NatWest Group plc

Good morning and thank you for joining us for the first set of results since becoming CEO. I'm going to start with the financial headlines and my near-term priorities for the business. Then Katie will run you through the quarter three results in greater detail. And after that, we'll open it up for questions. Our customers and communities are central to our strategy. So I'd like to begin by putting the financial headlines in the context of recent customer activity. During the first nine months of this year, We have lent over 8 billion into the UK economy, opened over 80,000 new business startup accounts, helped 312,000 customers buy or refinance their homes, and opened over 1 million savings accounts alongside around 800,000 current accounts. In addition, we have delivered over 53 billion of climate and sustainable funding and financing since July 2021. Turning now to the financial headlines, We delivered operating profits of 4.9 billion for the first nine months, which is up 33% on the prior year, with attributable profits of 3.2 billion. Income was 10.9 billion and costs were 5.6 billion. Our cost-income ratio was just under 50%, with some benefit from foreign exchange gains, and we are on track to meet our cost target of 7.6 billion for the year. Our balance sheet remains strong and our funding is well diversified with £424 billion in deposits, £358 billion of customer loans and a loan-to-deposit ratio of 83%. We remain committed to a 40% payout ratio with capacity for buybacks and have paid or accrued £1.1 billion in dividend payments in the first nine months. In addition to the directed buyback of 1.3 billion in May, we have also carried out almost half of the 500 million on-market buyback announced in July. Taken together, this represents distributions of 2.9 billion, more than 90% of our nine-month attributable profits, and brings our CET1 ratio to 13.5%. Our return on tangible equity to 13.5%. Our return on tangible equity was 17.1%, and we expect to be at the top end of our 14 to 16% target range by the year end. Despite this strong set of results, I recognize that income and net interest margin came in below expectations, reflecting an accelerated change in customer behavior during the quarter. Customers are more actively searching for yield and moving balances from non-interest-bearing accounts to lower-margin saving and fixed-term products. And in a competitive market environment, we have taken the decision to compete. Whilst this comes at a cost in the near term, we are balancing income and margin with the long-term value of deepening customer relationships and maintaining a strong funding and liquidity profile. As a result of changes in customer behavior relating to both assets and liabilities, as well as assumptions on interest rates, we are revising our income and net interest margin guidance for the full year, which Katie will cover in more detail. So let me turn now to my near-term priorities for the business. I've been very focused on running the business, ensuring we continue to serve and support our customers and our communities. At a time of macroeconomic uncertainty and evolving behavior, it is essential that we continue to be a strong, stable, and trustworthy partner for our 19 million customers. It is important to me that we are the very best bank we can be, and I'd like to thank all of my colleagues for their continued hard work and dedication. There is more to be done as we continue to make it easier for our customers to engage with us, either by our digital channels or our extensive presence across the country. We remain focused on driving and delivering the outcomes we set out earlier this year, simplification, digitization, and using data and technology to better serve our customers. I've already made several decisions to improve efficiency and strengthen our focus on simplification and productivity. This is very much in line with the agenda I drove in my previous roles here at the bank, and as I continue to spend time with our businesses during the quarter, it has only confirmed my view that there is more value and growth we can deliver. We are also in the midst of the planning cycle, and as you'd expect, I've spent a lot of time with Katie and the team going over the plan, stress testing it, and challenging ourselves to look at a range of scenarios. We have worked hard to absorb the recent inflationary pressures, but given the macroeconomic environment, it will come as no surprise that we continue to tighten our approach to cost in order to deliver attractive returns and capital generation consistent with our medium-term target of 14% to 16% roti. An important strength of the bank in recent years has been the robustness of its balance sheet, which positions us well, both for the upside and the downside. Our customers remain resilient and impairments are low, but I'm very alive to the ongoing risks associated with higher rates, inflation and supply chain shocks. I'm also clear that these impacts may still be working their way through the system, so we are closely monitoring a wide range of indicators and testing our balance sheets for a wide range of economic scenarios. Our strong common equity tier one and liquidity ratios position us well to navigate the macro environment, changing customer behavior and remaining uncertainty on the impact and timing of upcoming regulatory change. We therefore need to be dynamic and disciplined in the way we manage and allocate our liquidity and capital. We have made good progress over the year to diversify our deposit product offering, better leveraging our data and using a broader range of tools on both sides of the balance sheet. That said, I still see opportunities to be smarter and quicker. Our recent track record of capital generation is strong and allows us folks to invest in the business and provide shareholders with attractive returns. I fully appreciate the stability and predictability of our capital distributions together with their timing through the cycle is central to our value and investment case. Finally, the recent appointments to my leadership team have settled well, and I am pleased with the team's ability to focus on delivering to our customers and driving the execution of our plan. We have a strong business and are making good progress, but I'm keenly aware that we'll be judged on our ability to deliver. With that, I'll hand over now to Katie to go through the results in more detail.

Thank you, Paul. I'm going to talk about performance in the third quarter using the second quarter as a comparator on slide six. Total income of 3.5 billion was down 9.4% as foreign currency gains in the second quarter were not repeated in the third. Income excluding all notable items was also around 3.5 billion, down 1.4%. Within this, net interest income was 4.9% lower at 2.7 billion, while non-interest income grew 12.2% to 829 million. Operating expenses were stable at 1.9 billion. The impairment charge increased to 229 million, or 24 basis points of loans, reflecting normalisation and the non-repeat of releases in the second quarter. when we updated our economic assumptions. Taking all of this together, we delivered operating profit before tax of 1.3 billion pounds and profit attributable to ordinary shareholders of 866 million, which is equal to a return on tangible equity of 14.7% in the quarter. We are pleased to have delivered further net lending growth. This was driven by our corporate customers while net mortgage lending moderated following a strong first half. Gross loans to customers across the three businesses increased by £2 billion to £358 billion. Taking retail banking together with private banking, mortgage balances grew by £200 million, representing stock share of 12.6%. Gross new mortgage lending was £7.9 billion, representing flow share of around 13%. unsecured balances increased by £500 million to £15.5 billion, driven by continuing customer demand and share gains within cards. In commercial and institutional, gross customer loans were up by £1.3 billion. At the mid-to-large end, we saw demand for term credit facilities and private financing. At the smaller end, demand remains muted and customers with surplus liquidity continue to deleverage including repayment of government scheme lending. So let me now turn to deposits on slide eight. Customer deposits across our three businesses were up in the quarter at 424 billion. Across retail and private, deposits grew by 2.1 billion, reflecting market share gains in term deposits. In commercial and institutional, deposits increased by 300 million. Our stable loan-to-deposit ratio of 83% allows us to manage our deposit base for value as well as support customers and grow our lending share in target markets. The UK base rate has increased by 25 basis points to 5.25% since we presented our first half results. And customers continue to move balances from non-interest-bearing to term accounts. Non-interest-bearing balances have reduced from 37% of the total to 35%. And as you can see on the slide, the absolute reduction in non-interest-bearing balances, which is the main transaction account for our customers, has continued in line with the second quarter across each of the businesses. Within interest-bearing balances, we have seen an accelerated change of mix, and term accounts are now around 15% of the total, up from 11% at the end of the second quarter. There were high levels of deposit migration amongst our existing customers, in particular to lower margin term accounts. We also launched a new fixed rate savings product for retail customers to the entire market at the end of the second quarter. This attracted new term balances from customers that are new to the bank, helping to grow our share and contributing to the change in deposit mix. This launch has enabled us to grow our customer franchise, strengthen our liquidity position and grow income. albeit at tighter margins. Going forward, we expect the pace of migration to reduce, given a slowdown in late September and October, and our expectation that UK base rates will remain at 5.25% through to the second half of 2024. Turning now to how this impacts our deposit margin on slide 9. The top left of the slide shows the average third-party customer deposit rate across all three businesses. on both interest-bearing balances and total deposit balances over the last four quarters. The cost of our total customer deposit base has increased from 0.5% in the fourth quarter last year to 1.8% in the third quarter this year. As a result, interest payable to customers grew from $588 million to $1.9 billion. The rise in interest payable has outpaced the rise in interest receivable since the second quarter this year, which is why group net interest income has fallen since then. The average UK base rate in the third quarter was 5.2%, up around 80 basis points on the second. This compares to a 60 basis point increase in the cost of deposits, yet our deposit margin fell. This is because a significant proportion of our deposits are hedged and did not yet benefit from the rise in interest rates. The bar chart on the right-hand side of the slide shows that 195 billion, or 45% of our customer deposits, form part of the product structural hedge. This has a weighted average life of two and a half years, meaning it takes five years to fully reprice. We also hedge our term deposits separately. and this income is not included in our structural hedge disclosures. As a result, less than half of our deposits are unhedged and benefit immediately from the increase in SONIA. As you consider the outlook for our deposit income, you should think about the margins we earn in each of the component parts, how the margin will develop going forward, and the balance in next. Starting with the product structural hedges, Given the ongoing reduction in 12-month average eligible balances, we expect the size of the hedge to reduce during the fourth quarter and into 2024. However, we expect the reinvestment uplift to offset this balance reduction so that structural hedge income increases year-on-year in 2024 and more meaningfully in 2025. Turning to hedge-term deposits, this remains a competitive market with tight margins. where we are seeing the fastest growth in balances. Finally, unhedged instant access deposits. As you know, our cumulative pass-through on instant access accounts has been around 60% to date. This means that unhedged margins are currently around 2.5%. The margin outlook will depend on competition, customer behavior, and of course, the UK base rate. Let me explain how deposit margins impact its income on slide 10. Income excluding all notable items was £3.5 billion, down 1.4% on the second quarter. Net interest income was 4.9%, lower at £2.7 billion, driven by lower margins and broadly stable average interest earning assets. Bank net interest margin reduced by 19 basis points to 2.94%, as a result of lower lending margins, which accounted for 12 basis points driven by mortgages, and lower deposit margins accounting for 14 basis points, reflecting additional interest expense, which more than offset the structural hedge reinvestment this quarter. These two movements were partly offset by a six basis point benefit from funding an other movement as a result of one-off reallocations from non-interest income, which we do not expect to repeat. Non-interest income, its really notable items, grew £90 million to £829 million, Corporate activity improved in the quarter, resulting in higher lending fees. We are pleased that non-interest income for the first nine months of the year is up 7% on the same period last year. Turning to the full year, we now expect income excluding notable items of around £14.3 billion and bank net interest margin greater than 3%. This guidance is the result of changes in customer behaviour on both the asset and liability side, as well as revised assumptions on interest rates. On liabilities, as I just mentioned, we expect the future pace of migration to slow and non-interest-bearing accounts to represent 34% of the total at the year end, with term at around 17%. This means that we do not expect positive margin pressure to continue at the same pace into the fourth quarter. On the asset side, our mortgage customers are refinancing onto rates at a higher but at a tighter margin for us. We expect this headwind to moderate over the coming quarters. Finally, the interest rate outlook has changed. As you know, our income guidance assumed a 50 basis point increase in August to 5.5%. We now expect the UK base rate to remain at 5.25% for the rest of the year. We expect both lending margin and deposit margin pressures to ease into the fourth quarter. And therefore, we do not expect bank name to reduce by a similar 19 basis points as we saw in the third quarter. Moving on to costs on slide 11. Other operating expenses were £1.8 billion for the third quarter, down £82 million or 4.4% on the second quarter. This was driven by lower staff costs due to our ongoing exit from Ulster Bank, where we have incurred $206 million of direct costs in the first nine months, and continue to guide to around $300 million for the full year. We expect other operating costs of around $7.6 billion for the full year, in line with our guidance. This delivers a cost-income ratio of 49.9% for the first nine months, benefiting from foreign exchange gains. Excluding these, the cost-to-income ratio is 51.4%. I'd like to turn now to impairments on slide 12. We booked a net impairment charge of £229 million in the third quarter, equivalent to 24 basis points of loans on an annualised basis. This reflects a normalisation of trends and the absence of releases made in the second quarter when we revised our economic assumptions. These assumptions remain appropriate and are unchanged Our impairment loss rate for the first nine months is 16 basis points, and we now expect to be below or through the cycle range of 20 to 30 basis points for the full year. Our balance sheet provision for expected credit loss is broadly stable at 3.6 billion, equivalent to coverage of 94 basis points of loans. This includes 453 million of post-model adjustments for economic uncertainty, which are also broadly stable in the quarter. We remain comfortable with coverage of the book, which continues to perform well. I'll talk a little more about the composition and quality of our loan book on slide 12. We have a well-diversified prime loan book. Over 50% of our group lending consists of mortgages, where the average loan-to-value is 55%, or 69% on new business. 92% of our book is fixed, and the majority at five years. 5% are trackers, and 3% is on a standard variable rate. Our customers continue to refinance early to take advantage of lower rates in the six-month window before roll-off, and we monitor the impact of higher rates on customers closely after they refinance. We are seeing a return to a more normalised level of arrears in our mortgage group, but these remain a little below 2019 levels, and we are not seeing any material increase in the request for forbearance. Our personal unsecured exposure is less than 4% of group lending and is performing in line with expectations. Our corporate book is well diversified and is performing well. We have seen some sectors rebuild cash buffers over the past quarter and we continue to hold PMAs for those sectors where liquidity pressures may be more acute. Turning now to look at capital and return generation on slide 13. We are pleased to have delivered 14.7% return on tangible equity this quarter, driving good capital generation. We ended the quarter with a common equity tier one ratio of 13.5% in line with the second quarter. Earnings delivered an uplift of 49 basis points, which was partly offset by RWA growth of 4.1 billion, absorbing 30 basis points. This led to a net capital generation of 21 basis points in the quarter and 118 basis points for the first nine months, excluding non-recurring impacts such as our acquisition of Cushion. We accrued the equivalent of 20 basis points in the third quarter towards the final dividend in line with our 40% payout ratio. Looking to the fourth quarter, we expect RWA to increase by around £3 billion as a result of CRD4 model updates. which remain subject to further development and final approval by the PRA. We expect net RWA growth to be broadly in line with this $3 billion increase, given our current expectations for credit growth and typical market risk seasonality. We now expect RWAs to be around $200 billion at the end of 2025, including the impact of Basel 3.1 and further CRD4 model developments. At this point, we view around $200 billion as an appropriate basis for planning. But this guidance is clearly subject to final rules on credit and output floors, which will not be published until the middle of 2024, as well, of course, as regulatory approval. We note recent comments from the PRA and its intention to evolve some of the credit risk proposals. And we will seek to mitigate these changes and optimise our balance sheet as much as we can through to 2025. Earnings have generated 180 basis points of capital in the first nine months before RWA draws, and we are comfortable with our ongoing capacity to generate and distribute capital over this period. In December, Paul and I will discuss our capital return plans for 2024 with the board, including both directed and on-market buybacks, and we will update you at the full year results in February. Turning now to our balance sheet trend on slide 14. Our CET1 ratio of 13.5% was within our target range of 13 to 14%, which includes a buffer above our minimum requirements. Our UK leverage ratio of 5.1% was stable on the second quarter and remains well above the Bank of England minimum requirements. Our liquidity coverage ratio was 145% at the end of the third quarter on a spot basis and 142% on a 12-month average basis. This is well above our minimum requirements. Turning to 2023 guidance. We now expect income excluding notable items to be around £14.3 billion at a UK base rate of 5.25%, with net interest margin above 3% and group operating costs excluding litigation and conduct of around £7.6 billion. delivering a cost-income ratio below 52%. We anticipate a loan impairment rate below the range of 20 to 30 basis points. And together, we expect this to lead to a return on tangible equity at the upper end of our 14 to 16% range. And with that, I'll hand back to Paul. Thank you, Casey.

As you can see, we have performed well in the first nine months as our customers continue to adapt in an uncertain economic environment and I remain optimistic about our ability to deliver good performance. My focus remains on consistently serving our customers' needs whilst continuing to drive the execution of our strategic plan with an emphasis on further digitization and simplification. We are able to do this supported by a strong balance sheet which allows us to grow in attractive parts of the market whilst maintaining strong originating discipline. As we continue to generate capital, we are committed to continuing to drive returns and shareholder distributions with a 40% payout ratio for ordinary dividends and with capacity for further buybacks. I expect to provide you with more detail in February. Thank you very much. We're happy to open it up for questions now.

If you would like to ask a question today, you may do so by using the raise hand function on the Zoom app. If you are dialing in by phone, you can press star nine to raise your hand and star mute to unmute once prompted. We will ask that you limit yourself to two questions each to allow more of you a chance to ask a question.

We'll now pause for a moment to give everyone an opportunity to signal for questions.

Our first question comes from Raoul Sinner from JP Morgan. Please go ahead.

Hi, Ralph.

Hi, good morning. Hi, Paul. Hi, Katie. A couple of questions to start with, I guess. The first one, I think you've been reasonably clear on the direction of NIM travel in the second half of this year coming to these results. But I guess the magnitude of some of the moves has surprised most people. So I guess the question that I wanted you to address is how should we think about the direction of travel in Q4, and if you can give us a little bit more color around the exit run rate. And related to that, I guess the broader question is that some of the external factors that are impacting your name and the industry name, you know, such as competition, migration, deposit levels in the industry are all quite difficult to predict and external to you. So what sort of gives you the confidence around the slightly better you know, outlook for NIM decline next quarter. That's the first one. The second one, just maybe staying on deposits, you've taken the decision, as you said, Paul, to compete in deposits. And I was just wondering if you might elaborate a little bit around your thinking. So given the very low loans to deposits ratio at Northwest, you know, what does that really mean in terms of, you know, what are you looking to do with your deposits? Are you expecting to grow your deposits on an absolute basis? And are you, how do you look at sort of the returns dynamic within that? Thank you.

Great. Thanks, Rahul. Why don't I take the deposit question, the second question first, in case you can cover the NIM piece. As you rightly said, Rahul, we made a very conscious and deliberate decision around competition in deposits. You can see that we stabilized the book quarter two, quarter three. That's allowed us to retain deposits and in certain parts of the market gain some share. As you rightly point out, there's a trade-off there. It has a cost. And the judgment I've made really is balancing that cost versus retaining and acquiring the customer relationships. but also the liquidity value. That's the kind of strategic judgment that we've made. And we stand behind that. We think that's the right move for us. The length of the loan deposit ratio you referenced is a good one. And you're right, the RLDR is different from some of our peers. As you can see from the growth in some of our products on the asset side, we still want to grow. part of our asset balance sheet and some of our customer segments there. So we'll be looking to deploy that where we see good opportunities. We'll be very disciplined around the returns that we want to get for the deployment of that capital on the asset side for reducing various areas to deploy. So we're very focused on getting those, I think it's the final part of your question, those dynamics between what we pay for deposits versus then how we pass those pricing on to the asset side. And you can see some of that in the CNI asset book as well.

Katie, can you? Sure. Thanks so much, Paul. So, full year guidance for total income x notable items of around 14.3. You know we don't give you specific NII guidance. This implies the income for the fourth quarter starts to stabilize relative to the third. Our current view is greater than 3% for the full year, which means that we would expect that the Q4 reduction is less than the Q3 reduction. When we look at the current view, there's a couple of factors you need to keep in mind. Base rates remaining at 5.25 until the end of the year. Broadly stable deposit balances through to the end of the year as we've delivered this quarter. And customer behaviour, we do assume a slowdown in deposit migration with nibs at 34% and term at 17% at the year end. I guess your second part of the question is the confidence in that slowdown. It's very much what we've seen really through the last seven weeks where you have started to see it slowing down. We do expect there to be some short-term movements as you see people in other banks do kind of special offers at any one time, but we're comfortable with that kind of slowdown. So we would expect to end 34 and 17. Thanks, Leo.

Our next question comes from Aman Raka from Barclays. Aman, please unmute and go ahead.

Morning, Aman.

Morning, Katie. Morning, Paul. I hope you can hear me okay.

Could I throw on two things, please? One was around your hedge commentary. So I'm just wondering if you could tighten up some of the – some of your expectations around the hedge. I think you talked about hedge national being down in Q4 and into 2024. You've obviously given us some kind of deposit mix expectations into your end, which is actually really helpful. So thank you very much for that. Presumably you've got a pretty decent view on where you expect the kind of hedge in terms of notional to go from here. But I guess also, I mean, it sounded like you're looking for it to be a tailwind into 2024 and 2025. I mean, I'm I would definitely hope that to be the case, given the repricing tailwind. So can you help us kind of quantify that? Yeah, it should be a material headwind going forward. So do you see that? And then the second one was just around your medium-term aspirations. So I kind of note around the outlook statement, you continue to target medium-term growth year 14 to 15, but particularly around the sub-50% cost-income ratio in 2025. I guess there's two parts to that. One is, is that a proper reiteration of that leading term aspiration? So do you continue to target a South 50 cent cost income ratio? Do you remain confident in achieving that in 25? Or should we expect to kind of refresh with that update that sort of year? I'm kind of interested in the implied recovery in the revenue performance that that inherently assumes and implies. which I think is quite important. So, you know, if you didn't believe that, where is that coming from? And, you know, what does it mean for NIM kind of, you know, do you expect NIM to recover in coming quarters? Thank you very much.

Thanks, Aman. Very clear. So, let me take the kind of roti and the guidance points, and then, Katie, you can take us through the hedge. So, From a ROTI perspective, let's do the guidance first for this year. We're still very clear we'll be at the upper end of the range. We're also, in terms of the outlook, median target ROTI 14 to 16, that's unchanged. We do expect to operate in that range, so very clear on that. You also correctly highlighted that the target is 2025 cost-income ratio of 50%. Obviously, there's two parts to that. I think you would agree, and I hope you'd agree, we've got a very strong track record on cost reduction, very focused on managing costs. In my preferred statements, hopefully you heard that given the change in macro, you know, I've been very focused on getting a grip on both the cost outlook and the capital outlook. So really kind of take control on the things that we can control. Some of the customer behaviors we can't. Obviously, the economics we can't. But, you know, determined to mitigate some of those external impacts with the actions we take on costs and capital. So that's where the guidance is for the median term. Obviously, at least the first part of your question, how does the hedge flow through to that? Katie?

Sure. Thanks very much, Paul. So if we look at the hedge, the notional balance, as you know, at the end of the third quarter, £195 billion, down from £202 billion at the end of June. Based on our expectations for deposit mix at the end of 2023 and our 12-month loopback, we expect the hedge notional to reduce to around 190 billion at the end of 2023, and then a further reduction in 2024 in line with the fall in the average eligible balances. As you know, a 60th story of the hedge matures each month, currently equivalent to around 10 billion pounds per quarter. The roll-off of the hedge yield is around 1% in the fourth quarter, falling to an average of 80 basis points in 2024 and then 50 basis points in 2025. We will continue to reinvest then at the prevailing five-year swap rate. I would say that the average that we had in October for reinvestment was around 4.6%. So clearly the difference between roll-off and roll-on rates with increasing yield over time, which was at 1.5% in Q3, is a benefit. We do expect the higher rate to lead to higher hedge income year on year in 2024 and increasingly so in 2025 as we talked about at the half year. I think one of the key factors within there is obviously the timing of the stabilisation of deposits in terms of the mix of those deposits. Clearly quicker stabilisation means that the benefit of the hedge will become greater and it will come to us sooner. Currently, our estimation is that we will start to see stabilisation sort of during Q2 next year. Aman, hopefully that answers your question. Thanks very much. Thanks, Aman.

Our next question comes from Ed Frith of KBW. Ed, if you'd like to unmute and ask your question.

Hi, Ed.

Yeah, thanks very much. And morning, everybody. I just have two questions. The first one was about your comments around expectations for deposit pricing to ease or deposit pressures to ease. Because if I look at market pricing, I mean, spreads on deposits now are at almost all-time highs. And the only reason it's not coming through in your margin is obviously because of the hedge drag. I mean, if a hedge was repriced at today's price, your margin would be like 450 basis points or something. So it seems to me in a market where you've got a lot of competitors who don't have these hedges, and you can think of people like Chase or Markets, et cetera, I don't understand why you think that they're going to be easing off the pedal in order to help you with your hedge. It seems to me that if you put in things like TFSME coming through as well, that the pressure is only going to build because, you know, large spreads are very, very wide for people who don't have a hedge. So I guess that's my first question. And the second question, I was just struck that in terms of risk-weighted assets, you highlighted that the increase in this quarter was driven by market-related risk-weighted assets. And I'm just wondering, is that like a strategic shift? Because it seems to me you're making a trade-off there in terms of share buybacks, which look reasonably unlikely now at the year end, against putting capital into market-based activities, which I suspect has not traditionally been where you've been focused, and it's perhaps something that I guess a number of shareholders would be less than keen on. So I just wondered, is that now an area where you see opportunity, and is that the sort of trade-off that you're thinking in terms of capital allocation? Thanks very much.

Thanks, Ed. I'll take the second point and be very clear. It doesn't represent any change in strategy around our markets business at all. All that is is a normalisation in quarter three, given there was some change significant reductions in quarter two. So it's really the comparison point. It has gone up, as Katie rightly said, but it's more a normalisation of where that business was earlier in the year. Absolutely no change. We see markets as an important part of our C&I franchise, but we're not proposing to allocate materially more capital to it at this stage.

Would you expect it to go down in Q4? I mean, traditionally it's quite a low activity. Correct. Yeah, that would be our expectation. Great, thanks.

Lovely. Thanks very much, Ed. So I think, first of all, just to clarify, I don't think that competition will ease. We think that the transition into fixed will start to ease and stabilise. So I do expect the deposit market to remain to be highly competitive as we move forward from here. And I think the impact of TFSME, as we've seen with some of our competitors over the summer, will cause people to do very short-term offers to enable them to make repayments on their TFSME. I think we'll continue to see that as we go through. I would probably just quickly remind you that the hedge is there to help smooth out our income over a number of years. It's not there to make short-term gains and losses on the interest rate levels. I think that's really important to remember. We did show you on slide nine that we're paying customers on average 2.7% on interest-bearing deposits and 1.8% on all deposits. I think I would remind you that we're not earning the difference between 1.8% and the average base rate of 5.2% because of how we hedge that and how that all kind of interacts. But as I look forward from here, I think we've taken some very strategic action in this quarter to make sure that we retain and build our deposit base for the long term so that we're able to withstand what I do think will be very competitive. next nine to 12 months as people deal with the repayments and things on the TFSME, but we're comfortable with where we are and that we've got the right product out in the market to deal with that. Thanks, Ed.

Katie, can I just come back on that? Sure. As we look at Q4, we can all do the maths about where the Q4 margin will end up, but I guess it's somewhere in the 280, 290 level. But I guess more importantly is what happens next year, because the question is, is certainly talking to your peers, that they're generally talking about margins going down from there into next year, which is obviously a huge difference to where the market thought early this morning your margin was going to be next year. So is that analysis correct for you, that that margin we should expect to continue to deteriorate next year because deposit pricing is only getting tougher and not easier, and obviously the roll-off of the hedge is going to take five years?

Yeah, so there's a couple of things going on within there. So as I look, you know, Ed, I'm not a big fan of forecasting, as you know. None of us are now. A lot of moving parts within it. But if you think you kind of lift up a little bit to kind of the income story. So if I think of 2024 income. So full year this year, we've guided you to 14.3, which is implying that 3.4 billion in the fourth quarter. So that is... they expected that NIM will be above 3% for the full year. And I do mean above when I said above, so I'm not trying to guide you there, but I think you've kind of clicked on that. We do not expect the fall in NIM in the fourth quarter to be as severe as it has been in the third quarter. So I do expect to see NIM stabilising as we go through 2024. I think there's a couple of things that will impact the timing of that stabilisation, so I don't think it will be instant. We've talked about the headwinds of deposit migration and mortgages. They do moderate over the coming quarters, but they do not end at the end of 2023. The head-tail wind, which I talked about already, it does become stronger as we move through 2024, and that will eventually offset the headwinds of that deposit migration and the timing on stabilisation. So this gives us confidence on the medium-term income. I would urge you not to annualise the fourth quarter for those various reasons around the stabilisation.

Okay. That's very helpful.

Thanks, Ed, as ever.

Next, we'll be going to Alvaro Serrano of Morgan Stanley. Alvaro, if you'd like to unmute and ask your question.

Alvaro, if you'd like to unmute and go ahead and ask your question.

Sorry, I'm here. I'm just struggling with technology. Sorry, to ask more questions about deposits and NIM. You've given a very precise number for the end of the year on the 17.34%, which is given as two months ago and the turmoil within the last three months. I think it's very good. And I know you've said that the last few weeks give you a bit of confidence that things have slowed down and become more predictable. I don't know if you can share any more precise numbers around the last sort of what you see in October that could help us gain conviction on that number. And also related to that, the positive balance is the absolute number. You've gained market share. I know you've explained why you've decided to gain market share and balance throughout.

But would you – would we be willing to let those balances slip a bit to protect the margin?

What's the overall balance to pull it out of, do you think, for Q4 and as we think about 24? Thank you.

Yeah, sure. Well, let me kind of pick those apart. So, first of all, I think as I look at why the kind of conviction – I think there's a few different industry comparatives we can look at. What we know is that the US is generally a little bit ahead of us, so we've had a look at where they are. We've also looked within our own group, and what we saw in our own group is that private moved faster than retail, and what I've seen very consistently over the last number of weeks is that kind of level of stabilisation. Clearly, they're much smaller numbers and far fewer people, but that stabilisation is clear. When we then look and we'll see the September data, I guess, will come out as well. What we're expecting as well after the kind of peak of July, the slightly slower August and then in our own numbers, what we saw coming into September within the retail world, that kind of level of stabilization. Now, that doesn't mean that there's not going to be movements, and there definitely will be movements as we move into that piece, but I'm comfortable as we kind of see what we've seen in our data and what we've seen elsewhere, logically that stabilization would kind of start to come through. If I then kind of look at your deposit numbers,

Paul, do you want to jump in on that one? Alvaro, I think it's important to clarify one point. The share gains have been on the term side rather than the overall stock side. So that's what we referred to there. So you've seen an increase in market share overall. You'll see it from the Bank of England data. Our share has kind of remained relatively flat, I would say. That's the way to think about it. It's not that we're taking outsized market share gains. In terms of how we're thinking about that moving forward, my view is we're comfortable with our current position. In terms of would we compete more, we'll do that very much through a value lens and do the trade-off between the P&L value from the deposit and the margin impact versus retaining the relationships and the liquidity value that that gives us. So that's how we think about it. Thanks, Alvaro.

Thank you. Our next questions will come from Joseph Dickerson from Jefferies. Joseph, if you'd like to unmute and go ahead.

Morning, Joseph. Morning, Joseph.

Hi, Joe. We can't quite hear you.

Unfortunately, we are struggling to hear you, Joseph, if you'd like to rejoin the call and then we'll come back to you for more questions. Our next question will come from Guy Stebbings of BNP Paribus Exame.

If you'd like to go ahead, Guy, and ask your question. Hey, Guy. Hi, Guy. Guy, if you'd like to unmute and ask your question.

Hopefully you can hear me now. Apologies for that.

Yeah, we've got you.

Brilliant. So the first question was back to the medium term ROTI guidance. I'm just trying to understand why you're not changing that guidance at this stage. On the face of it, you're now expecting quite a meaningfully lower net income performance than previously. And in very round numbers, we could be talking close to a billion lower. And your expectations for risk-based assets and by association required tangible equities is also higher. So I'm just trying to gauge where are the positive offsets that help to mean that you still can deliver a 14% to 16% range, or that's still sort of the same range as previously. I mean, it does sound like perhaps some incremental work on cost, but presumably not enough to fully offset some of those headwinds. So I'm just trying to understand, is there an element of timing here as well, and really medium-term roti gardens is something that's really for discussion at the full year, especially given the challenges in judging exactly how deposits evolve. And then just a quick follow-up on the 2025 RWA guidance. Could you elaborate on what assumptions you're making there in terms of how the PRA may tweak the final rules? Some of the commentary recently sounds constructive on the face of it, so if you're interested in any colour you're giving and how you think those rules land. Thank you.

Thanks, Guy. I want to say a little bit on the Rotary piece and then, Katie, maybe you can talk about some of the building blocks. The crystal clear that Rotary is the The North Star, we know how important that is for capital generation and distribution capacity. You're right. We do believe in a medium term perspective, we're not changing the 14 to 16. We expect to operate in that range, the stress on the medium term. We know, as you allude to, it's difficult to be precise because there's a number of moving parts. But I do think there's a number of building blocks. We want to kind of be helpful there and help you with some of those building blocks. So, Katie, do you want to talk a little bit about how we're thinking about it?

Yeah, sure, absolutely. So, I've already talked kind of quite at length about income, so I won't repeat that other than to say that I do kind of urge you not to annualise the Q4 number. If you look at costs, full year guidance for the year, £7.6 billion. We're comfortable we're going to hit that. I'd remind you that that includes £300 million for Ulster direct costs, which we do expect to reduce materially in 2024. We do recognise that we've got headwinds of higher inflation, and we're working hard to ensure that our investment programme delivers savings to help mitigate this, as you've seen us do now for many years now. Impairments, clearly we're better on impairments than expected to date. You know, we're talking about being below 20 basis points in 2023. We've then, as you know, got through the cycle guidance of 20 to 30 basis points. I think when we meet in February, we'll give some views as to where we think we're heading for 2024. But I would remind you that we've got half a billion of PMAs on the balance sheet and our cautious approach to the release of these. So that also gives you a little bit of protection as you go through. If you then look at the capital piece, we will... within a range of 13% to 14% CET1. And you've seen this year our comfort to toggle up and down within that range. So I'd expect that to continue. While we do expect the RWA to trend higher through to 2025. I think the other thing you've got to also bear in mind is that we've demonstrated a very strong commitment to distributing XX capital as and when it becomes available. And that's also an important point when you think of that kind of average denominator number as you do your calculations. Guy, you also asked a little bit on the RWA assumptions as we go into next year and where the changes might be. So what we've guided you to is, you know, including the CRD4 changes and the BAL 3.1, my kind of best planning assumption at the moment would be to encourage you to use that £200 billion. What we've been talking about and we've been quite vocal about is the business factor in terms of the small lending and then also what treatments they're using on some of the infrastructure lending. We were heartened by the comments that we heard from the PRA over this last week and I think we'll wait and see what comes through. As you know, we're getting some of the rules in January and then we're getting credit and output floors only coming through in July. So what I've tried to do today is to give you a kind of a good estimate, the thinking of those factors to kind of help you with your modeling. We do think at the end of this year, when we talk about that 3 billion uplift, that I would add that on just to where we've ended this year at 182. Paul's already talked about the fact that we do expect market risk and timing just to come back in. So that gets you the kind of 185 sort of number by the end of this year. And, Dai, I'll leave you to have a think about how you might want to roll in those differences over the two years that follow. I'd probably be pretty linear about it myself, but you'll take your own views as to how best to do that.

Okay. That's very helpful. Thank you.

Lovely. Thanks, Dai. Thanks, Dai.

We're going to retry with Joseph Dickerson of Jefferies. If you'd like to unmute and ask your question.

Hi. Can you hear me now? Yeah, we got you. Perfectly. Thanks, Joe. Hi. Sorry about that. I just had a question just on the RWA guide as well. Is the $200 billion pre or post mitigation firstly, and then secondly, I think you've been guiding more towards in prior quarters, guiding more towards the lower end of the 5% to 10% inflation range. So, I'm just wondering what's changed to get you to the higher end of that, given if anything it seems like some of the commentary from the PRA is a little bit more friendly on the RWA front. And I think, you know, if I look at where, you know, our estimates are and where I think consensus is, I think we're at about $10 billion. You know, that number is coming about $10 billion higher, which is fairly material in CET1 terms. So I'm just trying to get to the bottom of the moving parts here, if you don't mind.

Yeah, no, sure. And I have to spend a bit of time on it. So always post-mitigation in terms of the numbers that we work with. I mean, we clearly put a lot of emphasis into the business about managing our capital and making sure that we get the very best return. And we've talked a lot in the past about our pleasing kind of results around the lower kind of risk-based assets entities. So that mitigation is something that we really try to build into the DNA of the organisation. You know, Joe, I probably crept you a little bit in the past. I've been very careful not to guide you to the bottom or the top end. I'm sorry if you're taken away that I haven't completely managed that on the 5% to 10%. But I think one of the things that really has probably changed pleased with the positivity we've heard from the PRA. I do think, and you've heard other banks talk about it in terms of that CRD4 pressure, that that is seeing a kind of increase in the kind of underlying models as we're going through our first pieces in relation to mortgages, as it is for others, and we'll continue to kind of work through that. But at this point today, it does feel the £200 billion feels the right number to kind of be thinking about for the time you get to end 2025 and Historically, I've always been, I think, quite good at kind of when I know more, I'll share it with you. And as the rules develop, we'll continue to make sure that we maintain that transparency with you in terms of the developments and the numbers.

What I would add, Jo, is you can be sure that we're going to have a very tight and disciplined approach to managing capital, given that regulatory backdrop. So it's a big focus for me, because to me it's one of the obvious operational levers we can influence. So a big focus over the course of the next two years. Thank you.

Our next question comes from Benjamin Toms of RBC. Benjamin, if you'd like to unmute and ask your question.

Morning, both, and thank you for taking my questions. Paul, you note that you've been very focused on cost since you started your role. I mean, consensus has costs for 2024 at about 7.6 billion. Are you comfortable with that number without the bank having to take any additional material restructuring costs, which would have implications for capital? And secondly, your mortgage stock was resilient in the quarter. In half one, NatWest issued a much higher proportion of peers of greater than 90% mortgage flow. Can you comment on that dynamic and has that trend continued into Q3? Thank you.

Thanks, Ben. I'll take the cost piece. So we're not guiding on 24. You're right, we've confirmed 7.6, or Katie confirmed earlier in the question, 7.6 in terms of You're right, you know, both along balance sheet management, capital management, and cost have been a focus for me and the team over the course of the last couple of months. What I would say is, you know, I think we've got a very good track record in terms of taking cost out of the business. I think we've done that in a way that hasn't been detrimental to either the customer experience or to revenue. So we are taking a very tight approach. I'll talk more in February in terms of in-year guidance for 24. But I'm not signaling any big restructuring charge or anything like that in this call.

Thanks, Paul. So in terms of the mortgages, a couple of things I would say. You're absolutely right. What we've seen is we saw higher flow in the first half of the year, and we've been moderating during this quarter to deal with kind of movements in pricing to make sure that we're really always managing the book for value and not just for volume. So the 16% falling down to 13% in flow, I think, for me, was important to see in this quarter, given where some of the pressures on swap curves have been. I would say, as you look at that above 90% mortgage flow, there's a technical thing behind it. We haven't changed our approach. There's a bit of indexing happening in our report thing. So, as you see the kind of price pricing fall, then you actually see more things being kind of moved up above the line. But then as you look at our new business, our LTV of our new business is 69% overall. So I wouldn't read too much into what's a relatively small part of our portfolio that's been indexed up into that greater than 90%. Thanks very much, Ben. Thanks very much. Thank you.

Our next question comes from Adam Terrelak of MedioBanker. If you'd like to unmute and ask your question.

Morning. Thank you for the questions. I've got a bit of a technical one on the hedge. Clearly, you're talking about 10 billion of maturities and the hedge is down, what, 7 billion in the quarter. I mean, that means that your hedge reinvestment each quarter is pretty minimal. If you then add that you've got further mid-shift to come and a 12-month look-back period, it feels like a good 18 months or so or a good few quarters until we can really talk about the hedge volume stabilizing and that tailwind coming through. I mean, is that the right way of thinking about it from a pure hedge standpoint? And is that why you sound a little bit more confident on the longer term story rather than the 2024 story? And then secondly, just feeding that into the NIM conversation, you said to avoid annualizing Q4, annualizing exit rates, but it sounds like with mixed shifts, we're going down before going up. So why are we confident that the acceleration in NIM in the back half of next year can take us back above that 4Q annualized figure? Thank you.

Perfect. So a few things within there that I'll try to help you with, Adam. So I guess as I look at the hedge volume stability, look, You're absolutely right. We do the hedge on a 12-month rollback. And then what we need to see is that mixed stabilising within our deposit base. What I said already on the calls, we are expecting that stabilisation to come. You're absolutely right. I think it's a couple of quarters away before we kind of get there. So it's probably kind of a post Q2 thing before we really get that kind of stabilisation. Then at that point, what's happening is they're kicking off about £10 billion a quarter. We'll be investing that at rates that are significantly above the roll-off. The roll-off next year is 80 basis points. I think I said earlier that our average reinvestment was 4.6%. So there's a natural delta. I'll let you take your own views as to where you think that five-year rate might be by the time we get to that piece. You'll get some benefit in the earlier quarters because there is some reinvestment, and then that will continue to grow as you go into the second half of the year. And then what you then see is you've then got stabilization. Then when I get into 2025, my 12-month route back is clearly more stable again, and so therefore I'm now reinvesting at a rate that is going to far exceed the 50 basis points, forgive me, roll-off rate that I've got into 2025. So, I mean, when we spoke in Q2, I think I talked there that there was more confidence in the recovery of income into 2025. That still remains the case because exactly of that point, if you need the deposit kind of stabilization to come through in terms of the blend, we've demonstrated the quantum very well now. for kind of two quarters. And then overall, the book will start to yield better. So at the moment, we're yielding about 1.5%. I would expect that to continue to see improvements in that as I go into 2024, because of the benefit of those different kind of factors. Hope that works for you, Adam.

Yeah, very clear. Lovely. Thanks a lot. And I'm sorry, I'm an in profile into...

Well, I mean, I guess my answer is probably it's very similar. So we've talked about that if we go into Q4 this year, you shouldn't expect to see the level of fall that we've seen in Q3. What we have said is that we expect NIM to be above 3% for the year. So therefore, your kind of exit rate is going to be lower than where we are now, but don't take it down as steeply as we fell in this quarter. You're then going to have the dynamics of stabilising mortgage rates, We talked about the mortgage groups, you know, getting to kind of around about kind of 80 basis points. We're sitting at 86 basis points just now. I think there'll still be movement around that 80 basis points piece, but that will stabilise. We said that that stabilisation would happen towards the end of this year, early next year. And then I've already talked a lot about deposit stabilisations. I won't see any more on that piece, but I certainly see the set down as less. And then I'm talking a bit of a narrative stabilisation of coming. So I wouldn't, I wouldn't let you, I wouldn't run away with it. Okay, great. Thank you. Lovely. Thanks. Thanks, Adam.

Our next question comes from Jonathan Pearce of Numis. Jonathan, if you'd like to unmute and ask your question. Hello.

Hi, how are you doing? I've got a couple of questions, please. The first, on the Nimbridge in Q3, it's the lending margin that I'm struggling with a bit, down 12 basis points. You said that was largely mortgages. That's about a $400 million annualised hit to revenue in the quarter. I think there's no more than 15 to 20 billion of refinancings or churn every quarter. So it implies a huge delta between what's come off and what's gone back on in spread terms. Is that right? Well, we saw 200 basis points of step down in mortgage margin on the churn in Q3. That's the first question. The second question, just sort of standing back and thinking about Deposited income as a whole, as I think it's slide nine, shows about 340 basis points of margin at the moment if you want to look at it as what you're paying the customers versus base rate. It's probably 320 basis points off at the end of September, I suppose. But then the product hedge that I prefer to think about is at a £195 billion position. but it's costing you a floating leg of five and a quarter and only receiving one and a half. So that's knocking about 170 basis points clean off what you're earning on the deposit, such that you're back at about 150 basis points. That's the margin you're earning on deposits going through the P&L. Is your confidence, forgetting about hedging income and notionals and all the rest of it, is your confidence around deposit income over time that the 150 – that you're earning net of the cost of the hedge at the moment is more likely to go up in this sort of rate environment than it is sideways or down. Is that a way of thinking about it?

Yes. Thanks. Jonathan, you've obviously spent a lot of time with Claire as well. So, I mean, you, as ever, have got it exactly right. So, look, definitely, you see that 150 go up. I mean, it's just the mechanics of reinvestment. I'm rolling off numbers that are falling. So, I'm going from a roll-off of about one, rolling off next year at 80, rolling off the next year at 50. So, I mean, it's exactly the right question. So, look, I do expect to see that improve as we go into next year. I think on the mortgages, look, there's a lot of put-to-takes and takes going on there. There's a lot going on. It's not as much as you suggest. It's not just as simple as the way what we're writing on the front curve. Because as you see at any one moment within the bank, you've got different customer behavior going on. So we've got people who are paying more at the time of their refinancing. We've probably got a bit more refinancing going on rather than new mortgage. You're familiar with the fact that the new mortgage market is smaller. And then also you have people that are paying, who used to pay more in advance of their new rate coming up, and they're not doing that so much now. They're waiting until it ends. So there's a few different things going on within there. I do think that the mortgage headwind will be smaller going forward, but I would say that we're paying a lot of attention at the moment to that kind of customer behavior and how they behave at the moment of kind of refinance and in the months leading up to it as well.

That is helpful, but if I can just press on that a little bit more, because it is a huge delta quarter-on-quarter. It's almost as much as the deposit movement. If you keep writing at the front end at 80 basis points, the book is pretty flat, actually, Q3, the mortgage book. If you keep writing at 80 basis points and the stuff that's coming off next year is, I don't know, 90, 100 basis points, why? Where does the maths go wrong if we just take 10, 20 basis points on the quarterly churn?

So I think a couple of things there. So we definitely seek to write the book at around 80 basis points over time. What I would say, and we've said a few times, that we're probably under a little bit of pressure at the moment because of the movement in the speed of the swap curve and some of the competition in the market, but that's a timing issue. I do think the same way to continue to think of the book and our aspirations is around that 80 basis points. The book itself this quarter has repriced from 102 down to 86. And then what we had said was that we'd expect it to kind of more or less fully reprice kind of by the end of this year. So I actually think your roll-off number is a little bit high, but we would expect to see that kind of moving to around 80 base points. And I'm sure in Q2 and Q1 next year, you'll be saying, Casey, why is it a bit lower? Why is it a bit higher? But we're getting into a much tighter kind of corridor of where those numbers are because of the real high value margin pieces will have substantially rolled off by the end of this year. There are some mortgage income disclosures for the retail bank. I think you'll find in the financial supplement, they'll be able to help you with some of the bits and pieces that are going on as well. So I point you to them as well. And obviously, John, I'm happy to talk more later. Thanks very much.

Thanks a lot. It's good. Thank you. Thank you. Our next question, it comes from Chris Cant of Autonomous. Chris, if you'd like to unmute and ask your question. Hey, Chris. Good morning. Thanks for taking my questions, both. I wanted to just clarify something you said, Paul, around restructuring charges. Maybe I wasn't listening carefully enough, but it seemed a little bit ambiguous as to what you were trying to convey to us there with regards to restructuring charges.

No ambiguity. The question was, would there be a restructuring or the potential for restructuring charge? And I said no. So apologies if it wasn't as clear as that.

And just to confirm as well, in terms of the sort of medium term road to expectation and the sub 50% cost income ratio for 2025, That you see as deliverable without sort of rampant. Obviously, you always have restructuring charges within your kind of normal cost run rate every year. But there's no expectation for that sort of spike up dramatically to deliver that 50% into 2025.

That's correct. The way I think about it is, and we've talked in the past, about investing three and a half billion over three years. A lot of that is going towards driving simplification, digitization, productivity. So we're very much, I guess, when I think about work and we pull the cost leader in the organization, it's that existing investment pot that I'm thinking about. I've also been spending a lot of time on making sure the shape of that investment pot is focused on that cost out simplification agenda. So that's how you should think about it rather than additional charges beyond the existing investment plan.

Thanks, Paul. I might just add a little bit more to help you a little bit on the raw T point, Kristen. It's almost this... This quarter is actually a really good quarter to think about, the kind of the royalty piece. So what you've got is kind of stable and gently growing lendings, relatively stable and gently growing kind of deposits. So that kind of gives you some comfort on the quality and stability of the balance sheet. In this quarter, we delivered 14.7% royalty. That was after a kind of a one-off charge in terms of a property charge, which actually was a drag in the quarter of 1.99%. You can see that in the notable license. So that really put you above the kind of 16% level. The way that I look at it, we've talked a lot about NIM and income. I'm not going to say any more on that. But actually, it's a very nice quarter when you look at kind of the normalized cost number, quite a normalized impairment level. There's a bit of conduct charge within there as well. We've also had a bit of an increase in kind of the RWAs. So I almost think as you look at this quarter, it's quite a nice kind of blueprint for what you could see going forward. I wouldn't read too much into that and tell you I'm giving you the exact date as you go forward. But I do think, you know, that 14.7% rotate is a good way to think as we go forward as well. Hopefully that's helpful.

That is helpful. And it actually sort of was the other question I wanted to ask. I mean, consciously not going to give us the NIM number. It is clearly very possible for people to take the greater than 3% NIM guide, and as you put it, run away with the NIM into 2024. If I could come at this slightly differently, you've talked about the medium term 14% to 16% ROTI. Are you expecting to be in that range for 2024 as well?

And I think let's talk more about that as we get into February. But I do think those comments that I just made around this quarter, I think they're quite helpful when you look at all the different line shapes and some of the RWA growth. And Chris, I dare say we'll chew on the fat on that a little bit more when we meet in February.

Okay. Thank you. Our next question comes from Robin Down of HSBC. Robin, if you'd like to unmute and ask your question. Hey, Robin. Hey. Are you there, Robin? Robin, if you'd like to unmute, then you may ask your question. No.

Unfortunately, it appears that we don't have Robin at the moment. So we're going to go to Andrew Coombs of Citibank. Andrew, if you'd like to unmute and go ahead and ask your question.

Good morning.

Morning. Morning. If I just have a couple of follow-ups, please. Firstly, on the structural hedge national and 12-month look-back, you talked about 2024 decline in line, I think, with the balances. But if I look at that 12-month look-back component, if I look at the PCAs, they're down 20 billion years today. Your PCAs and savings are down 30 billion. your guidance on the structural hedging notion was for a 19 billion design over the course of the year to get to that 190. So just, is there a catch up in the first half 24 relative to those deposit balances? Just to really understand that 12 months look back point. So that's the first question. And then the second question, just coming back to the lending margin and thanks for the point about being fully revised by year end. I also appreciate that you've moved away from giving quarterly completion spreads and instead talked about this 80 bits over time. But just given the magnitude of the moves down driven by lending margins, and that comes despite growth in higher margin areas like I'm sure in commercial, just trying to understand exactly where your front book completion spreads are today, because they must be well below that 80 basis points. that you're talking about. And I know it's a swap test and volatile, but it does look like you're running well below that at the moment.

Yeah. So, Andrew, I guess I'm not going to be drawing on it. We have talked about the book repricing. It's definitely under some pressure just now. I won't be called on the exact number. And as you know, it's something that moves not quite week to week, but in terms of pricing, there's a lot of activity. It is, I think, one of the most competitive mortgage markets we've been in for some time at the moment, accepting it's always competitive. In terms of the 2024 decline, I mean, we're very mechanistic about how we do this. We look at the previous 12 months of the eligible balances. We've given you a lot of disclosure over this year. You can see it in the fence up in terms of what's been exactly how current accounts and into term accounts. We've also given you disclosure today around those term accounts and our look forward for them. We do expect the numbers to decline into next year. We will see some stabilisation, we think, and we've talked about that a lot on the call today. And so that will then start as you then move forward and have the term want to look back at the end of Q3 and the end of Q4 and into 2025. Then you start to see that stabilisation of the of the hedge and then you'll see the reinvestment of the kind of 10 billion at its full level. And that will come through in the later part of the year. I mean, do, I think, consider the margin on other deposit categories and how they kind of work out compared to where our hedge balances are and obviously those term balances. I think that will help you a little bit as well. Thanks, Andrew.

We are going to come back to Robin Down of HSBC. Robin, if you'd like to unmute and ask your question.

Hi, Robin. Does that work? It does. Is it here, Robin? Sorry. You think after all this training on Zoom calls, we get the mute function right. Just one quick numbers question and one kind of slightly more conceptual question. Did I hear you earlier say that the mortgage book has dropped to 86 basis points? Yes. In Q3. Okay. And that's from, what, 102? Yes.

Yes, and that's been a very consistent pattern on each of the quarters, even for the last six or seven quarters. It's been generally repricing around about 15-ish basis points each quarter.

Okay. And then the second question, kind of a conceptual one, and I'm not really sure whether you're going to be able to answer this, but the assumption we all make is that when the structural hedge benefits come through, that they're retained by the bank and retained for shareholders. and not pass that to customers through kind of higher deposit rates. What gives you confidence that that's... Because the fact history of UK banking in the last 30 years is that when these benefits come through, they tend to get passed on to customers. What gives you confidence you're going to be able to retain that for shareholders?

So, I mean, I think... I'm probably not going to be able to give you a perfect answer, but I guess if I look at that structural hedge just now, it's yielding 1.5%. If I look at what we're paying to customers in different accounts, they vary significantly. across all of the accounts, whether it's the fixed term where the customer is yielding 5.25%. Actually, I'm hedging that in the background, so it's not necessarily costing all of that. Or to the term accounts where we've passed through about half, 50% of the rates, and obviously we don't pay on the deposit cap. So I think it's very hard to say as that structural hedge number goes up, then automatically it will go back. I think what's really important is that we balance all of the stakeholders and that we make sure that we do the right level of pass-through to our customers. And what you can see as you look at that graph on slide eight, there's been a real ramp up in that pass-through during this year. I mean, in terms of kind of interest payments, it's 4.1 billion the first nine months of this year. That compares to about 375 last year. So there's been huge, huge pass-throughs kind of going through. So I would find it very difficult to tie this is what happened to the hedge and that was your pass-through. We're clearly managing the whole balance sheet. making sure that we've got stability and dental growth on our lending side and the same on our deposit side and we're just trying to make sure we have balance and deliver for all of the stakeholders.

I hope that helps little Robin. Thanks, Katie.

Our final question comes from Farhad Kunwar of Redburn Atlantic. Farhad, if you'd like to unmute and ask your question.

Hi, Farhad.

Hi, Katie. Hi, Paul. Thanks for taking the questions. Just a couple of questions. Firstly, on the 24 costs, I don't know if you've drawn into it, but obviously the report today about, what was the phrase, serious failings regarding the dealing of the debanking issues. Are you confident that isn't going to result in more kind of controls and compliance-related costs to improve those processes, or do you think what you've done to date is enough to kind of abate or kind of make regulators happy with where you are at the moment given the findings in that report. And I ask the question because I think the 24 costs are only up 1% or 2% in consensus. So there's big wage inflation. There's that potential cost line coming through. And it kind of gets to the cost income point that a lot of people have been raising. And then my second question was just on that AP basis point, and the fact that the front book is probably a lot lower than that right now. I mean, listening to other banks, my understanding is it's a mixed issue, that new business spreads are higher, remortgaging spreads are lower, and a lot more remortgaging is happening right now. So is that a fair understanding of why the front book is lower than 80% right now? And if it is, why do you think that mix is going to adjust away from remortgaging back to new business purchasing, given the kind of environment right now, which is quite difficult? Thank you.

Thanks, Farhad. I'll take the systems, customs, controls, and maybe Katie, the mortgages. So the simple answer, Farhad, is a number of the processes, systems, and controls referenced in today's report, we've already implemented changes. There are additional changes to policies and procedures that we'll put in place as a consequence of fully accepting the recommendations. But I would say that, as you know, we already spend a significant amount on risk and compliance, and we'd expect that to be within our normal budgets and cost plans.

If I look to mortgage's point, I mean, you can see at the moment that mortgage pricing is very competitive just now. You can observe that when you look at all the kind of the best buy tables and where we are, and then when you compare that to, obviously, the various funding rates and different sources of funding. So we are pricing below that level. We do expect this number, I mean, it moves around a lot. That's why we talk about over time, this is what we aim to do. I mean, one of the, I think the last time I kind of talked about it in Q1 2022, we were below that. And then you've seen us kind of come up and down. So I think it is something that that's our kind of gold star that we try to manage to. And there will be movements around the time. What we have seen is that we have now substantially repriced out the higher margin work with numbers, which is why we're now seeing us for the boots, kind of we're coming down to 86 this quarter, and we expect a little bit further fall in the next couple of quarters.

Thanks, Katie. Sorry, it's not a remortgage. new business thing for you, which is general competition.

I mean, there's a bit of that. I think it's much more general competition that kind of flows through. And, you know, this market is very interesting. If I look at it quarter to quarter, it moves enormously in terms of the volumes. So it is a market that does change over time. So I guess for me, that's what gives me confidence on it is that it will change again in the next six, seven months. And we'll see that as it flows through.

Great. Thanks, both.

Lovely. Thanks a lot.

Thank you. I would now like to hand back to Paul for any closing comments.

Okay. Thank you, everybody. We appreciate you joining your questions, and we look forward to seeing most of you, if not all of you, over the next few weeks. Thanks. That concludes today's presentation. Thanks for your participation. You may now disconnect.