NatWest Group plc

Good morning and welcome to the NatWest Group Annual Results 2023 Management presentation. Today's presentation will be hosted by Chairman Howard Davis, CEO Paul Thwaite and CFO Katie Murray. After the presentation, we'll take questions.

Good morning, everyone, and thank you for joining Paul, Katie and me for our full year results call. This will be the last set of results the bank publishes before I stand down as chairman. And in addition to our full year results this morning, we've also announced the appointment of Paul Thwaite as our permanent group CEO. As you will know, Rick Haythornthwaite was announced as my successor in September last year. He joined the group board formally as a non-executive director at the start of last month and will take over from me as chair on the 15th of April. He led the process to appoint our new CEO. The bank this new leadership team inherits is very different from the one I joined in 2015. The group has returned to profitability, is more customer focused and is fundamentally stronger. In my first year, we declared a loss of over two billion pounds. Last year, we report a profit of over six billion pounds. So as I prepare to leave, there is a lot to be positive about. The strong returns delivered in 2023 enabled us to make further significant capital distributions to our shareholders through dividends and buybacks. And as you'd expect, we're working closely with UKGI as they explore a potential retail share offer, which would further help in returning the bank to private ownership. I'm personally pleased the succession process has been completed and we can look forward with an incoming chair and a new CEO who have proven skills to support the group's continued progress and who I know care deeply about this business and its customers. So I'll now hand over to Paul and Katie for an update on the bank's performance. Thank you.

Good morning, everyone. Naturally, I'm delighted to have been confirmed as the CEO of NatWest Group today and look forward to driving the very best performance we can for the benefit of our customers and shareholders. Our customers' needs and expectations are changing at pace as they engage with technology, adapt to new social trends, and build ever more resilience in a fast-evolving world. Our priority is to deliver more value for customers, which in turn creates more value for shareholders. Over the last six months, the focus for me and my team has been on supporting customers as they manage the impact of inflation and a rapid rise in interest rates. This gives us an opportunity to be a trusted partner to customers at a time of ongoing change. And by doing so, we are shaping the future of NatWest to deliver its full potential. So I'll start with a business update this morning. Katie will take you through the full year numbers, and then we'll open it up for questions. Since our performance is grounded in supporting our customers, I'd like to begin by putting the financial headlines in that context. In 2023, we increased our lending to customers by $9 billion. We opened over 100,000 new startup accounts for entrepreneurs and more than a million current accounts for individuals. We helped customers to save with 21 billion more fixed term savings at the year end, as well as to invest growing assets under management and administration by 7 billion. And we helped over 6 million customers manage their finances better with support such as financial health checks, understanding their credit scores and encouragement to save. We provided 29 billion of climate and sustainable funding and financing, bringing the total to 62 billion since July 21. So we are well on our way to achieving our 100 billion target by the end of 2025. And we continue to support the growing renewable sector, where we have been a leading lender in the UK over the last 10 years. This customer activity underpins our strong financial performance. We delivered operating profit before tax of 6.2 billion, with attributable profit of 4.4 billion. Income was up 10% at 14.3 billion, with cost growth of 5% to 7.6 billion. Taken together, this resulted in a return on tangible equity of 17.8%. We remain committed to generating capital in order to reinvest in the business and make shareholder distributions. Today, we're announcing a final dividend of 11.5 pence, bringing the total to 17 pence. This is in addition to a directed buyback of 1.3 billion last May and the 500 million on-market buyback announced in July, which will complete this quarter. We are also announcing a new on-market buyback of £300 million, which is included within our CET1 ratio of 13.4%. We expect this to complete by the end of July. This brings total distributions announced for the year to £3.6 billion. These buybacks have supported a reduction in the government stake from 46% at the start of last year to under 35% today. You will also be aware of the government's intention to fully exit its NatWest Group shareholding by 2026, including a potential retail share offer. Our performance naturally reflects the rates environment in 2023, but our strong capital and risk management made an important contribution too. You can see this in the strength of our balance sheet. On the asset side, our personal lending is almost all secured and our corporate book is well diversified. This disciplined approach is reflected in the low levels of impairment at 15 basis points of loans. On the liability side, our deposit base has remained broadly stable. Our loan to deposit ratio at the year end was 84% and our repayments due by 2025 on term funding for SMEs stand at just 4 billion. This balance sheet strength and well diversified funding underpins our ability to continue supporting customers through the economic cycle. As you know, we were operating in a rapidly changing environment last year as persistent inflation led to interest rate rises of 175 basis points. As a result, individuals moved balances from non-interest bearing accounts to fixed term products. They also drew on savings to pay down debt in the face of cost of living pressures. And in 2023, for the first time in at least 30 years, UK households repaid as much mortgage debt as they drew. This change in customer behavior clearly had an impact on our income and net interest margin as the year progressed. However, inflation has fallen and market expectations for interest rates have come down. So our plan assumes that rates will reduce materially this year and next. These expectations have flowed through to customer rates for both mortgages and fixed rate savings, which have decreased by over 100 basis points from the peak. This means we are seeing early signs of improving mortgage demand and deposit migration to higher rate savings accounts has slowed. Yet mortgage payments are likely to remain elevated this year as customers pay down debt before refinancing onto a higher rate. Business confidence is also improving and our net lending to large UK corporates grew in 2023. However, overall demand from personal and business customers is currently muted and, together with the impact of lower interest rates, this will impact our 2024 income. Household and corporate balance sheets remain strong, and the resilience of our customers is evident from our low level of impairments in 2023. We expect this to continue in 2024, despite a slight increase in unemployment. Of course, I recognize that heightened geopolitical uncertainty has potential implications for global trade and supply chain security. So whilst we expect inflation and rates to reduce, the timing and quantum of this is difficult to predict, and we remain vigilant. A significant benefit of the scale and breadth of our customer base is that it gives us access to large flows of data. We are using these insights to understand and react to customer behavior as the environment evolves. We believe the strength of our customer franchise positions us well for 2024 and beyond. We serve 19 million customers, meeting a wide range of needs in our three businesses, retail banking, private banking, commercial and institutional. We have leading market positions, and we also have a track record of growing share in attractive segments. For example, we now serve around 20% of both the youth segment and new startup businesses. So we're winning new customers and building for the future. I also know from listening to existing customers, there is a clear opportunity to deepen these relationships by introducing more of our products and services alongside the expertise of our colleagues. By serving our customers well, we create value for all our stakeholders. We are targeting growth in areas with attractive returns, managing for value by striking a balance between volume and margin, There is also more we can do to improve productivity and cost efficiency. We have a strong record on cost reduction and will direct our investment spend to areas that deliver savings to mitigate ongoing inflation. We are also actively shaping our balance sheet and deploying capital thoughtfully, which is helping to manage regulatory change. This discipline on both cost and capital will allow us to continue investing in the business and making attractive distributions to shareholders. Between 2021 and 2023, returns to shareholders totaled £12.5 billion, and a 28% reduction in share count led to higher earnings per share. Against this backdrop, we have three key priorities, all focused on driving returns. Our first priority is to continue growing our three customer businesses in a disciplined way, building on our strong market positions. So let me share some examples. We brought commercial and institutional banking together to deliver greater value for customers and the bank. And we are now able to serve the needs of a much wider range of customers in foreign exchange rates and capital markets. Over 1,500 of our mid-market commercial customers have now signed up for our foreign exchange services. Our leading mid-market business has an extensive network of specialist relationship managers across the UK, which gives us a significant competitive advantage of scale and reach. This segment delivers attractive returns and we see this as an area of further growth. In retail banking, we have grown our share to become the second largest mortgage provider in the UK. Our mortgage business is well positioned following significant multi-year investments with strong through the cycle returns. It is highly digitized and scalable and a driver of efficient growth when market demand and pricing are right. Our second priority is to drive bank-wide simplification. There is a lot more we can do to make it easier for our customers to do business with us, to improve engagement and productivity for our colleagues, and to drive significant efficiencies and operating leverage. Since 2021, we have delivered run rate savings of around 250 million a year through digitizing customer journeys. So we continue to simplify journeys across the bank in order to improve customer experience and deliver further savings. We are streamlining systems and processes. For example, in our retail bank, we are integrating five legacy front office systems into one digital platform to give us a single view of the customer. This has enabled us to spend more time with our customers and improve the quality of our interactions. We are also using artificial intelligence and data to improve productivity, and we have seen some very encouraging results from recent pilots. We've reduced scam losses, freed up time to focus on customer relationships, and identified ways to reduce our complaints resolution time. This is a significant opportunity as we roll it out across the bank. Our third key priority is to deploy capital efficiently and maintain strong risk management in order to drive capital generation. Our exit from the Republic of Ireland is now largely complete and we received a further 300 million Euro dividend in the fourth quarter. 2023 was also the year we delivered on our CET1 ratio target of 13 to 14%. But we can do more to optimize capital allocation. This means working dynamically to capture attractive growth opportunities and being very disciplined at origination. We will also address RWA efficiency on the back book, for example, through greater use of insurance or risk transfer where we are less active than some of our peers. So, as you can see, we are very focused on the levers that we can control. But the macroeconomic environment, coupled with an expected reduction in interest rates and changes in customer behavior, means that we are adjusting our target for return on tangible equity. We now expect to deliver greater than 13% in 2026, whilst operating with a CET1 ratio of 13 to 14%. We are committed to delivering value for shareholders, so we maintain our payout ratio of around 40% for ordinary dividends with the capacity for buybacks. And with that, I'll hand over to Katie to take you through the full year numbers in more detail.

Thank you, Paul. I'll start with discussing our strong performance for the year. Income, excluding all notable items, was £14.3 billion, up 9.8%, and in line with the guidance we gave last quarter. Operating expenses rose 4% to £8 billion, including £7.6 billion of other operating expenses. Together, this contributed to a cost-to-income ratio below 52%. The impairment charge was 578 million, or 15 basis points of loans. Taking all of this together, we delivered operating profit before tax of £6.2 billion. and profit attributable to ordinary shareholders was 4.4 billion, and return on tangible equity was 17.8%, ahead of guidance in part due to the recognition of historic tax losses. Turning now to the fourth quarter compared to the third. Income, excluding all notable items, was 3.4 billion, down 2%. Operating expenses were 2.2 billion, including the annual UK bank levy. The impairment charge decreased to 126 million, or 13 basis points of loans, bringing operating profit before tax to £1.3 billion. Profit attributable to ordinary shareholders was £1.2 billion, including a deferred tax asset recognition. And return on tangible equity was 20.1%. I'd like to now talk about key performance trends across our three businesses on slide 12. We have delivered strong returns across our three businesses in both 2022 and 2023. Retail banking continued to be our highest returning business in 2023 with good income growth. However, this was offset by higher costs and an increase in impairments, which impacted the return on equity, reducing it to 23.8%. Private banking return on equity was 14.8% and was affected by lower deposit balances and mixed changes, as well as cost inflation. Our commercial and institutional business delivered the strongest year-on-year improvement, growing income by 16% and operating profit by 27%. It is now the largest profit engine of the Group, delivering £3.2 billion or 52% of Group operating profit, equivalent to a return on equity of 15.4%. Our business diversification enabled us to deliver a strong group performance whilst responding to a broad range of customer behaviours and market dynamics. Turning now to our 2023 income performance on slide 13. Full year income excluding notable items was £14.3 billion and bank net interest margin was 304 basis points. Net interest income was 12.1% higher, benefiting from favourable yield curve movements, partially offset by the change in deposit volume and mix. Non-interest income, excluding notable items, grew 2.5%, supported by increased customer activity and higher income from the market's business. Turning to the fourth quarter, underlying net interest income was £2.7 billion, broadly stable versus the third quarter. Non-interest income fell 6.9%, reflecting seasonally lower trading and other income. Bank net interest margin reduced by eight basis points to 286, which includes a three basis point drag from notable items. As expected, the rate of margin compression was slower than in the third quarter. Going forward, we will report group net interest margin, which presents statutory group net interest income as a proportion of all average interest earning assets. We see this as the most useful measure of how we are managing spreads between our interest earning assets, including the liquid asset buffer, and our interest bearing liabilities. Bank name is a less relevant measure now that interest rates are above zero. Full-year Group Net Interest Margin increased 31 basis points year-on-year to 212 as a result of higher deposit margins, net of pass-through and mix changes, and lower mortgage margins. Group NIM in the fourth quarter was 199 basis points, reflecting a gross yield on interest earning assets of 450 basis points and 251 basis points cost of funding. I'd like to move on now to our disciplined approach to lending growth on slide 14. We are pleased to have delivered another year of balanced lending growth across the group. Gross loans to customers across our three businesses increased 2.6% or £9.1 billion to £359 billion. During the first half, we delivered strong mortgage growth, whereas in the second half, we delivered strong corporate loan growth as we took a disciplined approach to capital allocation in a competitive and dynamic market. During the fourth quarter, customer loans across our three businesses increased by £1.1 billion. Taking retail banking together with private banking, mortgage balances reduced by 500 million pounds as customer repayments offset new lending. Mortgage flow share for the full year was 14%, or 31.2 billion pounds. However, this flow share reduced to 10.5% in the fourth quarter as we managed the balance sheet in a smaller, more competitive market. Our stock share increased from 12.3% at the start of the year to 12.7% at the end. Unsecured balances increased by a further £300 million in the quarter to £15.8 billion, reflecting strong demand for credit cards. In commercial and institutional, gross customer loans increased by £1.4 billion in the fourth quarter. Within this, loans to corporate and institutions increased by £2.2 billion, including higher revolving credit facility drawdowns, where utilisation was close to pre-COVID levels at 25%. This growth was partly offset by companies continuing to pay down government scheme borrowing. Across 2023, our C&I customers have accessed bank loans for house building, acquiring vehicles and managing working capital. We have deepened relationships with our large corporate and financial institutions by providing increased lending, cash management and foreign exchange services. I'll turn now to deposits on slide 15. Customer deposits across our three businesses were 419 billion at the year end, broadly in line with the first quarter as expected. A reduction in the fourth quarter was primarily driven by our larger corporate and institutional customers as we managed down low-value deposits and as a result of normal year-end balance sheet management. Across retail and private banking, deposits grew by £4 billion in the quarter, mainly in term savings. The migration from non-interest-bearing to interest-bearing deposits slowed during the fourth quarter. Non-interest bearing balances were 34% of the total, down from 35% at the end of the third quarter and 40% at the start of the year. However, customers did continue to move balances to term accounts, which now represent 16% of our total ballot deposit mix. This was slightly lower than our expectations as a result of active management in December, yet up from 15% at the end of the third quarter and 6% at the start of the year. I'd like to turn to the drivers of deposit income on slide 16. Deposit income was the key driver of group income in 2023, so it's important to consider how the component parts of our deposit base may evolve and impact income in 2024. During 2023, deposits across our three businesses reduced by £14 billion, the majority of which was in the first quarter. Our non-interest-bearing deposits reduced to £142 billion and term deposits increased to £68 billion. As the deposit mix changed, so did the proportion of hedged and unhedged deposits. Starting with term deposits, where we lock in the margin at origination. Given the strong growth in a competitive market, these are some of our tightest deposit margins. Overall, we expect term deposit income to grow moderately in 2024 due to higher average balances. Our unhedged deposits reduced to around 166 billion at the year end, and they earn the widest margins. These are managed rate deposits, and this is where we expect to see the most significant income reduction as the base rate reduces. Turning now to the product structural hedge, the notional balance at the end of 2023 was 185 billion pounds, down 23 billion from the start of the year. We expect this to reduce further in 2024, reflecting the reduction in eligible balances during 2023. We expect the yield to increase from 152 basis points in the fourth quarter through reinvestment of maturities at the prevailing five-year swap rate. This will more than compensate for the notional reduction supporting higher structural hedge income in 2024, with more meaningful growth in 2025 and 2026 as eligible balances stabilise. Let me explain how this feeds into our rate sensitivity disclosures on slide 17. The change in deposit mix contributed to a significant increase in the cost of our deposit funding from 0.5% in the fourth quarter of 2022 to 2% in the fourth quarter of 2023. This moderated in the fourth quarter with an increase of 20 basis points compared to 60 basis points in the third as customer rates stabilised and migration to higher interest paying accounts slowed. Lower deposit balances, mixed changes and our 12 month look back approach to the structural hedge means our balance sheet has become less rate sensitive in absolute terms. The chart on the right is our illustrative interest rate sensitivity disclosure. It shows the year one impact on net interest earnings for a 25 basis point downward shift in the yield curve. This illustrative disclosure naturally has limitations, not least because it assumes a static balance sheet and a parallel shift in the yield curve. but it helps to explain how our income is affected by change in interest rates, both in relation to the structural hedge and the managed margin. The managed margin is the most relevant sensitivity for changes in the base rate and deposit pass-through. Based on our year-end balance sheet, a 25 basis point downward shift would reduce annual income by £125 million. This is mainly driven by our unhedged deposit balances of £166bn at the year end. It assumes a pass-through of around 60% on our instant access savings of £209bn at the year end, with minimal timing lag. As you think about our income progression through 2024, you should consider, first, the quantum of pass-through to customer deposit rates, and second, the associated timing lags, including the contractual notice periods. We continue to actively manage our deposits, aware that there is uncertainty on both the timing of rate cuts, competition, and how our customers will behave. Turning to slide 18. As you have heard, interest rate changes, associated pass-through, and the second-order impacts on customer behaviour are the key considerations when we think about income in 2024, and they remain difficult to predict. So to summarise, the four key income drivers today are, first, our plan assumes the Bank of England will start to reduce rates from May, reaching 4% by the end of 2024. We assume this will be reasonably spread out and in 25 basis point increments, though actual outcome be different. We expect to pass through changes in interest rates to our customers' deposit rates, but the quantum and timing is subject to competition as well as contractual terms and conditions. The second driver is deposit volumes and mix. Overall, we expect deposit balances to follow a similar pattern to 2023, reducing in the first quarter due to annual tax payments and then some recovery after that, subject to market dynamics. We anticipate less change in deposit mix than we experienced in 2023. Third, we expect the hedge to deliver a tailwind in 2024 despite a reducing hedge notional and for the strength of this tailwind to increase into 25 and 26 as volumes stabilise. And then finally, on the asset side, we experienced significant mortgage margin pressure in 2023 as our mortgage customers refinanced onto higher rates at a tighter margin. This headwinds continues to moderate and we expect the mortgage book margin to stabilize around the middle of 2024, although this is dependent on market dynamics. Taking all of this together, we expect 2024 income, excluding notable items, to be in the range of £13 to £13.5 billion. Turning now to costs on slide 19. Other operating expenses were £7.6 billion for 2023 in line with our guidance. That's up 4.6% on the prior year, mainly due to staff costs, which are almost half of our cost base. This includes the average annual wage increase of 6.4% and a one-off payment in January last year to support colleagues with the rising cost of living. We also face cost inflation on utilities and other contracts. Our ongoing investment in technology is reflected in higher depreciation and amortization costs. In 2024, we expect to hold other operating expenses broadly stable. You'll see that our fourth quarter costs, excluding Ulster and the bank levy, are annualising at around £7.5 billion, including the inflation embedded into our cost base during the year. We expect to incur around £100 million of Ulster direct costs and around £100 million for the bank levy, which brings annual run rate costs to around £7.7 billion. In order to keep costs broadly stable from here, we will continue our strong track record of mitigating inflation by making cost savings. I'd like to turn now to slide 20. We have a well diversified prime loan book that is performing well. Over half of our group lending consists of mortgages with an average loan to value of 55% and around 70% on new business. Our customers continue to take advantage of the best possible rate in the six-month window before roll-off and recent behaviour has shown an increased preference for two-year deals. We monitor the impact of higher rates on customers closely after they refinance, and whilst arrears have increased slightly, they still remain low. Our personal unsecured lending is less than 4% of group lending and is performing in line with expectations and good quality new business. Across our wholesale portfolios, our corporate book and other exposures such as commercial real estate remain well diversified and are still performing well. And we are not in scope for the FCA review into motor finance. Let's move to impairments and our economic scenarios on slide 21. We have reviewed and updated our economic scenarios, both forecasts and relative weightings. Our weighted average expectations for GDP are slightly improved in 2024, but with a small decline in 2025. We also anticipate a slight deterioration in levels of employment in both 24 and 25. Our balance sheet provision for expected credit loss includes 429 million of post-model adjustments for economic uncertainty. We remain comfortable with 93 basis points of coverage of the book, which continues to perform well. We reported a net impairment charge of 578 million for the full year, equivalent to 15 basis points of loans. Current performance of the book combined with our updated economic outlook means we're expecting a loan impairment rate below 20 basis points in 2024. Turning now to look at capital and risk-weighted assets on slide 22. We ended the fourth quarter with a common equity tier one ratio of 13.4%. In 2023, we generated 154 basis points of capital before the impact of non-recurring notable items and RWA model updates, totalling 43 basis points. This net capital generation was offset by distributions to shareholders, equivalent to 195 basis points. RWAs increased by £6.9 billion in the year to £183 billion. This includes a 7.9 billion increase from business movements and a further 3 billion of model updates, which includes the CRD4 regulatory inflation we discussed at Q3. This was partly offset by a 4 billion reduction as a result of our phased withdrawal from the Republic of Ireland. We continue to expect RWAs to be around 200 billion at the end of 2025, including the impact of Basel 3.1 and further CRD4 model development. This is subject to final rules on credit and output floors, which we expect later this year, as well, of course, as regulatory approval. As is our practice, we will continue to update you on development of RWAs. Turning now to our track record on delivering for shareholders on slide 23. Our capital generation has enabled us to support our customers in difficult times, as well as invest for growth and make shareholder distributions of almost 12.5 billion pounds over the last three years. Our improving profitability has supported increases in the total ordinary dividend in 2023. Combined with our multi-year buyback programmes, this has delivered a significant improvement in the dividend per share of 17 pence, up 3.5 pence year on year. Our share count has reduced by 28% since the end of 2020, or 30% pro forma for the £300 million buyback we announced today. we remain committed to returning surplus capital to shareholders as demonstrated by our strong track record. Turning to guidance on my final slide. In 2024, we expect income excluding notable items to be in the range of 13 to 13.5 billion pounds. Group operating costs excluding litigation and conduct to be broadly stable versus 2023. And the loan impairment rate to be below 20 basis points. delivering a return on tangible equity of around 12%. And with that, I'll hand back to Paul.

Thank you, Katie. So to conclude, our priority is to continue supporting our customers in an uncertain macroeconomic environment. We are pursuing opportunities for targeted growth across our businesses with a focus on returns as we strike a balance between volume and margin. By combining this disciplined approach to growth with tight cost control and efficient capital allocation, we plan to drive strong capital generation so that we can both reinvest in the business and continue making attractive distributions to shareholders. With a payout ratio of around 40% and capacity for buybacks, we remain fully committed to creating sustainable long-term value for shareholders. Thank you. I will now hand back to the operator.

We'll now take your questions. If you'd like to ask a question today, you may do so by using the raised hand function on the Zoom app. If you're dialing in by phone, you can press star nine to raise your hand and star six to unmute once prompted. We'll ask that you limit yourself to two questions each to allow more time for everyone to have a chance to ask questions. We'll just pause for a moment to give everyone an opportunity to signal for questions. Our first question comes in from Arman Raka of Barclays. Arman, please go ahead and ask your question.

Hey, Arman. Are you there, Arman?

Arman, please unmute and ask your question.

Sorry, guys. Morning, Paul. Morning, Katie. First of all, congratulations, Paul, on the appointment. And I wanted to just pay my Regards to Howard on, um, on your tenure at the firm. Um, I had a couple of questions. One, um, I think it's the main question that I'm getting this morning is around your revenue guide for 24. Um, and obviously at face value, there is a pretty, pretty material kind of step off in the revenue run rate, um, through 24. And there's clearly some downside versus consensus. But I guess to push back against that, it doesn't really feel that surprising to see you come out with a revenue number that's that low. I think the uncertainty that's faced by rate cuts, competition, various bits and pieces, I think it kind of makes sense. But can you help kind of elaborate on exactly a bit more on the moving parts there? and whether you recognize the conservatism here. And indeed, I'm sure you won't answer this, but I'll ask you anyway. But if I was to look at the spot rate market right now, you know, it is not implying base rate of 4% at year end. It's implying something more like 4.4% at the end of the year. I know these things are volatile, but I don't think we're going to get the rate cuts, you know, predicated on the current forward curve that you guys are are basing your guidance on. So this does look to me to be quite a conservative revenue guide for 24. I'd really be interested in your thoughts. Any help there? Um, I had a second question. Should I give it to you now or afterwards?

Uh, no, keep going. Go for it.

Um, just in terms of distributions, um, I was, I was interested in, obviously it's great to see the 300 million pound open market buyback. Um, The retail share offering that the government is looking to kind of execute this summer, I'm interested in how this influences your thinking at all. It doesn't look to me like you've budgeted for a directed buyback in May. Maybe you're confident on capital generation in the coming quarters, which would be a good thing. But, you know, retail share offering might mean that there's less likelihood of a directed buyback. And then hence, do you then feel as though you can kind of execute open market buybacks more regularly. Again, anything you can give us on your updated approach to distribution is really helpful. Thank you.

Thanks, Aman. I'll take number two and number three, and then Katie allow you to talk through the revenue guide. So Aman, on directed buyback, simple answer is it is in our plans and our budget. So that's very simple. So we have assumed we make the DBB. Obviously, we can do that after the annual anniversary. On the question around the challenge around conservatism and interest rate outlook, I hear you in terms of where the curve is now. I'm sure you'll understand. We have to look at the balance of the economic consensus even in the space of the last seven or 10 days, as you well know, it's moved around. So what we've done is we've got a set of assumptions there, which has five cuts in 24, four in 25, with the first one in May. What I would say is, Amanda, is that we've been, I guess we've given a lot of disclosure around the sensitivities. So for those who want to take a different view around some of that volatility, it's pretty easy to do given the disclosures we've got, depending on where your views are on the five and four, four and three, three and two, etc. So that's where we are on those two. Katie, do you want to talk about revenue going?

Thanks very much. Morning, Aman. So as I look at it, as you know, there's a number of variables. And even in your question, I think you kind of know the answer I'm about to give you. But they are impacting that kind of income range. You know, the customer behaviour has been relatively difficult to predict and we may see different competitive dynamics. So the way that I think about it is I would think of four things as you try to kind of build in with your own model. Obviously, base rate cuts, Paul's already talked about them. We've got five in for May and four in for later. The timing of that rate cut is important for income. We've got it starting in May. It could be different from that. But as Paul said, you've got the sensitivities there. You can take a view on that. The second one, deposit volumes and mix rates. We expect deposit balances to fall a little in Q1 as a result of tax payments and thereafter move broadly in line with what you see happening in the market. We do expect the deposit migration to continue into 2024, but obviously at a slower pace than we've seen as we talked about it at Q3. We could already see that slowing down. But again, we don't expect that to be linear. The third thing, the structural hedge, you're very familiar with that. It's the tailwind in 2024 as the higher yield offsets lower volume. And then finally, mortgage volume and margin, which I'm sure we'll get into in more detail as the call goes on. Overall, as we look at the income, we're very focused on managing both sides of the balance sheet to make sure that we deliver our income and our returns guidance. We expect the shape to improve as you go through the year, with the second half being slightly stronger than the first half. I'll just pick up one last bit on the DBB. The retail share offering does not impact our buybacks. As a board, we plan what we need to do. And so it's a completely separate debate.

And it stays in the play.

Thanks, Emma. Our next question comes from Benjamin Toms of RBC. Please unmute and ask your question.

Morning. Thank you both for taking my question. I've worked out the mute button now. You note your guidance on your income ex notable items of £13 to £13.5 billion, but could you provide us with an estimate for NIMH? for the full year, I guess based on your new measure and how the shape of NIM might change as we go through the year. And then secondly, just a clarification question on your sensitivities to rate cuts where you assume a 60% pass-through assumption. Can you just clarify what that 60% means? Is it measured from the first rate rise in the cycle or from the first rate cut? If it's the latter, is 60% a fairly conservative assumption? I think I've heard peers of yours talk about deposit pass-through being much higher on the way down than it is on the way up. Thank you very much.

Thanks, Ben. Casey, do you want to pick the NIM piece up?

Yeah, sure. Absolutely. So in terms of NIM, Ben, we're providing you with total income guidance today, 13 to 13.5 billion. As you've heard, we've managed margins across both sides of the balance sheet. You know, managing margins is obviously a key focus for the entire management team, but it really is one of the drivers that we look to in terms of the overall return. You need to consider the cost of risk. capital requirements and, of course, the operational cost of doing business. And this is why ROTI is our key financial metric. And it's what will drive capital generation and capacity for investment and distribution to shareholders. The key income drivers that I've talked a little bit about already for 2024 are also our key margin drivers. So you can assume that margin will follow a similar shape to income as we progress through the year. Shall I take that one? Yeah, perfect. So on the sensitivity, so the way that we've done it, I think it's an illustrative example of a single 25 basis point cut. So by definition, it's the incremental pass through on that. We have said that the pass through will be very much a function of competitive dynamics. And similarly to the way when we were on the way up, we didn't share with you what our next pass-through thoughts were. They obviously emerged as competition and market dynamics dictated. And I'm not going to share with you with it just now, but we have worked on a 60% pass-through of that rate. Taking in taking in mind as well that there is a delay in passing through because of some of the regulatory requirements of the speed of notification that you need to give to our customer base so that that has also been built in a little bit as well. Clearly, how we do it in the time of implementation will be dependent on customer and market. Thanks, Ben.

What I'd add on that, Ben, is I would see it as a sensitivity and an example, not a statement of our pricing strategy. Our pricing strategy will be influenced by as and when the rate changes happen, what the competitor responses are, what our funding and liquidity needs are at that time as well. Thanks, Ben. Thank you.

Our next question comes from Raoul Sinner from GP Morgan. Raoul, please go ahead and ask your question.

Hi, good morning. Thanks very much for taking my questions. I've got two, please. The first one is just around the confidence in your new ROT targets. Just interested in the moving parts from the sort of 12% that you guide for 24% to above 13 for 2026. I guess the simple question is, is it all just driven by the hedge? Or are there other sort of material drivers that you would point to as well? And I guess related to that, the second question, just on the mortgage business, the book didn't grow in Q4. Obviously, your flow share was 10.5. I think you've done 14% share through the year. I'm just trying to understand if this more disciplined approach to mortgage growth means... that we should expect lower growth in the loan book driven by mortgages going forward, given competitiveness in this market is probably not going to change. And just an addendum to that, you know, if you could give us a bit more color on the mortgage refinancing churn, the back book to front book, how it phases through the quarters in 2024, that would be really helpful. Thank you.

Thanks, Raoul. Katie, I'll start with a couple of things on ROTI and maybe you can talk to the bridge. Perfect. And then I'm sure we can both have a go on mortgages. Perfect. Sure. So, Raoul, just on the broader kind of ROTI guidance, obviously, we've shared around 12 for £24,000. And greater than 13 for 26. We thought about that carefully. You can see the economic assumptions that we've played through there. And again, my response to our man, you can take take your view on them. The main thing really that's driving that is the the path of the peak, I guess, from five point two five to three over the course of the two years. But to the heart of your question is what drives the upturn. It's certainly more than the hedge. Katie talked about the kind of tailwind from the hedge. But from my perspective, I'm very focused on growing a number of the different P&L lines. We'll be managing cost and capital very tightly, thinking very carefully about capital allocation, but also driving growth in our core businesses as well, whether that's the fee lines or lending growth, be it mortgages or corporate. So It's certainly supported by the tailwind and the hedge, but we're gripping the other levers to drive the business forward.

I think I might just move straight to mortgages, if that's OK. So in terms of the mortgage piece, so as you look at the mortgage book, if I start with the kind of phasing of the churn, what we see is more stable in Q1 on the roll on and roll off kind of dynamic. And then we'll expect stability, I think, to kind of come through in Q2. We did in this last quarter very much manage the application flows was coming through as we saw the shape of the balance sheet. I think that's a very rational thing to have done. You know, 14 percent over the year, we're very comfortable with. It's above our stock share. And we do see this as an area that we can continue. It's an important area for growth. I don't think you should necessarily expect growth every quarter, but certainly growth over time is what we would be expecting. I think it has been important with some of the pricing dynamics and things and the movements in the swap curve is to make sure you're really managing it for value and maximising your roti in that space. So very comfortable with that process. So I wouldn't see that as one quarter being a bellwether for the future. We still view this as a book that's important to us. returns very good roti and for the business and an important area for growth as we move forward from that and one of the areas that we're making significant in in investments so that we're able to scale and really benefit from the digitization of this of this business thanks for all thank you our next question comes from andrew coombs of city andrew please go ahead and ask your question good morning i hope you can hear me andrew

Yes. Great. So two questions. First one, just on the structural hedge. I think the previous guidance was for it to finish the year at 190 and it's actually coming at 185. And that's even though the deposit mix shift seems to be it seems to have been broadly in line with what you were guiding for Q3. So perhaps you could explain what caused the additional five billion decline in the nominal and also any colour you want to add on where you think the direction of travel is magnitude wise for 2024. That's the first question. Second question was actually just on the impairments, given the confident guidance you've given for this year, the less than 20 basis points. I noted on slide 21, you still get through the cycle figure of 20 to 30. And you obviously expect going better than that this year. Is there anything baked into that for release of the 429 million adjustment for economic uncertainty? Or is it just a case of better IFRS 9 assumptions, lower stage three migration, et cetera, et cetera? Thank you.

Do you want to take the hedge?

Yeah, perfect. Absolutely. Sure. Absolutely. So as I look at the hedge, what we talked about was around 190 billion based on a static balance sheet. We know that the balance sheet obviously is not static. In terms of the direction of travels, a few things I would probably mention on that. You know, the average product yield for the hedge was 142 basis points. It's important to understand in the fourth quarter that increased to 152 basis points for the quarter. When I look at the kind of sizing of the hedge as we go into next year, we would expect the shrinkage to be less than we saw in 2023. In line with that conversation we've had around deposit movements kind of stabilising in the middle of the year. If you were to look at the year end notional balances and the mix remain static, you know, you could see that that number would kind of recalibrate to about 170 billion. I think what's important, though, as you look at the hedge is also the level of reinvestment. So, you know, Andrew, it matures over two and a half years. You take the 185 billion today, a fifth of it will mature every year. So therefore, it's 37 billion when you look at that kind of average life of the book. We are assuming that it gets reinvested at around 310 over the course of the year. You can see that rates slightly better than that today. But on average, we think that's an appropriate number to look at. And we've talked in the past around the fact that the roll off yield is so much lower than what the reinvestment yield. So we do see this as a positive tailwind as you see that that stabilisation coming through in the first half of the year and moving forward from there. And Paul, do you still want to take impairments?

I'll take impairments. Andrew, your hypothesis, as you outlined it, is pretty much spot on. The book's performing better than we'd anticipated. Customers have adapted resiliently to the higher rate environment. So arrears levels remain low across most of the asset books. So loan impairment, 15 bits, 23, obviously below or through the cycle range. You've seen the guide for 24 below 20, assuming no sign of significant macro deterioration. You also astutely point out we do have post-model adjustments of half a billion, well, 400 million for economic uncertainty, half a billion overall. But we will be very prudent about them in terms of the release. So your thesis is right in terms of what's happening. Thanks.

That's really helpful. Thank you. Can I just clarify one thing with Katie? Roll off the yields. I think previously you said 80 bps for this year and 50 bps for 2025. Presumably that guidance is unchanged.

I mean, it's unchanged. There are some technicalities I'm going to not get into too much detail, but as we're kind of managing the process of reducing the notional and we use pay fix swaps to reduce that, that roll off yield actually does reduce. So it's actually a bit lower than that in terms of the mechanics that we do. So, but I think if you work with those and the difference between, but then just that pay fix swap as we manage the notional does have a little bit of an impact, but those are good numbers for you to use.

Great. Thank you both.

Lovely. Thanks.

Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro, please unmute and ask your question.

Hello, hopefully. Hi. Good morning. Hopefully you can hear me OK. I've got to follow up. Apologies on the on the margin and what to expect. If we put to one side the your what looks pretty conservative rate assumption, how much of the mortgage sort of your 80 basis points on mortgage product? spread and how much more headwinds should we expect in the first half of 24. And similarly, we've seen sector data point to very stable very stable deposit movements in November and December. So is there much more drag on deposit margins as well? And if I look, relate to that, if I look at your above 13% ROT in 2026 versus the 12% this year, Is it, and I compare that to the nine rate cuts you've got, it does feel like your revenues are not going to grow until we're done with rate cuts. Is that kind of what's reflected in that? in that 2026 improvement that once you get through the rate cuts in 25, it will improve. And sorry for that long first question. And Paul, maybe one more for you.

I think I'd call that three questions in one. Let's get your second question then.

Hence my apology. This one's more for Paul, I guess. In your opening, in your section, you talked about improving sharing in targeted segments. When we look back over the last few years, it's been very much focused around mortgage growth. When you think about the next three years in your plan, what would you highlight of your key focus on growth areas versus what we've seen in the past? Thanks. No problem.

I'll kick off. That's fine. Exactly. I'll take question one. So if I look at the mortgage margin, obviously, we talked a lot last year about how the book would ultimately stabilize around that 80 basis points. And that's where we are at the end of that year. at the end of the year. What we can see is that the level of churn and come down that we've had in that rate has obviously kind of come to an end. What I would say at the moment, we're currently writing around 70 basis points. And so the impact of the mortgage book refinancing headwind will be lower in 2024 than it was in 2023. But there'll still be a little bit of movement around about that. And I think that we do expect there to be some stabilisation in mid 2024. Clearly, the volatility in the swap rates, we've written some of the business over time a bit below the 80, and we're comfortable with the level of writing we're doing just now. You can see that we're managing that in terms of the flow share that we have. On deposits, I mean, I guess the way that I would look at it as we look at both of the Bank of England data and deposits, at the data that the experience we're seeing in our own book, we are still seeing some migration. You can see that we went from 15 percent to 16.4 at the at the end of the year. So still still kind of seeing that we do expect that to to continue for another couple of quarters. And we expect that will probably stabilize in the in this kind of summer, the summer months. If I look at revenue into 2026, I mean, that's certainly not the impression that revenue is flat from here to there. That's something we've been talking a lot about this throughout last year. As you see that deposit stabilisation and then the mortgage stabilisation as well. And then you start to see the structural hedge kind of come through. We expect the second half income of 2024 to be better than the first half. And we expect that to continue to develop into 2025, into 2026. And then, Paul, I'll give you question two.

Yeah, thanks. Thanks, Katie. Alvaro, I'm thinking quite broadly around the opportunities for growth in the business. You rightly pointed out in my presentation, I highlighted a number of areas. I think going through the different customer businesses we have, the mortgages as we've positioned, if the market is there, the demand is there and the pricing is right, then we're now the second biggest lender, but we'll continue to grow there. So that's one area of continued growth in retail, providing the margins and the returns are there. We've also made good progress on the unsecured side in retail. We're happy there with both the returns, but also the credit quality. So we see and obviously we're underweight relative to some of our peers in those areas. So that's an opportunity that the retail team are astutely focused on. In the kind of commercial and institutional business, we've seen some good growth around our project finance, infrastructure and funds business. We believe the businesses and asset classes that offer good upside over the course of the next couple of years. We're not only building, I guess, for the next year or two, we're also making big market share gains in areas like startups and youth, where we're now over 20%. And the way I think about that is we're filling the pipe for future revenue and future returns. So we're very focused on growth, but we're very focused on discipline growth. That's how I and the team talk about it. And we think there's plenty of opportunities embedded within the core businesses of NatWest to do that.

Thank you very much.

Thanks, Alvaro. Thanks, Alvaro.

Our next question comes from Guy Stebbings of BNP Paribas Exane. Guy, please go ahead and ask your question. Guy, please go ahead and ask your question. I think we have an issue with Guy's microphone. So we're now going to go over to Farhad Konwar from Redburn Atlantic. Farhad, please go ahead.

Hi, both. Hopefully you can hear me. Thanks. We can. Hi, Farhad. How are you? Not too bad. Cheers. Just a couple of questions. Firstly, on the returns point around the greater than 13% in 2026. I mean, if I look back to when you first gave the 14% to 16% guidance, which I think was like August 22, Even your kind of quite conservative rate expectations, they weren't actually that different then. If I look at the five year swap curve, I think it was running in like mid twos or little high twos versus the 3.1 you're assuming. So why is your return expectations come down versus that August return? 2023. It can't just be base rates because the mix shift is far more than you'd anticipated at that point. That's question one. And the second question was on costs. I see the wage negotiations done, I think, for 2024. Does that mean actually the risk of costs missing if inflation is stickier than we think it is less? Because actually you've already negotiated the wages and any sticky inflation would probably be a 2025 issue. Is that the way to think about 2024 costs? Thank you.

Well, I'll take costs and then pick Katie. You talk to the roti point. So I think your thesis is good on cost, Farhad. As you say, we've agreed with the unions an offer that we think is appropriate and fair at around 4%. We've obviously delivered on our costs this year. We've guided next year, so 24, that... The cost will be broadly stable. Probably worth pointing out that we do build into our cost guide the ability to take restructuring on the people and the property side. But we prefer to take them in year rather than any extraordinary charges. So they're all built into the plan. So we're very comfortable on the cost guide. I think we've got a good track record over a number of years of delivering on that line.

Perfect. Thanks, Paul. So if I look at the bridge from why no longer 14 to 16, I think there's a number of things, Fahad, you need to kind of take into account. If I compare it just to when we spoke in October, then it's all a story of rates in terms of the expectations that were there. But you rightly went back to kind of August 22 when we first talked about that. And absolutely, rate expectations are not that different. But I think none of us at that point could have imagined the journey that rates went on when we saw swap curves go all the way up to 6% and then come down and then go back up again. And actually what this then delivered in terms of the change in customer behavior and the mix of that, we were sitting at about 4%. sitting in term. We're now sitting at 16% and expecting that to continue to increase. So that's been one of the things. I think there's also been another couple of things with that rate curve going up. We also saw inflation going up significantly. You know, we did pay awards that were 6.6%, 4%. These have all been things we've had to build into the cost line. We're happy with how we've delivered on those, but obviously still put the roti under pressure today. And I think the most important thing also to think about is the denominator, the TNAV. So our TNAV has grown very well, very strongly this year, I think up 28 pence over the year. We predict it will continue to grow as you see that cash flow kind of unwinding. But the real difference from when we last spoke formally in October is that movements in rates, which has been really bigger than any of us had anticipated. Thanks, Farhad. Thanks, Katie.

Thanks, Farhad.

Our next question comes from Ed Frith from KBW. Ed, please go ahead and ask your question.

Hi, Ed.

Can you hear me? Yeah, you're a bit faint, Ed, but we can. I'll try and sit a bit closer. Thanks. I've got you now.

That's good. OK. Yeah, I just had two strategic questions really for Paul, if that's all right. My first one is if one looks at the sort of full length of this downturn, I guess. one of the key characteristics or differential characteristics has been much lower loan growth in the market as a whole and much better credit. And I guess that's, to me, one of the big highlights today is your credit outlook for this year, given some of the stresses we see in the broader economy. So I just wonder, as you look forward, do you see that there's more, you know, as a bank, there's more appetite for loan growth going forward? Or and I suppose that's really a question about supply versus demand. Is it a demand problem or a supply problem? Is that the key issue in terms of a sort of reasonably lackluster? Because I guess the loan growth and economic performance often often go together. So that's my first question is how do you as a new CEO look at that and how do you you feel the balance is and whether you've got that right and how it might change going forward? So that's the first question. And then my second question was about retail, which I know is not your your your traditional business. But now you've had sort of six months, I guess, to look at it. It's making a mid 20s return, which is which is pretty punchy. And I guess that's in an environment where you've got some pretty strong new competitors coming in, which Chase is obviously the most important one. All of who are paying much better rates than you are on like for like products. And I guess they they can they can justify that because they don't have the hedge headwinds and they probably have got better systems than you have. That's an assumption. But, you know, by all means, tell me that's wrong. So just my question is, as you look at that return going forward, how sustainable do you think that is at those sort of levels as an incumbent bank? And I guess what sort of do you think there's further costs you're going to have to take to try and sustain that level? Or how should we think about that going forward?

Thanks, Matt. Thanks, Ed. Good, broad strategic questions. On the first around, how do I think about loan growth? I guess I'd point you to 23. We've grown our asset side of the balance sheet by 3%. Obviously, given our size, we are linked in some ways there to the health of the economy. The way I think about it is given the scale of our businesses, whether that's our commercial business, whether that's our mortgage business, we should target ourselves to grow as above market rates. I think we've proven over a number of years in both businesses that we've successfully grown significantly. the asset side of the business. There are also certain aspects of loan growth where, as I've alluded to, we're underweight relative to the market. We touched on unsecured earlier. We're still only the second mortgage, the second largest mortgage provider. So there are opportunities to grow, but ultimately, we are geared towards to the UK economy there. And to your point on demand versus supply, from a supply issue, we have capital available. We're very keen to put that to work, providing it's at the right returns across all of our businesses, whether that's our private bank, obviously also lends our retail bank or our corporate banks. That's how I think about it. So I think that's the broad picture.

But if you take nominal GDP last year, it was probably up 6%, 7%, something like that. So you're effectively growing at sub-nominal GDP. Is that how we should think? I mean, is that a sort of sense of your conservatism or...? or are the two just not really related at all?

Yeah, well, I think there's a couple of things going on there. Obviously, we've seen, given the high interest rate environment, as you all know, we've seen pay down of borrowing as well, whether that's in the retail bank in terms of customers paying down mortgages, whether that's in government lending schemes, in the commercial business. I think as rates come down, the inclination to either want to pay down or have to pay down will slow. So that's how we think about it. So we've delivered growth despite there being a lot of, in effect, deleveraging by customers across all of our customer businesses, especially in private. On your second question, which I guess is a very broad question, we're very happy with our retail bank. You know, the... The leadership team we have there over the last couple of years have built a very actually digitally enabled retail business. We have a market leading mobile platform. We support that with our branch network. As you know, the returns are healthy, which is what you alluded to. And I think we've proven over the course of the last couple of years that we've managed Certainly over the course of the last six, nine months, we've certainly managed to react in terms of our product range, our pricing, whether it's on, you alluded to some deposit pricing and our ability to compete. I think we have a very competitive range across different terms, different products, etc., likewise on mortgages. So I think the retail bank is in good health. We're continuing to invest in it. I'm very focused on costs. You mentioned that, but that isn't a particular focus for retail. It's across the whole business. I'm very keen that we have good cost discipline, we have good cost management, but also we invest in the business to drive those productivities and efficiencies out. So what I'd say in summary is I think we've got a good retail bank. There are areas in which that bank could grow. We'll obviously work on productivity and efficiency, but we'll do that at a bank-wide level, not just in our retail bank. Thanks, Ed. Great. Thanks so much.

Our next question comes from Chris Cant from Autonomous. Chris, please go ahead and ask your question.

Good morning. Can you hear me OK? We can, Chris. How are you? OK, fab. I've avoided the mute issue. Thank you for taking my questions both. I had one on your ROTI aspiration and one on the 24 income guidance, please. So on the 2026 ROTI target, I just wanted to understand. a little bit more about what you're assuming here as a denominator. And I think this is an area where consensus looks a little bit probably different to how you're thinking about things. So if I look at your disclosures today, you tell us 225 bits of rate cuts and you've given us a cash flow hedge reserve sensitivity of just over a billion per year. hundred bits so that alone would knock your cash flow head reserve down by over two billion um you're then going to have pull to power effects on top of that you're going to have the removal of the ifs9 ad back on top of that If I think about your RWA guidance, your CT1 target, you're looking at about a 27 billion CT1 base, which I think would imply once you allow for those cash flow hedge reserve movements, both the print today and the future sensitivity, probably for a TNAV in 2026 of about 31 billion. And I think consensus is quite a lot lower than that, you know, around 27 something or other. for 26 on average. So is that maths right? Because I think what that's telling me is if you think you can do a 13% roti on that meaningfully higher TNAV base, it's about a 4 billion net profit number. But it really comes down to that TNAV piece. And to your point, Katie, Brodie is your North Star. But it's impacted by this maths around the cash flow hedge reserve, which doesn't appear to be factored into consensus. So I was just wondering if you could speak to that. Is that maths the right way we should be thinking about it? Is that kind of 31 billion figure the right sort of level for the denominator in your view, based on your rate assumptions? And obviously, we may make our own. And then on the 2024 guidance, just in terms of the comment around income being better in the second half than the first half, So I understand the argument around sort of deposit mix stabilizing, and then we start to see more of a net tailwind from the hedge. The hedge starts to overpower the other forces. But in terms of your rate cut assumptions, you said five cuts starting from May. So I guess your rate cuts are back end loaded in the year. And I presume you're assuming within the guidance some negative pricing lag effect, i.e. there is that limitation for, say, six weeks on the actual pass-through to customers. And all of that negativity is then baked into your second half. income guidance. So I just wanted to try to square the circle there. How is it that with all of that repricing lag effect, you still end up with income up in the second half? Thank you.

Thanks, Chris. Thanks very much, Chris. So, I mean, Chris, you're absolutely right. And I would probably encourage You as you are, you're already there, but also other others to kind of look at the denominator piece. I think it's important for us. It's been great to see the growth that we've got within the denominator this year, as we saw the 25.7 billion at the end of 2023. Chris, I'm not going to give you a profit guide for 2026 as we go through there, but I think you've got the various component parts that cash flow hedge will unwind as we go through. Your rates have been volatile, so it won't be linear. I think if you looked at what happened in rates just in the first part of this year, and if I was to cut the numbers now, you'd actually see it reverse a little bit in the other direction. But overall, with our rate assumptions, we'll definitely see that continuing to come down. And that's important for us. So if you look at the TNAV, think of the profits, think of the movement on the cash flow hedge. There's some other movements on some other reserves, but those are the two important ones. And then obviously deduct distributions. And then I think that will get you to a better kind of view on TNAV. And I think, you know, we need to kind of catch up a little bit on that. As I look to the income guidance, so second half better than the first half. You know, there are five cuts starting in May. There's we have considered within those timing lags as to how long it takes to from the cuts. If you were to make the decision at that point, how long it would take you to go through. Clearly, the absolute time when we make decisions on pass through will be longer. will be dependent on what's happening in terms of competition and customer behaviour. That's part of the reason we give you a range for income for the full year. But we have kind of looked to consider that within the income guidance. And then I think the other thing... Just remember, we spoke about it earlier, so I won't repeat it all. But in terms of the structural hedge, just the differential in that level of reinvestment, we are assuming that there is, you know, reinvestment despite the hedge kind of will shrink over the year. We get to deposit stability by the middle of the year. So from the middle of the year onwards, you would start to see fuller reinvestment, not full because of the 12 month loopback. But that helps the second half to be stronger than the first half. Hope that is helpful to you, Chris. Thanks very much.

That's helpful. Thank you. Just on that TNAV point, and I appreciate you don't want to give us a profit number. When I look at consensus, the gap between consensus CT1 and TNAV in 2026 is about half a billion. Your gap as of the end of 2023 is 1.2 billion. And from what you're saying, that gap should materially widen, right? subject to exactly what happens with rape, but we should be expecting a much more meaningful gap between TNAV and CT1 in the outer years than we see today, presumably.

I think we give you really good disclosure on that capital to TNAV reconciliation. It's on page 375 of the account. You might not have got there yet this morning. And what I always find, if you look at it over a few years, you can see which numbers present a little bit of volatility within that number. So I'm not going to be precise on the gap at the moment, but I think you've got the component parts within there. And that reconciliation over a multi-year basis does give you some helpful views into the evolution of TNAV. Thanks, Chris.

We look forward to discussing page 375 with you. Right, next question, please.

Our next question comes from Robin Down of HSBC. Robin, please go ahead and ask your question.

Hey, Robin. Hi, can you hear me? Yeah, we can. Hi, Robin. Okay, great. Excellent. I've also avoided the mute issue. A couple of kind of link questions. Actually, this slightly builds on a bit of what Chris was saying there. You've given us this 25 basis point sensitivity, which is quite helpful on on slide 17. But I'm just conscious, obviously, we're looking at a series of rate cuts. I was just wondering whether you could perhaps talk about what the impact might be of, say, 100 basis point rate cut. I see we don't just multiply by four here. I know we can do the structural hedge side, but it's the managed margin side that I'm conscious you've got an instant access savings account that pays And I guess the lower rates go, the harder it is to pass through. And the reason why I'm kind of interested in that is just thinking about the dynamic going into 2025. I appreciate kind of volumes will hopefully pick up as interest rates fall. But if I think about the kind of structural hedge, I'm guessing we're going to be looking at probably low to mid 30s, billions of rollovers. in 2025 with, say, a swap rate of 3% and a maturity rate of 50 basis points. But going the other way, if you build a string of interest rate cuts and you're telling us 25 basis points today is 125 million in year one, I'm just kind of curious as to how you think those two kind of interplay going into 2025. And when we look at consensus revenues, I think we're up at kind of 14.2 for 2025. So obviously there'll be some volume growth there that will help out, but perhaps whether you're comfortable with that 14.2. Thanks.

Yeah, thanks so much. Look, in terms of the 100 basis points, it's relatively linear. And I think if you go to page 267 of the account, you'll actually see that I've given you the 100 basis points disclosure.

I didn't quite get that far, sorry.

No, no, no, it's all right. I must admit, I've got the cheat list for where the paces are that you guys will go. But you can work it out through there. So that will be helpful. So I think it's page kind of 267 in terms of where you go. And I think that will kind of give you give you what you need on that point. And then just sorry, Robert, I'm not entirely sure of the second bit of the question that you're actually asking me to kind of confirm. But I think that if you look at slide 15, it will help a little bit with the interplay of what's hedged and unhedged. What we've given you there this morning is just to try to kind of give you a flavor of what happens in term, which is obviously the tightest, what's unhedged, and then what's supporting the product structural hedge. And as you see that migration continue, you'll see those balances move a little bit more to the term hedge. And then you need to take a view whether that's coming out of our unhedged kind of instant access or out of the current account piece. as we go through from there. So what happens in terms of different rate cuts? But I would say we have seen it slow. We do expect it to continue, but not at the speeds that we saw in the previous year.

I think my point was more that, you know, if we're looking at, say, 35 billion of maturities in 2025, and I appreciate this is kind of, we have to think about the quarterly rates here. And you're getting a 250 basis point kind of uplift on that. Then we can kind of do the maths on that. And how that then interplays though with, you know, average base rates in 25 being, you know, more than 100 basis points lower than where they are in 2024. I mean, it's actually, it's a question of almost like where you think the margin goes in 25.

Yeah. Yeah, so I think I'm not going to give you the margin. What I would say is that we expected to behave the same way we described income. But we do have confidence in the income growth over the medium term. I said earlier in the call that we're kind of expecting the reinvestment levels to be about 310 basis points. I'd expect them to be a little bit lower in 2025, but not meaningfully. But then similarly, we've talked in the past around the 80 bits roll off kind of becomes 50 bits. I'm not going to get into the pay fix kind of debate, but I mentioned that earlier as well. That suppresses those numbers a piece a little bit. And that's why we have confidence in the income growth over the medium term as we see those deposits stabilise.

Great.

Brilliant. Thank you.

Lovely. Thanks very much.

Our last question comes from Jason Napier of UBS. Jason, please go ahead and ask your question.

Hey, Jason.

Good morning. Thank you for taking my questions. Two, please. Clearly a lot of focus from you on cost efficiency within the business. I wonder whether you might give us some more details perhaps on 2023 in terms of expenditure on restructuring, the big moving parts in the performance that you've turned in last year. Just some of the feedback this morning is flat may be good enough for one year, but the organization in this kind of operating climate can't hold close to that on a sustained basis. Perhaps you could talk about how you did what you did last year and then how you feel around what run rate cost growth ought to be for NatWest going forward. And then secondly, perhaps for with Katie as well as Paul some conversation in the prepared remarks this morning about a more active stance on capital management, securitization and risk transfer and so on. I don't think there's a change in the outlook for RWAs 2025 and I think we're still being told that it's linear. Perhaps you could talk a little bit about what that does for NatWest. Presumably in this year in particular there's a need to want to be able to do share buybacks in the market, public offer flow back and so on. If you could just talk about whether this active balance sheet management changes much in the very near term for the availability of excess capital. Thank you.

Thanks, Jason. I'll take costs, Katie, and then maybe come back to all three and RWA trajectory. Sure. Jason, on costs, we're only guiding for the 24, which is broadly stable. Within that, we have restructuring costs built in. So then I guess it's pretty easy to conclude that to stay broadly flat, we're going to work pretty hard to mitigate the impacts of both wage inflation and general contract inflation. So we're very, very focused on mitigating Any cost increases. I like to take those costs in year. So no broader restructuring charge. So we've built in a higher level of restructuring charges in 24 than we used in 23, just to directionally give you a sense of that. Overall, I do see big opportunities in respect of bank simplification within the bank. You'll have seen that in the slides. I think there's a lot to do, a lot that we can do to make our bank easier for customers to do business with us, but also improve productivity for our colleagues. I talked in October how I'd reshape the investment spend around some key projects to deliver more digitization and automation. That obviously plays through in terms of efficiency. We also have opportunities in terms of consolidation of some of our tech platforms as well. So we're gripping cost as a management team. We want to take the charges in year. That's what we've done in 23. That's what we'll do in 24. We're very focused on the glide path and mitigating any of the natural inflationary aspects that there are. Thanks.

Perfect. Bio 3.1 and RWA. So, I mean, Jason, you're absolutely right. I would take the 200 billion guidance we've given you to the end of 2025 as linear from here, remembering that it can be lumpy. You know, in RWAs, there's many, many different moving parts. You know, we're very disciplined on how we allow the businesses to use it. And then also how we then... and manage it as we go through. So we will look at things like SRTs, the origination of lending that we've got at any point, and just to make sure we're getting the right return for the investment we're making in our RWAs allocation. But if you go linear from here, you'll get to the right place in terms of the numbers, I think, as we roll through. Thanks, Jason.

That concludes the Q&A section. I will now hand back to Paul for closing comments.

OK, thank you, everybody. Thank you for joining. Katie, Howard and myself appreciate it. I hope you'd agree we've laid out a good, strong performance for 2023. I'm delighted to be confirmed enrolled today. And hopefully you've got the sense I'm very focused on driving the performance and returns of NatWest. But before we sign off, I do also want to thank Howard for his commitment at NatWest and his invaluable contributions as chair. I know this will be the last time you join the analyst call. I know many of you on the call. know Howard very well and spent a lot of time with him over the course of his tenure so I guess I'll take the liberty of thanking him on your behalf for that and we'll build on his strong foundations to deliver the very best we can for our customers and our shareholders moving forward so have a good Friday everybody thank you.

Thank you Paul that concludes today's presentation you may now disconnect.