NatWest Group PLC

Good morning and welcome to the NatWest Group Q1 Results 2025 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 brief introduction before Katie takes you through the financial performance and then we'll open it up for questions. Against a background of heightened global economic uncertainty, we continue to focus on advancing our strategy through three key priorities. Discipline growth, bank-wide simplification and active balance sheet and risk management. Examples of our recent progress include the completion of our Sainsbury's bank transaction yesterday, which adds around a million new customer accounts with about 2.5 billion of unsecured lending and 2.7 billion of savings. We launched a new mortgage enabling first-time buyers to combine incomes with a family member or friend, while retaining independent ownership to help them get on the property ladder sooner. In business banking, we marked the 10th anniversary of our Accelerator programme, which has helped to grow and scale 10,000 small businesses across the UK by setting a new ambition to support a further 10,000 businesses in 2025. We also upgraded our ambition to lend £7.5 billion to the UK social housing sector between 2024 and 2026 and announced that we're deploying £500 million to retrofit social housing stock supported by a financial guarantee from the National Wealth Fund. On bank-wide simplification, we are the first UK-headquartered bank to collaborate with OpenAI in order to meet customer needs faster and increase productivity. And as we simplify the organisation, we are moving our private banking investment operations from Switzerland to the UK and relocating their data and technology teams to the UK and India. On active balance sheet and risk management, we made further progress, optimising RWAs in the quarter. And in an uncertain environment, our prudent risk management gives us a competitive advantage. So let's turn to the financial headlines for the first quarter. We made a strong start to the year. Customer lending grew 0.9% to £375 billion. Customer deposits increased 0.5% to £433 billion, with growth in both retail banking and commercial and institutional. Assets under management and administration of £48.5 billion included net AUM inflows in the quarter of £0.8 billion. We also provided £8 billion of climate and sustainable funding and financing, bringing the total to £101 billion since July 2021, exceeding our £100 billion 2025 target. This activity clearly underpins our financial performance. Income increased 15.8% year on year to £4 billion and costs were £1.9 billion, resulting in operating profit of £1.8 billion and attributable profit of £1.3 billion. Our return on tangible equity was 18.5%, driving strong capital generation of 49 basis points before shareholder distributions. Earnings per share were up 48% at 15.5p and tangible net asset value per share was 347p, up 15% year on year. We continue to maintain a strong balance sheet with a CET1 ratio of 13.8% and the government shareholding has reduced to less than 2% in line with their stated intention to exit fully by 2025-26. Given the strength of the first quarter, we are updating our 2025 guidance. We now expect to be at the upper end of the range for both income and returns. And with that, I'll now hand over to Katie.

Thank you, Paul. I'll start with our performance for the first quarter using the fourth quarter as a comparator. Income, excluding all notable items, was up 2.1% at £4 billion. Operating expenses were 12.7% lower at £2 billion and the impairment charge was £189 million or 19 basis points of loans. Taking this together, we've delivered operating profit before tax of £1.8 billion. Profit attributable to ordinary shareholders was £1.3 billion and return on tangible equity was 18.5%. Turning now to our income performance. Overall income, excluding notable items, grew 2.1% to £4 billion. Excluding the impact of two fewer days in the quarter, income across our three businesses increased 3.7% or £143 million. Volume growth was also supported by margin expansion, as tailwinds from the product structural hedge more than offset the impact of the base rate cut in February. Net interest margin was up 8 basis points at 227, mainly reflecting deposit margin expansion. We continue to assume three further base rate cuts this year, with rates reaching 3.75% by the year end. Expectations for the UK bank rate moved down in April, closer to our base case. but we recognise that uncertainty remains and the actual outcome may differ. Non-interest income across the three businesses increased 8% compared with the first quarter last year and was broadly stable when compared with the strong fourth quarter. This reflected another strong quarter of customer activity in our commercial and institutional business, in particular in capital markets, currencies and fixed income. We were pleased with the strength of non-interest income, but the first quarter performance should not be taken as a run rate. Given the strength of total income in the first quarter, we now expect 2025 income to be at the upper end of our £15.2 to £15.7 billion range. Moving now to lending. We continue to be disciplined in our approach and in deploying capital where returns are attractive. We were pleased to see a stronger mortgage market together with ongoing demand from larger corporates and financial institutions. Gross loans to customers across our three businesses increased by £3.5 billion to £375 billion. Taking retail banking together with private banking, mortgage balances grew by £2.1 billion, with strong gross new lending reflecting some pull forward of second quarter completions, ahead of the stamp duty changes for the first-time buyers on April 1st. Our stock share remained stable at 12.6%. Unsecured balances increased slightly to £16.9 billion, driven by higher personal loans to our retail customers. Our unsecured portfolio will benefit in the second quarter from the completion of our transaction with Sainsbury's Bank, which I'll talk about shortly. In commercial and institutional, gross customer loans excluding government schemes increased by £1.6 billion. Within this, loans to corporates and institutions grew by £1.5 billion, mainly driven by infrastructure and project finance. You will also see in the appendix that we have shown the split of our corporate lending exposure by sector as presented in our year-end Pillar 3 disclosures. I'll now turn to deposits. These were up £2.1 billion across our three businesses to £433 billion, continuing the quarterly growth trend of 2024. In retail banking, an increase in current account and term balances was partly offset by a reduction in instant access savings due to annual tax payments. This also drove a reduction in private banking balances of £1.2 billion. The increase in commercial and institutional of 2.4 billion was mainly from larger customers in corporate and institutions. Migration from non-interest-bearing to interest-bearing deposits was insignificant. And we have not seen any material change in customer behaviour following base rate cuts, nor since the onset of recent market volatility. Non-interesting bearing balances remain 31% of the total, and term accounts are still around 16%. I'd like to turn now to our Sainsbury's Bank transaction, which completed yesterday. This transaction presents an opportunity to scale our customer base, adding a million new customer accounts, which deliver incremental income at low marginal costs through our digital platform, offering sustainable growth. It also accelerates our strategy to grow our share of unsecured credit in a disciplined way by increasing our credit card stock share to around 11% and improving profitability. The transaction is self-funded, bringing £2.7 billion of savings, which increases retail banking deposits by 1.4%. We expect these portfolios to add income of around £100 million this year, and we will incur one-time integration costs of around £100 million this year. the unsecured portfolio attracts a day one charge for expected credit losses of around 80 million. In terms of capital, the portfolios add around 1.8 billion of risk-weighted assets with total day one impacts reducing the CET1 ratio by around 16 basis points. Sainsbury's customers will move to NatWest branded products over the coming months with access to all our products through digital in-person contact and our branches. And we're engaging with our new customers to ensure a smooth transition as they migrate. Turning now to costs. First quarter costs of £1.9 billion were down 8.5% on the fourth quarter, mainly as a result of seasonality and lower severance and property exit costs. As you know, our cost profile can be lumpy and you should not take this as the run rate. Our annual wage awards and higher national insurance contributions both take effect from April 1st. We incurred just £7 million of our guided one-time integration costs in the first quarter, so you can expect these to increase from the second quarter onwards. We remain on track for other operating expenses to be around £8 billion for the full year, plus around £100 million of one-time integration costs. And we continue to focus on delivering cost savings from our investment programmes to create capacity for further investment to accelerate our bank-wide simplification. I'd like to turn now to impairments. Our diversified prime loan book continues to perform well. We're reporting a net impairment charge of £189 million for the first quarter, equivalent to 19 basis points of loans on an annualised basis. In light of heightened global economic uncertainty, we have maintained our post-model adjustments at around 300 million, despite our book performance indicating a small release. We have reviewed our macroeconomic assumptions, and whilst uncertainty has increased, we are comfortable with them at this stage, having embedded a combined weighting of 32% to both our downside scenarios. Our moderate downside scenario is closest to the modelled scenarios we have run and is worse than the latest economic consensus. We have no significant concerns about the credit portfolio at this time, and it is worth remembering that customer borrowing rates have been coming down in recent months, together with inflation. Given the current performance of the book, we continue to expect a loan and payment rate below 20 basis points for the full year. Turning now to capital. We ended the first quarter with a common equity Tier 1 ratio of 13.8%, up 20 basis points. We generated 49 basis points of capital before distributions, including 68 basis points from earnings and 10 basis points from CET1 capital improvements. This was partly offset by RWE growth, which consumed 28 basis points. As you know, we increased our ordinary dividend payout ratio from around 40% to around 50% this year. Accruing 50% of attributable profits was equivalent to 33 basis points. RWA's increased by 3.8 billion to 187 billion. This includes 2.2 billion from the annual update to operational risk, 0.8 billion from initial CRD4 model updates, and 2 billion of business movements, which broadly reflects our lending growth. This was partly offset by another strong quarter of RWA management, which included two successful significant risk transfers and resulted in a reduction of 1.2 billion. We continue to expect between 190 and 195 billion of RWAs at the year end. Where the figure lands exactly within this range will largely depend on CRD4 model outcomes. Our target CET1 ratio remains 13 to 14%. Turning now to total capital and issuance. We have a robust capital position supported by strong capital generation from earnings and well-timed issuance over 2024 and 2025. Our total capital position comfortably exceeds minimum requirements for CET1, AT1 and Tier 2. You can see on the right the consistency of our capital generation from earnings each quarter. You can also see that our 2025, AT1 and Tier 2 issuance is well progressed as we took advantage of market conditions in the first quarter. Overall, this puts us in a very strong position to deal with any changes in market conditions. Turning now to guidance for 2025. We now expect income excluding notable items to be at the upper end of our previously guided range of £15.2 to £15.7 billion. 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. RWA's are expected to be between 190 and 195 billion. And based on the strength of income, we now anticipate a return on tangible equity at the upper end of our 15 to 16% range. Looking beyond 2025, we believe the business is well positioned to continue to grow income, control costs and maintain strong capital and risk management. supporting our 2027 target for return on tangible equity of greater than 15%. And with that, I'll hand back to the operator for Q&A.