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.