NatWest Group PLC

Good morning and welcome to NatWest Group's H1 2025 results management presentation. Today's presentation will be hosted by CEO Paul Thwaite and CFO Katie Murray. After the presentations, we will take questions.

Good morning and thank you for joining us. I'll start with a brief business update. Katie will take you through the numbers and we'll then open it up for questions. You will all be aware that since our first quarter results, the government has sold its remaining stake in NatWest Group. So we are now privately owned for the first time in 17 years. This is clearly an important milestone. With government ownership and a significant restructuring of the bank behind us, we are attracting new investors and driving growth. Customer activity has helped to deliver a strong first half. So let's turn to the financial headlines. Customer lending grew 3.2% to $384 billion. Customer deposits were up 1% to $436 billion. And assets under management and administration grew 5.9% to $52 billion. This has driven strong financial performance. Income grew 13.7% to 8 billion, while costs reduced 1.4% to 3.9 billion. This resulted in operating profit of 3.6 billion and attributable profit of 2.5 billion. Our return on tangible equity was 18.1%. Earnings for sure were up 28% at 31 pence. We have announced an interim dividend of 9.5 pence, up 58%, reflecting our higher payout ratio, and TNAV per share grew 16% to 351 pence. Our CET1 ratio is stable at 13.6%, with strong levels of capital and liquidity. Successful execution of our strategy is driving strong capital generation, which allows us to invest in the business, support customer growth and deliver attractive returns for shareholders. We are pleased to announce a new share buyback today of $750 million. Together with the interim dividend, this brings total distributions declared to shareholders in the first half to around $1.5 billion. The chart on the right shows how the dividend and TNAV for share have grown year on year. Our new buyback program will deliver further share count reduction in the future. I'm also pleased with the progress we are making on our strategic priorities. So let me update you, starting with discipline growth. We continue to grow our customer base across the bank. We attracted over 100,000 new customers as a result of organic growth during the first half. In addition, the Sainsbury's transaction completed in May, adding around a million new customers with about 2.4 billion of savings and 2.2 billion of unsecured lending. We have grown across all three of our businesses. In retail banking, we grew lending 3%, including both mortgages and unsecured lending, and deposits increased 1%. We continue to build out our mortgage proposition, including for first-time buyers, which has driven a 4% increase in our application share of this market since early last year. During the first half, we helped 24,000 people buy their first home. And we recently launched family-backed mortgages to help customers get on the property ladder by enabling them to add a second person to their mortgage while retaining independent ownership. Our sharing credit cards increased from 9.7% to 11% as a result of the Sainsbury's transaction. And we launched a whole-of-market offer for personal loans at the end of last year, extending them beyond our own customers, following our successful extension of credit cards to the whole market. In commercial and institutional, we grew lending 4% and deposits 2%. In corporate and institutional, growth was driven by project finance, infrastructure, sustainable finance and funds lending. In commercial mid-market, we grew in a number of areas, including social housing, where we delivered another £2.7 billion of lending. In private banking and wealth management, we grew lending 2%, as well as attracting new assets under management, where net new inflows of 1.5 billion represented 8.1% of opening AUM. You will remember from our first quarter results that we have over delivered on our 100 billion target for climate and sustainable funding and financing and have now reached 110 billion. We are announcing a new target today to deliver 200 billion of climate and transition finance by 2030. We have extended the scope to include transition finance in line with the government's transition finance strategy. Our second priority is bank-wide simplification, where we continue to enhance customer and colleague experience and increase productivity. Let me talk you through some examples. We have digitized over 30 customer journeys during the first half. In retail, this includes being able to change credit card and ATM limits, as well as accessing our new US dollar travel accounts. In commercial and institutional, we made it possible last year for business banking customers to access up to 100,000 of unsecured lending within 24 hours. We have now extended this to our commercial mid-market customers, making life easier for them as well as our colleagues, who save on average around two and a half hours on each application. And in our private bank, this includes the automatic renewal of fixed-term deposits. We continue to streamline our systems and modernise our technology estate. In commercial and institutional, we have moved our commercial customers onto a new, modern bank line platform, which has allowed us to start decommissioning the old one. And our private bank is re-hosting their core banking platform from a third-party provider in Switzerland to the Group Data Centre in the UK. This both reduces spend and increases capacity. We are accelerating the use of data and AI. For example, we have just announced a strategic collaboration with AWS and Accenture to modernize our data capabilities. This includes the creation of a platform that uses AI to give us a single view of customer data across the bank. This will enable greater personalization, faster onboarding, better protection against fraud, and stronger customer engagement. We also continue to simplify our operational model as we streamline our legal entities and branches in Europe, reduce the number of branches we operate in the UK, and relocate our private bank investment operations and technology teams from Switzerland to the UK and India. And as a result of growing income and lowering costs, we have reduced the first half cost income ratio from around 56% last year to around 49% this year. Finally, as we actively manage our balance sheet, we have generated 101 basis points of capital in the first half, including 139 basis points from earnings. And we have taken action to reduce risk-weighted assets by 2.9 billion through a range of measures, including three significant risk transfers. As a result of our strong performance, we are upgrading our 2025 guidance for both income and returns. We now expect income greater than 16 billion and a return on tangible equity above 16.5%. We continue to target returns greater than 15% in 2027. And with that, I'll hand over to Katie to take you through the results.

Thank you, Paul. I'll cover our second quarter performance using the first quarter as a comparator. Income, excluding all notable items, was up 1.5% at 4 billion. Operating expenses were 3% higher at 2 billion. And the impairment charge was 193 million, or 19 basis points of loans. Taking this together, we delivered operating profit before tax of 1.8 billion. Profit attributable to ordinary shareholders was 1.2 billion and the return on tangible equity was 17.7%. Turning now to income. Overall, income excluding notable items grew 1.5% to 4 billion. Excluding the impact of one additional day in the quarter, income across our three businesses increased 1.1% or 43 million. Net interest income grew 1.6% or 50 million to 3.1 billion. This was driven by volume growth across lending and deposits, including portfolios added from Sainsbury's. It was also supported by margin expansion, as tailwinds from the product structural hedge more than offset the impact of the base rate cut in May and lending growth. Net interest margin was up one basis point at 228, mainly reflecting deposit margin expansion. We continue to assume two further rate cuts this year with rates reaching 3.75% by the year end. Non-interest income across the three businesses was down 0.8% compared with a strong quarter and up 2% compared to the prior year. Retail banking and private banking and wealth management benefited from higher debit and credit card fees. And in C&I, our currencies business continued to perform well given the heightened volatility. Given the strength of the first half total income, we now expect full year total income, excluding notable items, to be greater than 16 billion. And as a result, we now expect return on tangible equity to be greater than 16.5%. Moving now to lending. We continue to be disciplined in our approach, deploying capital where returns are attractive. Gross loans to customers across our three businesses increased by £8.4 billion to £384 billion, evenly balanced across our personal and wholesale customers. Taking retail banking together with private banking, mortgage balances grew by £1.3 billion, with growth improving throughout the quarter following the stamp duty deadline at the end of March. Our stock share remained stable at 12.6%. Unsecured balances increased by 2.7 billion, mainly reflecting the addition of the credit card and personal loan portfolios from Sainsbury's Bank. In commercial and institutional, gross customer loans, excluding government schemes, increased by 4.6 billion. Within this, loans to corporates and institutions grew by 2.1 billion, mainly driven by project finance, sustainable financing and funds lending. And loans in our commercial mid-market business grew by £2.1 billion, reflecting increased lending across social housing and residential commercial real estate. I'll now turn to deposits. These were up £2.4 billion across our three businesses to £436 billion, continuing the quarterly growth trend. Retail banking increased deposit balances by £0.9 billion to £197 billion. The addition of 2.4 billion in deposits acquired from Sainsbury's Bank was partly offset by a reduction in current accounts. Private banking balances increased by 0.1 billion and the increase in commercial and institutional of 1.4 billion was mainly from larger customers in corporate and institutions. Deposit mix was broadly stable as the proportion of non-interest bearing balances remained at 31% and term accounts increased slightly from 16% to 17%. Turning now to our product structural hedge. The strength of our deposit franchise combined with our mechanistic approach to managing the structural hedge is an important driver of income. The product hedge notional was stable in the first half at £172bn. And we continue to expect it to be broadly stable in 2025, which means a reinvestment each year of around £35 billion. As we show in the chart for 2025, more than 90% of the hedges are already written and we have £4 billion locked in. We expect 2025 product hedge income to be £1 billion higher than 2024, given reinvestment rates. And in 2026, we expect product hedge income to increase by more than £1 billion when compared with 2025. We continue to expect the hedge to be a further tailwind in 2027. Turning now to costs. These increased 1.6% to £2 billion in the second quarter. Our annual wage awards and higher national insurance contributions both took effect in early April. We also incurred 27 million of our guided one-time integration costs during the quarter, bringing the total to 34 million for the first half. 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. This means expenses will be higher in the second half, driven by further business transformation, the remaining one-time integration costs and the bank levy. Our focus remains driving cost savings 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 are reporting a net impairment charge of £193 million for the second quarter, equivalent to 19 basis points of loans on an annualised basis. This includes an 81 million one-time charge on acquisition of balances from Sainsbury's Bank, equivalent to eight basis points. Excluding this, the charge was 112 million, or 11 basis points, benefiting from post-model adjustment releases of 64 million. We retain post-model adjustment for economic uncertainty of 234 million. We have reviewed and updated our macroeconomic assumptions with minor changes that drove £10 million of additional expected credit losses. Overall, we have no significant concerns about the credit portfolio at this point. And 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 second quarter with a common equity tier one ratio of 13.6%, down 20 basis points on the first. We generated 53 basis points of capital before distributions, net of the 15 basis points impact from Sainsbury's. Strong earnings added 69 basis points and other CET1 capital changes added 11 basis points. Risk-weighted assets increased by 3.1 billion to 190 billion. including 4.6 billion of business movements, which broadly reflects our lending growth, including Sainsbury's Bank, and 1.4 billion from CRD4 model inflation, partly offset by a 1.7 billion reduction as a result of RWA management, and a 1.2 billion reduction in other RWA movements, including FX. RWA growth, excluding Sainsbury's, consumed 12 basis points of capital, This brings our CET1 ratio pre-distributions to 14.3%. As you know, we increased our ordinary dividend payout ratio from around 40% to around 50% and have announced an interim ordinary dividend of 9.5 pence per share, up 58% on last year. We've also announced a share buyback of 750 million. Together, these accruals consume 72 basis points of capital. Post-approvals, our CET1 capital increased in the quarter and is up 900 million since year-end to 25.8 billion. Our CET1 ratio, however, is stable since year-end at 13.6%, in line with our target range of 13 to 14%. Turning now to guidance for 2025. We now expect income, excluding notable items, to be greater than 16 billion. And based on the strength of income, we anticipate return on tangible equity to be greater than 16.5%. Our cost impairment and RWA guidance remains unchanged. We expect other operating expenses to be around 8.1 billion, including around 100 million of one-time integration costs. The loan impairment rate to be below 20 basis points and RWAs to be between 190 and 195 billion. Where the figure lands within this range still depends on the CRD4 model outcomes. With that, I'll hand back to the operator for Q&A. Thank you.