NatWest Group PLC

Good morning and welcome to the NatWest Group Q3 Results 2024 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. I'll start with a brief introduction before Katie takes you through the financial performance and then we'll open it up for questions. You will have seen that we are upgrading our full-year income and returns guidance this morning as we continue to make good progress on our three strategic priorities, discipline growth, bank-wide simplification, together with active balance sheet and risk management. This progress, together with our ongoing support of customers, is reflected in our performance. So let's turn to the financial headlines for the first nine months of the year. Healthy levels of customer activity continue on both sides of the balance sheet. Customer lending growth of 8.1 billion to 367 billion was broad-based. In commercial and institutional, this was driven by both our large corporate and commercial mid-market customers, including lending to the social housing sector. We provided 23.5 billion of climate and sustainable funding and financing, bringing the total to 85.4 billion since July 2021, in reach of our 100 billion 2025 target. Our existing mortgage book returned to growth in the third quarter, as volumes and margins improved during the year, making returns more attractive. The acquisition of a 2.3 billion prime residential mortgage portfolio from Metro Bank completed last month and is included in these numbers. In addition, we grew our share in credit cards from 8.5% to 9.3%. On the other side of the balance sheet, customer deposits increased by 8.3 billion to 427 billion, with growth across all three of our businesses and migration to term deposits continuing to slow. In our private bank, assets under management increased by 5.7 billion to 46.5 billion, including 2.2 billion of net new inflows. This activity clearly underpins our financial performance. We generated income of 10.8 billion for the first nine months. Costs were 5.7 billion, and we remain on track to meet our full year guidance. Together, this resulted in operating profit of 4.7 billion and attributable profit of 3.3 billion. Return on tangible equity was 17%. Our strong capital generation allows us to continue supporting our customers, investing in the business and making distributions to shareholders. We generated 197 basis points of capital in the first nine months through strong earnings and actively managing our risk-weighted assets. Our CET1 ratio of 13.9% includes an accrual for final dividends in line with our ordinary payout ratio of around 40%. Strong earnings together with a lower share count have increased tangible net asset value per share to 316 pence. Earnings per share were 38 pence, up 12% year on year. We'll also be aware that the government has reduced its shareholding from 38% at the start of the year to under 16%, in line with their stated intention to exit fully by 2025-26. With that, I'll now hand over to Katie.

Thank you, Paul. I'll comment on the third quarter using the second quarter as a comparator. Income, excluding all notable items, increased 5.1% to £3.8 billion. Operating expenses were 9% lower at £1.8 billion, mainly reflecting lower severance and other staff costs. And there was an impairment charge of £245 million, or 25 basis points of loans. Together, this delivered operating profit before tax of £1.7 billion. Profit attributable to ordinary shareholders was £1.2 billion and return on tangible equity was 18.3%. Turning now to income. Income excluding notable items of £3.8 billion was up 5.1% with growth in both net interest income and non-interest income. Across the three businesses, excluding the benefit of an extra day in the quarter, income grew by £206 million. All three businesses delivered higher net interest income. Balance sheet growth was supported by margin expansion as tailwinds from the product structural hedge and Treasury more than offset the impacts of the first base rate cut. Group net interest margin increased 8 basis points to 218 basis points, with expansion across deposits, funding and other. Growth in non-interest income was driven by commercial and institutional, reflecting continued strong lending and payment fees as well as foreign exchange. The first cut was in line with our expectations, and we continue to assume rates will fall further in the fourth quarter, reaching 4.75% by the end of the year, with a further five cuts in 2025 to 3.5%. Of course, the actual outcome may differ from this assumption. We are pleased with the year-to-date income of £10.8 billion, reflecting a strong performance across the balance sheet. As a result, we now expect 2024 total income excluding notable items to be around £14.4 billion and we are upgrading our 2024 return on tangible equity guidance to greater than 15%. Moving now to lending. We continue to be disciplined in our approach and to focus on deploying capital where returns are attractive. Lending growth was broad-based across our businesses. Gross loans to customers increased by £8.6 billion, or 2.4%, to £367.2 billion. Taking retail and private banking together, our mortgage book returned to growth as expected, with balances up by £3.8 billion, supported by a higher gross new year lending and the addition of a £2.3 billion mortgage book from Metro Bank at the end of September. We continued to grow our share of unsecured lending and balances increased by 500 million to 16.6 billion across both credit cards and personal lending. Within commercial and institutional, lending to mid-market customers grew by 1.5 billion, driven by increased term lending. There was also strong growth of 3.2 billion in corporate and institutions, including demand for supply chain finance and sustainable finance. I'll turn now to deposits. Deposits increased by 2.2 billion to 427 billion with growth across all three businesses. In retail banking, there was strong growth in savings driven by instant access products and variable rate ISAs. In private banking, there was also good demand for instant access savings. In commercial and institutional, deposits grew across both commercial mid-market and business banking customers. Migration from non-interest-bearing to interest-bearing deposits continued at a slow pace, as expected, and there was no material change in customer behaviour following the first base rate cut. Non-interest-bearing balances remained at 32% of the total, and term accounts remained at around 17%. The average rate of interest we pay on our customer deposit funding has remained flat, reflecting the lag effect on pass-through and small changes in mix. Turning now to costs, we remain on track for other operating expenses to be broadly stable with 2023 at the full year, excluding the increase in bank levies of around £100 million and costs associated with the retail share offering. Other operating expenses of £1.8 billion for the third quarter were 7.5% lower than the second, mainly as a result of lower severance and other staff costs. You will remember that severance and property exit costs were elevated in the first half as we accelerated our work on simplification, including our announced exit from Poland. Other operating expenses for the first nine months were up 0.7%, excluding bank levies and the retail share offer costs. As we look ahead to the fourth quarter, other operating expenses are expected to be higher than the same quarter last year, as we expect to incur further severance and property costs, as well as a higher bank levy charge of around £120 million. Turning now to impairments. Our diversified prime loan book continues to perform well. We are reporting a net impairment charge of £245 million for the third quarter, or 25 basis points of loans. This takes the nine-month charge to £293 million, equivalent to 10 basis points. Key drivers of change from the second quarter are the absence of post-model adjustment releases together with a single name charge. Our balance sheet provision for expected credit loss still includes 299 million of PMAs for economic uncertainty, similar to the second quarter. In retail banking, the third quarter charge of 28 basis points reflects both the absence of a PMA release and unsecured growth, along with a charge of 31 basis points in commercial and institutional. However, we still expect a full year loan and payment rate below 15 basis points. Turning now to capital. We ended the third quarter with a common equity tier one ratio of 13.9%, up 30 basis points. We generated 57 basis points of capital pre-distributions, driven by attributable profit, which added 65 basis points. RWAs increased by £0.9 billion to £181.7 billion, consuming seven basis points of capital. Strong lending growth and the addition of the Metro Mortgage Portfolio added £3.4 billion of RWAs, and this was partly offset by a £1.3 billion reduction, mainly as a result of another significant risk transfer transaction. As usual, we accrued 40% of attributable profits towards our final ordinary dividend. We are pleased to receive the PRA's policy statement on Basel 3.1 and have spent time digesting this. We estimate this will result in RWA inflation of around £8 billion on 1 January 2026, largely driven by the removal of the SME and infrastructure support factors. The outcome of the PRA's Pillar 2 consultation will give us a better understanding of how this RWA inflation will be mitigated as the PRA intends. We continue to expect RWAs of around 200 billion at the end of 2025, including the impact of Basel 3.1 on the 1st of January 2026. And we continue to target a CET1 ratio in the range of 13 to 14%. Turning now to tangible equity per share. Tangible net asset value per share increased 12 pence to 316 pence. Earnings added 14 pence and the unwind of the cash flow hedge reserve added a further five pence as rates came down in the quarter. This was partly offset by the payment of our interim dividend of six pence. TNAV per share has grown 26% over the last two years, supported by a 14% reduction in share count in that time. Finally, turning to the full year guidance. As I mentioned earlier, we are upgrading our income and returns guidance and for the full year we now expect income excluding notable items to be around £14.4 billion. Other operating costs to be broadly stable with 2023, excluding additional bank levies of around £100 million and the retail offer costs of £24 million. a loan impairment rate below 15 basis points, and a return on tangible equity greater than 15%. And with that, I'll hand back to Paul.