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.