15,849
 
16
192
229
437
 
-
0.8
17.4
0.3
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤50%
47,746
3,375
511
159
51,791
4,661
 
2
19
90
111
 
-
0.6
17.6
0.2
>50% and ≤70%
47,224
3,804
463
91
51,582
8,723
 
3
29
68
100
 
-
0.8
14.7
0.2
>70% and ≤80%
23,235
1,568
150
39
24,992
8,366
 
2
14
26
42
 
-
0.9
17.1
0.1
>80% and ≤90%
14,030
1,111
85
25
15,251
8,675
 
2
12
18
32
 
-
1.1
20.5
0.2
>90% and ≤100%
3,401
174
20
15
3,610
1,208
 
1
4
5
10
 
-
2.5
25.4
0.3
>100% and ≤110%
42
34
8
1
85
-
 
-
2
2
4
 
0.1
5.1
25.3
4.4
>110% and ≤130%
47
38
7
1
93
-
 
-
2
2
4
 
0.1
6.1
33.5
5.0
>130% and ≤150%
19
22
6
1
48
-
 
-
1
2
3
 
0.1
6.3
27.7
6.5
>150%
3
6
3
-
12
-
 
-
-
2
2
 
0.1
6.5
45.7
15.2
Total with LTVs
135,747
10,132
1,253
332
147,464
31,663
 
10
83
215
308
 
-
0.8
17.0
0.2
Other
21
3
1
-
25
224
 
-
-
1
1
 
0.1
4.2
81.2
3.2
Total
135,768
10,135
1,254
332
147,489
31,857
 
10
83
216
309
 
-
0.8
17.1
0.2
 
For the notes to this table refer to the following page.
 
Capital and risk management
Credit risk - Banking activities continued
Personal portfolio 
 
 
Mortgages
 
ECL provisions
 
ECL provisions coverage (2)
Ulster Bank RoI
 
 
 
Of which:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
gross new
 
 
 
 
 
 
 
 
 
 
 
Stage 1
Stage 2
Stage 3
Total
lending
 
Stage 1
Stage 2
Stage 3
Total(1)
 
Stage 1
Stage 2
Stage 3
Total
30 June 2020
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
4,197
538
413
5,148
34
 
6
20
103
129
 
0.1
3.7
24.9
2.5
>50% and ≤70%
3,376
542
297
4,215
84
 
5
23
73
101
 
0.1
4.2
24.6
2.4
>70% and ≤80%
1,379
325
154
1,858
138
 
2
14
49
65
 
0.1
4.3
31.8
3.5
>80% and ≤90%
1,051
335
150
1,536
141
 
2
15
54
71
 
0.2
4.5
36.0
4.6
>90% and ≤100%
276
244
124
644
-
 
1
11
52
64
 
0.4
4.5
41.9
9.9
>100% and ≤110%
89
139
100
328
2
 
-
8
47
55
 
-
5.8
47.0
16.8
>110% and ≤130%
41
80
97
218
1
 
-
6
52
58
 
-
7.5
53.6
26.6
>130% and ≤150%
5
7
30
42
-
 
-
1
20
21
 
-
14.3
66.7
50.0
>150%
3
6
9
18
-
 
-
-
7
7
 
-
-
77.8
38.9
Total
10,417
2,216
1,374
14,007
400
 
16
98
457
571
 
0.2
4.4
33.3
4.1
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤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%
7
3
15
25
-
 
-
-
11
11
 
0.3
8.2
71.4
44.6
Total with LTVs
10,647
1,079
1,872
13,598
1,184
 
11
30
581
622
 
0.1
2.8
31.0
4.6
 
Notes:
(1)
Excludes a non-material amount of provisions held on relatively small legacy portfolios.
(2)
ECL provisions coverage is ECL provisions divided by mortgages.
 
 
 
Key points
ECL coverage rates increase through the LTV bands with both UK Personal Banking and Ulster Bank RoI currently having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for UK Personal 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 are not subject to formal repossession activity.
The deteriorated economic outlook, as detailed in the Covid-19 – estimating ECL in uncertain times section, 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.
 
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
 
Personal portfolio
UK Personal Banking mortgage LTV distribution by region
LTV ratio value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted
 
 
 
 
≤ 50%
50% ≤ 80%
80% ≤ 100%
100% ≤ 150%
> 150%
Total
average LTV
Other
Total
Total
30 June 2020
£m
£m
£m
£m
£m
£m
%
£m
£m
%
South East
14,284
21,339
4,329
7
-
39,959
57
6
39,965
26
Greater London
13,459
11,797
1,625
4
-
26,885
50
4
26,889
17
Scotland
3,621
6,231
1,429
2
-
11,283
58
1
11,284
7
North West
4,414
8,619
1,808
3
-
14,844
59
3
14,847
10
South West
4,600
7,764
1,451
4
-
13,819
57
2
13,821
9
West Midlands
3,347
6,604
1,290
4
-
11,245
59
1
11,246
7
Rest of the UK
9,627
20,397
6,649
170
8
36,851
62
6
36,857
24
Total
53,352
82,751
18,581
194
8
154,886
57
23
154,909
100
31 December 2019
 
 
 
 
 
 
 
 
 
 
South East
14,175
19,390
3,920
7
-
37,492
56
7
37,499
25
Greater London
13,199
10,496
1,504
4
-
25,203
49
4
25,207
17
Scotland
3,395
5,946
1,726
3
-
11,070
60
1
11,071
8
North West
4,449
8,420
1,524
4
-
14,397
58
2
14,399
10
South West
4,482
7,374
1,391
5
-
13,252
57
2
13,254
9
West Midlands
3,086
6,109
1,520
5
-
10,720
60
1
10,721
7
Rest of the UK
9,004
18,839
7,276
198
13
35,330
63
8
35,338
24
Total
51,790
76,574
18,861
226
13
147,464
57
25
147,489
100
 
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.
 
30 June 2020
 
31 December 2019
 
UK
RoI
Other
Total
 
UK
RoI
Other
Total
By geography and sub sector (1)
£m
£m
£m
£m
 
£m
£m
£m
£m
Investment
 
 
 
 
 
 
 
 
 
Residential (2)
4,791
412
5
5,208
 
4,507
462
27
4,996
Office (3)
3,737
210
58
4,005
 
2,916
183
83
3,182
Retail (4)
5,419
64
78
5,561
 
5,277
63
62
5,402
Industrial (5)
2,881
18
100
2,999
 
2,457
18
115
2,590
Mixed/other (6)
3,199
202
170
3,571
 
3,672
187
56
3,915
 
20,027
906
411
21,344
 
18,829
913
343
20,085
Development
 
 
 
 
 
 
 
 
 
Residential (2)
3,052
233
8
3,293
 
2,464
165
5
2,634
Office (3)
137
22
-
159
 
78
17
-
95
Retail (4)
147
-
1
148
 
134
2
1
137
Industrial (5)
129
2
-
131
 
85
2
-
87
Mixed/other (6)
24
2
-
26
 
16
2
-
18
 
3,489
259
9
3,757
 
2,777
188
6
2,971
Total
23,516
1,165
420
25,101
 
21,606
1,101
349
23,056
 
Notes:
(1)
Geographical splits are based on country of collateral risk.
(2)
Properties including houses, flats and student accommodation.
(3)
Properties including offices in central business districts, regional headquarters and business parks.
(4)
Properties including high street retail, shopping centres, restaurants, bars and gyms.
(5)
Properties including distribution centres, manufacturing and warehouses. 
(6)
Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. 
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
 
Commercial real estate
CRE LTV distribution by stage
The table below shows CRE current exposure and related ECL by LTV band.
 
Current exposure (gross of provisions) (1,2)
 
ECL provisions
 
ECL provisions coverage (4)
 
 
 
Not within
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage
Stage
Stage
IFRS 9 ECL
 
 
Stage
Stage
Stage
 
 
Stage
Stage
Stage
 
 
1
2
3
scope (3)
Total
 
1
2
3
Total(1)
 
1
2
3
Total
30 June 2020
£m
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
≤50%
7,445
2,904
70
 -  
10,419
 
45
88
18
151
 
0.6
3.0
25.7
1.4
>50% and ≤70%
4,445
1,732
216
 -  
6,393
 
35
68
70
173
 
0.8
3.9
32.4
2.7
>70% and ≤80%
163
72
44
 -  
279
 
2
3
12
17
 
1.2
4.2
27.3
6.1
>80% and ≤90%
66
91
20
 -  
177
 
1
5
4
10
 
1.5
5.5
20.0
5.6
>90% and ≤100%
42
22
126
 -  
190
 
-
2
42
44
 
 -  
9.1
33.3
23.2
>100% and ≤110%
15
23
63
 -  
101
 
-
4
11
15
 
 -  
17.4
17.5
14.9
>110% and ≤130%
16
15
59
 -  
90
 
-
2
32
34
 
 -  
13.3
54.2
37.8
>130% and ≤150%
5
8
10
 -  
23
 
-
1
5
6
 
 -  
12.5
50.0
26.1
>150%
63
21
28
 -  
112
 
1
3
18
22
 
1.6
14.3
64.3
19.6
Total with LTVs
12,260
4,888
636
-
17,784
 
84
176
212
472
 
0.7
3.6
33.3
2.7
Total portfolio average LTV
45%
47%
88%
50%
47%
 
-
-
-
-
 
-
-
-
-
Other (5)
1,406
1,014
210
930
3,560
 
6
62
96
164
 
0.4
6.1
45.7
6.2
Development (6)
1,323
2,173
176
85
3,757
 
16
49
67
132
 
1.2
2.3
38.1
3.6
Total
14,989
8,075
1,022
1,015
25,101
 
106
287
375
768
 
0.7
3.6
36.7
3.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
≤50%
8,787
468
40
837
10,132
 
8
8
11
27
 
0.1
1.7
27.5
0.3
>50% and ≤70%
4,945
252
148
846
6,191
 
7
6
33
46
 
0.1
2.4
22.3
0.9
>70% and ≤80%
269
38
51
9
367
 
1
1
19
21
 
0.4
2.6
37.3
5.9
>80% and ≤90%
61
19
15
2
97
 
-
1
3
4
 
-
5.3
20.0
4.2
>90% and ≤100%
50
81
22
1
154
 
-
2
15
17
 
-
2.5
68.2
11.1
>100% and ≤110%
18
13
52
-
83
 
-
-
5
5
 
-
-
9.6
6.0
>110% and ≤130%
20
26
46
1
93
 
-
1
16
17
 
-
3.8
34.8
18.5
>130% and ≤150%
3
6
18
-
27
 
-
-
7
7
 
-
-
38.9
25.9
>150%
63
6
37
-
106
 
-
1
24
25
 
-
16.7
64.9
23.6
Total with LTVs
14,216
909
429
1,696
17,250
 
16
20
133
169
 
0.1
2.2
31.0
1.1
Total portfolio average LTV
46%
55%
101%
48%
48%
 
-
-
-
-
 
-
-
-
-
Other (5)
658
149
123
1,905
2,835
 
5
4
54
63
 
0.8
2.7
43.9
6.8
Development (6)
2,377
272
144
178
2,971
 
8
4
73
85
 
0.3
1.5
50.7
3.0
Total
17,251
1,330
696
3,779
23,056
 
29
28
260
317
 
0.2
2.1
37.4
1.6
 
Notes:
(1)
Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as part of the overall CRE portfolio.
(2)
The exposure in Stage 3 mainly related to legacy assets.
(3)
Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives.
(4)
ECL provisions coverage is ECL provisions divided by current exposure.
(5)
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.
(6)
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 managed in the UK within Commercial Banking and Private Banking. Business appetite and strategy remained aligned across the segments.
2020 trends – The portfolio remained broadly unchanged in composition. While new activity in H1 2020 was subdued due to Covid-19, NatWest Group has supported existing customers with capital repayment holidays, interest roll-ups and extensions using CRE specific criteria and government-backed Covid-19 support schemes. The retail and leisure sectors were heavily affected by the government-imposed lockdown, resulting in low rental payments. 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 is expected to decline with flexible working trends continuing post Covid-19. Residential development re-started but progress is slow with social distancing measures. The early resurgence in residential sales following the housing market hiatus is expected to curtail as the economic outlook becomes clearer.
Credit quality – Despite significant challenges across the CRE sector, Heightened Monitoring inflows by volume were stable. By value, Heightened monitoring and Risk of Credit Loss increased due to some larger names, particularly in the retail sub-sector.
Risk appetite – Appetite in CRE remains cautious. Pre-Covid-19 conservative lending criteria remains in place, including lower leverage required for new London office originations and parts of the retail sector.
 
 
 
Capital and risk management
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 (Profit or loss (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 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.
 
 
NatWest Group continues to hold post model adjustments (PMAs) on a temporary basis ahead of the underlying model parameter changes being implemented, as well as on certain portfolio segments where management judge additional ECL is required. The impact of any change in PMAs during the year is reported under changes in risk parameters, as are any impacts arising from changes to the underlying models.
 
 
All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments.
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
NatWest Group total
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
At 1 January 2020
428,604
322
 
28,630
752
 
7,135
2,718
 
464,369
3,792
 
Currency translation and other adjustments
6,386
4
 
430
9
 
165
46
 
6,981
59
 
Transfers from Stage 1 to Stage 2
(86,717)
(385)
 
86,717
385
 
-
-
 
-
-
 
Transfers from Stage 2 to Stage 1
11,976
200
 
(11,976)
(200)
 
-
-
 
-
-
 
Transfers to Stage 3
(360)
-
 
(1,849)
(145)
 
2,209
145
 
-
-
 
Transfers from Stage 3
133
20
 
835
75
 
(968)
(95)
 
-
-
 
Net re-measurement of ECL on stage transfer
 
(170)
 
 
1,564
 
 
336
 
 
1,730
Changes in risk parameters (model inputs)
 
372
 
 
604
 
 
180
 
 
1,156
Other changes in net exposure
52,463
106
 
(2,024)
(18)
 
(744)
(19)
 
49,695
69
Other (P&L only items)
 
-
 
 
-
 
 
(97)
 
 
(97)
Income statement charges
 
308
 
 
2,150
 
 
400
 
 
2,858
 
Amounts written-off
-
-
 
(1)
(1)
 
(405)
(405)
 
(406)
(406)
 
Unwinding of discount
 
-
 
 
-
 
 
(46)
 
 
(46)
 
At 30 June 2020
412,485
469
 
100,762
3,025
 
7,392
2,860
 
520,639
6,354
 
Net carrying amount
412,016
 
 
97,737
 
 
4,532
 
 
514,285
 
 
At 1 January 2019
422,541
297
 
27,360
772
 
8,251
2,782
 
458,152
3,851
 
2019 movements
(10,048)
(17)
 
(553)
(90)
 
(332)
13
 
(10,933)
(94)
 
At 30 June 2019
412,493
280
 
26,807
682
 
7,919
2,795
 
447,219
3,757
 
Net carrying amount
412,213
 
 
26,125
 
 
5,124
 
 
443,462
 
 
 
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Flow statements
The following flow statements show the material portfolios underpinning the NatWest Group flow statement.
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
UK Personal Banking - mortgages
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2020
135,625
12
 
10,283
86
 
1,289
215
 
147,197
313
Currency translation and other adjustments
-
-
 
-
-
 
9
9
 
9
9
Transfers from Stage 1 to Stage 2
(17,557)
(5)
 
17,557
5
 
-
-
 
-
-
Transfers from Stage 2 to Stage 1
3,051
9
 
(3,051)
(9)
 
-
-
 
-
-
Transfers to Stage 3
(10)
-
 
(335)
(12)
 
345
12
 
-
-
Transfers from Stage 3
7
-
 
172
12
 
(179)
(12)
 
-
-
Net re-measurement of ECL on stage transfer
 
(8)
 
 
95
 
 
4
 
 
91
Changes in risk parameters (model inputs)
 
10
 
 
20
 
 
34
 
 
64
Other changes in net exposure
7,089
(1)
 
(554)
(5)
 
(115)
(6)
 
6,420
(12)
Other (P&L only items)
 
-
 
 
-
 
 
(14)
 
 
(14)
Income statement charges
 
1
 
 
110
 
 
18
 
 
129
Amounts written-off
-
-
 
-
-
 
(8)
(8)
 
(8)
(8)
Unwinding of discount
 
-
 
 
-
 
 
(18)
 
 
(18)
At 30 June 2020
128,205
17
 
24,072
192
 
1,341
230
 
153,618
439
Net carrying amount
128,188
 
 
23,880
 
 
1,111
 
 
153,179
 
At 1 January 2019
127,671
10
 
10,241
74
 
1,286
202
 
139,198
286
2019 movements
535
(1)
 
149
3
 
2
-
 
686
2
At 30 June 2019
128,206
9
 
10,390
77
 
1,288
202
 
139,884
288
Net carrying amount
128,197
 
 
10,313
 
 
1,086
 
 
139,596
 
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, causing both PDs and LGDs 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, ECL was less impacted than in Stage 1 and Stage 2.
 
In Stage 3, the ECL cost within changes in risk parameters included the forward-looking impact of forecast reductions in house prices, as well as 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.
 
 
 
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Flow statements
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
UK Personal Banking - credit cards
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
At 1 January 2020
2,804
38
 
1,246
131
 
127
88
 
4,177
257
 
Transfers from Stage 1 to Stage 2
(860)
(29)
 
860
29
 
-
-
 
-
-
 
Transfers from Stage 2 to Stage 1
575
46
 
(575)
(46)
 
-
-
 
-
-
 
Transfers to Stage 3
(10)
-
 
(59)
(24)
 
69
24
 
-
-
 
Transfers from Stage 3
-
-
 
5
3
 
(5)
(3)
 
-
-
 
Net re-measurement of ECL on stage transfer
 
(32)
 
 
163
 
 
23
 
 
154
Changes in risk parameters (model inputs)
 
5
 
 
(30)
 
 
5
 
 
(20)
Other changes in net exposure
(332)
17
 
(157)
14
 
(15)
-
 
(504)
31
Other (P&L only items)
 
-
 
 
-
 
 
(2)
 
 
(2)
Income statement (releases)/charges
 
(10)
 
 
147
 
 
26
 
 
163
 
Amounts written-off
-
-
 
-
-
 
(49)
(49)
 
(49)
(49)
 
Unwinding of discount
 
-
 
 
-
 
 
(3)
 
-
(3)
 
At 30 June 2020
2,177
45
 
1,320
240
 
127
85
 
3,624
370
 
Net carrying amount
2,132
 
 
1,080
 
 
42
 
 
3,254
 
 
At 1 January 2019
2,632
36
 
1,226
118
 
108
73
 
3,966
227
 
2019 movements
(82)
(2)
 
(29)
(20)
 
20
15
 
(91)
(7)
 
At 30 June 2019
2,550
34
 
1,197
98
 
128
88
 
3,875
220
 
Net carrying amount
2,516
 
 
1,099
 
 
40
 
 
3,655
 
 
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, 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, ECL was less impacted than Stage 2.
Charge-off (analogous to partial write-off) typically occurs after 12 missed payments.
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Flow statements
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
UK Personal Banking - other
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
 personal unsecured
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2020
5,417
63
 
2,250
252
 
608
518
 
8,275
833
Currency translation and other adjustments
-
-
 
-
-
 
2
3
 
2
3
Transfers from Stage 1 to Stage 2
(2,347)
(52)
 
2,347
52
 
-
-
 
-
-
Transfers from Stage 2 to Stage 1
771
48
 
(771)
(48)
 
-
-
 
-
-
Transfers to Stage 3
(6)
-
 
(180)
(59)
 
186
59
 
-
-
Transfers from Stage 3
1
-
 
19
6
 
(20)
(6)
 
-
-
Net re-measurement of ECL on stage transfer
 
(32)
 
 
206
 
 
56
 
 
230
Changes in risk parameters (model inputs)
 
55
 
 
86
 
 
29
 
 
170
Other changes in net exposure
309
11
 
(473)
(26)
 
(13)
(4)
 
(177)
(19)
Other (P&L only items)
 
-
 
 
-
 
 
(16)
 
 
(16)
Income statement charges
 
34
 
 
266
 
 
65
 
 
365
Amounts written-off
-
-
 
-
-
 
(61)
(61)
 
(61)
(61)
Unwinding of discount
 
-
 
 
-
 
 
(8)
 
 
(8)
At 30 June 2020
4,145
93
 
3,192
469
 
702
586
 
8,039
1,148
Net carrying amount
4,052
 
 
2,723
 
 
116
 
 
6,891
 
At 1 January 2019
5,073
54
 
1,970
239
 
503
402
 
7,546
695
2019 movements
329
2
 
191
3
 
92
98
 
612
103
At 30 June 2019
5,402
56
 
2,161
242
 
595
500
 
8,158
798
Net carrying amount
5,346
 
 
1,919
 
 
95
 
 
7,360
 
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, 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, ECL was impacted relatively less than in Stage 1 and Stage 2.
 
The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL.
 
Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than six years after default.
 
 
 
 

 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
 
Flow statements 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
Ulster Bank RoI - mortgages
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
At 1 January 2020
10,603
11
 
1,084
30
 
1,875
581
 
13,562
622
 
Currency translation and other adjustments
691
1
 
115
4
 
104
(7)
 
910
(2)
 
Transfers from Stage 1 to Stage 2
(1,526)
(5)
 
1,526
5
 
-
-
 
-
-
 
Transfers from Stage 2 to Stage 1
624
11
 
(624)
(11)
 
-
-
 
-
-
 
Transfers to Stage 3
(4)
-
 
(31)
(2)
 
35
2
 
-
-
 
Transfers from Stage 3
13
-
 
179
12
 
(192)
(12)
 
-
-
 
Net re-measurement of ECL on stage transfer
 
(10)
 
 
39
 
 
6
 
 
35
Changes in risk parameters (model inputs)
 
8
 
 
22
 
 
51
 
 
81
Other changes in net exposure
(36)
-
 
(30)
-
 
(290)
2
 
(356)
2
Other (P&L only items)
 
-
 
 
-
 
 
(11)
 
 
(11)
Income statement (releases)/charges
 
(2)
 
 
61
 
 
48
 
 
107
 
Amounts written-off
-
-
 
(1)
(1)
 
(157)
(157)
 
(158)
(158)
 
Unwinding of discount
 
-
 
 
-
 
 
(9)
 
 
(9)
 
At 30 June 2020
10,365
16
 
2,218
98
 
1,375
457
 
13,958
571
 
Net carrying amount
10,349
 
 
2,120
 
 
918
 
 
13,387
 
 
At 1 January 2019
10,782
11
 
1,394
75
 
2,278
657
 
14,454
743
 
2019 movements
223
(6)
 
(339)
(57)
 
(92)
(37)
 
(208)
(100)
 
At 30 June 2019
11,005
5
 
1,055
18
 
2,186
620
 
14,246
643
 
Net carrying amount
11,000
 
 
1,037
 
 
1,566
 
 
13,603
 
 
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, coupled with the application of post-model adjustments to fully reflect the deteriorated economic outlook in ECL estimations.
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 mortgage non-performing portfolio through the execution of two tranches of a portfolio sale.
In Stage 3, the ECL cost within changes in risk parameters included the forward-looking impact of forecast reductions in house prices and the application of post-model adjustments to fully reflect the deteriorated economic outlook in ECL estimations.
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.
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Flow statements
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
Commercial Banking - commercial
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
  real estate
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2020
25,556
31
 
2,218
28
 
895
306
 
28,669
365
Currency translation and other adjustments
25
-
 
3
-
 
2
-
 
30
-
Transfers from Stage 1 to Stage 2
(9,216)
(46)
 
9,216
46
 
-
-
 
-
-
Transfers from Stage 2 to Stage 1
893
13
 
(893)
(13)
 
-
-
 
-
-
Transfers to Stage 3
(101)
-
 
(412)
(10)
 
513
10
 
-
-
Transfers from Stage 3
29
3
 
202
12
 
(231)
(15)
 
-
-
Net re-measurement of ECL on stage transfer
-
(13)
 
-
157
 
-
87
 
-
231
Changes in risk parameters (model inputs)
-
91
 
-
53
 
-
21
 
-
165
Other changes in net exposure
2,474
18
 
20
1
 
(88)
9
 
2,406
28
Other (P&L only items)
 
-
 
 
-
 
 
-
 
 
-
Income statement charges
 
96
 
 
211
 
 
117
 
 
424
Amounts written-off
-
-
 
-
-
 
(15)
(15)
 
(15)
(15)
Unwinding of discount
 
-
 
 
-
 
 
(2)
 
 
(2)
At 30 June 2020
19,660
97
 
10,354
274
 
1,076
401
 
31,090
772
Net carrying amount
19,563
 
 
10,080
 
 
675
 
 
30,318
 
At 1 January 2019
29,180
37
 
1,500
24
 
1,631
459
 
32,311
520
2019 movements
(11)
1
 
361
4
 
(189)
(158)
 
162
(154)
At 30 June 2019
29,169
38
 
1,861
28
 
1,442
301
 
32,473
366
Net carrying amount
29,131
 
 
1,833
 
 
1,141
 
 
32,107
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, 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.
For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.
Stage 3 recovery values are beginning to be impacted as market conditions deteriorate, leading to higher ECL charges.
Other changes in net exposures have increased across Stage 1 and Stage 2 as customers draw down on existing facilities and undertake new lending supported by government schemes.
 
Capital and risk management
Credit risk - Banking activities continued
Flow statements
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
Commercial Banking - business banking
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
At 1 January 2020
6,338
28
 
767
45
 
257
200
 
7,362
273
 
Transfers from Stage 1 to Stage 2
(1,312)
(13)
 
1,312
13
 
-
-
 
-
-
 
Transfers from Stage 2 to Stage 1
310
22
 
(310)
(22)
 
-
-
 
-
-
 
Transfers to Stage 3
(12)
-
 
(78)
(16)
 
90
16
 
-
-
 
Transfers from Stage 3
6
2
 
18
7
 
(24)
(9)
 
-
-
 
Net re-measurement of ECL on stage transfer
 
(21)
 
 
88
 
 
32
 
 
99
Changes in risk parameters (model inputs)
 
9
 
 
(10)
 
 
11
 
 
10
Other changes in net exposure
3,870
5
 
(110)
(7)
 
(18)
(5)
 
3,742
(7)
Other (P&L only items)
 
-
 
 
-
 
 
(41)
 
 
(41)
Income statement (releases)/charges
 
(7)
 
 
71
 
 
(3)
 
 
61
 
Amounts written-off
-
-
 
-
-
 
(53)
(53)
 
(53)
(53)
 
Unwinding of discount
 
-
 
 
-
 
 
(2)
 
 
(2)
 
At 30 June 2020
9,200
32
 
1,599
98
 
252
190
 
11,051
320
 
Net carrying amount
9,168
 
 
1,501
 
 
62
 
 
10,731
 
 
At 1 January 2019
6,303
22
 
897
43
 
245
163
 
7,445
228
 
2019 movements
64
(5)
 
(56)
(9)
 
-
24
 
8
10
 
At 30 June 2019
6,367
17
 
841
34
 
245
187
 
7,453
238
 
Net carrying amount
6,350
 
 
807
 
 
58
 
 
7,215
 
 
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, 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.
For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.
Other changes in net exposures have increased in Stage 1 as customers draw down on existing facilities and undertake 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 and there are no further recoveries expected, but no later than five years after default.
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Flow statements
 
 
 
 
 
 
 
 
 
 
 
 
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
Commercial Banking - other
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
At 1 January 2020
53,722
94
 
8,788
143
 
1,386
516
 
63,896
753
Currency translation and other adjustments
709
-
 
154
-
 
20
18
 
883
18
Inter-group transfers
(116)
-
 
-
-
 
-
-
 
(116)
-
Transfers from Stage 1 to Stage 2
(44,992)
(193)
 
44,992
193
 
-
-
 
-
-
Transfers from Stage 2 to Stage 1
4,666
34
 
(4,666)
(34)
 
-
-
 
-
-
Transfers to Stage 3
(80)
-
 
(567)
(19)
 
647
19
 
-
-
Transfers from Stage 3
47
13
 
225
19
 
(272)
(32)
 
-
-
Net re-measurement of ECL on stage transfer
 
(37)
 
 
625
 
 
117
 
 
705
Changes in risk parameters (model inputs)
 
133
 
 
411
 
 
25
 
 
569
Other changes in net exposure
6,928
43
 
(805)
5
 
(142)
(11)
 
5,981
37
Other (P&L only items)
 
-
 
 
-
 
 
(6)
 
 
(6)
Income statement charges
 
139
 
 
1,041
 
 
125
 
 
1,305
Amounts written-off
-
-
 
-
-
 
(51)
(51)
 
(51)
(51)
Unwinding of discount
 
-
 
 
-
 
 
(2)
 
 
(2)
At 30 June 2020
20,884
87
 
48,121
1,343
 
1,588
599
 
70,593
2,029
Net carrying amount
20,797
 
 
46,778
 
 
990
 
 
68,565
 
At 1 January 2019
52,312
71
 
7,893
131
 
845
444
 
61,050
646
2019 movements
1,310
(3)
 
(678)
(5)
 
(99)
118
 
532
111
At 30 June 2019
53,622
68
 
7,215
126
 
746
562
 
61,582
757
Net carrying amount
53,554
 
 
7,089
 
 
184
 
 
60,825
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, 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.
For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.
Stage 3 recovery values have decreased as market conditions deteriorate, leading to higher ECL charges.
Other changes in net exposures increased across Stage 1 and Stage 2 as customers draw down on existing facilities and undertake new borrowings supported by the government schemes.
 
 
Capital and risk management
Credit risk – Banking activities continued
Flow statements
 
Stage 1
 
Stage 2
 
Stage 3
 
Total
 
 
Financial
 
 
Financial
 
 
Financial
 
 
Financial
 
 
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
assets
ECL
 
NatWest Markets (1)
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
At 1 January 2020
32,892
10
 
188
5
 
183
131
 
33,263
146
 
Currency translation and other adjustments
1,345
-
 
36
(1)
 
13
14
 
1,394
13
 
Inter-group transfers
(774)
-
 
-
-
 
-
-
 
(774)
-
 
Transfers from Stage 1 to Stage 2
(2,133)
(6)
 
2,133
6
 
-
-
 
-
-
 
Transfers from Stage 2 to Stage 1
62
-
 
(62)
-
 
-
-
 
-
-
 
Net re-measurement of ECL on stage transfer
 
-
 
 
39
 
 
-
 
 
39
Changes in risk parameters (model inputs)
 
9
 
 
4
 
 
(9)
 
 
4
Other changes in net exposure
6,855
5
 
502
-
 
(10)
4
 
7,347
9
Other (P&L only items)
 
(4)
 
 
 
 
 
(8)
 
 
(12)
Income statement (releases)/charges
 
10
 
 
43
 
 
(13)
 
 
40
 
Amounts written-off
-
-
 
-
-
 
(4)
(4)
 
(4)
(4)
 
Unwinding of discount
 
-
 
 
-
 
 
-
 
 
-
 
At 30 June 2020
38,247
18
 
2,797
53
 
182
136
 
41,226
207
 
Net carrying amount
38,229
 
 
2,744
 
 
46
 
 
41,019
 
 
At 1 January 2019
32,758
7
 
732
14
 
775
179
 
34,265
200
 
2019 movements
1,276
1
 
(278)
(4)
 
(9)
(31)
 
989
(34)
 
At 30 June 2019
34,034
8
 
454
10
 
766
148
 
35,254
166
 
Net carrying amount
34,026
 
 
444
 
 
618
 
 
35,088
 
 
 
Note:
(1)
Reflects the NatWest Markets segment and includes NWM N.V..
 
Key points
The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 – estimating ECL in uncertain times section, 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.
For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available.
 
 
Capital and risk management
Credit risk - Banking activities continued
Stage 2 decomposition - arrears status and contributing factors
The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios.
 
 
 
 
UK mortgages
 
RoI mortgages
 
Credit cards
 
Other
 
Total
 
 
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
30 June 2020
 
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
Personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
 
 
532
21
 
34
3
 
30
10
 
102
35
 
698
69
Currently up-to-date
 
 
23,553
173
 
2,173
95
 
1,291
233
 
3,063
440
 
30,080
941
 - PD deterioration
 
 
19,089
166
 
1,332
69
 
859
187
 
2,553
383
 
23,833
805
 - Up-to-date, PD persistence
 
 
1,017
1
 
66
2
 
293
15
 
256
17
 
1,632
35
 - Other driver (adverse credit, forbearance etc)
3,447
6
 
775
24
 
139
31
 
254
40
 
4,615
101
Total Stage 2
 
 
24,085
194
 
2,207
98
 
1,321
243
 
3,165
475
 
30,778
1,010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
 
 
528
14
 
21
3
 
16
6
 
92
19
 
657
42
Currently up-to-date
 
 
9,860
73
 
1,056
28
 
1,243
126
 
2,218
234
 
14,377
461
 - PD deterioration
 
 
4,184
60
 
208
15
 
727
92
 
1,482
188
 
6,601
355
 - Up-to-date, PD persistence
 
 
1,812
5
 
252
4
 
422
20
 
540
29
 
3,026
58
 - Other driver (adverse credit, forbearance etc)
3,864
8
 
596
9
 
94
14
 
196
17
 
4,750
48
Total Stage 2
 
 
10,388
87
 
1,077
31
 
1,259
132
 
2,310
253
 
15,034
503
 
Key points
The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR causing Stage 2 exposures to increase significantly.
As expected, ECL coverage was higher in accounts that were more than 30 days past due than those in Stage 2 for other reasons.
 
 
 
 
Property
 
Corporate
 
FI
 
Other
 
Total
 
 
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
30 June 2020
 
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
 
£m
£m
Wholesale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
 
 
346
7
 
492
27
 
75
3
 
-
 -  
 
913
37
Currently up-to-date
 
 
12,054
385
 
49,550
1,527
 
3,714
66
 
1
 -  
 
65,319
1,978
 - PD deterioration
 
 
10,715
304
 
47,137
1,418
 
3,217
38
 
1
 -  
 
61,070
1,760
 - Up-to-date, PD persistence
 
 
25
 -  
 
81
1
 
1
 -  
 
-
 -  
 
107
1
 - Other driver (forbearance, RoCL etc)
1,314
81
 
2,332
108
 
496
28
 
-
 -  
 
4,142
217
Total Stage 2
 
 
12,400
392
 
50,042
1,554
 
3,789
69
 
1
 -  
 
66,232
2,015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wholesale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currently in arrears (>30 DPD)
 
 
57
2
 
219
6
 
7
-
 
-
-
 
283
8
Currently up-to-date
 
 
2,523
45
 
9,485
192
 
539
4
 
4
-
 
12,551
241
 - PD deterioration
 
 
1,386
28
 
6,083
144
 
368
3
 
3
-
 
7,840
175
 - Up-to-date, PD persistence
 
 
45
1
 
183
5
 
2
-
 
-
-
 
230
6
 - Other driver (forbearance, RoCL etc)
1,092
16
 
3,219
43
 
169
1
 
1
-
 
4,481
60
Total Stage 2
 
 
2,580
47
 
9,704
198
 
546
4
 
4
-
 
12,834
249
 
Key points 
The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including significant falls in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of the exposures exhibited a SICR causing Stage 2 exposures to increase significantly.
PD deterioration is the main trigger for identifying a SICR and Stage 2 treatment, although there has also been an increase in arrears. 
There was an increase in flows on to the Risk of Credit Loss framework, however, these have been recorded under PD deterioration if this Stage 2 trigger has also been met.
 
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
 
 
 
 
UK mortgages
 
RoI mortgages
 
Credit cards
 
Other
 
Total
30 June 2020
 
 
£m
%
 
£m
%
 
£m
%
 
£m
%
 
£m
%
Personal trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
 
 
19,557
81.2
 
1,362
61.7
 
889
67.2
 
2,635
83.3
 
24,443
79.5
PD persistence
 
 
1,017
4.2
 
66
3.0
 
293
22.2
 
257
8.1
 
1,633
5.3
Adverse credit bureau recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  with credit reference agency
 
 
2,910
12.1
 
 -  
 -  
 
51
3.9
 
69
2.2
 
3,030
9.8
Forbearance support provided
 
 
209
0.9
 
2
0.1
 
 -  
 -  
 
37
1.2
 
248
0.8
Customers in collections
 
 
112
0.5
 
53
2.4
 
4
0.3
 
54
1.7
 
223
0.7
Other reasons (2)
 
 
228
0.9
 
724
32.8
 
84
6.4
 
109
3.4
 
1,145
3.7
Days past due >30
 
 
52
0.2
 
 -  
 -  
 
 -  
 -  
 
4
0.1
 
56
0.2
 
 
 
24,085
100
 
2,207
100
 
1,321
100
 
3,165
100
 
30,778
100
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Personal trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (2)
 
 
339
3.3
 
525
48.7
 
33
2.6
 
56
2.4
 
953
6.3
Days past due >30
 
 
115
1.1
 
-
-
 
-
-
 
26
1.1
 
141
0.9
 
 
 
10,388
100
 
1,077
100
 
1,259
100
 
2,310
100
 
15,034
100
 
For the notes to the table refer to the next page.
 
Key points
The primary driver of credit deterioration was PD, which including persistence, accounted for the majority of movements into Stage 2. High risk back-stops, for example, forbearance and adverse credit bureau, provide additional valuable discrimination.
However, with a larger proportion of exposures now triggering PD deterioration following the deteriorated economic outlook, the proportion of accounts triggering high risk backstops alone decreased.
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
Stage 2 decomposition by a significant increase in credit risk trigger
 
 
 
 
 
Property
 
Corporate
 
FI
 
Other
 
Total
 
 
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
 
Loans
ECL
30 June 2020
 
 
£m
%
 
£m
%
 
£m
%
 
£m
%
 
£m
%
Wholesale trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
 
 
10,849
87.6
 
47,483
94.9
 
3,259
86.0
 
1
100
 
61,592
93.0
PD persistence
 
 
25
0.2
 
82
0.2
 
1
 -  
 
-
-
 
108
0.2
Risk of credit loss
 
 
449
3.6
 
1,007
2.0
 
211
5.6
 
-
-
 
1,667
2.5
Forbearance support provided
 
 
17
0.1
 
16
 -  
 
19
0.5
 
-
-
 
52
0.1
Customers in collections
 
 
16
0.1
 
63
0.1
 
-
 -  
 
-
-
 
79
0.1
Other reasons (3,4)
 
 
959
7.7
 
1,296
2.6
 
266
7.0
 
-
-
 
2,521
3.8
Days past due >30
 
 
85
0.7
 
95
0.2
 
33
0.9
 
-
-
 
213
0.3
 
 
 
12,400
100
 
50,042
100
 
3,789
100
 
1
100
 
66,232
100
31 December 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wholesale trigger (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PD movement
 
 
1,416
54.8
 
6,129
63.1
 
368
67.4
 
3
75.0
 
7,916
61.7
PD persistence
 
 
45
1.7
 
183
1.9
 
3
0.5
 
-
-
 
231
1.8
Risk of credit loss
 
 
915
35.5
 
2,394
24.7
 
69
12.6
 
-
-
 
3,378
26.3
Forbearance support provided
 
 
31
1.2
 
140
1.4
 
29
5.3
 
-
-
 
200
1.6
Customers in collections
 
 
10
0.4
 
47
0.5
 
-
-
 
-
-
 
57
0.4
Other reasons (3,4)
 
 
146
5.7
 
659
6.8
 
71
13.0
 
1
25.0
 
877
6.8
Days past due >30
 
 
17
0.7
 
152
1.6
 
6
1.1
 
-
-
 
175
1.4
 
 
 
2,580
100
 
9,704
100
 
546
100
 
4
100
 
12,834
100
 
Notes:
(1)
The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration.
(2)
£322 million of Ulster Bank Rol mortgage exposure which did not meet existing SICR criteria have been classified within Stage 2 following a strategic review and are included in other reasons. It includes customers that have accessed payday lending, interest only mortgages past end of term, a small number of mortgage customers on a highly flexible mortgage significantly behind their repayment plan and customers breaching risk appetite thresholds for new business acquisition.
(3)
Includes customers where a PD assessment cannot be undertaken due to missing PDs.
(4)
£703 million of Ulster Bank Rol Wholesale exposure which did not meet existing SICR criteria have been classified within Stage 2 following strategic and sectoral reviews and are included in other reasons.
 
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 now accounts for a higher proportion of the balances migrated to Stage 2.
Moving exposures on to the Risk of Credit Loss framework remains 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.
NatWest Group continues 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 portfolios 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% in the SICR rules could decrease the Wholesale portfolios Stage 2 exposure by 24% with a two basis point reduction on good book ECL coverage.
 
 
 
 
 
Capital and risk management
Credit risk - Banking activities continued
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 £7.0 billion.
 
30 June 2020
 
31 December 2019
 
UK Personal
Ulster Bank
 
 
UK Personal
Ulster Bank
 
 
Banking
RoI
 
 
Banking
RoI
 
 
mortgages
mortgages
Wholesale
 
mortgages
mortgages
Wholesale
Stage 3 loans (£bn)
1.3
1.4
3.1
 
1.3
1.9
2.3
Vintage (time in default):
 
 
 
 
 
 
 
<1 year
33%
5%
46%
 
32%
13%
37%
1-3 years
26%
18%
15%
 
23%
12%
14%
3-5 years
10%
23%
9%
 
11%
23%
9%
5-10 years
23%
41%
30%
 
26%
44%
40%
>10 years
8%
12%
-
 
8%
8%
-
 
100%
100%
100%
 
100%
100%
100%
 
Key points
Mortgages - The proportion of the Stage 3 defaulted population who 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 value of Stage 3 loans that have been impaired for > 5 years was mainly due 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.
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
30 June 2020
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
UK mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
92,865
4,672
-
97,537
 
10
14
 -  
24
 
0.01
0.30
 -  
0.02
AQ5-AQ8
49,355
18,440
-
67,795
 
7
138
 -  
145
 
0.01
0.75
 -  
0.21
AQ9
325
973
-
1,298
 
 -  
42
 -  
42
 
-
4.32
 -  
3.24
AQ10
-
-
1,533
1,533
 
 -  
 -  
250
250
 
-
-
16.31
16.31
 
142,545
24,085
1,533
168,163
 
17
194
250
461
 
0.01
0.81
16.31
0.27
RoI mortgages (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
7,820
964
-
8,784
 
13
37
 -  
50
 
0.17
3.84
-
0.57
AQ5-AQ8
2,576
927
-
3,503
 
4
45
 -  
49
 
0.16
4.85
-
1.40
AQ9
6
316
-
322
 
-
16
 -  
16
 
-
5.06
-
4.97
AQ10
 -  
 -  
1,370
1,370
 
-
-
456
456
 
-
-
33.28
33.28
 
10,402
2,207
1,370
13,979
 
17
98
456
571
 
0.16
4.44
33.28
4.08
Credit cards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
35
7
-
42
 
2
1
 -  
3
 
5.71
14.29
-
7.14
AQ5-AQ8
2,350
1,260
-
3,610
 
45
226
 -  
271
 
1.91
17.94
-
7.51
AQ9
2
54
-
56
 
-
16
 -  
16
 
-
29.63
-
28.57
AQ10
-
-
110
110
 
-
-
86
86
 
-
-
78.18
78.18
 
2,387
1,321
110
3,818
 
47
243
86
376
 
1.97
18.40
78.18
9.85
Other personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
883
48
-
931
 
7
11
-
18
 
0.79
22.92
-
1.93
AQ5-AQ8
5,148
2,791
-
7,939
 
87
357
-
444
 
1.69
12.79
-
5.59
AQ9
67
326
-
393
 
3
107
-
110
 
4.48
32.82
-
27.99
AQ10
-
 -  
734
734
 
-
-
612
612
 
 -  
 -  
83.38
83.38
 
6,098
3,165
734
9,997
 
97
475
612
1,184
 
1.59
15.01
83.38
11.84
Total personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
101,603
5,691
-
107,294
 
32
63
-
95
 
0.03
1.11
-
0.09
AQ5-AQ8
59,429
23,418
-
82,847
 
143
766
-
909
 
0.24
3.27
-
1.10
AQ9
400
1,669
-
2,069
 
3
181
-
184
 
0.75
10.84
-
8.89
AQ10
-
-
3,747
3,747
 
-
-
1,404
1,404
 
-
-
37.47
37.47
 
161,432
30,778
3,747
195,957
 
178
1,010
1,404
2,592
 
0.11
3.28
37.47
1.32
 
Note:
(1)
AQ10 includes £0.5 billion (31 December 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.
 
Capital and risk management
Credit risk - Banking activities continued
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
31 December 2019
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
UK mortgages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
-
-
240
240
 
-
-
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 (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
-
-
1,863
1,863
 
-
-
581
581
 
-
-
31.19
31.19
 
10,632
1,077
1,863
13,572
 
11
31
581
623
 
0.10
2.88
31.19
4.59
Credit cards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
-
-
643
643
 
-
-
539
539
 
-
-
83.83
83.83
 
7,436
2,310
643
10,389
 
65
253
539
857
 
0.87
10.95
83.83
8.25
Total personal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
15,034
4,036
188,870
 
130
503
1,449
2,082
 
0.08
3.35
35.90
1.10
 
Note:
(1)
AQ10 includes £0.5 billion (31 December 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 portfolios, the asset quality distribution deteriorated slightly in credit cards and other personal since the year-end, 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 have a higher proportion in AQ1-AQ4 than unsecured borrowing.
The relatively high level of Stage 3 impaired assets (AQ10) in RoI mortgages reflected their legacy mortgage portfolio and the residual effects from the financial crisis.
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 shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage.
 
Capital and risk management
Credit risk – Banking activities continued
 Asset quality
The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.
 
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
30 June 2020
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
Property
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
14,066
3,052
-
17,118
 
16
56
-
72
 
0.11
1.83
-
0.42
AQ5-AQ8
12,100
9,169
-
21,269
 
110
320
-
430
 
0.91
3.49
-
2.02
AQ9
616
179
-
795
 
-
16
-
16
 
-
8.94
-
2.01
AQ10
-
-
1,259
1,259
 
-
-
513
513
 
-
-
40.75
40.75
 
26,782
12,400
1,259
40,441
 
126
392
513
1,031
 
0.47
3.16
40.75
2.55
Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
9,419
15,479
-
24,898
 
21
155
-
176
 
0.22
1.00
-
0.71
AQ5-AQ8
18,094
34,000
-
52,094
 
111
1,350
-
1,461
 
0.61
3.97
-
2.80
AQ9
2,148
563
-
2,711
 
1
49
-
50
 
0.05
8.70
-
1.84
AQ10
-
-
2,012
2,012
 
-
-
938
938
 
-
-
46.62
46.62
 
29,661
50,042
2,012
81,715
 
133
1,554
938
2,625
 
0.45
3.11
46.62
3.21
Financial institutions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
34,532
2,342
-
36,874
 
13
12
-
25
 
0.04
0.51
-
0.07
AQ5-AQ8
4,590
1,440
-
6,030
 
9
57
-
66
 
0.20
3.96
-
1.09
AQ9
11
7
-
18
 
-
-
-
-
 
-
-
-
-
AQ10
-
-
10
10
 
-
-
5
5
 
-
-
50.00
50.00
 
39,133
3,789
10
42,932
 
22
69
5
96
 
0.06
1.82
50.00
0.22
Sovereign
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
9,274
-
-
9,274
 
9
-
-
9
 
0.10
-
-
0.10
AQ5-AQ8
157
1
-
158
 
1
-
-
1
 
0.64
-
-
0.63
AQ 9
5
-
-
5
 
-
-
-
-
 
-
-
-
-
AQ10
-
-
6
6
 
-
-
-
-
 
-
-
-
-
 
9,436
1
6
9,443
 
10
-
-
10
 
0.11
-
-
0.11
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
67,291
20,873
-
88,164
 
59
223
-
282
 
0.09
1.07
-
0.32
AQ5-AQ8
34,941
44,610
-
79,551
 
231
1,727
-
1,958
 
0.66
3.87
-
2.46
AQ9
2,780
749
-
3,529
 
1
65
-
66
 
0.04
8.68
-
1.87
AQ10
-
-
3,287
3,287
 
-
-
1,456
1,456
 
-
-
44.30
44.30
 
105,012
66,232
3,287
174,531
 
291
2,015
1,456
3,762
 
0.28
3.04
44.30
2.16

Capital and risk management
Credit risk - Banking activities continued
Asset quality
 
Gross loans
 
ECL provisions
 
ECL provisions coverage
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
 
Stage 1
Stage 2
Stage 3
Total
31 December 2019
£m
£m
£m
£m
 
£m
£m
£m
£m
 
%
%
%
%
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
-
-
895
895
 
-
-
402
402
 
-
-
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
AQ10
-
-
1,649
1,649
 
-
-
859
859
 
-
-
52.09
52.09
 
59,689
9,704
1,649
71,042
 
124
198
859
1,181
 
0.21
2.04
52.09
1.66
Financial institutions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
7,268
4
-
7,272
 
7
-
-
7
 
0.10
-
-
0.10
AQ5-AQ8
142
-
-
142
 
-
-
-
-
 
-
-
-
-
AQ10
-
-
5
5
 
-
-
-
-
 
-
-
-
-
 
7,410
4
5
7,419
 
7
-
-
7
 
0.09
-
-
0.09
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AQ1-AQ4
77,528
1,258
-
78,786
 
33
18
-
51
 
0.04
1.43
-
0.06
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
 
135,702
12,834
2,562
151,098
 
192
249
1,269
1,710
 
0.14
1.94
49.53
1.13
 
 
Key points
● Across the Wholesale portfolio, the asset quality band distribution differed, reflecting the diverse nature of the sectors, however, asset quality deterioration was observed across most sectors in H1 2020 as the impacts of Covid-19 affected customers’ operations and markets.
● Within the Wholesale portfolio, customer credit grades are being reassessed as and when a request for financing is made, a scheduled customer credit review is undertaken or a material event specific to that customer occurs.
● As noted above, a request for support using one of the government-backed Covid-19 support schemes is not itself a reason for a customer’s credit grade to be amended.
● The magnitude of credit migration in Wholesale was influenced by Covid-19 specific guidance on credit grading for customers in place during Q2 2020. NatWest Group established this guidance to provide consistency and fair outcomes for these customers, whilst appropriately reflecting the economic outlook at that time. Large or complex customers were graded using financial forecasts, incorporating both the impact of Covid-19, and the length of the time to return to within credit appetite metrics.
● All other customers who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium-term post-crisis 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 the Covid-19 crisis. 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.
● ECL provisions coverage shows 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.
 

 
Capital and risk management
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 financing transactions in NatWest Markets and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9.
 
Reverse repos
 
Repos
 
 
 
Outside
 
 
 
Outside
 
 
Of which:
netting
 
 
Of which:
netting
 
Total
can be offset
arrangements
 
Total
can be offset
arrangements
30 June 2020
£m
£m
£m
 
£m
£m
£m
Gross
80,186
79,972
214
 
68,927
66,816
2,111
IFRS offset
(43,196)
(43,196)
-
 
(43,196)
(43,196)
-
Carrying value
36,990
36,776
214
 
25,731
23,620
2,111
 
 
 
 
 
 
 
 
Master netting arrangements
(321)
(321)
-
 
(321)
(321)
-
Securities collateral
(33,982)
(33,982)
-
 
(23,299)
(23,299)
-
Potential for offset not recognised under IFRS
(34,303)
(34,303)
-
 
(23,620)
(23,620)
-
Net
2,687
2,473
214
 
2,111
-
2,111
 
 
 
 
 
 
 
 
31 December 2019
 
 
 
 
 
 
 
Gross
74,156
73,348
808
 
71,494
69,020
2,474
IFRS offset
(39,247)
(39,247)
-
 
(39,247)
(39,247)
-
Carrying value
34,909
34,101
808
 
32,247
29,773
2,474
 
 
 
 
 
 
 
 
Master netting arrangements
(562)
(562)
-
 
(562)
(562)
-
Securities collateral
(33,178)
(33,178)
-
 
(29,211)
(29,211)
-
Potential for offset not recognised under IFRS
(33,740)
(33,740)
-
 
(29,773)
(29,773)
-
Net
1,169
361
808
 
2,474
-
2,474
 

 
 
Date: 31 July 2020
 
 
 
NATWEST GROUP plc (Registrant)
 
 
 
By: /s/ Jan Cargill
 
 
 
Name: Jan Cargill
 
Title: Deputy Secretary