NatWest Group PLC

Good morning and welcome to NatWest Group's Q1 2026 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'm here with Katie. I'll start with a brief introduction before Katie takes you through the numbers and we'll then open it up for questions. We started the year with strong momentum across our three businesses and made good progress against each of our three strategic priorities. First, we continue to pursue disciplined growth. In retail banking, we increased our share of the mortgage market as we expand our offering and announce new partnerships, such as becoming the exclusive mortgage provider for Rightmove. In private banking and wealth management, our acquisition of Evelyn Partners makes a strong addition to the group. The transaction is progressing well and we expect it to complete in the second quarter, subject to the usual regulatory approval. In commercial and institutional, we are the leading bank for UK startups and we grew our share this quarter as we onboarded 24,000 new startups, a 25% uplift on the same period last year, supported by easier, agentic onboarding. Second, we are leveraging our investments in simplification and have delivered over £100 million of additional cost savings in the first quarter. We employ over 12,000 software engineers, and we are complementing that talent with artificial intelligence. So over 40% of our code is now written by AI, and we are scaling agentic software development. Typically, our development process for new customer propositions requires 12 engineers and takes six weeks. but in some scenarios with a team of three engineers and seven agents, we can deliver in just six hours, making us more productive and delivering faster for our customers. Third, we continue to manage our balance sheet actively, helping to free up capacity for further growth and allocate capital dynamically in this fast-changing environment. So let's turn now to the financial headlines. Customer lending grew 6.6% year-on-year to $400 billion, whilst customer deposits grew 2.6% to $445 billion. Lending growth of $7.3 billion in the first quarter was well balanced across our businesses, including $3.3 billion in mortgages and $3.8 billion in commercial and institutional. We also provided over $10 billion of climate and transition finance, taking the total to $29 billion since last July, making good progress towards our $200 billion 2030 target. Deposits increased by $3.1 billion in the first quarter, with growth in corporate and institutional partly offset by an expected decrease in retail and private banking as customers use their savings to make annual tax payments. Assets under management and administration grew 16.9% year-on-year, to £57 billion. 23,000 people invested with us for the first time during the quarter, with net inflows to assets under management of £900 million. Taken together, client assets and liabilities have increased to just over £900 billion, up 5.2% year on year, in line with our 2028 annual growth rate target of more than 4%. Income grew 6.9% to 4.2 billion, and costs were up 4.8% to 2 billion, as we increased our operating leverage and reduced our cost-income ratio by 2.1 percentage points to 46.5%. Our return on tangible equity was 18.2%, driving strong capital generation of 65 basis points in the first quarter. Earnings per share grew 15.5% year-on-year to 17.9 pence. Tangible net asset value per share was up 15.1% to £4. And we continue to maintain a strong balance sheet with a CET1 ratio of 14.3%. Since we announced our full-year results in February, conflict in the Middle East has clearly increased geopolitical uncertainty. While sentiment is now more considered, we have yet to see any material impact on our customers. Both households and corporates remain resilient, with historically high levels of savings and low levels of debt and arrears. In light of this uncertainty, we have revised our economic scenarios and now expect higher inflation, with interest rates remaining at 3.75% for the rest of the year, resulting in slower economic growth and a modest increase in unemployment. This means we have taken an additional provision in the first quarter of £140 million, which reflects our macroeconomic assumptions, not our credit performance, which remains strong. With rates staying higher for longer, we now expect full-year income to be at the top end of the £17.2 to £17.6 billion range we set out in February. So we remain confident about the outlook and our 2026 guidance. That confidence is underpinned by the knowledge that we have built a resilient business which is well positioned for a broad range of macro environments. We have a clear strategic focus on growth that delivers good returns with a prime lending portfolio that's well diversified and largely secured. We have invested and simplified so that we are now the most efficient large UK bank with a cost-income ratio that continues to improve and we are actively managing our balance sheet. For example, we have taken the opportunity of a sharp move upwards in the yield curve to accelerate the increase in our structural hedge, supporting income growth in the years ahead. We have also increased our capital efficiency significantly in recent years, driving high levels of capital generation. All these factors have contributed to our strong performance in the Bank of England stress tests, giving us confidence in our outlook and guidance not just this year, but over the medium term. I'll hand over to Katie to take you through the numbers in more detail.

Thank you, Paul. My comments for the first quarter is the fourth quarter of the comparator. Income, excluding those for licences, reduced 1.1% to £4.2 billion, and total operating costs were 9.2% lower at £2 billion, delivering 11.6% growth in operating profits before impairment to £2.3 billion. The impairment charge was £283 million, equivalent to 26 basis points of loans, including the charge for our updated economic scenarios that Paul mentioned. This resulted in operating profit of £2 billion, with profit attributable to ordinary shareholders of £1.4 billion and return on tangible equity was 18.2%. Turning now to income. Income, excluding notable items, was £4.2 billion. Excluding the impact of two fewer days in the quarter, income across the three businesses continued to grow, supported by both volumes and margin. Net interest margin was 247 basis points, up two basis points due to deposit margin expansion, and a small benefit from funding and other, with lending margin declining by two basis points, mainly driven by mortgages. As you heard from Paul, our 2026 guidance now assumes that the Bank of England base rate remains at 3.75% this year, rather than coming down to 3.25%. Together with our revised economic scenarios, this means we now expect income, excluding multiple items, to be the top end of our £17.2 to £17.6 billion range, excluding the impact of Evelyn Partners. Turning now to Customer Assets and Liabilities, or CAL. You will recall we introduced our 2028 growth target for CAL in February. I am pleased we are entering another year with strong growth, continuing our track record. Our CAL increased by 8.4 billion, or 0.9% in the quarter, to 900 billion pounds. This includes lending growth of $7.3 billion, deposit growth of $3.1 billion, and a reduction in assets under management and administration of $1.8 billion as strong AUM inflows were offset by market movements. I'll touch on each of these elements in turn. We're reporting another quarter of strong broad-based loan growth across the group, with growth loans to customers up by $7.3 billion. Retail banking and private banking and wealth management balances grew 3.5 billion or 1.5%. This comprises 3.3 billion in mortgage lending and 200 million in unsecured lending. Mortgage stock share increased marginally to 12.6% and we have a robust pipeline following record applications in March. Commercial and institutional lending increased by 3.8 billion or 2.4%. This includes growth in corporate and institutions driven by good demand across a broad range of sectors, including project finance, renewables and utilities, and funds lending, together with increased lending in commercial mid-market, notably in commercial real estate and the housing sector. You will also see we have provided a detailed breakdown of our financial institution exposures, including private credit, in the appendix of our presentation. Turning now to deposits. Customer deposits increased by £3.1 billion despite the expected higher seasonal tax outflows. Commercial and institutional deposits increased by £5.1 billion. This was partly offset by a slight decline in retail banking and private banking and wealth management deposits as a result of higher customer tax payments of £10.3 billion. Retail banking outflows were partly offset by growth in current account and ISA balances. Overall, our deposit mix remained broadly stable. Turning now to assets under management. Assets under management and administration closed the quarter at £56.7 billion. We are pleased with positive AUM net inflows of £0.9 billion, which equates to 8.2% of opening AUM, demonstrating continued client confidence and strong momentum. There was a reduction in assets under administration of £1.4 billion, driven by guilt redemptions to support client tax payments. Overall, balances were impacted by negative market movements of £1.7 billion. However, these were reversed during April. Turning now to costs. Other operating expenses were £2 billion, an increase of 4.8% year-on-year, and a decrease of 8.3% compared with the fourth quarter. Our cost-income ratio in the quarter was 46.5%. We are pleased with the progress we've made on our transformation, and we made decisions to accelerate investment spend and incur higher restructuring costs in the first quarter, which drove the overall cost growth year-on-year. The reduction from the fourth quarter is mainly due to ongoing cost savings as well as lower bank levies. We remain confident in the delivery of our full-year 2026 cost guidance of around £8.2 billion. though our cost profile will be uneven throughout the year. Turning now to our updated macroeconomic assumptions. Following a period of global macro uncertainty, we have revised our economic assumptions. In our revised base case, we assumed inflation now means CPI will peak at 3.5% in 2026, rather than fall to 2% by the end of the year. This means interest rates stay higher for longer and we assume the bank rate remains at 3.75% throughout the year. We expect lower GDP growth of 0.4% and a modest increase in unemployment to a peak of 5.7% above our previous assumptions of 5.4%. This remains at levels we are comfortable with in terms of lending risk appetite and credit quality. We will continue to review our assumptions as the situation progresses. Our balance sheet remains well provisioned with an expected credit loss of £3.7 billion and ECL coverage ratio of 84 basis points. Our latest scenarios also show that even if we were to give 100% weight to our new moderate downside scenario, this would increase Stage 1 and 2 ECL by £99 million, or two basis points. Turning now to the impairment charge. The impairment charge for the quarter was £283 million, equivalent to 26 basis points of loans. This includes a charge of £140 million as a result of changes in economic scenarios and total post-model adjustment releases of £34 million as elements were effectively consumed by changes in our economic scenarios. Excluding these, our underlying employment charge was 16 basis points. There were no new signs of stress across our three businesses and the current credit performance of our book remained strong. we continue to expect a loan impairment rate below 25 basis points for 2026, so our guidance is unchanged. Turning now to capital. We ended the quarter with a common equity tier 1 ratio of 14.3%, up 30 basis points since the end of the year. Capital generation before distributions was strong at 65 basis points. This includes 69 basis points from earnings. Other regulatory capital movements added 16 basis points. Growth in risk-weighted assets consumed 21 basis points of capital. And our usual accrual for ordinary dividend payments reduced capital by a further 37 basis points. Risk-weighted assets increased by 2.7 billion. 4.3 billion of business movements broadly reflect our lending growth and increased market risk. This was partly offset by a reduction of 2.2 billion as a result of actively managing our RWAs to create capacity for further growth. Other movements included FX and immaterial CRD4 model updates. We remain confident in our ability to continue generating strong capital from earnings and to manage risk-weighted assets and expect around 200 basis points of capital generation before distributions this year whilst operating at a CET1 ratio of around 13%. Turning now to guidance. We now expect income excluding notable items to be at the top end of our range of 17.2 to 17.6 billion, excluding the impact of the Evelyn Partners acquisition. All our other guidance and targets remain unchanged. And with that, I'll hand back to the operator for Q&A. Thank you.