NatWest Group plc

Good morning and welcome to NatWest Group's full year 2024 results management presentation. Today's presentation will be hosted by CEO Paul Thwaite and CFO Katie Murray. After the presentation we will take questions.

Good morning, and thank you for joining us today. As usual, I'll start with a business update, Katie will take you through the numbers, and then we'll open it up for questions. 2024 was a very positive year for the bank. A strong financial performance drove upgrades in our income and return guidance, and we made excellent progress on our strategic priorities, discipline growth, bank-wide simplification, together with active balance sheet and risk management. You will have seen that we also carried out directed buybacks in May and November, which supported a reduction in the government shareholding from 38% to less than 7% now. This makes it likely that NatWest will return to private ownership sometime in 2025, though naturally any decision rests with the government. This represents a new chapter for the bank, one which is attracting new investors and which enables us to put our future focus on driving growth by succeeding with our customers. So let's start with the financial headlines. We continue to support customers throughout the year, whether it was to help them buy a home, grow a business or invest for retirement. As a result, customer lending grew 3.5% to 372 billion. Customer deposits increased 2.9% to 431 billion. And assets under management and administration were up 20% at 48.9 billion. This customer activity underpins our strong financial performance. We delivered income of £14.6 billion, up from £14.3 billion in the prior year. Costs were £7.9 billion in line with guidance, and this resulted in operating profit of £6.2 billion and attributable profit of £4.5 billion. Our return on tangible equity was 17.5%, driving strong capital generation and double-digit growth in three key metrics. First, earnings per share were up 12% at 54 pence. Second, we have announced a final dividend of 15.5 pence, bringing the total to 21.5 pence, up 26%. And third, tangible net asset value per share increased 13% to 329 pence as a result of strong earnings together with a lower share count. We continue to maintain a strong balance sheet with a CET1 ratio of 13.6%. You can see here how executing on our strategic priorities has flowed through into our financial performance, where we have beaten or met all our recently improved guidance. Strong capital generation allowed us to carry out 2.2 billion of directed buybacks in the year. This facilitated a rapid reduction in the government shareholding. The chart on the right shows how dividends and TNAV per share have increased as the share count has reduced. And distributions to shareholders in 2024 totaled £4 billion. We intend to increase our dividend payout ratio from around 40% to around 50% from 2025 onwards. This reflects our confidence in the outlook with buybacks remaining a means to distribute surplus capital. So let me turn now to progress on each of our three strategic priorities, starting with discipline growth. First, I'd like to share some examples of our organic growth. Over the year, we increased our customer base by around 500,000 to over 19 million, and we grew both loans and deposits with a six-year annual growth rate of more than 4%. In the retail bank, we attracted new credit card customers as we broadened our distribution through new channels, taking our share from 8.5 to 9.7%. In our private bank, we attracted net inflows of 2.2 billion, contributing to 20% growth in assets under management and administration. And in commercial and institutional, we grew non-interest income by 10% with higher fees from payments, foreign exchange and debt capital markets. We also provided clients with around 32 billion of climate and sustainable funding and financing, bringing the total to 93 billion since July 2021, approaching our 100 billion 2025 target. In addition to growing organically, we made two acquisitions, a 2.3 billion portfolio of prime residential UK mortgages from Metro Bank and around a million new customer accounts from Sainsbury's Bank, adding about 2.5 billion of unsecured lending and 2.6 billion of savings. Metro Bank completed last autumn and we expect the Sainsbury's transaction to complete during the second quarter. Our focus on bank-wide simplification is designed to increase efficiency, improve customer experience, and create operating leverage. Around 80% of our retail and business customers now engage with us digitally, so we're investing in further digital transformation to become more agile, faster, and responsive to their needs. For example, In retail banking, eligible customers can now receive a mortgage offer within 24 hours, and during the year, we reduced the average time to make an offer by about 20%. We're also deepening engagement. 6.4 million customers used Insights on the mobile app to improve their financial well-being. In private banking, we are digitizing more savings products, contributing to a tenfold increase in digital inflows to 3.5 billion. And in commercial banking, we launched a multi-year program to transform our digital channel bank line. This will give clients a single point of access to a broad range of products and a much better user experience. This investment is also making life easier for our colleagues. Improvements in transaction banking and payment services release them from around 20,000 inbound calls in 2024. At the same time, we have continued to simplify our operations by reducing our property footprint, delivering savings of 76 million, and we made a 3.3% reduction in headcount. All this activity has enabled us to improve customer experience, keep costs broadly stable, and create additional savings beyond our plan. These additional savings have enabled us to accelerate our strategy by funding more transformation in the year, including investment in AI, the exit from our hub in Poland, and other property closures. This has helped to create momentum by supporting further savings in 2025. Our third priority is to allocate capital dynamically and maintain strong risk management. We reduced our risk-weighted assets by 6.8 billion using a range of means, including significant risk transfers, credit risk insurance, and asset sales. This management of risk-weighted assets obviously also supports our management of credit risk. You can see the strength of our risk management from our average loan impairment rate over six years. In 2024, it fell to just nine basis points. This is the result of a well-diversified loan book with carefully managed exposure to sectors at risk and a prime mortgage book with low loan-to-value ratios. As we grow our sharing cards and unsecured lending, we are maintaining a prudent risk profile. Managing RWAs together with our low cost of risk helped to drive strong capital generation, which increased from 111 to 243 basis points. This enables us to support our customers, invest in the business and return capital to shareholders. As I mentioned earlier, we made distributions totalling £4 billion in 2024. Thank you very much. And with that, I'll hand over to Katie.

Thank you, Paul, and good morning, everyone. I'll start with our performance for the full year, where, as Paul mentioned, we either met or exceeded our third quarter guidance. Income excluding all notable items grew 2.2% to 14.6 billion. Other operating expenses increased by 1.1%, excluding increased bank levies and the cost of the retail share offer. So another year of positive operating leverage. The impairment charge was 359 million pounds or nine basis points of loans. Taking all of this together, we delivered operating profit before tax of 6.2 billion. Profit attributable to ordinary shareholders was 4.5 billion and return on tangible equity was 17.5%. Turning now to the fourth quarter compared with the third. Income, excluding all notable items, was 3.9 billion, up 2.7%. Operating expenses were 2.3 billion, including the annual UK bank levy. the impairment charge decreased to 66 million or seven basis points of loans, bringing operating profit before tax to 1.5 billion. Profit attributable to ordinary shareholders was 1.2 billion, which includes recognition of a deferred tax asset and a provision release related to Ulster Bank discontinued operations. our return on tangible equity was 19%, turning now to our income performance, where we are pleased with the momentum during the year. Full year income, excluding notable items of 14.6 billion, exceeded guidance of around 14.4 billion. Across the three businesses, income grew by 244 million. This was driven by an increase in non-interest income of 8.9%, reflecting growth in AUMAs and a strong performance in commercial and institutional. Net interest income was stable year on year as the benefits of balance sheet growth and the product structural hedge were offset by mortgage book refinancing and the impact of the Bank of England rate cuts. Turning to the fourth quarter, income was better than we had initially projected. Growth across the three businesses of 82 million was driven by net interest income, which increased 3.1% due to strong growth in average interest earning assets, higher deposit margin, and positive treasury activity as we took advantage of good market conditions. Net interest margin increased one basis point in the quarter to 219 basis points. non-interest income was stable as a strong performance in commercial and institutional was offset by seasonally lower fees in retail banking. I'd like to move now to lending. We delivered another year of strong growth across the group. Growth loans to customers across our three businesses increased 3.5% or 12.7 billion pounds to 372 billion. There was strong growth in commercial and institutional and personal unsecured lending throughout the year. And we returned to growth in mortgages in the second half. In commercial and institutional, we grew lending by 12 billion year on year, excluding the repayment of government loan schemes. This reflects growth across social housing, asset finance, supply chain finance and funds lending. Turning to the fourth quarter, customer loans across our three businesses increased by £4.6 billion. Taking retail banking together with private banking, mortgage balances increased by £700 million and our stock share was stable at 12.6%. unsecured balances increased 200 million to 16.8 billion. In commercial and institutional, gross customer loans increased by 3.7 billion, including 300 million in commercial mid-market, which grew for the fourth consecutive quarter. I'll now turn to deposits. Customer deposits across our three businesses increased 2.9% to 431 billion, with a gradual increase in balances every quarter. Growth in the fourth quarter was mainly driven by instant access accounts across both retail and private banking. There has been a gradual shift from non-interest bearing to interest bearing deposits throughout the year, but the pace of migration has been significantly slower than 2023. Non-interest bearing balances were 31% of the total, down from 34% at the start of the year. And term accounts were stable at 16%. Turning now to the product structural hedge. Many of you are familiar with our mechanistic approach to managing the structural hedge, which continues to be an important driver of income. As we show in the chart, before further reinvestment is taken into account, around 80% of hedges are already written for 2025, and these will deliver income of 3.4 billion pounds. When the impact of continued reinvestment is included, we expect 2025 product hedge income to be around 1 billion pounds higher than 2024. The product hedge notional reduced to 172 billion during the year, which reflects our 12-month loopback on average eligible deposits. We expect the notional to be broadly stable in 2025 based on our anticipation of a more stable deposit mix, which means a reinvestment each year of around 35 billion. Beyond 2025, we expect income from the product structural hedge to grow each year through to 2027. So let me summarise on income. There are three main drivers to bear in mind. First, we expect continued disciplined growth across our three businesses, subject to achieving attractive returns. Second, we will actively manage our product pricing as interest rates come down. We expect to continue passing through changes in interest rates to customers. Our plan assumes the Bank of England will make three further rate cuts this year, reaching 3.75% by the end of the year. Of course, the actual outcome may be different from our assumption. And third, we expect product hedge income to increase by around £1 billion in 2025. Taking all of this together, we anticipate 2025 income in the range of 15.2 to 15.7 billion, excluding any notable items. Turning now to costs. Other operating expenses were 7.9 billion for the year, up 1.1%, excluding higher bank levies and retail share offer costs in line with guidance. The main increase came from staff, which account for half of our cost base. This included the average annual wage increase of 4% and our first annual share award for all staff. Although we reduced headcount overall, we are hiring for roles such as software engineers. This is reducing the need for temporary contract staff, which is reflected in lower administrative expenses. Our ongoing investment in technology has resulted in higher depreciation and amortization costs. And as Paul mentioned earlier, with additional capacity from accelerated bank-wide simplification initiatives, we were also able to fund additional severance and property exit costs in the fourth quarter that support further savings this year. In 2025, we expect other operating expenses to be around 8 billion, plus around 100 million of additional one-time costs in relation to the integration of Metro and Sainsbury's Bank portfolios. Staff costs will be a key driver of overall cost growth again in 2025, as we implement the average annual wage increase of 3.3% and incur around 45 million of higher employer national insurance costs. As you would expect, we will continue to mitigate cost inflation by making further savings, creating capacity for higher investment to accelerate efficiency and productivity improvements. I'd like to move on now to impairments. We have reviewed and made small adjustments to our economic scenarios, both forecasts and relative weightings. Our outlook for the macro environment assumes moderate growth, higher for longer rates, and a resilient labour market. We reported a net impairment charge of 359 million for 2024, equivalent to nine basis points of loans. And our stage three loan impairment rate remains historically low. Our balance sheet provisions for expected credit loss includes 299 million of post-model adjustments for economic uncertainty, a year on year reduction of 130 million. The current performance of the book combined with our updated economic outlook means we are expecting a loan impairment rate below 20 basis points in 2025. And turning now to capital and risk weighted assets. We ended the year with a common equity tier one ratio of 13.6% within our target range and up from 13.4% in the prior year. In 2024, we generated 243 basis points of capital before distributions to shareholders of £4 billion, which were equivalent to 218 basis points. Risk-weighted assets were stable in the year at £183bn. Business movements, which broadly reflects our strong organic lending growth, added £6bn and the Metro Bank Mortgage Portfolio added a further £0.9bn. These increases were offset by active RWA management. Following the delay in the implementation of Basel 3.1 to January 2027, we now expect between 190 and 195 billion of RWAs at the end of 2025. So where the figure lands exactly within that range will depend on CRD4 models. We continue to target a CET1 ratio in the range of 13 to 14%. As you heard from Paul, strong capital generation is helping us to create shareholder value. Tangible net asset value per share increased 37 pence to 329 pence, earnings added 51 pence and distributions accounted for 21 pence. Improved profitability together with the reduction in share count due to buybacks completed this year has resulted in significant improvement in the total dividend per share, which is up 26% year on year at 21.5 pence. We are also pleased to announce an increase in our ordinary dividend payout ratio from around 40 to around 50% from 2025 onwards. And turning now to guidance. In 2025, we expect income excluding notable items to be in the range of 15.2 to 15.7 billion pounds. Other operating expenses to be around 8 billion plus around 100 million of one-time integration costs. And the loan impairment rate to be below 20 basis points. delivering a return on tangible equity of 15 to 16%. And finally, we expect between 190 and 195 billion of RWAs at the end of 2025. And with that, I'll hand back to Paul.

Thanks very much, Katie. Before we move on to questions, I want to speak briefly about the next three years. At the same time as executing on our priorities in 2024, we have been thinking deeply about our strategy. As you'd expect, this has entailed a considered analysis of data on our customers, competitors, markets, and industry trends to give us a detailed understanding of our position and opportunities. This work has confirmed our view that our three strategic priorities serve us well, and that we must continue to concentrate on our strengths, whether that's the scale of our customer base, our robust balance sheet, our national and local presence, or our leading market positions. drive our tech transformation to create greater operating leverage, and change the way we operate so that we are quicker, simpler, and more agile. This speaks to the performance culture and customer focus we are fostering in the bank. When I was first appointed, I said that we shouldn't underestimate the strength of our foundations or the opportunity we have to deepen customer relationships. Today, we serve over 19 million customers across three businesses, each one with an attractive return on equity. We are the UK's biggest bank for business with a leading mid-market franchise and a 20% share of new business startups. We have an award-winning private bank with one of the strongest wealth brands in the country, and we have a strong track record in retail banking of growing share in attractive segments with good returns. For example, we now serve around 20% of the youth segment, and we are growing in mortgages and unsecured lending, though as you can see, there is still plenty of room for further growth. After our withdrawal from the Republic of Ireland and the refocusing of the markets business, the major restructuring of the bank is complete. And as we return to private ownership, we can put our future focus on disciplined growth through existing relationships with customers and winning new ones. By succeeding with customers, we can create value for all our stakeholders, including shareholders. The strength of our balance sheet and capital generation together with our tight management of costs, capital and risk gives us the capacity to increase investment to build an even stronger business in the coming years. First, we will continue to grow our business and customer base with a focus on returns and on growing in key segments such as mortgages, unsecured, asset and trade finance and wealth management. We will also continue to look at inorganic opportunities that create further shareholder value, whether they offer scale or new capabilities. Second, we will advance our plan for bank-wide simplification. This includes continuing to modernize our technology estate, maximizing use of the cloud, moving towards a single unified view of our customers, and deploying AI data solutions to improve customer experience and increase efficiency. There's also more we can do to simplify our operating model, including reducing our property footprint and the number of legal entities. Third, the strength of our balance sheet and risk management gives us a competitive edge. We plan to take advantage of this by continuing to allocate capital strategically to optimise returns and dynamically in changing market environments, just as we did with mortgages and commercial lending last year. You can also expect us to recycle capital regularly. We delivered a strong performance in 2024 by executing on these priorities and we have started 2025 with good momentum. As we continue to grow the business, manage costs and allocate capital dynamically, we are targeting a 2027 return on tangible equity of more than 15%. Our priority is to generate attractive returns for shareholders and we intend to increase our dividend payout ratio to around 50% from 2025 onwards. This reflects our confidence in the outlook with buybacks remaining a means to distribute surplus capital. Thank you very much. I'll now hand back to the operator for questions.

We will now take your questions. If you'd 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 six to unmute once prompted. We ask that you limit yourself to two questions each to allow more of you a chance to ask a question. We will now go to our first question from Guy Stebbings. Guy, if you'd like to unmute yourself and ask your question.

Hi, morning there. Hopefully you can hear me. Hi, Guy. We can hear you. Hi, Guy. Great. Just one broad question on net interest income. Seemingly implicit in your total income guide is that you're not trying to suggest that consensus is too low for 2025 unless you're planning for quite a reversely non-interest income. With NI already annualising at north of £11.9 billion in Q4 or just shy of 1.5% below the consensus for 2025, it does seem slightly conservative. So I'm just trying to understand the building blocks a little bit. better um the hedge you're saying is a one billion tailwind year over year so i think that's probably just shy of two-thirds that bigger versus the q4 run rate uh you've then got the four rate cuts in over the year which with the managed margin sensitivity of 140 million or so per 25 basis points i mean even so it feels like that's less than the hedge tailwind um we'd expect some balance sheet growth, deposit mix isn't a headwind, if anything, it looks like on the data state, it's actually a tailwind. So I'm just trying to work out, am I missing something in this equation? Is there some sort of conservatism or just factoring things that, you know, maybe outside of your control when you're thinking about that guidance there? Thank you.

I mean, Guy, I would say, as ever, you've got it pretty well covered, I would say. I think one thing to remember is Q4 is not necessarily a perfect run rate, just being one quarter. And remember that around a billion is versus the total 24 income. So you'll see that kind of come through as you go through. But you're right on all the component parts of the organic growth. Three more cuts to come through from the one we've already had. And that product hedge is to increase around a billion for over the whole year. So I'd say you've got a good a good picture of your of your views.

Okay, that's good. Can we just come back on the deposit and

mix are you embedding any sort of change versus what was pretty encouraging trends over the course of q4 when you were thinking about 25. no very much there i mean the reality is we've been toggling around about that 17 number by rounding for the last couple of quarters so it's really been very stable in terms of what we have seen is a few in q4 is a bit more going into into instant access accounts which is why our q4 income was a bit better but i don't expect to see it change particularly thanks guy

Thank you. Our next question comes from Benjamin, Kevin Roberts from Goldman Sachs. Benjamin, if you'd like to unmute yourself and go ahead and ask your question.

Hi Ben. Morning both. Thank you very much for the presentation and taking my questions. So first would just be on the ROTE range for 2025. Just curious to understand how you would frame that and what factors effectively you would be thinking about to land at the lower versus the upper end of those of that range respectively. And then just in terms of costs, secondly, so the 2025 guidance implies a step down versus the Q4 run rate. Recognizing there may be some seasonality there, what else would you call out as driving that run rate cost improvement into 2025? Thank you.

Thanks, Ben. Do you want me to take the costs one?

Sure, I'll go. I'm ready. I'm ready. Yeah, born ready. Anyway, before we get too excited. So look, I think, Ben, it's important when you look at Q4, one of the things we tried really hard to do in this last year was to create a bit of capacity to be able to make some strategic decisions in Q4, which we did. around property and around severance costs. So you do see that Q4 number being a little bit higher because actually we worked really hard to say, can we sweat this number as much as possible? So that's really that. So I wouldn't take the run rate. We've given you the guidance of $8 billion plus $100 million for the inorganic costs. We hit our annual guidance all the time, so I would just bring that through. But remember, it can be lumpy as you move through quarter by quarter, which I know is frustrating for your models, but that's the kind of reality.

Should I go on, Roti? Ben, just on that specific, you'll remember in quarter three, we were well ahead on cost, but we did trail that if we saw opportunities to drive more efficiencies, and productivity, then we do that. That's exactly what we did in quarter four, as Katie said. And that will set us up nicely for 2025 as we continue to focus on driving efficiency through the business and the guide that Katie's talked to.

Rotary, sure, absolutely. So in terms of that 15% to 16%, so you've got our income guidance of the 15.2% into 15.7%. That's the momentum through 2024, as well as the good volume growth. We've already talked about costs. If I look to impairments, nine basis point charge for the year was low. We've guided you to below 20 basis points for next year as well. And we've obviously given you some, the RWA guidance as well. The piece that I would probably encourage you to look at little bit more is around that that tnav growth that we've got coming through and the two things in there obviously rwa growth that you'll see coming through as well as the growth intangible equity is going to be positive um from the unwind of the cash flow hedge due to the maturities that we have in that hedge we would expect the majority of that to have unwound in the next two years. So combining that with retained earnings, you would see a bit more T&R growth than I think you may have in some of your models. But we're very comfortable on the operating outlook. You know, we started strong and comfortable with that 15% to 16% range. Thanks, Katie. Thanks, Ben.

Thank you. Our next question comes from Chris Kant of Autonomous. Chris, if you'd like to unmute and ask your question.

Hey, Chris.

Yeah, mate.

Hear you now, I think. Yeah, go for it.

Morning. Thanks for taking my questions. I just wanted to ask about your 2027 guidance, actually. So you pushed things out a little bit, 15%, 16% this year. The path out to 2027, if I think about what you've told us on the structural hedge tailwind, the stabilization of the deposit book, and the fact you're now expecting to reinvest all of the maturities on the hedge, hedge remains a very strong tailwind into 26 in terms of the churn dynamics and i guess that's annualizing well into 27 plus you have a more modest tailwind from the churn in 27 specifically what are the negatives that you're setting against that so rates coming down this year um and then leveling off a little bit what are the negatives that lean into the hedge tailwind which means the roti you know you're 15-16 this year and then greater than 15 in 27 are you trying to point us in the direction of expecting tailwinds or is the greater than 15 more how you used to as an institution talk about returns which is sort of a you know through the cycle sustainable type number if you could speak to that that would be appreciated and then Paul in terms of the strategy for the group you talked about inorganic. You've had the reins in hand for the whole business now for over a year. What do you think the organic balance sheet growth potential is for NatWest as a group? What should we be thinking about

within organic on top if you if you get the opportunities but what's the sort of organic pace of balance sheet growth we should expect loans and deposits in your view thank you yep thanks chris good two good and broad questions i mean i think on your 20 27 diagnosis as ever you've read that pretty pretty well you know we're We've specifically chosen the greater than 15% number. We're confident in the income outlook. The momentum we had in 24, as Katie alluded to, has continued into 25. We're going to maintain our cost control through the 27 horizon. I think it's realistic to expect some sort of impairment increase. The nine basis points in 24 was low. there will be some TNAV growth. So I don't think you're missing anything there. We're very, I'm very deliberately saying greater than 15%. And I guess to your characterization of the two different ways of thinking about that, in my mind, it was the former, not the latter. That's what we're driving to. We don't put a natural cap on the business. We're driving to the highest returns that we can. So that's how I would think about that. On organic, very deliberately, we touched in the slides the track record we've had. around lending growth for six years. The ability of the two large customer franchises in retail and commercial institutions to capture demand when it's there, we've proven over multiple years. 24 was another good year. It was the sixth year of growth. But I still feel like there are significant opportunities both in the retail bank and the commercial bank to continue to drive lending growth. We still have opportunities, if I break them down on retail, we still have opportunities in mortgages. We still have opportunities in unsecured in both credit cards and unsecured lending. In commercial, you can see our track record there. We feel confident about our ability to drive asset finance, infrastructure finance. But also, if you look at some of our core businesses, our mid-market business, four quarters of consecutive growth during 2024. So I feel, you know, not just having run that business previously. I know the latent potential of the commercial business. So I feel very confident that we can drive lending growth. And you'll take your view on deposit growth, but all other things being equal, obviously you can take a view on where deposit growth will be as well. So that gives us confidence about the outlook organically, our ability to grow the three businesses, which we've done very well this year as we look out to 27. Thanks, Chris.

Thank you. Our next question comes from Aman Rakhar of Barclays. Aman, if you'd like to unmute and ask your question.

Hi, Aman.

Have we got you, Aman? Can you hear us?

Good morning. Hopefully you can hear us now.

We can.

Sorry about that. Yeah, so good morning, Paul. Good morning, Katie. Thank you very much for the presentation and the questions. Yeah, I had two questions, please. One on income and one on capital returns, please. So on income, um, I know we've kind of moved away from talking about specific line items on a guy. I guess I'm just kind of interested, you know, more high level around the outlet for NIM, um, through 25. Um, and whether, you know, are you optimistic about delivering additional NIM expansion from here? Or should we think about the balance kind of swinging to volume growth from here? And I guess within that question, um, I just wanted to probe on, on kind of deposit and asset margins if possible. So, um, you know, your, your lending margins were down in the quarter. Is that, is that just because of the Metro bank, uh, book coming on and the volume growth, or should we be thinking about kind of asset margin compression from here? And I guess most importantly is the deposit piece, right? You've kind of grown the deposit margin through, um, a series of base rate cuts. Um, And I'm just trying to work out why that doesn't continue from here. And, you know, ultimately that, that to me feels like that should drive ongoing NIM expansion from the Q4 level. I know consensus doesn't have much in, so anything you can help me in the moving parts there would be great. Um, I'll maybe I'll fire the second question at you, uh, now, um, you've indicated on the M&A piece that you're kind of open for in organics, um, I'm just trying to think about what that means for your kind of distribution outlook. So is it a case of scanning the horizon, seeing what's available, but ultimately if you kind of end the year having not executed, that we should expect you to come back with some kind of surplus capital distribution, be it a buyback or whatever. Or is there potential for you to run a bit more dynamically on capital? Would you potentially run with kind of elevated surplus while you kind of execute on something? It's just a timing mismatch. What's the implications of this appetite for inorganics, which makes a lot of sense to me? What does it mean for your kind of surplus distributions from here, please? Thank you.

Thanks. Thanks, Iman. Quite a lot in those two questions. Let me, on the first one, we can cover that off pretty simply and quickly. So on NIM, we're confident of further expansion, driven primarily by the structural hedge. So it's very, very simple to understand. On the asset margin question that you asked, That's really a mixed story for quarter four, as you alluded to. There's a mortgage's dimension to that, but also some of the business which we wrote in C&I. In fact, low margin, but very high risk-adjusted returns because of the low risk weights. So I'd think about that really as a mixed point for quarter four, nothing more fundamental around the business trajectory. If you look at quarter four, the average interest earning asset growth is pretty strong, so confident in both the further volume growth and the margin outlook. On the question of inorganics, I think it's important, I guess I frame that. I've been very consistent, as you know, actually, Amman, over the last 18 months. First and foremost, Shareholder distributions are very important. We know that's a very key part of the investment case. I'm very confident that we can grow the business organically. I think we've demonstrated over the course of the last five quarters the potential of the retail business, the commercial business. And the wealth business. So that's great. On the inorganic side, it's a very high bar. It needs to be compelling financially from a shareholder perspective. Strategically, it needs to be aligned to the strategy I laid out last year. The two acquisitions that we did, modest in size, but they hit both. those criteria. But the key counterfactual Katie and I and the board will always take into account is the alternative uses of that capital. So whether that's supporting our existing business, investing in our business, or indeed buyback. So that philosophy hasn't changed. Probably worth pointing out as well, Aman, that the capital generation in 24 was very strong at 243 basis points. We're a highly capital generative business. Even though we grew our lending quite considerably, you can see that a lot of risk rate, RWA, capital management activity allowed us to keep RWAs flat despite growing the business. So I feel as if we've got very positive dynamics in terms of our capital generation, our ability to manage our capital, but our philosophy around how I framed how we think about capital hasn't changed.

Thank you. Is it possible to ask a quick follow up? You've got the mic, so go on. Thank you so much. Just obviously not to mention names, but I guess when you look across the horizon right now, are there attractive inorganic opportunities that you can see at the moment?

I'm very consistent, as you know, and will probably be slightly frustrated about. For 12 months, I've said I would never talk about individual businesses or individual counterparties. From a principal perspective, I don't think that's a good way to do it. You'd expect us to be scanning. That's what good businesses do, but I won't talk about any individual names.

Thank you so much. Appreciate it.

Our next question comes from Andrew Coombs of Citigroup. Andrew, if you'd like to unmute and ask your question.

Hey, Andrew.

Good morning. If I could just press you on slide 14, please. I think the difficulty investors are having this morning is that if you take your Q4 annualised, you're already getting to the midpoint of your 2025 revenue range. You've obviously been quite explicit on that slide on the structural hedge tailwind, and we can debate whether the reinvestment year is the right one or not. But on the other two, the growth across customer businesses and active management of product pricing I'd love to just drill down a bit more about what your underlying assumptions are. So on the growth across businesses, if you look at the Q4, across the three core businesses, you're running at 5% annualized growth rate. So I guess my question would be, how sustainable is that given the market share gains you're currently taking? And then if I look at the active management of product pricing, I mean, by coincidence, I think your team has just sent out your new deposit pricing coming through from the 6th of March whilst this call's been ongoing. And if I look at that, it looks like a 15 to 25 bps cut across the piece. And actually for a lot of customers, it looks like it's actually going to be a 25 basis points cut to their deposit rates. So actually the pass-through of the interest rate cut looks quite high, but I'd love to know what your underlying assumptions are. Thank you.

There's quite a lot in that, Andrew. So just on the last point, I mean, I think, and then Katie, maybe come back to you generally how to think about the income piece. On the last point, we have moved our savings product pricing on the back of the last change, but it's in line with the kind of disclosures we give. It's not... You alluded to it being, in fact, 100% pass-through. That isn't the case across the customer base. It's more in line with the disclosures that we've given and more consistent with the previous two base rates, so circa 60%. So just to put that point to... Obviously, there's a very broad range of products and tiers, Andrew, so it may be one particular aspect of the product range you're looking at. More generally on income, Katie?

I mean, more generally on income, and I think I'll also kind of lift you a little bit to Roti as well. I mean, we've given you a range of outcomes on many different levels, different aspects. And I think if you pick the end of all of those range, you're likely to get outside of our range of where we think that 15% to 16% return is landing. So you've got an interlinking set of assumptions. And when you work your way through them, I think you'll get yourself into the 15% to 16% on income and the other lines within the income statement. But I really kind of leave you guys to form your own judgment. We're very comfortable with the guidance we've given you. 2025 has started well, which is great. But I think you'll find that it's a good set of guidance.

And just on the volumes, do you think it's sustainable for you to keep taking market share throughout the next year?

So in terms of if you look at the gains that we've had during the last A latter part of 23 and during 24, the growth has come both in the retail bank and the commercial bank. I still believe we've got opportunity in the retail bank. I touched on some of the areas. Likewise, in commercial, some of the sectors and specialisms which we play in, they're markets that are expanding. We think we've got a great proposition. And I think we've got a six-year track record of growing volume. So there's no reason why that can't continue. Thanks, Andrew.

Thank you. Our next question comes from Shiel Shah of JP Morgan. Shiel, if you'd like to unmute and ask your question.

Great. Thank you for the presentation. I've got two questions, please. First, coming back to the total income. Now, the range looks quite wide at 15.2 to 15.7, especially considering what you've spoken about, NIM, benefiting from the structural heads. You've spoken about the AEIA growth. So I'm wondering, why is this range not more narrow? Is there some uncertainty within other income or any other area that we should be thinking about? And then secondly, on cost growth. Now, the 25, it's implied at a 3% underlying level year on year. I'm wondering if 3% is the right growth rate we should be thinking about going out to 2027, especially in the context of some of the bank-wide simplification plans that you're talking about versus some of the investments that you're making. Thanks.

Thanks, Sheila. Sure. Shall I kick off on income? Look, we feel very good about the range we've given you, and it's clearly a number of variables, and I'll go into them, but we're only six weeks into 2025. It's probably something I would point out. However, we have entered the year with good momentum from 2024, and also... January has gone well. But as you think about the variables, and I'm sure you've got these already, what we're doing in organic growth, Paul's talked about that already a lot. Customer and competitive behavior will have some impact. If I look at non-interest income, the second half of the year was particularly strong. In CNI, we were able to take advantage of some of that market volatility that was around. And then we also have a little bit of contra revenues that come through from our capital actions. um that we did so well in last year and obviously we'll continue to do them but certainly at this stage we think it's a it's a good range we feel and we feel comfortable with it and we'll look forward to talking about it more as the year goes on paul should i talk on costs or i'm happy to take it on you take us thanks so uh obviously 24 the cost increase was 1.1 excluding the change in the bank levies so another year of strong cost management given

I guess if you think about the numbers around wage inflation and tech contract inflation. So we feel that's a good output. We're guided to 8 billion, as you said, for 2025, and then 100 million of one-off. uh acquisition costs the the simplification agenda is building momentum we touched on the work we were able to do in quarter four in terms of accelerating some of the investments and that will that will give us benefits as we go through 25 and 26. so i wouldn't i wouldn't take a straight read across from your i guess your interpretation of a three percent number to year two or year three in the plan. We'll guide on that at the right time. But be in no doubt, we still see opportunities to drive productivity and efficiency and I fully expect the simplification agenda to increase in terms of momentum as we go through. So very focused on that, but don't just take a straight read across. We're going to continue to be very focused on what's required on the cost side. Thanks.

Our next questions come from Jonathan Pierce. Jonathan, if you'd like to unmute and ask your question.

Hey, Jonathan.

Yeah, morning, both. Hi. Good set of numbers and guidance today. A couple of questions, please. The first, back on net interest income, sorry. In the third quarter, there was quite a big bump up in margin from funding and other. that at the time you put down to, I think, some redeployment of the liquid assets. pool. The suggestion at the time was some of those positions would roll off in the fourth quarter, but in funding and other, there's another one basis point increase in the last three months of last year. So I'm just wondering, are we going to see a bit of a headwind into this year? Obviously, everybody's annualising that Q4 number and wondering why guidance isn't a bit better. Is this anything to do with it? There's still some So one off, if you like, excess margin being earned on those shorter term guilt positions. That's the first question. Second question, pensions. In the report on accounts, you disclosed latest actuarial position of five billion, sorry, four billion of surplus.

Yep.

the end of 2023, the accounting surplus is five at the end of last year. Recent sort of initiatives that government has been talking about regarding releasing these surpluses, is there anything we should think about there that you might be able to do? I mean, even if it just relates to this three, six, five million of trust assets that are still being deducted from from capital, and I'm sorry, given I was talking in slightly more detail around the numbers now, can I just bolt one additional on, sorry, Katie, the DTA. There's another 428 million in these numbers helping the bottom line profit. Last year you suggested sort of last year's 300 was a one-off. Are these a bit more repeatable than we previously thought maybe?

Yeah, sure. That's no problem. Let me take you through all of them. So at Q3, we did have a bump and it was a little bit that came through at that time and we said that some of them were going to run off. And then what happened as well after October, what we actually saw was really good market conditions. So we actually sought to repeat some of that activity, taking advantage of that. And that was helpful again in Q4. And, you know, Jonathan, you'd expect us to be actively managing those positions as we go through. And you can see in the accounts that we've been steadily building up some of our gilt positions because they make good sense at this point. So I wouldn't suspect it to be an unwind, but it's not something that you could lock and load and say, actually, there's definitely going to be that positive every single quarter. We really push the Treasury team to make sure they take the right advantage where they can. In terms of pensions, there's a lot being written about it just now, and we'll wait to see what regulation kind of comes through and how we might deal with that or if that gives us any opportunities. We've got great relationships with the pension trustees and the fund, and it's performed incredibly well for the pensioners and also for us as a bank. So very, very pleased with that. The 365 that said deduct from capital, you remember when we did that a couple of years, I did say it would be a multi-year event before that came back. very comfortable that it will come back in time. So that's not an issue for us as we look forward on that. It's a question of timing. And I don't have a view exactly as to when that timing might be. If I look to DTA, and the way to sneak in a question is to ask the FD about a little bit of DTA sort of thing. So as we look at it, we did have an event last year. And we did mention last year that it would come off. It would come back again. So Much of that right back relates particularly to the Royal Bank of Scotland, where we're seeing those come through. And when you get further into the accounts, I think it's page 325, 326, we'll show you there's a lot more kind of information of the other right backs that are coming there. It's largely used up. There will be a little bit that will come in next year as well, which we'll look at in Q4 when we do our kind of assessment of of our next year's plan. So you'll see a little bit more coming next year, but I wouldn't expect to see the numbers we've seen sort of last year in this as it comes through. I think I've hit them all, is it, Jonathan? So thanks very much.

Yeah, that's great. Sorry, I know it was three questions as well.

No, that's all right, Jonathan. Don't worry. Thanks, Jonathan. Thanks.

Our next question comes from Amit Gol of Medio Banker. Medio, sorry, Amit, if you'd like to go ahead and ask your question.

Hi, thank you. So maybe just a bit more follow-up from me. But my first question, just curious if you can just give us a bit more of a walk on the RWAs between, I guess, where we are today to the 2025 guidance. I appreciate... you know, taking out the bowl three effect. But just curious, this year it was kind of flat as you were able to offset RWA growth through RWA management. So just curious how much capacity there is to continue in that trend. And then secondly, just a kind of question just on kind of strategy just within the UK on unsecured balances. I think previously you've been talking about kind of growth there and some of your peers are targeting a similar thing. Customers have generally been, I think, paying down rather than building balances. So outside of Sainsbury's book, I'm just curious what actions you can take to encourage more growth in that segment. Thank you.

So I think one of the important things, Amit, is to remember that 2025 RWA's are going to be a different narrative from 2024. And there's a few reasons from that. Main one is we've got inorganic growth coming in. from Sainsbury's that will add about two and a half billion of growth coming in. We've obviously got a regular growth that you'll see within our book of the organic growth. We've got our annual update to operational risk that comes in in Q1 as it does every year. The numbers are a little bit higher this year given the way that calculate calculation works, so you should put 2.5 billion into your models. We've got the CRD4 model changes, and you've heard me say in the guidance and also in my prepared words earlier, that really that's the kind of the delta number within the range as we're looking at that. We do expect to see some inflation coming through in H1, And we'll share more detail of that with you as we finalise those numbers. And then, of course, it's partially offset by our ongoing programme of RWA management, which this year we did, you know, 6.8 billion. But actually, you know, next year we'll see how that kind of continues to look at. So kind of those four things that you're there. But because of the inorganic and the CRD4 changes, for me, this isn't a year about flat RWAs. It should be one of growth.

Paul? Thank you, Keith. And Amit, thanks for the question on unsecured and cards. So the context here is we obviously started from a low base. This wasn't an area historically that the bank had a high market share. The progress has been pleasing over the last couple of years. You can see the market share gains in the deck around cards explicitly. Once we add in the acquisition of Sainsbury's, our card share will be around 11%, which we still feel is below our natural share given our current account relationships. And currently, the growth has come from our existing customer base and a high credit quality. We have opened up new distribution channels through some of the price comparison sites. Again, the quality of business there, both in terms of price and credit, have been good. So we still feel there's good runway, but we're going to be very disciplined from a credit and pricing perspective. So that's how we're thinking about it. Hope that gives you a little bit of insight into the opportunity there. Thanks, Amit. Thank you.

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

Morning, Ed. Morning, everybody. Thanks for the questions. Two very quick ones, really, probably for Paul. The first one is about just profitability. And I guess there's been loads of questions about the building blocks. But if I look at your profitability, you know, twenty three was seventeen point eight. This year was seventeen point five. You're now guiding to fifteen to sixteen. So I guess one has a sense that peak profitability was actually in twenty three. which and I guess maybe that's part of the share price reaction, etc. But it feels quite surprising given you've got this huge tailwind from the hedge. And so I just welcome your thoughts on is that the right sort of conclusion we should take from these results that peak profitability is behind us? And it's now a question of how far down you go before you hit the bottom. So I guess that's that that's the first question. The second question is growth. I get what you're saying about growth and I can see your growth, but a lot of it is very much in the large corporate end. And if you take out things like the Metro acquisition, the growth in the sort of small business area, mid corporates, et cetera, is quite lackluster. And I'm not I mean, for the market as a whole, not just for you. The government is clearly very keen to see this pick up. And I guess you with 20 percent share are going to have to be a big part of that. what could the regulator do to make you lend more, I guess, is the question. That seems to be the big debate at the moment. And if you talk about the LTI limits moving, but I don't think any of you banks are anywhere near your LTI limits. So I'm just trying to think, what do you think regulators could do to make the sector grow more, if that makes sense? Thanks very much.

Thanks, Ed. Broad questions. I wouldn't characterize the first question the way in which you did. We've delivered, as you say, very strong returns in 23 and 24. And we've laid out a plan that shows strong returns in the 25. and out to 27. So another three years of strong returns. I've been very explicit and clear around the greater than 15% aspiration. And when I look at the plan, that's the intention to improve our profitability as we go through the plan. So Katie, I guess, as you said, has given you some of the building blocks and the tailwinds and some of the headwinds in terms of reducing rates. But I'm confident about the ability of the business to generate profitability. And I certainly wouldn't be characterizing it in the way you did, 23 versus 27. We've got momentum, the outlook. I think is over the medium term is positive. And we've got the strength of franchises which allow us to grow and improve our profitability. So that's what I'd say on the first question.

Well, just so just coming back just within your thinking, I'm not the sort of targeting and thinking within your thinking. Could you see a world where you could make 18 percent again?

I'm not going to get drawn into different numbers, but I guess, Ed, like you, we can run a range of different assumptions. What you believe around rates, what you believe around loan growth, what you believe around deposit growth. There's a whole host of scenarios and a very broad spread of returns, I would say. And I'm sure you run those scenarios, as do we. And then what we do is take what we think is a reasonable balance of those scenarios to make sure we're giving you guidance, we can be confident into the market. But you move some of those assumptions, and obviously the returns are higher. You move them the other way, the returns are lower. But I think we've taken a balanced approach. On lending... and growth. I mean, to me, what's needed here is demand. The reality is we've got capital, we've got the customer relationships. If demand is there from customers, whether it's in the SME end, whether it's in the large corporate end, I think we've got the latent potential in the franchise to be able to grow. The supply side initiatives that the government are pursuing, albeit some of the benefits will come in the medium time, housing, planning, infrastructure, reform of some of the public financial institutions, the UK Infrastructure Bank, the British Business Bank, They're all initiatives and policies that will help support demand in the economy. So to your question, what needs to be done? I think it's the acceleration on those supply side initiatives, which would hopefully catalyse more demands. And then a large commercial and corporate bank like ourselves would be able to capture that demand. So that's how I think about it.

So just to come back on that, if tomorrow the Bank of England were to announce a change in LTI limits or a reduction in risk weighting for certain areas of the market, I guess the conclusion for what you're saying is that we shouldn't necessarily then start upping all our growth numbers for NatWest or for any other bank.

I think I mean, I think I guess danger to get into hypotheticals around policy. I think things that I think things that would would catalyze demand, you know, housing where there's obviously intentions planning regs associated with that, further crowding in of private capital and public capital to some of the infrastructure initiatives. I think they are things that will drive lending demand. I guess some of the items that you mentioned, I'm not sure they would immediately spare some sort of increase in demand, e.g. changes to risk weights, etc.

Great.

Thanks so much.

Thanks, Ed.

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

Morning, both. Thank you for taking my question. The first one's on cost of risk. In 2024, it was nine basis points, but you still have around 300 million of PMAs. So should we be placing emphasis on the less than element of your 20 basis points guidance for 2025? And it may be connected to this. In respect to the Sainsbury's transaction, I think you said it's expected to close in Q2. But can you remind us of the P&L implications for the bank, both in terms of the one-off day one impact for impairments and the annualised underlying basis for the P&L going forward. Thank you.

Thanks.

Sure, absolutely. So as we look at the impairments, you know, obviously incredibly low at nine basis points for this year. Next year, it's less than 20 basis points, so still very low in terms of that. We do expect Sainsbury's to close in Q2. And what I'm planning to do is to share the numbers with you at that time. The reality is, of course, that book is still evolving and developing, and so we'll share it with you once rather than twice. We have given you some guidance on the RWAs and the costs, which will help you, but the kind of ECL and income, we'll share at closure. Thanks, Ben.

Ben, you mentioned the PMAs as well. You're right, so we still have 330, circa 330 million of PMAs, and obviously we'd expect that to be released over time. Yeah, thank you, Paul.

There are no more questions at this time. I would now like to hand back to Paul for any closing comments.

Okay, thank you, everybody. We appreciate you joining us and for the succinctness of the questions. We think it's a strong performance in 24. I'd emphasize what Katie said. We feel good about the momentum. The year has started well, so we have good momentum during January. We are going to hold three investor spotlights this year on each of the three businesses. So allow you to get into, I guess, another level of detail in terms of understanding the customer franchises, their strategy and their progress. The first of them will be the commercial and institutional franchise in the last week of March, March the 26th. So we look forward to speaking to you then. And that's our, I guess, first quarter session in April. So I hope you have a good weekend and maybe even a good Valentine's Day. Bye now.

That concludes today's presentation. Thank you for your participation. You may now disconnect.