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Credit risk
\n
Definition
(audited)
\n
Credit risk is the risk that customers, counterparties or issuers
\n
fail to meet their contractual obligation to settle outstanding
\n
amounts.
\n
Sources of risk
(audited)
\n
The principal sources of credit risk for NatWest Group are
\n
lending, off-balance sheet products, derivatives and securities
\n
financing, and debt securities. NatWest Group is also exposed to
\n
settlement risk through foreign exchange, trade finance and
\n
payments activities.
\n
Key developments in 2022
\n
\ue001
Across both Personal and Wholesale, the credit profile
\n
remains stable, but the outlook is uncertain from inflationary
\n
pressure, compounded by rising interest rates and
\n
geopolitical tensions. NatWest Group has yet to see signs of
\n
financial stress materially affecting customers\u2019 ability to
\n
repay.
\n
\ue001
Expected credit loss (ECL) reduced during 2022, reflecting
\n
the phased withdrawal of Ulster Bank RoI, plus continued
\n
positive trends in portfolio performance alongside a related
\n
net release of judgemental post model adjustments and
\n
write-off activity. Overall, ECL coverage decreased due to
\n
the withdrawal, a change in product mix and a reduction in
\n
judgemental post model adjustments which more than offset
\n
increases from the deteriorating economic outlook.
\n
\ue001
Personal lending grew as a result of strong mortgage and
\n
resilient unsecured lending demand. Personal lending criteria
\n
were unwound to a level similar to pre-COVID-19 norms
\n
during 2022. Affordability assumptions remain under
\n
continuous review and adjustments were made to ensure
\n
new business continues to be assessed appropriately.
\n
\ue001
In Wholesale, balance sheet reduction in 2022 compared to
\n
2021 was mainly due to a decrease in central items held in
\n
the course of treasury related management activities. There
\n
was growth in Commercial & Institutional. Sector appetite is
\n
reviewed regularly and where appropriate adjusted for those
\n
sectors most affected by current economic and geopolitical
\n
conditions.
\n
\ue001
A number of high materiality IFRS 9 models were
\n
redeveloped in 2022, most notably all probability of default
\n
(PD) and some loss given default (LGD) models for Personal
\n
lending and the two most material economic response
\n
models for Wholesale lending.
\n
\ue001
NatWest Group continued to progress embedding climate
\n
change considerations in credit assessment and monitoring,
\n
including scenario analysis to assess the materiality of
\n
climate change risks.
\n
Governance
(audited)
\n
The Credit Risk function provides oversight and challenge of
\n
frontline credit risk management activities.
\n
Governance activities include:
\n
\ue001
Defining credit risk appetite measures for the management
\n
of concentration risk and credit policy to establish the key
\n
causes of risk in the process of providing credit and the
\n
controls that must be in place to mitigate them.
\n
\ue001
Approving and monitoring operational limits for business
\n
segments and credit limits for customers.
\n
\ue001
Oversight of the first line of defence to ensure that credit
\n
risk remains within the appetite set by the Board and that
\n
controls are being operated adequately and effectively.
\n
\ue001
Assessing the adequacy of ECL provisions including
\n
approving key IFRS 9 inputs (such as significant increase in
\n
credit risk (SICR) thresholds) and any necessary in-model
\n
and post model adjustments through NatWest Group and
\n
business unit provisions and model committees.
\n
\ue001
Development and approval of credit grading models.
\n
Risk appetite
\n
Credit risk appetite aligns to the strategic risk appetite set by
\n
the Board and is set and monitored through risk appetite
\n
frameworks tailored to NatWest Group\u2019s Personal and
\n
Wholesale segments.
\n
Personal
\n
The Personal credit risk appetite framework sets limits that
\n
control the quality and concentration of both existing and new
\n
business for each relevant business segment.
\n
These risk appetite measures consider the segments\u2019 ability to
\n
grow sustainably and the level of losses expected under stress.
\n
Credit risk is further controlled through operational limits
\n
specific to customer or product characteristics.
\n
Wholesale
\n
For Wholesale credit, the framework has been designed to
\n
reflect factors that influence the ability to operate within risk
\n
appetite. Tools such as stress testing and economic capital are
\n
used to measure credit risk volatility and develop links between
\n
the framework and risk appetite limits.
\n
Four formal frameworks are used, classifying, measuring and
\n
monitoring credit risk exposure across single name, sector and
\n
country concentrations and product and asset classes with
\n
heightened risk characteristics.
\n
The framework is supported by a suite of transactional
\n
acceptance standards that set out the risk parameters within
\n
which businesses should operate.
\n
Credit policy standards are in place for both the Wholesale and
\n
Personal portfolios. They are expressed as a set of mandatory
\n
controls.
\n
Identification and measurement
\n
Credit stewardship
(audited)
\n
Risks are identified through relationship management and credit
\n
stewardship of customers and portfolios. Credit risk stewardship
\n
takes place throughout the customer relationship, beginning
\n
with the initial approval. It includes the application of credit
\n
assessment standards, credit risk mitigation and collateral,
\n
ensuring that credit documentation is complete and appropriate,
\n
carrying out regular portfolio or customer reviews and problem
\n
debt identification and management.
\n
Asset quality
(audited)
\n
All credit grades map to an asset quality (AQ) scale, used for
\n
financial reporting. This AQ scale is based on Basel probability
\n
of defaults. Performing loans are defined as AQ1-AQ9 (where
\n
the PD is less than 100%) and defaulted non-performing loans as
\n
AQ10 or Stage 3 under IFRS 9 (where the PD is 100%). Loans
\n
are defined as defaulted when the payment status becomes 90
\n
days past due, or earlier if there is clear evidence that the
\n
borrower is unlikely to repay, for example bankruptcy or
\n
insolvency.
\n
Counterparty credit risk
\n
Counterparty credit risk arises from the obligations of customers
\n
under derivative and securities financing transactions.
\n
NatWest Group mitigates counterparty credit risk through
\n
collateralisation and netting agreements, which allow amounts
\n
owed by NatWest Group to a counterparty to be netted against
\n
amounts the counterparty owes NatWest Group.
Mitigation
\n
Mitigation techniques, as set out in the appropriate credit
\n
policies and transactional acceptance standards, are used in the
\n
management of credit portfolios across NatWest Group. These
\n
techniques mitigate credit concentrations in relation to an
\n
individual customer, a borrower group or a collection of related
\n
borrowers. Where possible, customer credit balances are netted
\n
against obligations. Mitigation tools can include structuring a
\n
security interest in a physical or financial asset, the use of credit
\n
derivatives including credit default swaps, credit-linked debt
\n
instruments and securitisation structures, and the use of
\n
guarantees and similar instruments (for example, credit
\n
insurance) from related and third parties.
\n
Property is used to mitigate credit risk across a number of
\n
portfolios, in particular residential mortgage lending and
\n
commercial real estate (CRE).
\n
The valuation methodologies for collateral in the form of
\n
residential mortgage property and CRE are detailed below.
\n
Residential mortgages
\u2013
NatWest Group takes collateral in the
\n
form of residential property to mitigate the credit risk arising
\n
from mortgages. NatWest Group values residential property
\n
individually during the loan underwriting process, either by
\n
obtaining an appraisal by a suitably qualified appraiser (for
\n
example, Royal Institution of Chartered Surveyors (RICS)) or
\n
using a statistically valid model.
In both cases, a sample of the
\n
valuation outputs are periodically reviewed by an independent
\n
RICS qualified appraiser. NatWest Group updates Retail Banking
\n
UK residential property values quarterly using country
\n
(Scotland, Wales and Northern Ireland) or English regional
\n
specific Office for National Statistics House Price indices.
\n
Within the Private Banking and RBSI segments, properties
\n
securing loans greater than \u00a32.5 million or \u20ac3 million are
\n
revalued every three years.
\n
The current indexed value of the property is a component of the
\n
ECL provisioning calculation.
\n
Commercial real estate valuations
\u2013 NatWest Group has an
\n
actively managed panel of chartered surveying firms that cover
\n
the spectrum of geography and property sectors in which
\n
NatWest Group takes collateral. Suitable RICS registered valuers
\n
for particular assets are typically contracted through a service
\n
agreement to ensure consistency of quality and advice. In the
\n
UK, an independent third-party market indexation is applied to
\n
update external valuations for commercial property once they
\n
are more than a year old. For obligations in excess of \u00a32.5
\n
million and where the charged property has a book value in
\n
excess of \u00a30.5 million, a formal valuation review is
\n
commissioned at least every three years. In the Republic of
\n
Ireland, assets are revalued in line with the Central Bank of
\n
Ireland threshold requirements, which permits indexation for
\n
lower value residential assets, but demands regular valuations
\n
for higher value assets.
\n
Assessment and monitoring
\n
Practices for credit stewardship \u2013 including credit assessment,
\n
approval and monitoring as well as the identification and
\n
management of problem debts \u2013 differ between the Personal
\n
and Wholesale portfolios.
\n
Personal
\n
Personal customers are served through a lending approach that
\n
entails offering a large number of small-value loans. To ensure
\n
that these lending decisions are made consistently, NatWest
\n
Group analyses internal credit information as well as external
\n
data supplied by credit reference agencies (including historical
\n
debt servicing behaviour of customers with respect to both
\n
NatWest Group and other lenders). NatWest Group then sets its
\n
lending rules accordingly, developing different rules for different
\n
products.
\n
The process is then largely automated, with each customer
\n
receiving an individual credit score that reflects both internal
\n
and external behaviours and this score is compared with the
\n
lending rules set. For relatively high-value, complex personal
\n
loans, including some residential mortgage lending, specialist
\n
credit managers make the final lending decisions. These
\n
decisions are made within specified delegated authority limits
\n
that are issued dependent on the experience of the individual.
\n
Underwriting standards and portfolio performance are
\n
monitored on an ongoing basis to ensure they remain adequate
\n
in the current market environment and are not weakened
\n
materially to sustain growth.
\n
The actual performance of each portfolio is tracked relative to
\n
operational limits. The limits apply to a range of credit risk-
\n
related measures including projected credit default rates across
\n
products and the loan-to-value (LTV) ratio of the mortgage
\n
portfolios. Where operational limits identify areas of concern
\n
management action is taken to adjust credit or business
\n
strategy.
\n
Wholesale
\n
Wholesale customers \u2013 including corporates, banks and other
\n
financial institutions \u2013 are grouped by industry sectors and
\n
geography as well as by product/asset class and are managed
\n
on an individual basis. Customers are aggregated as a single
\n
risk when sufficiently interconnected.
\n
A credit assessment is carried out before credit facilities are
\n
made available to customers. The assessment process is
\n
dependent on the complexity of the transaction. Credit
\n
approvals are subject to environmental, social and governance
\n
risk policies which restrict exposure to certain highly carbon
\n
intensive industries as well as those with potentially heightened
\n
reputational impacts. Customer specific climate risk
\n
commentary is now mandatory.
\n
In response to COVID-19, a new framework was introduced to
\n
categorise clients in a consistent manner across the Wholesale
\n
portfolio, based on the effect of COVID-19 on their financial
\n
position and outlook in relation to the sector risk appetite. This
\n
framework has been retained, updated and aligned with the
\n
Risk of Credit Loss framework (further details below) to consider
\n
viability impacts more generally beyond those directly related to
\n
COVID-19 and classification via the framework is now
\n
mandatory and must be refreshed at least annually. The
\n
framework extends to all Wholesale borrowing customers in
\n
assessing whether customers exhibit a SICR, if support is
\n
considered to be granting forbearance and the time it would
\n
take for customers to return to operating within transactional
\n
acceptance standards.
For lower risk transactions below specific thresholds, credit
\n
decisions can be approved through self-sanctioning within the
\n
business. This process is facilitated through an auto-decision
\n
making system, which utilises scorecards, strategies and policy
\n
rules.
\n
For all other transactions, credit is only granted to customers
\n
following joint approval by an approver from the business and
\n
the credit risk function or by two credit officers. The joint
\n
business and credit approvers act within a delegated approval
\n
authority under the Wholesale Credit Authorities Framework
\n
Policy. The level of delegated authority held by approvers is
\n
dependent on their experience and expertise with only a small
\n
number of senior executives holding the highest approval
\n
authority. Both business and credit approvers are accountable
\n
for the quality of each decision taken, although the credit risk
\n
approver holds ultimate sanctioning authority.
\n
Transactional acceptance standards provide detailed
\n
transactional lending and risk acceptance metrics and
\n
structuring guidance. As such, these standards provide a
\n
mechanism to manage risk appetite at the customer/transaction
\n
level and are supplementary to the established credit risk
\n
appetite.
\n
Credit grades (PD) and LGD are reviewed and if appropriate
\n
reapproved annually. The review process assesses borrower
\n
performance, including reconfirmation or adjustment of risk
\n
parameter estimates; the adequacy of security; compliance with
\n
terms and conditions; and refinancing risk.
\n
Problem debt management
\n
Personal
\n
Early problem identification
\n
Pre-emptive triggers are in place to help identify customers that
\n
may be at risk of being in financial difficulty. These triggers are
\n
both internal, using NatWest Group data, and external using
\n
information from credit reference agencies. Proactive contact is
\n
then made with the customer to establish if they require help
\n
with managing their finances. By adopting this approach, the
\n
aim is to prevent a customer\u2019s financial position deteriorating
\n
which may then require intervention from the Collections and
\n
Recoveries teams.
\n
Personal customers experiencing financial difficulty are
\n
managed by the Collections team. If the Collections team is
\n
unable to provide appropriate support after discussing suitable
\n
options with the customer, management of that customer
\n
moves to the Recoveries team.
If at any point in the collections
\n
and recoveries process, the customer is identified as being
\n
potentially vulnerable, the customer will be separated from the
\n
regular process and supported by a specialist team to ensure
\n
the customer receives appropriate support for their
\n
circumstances.
\n
Collections
\n
When a customer exceeds an agreed limit or misses a regular
\n
monthly payment the customer is contacted by NatWest Group
\n
and requested to remedy the position. If the situation is not
\n
regularised then, where appropriate, the Collections team will
\n
become more involved and the customer will be supported by
\n
skilled debt management staff who endeavour to provide
\n
customers with bespoke solutions. Solutions include short-term
\n
account restructuring, refinance loans and forbearance which
\n
can include interest suspension and \u2018breathing space\u2019. All
\n
treatments available to customers experiencing financial
\n
difficulties are reviewed to ensure they remain appropriate for
\n
customers impacted by current economic conditions.
\n
In the event that an affordable and sustainable agreement with
\n
a customer cannot be reached, the debt will transition to the
\n
Recoveries team.
\n
For provisioning purposes, under IFRS 9, exposure to customers
\n
managed by the Collections team is categorised as Stage 2 and
\n
subject to a lifetime loss assessment, unless it is 90 days past
\n
due or has triggered any other unlikeliness to pay indicators, in
\n
which case it is categorised as Stage 3.
\n
Recoveries
\n
The Recoveries team will issue a notice of intention to default to
\n
the customer and, if appropriate, a formal demand, while also
\n
registering the account with credit reference agencies where
\n
appropriate. Following this, the customer\u2019s debt may then be
\n
placed with a third-party debt collection agency, or alternatively
\n
a solicitor, in order to agree an affordable repayment plan with
\n
the customer. An option that may also be considered, is the sale
\n
of unsecured debt. Exposures subject to formal debt recovery
\n
are defaulted and, under IFRS 9, categorised as Stage 3.
\n
Wholesale
\n
Early problem identification
\n
Each segment and sector have defined early warning indicators
\n
to identify customers experiencing financial difficulty, and to
\n
increase monitoring if needed. Early warning indicators may be
\n
internal, such as a customer\u2019s bank account activity, or
\n
external, such as a publicly-listed customer\u2019s share price. If
\n
early warning indicators show a customer is experiencing
\n
potential or actual difficulty, or if relationship managers or credit
\n
officers identify other signs of financial difficulty, they may
\n
decide to classify the customer within the Risk of Credit Loss
\n
framework. Broader macro-economic trends including
\n
commodity prices, foreign exchange rates and consumer and
\n
government spend are also tracked, helping inform decisions on
\n
sector risk appetite. Customer level early warning indicators are
\n
regularly reviewed to ensure alignment with prevailing
\n
economic conditions, ensuring both the volume and focus of
\n
alerts is aligned to the point-in-time risk within each sector.
\n
The aligned Risk of Credit Loss and viability framework
\n
This framework focuses on all Wholesale customers to provide
\n
early identification of credit deterioration, support intelligent
\n
risk-taking, ensure fair and consistent customer outcomes and
\n
provide key insights into Wholesale lending portfolios. Expert
\n
judgment is applied by experienced credit risk officers to classify
\n
cases into categories that reflect progressively deteriorating
\n
credit risk to NatWest Group. There are two classifications in the
\n
framework that apply to non-defaulted customers who are in
\n
financial stress \u2013 Heightened Monitoring and Risk of Credit Loss.
\n
For the purposes of provisioning, all exposures categorised as
\n
Heightened Monitoring or Risk of Credit Loss are categorised as
\n
Stage 2 and subject to a lifetime loss assessment. The
\n
framework also applies to those customers that have met
\n
NatWest Group\u2019s default criteria (AQ10 exposures). Defaulted
\n
exposures are categorised as Stage 3 impaired for provisioning
\n
purposes.
\n
Heightened Monitoring customers are performing customers
\n
that have met certain characteristics, which have led to
\n
significant credit deterioration. Collectively, characteristics
\n
reflect circumstances that may affect the customer\u2019s ability to
\n
meet repayment obligations. Characteristics include trading
\n
issues, covenant breaches, material PD downgrades and past
\n
due facilities.
\n
Heightened Monitoring customers require pre-emptive actions
\n
(outside the customer\u2019s normal trading patterns) to return or
\n
maintain their facilities within NatWest Group\u2019s current risk
\n
appetite.
Risk of Credit Loss customers are performing customers that
\n
have met the criteria for Heightened Monitoring and also pose a
\n
risk of credit loss to NatWest Group in the next 12 months
\n
should mitigating action not be taken or not be successful.
\n
Once classified as either Heightened Monitoring or Risk of Credit
\n
Loss, a number of mandatory actions are taken in accordance
\n
with policies. Actions include a review of the customer\u2019s credit
\n
grade, facility and security documentation and the valuation of
\n
security. Depending on the severity of the financial difficulty and
\n
the size of the exposure, the customer relationship strategy is
\n
reassessed by credit officers, by specialist credit risk or
\n
relationship management units in the relevant business, or by
\n
Restructuring.
\n
Agreed customer management strategies are regularly
\n
monitored by both the business and credit teams. The largest
\n
Risk of Credit Loss exposures are regularly reviewed by a Risk
\n
of Credit Loss forum. The forum members are experienced
\n
credit, business and restructuring specialists. The purpose of the
\n
forum is to review and challenge the strategies undertaken for
\n
customers that pose the largest risk of credit loss to NatWest
\n
Group.
\n
Appropriate corrective action is taken when circumstances
\n
emerge that may affect the customer\u2019s ability to service its debt
\n
(refer to Heightened Monitoring characteristics). Corrective
\n
actions may include granting a customer various types of
\n
concessions. Any decision to approve a concession will be a
\n
function of specific appetite, the credit quality of the customer,
\n
the market environment and the loan structure and security. All
\n
customers granted forbearance are classified Heightened
\n
Monitoring as a minimum.
\n
Other potential outcomes of the relationship review are to:
\n
return the customer to a satisfactory status, offer additional
\n
lending and continue monitoring, transfer the relationship to
\n
Restructuring if appropriate, or exit the relationship.
\n
The aligned Risk of Credit Loss and viability framework does not
\n
apply to problem debt management for business banking
\n
customers. These customers are, where necessary, managed by
\n
specialist problem debt management teams, depending on the
\n
size of exposure or by the business banking recoveries team
\n
where a loan has been impaired.
\n
Restructuring
\n
Where customers are categorised as Risk of Credit Loss and the
\n
lending exposure is above \u00a31 million, relationships are supported
\n
by the Restructuring team. The objective of Restructuring is to
\n
protect NatWest Group\u2019s capital. Restructuring does this by
\n
working with corporate and commercial customers in financial
\n
difficulty to help them understand their options and how their
\n
restructuring or repayment strategies can be delivered. Helping
\n
viable customers return to financial health and restoring a
\n
normal banking relationship is always the preferred outcome,
\n
however, where this is not possible, NatWest Group will work
\n
with customers to achieve a solvent outcome. Throughout this
\n
period, the mainstream relationship manager will remain an
\n
integral part of the customer relationship. Insolvency is
\n
considered as a last resort and if deemed necessary, NatWest
\n
Group will work to recover its capital in a fair and efficient
\n
manner, while upholding the fair treatment of customers and
\n
NatWest Group\u2019s core values.
\n
Forbearance
(audited)
\n
Forbearance takes place when a concession is made on the
\n
contractual terms of a loan/debt in response to a customer\u2019s
\n
financial difficulties.
\n
The aim of forbearance is to support and restore the customer
\n
to financial health while minimising risk. To ensure that
\n
forbearance is appropriate for the needs of the customer,
\n
minimum standards are applied when assessing, recording,
\n
monitoring and reporting forbearance.
\n
A credit exposure may be forborne more than once, generally
\n
where a temporary concession has been granted and
\n
circumstances warrant another temporary or permanent
\n
revision of the loan\u2019s terms.
\n
Loans are reported as forborne until they meet the exit criteria
\n
as detailed in the appropriate regulatory guidance. These
\n
include being classified as performing for two years since the
\n
last forbearance event, making regular repayments and the
\n
loan/debt being less than 30 days past due.
\n
Types of forbearance
\n
Personal
\n
In the Personal portfolio, forbearance may involve payment
\n
concessions and loan rescheduling (including extensions in
\n
contractual maturity), capitalisation of arrears. Forbearance
\n
support is provided for both mortgages and unsecured lending.
\n
Wholesale
\n
In the Wholesale portfolio, forbearance may involve covenant
\n
waivers, amendments to margins, payment concessions and
\n
loan rescheduling (including extensions in contractual maturity),
\n
capitalisation of arrears, and debt forgiveness or debt-for-equity
\n
swaps.
\n
Monitoring of forbearance
\n
Personal
\n
For Personal portfolios, forborne loans are separated and
\n
regularly monitored and reported while the forbearance
\n
strategy is implemented, until they exit forbearance.
\n
Wholesale
\n
In the Wholesale portfolio, customer PDs and facility LGDs are
\n
reassessed prior to finalising any forbearance arrangement. The
\n
ultimate outcome of a forbearance strategy is highly dependent
\n
on the co-operation of the borrower and a viable business or
\n
repayment outcome. Where forbearance is no longer
\n
appropriate, NatWest Group will consider other options such as
\n
the enforcement of security, insolvency proceedings or both,
\n
although these are options of last resort.
\n
Provisioning requirements on forbearance are detailed in the
\n
Provisioning for forbearance section.
\n
Credit grading models
\n
Credit grading models is the collective term used to describe all
\n
models, frameworks and methodologies used to calculate PD,
\n
exposure at default (EAD), LGD, maturity and the production of
\n
credit grades.
\n
Credit grading models are designed to provide:
\n
\ue001
An assessment of customer and transaction characteristics.
\n
\ue001
A meaningful differentiation of credit risk.
\n
\ue001
Accurate internal default rate, loss and exposure estimates
\n
that are used in the capital calculation or wider risk
\n
management purposes.
Impairment, provisioning and write-offs
\n
(audited)
\n
In the overall assessment of credit risk, impairment provisioning
\n
and write-offs are used as key indicators of credit quality.
\n
NatWest Group\u2019s IFRS 9 provisioning models, which use existing
\n
Basel models as a starting point, incorporate term structures
\n
and forward-looking information. Regulatory conservatism
\n
within the Basel models has been removed as appropriate to
\n
comply with the IFRS 9 requirement for unbiased ECL estimates.
\n
Five key areas may materially influence the measurement of
\n
credit impairment under IFRS 9 \u2013 two of these relate to model
\n
build and three relate to model application:
\n
Model build:
\n
\ue001
The determination of economic indicators that have most
\n
influence on credit loss for each portfolio and the severity of
\n
impact (this leverages existing stress testing models which
\n
are reviewed annually).
\n
\ue001
The build of term structures to extend the determination of
\n
the risk of loss beyond 12 months that will influence the
\n
impact of lifetime loss for exposures in Stage 2.
\n
Model application:
\n
\ue001
The assessment of the SICR and the formation of a
\n
framework capable of consistent application.
\n
\ue001
The determination of asset lifetimes that reflect behavioural
\n
characteristics while also representing management actions
\n
and processes (using historical data and experience).
\n
\ue001
The choice of forward-looking economic scenarios and their
\n
respective probability weights.
\n
Refer to Accounting policy 2.3 for further details.
\n
IFRS 9 ECL model design principles
(audited)
\n
Modelling of ECL for IFRS 9 follows the conventional approach
\n
to divide the estimation of credit losses into its component parts
\n
of PD, LGD and EAD.
\n
To meet IFRS 9 requirements, the PD, LGD and EAD parameters
\n
differ from their Pillar 1 internal ratings based (IRB) counterparts
\n
in the following aspects:
\n
\ue001
Unbiased \u2013 material regulatory conservatism has been
\n
removed from IFRS 9 parameters to produce unbiased
\n
estimates.
\n
\ue001
Point-in-time \u2013 IFRS 9 parameters reflect actual economic
\n
conditions at the reporting date instead of long-run average
\n
or downturn conditions.
\n
\ue001
Forward-looking \u2013 IFRS 9 PD estimates and, where
\n
appropriate, EAD and LGD estimates reflect forward-looking
\n
economic conditions.
\n
\ue001
Lifetime measurement \u2013 IFRS 9 PD, LGD and EAD are
\n
provided as multi-period term structures up to exposure
\n
lifetimes instead of over a fixed one-year horizon.
\n
IFRS 9 requires that at each reporting date, an entity shall
\n
assess whether the credit risk on an account has increased
\n
significantly since initial recognition. Part of this assessment
\n
requires a comparison to be made between the current lifetime
\n
PD (i.e. the PD over the remaining lifetime at the reporting date)
\n
and the equivalent lifetime PD as determined at the date of
\n
initial recognition.
\n
For assets originated before IFRS 9 was introduced, comparable
\n
lifetime origination PDs did not exist. These have been
\n
retrospectively created using the relevant model inputs
\n
applicable at initial recognition.
\n
PD estimates
\n
Personal models
\n
Personal PD models follow a discrete multi-horizon survival
\n
approach, predicting quarterly PDs up to lifetime at account
\n
level, with a key driver being scores from related IRB PD
\n
models. Forward-looking economic information is brought in by
\n
economic response models, which leverage the existing stress
\n
test model suite. The current suite of PD models was introduced
\n
in 2022 replacing the previous, first-generation models to
\n
remediate a range of model weaknesses.
\n
Wholesale models
\n
Wholesale PD models use a point-in-time/through-the-cycle
\n
framework to convert one-year regulatory PDs into point-in-
\n
time estimates that reflect economic conditions at the reporting
\n
date. The framework utilises credit cycle indices (CCIs) for a
\n
comprehensive set of region/industry segments. Further detail
\n
on CCIs is provided in the Economic loss drivers section.
\n
One year point-in-time PDs are extended to forward-looking
\n
lifetime PDs using a conditional transition matrix approach and
\n
a set of econometric forecasting models.
\n
LGD estimates
\n
The general approach for the IFRS 9 LGD models is to leverage
\n
corresponding IRB LGD models with bespoke adjustments to
\n
ensure estimates are unbiased and, where relevant, forward-
\n
looking.
\n
Personal
\n
Forward-looking information has only been incorporated for the
\n
secured portfolios, where changes in property prices can be
\n
readily accommodated. Analysis has shown minimal impact of
\n
economic conditions on LGDs for the other Personal portfolios.
\n
Wholesale
\n
Forward-looking economic information is incorporated into LGD
\n
estimates using the existing CCI framework. For low default
\n
portfolios, including sovereigns and banks, loss data is too
\n
scarce to substantiate estimates that vary with economic
\n
conditions. Consequently, for these portfolios, LGD estimates
\n
are assumed to be constant throughout the projection horizon.
\n
EAD estimates
\n
Personal
\n
The IFRS 9 Personal modelling approach for EAD is dependent
\n
on product type.
\n
\ue001
Revolving products use the existing Basel models as a basis,
\n
with appropriate adjustments incorporating a term structure
\n
based on time to default.
\n
\ue001
Amortising products use an amortising schedule, where a
\n
formula is used to calculate the expected balance based on
\n
remaining terms and interest rates.
\n
Analysis has indicated that there is minimal impact on EAD
\n
arising from changes in the economy for all Personal portfolios
\n
except mortgages. Therefore, forward-looking information is
\n
only incorporated in the mortgage EAD model (through forecast
\n
changes in interest rates).
\n
Wholesale
\n
For Wholesale, EAD values are projected using product specific
\n
credit conversion factors (CCFs), closely following the product
\n
segmentation and approach of the respective Basel model.
\n
However, the CCFs are estimated over multi-year time horizons
\n
and contain no regulatory conservatism or downturn
\n
assumptions.
Credit risk \u2013 Banking activities
\n
Introduction
\n
This section details the credit risk profile of NatWest Group\u2019s banking activities. Refer to Accounting policy 2.3 and Note 15 to the
\n
consolidated financial statements for policies and critical judgments relating to impairment loss determination.
\n
Presentation of discontinued operations and assets and liabilities of disposal groups
\n
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from
\n
the Republic of Ireland. Material developments since the beginning of 2022 are set out below.
\n
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
\n
Successful migration of six tranches of performing commercial loans to AIB was completed during 2022, with \u20ac2.1 billion of gross
\n
performing loans being fully migrated by year-end. It is expected that remaining migrations of commercial customers will be
\n
materially completed in phases over H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business
\n
are in the process of getting transferred to AIB under Transfer of Undertakings, Protection of Employment (TUPE) arrangements,
\n
with more than half having completed their move by the end of 2022. Losses on disposal of \u20ac123 million have been recognised in
\n
2022 in respect of the migrations completed to date.
\n
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the
\n
performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform,
\n
and 25 Ulster Bank branch locations in the Republic of Ireland.
\n
c.\u20ac5 billion of performing non-tracker mortgages migrated to PTSB in November 2022, with the remaining balances expected to
\n
migrate during H1 2023. In January 2023, 25 branches transferred to PTSB. The remaining performing non-tracker mortgages,
\n
micro-SME loans, Lombard Asset Finance business and all remaining eligible colleagues who will move under TUPE regulations,
\n
are also expected to transfer in 2023.
\n
Agreement with AIB for the sale of performing tracker and linked mortgages.
\n
In January 2023 the Competition and Consumer Protection Commission (CCPC) granted approval on the portfolio sale of
\n
performing tracker and linked mortgages to AIB. Completion of this sale is expected to occur in Q2 2023.
\n
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and
\n
as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as
\n
discontinued operations. Ulster Bank RoI continuing operations are now reported within Group central items & other. In 2022 we
\n
reclassified mortgage loans to fair value through profit or loss, which resulted in a \u20ac453 million reduction in mortgage financial
\n
assets in UBIDAC to 31 December 2022. This reclassification applies across both our continuing and discontinued operations.
\n
Refer to Note 8 to the consolidated financial statements for further details.
\n
Financial instruments within the scope of the IFRS 9 ECL framework
(audited)
\n
Refer to Note 10 to the consolidated financial statements for balance sheet analysis of financial assets that are classified as
\n
amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework
\n
assessment. The table below excludes loans in disposal group of \u00a31.5 billion (2021 \u2013 \u00a39.1 billion).
\n
31 December 2022
31 December 2021
\n
Gross
ECL
Net
Gross
ECL
Net
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Balance sheet total gross amortised cost and FVOCI
554.3
596.1
\n
In scope of IFRS 9 ECL framework
550.3
590.9
\n
% in scope
99%
99%
\n
Loans to customers - in scope - amortised cost
370.1
3.3
366.8
361.9
3.7
358.2
\n
Loans to customers - in scope - FVOCI
0.1
\u2014
0.1
0.3
\u2014
0.3
\n
Loans to banks - in scope - amortised cost
6.9
\u2014
6.9
7.6
\u2014
7.6
\n
Total loans - in scope
377.1
3.3
373.8
369.8
3.7
366.1
\n
Stage 1
325.2
0.6
324.6
330.8
0.3
330.5
\n
Stage 2
46.8
0.9
45.9
34.0
1.4
32.6
\n
Stage 3
5.1
1.8
3.3
5.0
2.0
3.0
\n
Other financial assets - in scope - amortised cost
156.4
\u2014
156.4
184.4
\u2014
184.4
\n
Other financial assets - in scope - FVOCI
16.8
\u2014
16.8
36.7
\u2014
36.7
\n
Total other financial assets - in scope
173.2
\u2014
173.2
221.1
\u2014
221.1
\n
Stage 1
172.4
\u2014
172.4
220.8
\u2014
220.8
\n
Stage 2
0.8
\u2014
0.8
0.3
\u2014
0.3
\n
Out of scope of IFRS 9 ECL framework
4.0
na
4.0
5.2
na
5.2
\n
Loans to customers - out of scope - amortised cost
(0.4)
na
(0.4)
0.8
na
0.8
\n
Loans to banks - out of scope - amortised cost
0.2
na
0.2
0.1
na
0.1
\n
Other financial assets - out of scope - amortised cost
4.1
na
4.1
4.0
na
4.0
\n
Other financial assets - out of scope - FVOCI
0.1
na
0.1
0.3
na
0.3
\n
The assets outside the scope of IFRS 9 ECL framework were as
\n
follows:
\n
\ue001
Settlement balances, items in the course of collection, cash
\n
balances and other non-credit risk assets of \u00a34.3 billion
\n
(2021 \u2013 \u00a33.7 billion). These were assessed as having no ECL
\n
unless there was evidence that they were defaulted.
\n
\ue001
Equity shares of \u00a30.4 billion (2021 \u2013 \u00a30.3 billion) as not
\n
within the IFRS 9 ECL framework by definition.
\n
\ue001
Fair value adjustments on loans hedged by interest rate
\n
swaps, where the underlying loan was within the IFRS 9
\n
ECL scope \u2013 \u00a3(0.6) billion (2021 \u2013 \u00a30.8 billion).
\n
\ue001
NatWest Group originated securitisations, where ECL was
\n
captured on the underlying loans of \u00a3nil billion (2021 \u2013 \u00a30.4
\n
billion).
\n
Contingent liabilities and commitments
\n
In addition to contingent liabilities and commitments disclosed
\n
in Note 26 to the consolidated financial statements,
\n
reputationally-committed limits were also included in the scope
\n
of the IFRS 9 ECL framework. These were offset by \u00a3(0.1)
\n
billion (2021 \u2013 \u00a30.8 billion) out of scope balances primarily
\n
related to facilities that, if drawn, would not be classified as
\n
amortised cost or FVOCI, or undrawn limits relating to financial
\n
assets exclusions. Total
contingent liabilities (including financial
\n
guarantees) and commitments within IFRS 9 ECL scope of
\n
\u00a3137.2 billion (2021 \u2013 \u00a3127.9 billion) comprised Stage 1 \u00a3119.2
\n
billion (2021 \u2013 \u00a3119.5 billion); Stage 2 \u00a317.3 billion (2021 \u2013 \u00a37.8
\n
billion); and Stage 3 \u00a30.7 billion (2021 \u2013 \u00a30.6 billion).
\n
The ECL relating to off balance sheet exposures was \u00a30.1
\n
billion (2021 \u2013 \u00a30.1 billion). The total ECL in the remainder of
\n
the Credit risk section of \u00a33.4 billion (2021 \u2013 \u00a33.8 billion)
\n
included ECL for both on and off balance sheet exposures for
\n
non-disposal groups.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
174,727
18,367
108,791
23,339
325,224
\n
Stage 2
21,561
801
24,226
245
46,833
\n
Stage 3
2,565
242
2,166
123
5,096
\n
Of which: individual
\u2014
168
905
48
1,121
\n
Of which: collective
2,565
74
1,261
75
3,975
\n
Subtotal excluding
\n
disposal group loans
198,853
19,410
135,183
23,707
377,153
\n
Disposal group loans
1,502
1,502
\n
Total
25,209
378,655
\n
ECL provisions
(1)
\n
Stage 1
251
21
342
18
632
\n
Stage 2
450
14
534
45
1,043
\n
Stage 3
917
26
747
69
1,759
\n
Of which: individual
\u2014
26
251
10
287
\n
Of which: collective
917
\u2014
496
59
1,472
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,618
61
1,623
132
3,434
\n
ECL on disposal group loans
53
53
\n
Total
185
3,487
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.14
0.11
0.31
0.08
0.19
\n
Stage 2 (%)
2.09
1.75
2.20
18.37
2.23
\n
Stage 3 (%)
35.75
10.74
34.49
56.10
34.52
\n
ECL provisions coverage excluding
\n
disposal group loans
0.81
0.31
1.20
0.56
0.91
\n
ECL provisions coverage on
\n
disposal group loans
3.53
3.53
\n
Total
0.73
0.92
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3)
229
(2)
122
(12)
337
\n
Stage 1
(146)
2
(135)
(11)
(290)
\n
Stage 2
268
(7)
108
24
393
\n
Stage 3
107
3
149
(25)
234
\n
Of which: individual
\u2014
3
57
(6)
54
\n
Of which: collective
107
\u2014
92
(19)
180
\n
Continuing operations
229
(2)
122
(12)
337
\n
Discontinued operations
(71)
(71)
\n
Total
(83)
266
\n
Amounts written-off
216
15
224
27
482
\n
Of which: individual
\u2014
15
153
\u2014
168
\n
Of which: collective
216
\u2014
71
27
314
\n
For the notes to this table refer to the following page.
Segment analysis \u2013 portfolio summary
(audited)
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
168,013
17,600
107,368
37,843
330,824
\n
Stage 2
13,594
967
18,477
943
33,981
\n
Stage 3
1,884
270
2,081
787
5,022
\n
Of which: individual
\u2014
270
884
61
1,215
\n
Of which: collective
1,884
\u2014
1,197
726
3,807
\n
Subtotal excluding disposal group loans
183,491
18,837
127,926
39,573
369,827
\n
Disposal group loans
9,084
9,084
\n
Total
48,657
378,911
\n
ECL provisions
(1)
\n
Stage 1
134
12
129
27
302
\n
Stage 2
590
29
784
75
1,478
\n
Stage 3
850
37
751
388
2,026
\n
Of which: individual
\u2014
37
313
13
363
\n
Of which: collective
850
\u2014
438
375
1,663
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,574
78
1,664
490
3,806
\n
ECL provisions on disposal group loans
109
109
\n
Total
599
3,915
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.08
0.07
0.12
0.07
0.09
\n
Stage 2 (%)
4.34
3.00
4.24
7.95
4.35
\n
Stage 3 (%)
45.12
13.70
36.09
49.30
40.34
\n
ECL provisions coverage excluding
\n
disposal group loans
0.86
0.41
1.30
1.24
1.03
\n
ECL provisions coverage on disposal
\n
group loans
1.20
1.20
\n
Total
1.23
1.03
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3,4)
(36)
(54)
(1,160)
77
(1,173)
\n
Stage 1
(387)
(45)
(872)
(13)
(1,317)
\n
Stage 2
157
(15)
(299)
(7)
(164)
\n
Stage 3
194
6
11
97
308
\n
Of which: individual
\u2014
6
16
(2)
20
\n
Of which: collective
194
\u2014
(5)
99
288
\n
Continuing operations
(36)
(54)
(1,160)
77
(1,173)
\n
Discontinued operations
(162)
(162)
\n
Total
(85)
(1,335)
\n
Amounts written-off
220
6
562
88
876
\n
Of which: individual
\u2014
6
449
\u2014
455
\n
Of which: collective
220
\u2014
113
88
421
\n
(1)
Includes loans to customers and banks.
\n
(2)
Includes \u00a33 million (2021 \u2013 \u00a35 million) related to assets classified as FVOCI and \u00a30.1 billion (2021 \u2013 \u00a30.1 billion) related to off-balance sheet exposures.
\n
(3)
ECL provisions coverage is calculated as ECL provisions divided by loans \u2013 amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
\n
(4)
Includes a \u00a33 million charge (2021 \u2013 \u00a33 million release) related to other financial assets, of which nil (2021 \u2013 \u00a32 million release) related to assets classified as FVOCI; and \u00a35 million
\n
release (2021 \u2013 \u00a334 million release) related to contingent liabilities.
\n
(5)
The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to the Financial instruments within the scope of the IFRS 9 ECL
\n
framework section for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling \u00a3143.3 billion (2021 \u2013
\n
\u00a3176.3 billion) and debt securities of \u00a329.9 billion (2021 \u2013 \u00a344.9 billion).
\n
\ue001
Stage 1 and Stage 2 modelled ECL increased due to
\n
deterioration in forward-looking economics, although the
\n
Stage 2 growth was more than offset by reductions in post
\n
model adjustments.
\n
\ue001
Stage 2 loans increased during 2022 in line with portfolio
\n
growth alongside deterioration in forward-looking
\n
economics as a result of the high inflation environment and
\n
supply chain disruption growing throughout the second half
\n
of the year.
\n
\ue001
Stage 3 loans increased, as write-offs and repayments were
\n
more than offset by the effect of the new regulatory
\n
definition of default, which in isolation led to an increase of
\n
approximately \u00a30.7 billion in Stage 3 balances, mostly in
\n
mortgages.
\n
\ue001
Underlying flows into default remained subdued during
\n
2022. However, it is expected that defaults will increase in
\n
2023 as growing inflationary pressures on businesses,
\n
consumers and the broader economy continue to evolve.
\n
\ue001
There was a significant reduction in loans, ECL, and
\n
coverage in Central items & other due to the phased
\n
withdrawal of Ulster Bank RoI.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet
\n
exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these
\n
exposures.
\n
Loans - amortised cost
Off-balance sheet
\n
and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Wholesale
1,269
193
40
1,502
413
19
17
19
17
53
\n
Total
1,269
193
40
1,502
413
19
17
19
17
53
\n
2021
\n
Personal
\n
5,547
210
34
5,791
\u2014
\u2014
4
6
7
17
\n
Wholesale
2,647
639
7
3,293
1,665
115
10
78
4
92
\n
Total
8,194
849
41
9,084
1,665
115
14
84
11
109
\n
(1)
Ulster Bank mortgages moves to fair value in 2023 and are no longer subject to ECL assessment. Due to fair value treatment this portfolio is no longer included in the 2022 figures
\n
of credit risk tables for either disposal or non-disposal groups.
Segmental loans and impairment metrics
(audited)
\n
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
Gross loans
ECL provisions
(2)
\n
Stage 2
(1)
Stage 2
(1)
\n
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Retail Banking
174,727
20,653
605
303
21,561
2,565
198,853
251
406
14
30
450
917
1,618
\n
Private Banking
18,367
730
39
32
801
242
19,410
21
14
\u2014
\u2014
14
26
61
\n
Personal
15,182
122
35
16
173
207
15,562
5
1
\u2014
\u2014
1
17
23
\n
Wholesale
3,185
608
4
16
628
35
3,848
16
13
\u2014
\u2014
13
9
38
\n
Commercial
\n
& Institutional
108,791
22,520
956
750
24,226
2,166
135,183
342
491
26
17
534
747
1,623
\n
Personal
2,475
17
17
7
41
46
2,562
3
1
\u2014
\u2014
1
12
16
\n
Wholesale
106,316
22,503
939
743
24,185
2,120
132,621
339
490
26
17
533
735
1,607
\n
Central items
\n
& other
23,339
234
4
7
245
123
23,707
18
42
1
2
45
69
132
\n
Personal
54
70
3
6
79
13
146
1
11
1
2
14
11
26
\n
Wholesale
23,285
164
1
1
166
110
23,561
17
31
\u2014
\u2014
31
58
106
\n
Total loans
325,224
44,137
1,604
1,092
46,833
5,096
377,153
632
953
41
49
1,043
1,759
3,434
\n
Of which:
\n
Personal
192,438
20,862
660
332
21,854
2,831
217,123
260
419
15
32
466
957
1,683
\n
Wholesale
132,786
23,275
944
760
24,979
2,265
160,030
372
534
26
17
577
802
1,751
\n
2021
\n
Retail Banking
168,013
12,275
863
456
13,594
1,884
183,491
134
516
38
36
590
850
1,574
\n
Private Banking
17,600
902
27
38
967
270
18,837
12
29
\u2014
\u2014
29
37
78
\n
Personal
14,350
137
24
11
172
232
14,754
6
2
\u2014
\u2014
2
18
26
\n
Wholesale
3,250
765
3
27
795
38
4,083
6
27
\u2014
\u2014
27
19
52
\n
Commercial
\n
& Institutional
107,368
17,352
455
670
18,477
2,081
127,926
129
750
23
11
784
751
1,664
\n
Personal
2,647
21
17
11
49
57
2,753
2
1
\u2014
\u2014
1
10
13
\n
Wholesale
104,721
17,331
438
659
18,428
2,024
125,173
127
749
23
11
783
741
1,651
\n
Central items & other
37,843
837
58
48
943
787
39,573
27
69
3
3
75
388
490
\n
Personal
5,165
510
52
46
608
609
6,382
7
15
3
3
21
301
329
\n
Wholesale
32,678
327
6
2
335
178
33,191
20
54
\u2014
\u2014
54
87
161
\n
Total loans
330,824
31,366
1,403
1,212
33,981
5,022
369,827
302
1,364
64
50
1,478
2,026
3,806
\n
Of which:
\n
Personal
190,175
12,943
956
524
14,423
2,782
207,380
149
534
41
39
614
1,179
1,942
\n
Wholesale
140,649
18,423
447
688
19,558
2,240
162,447
153
830
23
11
864
847
1,864
\n
For the notes to this table refer to the following page.
Segmental loans and impairment metrics
(audited)
\n
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
ECL provisions coverage
ECL
\n
Stage 2
(1,2)
\n
Stage 1
\n
Not past due
\n
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
Total
\n
(release) /
\n
charge (3)
\n
Amounts
\n
written-off
\n
2022
%
%
%
%
%
%
%
\u00a3m
\u00a3m
\n
Retail Banking
0.14
1.97
2.31
9.90
2.09
35.75
0.81
229
216
\n
Private Banking
0.11
1.92
\u2014
\u2014
1.75
10.74
0.31
(2)
15
\n
Personal
0.03
0.82
\u2014
\u2014
0.58
8.21
0.15
(3)
2
\n
Wholesale
0.50
2.14
\u2014
\u2014
2.07
25.71
0.99
1
13
\n
Commercial & Institutional
0.31
2.18
2.72
2.27
2.20
34.49
1.20
122
224
\n
Personal
0.12
5.88
\u2014
\u2014
2.44
26.09
0.62
4
2
\n
Wholesale
0.32
2.18
2.77
2.29
2.20
34.67
1.21
118
222
\n
Central items & other
0.08
17.95
25.00
28.57
18.37
56.10
0.56
(12)
27
\n
Personal
1.85
15.71
33.33
33.33
17.72
84.62
17.81
11
1
\n
Wholesale
0.07
18.90
\u2014
\u2014
18.67
52.73
0.45
(23)
26
\n
Total loans
0.19
2.16
2.56
4.49
2.23
34.52
0.91
337
482
\n
Of which:
\n
Personal
0.14
2.01
2.27
9.64
2.13
33.80
0.78
241
221
\n
Wholesale
0.28
2.29
2.75
2.24
2.31
35.41
1.09
96
261
\n
2021
\n
Retail Banking
0.08
4.20
4.40
7.89
4.34
45.12
0.86
(36)
220
\n
Private Banking
0.07
3.22
\u2014
\u2014
3.00
13.70
0.41
(54)
6
\n
Personal
0.04
1.46
\u2014
\u2014
1.16
7.76
0.18
1
3
\n
Wholesale
0.18
3.53
\u2014
\u2014
3.40
50.00
1.27
(55)
3
\n
Commercial & Institutional
0.12
4.32
5.05
1.64
4.24
36.09
1.30
(1,160)
562
\n
Personal
0.08
4.76
\u2014
\u2014
2.04
17.54
0.47
\u2014
1
\n
Wholesale
0.12
4.32
5.25
1.67
4.25
36.61
1.32
(1,160)
561
\n
Central items & other
0.07
8.24
5.17
6.25
7.95
49.30
1.24
77
88
\n
Personal
0.14
2.94
5.77
6.52
3.45
49.43
5.16
97
76
\n
Wholesale
0.06
16.51
\u2014
\u2014
16.12
48.88
0.49
(20)
12
\n
Total loans
0.09
4.35
4.56
4.13
4.35
40.34
1.03
(1,173)
876
\n
Of which:
\n
Personal
0.08
4.13
4.29
7.44
4.26
42.38
0.94
62
300
\n
Wholesale
0.11
4.51
5.15
1.60
4.42
37.81
1.15
(1,235)
576
\n
2019
\n
Retail Banking
0.08
3.15
4.35
7.79
3.44
43.27
0.88
\n
Private Banking
0.05
1.26
0.00
2.17
1.19
14.01
0.27
\n
Personal
0.03
1.11
0.00
2.44
1.07
11.98
0.24
\n
Wholesale
0.12
1.34
0.00
0.00
1.31
40.00
0.38
\n
Commercial & Institutional
0.15
1.79
4.35
2.60
1.86
47.84
1.23
\n
Personal
0.04
3.70
0.00
0.00
2.00
18.46
0.48
\n
Wholesale
0.15
1.78
4.63
2.66
1.86
48.64
1.25
\n
Central items & other
0.11
2.77
5.77
6.02
3.22
34.02
2.27
\n
Personal
0.11
2.12
6.25
5.71
2.79
31.49
4.57
\n
Wholesale
0.12
4.09
0.00
7.14
4.20
63.75
0.71
\n
Total loans
0.11
2.47
4.27
5.99
2.70
41.19
1.13
\n
Of which:
\n
Personal
0.08
3.04
4.23
7.15
3.35
35.90
1.10
\n
Wholesale
0.14
1.86
4.44
3.04
1.94
49.53
1.16
\n
(1)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(2)
ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
Segmental loans and impairment metrics
(audited)
\n
\ue001
Retail Banking
\u2013 Balance sheet growth during 2022 was
\n
primarily within mortgages with new lending a result of
\n
strong housing demand and re-mortgage activity and
\n
increased buy-to-let lending. Unsecured lending balances
\n
also increased as consumer demand and spending
\n
recovered following the easing of COVID-19 restrictions and
\n
with selective relaxation of lending criteria. Total ECL
\n
coverage reduced slightly during 2022, reflective of low
\n
unemployment and stable portfolio performance, while
\n
maintaining sufficient ECL coverage for key portfolios
\n
above 2019 levels, given increased inflationary and
\n
economic pressures. Increasing Stage 2 size and portfolio
\n
coverage in the second half of the year reflected the
\n
deterioration in economic outlook, with portfolio
\n
performance remaining broadly stable. Stage 3 ECL
\n
increased overall, mainly because of the IFRS 9 alignment
\n
to the new regulatory default definition, implemented on 1
\n
January 2022. The implementation of new mortgage IFRS 9
\n
models resulted in lower Stage 3 ECL coverage due to
\n
reduced loss estimates for cases where the customer was
\n
not subject to repossession activity and was the primary
\n
reason for the change in overall retail Stage 3 coverage
\n
during 2022.
\n
\ue001
Commercial & Institutional
\u2013 There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. There were also continued repayments of
\n
COVID-19 government lending schemes, and strategic
\n
reductions in certain sectors. Sector appetite continues to
\n
be reviewed regularly, with particular focus on sector
\n
clusters and sub-sectors that are vulnerable to inflationary
\n
pressures or deemed to represent a heightened risk. Stage
\n
1 and Stage 2 ECL increased due to deterioration in
\n
forward-looking economics, although the Stage 2 growth
\n
was more than offset by reductions in post model
\n
adjustments. Coverage decreased with the reduction in
\n
COVID-19 post model adjustments, but coverage on Stage
\n
1 and Stage 2 was significantly above 2019 levels, reflecting
\n
current inflationary and economic pressures.
\n
\ue001
Other
\u2013 Balance sheet reduction in 2022 compared to 2021
\n
was mainly due to a reduction in central items held in the
\n
course of treasury related management activities, and a
\n
decrease due to the phased withdrawal of Ulster Bank RoI.
Sector analysis \u2013 portfolio summary
(audited)
\n
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and
\n
past due by sector, asset quality and geographical region.
\n
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- UK
202,957
4,420
9,602
216,979
31,452
62,318
32,480
4,285
130,535
347,514
\n
- RoI
\u2014
40
104
144
34
1,102
74
\u2014
1,210
1,354
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
623
4,670
6,967
475
12,735
12,735
\n
- RoW
\u2014
\u2014
\u2014
\u2014
465
5,587
8,617
881
15,550
15,550
\n
Loans by stage
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Stage 1
182,245
3,275
6,918
192,438
27,542
53,048
46,738
5,458
132,786
325,224
\n
- Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Stage 3
1,925
109
797
2,831
716
1,476
47
26
2,265
5,096
\n
- Of which: individual
172
\u2014
13
185
314
564
33
25
936
1,121
\n
- Of which: collective
1,753
109
784
2,646
402
912
14
1
1,329
3,975
\n
Loans - past due analysis
(3,4)
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Not past due
200,634
4,335
8,825
213,794
31,366
70,034
47,824
5,633
154,857
368,651
\n
- Past due 1-30 days
916
33
86
1,035
608
2,490
278
1
3,377
4,412
\n
- Past due 31-90 days
510
29
104
643
302
551
5
7
865
1,508
\n
- Past due 91-180 days
380
24
79
483
49
34
24
\u2014
107
590
\n
- Past due >180 days
517
39
612
1,168
249
568
7
\u2014
824
1,992
\n
Loans - Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Not past due
17,951
1,039
1,872
20,862
3,866
17,915
1,344
150
23,275
44,137
\n
- Past due 1-30 days
588
19
53
660
185
754
5
\u2014
944
1,604
\n
- Past due 31-90 days
248
18
66
332
265
484
4
7
760
1,092
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
6
5
4
6
3
1
5
5
\n
Weighted average 12 months
\n
PDs*
\n
- IFRS 9 (%)
0.50
2.62
4.78
0.71
1.88
2.11
0.23
0.19
1.41
1.01
\n
- Basel (%)
0.65
2.97
3.11
0.79
1.03
1.44
0.16
0.19
0.92
0.85
\n
ECL provisions by geography
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- UK
376
254
1,027
1,657
404
985
42
14
1,445
3,102
\n
- RoI
\u2014
3
23
26
13
66
1
\u2014
80
106
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
16
72
7
1
96
96
\n
- RoW
\u2014
\u2014
\u2014
\u2014
8
105
13
4
130
130
\n
ECL provisions by stage
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- Stage 1
81
62
117
260
107
218
32
15
372
632
\n
- Stage 2
62
122
282
466
105
457
14
1
577
1,043
\n
- Stage 3
233
73
651
957
229
553
17
3
802
1,759
\n
- Of which: individual
18
\u2014
10
28
80
163
13
3
259
287
\n
- Of which: collective
215
73
641
929
149
390
4
\u2014
543
1,472
\n
ECL provisions coverage (%)
0.19
5.76
10.82
0.78
1.35
1.67
0.13
0.34
1.09
0.91
\n
- Stage 1 (%)
0.04
1.89
1.69
0.14
0.39
0.41
0.07
0.27
0.28
0.19
\n
- Stage 2 (%)
0.33
11.34
14.16
2.13
2.43
2.39
1.03
0.64
2.31
2.23
\n
- Stage 3 (%)
12.10
66.97
81.68
33.80
31.98
37.47
36.17
11.54
35.41
34.52
\n
ECL (release)/charge
(74)
56
259
241
126
(47)
19
(2)
96
337
\n
- UK
(74)
57
247
230
118
(67)
14
(3)
62
292
\n
- RoI
\u2014
(1)
12
11
1
(26)
(2)
\u2014
(27)
(16)
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
4
\u2014
1
\u2014
5
5
\n
- RoW
\u2014
\u2014
\u2014
\u2014
3
46
6
1
56
56
\n
Amounts written-off
31
67
123
221
33
188
40
\u2014
261
482
\n
*Not within audit scope.
\n
For the notes to this table refer to page 216.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages
(1)
\n
Credit
\n
cards
\n
Other
\n
person
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- <1 year
3,347
2,655
3,368
9,370
6,740
24,297
36,192
2,958
70,187
79,557
\n
- 1-5 year
10,968
1,805
5,387
18,160
17,523
32,127
10,380
1,819
61,849
80,009
\n
- > 5 years
188,642
\u2014
951
189,593
8,311
17,253
1,566
864
27,994
217,587
\n
Other financial assets by asset
\n
quality
(2)
\u2014
\u2014
\u2014
\u2014
49
25
14,704
158,416
173,194
173,194
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
14,156
158,416
172,583
172,583
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
49
14
548
\u2014
611
611
\n
Off-balance sheet
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- Loan commitments
18,782
15,848
8,496
43,126
15,302
54,651
18,223
710
88,886
132,012
\n
- Financial guarantees
\u2014
\u2014
51
51
491
3,140
1,332
\u2014
4,963
5,014
\n
Off-balance sheet by asset quality
(2)
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- AQ1-AQ4
17,676
436
7,353
25,465
12,477
35,960
17,899
606
66,942
92,407
\n
- AQ5-AQ8
1,089
15,048
1,170
17,307
3,282
21,496
1,655
84
26,517
43,824
\n
- AQ9
2
74
4
80
5
24
\u2014
\u2014
29
109
\n
- AQ10
15
290
20
325
29
311
1
20
361
686
\n
For the notes to this table refer to page 216.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- UK
187,847
3,877
9,253
200,977
31,574
62,952
39,086
4,542
138,154
339,131
\n
- RoI
6,164
70
147
6,381
130
1,222
116
4
1,472
7,853
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
439
3,831
5,066
840
10,176
10,176
\n
- RoW
\u2014
\u2014
22
22
379
2,846
8,773
647
12,645
12,667
\n
Loans by stage
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Stage 1
180,418
2,924
6,833
190,175
28,679
53,803
52,263
5,904
140,649
330,824
\n
- Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Stage 3
2,050
90
642
2,782
742
1,444
46
8
2,240
5,022
\n
- of which: individual
269
\u2014
19
288
329
583
7
8
927
1,215
\n
- of which: collective
1,781
90
623
2,494
413
861
39
\u2014
1,313
3,807
\n
Loans - past due analysis
(3,4)
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Not past due
190,834
3,834
8,619
203,287
31,391
68,630
52,285
6,030
158,336
361,623
\n
- Past due 1-30 days
1,217
28
124
1,369
521
1,081
732
2
2,336
3,705
\n
- Past due 31-90 days
592
25
73
690
256
448
19
1
724
1,414
\n
- Past due 91-180 days
367
22
61
450
91
215
1
\u2014
307
757
\n
- Past due >180 days
1,001
38
545
1,584
263
477
4
\u2014
744
2,328
\n
Loans - Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Not past due
10,259
899
1,785
12,943
2,725
14,870
708
120
18,423
31,366
\n
- Past due 1-30 days
843
16
97
956
125
318
4
\u2014
447
1,403
\n
- Past due 31-90 days
441
18
65
524
251
416
20
1
688
1,212
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
5
5
5
6
3
1
6
6
\n
Weighted average 12
\n
months PDs*
\n
- IFRS 9 (%)
0.16
4.84
2.73
0.36
0.76
1.85
0.14
0.14
1.00
0.65
\n
- Basel (%)
0.76
3.31
3.22
0.91
1.20
1.74
0.14
0.16
1.04
0.97
\n
ECL provisions by geography
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- UK
449
258
904
1,611
331
1,124
47
18
1,520
3,131
\n
- RoI
319
2
10
331
19
107
3
1
130
461
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
20
77
4
1
102
102
\n
- RoW
\u2014
\u2014
\u2014
\u2014
4
103
3
2
112
112
\n
ECL provisions by stage
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- Stage 1
32
59
58
149
24
96
14
19
153
302
\n
- Stage 2
174
141
299
614
111
713
39
1
864
1,478
\n
- Stage 3
562
60
557
1,179
239
602
4
2
847
2,026
\n
- of which: individual
19
\u2014
12
31
69
261
\u2014
2
332
363
\n
- of which: collective
543
60
545
1,148
170
341
4
\u2014
515
1,663
\n
ECL provisions coverage (%)
0.40
6.59
9.70
0.94
1.15
1.99
0.11
0.36
1.15
1.03
\n
- Stage 1 (%)
0.02
2.02
0.85
0.08
0.08
0.18
0.03
0.32
0.11
0.09
\n
- Stage 2 (%)
1.51
15.11
15.36
4.26
3.58
4.57
5.33
0.83
4.42
4.35
\n
- Stage 3 (%)
27.41
66.67
86.76
42.38
32.21
41.69
8.70
25.00
37.81
40.34
\n
ECL (release)/charge
(5)
46
(14)
30
62
(477)
(723)
(38)
3
(1,235)
(1,173)
\n
- UK
(52)
(14)
31
(35)
(457)
(647)
(12)
3
(1,113)
(1,148)
\n
- RoI
98
\u2014
(1)
97
(5)
(23)
2
\u2014
(26)
71
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
(7)
(7)
(21)
\u2014
(35)
(35)
\n
- RoW
\u2014
\u2014
\u2014
\u2014
(8)
(46)
(7)
\u2014
(61)
(61)
\n
Amounts written-off
85
74
141
300
271
271
34
\u2014
576
876
\n
*Not within audit scope.
\n
For the notes to this table refer to the following page.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages
\n
Credit
\n
cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- <1 year
3,611
2,532
3,197
9,340
7,497
22,593
41,195
2,809
74,094
83,434
\n
- 1-5 year
12,160
1,415
5,393
18,968
16,293
33,301
10,969
1,967
62,530
81,498
\n
- > 5 years
178,240
\u2014
832
179,072
8,732
14,957
877
1,257
25,823
204,895
\n
Other financial assets by asset quality
(2)
\u2014
\u2014
\u2014
\u2014
55
11
11,516
209,553
221,135
221,135
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
10,974
209,551
220,536
220,536
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
55
\u2014
542
2
599
599
\n
Off-balance sheet
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- Loan commitments
16,827
15,354
8,170
40,351
15,882
49,231
16,906
1,212
83,231
123,582
\n
- Financial guarantees
\u2014
\u2014
60
60
460
2,802
992
\u2014
4,254
4,314
\n
Off-balance sheet by asset quality
(2)
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- AQ1-AQ4
14,792
248
6,591
21,631
12,550
30,417
16,192
1,064
60,223
81,854
\n
- AQ5-AQ8
2,028
14,804
1,625
18,457
3,757
21,262
1,703
148
26,870
45,327
\n
- AQ9
\u2014
9
3
12
6
48
1
\u2014
55
67
\n
- AQ10
7
293
11
311
29
306
2
\u2014
337
648
\n
(1)
Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are
\n
reported in UK, which includes crown dependencies, reflecting the country of lending origination.
\n
(2)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(3)
AQ bandings are based on Basel PDs and mapping is as follows:
\n
Internal asset
\n
quality band
\n
Probability of
\n
default range
\n
Indicative
\n
S&P rating
\n
AQ1
0% - 0.034%
AAA to AA
\n
AQ2
0.034% - 0.048%
AA to AA-
\n
AQ3
0.048% - 0.095%
A+ to A
\n
AQ4
0.095% - 0.381%
BBB+ to BBB-
\n
AQ5
0.381% - 1.076%
BB+ to BB
\n
AQ6
1.076% - 2.153%
BB- to B+
\n
AQ7
2.153% - 6.089%
B+ to B
\n
AQ8
6.089% - 17.222%
B- to CCC+
\n
AQ9
17.222% - 100%
CCC to C
\n
AQ10
100%
D
\n
\u00a30.3 billion (2021 \u2013 \u00a30.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited.
Sector analysis \u2013 portfolio summary
(audited)
\n
The table below shows ECL by stage, for the Personal portfolio and selected sectors of the Wholesale portfolios.
\n
Off-balance sheet
\n
Loans - amortised cost and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
192,438
21,854
2,831
217,123
43,126
51
260
466
957
1,683
\n
Mortgages
182,245
18,787
1,925
202,957
18,782
\u2014
81
62
233
376
\n
Credit cards
3,275
1,076
109
4,460
15,848
\u2014
62
122
73
257
\n
Other personal
6,918
1,991
797
9,706
8,496
51
117
282
651
1,050
\n
Wholesale
132,786
24,979
2,265
160,030
88,886
4,963
372
577
802
1,751
\n
Property*
27,542
4,316
716
32,574
15,302
491
107
105
229
441
\n
Financial institutions**
46,738
1,353
47
48,138
18,223
1,332
32
14
17
63
\n
Sovereigns
5,458
157
26
5,641
710
\u2014
15
1
3
19
\n
Corporate
53,048
19,153
1,476
73,677
54,651
3,140
218
457
553
1,228
\n
Of which:
\n
Agriculture*
3,646
1,034
93
4,773
968
24
21
31
43
95
\n
Airlines and aerospace*
483
1,232
19
1,734
1,715
174
2
40
8
50
\n
Automotive*
5,776
1,498
30
7,304
4,009
99
18
18
11
47
\n
Chemicals*
384
117
1
502
650
12
1
2
1
4
\n
Health
3,974
1,008
141
5,123
475
8
19
30
48
97
\n
Industrials*
2,148
1,037
82
3,267
3,135
195
10
16
24
50
\n
Land transport & logistics*
3,788
1,288
66
5,142
3,367
190
13
33
17
63
\n
Leisure*
3,416
3,787
260
7,463
1,907
102
27
147
115
289
\n
Mining & metals*
173
230
5
408
545
5
\u2014
1
5
6
\n
Oil and gas*
953
159
60
1,172
2,157
248
3
3
31
37
\n
Power utilities*
4,228
406
6
4,640
6,960
1,182
9
11
1
21
\n
Retail*
6,497
1,746
150
8,393
4,682
416
21
29
68
118
\n
Shipping*
161
151
14
326
110
22
\u2014
7
6
13
\n
Water & waste*
3,026
335
7
3,368
2,143
101
4
4
4
12
\n
Total
325,224
46,833
5,096
377,153
132,012
5,014
632
1,043
1,759
3,434
\n
2021
\n
Personal
190,175
14,423
2,782
207,380
40,351
60
149
614
1,179
1,942
\n
Mortgages
180,418
11,543
2,050
194,011
16,827
\u2014
32
174
562
768
\n
Credit cards
2,924
933
90
3,947
15,354
\u2014
59
141
60
260
\n
Other personal
6,833
1,947
642
9,422
8,170
60
58
299
557
914
\n
Wholesale
140,649
19,558
2,240
162,447
83,231
4,254
153
864
847
1,864
\n
Property*
28,679
3,101
742
32,522
15,882
460
24
111
239
374
\n
Financial institutions**
52,263
732
46
53,041
16,906
992
14
39
4
57
\n
Sovereigns
5,904
121
8
6,033
1,212
\u2014
19
1
2
22
\n
Corporate
53,803
15,604
1,444
70,851
49,231
2,802
96
713
602
1,411
\n
Of which:
\n
Agriculture*
3,722
1,229
133
5,084
993
24
11
39
78
128
\n
Airlines and aerospace*
779
668
44
1,491
1,528
221
1
39
15
55
\n
Automotive*
5,133
1,304
38
6,475
3,507
65
9
32
10
51
\n
Chemicals*
355
43
1
399
663
14
1
\u2014
\u2014
1
\n
Health
3,818
1,235
133
5,186
799
9
9
58
48
115
\n
Industrials*
2,311
620
28
2,959
2,770
243
4
15
13
32
\n
Land transport & logistics*
3,721
833
39
4,593
3,069
188
4
53
12
69
\n
Leisure*
3,712
4,050
340
8,102
1,874
107
11
247
133
391
\n
Mining & metals*
336
42
4
382
627
131
\u2014
2
4
6
\n
Oil and gas*
1,482
141
52
1,675
1,126
453
1
14
28
43
\n
Power utilities*
3,844
220
6
4,070
5,622
404
2
3
1
6
\n
Retail*
6,380
1,342
180
7,902
4,872
410
8
29
66
103
\n
Shipping*
506
334
27
867
90
12
1
11
10
22
\n
Water & waste*
2,714
230
4
2,948
1,850
91
2
5
2
9
\n
Total
330,824
33,981
5,022
369,827
123,582
4,314
302
1,478
2,026
3,806
\n
* Wholesale sectors marked with an asterisk contain an element of exposure classified as heightened climate-related risk. Elements of the personal mortgage portfolio are also exposed
\n
to heightened climate-related risk. The classification of sectors into heightened climate-related risk mentioned within this footnote is not within audit scope.
\n
**Financial institutions (FI) include transactions, such as securitisations, where the underlying assets may be in other sectors.
Wholesale forbearance
(audited)
\n
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is
\n
disclosed in the Personal portfolio section. The table shows current exposure but reflects risk transfers where there is a guarantee
\n
by another customer.
\n
Property
FI
Other corporate
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Forbearance (flow)
746
105
2,575
3,426
\n
Forbearance (stock)
933
107
4,709
5,749
\n
Heightened Monitoring and Risk of Credit Loss
976
112
3,445
4,533
\n
2021
\n
Forbearance (flow)
709
27
3,894
4,630
\n
Forbearance (stock)
1,033
35
5,659
6,727
\n
Heightened Monitoring and Risk of Credit Loss
1,225
83
4,492
5,800
\n
Sector analysis \u2013 portfolio summary
(audited)
\n
\ue001
Loans by geography and sector
\u2013 In line with NatWest
\n
Group\u2019s strategic focus, exposures continued to be mainly
\n
in the UK. Exposure to the Republic of Ireland reduced
\n
during the year as part of the phased withdrawal noted
\n
previously. In Personal, balance sheet growth was a result
\n
of strong mortgage demand during the year. In Wholesale,
\n
there was a reduction in the balance sheet in Q4, following
\n
a period of growth up to Q3. This was mainly due to a
\n
reduction in central items held in the course of treasury
\n
related management activities. There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. Repayment performance under COVID-19
\n
government lending schemes is closely tracked and
\n
exposure continued to decrease due to scheduled
\n
repayment activity and account closures. Exposures under
\n
the Bounce Bank Loan Scheme (BBLS) that benefit from the
\n
100% government guarantee account for approximately
\n
70% of remaining government scheme exposures. BBLS
\n
missed repayment rate and recoveries stock have increased
\n
but volumes continue to be in line with other lenders.
\n
\ue001
Loans by stage
\u2013 In both Wholesale and Personal,
\n
deterioration in forward-looking economics resulted in a
\n
larger proportion of accounts exhibiting a SICR compared
\n
to 2021. There was, therefore, a migration of exposures
\n
from Stage 1 into Stage 2 during 2022. Personal customers
\n
who had accessed payment holiday support, and where
\n
their risk profile was identified as relatively high, are no
\n
longer collectively migrated into Stage 2. The relevance of
\n
this collective SICR identification was no longer considered
\n
as pertinent in the context of the current high inflation
\n
environment and related uncertainty.
\n
\ue001
Loans \u2013 Past due analysis
\u2013 Overall, the past due profile of
\n
the key portfolios remained broadly stable. The
\n
implementation of the new regulatory default definition
\n
included refinements to the days past due calculations. This
\n
contributed to an increase in arrears in H1 2022 in
\n
Personal, however this moderated through the year.
\n
Particularly in mortgages, the exit from the Republic of
\n
Ireland also contributed to the reduction in past due
\n
exposures. In Wholesale, there was an increase in past due
\n
1-30 days in corporates.
\n
\ue001
Weighted average 12 months PDs
\u2013 In Personal, the Basel II
\n
point-in-time PDs improved slightly during 2022 due to
\n
stable credit performance in the portfolios. For IFRS 9 PDs,
\n
there were increases across mortgages and other personal
\n
lending as a result of new PD model implementations during
\n
the year, coupled with the deteriorating economic outlook
\n
in the second half of the year. For credit cards, the new
\n
IFRS 9 PD model implementation drove a net reduction in
\n
PD levels, primarily resulting from more accurate modelling
\n
of defaults driven by shifts in general unemployment. In
\n
Wholesale, the Basel II PDs were based on a through-the-
\n
cycle approach and improved reflecting positive portfolio
\n
performance.
\n
The IFRS 9 PDs increased due the deterioration in forward-
\n
looking economics. For further details refer to the Asset
\n
quality section.
\n
\ue001
ECL provision by geography
\u2013 In line with loans by
\n
geography, the vast majority of ECL related to exposures in
\n
the UK, noting the reduction in RoI was mostly due to the
\n
phased withdrawal of Ulster Bank RoI and moving of assets
\n
to discontinued operations and reclassifications.
\n
\ue001
ECL provisions by stage
\u2013 As mentioned above, Stage 1 and
\n
Stage 2 ECL increased due to deterioration in forward-
\n
looking economics, although the Stage 2 growth was more
\n
than offset by reductions in post model adjustments. Stage
\n
3 provisions have yet to be materially affected by the high
\n
inflation environment and supply chain disruption, with
\n
increases relating to the introduction of the new regulatory
\n
definition of default, largely offset by write offs.
\n
\ue001
ECL provisions coverage
\u2013 Overall provisions coverage
\n
reduced, due to the phased withdrawal of Ulster Bank RoI,
\n
a change in product mix and a decrease in judgemental
\n
post model adjustments which more than offset increases
\n
from the deteriorating economic outlook.
\n
\ue001
The ECL charge and loss rate
\u2013 ECL charge and loss rate
\n
was low, with charges from a deterioration in forward-
\n
looking economics countered by reductions in post model
\n
adjustments and the continued stable portfolio performance
\n
and low default trends.
\n
\ue001
Loans by residual maturity
\u2013 The maturity profile of the
\n
portfolios remained consistent with prior periods. In
\n
mortgages, as expected, the vast majority of exposures
\n
were greater than five years. In unsecured lending \u2013 cards
\n
and other \u2013 exposures were concentrated in less than five
\n
years. In Wholesale, in financial institutions and sovereigns,
\n
lending was concentrated in less than one year, In the rest
\n
of Wholesale, most of the lending was for residual maturity
\n
of one to five years.
\n
\ue001
Other financial assets by asset quality
\u2013 Consisting almost
\n
entirely of cash and balances at central banks and debt
\n
securities, held in the course of treasury related
\n
management activities, these assets were mainly within the
\n
AQ1-AQ4 bands.
\n
\ue001
Off-balance sheet exposures by asset quality
\u2013 In Personal,
\n
undrawn exposures were reflective of available credit lines
\n
in credit cards and current accounts. Additionally, the
\n
mortgage portfolio had undrawn exposures, where a formal
\n
offer had been made to a customer but had not yet drawn
\n
down; the value increased in line with the pipeline of offers.
\n
There was also a legacy portfolio of flexible mortgages
\n
where a customer had the right and ability to draw down
\n
further funds. The asset quality was aligned to the wider
\n
portfolio. In Wholesale, growth was primarily loan
\n
commitments to financial institutions and corporate sectors
\n
in the AQ1-AQ4 bands.
Sector analysis \u2013 portfolio summary
\n
continued
(audited)
\n
\ue001
Wholesale forbearance
\u2013 Forbearance flow and stock
\n
decreased in 2022 compared to 2021, noting that 2021 was
\n
adversely affected by COVID-19. Increased levels of
\n
forbearance were observed in Q4 2022. The retail & leisure,
\n
property and services sectors represented the largest share
\n
of forbearance flow. Labour shortages, the high inflation
\n
environment, rising fuel and energy costs, interest rate
\n
impacts and supply chain issues continue to weigh on these
\n
sectors. Payment holidays and covenant waivers were the
\n
most common forms of forbearance granted.
\n
\ue001
Heightened Monitoring and Risk of Credit Loss
\u2013
Economic
\n
headwinds continue to present an uncertain outlook. Risk of
\n
Credit Loss framework exposures and inflows decreased in
\n
2022 compared to 2021, noting again that 2021 was
\n
adversely affected by COVID-19. Inflows into the
\n
framework began to increase in Q4 2022. The sector
\n
breakdown of exposures within the framework remained
\n
consistent with prior periods. Retail SME customers do not
\n
form part of the Wholesale Risk of Credit Loss framework.
\n
Customers in this group, that are in financial difficulty, are
\n
instead managed by specialist problem debt management
\n
teams. The number of customers in arrears and recoveries
\n
increased significantly during 2022, driven by BBLS
\n
exposures. Excluding BBLS, the number of customers in this
\n
population in problem debt remains stable.
Credit risk enhancement and mitigation
(audited)
\n
The table below shows exposures of modelled portfolios within the scope of the ECL framework and related credit risk
\n
enhancement and mitigation (CREM).
\n
Maximum credit risk
CREM by type
CREM coverage
\n
Exposure post
\n
CREM
Gross
\n
exposure
\n
ECL
Total
Stage 3
\n
Financial
\n
(1)
\n
Property
Other (2)
Total
Stage 3
Total
Stage 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
143.2
\u2014
143.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
143.2
\u2014
\n
Loans - amortised cost
(3)
377.2
3.3
373.9
3.4
31.8
243.1
21.7
296.6
3.0
77.3
0.4
\n
Personal
(4)
217.2
1.7
215.5
1.9
0.9
202.1
\u2014
203.0
1.7
12.5
0.2
\n
Wholesale
(5)
160.0
1.6
158.4
1.5
30.9
41.0
21.7
93.6
1.3
64.8
0.2
\n
Debt securities
29.9
\u2014
29.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
29.9
\u2014
\n
Total financial assets
550.3
3.3
547.0
3.4
31.8
243.1
21.7
296.6
3.0
250.4
0.4
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
43.2
\u2014
43.2
0.3
0.7
4.4
\u2014
5.1
\u2014
38.1
0.3
\n
Wholesale
93.9
0.1
93.8
0.4
3.1
7.4
4.0
14.5
0.1
79.3
0.3
\n
Total off-balance sheet
137.0
0.1
136.9
0.7
3.8
11.8
4.0
19.6
0.1
117.3
0.6
\n
Total exposure
687.3
3.4
683.9
4.1
35.6
254.9
25.7
316.2
3.1
367.7
1.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
176.3
\u2014
176.3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
176.3
\u2014
\n
Loans - amortised cost
(3)
369.8
3.7
366.1
3.0
41.1
232.7
23.5
297.3
2.7
68.8
0.3
\n
Personal
(4)
207.4
1.9
205.5
1.6
1.3
192.6
\u2014
193.9
1.5
11.6
0.1
\n
Wholesale
(5)
162.4
1.8
160.6
1.4
39.8
40.1
23.5
103.4
1.2
57.2
0.2
\n
Debt securities
44.9
\u2014
44.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44.9
\u2014
\n
Total financial assets
591.0
3.7
587.3
3.0
41.1
232.7
23.5
297.3
2.7
290.0
0.3
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
40.4
\u2014
40.4
0.3
0.5
4.9
\u2014
5.4
\u2014
35.0
0.3
\n
Wholesale
87.5
0.1
87.4
0.3
3.2
7.9
3.9
15.0
0.1
72.4
0.2
\n
Total off-balance sheet
127.9
0.1
127.8
0.6
3.7
12.8
3.9
20.4
0.1
107.4
0.5
\n
Total exposure
718.9
3.8
715.1
3.6
44.8
245.5
27.4
317.7
2.8
397.4
0.8
\n
(1)
Includes cash and securities collateral.
\n
(2)
Includes guarantees, charges over trade debtors, other asset finance related physical collateral as well as the amount by which credit risk exposure is reduced through netting
\n
arrangements, mainly cash management pooling, which give NatWest Group a legal right to set off the financial asset against a financial liability due to the same counterparty.
\n
(3)
NatWest Group holds collateral in respect of individual loans \u2013 amortised cost to banks and customers. This collateral includes mortgages over property (both personal and
\n
commercial); charges over business assets such as plant and equipment; inventories and trade debtors; and guarantees of lending from parties other than the borrower. NatWest
\n
Group obtains collateral in the form of securities in reverse repurchase agreements. Collateral values are capped at the value of the loan.
\n
(4)
Stage 3 mortgage exposures have relatively limited uncovered exposure reflecting the security held. On unsecured credit cards and other personal borrowing, the residual
\n
uncovered amount reflects historical experience of continued cash recovery post default through ongoing engagement with customers.
\n
(5)
Stage 3 exposures post credit risk enhancement and mitigation in Wholesale mainly represent enterprise value and the impact of written down collateral values; an individual
\n
assessment to determine ECL will consider multiple scenarios and in some instances allocate a probability weighting to a collateral value in excess of the written down value.
\n
(6)
\u00a30.3 billion (2021
\u2013
\u00a30.3 billion) Personal Stage 3 balances primarily relate to loan commitments, the draw down of which is effectively prohibited.
\n
(7)
The Personal gross exposure value includes \u00a314.0 billion (2021
\u2013
\u00a311.8 billion) in respect of pipeline mortgages where a committed offer has been made to a customer but where
\n
the funds have not yet been drawn down. When drawn down, the exposure would be covered by a security over the borrower\u2019s property.
Personal portfolio
(audited)
\n
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
\n
2022
2021
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items
\n
& other
Total
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
Personal lending
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mortgages
186,891
13,709
2,357
\u2014
202,957
172,707
12,781
2,444
6,164
194,096
\n
Of which:
\n
Owner occupied
168,790
12,096
1,541
\u2014
182,427
158,059
11,219
1,597
5,563
176,438
\n
Buy-to-let
18,101
1,613
816
\u2014
20,530
14,648
1,562
847
601
17,658
\n
Interest only - variable
3,515
3,286
258
\u2014
7,059
4,348
4,889
346
120
9,703
\n
Interest only - fixed
17,954
8,591
261
\u2014
26,806
14,255
5,957
209
3
20,424
\n
Mixed
(1)
9,768
1
16
\u2014
9,785
8,616
1
17
34
8,668
\n
ECL provisions
(2)
355
9
6
\u2014
370
429
7
8
318
762
\n
Other personal lending
(3)
11,935
1,853
267
143
14,198
10,829
1,974
305
218
13,326
\n
ECL provisions
(2)
1,257
15
3
26
1,301
1,140
19
2
11
1,172
\n
Total personal lending
198,826
15,562
2,624
143
217,155
183,536
14,755
2,749
6,382
207,422
\n
Mortgage LTV ratios
\n
- Owner occupied
52%
59%
56%
\u2014
53%
54%
59%
57%
50%
54%
\n
- Stage 1
52%
59%
56%
\u2014
53%
54%
59%
56%
48%
54%
\n
- Stage 2
52%
61%
60%
\u2014
52%
52%
59%
62%
57%
52%
\n
- Stage 3
45%
59%
74%
\u2014
47%
49%
64%
77%
56%
53%
\n
- Buy-to-let
50%
59%
53%
\u2014
51%
50%
57%
53%
52%
51%
\n
- Stage 1
51%
59%
53%
\u2014
52%
50%
58%
53%
51%
51%
\n
- Stage 2
49%
53%
48%
\u2014
49%
52%
55%
50%
56%
52%
\n
- Stage 3
47%
55%
57%
\u2014
50%
51%
53%
60%
66%
56%
\n
Gross new mortgage lending
41,227
2,968
327
\u2014
44,522
35,290
2,874
340
40
38,544
\n
Of which:
\n
Owner occupied
36,305
2,701
221
\u2014
39,227
33,630
2,583
206
40
36,459
\n
Weighted average LTV
(4)
69%
65%
65%
\u2014
69.0%
69%
65%
67%
62%
68%
\n
Buy-to-let
4,922
267
106
\u2014
5,295
1,660
292
134
\u2014
2,086
\n
Weighted average LTV
(4)
64%
66%
60%
\u2014
64.0%
63%
65%
63%
60%
64%
\n
Interest only - variable rate
24
329
11
\u2014
364
25
832
37
\u2014
894
\n
Interest only - fixed rate
5,299
2,335
51
\u2014
7,685
2,388
1,563
36
\u2014
3,987
\n
Mixed
(1)
2,309
\u2014
2
\u2014
2,311
2,256
\u2014
7
\u2014
2,263
\n
Mortgage forbearance
\n
Forbearance flow
(5)
182
7
4
\u2014
193
316
19
4
50
389
\n
Forbearance stock
1,015
16
8
\u2014
1,039
1,156
3
8
944
2,111
\n
Current
649
8
6
\u2014
663
727
\u2014
5
616
1,348
\n
1-3 months in arrears
133
\u2014
2
\u2014
135
146
2
1
58
207
\n
>3 months in arrears
233
8
\u2014
\u2014
241
283
1
2
270
556
\n
(1)
Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.
\n
(2)
Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(3)
Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.
\n
(4)
The new lending LTV in the comparative has been amended to reflect LTV at the time of lending origination rather than LTV at the reporting period.
\n
(5)
Forbearance flows only include an account once per year, although some accounts may be subject to multiple forbearance deals. Forbearance deals post default are excluded from
\n
these flows.
\n
\ue001
The mortgage portfolio grew steadily during 2022, benefiting
\n
from buoyant housing market activity and customers re-
\n
mortgaging as interest rates rose across the market.
\n
\ue001
LTV ratios improved as house prices increased as a result of
\n
housing market demand.
\n
\ue001
The existing mortgage stock and new business were closely
\n
monitored against agreed risk appetite parameters. These
\n
included loan-to-value ratios, buy-to-let concentrations,
\n
new-build concentrations and credit quality. Affordability
\n
assessments and assumptions were continuously reviewed
\n
considering inflationary pressure, interest rate rises and
\n
taxation changes during the year.
\n
\ue001
The buy-to-let portfolio grew in 2022. This growth was
\n
expected and within risk appetite following strategy and
\n
customer journey simplification implemented in H2 2021.
\n
\ue001
Aligned to strong overall portfolio quality and low levels of
\n
early arrears, forbearance flows have decreased compared
\n
to the prior year.
\n
\ue001
Unsecured lending increased during 2022, with resilient
\n
customer demand after the easing of COVID-19 restrictions.
\n
\ue001
As noted previously, ECL increased, for further detail of
\n
movements in ECL provisions at product level refer to the
\n
Flow statements section.
Personal portfolio
(audited)
\n
Mortgage LTV distribution by stage
\n
The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9
\n
ECL reflected portfolios carried at fair value.
\n
Mortgages
ECL provisions
ECL provisions coverage (2)
\n
Retail Banking
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9
\n
ECL scope
\n
Total
\n
Of which;
\n
gross
\n
lending
\n
Stage 1
Stage 2
Stage 3
Total (1)
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
71,321
8,257
1,036
61
80,675
7,467
26
20
121
167
\u2014
0.2
11.7
0.2
\n
>50% and \u226470%
68,178
7,792
616
7
76,593
14,088
32
30
71
133
\u2014
0.4
11.5
0.2
\n
>70% and \u226480%
17,602
1,602
62
1
19,267
11,154
7
6
11
24
\u2014
0.4
17.7
0.1
\n
>80% and \u226490%
7,918
944
17
1
8,880
7,127
6
5
5
16
0.1
0.5
29.4
0.2
\n
>90% and \u2264100%
1,409
18
6
\u2014
1,433
1,389
3
\u2014
2
5
0.2
\u2014
33.3
0.3
\n
>100%
35
7
10
\u2014
52
2
2
\u2014
4
6
5.7
\u2014
40.0
11.5
\n
Total with LTVs
166,463
18,620
1,747
70
186,900
41,227
76
61
214
351
\u2014
0.3
12.3
0.2
\n
Other
59
1
1
\u2014
61
\u2014
3
\u2014
1
4
5.1
\u2014
100.0
6.6
\n
Total
166,522
18,621
1,748
70
186,961
41,227
79
61
215
355
\u2014
0.3
12.3
0.2
\n
2021
\n
\u226450%
61,233
4,548
644
63
66,488
5,845
7
60
140
207
\u2014
1.3
21.7
0.3
\n
>50% and \u226470%
68,271
4,674
483
9
73,437
12,397
10
64
84
158
\u2014
1.4
17.4
0.2
\n
>70% and \u226480%
24,004
1,255
93
1
25,353
10,964
3
18
15
36
\u2014
1.4
16.1
0.1
\n
>80% and \u226490%
5,983
250
22
1
6,256
4,985
1
8
5
14
\u2014
3.2
22.7
0.2
\n
>90% and \u2264100%
1,125
58
10
\u2014
1,193
1,098
\u2014
5
3
8
\u2014
8.6
30.0
0.7
\n
>100%
14
18
6
\u2014
38
\u2014
\u2014
1
2
3
\u2014
5.6
33.3
7.9
\n
Total with LTVs
160,630
10,803
1,258
74
172,765
35,289
21
156
249
426
\u2014
1.4
19.8
0.2
\n
Other
14
1
1
\u2014
16
1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Total
160,644
10,804
1,259
74
172,781
35,290
21
156
249
426
\u2014
1.4
19.8
0.2
\n
(1)
Excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(2)
ECL provisions coverage is ECL provisions divided by mortgages.
\n
\ue001
The reduced coverage level in the lower LTV bands for
\n
Retail Banking, relative to 31 December 2021, reflected the
\n
implementation of a new IFRS 9 LGD model with a modelling
\n
approach that now captures a reduced loss expectation
\n
from non-repossession recovery action.
\n
\ue001
Continued stable portfolio performance alongside the new
\n
IFRS 9 PD and LGD model implementations resulted in
\n
reduced coverage across most LTV bands in Stage 2 and
\n
Stage 3. The increased ECL across Stage 1 LTV bands was
\n
mainly due to higher Stage 1 PDs as a result of the new PD
\n
model implementation and also the proportionate allocation
\n
of the economic uncertainty post model adjustment to Stage
\n
1.
Personal portfolio
(audited)
\n
Retail Banking mortgage LTV distribution by region
\n
The table below shows gross mortgage lending by LTV band for Retail Banking, by geographical region.
\n
Flood risk*
\n
\u226450%
50%\u226480%
80%\u2264100%
>100%
Total
\n
Weighted
\n
average LTV
\n
Other
Total
Total
\n
lending at
\n
high/very high
\n
risk**
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
\u00a3m
\u00a3m
%
%
\n
South East
15,856
17,670
1,396
1
34,923
51
3
34,926
19
4.1
\n
Greater London
15,200
17,550
1,336
1
34,087
51
3
34,090
18
2.3
\n
Scotland
5,024
6,174
1,163
1
12,362
54
1
12,363
7
3.2
\n
North West
7,670
8,672
1,236
2
17,580
52
2
17,582
9
2.2
\n
South West
7,874
7,922
627
\u2014
16,423
50
1
16,424
9
3.0
\n
West Midlands
5,477
7,014
862
1
13,354
53
1
13,355
7
1.2
\n
East of England
9,241
11,492
987
2
21,722
52
2
21,724
12
2.1
\n
Rest of the UK
14,312
19,408
2,712
43
36,475
54
48
36,523
19
3.2
\n
Total
80,654
95,902
10,319
51
186,926
52
61
186,987
100
2.8
\n
2021
\n
South East
13,160
18,298
886
1
32,345
53
3
32,348
19
4.4
\n
Greater London
13,308
16,716
1,477
1
31,502
53
3
31,505
18
2.5
\n
Scotland
4,493
6,529
559
2
11,583
54
1
11,584
7
3.5
\n
North West
6,598
9,212
654
3
16,467
53
2
16,469
10
2.4
\n
South West
6,140
8,619
499
1
15,259
53
2
15,261
9
3.4
\n
West Midlands
4,323
7,449
553
1
12,326
55
1
12,327
6
1.8
\n
East of England
7,467
11,679
820
1
19,967
54
2
19,969
12
2.6
\n
Rest of the UK
10,937
20,278
2,001
26
33,242
56
2
33,244
19
3.6
\n
Total
66,426
98,780
7,449
36
172,691
54
16
172,707
100
3.1
\n
*Not within audit scope.
\n
**Flood hazard is modelled by looking at the four different types of flooding (surface water, ground water, coastal and river) and
\n
calculating the frequency and depth of flooding nationally to derive flood maps. Flood defences are considered where available.
\n
Flood scores are allocated per property based on the potential flood damage to property dependent on the type, frequency and
\n
depth of flooding modelled across different return periods. The scoring ranges from 0 to 53, with 0 being lowest and 53 being the
\n
highest risk. We consider a score of 11 and above to be high risk and properties with a score of 31 and above within the very high
\n
risk category after flood mitigants are taken into account. This is not within audit scope.
Retail Banking mortgages by Energy Performance Certificate (EPC) rating*
\n
The table below represents the energy efficiency of Retail Banking residential mortgages.
\n
31 December 2022
31 December 2021
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
EPC rating
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
A
424
12
436
282
8
290
\n
B
19,874
1,342
21,216
15,719
852
16,571
\n
C
28,049
5,228
33,277
22,138
3,178
25,316
\n
D
47,497
6,033
53,530
41,814
4,187
46,001
\n
E
17,153
1,687
18,840
16,238
1,332
17,570
\n
F
3,691
86
3,777
3,637
113
3,750
\n
G
789
21
810
734
27
761
\n
Unclassified
51,313
3,692
55,005
57,497
4,951
62,448
\n
Total
168,790
18,101
186,891
158,059
14,648
172,707
\n
*Not within audit scope.
\n
As at 31 December 2022, \u00a3138.8 billion, 68%, of the total UK residential mortgages portfolio, including both Private Banking and
\n
Retail Banking mortgages had Energy Performance Certificate (EPC) data available (2021 \u2013 \u00a3116.2 billion, 62%). Of which, 41.5%
\n
were rated as EPC A to C (2021 \u2013 38.3%). EPC data source and limitations are provided in section 5.2 of the 2022 NatWest Group
\n
Climate-related Disclosures Report
\n
Commercial real estate (CRE)*
\n
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential
\n
properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The
\n
sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and
\n
control frameworks.
\n
2022
2021
\n
UK
RoI
Other
Total
UK
RoI
Other
Total
\n
By geography and sub-sector (1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Investment
\n
Residential
(2)
4,583
2
13
4,598
4,326
10
16
4,352
\n
Office
(3)
2,781
10
\u2014
2,791
3,030
13
10
3,053
\n
Retail
(4)
3,754
\u2014
\u2014
3,754
4,157
24
\u2014
4,181
\n
Industrial
(5)
2,939
\u2014
184
3,123
2,758
2
106
2,866
\n
Mixed/other
(6)
876
7
46
929
1,175
24
49
1,248
\n
14,933
19
243
15,195
15,446
73
181
15,700
\n
Development
\n
Residential
(2)
1,693
7
\u2014
1,700
1,775
34
2
1,811
\n
Office
(3)
81
\u2014
\u2014
81
79
\u2014
\u2014
79
\n
Retail
(4)
56
\u2014
\u2014
56
48
\u2014
\u2014
48
\n
Industrial
(5)
90
\u2014
\u2014
90
67
\u2014
\u2014
67
\n
Mixed/other
(6)
14
1
\u2014
15
20
2
\u2014
22
\n
1,934
8
\u2014
1,942
1,989
36
2
2,027
\n
Total
16,867
27
243
17,137
17,435
109
183
17,727
\n
*Not within audit scope.
\n
(1)
Geographical splits are based on country of collateral risk.
\n
(2)
Properties including houses, flats and student accommodation.
\n
(3)
Properties including offices in central business districts, regional headquarters and business parks.
\n
(4)
Properties including high street retail, shopping centres, restaurants, bars and gyms.
\n
(5)
Properties including distribution centres, manufacturing and warehouses.
\n
(6)
Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.
Commercial real estate (CRE)
\n
CRE LTV distribution by stage
(audited)
\n
The table below shows CRE current exposure and related ECL by LTV band.
\n
Current exposure (gross of provisions)
ECL provisions
ECL provisions coverage
(2)
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9 ECL
\n
scope (1)
\n
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
7,010
658
57
67
7,792
36
12
16
64
0.5
1.8
28.1
0.8
\n
>50% and \u226470%
3,515
798
43
19
4,375
23
18
12
53
0.7
2.3
27.9
1.2
\n
>70% and \u2264100%
259
82
156
7
504
1
3
42
46
0.4
3.7
26.9
9.1
\n
>100%
102
10
23
1
136
1
1
14
16
1.0
10.0
60.9
11.8
\n
Total with LTVs
10,886
1,548
279
94
12,807
61
34
84
179
0.6
2.2
30.1
1.4
\n
Total portfolio
\n
average LTV%
45%
52%
75%
44%
47%
\n
Other
(3)
1,800
627
55
86
2,568
9
15
27
51
0.5
2.4
49.1
2.0
\n
Development
(4)
1,553
332
57
7
1,949
13
8
28
49
0.8
2.4
49.1
2.5
\n
Total
14,239
2,507
391
187
17,324
83
57
139
279
0.6
2.3
35.6
1.6
\n
2021
\n
\u226450%
6,767
388
34
268
7,457
5
7
9
21
0.1
1.8
26.5
0.3
\n
>50% and \u226470%
4,367
470
46
469
5,352
3
13
20
36
0.1
2.8
43.5
0.7
\n
>70% and \u2264100%
377
192
127
9
705
\u2014
9
32
41
\u2014
4.7
25.2
5.8
\n
>100%
215
7
86
4
312
\u2014
2
28
30
\u2014
28.6
32.6
9.6
\n
Total with LTVs
11,726
1,057
293
750
13,826
8
31
89
128
0.1
2.9
30.4
0.9
\n
Total portfolio
\n
average LTV%
48%
58%
88%
52%
50%
\n
Other
(3)
2,271
293
61
83
2,708
4
13
28
45
0.2
4.4
45.9
1.7
\n
Development
(4)
1,736
228
62
77
2,103
3
6
34
43
0.2
2.6
54.8
2.0
\n
Total
15,733
1,578
416
910
18,637
15
50
151
216
0.1
3.2
36.3
1.2
\n
(1)
Includes exposures relating to non-modelled portfolios and other exposures carried at fair value.
\n
(2)
ECL provisions coverage is ECL provisions divided by gross loans.
\n
(3)
Relates mainly to business banking, rate risk management products and unsecured corporate lending.
\n
(4)
Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.
\n
\ue001
Overall
\u2013 The majority of the CRE portfolio was located and
\n
managed in the UK. Business appetite and strategy was
\n
aligned across NatWest Group.
\n
\ue001
2022 trends
\u2013 The commercial property cycle turned around
\n
mid-year as rising interest rates started to put upward
\n
pressure on property yields. Commercial property values
\n
declined by an average of approximately 20% from their
\n
mid-year peak, ending the year approximately 14% lower.
\n
The industrial sector saw values fall fastest to date, yet it
\n
continues to attract strong occupier demand and may,
\n
therefore, be the first sector to see values stabilise.
\n
Secondary offices which don\u2019t match modern sustainability
\n
standards appear most at risk from further value loss. The
\n
residential sector has yet to show significant value declines,
\n
but transaction activity has slowed materially and is
\n
expected to remain weak until values have adjusted. The
\n
spike in mortgage costs last year would be expected to push
\n
prices down across the market in 2023. In contrast,
\n
residential rents appreciated rapidly in 2022 and
\n
professionally managed rental assets are expected to be
\n
relatively robust in 2023.
\n
\ue001
Credit quality
\u2013 Credit quality was stable for the first nine
\n
months of the year but the impacts from the increase in
\n
base rate, projected capital value falls, inflationary pressures
\n
and concerns over recession for some customers began to
\n
materialise. Inflows into the Risk of Credit Loss framework
\n
picked up in Q4, but remained relatively low in volume
\n
terms, compared to previous downturns.
\n
\ue001
Risk appetite
\u2013 Lending appetite is subject to regular review
\n
with some level of tightening undertaken in 2022. Demand
\n
for facilities reduced significantly in Q4 as the market
\n
reacted to the various negative news points.
Flow statements
(audited)
\n
The flow statements that follow show the main ECL and related
\n
income statement movements. They also show the changes in
\n
ECL as well as the changes in related financial assets used in
\n
determining ECL. Due to differences in scope, exposures may
\n
differ from
those reported in other tables, principally in relation
\n
to exposures in Stage 1 and Stage 2. These differences do not
\n
have a material ECL effect. Other points to note:
\n
\ue001
Financial assets include treasury liquidity portfolios,
\n
comprising balances at central banks and debt securities,
\n
as well as loans. Both modelled and non-modelled portfolios
\n
are included.
\n
\ue001
Stage transfers (for example, exposures moving from Stage
\n
1 into Stage 2) are a key feature of the ECL movements,
\n
with the net re-measurement cost of transitioning to a
\n
worse stage being a primary driver of income statement
\n
charges. Similarly, there is an ECL benefit for accounts
\n
improving stage.
\n
\ue001
Changes in risk parameters shows the reassessment of the
\n
ECL within a given stage, including any ECL overlays and
\n
residual income statement gains or losses at the point of
\n
write-off or accounting write-down.
\n
\ue001
Other (P&L only items) includes any subsequent changes in
\n
the value of written-down assets (for example, fortuitous
\n
recoveries) along with other direct write-off items such as
\n
direct recovery costs. Other (P&L only items) affects the
\n
income statement but does not affect balance sheet ECL
\n
movements.
\n
\ue001
Amounts written-off represent the gross asset written-down
\n
against accounts with ECL, including the net asset write-
\n
down for any debt sale activity.
\n
\ue001
There were flows from Stage 1 into Stage 3 including
\n
transfers due to unexpected default events.
\n
\ue001
The effect of any change in post model adjustments during
\n
the year is typically reported under changes in risk
\n
parameters, as are any effects arising from changes to the
\n
underlying models. Refer to the section on Governance and
\n
post model adjustments for further details.
\n
\ue001
All movements are captured monthly and aggregated.
\n
Interest suspended post default is included within Stage 3
\n
ECL with the movement in the value of suspended interest
\n
during the year reported under currency translation and
\n
other adjustments.
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
NatWest Group total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Currency translation and other adjustments
6,129
\u2014
144
3
56
33
6,329
36
\n
Transfers from Stage 1 to Stage 2
(55,848)
(226)
55,848
226
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
31,657
827
(31,657)
(827)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(621)
(4)
(3,679)
(265)
4,300
269
\u2014
\u2014
\n
Transfers from Stage 3
485
34
842
77
(1,327)
(111)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(701)
1,090
\u2014
352
741
\n
Changes in risk parameters
286
(399)
\u2014
140
27
\n
Other changes in net exposure
(12,164)
125
(7,911)
(293)
(1,969)
(96)
(22,044)
(264)
\n
Other (P&L only items)
\u2014
(5)
\u2014
(162)
(167)
\n
Income statement (releases)/charges
(290)
393
234
337
\n
Transfers to disposal groups and fair value
(8,277)
(11)
(657)
(42)
(590)
(286)
(9,524)
(339)
\n
Amounts written-off
\u2014
\u2014
(5)
(5)
(477)
(477)
(482)
(482)
\n
Unwinding of discount
\u2014
\u2014
\u2014
(91)
(91)
\n
At 31 December 2022
507,539
632
48,482
1,043
5,231
1,759
561,252
3,434
\n
Net carrying amount
506,907
47,439
3,472
557,818
\n
At 1 January 2021
446,666
519
81,667
3,081
6,524
2,586
534,857
6,186
\n
2021 movements
99,512
(217)
(46,110)
(1,603)
(1,286)
(560)
52,116
(2,380)
\n
At 31 December 2021
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Net carrying amount
545,876
34,079
3,212
583,167
Asset quality
(audited)
\n
\ue001
Across the Wholesale portfolio, asset quality remained
\n
stable. The majority of the portfolio was within the AQ1-
\n
AQ4, and AQ5-AQ8 bands. Distribution differs across
\n
segments reflective of the underlying quality of
\n
counterparties, with financial institutions and sovereigns
\n
mostly in the AQ1-AQ4 bands, and property and corporates
\n
mostly in the AQ5-AQ8 bands.
\n
\ue001
Customer credit grades were reassessed as and when a
\n
request for financing was made, a scheduled customer
\n
credit review was performed or a material credit event
\n
specific to that customer occurred. Credit grades are
\n
reassessed for all customers at least annually.
\n
\ue001
ECL provisions coverage showed the expected trend, with
\n
increased coverage in the weaker asset quality bands within
\n
Stage 2 compared to Stage 1, and again within Stage 3
\n
compared to Stage 2.
\n
Credit risk \u2013 Trading activities
\n
This section details the credit risk profile of NatWest Group\u2019s trading activities.
\n
Securities financing transactions and collateral
(audited)
\n
The table below shows securities funding transactions in NatWest Markets and Treasury. Balance sheet captions include balances
\n
held at all classifications under IFRS.
\n
Reverse Repos
Repos
\n
Total
\n
Of which
\n
can be offset
\n
Outside netting
\n
arrangements
Total
\n
Of which can be
\n
offset
\n
Outside netting
\n
arrangements
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Gross
61,775
61,241
534
55,226
50,743
4,483
\n
IFRS offset
(20,211)
(20,211)
\u2014
(20,211)
(20,211)
\u2014
\n
Carrying value
41,564
41,030
534
35,015
30,532
4,483
\n
Master netting arrangements
(2,445)
(2,445)
\u2014
(2,445)
(2,445)
\u2014
\n
Securities collateral
(38,387)
(38,387)
\u2014
(28,087)
(28,087)
\u2014
\n
Potential for offset not recognised under IFRS
(40,832)
(40,832)
\u2014
(30,532)
(30,532)
\u2014
\n
Net
732
198
534
4,483
\u2014
4,483
\n
2021
\n
Gross
78,909
78,259
650
73,858
72,712
1,146
\n
IFRS offset
(32,016)
(32,016)
\u2014
(32,016)
(32,016)
\u2014
\n
Carrying value
46,893
46,243
650
41,842
40,696
1,146
\n
Master netting arrangements
(900)
(900)
\u2014
(900)
(900)
\u2014
\n
Securities collateral
(45,271)
(45,271)
\u2014
(39,794)
(39,794)
\u2014
\n
Potential for offset not recognised under IFRS
(46,171)
(46,171)
\u2014
(40,694)
(40,694)
\u2014
\n
Net
722
72
650
1,148
2
1,146
Derivatives
(audited)
\n
The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net
\n
presentation on the balance sheet under IFRS. A significant proportion of the derivatives relate to trading activities in NatWest
\n
Markets. The table also includes hedging derivatives in Treasury.
\n
2022
2021
\n
Notional
\n
GBP
USD
Euro
Other
Total
Assets
Liabilities
Notional
Assets
Liabilities
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Gross exposure
118,275
116,158
114,100
109,403
\n
IFRS offset
(18,730)
(22,111)
(7,961)
(8,568)
\n
Carrying value
2,913
4,301
5,527
1,184
13,925
99,545
94,047
12,100
106,139
100,835
\n
Of which:
\n
Interest rate
(1)
2,602
2,895
4,967
278
10,742
53,480
48,535
8,919
67,458
61,206
\n
Exchange rate
309
1,401
552
906
3,168
45,829
45,237
3,167
38,517
39,286
\n
Credit
2
5
8
\u2014
15
236
275
14
154
343
\n
Equity and commodity
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
10
\u2014
\n
Carrying value
13,925
99,545
94,047
12,100
106,139
100,835
\n
Counterparty mark-to-market netting
(77,365)
(77,365)
(85,006)
(85,006)
\n
Cash collateral
(14,079)
(9,761)
(15,035)
(9,909)
\n
Securities collateral
(4,571)
(1,185)
(2,428)
(2,913)
\n
Net exposure
3,530
5,736
3,670
3,007
\n
Banks
(2)
648
711
393
413
\n
Other financial institutions
(3)
1,732
1,969
1,490
1,584
\n
Corporate
(4)
1,068
2,969
1,716
938
\n
Government
(5)
82
87
71
72
\n
Net exposure
3,530
5,736
3,670
3,007
\n
UK
1,271
2,878
1,990
1,122
\n
Europe
1,196
2,015
714
1,028
\n
US
753
626
645
653
\n
RoW
310
217
321
204
\n
Net exposure
3,530
5,736
3,670
3,007
\n
Asset quality of uncollateralised
\n
derivative assets
\n
AQ1-AQ4
3,014
2,939
\n
AQ5-AQ8
500
674
\n
AQ9-AQ10
16
57
\n
Net exposure
3,530
3,670
\n
(1)
The notional amount of interest rate derivatives includes \u00a38,065 billion (2021 \u2013 \u00a36,173 billion) in respect of contracts cleared through central clearing counterparties.
\n
(2)
Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms
\n
that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions where the collateral agreements are not deemed to be legally enforceable.
\n
(3)
Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group\u2019s external rating.
\n
(4)
Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting.
\n
(5)
Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their
\n
favour
.
Derivatives: settlement basis and central counterparties
(audited)
\n
The table below shows the third party derivative notional and fair value by trading and settlement method.
\n
Notional
\n
Traded over the counter
Asset
Liability
\n
2022
\n
Traded on
\n
recognised
\n
exchanges \u00a3bn
\n
Settled by central
\n
counterparties \u00a3bn
\n
Not settled by
\n
central
\n
counterparties \u00a3bn
\n
Total
\n
\u00a3bn
\n
Traded on
\n
recognised
\n
exchanges \u00a3m
\n
Traded over
\n
the counter
\n
\u00a3m
\n
Traded on
\n
recognised
\n
exchanges \u00a3m
\n
Traded over
\n
the counter
\n
\u00a3m
\n
Interest rate
707
8,065
1,970
10,742
113
53,367
33
48,502
\n
Exchange rate
2
\u2014
3,166
3,168
\u2014
45,829
\u2014
45,237
\n
Credit
\u2014
\u2014
15
15
\u2014
236
\u2014
275
\n
Equity and commodity
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Total
709
8,065
5,151
13,925
113
99,432
33
94,014
\n
2021
\n
Interest rate
723
6,173
2,023
8,919
\u2014
67,458
\u2014
61,206
\n
Exchange rate
2
\u2014
3,165
3,167
\u2014
38,517
\u2014
39,286
\n
Credit
\u2014
\u2014
14
14
\u2014
154
\u2014
343
\n
Equity and commodity
\u2014
\u2014
\u2014
\u2014
\u2014
10
\u2014
\u2014
\n
Total
725
6,173
5,202
12,100
\u2014
106,139
\u2014
100,835
\n
Debt securities
(audited)
\n
The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the
\n
lowest of Standard & Poor\u2019s, Moody\u2019s and Fitch.
\n
Central and local government
\n
UK
US
Other
\n
Financial
\n
institutions
\n
Corporate
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
AAA
\u2014
\u2014
469
766
3
1,238
\n
AA to AA+
\u2014
2,345
1,042
1,114
21
4,522
\n
A to AA-
2,205
\u2014
372
77
29
2,683
\n
BBB- to A-
\u2014
\u2014
916
149
296
1,361
\n
Non-investment grade
\u2014
\u2014
\u2014
65
49
114
\n
Unrated
\u2014
\u2014
\u2014
1
3
4
\n
Total
2,205
2,345
2,799
2,172
401
9,922
\n
Short positions
(2,313)
(1,293)
(3,936)
(1,875)
(107)
(9,524)
\n
2021
\n
AAA
\u2014
\u2014
2,011
838
\u2014
2,849
\n
AA to AA+
\u2014
3,329
3,145
1,401
62
7,937
\n
A to AA-
6,919
\u2014
1,950
308
57
9,234
\n
BBB- to A-
\u2014
\u2014
3,792
346
517
4,655
\n
Non-investment grade
\u2014
\u2014
31
163
82
276
\n
Unrated
\u2014
\u2014
\u2014
3
3
6
\n
Total
6,919
3,329
10,929
3,059
721
24,957
\n
Short positions
(9,790)
(56)
(12,907)
(2,074)
(137)
(24,964)
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
15 Loan impairment provisions
\n
Loan exposure and impairment metrics
\n
There is a risk that customers and counterparties fail to meet their contractual obligation to settle outstanding amounts, known as
\n
expected credit losses (ECL). The calculation of ECL considers historic, current and forward-looking information to determine the
\n
amount we do not expect to recover. ECL is recognised on current and potential exposures, and contingent liabilities.
\n
For accounting policy information see Accounting policies note 2.3. Further disclosures on credit risk and information on ECL
\n
methodology are shown from page 190.
\n
The table below summarises loans and credit impairment measures within the scope of IFRS 9 Expected credit losses framework.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
325,224
330,824
\n
Stage 2
46,833
33,981
\n
Stage 3
5,096
5,022
\n
Of which: individual
1,121
1,215
\n
Of which: collective
3,975
3,807
\n
377,153
369,827
\n
ECL provisions
(1)
\n
- Stage 1
632
302
\n
- Stage 2
1,043
1,478
\n
- Stage 3
1,759
2,026
\n
Of which: individual
287
363
\n
Of which: collective
1,472
1,663
\n
3,434
3,806
\n
ECL provision coverage
(2)
\n
- Stage 1 (%)
0.19
0.09
\n
- Stage 2 (%)
2.23
4.35
\n
- Stage 3 (%)
34.52
40.34
\n
0.91
1.03
\n
Continuing operations
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3,4)
337
(1,173)
\n
Stage 1
(290)
(1,317)
\n
Stage 2
393
(164)
\n
Stage 3
234
308
\n
Of which: individual
54
20
\n
Of which: collective
180
288
\n
Amounts written off
482
876
\n
Of which: individual
168
455
\n
Of which: collective
314
421
\n
(1)
Includes loans to customers and banks.
\n
(2)
Includes \u00a33 million (2021 - \u00a35 million) related to assets classified as FVOCI and \u00a30.1 billion (2021 - \u00a30.1 billion related to off-balance sheet exposures.
\n
(3)
ECL provisions coverage is calculated as total ECL provisions divided by loans \u2013 amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
\n
(4)
Includes a \u00a33 million charge (2021 - \u00a33 million release) related to other financial assets, of which nil (2021 - \u00a32 million release) related to assets classified as FVOCI; and \u00a35
\n
million release (2021 - \u00a334 million release) related to contingent liabilities.
\n
(5)
The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to Financial instruments within the scope of the IFRS 9 ECL
\n
framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling \u00a3143.3 billion (2021 \u2013
\n
\u00a3176.3 billion) and debt securities of \u00a329.9 billion (2021 \u2013 \u00a344.9 billion).
Credit risk enhancement and mitigation
\n
For information on Credit risk enhancement and mitigation held
\n
as security, refer to Risk and capital management \u2013 Credit risk
\n
enhancement and mitigation section.
\n
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
\n
IFRS 9 ECL model design principles
\n
Refer to Credit risk \u2013 IFRS 9 ECL model design principles
\n
section for further details.
\n
Approach for multiple economic scenarios (MES)
\n
The base scenario plays a greater part in the calculation of
\n
ECL than the approach to MES. Refer to Credit risk \u2013 Economic
\n
loss drivers - Probability weightings of scenarios section for
\n
further details.
\n
16 Other financial assets
\n
Other financial assets consist of debt securities, equity shares and loans that are not held for trading. Balances consist of local and
\n
central government securities, a component part of NatWest Group\u2019s liquidity portfolio.
\n
For accounting policy information see Accounting policy 3.8.
\n
Debt securities
\n
Central and local government
\n
UK
US
Other
Other debt
Total
Equity shares
Loans
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
2
2
3
782
787
\n
Fair value through other comprehensive
\n
income
(1)
\n
802
7,175
1,757
6,765
16,499
357
117
16,973
\n
Amortised cost
2,562
937
54
9,582
13,135
\u2014
\u2014
13,135
\n
Total
3,364
8,112
1,811
16,349
29,636
360
899
30,895
\n
2021
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
6
6
13
298
317
\n
Fair value through other comprehensive
\n
income
(1)
11,938
10,086
5,604
9,058
36,686
312
268
37,266
\n
Amortised cost
3,821
156
81
4,504
8,562
\u2014
\u2014
8,562
\n
Total
15,759
10,242
5,685
13,568
45,254
325
566
46,145
\n
(1)
Upon initial recognition, NatWest Group occasionally irrevocably
designates some of its equity investments as equity instruments at FVOCI when they meet the definition of equity
\n
under IAS 32 Financial instruments: presentation, are not held for trading or they are held for strategic purposes. Such classification is determined on an instrument-by-instrument
\n
basis. Gains and losses on these equity instruments are not recycled to the income statement and dividends are recognised in profit or loss except when they represent a recovery
\n
of part of the cost of the instrument, in which case such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.
\n
During the year NatWest Group acquired \u00a3146 million of equity shares in Permanent TSB Group Holdings p.l.c. as part
\n
consideration on the sale of certain assets. Refer to Note 8 for additional information on assets of disposal groups. In addition,
\n
NatWest Group acquired \u00a326 million of equity shares in Vodeno Limited.
\n
NatWest Group disposed of equity shares in Visa Inc. of \u00a399 million and UBS Equity Funds of \u00a369 million. There were no significant
\n
disposals in the prior year. There are no significant dividends on equity shares held at FVOCI in either year.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAllowanceForCreditLossesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22597": { "value": "
Credit risk
\n
Definition
(audited)
\n
Credit risk is the risk that customers, counterparties or issuers
\n
fail to meet their contractual obligation to settle outstanding
\n
amounts.
\n
Sources of risk
(audited)
\n
The principal sources of credit risk for NatWest Group are
\n
lending, off-balance sheet products, derivatives and securities
\n
financing, and debt securities. NatWest Group is also exposed to
\n
settlement risk through foreign exchange, trade finance and
\n
payments activities.
\n
Key developments in 2022
\n
\ue001
Across both Personal and Wholesale, the credit profile
\n
remains stable, but the outlook is uncertain from inflationary
\n
pressure, compounded by rising interest rates and
\n
geopolitical tensions. NatWest Group has yet to see signs of
\n
financial stress materially affecting customers\u2019 ability to
\n
repay.
\n
\ue001
Expected credit loss (ECL) reduced during 2022, reflecting
\n
the phased withdrawal of Ulster Bank RoI, plus continued
\n
positive trends in portfolio performance alongside a related
\n
net release of judgemental post model adjustments and
\n
write-off activity. Overall, ECL coverage decreased due to
\n
the withdrawal, a change in product mix and a reduction in
\n
judgemental post model adjustments which more than offset
\n
increases from the deteriorating economic outlook.
\n
\ue001
Personal lending grew as a result of strong mortgage and
\n
resilient unsecured lending demand. Personal lending criteria
\n
were unwound to a level similar to pre-COVID-19 norms
\n
during 2022. Affordability assumptions remain under
\n
continuous review and adjustments were made to ensure
\n
new business continues to be assessed appropriately.
\n
\ue001
In Wholesale, balance sheet reduction in 2022 compared to
\n
2021 was mainly due to a decrease in central items held in
\n
the course of treasury related management activities. There
\n
was growth in Commercial & Institutional. Sector appetite is
\n
reviewed regularly and where appropriate adjusted for those
\n
sectors most affected by current economic and geopolitical
\n
conditions.
\n
\ue001
A number of high materiality IFRS 9 models were
\n
redeveloped in 2022, most notably all probability of default
\n
(PD) and some loss given default (LGD) models for Personal
\n
lending and the two most material economic response
\n
models for Wholesale lending.
\n
\ue001
NatWest Group continued to progress embedding climate
\n
change considerations in credit assessment and monitoring,
\n
including scenario analysis to assess the materiality of
\n
climate change risks.
\n
Governance
(audited)
\n
The Credit Risk function provides oversight and challenge of
\n
frontline credit risk management activities.
\n
Governance activities include:
\n
\ue001
Defining credit risk appetite measures for the management
\n
of concentration risk and credit policy to establish the key
\n
causes of risk in the process of providing credit and the
\n
controls that must be in place to mitigate them.
\n
\ue001
Approving and monitoring operational limits for business
\n
segments and credit limits for customers.
\n
\ue001
Oversight of the first line of defence to ensure that credit
\n
risk remains within the appetite set by the Board and that
\n
controls are being operated adequately and effectively.
\n
\ue001
Assessing the adequacy of ECL provisions including
\n
approving key IFRS 9 inputs (such as significant increase in
\n
credit risk (SICR) thresholds) and any necessary in-model
\n
and post model adjustments through NatWest Group and
\n
business unit provisions and model committees.
\n
\ue001
Development and approval of credit grading models.
\n
Risk appetite
\n
Credit risk appetite aligns to the strategic risk appetite set by
\n
the Board and is set and monitored through risk appetite
\n
frameworks tailored to NatWest Group\u2019s Personal and
\n
Wholesale segments.
\n
Personal
\n
The Personal credit risk appetite framework sets limits that
\n
control the quality and concentration of both existing and new
\n
business for each relevant business segment.
\n
These risk appetite measures consider the segments\u2019 ability to
\n
grow sustainably and the level of losses expected under stress.
\n
Credit risk is further controlled through operational limits
\n
specific to customer or product characteristics.
\n
Wholesale
\n
For Wholesale credit, the framework has been designed to
\n
reflect factors that influence the ability to operate within risk
\n
appetite. Tools such as stress testing and economic capital are
\n
used to measure credit risk volatility and develop links between
\n
the framework and risk appetite limits.
\n
Four formal frameworks are used, classifying, measuring and
\n
monitoring credit risk exposure across single name, sector and
\n
country concentrations and product and asset classes with
\n
heightened risk characteristics.
\n
The framework is supported by a suite of transactional
\n
acceptance standards that set out the risk parameters within
\n
which businesses should operate.
\n
Credit policy standards are in place for both the Wholesale and
\n
Personal portfolios. They are expressed as a set of mandatory
\n
controls.
\n
Identification and measurement
\n
Credit stewardship
(audited)
\n
Risks are identified through relationship management and credit
\n
stewardship of customers and portfolios. Credit risk stewardship
\n
takes place throughout the customer relationship, beginning
\n
with the initial approval. It includes the application of credit
\n
assessment standards, credit risk mitigation and collateral,
\n
ensuring that credit documentation is complete and appropriate,
\n
carrying out regular portfolio or customer reviews and problem
\n
debt identification and management.
\n
Asset quality
(audited)
\n
All credit grades map to an asset quality (AQ) scale, used for
\n
financial reporting. This AQ scale is based on Basel probability
\n
of defaults. Performing loans are defined as AQ1-AQ9 (where
\n
the PD is less than 100%) and defaulted non-performing loans as
\n
AQ10 or Stage 3 under IFRS 9 (where the PD is 100%). Loans
\n
are defined as defaulted when the payment status becomes 90
\n
days past due, or earlier if there is clear evidence that the
\n
borrower is unlikely to repay, for example bankruptcy or
\n
insolvency.
\n
Counterparty credit risk
\n
Counterparty credit risk arises from the obligations of customers
\n
under derivative and securities financing transactions.
\n
NatWest Group mitigates counterparty credit risk through
\n
collateralisation and netting agreements, which allow amounts
\n
owed by NatWest Group to a counterparty to be netted against
\n
amounts the counterparty owes NatWest Group.
Mitigation
\n
Mitigation techniques, as set out in the appropriate credit
\n
policies and transactional acceptance standards, are used in the
\n
management of credit portfolios across NatWest Group. These
\n
techniques mitigate credit concentrations in relation to an
\n
individual customer, a borrower group or a collection of related
\n
borrowers. Where possible, customer credit balances are netted
\n
against obligations. Mitigation tools can include structuring a
\n
security interest in a physical or financial asset, the use of credit
\n
derivatives including credit default swaps, credit-linked debt
\n
instruments and securitisation structures, and the use of
\n
guarantees and similar instruments (for example, credit
\n
insurance) from related and third parties.
\n
Property is used to mitigate credit risk across a number of
\n
portfolios, in particular residential mortgage lending and
\n
commercial real estate (CRE).
\n
The valuation methodologies for collateral in the form of
\n
residential mortgage property and CRE are detailed below.
\n
Residential mortgages
\u2013
NatWest Group takes collateral in the
\n
form of residential property to mitigate the credit risk arising
\n
from mortgages. NatWest Group values residential property
\n
individually during the loan underwriting process, either by
\n
obtaining an appraisal by a suitably qualified appraiser (for
\n
example, Royal Institution of Chartered Surveyors (RICS)) or
\n
using a statistically valid model.
In both cases, a sample of the
\n
valuation outputs are periodically reviewed by an independent
\n
RICS qualified appraiser. NatWest Group updates Retail Banking
\n
UK residential property values quarterly using country
\n
(Scotland, Wales and Northern Ireland) or English regional
\n
specific Office for National Statistics House Price indices.
\n
Within the Private Banking and RBSI segments, properties
\n
securing loans greater than \u00a32.5 million or \u20ac3 million are
\n
revalued every three years.
\n
The current indexed value of the property is a component of the
\n
ECL provisioning calculation.
\n
Commercial real estate valuations
\u2013 NatWest Group has an
\n
actively managed panel of chartered surveying firms that cover
\n
the spectrum of geography and property sectors in which
\n
NatWest Group takes collateral. Suitable RICS registered valuers
\n
for particular assets are typically contracted through a service
\n
agreement to ensure consistency of quality and advice. In the
\n
UK, an independent third-party market indexation is applied to
\n
update external valuations for commercial property once they
\n
are more than a year old. For obligations in excess of \u00a32.5
\n
million and where the charged property has a book value in
\n
excess of \u00a30.5 million, a formal valuation review is
\n
commissioned at least every three years. In the Republic of
\n
Ireland, assets are revalued in line with the Central Bank of
\n
Ireland threshold requirements, which permits indexation for
\n
lower value residential assets, but demands regular valuations
\n
for higher value assets.
\n
Assessment and monitoring
\n
Practices for credit stewardship \u2013 including credit assessment,
\n
approval and monitoring as well as the identification and
\n
management of problem debts \u2013 differ between the Personal
\n
and Wholesale portfolios.
\n
Personal
\n
Personal customers are served through a lending approach that
\n
entails offering a large number of small-value loans. To ensure
\n
that these lending decisions are made consistently, NatWest
\n
Group analyses internal credit information as well as external
\n
data supplied by credit reference agencies (including historical
\n
debt servicing behaviour of customers with respect to both
\n
NatWest Group and other lenders). NatWest Group then sets its
\n
lending rules accordingly, developing different rules for different
\n
products.
\n
The process is then largely automated, with each customer
\n
receiving an individual credit score that reflects both internal
\n
and external behaviours and this score is compared with the
\n
lending rules set. For relatively high-value, complex personal
\n
loans, including some residential mortgage lending, specialist
\n
credit managers make the final lending decisions. These
\n
decisions are made within specified delegated authority limits
\n
that are issued dependent on the experience of the individual.
\n
Underwriting standards and portfolio performance are
\n
monitored on an ongoing basis to ensure they remain adequate
\n
in the current market environment and are not weakened
\n
materially to sustain growth.
\n
The actual performance of each portfolio is tracked relative to
\n
operational limits. The limits apply to a range of credit risk-
\n
related measures including projected credit default rates across
\n
products and the loan-to-value (LTV) ratio of the mortgage
\n
portfolios. Where operational limits identify areas of concern
\n
management action is taken to adjust credit or business
\n
strategy.
\n
Wholesale
\n
Wholesale customers \u2013 including corporates, banks and other
\n
financial institutions \u2013 are grouped by industry sectors and
\n
geography as well as by product/asset class and are managed
\n
on an individual basis. Customers are aggregated as a single
\n
risk when sufficiently interconnected.
\n
A credit assessment is carried out before credit facilities are
\n
made available to customers. The assessment process is
\n
dependent on the complexity of the transaction. Credit
\n
approvals are subject to environmental, social and governance
\n
risk policies which restrict exposure to certain highly carbon
\n
intensive industries as well as those with potentially heightened
\n
reputational impacts. Customer specific climate risk
\n
commentary is now mandatory.
\n
In response to COVID-19, a new framework was introduced to
\n
categorise clients in a consistent manner across the Wholesale
\n
portfolio, based on the effect of COVID-19 on their financial
\n
position and outlook in relation to the sector risk appetite. This
\n
framework has been retained, updated and aligned with the
\n
Risk of Credit Loss framework (further details below) to consider
\n
viability impacts more generally beyond those directly related to
\n
COVID-19 and classification via the framework is now
\n
mandatory and must be refreshed at least annually. The
\n
framework extends to all Wholesale borrowing customers in
\n
assessing whether customers exhibit a SICR, if support is
\n
considered to be granting forbearance and the time it would
\n
take for customers to return to operating within transactional
\n
acceptance standards.
For lower risk transactions below specific thresholds, credit
\n
decisions can be approved through self-sanctioning within the
\n
business. This process is facilitated through an auto-decision
\n
making system, which utilises scorecards, strategies and policy
\n
rules.
\n
For all other transactions, credit is only granted to customers
\n
following joint approval by an approver from the business and
\n
the credit risk function or by two credit officers. The joint
\n
business and credit approvers act within a delegated approval
\n
authority under the Wholesale Credit Authorities Framework
\n
Policy. The level of delegated authority held by approvers is
\n
dependent on their experience and expertise with only a small
\n
number of senior executives holding the highest approval
\n
authority. Both business and credit approvers are accountable
\n
for the quality of each decision taken, although the credit risk
\n
approver holds ultimate sanctioning authority.
\n
Transactional acceptance standards provide detailed
\n
transactional lending and risk acceptance metrics and
\n
structuring guidance. As such, these standards provide a
\n
mechanism to manage risk appetite at the customer/transaction
\n
level and are supplementary to the established credit risk
\n
appetite.
\n
Credit grades (PD) and LGD are reviewed and if appropriate
\n
reapproved annually. The review process assesses borrower
\n
performance, including reconfirmation or adjustment of risk
\n
parameter estimates; the adequacy of security; compliance with
\n
terms and conditions; and refinancing risk.
\n
Problem debt management
\n
Personal
\n
Early problem identification
\n
Pre-emptive triggers are in place to help identify customers that
\n
may be at risk of being in financial difficulty. These triggers are
\n
both internal, using NatWest Group data, and external using
\n
information from credit reference agencies. Proactive contact is
\n
then made with the customer to establish if they require help
\n
with managing their finances. By adopting this approach, the
\n
aim is to prevent a customer\u2019s financial position deteriorating
\n
which may then require intervention from the Collections and
\n
Recoveries teams.
\n
Personal customers experiencing financial difficulty are
\n
managed by the Collections team. If the Collections team is
\n
unable to provide appropriate support after discussing suitable
\n
options with the customer, management of that customer
\n
moves to the Recoveries team.
If at any point in the collections
\n
and recoveries process, the customer is identified as being
\n
potentially vulnerable, the customer will be separated from the
\n
regular process and supported by a specialist team to ensure
\n
the customer receives appropriate support for their
\n
circumstances.
\n
Collections
\n
When a customer exceeds an agreed limit or misses a regular
\n
monthly payment the customer is contacted by NatWest Group
\n
and requested to remedy the position. If the situation is not
\n
regularised then, where appropriate, the Collections team will
\n
become more involved and the customer will be supported by
\n
skilled debt management staff who endeavour to provide
\n
customers with bespoke solutions. Solutions include short-term
\n
account restructuring, refinance loans and forbearance which
\n
can include interest suspension and \u2018breathing space\u2019. All
\n
treatments available to customers experiencing financial
\n
difficulties are reviewed to ensure they remain appropriate for
\n
customers impacted by current economic conditions.
\n
In the event that an affordable and sustainable agreement with
\n
a customer cannot be reached, the debt will transition to the
\n
Recoveries team.
\n
For provisioning purposes, under IFRS 9, exposure to customers
\n
managed by the Collections team is categorised as Stage 2 and
\n
subject to a lifetime loss assessment, unless it is 90 days past
\n
due or has triggered any other unlikeliness to pay indicators, in
\n
which case it is categorised as Stage 3.
\n
Recoveries
\n
The Recoveries team will issue a notice of intention to default to
\n
the customer and, if appropriate, a formal demand, while also
\n
registering the account with credit reference agencies where
\n
appropriate. Following this, the customer\u2019s debt may then be
\n
placed with a third-party debt collection agency, or alternatively
\n
a solicitor, in order to agree an affordable repayment plan with
\n
the customer. An option that may also be considered, is the sale
\n
of unsecured debt. Exposures subject to formal debt recovery
\n
are defaulted and, under IFRS 9, categorised as Stage 3.
\n
Wholesale
\n
Early problem identification
\n
Each segment and sector have defined early warning indicators
\n
to identify customers experiencing financial difficulty, and to
\n
increase monitoring if needed. Early warning indicators may be
\n
internal, such as a customer\u2019s bank account activity, or
\n
external, such as a publicly-listed customer\u2019s share price. If
\n
early warning indicators show a customer is experiencing
\n
potential or actual difficulty, or if relationship managers or credit
\n
officers identify other signs of financial difficulty, they may
\n
decide to classify the customer within the Risk of Credit Loss
\n
framework. Broader macro-economic trends including
\n
commodity prices, foreign exchange rates and consumer and
\n
government spend are also tracked, helping inform decisions on
\n
sector risk appetite. Customer level early warning indicators are
\n
regularly reviewed to ensure alignment with prevailing
\n
economic conditions, ensuring both the volume and focus of
\n
alerts is aligned to the point-in-time risk within each sector.
\n
The aligned Risk of Credit Loss and viability framework
\n
This framework focuses on all Wholesale customers to provide
\n
early identification of credit deterioration, support intelligent
\n
risk-taking, ensure fair and consistent customer outcomes and
\n
provide key insights into Wholesale lending portfolios. Expert
\n
judgment is applied by experienced credit risk officers to classify
\n
cases into categories that reflect progressively deteriorating
\n
credit risk to NatWest Group. There are two classifications in the
\n
framework that apply to non-defaulted customers who are in
\n
financial stress \u2013 Heightened Monitoring and Risk of Credit Loss.
\n
For the purposes of provisioning, all exposures categorised as
\n
Heightened Monitoring or Risk of Credit Loss are categorised as
\n
Stage 2 and subject to a lifetime loss assessment. The
\n
framework also applies to those customers that have met
\n
NatWest Group\u2019s default criteria (AQ10 exposures). Defaulted
\n
exposures are categorised as Stage 3 impaired for provisioning
\n
purposes.
\n
Heightened Monitoring customers are performing customers
\n
that have met certain characteristics, which have led to
\n
significant credit deterioration. Collectively, characteristics
\n
reflect circumstances that may affect the customer\u2019s ability to
\n
meet repayment obligations. Characteristics include trading
\n
issues, covenant breaches, material PD downgrades and past
\n
due facilities.
\n
Heightened Monitoring customers require pre-emptive actions
\n
(outside the customer\u2019s normal trading patterns) to return or
\n
maintain their facilities within NatWest Group\u2019s current risk
\n
appetite.
Risk of Credit Loss customers are performing customers that
\n
have met the criteria for Heightened Monitoring and also pose a
\n
risk of credit loss to NatWest Group in the next 12 months
\n
should mitigating action not be taken or not be successful.
\n
Once classified as either Heightened Monitoring or Risk of Credit
\n
Loss, a number of mandatory actions are taken in accordance
\n
with policies. Actions include a review of the customer\u2019s credit
\n
grade, facility and security documentation and the valuation of
\n
security. Depending on the severity of the financial difficulty and
\n
the size of the exposure, the customer relationship strategy is
\n
reassessed by credit officers, by specialist credit risk or
\n
relationship management units in the relevant business, or by
\n
Restructuring.
\n
Agreed customer management strategies are regularly
\n
monitored by both the business and credit teams. The largest
\n
Risk of Credit Loss exposures are regularly reviewed by a Risk
\n
of Credit Loss forum. The forum members are experienced
\n
credit, business and restructuring specialists. The purpose of the
\n
forum is to review and challenge the strategies undertaken for
\n
customers that pose the largest risk of credit loss to NatWest
\n
Group.
\n
Appropriate corrective action is taken when circumstances
\n
emerge that may affect the customer\u2019s ability to service its debt
\n
(refer to Heightened Monitoring characteristics). Corrective
\n
actions may include granting a customer various types of
\n
concessions. Any decision to approve a concession will be a
\n
function of specific appetite, the credit quality of the customer,
\n
the market environment and the loan structure and security. All
\n
customers granted forbearance are classified Heightened
\n
Monitoring as a minimum.
\n
Other potential outcomes of the relationship review are to:
\n
return the customer to a satisfactory status, offer additional
\n
lending and continue monitoring, transfer the relationship to
\n
Restructuring if appropriate, or exit the relationship.
\n
The aligned Risk of Credit Loss and viability framework does not
\n
apply to problem debt management for business banking
\n
customers. These customers are, where necessary, managed by
\n
specialist problem debt management teams, depending on the
\n
size of exposure or by the business banking recoveries team
\n
where a loan has been impaired.
\n
Restructuring
\n
Where customers are categorised as Risk of Credit Loss and the
\n
lending exposure is above \u00a31 million, relationships are supported
\n
by the Restructuring team. The objective of Restructuring is to
\n
protect NatWest Group\u2019s capital. Restructuring does this by
\n
working with corporate and commercial customers in financial
\n
difficulty to help them understand their options and how their
\n
restructuring or repayment strategies can be delivered. Helping
\n
viable customers return to financial health and restoring a
\n
normal banking relationship is always the preferred outcome,
\n
however, where this is not possible, NatWest Group will work
\n
with customers to achieve a solvent outcome. Throughout this
\n
period, the mainstream relationship manager will remain an
\n
integral part of the customer relationship. Insolvency is
\n
considered as a last resort and if deemed necessary, NatWest
\n
Group will work to recover its capital in a fair and efficient
\n
manner, while upholding the fair treatment of customers and
\n
NatWest Group\u2019s core values.
\n
Forbearance
(audited)
\n
Forbearance takes place when a concession is made on the
\n
contractual terms of a loan/debt in response to a customer\u2019s
\n
financial difficulties.
\n
The aim of forbearance is to support and restore the customer
\n
to financial health while minimising risk. To ensure that
\n
forbearance is appropriate for the needs of the customer,
\n
minimum standards are applied when assessing, recording,
\n
monitoring and reporting forbearance.
\n
A credit exposure may be forborne more than once, generally
\n
where a temporary concession has been granted and
\n
circumstances warrant another temporary or permanent
\n
revision of the loan\u2019s terms.
\n
Loans are reported as forborne until they meet the exit criteria
\n
as detailed in the appropriate regulatory guidance. These
\n
include being classified as performing for two years since the
\n
last forbearance event, making regular repayments and the
\n
loan/debt being less than 30 days past due.
\n
Types of forbearance
\n
Personal
\n
In the Personal portfolio, forbearance may involve payment
\n
concessions and loan rescheduling (including extensions in
\n
contractual maturity), capitalisation of arrears. Forbearance
\n
support is provided for both mortgages and unsecured lending.
\n
Wholesale
\n
In the Wholesale portfolio, forbearance may involve covenant
\n
waivers, amendments to margins, payment concessions and
\n
loan rescheduling (including extensions in contractual maturity),
\n
capitalisation of arrears, and debt forgiveness or debt-for-equity
\n
swaps.
\n
Monitoring of forbearance
\n
Personal
\n
For Personal portfolios, forborne loans are separated and
\n
regularly monitored and reported while the forbearance
\n
strategy is implemented, until they exit forbearance.
\n
Wholesale
\n
In the Wholesale portfolio, customer PDs and facility LGDs are
\n
reassessed prior to finalising any forbearance arrangement. The
\n
ultimate outcome of a forbearance strategy is highly dependent
\n
on the co-operation of the borrower and a viable business or
\n
repayment outcome. Where forbearance is no longer
\n
appropriate, NatWest Group will consider other options such as
\n
the enforcement of security, insolvency proceedings or both,
\n
although these are options of last resort.
\n
Provisioning requirements on forbearance are detailed in the
\n
Provisioning for forbearance section.
\n
Credit grading models
\n
Credit grading models is the collective term used to describe all
\n
models, frameworks and methodologies used to calculate PD,
\n
exposure at default (EAD), LGD, maturity and the production of
\n
credit grades.
\n
Credit grading models are designed to provide:
\n
\ue001
An assessment of customer and transaction characteristics.
\n
\ue001
A meaningful differentiation of credit risk.
\n
\ue001
Accurate internal default rate, loss and exposure estimates
\n
that are used in the capital calculation or wider risk
\n
management purposes.
Impairment, provisioning and write-offs
\n
(audited)
\n
In the overall assessment of credit risk, impairment provisioning
\n
and write-offs are used as key indicators of credit quality.
\n
NatWest Group\u2019s IFRS 9 provisioning models, which use existing
\n
Basel models as a starting point, incorporate term structures
\n
and forward-looking information. Regulatory conservatism
\n
within the Basel models has been removed as appropriate to
\n
comply with the IFRS 9 requirement for unbiased ECL estimates.
\n
Five key areas may materially influence the measurement of
\n
credit impairment under IFRS 9 \u2013 two of these relate to model
\n
build and three relate to model application:
\n
Model build:
\n
\ue001
The determination of economic indicators that have most
\n
influence on credit loss for each portfolio and the severity of
\n
impact (this leverages existing stress testing models which
\n
are reviewed annually).
\n
\ue001
The build of term structures to extend the determination of
\n
the risk of loss beyond 12 months that will influence the
\n
impact of lifetime loss for exposures in Stage 2.
\n
Model application:
\n
\ue001
The assessment of the SICR and the formation of a
\n
framework capable of consistent application.
\n
\ue001
The determination of asset lifetimes that reflect behavioural
\n
characteristics while also representing management actions
\n
and processes (using historical data and experience).
\n
\ue001
The choice of forward-looking economic scenarios and their
\n
respective probability weights.
\n
Refer to Accounting policy 2.3 for further details.
\n
IFRS 9 ECL model design principles
(audited)
\n
Modelling of ECL for IFRS 9 follows the conventional approach
\n
to divide the estimation of credit losses into its component parts
\n
of PD, LGD and EAD.
\n
To meet IFRS 9 requirements, the PD, LGD and EAD parameters
\n
differ from their Pillar 1 internal ratings based (IRB) counterparts
\n
in the following aspects:
\n
\ue001
Unbiased \u2013 material regulatory conservatism has been
\n
removed from IFRS 9 parameters to produce unbiased
\n
estimates.
\n
\ue001
Point-in-time \u2013 IFRS 9 parameters reflect actual economic
\n
conditions at the reporting date instead of long-run average
\n
or downturn conditions.
\n
\ue001
Forward-looking \u2013 IFRS 9 PD estimates and, where
\n
appropriate, EAD and LGD estimates reflect forward-looking
\n
economic conditions.
\n
\ue001
Lifetime measurement \u2013 IFRS 9 PD, LGD and EAD are
\n
provided as multi-period term structures up to exposure
\n
lifetimes instead of over a fixed one-year horizon.
\n
IFRS 9 requires that at each reporting date, an entity shall
\n
assess whether the credit risk on an account has increased
\n
significantly since initial recognition. Part of this assessment
\n
requires a comparison to be made between the current lifetime
\n
PD (i.e. the PD over the remaining lifetime at the reporting date)
\n
and the equivalent lifetime PD as determined at the date of
\n
initial recognition.
\n
For assets originated before IFRS 9 was introduced, comparable
\n
lifetime origination PDs did not exist. These have been
\n
retrospectively created using the relevant model inputs
\n
applicable at initial recognition.
\n
PD estimates
\n
Personal models
\n
Personal PD models follow a discrete multi-horizon survival
\n
approach, predicting quarterly PDs up to lifetime at account
\n
level, with a key driver being scores from related IRB PD
\n
models. Forward-looking economic information is brought in by
\n
economic response models, which leverage the existing stress
\n
test model suite. The current suite of PD models was introduced
\n
in 2022 replacing the previous, first-generation models to
\n
remediate a range of model weaknesses.
\n
Wholesale models
\n
Wholesale PD models use a point-in-time/through-the-cycle
\n
framework to convert one-year regulatory PDs into point-in-
\n
time estimates that reflect economic conditions at the reporting
\n
date. The framework utilises credit cycle indices (CCIs) for a
\n
comprehensive set of region/industry segments. Further detail
\n
on CCIs is provided in the Economic loss drivers section.
\n
One year point-in-time PDs are extended to forward-looking
\n
lifetime PDs using a conditional transition matrix approach and
\n
a set of econometric forecasting models.
\n
LGD estimates
\n
The general approach for the IFRS 9 LGD models is to leverage
\n
corresponding IRB LGD models with bespoke adjustments to
\n
ensure estimates are unbiased and, where relevant, forward-
\n
looking.
\n
Personal
\n
Forward-looking information has only been incorporated for the
\n
secured portfolios, where changes in property prices can be
\n
readily accommodated. Analysis has shown minimal impact of
\n
economic conditions on LGDs for the other Personal portfolios.
\n
Wholesale
\n
Forward-looking economic information is incorporated into LGD
\n
estimates using the existing CCI framework. For low default
\n
portfolios, including sovereigns and banks, loss data is too
\n
scarce to substantiate estimates that vary with economic
\n
conditions. Consequently, for these portfolios, LGD estimates
\n
are assumed to be constant throughout the projection horizon.
\n
EAD estimates
\n
Personal
\n
The IFRS 9 Personal modelling approach for EAD is dependent
\n
on product type.
\n
\ue001
Revolving products use the existing Basel models as a basis,
\n
with appropriate adjustments incorporating a term structure
\n
based on time to default.
\n
\ue001
Amortising products use an amortising schedule, where a
\n
formula is used to calculate the expected balance based on
\n
remaining terms and interest rates.
\n
Analysis has indicated that there is minimal impact on EAD
\n
arising from changes in the economy for all Personal portfolios
\n
except mortgages. Therefore, forward-looking information is
\n
only incorporated in the mortgage EAD model (through forecast
\n
changes in interest rates).
\n
Wholesale
\n
For Wholesale, EAD values are projected using product specific
\n
credit conversion factors (CCFs), closely following the product
\n
segmentation and approach of the respective Basel model.
\n
However, the CCFs are estimated over multi-year time horizons
\n
and contain no regulatory conservatism or downturn
\n
assumptions.
No explicit forward-looking information is incorporated, on the
\n
basis of analysis showing the temporal variation in CCFs is
\n
mainly attributable to changes in exposure management
\n
practices rather than economic conditions.
\n
Governance and post model adjustments
(audited)
\n
The IFRS 9 PD, EAD and LGD models are subject to NatWest
\n
Group\u2019s model risk policy that stipulates periodic model
\n
monitoring, periodic re-validation and defines approval
\n
procedures and authorities according to model materiality.
\n
Various post model adjustments were applied where
\n
management judged they were necessary to ensure an
\n
adequate level of overall ECL provision. All post model
\n
adjustments were subject to formal approval through
\n
provisioning governance, and were categorised as follows
\n
(business level commentary is provided below):
\n
\ue001
Deferred model calibrations \u2013 ECL adjustments where PD
\n
model monitoring indicated that actual defaults were below
\n
estimated levels but where it was judged that an implied
\n
ECL release was not supportable due to the influence of
\n
government support schemes on default levels in the past
\n
two years. As a consequence, any potential ECL release was
\n
deferred and retained on the balance sheet until modelled
\n
ECL levels are affirmed by new model parallel runs or
\n
similar analyses.
\n
\ue001
Economic uncertainty \u2013 ECL adjustments primarily arising
\n
from uncertainties associated with the high inflation
\n
environment as well as supply chain disruption, along with
\n
the residual effect of COVID-19 and government support
\n
schemes. In all cases, management judged that additional
\n
ECL was required until further credit performance data
\n
became available as the full effects of these issues matures.
\n
\ue001
Other adjustments \u2013 ECL adjustments where it was judged
\n
that the modelled ECL required amendment.
\n
Post model adjustments will remain a key focus area of NatWest
\n
Group\u2019s ongoing ECL adequacy assessment process. A holistic
\n
framework has been established including reviewing a range of
\n
economic data, external benchmark information and portfolio
\n
performance trends with a particular focus on segments of the
\n
portfolio (both commercial and consumer) that are likely to be
\n
more susceptible to the high inflation environment and supply
\n
chain disruption.
ECL post model adjustments
\n
The table below shows ECL post model adjustments.
\n
Retail Banking
\n
Mortgages
Other
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
Central items (1)
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Economic uncertainty
102
51
6
191
2
352
\n
Other adjustments
8
20
\u2014
16
15
59
\n
Total
110
71
6
207
17
411
\n
Of which:
\n
- Stage 1
62
27
3
63
\u2014
155
\n
- Stage 2
32
44
3
139
16
234
\n
- Stage 3
16
\u2014
\u2014
5
1
22
\n
2021
\n
Deferred model calibrations
58
97
\u2014
62
2
219
\n
Economic uncertainty
60
99
5
391
29
584
\n
Other adjustments
37
\u2014
\u2014
5
156
198
\n
Total
155
196
5
458
187
1,001
\n
Of which:
\n
- Stage 1
9
5
\u2014
15
5
34
\n
- Stage 2
126
164
5
443
33
771
\n
- Stage 3
20
27
\u2014
\u2014
149
196
\n
(1)
Excludes \u00a318 million (2021 \u2013 \u00a349 million) of post model adjustments (other \u00a318 million (2021 \u2013 mortgages \u00a34 million; other \u00a345 million)) for Ulster Bank RoI disclosed as transfers to
\n
disposal groups.
\n
Post model adjustments have reduced significantly since 31
\n
December 2021, with notable shifts in all categories. This
\n
reflected:
\n
\ue001
The reclassification of the Ulster Bank RoI mortgage
\n
portfolio, in Q3 2022, from amortised cost to fair value
\n
through profit or loss and continued activity on the strategic
\n
shift to exit the market.
\n
\ue001
Removal of deferred model calibration post model
\n
adjustments following the implementation of new models as
\n
well as COVID-19 adjustments no longer being required.
\n
\ue001
Economic uncertainty adjustments significantly reduced as
\n
many COVID-19 adjustments were no longer required, plus
\n
the deteriorating economic outlook and improved modelling
\n
approaches, resulted in increases in modelled ECL.
\n
\ue001
Retail Banking
\u2013 The judgemental post model adjustment
\n
for deferred model calibrations of \u00a3155 million held at 31
\n
December 2021 was no longer required in the second half
\n
of 2022. This was due, firstly, to the removal of the
\n
mortgage element because of the implementation of a new
\n
IFRS 9 PD model in Q1 2022. Furthermore, the
\n
implementation of new PD models on unsecured portfolios
\n
implemented at H1 2022 negated the need for management
\n
judgement on PD calibration adjustments.
\n
The post model adjustments for economic uncertainty were
\n
held at a broadly consistent level to 31 December 2021,
\n
totalling \u00a3153 million (2021 \u2013 \u00a3159 million). The primary
\n
element of the economic uncertainty adjustment was a
\n
\u00a3127 million ECL uplift to capture the risk on segments of
\n
the Retail portfolio that are more susceptible to the effects
\n
of a high inflation environment and the impacts on
\n
affordability.
This focuses on key affordability lenses, including customers
\n
with lower incomes in fuel poverty, over-indebted borrowers
\n
and customers vulnerable to a potential mortgage rate shock
\n
impact on their affordability. This adjustment superseded the
\n
previously held \u00a326 million for COVID-19 payment holiday high-
\n
risk customers and the \u00a369 million judgemental ECL release
\n
holdback at 31 December 2021. The current post model
\n
adjustment allocates more ECL to Stage 1 given the forward-
\n
looking nature of the risks on affordability driven by the high
\n
inflation environment, whereas the previous COVID-19 post
\n
model adjustments were focused on Stage 2, due to specific
\n
customer events (for example, high-risk payment holiday cases
\n
migrated into Stage 2).
\n
Other judgmental overlays included a \u00a320 million uplift to
\n
reflect forward-looking provisions relating to credit cards EAD
\n
and limit utilisation modelling considerations. There is also an
\n
ECL adjustment for higher risk residential interest only
\n
mortgages of \u00a37 million. The \u00a314 million post model adjustment
\n
previously held for cladding risk was removed due to
\n
management\u2019s view on the positive developments in this
\n
segment.
\n
Commercial & Institutional
\u2013 The post model adjustment for
\n
economic uncertainty reduced from \u00a3391 million to \u00a3191 million
\n
during the year. It included an overlay of \u00a3108 million to cover
\n
the residual risks from COVID-19, including the risk that
\n
government support schemes could affect future recoveries
\n
and concerns surrounding associated debt, to customers that
\n
have utilised government support schemes. Inflation and supply
\n
chain issues present significant headwinds for a number of
\n
sectors which are not fully captured in the models. An \u00a383
\n
million mechanistic adjustment, via a sector-level downgrade,
\n
was applied to the sectors that were considered most at risk
\n
from these headwinds.
\n
The judgemental overlay for deferred model calibrations on the
\n
business banking portfolio was removed as COVID-19 no longer
\n
impedes the mechanistic modelling approach.
\n
Other adjustments included an overlay of \u00a313 million to
\n
mitigate the effect of operational timing delays in the
\n
identification and flagging of a SICR.
\n
Significant increase in credit risk (SICR)
\n
(audited)
\n
Exposures that are considered significantly credit deteriorated
\n
since initial recognition are classified in Stage 2 and assessed
\n
for lifetime ECL measurement (exposures not considered
\n
deteriorated carry a 12 month ECL). NatWest Group has
\n
adopted a framework to identify deterioration based primarily
\n
on relative movements in lifetime PD supported by additional
\n
qualitative backstops. The principles applied are consistent
\n
across NatWest Group and align to credit risk management
\n
practices, where appropriate.
\n
The framework comprises the following elements:
\n
\ue001
IFRS 9 lifetime PD assessment (the primary driver) \u2013
on
\n
modelled portfolios, the assessment is based on the relative
\n
deterioration in forward-looking lifetime PD and is assessed
\n
monthly. To assess whether credit deterioration has
\n
occurred, the residual lifetime PD at balance sheet date
\n
(which PD is established at date of initial recognition (DOIR))
\n
is compared to the current PD. If the current lifetime PD
\n
exceeds the residual origination PD by more than a
\n
threshold amount, deterioration is assumed to have
\n
occurred and the exposure transferred into Stage 2 for a
\n
lifetime loss assessment. For Wholesale, a doubling of PD
\n
would indicate a SICR subject to a minimum PD uplift of
\n
0.1%. For Personal portfolios, the criteria vary by risk band,
\n
with lower risk exposures needing to deteriorate more than
\n
higher risk exposures, as outlined in the following table:
Personal
\n
risk bands
\n
PD bandings (based
\n
on
residual lifetime
\n
PD calculated at
\n
DOIR)
\n
PD deterioration
\n
threshold criteria
\n
Risk band A
<0.762%
PD@DOIR + 1%
\n
Risk band B
<4.306%
PD@DOIR + 3%
\n
Risk band C
>=4.306%
1.7 x PD@DOIR
\ue001
Qualitative high-risk backstops \u2013
the PD assessment is
\n
complemented with the use of qualitative high-risk
\n
backstops to further inform whether significant
\n
deterioration in lifetime risk of default has occurred. The
\n
qualitative high-risk backstop assessment includes the use
\n
of the mandatory 30+ days past due backstop, as
\n
prescribed by IFRS 9 guidance, and other features such as
\n
forbearance support, Wholesale exposures managed within
\n
the Risk of Credit Loss framework, and adverse credit
\n
bureau results for Personal customers.
\n
\ue001
Persistence (Personal and business banking customers only)
\n
\u2013
the persistence rule ensures that accounts which have
\n
met the criteria for PD driven deterioration are still
\n
considered to be significantly deteriorated for three months
\n
thereafter. This additional rule enhances the timeliness of
\n
capture in Stage 2. The persistence rule is applied to PD
\n
driven deterioration only.
The criteria are based on a significant amount of empirical
\n
analysis and seek to meet three key objectives:
\n
\ue001
Criteria effectiveness \u2013
the criteria should be effective in
\n
identifying significant credit deterioration and prospective
\n
default population.
\n
\ue001
Stage 2 stability \u2013
the criteria should not introduce
\n
unnecessary volatility in the Stage 2 population.
\n
\ue001
Portfolio analysis \u2013
the criteria should produce results which
\n
are intuitive when reported as part of the wider credit
\n
portfolio.
\n
Monitoring the effect on relative PD deterioration when
\n
originating new lending at times of weaker economic outlook
\n
(therefore, higher PDs at initial recognition) is important to
\n
ensure SICR criteria remains effective.
\n
Provisioning for forbearance
(audited)
\n
Personal
\n
The methodology used for provisioning in respect of Personal
\n
forborne loans will differ depending on whether the loans are
\n
performing or non-performing and which business is managing
\n
them due to local market conditions.
\n
Granting forbearance will only change the arrears status of the
\n
loan in specific circumstances, which can include capitalisation
\n
of principal and interest in arrears, where the loan may be
\n
returned to the performing book if the customer has
\n
demonstrated an ability to meet regular payments and is likely
\n
to continue to do so.
\n
The loan would continue to be reported as forborne until it
\n
meets the exit criteria set out by the appropriate regulatory
\n
guidance.
\n
For ECL provisioning, all forborne but performing exposures
\n
are categorised as Stage 2 and are subject to a lifetime loss
\n
provisioning assessment. Where the forbearance treatment
\n
includes the cessation of interest on the customer balance (i.e.
\n
non-accrual), this will be treated as a Stage 3 default.
\n
For non-performing forborne loans, the Stage 3 loss
\n
assessment process is the same as for non-forborne loans.
\n
Wholesale
\n
Provisions for forborne loans are assessed in accordance with
\n
normal provisioning policies. The customer\u2019s financial position
\n
and prospects \u2013 as well as the likely effect of the forbearance,
\n
including any concessions granted, and revised PD or LGD
\n
gradings \u2013 are considered in order to establish whether an
\n
impairment provision increase is required.
\n
Wholesale loans granted forbearance are individually credit
\n
assessed in most cases. Performing loans subject to
\n
forbearance treatment are categorised as Stage 2 and subject
\n
to a lifetime loss assessment.
\n
Forbearance may result in the value of the outstanding debt
\n
exceeding the present value of the estimated future cash flows.
\n
This difference will lead to a customer being classified as non-
\n
performing.
\n
In the case of non-performing forborne loans, an individual loan
\n
impairment provision assessment generally takes place prior to
\n
forbearance being granted. The amount of the loan impairment
\n
provision may change once the terms of the forbearance are
\n
known, resulting in an additional provision charge or a release
\n
of the provision in the period the forbearance is granted.
\n
The transfer of Wholesale loans from impaired to performing
\n
status follows assessment by relationship managers and credit.
\n
When no further losses are anticipated and the customer is
\n
expected to meet the loan\u2019s revised terms, any provision is
\n
written-off or released and the balance of the loan can be
\n
returned to performing status once exit criteria, as set out by
\n
regulatory guidance, is met.
\n
Asset lifetimes
(audited)
\n
The choice of initial recognition and asset duration is another
\n
critical judgment in determining the quantum of lifetime losses
\n
that apply.
\n
\ue001
The date of initial recognition reflects the date that a
\n
transaction (or account) was first recognised on the
\n
balance sheet; the PD recorded at that time provides the
\n
baseline used for subsequent determination of SICR as
\n
detailed above.
\n
\ue001
For asset duration, the approach applied (in line with IFRS 9
\n
requirements) is:
\n
\ue001
Term lending \u2013 the contractual maturity date, reduced
\n
for behavioural trends where appropriate (such as,
\n
expected prepayment and amortisation).
\n
\ue001
Revolving facilities \u2013 for Personal portfolios (except
\n
credit cards), asset duration is based on behavioural
\n
life and this is normally greater than contractual life
\n
(which would typically be overnight). For Wholesale
\n
portfolios, asset duration is based on annual customer
\n
review schedules and will be set to the next review
\n
date.
\n
In the case of credit cards, the most significant judgment is to
\n
reflect the operational practice of card reissuance and the
\n
associated credit assessment as enabling a formal re-
\n
origination trigger. As a consequence, a capped lifetime
\n
approach of up to 36 months is used on credit card balances. If
\n
the approach was uncapped the ECL impact is estimated at
\n
approximately \u00a380 million (2021 \u2013 \u00a370 million). However, credit
\n
card balances originated under the 0% balance transfer
\n
product, and representing approximately 19% of performing
\n
card balances, have their ECL calculated on a behavioural
\n
lifetime approach as opposed to being capped at a maximum
\n
of three years.
\n
The capped approach reflects NatWest Group practice of a
\n
credit-based review of customers prior to credit card issuance
\n
and complies with IFRS 9. Benchmarking information indicates
\n
that peer UK banks use behavioural approaches in the main for
\n
credit card portfolios with average durations between three
\n
and ten years. Across Europe, durations are shorter and are, in
\n
some cases, as low as one year.
Economic loss drivers
(audited)
\n
Introduction
\n
The portfolio segmentation and selection of economic loss
\n
drivers for IFRS 9 follow closely the approach used in stress
\n
testing. To enable robust modelling the forecasting models for
\n
each portfolio segment (defined by product or asset class and
\n
where relevant, industry sector and region) are based on a
\n
selected, small number of economic variables, (typically three to
\n
four) that best explain the temporal variations in portfolio loss
\n
rates. The process to select economic loss drivers involves
\n
empirical analysis and expert judgment.
\n
The most material economic loss drivers are shown in the table
\n
below.
\n
Portfolio
Economic loss drivers
\n
UK retail
\n
mortgages
\n
UK unemployment rate, sterling swap
\n
rate, UK house price index, UK
\n
household debt to income
\n
UK retail
\n
unsecured
\n
UK unemployment rate, sterling swap
\n
rate, UK household debt to income
\n
UK corporates
UK stock price index, UK GDP, Bank of
\n
England base rate
\n
UK commercial
\n
real estate
\n
UK stock price index, UK commercial
\n
property price index, UK GDP, Bank of
\n
England base rate
\n
(1)
This is not an exhaustive list of economic loss drivers but shows the most material
\n
drivers for the most significant portfolios.
\n
Economic scenarios
\n
At 31 December 2022, the range of anticipated future economic
\n
conditions was defined by a set of four internally developed
\n
scenarios and their respective probabilities. In addition to the
\n
base case, they comprised upside, downside and extreme
\n
downside scenarios. The scenarios primarily reflected the
\n
current risks faced by the economy, particularly related to high
\n
inflation resulting in a fall in real household income, economic
\n
slowdown, a rise in unemployment and asset price declines.
\n
For 2022, the four scenarios were deemed appropriate in
\n
capturing the uncertainty in economic forecasts and the non-
\n
linearity in outcomes under different scenarios. These four
\n
scenarios were developed to provide sufficient coverage across
\n
potential rises in unemployment, inflation, asset price declines
\n
and the degree of permanent damage to the economy, around
\n
which there remains pronounced levels of uncertainty.
\n
Upside
\u2013 This scenario assumes a robust growth through 2023
\n
as consumers dip into excess savings built up since the COVID-
\n
19 pandemic and further helped by fiscal support and strong
\n
business investment. The labour market remains resilient, with
\n
the unemployment rate remaining below pre-COVID-19 levels.
\n
Inflation retraces sharply and that does not necessitate
\n
significantly more tightening. The housing market slows down
\n
compared to the previous year but still remains robust.
\n
Base case
\u2013 High inflation and significant monetary policy
\n
tightening leads to a mild recession in 2023. Fiscal support
\n
remains key in containing the impact. Unemployment rate rises
\n
modestly but job losses are contained. Inflation moderates over
\n
medium-term and falls to the target levels in 2024. Housing
\n
market experiences price decline and lower activity but the
\n
extent of the decline is lower than that experienced during prior
\n
stresses.
\n
Since 31 December 2021, the outlook has deteriorated as
\n
energy prices surged and cost of living crisis intensified. As a
\n
result, the base case is more pessimistic. The mild recession in
\n
2023 contrasts with last year\u2019s assumption of a muted growth.
\n
House price correction contrasts with previous year\u2019s
\n
assumptions of a modest growth. In previous scenario,
\n
unemployment rate was expected to increase very modestly
\n
while inflation and interest rate rises last year were also
\n
relatively muted.
\n
Downside
\u2013 Inflation rises on the back of further energy price
\n
spikes. The high inflation environment leads to the economy
\n
falling under recession. As demand dries up, inflation rapidly
\n
declines. Policy rates are raised initially but then quickly eased
\n
to assist in recovery. Unemployment is more than the base case
\n
scenario while house prices experience declines comparable to
\n
previous episodes of stress.
\n
Extreme downside
\u2013 This scenario assumes high and persistent
\n
inflation. Households see the highest recorded decline in real
\n
income. Policy rate rises to levels last seen in early 2000.
\n
Resulting economic recession is deep and leads to widespread
\n
job losses. House prices lose approximately a third of their value
\n
while unemployment rate rises to level above those seen during
\n
the 2008 financial crisis.
\n
The previous year\u2019s extreme downside also included a deep
\n
recession, labour market deterioration and asset price falls, but
\n
the current scenario explores these risks in a high inflation, high
\n
rates environment.
Economic loss drivers
(audited)
\n
The tables and commentary below provide details of the key economic loss drivers under the four scenarios.
\n
The main macroeconomic variables for each of the four scenarios used for ECL modelling are set out in the main macroeconomic
\n
variables table below. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for
\n
unemployment and the Bank of England base rate. The house price index and commercial real estate figures show the total
\n
change in each asset over five years.
\n
Main macroeconomic variables
2022
2021
\n
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
\n
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
\n
Five-year summary
%
%
%
%
%
%
%
%
%
%
\n
GDP - CAGR
1.6
0.8
0.2
(0.2)
0.7
2.4
1.7
1.4
0.6
1.8
\n
Unemployment - average
3.9
4.6
5.1
7.2
5.0
3.5
4.2
4.8
6.7
4.2
\n
House price index - total change
21.5
(1.3)
(6.0)
(22.4)
(1.3)
22.7
12.1
4.3
(5.3)
12.8
\n
Bank of England base rate - average
2.6
3.3
1.5
4.9
3.1
1.5
0.8
0.7
(0.5)
0.9
\n
Commercial real estate price - total change
(0.1)
(14.4)
(17.2)
(38.3)
(16.1)
18.2
7.2
5.5
(6.4)
9.5
\n
Consumer price index - CAGR
2.4
3.0
3.1
7.0
3.6
2.7
2.5
3.1
1.5
2.6
\n
UK stock price index - total change
22.6
13.9
1.8
(8.5)
9.5
36.6
24.9
12.5
0.2
24.7
\n
World GDP - CAGR
3.7
3.3
1.6
1.0
2.7
3.5
3.2
2.6
0.6
3.1
\n
Probability weight
18.6
45.0
20.8
15.6
30.0
45.0
20.0
5.0
\n
(1)
The five year period starts after Q3 2022 for 31 December 2022 and Q3 2021 for 31 December 2021.
\n
(2)
CAGR and total change figures are not comparable with 31 December 2021 data, as the starting quarters differ.
\n
Probability weightings of scenarios
\n
A subjective approach for assigning probability weight was used
\n
during COVID-19 due to the scale of the economic effect of
\n
COVID-19 and the range of recovery paths. Similarly, a
\n
subjective approach was used at 30 September 2022, to reflect
\n
the deteriorating outlook and shifting balance of risks in the
\n
given set of scenarios. However, NatWest Group\u2019s quantitative
\n
approach to IFRS 9 multiple economic scenarios (MES) involves
\n
selecting a suitable set of discrete scenarios to characterise the
\n
distribution of risks in the economic outlook and assigning
\n
appropriate probability weights. This quantitative approach has
\n
been reinstated and is used for 31 December 2022.
\n
The approach involves comparing UK GDP paths for NatWest
\n
Group\u2019s scenarios against a set of 1,000 model runs, following
\n
which, a percentile in the distribution is established that most
\n
closely corresponded to the scenario. Probability weight for
\n
base case is set first based on judgement, while probability
\n
weights for the alternate scenarios are assigned based on these
\n
percentiles scores.
\n
The assigned probability weights were judged to be aligned with
\n
the subjective assessment of balance of the risks in the
\n
economy. Since 31 December 2021, high inflation posed
\n
significant challenge to the economy and there is considerable
\n
uncertainty to the economic outlook, with respect to persistence
\n
and range of outcomes on inflation and its subsequent effects
\n
on household real income and economic activity. Given that
\n
backdrop, NatWest Group judges it appropriate to assign higher
\n
probability weights on downside-biased scenarios than at 31
\n
December 2021. It presents good coverage to the range of
\n
outcomes assumed in the scenarios, including the potential for a
\n
robust recovery on the upside and exceptionally challenging
\n
outcomes on the downside. A 18.6% weighting was applied to
\n
the upside scenario, a 45.0% weighting applied to the base case
\n
scenario, a 20.8% weighting applied to the downside scenario
\n
and a 15.6% weighting applied to the extreme downside
\n
scenario. Compared to 30 June 2022, the probability weights
\n
were broadly similar, but with additional modest downside skew.
Economic loss drivers
\n
UK gross domestic product (\u00a3bn)
\n
Q1 2022
Q1 2023
Q1 2024
Q1 2025
Q1 2026
Q1 2027
\n
2000
\n
2100
\n
2200
\n
2300
\n
2400
\n
2500
\n
Upside
Base case
Downside
Extreme downside
\n
Bank of England base rate (%)
\n
Q1 2019
Q1 2020
Q1 2021
Q1 2022
Q1 2023
Q1 2024
Q1 2025
Q1 2026
Q1 2027
\n
0
\n
1
\n
2
\n
3
\n
4
\n
5
\n
6
\n
7
\n
Upside
Base case
Downside
Extreme downside
\n
UK unemployment rate (%)
\n
Q1 2019
Q1 2020
Q1 2021
Q1 2022
Q1 2023
Q1 2024
Q1 2025
Q1 2026
Q1 2027
\n
0
\n
1
\n
2
\n
3
\n
4
\n
5
\n
6
\n
7
\n
8
\n
9
\n
Upside
Base case
Downside
Extreme downside
Economic loss drivers
(audited)
\n
Annual figures
\n
GDP - annual growth
Commercial real estate price - four quarter change
\n
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
\n
%
%
%
%
%
%
%
%
%
%
\n
2022
4.4
4.4
4.4
4.4
4.4
2022
(2.6)
(2.6)
(2.6)
(2.6)
(2.6)
\n
2023
2.2
(0.9)
(2.8)
(3.1)
(1.1)
2023
2.1
(8.4)
(19.7)
(22.4)
(11.0)
\n
2024
1.9
0.7
(0.4)
(1.6)
0.4
2024
1.9
(0.5)
2.8
(29.1)
(3.2)
\n
2025
1.2
1.0
1.9
1.2
1.3
2025
2.7
1.3
3.7
6.7
2.6
\n
2026
1.2
1.4
1.2
1.2
1.3
2026
2.2
1.0
3.8
8.5
2.6
\n
2027
1.4
1.5
1.1
1.2
1.4
2027
0.6
1.0
2.3
8.6
2.0
\n
Unemployment rate - annual
\n
average
Consumer price index - four quarter change
\n
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
\n
%
%
%
%
%
%
%
%
%
%
\n
2022
3.8
3.8
3.8
3.8
3.8
2022
11.2
11.2
11.2
11.2
11.2
\n
2023
3.9
4.4
5.0
6.0
4.7
2023
2.2
3.7
6.0
17.0
6.0
\n
2024
3.9
4.9
5.7
8.4
5.4
2024
1.0
2.7
1.0
8.8
3.1
\n
2025
4.0
4.8
5.2
8.0
5.2
2025
2.0
2.0
2.0
2.7
2.1
\n
2026
4.0
4.6
5.0
7.4
5.0
2026
2.0
1.9
2.0
2.3
2.0
\n
2027
4.0
4.3
5.1
6.7
4.8
2027
2.0
1.9
2.0
2.0
2.0
\n
House price index - four quarter change
UK stock price index - four quarter change
\n
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
\n
%
%
%
%
%
%
%
%
%
%
\n
2022
6.9
6.9
6.9
6.9
6.9
2022
(3.4)
(3.4)
(3.4)
(3.4)
(3.4)
\n
2023
7.5
(7.8)
(13.7)
(10.4)
(6.6)
2023
9.1
4.1
(20.6)
(45.0)
(7.8)
\n
2024
4.5
(0.9)
(7.7)
(15.2)
(3.2)
2024
4.0
1.9
9.7
24.9
5.9
\n
2025
3.0
2.9
4.8
(8.3)
1.8
2025
4.5
4.0
8.8
16.7
6.4
\n
2026
3.5
3.4
8.3
7.2
4.8
2026
4.9
4.4
7.0
11.0
5.8
\n
2027
3.4
3.4
6.3
6.6
4.3
2027
4.0
4.3
6.6
9.9
5.4
\n
Bank of England base rate - annual average
\n
Upside
Base case
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
\n
%
%
%
%
%
\n
2022
1.49
1.49
1.49
1.49
1.49
\n
2023
3.27
3.94
2.94
5.38
3.83
\n
2024
2.71
3.75
1.00
5.95
3.33
\n
2025
2.29
3.25
1.00
5.28
2.92
\n
2026
2.25
3.00
1.00
4.46
2.67
\n
2027
2.06
2.75
1.00
3.64
2.40
\n
Worst points
\n
31 December 2022
31 December 2021
\n
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
Downside
\n
Extreme
\n
downside
\n
Weighted
\n
average
\n
%
Quarter
%
Quarter
%
%
Quarter
%
Quarter
%
\n
GDP
(3.9)
Q4 2023
(5.4)
Q4 2023
(1.5)
(1.8)
Q1 2022
(7.9)
Q1 2022
\u2014
\n
Unemployment rate (peak)
6.0
Q1 2024
8.5
Q3 2024
5.4
5.4
Q1 2023
9.4
Q4 2022
4.5
\n
House price index
(21.3)
Q1 2025
(31.7)
Q3 2025
(10.6)
(3.0)
Q3 2023
(26.0)
Q2 2023
\u2014
\n
Bank of England base rate
4.0
Q1 2023
6.0
Q1 2024
4.1
1.5
Q4 2022
(0.5)
Q2 2022
1.2
\n
Commercial real estate price
(26.8)
Q4 2023
(50.3)
Q3 2024
(21.8)
(2.5)
Q1 2022
(29.8)
Q3 2022
\u2014
\n
Consumer price index
15.7
Q1 2023
17.0
Q4 2023
11.7
7.9
Q4 2022
4.3
Q1 2022
5.5
\n
UK stock price index
(24.0)
Q4 2023
(47.3)
Q4 2023
(11.7)
(12.2)
Q1 2022
(37.1)
Q2 2022
(1.2)
\n
(1)
For the unemployment rate, the figures show the peak levels. For the Bank of England base rate, the figures show highest or lowest levels. For the consumer price index, the figures
\n
show the highest annual percentage change. For other parameters, the figures show falls relative to the starting period.
The calculations are performed over five years, with a
\n
starting point of Q3 2022 for 31 December 2022 scenarios.
Economic loss drivers
(audited)
\n
Use of the scenarios in Personal lending
\n
Personal lending follows a discrete scenario approach. The PD
\n
and LGD values for each discrete scenario are calculated using
\n
product specific economic response models. Each account has
\n
a PD and LGD calculated as probability weighted averages
\n
across the suite of economic scenarios.
\n
Use of the scenarios in Wholesale lending
\n
The Wholesale lending ECL methodology is based on the
\n
concept of CCIs. The CCIs represent, similar to the exogenous
\n
component in Personal, all relevant economic loss drivers for a
\n
region/industry segment aggregated into a single index value
\n
that describes the loss rate conditions in the respective
\n
segment relative to its long-run average. A CCI value of zero
\n
corresponds to loss rates at long-run average levels, a positive
\n
CCI value corresponds to loss rates below long run average
\n
levels and a negative CCI value corresponds to loss rates above
\n
long-run average levels.
\n
The individual economic scenarios are translated into forward-
\n
looking projections of CCIs using a set of econometric models.
\n
Subsequently the CCI projections for the individual scenarios
\n
are averaged into a single central CCI projection according to
\n
the given scenario probabilities. The central CCI projection is
\n
then overlaid with an additional mean reversion assumption to
\n
gradually revert to the long-run average CCI value of zero in
\n
the outer years of the projection horizon.
\n
Finally, ECL is calculated using a Monte Carlo approach by
\n
averaging PD and LGD values arising from many CCI paths
\n
simulated around the central CCI projection.
\n
The rationale for the Wholesale approach is the long-standing
\n
observation that loss rates in Wholesale portfolios tend to follow
\n
regular cycles. This allows NatWest Group to enrich the range
\n
and depth of future economic conditions embedded in the final
\n
ECL beyond what would be obtained from using the discrete
\n
macro-economic scenarios alone.
\n
Business Banking, while part of the Wholesale segment for
\n
reporting purposes, utilises the Personal lending rather than the
\n
Wholesale lending methodology.
\n
UK economic uncertainty
\n
The high inflation environment and supply chain disruption are
\n
presenting significant headwinds for some businesses and
\n
sectors. These are a result of various factors and in many
\n
cases are compounding and look set to remain a feature of the
\n
economic environment into 2023. NatWest Group has
\n
considered where these are most likely to affect the customer
\n
base. Furthermore, the rising cost of borrowing during 2022 for
\n
both businesses and consumers presents an additional
\n
affordability challenge for many borrowers.
\n
The effects of these risks are not expected to be fully captured
\n
by forward-looking credit modelling, particularly given the
\n
unique high inflation environment, low unemployment base-
\n
case outlook. Any incremental ECL effects for these risks will
\n
be captured via post model adjustments and are detailed
\n
further in the Governance and post model adjustments section.
Economic loss drivers
(audited)
\n
Model monitoring and enhancement
\n
Throughout 2022, default rates in the UK Personal and
\n
Wholesale portfolios moderately increased but remained
\n
generally at, or somewhat below, pre-COVID-19 levels. This is
\n
based on a normalised view removing the effects of the new
\n
definition of default, introduced from 1 January 2022, in
\n
accordance with new prudential regulation. As in 2021, model
\n
recalibrations to adjust for overprediction have been deferred
\n
where applicable, based on the judgment that default rate
\n
actuals may still be supressed as a result of government
\n
support provided throughout COVID-19.
\n
The suite of UK Personal PD models and some Personal LGD
\n
models were redeveloped in 2022 removing the need for a
\n
number of previously applied post model ECL adjustments to
\n
account for model weaknesses.
\n
In Wholesale lending, new economic response models were
\n
introduced in 2022 for the UK corporate segments, that follow
\n
an improved modelling approach and put higher weight on
\n
stock price indices compared to previous models.
\n
The economic response models for Personal and Wholesale do
\n
not include direct inflation drivers, due to low inflation seen
\n
throughout the data history available for modelling (typically
\n
starting in early 2000s with some variation across products).
\n
The effect of inflation is deemed to be partially reflected
\n
through other drivers present in the models, especially in
\n
Wholesale lending, where new models with a higher weight on
\n
stock price indices were introduced for the most material
\n
portfolios.
\n
As detailed in the Governance and post model adjustments
\n
section, ECL adjustments were applied where management
\n
judged inflation risk was not fully reflected through the models.
\n
The use of direct inflation drivers in the economic response
\n
models will be reviewed considering additional credit outcome
\n
data in 2023.
\n
Government guarantees
\n
A number of support schemes were introduced in response to
\n
COVID-19 with the UK government guaranteeing part of the
\n
loan. The Bounce Back Loan Scheme is 100% guaranteed. For
\n
the Coronavirus Business Interruption Loan Scheme and the
\n
Coronavirus Large Business Interruption Loan Scheme the
\n
government guarantee is 80%. NatWest Group recognises lower
\n
LGDs for these lending products as a result, with 0% applied to
\n
the government-guaranteed part of the exposure. NatWest
\n
Group does not directly adjust the measurement of PD due to
\n
the government guarantee and continues to move exposures
\n
into Stage 2 and Stage 3 where a significant deterioration in
\n
credit risk or a default is identified.
\n
Wholesale support schemes*
\n
The table below shows the sector split for BBLS as well as associated debt split by stage. Associated debt refers to the non-BBLS
\n
lending to customers who also have BBLS lending.
\n
Gross carrying amount
\n
BBL
Associated debt
ECL on associated debt
\n
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
Stage 1
Stage 2
Stage 3
\n
31 December 2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Wholesale
\n
Property
1,029
197
51
1,277
908
217
61
1,186
10
15
27
\n
Financial institutions
24
4
\u2014
28
9
2
\u2014
11
\u2014
\u2014
1
\n
Sovereigns
5
1
1
7
2
\u2014
\u2014
2
\u2014
\u2014
\u2014
\n
Corporate
3,165
629
338
4,132
2,302
872
116
3,290
26
56
69
\n
Of which:
\n
Agriculture
221
74
4
299
819
297
22
1,138
6
14
11
\n
Airlines and aerospace
3
1
\u2014
4
\u2014
1
\u2014
1
\u2014
\u2014
\u2014
\n
Automotive
221
34
10
265
100
37
5
142
1
2
3
\n
Chemicals
6
1
\u2014
7
9
1
\u2014
10
\u2014
\u2014
\u2014
\n
Health
165
23
4
192
271
92
9
372
2
4
4
\n
Industrials
131
21
5
157
77
20
4
101
1
2
2
\n
Land transport & logistics
122
25
8
155
51
16
4
71
1
2
3
\n
Leisure
471
108
28
607
336
161
27
524
5
12
16
\n
Mining & metals
5
1
\u2014
6
5
1
\u2014
6
\u2014
\u2014
\u2014
\n
Oil and gas
6
1
\u2014
7
2
2
\u2014
4
\u2014
\u2014
\u2014
\n
Power utilities
3
1
\u2014
4
3
4
\u2014
7
\u2014
\u2014
\u2014
\n
Retail
554
102
26
682
283
94
14
391
4
7
10
\n
Shipping
2
\u2014
\u2014
2
1
3
\u2014
4
\u2014
\u2014
\u2014
\n
Water & waste
15
2
1
18
10
3
\u2014
13
\u2014
\u2014
\u2014
\n
Total
4,223
831
390
5,444
3,221
1,091
177
4,489
36
71
97
Economic loss drivers
(audited)
\n
Gross carrying amount
\n
BBL
Associated debt
ECL on associated debt
\n
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
Stage 1
Stage 2
Stage 3
\n
31 December 2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Wholesale
\n
Property
1,480
218
99
1,797
1,232
165
55
1,452
3
13
18
\n
Financial institutions
33
5
1
39
9
20
3
32
\u2014
1
\u2014
\n
Sovereigns
7
1
\u2014
8
2
\u2014
\u2014
2
\u2014
\u2014
\u2014
\n
Corporate
4,593
703
334
5,630
2,481
1,087
84
3,652
10
66
34
\n
Of which:
\n
Agriculture
302
86
6
394
827
396
14
1,237
3
17
4
\n
Airlines and aerospace
5
1
1
7
1
1
\u2014
2
\u2014
\u2014
\u2014
\n
Automotive
309
43
21
373
119
39
2
160
1
2
1
\n
Chemicals
10
1
\u2014
11
6
1
\u2014
7
\u2014
\u2014
\u2014
\n
Health
233
26
7
266
287
131
13
431
1
7
3
\n
Industrials
181
23
8
212
79
25
2
106
\u2014
2
1
\n
Land transport & logistics
180
32
19
231
57
26
2
85
\u2014
2
1
\n
Leisure
706
122
55
883
367
208
25
600
1
15
9
\n
Mining & metals
6
1
1
8
6
1
\u2014
7
\u2014
\u2014
\u2014
\n
Oil and gas
8
2
1
11
3
1
\u2014
4
\u2014
\u2014
\u2014
\n
Power utilities
4
1
\u2014
5
4
4
\u2014
8
\u2014
\u2014
\u2014
\n
Retail
800
109
47
956
310
127
8
445
2
7
4
\n
Shipping
3
\u2014
\u2014
3
3
3
\u2014
6
\u2014
\u2014
\u2014
\n
Water & waste
23
3
1
27
11
4
\u2014
15
\u2014
\u2014
\u2014
\n
Total
6,113
927
434
7,474
3,724
1,272
142
5,138
13
80
52
\n
*Not within audit scope.
\n
Measurement uncertainty and ECL sensitivity
\n
analysis
(audited)
\n
The recognition and measurement of ECL is complex and
\n
involves the use of significant judgment and estimation,
\n
particularly in times of economic volatility and uncertainty. This
\n
includes the formulation and incorporation of multiple forward-
\n
looking economic conditions into ECL to meet the measurement
\n
objective of IFRS 9. The ECL provision is sensitive to the model
\n
inputs and economic assumptions underlying the estimate.
\n
The focus of the simulations is on ECL provisioning
\n
requirements on performing exposures in Stage 1 and Stage 2.
\n
The simulations are run on a stand-alone basis and are
\n
independent of each other; the potential ECL impacts reflect
\n
the simulated impact at 31 December 2022. Scenario impacts
\n
on SICR should be considered when evaluating the ECL
\n
movements of Stage 1 and Stage 2. In all scenarios the total
\n
exposure was the same but exposure by stage varied in each
\n
scenario.
\n
Stage 3 provisions are not subject to the same level of
\n
measurement uncertainty \u2013 default is an observed event as at
\n
the balance sheet date. Stage 3 provisions therefore were not
\n
considered in this analysis.
\n
The impact arising from the base case, upside, downside and
\n
extreme downside scenarios was simulated. These scenarios
\n
are used in the methodology for Personal multiple economic
\n
scenarios as described in the Economic loss drivers section. In
\n
the simulations, NatWest Group has assumed that the
\n
economic macro variables associated with these scenarios
\n
replace the existing base case economic assumptions, giving
\n
them a 100% probability weighting and therefore serving as a
\n
single economic scenario.
\n
These scenarios were applied to all modelled portfolios in the
\n
analysis below, with the simulation impacting both PDs and
\n
LGDs. Post model adjustments included in the ECL estimates
\n
that were modelled were sensitised in line with the modelled
\n
ECL movements, but those that were judgmental in nature,
\n
primarily those for deferred model calibrations and economic
\n
uncertainty, were not (refer to the Governance and post model
\n
adjustments section). As expected, the scenarios create
\n
differing impacts on ECL by portfolio and the impacts are
\n
deemed reasonable. In this simulation, it is assumed that
\n
existing modelled relationships between key economic variables
\n
and loss drivers hold, but in practice other factors would also
\n
have an impact, for example, potential customer behaviour
\n
changes and policy changes by lenders that might impact on
\n
the wider availability of credit.
\n
NatWest Group\u2019s core criterion to identify a SICR is founded on
\n
PD deterioration, as discussed above. Under the simulations,
\n
PDs change and result in exposures moving between Stage 1
\n
and Stage 2 contributing to the ECL impact.
Measurement uncertainty and ECL sensitivity analysis
(audited)
\n
2022
Actual
Base scenario
\n
Moderate upside
\n
scenario
\n
Moderate
\n
downside
\n
scenario
\n
Extreme
\n
downside
\n
scenario
\n
Stage 1 modelled loans (\u00a3m)
\n
Retail Banking - mortgages
163,705
164,479
170,648
162,649
152,339
\n
Retail Banking - unsecured
7,845
8,032
8,589
7,772
6,375
\n
Wholesale - property
26,748
27,626
28,175
25,750
17,447
\n
Wholesale - non-property
106,837
112,045
115,167
100,159
79,525
\n
305,135
312,182
322,579
296,330
255,686
\n
Stage 1 modelled ECL (\u00a3m)
\n
Retail Banking - mortgages
71
72
76
70
65
\n
Retail Banking - unsecured
172
175
176
176
141
\n
Wholesale - property
107
81
63
135
130
\n
Wholesale - non-property
250
233
204
287
292
\n
600
561
519
668
628
\n
Stage 1 coverage (%)
\n
Retail Banking - mortgages
0.04%
0.04%
0.04%
0.04%
0.04%
\n
Retail Banking - unsecured
2.19%
2.18%
2.05%
2.26%
2.21%
\n
Wholesale - property
0.40%
0.29%
0.22%
0.52%
0.75%
\n
Wholesale - non-property
0.23%
0.21%
0.18%
0.29%
0.37%
\n
0.20%
0.18%
0.16%
0.23%
0.25%
\n
Stage 2 modelled loans (\u00a3m)
\n
Retail Banking - mortgages
18,819
18,045
11,876
19,875
30,185
\n
Retail Banking - unsecured
3,126
2,939
2,382
3,199
4,596
\n
Wholesale - property
4,411
3,533
2,984
5,409
13,712
\n
Wholesale - non-property
20,660
15,452
12,330
27,338
47,972
\n
47,016
39,969
29,572
55,821
96,465
\n
Stage 2 modelled ECL (\u00a3m)
\n
Retail Banking - mortgages
61
57
40
65
97
\n
Retail Banking - unsecured
389
373
304
398
553
\n
Wholesale - property
105
77
51
134
573
\n
Wholesale - non-property
440
311
236
523
1,309
\n
995
818
631
1,120
2,532
\n
Stage 2 coverage (%)
\n
Retail Banking - mortgages
0.32%
0.32%
0.34%
0.33%
0.32%
\n
Retail Banking - unsecured
12.44%
12.69%
12.76%
12.44%
12.03%
\n
Wholesale - property
2.38%
2.18%
1.71%
2.48%
4.18%
\n
Wholesale - non-property
2.13%
2.01%
1.91%
1.91%
2.73%
\n
2.12%
2.05%
2.13%
2.01%
2.62%
\n
Stage 1 and Stage 2 modelled loans (\u00a3m)
\n
Retail Banking - mortgages
182,524
182,524
182,524
182,524
182,524
\n
Retail Banking - unsecured
10,971
10,971
10,971
10,971
10,971
\n
Wholesale - property
31,159
31,159
31,159
31,159
31,159
\n
Wholesale - non-property
127,497
127,497
127,497
127,497
127,497
\n
352,151
352,151
352,151
352,151
352,151
\n
Stage 1 and Stage 2 modelled ECL (\u00a3m)
\n
Retail Banking - Mortgages
132
129
116
135
162
\n
Retail Banking - Unsecured
561
548
480
574
694
\n
Wholesale - property
212
158
114
269
703
\n
Wholesale - non-property
690
544
440
810
1,601
\n
1,595
1,379
1,150
1,788
3,160
\n
Stage 1 and Stage 2 coverage (%)
\n
Retail Banking - Mortgages
0.07%
0.07%
0.06%
0.07%
0.09%
\n
Retail Banking - Unsecured
5.11%
4.99%
4.38%
5.23%
6.33%
\n
Wholesale - property
0.68%
0.51%
0.37%
0.86%
2.26%
\n
Wholesale - non-property
0.54%
0.43%
0.35%
0.64%
1.26%
\n
0.45%
0.39%
0.33%
0.51%
0.90%
\n
Reconciliation to Stage 1 and Stage 2 ECL (\u00a3m)
\n
ECL on modelled exposure
1,595
1,379
1,150
1,788
3,160
\n
ECL on UBIDAC modelled exposures
39
39
39
39
39
\n
ECL on non-modelled exposures
41
41
41
41
41
\n
Total Stage 1 and Stage 2 ECL (\u00a3m)
1,675
1,459
1,230
1,868
3,240
\n
Variance to actual total Stage 1 and Stage 2 ECL (\u00a3m)
(216)
(445)
193
1,565
Measurement uncertainty and ECL sensitivity analysis continued
(audited)
\n
Moderate
Moderate
Extreme
\n
Base
upside
downside
downside
\n
2022
Actual
scenario
scenario
scenario
scenario
\n
Reconciliation to Stage 1 and Stage 2 Flow Exposure (\u00a3m)
\n
Modelled loans
352,151
352,151
352,151
352,151
352,151
\n
UBIDAC loans
4,171
4,171
4,171
4,171
4,171
\n
Non-modelled loans
21,566
21,566
21,566
21,566
21,566
\n
Other asset classes
178,133
178,133
178,133
178,133
178,133
\n
(1)
Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 31 December
\n
2022 and therefore does not include variation in future undrawn exposure values.
\n
(2)
Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios and exposure relating to bonds and cash.
\n
(3)
Exposures related to Ulster Bank RoI continuing operations were not included in the simulations, the current Ulster Bank RoI ECL has been included across all scenarios to enable
\n
reconciliation to other disclosures.
\n
(4)
All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 31 December 2022.
The
\n
simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static.
\n
(5)
Refer to the Economic loss drivers section for details of economic scenarios.
\n
(6)
Refer to the NatWest Group 2021 Annual Report and Accounts for 2021 comparatives.
Measurement uncertainty and ECL adequacy
\n
(audited)
\n
\ue001
During 2022, overall modelled ECL increased reflecting
\n
portfolio growth alongside a deteriorating view on economic
\n
outlook. Judgmental ECL post model adjustments, although
\n
reduced in value terms since 31 December 2021, continued
\n
to reflect economic uncertainty with the expectation of
\n
increased defaults in 2023 and beyond, and represented
\n
12% of total ECL (2021 \u2013 26%).
\n
\ue001
If the economics were as negative as observed in the
\n
extreme downside, total Stage 1 and Stage 2 ECL was
\n
simulated to increase by \u00a31.6 billion (approximately 93%). In
\n
this scenario, Stage 2 exposure increased significantly and
\n
was the key driver of the simulated ECL rise. The movement
\n
in Stage 2 balances in the other simulations was less
\n
significant.
\n
\ue001
In the Wholesale portfolio, there was a significant increase in
\n
ECL under both a moderate and extreme downside
\n
scenario. The Wholesale property ECL increase was driven
\n
by commercial real estate prices which show negative
\n
growth until 2024 and significant deterioration in the stock
\n
index. The non-property increase was mainly due to GDP
\n
contraction and significant deterioration in the stock index.
\n
\ue001
The changes in the economic outlook and scenarios used in
\n
the IFRS 9 MES framework at 31 December 2022 resulted in
\n
an increase in modelled ECL. Given that continued
\n
uncertainty remains due to the high inflation environment
\n
and supply chain disruption, NatWest Group utilised a
\n
framework of quantitative and qualitative measures to
\n
support the directional change and levels of ECL coverage,
\n
including economic data, credit performance insights and
\n
problem debt trends. This was particularly important for
\n
consideration of post model adjustments.
\n
\ue001
As the effects of the high inflation environment and supply
\n
chain disruption evolve during 2022 and into 2023 and
\n
government support schemes have to be serviced, there is a
\n
risk of credit deterioration. However, the income statement
\n
effect of this will be mitigated by the forward-looking
\n
provisions retained on the balance sheet at 31 December
\n
2022.
\n
\ue001
There are a number of key factors that could drive further
\n
downside to impairments, through deteriorating economic
\n
and credit metrics and increased stage migration as credit
\n
risk increases for more customers. Such factors would
\n
include an adverse deterioration in GDP and unemployment
\n
in the economies in which NatWest Group operates.
\n
Movement in ECL provision*
\n
The table below shows the main ECL provision movements during the year.
\n
ECL provision
\n
\u00a3m
\n
At 1 January 2022
3,806
\n
Transfers to disposal groups and reclassifications
(338)
\n
Changes in economic forecast
341
\n
Changes in risk metrics and exposure: Stage 1 and Stage 2
14
\n
Changes in risk metrics and exposure: Stage 3
576
\n
Judgmental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3
(428)
\n
Write-offs and other
(537)
\n
At 31 December 2022
3,434
\n
At 1 January 2021
6,186
\n
2021 movements
(2,380)
\n
At 31 December 2021
3,806
\n
*Not within audit scope.
Credit risk \u2013 Banking activities
\n
Introduction
\n
This section details the credit risk profile of NatWest Group\u2019s banking activities. Refer to Accounting policy 2.3 and Note 15 to the
\n
consolidated financial statements for policies and critical judgments relating to impairment loss determination.
\n
Presentation of discontinued operations and assets and liabilities of disposal groups
\n
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from
\n
the Republic of Ireland. Material developments since the beginning of 2022 are set out below.
\n
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
\n
Successful migration of six tranches of performing commercial loans to AIB was completed during 2022, with \u20ac2.1 billion of gross
\n
performing loans being fully migrated by year-end. It is expected that remaining migrations of commercial customers will be
\n
materially completed in phases over H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business
\n
are in the process of getting transferred to AIB under Transfer of Undertakings, Protection of Employment (TUPE) arrangements,
\n
with more than half having completed their move by the end of 2022. Losses on disposal of \u20ac123 million have been recognised in
\n
2022 in respect of the migrations completed to date.
\n
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the
\n
performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform,
\n
and 25 Ulster Bank branch locations in the Republic of Ireland.
\n
c.\u20ac5 billion of performing non-tracker mortgages migrated to PTSB in November 2022, with the remaining balances expected to
\n
migrate during H1 2023. In January 2023, 25 branches transferred to PTSB. The remaining performing non-tracker mortgages,
\n
micro-SME loans, Lombard Asset Finance business and all remaining eligible colleagues who will move under TUPE regulations,
\n
are also expected to transfer in 2023.
\n
Agreement with AIB for the sale of performing tracker and linked mortgages.
\n
In January 2023 the Competition and Consumer Protection Commission (CCPC) granted approval on the portfolio sale of
\n
performing tracker and linked mortgages to AIB. Completion of this sale is expected to occur in Q2 2023.
\n
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and
\n
as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as
\n
discontinued operations. Ulster Bank RoI continuing operations are now reported within Group central items & other. In 2022 we
\n
reclassified mortgage loans to fair value through profit or loss, which resulted in a \u20ac453 million reduction in mortgage financial
\n
assets in UBIDAC to 31 December 2022. This reclassification applies across both our continuing and discontinued operations.
\n
Refer to Note 8 to the consolidated financial statements for further details.
\n
Financial instruments within the scope of the IFRS 9 ECL framework
(audited)
\n
Refer to Note 10 to the consolidated financial statements for balance sheet analysis of financial assets that are classified as
\n
amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework
\n
assessment. The table below excludes loans in disposal group of \u00a31.5 billion (2021 \u2013 \u00a39.1 billion).
\n
31 December 2022
31 December 2021
\n
Gross
ECL
Net
Gross
ECL
Net
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Balance sheet total gross amortised cost and FVOCI
554.3
596.1
\n
In scope of IFRS 9 ECL framework
550.3
590.9
\n
% in scope
99%
99%
\n
Loans to customers - in scope - amortised cost
370.1
3.3
366.8
361.9
3.7
358.2
\n
Loans to customers - in scope - FVOCI
0.1
\u2014
0.1
0.3
\u2014
0.3
\n
Loans to banks - in scope - amortised cost
6.9
\u2014
6.9
7.6
\u2014
7.6
\n
Total loans - in scope
377.1
3.3
373.8
369.8
3.7
366.1
\n
Stage 1
325.2
0.6
324.6
330.8
0.3
330.5
\n
Stage 2
46.8
0.9
45.9
34.0
1.4
32.6
\n
Stage 3
5.1
1.8
3.3
5.0
2.0
3.0
\n
Other financial assets - in scope - amortised cost
156.4
\u2014
156.4
184.4
\u2014
184.4
\n
Other financial assets - in scope - FVOCI
16.8
\u2014
16.8
36.7
\u2014
36.7
\n
Total other financial assets - in scope
173.2
\u2014
173.2
221.1
\u2014
221.1
\n
Stage 1
172.4
\u2014
172.4
220.8
\u2014
220.8
\n
Stage 2
0.8
\u2014
0.8
0.3
\u2014
0.3
\n
Out of scope of IFRS 9 ECL framework
4.0
na
4.0
5.2
na
5.2
\n
Loans to customers - out of scope - amortised cost
(0.4)
na
(0.4)
0.8
na
0.8
\n
Loans to banks - out of scope - amortised cost
0.2
na
0.2
0.1
na
0.1
\n
Other financial assets - out of scope - amortised cost
4.1
na
4.1
4.0
na
4.0
\n
Other financial assets - out of scope - FVOCI
0.1
na
0.1
0.3
na
0.3
\n
na = not applicable
\n
The assets outside the scope of IFRS 9 ECL framework were as
\n
follows:
\n
\ue001
Settlement balances, items in the course of collection, cash
\n
balances and other non-credit risk assets of \u00a34.3 billion
\n
(2021 \u2013 \u00a33.7 billion). These were assessed as having no ECL
\n
unless there was evidence that they were defaulted.
\n
\ue001
Equity shares of \u00a30.4 billion (2021 \u2013 \u00a30.3 billion) as not
\n
within the IFRS 9 ECL framework by definition.
\n
\ue001
Fair value adjustments on loans hedged by interest rate
\n
swaps, where the underlying loan was within the IFRS 9
\n
ECL scope \u2013 \u00a3(0.6) billion (2021 \u2013 \u00a30.8 billion).
\n
\ue001
NatWest Group originated securitisations, where ECL was
\n
captured on the underlying loans of \u00a3nil billion (2021 \u2013 \u00a30.4
\n
billion).
\n
Contingent liabilities and commitments
\n
In addition to contingent liabilities and commitments disclosed
\n
in Note 26 to the consolidated financial statements,
\n
reputationally-committed limits were also included in the scope
\n
of the IFRS 9 ECL framework. These were offset by \u00a3(0.1)
\n
billion (2021 \u2013 \u00a30.8 billion) out of scope balances primarily
\n
related to facilities that, if drawn, would not be classified as
\n
amortised cost or FVOCI, or undrawn limits relating to financial
\n
assets exclusions. Total
contingent liabilities (including financial
\n
guarantees) and commitments within IFRS 9 ECL scope of
\n
\u00a3137.2 billion (2021 \u2013 \u00a3127.9 billion) comprised Stage 1 \u00a3119.2
\n
billion (2021 \u2013 \u00a3119.5 billion); Stage 2 \u00a317.3 billion (2021 \u2013 \u00a37.8
\n
billion); and Stage 3 \u00a30.7 billion (2021 \u2013 \u00a30.6 billion).
\n
The ECL relating to off balance sheet exposures was \u00a30.1
\n
billion (2021 \u2013 \u00a30.1 billion). The total ECL in the remainder of
\n
the Credit risk section of \u00a33.4 billion (2021 \u2013 \u00a33.8 billion)
\n
included ECL for both on and off balance sheet exposures for
\n
non-disposal groups.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
174,727
18,367
108,791
23,339
325,224
\n
Stage 2
21,561
801
24,226
245
46,833
\n
Stage 3
2,565
242
2,166
123
5,096
\n
Of which: individual
\u2014
168
905
48
1,121
\n
Of which: collective
2,565
74
1,261
75
3,975
\n
Subtotal excluding
\n
disposal group loans
198,853
19,410
135,183
23,707
377,153
\n
Disposal group loans
1,502
1,502
\n
Total
25,209
378,655
\n
ECL provisions
(1)
\n
Stage 1
251
21
342
18
632
\n
Stage 2
450
14
534
45
1,043
\n
Stage 3
917
26
747
69
1,759
\n
Of which: individual
\u2014
26
251
10
287
\n
Of which: collective
917
\u2014
496
59
1,472
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,618
61
1,623
132
3,434
\n
ECL on disposal group loans
53
53
\n
Total
185
3,487
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.14
0.11
0.31
0.08
0.19
\n
Stage 2 (%)
2.09
1.75
2.20
18.37
2.23
\n
Stage 3 (%)
35.75
10.74
34.49
56.10
34.52
\n
ECL provisions coverage excluding
\n
disposal group loans
0.81
0.31
1.20
0.56
0.91
\n
ECL provisions coverage on
\n
disposal group loans
3.53
3.53
\n
Total
0.73
0.92
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3)
229
(2)
122
(12)
337
\n
Stage 1
(146)
2
(135)
(11)
(290)
\n
Stage 2
268
(7)
108
24
393
\n
Stage 3
107
3
149
(25)
234
\n
Of which: individual
\u2014
3
57
(6)
54
\n
Of which: collective
107
\u2014
92
(19)
180
\n
Continuing operations
229
(2)
122
(12)
337
\n
Discontinued operations
(71)
(71)
\n
Total
(83)
266
\n
Amounts written-off
216
15
224
27
482
\n
Of which: individual
\u2014
15
153
\u2014
168
\n
Of which: collective
216
\u2014
71
27
314
\n
For the notes to this table refer to the following page.
Segment analysis \u2013 portfolio summary
(audited)
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
168,013
17,600
107,368
37,843
330,824
\n
Stage 2
13,594
967
18,477
943
33,981
\n
Stage 3
1,884
270
2,081
787
5,022
\n
Of which: individual
\u2014
270
884
61
1,215
\n
Of which: collective
1,884
\u2014
1,197
726
3,807
\n
Subtotal excluding disposal group loans
183,491
18,837
127,926
39,573
369,827
\n
Disposal group loans
9,084
9,084
\n
Total
48,657
378,911
\n
ECL provisions
(1)
\n
Stage 1
134
12
129
27
302
\n
Stage 2
590
29
784
75
1,478
\n
Stage 3
850
37
751
388
2,026
\n
Of which: individual
\u2014
37
313
13
363
\n
Of which: collective
850
\u2014
438
375
1,663
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,574
78
1,664
490
3,806
\n
ECL provisions on disposal group loans
109
109
\n
Total
599
3,915
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.08
0.07
0.12
0.07
0.09
\n
Stage 2 (%)
4.34
3.00
4.24
7.95
4.35
\n
Stage 3 (%)
45.12
13.70
36.09
49.30
40.34
\n
ECL provisions coverage excluding
\n
disposal group loans
0.86
0.41
1.30
1.24
1.03
\n
ECL provisions coverage on disposal
\n
group loans
1.20
1.20
\n
Total
1.23
1.03
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3,4)
(36)
(54)
(1,160)
77
(1,173)
\n
Stage 1
(387)
(45)
(872)
(13)
(1,317)
\n
Stage 2
157
(15)
(299)
(7)
(164)
\n
Stage 3
194
6
11
97
308
\n
Of which: individual
\u2014
6
16
(2)
20
\n
Of which: collective
194
\u2014
(5)
99
288
\n
Continuing operations
(36)
(54)
(1,160)
77
(1,173)
\n
Discontinued operations
(162)
(162)
\n
Total
(85)
(1,335)
\n
Amounts written-off
220
6
562
88
876
\n
Of which: individual
\u2014
6
449
\u2014
455
\n
Of which: collective
220
\u2014
113
88
421
\n
(1)
Includes loans to customers and banks.
\n
(2)
Includes \u00a33 million (2021 \u2013 \u00a35 million) related to assets classified as FVOCI and \u00a30.1 billion (2021 \u2013 \u00a30.1 billion) related to off-balance sheet exposures.
\n
(3)
ECL provisions coverage is calculated as ECL provisions divided by loans \u2013 amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
\n
(4)
Includes a \u00a33 million charge (2021 \u2013 \u00a33 million release) related to other financial assets, of which nil (2021 \u2013 \u00a32 million release) related to assets classified as FVOCI; and \u00a35 million
\n
release (2021 \u2013 \u00a334 million release) related to contingent liabilities.
\n
(5)
The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to the Financial instruments within the scope of the IFRS 9 ECL
\n
framework section for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling \u00a3143.3 billion (2021 \u2013
\n
\u00a3176.3 billion) and debt securities of \u00a329.9 billion (2021 \u2013 \u00a344.9 billion).
\n
\ue001
Stage 1 and Stage 2 modelled ECL increased due to
\n
deterioration in forward-looking economics, although the
\n
Stage 2 growth was more than offset by reductions in post
\n
model adjustments.
\n
\ue001
Stage 2 loans increased during 2022 in line with portfolio
\n
growth alongside deterioration in forward-looking
\n
economics as a result of the high inflation environment and
\n
supply chain disruption growing throughout the second half
\n
of the year.
\n
\ue001
Stage 3 loans increased, as write-offs and repayments were
\n
more than offset by the effect of the new regulatory
\n
definition of default, which in isolation led to an increase of
\n
approximately \u00a30.7 billion in Stage 3 balances, mostly in
\n
mortgages.
\n
\ue001
Underlying flows into default remained subdued during
\n
2022. However, it is expected that defaults will increase in
\n
2023 as growing inflationary pressures on businesses,
\n
consumers and the broader economy continue to evolve.
\n
\ue001
There was a significant reduction in loans, ECL, and
\n
coverage in Central items & other due to the phased
\n
withdrawal of Ulster Bank RoI.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet
\n
exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these
\n
exposures.
\n
Loans - amortised cost
Off-balance sheet
\n
and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Wholesale
1,269
193
40
1,502
413
19
17
19
17
53
\n
Total
1,269
193
40
1,502
413
19
17
19
17
53
\n
2021
\n
Personal
\n
5,547
210
34
5,791
\u2014
\u2014
4
6
7
17
\n
Wholesale
2,647
639
7
3,293
1,665
115
10
78
4
92
\n
Total
8,194
849
41
9,084
1,665
115
14
84
11
109
\n
(1)
Ulster Bank mortgages moves to fair value in 2023 and are no longer subject to ECL assessment. Due to fair value treatment this portfolio is no longer included in the 2022 figures
\n
of credit risk tables for either disposal or non-disposal groups.
Segmental loans and impairment metrics
(audited)
\n
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
Gross loans
ECL provisions
(2)
\n
Stage 2
(1)
Stage 2
(1)
\n
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Retail Banking
174,727
20,653
605
303
21,561
2,565
198,853
251
406
14
30
450
917
1,618
\n
Private Banking
18,367
730
39
32
801
242
19,410
21
14
\u2014
\u2014
14
26
61
\n
Personal
15,182
122
35
16
173
207
15,562
5
1
\u2014
\u2014
1
17
23
\n
Wholesale
3,185
608
4
16
628
35
3,848
16
13
\u2014
\u2014
13
9
38
\n
Commercial
\n
& Institutional
108,791
22,520
956
750
24,226
2,166
135,183
342
491
26
17
534
747
1,623
\n
Personal
2,475
17
17
7
41
46
2,562
3
1
\u2014
\u2014
1
12
16
\n
Wholesale
106,316
22,503
939
743
24,185
2,120
132,621
339
490
26
17
533
735
1,607
\n
Central items
\n
& other
23,339
234
4
7
245
123
23,707
18
42
1
2
45
69
132
\n
Personal
54
70
3
6
79
13
146
1
11
1
2
14
11
26
\n
Wholesale
23,285
164
1
1
166
110
23,561
17
31
\u2014
\u2014
31
58
106
\n
Total loans
325,224
44,137
1,604
1,092
46,833
5,096
377,153
632
953
41
49
1,043
1,759
3,434
\n
Of which:
\n
Personal
192,438
20,862
660
332
21,854
2,831
217,123
260
419
15
32
466
957
1,683
\n
Wholesale
132,786
23,275
944
760
24,979
2,265
160,030
372
534
26
17
577
802
1,751
\n
2021
\n
Retail Banking
168,013
12,275
863
456
13,594
1,884
183,491
134
516
38
36
590
850
1,574
\n
Private Banking
17,600
902
27
38
967
270
18,837
12
29
\u2014
\u2014
29
37
78
\n
Personal
14,350
137
24
11
172
232
14,754
6
2
\u2014
\u2014
2
18
26
\n
Wholesale
3,250
765
3
27
795
38
4,083
6
27
\u2014
\u2014
27
19
52
\n
Commercial
\n
& Institutional
107,368
17,352
455
670
18,477
2,081
127,926
129
750
23
11
784
751
1,664
\n
Personal
2,647
21
17
11
49
57
2,753
2
1
\u2014
\u2014
1
10
13
\n
Wholesale
104,721
17,331
438
659
18,428
2,024
125,173
127
749
23
11
783
741
1,651
\n
Central items & other
37,843
837
58
48
943
787
39,573
27
69
3
3
75
388
490
\n
Personal
5,165
510
52
46
608
609
6,382
7
15
3
3
21
301
329
\n
Wholesale
32,678
327
6
2
335
178
33,191
20
54
\u2014
\u2014
54
87
161
\n
Total loans
330,824
31,366
1,403
1,212
33,981
5,022
369,827
302
1,364
64
50
1,478
2,026
3,806
\n
Of which:
\n
Personal
190,175
12,943
956
524
14,423
2,782
207,380
149
534
41
39
614
1,179
1,942
\n
Wholesale
140,649
18,423
447
688
19,558
2,240
162,447
153
830
23
11
864
847
1,864
\n
For the notes to this table refer to the following page.
Segmental loans and impairment metrics
(audited)
\n
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
ECL provisions coverage
ECL
\n
Stage 2
(1,2)
\n
Stage 1
\n
Not past due
\n
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
Total
\n
(release) /
\n
charge (3)
\n
Amounts
\n
written-off
\n
2022
%
%
%
%
%
%
%
\u00a3m
\u00a3m
\n
Retail Banking
0.14
1.97
2.31
9.90
2.09
35.75
0.81
229
216
\n
Private Banking
0.11
1.92
\u2014
\u2014
1.75
10.74
0.31
(2)
15
\n
Personal
0.03
0.82
\u2014
\u2014
0.58
8.21
0.15
(3)
2
\n
Wholesale
0.50
2.14
\u2014
\u2014
2.07
25.71
0.99
1
13
\n
Commercial & Institutional
0.31
2.18
2.72
2.27
2.20
34.49
1.20
122
224
\n
Personal
0.12
5.88
\u2014
\u2014
2.44
26.09
0.62
4
2
\n
Wholesale
0.32
2.18
2.77
2.29
2.20
34.67
1.21
118
222
\n
Central items & other
0.08
17.95
25.00
28.57
18.37
56.10
0.56
(12)
27
\n
Personal
1.85
15.71
33.33
33.33
17.72
84.62
17.81
11
1
\n
Wholesale
0.07
18.90
\u2014
\u2014
18.67
52.73
0.45
(23)
26
\n
Total loans
0.19
2.16
2.56
4.49
2.23
34.52
0.91
337
482
\n
Of which:
\n
Personal
0.14
2.01
2.27
9.64
2.13
33.80
0.78
241
221
\n
Wholesale
0.28
2.29
2.75
2.24
2.31
35.41
1.09
96
261
\n
2021
\n
Retail Banking
0.08
4.20
4.40
7.89
4.34
45.12
0.86
(36)
220
\n
Private Banking
0.07
3.22
\u2014
\u2014
3.00
13.70
0.41
(54)
6
\n
Personal
0.04
1.46
\u2014
\u2014
1.16
7.76
0.18
1
3
\n
Wholesale
0.18
3.53
\u2014
\u2014
3.40
50.00
1.27
(55)
3
\n
Commercial & Institutional
0.12
4.32
5.05
1.64
4.24
36.09
1.30
(1,160)
562
\n
Personal
0.08
4.76
\u2014
\u2014
2.04
17.54
0.47
\u2014
1
\n
Wholesale
0.12
4.32
5.25
1.67
4.25
36.61
1.32
(1,160)
561
\n
Central items & other
0.07
8.24
5.17
6.25
7.95
49.30
1.24
77
88
\n
Personal
0.14
2.94
5.77
6.52
3.45
49.43
5.16
97
76
\n
Wholesale
0.06
16.51
\u2014
\u2014
16.12
48.88
0.49
(20)
12
\n
Total loans
0.09
4.35
4.56
4.13
4.35
40.34
1.03
(1,173)
876
\n
Of which:
\n
Personal
0.08
4.13
4.29
7.44
4.26
42.38
0.94
62
300
\n
Wholesale
0.11
4.51
5.15
1.60
4.42
37.81
1.15
(1,235)
576
\n
2019
\n
Retail Banking
0.08
3.15
4.35
7.79
3.44
43.27
0.88
\n
Private Banking
0.05
1.26
0.00
2.17
1.19
14.01
0.27
\n
Personal
0.03
1.11
0.00
2.44
1.07
11.98
0.24
\n
Wholesale
0.12
1.34
0.00
0.00
1.31
40.00
0.38
\n
Commercial & Institutional
0.15
1.79
4.35
2.60
1.86
47.84
1.23
\n
Personal
0.04
3.70
0.00
0.00
2.00
18.46
0.48
\n
Wholesale
0.15
1.78
4.63
2.66
1.86
48.64
1.25
\n
Central items & other
0.11
2.77
5.77
6.02
3.22
34.02
2.27
\n
Personal
0.11
2.12
6.25
5.71
2.79
31.49
4.57
\n
Wholesale
0.12
4.09
0.00
7.14
4.20
63.75
0.71
\n
Total loans
0.11
2.47
4.27
5.99
2.70
41.19
1.13
\n
Of which:
\n
Personal
0.08
3.04
4.23
7.15
3.35
35.90
1.10
\n
Wholesale
0.14
1.86
4.44
3.04
1.94
49.53
1.16
\n
(1)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(2)
ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
Segmental loans and impairment metrics
(audited)
\n
\ue001
Retail Banking
\u2013 Balance sheet growth during 2022 was
\n
primarily within mortgages with new lending a result of
\n
strong housing demand and re-mortgage activity and
\n
increased buy-to-let lending. Unsecured lending balances
\n
also increased as consumer demand and spending
\n
recovered following the easing of COVID-19 restrictions and
\n
with selective relaxation of lending criteria. Total ECL
\n
coverage reduced slightly during 2022, reflective of low
\n
unemployment and stable portfolio performance, while
\n
maintaining sufficient ECL coverage for key portfolios
\n
above 2019 levels, given increased inflationary and
\n
economic pressures. Increasing Stage 2 size and portfolio
\n
coverage in the second half of the year reflected the
\n
deterioration in economic outlook, with portfolio
\n
performance remaining broadly stable. Stage 3 ECL
\n
increased overall, mainly because of the IFRS 9 alignment
\n
to the new regulatory default definition, implemented on 1
\n
January 2022. The implementation of new mortgage IFRS 9
\n
models resulted in lower Stage 3 ECL coverage due to
\n
reduced loss estimates for cases where the customer was
\n
not subject to repossession activity and was the primary
\n
reason for the change in overall retail Stage 3 coverage
\n
during 2022.
\n
\ue001
Commercial & Institutional
\u2013 There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. There were also continued repayments of
\n
COVID-19 government lending schemes, and strategic
\n
reductions in certain sectors. Sector appetite continues to
\n
be reviewed regularly, with particular focus on sector
\n
clusters and sub-sectors that are vulnerable to inflationary
\n
pressures or deemed to represent a heightened risk. Stage
\n
1 and Stage 2 ECL increased due to deterioration in
\n
forward-looking economics, although the Stage 2 growth
\n
was more than offset by reductions in post model
\n
adjustments. Coverage decreased with the reduction in
\n
COVID-19 post model adjustments, but coverage on Stage
\n
1 and Stage 2 was significantly above 2019 levels, reflecting
\n
current inflationary and economic pressures.
\n
\ue001
Other
\u2013 Balance sheet reduction in 2022 compared to 2021
\n
was mainly due to a reduction in central items held in the
\n
course of treasury related management activities, and a
\n
decrease due to the phased withdrawal of Ulster Bank RoI.
Sector analysis \u2013 portfolio summary
(audited)
\n
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and
\n
past due by sector, asset quality and geographical region.
\n
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- UK
202,957
4,420
9,602
216,979
31,452
62,318
32,480
4,285
130,535
347,514
\n
- RoI
\u2014
40
104
144
34
1,102
74
\u2014
1,210
1,354
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
623
4,670
6,967
475
12,735
12,735
\n
- RoW
\u2014
\u2014
\u2014
\u2014
465
5,587
8,617
881
15,550
15,550
\n
Loans by stage
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Stage 1
182,245
3,275
6,918
192,438
27,542
53,048
46,738
5,458
132,786
325,224
\n
- Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Stage 3
1,925
109
797
2,831
716
1,476
47
26
2,265
5,096
\n
- Of which: individual
172
\u2014
13
185
314
564
33
25
936
1,121
\n
- Of which: collective
1,753
109
784
2,646
402
912
14
1
1,329
3,975
\n
Loans - past due analysis
(3,4)
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Not past due
200,634
4,335
8,825
213,794
31,366
70,034
47,824
5,633
154,857
368,651
\n
- Past due 1-30 days
916
33
86
1,035
608
2,490
278
1
3,377
4,412
\n
- Past due 31-90 days
510
29
104
643
302
551
5
7
865
1,508
\n
- Past due 91-180 days
380
24
79
483
49
34
24
\u2014
107
590
\n
- Past due >180 days
517
39
612
1,168
249
568
7
\u2014
824
1,992
\n
Loans - Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Not past due
17,951
1,039
1,872
20,862
3,866
17,915
1,344
150
23,275
44,137
\n
- Past due 1-30 days
588
19
53
660
185
754
5
\u2014
944
1,604
\n
- Past due 31-90 days
248
18
66
332
265
484
4
7
760
1,092
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
6
5
4
6
3
1
5
5
\n
Weighted average 12 months
\n
PDs*
\n
- IFRS 9 (%)
0.50
2.62
4.78
0.71
1.88
2.11
0.23
0.19
1.41
1.01
\n
- Basel (%)
0.65
2.97
3.11
0.79
1.03
1.44
0.16
0.19
0.92
0.85
\n
ECL provisions by geography
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- UK
376
254
1,027
1,657
404
985
42
14
1,445
3,102
\n
- RoI
\u2014
3
23
26
13
66
1
\u2014
80
106
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
16
72
7
1
96
96
\n
- RoW
\u2014
\u2014
\u2014
\u2014
8
105
13
4
130
130
\n
ECL provisions by stage
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- Stage 1
81
62
117
260
107
218
32
15
372
632
\n
- Stage 2
62
122
282
466
105
457
14
1
577
1,043
\n
- Stage 3
233
73
651
957
229
553
17
3
802
1,759
\n
- Of which: individual
18
\u2014
10
28
80
163
13
3
259
287
\n
- Of which: collective
215
73
641
929
149
390
4
\u2014
543
1,472
\n
ECL provisions coverage (%)
0.19
5.76
10.82
0.78
1.35
1.67
0.13
0.34
1.09
0.91
\n
- Stage 1 (%)
0.04
1.89
1.69
0.14
0.39
0.41
0.07
0.27
0.28
0.19
\n
- Stage 2 (%)
0.33
11.34
14.16
2.13
2.43
2.39
1.03
0.64
2.31
2.23
\n
- Stage 3 (%)
12.10
66.97
81.68
33.80
31.98
37.47
36.17
11.54
35.41
34.52
\n
ECL (release)/charge
(74)
56
259
241
126
(47)
19
(2)
96
337
\n
- UK
(74)
57
247
230
118
(67)
14
(3)
62
292
\n
- RoI
\u2014
(1)
12
11
1
(26)
(2)
\u2014
(27)
(16)
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
4
\u2014
1
\u2014
5
5
\n
- RoW
\u2014
\u2014
\u2014
\u2014
3
46
6
1
56
56
\n
Amounts written-off
31
67
123
221
33
188
40
\u2014
261
482
\n
*Not within audit scope.
\n
For the notes to this table refer to page 216.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages
(1)
\n
Credit
\n
cards
\n
Other
\n
person
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- <1 year
3,347
2,655
3,368
9,370
6,740
24,297
36,192
2,958
70,187
79,557
\n
- 1-5 year
10,968
1,805
5,387
18,160
17,523
32,127
10,380
1,819
61,849
80,009
\n
- > 5 years
188,642
\u2014
951
189,593
8,311
17,253
1,566
864
27,994
217,587
\n
Other financial assets by asset
\n
quality
(2)
\u2014
\u2014
\u2014
\u2014
49
25
14,704
158,416
173,194
173,194
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
14,156
158,416
172,583
172,583
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
49
14
548
\u2014
611
611
\n
Off-balance sheet
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- Loan commitments
18,782
15,848
8,496
43,126
15,302
54,651
18,223
710
88,886
132,012
\n
- Financial guarantees
\u2014
\u2014
51
51
491
3,140
1,332
\u2014
4,963
5,014
\n
Off-balance sheet by asset quality
(2)
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- AQ1-AQ4
17,676
436
7,353
25,465
12,477
35,960
17,899
606
66,942
92,407
\n
- AQ5-AQ8
1,089
15,048
1,170
17,307
3,282
21,496
1,655
84
26,517
43,824
\n
- AQ9
2
74
4
80
5
24
\u2014
\u2014
29
109
\n
- AQ10
15
290
20
325
29
311
1
20
361
686
\n
For the notes to this table refer to page 216.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- UK
187,847
3,877
9,253
200,977
31,574
62,952
39,086
4,542
138,154
339,131
\n
- RoI
6,164
70
147
6,381
130
1,222
116
4
1,472
7,853
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
439
3,831
5,066
840
10,176
10,176
\n
- RoW
\u2014
\u2014
22
22
379
2,846
8,773
647
12,645
12,667
\n
Loans by stage
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Stage 1
180,418
2,924
6,833
190,175
28,679
53,803
52,263
5,904
140,649
330,824
\n
- Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Stage 3
2,050
90
642
2,782
742
1,444
46
8
2,240
5,022
\n
- of which: individual
269
\u2014
19
288
329
583
7
8
927
1,215
\n
- of which: collective
1,781
90
623
2,494
413
861
39
\u2014
1,313
3,807
\n
Loans - past due analysis
(3,4)
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Not past due
190,834
3,834
8,619
203,287
31,391
68,630
52,285
6,030
158,336
361,623
\n
- Past due 1-30 days
1,217
28
124
1,369
521
1,081
732
2
2,336
3,705
\n
- Past due 31-90 days
592
25
73
690
256
448
19
1
724
1,414
\n
- Past due 91-180 days
367
22
61
450
91
215
1
\u2014
307
757
\n
- Past due >180 days
1,001
38
545
1,584
263
477
4
\u2014
744
2,328
\n
Loans - Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Not past due
10,259
899
1,785
12,943
2,725
14,870
708
120
18,423
31,366
\n
- Past due 1-30 days
843
16
97
956
125
318
4
\u2014
447
1,403
\n
- Past due 31-90 days
441
18
65
524
251
416
20
1
688
1,212
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
5
5
5
6
3
1
6
6
\n
Weighted average 12
\n
months PDs*
\n
- IFRS 9 (%)
0.16
4.84
2.73
0.36
0.76
1.85
0.14
0.14
1.00
0.65
\n
- Basel (%)
0.76
3.31
3.22
0.91
1.20
1.74
0.14
0.16
1.04
0.97
\n
ECL provisions by geography
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- UK
449
258
904
1,611
331
1,124
47
18
1,520
3,131
\n
- RoI
319
2
10
331
19
107
3
1
130
461
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
20
77
4
1
102
102
\n
- RoW
\u2014
\u2014
\u2014
\u2014
4
103
3
2
112
112
\n
ECL provisions by stage
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- Stage 1
32
59
58
149
24
96
14
19
153
302
\n
- Stage 2
174
141
299
614
111
713
39
1
864
1,478
\n
- Stage 3
562
60
557
1,179
239
602
4
2
847
2,026
\n
- of which: individual
19
\u2014
12
31
69
261
\u2014
2
332
363
\n
- of which: collective
543
60
545
1,148
170
341
4
\u2014
515
1,663
\n
ECL provisions coverage (%)
0.40
6.59
9.70
0.94
1.15
1.99
0.11
0.36
1.15
1.03
\n
- Stage 1 (%)
0.02
2.02
0.85
0.08
0.08
0.18
0.03
0.32
0.11
0.09
\n
- Stage 2 (%)
1.51
15.11
15.36
4.26
3.58
4.57
5.33
0.83
4.42
4.35
\n
- Stage 3 (%)
27.41
66.67
86.76
42.38
32.21
41.69
8.70
25.00
37.81
40.34
\n
ECL (release)/charge
(5)
46
(14)
30
62
(477)
(723)
(38)
3
(1,235)
(1,173)
\n
- UK
(52)
(14)
31
(35)
(457)
(647)
(12)
3
(1,113)
(1,148)
\n
- RoI
98
\u2014
(1)
97
(5)
(23)
2
\u2014
(26)
71
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
(7)
(7)
(21)
\u2014
(35)
(35)
\n
- RoW
\u2014
\u2014
\u2014
\u2014
(8)
(46)
(7)
\u2014
(61)
(61)
\n
Amounts written-off
85
74
141
300
271
271
34
\u2014
576
876
\n
*Not within audit scope.
\n
For the notes to this table refer to the following page.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages
\n
Credit
\n
cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- <1 year
3,611
2,532
3,197
9,340
7,497
22,593
41,195
2,809
74,094
83,434
\n
- 1-5 year
12,160
1,415
5,393
18,968
16,293
33,301
10,969
1,967
62,530
81,498
\n
- > 5 years
178,240
\u2014
832
179,072
8,732
14,957
877
1,257
25,823
204,895
\n
Other financial assets by asset quality
(2)
\u2014
\u2014
\u2014
\u2014
55
11
11,516
209,553
221,135
221,135
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
10,974
209,551
220,536
220,536
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
55
\u2014
542
2
599
599
\n
Off-balance sheet
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- Loan commitments
16,827
15,354
8,170
40,351
15,882
49,231
16,906
1,212
83,231
123,582
\n
- Financial guarantees
\u2014
\u2014
60
60
460
2,802
992
\u2014
4,254
4,314
\n
Off-balance sheet by asset quality
(2)
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- AQ1-AQ4
14,792
248
6,591
21,631
12,550
30,417
16,192
1,064
60,223
81,854
\n
- AQ5-AQ8
2,028
14,804
1,625
18,457
3,757
21,262
1,703
148
26,870
45,327
\n
- AQ9
\u2014
9
3
12
6
48
1
\u2014
55
67
\n
- AQ10
7
293
11
311
29
306
2
\u2014
337
648
\n
(1)
Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are
\n
reported in UK, which includes crown dependencies, reflecting the country of lending origination.
\n
(2)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(3)
AQ bandings are based on Basel PDs and mapping is as follows:
\n
Internal asset
\n
quality band
\n
Probability of
\n
default range
\n
Indicative
\n
S&P rating
\n
AQ1
0% - 0.034%
AAA to AA
\n
AQ2
0.034% - 0.048%
AA to AA-
\n
AQ3
0.048% - 0.095%
A+ to A
\n
AQ4
0.095% - 0.381%
BBB+ to BBB-
\n
AQ5
0.381% - 1.076%
BB+ to BB
\n
AQ6
1.076% - 2.153%
BB- to B+
\n
AQ7
2.153% - 6.089%
B+ to B
\n
AQ8
6.089% - 17.222%
B- to CCC+
\n
AQ9
17.222% - 100%
CCC to C
\n
AQ10
100%
D
\n
\u00a30.3 billion (2021 \u2013 \u00a30.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited.
Sector analysis \u2013 portfolio summary
(audited)
\n
The table below shows ECL by stage, for the Personal portfolio and selected sectors of the Wholesale portfolios.
\n
Off-balance sheet
\n
Loans - amortised cost and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
192,438
21,854
2,831
217,123
43,126
51
260
466
957
1,683
\n
Mortgages
182,245
18,787
1,925
202,957
18,782
\u2014
81
62
233
376
\n
Credit cards
3,275
1,076
109
4,460
15,848
\u2014
62
122
73
257
\n
Other personal
6,918
1,991
797
9,706
8,496
51
117
282
651
1,050
\n
Wholesale
132,786
24,979
2,265
160,030
88,886
4,963
372
577
802
1,751
\n
Property*
27,542
4,316
716
32,574
15,302
491
107
105
229
441
\n
Financial institutions**
46,738
1,353
47
48,138
18,223
1,332
32
14
17
63
\n
Sovereigns
5,458
157
26
5,641
710
\u2014
15
1
3
19
\n
Corporate
53,048
19,153
1,476
73,677
54,651
3,140
218
457
553
1,228
\n
Of which:
\n
Agriculture*
3,646
1,034
93
4,773
968
24
21
31
43
95
\n
Airlines and aerospace*
483
1,232
19
1,734
1,715
174
2
40
8
50
\n
Automotive*
5,776
1,498
30
7,304
4,009
99
18
18
11
47
\n
Chemicals*
384
117
1
502
650
12
1
2
1
4
\n
Health
3,974
1,008
141
5,123
475
8
19
30
48
97
\n
Industrials*
2,148
1,037
82
3,267
3,135
195
10
16
24
50
\n
Land transport & logistics*
3,788
1,288
66
5,142
3,367
190
13
33
17
63
\n
Leisure*
3,416
3,787
260
7,463
1,907
102
27
147
115
289
\n
Mining & metals*
173
230
5
408
545
5
\u2014
1
5
6
\n
Oil and gas*
953
159
60
1,172
2,157
248
3
3
31
37
\n
Power utilities*
4,228
406
6
4,640
6,960
1,182
9
11
1
21
\n
Retail*
6,497
1,746
150
8,393
4,682
416
21
29
68
118
\n
Shipping*
161
151
14
326
110
22
\u2014
7
6
13
\n
Water & waste*
3,026
335
7
3,368
2,143
101
4
4
4
12
\n
Total
325,224
46,833
5,096
377,153
132,012
5,014
632
1,043
1,759
3,434
\n
2021
\n
Personal
190,175
14,423
2,782
207,380
40,351
60
149
614
1,179
1,942
\n
Mortgages
180,418
11,543
2,050
194,011
16,827
\u2014
32
174
562
768
\n
Credit cards
2,924
933
90
3,947
15,354
\u2014
59
141
60
260
\n
Other personal
6,833
1,947
642
9,422
8,170
60
58
299
557
914
\n
Wholesale
140,649
19,558
2,240
162,447
83,231
4,254
153
864
847
1,864
\n
Property*
28,679
3,101
742
32,522
15,882
460
24
111
239
374
\n
Financial institutions**
52,263
732
46
53,041
16,906
992
14
39
4
57
\n
Sovereigns
5,904
121
8
6,033
1,212
\u2014
19
1
2
22
\n
Corporate
53,803
15,604
1,444
70,851
49,231
2,802
96
713
602
1,411
\n
Of which:
\n
Agriculture*
3,722
1,229
133
5,084
993
24
11
39
78
128
\n
Airlines and aerospace*
779
668
44
1,491
1,528
221
1
39
15
55
\n
Automotive*
5,133
1,304
38
6,475
3,507
65
9
32
10
51
\n
Chemicals*
355
43
1
399
663
14
1
\u2014
\u2014
1
\n
Health
3,818
1,235
133
5,186
799
9
9
58
48
115
\n
Industrials*
2,311
620
28
2,959
2,770
243
4
15
13
32
\n
Land transport & logistics*
3,721
833
39
4,593
3,069
188
4
53
12
69
\n
Leisure*
3,712
4,050
340
8,102
1,874
107
11
247
133
391
\n
Mining & metals*
336
42
4
382
627
131
\u2014
2
4
6
\n
Oil and gas*
1,482
141
52
1,675
1,126
453
1
14
28
43
\n
Power utilities*
3,844
220
6
4,070
5,622
404
2
3
1
6
\n
Retail*
6,380
1,342
180
7,902
4,872
410
8
29
66
103
\n
Shipping*
506
334
27
867
90
12
1
11
10
22
\n
Water & waste*
2,714
230
4
2,948
1,850
91
2
5
2
9
\n
Total
330,824
33,981
5,022
369,827
123,582
4,314
302
1,478
2,026
3,806
\n
* Wholesale sectors marked with an asterisk contain an element of exposure classified as heightened climate-related risk. Elements of the personal mortgage portfolio are also exposed
\n
to heightened climate-related risk. The classification of sectors into heightened climate-related risk mentioned within this footnote is not within audit scope.
\n
**Financial institutions (FI) include transactions, such as securitisations, where the underlying assets may be in other sectors.
Wholesale forbearance
(audited)
\n
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is
\n
disclosed in the Personal portfolio section. The table shows current exposure but reflects risk transfers where there is a guarantee
\n
by another customer.
\n
Property
FI
Other corporate
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Forbearance (flow)
746
105
2,575
3,426
\n
Forbearance (stock)
933
107
4,709
5,749
\n
Heightened Monitoring and Risk of Credit Loss
976
112
3,445
4,533
\n
2021
\n
Forbearance (flow)
709
27
3,894
4,630
\n
Forbearance (stock)
1,033
35
5,659
6,727
\n
Heightened Monitoring and Risk of Credit Loss
1,225
83
4,492
5,800
\n
Sector analysis \u2013 portfolio summary
(audited)
\n
\ue001
Loans by geography and sector
\u2013 In line with NatWest
\n
Group\u2019s strategic focus, exposures continued to be mainly
\n
in the UK. Exposure to the Republic of Ireland reduced
\n
during the year as part of the phased withdrawal noted
\n
previously. In Personal, balance sheet growth was a result
\n
of strong mortgage demand during the year. In Wholesale,
\n
there was a reduction in the balance sheet in Q4, following
\n
a period of growth up to Q3. This was mainly due to a
\n
reduction in central items held in the course of treasury
\n
related management activities. There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. Repayment performance under COVID-19
\n
government lending schemes is closely tracked and
\n
exposure continued to decrease due to scheduled
\n
repayment activity and account closures. Exposures under
\n
the Bounce Bank Loan Scheme (BBLS) that benefit from the
\n
100% government guarantee account for approximately
\n
70% of remaining government scheme exposures. BBLS
\n
missed repayment rate and recoveries stock have increased
\n
but volumes continue to be in line with other lenders.
\n
\ue001
Loans by stage
\u2013 In both Wholesale and Personal,
\n
deterioration in forward-looking economics resulted in a
\n
larger proportion of accounts exhibiting a SICR compared
\n
to 2021. There was, therefore, a migration of exposures
\n
from Stage 1 into Stage 2 during 2022. Personal customers
\n
who had accessed payment holiday support, and where
\n
their risk profile was identified as relatively high, are no
\n
longer collectively migrated into Stage 2. The relevance of
\n
this collective SICR identification was no longer considered
\n
as pertinent in the context of the current high inflation
\n
environment and related uncertainty.
\n
\ue001
Loans \u2013 Past due analysis
\u2013 Overall, the past due profile of
\n
the key portfolios remained broadly stable. The
\n
implementation of the new regulatory default definition
\n
included refinements to the days past due calculations. This
\n
contributed to an increase in arrears in H1 2022 in
\n
Personal, however this moderated through the year.
\n
Particularly in mortgages, the exit from the Republic of
\n
Ireland also contributed to the reduction in past due
\n
exposures. In Wholesale, there was an increase in past due
\n
1-30 days in corporates.
\n
\ue001
Weighted average 12 months PDs
\u2013 In Personal, the Basel II
\n
point-in-time PDs improved slightly during 2022 due to
\n
stable credit performance in the portfolios. For IFRS 9 PDs,
\n
there were increases across mortgages and other personal
\n
lending as a result of new PD model implementations during
\n
the year, coupled with the deteriorating economic outlook
\n
in the second half of the year. For credit cards, the new
\n
IFRS 9 PD model implementation drove a net reduction in
\n
PD levels, primarily resulting from more accurate modelling
\n
of defaults driven by shifts in general unemployment. In
\n
Wholesale, the Basel II PDs were based on a through-the-
\n
cycle approach and improved reflecting positive portfolio
\n
performance.
\n
The IFRS 9 PDs increased due the deterioration in forward-
\n
looking economics. For further details refer to the Asset
\n
quality section.
\n
\ue001
ECL provision by geography
\u2013 In line with loans by
\n
geography, the vast majority of ECL related to exposures in
\n
the UK, noting the reduction in RoI was mostly due to the
\n
phased withdrawal of Ulster Bank RoI and moving of assets
\n
to discontinued operations and reclassifications.
\n
\ue001
ECL provisions by stage
\u2013 As mentioned above, Stage 1 and
\n
Stage 2 ECL increased due to deterioration in forward-
\n
looking economics, although the Stage 2 growth was more
\n
than offset by reductions in post model adjustments. Stage
\n
3 provisions have yet to be materially affected by the high
\n
inflation environment and supply chain disruption, with
\n
increases relating to the introduction of the new regulatory
\n
definition of default, largely offset by write offs.
\n
\ue001
ECL provisions coverage
\u2013 Overall provisions coverage
\n
reduced, due to the phased withdrawal of Ulster Bank RoI,
\n
a change in product mix and a decrease in judgemental
\n
post model adjustments which more than offset increases
\n
from the deteriorating economic outlook.
\n
\ue001
The ECL charge and loss rate
\u2013 ECL charge and loss rate
\n
was low, with charges from a deterioration in forward-
\n
looking economics countered by reductions in post model
\n
adjustments and the continued stable portfolio performance
\n
and low default trends.
\n
\ue001
Loans by residual maturity
\u2013 The maturity profile of the
\n
portfolios remained consistent with prior periods. In
\n
mortgages, as expected, the vast majority of exposures
\n
were greater than five years. In unsecured lending \u2013 cards
\n
and other \u2013 exposures were concentrated in less than five
\n
years. In Wholesale, in financial institutions and sovereigns,
\n
lending was concentrated in less than one year, In the rest
\n
of Wholesale, most of the lending was for residual maturity
\n
of one to five years.
\n
\ue001
Other financial assets by asset quality
\u2013 Consisting almost
\n
entirely of cash and balances at central banks and debt
\n
securities, held in the course of treasury related
\n
management activities, these assets were mainly within the
\n
AQ1-AQ4 bands.
\n
\ue001
Off-balance sheet exposures by asset quality
\u2013 In Personal,
\n
undrawn exposures were reflective of available credit lines
\n
in credit cards and current accounts. Additionally, the
\n
mortgage portfolio had undrawn exposures, where a formal
\n
offer had been made to a customer but had not yet drawn
\n
down; the value increased in line with the pipeline of offers.
\n
There was also a legacy portfolio of flexible mortgages
\n
where a customer had the right and ability to draw down
\n
further funds. The asset quality was aligned to the wider
\n
portfolio. In Wholesale, growth was primarily loan
\n
commitments to financial institutions and corporate sectors
\n
in the AQ1-AQ4 bands.
Sector analysis \u2013 portfolio summary
\n
continued
(audited)
\n
\ue001
Wholesale forbearance
\u2013 Forbearance flow and stock
\n
decreased in 2022 compared to 2021, noting that 2021 was
\n
adversely affected by COVID-19. Increased levels of
\n
forbearance were observed in Q4 2022. The retail & leisure,
\n
property and services sectors represented the largest share
\n
of forbearance flow. Labour shortages, the high inflation
\n
environment, rising fuel and energy costs, interest rate
\n
impacts and supply chain issues continue to weigh on these
\n
sectors. Payment holidays and covenant waivers were the
\n
most common forms of forbearance granted.
\n
\ue001
Heightened Monitoring and Risk of Credit Loss
\u2013
Economic
\n
headwinds continue to present an uncertain outlook. Risk of
\n
Credit Loss framework exposures and inflows decreased in
\n
2022 compared to 2021, noting again that 2021 was
\n
adversely affected by COVID-19. Inflows into the
\n
framework began to increase in Q4 2022. The sector
\n
breakdown of exposures within the framework remained
\n
consistent with prior periods. Retail SME customers do not
\n
form part of the Wholesale Risk of Credit Loss framework.
\n
Customers in this group, that are in financial difficulty, are
\n
instead managed by specialist problem debt management
\n
teams. The number of customers in arrears and recoveries
\n
increased significantly during 2022, driven by BBLS
\n
exposures. Excluding BBLS, the number of customers in this
\n
population in problem debt remains stable.
Credit risk enhancement and mitigation
(audited)
\n
The table below shows exposures of modelled portfolios within the scope of the ECL framework and related credit risk
\n
enhancement and mitigation (CREM).
\n
Maximum credit risk
CREM by type
CREM coverage
\n
Exposure post
\n
CREM
Gross
\n
exposure
\n
ECL
Total
Stage 3
\n
Financial
\n
(1)
\n
Property
Other (2)
Total
Stage 3
Total
Stage 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
143.2
\u2014
143.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
143.2
\u2014
\n
Loans - amortised cost
(3)
377.2
3.3
373.9
3.4
31.8
243.1
21.7
296.6
3.0
77.3
0.4
\n
Personal
(4)
217.2
1.7
215.5
1.9
0.9
202.1
\u2014
203.0
1.7
12.5
0.2
\n
Wholesale
(5)
160.0
1.6
158.4
1.5
30.9
41.0
21.7
93.6
1.3
64.8
0.2
\n
Debt securities
29.9
\u2014
29.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
29.9
\u2014
\n
Total financial assets
550.3
3.3
547.0
3.4
31.8
243.1
21.7
296.6
3.0
250.4
0.4
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
43.2
\u2014
43.2
0.3
0.7
4.4
\u2014
5.1
\u2014
38.1
0.3
\n
Wholesale
93.9
0.1
93.8
0.4
3.1
7.4
4.0
14.5
0.1
79.3
0.3
\n
Total off-balance sheet
137.0
0.1
136.9
0.7
3.8
11.8
4.0
19.6
0.1
117.3
0.6
\n
Total exposure
687.3
3.4
683.9
4.1
35.6
254.9
25.7
316.2
3.1
367.7
1.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
176.3
\u2014
176.3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
176.3
\u2014
\n
Loans - amortised cost
(3)
369.8
3.7
366.1
3.0
41.1
232.7
23.5
297.3
2.7
68.8
0.3
\n
Personal
(4)
207.4
1.9
205.5
1.6
1.3
192.6
\u2014
193.9
1.5
11.6
0.1
\n
Wholesale
(5)
162.4
1.8
160.6
1.4
39.8
40.1
23.5
103.4
1.2
57.2
0.2
\n
Debt securities
44.9
\u2014
44.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44.9
\u2014
\n
Total financial assets
591.0
3.7
587.3
3.0
41.1
232.7
23.5
297.3
2.7
290.0
0.3
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
40.4
\u2014
40.4
0.3
0.5
4.9
\u2014
5.4
\u2014
35.0
0.3
\n
Wholesale
87.5
0.1
87.4
0.3
3.2
7.9
3.9
15.0
0.1
72.4
0.2
\n
Total off-balance sheet
127.9
0.1
127.8
0.6
3.7
12.8
3.9
20.4
0.1
107.4
0.5
\n
Total exposure
718.9
3.8
715.1
3.6
44.8
245.5
27.4
317.7
2.8
397.4
0.8
\n
(1)
Includes cash and securities collateral.
\n
(2)
Includes guarantees, charges over trade debtors, other asset finance related physical collateral as well as the amount by which credit risk exposure is reduced through netting
\n
arrangements, mainly cash management pooling, which give NatWest Group a legal right to set off the financial asset against a financial liability due to the same counterparty.
\n
(3)
NatWest Group holds collateral in respect of individual loans \u2013 amortised cost to banks and customers. This collateral includes mortgages over property (both personal and
\n
commercial); charges over business assets such as plant and equipment; inventories and trade debtors; and guarantees of lending from parties other than the borrower. NatWest
\n
Group obtains collateral in the form of securities in reverse repurchase agreements. Collateral values are capped at the value of the loan.
\n
(4)
Stage 3 mortgage exposures have relatively limited uncovered exposure reflecting the security held. On unsecured credit cards and other personal borrowing, the residual
\n
uncovered amount reflects historical experience of continued cash recovery post default through ongoing engagement with customers.
\n
(5)
Stage 3 exposures post credit risk enhancement and mitigation in Wholesale mainly represent enterprise value and the impact of written down collateral values; an individual
\n
assessment to determine ECL will consider multiple scenarios and in some instances allocate a probability weighting to a collateral value in excess of the written down value.
\n
(6)
\u00a30.3 billion (2021
\u2013
\u00a30.3 billion) Personal Stage 3 balances primarily relate to loan commitments, the draw down of which is effectively prohibited.
\n
(7)
The Personal gross exposure value includes \u00a314.0 billion (2021
\u2013
\u00a311.8 billion) in respect of pipeline mortgages where a committed offer has been made to a customer but where
\n
the funds have not yet been drawn down. When drawn down, the exposure would be covered by a security over the borrower\u2019s property.
Personal portfolio
(audited)
\n
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
\n
2022
2021
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items
\n
& other
Total
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
Personal lending
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mortgages
186,891
13,709
2,357
\u2014
202,957
172,707
12,781
2,444
6,164
194,096
\n
Of which:
\n
Owner occupied
168,790
12,096
1,541
\u2014
182,427
158,059
11,219
1,597
5,563
176,438
\n
Buy-to-let
18,101
1,613
816
\u2014
20,530
14,648
1,562
847
601
17,658
\n
Interest only - variable
3,515
3,286
258
\u2014
7,059
4,348
4,889
346
120
9,703
\n
Interest only - fixed
17,954
8,591
261
\u2014
26,806
14,255
5,957
209
3
20,424
\n
Mixed
(1)
9,768
1
16
\u2014
9,785
8,616
1
17
34
8,668
\n
ECL provisions
(2)
355
9
6
\u2014
370
429
7
8
318
762
\n
Other personal lending
(3)
11,935
1,853
267
143
14,198
10,829
1,974
305
218
13,326
\n
ECL provisions
(2)
1,257
15
3
26
1,301
1,140
19
2
11
1,172
\n
Total personal lending
198,826
15,562
2,624
143
217,155
183,536
14,755
2,749
6,382
207,422
\n
Mortgage LTV ratios
\n
- Owner occupied
52%
59%
56%
\u2014
53%
54%
59%
57%
50%
54%
\n
- Stage 1
52%
59%
56%
\u2014
53%
54%
59%
56%
48%
54%
\n
- Stage 2
52%
61%
60%
\u2014
52%
52%
59%
62%
57%
52%
\n
- Stage 3
45%
59%
74%
\u2014
47%
49%
64%
77%
56%
53%
\n
- Buy-to-let
50%
59%
53%
\u2014
51%
50%
57%
53%
52%
51%
\n
- Stage 1
51%
59%
53%
\u2014
52%
50%
58%
53%
51%
51%
\n
- Stage 2
49%
53%
48%
\u2014
49%
52%
55%
50%
56%
52%
\n
- Stage 3
47%
55%
57%
\u2014
50%
51%
53%
60%
66%
56%
\n
Gross new mortgage lending
41,227
2,968
327
\u2014
44,522
35,290
2,874
340
40
38,544
\n
Of which:
\n
Owner occupied
36,305
2,701
221
\u2014
39,227
33,630
2,583
206
40
36,459
\n
Weighted average LTV
(4)
69%
65%
65%
\u2014
69.0%
69%
65%
67%
62%
68%
\n
Buy-to-let
4,922
267
106
\u2014
5,295
1,660
292
134
\u2014
2,086
\n
Weighted average LTV
(4)
64%
66%
60%
\u2014
64.0%
63%
65%
63%
60%
64%
\n
Interest only - variable rate
24
329
11
\u2014
364
25
832
37
\u2014
894
\n
Interest only - fixed rate
5,299
2,335
51
\u2014
7,685
2,388
1,563
36
\u2014
3,987
\n
Mixed
(1)
2,309
\u2014
2
\u2014
2,311
2,256
\u2014
7
\u2014
2,263
\n
Mortgage forbearance
\n
Forbearance flow
(5)
182
7
4
\u2014
193
316
19
4
50
389
\n
Forbearance stock
1,015
16
8
\u2014
1,039
1,156
3
8
944
2,111
\n
Current
649
8
6
\u2014
663
727
\u2014
5
616
1,348
\n
1-3 months in arrears
133
\u2014
2
\u2014
135
146
2
1
58
207
\n
>3 months in arrears
233
8
\u2014
\u2014
241
283
1
2
270
556
\n
(1)
Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.
\n
(2)
Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(3)
Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.
\n
(4)
The new lending LTV in the comparative has been amended to reflect LTV at the time of lending origination rather than LTV at the reporting period.
\n
(5)
Forbearance flows only include an account once per year, although some accounts may be subject to multiple forbearance deals. Forbearance deals post default are excluded from
\n
these flows.
\n
\ue001
The mortgage portfolio grew steadily during 2022, benefiting
\n
from buoyant housing market activity and customers re-
\n
mortgaging as interest rates rose across the market.
\n
\ue001
LTV ratios improved as house prices increased as a result of
\n
housing market demand.
\n
\ue001
The existing mortgage stock and new business were closely
\n
monitored against agreed risk appetite parameters. These
\n
included loan-to-value ratios, buy-to-let concentrations,
\n
new-build concentrations and credit quality. Affordability
\n
assessments and assumptions were continuously reviewed
\n
considering inflationary pressure, interest rate rises and
\n
taxation changes during the year.
\n
\ue001
The buy-to-let portfolio grew in 2022. This growth was
\n
expected and within risk appetite following strategy and
\n
customer journey simplification implemented in H2 2021.
\n
\ue001
Aligned to strong overall portfolio quality and low levels of
\n
early arrears, forbearance flows have decreased compared
\n
to the prior year.
\n
\ue001
Unsecured lending increased during 2022, with resilient
\n
customer demand after the easing of COVID-19 restrictions.
\n
\ue001
As noted previously, ECL increased, for further detail of
\n
movements in ECL provisions at product level refer to the
\n
Flow statements section.
Personal portfolio
(audited)
\n
Mortgage LTV distribution by stage
\n
The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9
\n
ECL reflected portfolios carried at fair value.
\n
Mortgages
ECL provisions
ECL provisions coverage (2)
\n
Retail Banking
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9
\n
ECL scope
\n
Total
\n
Of which;
\n
gross
\n
lending
\n
Stage 1
Stage 2
Stage 3
Total (1)
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
71,321
8,257
1,036
61
80,675
7,467
26
20
121
167
\u2014
0.2
11.7
0.2
\n
>50% and \u226470%
68,178
7,792
616
7
76,593
14,088
32
30
71
133
\u2014
0.4
11.5
0.2
\n
>70% and \u226480%
17,602
1,602
62
1
19,267
11,154
7
6
11
24
\u2014
0.4
17.7
0.1
\n
>80% and \u226490%
7,918
944
17
1
8,880
7,127
6
5
5
16
0.1
0.5
29.4
0.2
\n
>90% and \u2264100%
1,409
18
6
\u2014
1,433
1,389
3
\u2014
2
5
0.2
\u2014
33.3
0.3
\n
>100%
35
7
10
\u2014
52
2
2
\u2014
4
6
5.7
\u2014
40.0
11.5
\n
Total with LTVs
166,463
18,620
1,747
70
186,900
41,227
76
61
214
351
\u2014
0.3
12.3
0.2
\n
Other
59
1
1
\u2014
61
\u2014
3
\u2014
1
4
5.1
\u2014
100.0
6.6
\n
Total
166,522
18,621
1,748
70
186,961
41,227
79
61
215
355
\u2014
0.3
12.3
0.2
\n
2021
\n
\u226450%
61,233
4,548
644
63
66,488
5,845
7
60
140
207
\u2014
1.3
21.7
0.3
\n
>50% and \u226470%
68,271
4,674
483
9
73,437
12,397
10
64
84
158
\u2014
1.4
17.4
0.2
\n
>70% and \u226480%
24,004
1,255
93
1
25,353
10,964
3
18
15
36
\u2014
1.4
16.1
0.1
\n
>80% and \u226490%
5,983
250
22
1
6,256
4,985
1
8
5
14
\u2014
3.2
22.7
0.2
\n
>90% and \u2264100%
1,125
58
10
\u2014
1,193
1,098
\u2014
5
3
8
\u2014
8.6
30.0
0.7
\n
>100%
14
18
6
\u2014
38
\u2014
\u2014
1
2
3
\u2014
5.6
33.3
7.9
\n
Total with LTVs
160,630
10,803
1,258
74
172,765
35,289
21
156
249
426
\u2014
1.4
19.8
0.2
\n
Other
14
1
1
\u2014
16
1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Total
160,644
10,804
1,259
74
172,781
35,290
21
156
249
426
\u2014
1.4
19.8
0.2
\n
(1)
Excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(2)
ECL provisions coverage is ECL provisions divided by mortgages.
\n
\ue001
The reduced coverage level in the lower LTV bands for
\n
Retail Banking, relative to 31 December 2021, reflected the
\n
implementation of a new IFRS 9 LGD model with a modelling
\n
approach that now captures a reduced loss expectation
\n
from non-repossession recovery action.
\n
\ue001
Continued stable portfolio performance alongside the new
\n
IFRS 9 PD and LGD model implementations resulted in
\n
reduced coverage across most LTV bands in Stage 2 and
\n
Stage 3. The increased ECL across Stage 1 LTV bands was
\n
mainly due to higher Stage 1 PDs as a result of the new PD
\n
model implementation and also the proportionate allocation
\n
of the economic uncertainty post model adjustment to Stage
\n
1.
Personal portfolio
(audited)
\n
Retail Banking mortgage LTV distribution by region
\n
The table below shows gross mortgage lending by LTV band for Retail Banking, by geographical region.
\n
Flood risk*
\n
\u226450%
50%\u226480%
80%\u2264100%
>100%
Total
\n
Weighted
\n
average LTV
\n
Other
Total
Total
\n
lending at
\n
high/very high
\n
risk**
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
\u00a3m
\u00a3m
%
%
\n
South East
15,856
17,670
1,396
1
34,923
51
3
34,926
19
4.1
\n
Greater London
15,200
17,550
1,336
1
34,087
51
3
34,090
18
2.3
\n
Scotland
5,024
6,174
1,163
1
12,362
54
1
12,363
7
3.2
\n
North West
7,670
8,672
1,236
2
17,580
52
2
17,582
9
2.2
\n
South West
7,874
7,922
627
\u2014
16,423
50
1
16,424
9
3.0
\n
West Midlands
5,477
7,014
862
1
13,354
53
1
13,355
7
1.2
\n
East of England
9,241
11,492
987
2
21,722
52
2
21,724
12
2.1
\n
Rest of the UK
14,312
19,408
2,712
43
36,475
54
48
36,523
19
3.2
\n
Total
80,654
95,902
10,319
51
186,926
52
61
186,987
100
2.8
\n
2021
\n
South East
13,160
18,298
886
1
32,345
53
3
32,348
19
4.4
\n
Greater London
13,308
16,716
1,477
1
31,502
53
3
31,505
18
2.5
\n
Scotland
4,493
6,529
559
2
11,583
54
1
11,584
7
3.5
\n
North West
6,598
9,212
654
3
16,467
53
2
16,469
10
2.4
\n
South West
6,140
8,619
499
1
15,259
53
2
15,261
9
3.4
\n
West Midlands
4,323
7,449
553
1
12,326
55
1
12,327
6
1.8
\n
East of England
7,467
11,679
820
1
19,967
54
2
19,969
12
2.6
\n
Rest of the UK
10,937
20,278
2,001
26
33,242
56
2
33,244
19
3.6
\n
Total
66,426
98,780
7,449
36
172,691
54
16
172,707
100
3.1
\n
*Not within audit scope.
\n
**Flood hazard is modelled by looking at the four different types of flooding (surface water, ground water, coastal and river) and
\n
calculating the frequency and depth of flooding nationally to derive flood maps. Flood defences are considered where available.
\n
Flood scores are allocated per property based on the potential flood damage to property dependent on the type, frequency and
\n
depth of flooding modelled across different return periods. The scoring ranges from 0 to 53, with 0 being lowest and 53 being the
\n
highest risk. We consider a score of 11 and above to be high risk and properties with a score of 31 and above within the very high
\n
risk category after flood mitigants are taken into account. This is not within audit scope.
Retail Banking mortgages by Energy Performance Certificate (EPC) rating*
\n
The table below represents the energy efficiency of Retail Banking residential mortgages.
\n
31 December 2022
31 December 2021
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
EPC rating
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
A
424
12
436
282
8
290
\n
B
19,874
1,342
21,216
15,719
852
16,571
\n
C
28,049
5,228
33,277
22,138
3,178
25,316
\n
D
47,497
6,033
53,530
41,814
4,187
46,001
\n
E
17,153
1,687
18,840
16,238
1,332
17,570
\n
F
3,691
86
3,777
3,637
113
3,750
\n
G
789
21
810
734
27
761
\n
Unclassified
51,313
3,692
55,005
57,497
4,951
62,448
\n
Total
168,790
18,101
186,891
158,059
14,648
172,707
\n
*Not within audit scope.
\n
As at 31 December 2022, \u00a3138.8 billion, 68%, of the total UK residential mortgages portfolio, including both Private Banking and
\n
Retail Banking mortgages had Energy Performance Certificate (EPC) data available (2021 \u2013 \u00a3116.2 billion, 62%). Of which, 41.5%
\n
were rated as EPC A to C (2021 \u2013 38.3%). EPC data source and limitations are provided in section 5.2 of the 2022 NatWest Group
\n
Climate-related Disclosures Report
\n
Commercial real estate (CRE)*
\n
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential
\n
properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The
\n
sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and
\n
control frameworks.
\n
2022
2021
\n
UK
RoI
Other
Total
UK
RoI
Other
Total
\n
By geography and sub-sector (1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Investment
\n
Residential
(2)
4,583
2
13
4,598
4,326
10
16
4,352
\n
Office
(3)
2,781
10
\u2014
2,791
3,030
13
10
3,053
\n
Retail
(4)
3,754
\u2014
\u2014
3,754
4,157
24
\u2014
4,181
\n
Industrial
(5)
2,939
\u2014
184
3,123
2,758
2
106
2,866
\n
Mixed/other
(6)
876
7
46
929
1,175
24
49
1,248
\n
14,933
19
243
15,195
15,446
73
181
15,700
\n
Development
\n
Residential
(2)
1,693
7
\u2014
1,700
1,775
34
2
1,811
\n
Office
(3)
81
\u2014
\u2014
81
79
\u2014
\u2014
79
\n
Retail
(4)
56
\u2014
\u2014
56
48
\u2014
\u2014
48
\n
Industrial
(5)
90
\u2014
\u2014
90
67
\u2014
\u2014
67
\n
Mixed/other
(6)
14
1
\u2014
15
20
2
\u2014
22
\n
1,934
8
\u2014
1,942
1,989
36
2
2,027
\n
Total
16,867
27
243
17,137
17,435
109
183
17,727
\n
*Not within audit scope.
\n
(1)
Geographical splits are based on country of collateral risk.
\n
(2)
Properties including houses, flats and student accommodation.
\n
(3)
Properties including offices in central business districts, regional headquarters and business parks.
\n
(4)
Properties including high street retail, shopping centres, restaurants, bars and gyms.
\n
(5)
Properties including distribution centres, manufacturing and warehouses.
\n
(6)
Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.
Commercial real estate (CRE)
\n
CRE LTV distribution by stage
(audited)
\n
The table below shows CRE current exposure and related ECL by LTV band.
\n
Current exposure (gross of provisions)
ECL provisions
ECL provisions coverage
(2)
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9 ECL
\n
scope (1)
\n
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
7,010
658
57
67
7,792
36
12
16
64
0.5
1.8
28.1
0.8
\n
>50% and \u226470%
3,515
798
43
19
4,375
23
18
12
53
0.7
2.3
27.9
1.2
\n
>70% and \u2264100%
259
82
156
7
504
1
3
42
46
0.4
3.7
26.9
9.1
\n
>100%
102
10
23
1
136
1
1
14
16
1.0
10.0
60.9
11.8
\n
Total with LTVs
10,886
1,548
279
94
12,807
61
34
84
179
0.6
2.2
30.1
1.4
\n
Total portfolio
\n
average LTV%
45%
52%
75%
44%
47%
\n
Other
(3)
1,800
627
55
86
2,568
9
15
27
51
0.5
2.4
49.1
2.0
\n
Development
(4)
1,553
332
57
7
1,949
13
8
28
49
0.8
2.4
49.1
2.5
\n
Total
14,239
2,507
391
187
17,324
83
57
139
279
0.6
2.3
35.6
1.6
\n
2021
\n
\u226450%
6,767
388
34
268
7,457
5
7
9
21
0.1
1.8
26.5
0.3
\n
>50% and \u226470%
4,367
470
46
469
5,352
3
13
20
36
0.1
2.8
43.5
0.7
\n
>70% and \u2264100%
377
192
127
9
705
\u2014
9
32
41
\u2014
4.7
25.2
5.8
\n
>100%
215
7
86
4
312
\u2014
2
28
30
\u2014
28.6
32.6
9.6
\n
Total with LTVs
11,726
1,057
293
750
13,826
8
31
89
128
0.1
2.9
30.4
0.9
\n
Total portfolio
\n
average LTV%
48%
58%
88%
52%
50%
\n
Other
(3)
2,271
293
61
83
2,708
4
13
28
45
0.2
4.4
45.9
1.7
\n
Development
(4)
1,736
228
62
77
2,103
3
6
34
43
0.2
2.6
54.8
2.0
\n
Total
15,733
1,578
416
910
18,637
15
50
151
216
0.1
3.2
36.3
1.2
\n
(1)
Includes exposures relating to non-modelled portfolios and other exposures carried at fair value.
\n
(2)
ECL provisions coverage is ECL provisions divided by gross loans.
\n
(3)
Relates mainly to business banking, rate risk management products and unsecured corporate lending.
\n
(4)
Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.
\n
\ue001
Overall
\u2013 The majority of the CRE portfolio was located and
\n
managed in the UK. Business appetite and strategy was
\n
aligned across NatWest Group.
\n
\ue001
2022 trends
\u2013 The commercial property cycle turned around
\n
mid-year as rising interest rates started to put upward
\n
pressure on property yields. Commercial property values
\n
declined by an average of approximately 20% from their
\n
mid-year peak, ending the year approximately 14% lower.
\n
The industrial sector saw values fall fastest to date, yet it
\n
continues to attract strong occupier demand and may,
\n
therefore, be the first sector to see values stabilise.
\n
Secondary offices which don\u2019t match modern sustainability
\n
standards appear most at risk from further value loss. The
\n
residential sector has yet to show significant value declines,
\n
but transaction activity has slowed materially and is
\n
expected to remain weak until values have adjusted. The
\n
spike in mortgage costs last year would be expected to push
\n
prices down across the market in 2023. In contrast,
\n
residential rents appreciated rapidly in 2022 and
\n
professionally managed rental assets are expected to be
\n
relatively robust in 2023.
\n
\ue001
Credit quality
\u2013 Credit quality was stable for the first nine
\n
months of the year but the impacts from the increase in
\n
base rate, projected capital value falls, inflationary pressures
\n
and concerns over recession for some customers began to
\n
materialise. Inflows into the Risk of Credit Loss framework
\n
picked up in Q4, but remained relatively low in volume
\n
terms, compared to previous downturns.
\n
\ue001
Risk appetite
\u2013 Lending appetite is subject to regular review
\n
with some level of tightening undertaken in 2022. Demand
\n
for facilities reduced significantly in Q4 as the market
\n
reacted to the various negative news points.
Flow statements
(audited)
\n
The flow statements that follow show the main ECL and related
\n
income statement movements. They also show the changes in
\n
ECL as well as the changes in related financial assets used in
\n
determining ECL. Due to differences in scope, exposures may
\n
differ from
those reported in other tables, principally in relation
\n
to exposures in Stage 1 and Stage 2. These differences do not
\n
have a material ECL effect. Other points to note:
\n
\ue001
Financial assets include treasury liquidity portfolios,
\n
comprising balances at central banks and debt securities,
\n
as well as loans. Both modelled and non-modelled portfolios
\n
are included.
\n
\ue001
Stage transfers (for example, exposures moving from Stage
\n
1 into Stage 2) are a key feature of the ECL movements,
\n
with the net re-measurement cost of transitioning to a
\n
worse stage being a primary driver of income statement
\n
charges. Similarly, there is an ECL benefit for accounts
\n
improving stage.
\n
\ue001
Changes in risk parameters shows the reassessment of the
\n
ECL within a given stage, including any ECL overlays and
\n
residual income statement gains or losses at the point of
\n
write-off or accounting write-down.
\n
\ue001
Other (P&L only items) includes any subsequent changes in
\n
the value of written-down assets (for example, fortuitous
\n
recoveries) along with other direct write-off items such as
\n
direct recovery costs. Other (P&L only items) affects the
\n
income statement but does not affect balance sheet ECL
\n
movements.
\n
\ue001
Amounts written-off represent the gross asset written-down
\n
against accounts with ECL, including the net asset write-
\n
down for any debt sale activity.
\n
\ue001
There were flows from Stage 1 into Stage 3 including
\n
transfers due to unexpected default events.
\n
\ue001
The effect of any change in post model adjustments during
\n
the year is typically reported under changes in risk
\n
parameters, as are any effects arising from changes to the
\n
underlying models. Refer to the section on Governance and
\n
post model adjustments for further details.
\n
\ue001
All movements are captured monthly and aggregated.
\n
Interest suspended post default is included within Stage 3
\n
ECL with the movement in the value of suspended interest
\n
during the year reported under currency translation and
\n
other adjustments.
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
NatWest Group total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Currency translation and other adjustments
6,129
\u2014
144
3
56
33
6,329
36
\n
Transfers from Stage 1 to Stage 2
(55,848)
(226)
55,848
226
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
31,657
827
(31,657)
(827)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(621)
(4)
(3,679)
(265)
4,300
269
\u2014
\u2014
\n
Transfers from Stage 3
485
34
842
77
(1,327)
(111)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(701)
1,090
\u2014
352
741
\n
Changes in risk parameters
286
(399)
\u2014
140
27
\n
Other changes in net exposure
(12,164)
125
(7,911)
(293)
(1,969)
(96)
(22,044)
(264)
\n
Other (P&L only items)
\u2014
(5)
\u2014
(162)
(167)
\n
Income statement (releases)/charges
(290)
393
234
337
\n
Transfers to disposal groups and fair value
(8,277)
(11)
(657)
(42)
(590)
(286)
(9,524)
(339)
\n
Amounts written-off
\u2014
\u2014
(5)
(5)
(477)
(477)
(482)
(482)
\n
Unwinding of discount
\u2014
\u2014
\u2014
(91)
(91)
\n
At 31 December 2022
507,539
632
48,482
1,043
5,231
1,759
561,252
3,434
\n
Net carrying amount
506,907
47,439
3,472
557,818
\n
At 1 January 2021
446,666
519
81,667
3,081
6,524
2,586
534,857
6,186
\n
2021 movements
99,512
(217)
(46,110)
(1,603)
(1,286)
(560)
52,116
(2,380)
\n
At 31 December 2021
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Net carrying amount
545,876
34,079
3,212
583,167
Flow statements
(audited)
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Retail Banking - mortgages
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
159,966
24
10,748
155
1,267
250
171,981
429
\n
Currency translation and other adjustments
\u2014
\u2014
\u2014
\u2014
10
8
10
8
\n
Transfers from Stage 1 to Stage 2
(18,858)
(9)
18,858
9
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
8,261
69
(8,261)
(69)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(53)
\u2014
(1,286)
(36)
1,339
36
\u2014
\u2014
\n
Transfers from Stage 3
42
1
395
18
(437)
(19)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(66)
95
(13)
16
\n
Changes in risk parameters
59
(93)
32
(2)
\n
Other changes in net exposure
15,906
1
(1,622)
(17)
(389)
(11)
13,895
(27)
\n
Other (P&L only items)
\u2014
(2)
(62)
(64)
\n
Income statement (releases)/charges
(6)
(17)
(54)
(77)
\n
Amounts written-off
\u2014
\u2014
(1)
(1)
(28)
(28)
(29)
(29)
\n
Unwinding of discount
\u2014
\u2014
(40)
(40)
\n
At 31 December 2022
165,264
79
18,831
61
1,762
215
185,857
355
\n
Net carrying amount
165,185
18,770
1,547
185,502
\n
At 1 January 2021
132,390
23
28,079
227
1,291
236
161,760
486
\n
2021 movements
27,576
1
(17,331)
(72)
(24)
14
10,221
(57)
\n
At 31 December 2021
159,966
24
10,748
155
1,267
250
171,981
429
\n
Net carrying amount
159,942
10,593
1,017
171,552
\n
\ue001
Despite the strong portfolio growth during 2022, ECL levels
\n
for mortgages reduced during the year, primarily as a result
\n
of stable portfolio performance alongside the
\n
implementation of new IFRS 9 models in Q1 2022.
\n
\ue001
More specifically, in H1 2022, strong credit performance
\n
resulted in the migration of assets from Stage 2 into Stage
\n
1, with an associated decrease from lifetime ECL to a 12
\n
month ECL. ECL levels increased in the second half of the
\n
year as the portfolio continued to grow and the economic
\n
outlook deteriorated, increasing IFRS 9 PDs and the level of
\n
migrations from Stage 1 into Stage 2.
\n
\ue001
The economic uncertainty post model adjustment allocated
\n
more ECL to Stage 1 given the forward-looking nature of
\n
the inflation threat on customer affordability, whereas the
\n
previous COVID-19 post model adjustment was focused on
\n
Stage 2 (for example, high risk payment holiday cases
\n
migrated into Stage 2). Refer to the Governance and post
\n
model adjustments section for more information.
\n
\ue001
The Stage 3 inflow was amplified by the adoption of the
\n
new regulatory definition of default in January 2022.
\n
However, Stage 3 ECL levels decreased since 31 December
\n
2021, primarily due to reduced LGD estimates as a result of
\n
the new model implementation in Q1 2022 alongside stable
\n
underlying default levels. The relatively small ECL cost for
\n
net re-measurement on stage transfer included the effect of
\n
risk targeted ECL adjustments, when previously in Stage 2.
\n
Refer to the Governance and post model adjustments
\n
section for further details.
\n
\ue001
Write-off typically occurs once the repossessed property
\n
has been sold and there is a residual shortfall balance
\n
remaining outstanding. This would typically be within five
\n
years from default but can be longer.
Flow statements
(audited)
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Retail Banking - credit cards
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
2,740
58
947
141
91
60
3,778
259
\n
Currency translation and other adjustments
\u2014
\u2014
\u2014
\u2014
1
1
1
1
\n
Transfers from Stage 1 to Stage 2
(1,278)
(41)
1,278
41
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
942
101
(942)
(101)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(23)
(1)
(102)
(42)
125
43
\u2014
\u2014
\n
Transfers from Stage 3
2
1
9
3
(11)
(4)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(64)
161
29
126
\n
Changes in risk parameters
7
(29)
15
(7)
\n
Other changes in net exposure
679
\u2014
(92)
(54)
(27)
(1)
560
(55)
\n
Other (P&L only items)
\u2014
\u2014
(6)
(6)
\n
Income statement (releases)/charges
(57)
78
37
58
\n
Amounts written-off
\u2014
\u2014
\u2014
\u2014
(66)
(66)
(66)
(66)
\n
Unwinding of discount
\u2014
\u2014
(6)
(6)
\n
At 31 December 2022
3,062
61
1,098
120
113
71
4,273
252
\n
Net carrying amount
3,001
978
42
4,021
\n
At 1 January 2021
2,250
52
1,384
220
114
75
3,748
347
\n
2021 movements
490
6
(437)
(79)
(23)
(15)
30
(88)
\n
At 31 December 2021
2,740
58
947
141
91
60
3,778
259
\n
Net carrying amount
2,682
806
31
3,519
\n
\ue001
ECL remained broadly stable during 2022 reflecting stable
\n
portfolio performance and the unwind of ECL held for
\n
COVID-19 related risks in the first half of the year that
\n
resulted in reduced levels of SICR identification and ECL
\n
requirement. In addition, a new credit card PD model
\n
implementation resulted in a net ECL decrease of \u00a326
\n
million. This is included in changes in risk parameters for
\n
Stage 1 and Stage 2.
\n
\ue001
Similar to mortgages, ECL levels increased in the second
\n
half of the year as the economic outlook deteriorated,
\n
increasing IFRS 9 PDs and the level of migrations from
\n
Stage 1 into Stage 2.
\n
\ue001
Credit card balances grew since 31 December 2021, in line
\n
with industry trends in the UK, as unsecured borrowing
\n
demand increased.
\n
\ue001
Reflecting the strong credit performance observed during
\n
2022, Stage 3 inflows remained subdued and the effect of
\n
the adoption of the new regulatory definition of default was
\n
minimal for credit cards.
\n
\ue001
Charge-off (analogous to partial write-off) typically occurs
\n
after 12 missed payments.
Flow statements
(audited)
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Retail Banking - other personal unsecured
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
4,548
52
1,967
294
629
540
7,144
886
\n
Currency translation and other adjustments
\u2014
\u2014
\u2014
(1)
9
10
9
9
\n
Transfers from Stage 1 to Stage 2
(2,797)
(85)
2,797
85
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
1,948
225
(1,948)
(225)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(40)
(1)
(356)
(111)
396
112
\u2014
\u2014
\n
Transfers from Stage 3
5
3
39
20
(44)
(23)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(177)
296
115
234
\n
Changes in risk parameters
38
(34)
35
39
\n
Other changes in net exposure
1,120
56
(471)
(55)
(90)
(26)
559
(25)
\n
Other (P&L only items)
\u2014
\u2014
\u2014
\u2014
\n
Income statement (releases)/charges
(83)
207
124
248
\n
Amounts written-off
\u2014
\u2014
\u2014
\u2014
(121)
(121)
(121)
(121)
\n
Unwinding of discount
\u2014
\u2014
(11)
(11)
\n
At 31 December 2022
4,784
111
2,028
269
779
631
7,591
1,011
\n
Net carrying amount
4,673
1,759
148
6,580
\n
At 1 January 2021
3,385
59
3,487
450
596
495
7,468
1,004
\n
2021 movements
1,163
(7)
(1,520)
(156)
33
45
(324)
(118)
\n
At 31 December 2021
4,548
52
1,967
294
629
540
7,144
886
\n
Net carrying amount
4,496
1,673
89
6,258
\n
\ue001
Overall, there was a modest ECL increase, mainly due to
\n
portfolio growth in the personal loan portfolio during 2022
\n
and Stage 3 ECL, linked to the adoption of the new
\n
regulatory definition of default in January 2022, with
\n
underlying Stage 3 inflows remaining stable.
\n
\ue001
Similar to the other personal portfolios, after reductions in
\n
the first half of the year, Stage 2 ECL levels increased in the
\n
second half of the year as the economic outlook
\n
deteriorated, increasing IFRS 9 PDs and the level of
\n
migrations from Stage 1 into Stage 2.
\n
\ue001
Unsecured retail lending balances grew since 31 December
\n
2021, in line with industry trends in the UK, as unsecured
\n
borrowing demand increased.
\n
\ue001
Write-off occurs once recovery activity with the customer
\n
has been concluded or there are no further recoveries
\n
expected, but no later than six years after default.
Flow statements
(audited)
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Commercial & Institutional total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
152,224
129
19,731
785
2,155
750
174,110
1,664
\n
Currency translation and other adjustments
3,336
(1)
146
(1)
23
4
3,505
2
\n
Inter-group transfers
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 1 to Stage 2
(30,103)
(80)
30,103
80
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
18,729
400
(18,729)
(400)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(232)
(1)
(1,667)
(65)
1,899
66
\u2014
\u2014
\n
Transfers from Stage 3
217
29
194
27
(411)
(56)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(371)
505
212
346
\n
Changes in risk parameters
172
(256)
68
(16)
\n
Other changes in net exposure
16,181
65
(5,063)
(137)
(1,248)
(48)
9,870
(120)
\n
Other (P&L only items)
(1)
(4)
(83)
(88)
\n
Income statement (releases)/charges
(135)
108
149
122
\n
Amounts written-off
\u2014
\u2014
(4)
(4)
(220)
(220)
(224)
(224)
\n
Unwinding of discount
\u2014
\u2014
(29)
(29)
\n
At 31 December 2022
160,352
342
24,711
534
2,198
747
187,261
1,623
\n
Net carrying amount
160,010
24,177
1,451
185,638
\n
At 1 January 2021
131,307
296
42,290
1,836
2,998
1,249
176,595
3,381
\n
2021 movements
20,917
(167)
(22,559)
(1,051)
(843)
(499)
(2,485)
(1,717)
\n
At 31 December 2021
152,224
129
19,731
785
2,155
750
174,110
1,664
\n
Net carrying amount
152,095
18,946
1,405
172,446
\n
(1)
Flows relating to the SME portion of Commercial & Institutional is included in the relevant sector sub-sector tables.
\n
\ue001
Exposure growth was mainly due to increased exposure to
\n
larger corporate customers and financial institutions,
\n
notably leveraged funds, information technology,
\n
telecommunications and power utilities.
\n
\ue001
Stage 1 and Stage 2 ECL levels increased in the second half
\n
of the year as the economic outlook deteriorated,
\n
increasing IFRS 9 PDs and the level of migrations from
\n
Stage 1 into Stage 2.
\n
\ue001
Stage 2 ECL increases were more than offset by reductions
\n
in post model adjustments.
\n
\ue001
There were significant flows into Stage 3 due to defaults on
\n
government scheme lending, principally BBLS, with
\n
exposure reductions where payments on guarantees have
\n
been received.
Flow statements
(audited)
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Commercial & Institutional - corporate
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
49,066
91
15,305
643
1,378
527
65,749
1,261
\n
Currency translation and other adjustments
656
\u2014
124
(1)
18
7
798
6
\n
Inter-group transfers
\u2014
1
\u2014
(3)
\u2014
\u2014
\u2014
(2)
\n
Transfers from Stage 1 to Stage 2
(21,063)
(60)
21,063
60
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
13,594
305
(13,594)
(305)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(161)
(1)
(1,143)
(49)
1,304
50
\u2014
\u2014
\n
Transfers from Stage 3
117
23
126
21
(243)
(44)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(283)
389
157
263
\n
Changes in risk parameters
95
(223)
(2)
(130)
\n
Other changes in net exposure
7,079
39
(3,098)
(105)
(906)
(30)
3,075
(96)
\n
Other (P&L only items)
\u2014
(2)
(77)
(79)
\n
Income statement (releases)/charges
(149)
59
48
(42)
\n
Amounts written-off
\u2014
\u2014
(4)
(4)
(154)
(154)
(158)
(158)
\n
Unwinding of discount
\u2014
\u2014
(14)
(14)
\n
At 31 December 2022
49,288
210
18,779
423
1,397
497
69,464
1,130
\n
Net carrying amount
49,078
18,356
900
68,334
\n
\ue001
Exposure growth was driven by increased exposure to
\n
larger corporate customers, information technology,
\n
telecommunications and power utilities.
\n
\ue001
Stage 1 and Stage 2 ECL levels increased in the second half
\n
of the year as the economic outlook deteriorated, increasing
\n
IFRS 9 PDs and the level of migrations from Stage 1 into
\n
Stage 2.
\n
\ue001
Stage 2 ECL increases were more than offset by reductions
\n
in post model adjustments.
\n
\ue001
There were significant flows into Stage 3 due to defaults on
\n
government scheme lending, principally BBLS, with exposure
\n
reductions where payments on guarantees have been
\n
received.
Flow statements
(audited)
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Commercial & Institutional - property
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
26,991
22
3,128
99
678
208
30,797
329
\n
Currency translation and other adjustments
29
1
\u2014
\u2014
\u2014
(9)
29
(8)
\n
Inter-group transfers
\u2014
(1)
\u2014
\u2014
\u2014
\u2014
\u2014
(1)
\n
Transfers from Stage 1 to Stage 2
(5,654)
(17)
5,654
17
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
2,672
47
(2,672)
(47)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(49)
\u2014
(431)
(16)
480
16
\u2014
\u2014
\n
Transfers from Stage 3
56
6
61
6
(117)
(12)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(46)
94
44
92
\n
Changes in risk parameters
71
(27)
28
72
\n
Other changes in net exposure
2,089
17
(1,439)
(30)
(375)
(18)
275
(31)
\n
Other (P&L only items)
(1)
\u2014
(7)
(8)
\n
Income statement (releases)/charges
41
37
47
125
\n
Amounts written-off
\u2014
\u2014
\u2014
\u2014
(24)
(24)
(24)
(24)
\n
Unwinding of discount
\u2014
\u2014
(13)
(13)
\n
At 31 December 2022
26,134
100
4,301
96
642
220
31,077
416
\n
Net carrying amount
26,034
4,205
422
30,661
\n
\ue001
Stage 1 and Stage 2 ECL levels increased in the second half
\n
of the year as the economic outlook deteriorated,
\n
increasing IFRS 9 PDs and the level of migrations from
\n
Stage 1 into Stage 2.
\n
\ue001
Stage 2 ECL increases were partially offset by reductions in
\n
post model adjustments.
\n
\ue001
There were significant flows into Stage 3 due to defaults on
\n
government scheme lending, principally BBLS, with
\n
exposure reductions where payments on guarantees have
\n
been received.
Flow statements
(audited)
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Commercial & Institutional - other
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
76,167
16
1,298
43
99
15
77,564
74
\n
Currency translation and other adjustments
2,649
\u2014
22
\u2014
5
4
2,676
4
\n
Inter-group transfers
\u2014
(1)
\u2014
5
\u2014
(2)
\u2014
2
\n
Transfers from Stage 1 to Stage 2
(3,387)
(4)
3,387
4
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
2,464
48
(2,464)
(48)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(21)
\u2014
(93)
(1)
114
1
\u2014
\u2014
\n
Transfers from Stage 3
45
\u2014
7
\u2014
(52)
\u2014
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(43)
22
12
(9)
\n
Changes in risk parameters
7
(6)
41
42
\n
Other changes in net exposure
7,013
9
(526)
(4)
34
(1)
6,521
4
\n
Other (P&L only items)
\u2014
\u2014
2
2
\n
Income statement (releases)/charges
(27)
12
54
39
\n
Amounts written-off
\u2014
\u2014
\u2014
\u2014
(41)
(41)
(41)
(41)
\n
Unwinding of discount
\u2014
\u2014
(1)
(1)
\n
At 31 December 2022
84,930
32
1,631
15
159
30
86,720
77
\n
Net carrying amount
84,898
1,616
129
86,643
\n
(1)
Commercial & Institutional other includes FIs, Sovereigns, and non-wholesale elements of Commercial & Institutional.
\n
\ue001
Stage 1 and Stage 2 ECL levels increased in the second half
\n
of the year as the economic outlook deteriorated,
\n
increasing IFRS 9 PDs and the level of migrations from
\n
Stage 1 into Stage 2.
\n
\ue001
Stage 2 ECL increases were more than offset by reductions
\n
in post model adjustments.
\n
\ue001
The reduction in post model adjustments more than offset
\n
ECL increases from deteriorating economics.
Stage 2 decomposition \u2013 arrears status and contributing factors
\n
The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios.
\n
UK mortgages
Credit cards
Other
Total
\n
Loans
ECL
Loans
ECL
Loans
ECL
Loans
ECL
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
\n
Currently >30 DPD
205
1
10
5
52
18
267
24
\n
Currently <=30 DPD
18,582
61
1,066
117
1,939
264
21,587
442
\n
- PD deterioration
16,342
56
805
97
1,093
150
18,240
303
\n
- PD persistence
867
2
200
13
185
16
1,252
31
\n
- Other driver (adverse credit, forbearance etc)
1,373
3
61
7
661
98
2,095
108
\n
Total Stage 2
18,787
62
1,076
122
1,991
282
21,854
466
\n
2021
\n
Personal
\n
Currently >30 DPD
397
9
11
6
88
16
496
31
\n
Currently <=30 DPD
10,593
148
922
135
2,412
300
13,927
583
\n
- PD deterioration
2,400
56
549
96
1,028
178
3,977
330
\n
- PD persistence
3,088
38
270
23
791
92
4,149
153
\n
- Other driver (adverse credit, forbearance etc)
5,105
54
103
16
593
30
5,801
100
\n
Total Stage 2
10,990
157
933
141
2,500
316
14,423
614
\n
\ue001
The deterioration in economic outlook during the second
\n
half of the year resulted in increased account level IFRS 9
\n
PDs at the year end. Consequently, compared to 2021, a
\n
larger proportion of accounts exhibited significant PD
\n
deterioration causing Stage 2 exposures to increase
\n
significantly since 30 June 2022.
\n
\ue001
Higher risk Personal customers who had accessed COVID-
\n
19 payment holiday support are no longer collectively
\n
migrated into Stage 2 with the focus of high risk segment
\n
monitoring now shifting to the effects of a high inflation
\n
environment on customers. In UK mortgages at 31
\n
December 2021, approximately \u00a30.8 billion of exposures
\n
were previously collectively migrated from Stage 1 into
\n
Stage 2.
\n
\ue001
Accounts that are less than 30 days past due continue to
\n
represent the vast majority of the Stage 2 population. As
\n
expected, ECL coverage was higher in accounts that were
\n
more than 30 days past due than those in Stage 2 for other
\n
reasons.
\n
Property
Corporate
\n
Financial
\n
institutions
\n
Sovereign
Total
\n
Loans
ECL
Loans
ECL
Loans
ECL
Loans
ECL
Loans
ECL
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Wholesale
\n
Currently >30 DPD
259
3
476
11
3
\u2014
7
\u2014
745
14
\n
Currently <=30 DPD
4,057
102
18,677
446
1,350
14
150
1
24,234
563
\n
- PD deterioration
2,739
68
15,399
351
1,230
10
79
\u2014
19,447
429
\n
- PD persistence
87
3
263
9
5
\u2014
\u2014
\u2014
355
12
\n
- Other driver (forbearance, RoCL etc)
1,231
31
3,015
86
115
4
71
1
4,432
122
\n
Total Stage 2
4,316
105
19,153
457
1,353
14
157
1
24,979
577
\n
2021
\n
Wholesale
\n
Currently >30 DPD
239
3
390
8
19
\u2014
\u2014
\u2014
648
11
\n
Currently <=30 DPD
2,862
108
15,214
705
713
39
121
1
18,910
853
\n
- PD deterioration
896
57
10,391
549
595
36
84
1
11,966
643
\n
- PD persistence
139
8
552
32
6
\u2014
1
\u2014
698
40
\n
- Other driver (forbearance, RoCL etc)
1,827
43
4,271
124
112
3
36
\u2014
6,246
170
\n
Total Stage 2
3,101
111
15,604
713
732
39
121
1
19,558
864
\n
\ue001
The deteriorating economic outlook, including lower
\n
growth in GDP and the stock index as well as a reduction
\n
in commercial real estate prices, resulted in a significant
\n
increase in IFRS 9 PDs. Consequently, compared to 2021,
\n
a larger proportion of exposure exhibited a SICR and
\n
migrated into Stage 2, resulting in an increase in Stage 2
\n
exposure.
\n
\ue001
PD deterioration remained the primary trigger for
\n
identifying a SICR and Stage 2 treatment, proportionally
\n
increasing due to the deteriorating economic outlook.
\n
\ue001
There was a decrease in Risk of Credit Loss partially due
\n
to PD deterioration being the primary trigger. Overall,
\n
there was a decrease in flows on to the Risk of Credit
\n
Loss framework, although inflows into the framework
\n
began to increase in Q4 2022.
Stage 2 decomposition \u2013 by a significant increase in credit risk trigger
\n
UK mortgages
Credit cards
Other
Total
\n
2022
\u00a3m
%
\u00a3m
%
\u00a3m
%
\u00a3m
%
\n
Personal trigger
(1)
\n
PD movement
16,477
87.7
814
75.7
1,129
56.7
18,420
84.3
\n
PD persistence
866
4.6
200
18.6
186
9.3
1,252
5.7
\n
Adverse credit bureau recorded with credit
\n
reference agency
929
4.9
52
4.8
96
4.8
1,077
4.9
\n
Forbearance support provided
101
0.5
1
0.1
17
0.9
119
0.5
\n
Customers in collections
153
0.8
2
0.2
4
0.2
159
0.7
\n
Collective SICR and other reasons
(2)
195
1.0
7
0.7
546
27.4
748
3.4
\n
Days past due >30
66
0.4
\u2014
\u2014
13
0.7
79
0.4
\n
18,787
100.0
1,076
100.0
1,991
100.0
21,854
100.0
\n
2021
\n
Personal trigger
(1)
\n
PD movement
2,707
24.6
560
60.1
1,091
43.6
4,358
30.2
\n
PD persistence
3,103
28.2
270
28.9
792
31.7
4,165
28.9
\n
Adverse credit bureau recorded with credit
\n
reference agency
3,657
33.3
60
6.4
73
2.9
3,790
26.3
\n
Forbearance support provided
178
1.6
2
0.2
34
1.4
214
1.5
\n
Customers in collections
82
0.8
3
0.3
48
1.9
133
0.9
\n
Collective SICR and other reasons
(2)
1,197
10.9
38
4.1
455
18.2
1,690
11.7
\n
Days past due >30
66
0.6
\u2014
\u2014
7
0.3
73
0.5
\n
10,990
100
933
100
2,500
100
14,423
100
\n
For the notes to this table refer to the following page.
\n
\ue001
During the first half of the year, the stable credit
\n
performance of the portfolio resulted in either decreased
\n
or stable account level IFRS 9 PDs for most products. UK
\n
mortgages was the exception, where the implementation
\n
of a new IFRS 9 PD model in Q1 2022 increased the
\n
proportion of accounts exhibiting significant PD
\n
deterioration.
\n
\ue001
However, in the second half of the year, the economic
\n
uncertainty and high inflation environment, which is
\n
reflected in the recent updates to the IFRS 9 MES
\n
scenarios, resulted in PDs increasing again. This is
\n
reflected both in an increase in Stage 2 across all
\n
products compared to 31 December 2021 and an
\n
increased proportion of Stage 2 driven by PD
\n
deterioration.
\n
\ue001
Personal customers who had accessed COVID-19
\n
payment holiday support, and where their risk profile
\n
was identified as relatively high risk are no longer
\n
collectively migrated into Stage 2, given the lack of
\n
default emergence from these segments and with the
\n
focus of high risk segment monitoring now shifting to the
\n
effects of a high inflation environment on customers. In
\n
UK mortgages at 31 December 2021, approximately \u00a30.8
\n
billion of exposures were previously collectively migrated
\n
from Stage 1 into Stage 2.
Property
Corporate
Financial institutions
Sovereign
Total
\n
2022
\u00a3m
%
\u00a3m
%
\u00a3m
%
\u00a3m
%
\u00a3m
%
\n
Wholesale trigger
(1)
\n
PD movement
2,807
65.0
15,645
81.7
1,231
91.0
79
50.3
19,762
79.2
\n
PD persistence
88
2.0
263
1.4
5
0.4
\u2014
\u2014
356
1.4
\n
Risk of Credit Loss
618
14.4
1,587
8.3
32
2.4
55
35.0
2,292
9.2
\n
Forbearance support provided
44
1.0
473
2.5
19
1.4
\u2014
\u2014
536
2.1
\n
Customers in collections
13
0.3
44
0.2
\u2014
\u2014
\u2014
\u2014
57
0.2
\n
Collective SICR and other reasons
(2)
575
13.3
946
4.9
64
4.7
16
10.2
1,601
6.4
\n
Days past due >30
171
4.0
195
1.0
2
0.1
7
4.5
375
1.5
\n
4,316
100.0
19,153
100.0
1,353
100.0
157
100.0
24,979
100.0
\n
2021
\n
Wholesale trigger
(1)
\n
PD movement
942
30.3
10,553
67.7
595
81.3
84
69.4
12,174
62.2
\n
PD persistence
139
4.5
553
3.5
6
0.8
1
0.8
699
3.6
\n
Risk of Credit Loss
962
31.0
2,626
16.8
71
9.7
34
28.1
3,693
18.9
\n
Forbearance support provided
101
3.3
489
3.1
6
0.8
\u2014
\u2014
596
3.0
\n
Customers in collections
27
0.9
88
0.6
1
0.1
\u2014
\u2014
116
0.6
\n
Collective SICR and other reasons
(2)
762
24.6
1,189
7.6
35
4.8
2
1.7
1,988
10.2
\n
Days past due >30
168
5.4
106
0.7
18
2.5
\u2014
\u2014
292
1.5
\n
3,101
100
15,604
100
732
100
121
100
19,558
100
\n
(1)
The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD
\n
deterioration.
\n
(2)
Includes cases where a PD assessment cannot be made and accounts where the PD has deteriorated beyond a prescribed backstop threshold aligned to risk management
\n
practices.
\n
\ue001
PD deterioration continued to be the primary trigger of
\n
migration of exposures from Stage 1 into Stage 2. There
\n
was an increase in cases triggering PD deterioration
\n
reflecting the deteriorating economic outlook.
\n
\ue001
Moving exposures on to the Risk of Credit Loss framework
\n
remained an important backstop indicator of a SICR. The
\n
exposures classified under the Stage 2 Risk of Credit Loss
\n
framework decreased over the period due to the increase in
\n
PD deterioration.
\n
\ue001
PD persistence related to the Business Banking portfolio
\n
only. A reduction in PDs in 2021 meant that some Business
\n
Banking customers returned to Stage 1 in early 2022,
\n
although a number of these customers returned through PD
\n
movement in the second half of the year due to the
\n
deteriorating economic outlook.
\n
Stage 3 vintage analysis
\n
The table below shows estimated vintage analysis of the material Stage 3 portfolios.
\n
2022
2021
\n
Retail Banking
\n
mortgages
Wholesale
\n
Retail Banking
\n
mortgages
Wholesale
\n
Stage 3 loans (\u00a3bn)
1.7
2.5
1.2
2.1
\n
Vintage (time in default):
\n
<1 year
43%
29%
26%
19%
\n
1-3 years
26%
12%
30%
20%
\n
3-5 years
12%
7%
13%
7%
\n
5-10 years
9%
52%
17%
54%
\n
>10 years
10%
\u2014
14%
\n
100%
100%
100%
100%
\n
\ue001
Retail
Banking mortgages
\u2013 The increase in the proportion of
\n
loans in Stage 3 for less than one year was mainly due to the
\n
adoption of the new regulatory definition of default in
\n
January 2022.
\n
\ue001
Wholesale
\u2013 Exposures which were in Stage 3 for in excess
\n
of five years, were mainly related to customers being in a
\n
protracted formal insolvency process or subject to litigation
\n
or a complaints process.
Asset quality
(audited)
\n
The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio.
\n
Gross loans
ECL provisions
ECL provisions coverage
\n
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
UK mortgages
\n
AQ1-AQ4
116,559
9,208
\u2014
125,767
45
24
\u2014
69
0.04
0.26
\u2014
0.05
\n
AQ5-AQ8
65,510
8,962
\u2014
74,472
36
34
\u2014
70
0.1
0.4
\u2014
0.1
\n
AQ9
176
617
\u2014
793
\u2014
4
\u2014
4
\u2014
0.7
\u2014
0.5
\n
AQ10
\u2014
\u2014
1,925
1,925
\u2014
\u2014
233
233
\u2014
\u2014
12.1
12.1
\n
182,245
18,787
1,925
202,957
81
62
233
376
0.0
0.3
12.1
0.2
\n
RoI mortgages
\n
AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ10
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Credit cards
\n
AQ1-AQ4
98
\u2014
\u2014
98
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ5-AQ8
3,172
1,036
\u2014
4,208
61
112
\u2014
173
1.9
10.8
\u2014
4.1
\n
AQ9
5
40
\u2014
45
1
10
\u2014
11
20.0
25.0
\u2014
24.4
\n
AQ10
\u2014
\u2014
109
109
\u2014
\u2014
73
73
\u2014
\u2014
67.0
67.0
\n
3,275
1,076
109
4,460
62
122
73
257
1.9
11.3
67.0
5.8
\n
Other personal
\n
AQ1-AQ4
1,047
128
\u2014
1,175
11
17
\u2014
28
1.1
13.3
\u2014
2.4
\n
AQ5-AQ8
5,843
1,732
\u2014
7,575
104
224
\u2014
328
1.8
12.9
\u2014
4.3
\n
AQ9
28
131
\u2014
159
2
41
\u2014
43
7.1
31.3
\u2014
27.0
\n
AQ10
\u2014
\u2014
797
797
\u2014
\u2014
651
651
\u2014
\u2014
81.7
81.7
\n
6,918
1,991
797
9,706
117
282
651
1,050
1.7
14.2
81.7
10.8
\n
Total
\n
AQ1-AQ4
117,704
9,336
\u2014
127,040
56
41
\u2014
97
0.1
0.4
\u2014
0.1
\n
AQ5-AQ8
74,525
11,730
\u2014
86,255
201
370
\u2014
571
0.3
3.2
\u2014
0.7
\n
AQ9
209
788
\u2014
997
3
55
\u2014
58
1.4
7.0
\u2014
5.8
\n
AQ10
\u2014
\u2014
2,831
2,831
\u2014
\u2014
957
957
\u2014
\u2014
33.8
33.8
\n
192,438
21,854
2,831
217,123
260
466
957
1,683
0.1
2.1
33.8
0.8
Asset quality
(audited)
\n
Gross loans
ECL provisions
ECL provisions coverage
\n
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
UK mortgages
\n
AQ1-AQ4
93,956
3,157
\u2014
97,113
8
40
\u2014
48
0.01
1.27
\u2014
0.05
\n
AQ5-AQ8
81,160
7,325
\u2014
88,485
17
103
\u2014
120
0.02
1.41
\u2014
0.14
\n
AQ9
290
508
\u2014
798
\u2014
14
\u2014
14
\u2014
2.76
\u2014
1.75
\n
AQ10
\u2014
\u2014
1,451
1,451
\u2014
\u2014
269
269
\u2014
\u2014
18.54
18.54
\n
175,406
10,990
1,451
187,847
25
157
269
451
0.01
1.43
18.54
0.24
\n
RoI mortgages
\n
AQ1-AQ4
3,669
226
\u2014
3,895
5
5
\u2014
10
0.14
2.21
\u2014
0.26
\n
AQ5-AQ8
1,335
176
\u2014
1,511
2
6
\u2014
8
0.15
3.41
\u2014
0.53
\n
AQ9
8
151
\u2014
159
\u2014
6
\u2014
6
\u2014
3.97
\u2014
3.77
\n
AQ10
\u2014
\u2014
599
599
\u2014
\u2014
293
293
\u2014
\u2014
48.91
48.91
\n
5,012
553
599
6,164
7
17
293
317
0.14
3.07
48.91
5.14
\n
Credit cards
\n
AQ1-AQ4
44
1
\u2014
45
1
\u2014
\u2014
1
2.27
\u2014
\u2014
2.22
\n
AQ5-AQ8
2,874
894
\u2014
3,768
58
130
\u2014
188
2.02
14.54
\u2014
4.99
\n
AQ9
6
38
\u2014
44
\u2014
11
\u2014
11
\u2014
28.95
\u2014
25.00
\n
AQ10
\u2014
\u2014
90
90
\u2014
\u2014
60
60
\u2014
\u2014
66.67
66.67
\n
2,924
933
90
3,947
59
141
60
260
2.02
15.11
66.67
6.59
\n
Other personal
\n
AQ1-AQ4
831
88
\u2014
919
6
19
\u2014
25
0.72
21.59
\u2014
2.72
\n
AQ5-AQ8
5,950
1,723
\u2014
7,673
51
243
\u2014
294
0.86
14.10
\u2014
3.83
\n
AQ9
52
136
\u2014
188
1
37
\u2014
38
1.92
27.21
\u2014
20.21
\n
AQ10
\u2014
\u2014
642
642
\u2014
\u2014
557
557
\u2014
\u2014
86.76
86.76
\n
6,833
1,947
642
9,422
58
299
557
914
0.85
15.36
86.76
9.70
\n
Total personal
\n
AQ1-AQ4
98,500
3,472
\u2014
101,972
20
64
\u2014
84
0.02
1.84
\u2014
0.08
\n
AQ5-AQ8
91,319
10,118
\u2014
101,437
128
482
\u2014
610
0.14
4.76
\u2014
0.60
\n
AQ9
356
833
\u2014
1,189
1
68
\u2014
69
0.28
8.16
\u2014
5.80
\n
AQ10
\u2014
\u2014
2,782
2,782
\u2014
\u2014
1,179
1,179
\u2014
\u2014
42.38
42.38
\n
190,175
14,423
2,782
207,380
149
614
1,179
1,942
0.08
4.26
42.38
0.94
\n
\ue001
In the Personal portfolio, the asset quality distribution
\n
improved overall with high quality new business written
\n
during 2022 and existing portfolio quality being maintained.
\n
\ue001
The majority of exposures were in AQ1-AQ4, with a
\n
significant proportion in AQ5-AQ8. As expected, mortgage
\n
exposures have a higher proportion in AQ1-AQ4 than
\n
unsecured borrowing.
\n
\ue001
The increase in AQ10/Stage 3 balances was mainly because
\n
of the IFRS 9 alignment to the new regulatory default
\n
definition, implemented on 1 January 2022. This change
\n
resulted in an increase in Stage 3 exposures of
\n
approximately \u00a30.7 billion, mostly in mortgages.
\n
\ue001
In other Personal, the relatively high level of exposures in
\n
AQ10 reflected that impaired assets can be held on the
\n
balance sheet, with commensurate ECL provision for up to
\n
six years after default.
\n
\ue001
ECL provisions coverage shows the expected trend with
\n
increased coverage in the weaker asset quality bands, and
\n
also by stage.
\n
\ue001
Across the majority of asset quality bands, migration from
\n
Stage 1 into Stage 2 was observed as the effect of updated
\n
economic scenarios increased IFRS 9 PDs and therefore
\n
Stage 2 exposure.
Asset quality
(audited)
\n
The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio.
\n
Gross loans
ECL provisions
ECL provisions coverage
\n
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
Property
\n
AQ1-AQ4
14,818
600
\u2014
15,418
17
4
\u2014
21
0.11
0.67
\u2014
0.14
\n
AQ5-AQ8
12,712
3,618
\u2014
16,330
90
95
\u2014
185
0.7
2.6
\u2014
1.1
\n
AQ9
12
98
\u2014
110
\u2014
6
\u2014
6
\u2014
6.1
\u2014
5.5
\n
AQ10
\u2014
\u2014
716
716
\u2014
\u2014
229
229
\u2014
\u2014
32.0
32.0
\n
27,542
4,316
716
32,574
107
105
229
441
0.4
2.4
32.0
1.4
\n
Corporate
\n
AQ1-AQ4
17,447
5,184
\u2014
22,631
23
37
\u2014
60
0.1
0.7
\u2014
0.3
\n
AQ5-AQ8
35,567
13,643
\u2014
49,210
195
398
\u2014
593
0.6
2.9
\u2014
1.2
\n
AQ9
34
326
\u2014
360
\u2014
22
\u2014
22
\u2014
6.8
\u2014
6.1
\n
AQ10
\u2014
\u2014
1,476
1,476
\u2014
\u2014
553
553
\u2014
\u2014
37.5
37.5
\n
53,048
19,153
1,476
73,677
218
457
553
1,228
0.4
2.4
37.5
1.7
\n
Financial institutions
\n
AQ1-AQ4
44,257
914
\u2014
45,171
18
5
\u2014
23
0.0
0.6
\u2014
0.1
\n
AQ5-AQ8
2,479
429
\u2014
2,908
14
9
\u2014
23
0.6
2.1
\u2014
0.8
\n
AQ9
2
10
\u2014
12
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ10
\u2014
\u2014
47
47
\u2014
\u2014
17
17
\u2014
\u2014
36.2
36.2
\n
46,738
1,353
47
48,138
32
14
17
63
0.1
1.0
36.2
0.1
\n
Sovereign
\n
AQ1-AQ4
5,319
75
\u2014
5,394
15
1
\u2014
16
0.3
1.3
\u2014
0.3
\n
AQ5-AQ8
139
82
\u2014
221
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ10
\u2014
\u2014
26
26
\u2014
\u2014
3
3
\u2014
\u2014
11.5
11.5
\n
5,458
157
26
5,641
15
1
3
19
0.3
0.6
11.5
0.3
\n
Total
\n
AQ1-AQ4
81,841
6,773
\u2014
88,614
73
47
\u2014
120
0.1
0.7
\u2014
0.1
\n
AQ5-AQ8
50,897
17,772
\u2014
68,669
299
502
\u2014
801
0.6
2.8
\u2014
1.2
\n
AQ9
48
434
\u2014
482
\u2014
28
\u2014
28
\u2014
6.5
\u2014
5.8
\n
AQ10
\u2014
\u2014
2,265
2,265
\u2014
\u2014
802
802
\u2014
\u2014
35.4
35.4
\n
132,786
24,979
2,265
160,030
372
577
802
1,751
0.3
2.3
35.4
1.1
\n
2021
\n
Property
\n
AQ1-AQ4
13,529
223
\u2014
13,752
3
7
\u2014
10
0.02
3.14
\u2014
0.07
\n
AQ5-AQ8
15,126
2,742
\u2014
17,868
21
94
\u2014
115
0.14
3.43
\u2014
0.64
\n
AQ9
24
136
\u2014
160
\u2014
10
\u2014
10
\u2014
7.35
\u2014
6.25
\n
AQ10
\u2014
\u2014
742
742
\u2014
\u2014
239
239
\u2014
\u2014
32.21
32.21
\n
28,679
3,101
742
32,522
24
111
239
374
0.08
3.58
32.21
1.15
\n
Corporate
\n
AQ1-AQ4
18,378
1,027
\u2014
19,405
8
48
\u2014
56
0.04
4.67
\u2014
0.29
\n
AQ5-AQ8
35,351
13,922
\u2014
49,273
88
621
\u2014
709
0.25
4.46
\u2014
1.44
\n
AQ9
74
655
\u2014
729
\u2014
44
\u2014
44
\u2014
6.72
\u2014
6.04
\n
AQ10
\u2014
\u2014
1,444
1,444
\u2014
\u2014
602
602
\u2014
\u2014
41.69
41.69
\n
53,803
15,604
1,444
70,851
96
713
602
1,411
0.18
4.57
41.69
1.99
\n
Financial institutions
\n
AQ1-AQ4
50,121
63
\u2014
50,184
7
1
\u2014
8
0.01
1.59
\u2014
0.02
\n
AQ5-AQ8
2,138
667
\u2014
2,805
7
38
\u2014
45
0.33
5.70
\u2014
1.60
\n
AQ9
4
2
\u2014
6
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ10
\u2014
\u2014
46
46
\u2014
\u2014
4
4
\u2014
\u2014
8.70
8.70
\n
52,263
732
46
53,041
14
39
4
57
0.03
5.33
8.70
0.11
\n
Sovereign
\n
AQ1-AQ4
5,787
35
\u2014
5,822
19
1
\u2014
20
0.33
2.86
\u2014
0.34
\n
AQ5-AQ8
117
86
\u2014
203
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
AQ10
\u2014
\u2014
8
8
\u2014
\u2014
2
2
\u2014
\u2014
25.00
25.00
\n
5,904
121
8
6,033
19
1
2
22
0.32
0.83
25.00
0.36
\n
Total
\n
AQ1-AQ4
87,815
1,348
\u2014
89,163
37
57
\u2014
94
0.04
4.23
\u2014
0.11
\n
AQ5-AQ8
52,732
17,417
\u2014
70,149
116
753
\u2014
869
0.22
4.32
\u2014
1.24
\n
AQ9
102
793
\u2014
895
\u2014
54
\u2014
54
\u2014
6.81
\u2014
6.03
\n
AQ10
\u2014
\u2014
2,240
2,240
\u2014
\u2014
847
847
\u2014
\u2014
37.81
37.81
\n
140,649
19,558
2,240
162,447
153
864
847
1,864
0.11
4.42
37.81
1.15
Asset quality
(audited)
\n
\ue001
Across the Wholesale portfolio, asset quality remained
\n
stable. The majority of the portfolio was within the AQ1-
\n
AQ4, and AQ5-AQ8 bands. Distribution differs across
\n
segments reflective of the underlying quality of
\n
counterparties, with financial institutions and sovereigns
\n
mostly in the AQ1-AQ4 bands, and property and corporates
\n
mostly in the AQ5-AQ8 bands.
\n
\ue001
Customer credit grades were reassessed as and when a
\n
request for financing was made, a scheduled customer
\n
credit review was performed or a material credit event
\n
specific to that customer occurred. Credit grades are
\n
reassessed for all customers at least annually.
\n
\ue001
ECL provisions coverage showed the expected trend, with
\n
increased coverage in the weaker asset quality bands within
\n
Stage 2 compared to Stage 1, and again within Stage 3
\n
compared to Stage 2.
\n
Credit risk \u2013 Trading activities
\n
This section details the credit risk profile of NatWest Group\u2019s trading activities.
\n
Securities financing transactions and collateral
(audited)
\n
The table below shows securities funding transactions in NatWest Markets and Treasury. Balance sheet captions include balances
\n
held at all classifications under IFRS.
\n
Reverse Repos
Repos
\n
Total
\n
Of which
\n
can be offset
\n
Outside netting
\n
arrangements
Total
\n
Of which can be
\n
offset
\n
Outside netting
\n
arrangements
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Gross
61,775
61,241
534
55,226
50,743
4,483
\n
IFRS offset
(20,211)
(20,211)
\u2014
(20,211)
(20,211)
\u2014
\n
Carrying value
41,564
41,030
534
35,015
30,532
4,483
\n
Master netting arrangements
(2,445)
(2,445)
\u2014
(2,445)
(2,445)
\u2014
\n
Securities collateral
(38,387)
(38,387)
\u2014
(28,087)
(28,087)
\u2014
\n
Potential for offset not recognised under IFRS
(40,832)
(40,832)
\u2014
(30,532)
(30,532)
\u2014
\n
Net
732
198
534
4,483
\u2014
4,483
\n
2021
\n
Gross
78,909
78,259
650
73,858
72,712
1,146
\n
IFRS offset
(32,016)
(32,016)
\u2014
(32,016)
(32,016)
\u2014
\n
Carrying value
46,893
46,243
650
41,842
40,696
1,146
\n
Master netting arrangements
(900)
(900)
\u2014
(900)
(900)
\u2014
\n
Securities collateral
(45,271)
(45,271)
\u2014
(39,794)
(39,794)
\u2014
\n
Potential for offset not recognised under IFRS
(46,171)
(46,171)
\u2014
(40,694)
(40,694)
\u2014
\n
Net
722
72
650
1,148
2
1,146
Derivatives
(audited)
\n
The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net
\n
presentation on the balance sheet under IFRS. A significant proportion of the derivatives relate to trading activities in NatWest
\n
Markets. The table also includes hedging derivatives in Treasury.
\n
2022
2021
\n
Notional
\n
GBP
USD
Euro
Other
Total
Assets
Liabilities
Notional
Assets
Liabilities
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Gross exposure
118,275
116,158
114,100
109,403
\n
IFRS offset
(18,730)
(22,111)
(7,961)
(8,568)
\n
Carrying value
2,913
4,301
5,527
1,184
13,925
99,545
94,047
12,100
106,139
100,835
\n
Of which:
\n
Interest rate
(1)
2,602
2,895
4,967
278
10,742
53,480
48,535
8,919
67,458
61,206
\n
Exchange rate
309
1,401
552
906
3,168
45,829
45,237
3,167
38,517
39,286
\n
Credit
2
5
8
\u2014
15
236
275
14
154
343
\n
Equity and commodity
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
10
\u2014
\n
Carrying value
13,925
99,545
94,047
12,100
106,139
100,835
\n
Counterparty mark-to-market netting
(77,365)
(77,365)
(85,006)
(85,006)
\n
Cash collateral
(14,079)
(9,761)
(15,035)
(9,909)
\n
Securities collateral
(4,571)
(1,185)
(2,428)
(2,913)
\n
Net exposure
3,530
5,736
3,670
3,007
\n
Banks
(2)
648
711
393
413
\n
Other financial institutions
(3)
1,732
1,969
1,490
1,584
\n
Corporate
(4)
1,068
2,969
1,716
938
\n
Government
(5)
82
87
71
72
\n
Net exposure
3,530
5,736
3,670
3,007
\n
UK
1,271
2,878
1,990
1,122
\n
Europe
1,196
2,015
714
1,028
\n
US
753
626
645
653
\n
RoW
310
217
321
204
\n
Net exposure
3,530
5,736
3,670
3,007
\n
Asset quality of uncollateralised
\n
derivative assets
\n
AQ1-AQ4
3,014
2,939
\n
AQ5-AQ8
500
674
\n
AQ9-AQ10
16
57
\n
Net exposure
3,530
3,670
\n
(1)
The notional amount of interest rate derivatives includes \u00a38,065 billion (2021 \u2013 \u00a36,173 billion) in respect of contracts cleared through central clearing counterparties.
\n
(2)
Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms
\n
that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions where the collateral agreements are not deemed to be legally enforceable.
\n
(3)
Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group\u2019s external rating.
\n
(4)
Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting.
\n
(5)
Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their
\n
favour
.
Derivatives: settlement basis and central counterparties
(audited)
\n
The table below shows the third party derivative notional and fair value by trading and settlement method.
\n
Notional
\n
Traded over the counter
Asset
Liability
\n
2022
\n
Traded on
\n
recognised
\n
exchanges \u00a3bn
\n
Settled by central
\n
counterparties \u00a3bn
\n
Not settled by
\n
central
\n
counterparties \u00a3bn
\n
Total
\n
\u00a3bn
\n
Traded on
\n
recognised
\n
exchanges \u00a3m
\n
Traded over
\n
the counter
\n
\u00a3m
\n
Traded on
\n
recognised
\n
exchanges \u00a3m
\n
Traded over
\n
the counter
\n
\u00a3m
\n
Interest rate
707
8,065
1,970
10,742
113
53,367
33
48,502
\n
Exchange rate
2
\u2014
3,166
3,168
\u2014
45,829
\u2014
45,237
\n
Credit
\u2014
\u2014
15
15
\u2014
236
\u2014
275
\n
Equity and commodity
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Total
709
8,065
5,151
13,925
113
99,432
33
94,014
\n
2021
\n
Interest rate
723
6,173
2,023
8,919
\u2014
67,458
\u2014
61,206
\n
Exchange rate
2
\u2014
3,165
3,167
\u2014
38,517
\u2014
39,286
\n
Credit
\u2014
\u2014
14
14
\u2014
154
\u2014
343
\n
Equity and commodity
\u2014
\u2014
\u2014
\u2014
\u2014
10
\u2014
\u2014
\n
Total
725
6,173
5,202
12,100
\u2014
106,139
\u2014
100,835
\n
Debt securities
(audited)
\n
The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the
\n
lowest of Standard & Poor\u2019s, Moody\u2019s and Fitch.
\n
Central and local government
\n
UK
US
Other
\n
Financial
\n
institutions
\n
Corporate
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
AAA
\u2014
\u2014
469
766
3
1,238
\n
AA to AA+
\u2014
2,345
1,042
1,114
21
4,522
\n
A to AA-
2,205
\u2014
372
77
29
2,683
\n
BBB- to A-
\u2014
\u2014
916
149
296
1,361
\n
Non-investment grade
\u2014
\u2014
\u2014
65
49
114
\n
Unrated
\u2014
\u2014
\u2014
1
3
4
\n
Total
2,205
2,345
2,799
2,172
401
9,922
\n
Short positions
(2,313)
(1,293)
(3,936)
(1,875)
(107)
(9,524)
\n
2021
\n
AAA
\u2014
\u2014
2,011
838
\u2014
2,849
\n
AA to AA+
\u2014
3,329
3,145
1,401
62
7,937
\n
A to AA-
6,919
\u2014
1,950
308
57
9,234
\n
BBB- to A-
\u2014
\u2014
3,792
346
517
4,655
\n
Non-investment grade
\u2014
\u2014
31
163
82
276
\n
Unrated
\u2014
\u2014
\u2014
3
3
6
\n
Total
6,919
3,329
10,929
3,059
721
24,957
\n
Short positions
(9,790)
(56)
(12,907)
(2,074)
(137)
(24,964)
Credit risk \u2013 Cross border exposure
\n
Cross border exposures comprise both banking and trading activities, including reverse repurchase agreements. Exposures
\n
comprise loans and advances, including finance leases and instalment credit receivables, and other monetary assets, such as debt
\n
securities. The geographical breakdown is based on the country of domicile of the borrower or guarantor of ultimate risk. Cross
\n
border exposures include non-local currency claims of overseas offices on local residents but exclude exposures to local residents
\n
in local currencies. The table shows cross border exposures greater than 0.5% of NatWest Group\u2019s total assets.
\n
Government
Banks
Other
Total
\n
Short positions
\n
Net of short
\n
positions
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Western Europe
5,608
7,385
19,018
32,011
4,438
27,573
\n
Of which: France
1,875
1,911
3,958
7,744
1,414
6,330
\n
Germany
794
3,717
839
5,350
1,053
4,297
\n
Italy
1,094
116
729
1,939
1,126
813
\n
United States
8,080
3,852
12,931
24,863
1,429
23,434
\n
2021
\n
Western Europe
17,206
6,968
17,177
41,351
13,603
27,748
\n
Of which: France
5,391
1,258
3,825
10,474
2,919
7,555
\n
Germany
3,164
3,640
1,835
8,639
3,111
5,528
\n
Italy
3,040
210
797
4,047
3,449
598
\n
United States
10,345
3,548
8,539
22,432
1,862
20,570
Capital, liquidity and funding risk
\n
NatWest Group continually ensures a comprehensive approach
\n
is taken to the management of capital, liquidity and funding,
\n
underpinned by frameworks, risk appetite and policies, to
\n
manage and mitigate capital, liquidity and funding risks. The
\n
framework ensures the tools and capability are in place to
\n
facilitate the management and mitigation of risk ensuring
\n
NatWest Group operates within its regulatory requirements and
\n
risk appetite.
\n
Definitions
(audited)
\n
Regulatory capital consists of reserves and instruments issued
\n
that are available, have a degree of permanency and are
\n
capable of absorbing losses. A number of strict conditions set
\n
by regulators must be satisfied to be eligible as capital.
\n
Capital risk is the risk that there is or will be insufficient capital
\n
and other loss-absorbing
debt
instruments to operate
\n
effectively including meeting minimum regulatory requirements,
\n
operating within Board approved risk appetite and supporting
\n
its strategic goals.
\n
Liquidity consists of assets that can be readily converted to
\n
cash within a short timeframe at a reliable value. Liquidity risk
\n
is the risk of being unable to meet financial obligations as and
\n
when they fall due.
\n
Funding consists of on-balance sheet liabilities that are used to
\n
provide cash to finance assets. Funding risk is the risk of not
\n
maintaining a diversified, stable and cost-effective funding
\n
base.
\n
Liquidity and funding risks arise in a number of ways, including
\n
through the maturity transformation role that banks perform.
\n
The risks are dependent on factors such as:
\n
\ue001
Maturity profile;
\n
\ue001
Composition of sources and uses of funding;
\n
\ue001
The quality and size of the liquidity portfolio;
\n
\ue001
Wholesale market conditions; and
\n
\ue001
Depositor and investor behaviour.
\n
Sources of risk
(audited)
\n
Capital
\n
The eligibility of instruments and financial resources as
\n
regulatory capital is laid down by applicable regulation. Capital
\n
is categorised under two tiers (Tier 1 and Tier 2) according to
\n
the ability to absorb losses, degree of permanency and the
\n
ranking of absorbing losses on either a going or gone concern
\n
basis. There are three broad categories of capital across these
\n
two tiers:
\n
\ue001
CET1 capital -
CET1 capital must be perpetual and capable
\n
of unrestricted and immediate use to cover risks or losses
\n
as soon as these occur. This includes ordinary shares issued
\n
and retained earnings.
\n
\ue001
Additional Tier 1 (AT1) capital -
This is the second type of
\n
loss absorbing capital and must be capable of absorbing
\n
losses on a going concern basis. These instruments are
\n
either written down or converted into CET1 capital when
\n
the CET1 ratio falls below a pre-specified level.
\n
\ue001
Tier 2 capital -
Tier 2 capital is supplementary capital and
\n
provides loss absorption on a gone concern basis. Tier 2
\n
capital absorbs losses after Tier 1 capital. It typically
\n
consists of subordinated debt securities with a minimum
\n
maturity of five years at the point of issuance.
\n
Minimum requirement for own funds and eligible liabilities
\n
(MREL)
\n
In addition to capital, other specific loss-absorbing instruments,
\n
including senior notes issued by NatWest Group, may be used
\n
to cover certain gone concern capital requirements, which is
\n
referred to as MREL. Gone concern refers to the situation in
\n
which resources must be available to enable an orderly
\n
resolution, in the event that the Bank of England (BoE) deems
\n
that NatWest Group has failed or is likely to fail.
\n
Liquidity
\n
NatWest Group maintains a prudent approach to the definition
\n
of liquidity resources. NatWest Group manages its liquidity to
\n
ensure it is always available when and where required, taking
\n
into account regulatory, legal and other constraints. Following
\n
ring-fencing legislation, liquidity is no longer considered
\n
fungible across NatWest Group. Principal liquidity portfolios are
\n
maintained in the UK Domestic Liquidity Sub-Group (UK
\n
DoLSub) (primarily in NatWest Bank Plc), UBIDAC, NatWest
\n
Markets Plc, RBS International Limited and NWM N.V.. Some
\n
disclosures in this section where relevant are presented, on a
\n
consolidated basis, for NatWest Group, the UK DoLSub and on
\n
a solo basis for NatWest Markets Plc.
\n
Liquidity resources are divided into primary and secondary
\n
liquidity as follows:
\n
\ue001
Primary liquid assets include cash and balances at central
\n
banks, Treasury bills and other high quality government
\n
and supranational securities.
\n
\ue001
Secondary liquid assets are eligible as collateral for local
\n
central bank liquidity facilities. These assets include own-
\n
issued securitisations or whole loans that are retained on
\n
balance sheet and pre-positioned with a central bank so
\n
that they may be converted into additional sources of
\n
liquidity at very short notice.
\n
Funding
\n
NatWest Group maintains a diversified set of funding sources,
\n
including customer deposits, wholesale deposits and term debt
\n
issuance. NatWest Group also retains access to central bank
\n
funding facilities.
\n
For further details on capital constituents and the regulatory
\n
framework covering capital, liquidity and funding requirements,
\n
please refer to the 2022 NatWest Group Pillar 3 Report.
Capital management
\n
Capital management ensures that there is sufficient capital and
\n
other loss-absorbing instruments to operate effectively
\n
including meeting minimum regulatory requirements, operating
\n
within Board-approved risk appetite, maintaining its credit
\n
rating and supporting its strategic goals.
\n
Capital management is critical in supporting the businesses and
\n
is enacted through an end-to-end framework across businesses
\n
and legal entities. Capital is managed within the organisation at
\n
the following levels; NatWest Group consolidated, NWH Group
\n
sub consolidated, NatWest Markets Plc, NatWest Markets N.V.
\n
and RBS International Limited. The banking subsidiaries within
\n
NWH Group are governed by the same principles, processes
\n
and management as NatWest Group. Note that although the
\n
aforementioned entities are regulated in line with Basel III
\n
principles, local implementation of the framework differs across
\n
geographies.
\n
Capital planning is integrated into NatWest Group\u2019s wider
\n
annual budgeting process and is assessed and updated at least
\n
monthly. Regular returns are submitted to the PRA which
\n
include a two-year rolling forecast view. Other elements of
\n
capital management, including risk appetite and stress testing,
\n
are set out on pages 181 and 182.
\n
Produce
\n
capital
\n
plans
\n
Capital plans are produced for NatWest Group, its
\n
key operating entities and its businesses over a
\n
five year planning horizon under expected and
\n
stress conditions. Stressed capital plans are
\n
produced to support internal stress testing in the
\n
ICAAP for regulatory purposes.
\n
Shorter term forecasts are developed frequently
\n
in response to actual performance, changes in
\n
internal and external business environment and
\n
to manage risks and opportunities.
\n
Assess
\n
capital
\n
adequacy
\n
Capital plans are developed to maintain capital of
\n
sufficient quantity and quality to support NatWest
\n
Group\u2019s business, its subsidiaries and strategic
\n
plans over the planning horizon within approved
\n
risk appetite, as determined via stress testing, and
\n
minimum regulatory requirements.
\n
Capital resources and capital requirements are
\n
assessed across a defined planning horizon.
\n
Impact assessment captures input from across
\n
NatWest Group including from businesses.
\n
Inform
\n
capital
\n
actions
\n
Capital planning informs potential capital actions
\n
including buy backs, redemptions, dividends and
\n
new issuance to external investors or via internal
\n
transactions.
\n
Decisions on capital actions will be influenced by
\n
strategic and regulatory requirements, risk
\n
appetite, costs and prevailing market conditions.
\n
As part of capital planning, NatWest Group will
\n
monitor its portfolio of external capital securities
\n
and assess the optimal blend and most cost
\n
effective means of financing.
\n
Capital planning is one of the tools that NatWest Group uses to
\n
monitor and manage capital risk on a going and gone concern
\n
basis, including the risk of excessive leverage.
\n
Liquidity risk management
\n
NatWest Group manages its liquidity risk taking into account
\n
regulatory, legal and other constraints to ensure sufficient
\n
liquidity is available where required to cover liquidity stresses.
\n
The principal levels at which liquidity risk is managed are:
\n
\ue001
NatWest Group
\n
\ue001
NatWest Holdings Group
\n
\ue001
UK DoLSub
\n
\ue001
UBIDAC
\n
\ue001
NatWest Markets Plc
\n
\ue001
NatWest Markets Securities Inc.
\n
\ue001
RBS International Limited
\n
\ue001
NWM N.V.
\n
\ue001
NatWest Bank Europe GmbH
\n
The UK DoLSub is PRA regulated and comprises NatWest
\n
Group\u2019s three licensed deposit-taking UK banks: National
\n
Westminster Bank Plc (NWB Plc), The Royal Bank of Scotland
\n
plc (RBS plc) and Coutts & Company. Ulster Bank Limited was
\n
removed from the UK DoLSub effective 1 January 2022 and its
\n
banking license was officially revoked following regulatory
\n
approval on 29 December 2022.
\n
NatWest Group categorises its liquidity portfolio, including its
\n
locally managed liquidity portfolios, into primary and secondary
\n
liquid assets. The size of the liquidity portfolios are determined
\n
by referencing NatWest Group\u2019s liquidity risk appetite. NatWest
\n
Group retains a prudent approach to setting the composition of
\n
the liquidity portfolios, which is subject to internal policies
\n
applicable to all entities and limits over quality of counterparty,
\n
maturity mix and currency mix.
\n
RBS International Limited, NWM N.V. and UBIDAC hold locally
\n
managed portfolios that comply with local regulations that may
\n
differ from PRA rules.
\n
The liquidity value of the portfolio is determined by taking
\n
current market prices and applying a discount or haircut, to
\n
give a liquidity value that represents the amount of cash that
\n
can be generated by the asset.
\n
Funding risk management
\n
NatWest Group manages funding risk through a comprehensive
\n
framework which measures and monitors the funding risk on
\n
the balance sheet including quantitative and qualitative analysis
\n
of the behavioural aspects of its assets and liabilities as well as
\n
the funding concentration.
Prudential regulation changes that may
\n
impact capital requirements
\n
NatWest Group faces numerous changes in prudential
\n
regulation that may impact the minimum amount of capital it
\n
must hold and consequently may increase funding costs and
\n
reduce return on equity. Regulatory changes are actively
\n
monitored by NatWest Group, including engagement with
\n
industry associations and regulators and participation in
\n
quantitative impact studies. Monitoring the changing regulatory
\n
landscape forms a fundamental part of capital planning and
\n
management of its business. NatWest Group believes that its
\n
strategy to focus on simpler, lower risk activities within a more
\n
resilient recovery and resolution framework will enable it to
\n
manage the impact of these.
\n
UK and EU implementation of Basel framework
\n
The European Union (EU) implemented the initial phase of the
\n
Basel III capital framework through the CRR and the Capital
\n
Requirements Directive (CRD). On 7 June 2019, amendments to
\n
the CRR and CRD (known as CRR2 and CRD5 respectively)
\n
were published in the Official Journal of the European Union.
\n
The majority of these changes were implemented in June 2021.
\n
Further changes relating to the Basel 3.1 standard will be
\n
implemented in EU by CRR3 and CRD6 for which the European
\n
Commission issued a proposal in October 2021. The
\n
implementation of these changes is not expected until January
\n
2025 however the impact of those will be limited to NatWest
\n
Group\u2019s EU subsidiaries.
\n
From 1 January 2021, NatWest Group has been regulated under
\n
the onshored CRR and associated onshored binding technical
\n
standards which were created by the European Union
\n
(Withdrawal) Act 2018 and amending statutory instruments.
As
\n
the Withdrawal Act applied to the CRR in place as of 31
\n
December 2020, changes to the CRR in the EU are not reflected
\n
in the UK CRR unless separately legislated and amended by
\n
statutory instruments. Going forward, the Financial Services Bill
\n
gives the PRA the power to write prudential rules directly into
\n
the PRA rulebook and they will co-ordinate with HM Treasury to
\n
implement any required changes to the UK CRR.
\n
As detailed above, the changes to the EU CRR included the
\n
substantial CRR2 amendments and equivalent reforms were
\n
eventually implemented in UK on 1 January 2022.
\n
On 30 November 2022, the PRA published its consultation paper
\n
CP16/22 setting out its proposed rules and expectations with
\n
respect to the Basel 3.1 standards that remain to be
\n
implemented in the UK. This will complete the implementation of
\n
post-global financial crisis prudential reforms, which were
\n
designed to i) increase the quantity of capital in the system, per
\n
unit of risk; ii) increase the quality of capital held by firms; and
\n
iii) improve the accuracy of risk-management firms, reducing
\n
the variability of risk-weighted assets (RWAs). The changes
\n
mainly impact capital requirements for STD (Standardised) and
\n
IRB (Internal Ratings Based) Credit Risk, Market Risk, CVA,
\n
Counterparty Credit Risk and Operational Risk. An aggregate
\n
\u201coutput floor\u201d is also being introduced to ensure that total RWAs
\n
for firms using advanced or internally modelled methods and
\n
subject to the floor cannot fall below 72.5% of RWAs under the
\n
standardised approach. The proposal did not include further
\n
changes to the Leverage Ratio, Large Exposures and Liquidity
\n
Risk frameworks.
\n
Implementation of the PRA proposals is scheduled to align with
\n
that of the European Union, with a projected compliance date of
\n
1 January 2025. The PRA\u2019s consultation period will end on 31
\n
March 2023. See summary table for further details on PRA\u2019s
\n
proposal.
\n
Other developments
\n
On 29 November 2022, the PRA published PS9/22 which
\n
contained amendments to PRA\u2019s approach to identifying other
\n
systemically important institutions (O-SIIs). The amendments
\n
mainly aimed at removing EBA\u2019s scoring methodology from the
\n
O-SII identification process and changing specific indicators and
\n
weights in PRA\u2019s scoring methodology. In its policy statement,
\n
the PRA clarified that O-SII designation does not automatically
\n
result in higher loss absorbency requirements in the form of an
\n
O-SII buffer or otherwise. An O-SII buffer can only apply to O-
\n
SIIs, or part of an O-SII that are ring-fenced bodies (RFBs).
\n
On the same date, the PRA also published its 2022 list of firms
\n
designated as O-SIIs. NatWest Group is part of PRA\u2019s O-SII list.
\n
Simultaneously, the PRA published a statement confirming a
\n
freeze of firms\u2019 O-SII buffer rates in 2022. O-SII buffers will be
\n
maintained at 2019 levels and the PRA will assess rates in 2023
\n
based on its revised methodology. The decision on O-SII buffer
\n
rates taken in December 2023 will be based on end-2022
\n
financial results and will take effect from January 2025 in line
\n
with PRA\u2019s policy. This PRA statement is therefore relevant to
\n
NatWest Holdings Limited which is currently subject an O-SII
\n
buffer.
Summary of future changes to prudential regulation in UK that may impact NatWest Group
\n
The table below covers expected future changes to prudential regulation in the UK which may impact NatWest Group at a
\n
consolidated level. Certain entities within the group will be exposed to changes in prudential regulation from other legislative
\n
bodies and/or local supervisory authorities where NatWest Group\u2019s entities are authorised (e.g. EU and Jersey) on a solo basis and
\n
these changes may be different in substance, scope and timing than those highlighted below.
\n
Area of development
Key changes
Source of changes/implementation date
\n
Leverage ratio
\n
framework
\n
\ue001
Binding leverage ratio at individual bank level for
\n
material entities i.e. LREQ firms.
\n
\ue001
SS45/15 \u2013 UK Leverage ratio framework
\n
\ue001
Implementation: 1 January 2023
\n
Capital \u2013 Output floor
\ue001
Level of application: Applies at highest level of
\n
application: Consolidated level for UK Groups; sub-
\n
consolidated level for Ring Fenced sub-groups.
\n
\ue001
Capital stack: Applies to full capital stack including
\n
capital buffers.
\n
\ue001
Transitional period for the application; starting
\n
with 50% at 1 January 2025 through to 72.5% at 1
\n
January 2030.
\n
\ue001
PRA Basel 3.1 CP16/22
\n
\ue001
Expected implementation: 1 January 2025
\n
Credit Risk (STD, IRB,
\n
FIRB)
\n
\ue001
Significant revisions to standardised credit risk,
\n
including to unrated corporates, SMEs, specialised
\n
lending, mortgages & equity exposures.
\n
\ue001
Changes to IRB; restrictions on IRB modelling
\n
(switch to standardised on central governments,
\n
switch to FIRB on financial institutions and large
\n
corporates), inclusion of input floors and other
\n
modelling changes.
\n
\ue001
Removal of SME & Infrastructure supporting
\n
factors (IRB & standardised).
\n
\ue001
Amendments to credit risk mitigation, including the
\n
withdrawal of some internal modelling approaches,
\n
the removal of double default and a new risk
\n
weight substitution approach on some exposures.
\n
\ue001
PRA Basel 3.1 CP16/22
\n
\ue001
Expected implementation: 1 January 2025
\n
Market Risk
\ue001
Implementation of FRTB - new standardised &
\n
modelled approaches (Expected Shortfall replaces
\n
VaR), revised banking/trading book boundary.
\n
\ue001
Model approval applications to be provided by 1
\n
January 2024.
This includes permissions for
\n
standardised MR & CVA.
\n
\ue001
PRA Basel 3.1 CP16/22
\n
\ue001
Expected implementation: 1 January 2025
\n
CVA & Counterparty
\n
Credit Risk
\n
\ue001
Removal of modelled approach.
\n
\ue001
New standardised approach, aligned to Basel
\n
framework, including the removal of CVA
\n
exemptions on sovereigns, non-financial
\n
counterparties and pension funds.
\n
\ue001
Reduced SA-CCR alpha factor from 1.4 to 1 for
\n
non-financial counterparties and pension funds.
\n
\ue001
PRA Basel 3.1 CP16/22
\n
\ue001
Expected implementation: 1 January 2025
\n
Operational Risk
\ue001
Internal loss multiplier (ILM) set to 1.
\n
\ue001
Changes to the income requirements in scope of
\n
the business indicator.
\n
\ue001
PRA Basel 3.1 CP16/22
\n
\ue001
Expected implementation: 1 January 2025
\n
Pillar 2
\ue001
PRA commitment to review Pillar 2A
\n
methodologies in 2024, to adjust requirements
\n
ahead of implementation of the Pillar 1.
\n
\ue001
PRA Basel 3.1 CP16/22
\n
\ue001
Expected implementation: 1 January 2025
Key points
\n
CET1 ratio
\n
The CET1 ratio decreased 400 basis points over the period, due to a
\n
\u00a33.6 billion decrease in CET1 and a \u00a319.1 billion increase in RWAs
\n
(movement in RWA explained below).
\n
The CET1 decrease of \u00a33.6 billion is mainly driven by:
\n
\ue001
the directed buy back of \u00a31.2 billion;
\n
\ue001
interim and special dividends of \u00a32.1 billion;
\n
\ue001
foreseeable charge for the on-market buyback programme
\n
of \u00a30.8 billion;
\n
\ue001
foreseeable final ordinary dividend of \u00a31.0 billion and
\n
adjustment for pension trusts of \u00a30.4 billion;
\n
\ue001
the removal of the adjustment for prudential amortisation
\n
on software development costs of \u00a30.4 billion;
\n
\ue001
a \u00a30.3 billion decrease in the IFRS 9 transitional adjustment.
\n
These reductions were offset by the \u00a33.3 billion attributable profit in
\n
the period.
\n
MREL (LAC)
\n
Loss absorbing capital decreased by \u00a36.9 billion to \u00a355.5 billion
\n
primarily due to a \u00a33.6 billion decrease in CET1 (explained above), a
\n
\u00a30.6 billion decrease in AT1 capital, a \u00a30.7 billion decrease in Tier 2
\n
capital and a \u00a32.1 billion decrease in MREL eligible instruments. There
\n
has been a \u00a30.5 billion decrease in ineligible subordinated debt
\n
instruments primarily driven by redemptions in the period, and a \u00a31.6
\n
billion decrease in senior unsecured debt driven by new issuances
\n
offset by redemptions, instruments now classified as ineligible and FX
\n
movements.
\n
RWA
\n
Total RWAs increased by \u00a319.1 billion to \u00a3176.1 billion mainly
\n
reflecting:
\n
\ue001
An increase in credit risk RWAs of \u00a321.8 billion, primarily
\n
due to model adjustments applied as a result of new
\n
regulation applicable to IRB models from 1 January 2022, in
\n
addition to drawdowns and new facilities within
\n
Commercial & Institutional. This was partially offset by a
\n
reduction in the Ulster RoI portfolio and improved risk
\n
metrics within Commercial & Institutional and Retail
\n
Banking.
\n
\ue001
A reduction in operational risk RWAs of \u00a31.9 billion following
\n
the annual recalculation.
\n
\ue001
A reduction in counterparty credit risk RWAs of \u00a31.2 billion,
\n
mainly driven by external factors faced in the final quarter
\n
of the period including excess margin received and
\n
increases in the Mark-to-Market uncollateralised
\n
counterparties. This was partially offset by the
\n
implementation of SA-CCR, affecting the RWA calculation
\n
for the non-internally modelled exposure.
\n
UK leverage
\n
The leverage ratio at 31 December 2022 is 5.4% and has been
\n
calculated in accordance with changes to the UK\u2019s leverage ratio
\n
framework. As at 31 December 2021, the UK leverage ratio was 5.9%,
\n
which was calculated under the prior year\u2019s UK leverage
\n
methodology. The key driver of the decrease is a \u00a34.2 billion decrease
\n
in Tier 1 capital.
\n
Liquidity portfolio
\n
The liquidity portfolio decreased by \u00a360.9 billion to \u00a3225.5 billion, with
\n
primary liquidity decreasing by \u00a347.0 billion to \u00a3161.6 billion. The
\n
decrease in primary liquidity is driven by increase in lending,
\n
decrease in deposits, shareholder distributions (share buyback and
\n
dividends), redemption of senior debt and maturing commercial paper
\n
and certificates of deposit. The reduction in secondary liquidity is due
\n
to a reduction in the pre-positioned collateral at the Bank of England.
\n
18.2%
\n
14.2%
\n
2021
\n
2022
\n
\u00a362.4bn
\n
\u00a355.5bn
\n
2021
\n
2022
\n
\u00a3157.0bn
\n
\u00a3176.1bn
\n
2021
\n
2022
\n
5.9%
\n
5.4%
\n
2021
\n
2022
\n
\u00a3286.4bn
\n
\u00a3225.5bn
\n
2021
\n
2022
Liquidity coverage ratio
\n
The Liquidity Coverage Ratio (LCR) decreased to 145% during the
\n
year driven by a decrease in the liquidity portfolio and a lower than
\n
proportionate reduction in net outflows. The decrease in liquidity
\n
portfolio was primarily driven by growth in customer lending and
\n
reduced customer deposits in NatWest Holdings along with
\n
shareholder distributions during the year.
\n
NSFR
\n
The net stable funding ratio (NSFR) was 145% compared to 157% in
\n
prior year.
The decrease is due to lower deposits and shareholder
\n
distributions combined with higher lending.
\n
172%
\n
145%
\n
2021
\n
2022
\n
157%
\n
145%
\n
2021
\n
2022
Minimum requirements
\n
Maximum Distributable Amount (MDA) and Minimum Capital Requirements
\n
NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital
\n
requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory
\n
minimum requirements and are usable in stress.
\n
Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent
\n
automatic restriction on the amount available to service discretionary payments (including AT1 coupons), known as the MDA. Note
\n
that different capital requirements apply to individual legal entities or sub-groups and the table shown does not reflect any
\n
incremental PRA buffer requirements, which are not disclosable.
\n
The current capital position provides significant headroom above both our minimum requirements and our MDA threshold
\n
requirements.
\n
Type
CET1
Total Tier 1
Total capital
\n
Pillar 1 requirements
4.5%
6.0%
8.0%
\n
Pillar 2A requirements
1.7%
2.3%
3.0%
\n
Minimum Capital Requirements
6.2%
8.3%
11.0%
\n
Capital conservation buffer
2.5%
2.5%
2.5%
\n
Countercyclical capital buffer
(1)
0.8%
0.8%
0.8%
\n
MDA threshold
(2)
9.5%
n/a
n/a
\n
Overall capital requirement
9.5%
11.6%
14.3%
\n
Capital ratios at 31 December 2022
14.2%
16.4%
19.3%
\n
Headroom
(3)
4.7%
4.8%
5.0%
\n
(1)
The Financial Policy Committee increased UK CCyB rate from 0% to 1% effective from 13 December 2022.
A further increase from 1% to 2% is anticipated from 5 July 2023
\n
(2)
In June 2022, the Central Bank of Ireland announced that the CCyB on Irish exposures will increase from 0% to 0.5%, applicable from 15 June 2023.
This is the first step towards a
\n
gradual increase which, conditional on macro-financial developments, would see a CCyB of 1.5% announced by mid-2023, which is expected to be applicable from June 2024.
\n
(3)
Pillar 2A requirements for NatWest Group are set as a variable amount with the exception of some fixed add-ons.
\n
(4)
The headroom does not reflect excess distributable capital and may vary over time.
\n
Leverage ratios
\n
The table below summarises the minimum ratios of capital to leverage exposure under the binding PRA UK leverage framework
\n
applicable for NatWest Group.
\n
Type
CET1
Total Tier 1
\n
Minimum ratio
2.44%
3.25%
\n
Countercyclical leverage ratio buffer
(1)
0.3%
0.3%
\n
Total
2.74%
3.55%
\n
(1)
The countercyclical leverage ratio buffer is set at 35% of NatWest Group\u2019s CCyB. As noted above the UK CCyB is anticipated to increase from 1% to 2% from 5 July 2023. Foreign
\n
exposures may be subject to different CCyB rates depending on the rate set in those jurisdictions.
\n
(2)
Certain NatWest Group legal entities that are not currently in scope of the minimum leverage ratio capital requirements are expected to manage their leverage ratio at the same level
\n
as firms in scope and will be subject to the minimum requirement from 1 January 2023.
\n
Liquidity and funding ratios
\n
The table below summarises the minimum requirements for key liquidity and funding metrics under the PRA framework. The
\n
binding requirement for NSFR became effective as of 1 January 2022.
\n
Type
\n
Liquidity coverage ratio (LCR)
100%
\n
Net stable funding ratio (NSFR)
100%
Measurement
\n
Capital, risk-weighted assets and leverage: Key metrics
\n
The table below sets out the key capital and leverage ratios. NatWest Group is subject to the requirements set out in the PRA
\n
Rulebook. The capital and leverage ratios are therefore being presented under these frameworks on a transitional basis.
\n
2022
2021
\n
Capital adequacy ratios
(1)
%
%
\n
CET1
14.2
18.2
\n
Tier 1
16.4
21.0
\n
Total
19.3
24.7
\n
RWAs
\u00a3m
\u00a3m
\n
Credit risk
141,963
120,116
\n
Counterparty credit risk
6,723
7,907
\n
Market risk
8,300
7,917
\n
Operational risk
19,115
21,031
\n
Total RWAs
176,101
156,971
\n
Capital
\u00a3m
\u00a3m
\n
CET1
24,992
28,596
\n
Tier1
28,867
33,042
\n
Total
33,920
38,748
\n
Leverage ratios
\u00a3m
\u00a3m
\n
Tier 1 capital
28,867
33,042
\n
UK average Tier 1 capital
(2)
29,564
33,804
\n
UK average leverage exposure
(2)
531,429
568,802
\n
UK average leverage ratio (%)
(2)
5.6%
5.9%
\n
UK leverage ratio (%)
(3)
5.4%
5.9%
\n
(1)
Based on the current PRA rules, therefore includes the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9
\n
expected credit loss (ECL) accounting. The impact of the IFRS 9 transitional adjustments at 31 December 2022 was \u00a30.4 billion for CET1 capital, \u00a336 million for total capital and \u00a371
\n
million RWAs (31 December 2021 \u2013 \u00a30.6 billion CET1 capital, \u00a30.5 billion total capital and \u00a336 million RWAs). Excluding these adjustments, the CET1 ratio would be 14.0% (31
\n
December 2021 \u2013 17.8%). The transitional relief on grandfathered instruments at 31 December 2022 was \u00a375 million (31 December 2021 - \u00a30.9 billion). Excluding both the
\n
transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1
\n
capital ratio would be 16.2% (31 December 2021 \u2013 20.3%) and the end-point Total capital ratio would be 19.2% (31 December 2021 \u2013 23.8%).
\n
(2)
Based on the daily average of on-balance sheet items and three month-end average of off-balance sheet items.
\n
(3)
The UK leverage exposure and transitional Tier 1 capital are calculated in accordance with current PRA rules. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
\n
would be 5.3% (31 December 2021 \u2013 5.8%).
Capital flow statement
\n
The table below analyses the movement in CET1, AT1 and Tier 2 capital for the year ended 31 December 2022. It is being
\n
presented on a transitional basis based on current PRA rules.
\n
CET1
AT1
Tier 2
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 31 December 2021
28,596
4,446
5,706
38,748
\n
Attributable profit for the period
3,340
\u2014
\u2014
3,340
\n
Ordinary interim dividend paid
(364)
\u2014
\u2014
(364)
\n
Special dividend paid
(1,746)
\u2014
\u2014
(1,746)
\n
Directed buyback
(1,212)
\u2014
\u2014
(1,212)
\n
Foreseeable ordinary dividends
(967)
\u2014
\u2014
(967)
\n
Adjustment for trust assets
(1)
(365)
\u2014
\u2014
(365)
\n
Foreseeable charges - on-market share buyback
(800)
\u2014
\u2014
(800)
\n
Foreign exchange reserve
273
\u2014
\u2014
273
\n
FVOCI reserve
(371)
\u2014
\u2014
(371)
\n
Own credit
(79)
\u2014
\u2014
(79)
\n
Share capital and reserve movements in respect of employee share schemes
113
\u2014
\u2014
113
\n
Goodwill and intangibles deduction
(804)
\u2014
\u2014
(804)
\n
Deferred tax assets
(151)
\u2014
\u2014
(151)
\n
Prudential valuation adjustments
(1)
\u2014
\u2014
(1)
\n
End of 2021 transitional relief on grandfathered instruments
\u2014
(571)
(232)
(803)
\n
Net dated subordinated debt instruments
\u2014
\u2014
(522)
(522)
\n
Foreign exchange movements
(254)
\u2014
540
286
\n
Adjustment under IFRS 9 transitional arrangements
(260)
\u2014
\u2014
(260)
\n
Other movements
44
\u2014
(439)
(395)
\n
At 31 December 2022
24,992
3,875
5,053
33,920
\n
(1)
Prudent deduction in respect of agreement with the pension fund to establish new legal structure. See Notes 5 and 33.
\n
\ue001
The CET1 decrease of c.\u00a33.6 billion is mainly driven by the
\n
directed buyback of \u00a31.2 billion, interim and special
\n
dividends paid \u00a32.1 billion, foreseeable charge for
\n
additional on-market ordinary share buyback programme
\n
of \u00a30.8 billion, foreseeable final ordinary dividend of \u00a31.0
\n
billion and adjustment for pension trusts of \u00a30.4 billion, the
\n
removal of the adjustment for prudential amortisation on
\n
software development costs of \u00a30.4 billion and a \u00a30.3
\n
billion decrease in the IFRS 9 transitional adjustment.
\n
These reductions were offset by the \u00a33.3 billion attributable
\n
profit in the period.
\n
\ue001
The AT1 and Tier 2 movements are due to the end of the
\n
2021 transitional relief on grandfathered instruments,
\n
impact of liability management exercise in August offset by
\n
a \u00a30.7 billion issuance of subordinated Tier 2 notes in
\n
November 2022 and FX movements.
\n
\ue001
In Tier 2 there was also a \u00a30.4 billion decrease in the Tier 2
\n
surplus provisions.
Risk-weighted assets
\n
The table below analyses the movement in RWAs during the year, by key drivers.
\n
Credit risk
\n
Counterparty
\n
credit risk
\n
Market risk
Operational risk
Total
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
At 31 December 2021
120.2
7.9
7.9
21.0
157.0
\n
Foreign exchange movement
1.5
\u2014
\u2014
\u2014
1.5
\n
Business movements
6.3
(1.5)
0.2
(1.9)
3.1
\n
Risk parameter changes
(4.0)
\u2014
\u2014
\u2014
(4.0)
\n
Methodology changes
0.1
0.4
\u2014
\u2014
0.5
\n
Model updates
21.3
(0.1)
0.2
\u2014
21.4
\n
Acquisitions and disposals
(3.4)
\u2014
\u2014
\u2014
(3.4)
\n
At 31 December 2022
142.0
6.7
8.3
19.1
176.1
\n
The table below analyses the movement in RWAs by segment during the year.
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other (1)
\n
Total NatWest
\n
Group
\n
Total RWAs
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
At 31 December 2021
36.7
11.3
98.1
10.9
157.0
\n
Foreign exchange movement
\u2014
\u2014
1.3
0.2
1.5
\n
Business movements
2.9
(0.1)
2.0
(1.7)
3.1
\n
Risk parameter changes
(1.2)
\u2014
(2.8)
\u2014
(4.0)
\n
Methodology changes
\u2014
\u2014
0.5
\u2014
0.5
\n
Model updates
16.3
\u2014
4.1
1.0
21.4
\n
Acquisitions and disposals
\u2014
\u2014
\u2014
(3.4)
(3.4)
\n
At 31 December 2022
54.7
11.2
103.2
7.0
176.1
\n
Credit risk
47.7
10.0
78.3
6.0
142.0
\n
Counterparty credit risk
0.1
\u2014
6.6
\u2014
6.7
\n
Market risk
0.2
\u2014
8.1
\u2014
8.3
\n
Operational risk
6.7
1.2
10.2
1.0
19.1
\n
Total RWAs
54.7
11.2
103.2
7.0
176.1
\n
(1)
\u00a35.4 billion of Central items & other relates to Ulster RoI.
\n
Total RWAs increased by \u00a319.1 billion during the period mainly reflecting;
\n
\ue001
An increase in model updates totalling \u00a321.4 billion,
\n
primarily due to model adjustments applied as a result of
\n
new regulation applicable to IRB models from 1 January
\n
2022 within Retail Banking and Commercial &
\n
Institutional.
\n
\ue001
An increase in business movements totalling \u00a33.1 billion,
\n
driven by increased credit risk exposures within Retail
\n
Banking and Commercial & Institutional. This was
\n
partially offset by a reduction in credit risk exposures
\n
within Ulster Bank RoI.
\n
\ue001
A reduction in risk parameters totalling \u00a34.0 billion,
\n
reflecting improved risk metrics within Commercial &
\n
Institutional and Retail Banking.
\n
\ue001
An increase in disposals leading to a \u00a33.4 billion
\n
reduction in RWAs relating to the phased withdrawal
\n
from the Republic of Ireland.
Leverage exposure
\n
31 December
31 December
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
177,757
\n
Trading assets
45,577
59,158
\n
Derivatives
99,545
106,139
\n
Financial assets
404,374
412,817
\n
Other assets
18,864
17,106
\n
Assets of disposal groups
6,861
9,015
\n
Total assets
720,053
781,992
\n
Derivatives
\n
- netting and variation margin
(100,356)
(110,204)
\n
- potential future exposures
18,327
35,035
\n
Securities financing transactions gross up
4,147
1,397
\n
Other off balance sheet items
46,144
44,240
\n
Regulatory deductions and other adjustments
(7,114)
(8,980)
\n
Claims on central banks
(141,144)
(174,148)
\n
Exclusion of bounce back loans
(5,444)
(7,474)
\n
UK leverage exposure
534,613
561,858
\n
UK leverage ratio (%)
(1)
5.4
5.9
\n
(1)
The UK leverage exposure and transitional Tier 1 capital are calculated in accordance with the PRA Rulebook. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
\n
would be 5.3% (31 December 2021 \u2013 5.8%).
\n
Liquidity key metrics
\n
The table below sets out the key liquidity and related metrics monitored by NatWest Group.
\n
2022
2021
\n
NatWest Group
UK DoLSub
NatWest Group
UK DoLSub
\n
Liquidity coverage ratio
145%
131%
172%
169%
\n
Stressed outflow coverage
(1)
150%
131%
194%
195%
\n
Net stable funding ratio
145%
137%
157%
151%
\n
(1)
NatWest Group\u2019s stressed outflow coverage (SOC) is an internal measure calculated by reference to liquid assets as a percentage of net stressed contractual and behavioural
\n
outflows over three months under the worst of three severe stress scenarios of a market-wide stress, an idiosyncratic stress and a combination of both as per ILAAP. This
\n
assessment is performed in accordance with PRA guidance.
\n
Weighted undrawn commitments
\n
The table below provides a breakdown of weighted undrawn commitments.
\n
2022
2021
\n
\u00a3bn
\u00a3bn
\n
Unconditionally cancellable credit cards
1.9
1.8
\n
Other unconditionally cancellable items
3.6
3.1
\n
Unconditionally cancellable items
(1)
5.5
4.9
\n
Undrawn commitments <1 year which may not be cancelled
1.7
1.7
\n
Other off-balance sheet items with 20% credit conversion factor (CCF)
0.3
0.3
\n
Items with a 20% CCF
2.0
2.0
\n
Revolving credit risk facilities
28.4
27.5
\n
Term loans
4.4
3.3
\n
Mortgages
\u2014
\u2014
\n
Other undrawn commitments >1 year which may not be cancelled & off-balance sheet
1.0
1.1
\n
Items with a 50% CCF
33.8
31.9
\n
Items with a 100% CCF
4.9
5.3
\n
Total
46.2
44.1
\n
(1)
Based on a 10% CCF.
Loss-absorbing capital
\n
The following table illustrates the components of estimated loss-absorbing capital (LAC) in NatWest Group plc and operating
\n
subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory
\n
capital instruments issued from operating companies, to the extent they meet MREL criteria.
\n
The roll-off profile relating to senior debt and subordinated debt instruments is set out on page 257.
\n
2022
2021
\n
Par value (1)
\n
Balance
\n
sheet value
\n
Regulatory
\n
value (2.5)
\n
LAC value (3)
Par value
\n
Balance
\n
sheet value
\n
Regulatory
\n
value
\n
LAC value
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
CET1 capital
(4)
25.0
25.0
25.0
25.0
28.6
28.6
28.6
28.6
\n
Tier 1 capital: end-point CRR compliant AT1
\n
of which: NatWest Group plc (holdco)
3.9
3.9
3.9
3.9
3.9
3.9
3.9
3.9
\n
of which: NatWest Group plc operating
\n
subsidiaries (opcos)
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
3.9
3.9
3.9
3.9
3.9
3.9
3.9
3.9
\n
Tier 1 capital: end-point CRR non compliant
(6)
\n
of which: holdco
\u2014
\u2014
\u2014
\u2014
0.6
0.6
0.5
0.5
\n
of which: opcos
0.1
0.1
\u2014
\u2014
0.1
0.1
\u2014
\u2014
\n
0.1
0.1
\u2014
\u2014
0.7
0.7
0.5
0.5
\n
Tier 2 capital: end-point CRR compliant
\n
of which: holdco
6.0
5.5
4.9
5.4
7.1
7.1
4.9
6.0
\n
of which: opcos
0.1
0.1
\u2014
\u2014
0.3
0.3
\u2014
\u2014
\n
6.1
5.6
4.9
5.4
7.4
7.4
4.9
6.0
\n
Tier 2 capital: end-point CRR non compliant
(6)
\n
of which: holdco
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
of which: opcos
0.3
0.5
0.1
\u2014
0.6
0.9
0.3
0.1
\n
0.3
0.5
0.1
\u2014
0.6
0.9
0.3
0.1
\n
Senior unsecured debt securities
\n
of which: holdco
23.4
22.3
\u2014
21.2
22.8
23.4
\u2014
22.8
\n
of which: opcos
26.1
22.9
\u2014
\u2014
22.7
22.6
\u2014
\u2014
\n
49.5
45.2
\u2014
21.2
45.5
46.0
\u2014
22.8
\n
Tier 2 capital
\n
Other regulatory adjustments
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
0.5
\n
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
0.5
\n
Total
84.9
80.3
33.9
55.5
86.7
87.5
38.7
62.4
\n
RWAs
176.1
157.0
\n
UK leverage exposure
534.6
561.9
\n
LAC as a ratio of RWAs
31.5%
39.8%
\n
LAC as a ratio of UK leverage exposure
10.4%
11.1%
\n
(1)
Par value reflects the nominal value of securities issued.
\n
(2)
Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.
\n
(3)
LAC value reflects NatWest Group\u2019s interpretation of the Bank of England\u2019s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in
\n
December 2021 (updating June 2018). MREL policy and requirements remain subject to further potential development, as such NatWest Group\u2019s estimated position remains subject
\n
to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other
\n
instruments that do not meet the MREL criteria. The LAC calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.
\n
(4)
Corresponding shareholders\u2019 equity was \u00a336.5 billion (2021 - \u00a341.8 billion).
\n
(5)
Regulatory amounts reported for AT1, Tier 1 and Tier 2 includes grandfathered instruments as per the transitional provisions allowed under CRR2 (until 28 June 2025).
\n
(6)
(i) CRR1 non-compliant instruments (2021) - all Tier 1 and Tier 2 instruments that were grandfathered under CRR1 compliance have lost their regulatory value and no longer form
\n
part of our regulatory capital resources from 1 January 2022. As at 31 December 2021, these are reported under the \"Tier 1 capital: end-point CRR non-compliant\" and \"Tier 2
\n
capital: end-point CRR non-compliant\" categories.
\n
(ii) CRR2 non-compliant instruments (2022) - From January 2022, all Tier 1 and Tier 2 instruments that were grandfathered under CRR2 compliance (until 28 June 2025) are
\n
reported under \"Tier 1 capital: end-point CRR non-compliant\" and \"Tier 2 capital: end-point CRR non-compliant\" category.
Loss-absorbing capital
\n
The following table illustrates the components of the stock of outstanding issuance in NatWest Group plc and its operating
\n
subsidiaries including external and internal issuances
.
\n
NatWest
\n
Group plc
\n
NatWest
\n
Holdings
\n
Limited
NWB Plc
RBS plc
UBIDAC
NWM Plc
\n
NatWest
\n
Markets
\n
N.V.
\n
NWM
\n
Securities Inc.
\n
RBS
\n
International
\n
Limited
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Tier 1 (inclusive of AT1)
Externally issued
3.9
\u2014
0.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Tier 1 (inclusive of AT1)
Internally issued
\u2014
3.7
2.5
1.0
\u2014
0.9
0.2
\u2014
0.3
\n
3.9
3.7
2.6
1.0
\u2014
0.9
0.2
\u2014
0.3
\n
Tier 2
Externally issued
5.5
\u2014
0.1
\u2014
0.1
0.1
0.3
\u2014
\u2014
\n
Tier 2
Internally issued
\u2014
4.6
2.9
1.5
\u2014
1.5
0.1
0.3
\u2014
\n
5.5
4.6
3.0
1.5
0.1
1.6
0.4
0.3
\u2014
\n
Senior unsecured
Externally issued
22.3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Senior unsecured
Internally issued
\u2014
10.4
6.4
0.4
0.5
3.2
\u2014
\u2014
0.3
\n
22.3
10.4
6.4
0.4
0.5
3.2
\u2014
\u2014
0.3
\n
Total outstanding issuance
31.7
18.7
12.0
2.9
0.6
5.7
0.6
0.3
0.6
\n
(1)
The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude,
\n
for example, issuance costs and fair value movements, while dated capital is required to be amortised on a straight-line basis over the final five years of maturity.
\n
(2)
Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.
\n
(3)
Internal issuance for NWB Plc, RBS plc and UBIDAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc.
\n
(4)
Senior unsecured debt does not include CP, CD and short term/medium term notes issued from NatWest Group operating subsidiaries.
\n
(5)
Tier 1 (inclusive of AT1) does not include CET1 numbers.
Roll-off profile
\n
The following table illustrates the roll-off profile and weighted average spreads of NatWest Group\u2019s major wholesale funding
\n
programmes.
\n
Roll-off profile
\n
Senior debt roll-off profile
(1)
\n
As at and for year
\n
ended 31
\n
December
H1 2023
H2 2023
2024
2025
2026 & 2027
2028 & later
\n
NatWest Group plc
\n
- amount (\u00a3m)
22,266
1,350
874
2,142
2,904
6,049
8,947
\n
- weighted average rate spread (bps)
190
309
266
164
176
195
174
\n
NWM Plc
\n
- amount (\u00a3m)
18,283
3,380
887
3,664
5,213
4,380
759
\n
- weighted average rate spread (bps)
60
62
42
67
64
36
111
\n
NatWest Bank Plc
\n
- amount (\u00a3m)
1,664
1,641
23
\u2014
\u2014
\u2014
\u2014
\n
- weighted average rate spread (bps)
17
17
(6)
\u2014
\u2014
\u2014
\u2014
\n
NWM N.V.
\n
- amount (\u00a3m)
1,884
682
556
532
66
\u2014
48
\n
- weighted average rate spread (bps)
(104)
(175)
(141)
3
(49)
\u2014
95
\n
NWM S.I.
\n
- amount (\u00a3m)
216
\u2014
\u2014
83
\u2014
74
59
\n
- weighted average rate spread (bps)
131
\u2014
\u2014
98
\u2014
138
168
\n
RBSI
\n
- amount (\u00a3m)
839
645
194
\u2014
\u2014
\u2014
\u2014
\n
- weighted average rate spread (bps)
44
40
58
\u2014
\u2014
\u2014
\u2014
\n
Securitisation
\n
- amount (\u00a3m)
859
\u2014
\u2014
\u2014
296
375
188
\n
- weighted average rate spread (bps)
3
\u2014
\u2014
\u2014
8
\u2014
\u2014
\n
Covered bonds
\n
- amount (\u00a3m)
2,842
751
\u2014
2,091
\u2014
\u2014
\u2014
\n
- weighted average rate spread (bps)
127
44
\u2014
157
\u2014
\u2014
\u2014
\n
Total notes issued - amount (\u00a3m)
48,853
8,449
2,534
8,512
8,479
10,878
10,001
\n
Weighted average rate spread (bps)
113
70
78
105
96
122
164
\n
Subordinated debt instruments roll-off profile
(2)
\n
NatWest Group plc (\u00a3m)
5,521
126
537
1,298
918
875
1,767
\n
NWM Plc (\u00a3m)
142
122
\u2014
\u2014
\u2014
18
2
\n
NatWest Bank Plc (\u00a3m)
72
72
\u2014
\u2014
\u2014
\u2014
\u2014
\n
NWM N.V. (\u00a3m)
323
83
\u2014
\u2014
\u2014
\u2014
240
\n
UBIDAC (\u00a3m)
76
\u2014
\u2014
\u2014
\u2014
\u2014
76
\n
Total (\u00a3m)
6,134
403
537
1,298
918
893
2,085
\n
(1)
Based on final contractual instrument maturity.
\n
(2)
Based on first call date of instrument, however this does not indicate NatWest Group\u2019s strategy on capital and funding management. The table above does not include debt
\n
accounted Tier 1 instruments although those instruments form part of the total subordinated debt balance.
\n
(3)
The weighted average spread reflects the average net funding cost to NatWest Group and is calculated on an indicative basis and are quoted over term SONIA.
\n
(4)
The roll-off table is based on sterling-equivalent balance sheet values.
Liquidity portfolio
(audited)
\n
The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and
\n
regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part
\n
of the liquid asset portfolio for LCR or stressed outflow purposes.
\n
Liquidity value
\n
2022
2021
\n
NatWest
\n
Group (1)
\n
NWH
\n
Group (2)
\n
UK DoL
\n
Sub
\n
NatWest
\n
Group
\n
NWH
\n
Group
\n
UK DoL
\n
Sub
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
(3)
140,820
106,869
103,708
174,328
140,562
136,154
\n
AAA to AA- rated governments
18,589
9,843
9,843
31,073
21,710
21,123
\n
A+ and lower rated governments
317
\u2014
\u2014
25
\u2014
\u2014
\n
Government guaranteed issuers, public sector entities and
\n
government sponsored entities
134
120
100
307
295
174
\n
International organisations and multilateral
\n
development banks
1,734
1,112
1,021
2,720
1,807
1,466
\n
LCR level 1 bonds
20,774
11,075
10,964
34,125
23,812
22,763
\n
LCR level 1 assets
161,594
117,944
114,672
208,453
164,374
158,917
\n
LCR level 2 assets
\u2014
\u2014
\u2014
117
\u2014
\u2014
\n
Non-LCR eligible assets
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Primary liquidity
161,594
117,944
114,672
208,570
164,374
158,917
\n
Secondary liquidity
(3)
63,917
63,849
63,849
77,849
77,660
76,573
\n
Total liquidity value
225,511
181,793
178,521
286,419
242,034
235,490
\n
(1)
NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These
\n
include The Royal Bank of Scotland International Limited, NWM N.V., Ulster Bank Ireland DAC and NatWest Bank Europe GmbH who hold managed portfolios that comply with local
\n
regulations that may differ from PRA rules.
\n
(2)
NWH Group comprises UK DoLSub, Ulster Bank Ireland DAC and NatWest Bank Europe GmbH who hold managed portfolios that comply with local regulations that may differ from
\n
PRA rules.
\n
(3)
Comprises assets eligible for discounting at the Bank of England and other central banks.
\n
(4)
NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Annual Report and Accounts.
Funding sources
(audited)
\n
The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions
\n
include balances held at all classifications under IFRS 9.
\n
2022
2021
\n
Short-term less
\n
than 1 year
\n
Long-term more
\n
than 1 year
\n
Total
\n
Short-term less
\n
than 1 year
\n
Long-term more
\n
than 1 year
\n
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank Deposits
\n
Repos
1,446
\u2014
1,446
7,912
\u2014
7,912
\n
Other bank deposits
(1)
6,353
12,642
18,995
5,803
12,564
18,367
\n
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer Deposits
\n
Repos
9,575
254
9,829
14,541
\u2014
14,541
\n
Non-bank financial institutions
50,226
9
50,235
57,885
67
57,952
\n
Personal
224,706
1,209
225,915
230,525
829
231,354
\n
Corporate
164,314
25
164,339
175,850
113
175,963
\n
448,821
1,497
450,318
478,801
1,009
479,810
\n
Trading liabilities
(2)
\n
Repos
(3)
23,740
\u2014
23,740
19,389
\u2014
19,389
\n
Derivatives collateral
17,680
\u2014
17,680
17,718
\u2014
17,718
\n
Other bank and customer deposits
413
654
1,067
849
704
1,553
\n
Debt securities in issue - Medium term notes
54
743
797
178
796
974
\n
41,887
1,397
43,284
38,134
1,500
39,634
\n
Other financial liabilities
\n
Customer deposits
253
797
1,050
568
\u2014
568
\n
Debt securities in issue:
\n
Commercial paper and certificates of
\n
deposit
5,587
85
5,672
9,038
115
9,153
\n
Medium term notes
6,934
31,750
38,684
6,401
29,451
35,852
\n
Covered bonds
804
2,038
2,842
53
2,833
2,886
\n
Securitisation
(5)
\u2014
859
859
\u2014
867
867
\n
13,578
35,529
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
974
5,286
6,260
1,375
7,054
8,429
\n
Total funding
513,059
56,351
569,410
548,085
55,393
603,478
\n
Of which: available in resolution
(4)
24,899
29,624
\n
(1)
Includes \u00a312.0 billion (2021 \u2013 \u00a312.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation.
\n
(2)
Excludes short positions of \u00a39.5 billion (2021 \u2013 \u00a325.0 billion).
\n
(3)
Comprises central & other bank repos of \u00a31.6 billion (2021 \u2013 \u00a30.8 billion), other financial institution repos of \u00a319.4 billion (2021 \u2013 \u00a317.0 billion) and other corporate repos of \u00a32.7
\n
billion (2021 \u2013 \u00a31.6 billion).
\n
(4)
Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or
\n
statements of the Bank of England including the Statement of Policy published by the Bank of England in December 2021 (updating June 2018). The balance consists of \u00a320.0 billion
\n
(2021 \u2013 \u00a323.4 billion) under debt securities in issue (senior MREL) and \u00a34.9 billion (2021 \u2013 \u00a36.2 billion) under subordinated liabilities.
\n
(5)
NatWest Group transfers credit risk on originated loans and mortgages without the transfer of assets to a structured entity, whereby it enters credit derivative and financial
\n
guarantee contracts with consolidated structured entities and they in turn issue debt securities to investors. This funding is legally ringfenced in the structured entity and is restricted
\n
to specifically cover investor credit protection claim payments in respect of the associated loans and mortgages.
Contractual maturity
(audited)
\n
This table shows the residual maturity of financial instruments, based on contractual date of maturity of NatWest Group\u2019s banking
\n
activities, including hedging derivatives. Trading activities, comprising mandatory fair value through profit or loss (MFVTPL) assets
\n
and held-for-trading (HFT) liabilities have been excluded from the maturity analysis and are shown in total in the table below.
\n
Banking activities
\n
Less than 1
\n
motnhs
1-3 months
3-6 months
\n
6 months - 1
\n
year
Subtotal
1-3 years
3-5 years
\n
More than 5
\n
years
Total
\n
Trading
\n
activites
Total
\n
2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances
\n
at central banks
144,832
\u2014
\u2014
\u2014
144,832
\u2014
\u2014
\u2014
144,832
\u2014
144,832
\n
Trading assets
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
45,577
45,577
\n
Derivatives
\u2014
5
10
\u2014
15
69
55
4
143
99,402
99,545
\n
Settlement balances
2,572
\u2014
\u2014
\u2014
2,572
\u2014
\u2014
\u2014
2,572
\u2014
2,572
\n
Loans to banks -
\n
amortised cost
5,020
3
1,646
\u2014
6,669
17
250
203
7,139
\u2014
7,139
\n
Loans to customers -
\n
amortised cost
(1)
34,417
17,111
13,655
22,366
87,549
60,959
42,484
178,671
369,663
\u2014
369,663
\n
Personal
4,533
2,348
3,247
6,397
16,525
23,596
21,809
154,938
216,868
\u2014
216,868
\n
Corporate
20,366
4,997
4,422
9,108
38,893
29,570
18,231
22,342
109,036
\u2014
109,036
\n
Non-bank financial
\n
institutions
9,518
9,766
5,986
6,861
32,131
7,793
2,444
1,391
43,759
\u2014
43,759
\n
Other financial assets
736
1,140
1,150
2,857
5,883
7,634
7,661
8,930
30,108
787
30,895
\n
Total financial assets
187,577
18,259
16,461
25,223
247,520
68,679
50,450
187,808
554,457
145,766
700,223
\n
2021
\n
Total financial assets
233,541
25,004
19,710
27,696
305,951
63,048
44,041
183,092
596,132
165,570
761,702
\n
2022
\n
Bank deposits
\n
excluding repos
5,050
177
522
604
6,353
4,442
8,200
\u2014
18,995
\u2014
18,995
\n
Bank repos
961
485
\u2014
\u2014
1,446
\u2014
\u2014
\u2014
1,446
\u2014
1,446
\n
Customer repos
9,559
6
10
\u2014
9,575
254
\u2014
\u2014
9,829
\u2014
9,829
\n
Customer deposits
\u2014
\u2014
\n
excluding repos
414,135
13,749
6,868
4,494
439,246
1,223
\u2014
20
440,489
\u2014
440,489
\n
Personal
216,530
3,019
2,984
2,173
224,706
1,209
\u2014
\u2014
225,915
\u2014
225,915
\n
Corporate
151,945
7,184
3,221
1,964
164,314
5
\u2014
20
164,339
\u2014
164,339
\n
Non-bank financial
\n
institutions
45,660
3,546
663
357
50,226
9
\u2014
\u2014
50,235
\u2014
50,235
\n
Settlement balances
2,012
\u2014
\u2014
\u2014
2,012
\u2014
\u2014
\u2014
2,012
\u2014
2,012
\n
Trading liabilities
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
52,808
52,808
\n
Derivatives
10
10
17
31
68
63
\u2014
1
132
93,915
94,047
\n
Other financial liabilities
1,220
4,789
4,941
2,628
13,578
17,789
10,944
6,796
49,107
\u2014
49,107
\n
CPs and CDs
1,134
2,246
858
1,349
5,587
73
12
\u2014
5,672
\u2014
5,672
\n
Medium term notes
36
1,623
4,079
1,196
6,934
15,161
9,989
6,600
38,684
\u2014
38,684
\n
Covered bonds
50
750
4
\u2014
804
2,038
\u2014
\u2014
2,842
\u2014
2,842
\n
Securitisations
\u2014
\u2014
\u2014
\u2014
\u2014
296
375
188
859
\u2014
859
\n
Customer deposits DFV
\u2014
170
\u2014
83
253
221
568
8
1,050
\u2014
1,050
\n
Subordinated liabilities
73
14
228
659
974
2,194
1,458
1,634
6,260
\u2014
6,260
\n
Notes in circulation
3,218
\u2014
\u2014
\u2014
3,218
\u2014
\u2014
\u2014
3,218
\u2014
3,218
\n
Lease liabilities
13
23
34
67
137
229
180
572
1,118
\u2014
1,118
\n
Total financial liabilities
436,251
19,253
12,620
8,483
476,607
26,194
20,782
9,023
532,606
146,723
679,329
\n
2021
\n
Total financial liabilities
467,268
31,702
8,850
7,497
515,317
20,799
23,746
10,480
570,342
165,313
735,655
\n
(1)
Loans to customers excludes \u00a33.3 billion (2021 \u2013 \u00a33.7 billion) of impairment provisions.
Senior notes and subordinated liabilities - residual maturity profile by instrument type
(audited)
\n
The table below shows NatWest Group\u2019s debt securities in issue and subordinated liabilities by residual maturity.
\n
Trading
\n
liabilities
Other financial liabilities
\n
Debt securities in issue
\n
Debt securities
\n
in issue MTNs
\n
Commercial
\n
paper and CDs
\n
MTNs
\n
Covered
\n
bonds
Securitisation
\n
Subordinated
\n
liabilities
Total
\n
Total notes in
\n
issue
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Less than 1 year
54
5,587
6,934
804
\u2014
974
14,299
14,353
\n
1-3 years
475
73
15,161
2,038
296
2,195
19,763
20,238
\n
3-5 years
35
12
9,989
\u2014
375
1,458
11,834
11,869
\n
More than 5 years
233
\u2014
6,600
\u2014
188
1,633
8,421
8,654
\n
Total
797
5,672
38,684
2,842
859
6,260
54,317
55,114
\n
2021
\n
Less than 1 year
178
9,038
6,401
53
\u2014
1,375
16,867
17,045
\n
1-3 years
335
105
12,902
2,833
\u2014
3,165
19,005
19,340
\n
3-5 years
112
10
9,234
\u2014
289
1,959
11,492
11,604
\n
More than 5 years
349
\u2014
7,315
\u2014
578
1,930
9,823
10,172
\n
Total
974
9,153
35,852
2,886
867
8,429
57,187
58,161
\n
The table below shows the currency breakdown.
\n
GBP
USD
EUR
Other
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Commercial paper and CDs
1,838
1,031
2,803
\u2014
5,672
\n
MTNs
3,746
18,750
14,217
2,768
39,481
\n
Covered bonds
1,775
\u2014
1,067
\u2014
2,842
\n
Securitisation
859
\u2014
\u2014
\u2014
859
\n
Subordinated liabilities
2,679
2,618
963
\u2014
6,260
\n
Total
10,897
22,399
19,050
2,768
55,114
\n
2021
10,084
26,600
19,872
1,605
58,161
Funding gap: maturity and segment analysis
\n
The contractual maturity of balance sheet assets and liabilities reflects the maturity transformation role banks perform, lending
\n
long-term but mainly obtaining funding through short-term liabilities such as customer deposits. In practice, the behavioural profiles
\n
of many liabilities show greater stability and longer maturity than the contractual maturity. This is particularly true of many types
\n
of retail and corporate deposits which, despite being repayable on demand or at short notice, have demonstrated very stable
\n
characteristics even in periods of acute stress.
\n
In its analysis to assess and manage asset and liability maturity gaps, NatWest Group determines the expected customer behaviour
\n
through qualitative and quantitative techniques. These incorporate observed customer behaviours over long periods of time. This
\n
analysis is subject to governance through NatWest Group ALCo Technical committee down to a segment level. The net behavioural
\n
funding surplus/(gap) and contractual maturity analysis is set out below.
\n
Contractual maturity
Behavioural maturity
\n
Loans to customers
Customer accounts
Net surplus/(gap)
Net surplus/(gap)
\n
Less
\n
than
\n
1 year
\n
1-5
\n
years
\n
Greater
\n
than 5
\n
years
Total
\n
Less
\n
than 1
\n
year
\n
1-5
\n
years
\n
Greater
\n
than 5
\n
years
Total
\n
Less
\n
than 1
\n
year
1-5 years
\n
Greater
\n
than 5
\n
years
Total
\n
Less
\n
than 1
\n
year
\n
1-5
\n
years
\n
Greater
\n
than 5
\n
years
Total
\n
2022
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Retail Banking
12
41
144
197
187
1
\u2014
188
175
(40)
(144)
(9)
(7)
1
(3)
(9)
\n
Private Banking
3
6
10
19
41
\u2014
\u2014
41
38
(6)
(10)
22
6
5
11
22
\n
Commercial
\n
& Institutional
57
56
26
139
214
1
\u2014
215
157
(55)
(26)
76
6
68
2
76
\n
Central items & other
1
\u2014
\u2014
1
8
\u2014
\u2014
8
7
\u2014
\u2014
7
7
\u2014
\u2014
7
\n
Total
73
103
180
356
450
2
\u2014
452
377
(101)
(180)
96
12
74
10
96
\n
2021
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Total
87
90
166
343
475
2
\u2014
477
388
(88)
(166)
134
11
109
14
134
\n
(1)
Loans to customers and customer accounts include trading assets and trading liabilities respectively and excludes reverse repos and repos.
\n
\ue001
The net customer funding surplus has decreased by \u00a338
\n
billion during 2022 to \u00a396 billion driven by a \u00a325 billion
\n
decline in deposits and a \u00a313 billion increase in loans to
\n
customers.
\n
\ue001
Customer deposits and loans to customers are broadly
\n
matched from a behavioural perspective.
\n
\ue001
The net funding surplus in 2022 is mainly concentrated in
\n
the longer dated buckets, reflecting stable characteristics of
\n
customer deposits.
Encumbrance
(audited)
\n
NatWest Group evaluates the extent to which assets can be
\n
financed in a secured form (encumbrance), but certain asset
\n
types lend themselves more readily to encumbrance. The typical
\n
characteristics that support encumbrance are an ability to
\n
pledge those assets to another counterparty or entity through
\n
operation of law without necessarily requiring prior notification,
\n
homogeneity, predictable and measurable cash flows, and a
\n
consistent and uniform underwriting and collection process.
\n
Retail assets including residential mortgages, credit card
\n
receivables and personal loans display many of these features.
\n
NatWest Group categorises its assets into four broad groups,
\n
those that are:
\n
\ue001
Already encumbered and used to support funding currently
\n
in place through own-asset securitisations, covered bonds
\n
and securities repurchase agreements.
\n
\ue001
Pre-positioned with central banks as part of funding
\n
schemes and those encumbered under such schemes.
\n
\ue001
Ring-fenced to meet regulatory requirements, where
\n
NatWest Group has in place an operational continuity in
\n
resolution (OCIR) investment mandate wherein the PRA
\n
requires critical service providers to hold segregated liquidity
\n
buffers covering at least 50% of their annual fixed
\n
overheads.
\n
\ue001
Not currently encumbered. In this category, NatWest Group
\n
has in place an enablement programme which seeks to
\n
identify assets capable of being encumbered and to identify
\n
the actions to facilitate such encumbrance whilst not
\n
affecting customer relationships or servicing.
\n
Programmes to manage the use of assets to actively support
\n
funding are established within UK DoLSub, UBIDAC and
\n
NatWest Markets Plc.
\n
Balance sheet encumbrance
\n
The table shows the retained encumbrance assets of NatWest Group.
\n
Encumbered as a result of
\n
transactions with counterparties other
\n
than central banks
\n
Unencumbered assets not pre-positioned
\n
with central banks
\n
Total
\n
Covered
\n
debts &
\n
securitisations
\n
(1)
\n
SFT,
\n
derivatives and
\n
similar (2,3)
(4)
\n
Pre-positioned &
\n
encumbered assets
\n
held at central
\n
banks (5)
\n
Collateral ring-
\n
fenced to meet
\n
regulatory
\n
requirement
\n
(6)
\n
Readily
\n
available
\n
(7)
\n
Other
\n
available
\n
(8)
\n
Cannot be
\n
used (9)
Total
\n
Total
\n
(10)
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Cash and balances at central
\n
banks
\u2014
5.3
5.3
\u2014
\u2014
139.5
\u2014
\u2014
139.5
144.8
\n
Trading assets
\u2014
21.7
21.7
\u2014
\u2014
1.3
1.1
21.5
23.9
45.6
\n
Derivatives
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
99.5
99.5
99.5
\n
Settlement balances
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2.6
2.6
2.6
\n
Loans to banks - amortised cost
\u2014
0.1
0.1
\u2014
\u2014
5.9
0.8
0.3
7.0
7.1
\n
Loans to customers - amortised
\n
cost
10.4
0.4
10.8
99.9
\u2014
92.2
122.5
40.9
255.6
366.3
\n
Residential mortgages
\n
- UK
7.0
\u2014
7.0
99.9
\u2014
80.0
15.0
\u2014
95.0
201.9
\n
- Rol
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Credit cards
\u2014
\u2014
\u2014
\u2014
\u2014
4.1
0.2
\u2014
4.3
4.3
\n
Personal loans
\u2014
\u2014
\u2014
\u2014
\u2014
5.4
2.2
1.4
9.0
9.0
\n
Other
3.4
0.4
3.8
\u2014
\u2014
2.7
105.1
39.5
147.3
151.1
\n
Other financial assets
\u2014
6.3
6.3
\u2014
1.8
21.2
0.2
1.4
22.8
30.9
\n
Intangible assets
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
7.1
7.1
7.1
\n
Other assets
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
2.5
6.7
9.2
9.2
\n
Assets of disposal groups
(11)
1.1
\u2014
1.1
\u2014
\u2014
\u2014
\u2014
5.8
5.8
6.9
\n
Total assets
11.5
33.8
45.3
99.9
1.8
260.1
127.1
185.8
573.0
720.0
\n
2021
\n
Total assets
11.9
59.1
71.0
126.2
2.0
267.9
123.5
191.4
582.8
782.0
\n
(1)
Covered debts and securitisations include securitisations, conduits, covered bonds and secured notes.
\n
(2)
Repos and other secured deposits, cash, coin and nostro balance held with the Bank of England as collateral against deposits and notes in circulation are included here rather than
\n
within those positioned at the central bank as they are part of normal banking operations. Securities financing transactions (SFT) include collateral given to secure derivative liabilities.
\n
(3)
Derivative cash collateral of \u00a313 billion (2021 - \u00a312 billion) has been included in the encumbered assets basis the regulatory requirement.
\n
(4)
Total assets encumbered as a result of transactions with counterparties other than central banks are those that have been pledged to provide security and are therefore not available
\n
to secure funding or to meet other collateral needs.
\n
(5)
Assets pre-positioned at the central banks include loans provided as security as part of funding schemes and those encumbered under such schemes.
\n
(6)
Ring-fenced to meet regulatory requirement includes assets ring fenced to meet operational continuity in resolution (OCIR) investment mandate.
\n
(7)
Readily available for encumbrance: including assets that have been enabled for use with central banks but not pre-positioned; cash and high quality debt securities that form part of
\n
NatWest Group\u2019s liquidity portfolio and unencumbered debt securities.
\n
(8)
Other assets that are capable of being encumbered are those assets on the balance sheet that are available for funding and collateral purposes but are not readily realisable in their
\n
current form. These assets include loans that could be pre-positioned with central banks but have not been subject to internal and external documentation review and diligence work.
\n
(9)
Cannot be used includes:
\n
(a)
Derivatives, reverse repurchase agreements and trading related settlement balances.
\n
(b)
Non-financial assets such as intangibles, prepayments and deferred tax.
\n
(c)
Loans that cannot be pre-positioned with central banks based on criteria set by the central banks, including those relating to date of origination and level of documentation.
\n
(d)
Non-recourse invoice financing balances and certain shipping loans whose terms and structure prohibit their use as collateral.
\n
(10)
In accordance with market practice, NatWest Group employs securities recognised on the balance sheet, and securities received under reverse repo transactions as collateral for repos.
\n
(11)
The majority of UBIDAC assets are in contracted loan sale agreements as part of its phased withdrawal strategy and are unavailable for any alternative contingent liquidity
\n
arrangements. UBIDAC has in place a committed unsecured liquidity line from NatWest Bank to support the withdrawal.
Market risk
(audited)
\n
NatWest Group is exposed to non-traded market risk through
\n
its banking activities and to traded market risk through its
\n
trading activities. Non-traded and traded market risk exposures
\n
are managed and discussed separately. The non-traded market
\n
risk section begins below. The traded market risk section
\n
begins on page 272. Pension-related activities also give rise to
\n
market risk. Refer to page 276 for more information on risk
\n
related to pensions.
\n
Non-traded market risk
\n
Definition
(audited)
\n
Non-traded market risk is the risk to the value of assets or
\n
liabilities outside the trading book, or the risk to income, that
\n
arises from changes in market prices such as interest rates,
\n
foreign exchange rates and equity prices, or from changes in
\n
managed rates.
\n
Sources of risk
(audited)
\n
The key sources of non-traded market risk are interest rate
\n
risk, credit spread risk, foreign exchange risk, equity risk and
\n
accounting volatility risk.
\n
For detailed qualitative and quantitative information on each of
\n
these risk types, refer to the separate sub-sections following
\n
the VaR table below.
\n
Key developments in 2022
\n
\ue001
Interest rates in the UK increased sharply in 2022, to levels
\n
higher than expected at the end of 2021. The Bank of
\n
England base rate rose from 0.25% at 31 December 2021 to
\n
3.5% at 31 December 2022. The five-year sterling overnight
\n
index interest rate swap rate rose from 1.05% at 31
\n
December 2021 to 4.10% at 31 December 2022. The
\n
corresponding ten-year rate rose from 0.95% to 3.75%.
\n
\ue001
Overall, non-traded VaR decreased over the year, driven by
\n
a decrease in credit spread VaR. This reflected reduced
\n
holdings of bonds in the liquidity portfolio. Interest rate VaR
\n
rose, reflecting higher interest rate volatility, particularly in
\n
sterling. By year-end, interest rate risk had displaced credit
\n
spread risk as the main driver of non-traded VaR.
\n
\ue001
NatWest Group\u2019s structural hedge notional increased to
\n
\u00a3230 billion at 31 December 2022 from \u00a3206 billion at 31
\n
December 2021 as more balances were included in the
\n
hedging programme.
\n
\ue001
Higher swap rates were reflected in a higher yield on the
\n
structural hedge, which rose from 0.75% in 2021 to 0.96% in
\n
2022.
\n
\ue001
The sensitivity of net interest earnings to a 25-basis-point
\n
upward shift in the yield curve fell to a cumulative \u00a3886
\n
million over three years at 31 December 2022, from \u00a31,107
\n
million at 31 December 2021. The main contributors to
\n
lower sensitivity were lower deposit volumes and increased
\n
structural hedging.
\n
\ue001
Sterling weakened against the US dollar, to 1.21 at 31
\n
December 2022 compared to 1.35 at 31 December 2021. It
\n
also weakened against the euro, to 1.13 at 31 December
\n
2022 compared to 1.19 at 31 December 2021. Residual
\n
structural foreign currency exposures decreased over the
\n
year by \u00a31.5 billion, in sterling equivalent terms, mainly due
\n
to increased hedging.
\n
Governance
(audited)
\n
Responsibility for identifying, measuring, monitoring and
\n
controlling market risk arising from non-trading activities lies
\n
with the relevant business. Oversight is provided by the
\n
independent Risk function.
\n
Risk positions are reported regularly to the Executive Risk
\n
Committee, the Board Risk Committee, and the Board as well
\n
as to the Asset & Liability Management Committee. Non-traded
\n
market risk policy sets out the governance and risk
\n
management framework.
\n
Risk
appetite
\n
NatWest Group\u2019s qualitative appetite is set out in the non-
\n
traded market risk appetite statement.
\n
Its quantitative appetite is expressed in terms of value-at-risk
\n
(VaR), stressed value-at-risk (SVaR), sensitivity and stress limits,
\n
and earnings-at-risk limits.
\n
The limits are reviewed to reflect changes in risk appetite,
\n
business plans, portfolio composition and the market and
\n
economic environments. To ensure approved limits are not
\n
breached and that NatWest Group remains within its risk
\n
appetite, triggers have been set and are actively managed. For
\n
further information on risk appetite and risk controls, refer to
\n
pages 181 and 182.
Risk measurement
(audited)
\n
Non-traded internal VaR (1-day 99%)
\n
The following table shows one-day internal banking book value-at-risk (VaR) at a 99% confidence level, split by risk type. VaR
\n
values for each year are calculated based on one-day values for each of the 12 month-end reporting dates.
\n
NatWest Group\u2019s VaR metrics are explained on page 272. Each of the key risk types are discussed in greater detail in their
\n
individual sub-sections following this table.
\n
2022
2021
\n
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Interest rate
30.4
60.7
7.6
37.7
10.2
13.7
6.4
8.6
\n
Credit spread
36.3
86.6
19.9
20.3
102.9
113.5
92.4
100.9
\n
Structural foreign exchange rate
8.9
11.3
6.1
11.3
11.4
13.2
9.2
12.0
\n
Equity
18.1
22.2
13.7
14.7
12.4
14.6
11.1
14.3
\n
Pipeline risk
(1)
1.5
4.5
0.3
2.4
0.5
1.2
0.3
1.2
\n
Diversification
(2)
(36.9)
(34.9)
(12.9)
(35.6)
\n
Total
58.3
91.2
45.5
51.5
124.5
147.1
101.4
101.4
\n
(1)
Pipeline risk is the risk of loss arising from personal customers owning an option to draw down a loan \u2013 typically a mortgage \u2013 at a committed rate, where interest rate changes
\n
may result in greater or fewer customers than anticipated taking up the committed offer.
\n
(2)
NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation
\n
between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
\n
\ue001
Overall, non-traded VaR decreased over the year, driven by
\n
a decrease in credit spread VaR. This reflected reduced
\n
holdings of bonds in the liquidity portfolio.
\n
\ue001
Interest rate VaR increased, reflecting higher interest rate
\n
volatility, particularly in sterling. By year-end, interest rate
\n
risk had displaced credit spread risk as the main driver of
\n
non-traded VaR.
Interest rate risk
\n
Non-traded interest rate risk (NTIRR) arises from the provision
\n
to customers of a range of banking products with differing
\n
interest rate characteristics. When aggregated, these products
\n
form portfolios of assets and liabilities with varying degrees of
\n
sensitivity to changes in market interest rates. Mismatches can
\n
give rise to volatility in net interest income as interest rates
\n
vary.
\n
NTIRR comprises the following three primary risk types:
\n
\ue001
Gap risk: arises from the timing of rate changes in non-
\n
trading book instruments. The extent of gap risk depends
\n
on whether changes to the term structure of interest rates
\n
occur consistently across the yield curve (parallel risk) or
\n
differentially by period (non-parallel risk).
\n
\ue001
Basis risk: captures the impact of relative changes in
\n
interest rates for financial instruments that have similar
\n
tenors but are priced using different interest rate indices, or
\n
on the same interest rate indices but with different tenors.
\n
\ue001
Option risk: arises from option derivative positions or from
\n
optional elements embedded in assets, liabilities and/or off-
\n
balance sheet items, where NatWest Group or its customer
\n
can alter the level and timing of their cash flows. Option
\n
risk also includes pipeline risk.
\n
To manage exposures within its risk appetite, NatWest Group
\n
aggregates interest rate positions and hedges its residual
\n
exposure, primarily with interest rate swaps.
\n
Structural hedging aims to reduce gap risk and the sensitivity
\n
of earnings to interest rate shocks. It also provides some
\n
protection against prolonged periods of falling rates. Structural
\n
hedging is explained in greater detail below, followed by
\n
information on how NatWest Group measures NTIRR from both
\n
an economic value-based and an earnings-based perspective.
\n
Structural hedging
\n
NatWest Group has a significant pool of stable, non and low interest-bearing liabilities, principally comprising current accounts and
\n
savings, in addition to its equity and reserves. A proportion of these balances are hedged, either by investing directly in longer-
\n
term fixed-rate assets (such as fixed-rate mortgages) or by using interest rate swaps, which are generally booked as cash flow
\n
hedges of floating-rate assets, in order to provide a consistent and predictable revenue stream.
\n
After hedging the net interest rate exposure externally, NatWest Group allocates income to equity or products in structural hedges
\n
by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution
\n
for management purposes to products and interest rate returns. The programme aims to track a time series of medium-term swap
\n
rates, but the yield will be affected by changes in product volumes and NatWest Group\u2019s equity capital.
\n
The table below shows the total income and total yield, incremental income, and the period-end and average notional balances
\n
allocated to equity and products in respect of the structural hedges managed by NatWest Group. Total income represents the fixed
\n
leg of the hedge, while incremental income represents the difference between total income and short-term cash rates.
\n
2022
2021
\n
Incremental
\n
income
\n
Total
\n
income
\n
Period end
\n
notional
\n
Average
\n
notional
\n
Total yield
\n
Incremental
\n
income
\n
Total income
\n
Period end
\n
nontional
\n
Average
\n
nontional
\n
Total yield
\n
\u00a3m
\u00a3m
\u00a3bn
\u00a3bn
%
\u00a3m
\u00a3m
\u00a3bn
\u00a3bn
%
\n
Equity
71
363
21
21
1.77
426
448
21
22
2.05
\n
Product
(973)
1,571
184
176
0.89
744
861
161
145
0.59
\n
Other
(112)
201
25
26
0.77
139
115
24
23
0.51
\n
Total
(1,014)
2,135
230
223
0.96
1,309
1,424
206
190
0.75
\n
Equity structural hedges refer to income allocated primarily to equity and reserves. At 31 December 2022, the equity structural
\n
hedge notional was allocated between NWH Group and NWM Group in a ratio of approximately 77%/23% respectively.
\n
Product structural hedges refer to income allocated to customer products by NWH Group Treasury, mainly current account and
\n
savings balances in Commercial & Institutional and Retail Banking. Other structural hedges refer to hedges managed by the Coutts
\n
& Co, RBS International and UBIDAC legal entities.
\n
At 31 December 2022, approximately 94% by notional of total structural hedges were sterling-denominated.
The following table presents the incremental income associated with product structural hedges at segment level.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Retail Banking
(463)
346
\n
Commercial & Institutional
(510)
398
\n
Total
(973)
744
\n
\ue001
The increase in hedge notional, on a period-end basis,
\n
mainly resulted from increased hedging of Personal and
\n
Commercial deposits.
\n
\ue001
The increase in total income reflected not only the increase
\n
in hedge notional but also higher yields. The total yield of
\n
the structural hedge also rose to 0.96% in 2022 from 0.75%
\n
in 2021, although the yield on the equity hedge fell as
\n
higher yielding hedges matured.
\n
\ue001
The five-year sterling swap rate rose to 4.10% at the end of
\n
December 2022 from 1.05% at the end of December 2021.
\n
The ten-year sterling swap rate also rose, from 0.95% to
\n
3.75%.
\n
\ue001
Incremental income, which measures the difference
\n
between total yield and short term interest rates, turned
\n
negative. This reflects the relative stability of the total yield
\n
of the structural hedge. Compared to the 21-basis-point
\n
increase in the structural hedge total yield, the sterling
\n
overnight index average (SONIA) increased 324 basis points
\n
to 3.43% at 31 December 2022 from 0.19% at 31 December
\n
2021.
\n
NTIRR can be measured using value-based or earnings-based approaches. Value-based approaches measure the change in value
\n
of the balance sheet assets and liabilities including all cash flows. Earnings-based approaches measure the potential impact on the
\n
income statement of changes in interest rates over a defined horizon, generally one to three years.
\n
NatWest Group uses VaR as its value-based approach and sensitivity of net interest earnings as its earnings-based approach.
\n
These two approaches provide complementary views of the impact of interest rate risk on the balance sheet at a point in time. The
\n
scenarios employed in the net interest earnings sensitivity approach may incorporate assumptions about how NatWest Group and
\n
its customers will respond to a change in the level of interest rates. In contrast, the VaR approach measures the sensitivity of the
\n
balance sheet at a point in time. Capturing all cash flows, VaR also highlights the impact of duration and repricing risks beyond the
\n
one-to-three-year period shown in earnings sensitivity calculations.
\n
Value-at-risk
\n
VaR is a statistical estimate of the potential change in the market value of a portfolio (and, thus, the impact on the income
\n
statement) over a specified time horizon at a given confidence level.
\n
NatWest Group\u2019s standard VaR metrics \u2013 which assume a time horizon of one trading day and a confidence level of 99% \u2013 are
\n
based on interest rate repricing gaps at the reporting date. Daily rate moves are modelled using observations from the last 500
\n
business days. These incorporate customer products plus associated funding and hedging transactions as well as non-financial
\n
assets and liabilities. Behavioural assumptions are applied as appropriate.
\n
The non-traded interest rate risk VaR metrics for NatWest Group\u2019s retail and commercial banking activities are included in the
\n
banking book VaR table presented earlier in this section. The VaR captures the risk resulting from mismatches in the repricing
\n
dates of assets and liabilities.
\n
It also includes any mismatch between the maturity profile of external hedges and NatWest Group\u2019s target maturity profile for the
\n
hedge.
Sensitivity of net interest earnings
\n
Net interest earnings are sensitive to changes in the level of
\n
interest rates, mainly because maturing structural hedges are
\n
replaced at higher or lower rates and changes to coupons on
\n
managed rate customer products do not always match changes
\n
in market rates of interest or central bank policy rates.
\n
Earnings sensitivity is derived from a market-implied forward
\n
rate curve, which will incorporate expected changes in central
\n
bank policy rates such as the Bank of England base rate. A
\n
simple scenario is shown that projects forward earnings based
\n
on the 31 December 2022 balance sheet, which is assumed to
\n
remain constant. An earnings projection is derived from the
\n
market-implied curve, which is then subject to interest rate
\n
shocks. The difference between the market-implied projection
\n
and the shock gives an indication of underlying sensitivity to
\n
interest rate movements.
\n
Reported sensitivities should not be considered a forecast of
\n
future performance in these rate scenarios. Actions that could
\n
reduce interest earnings sensitivity include changes in pricing
\n
strategies on customer loans and deposits as well as hedging.
\n
Management action may also be taken to stabilise total income
\n
also taking into account non-interest income.
\n
Three-year 25-basis-point sensitivity table
\n
The table below shows the sensitivity of net interest earnings \u2013
\n
for both structural hedges and managed rate accounts \u2013 on a
\n
one, two and three-year forward-looking basis to an upward or
\n
downward interest rate shift of 25 basis points.
\n
In all scenarios, yield curves are assumed to move in parallel.
\n
+25 basis points upward shift
-25 basis points downward shift
\n
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Structural hedges
50
158
260
(50)
(158)
(260)
\n
Managed margin
148
141
136
(170)
(140)
(129)
\n
Total
198
299
396
(220)
(298)
(389)
\n
2021
\n
Structural hedges
40
132
224
(40)
(132)
(224)
\n
Managed margin
269
203
239
(245)
(199)
(177)
\n
Total
309
335
463
(285)
(331)
(401)
\n
(1)
Earnings sensitivity considers only the main drivers, namely structural hedging and margin management.
\n
(2)
Following a change in the basis of preparation of this table, it now excludes UBIDAC.
\n
\ue001
The overall sensitivity to shifts in the yield curve decreased
\n
year on year, mainly driven by increased structural hedge
\n
volumes and lower managed margin deposit volumes.
\n
\ue001
The sensitivity of the structural hedge increased because of
\n
the rise in hedged volumes, which increased the sensitivity
\n
to hedges maturing through the projection.
\n
\ue001
The increased volume of hedges reduces managed margin
\n
sensitivity because a significant part of the managed
\n
margin component is the residual sensitivity of unhedged
\n
deposit volumes.
\n
\ue001
Managed margin sensitivity further reduced due to lower
\n
deposit volumes at 31 December 2022 compared to 31
\n
December 2021.
\n
One-year 25 and 100-basis-point sensitivity table
\n
The following table analyses the one-year scenarios by currency. The sensitivity to a downward 100-basis-point shift in the yield
\n
curve has been introduced for 2022.
This shift was not presented for 2021, when yield curves were already close to zero (or were
\n
negative in euros).
\n
2022
2021
\n
Shifts in yield curve
Shifts in yield curve
\n
+25 basis points
-25 basis points
+100 basis points
-100 basis points
+25 basis points
-25 basis points
+100 basis points
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Euro
13
(12)
48
(50)
7
15
64
\n
Sterling
172
(194)
698
(784)
260
(265)
950
\n
US dollar
10
(11)
42
(53)
40
(33)
143
\n
Other
3
(3)
13
(16)
2
(2)
11
\n
Total
198
(220)
801
(903)
309
(285)
1,168
\n
(1)
Following a change in the basis of preparation of this table, it now excludes UBIDAC.
Sensitivity of fair value through other comprehensive income (FVOCI) and cash flow hedging reserves to interest rate
\n
movements
\n
NatWest Group holds most of the bonds in its liquidity portfolio at fair value. Valuation changes that are not hedged (or not in
\n
effective hedge accounting relationships) are recognised in FVOCI reserves.
\n
Interest rate swaps are used to implement the structural hedging programme and also hedging of some personal and commercial
\n
lending portfolios, primarily fixed-rate mortgages. Generally, these swaps are booked in hedge accounting relationships. Changes
\n
in the valuation of swaps that are in effective cash flow hedge accounting relationships are recognised in cash flow hedge
\n
reserves.
\n
The table below shows the sensitivity of FVOCI reserves and cash flow hedge reserves to a parallel shift in all rates. Cash flow
\n
hedges are assumed to be fully effective and interest rate hedges of bonds in the liquidity portfolio are also assumed to be subject
\n
to fully effective hedge accounting. No change in the spread between bonds and swaps is assumed. Hedge accounting
\n
ineffectiveness would result in deviation from the results below, with gains or losses recognised in P&L instead of reserves. Hedge
\n
ineffectiveness P&L is monitored, and the effectiveness of cash flow and fair value hedge relationships is regularly tested in
\n
accordance with IFRS requirements. Note that a movement in the FVOCI reserve would have an impact on CET1 capital but a
\n
movement in the cash flow hedge reserve would not be expected to do so. Volatility in both reserves affects tangible net asset
\n
value.
\n
2022
2021
\n
+25 basis points
-25 basis points
+100 basis points
-100 basis points
+25 basis points
-25 basis points
+100 basis points
-100 basis points
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
FVOCI reserves
(3)
2
(13)
5
(46)
45
(187)
174
\n
Cash flow hedge reserves
(278)
281
(1,097)
1,138
(210)
214
(820)
877
\n
Total
(281)
283
(1,110)
1,143
(256)
259
(1,007)
1,051
\n
\ue001
The sensitivity of FVOCI and cash flow hedge reserves increased in 2022, mainly due to increased cash flow hedging, partly
\n
offset by a reduction in FVOCI sensitivity as a result of bond disposals.
Credit spread risk
\n
Credit spread risk arises from the potential adverse economic
\n
impact of a change in the spread between bond yields and
\n
swap rates, where the bond portfolios are accounted at fair
\n
value through other comprehensive income.
\n
NatWest Group\u2019s bond portfolios primarily comprise high-quality
\n
securities maintained as a liquidity buffer to ensure it can
\n
continue to meet its obligations in the event that access to
\n
wholesale funding markets is restricted. Additionally, other high-
\n
quality bond portfolios are held for collateral purposes and to
\n
support payment systems.
\n
Credit spread risk is monitored daily through sensitivities and
\n
VaR measures (refer to the non-traded VaR table earlier in this
\n
section). Exposures and limit utilisations are reported to senior
\n
management on a regular basis. Dealing mandates in place for
\n
the bond portfolios further mitigate the risk by imposing
\n
constraints by duration, asset class and credit rating.
\n
Foreign exchange risk
\n
Non-traded foreign exchange risk arises from three main
\n
sources:
\n
\ue001
Structural foreign exchange rate risk \u2013 mainly arises from
\n
the capital deployed in foreign subsidiaries and branches.
\n
\ue001
Transactional foreign exchange rate risk \u2013 arises from
\n
customer transactions and profits and losses that are in a
\n
currency other than the functional currency.
\n
\ue001
Forecast earnings or costs in foreign currencies \u2013 NatWest
\n
Group assesses its potential exposure to forecast foreign
\n
currency income and expenses. NatWest Group hedges
\n
forward some forecast expenses.
\n
The most material non-traded open currency positions are the
\n
structural foreign exchange exposures arising from investments
\n
in foreign subsidiaries and branches. These exposures are
\n
assessed and managed to predefined risk appetite levels under
\n
delegated authority agreed by the CFO with support from the
\n
Asset & Liability Management Committee. NatWest Group seeks
\n
to limit the potential volatility impact on its CET1 ratio from
\n
exchange rate movements by deliberately maintaining a
\n
structural open currency position. Gains or losses arising from
\n
the retranslation of net investments in overseas operations are
\n
recognised in other comprehensive income and reduce the
\n
sensitivity of capital ratios to foreign exchange rate movements
\n
primarily arising from the retranslation of non-sterling
\n
denominated RWAs. Sensitivity is minimised where, for a given
\n
currency, the ratio of the structural open position to RWAs
\n
equals the CET1 ratio.
\n
The sensitivity of this ratio to exchange rates is monitored
\n
monthly and reported to the Asset & Liability Management
\n
Committee at least quarterly. Foreign exchange exposures
\n
arising from customer transactions are hedged by businesses on
\n
a regular basis in line with NatWest Group policy.
\n
Foreign exchange risk
(audited)
\n
The table below shows structural foreign currency exposures.
\n
Net investments in
\n
foreign operations
\n
Net investment
\n
hedges
\n
Structural foreign
\n
currency exposures
\n
pre-economic hedges
Economic hedges
\n
(1)
\n
Residual Structural
\n
foreign currency
\n
exposures
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
US dollar
1,278
(303)
975
(975)
\u2014
\n
Euro
6,189
(4,164)
2,025
\u2014
2,025
\n
Other non-sterling
996
(431)
565
\u2014
565
\n
Total
8,463
(4,898)
3,565
(975)
2,590
\n
2021
\n
US dollar
1,275
(260)
1,015
(1,015)
\u2014
\n
Euro
6,222
(2,669)
3,553
\u2014
3,553
\n
Other non-sterling
990
(421)
569
\u2014
569
\n
Total
8,487
(3,350)
5,137
(1,015)
4,122
\n
(1)
Economic hedges of US dollar net investments in foreign operations represent US dollar AT1 equity securities that do not qualify as net investment hedges for accounting purposes.
\n
They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available, but they are accounted for at historical cost
\n
under IFRS until redemption.
\n
\ue001
Residual structural foreign currency exposures fell in
\n
2022, mainly due to increased hedging of net
\n
investments in euro operations.
\n
\ue001
Changes in foreign currency exchange rates affect
\n
equity in proportion to structural foreign currency
\n
exposure pre economic hedges. For example, a 5%
\n
strengthening or weakening in foreign currencies against
\n
sterling would result in a gain or loss of \u00a30.2 billion in
\n
equity respectively.
Equity risk
(audited)
\n
Non-traded equity risk is the potential variation in income and reserves arising from changes in equity valuations. Equity exposures
\n
may arise through strategic acquisitions, through participations in industry schemes (for example, SWIFT) or through private equity
\n
arrangements (for example, the Big Society scheme).
\n
Investments, acquisitions or disposals of a strategic nature are referred to the Acquisitions & Disposals Committee. Once approved
\n
by the CFO with support from the Acquisitions & Disposals Committee for execution, such transactions are referred for approval to
\n
the Board, the Executive Committee, the Chief Executive, the Chief Financial Officer or as otherwise required. Decisions to acquire
\n
or hold equity positions in the non-trading book that are not of a strategic nature are taken by authorised persons with delegated
\n
authority.
\n
Equity positions are carried at fair value on the balance sheet based on market prices where available. If market prices are not
\n
available, fair value is based on appropriate valuation techniques or management estimates.
\n
The table below shows the balance sheet carrying value of equity positions in the banking book.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Exchange-traded equity
154
16
\n
Private equity and other
170
226
\n
324
242
\n
The exposures may take the form of (i) equity shares listed on a recognised exchange, (ii) private equity shares defined as unlisted
\n
equity shares with no observable market parameters or (iii) other unlisted equity shares such as participation in SWIFT.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Net realised gains arising from disposals
106
8
\n
Unrealised gains included in Tier 1 or Tier 2 capital
(1)
89
88
\n
(1)
Includes gains or losses on FVOCI instruments only.
\n
\ue001
The increase in equity investments mainly reflects the acquisition of new investments in PTSB and Vodeno in H2 2022, partly
\n
offset by disposals.
\n
Accounting volatility risk
\n
Accounting volatility risk arises when an exposure is accounted
\n
for at amortised cost but economically hedged by a derivative
\n
that is accounted for at fair value. Although this is not an
\n
economic risk, the difference in accounting between the
\n
exposure and the hedge creates volatility in the income
\n
statement.
\n
Accounting volatility can be mitigated through hedge
\n
accounting. However, residual volatility will remain in cases
\n
where accounting rules mean that hedge accounting is not an
\n
option, or where there is some hedge ineffectiveness.
\n
Accounting volatility risk is reported to the Asset & Liability
\n
Management Committee monthly and capitalised as part of the
\n
Internal Capital Adequacy Assessment Process (ICAAP).
Traded market risk
\n
Definition
(audited)
\n
Traded market risk is the risk arising from changes in fair value
\n
on positions, assets, liabilities or commitments in trading
\n
portfolios as a result of fluctuations in market prices.
\n
Sources of risk
(audited)
\n
Traded market risk mainly arises from NatWest Group\u2019s trading
\n
activities. These activities provide a range of financing, risk
\n
management and investment services to clients \u2212 including
\n
corporations and financial institutions \u2212 around the world. From
\n
a market risk perspective, activities are focused on rates;
\n
currencies; and traded credit. NatWest Group undertakes
\n
transactions in financial instruments including debt securities,
\n
as well as securities financing and derivatives.
\n
All material traded market risk resides in NatWest Markets. The
\n
key categories are interest rate risk, credit spread risk and
\n
foreign currency price risk.
\n
Trading activities may also give rise to counterparty credit risk.
\n
For further detail refer to the Credit risk section.
\n
Key developments in 2022
\n
\ue001
The year was marked by periods of increased market
\n
volatility reflecting UK political developments, global
\n
inflationary concerns and the invasion of Ukraine
\n
\ue001
The significant volatility in Gilts, sterling swaps and inflation
\n
entered the rolling window for VaR calculation during 2022.
\n
However, traded VaR and SVaR remained within appetite
\n
and, on an average basis, decreased compared to 2021,
\n
aided by NatWest Group\u2019s continued disciplined approach
\n
to risk-taking.
\n
Governance
(audited)
\n
Market risk policy statements set out the governance and risk
\n
management framework. Responsibility for identifying,
\n
measuring, monitoring and controlling market risk arising from
\n
trading activities lies with the relevant trading business. The
\n
Market Risk function independently advises on, monitors and
\n
challenges the risk-taking activities undertaken by the trading
\n
business ensuring these are within the constraints of the
\n
market risk framework, policies, and risk appetite statements
\n
and measures.
\n
Risk appetite
\n
NatWest Group\u2019s qualitative appetite for traded market risk is
\n
set out in the traded market risk appetite statement.
\n
Quantitative appetite is expressed in terms of exposure limits.
\n
The limits at NatWest Group level comprise value-at-risk (VaR),
\n
stressed value-at-risk (SVaR) and stress-testing limits. More
\n
details on these are provided on the following pages.
\n
For each trading business, a document known as a dealing
\n
authority compiles details of all applicable limits and trading
\n
restrictions. The desk-level mandates comprise qualitative limits
\n
related to the product types within the scope of each desk, as
\n
well as quantitative metrics specific to the desk\u2019s market risk
\n
exposures. These additional limits and metrics aim to control
\n
various risk dimensions such as exposure size, aged inventory,
\n
currency and tenor.
\n
The limits are reviewed to reflect changes in risk appetite,
\n
business plans, portfolio composition and the market and
\n
economic environments and recalibrated to ensure that they
\n
remain aligned to NatWest Group RWA targets. Limit reviews
\n
focus on optimising the alignment between traded market risk
\n
exposure and capital usage.
\n
To ensure approved limits are not breached and that NatWest
\n
Group remains within its risk appetite, triggers have been set
\n
such that if exposures exceed a specified level, action plans are
\n
developed by the relevant business and the Market Risk
\n
function and implemented. For more detail on risk appetite and
\n
risk controls, refer to pages 181 and 182.
\n
Monitoring and mitigation
\n
Traded market risk is identified and assessed by gathering,
\n
analysing, monitoring and reporting market risk information at
\n
desk, business, business segment and NatWest Group-wide
\n
levels. Industry expertise, continued system developments and
\n
techniques such as stress testing are also used to enhance the
\n
effectiveness of the identification and assessment of all material
\n
market risks.
\n
Traded market risk exposures are monitored against limits and
\n
analysed daily. A daily report summarising the position of
\n
exposures against limits at desk, business, business segment
\n
and NatWest Group levels is provided to senior management
\n
and market risk managers across the function. Limit reporting
\n
is supplemented with regulatory capital and stress testing
\n
information as well as ad-hoc reporting.
\n
A risk review of trading businesses is undertaken weekly with
\n
senior risk and front office staff. This includes a review of profit
\n
and loss drivers, notable position concentrations and other
\n
positions of concern.
\n
Business profit and loss performance is monitored
\n
automatically through loss triggers which, if breached, require
\n
a remedial action plan to be agreed between the Market Risk
\n
function and the business. The loss triggers are set using both a
\n
fall-from-peak approach and an absolute loss level. In addition,
\n
regular updates on traded market risk positions are provided to
\n
the Executive Risk Committee, the Board Risk Committee and
\n
the Board.
\n
Measurement
\n
NatWest Group uses VaR, SVaR and the incremental risk
\n
charge to measure traded market risk. Risks that are not
\n
adequately captured by VaR or SVaR are captured by the Risks
\n
Not In VaR (RNIV) framework to ensure that NatWest Group is
\n
adequately capitalised for market risk. In addition, stress testing
\n
is used to identify any vulnerabilities and potential losses.
\n
The key inputs into these measurement methods are market
\n
data and risk factor sensitivities. Sensitivities refer to the
\n
changes in trade or portfolio value that result from small
\n
changes in market parameters that are subject to the market
\n
risk limit framework. Revaluation ladders are used in place of
\n
sensitivities to capture the impact of large moves in risk factors
\n
or the joint impact of two risk factors.
\n
These methods have been designed to capture correlation
\n
effects and allow NatWest Group to form an aggregated view
\n
of its traded market risk across risk types, markets and
\n
business lines while also taking into account the characteristics
\n
of each risk type.
\n
Value-at-risk
\n
For internal risk management purposes, VaR assumes a time
\n
horizon of one trading day and a confidence level of 99%.
\n
The internal VaR model \u2013 which captures all trading book
\n
positions including those products approved by the regulator \u2013
\n
is based on a historical simulation, utilising market data from
\n
the previous 500 days on an equally-weighted basis.
The model also captures the potential impact of interest rate
\n
risk; credit spread risk; foreign currency price risk; equity price
\n
risk; and commodity price risk.
\n
When simulating potential movements in such risk factors, a
\n
combination of absolute, relative and rescaled returns is used.
\n
The performance and adequacy of the VaR model are tested
\n
regularly through the following processes:
\n
\ue001
Back-testing: Internal and regulatory back-testing is
\n
conducted on a daily basis. Information on internal back-
\n
testing is provided in this section. Information on regulatory
\n
back-testing appears in the Pillar 3 Report.
\n
\ue001
Ongoing model validation: VaR model performance is
\n
assessed both regularly, and on an ad-hoc basis, if market
\n
conditions or portfolio profile change significantly.
\n
\ue001
Model Risk Management review: As part of the model
\n
lifecycle, all risk models (including the VaR model) are
\n
independently reviewed to ensure the model is still fit for
\n
purpose given current market conditions and portfolio
\n
profile. For further detail on the independent model
\n
validation carried out by Model Risk Management refer to
\n
page 282. More information relating to pricing and market
\n
risk models is presented in the Pillar 3 Report.
\n
One-day 99% traded internal VaR
\n
Traded VaR (1-day 99%)
(audited)
\n
The table below shows one-day 99% internal VaR for NatWest Group\u2019s trading portfolios, split by exposure type.
\n
2022
2021
\n
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Interest rate
7.3
12.6
4.1
9.0
10.4
25.3
4.5
8.9
\n
Credit spread
7.8
12.0
6.0
6.4
11.3
13.4
9.4
10.7
\n
Currency
3.1
8.0
1.2
1.5
3.4
9.4
1.7
2.2
\n
Equity
\u2014
0.3
\u2014
\u2014
0.4
0.8
\u2014
0.2
\n
Commodity
\u2014
\u2014
\u2014
\u2014
0.1
0.5
\u2014
\u2014
\n
Diversification
(1)
(7.5)
(6.8)
(12.3)
(10.5)
\n
Total
10.7
15.1
7.2
10.1
13.3
23.9
9.3
11.5
\n
(1)
NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation
\n
between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
\n
\ue001
On an average basis, total traded VaR was lower in 2022
\n
than in 2021 despite the increased market volatility related
\n
to sterling Gilts, swaps and inflation entering the rolling
\n
window for VaR calculation during 2022.
\n
\ue001
The decrease in average interest rate VaR reflected the
\n
lower tenor basis risk in sterling flow trading in 2022 than in
\n
2021. This followed the application of a regulator-approved
\n
update to the VaR model in Q3 2021 to address the impact
\n
of the transition from LIBOR to alternative risk-free rates.
\n
\ue001
Credit spread VaR also decreased, mainly because the
\n
heightened market volatility in March 2020, resulting from
\n
the onset of the COVID-19 crisis, dropped out of the VaR
\n
window during H1 2022.
Traded market risk
\n
VaR back-testing
\n
The main approach employed to assess the VaR model\u2019s
\n
ongoing performance is back-testing, which counts the number
\n
of days when a loss exceeds the corresponding daily VaR
\n
estimate, measured at a 99% confidence level.
\n
Two types of profit and loss (P&L) are used in back-testing
\n
comparisons: Actual P&L and Hypothetical P&L. For more
\n
details on the back-testing approach, refer to the Pillar 3
\n
Report.
\n
The table below shows internal back-testing exceptions in the major NatWest Markets businesses for the 250-business-day period
\n
to 31 December 2022. Internal back-testing compares one-day 99% traded internal VaR with Actual and Hypothetical (Hypo) P&L.
\n
Back-testing exceptions
\n
Actual
Hypo
\n
Rates
2
6
\n
Currencies
\u2014
7
\n
Credit
\u2014
\u2014
\n
xVA
1
1
\n
\ue001
The exceptions in the Rates business were mainly driven by
\n
market moves in sterling, euro and US dollar rates and
\n
sterling inflation.
\n
\ue001
The exceptions in the Currencies business were mainly
\n
driven by market moves related to sterling, the euro and
\n
the US dollar.
\n
\ue001
The total xVA loss was driven by a loss due to the default of
\n
a counterparty.
\n
Stressed VaR (SVaR)
\n
As with VaR, the SVaR methodology produces estimates of the potential change in the market value of a portfolio, over a specified
\n
time horizon, at a given confidence level. SVaR is a VaR-based measure using historical data from a one-year period of stressed
\n
market conditions.
\n
A simulation of 99% VaR is run on the current portfolio for each 250-day period from 2005 to the current VaR date, moving
\n
forward one day at a time. The SVaR is the worst VaR outcome of the simulated results.
\n
This is in contrast with VaR, which is based on a rolling 500-day historical data set. A time horizon of ten trading days is assumed
\n
with a confidence level of 99%.
\n
The internal traded SVaR model captures all trading book positions.
\n
2022
2021
\n
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Total internal traded SVaR
70
206
34
40
95
175
46
66
\n
\ue001
Traded SVaR was, on an average basis, lower in 2022 than in 2021, following the reduction in tenor basis risk in sterling flow
\n
trading resulting from the VaR model update in Q3 2021.
\n
Risks Not In VaR (RNIVs)
\n
The RNIV framework is used to identify and quantify market
\n
risks that are not fully captured by the internal VaR and SVaR
\n
models.
\n
RNIV calculations form an integral part of ongoing model and
\n
data improvement efforts to capture all market risks in scope
\n
for model approval in VaR and SVaR.
\n
For further qualitative and quantitative disclosures on RNIVs,
\n
refer to the Market risk section of the Pillar 3 Report.
\n
Stress testing
\n
For information on stress testing, refer to page 182.
\n
Incremental risk charge (IRC)
\n
The IRC model quantifies the impact of rating migration and
\n
default events on the market value of instruments with
\n
embedded credit risk (in particular, bonds and credit default
\n
swaps) held in the trading book. It further captures basis risk
\n
between different instruments, maturities and reference
\n
entities. For further qualitative and quantitative disclosures on
\n
the IRC, refer to the Market risk section of the Pillar 3 Report.
Market risk \u2013 linkage to balance sheet
\n
The table below analyses NatWest Group\u2019s balance sheet by non-trading and trading business.
\n
2021
\n
Total
\n
Non-trading
\n
business
\n
Trading
\n
business
\n
Total
\n
Non-trading
\n
business
\n
Trading
\n
business
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Primary market risk factor
\n
Assets
\n
Cash and balances at central
\n
banks
\n
144.8
144.8
\u2014
177.8
177.8
\u2014
\n
Interest rate
\n
Trading assets
45.6
1.2
44.4
59.2
0.7
58.5
\n
Reverse repos
21.5
\u2014
21.5
20.7
\u2014
20.7
\n
Interest rate
\n
Securities
9.9
\u2014
9.9
25.0
\u2014
25.0
\n
interest rate, credit spreads, equity
\n
Other
14.2
1.2
13.0
13.5
0.7
12.8
\n
Interest rate
\n
Derivatives
99.5
1.3
98.2
106.1
1.6
104.5
\n
Interest rate, credit spreads, equity
\n
Settlement balances
2.6
0.2
2.4
2.1
0.2
1.9
\n
Settlement
\n
Loans to banks
7.1
7.0
0.1
7.7
7.6
0.1
\n
Interest rate
\n
Loans to customers
366.3
366.2
0.1
359.0
358.9
0.1
\n
Interest rate
\n
Other financial assets
30.9
30.9
\u2014
46.1
46.1
\u2014
\n
Interest rate, credit spreads, equity
\n
Intangible assets
7.1
7.1
\u2014
6.7
6.7
\u2014
\n
Interest rate, credit spreads, equity
\n
Other assets
9.3
9.3
\u2014
8.3
8.3
\u2014
\n
Assets of disposal groups
6.9
6.9
\u2014
9.0
9.0
\u2014
\n
Total assets
720.1
574.9
145.2
782.0
616.9
165.1
\n
Liabilities
\n
Bank deposits
20.4
20.4
\u2014
26.3
26.3
\u2014
\n
Interest rate
\n
Customer deposits
450.3
450.3
\u2014
479.8
479.8
\u2014
\n
Interest rate
\n
Settlement balances
2.0
\u2014
2.0
2.1
\u2014
2.1
\n
Settlement
\n
Trading liabilities
52.8
\u2014
52.8
64.6
0.1
64.5
\n
Repos
23.7
\u2014
23.7
19.4
\u2014
19.4
\n
Interest rate
\n
Short positions
9.5
\u2014
9.5
25.0
\u2014
25.0
\n
Interest rate, credit spreads
\n
Other
19.6
\u2014
19.6
20.2
0.1
20.1
\n
Interest rate
\n
Derivatives
94.0
1.5
92.5
100.8
3.6
97.2
\n
Interest rate, credit spreads
\n
Other financial liabilities
49.1
49.0
0.1
49.3
48.9
0.4
\n
Interest rate
\n
Subordinated liabilities
6.3
6.3
\u2014
8.4
8.4
\u2014
\n
Interest rate
\n
Notes in circulation
3.2
3.2
\u2014
3.0
3.0
\u2014
\n
Interest rate
\n
Other liabilities
5.5
5.5
\u2014
5.9
5.9
\u2014
\n
Total liabilities
683.6
536.2
147.4
740.2
576.0
164.2
\n
(1)
Non-trading businesses are entities that primarily have exposures that are not classified as trading book. For these exposures, with the exception of pension-related activities, the
\n
main measurement methods are sensitivity analysis of net interest income, internal non-traded VaR and fair value calculations. For more information refer to the non-traded market
\n
risk section.
\n
(2)
Trading businesses are entities that primarily have exposures that are classified as trading book under regulatory rules. For these exposures, the main methods used by NatWest
\n
Group to measure market risk are detailed in the traded market risk section.
\n
(3)
Foreign exchange risk affects all non-sterling denominated exposures on the balance sheet across trading and non-trading businesses, and therefore has not been listed in the
\n
above tables.
10 Financial instruments \u2013 classification
\n
Financial instruments are contracts that give rise to a financial asset of one entity and a corresponding financial liability or equity
\n
instrument of a counterparty entity, such as: cash; derivatives; loans; deposits; and settlement balances.
This note presents
\n
financial instruments classified in accordance with IFRS 9 \u2013 Financial Instruments.
\n
Judgment: classification of financial assets
\n
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
\n
judgment in respect of business models and contractual cashflows.
\n
\ue001
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held
\n
to collect and sell. Information that is considered in determining the applicable business model includes the portfolio\u2019s policies
\n
and objectives, how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
\n
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
\n
\ue001
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent
\n
solely payments of principal and interest. A level of judgment is made in assessing terms that could change the contractual
\n
cash flows so that it would not meet the condition for solely payments of principal and interest, including contingent and
\n
leverage features,
non
-recourse arrangements and features that could modify the time value of money.
\n
We originate loans that include features that change the contractual cash flows based on the borrower meeting certain
\n
contractually specified environmental, social and governance (ESG) targets. These are known as ESG-linked (or sustainability-
\n
linked) loans. As part of the terms of these loans, the contractual interest rate is reduced or increased if the borrower meets (fails
\n
to meet) specific targets linked to the activity of the borrower for example reducing carbon emissions, increase the level of
\n
diversity at Board level, sustainable supply chain, etc. ESG features are first assessed to ascertain whether the adjustment to the
\n
contractual cash flows results in a de minimis exposure to risks or volatility in those contractual cash flows. If this is the case the
\n
classification of the loan is not affected. If the effect of the ESG feature is assessed as being more than de minimis, we apply
\n
judgement to ensure that the ESG features do not generate compensation for risks that are not in line with a basic lending
\n
arrangement. This includes amongst other aspects a review of the consistency of the ESG targets with the asset or activity of the
\n
borrower, consideration of the targets within our risk appetite etc. Some of these loans are an integral part of our climate and
\n
sustainable funding and financing target disclosed on page 25.
\n
For accounting policy information see Accounting policies notes 3.8, 3.9, 3.10 and 3.12.
Judgment: classification of financial assets
\n
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
\n
MFVTPL
FVOCI
Amortised cost
Other assets
Total
\n
Assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
144,832
\n
Trading assets
45,577
45,577
\n
Derivatives
(1)
99,545
99,545
\n
Settlement balances
2,572
2,572
\n
Loans to bank - amortised cost
(2)
7,139
7,139
\n
Loans to customers - amortised cost
(3)
366,340
366,340
\n
Other financial assets
(4)
787
16,973
13,135
30,895
\n
Intangible assets
7,116
7,116
\n
Other assets
9,176
9,176
\n
Assets of disposal groups
(5)
6,861
6,861
\n
31 December 2022
145,909
16,973
534,018
23,153
720,053
\n
Cash and balances at central banks
177,757
177,757
\n
Trading assets
59,158
59,158
\n
Derivatives
(1)
106,139
106,139
\n
Settlement balances
2,141
2,141
\n
Loans to bank - amortised cost
(2)
7,682
7,682
\n
Loans to customers - amortised cost
(3)
358,990
358,990
\n
Other financial assets
317
37,266
8,562
46,145
\n
Intangible assets
6,723
6,723
\n
Other assets
8,242
8,242
\n
Assets of disposal groups
9,015
9,015
\n
31 December 2021
165,614
37,266
555,132
23,980
781,992
\n
Held-for-trading
DFV
Amortised cost
Other liabilities
Total
\n
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank deposits
(6)
20,441
20,441
\n
Customer deposits
450,318
450,318
\n
Settlement balances
2,012
2,012
\n
Trading liabilities
52,808
52,808
\n
Derivatives
(1)
94,047
94,047
\n
Other financial liabilities
(7)
2,377
46,730
49,107
\n
Subordinated liabilities
345
5,915
6,260
\n
Notes in circulation
3,218
3,218
\n
Other liabilities
(8)
1,205
4,141
5,346
\n
31 December 2022
146,855
2,722
529,839
4,141
683,557
\n
Bank deposits
(6)
26,279
26,279
\n
Customer deposits
479,810
479,810
\n
Settlement balances
2,068
2,068
\n
Trading liabilities
64,598
64,598
\n
Derivatives
(1)
100,835
100,835
\n
Other financial liabilities
(7)
1,671
47,655
49,326
\n
Subordinated liabilities
703
7,726
8,429
\n
Notes in circulation
3,047
3,047
\n
Other liabilities
(8)
1,356
4,441
5,797
\n
31 December 2021
165,433
2,374
567,941
4,441
740,189
\n
(1)
Includes net hedging derivatives assets of \u00a3143 million (2021 - \u00a344 million) and net hedging derivatives liabilities of \u00a3132 million (2021 - \u00a3120 million).
\n
(2)
Includes items in the course of collection from other banks of \u00a3229 million (2021 - \u00a367 million).
\n
(3)
Includes finance lease receivables of \u00a38,402 million (2021 - \u00a38,531 million).
\n
(4)
Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio. Refer to Note 8 for further information.
\n
(5)
Includes \u00a35,397 million of assets of disposal groups reclassified from amortised cost to FVTPL during the year. The portfolio is classified as level 3 in the fair value hierarchy.
\n
(6)
Includes items in the course of transmission to other banks of \u00a3242 million (2021 - \u00a356 million).
\n
(7)
The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been
\n
recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively.
\n
(8)
Includes lease liabilities of \u00a31,118 million (2021 - \u00a31,263 million) held at amortised cost.
Reclassification of mortgages from amortised cost to fair value through profit or loss
\n
In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in
\n
both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting
\n
the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions
\n
around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups.
\n
The effect of the reclassification as at 1 July 2022 is shown below:
\n
Amortised cost
MFVTPL
Change in value
\n
\u00a3m
\u00a3m
\u00a3m
\n
Amounts reclassified on balance sheet
\n
Loans to customers
(1)
587
606
19
\n
Assets of disposal groups
(2)
10,676
10,383
(293)
\n
11,263
10,989
(274)
\n
(1)
Change in value recognised in continuing operations.
\n
(2)
Change in value recognised in discontinued operations.
\n
Additional information on finance lease receivables
\n
The following table shows the reconciliation of undiscounted finance lease receivables to net investment in finance leases:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Amount receivable under finance leases
\n
Within 1 year
3,235
3,272
\n
1 to 2 years
2,254
2,044
\n
2 to 3 years
1,388
1,443
\n
3 to 4 years
833
757
\n
4 to 5 years
411
429
\n
After 5 years
1,130
1,423
\n
Lease payments total
9,251
9,368
\n
Unguaranteed residual values
171
225
\n
Future drawdowns
(13)
(21)
\n
Unearned income
(889)
(891)
\n
Present value of lease payments
8,520
8,681
\n
Impairments
(118)
(150)
\n
Net investment in finance leases
8,402
8,531
\n
Additional information on reverse repos and repos
\n
The following table shows the value of reverse repos and repos included within the below balance sheet captions:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Reverse repos
\n
Trading assets
21,537
20,742
\n
Loans to banks - amortised cost
277
189
\n
Loans to customers - amortised cost
19,750
25,962
\n
Repos
\n
Bank deposits
1,446
7,912
\n
Customer deposits
9,829
14,541
\n
Trading liabilities
23,740
19,389
Interest rate benchmark reform
\n
NatWest Group continues to work on the transition of USD IBOR exposures to risk free rates in advance of the cessation date of 30
\n
June 2023. Derivatives are expected to transition during April and May 2023 and other exposures in line with fallback provisions or
\n
deferred switches using widely accepted methodologies. The instruments yet to transition reflect an insignificant element of
\n
NatWest Group\u2019s exposures. Instruments with exposures to other rates transitioned at the end of 2021, or at the first contractual
\n
reset date, or at a date agreed with the counterparty.
\n
The level of exposures without explicit or agreed conversion provisions as of the preceding year were as follows:
\n
Rates subject to IBOR reform
\n
GBP LIBOR
USD IBOR
Other IBOR
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets
62
90
\u2014
152
\n
Loans to banks - amortised cost
\u2014
11
\u2014
11
\n
Loans to customers - amortised cost
4,788
4,565
267
9,620
\n
Other financial assets
864
768
\u2014
1,632
\n
Bank deposits
\u2014
37
\u2014
37
\n
Trading liabilities
31
166
\u2014
197
\n
Other financial liabilities
2,390
7,023
131
9,544
\n
Subordinated liabilities
\u2014
90
\u2014
90
\n
Loan commitments
(1)
1,016
6,366
55
7,437
\n
Derivatives notional (\u00a3bn)
4
1,152
\u2014
1,156
\n
(1)
Certain loan commitments are multi-currency facilities. Where these are fully undrawn, they are allocated to the principal currency of the facility. Where the facilities are partly
\n
drawn, the remaining loan commitment is allocated to the currency with the largest drawn amount.
\n
At 31 December 2021, NatWest Group held certain currency swaps with both legs subject to IBOR reform, for which only the GBP
\n
LIBOR leg has an explicit or agreed conversion provisions as of 31 December 2021, but not the entire contract. These include
\n
currency swaps of GBP LIBOR of \u00a38.7 billion with USD IBOR \u00a38.2 billion and Other IBOR \u00a30.5 billion; currency swaps of USD IBOR
\n
of \u00a3117 billion with GBP LIBOR \u00a391.7 billion and Other IBOR \u00a325.3 billion; currency swaps of EURIBOR of \u00a30.1 billion with GBP
\n
LIBOR \u00a30.1 billion; currency swaps of Other IBOR of \u00a30.4 billion with USD IBOR \u00a30.4 billion
\n
AT1 issuances
\n
NatWest Group has issued certain capital instruments, AT1, under which reset clauses are linked to IBOR rates subject to reform.
\n
Where under the contractual terms of the instrument the coupon resets to a rate which has IBOR as a specified component of its
\n
pricing structure, these are subject to IBOR reform and listed below:
\n
31 December
\n
2021
\n
\u00a3m
\n
US$1.15 billion 8% notes
734
Financial instruments \u2013 financial assets and liabilities that can be offset
\n
The tables below present information on financial assets and financial liabilities that are offset on the balance sheet under IFRS or
\n
subject to enforceable master netting agreements together with financial collateral received or given.
\n
Instruments which can be offset
Potential for offset not recognised by IFRS
\n
Gross
\n
IFRS offset
\n
Balance sheet
\n
Effect of
\n
master netting
\n
and similar
\n
agreements
\n
Cash
\n
collateral
\n
Securities
\n
collateral
\n
Net amount after the
\n
effect of netting
\n
agreements and
\n
related collateral
\n
Instruments
\n
outside netting
\n
agreements
\n
Balance
\n
sheet total
\n
2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Derivative assets
117,606
(18,730)
98,876
(77,365)
(14,079)
(4,571)
2,861
669
99,545
\n
Derivative liabilities
115,177
(22,111)
93,066
(77,365)
(9,761)
(1,185)
4,755
981
94,047
\n
Net position
(1)
2,429
3,381
5,810
\u2014
(4,318)
(3,386)
(1,894)
(312)
5,498
\n
Trading reverse repos
35,612
(14,510)
21,102
(2,445)
\u2014
(18,458)
199
435
21,537
\n
Trading repos
33,767
(14,510)
19,257
(2,445)
\u2014
(16,812)
\u2014
4,483
23,740
\n
Net position
1,845
\u2014
1,845
\u2014
\u2014
(1,646)
199
(4,048)
(2,203)
\n
Non trading reverse repos
25,630
(5,702)
19,928
\u2014
\u2014
(19,928)
\u2014
98
20,026
\n
Non trading repos
16,977
(5,702)
11,275
\u2014
\u2014
(11,275)
\u2014
\u2014
11,275
\n
Net position
8,653
\u2014
8,653
\u2014
\u2014
(8,653)
\u2014
98
8,751
\n
2021
\n
Derivative assets
113,220
(7,961)
105,259
(85,006)
(15,035)
(2,428)
2,790
880
106,139
\n
Derivative liabilities
108,594
(8,568)
100,026
(85,006)
(9,909)
(2,913)
2,198
809
100,835
\n
Net position
(1)
4,626
607
5,233
\u2014
(5,126)
485
592
71
5,304
\n
Trading reverse repos
44,529
(24,422)
20,107
(900)
\u2014
(19,136)
71
635
20,742
\n
Trading repos
42,664
(24,422)
18,242
(900)
\u2014
(17,341)
1
1,147
19,389
\n
Net position
1,865
\u2014
1,865
\u2014
\u2014
(1,795)
70
(512)
1,353
\n
Non trading reverse repos
33,729
(7,594)
26,135
\u2014
\u2014
(26,135)
\u2014
16
26,151
\n
Non trading repos
30,047
(7,594)
22,453
\u2014
\u2014
(22,453)
\u2014
\u2014
22,453
\n
Net position
3,682
\u2014
3,682
\u2014
\u2014
(3,682)
\u2014
16
3,698
\n
(1)
The net IFRS offset balance of \u00a33,381 million (2021 - \u00a3607 million) relates to variation margin netting reflected on other balance sheet lines.
11 Financial instruments - valuation
\n
Financial instruments recognised at fair value are revalued using techniques that can include observable inputs (pricing information
\n
that is readily available in the market, for example UK Government securities), and unobservable inputs (pricing information that is
\n
not readily available, for example unlisted securities). Gains and losses are recognised in the income statement and statement of
\n
comprehensive income as appropriate.
This note presents information on the valuation of financial instruments.
\n
The table below provides an overview of the various sections contained within the note.
\n
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
\n
Valuation
\n
Fair value hierarchy
\n
Financial instruments carried at fair value have been classified
\n
under the fair value hierarchy. The classification ranges from
\n
level 1 to level 3, with more expert judgment and price
\n
uncertainty for those classified at level 3.
\n
The determination of an instrument\u2019s level cannot be made at
\n
a global product level as a single product type can be in more
\n
than one level. For example, a single name corporate credit
\n
default swap could be in level 2 or level 3 depending on the
\n
level of market activity for the referenced entity
.
\n
Level 1 \u2013 instruments valued using unadjusted quoted prices in
\n
active and liquid markets, for identical financial instruments.
\n
Examples include government bonds, listed equity shares and
\n
certain exchange-traded derivatives.
\n
Level 2 - instruments valued using valuation techniques that
\n
have observable inputs. Observable inputs are those that are
\n
readily available with limited adjustments required. Examples
\n
include most government agency securities, investment-grade
\n
corporate bonds, certain mortgage products - including CLOs,
\n
most bank loans, repos and reverse repos, state and municipal
\n
obligations, most notes issued, certain money market
\n
securities, loan commitments and most OTC derivatives.
\n
Level 3 - instruments valued using a valuation technique where
\n
at least one input which could have a significant effect on the
\n
instruments valuation, is not based on observable market data.
\n
Examples include non-derivative instruments which trade
\n
infrequently, certain syndicated and commercial mortgage
\n
loans, private equity, and derivatives with unobservable model
\n
inputs.
\n
Page
\n
Financial instruments
\n
Critical accounting policy: Fair value
339
\n
Valuation
\n
Fair value hierarchy
(D)
339
\n
Valuation techniques
(D)
340
\n
Inputs to valuation models
(D)
340
\n
Valuation control
(D)
340
\n
Key areas of judgment
(D)
341
\n
Table of assets and liabilities split by fair value
\n
hierarchy level
(T)
342
\n
Valuation adjustments
\n
Table of fair value adjustments made
(T)
343
\n
Funding valuation adjustments (FVA)
(D)
343
\n
Credit valuation adjustments (CVA)
(D)
343
\n
Bid-offer
(D)
343
\n
Product and deal specific
(D)
343
\n
Own credit
(D)
343
\n
Level 3 additional information
\n
Level 3 ranges of unobservable inputs
(D)
344
\n
Table of level 3 instruments, valuation
\n
techniques and inputs
(T)
344
\n
Level 3 sensitivities
(D)
345
\n
Alternative assumptions
(D)
345
\n
Other considerations
(D)
345
\n
Table of high and low range of fair value of
\n
level 3 assets and liabilities
(T)
345
\n
Movement in level 3 assets and liabilities
\n
over the reporting period
(D)
346
\n
Table of the movement in level 3 assets and liabilities
346
\n
Fair value of financial instruments measured
\n
at amortised cost
\n
Table showing the fair value of financial instruments
\n
measured at amortised cost on the balance sheet
(T)
347
\n
(D) = Descriptive; (T) = Table
Valuation techniques
\n
NatWest Group derives the fair value of its instruments
\n
differently depending on whether the instrument is a non-
\n
modelled or a modelled product.
\n
Non-modelled products
are valued directly from a price input,
\n
typically on a position-by-position basis. Examples include
\n
equities and most debt securities.
\n
Non-modelled products can fall into any fair value levelling
\n
hierarchy depending on the observable market activity,
\n
liquidity, and assessment of valuation uncertainty of the
\n
instruments. The assessment of fair value and the classification
\n
of the instrument to a fair value level is subject to the valuation
\n
controls discussed in the Valuation control section.
\n
Modelled products
valued using a pricing model range in
\n
complexity from comparatively vanilla products such as interest
\n
rate swaps and options (e.g., interest rate caps and floors)
\n
through to more complex derivatives (e.g., balance guarantee
\n
swaps).
\n
For modelled products the fair value is derived using the model
\n
and the appropriate model inputs or parameters, as opposed to
\n
a cash price equivalent. Model inputs are taken either directly
\n
or indirectly from available data, where some inputs are also
\n
modelled.
\n
Fair value classification of modelled instruments is either level 2
\n
or level 3, depending on the product/model combination, the
\n
observability and quality of input parameters and other factors.
\n
All these must be assessed to classify a position. The modelled
\n
product is assigned to the lowest fair value hierarchy level of
\n
any significant input used in that valuation.
\n
Most derivative instruments, for example vanilla interest rate
\n
swaps, foreign exchange swaps and liquid single name credit
\n
derivatives, are classified as level 2. This is because they are
\n
vanilla products valued using standard market models and with
\n
observable inputs. Level 2 products range from vanilla to more
\n
complex products, where more complex products remain
\n
classified as level 2 due to the low materiality of any
\n
unobservable inputs.
\n
Inputs to valuation models
\n
When using valuation techniques, the fair value can be
\n
significantly affected by the choice of valuation model and
\n
underlying assumptions. Factors considered include the
\n
cashflow amounts and timing of those cash flows, and
\n
application of appropriate discount rates, incorporating both
\n
funding and credit risk. Values between and beyond available
\n
data points are obtained by interpolation and extrapolation.
\n
The principal inputs to these valuation techniques are as
\n
follows:
\n
Bond prices - quoted prices are generally available for
\n
government bonds, certain corporate securities, and some
\n
mortgage-related products.
\n
Credit spreads - these express the return required over a
\n
benchmark rate or index to compensate for the referenced
\n
credit risk. Where available, these are derived from the price of
\n
credit default swaps or other credit-based instruments, such as
\n
debt securities. When direct prices are not available; credit
\n
spreads are determined with reference to available prices of
\n
entities with similar characteristics.
\n
Interest rates - these are principally based on interest rate
\n
swap prices referencing benchmark interest rates. Benchmark
\n
rates include Interbank Offered Rates (IBOR) and the Overnight
\n
Index Swap (OIS) rate, including SONIA (Sterling Overnight
\n
Interbank Average Rate). Other quoted interest rates may also
\n
be used from both the bond, and futures markets.
\n
Foreign currency exchange rates - there are observable prices
\n
both for spot and forward contracts and futures in the world's
\n
major currencies.
\n
Equity and equity index prices - quoted prices are generally
\n
readily available for equity shares listed on the world's major
\n
stock exchanges and for major indices on such shares.
\n
Price volatilities and correlations - volatility is a measure of the
\n
tendency of a price to change with time. Correlation measures
\n
the degree which two or more prices or variables are observed
\n
to move together. Variables that move in the same direction
\n
show positive correlation; those that move in opposite
\n
directions are negatively correlated.
\n
Prepayment rates - rates used to reflect how fast a pool of
\n
assets prepay. The fair value of a financial instrument that can
\n
be prepaid by the issuer or borrower differs from that of an
\n
instrument that cannot be prepaid. When valuing prepayable
\n
instruments, the value of this prepayment option is considered.
\n
Recovery rates/loss given default - these are used as an input
\n
to valuation models and reserves for asset-backed securities
\n
and other credit products as an indicator of severity of losses
\n
on default. Recovery rates are primarily sourced from market
\n
data providers, the value of the underlying collateral or inferred
\n
from observable credit spreads.
\n
Valuation control
\n
NatWest Group's control environment for the determination of
\n
the fair value of financial instruments includes formalised
\n
procedures for the review and validation of fair values. This
\n
review is performed by an independent price verification (IPV)
\n
team.
\n
IPV is a key element of the control environment. Valuations are
\n
first performed by the business which entered into the
\n
transaction. These valuations are then reviewed by the IPV
\n
team, independent of those trading the financial instruments, in
\n
light of available pricing evidence.
\n
Independent pricing data is collated from a range of sources.
\n
Each source is reviewed for quality and the independent data
\n
applied in the IPV processes using a formalised input quality
\n
hierarchy. Consensus services are one source of independent
\n
data and encompass interest rate, currency, credit, and bond
\n
markets, providing comprehensive coverage of vanilla products
\n
and a wide selection of exotic products.
\n
Where measurement differences are identified through the IPV
\n
process these are grouped by the quality hierarchy of the
\n
independent data. If the size of the difference exceeds defined
\n
thresholds, an adjustment is made to bring the valuation to
\n
within the independently calculated fair value range.
\n
IPV takes place at least monthly, for all fair value financial
\n
instruments. The IPV control includes formalised reporting and
\n
escalation of any valuation differences in breach of established
\n
thresholds.
The quality and completeness of the information gathered in
\n
the IPV process gives an indication as to the liquidity and
\n
valuation uncertainty of an instrument and forms part of the
\n
information considered when determining fair value hierarchy
\n
classifications.
\n
Initial fair value level classification of a financial instrument is
\n
carried out by the IPV team. These initial classifications are
\n
subject to senior management review. Particular attention is
\n
paid to instruments transferring from one level to another, new
\n
instrument classes or products, instruments where the
\n
transaction price is significantly different from the fair value
\n
and instruments where valuation uncertainty is high.
\n
Valuation Committees are made up of valuation specialists and
\n
senior business representatives from various functions and
\n
oversees pricing, reserving and valuations issues. These
\n
committees meet monthly to review and ratify any
\n
methodology changes. The Executive Valuation Committee
\n
meets quarterly to address key material and subjective
\n
valuation issues, to review items escalated by Valuation
\n
Committees and to discuss other relevant industry matters.
\n
The Group model risk policy sets the policy for model
\n
documentation, testing and review. Governance of the model
\n
risk policy is carried out by the Group model risk oversight
\n
committee, which comprises model risk owners and
\n
independent model experts. All models are required to be
\n
independently validated in accordance with the Model Risk
\n
Policy.
\n
Key areas of judgment
\n
Over the years the business has simplified, with most products
\n
classified as level 1 or 2 of the fair value hierarchy. However,
\n
the diverse range of products historically traded by NatWest
\n
Group means some products remain classified as level 3. Level
\n
3 indicates a significant level of pricing uncertainty, where
\n
expert judgment is used. As such, extra disclosures are
\n
required in respect of level 3 instruments
.
\n
In general, the degree of expert judgment used and hence
\n
valuation uncertainty depends on the degree of liquidity of an
\n
instrument or input.
\n
Where markets are liquid, little judgment is required. However,
\n
when the information regarding the liquidity in a particular
\n
market is not clear, a judgment may need to be made. For
\n
example, for an equity traded on an exchange, daily volumes of
\n
trading can be seen, but for an over the counter (OTC)
\n
derivative, assessing the liquidity of the market with no central
\n
exchange is more challenging.
\n
A key related matter is where a market moves from liquid to
\n
illiquid or vice versa. Where this movement is considered
\n
temporary, the fair value level is not changed. For example, if
\n
there is little market trading in a product on a reporting date
\n
but at the previous reporting date and during the intervening
\n
period the market has been liquid. In this case, the instrument
\n
will continue to be classified at the same level in the hierarchy.
\n
This is to provide consistency so that transfers between levels
\n
are driven by genuine changes in market liquidity and do not
\n
reflect short term or seasonal effects. Material movements
\n
between levels are reviewed quarterly by the Business and IPV.
\n
The breadth and depth of the IPV data allows for a rules-based
\n
quality assessment to be made of market activity, liquidity, and
\n
pricing uncertainty, which assists with the process of allocation
\n
to an appropriate level. Where suitable independent pricing
\n
information is not readily available, the quality assessment will
\n
result in the instrument being assessed as level 3.
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered
\n
the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price
\n
uncertainty.
\n
2022
2021
\n
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
\u2014
35,260
395
35,655
\u2014
33,482
721
34,203
\n
Securities
7,463
2,458
1
9,922
19,563
5,371
21
24,955
\n
Derivatives
5
98,533
1,007
99,545
\u2014
105,222
917
106,139
\n
Other financial assets
\n
Loans
\u2014
172
727
899
\u2014
359
207
566
\n
Securities
10,380
6,278
203
16,861
28,880
7,951
186
37,017
\n
Total financial assets held at fair value
17,848
142,701
2,333
162,882
48,443
152,385
2,052
202,880
\n
As % of total fair value assets
11%
88%
1%
24%
75%
1%
\n
Liabilities
\n
Trading liabilities
\n
Deposits
\u2014
42,486
1
42,487
\u2014
38,658
2
38,660
\n
Debt securities in issue
\u2014
797
\u2014
797
\u2014
974
\u2014
974
\n
Short positions
7,462
2,062
\u2014
9,524
20,507
4,456
1
24,964
\n
Derivatives
2
93,070
975
94,047
\u2014
100,229
606
100,835
\n
Other financial liabilities
\n
Debt securities in issue
\u2014
1,327
\u2014
1,327
\u2014
1,103
\u2014
1,103
\n
Other deposits
\u2014
1,050
\u2014
1,050
\u2014
568
\u2014
568
\n
Subordinated liabilities
\u2014
345
\u2014
345
\u2014
703
\u2014
703
\n
Total financial liabilities held at fair value
7,464
141,137
976
149,577
20,507
146,691
609
167,807
\n
As % of total fair value liabilities
5%
94%
1%
12%
88%
0%
\n
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
\n
(2)
For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
\n
management \u2013 Credit risk.
Valuation adjustments
\n
When valuing financial instruments in the trading book,
\n
adjustments are made to mid-market valuations to cover bid-
\n
offer spread, funding and credit risk. These adjustments are
\n
presented in the table below:
\n
Adjustment
\n
2022
\n
\u00a3m
\n
2021
\n
\u00a3m
\n
Funding \u2013 FVA
173
90
\n
Credit \u2013 CVA
300
390
\n
Bid \u2013 Offer
130
113
\n
Product and deal specific
141
119
\n
744
712
\n
Funding valuation adjustments on the group defined benefit
\n
pension plan increased during the year, primarily driven by
\n
increases in GBP interest rates.
\n
The decrease in CVA was driven by a reduction in exposures,
\n
primarily due to increases in interest rates and trade exit
\n
activity, partially offset by the net impact of credit spreads
\n
widening and specific counterparty activity. The increase in
\n
bid-offer was driven by the net impact of risk changes, wider
\n
bid-offer spreads and an increase in the estimated costs of
\n
exiting certain less liquid risks. The increase in product and
\n
deal specific was driven by credit spreads widening and
\n
specific counterparty activity.
\n
Funding valuation adjustments (FVA)
\n
FVA represents an estimate of the adjustment that a market
\n
participant would make to incorporate funding costs and
\n
benefits that arise in relation to derivative exposures. FVA is
\n
calculated as a portfolio level adjustment and can result in
\n
either a funding charge (positive) or funding benefit (negative).
\n
Funding levels are applied to estimated potential future
\n
exposures. For uncollateralised derivatives, the exposure
\n
reflects the future valuation of the derivative. For collateralised
\n
derivatives, the exposure reflects the difference between the
\n
future valuation of the derivative and the level of collateral
\n
posted.
\n
Credit valuation adjustments (CVA)
\n
CVA represents an estimate of the adjustment to fair value that
\n
is made to incorporate the counterparty credit risk inherent in
\n
derivative exposures. CVA is actively managed by a credit and
\n
market risk hedging process, and therefore movements in CVA
\n
are partially offset by trading revenue on the hedges.
\n
The CVA is calculated on a portfolio basis reflecting an
\n
estimate of the amount a third party would charge to assume
\n
the credit risk.
\n
Collateral held under a credit support agreement is factored
\n
into the CVA calculation. In such cases where NatWest Group
\n
holds collateral against counterparty exposures, CVA is held to
\n
the extent that residual risk remains.
\n
Bid-offer
\n
Fair value positions are required to be marked to exit,
\n
represented by bid (long positions) or offer (short positions)
\n
levels. Non-derivative positions are typically marked directly to
\n
bid or offer prices. However derivative exposures are adjusted
\n
to exit levels by taking bid-offer reserves calculated on a
\n
portfolio basis. The bid-offer approach is based on current
\n
market spreads and standard market bucketing of risk.
\n
Bid-offer spreads vary by maturity and risk type to reflect
\n
different spreads in the market. For positions where there is no
\n
observable quote, the bid-offer spreads are widened in
\n
comparison to proxies to reflect reduced liquidity or
\n
observability.
\n
Netting is applied on a portfolio basis to reflect the value at
\n
which NatWest Group believes it could exit the net risk of the
\n
portfolio, rather than the sum of exit costs for each of the
\n
portfolio\u2019s individual trades. This is applied where the asset and
\n
liability positions are managed as a portfolio for risk and
\n
reporting purposes.
\n
Product and deal specific
\n
On initial recognition of financial assets and liabilities valued
\n
using valuation techniques which have a significant
\n
dependence on information other than observable market data,
\n
any difference between the transaction price and that derived
\n
from the valuation technique is deferred. Such amounts are
\n
recognised in the income statement over the life of the
\n
transaction; when market data becomes observable; or when
\n
the transaction matures or is closed out as appropriate. On 31
\n
December 2022, net gains of \u00a374 million (2021 - \u00a371 million)
\n
were carried forward. During the year, net gains of \u00a397 million
\n
(2021 - \u00a3103 million) were deferred and \u00a394 million (2021 - \u00a394
\n
million) were recognised in the income statement.
\n
Where system generated valuations do not accurately reflect
\n
market prices, manual valuation adjustments are applied either
\n
at a position or portfolio level. Manual adjustments are subject
\n
to the scrutiny of independent control teams and are subject to
\n
monthly review by senior management.
\n
Own Credit
\n
NatWest Group considers the effect of its own credit standing
\n
when valuing financial liabilities recorded at fair value. Own
\n
credit spread adjustments are made when valuing issued debt
\n
held at fair value, including issued structured notes. An own
\n
credit adjustment is applied to positions where it is believed
\n
that counterparties would consider NatWest Group\u2019s
\n
creditworthiness when pricing trades.
Level 3 additional information
\n
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
\n
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
\n
with significant unobservable inputs or modelling parameters.
\n
Level 3 ranges of unobservable inputs
\n
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
\n
fair value calculation, the unobservable input and input range.
\n
2022
2021
\n
Financial instrument
Valuation technique
Unobservable inputs
Units
Low
High
Low
High
\n
Trading assets and Other financial assets
\n
Loans
Price-based
Price
%
\u2014
113
\u2014
106
\n
Discount cash flow
Credit spreads
bps
56
114
40
102
\n
Discount cash flow
Discount margin
bps
\u2014
\u2014
46
55
\n
Debt securities
Price-based
Price
%
\n
\u2014
255
\u2014
240
\n
Equity Shares
Price-based
Price
GBP
\u2014
34,027
\u2014
30,378
\n
Price-based
Price
%
\u2014
30
\u2014
7
\n
Discount cash flow
Discount margin
%
6
8
6
8
\n
Net asset valuation
Fund NAV
%
80
120
80
120
\n
Derivative assets and liabilities
\n
Credit derivatives
Credit derivative pricing
Credit spreads
bps
7
530
6
635
\n
Option pricing
Correlation
%
(15)
95
(15)
95
\n
Volatility
%
30
80
30
108
\n
Upfront points
%
\u2014
99
\u2014
100
\n
Recovery rate
%
\u2014
60
\u2014
60
\n
Interest rate & FX
Option pricing
Correlation
%
(50)
100
(50)
100
\n
derivatives
Volatility
%
30
127
17
77
\n
Constant Prepayment
\n
Rate
%
2
21
2
16
\n
Mean Reversion
%
\u2014
92
\u2014
92
\n
Inflation volatility
%
1
2
1
2
\n
Inflation rate
%
2
3
2
3
\n
(1)
Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
\n
earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV
\n
or similar measures.
\n
(2)
NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.
Level 3 sensitivities
\n
The level 3 sensitivities presented below are calculated at a
\n
trade or low-level portfolio basis rather than an overall portfolio
\n
basis. As individual sensitivities are aggregated with no
\n
reflection of the correlated nature between instruments, the
\n
overall portfolio sensitivity may not be accurately reflected. For
\n
example, some portfolios may be negatively correlated to
\n
others, where a downwards movement in one asset would
\n
produce an upwards movement in another. However, due to
\n
the additive presentation of the above figures this correlation
\n
impact cannot be displayed. As such, the actual potential
\n
downside sensitivity of the total portfolio may be less than the
\n
non-correlated sum of the additive figures as shown in the
\n
below table.
\n
Alternative assumptions
\n
Reasonably plausible alternative assumptions of unobservable
\n
inputs are determined based on a specified target level of
\n
certainty of 90%.
\n
Alternative assumptions are determined with reference to all
\n
available evidence including consideration of the following:
\n
quality of independent pricing information considering
\n
consistency between different sources, variation over time,
\n
perceived tradability or otherwise of available quotes;
\n
consensus service dispersion ranges; volume of trading activity
\n
and market bias (e.g. one-way inventory); day 1 profit or loss
\n
arising on new trades; number and nature of market
\n
participants; market conditions; modelling consistency in the
\n
market; size and nature of risk; length of holding of position;
\n
and market intelligence.
\n
Other considerations
\n
Whilst certain inputs used to calculate CVA, FVA and own
\n
credit adjustments are not based on observable market data,
\n
the uncertainty of these inputs is not considered to have a
\n
significant effect on the net valuation of the related derivative
\n
portfolios and issued debt.
\n
As such, the fair value levelling of the derivative portfolios and
\n
issued debt is not determined by CVA, FVA or own credit
\n
inputs. In addition, any fair value sensitivity driven by these
\n
inputs is not included in the level 3 sensitivities presented.
\n
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
\n
fair value inputs as described in the previous table.
\n
2022
2021
\n
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
395
10
(10)
721
10
(10)
\n
Securities
1
\u2014
\u2014
21
\u2014
\u2014
\n
Derivatives
1,007
50
(50)
917
60
(70)
\n
Other financial assets
\n
Loans
727
\u2014
(10)
207
10
(10)
\n
Securities
203
20
(30)
186
20
(20)
\n
2,333
80
(100)
2,052
100
(110)
\n
Liabilities
\n
Trading liabilities
\n
Deposits
1
\u2014
\u2014
2
\u2014
\u2014
\n
Debt securities in issue
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Short positions
\u2014
\u2014
\u2014
1
\u2014
\n
Derivatives
975
30
(30)
606
30
(30)
\n
976
30
(30)
609
30
(30)
Movement in level 3 assets and liabilities
\n
The following table shows the movement in level 3 assets and liabilities in the year.
\n
2022
2021
\n
Trading
\n
assets (2)
\n
Other financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
Trading
\n
assets (2)
\n
Other
\n
financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
1,658
394
2,052
609
1,388
335
1,723
894
\n
Amounts recorded in the income statement
(1)
157
(14)
143
381
(93)
(29)
(122)
(90)
\n
Amounts recorded in the statement of
\n
comprehensive income
\u2014
(20)
(20)
\u2014
\u2014
23
23
\u2014
\n
Level 3 transfers in
194
532
726
81
125
3
128
20
\n
Level 3 transfers out
(269)
(68)
(337)
(64)
(104)
(6)
(109)
(168)
\n
Purchases/originations
629
185
814
382
965
452
1,416
305
\n
Settlements/other decreases
(115)
\u2014
(115)
(41)
(47)
(364)
(411)
(28)
\n
Sales
(857)
(101)
(958)
(378)
(573)
(17)
(590)
(321)
\n
Foreign exchange and other
6
22
28
6
(3)
(3)
(6)
(3)
\n
At 31 December
1,403
930
2,333
976
1,658
394
2,052
609
\n
Amounts recorded in the income statement in respect
\n
of balances held at year end:
\n
- unrealised
157
(16)
141
381
(93)
(32)
(126)
(90)
\n
(1)
There were \u00a3224 million net losses on trading assets and liabilities (2021 \u2013 \u00a33 million net losses) recorded in income from trading activities. Net losses on other instruments of \u00a314
\n
million (2021 \u2013 \u00a329 million net losses) were recorded in other operating income and interest income as appropriate.
\n
(2)
Trading assets comprise assets held at fair value in trading portfolios.
\n
(3)
Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
Fair value of financial instruments measured at amortised cost on the balance sheet
\n
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
\n
sheet.
\n
Fair value hierarchy level
\n
Carrying
Fair
\n
Items where fair value
\n
approximates carrying
\n
value
\n
value
value
Level 1
Level 2
Level 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
144.8
\n
Settlement balances
2.6
\n
Loans to banks
0.1
7.0
7.0
\u2014
4.2
2.8
\n
Loans to customers
366.3
354.5
\u2014
20.3
334.2
\n
Other financial assets - securities
13.1
12.8
3.6
3.2
6.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
177.8
\n
Settlement balances
2.1
\n
Loans to banks
0.1
7.5
7.5
\u2014
5.0
2.5
\n
Loans to customers
359.0
354.1
\u2014
28.0
326.1
\n
Other financial assets - securities
8.6
8.6
4.4
0.7
3.5
\n
2022
\n
Financial liabilities
\n
Bank deposits
4.7
15.7
15.3
\u2014
13.1
2.2
\n
Customer deposits
407.0
43.3
43.3
\u2014
12.7
30.6
\n
Settlement balances
2.0
\n
Other financial liabilities - debt securities in issue
46.7
46.1
\u2014
40.7
5.4
\n
Subordinated liabilities
5.9
5.6
\u2014
5.5
0.1
\n
Notes in circulation
3.2
\n
2021
\n
Financial liabilities
\n
Bank deposits
4.9
21.4
21.0
\u2014
18.7
2.3
\n
Customer deposits
442.4
37.4
37.6
\u2014
18.1
19.5
\n
Settlement balances
2.1
\n
Other financial liabilities - debt securities in issue
47.7
48.6
\u2014
41.4
7.2
\n
Subordinated liabilities
7.7
8.3
\u2014
8.2
0.1
\n
Notes in circulation
3.0
\n
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are
\n
as follows:
\n
Short-term financial instruments
\n
For certain short-term financial instruments, including but not
\n
limited to; cash and balances at central banks, settlement
\n
balances, loans with short-term maturities, notes in circulation
\n
and customer demand deposits, carrying value is deemed a
\n
reasonable approximation of fair value.
\n
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
\n
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
\n
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
12 Financial instruments - maturity analysis
\n
Remaining maturity
\n
This note shows the maturity profile of NatWest Group\u2019s financial assets and liabilities by
contractual date of maturity and
\n
contractual cash flows.
\n
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
\n
2022
2021
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Cash and balances at central banks
144,832
\u2014
144,832
177,757
\u2014
177,757
\n
Trading assets
35,944
9,633
45,577
40,263
18,895
59,158
\n
Derivatives
38,107
61,438
99,545
34,538
71,601
106,139
\n
Settlement balances
2,572
\u2014
2,572
2,141
\u2014
2,141
\n
Loans to banks - amortised cost
6,872
267
7,139
7,425
257
7,682
\n
Loans to customers - amortised cost
84,289
282,051
366,340
103,689
255,301
358,990
\n
Other financial assets
6,128
24,767
30,895
11,151
34,994
46,145
\n
Liabilities
\n
Bank deposits
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer deposits
448,821
1,497
450,318
478,801
1,009
479,810
\n
Settlement balances
2,012
\u2014
2,012
2,068
\u2014
2,068
\n
Trading liabilities
42,760
10,048
52,808
41,664
22,934
64,598
\n
Derivatives
39,331
54,716
94,047
34,593
66,242
100,835
\n
Other financial liabilities
13,796
35,311
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
973
5,287
6,260
1,375
7,054
8,429
\n
Notes in circulation
3,218
\u2014
3,218
3,047
\u2014
3,047
\n
Lease liabilities
137
981
1,118
238
1,025
1,263
\n
Assets and liabilities by contractual cash flows up to 20
\n
years
\n
The tables on the following page, show the contractual
\n
undiscounted cash flows receivable and payable, up to a period
\n
of 20 years, including future receipts and payments of interest
\n
of financial assets and liabilities by contractual maturity. The
\n
balances in the following tables do not agree directly with the
\n
consolidated balance sheet, as the tables include all cash flows
\n
relating to principal and future coupon payments, presented on
\n
an undiscounted basis. The tables have been prepared on the
\n
following basis:
\n
Financial assets have been reflected in the time band of the
\n
latest date on which they could be repaid, unless earlier
\n
repayment can be demanded by NatWest Group. Financial
\n
liabilities are included at the earliest date on which the
\n
counterparty can require repayment, regardless of whether or
\n
not such early repayment results in a penalty. If the repayment
\n
of a financial instrument is triggered by, or is subject to, specific
\n
criteria such as market price hurdles being reached, the asset
\n
is included in the time band that contains the latest date on
\n
which it can be repaid, regardless of early repayment.
\n
The liability is included in the time band that contains the
\n
earliest possible date on which the conditions could be fulfilled,
\n
without considering the probability of the conditions being met.
\n
For example, if a structured note is automatically prepaid when
\n
an equity index exceeds a certain level, the cash outflow will be
\n
included in the less than three months period, whatever the
\n
level of the index at the year end. The settlement date of debt
\n
securities in issue, issued by certain securitisation vehicles
\n
consolidated by NatWest Group, depends on when cash flows
\n
are received from the securitised assets. Where these assets
\n
are prepayable, the timing of the cash outflow relating to
\n
securities assumes that each asset will be prepaid at the
\n
earliest possible date. As the repayments of assets and
\n
liabilities are linked, the repayment of assets in securitisations is
\n
shown on the earliest date that the asset can be prepaid, as
\n
this is the basis used for liabilities.
\n
The principal amounts of financial assets and liabilities that are
\n
repayable after 20 years or where the counterparty has no
\n
right to repayment of the principal are excluded from the table,
\n
as are interest payments after 20 years.
\n
The maturity of guarantees and commitments is based on the
\n
earliest possible date they would be drawn in order to evaluate
\n
NatWest Group\u2019s liquidity position.
\n
MFVTPL assets of \u00a3145.8 billion (2021 - \u00a3165.6 billion) and HFT
\n
liabilities of \u00a3146.7 billion (2021 - \u00a3165.3 billion) have been
\n
excluded from the following tables.
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
144,832
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
130
345
28
41
(44)
43
\n
Settlement balances
2,572
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,254
1,621
17
288
\u2014
\u2014
\n
Loans to customers - amortised cost
50,923
43,417
76,278
55,128
85,038
100,085
\n
Other financial assets
(1)
2,771
4,507
8,391
7,835
5,706
2,524
\n
Finance lease
96
267
857
482
549
296
\n
206,578
50,157
85,571
63,774
91,249
102,948
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
6,690
1,445
5,662
8,503
89
\u2014
\n
Customer deposits
437,830
11,389
1,252
2
14
20
\n
Settlement balances
2,012
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
280
(371)
586
306
116
85
\n
Other financial liabilities
6,720
6,640
18,833
13,906
7,361
294
\n
Subordinated liabilities
96
1,073
2,690
1,897
1,541
328
\n
Other liabilities- Notes in circulation
3,218
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
41
113
260
203
318
254
\n
456,887
20,289
29,283
24,817
9,439
981
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
3,150
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,779
\u2014
\u2014
\u2014
\u2014
\u2014
\n
121,929
\u2014
\u2014
\u2014
\u2014
\u2014
\n
2021
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
177,757
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(23)
(32)
72
15
10
17
\n
Settlement balances
2,141
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,735
1,689
21
\u2014
\u2014
\u2014
\n
Loans to customers - amortised cost
65,760
43,144
63,979
45,057
73,044
90,115
\n
Other financial assets
(1)
3,924
7,576
10,467
8,048
7,444
5,523
\n
Finance lease
290
340
746
504
704
377
\n
255,584
52,717
75,285
53,624
81,202
96,032
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
13,292
421
566
12,003
\u2014
\u2014
\n
Customer deposits
473,123
5,440
1,155
73
4
19
\n
Settlement balances
2,068
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(57)
(31)
561
155
(152)
(198)
\n
Other financial liabilities
6,967
9,293
16,953
10,062
7,905
292
\n
Subordinated liabilities
66
1,604
3,481
2,170
1,496
563
\n
Other liabilities- Notes in circulation
3,047
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
74
161
220
167
281
251
\n
498,580
16,888
22,936
24,630
9,534
927
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
2,055
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,536
\u2014
\u2014
\u2014
\u2014
\u2014
\n
120,591
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(1)
Other financial assets exclude equity shares.
\n
(2)
NatWest Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. NatWest Group expects most guarantees it provides to expire
\n
unused.
\n
(3)
NatWest Group has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being
\n
met by the counterparty. NatWest Group does not expect all facilities to be drawn, and some may lapse before drawdown
.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
14 Derivatives
\n
Derivative is a term covering a wide range of financial instruments that derive their
fair value from an underlying rate or price, for
\n
example interest rates or exchange rates (the underlying). NatWest Group uses derivatives as a part of its trading activities, to
\n
manage its own risks such as interest rate, foreign exchange, or credit risk and in certain customer transactions. This note
shows
\n
contracted volumes of derivatives, how they are used for hedging purposes and more specifically the effects of the application of
\n
hedge accounting.
\n
For accounting policy information see Accounting policies note 3.8 and 3.12.
\n
2022
2021
\n
Notional
Assets
Liabilities
Notional
Assets
Liabilities
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Exchange rate contracts
3,168
45,829
45,237
3,167
38,517
39,286
\n
Interest rate contracts
10,742
53,480
48,535
8,919
67,458
61,206
\n
Credit derivatives
15
236
275
14
154
343
\n
Equity and commodity contracts
\u2014
\u2014
\u2014
\u2014
10
\u2014
\n
99,545
94,047
106,139
100,835
\n
NatWest Group applies hedge accounting to reduce the
\n
accounting mismatch caused in the income statement by using
\n
derivatives to hedge the following risks: interest rate, foreign
\n
exchange and the foreign exchange risk associated with net
\n
investment in foreign operations.
\n
NatWest Group\u2019s interest rate hedging relates to the
\n
management of NatWest Group\u2019s non-trading structural
\n
interest rate risk, caused by the mismatch between fixed
\n
interest rates and floating interest rates on its financial
\n
instruments. NatWest Group manages this risk within approved
\n
limits. Residual risk positions are hedged with derivatives,
\n
principally interest rate swaps.
\n
Suitable larger fixed rate financial instruments are subject to
\n
fair value hedging in line with documented risk management
\n
strategies
\n
Cash flow hedges of interest rate risk relate to exposures to the
\n
variability in future interest payments and receipts due to the
\n
movement of benchmark interest rates on forecast transactions
\n
and on financial assets and financial liabilities. This variability in
\n
cash flows is hedged by interest rate swaps, which convert
\n
variable cash flows into fixed. For these cash flow hedge
\n
relationships, the hedged items are actual and forecast variable
\n
interest rate cash flows arising from financial assets and
\n
financial liabilities with interest rates linked to the relevant
\n
benchmark rates, most notably USD LIBOR, SOFR, EURIBOR,
\n
SONIA and the Bank of England Official Bank Rate. The
\n
variability in cash flows due to movements in the relevant
\n
benchmark rate is hedged; this risk component is identified
\n
using the risk management systems of NatWest Group and
\n
encompasses the majority of cash flow variability risk.
\n
Fair value hedges of interest rate risk involve interest rate
\n
swaps transforming the fixed interest rate risk in financial
\n
assets and financial liabilities to floating. The hedged risk is the
\n
risk of changes in the hedged item\u2019s fair value attributable to
\n
changes in the benchmark interest rate risk component of the
\n
hedged item. The significant benchmarks identified as risk
\n
components are USD LIBOR, SOFR, EURIBOR and SONIA.
\n
These risk components are identified using the risk
\n
management systems of NatWest Group and encompass the
\n
majority of the hedged item\u2019s fair value risk.
\n
NatWest Group hedges the exchange rate risk of its net
\n
investment in foreign currency denominated operations with
\n
currency borrowings and forward foreign exchange contracts.
\n
NatWest Group reviews the value of the investments\u2019 net
\n
assets, executing hedges where appropriate to reduce the
\n
sensitivity of capital ratios to foreign exchange rate movement.
\n
Hedge accounting relationships will be designated where
\n
required.
\n
Exchange rate risk also arises in NatWest Group where
\n
payments are denominated in currencies other than the
\n
functional currency. Residual risk positions are hedged with
\n
forward foreign exchange contracts, fixing the exchange rate
\n
the payments will be settled in. The derivatives are documented
\n
as cash flow hedges.
\n
For all cash flow hedging and fair value hedge relationships,
\n
and net investment hedging, NatWest Group determines that
\n
there is an adequate level of offsetting between the hedged
\n
item and hedging instrument at inception and on an ongoing
\n
basis. This is achieved by comparing movements in the fair
\n
value of the expected highly probable forecast cash flows/fair
\n
value of the hedged item attributable to the hedged risk with
\n
movements in the fair value of the expected changes in cash
\n
flows from the hedging instruments. The method used for
\n
comparing movements is either regression testing or the dollar
\n
offset method. The method for testing effectiveness and the
\n
period over which the test is performed depends on the
\n
applicable risk management strategy and is applied consistently
\n
to each risk management strategy. Hedge effectiveness is
\n
assessed on a cumulative basis and the determination of
\n
effectiveness is in line with the requirements of IAS39.
\n
NatWest Group uses either the actual ratio between the hedged
\n
item and hedging instrument(s) or one that minimises hedge
\n
ineffectiveness to establish the hedge ratio for hedge
\n
accounting. Hedge ineffectiveness is measured in line with the
\n
requirements of IAS39 and recognised in the income statement
\n
as it arises.
Included in the table below are derivatives held for hedging purposes as follows:
\n
2022
2021
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectiven
\n
ess (1)
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectivene
\n
ss (1)
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
Interest rate contracts
58.7
1,554
3,009
482
65.6
1,176
2,057
897
\n
Cash flow hedging
\n
Interest rate contracts
167.6
2,681
6,207
(3,342)
133.1
952
1,149
(931)
\n
Exchange rate contracts
6.3
142
112
(3)
7.3
30
109
27
\n
Net investment hedging
\n
Exchange rate contracts
0.5
1
9
4
0.5
11
1
7
\n
233.1
4,378
9,337
(2,859)
206.5
2,169
3,316
\u2014
\n
IFRS netting/Clearing
\n
house settlements
(4,235)
(9,205)
(2,125)
(3,196)
\n
143
132
44
120
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year.
The following table shows the period in which the notional of hedging contract ends:
\n
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
20+ years
Total
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.5
1.9
4.7
4.9
4.2
2.5
1.1
19.8
\n
Hedging liabilities - interest rate risk
1.0
2.9
14.6
10.3
9.6
0.5
\u2014
38.9
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
6.6
9.4
46.5
21.9
10.1
\u2014
\u2014
94.5
\n
Average fixed interest rate (%)
1.36
1.98
1.71
2.04
1.02
3.12
\u2014
1.72
\n
Hedging liabilities
\n
Interest rate risk
17.3
26.8
15.7
5.1
7.5
0.7
\u2014
73.1
\n
Average fixed interest rate (%)
1.27
0.95
2.75
1.03
2.68
4.55
\u2014
1.63
\n
Hedging assets
\n
Exchange rate risk
0.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\n
Hedging liabilities
\n
Exchange rate risk
\u2014
1.1
2.8
2.1
0.2
\u2014
\u2014
6.2
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
2021
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.9
2.5
5.5
5.7
6.2
4.9
4.5
30.2
\n
Hedging liabilities - interest rate risk
1.1
4.2
11.8
9.3
8.4
0.6
0.0
35.4
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
5.4
8.1
14.3
24.5
11.4
\u2014
\u2014
63.7
\n
Average fixed interest rate (%)
1.40
1.19
1.35
0.65
0.82
\u2014
\u2014
0.97
\n
Hedging liabilities
\n
Interest rate risk
8.8
21.1
33.0
3.3
2.5
0.7
\u2014
69.4
\n
Average fixed interest rate (%)
0.50
0.24
0.41
0.47
1.01
4.55
0.44
\n
Hedging assets
\n
Exchange rate risk
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Hedging liabilities
\n
Exchange rate risk
0.1
2.4
3.5
1.3
\u2014
\u2014
\u2014
7.3
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
For cash flow hedging of exchange rate risk, the average foreign exchange rates applicable across the relationships were as below
\n
for the main currencies hedged.
\n
2022
2021
\n
INR/GBP
100.54
106.58
\n
USD/GBP
1.29
1.38
\n
CHF/GBP
1.15
1.25
\n
JPY/GBP
132.89
132.93
\n
JPY/USD
128.29
n/a
\n
NOK/USD
9.21
n/a
\n
CNH/GBP
n/a
8.74
\n
For net investment hedging of exchange rate risk, the average foreign exchange rates applicable were as below for the main
\n
currencies hedged.
\n
2022
2021
\n
SEK/GBP
13.23
11.74
\n
DKK/GBP
n/a
8.85
\n
NOK/GBP
12.34
12.12
\n
AED/USD
4.42
3.67
\n
USD/GBP
1.20
1.32
The table below analyses assets and liabilities subject to hedging derivatives.
\n
Carrying value of
\n
hedge assets and
\n
liabilities
\n
Impact on hedge items
\n
included in carrying
\n
value
\n
Changes in fair value used as
\n
a basis to determine
\n
ineffectivemness (1)
\n
Impact on hedge items
\n
ceased to be adjusted for
\n
hedging gains or losses
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
5,764
(526)
(1,236)
63
\n
Other financial assets - securities
12,897
(922)
(2,525)
(2)
\n
Total
18,661
(1,448)
(3,761)
61
\n
Bank and customer deposits
565
(3)
3
\u2014
\n
Other financial liabilities - debt securities in issue
35,856
(2,222)
2,790
\u2014
\n
Subordinated liabilities
5,504
(547)
526
\u2014
\n
Total
41,925
(2,772)
3,319
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customer - amortised cost
(2)
93,212
5,263
\n
Other financial assets - securities
1,176
73
\n
Total
94,388
5,336
\n
Bank and customer deposits
72,610
(2,008)
\n
Other financial liabilities - debt securities in issue
571
(46)
\n
Total
73,181
(2,054)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
(2)
\u2014
\u2014
\n
Other financial assets - securities
\u2014
\u2014
\n
Total
\u2014
\u2014
\n
Other financial liabilities - debt securities in issue
4,141
(2)
\n
Subordinated liabilities
\u2014
\u2014
\n
Other
204
5
\n
Total
4,345
3
\n
2021
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
6,603
701
(478)
69
\n
Other financial assets - securities
30,882
518
(1,576)
\u2014
\n
Total
37,485
1,219
(2,054)
69
\n
Other financial liabilities - debt securities in issue
34,371
454
953
\u2014
\n
Subordinated liabilities
6,235
(9)
255
\u2014
\n
Total
40,606
445
1,208
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customers - amortised cost
63,025
1,984
\n
Other financial assets - securities
714
26
\n
Total
63,739
2,010
\n
Bank and customer deposits
68,383
(1,084)
\n
Other financial liabilities - debt securities in issue
1,006
(21)
\n
Total
69,389
(1,105)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
21
\u2014
\n
Other financial assets - securities
2
\u2014
\n
Total
23
\u2014
\n
Cash flow hedging - exchange rate
\n
Other financial liabilities - debt securities in issue
6,337
(5)
\n
Subordinated liabilities
742
(12)
\n
Other
200
(10)
\n
Total
7,279
(27)
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year
.
\n
(2)
Includes cash and balances at central banks.
The following table shows an analysis of the pre-tax cash flow hedge reserve and foreign exchange hedge reserve.
\n
2022
2021
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing
\n
Interest rate risk
(3,576)
\u2014
(295)
\u2014
\n
Foreign exchange risk
16
(85)
23
53
\n
De-designated
\n
Interest rate risk
(297)
\u2014
(297)
\u2014
\n
Foreign exchange risk
20
(880)
10
(759)
\n
Total
(3,837)
(965)
(559)
(706)
\n
2022
2021
\n
Foreign
Foreign
\n
Cash flow
exchange
Cash flow
exchange
\n
hedge reserve
hedge reserve
hedge reserve
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Amount recognised in equity
\n
Interest rate risk
(2,997)
(64)
(700)
\u2014
\n
Foreign exchange risk
24
(202)
13
88
\n
Total
(2,973)
(266)
(687)
88
\n
Amount transferred from equity to earnings
\n
Interest rate risk to net interest income
(252)
\u2014
(181)
\u2014
\n
Interest rate risk to non-interest income
(1)
(21)
\u2014
20
\u2014
\n
Interest rate risk to operating expenses
(14)
\u2014
\u2014
\u2014
\n
Foreign exchange risk to net interest income
(29)
\u2014
(4)
2
\n
Foreign exchange risk to non-interest income
15
7
1
(2)
\n
Foreign exchange risk to operating expenses
(3)
\u2014
3
\u2014
\n
Total
(304)
7
(161)
\u2014
\n
(1)
There was \u00a321 million (2021 - \u00a320 million) reclassified with the cash flow reserve to earnings due to forecasted cash flows that are no longer expected to occur.
\n
Hedge ineffectiveness recognised in other operating income comprises:
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
(Loss)/gain on hedged items attributable to the hedged risk
(442)
(846)
877
\n
Gain/(loss) on the hedging instruments
482
897
(875)
\n
Fair value hedging ineffectiveness
40
51
2
\n
Cash flow hedging
\n
Interest rate risk
(60)
(26)
22
\n
Cash flow hedging ineffectiveness
(60)
(26)
22
\n
Total
(20)
25
24
\n
The main sources of ineffectiveness for interest rate risk hedge accounting relationships are:
\n
\ue001
The effect of the counterparty credit risk on the fair value of the interest rate swap which is not reflected in the fair value of the
\n
hedged item attributable to the change in interest rate (fair value hedge).
\n
\ue001
Differences in the repricing basis between the hedging instrument and hedged cash flows (cash flow hedge); and
\n
\ue001
Upfront present values on the hedging derivatives where hedge accounting relationships have been designated after the trade
\n
date (cash flow hedge and fair value hedge).
15 Loan impairment provisions
\n
Loan exposure and impairment metrics
\n
There is a risk that customers and counterparties fail to meet their contractual obligation to settle outstanding amounts, known as
\n
expected credit losses (ECL). The calculation of ECL considers historic, current and forward-looking information to determine the
\n
amount we do not expect to recover. ECL is recognised on current and potential exposures, and contingent liabilities.
\n
For accounting policy information see Accounting policies note 2.3. Further disclosures on credit risk and information on ECL
\n
methodology are shown from page 190.
\n
The table below summarises loans and credit impairment measures within the scope of IFRS 9 Expected credit losses framework.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
325,224
330,824
\n
Stage 2
46,833
33,981
\n
Stage 3
5,096
5,022
\n
Of which: individual
1,121
1,215
\n
Of which: collective
3,975
3,807
\n
377,153
369,827
\n
ECL provisions
(1)
\n
- Stage 1
632
302
\n
- Stage 2
1,043
1,478
\n
- Stage 3
1,759
2,026
\n
Of which: individual
287
363
\n
Of which: collective
1,472
1,663
\n
3,434
3,806
\n
ECL provision coverage
(2)
\n
- Stage 1 (%)
0.19
0.09
\n
- Stage 2 (%)
2.23
4.35
\n
- Stage 3 (%)
34.52
40.34
\n
0.91
1.03
\n
Continuing operations
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3,4)
337
(1,173)
\n
Stage 1
(290)
(1,317)
\n
Stage 2
393
(164)
\n
Stage 3
234
308
\n
Of which: individual
54
20
\n
Of which: collective
180
288
\n
Amounts written off
482
876
\n
Of which: individual
168
455
\n
Of which: collective
314
421
\n
(1)
Includes loans to customers and banks.
\n
(2)
Includes \u00a33 million (2021 - \u00a35 million) related to assets classified as FVOCI and \u00a30.1 billion (2021 - \u00a30.1 billion related to off-balance sheet exposures.
\n
(3)
ECL provisions coverage is calculated as total ECL provisions divided by loans \u2013 amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
\n
(4)
Includes a \u00a33 million charge (2021 - \u00a33 million release) related to other financial assets, of which nil (2021 - \u00a32 million release) related to assets classified as FVOCI; and \u00a35
\n
million release (2021 - \u00a334 million release) related to contingent liabilities.
\n
(5)
The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to Financial instruments within the scope of the IFRS 9 ECL
\n
framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling \u00a3143.3 billion (2021 \u2013
\n
\u00a3176.3 billion) and debt securities of \u00a329.9 billion (2021 \u2013 \u00a344.9 billion).
Credit risk enhancement and mitigation
\n
For information on Credit risk enhancement and mitigation held
\n
as security, refer to Risk and capital management \u2013 Credit risk
\n
enhancement and mitigation section.
\n
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
\n
IFRS 9 ECL model design principles
\n
Refer to Credit risk \u2013 IFRS 9 ECL model design principles
\n
section for further details.
\n
Approach for multiple economic scenarios (MES)
\n
The base scenario plays a greater part in the calculation of
\n
ECL than the approach to MES. Refer to Credit risk \u2013 Economic
\n
loss drivers - Probability weightings of scenarios section for
\n
further details.
\n
16 Other financial assets
\n
Other financial assets consist of debt securities, equity shares and loans that are not held for trading. Balances consist of local and
\n
central government securities, a component part of NatWest Group\u2019s liquidity portfolio.
\n
For accounting policy information see Accounting policy 3.8.
\n
Debt securities
\n
Central and local government
\n
UK
US
Other
Other debt
Total
Equity shares
Loans
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
2
2
3
782
787
\n
Fair value through other comprehensive
\n
income
(1)
\n
802
7,175
1,757
6,765
16,499
357
117
16,973
\n
Amortised cost
2,562
937
54
9,582
13,135
\u2014
\u2014
13,135
\n
Total
3,364
8,112
1,811
16,349
29,636
360
899
30,895
\n
2021
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
6
6
13
298
317
\n
Fair value through other comprehensive
\n
income
(1)
11,938
10,086
5,604
9,058
36,686
312
268
37,266
\n
Amortised cost
3,821
156
81
4,504
8,562
\u2014
\u2014
8,562
\n
Total
15,759
10,242
5,685
13,568
45,254
325
566
46,145
\n
(1)
Upon initial recognition, NatWest Group occasionally irrevocably
designates some of its equity investments as equity instruments at FVOCI when they meet the definition of equity
\n
under IAS 32 Financial instruments: presentation, are not held for trading or they are held for strategic purposes. Such classification is determined on an instrument-by-instrument
\n
basis. Gains and losses on these equity instruments are not recycled to the income statement and dividends are recognised in profit or loss except when they represent a recovery
\n
of part of the cost of the instrument, in which case such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.
\n
During the year NatWest Group acquired \u00a3146 million of equity shares in Permanent TSB Group Holdings p.l.c. as part
\n
consideration on the sale of certain assets. Refer to Note 8 for additional information on assets of disposal groups. In addition,
\n
NatWest Group acquired \u00a326 million of equity shares in Vodeno Limited.
\n
NatWest Group disposed of equity shares in Visa Inc. of \u00a399 million and UBS Equity Funds of \u00a369 million. There were no significant
\n
disposals in the prior year. There are no significant dividends on equity shares held at FVOCI in either year.
19 Other financial liabilities
\n
Other financial liabilities consist of customer deposits designated at fair value and debt securities in issue.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.11.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Customer deposits - designated as at fair value through profit or loss
1,050
568
\n
Debt securities in issue
\n
- MRELs
22,265
23,422
\n
- Other medium term notes
16,419
12,430
\n
- Commercial paper and certificates of deposit
5,672
9,153
\n
- Covered bonds
2,842
2,886
\n
- Securitisation
859
867
\n
Total
49,107
49,326
20 Subordinated liabilities
\n
Subordinated liabilities are debt securities that, in the event of winding up or bankruptcy, rank below other liabilities for interest
\n
payments and repayment.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.11.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Dated loan capital
5,968
8,051
\n
Undated loan capital
173
259
\n
Preference shares
119
119
\n
6,260
8,429
\n
Certain preference shares issued by the company are classified as liabilities; these securities remain subject to the capital
\n
maintenance rules of the Companies Act 2006.
\n
First call
Maturity
Capital
2022
2021
\n
Dated loan capital
date
date
treatment
\u00a3m
\u00a3m
\n
Natwest Group plc
\n
$2,250 million
6.13% notes
\u2014
Dec-22
Tier 2
\u2014
986
\n
$2,250 million
5.13% notes
\u2014
May-24
Tier 2
706
956
\n
$2,000 million
6.00% notes
\u2014
Dec-23
Tier 2
536
1073
\n
\u00a31,000 million
3.622% notes
Aug-25
Aug-30
Tier 2
964
995
\n
\u00a31,000 million
2.105% notes
Aug-26
Nov-31
Tier 2
1001
999
\n
$1,000 million
6.10% notes
\u2014
Jun-23
Tier 2
126
354
\n
$850 million
3.032% notes
Nov-30
Nov-35
Tier 2
555
584
\n
\u20ac750 million
1.043% notes
Jun-27
Sep-32
Tier 2
665
630
\n
$750 million
3.754% notes
Nov-24
Nov-29
Tier 2
626
558
\n
\u00a3650 million
7.416% notes
Mar-28
Jun-33
Tier 2
641
\u2014
\n
$650 million
6.425% notes
Jan-34
Jan-43
Not applicable
\u2014
554
\n
5,820
7,689
\n
Other subsidiaries
\n
$650 million
6.3% notes
Jan-34
Dec-43
Not applicable
\u2014
39
\n
\u20ac300 million
Floating rate notes
\u2014
Jun-22
Tier 2
\u2014
252
\n
\u20ac170 million
Floating rate notes
\u2014
Feb-41
Not applicable
223
331
\n
$150 million
7.125% notes
\u2014
Oct-93
Not applicable
18
113
\n
\u20ac145.6 million
Floating rate notes
\u2014
Apr-23
Tier 2
122
119
\n
$136 million
7.75% notes
\u2014
May-23
Not applicable
83
104
\n
6,266
8,647
\n
Undated loan capital
\n
Natwest Group plc
\n
$762 million
7.648% notes
Sep-31
\u2014
Not applicable
\u2014
51
\n
Other subsidiaries
\n
\u00a316 million
5.63% notes
Sep-26
\u2014
Not applicable
18
20
\n
\u00a319 million
5.63% notes
Jun-32
\u2014
Tier 2
\u2014
1
\n
\u00a321 million
6.2% notes
Mar-22
\u2014
Tier 2
\u2014
22
\n
\u00a331 million
7.38% notes
\u2014
\u2014
Not applicable
2
1
\n
\u00a353 million
7.125% notes
Oct-22
\u2014
Not applicable
\u2014
56
\n
\u20ac31 million
11.375% notes
\u2014
\u2014
Tier 2
48
45
\n
\u00a335 million
11.5%
notes
Dec-22
\u2014
Not applicable
72
31
\n
\u00a311 million
11.75% notes
\u2014
\u2014
Tier 2
25
24
\n
\u00a31.1 million
SONIA + 2.8266% notes
\u2014
\u2014
Tier 2
2
2
\n
\u00a34.9 million
2.5% fixed notes
\u2014
\u2014
Not applicable
6
6
\n
173
259
\n
Preference shares
\n
Other subsidiaries
\n
\u00a3140 million
Non-cumulative preference shares of \u00a31
\u2014
\u2014
Not applicable
119
119
\n
119
119
\n
Fair Value Hedging
(298)
(596)
\n
6,260
8,429
\n
(1)
Notes redeemed before call date as tax and regulatory benefits discontinued.
24 Asset transfers
\n
This note provides an overview of asset transfers which do not qualify for derecognition and therefore continue to be recognised in
\n
NatWest Group\u2019s balance sheet.
\n
For accounting policy information see Accounting policies note 3.9.
\n
Transfers that do not qualify for derecognition
\n
NatWest Group enters into securities repurchase, lending and
\n
total return transactions in accordance with normal market
\n
practice which includes the provision of additional collateral if
\n
necessary. Under standard terms in the UK and US markets,
\n
the recipient has an unrestricted right to sell or repledge
\n
collateral, subject to returning equivalent securities on
\n
settlement of the transaction.
\n
Securities sold under repurchase transactions and transactions
\n
with the substance of securities repurchase agreements are not
\n
derecognised if NatWest Group retains substantially all the risks
\n
and rewards of ownership. The fair value (and carrying value)
\n
of securities transferred under such transactions included on
\n
the balance sheet, are set out below. All of these securities
\n
could be sold or repledged by the holder.
\n
2022
2021
\n
The following assets have failed derecognition
(1)
\u00a3m
\u00a3m
\n
Trading assets
6,668
13,084
\n
Loans to bank - amortised cost
16
38
\n
Loans to customers - amortised cost
398
1,837
\n
Other financial assets
2,901
11,746
\n
Total
9,983
26,705
\n
(1)
Associated liabilities were \u00a39,501 million (2021 \u2013 \u00a324,747 million).
\n
Assets pledged as collateral
\n
NatWest Group pledges collateral with its counterparties in respect of derivative liabilities and bank and stock borrowings.
\n
2022
2021
\n
Assets pledged against liabilities
\u00a3m
\u00a3m
\n
Trading assets
15,062
23,601
\n
Loans to banks - amortised cost
66
62
\n
Loans to customers - amortised cost
17,493
20,108
\n
Other financial assets
(1)
3,351
3,624
\n
Total
35,972
47,395
\n
(1)
Includes assets pledged for pension derivatives and stock borrowings.
\n
As part of the covered debt programme \u00a38,156 million of loans to customers and other debt instruments (2021 \u2013 \u00a38,965 million)
\n
have been transferred to bankruptcy remote limited liability partnerships within the NatWest Group to provide collateral for issues
\n
of debt securities and other borrowing by the NatWest Group of \u00a34,132 million (2021 \u2013 \u00a33,512 million). See Structured Entities Note.
29 Analysis of cash and cash equivalents
In the cash flow statement, cash and cash equivalents comprises cash, loans to banks and treasury bills with an original maturity
\n
of less than three months that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
190,706
139,199
100,588
\n
Net (decrease)/increase in cash and cash equivalents
(32,257)
51,507
38,611
\n
At 31 December
158,449
190,706
139,199
\n
Comprising:
\n
Cash and balances at central banks
144,832
177,757
124,489
\n
Trading assets
8,551
7,137
9,220
\n
Other financial assets
19
16
173
\n
Loans to banks
(1)
5,047
5,796
5,317
\n
Cash and cash equivalents
158,449
190,706
139,199
\n
(1)
Includes cash collateral posted with bank counterparties in respect of derivative liabilities of \u00a34,895 million (2021 - \u00a34,293 million; 2020 - \u00a37,592 million).
\n
Certain members of NatWest Group are required by law or regulation to maintain balances with the central banks in the
\n
jurisdictions in which they operate. Natwest Markets N.V.
had mandatory reserve deposits with
De Nederlandsche Bank N.V.
of \u20ac64
\n
million (2021 - \u20ac60 million, 2020 - \u20ac81 million).
The Royal Bank of Scotland International (Holdings) Limited had balances with
Central Bank of Luxembourg of \u00a3108 million (2021 - \u00a3123 million, 2020 - \u00a359 million) ", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25945": { "value": "
Credit risk \u2013 Banking activities
\n
Introduction
\n
This section details the credit risk profile of NatWest Group\u2019s banking activities. Refer to Accounting policy 2.3 and Note 15 to the
\n
consolidated financial statements for policies and critical judgments relating to impairment loss determination.
\n
Presentation of discontinued operations and assets and liabilities of disposal groups
\n
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from
\n
the Republic of Ireland. Material developments since the beginning of 2022 are set out below.
\n
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
\n
Successful migration of six tranches of performing commercial loans to AIB was completed during 2022, with \u20ac2.1 billion of gross
\n
performing loans being fully migrated by year-end. It is expected that remaining migrations of commercial customers will be
\n
materially completed in phases over H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business
\n
are in the process of getting transferred to AIB under Transfer of Undertakings, Protection of Employment (TUPE) arrangements,
\n
with more than half having completed their move by the end of 2022. Losses on disposal of \u20ac123 million have been recognised in
\n
2022 in respect of the migrations completed to date.
\n
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the
\n
performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform,
\n
and 25 Ulster Bank branch locations in the Republic of Ireland.
\n
c.\u20ac5 billion of performing non-tracker mortgages migrated to PTSB in November 2022, with the remaining balances expected to
\n
migrate during H1 2023. In January 2023, 25 branches transferred to PTSB. The remaining performing non-tracker mortgages,
\n
micro-SME loans, Lombard Asset Finance business and all remaining eligible colleagues who will move under TUPE regulations,
\n
are also expected to transfer in 2023.
\n
Agreement with AIB for the sale of performing tracker and linked mortgages.
\n
In January 2023 the Competition and Consumer Protection Commission (CCPC) granted approval on the portfolio sale of
\n
performing tracker and linked mortgages to AIB. Completion of this sale is expected to occur in Q2 2023.
\n
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and
\n
as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as
\n
discontinued operations. Ulster Bank RoI continuing operations are now reported within Group central items & other. In 2022 we
\n
reclassified mortgage loans to fair value through profit or loss, which resulted in a \u20ac453 million reduction in mortgage financial
\n
assets in UBIDAC to 31 December 2022. This reclassification applies across both our continuing and discontinued operations.
\n
Refer to Note 8 to the consolidated financial statements for further details.
\n
Financial instruments within the scope of the IFRS 9 ECL framework
(audited)
\n
Refer to Note 10 to the consolidated financial statements for balance sheet analysis of financial assets that are classified as
\n
amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework
\n
assessment. The table below excludes loans in disposal group of \u00a31.5 billion (2021 \u2013 \u00a39.1 billion).
\n
31 December 2022
31 December 2021
\n
Gross
ECL
Net
Gross
ECL
Net
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Balance sheet total gross amortised cost and FVOCI
554.3
596.1
\n
In scope of IFRS 9 ECL framework
550.3
590.9
\n
% in scope
99%
99%
\n
Loans to customers - in scope - amortised cost
370.1
3.3
366.8
361.9
3.7
358.2
\n
Loans to customers - in scope - FVOCI
0.1
\u2014
0.1
0.3
\u2014
0.3
\n
Loans to banks - in scope - amortised cost
6.9
\u2014
6.9
7.6
\u2014
7.6
\n
Total loans - in scope
377.1
3.3
373.8
369.8
3.7
366.1
\n
Stage 1
325.2
0.6
324.6
330.8
0.3
330.5
\n
Stage 2
46.8
0.9
45.9
34.0
1.4
32.6
\n
Stage 3
5.1
1.8
3.3
5.0
2.0
3.0
\n
Other financial assets - in scope - amortised cost
156.4
\u2014
156.4
184.4
\u2014
184.4
\n
Other financial assets - in scope - FVOCI
16.8
\u2014
16.8
36.7
\u2014
36.7
\n
Total other financial assets - in scope
173.2
\u2014
173.2
221.1
\u2014
221.1
\n
Stage 1
172.4
\u2014
172.4
220.8
\u2014
220.8
\n
Stage 2
0.8
\u2014
0.8
0.3
\u2014
0.3
\n
Out of scope of IFRS 9 ECL framework
4.0
na
4.0
5.2
na
5.2
\n
Loans to customers - out of scope - amortised cost
(0.4)
na
(0.4)
0.8
na
0.8
\n
Loans to banks - out of scope - amortised cost
0.2
na
0.2
0.1
na
0.1
\n
Other financial assets - out of scope - amortised cost
4.1
na
4.1
4.0
na
4.0
\n
Other financial assets - out of scope - FVOCI
0.1
na
0.1
0.3
na
0.3
\n
The assets outside the scope of IFRS 9 ECL framework were as
\n
follows:
\n
\ue001
Settlement balances, items in the course of collection, cash
\n
balances and other non-credit risk assets of \u00a34.3 billion
\n
(2021 \u2013 \u00a33.7 billion). These were assessed as having no ECL
\n
unless there was evidence that they were defaulted.
\n
\ue001
Equity shares of \u00a30.4 billion (2021 \u2013 \u00a30.3 billion) as not
\n
within the IFRS 9 ECL framework by definition.
\n
\ue001
Fair value adjustments on loans hedged by interest rate
\n
swaps, where the underlying loan was within the IFRS 9
\n
ECL scope \u2013 \u00a3(0.6) billion (2021 \u2013 \u00a30.8 billion).
\n
\ue001
NatWest Group originated securitisations, where ECL was
\n
captured on the underlying loans of \u00a3nil billion (2021 \u2013 \u00a30.4
\n
billion).
\n
Contingent liabilities and commitments
\n
In addition to contingent liabilities and commitments disclosed
\n
in Note 26 to the consolidated financial statements,
\n
reputationally-committed limits were also included in the scope
\n
of the IFRS 9 ECL framework. These were offset by \u00a3(0.1)
\n
billion (2021 \u2013 \u00a30.8 billion) out of scope balances primarily
\n
related to facilities that, if drawn, would not be classified as
\n
amortised cost or FVOCI, or undrawn limits relating to financial
\n
assets exclusions. Total
contingent liabilities (including financial
\n
guarantees) and commitments within IFRS 9 ECL scope of
\n
\u00a3137.2 billion (2021 \u2013 \u00a3127.9 billion) comprised Stage 1 \u00a3119.2
\n
billion (2021 \u2013 \u00a3119.5 billion); Stage 2 \u00a317.3 billion (2021 \u2013 \u00a37.8
\n
billion); and Stage 3 \u00a30.7 billion (2021 \u2013 \u00a30.6 billion).
\n
The ECL relating to off balance sheet exposures was \u00a30.1
\n
billion (2021 \u2013 \u00a30.1 billion). The total ECL in the remainder of
\n
the Credit risk section of \u00a33.4 billion (2021 \u2013 \u00a33.8 billion)
\n
included ECL for both on and off balance sheet exposures for
\n
non-disposal groups.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
174,727
18,367
108,791
23,339
325,224
\n
Stage 2
21,561
801
24,226
245
46,833
\n
Stage 3
2,565
242
2,166
123
5,096
\n
Of which: individual
\u2014
168
905
48
1,121
\n
Of which: collective
2,565
74
1,261
75
3,975
\n
Subtotal excluding
\n
disposal group loans
198,853
19,410
135,183
23,707
377,153
\n
Disposal group loans
1,502
1,502
\n
Total
25,209
378,655
\n
ECL provisions
(1)
\n
Stage 1
251
21
342
18
632
\n
Stage 2
450
14
534
45
1,043
\n
Stage 3
917
26
747
69
1,759
\n
Of which: individual
\u2014
26
251
10
287
\n
Of which: collective
917
\u2014
496
59
1,472
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,618
61
1,623
132
3,434
\n
ECL on disposal group loans
53
53
\n
Total
185
3,487
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.14
0.11
0.31
0.08
0.19
\n
Stage 2 (%)
2.09
1.75
2.20
18.37
2.23
\n
Stage 3 (%)
35.75
10.74
34.49
56.10
34.52
\n
ECL provisions coverage excluding
\n
disposal group loans
0.81
0.31
1.20
0.56
0.91
\n
ECL provisions coverage on
\n
disposal group loans
3.53
3.53
\n
Total
0.73
0.92
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3)
229
(2)
122
(12)
337
\n
Stage 1
(146)
2
(135)
(11)
(290)
\n
Stage 2
268
(7)
108
24
393
\n
Stage 3
107
3
149
(25)
234
\n
Of which: individual
\u2014
3
57
(6)
54
\n
Of which: collective
107
\u2014
92
(19)
180
\n
Continuing operations
229
(2)
122
(12)
337
\n
Discontinued operations
(71)
(71)
\n
Total
(83)
266
\n
Amounts written-off
216
15
224
27
482
\n
Of which: individual
\u2014
15
153
\u2014
168
\n
Of which: collective
216
\u2014
71
27
314
\n
For the notes to this table refer to the following page.
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
168,013
17,600
107,368
37,843
330,824
\n
Stage 2
13,594
967
18,477
943
33,981
\n
Stage 3
1,884
270
2,081
787
5,022
\n
Of which: individual
\u2014
270
884
61
1,215
\n
Of which: collective
1,884
\u2014
1,197
726
3,807
\n
Subtotal excluding disposal group loans
183,491
18,837
127,926
39,573
369,827
\n
Disposal group loans
9,084
9,084
\n
Total
48,657
378,911
\n
ECL provisions
(1)
\n
Stage 1
134
12
129
27
302
\n
Stage 2
590
29
784
75
1,478
\n
Stage 3
850
37
751
388
2,026
\n
Of which: individual
\u2014
37
313
13
363
\n
Of which: collective
850
\u2014
438
375
1,663
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,574
78
1,664
490
3,806
\n
ECL provisions on disposal group loans
109
109
\n
Total
599
3,915
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.08
0.07
0.12
0.07
0.09
\n
Stage 2 (%)
4.34
3.00
4.24
7.95
4.35
\n
Stage 3 (%)
45.12
13.70
36.09
49.30
40.34
\n
ECL provisions coverage excluding
\n
disposal group loans
0.86
0.41
1.30
1.24
1.03
\n
ECL provisions coverage on disposal
\n
group loans
1.20
1.20
\n
Total
1.23
1.03
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3,4)
(36)
(54)
(1,160)
77
(1,173)
\n
Stage 1
(387)
(45)
(872)
(13)
(1,317)
\n
Stage 2
157
(15)
(299)
(7)
(164)
\n
Stage 3
194
6
11
97
308
\n
Of which: individual
\u2014
6
16
(2)
20
\n
Of which: collective
194
\u2014
(5)
99
288
\n
Continuing operations
(36)
(54)
(1,160)
77
(1,173)
\n
Discontinued operations
(162)
(162)
\n
Total
(85)
(1,335)
\n
Amounts written-off
220
6
562
88
876
\n
Of which: individual
\u2014
6
449
\u2014
455
\n
Of which: collective
220
\u2014
113
88
421
\n
(1)
Includes loans to customers and banks.
\n
(2)
Includes \u00a33 million (2021 \u2013 \u00a35 million) related to assets classified as FVOCI and \u00a30.1 billion (2021 \u2013 \u00a30.1 billion) related to off-balance sheet exposures.
\n
(3)
ECL provisions coverage is calculated as ECL provisions divided by loans \u2013 amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
\n
(4)
Includes a \u00a33 million charge (2021 \u2013 \u00a33 million release) related to other financial assets, of which nil (2021 \u2013 \u00a32 million release) related to assets classified as FVOCI; and \u00a35 million
\n
release (2021 \u2013 \u00a334 million release) related to contingent liabilities.
\n
(5)
The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to the Financial instruments within the scope of the IFRS 9 ECL
\n
framework section for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling \u00a3143.3 billion (2021 \u2013
\n
\u00a3176.3 billion) and debt securities of \u00a329.9 billion (2021 \u2013 \u00a344.9 billion).
\n
\ue001
Stage 1 and Stage 2 modelled ECL increased due to
\n
deterioration in forward-looking economics, although the
\n
Stage 2 growth was more than offset by reductions in post
\n
model adjustments.
\n
\ue001
Stage 2 loans increased during 2022 in line with portfolio
\n
growth alongside deterioration in forward-looking
\n
economics as a result of the high inflation environment and
\n
supply chain disruption growing throughout the second half
\n
of the year.
\n
\ue001
Stage 3 loans increased, as write-offs and repayments were
\n
more than offset by the effect of the new regulatory
\n
definition of default, which in isolation led to an increase of
\n
approximately \u00a30.7 billion in Stage 3 balances, mostly in
\n
mortgages.
\n
\ue001
Underlying flows into default remained subdued during
\n
2022. However, it is expected that defaults will increase in
\n
2023 as growing inflationary pressures on businesses,
\n
consumers and the broader economy continue to evolve.
\n
\ue001
There was a significant reduction in loans, ECL, and
\n
coverage in Central items & other due to the phased
\n
withdrawal of Ulster Bank RoI.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet
\n
exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these
\n
exposures.
\n
Loans - amortised cost
Off-balance sheet
\n
and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Wholesale
1,269
193
40
1,502
413
19
17
19
17
53
\n
Total
1,269
193
40
1,502
413
19
17
19
17
53
\n
2021
\n
Personal
\n
5,547
210
34
5,791
\u2014
\u2014
4
6
7
17
\n
Wholesale
2,647
639
7
3,293
1,665
115
10
78
4
92
\n
Total
8,194
849
41
9,084
1,665
115
14
84
11
109
\n
(1)
Ulster Bank mortgages moves to fair value in 2023 and are no longer subject to ECL assessment. Due to fair value treatment this portfolio is no longer included in the 2022 figures
\n
of credit risk tables for either disposal or non-disposal groups.
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
Gross loans
ECL provisions
(2)
\n
Stage 2
(1)
Stage 2
(1)
\n
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Retail Banking
174,727
20,653
605
303
21,561
2,565
198,853
251
406
14
30
450
917
1,618
\n
Private Banking
18,367
730
39
32
801
242
19,410
21
14
\u2014
\u2014
14
26
61
\n
Personal
15,182
122
35
16
173
207
15,562
5
1
\u2014
\u2014
1
17
23
\n
Wholesale
3,185
608
4
16
628
35
3,848
16
13
\u2014
\u2014
13
9
38
\n
Commercial
\n
& Institutional
108,791
22,520
956
750
24,226
2,166
135,183
342
491
26
17
534
747
1,623
\n
Personal
2,475
17
17
7
41
46
2,562
3
1
\u2014
\u2014
1
12
16
\n
Wholesale
106,316
22,503
939
743
24,185
2,120
132,621
339
490
26
17
533
735
1,607
\n
Central items
\n
& other
23,339
234
4
7
245
123
23,707
18
42
1
2
45
69
132
\n
Personal
54
70
3
6
79
13
146
1
11
1
2
14
11
26
\n
Wholesale
23,285
164
1
1
166
110
23,561
17
31
\u2014
\u2014
31
58
106
\n
Total loans
325,224
44,137
1,604
1,092
46,833
5,096
377,153
632
953
41
49
1,043
1,759
3,434
\n
Of which:
\n
Personal
192,438
20,862
660
332
21,854
2,831
217,123
260
419
15
32
466
957
1,683
\n
Wholesale
132,786
23,275
944
760
24,979
2,265
160,030
372
534
26
17
577
802
1,751
\n
2021
\n
Retail Banking
168,013
12,275
863
456
13,594
1,884
183,491
134
516
38
36
590
850
1,574
\n
Private Banking
17,600
902
27
38
967
270
18,837
12
29
\u2014
\u2014
29
37
78
\n
Personal
14,350
137
24
11
172
232
14,754
6
2
\u2014
\u2014
2
18
26
\n
Wholesale
3,250
765
3
27
795
38
4,083
6
27
\u2014
\u2014
27
19
52
\n
Commercial
\n
& Institutional
107,368
17,352
455
670
18,477
2,081
127,926
129
750
23
11
784
751
1,664
\n
Personal
2,647
21
17
11
49
57
2,753
2
1
\u2014
\u2014
1
10
13
\n
Wholesale
104,721
17,331
438
659
18,428
2,024
125,173
127
749
23
11
783
741
1,651
\n
Central items & other
37,843
837
58
48
943
787
39,573
27
69
3
3
75
388
490
\n
Personal
5,165
510
52
46
608
609
6,382
7
15
3
3
21
301
329
\n
Wholesale
32,678
327
6
2
335
178
33,191
20
54
\u2014
\u2014
54
87
161
\n
Total loans
330,824
31,366
1,403
1,212
33,981
5,022
369,827
302
1,364
64
50
1,478
2,026
3,806
\n
Of which:
\n
Personal
190,175
12,943
956
524
14,423
2,782
207,380
149
534
41
39
614
1,179
1,942
\n
Wholesale
140,649
18,423
447
688
19,558
2,240
162,447
153
830
23
11
864
847
1,864
\n
For the notes to this table refer to the following page.
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
ECL provisions coverage
ECL
\n
Stage 2
(1,2)
\n
Stage 1
\n
Not past due
\n
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
Total
\n
(release) /
\n
charge (3)
\n
Amounts
\n
written-off
\n
2022
%
%
%
%
%
%
%
\u00a3m
\u00a3m
\n
Retail Banking
0.14
1.97
2.31
9.90
2.09
35.75
0.81
229
216
\n
Private Banking
0.11
1.92
\u2014
\u2014
1.75
10.74
0.31
(2)
15
\n
Personal
0.03
0.82
\u2014
\u2014
0.58
8.21
0.15
(3)
2
\n
Wholesale
0.50
2.14
\u2014
\u2014
2.07
25.71
0.99
1
13
\n
Commercial & Institutional
0.31
2.18
2.72
2.27
2.20
34.49
1.20
122
224
\n
Personal
0.12
5.88
\u2014
\u2014
2.44
26.09
0.62
4
2
\n
Wholesale
0.32
2.18
2.77
2.29
2.20
34.67
1.21
118
222
\n
Central items & other
0.08
17.95
25.00
28.57
18.37
56.10
0.56
(12)
27
\n
Personal
1.85
15.71
33.33
33.33
17.72
84.62
17.81
11
1
\n
Wholesale
0.07
18.90
\u2014
\u2014
18.67
52.73
0.45
(23)
26
\n
Total loans
0.19
2.16
2.56
4.49
2.23
34.52
0.91
337
482
\n
Of which:
\n
Personal
0.14
2.01
2.27
9.64
2.13
33.80
0.78
241
221
\n
Wholesale
0.28
2.29
2.75
2.24
2.31
35.41
1.09
96
261
\n
2021
\n
Retail Banking
0.08
4.20
4.40
7.89
4.34
45.12
0.86
(36)
220
\n
Private Banking
0.07
3.22
\u2014
\u2014
3.00
13.70
0.41
(54)
6
\n
Personal
0.04
1.46
\u2014
\u2014
1.16
7.76
0.18
1
3
\n
Wholesale
0.18
3.53
\u2014
\u2014
3.40
50.00
1.27
(55)
3
\n
Commercial & Institutional
0.12
4.32
5.05
1.64
4.24
36.09
1.30
(1,160)
562
\n
Personal
0.08
4.76
\u2014
\u2014
2.04
17.54
0.47
\u2014
1
\n
Wholesale
0.12
4.32
5.25
1.67
4.25
36.61
1.32
(1,160)
561
\n
Central items & other
0.07
8.24
5.17
6.25
7.95
49.30
1.24
77
88
\n
Personal
0.14
2.94
5.77
6.52
3.45
49.43
5.16
97
76
\n
Wholesale
0.06
16.51
\u2014
\u2014
16.12
48.88
0.49
(20)
12
\n
Total loans
0.09
4.35
4.56
4.13
4.35
40.34
1.03
(1,173)
876
\n
Of which:
\n
Personal
0.08
4.13
4.29
7.44
4.26
42.38
0.94
62
300
\n
Wholesale
0.11
4.51
5.15
1.60
4.42
37.81
1.15
(1,235)
576
\n
2019
\n
Retail Banking
0.08
3.15
4.35
7.79
3.44
43.27
0.88
\n
Private Banking
0.05
1.26
0.00
2.17
1.19
14.01
0.27
\n
Personal
0.03
1.11
0.00
2.44
1.07
11.98
0.24
\n
Wholesale
0.12
1.34
0.00
0.00
1.31
40.00
0.38
\n
Commercial & Institutional
0.15
1.79
4.35
2.60
1.86
47.84
1.23
\n
Personal
0.04
3.70
0.00
0.00
2.00
18.46
0.48
\n
Wholesale
0.15
1.78
4.63
2.66
1.86
48.64
1.25
\n
Central items & other
0.11
2.77
5.77
6.02
3.22
34.02
2.27
\n
Personal
0.11
2.12
6.25
5.71
2.79
31.49
4.57
\n
Wholesale
0.12
4.09
0.00
7.14
4.20
63.75
0.71
\n
Total loans
0.11
2.47
4.27
5.99
2.70
41.19
1.13
\n
Of which:
\n
Personal
0.08
3.04
4.23
7.15
3.35
35.90
1.10
\n
Wholesale
0.14
1.86
4.44
3.04
1.94
49.53
1.16
\n
(1)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(2)
ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
\ue001
Retail Banking
\u2013 Balance sheet growth during 2022 was
\n
primarily within mortgages with new lending a result of
\n
strong housing demand and re-mortgage activity and
\n
increased buy-to-let lending. Unsecured lending balances
\n
also increased as consumer demand and spending
\n
recovered following the easing of COVID-19 restrictions and
\n
with selective relaxation of lending criteria. Total ECL
\n
coverage reduced slightly during 2022, reflective of low
\n
unemployment and stable portfolio performance, while
\n
maintaining sufficient ECL coverage for key portfolios
\n
above 2019 levels, given increased inflationary and
\n
economic pressures. Increasing Stage 2 size and portfolio
\n
coverage in the second half of the year reflected the
\n
deterioration in economic outlook, with portfolio
\n
performance remaining broadly stable. Stage 3 ECL
\n
increased overall, mainly because of the IFRS 9 alignment
\n
to the new regulatory default definition, implemented on 1
\n
January 2022. The implementation of new mortgage IFRS 9
\n
models resulted in lower Stage 3 ECL coverage due to
\n
reduced loss estimates for cases where the customer was
\n
not subject to repossession activity and was the primary
\n
reason for the change in overall retail Stage 3 coverage
\n
during 2022.
\n
\ue001
Commercial & Institutional
\u2013 There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. There were also continued repayments of
\n
COVID-19 government lending schemes, and strategic
\n
reductions in certain sectors. Sector appetite continues to
\n
be reviewed regularly, with particular focus on sector
\n
clusters and sub-sectors that are vulnerable to inflationary
\n
pressures or deemed to represent a heightened risk. Stage
\n
1 and Stage 2 ECL increased due to deterioration in
\n
forward-looking economics, although the Stage 2 growth
\n
was more than offset by reductions in post model
\n
adjustments. Coverage decreased with the reduction in
\n
COVID-19 post model adjustments, but coverage on Stage
\n
1 and Stage 2 was significantly above 2019 levels, reflecting
\n
current inflationary and economic pressures.
\n
\ue001
Other
\u2013 Balance sheet reduction in 2022 compared to 2021
\n
was mainly due to a reduction in central items held in the
\n
course of treasury related management activities, and a
\n
decrease due to the phased withdrawal of Ulster Bank RoI.
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and
\n
past due by sector, asset quality and geographical region.
\n
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- UK
202,957
4,420
9,602
216,979
31,452
62,318
32,480
4,285
130,535
347,514
\n
- RoI
\u2014
40
104
144
34
1,102
74
\u2014
1,210
1,354
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
623
4,670
6,967
475
12,735
12,735
\n
- RoW
\u2014
\u2014
\u2014
\u2014
465
5,587
8,617
881
15,550
15,550
\n
Loans by stage
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Stage 1
182,245
3,275
6,918
192,438
27,542
53,048
46,738
5,458
132,786
325,224
\n
- Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Stage 3
1,925
109
797
2,831
716
1,476
47
26
2,265
5,096
\n
- Of which: individual
172
\u2014
13
185
314
564
33
25
936
1,121
\n
- Of which: collective
1,753
109
784
2,646
402
912
14
1
1,329
3,975
\n
Loans - past due analysis
(3,4)
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Not past due
200,634
4,335
8,825
213,794
31,366
70,034
47,824
5,633
154,857
368,651
\n
- Past due 1-30 days
916
33
86
1,035
608
2,490
278
1
3,377
4,412
\n
- Past due 31-90 days
510
29
104
643
302
551
5
7
865
1,508
\n
- Past due 91-180 days
380
24
79
483
49
34
24
\u2014
107
590
\n
- Past due >180 days
517
39
612
1,168
249
568
7
\u2014
824
1,992
\n
Loans - Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Not past due
17,951
1,039
1,872
20,862
3,866
17,915
1,344
150
23,275
44,137
\n
- Past due 1-30 days
588
19
53
660
185
754
5
\u2014
944
1,604
\n
- Past due 31-90 days
248
18
66
332
265
484
4
7
760
1,092
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
6
5
4
6
3
1
5
5
\n
Weighted average 12 months
\n
PDs*
\n
- IFRS 9 (%)
0.50
2.62
4.78
0.71
1.88
2.11
0.23
0.19
1.41
1.01
\n
- Basel (%)
0.65
2.97
3.11
0.79
1.03
1.44
0.16
0.19
0.92
0.85
\n
ECL provisions by geography
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- UK
376
254
1,027
1,657
404
985
42
14
1,445
3,102
\n
- RoI
\u2014
3
23
26
13
66
1
\u2014
80
106
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
16
72
7
1
96
96
\n
- RoW
\u2014
\u2014
\u2014
\u2014
8
105
13
4
130
130
\n
ECL provisions by stage
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- Stage 1
81
62
117
260
107
218
32
15
372
632
\n
- Stage 2
62
122
282
466
105
457
14
1
577
1,043
\n
- Stage 3
233
73
651
957
229
553
17
3
802
1,759
\n
- Of which: individual
18
\u2014
10
28
80
163
13
3
259
287
\n
- Of which: collective
215
73
641
929
149
390
4
\u2014
543
1,472
\n
ECL provisions coverage (%)
0.19
5.76
10.82
0.78
1.35
1.67
0.13
0.34
1.09
0.91
\n
- Stage 1 (%)
0.04
1.89
1.69
0.14
0.39
0.41
0.07
0.27
0.28
0.19
\n
- Stage 2 (%)
0.33
11.34
14.16
2.13
2.43
2.39
1.03
0.64
2.31
2.23
\n
- Stage 3 (%)
12.10
66.97
81.68
33.80
31.98
37.47
36.17
11.54
35.41
34.52
\n
ECL (release)/charge
(74)
56
259
241
126
(47)
19
(2)
96
337
\n
- UK
(74)
57
247
230
118
(67)
14
(3)
62
292
\n
- RoI
\u2014
(1)
12
11
1
(26)
(2)
\u2014
(27)
(16)
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
4
\u2014
1
\u2014
5
5
\n
- RoW
\u2014
\u2014
\u2014
\u2014
3
46
6
1
56
56
\n
Amounts written-off
31
67
123
221
33
188
40
\u2014
261
482
\n
*Not within audit scope.
\n
For the notes to this table refer to page 216.
Personal
Wholesale
\n
Mortgages
(1)
\n
Credit
\n
cards
\n
Other
\n
person
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- <1 year
3,347
2,655
3,368
9,370
6,740
24,297
36,192
2,958
70,187
79,557
\n
- 1-5 year
10,968
1,805
5,387
18,160
17,523
32,127
10,380
1,819
61,849
80,009
\n
- > 5 years
188,642
\u2014
951
189,593
8,311
17,253
1,566
864
27,994
217,587
\n
Other financial assets by asset
\n
quality
(2)
\u2014
\u2014
\u2014
\u2014
49
25
14,704
158,416
173,194
173,194
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
14,156
158,416
172,583
172,583
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
49
14
548
\u2014
611
611
\n
Off-balance sheet
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- Loan commitments
18,782
15,848
8,496
43,126
15,302
54,651
18,223
710
88,886
132,012
\n
- Financial guarantees
\u2014
\u2014
51
51
491
3,140
1,332
\u2014
4,963
5,014
\n
Off-balance sheet by asset quality
(2)
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- AQ1-AQ4
17,676
436
7,353
25,465
12,477
35,960
17,899
606
66,942
92,407
\n
- AQ5-AQ8
1,089
15,048
1,170
17,307
3,282
21,496
1,655
84
26,517
43,824
\n
- AQ9
2
74
4
80
5
24
\u2014
\u2014
29
109
\n
- AQ10
15
290
20
325
29
311
1
20
361
686
\n
For the notes to this table refer to page 216.
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- UK
187,847
3,877
9,253
200,977
31,574
62,952
39,086
4,542
138,154
339,131
\n
- RoI
6,164
70
147
6,381
130
1,222
116
4
1,472
7,853
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
439
3,831
5,066
840
10,176
10,176
\n
- RoW
\u2014
\u2014
22
22
379
2,846
8,773
647
12,645
12,667
\n
Loans by stage
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Stage 1
180,418
2,924
6,833
190,175
28,679
53,803
52,263
5,904
140,649
330,824
\n
- Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Stage 3
2,050
90
642
2,782
742
1,444
46
8
2,240
5,022
\n
- of which: individual
269
\u2014
19
288
329
583
7
8
927
1,215
\n
- of which: collective
1,781
90
623
2,494
413
861
39
\u2014
1,313
3,807
\n
Loans - past due analysis
(3,4)
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Not past due
190,834
3,834
8,619
203,287
31,391
68,630
52,285
6,030
158,336
361,623
\n
- Past due 1-30 days
1,217
28
124
1,369
521
1,081
732
2
2,336
3,705
\n
- Past due 31-90 days
592
25
73
690
256
448
19
1
724
1,414
\n
- Past due 91-180 days
367
22
61
450
91
215
1
\u2014
307
757
\n
- Past due >180 days
1,001
38
545
1,584
263
477
4
\u2014
744
2,328
\n
Loans - Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Not past due
10,259
899
1,785
12,943
2,725
14,870
708
120
18,423
31,366
\n
- Past due 1-30 days
843
16
97
956
125
318
4
\u2014
447
1,403
\n
- Past due 31-90 days
441
18
65
524
251
416
20
1
688
1,212
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
5
5
5
6
3
1
6
6
\n
Weighted average 12
\n
months PDs*
\n
- IFRS 9 (%)
0.16
4.84
2.73
0.36
0.76
1.85
0.14
0.14
1.00
0.65
\n
- Basel (%)
0.76
3.31
3.22
0.91
1.20
1.74
0.14
0.16
1.04
0.97
\n
ECL provisions by geography
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- UK
449
258
904
1,611
331
1,124
47
18
1,520
3,131
\n
- RoI
319
2
10
331
19
107
3
1
130
461
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
20
77
4
1
102
102
\n
- RoW
\u2014
\u2014
\u2014
\u2014
4
103
3
2
112
112
\n
ECL provisions by stage
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- Stage 1
32
59
58
149
24
96
14
19
153
302
\n
- Stage 2
174
141
299
614
111
713
39
1
864
1,478
\n
- Stage 3
562
60
557
1,179
239
602
4
2
847
2,026
\n
- of which: individual
19
\u2014
12
31
69
261
\u2014
2
332
363
\n
- of which: collective
543
60
545
1,148
170
341
4
\u2014
515
1,663
\n
ECL provisions coverage (%)
0.40
6.59
9.70
0.94
1.15
1.99
0.11
0.36
1.15
1.03
\n
- Stage 1 (%)
0.02
2.02
0.85
0.08
0.08
0.18
0.03
0.32
0.11
0.09
\n
- Stage 2 (%)
1.51
15.11
15.36
4.26
3.58
4.57
5.33
0.83
4.42
4.35
\n
- Stage 3 (%)
27.41
66.67
86.76
42.38
32.21
41.69
8.70
25.00
37.81
40.34
\n
ECL (release)/charge
(5)
46
(14)
30
62
(477)
(723)
(38)
3
(1,235)
(1,173)
\n
- UK
(52)
(14)
31
(35)
(457)
(647)
(12)
3
(1,113)
(1,148)
\n
- RoI
98
\u2014
(1)
97
(5)
(23)
2
\u2014
(26)
71
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
(7)
(7)
(21)
\u2014
(35)
(35)
\n
- RoW
\u2014
\u2014
\u2014
\u2014
(8)
(46)
(7)
\u2014
(61)
(61)
\n
Amounts written-off
85
74
141
300
271
271
34
\u2014
576
876
\n
*Not within audit scope.
\n
For the notes to this table refer to the following page.
Personal
Wholesale
\n
Mortgages
\n
Credit
\n
cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- <1 year
3,611
2,532
3,197
9,340
7,497
22,593
41,195
2,809
74,094
83,434
\n
- 1-5 year
12,160
1,415
5,393
18,968
16,293
33,301
10,969
1,967
62,530
81,498
\n
- > 5 years
178,240
\u2014
832
179,072
8,732
14,957
877
1,257
25,823
204,895
\n
Other financial assets by asset quality
(2)
\u2014
\u2014
\u2014
\u2014
55
11
11,516
209,553
221,135
221,135
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
10,974
209,551
220,536
220,536
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
55
\u2014
542
2
599
599
\n
Off-balance sheet
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- Loan commitments
16,827
15,354
8,170
40,351
15,882
49,231
16,906
1,212
83,231
123,582
\n
- Financial guarantees
\u2014
\u2014
60
60
460
2,802
992
\u2014
4,254
4,314
\n
Off-balance sheet by asset quality
(2)
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- AQ1-AQ4
14,792
248
6,591
21,631
12,550
30,417
16,192
1,064
60,223
81,854
\n
- AQ5-AQ8
2,028
14,804
1,625
18,457
3,757
21,262
1,703
148
26,870
45,327
\n
- AQ9
\u2014
9
3
12
6
48
1
\u2014
55
67
\n
- AQ10
7
293
11
311
29
306
2
\u2014
337
648
\n
(1)
Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are
\n
reported in UK, which includes crown dependencies, reflecting the country of lending origination.
\n
(2)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(3)
AQ bandings are based on Basel PDs and mapping is as follows:
\n
Internal asset
\n
quality band
\n
Probability of
\n
default range
\n
Indicative
\n
S&P rating
\n
AQ1
0% - 0.034%
AAA to AA
\n
AQ2
0.034% - 0.048%
AA to AA-
\n
AQ3
0.048% - 0.095%
A+ to A
\n
AQ4
0.095% - 0.381%
BBB+ to BBB-
\n
AQ5
0.381% - 1.076%
BB+ to BB
\n
AQ6
1.076% - 2.153%
BB- to B+
\n
AQ7
2.153% - 6.089%
B+ to B
\n
AQ8
6.089% - 17.222%
B- to CCC+
\n
AQ9
17.222% - 100%
CCC to C
\n
AQ10
100%
D
\n
\u00a30.3 billion (2021 \u2013 \u00a30.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited.
The table below shows ECL by stage, for the Personal portfolio and selected sectors of the Wholesale portfolios.
\n
Off-balance sheet
\n
Loans - amortised cost and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
192,438
21,854
2,831
217,123
43,126
51
260
466
957
1,683
\n
Mortgages
182,245
18,787
1,925
202,957
18,782
\u2014
81
62
233
376
\n
Credit cards
3,275
1,076
109
4,460
15,848
\u2014
62
122
73
257
\n
Other personal
6,918
1,991
797
9,706
8,496
51
117
282
651
1,050
\n
Wholesale
132,786
24,979
2,265
160,030
88,886
4,963
372
577
802
1,751
\n
Property*
27,542
4,316
716
32,574
15,302
491
107
105
229
441
\n
Financial institutions**
46,738
1,353
47
48,138
18,223
1,332
32
14
17
63
\n
Sovereigns
5,458
157
26
5,641
710
\u2014
15
1
3
19
\n
Corporate
53,048
19,153
1,476
73,677
54,651
3,140
218
457
553
1,228
\n
Of which:
\n
Agriculture*
3,646
1,034
93
4,773
968
24
21
31
43
95
\n
Airlines and aerospace*
483
1,232
19
1,734
1,715
174
2
40
8
50
\n
Automotive*
5,776
1,498
30
7,304
4,009
99
18
18
11
47
\n
Chemicals*
384
117
1
502
650
12
1
2
1
4
\n
Health
3,974
1,008
141
5,123
475
8
19
30
48
97
\n
Industrials*
2,148
1,037
82
3,267
3,135
195
10
16
24
50
\n
Land transport & logistics*
3,788
1,288
66
5,142
3,367
190
13
33
17
63
\n
Leisure*
3,416
3,787
260
7,463
1,907
102
27
147
115
289
\n
Mining & metals*
173
230
5
408
545
5
\u2014
1
5
6
\n
Oil and gas*
953
159
60
1,172
2,157
248
3
3
31
37
\n
Power utilities*
4,228
406
6
4,640
6,960
1,182
9
11
1
21
\n
Retail*
6,497
1,746
150
8,393
4,682
416
21
29
68
118
\n
Shipping*
161
151
14
326
110
22
\u2014
7
6
13
\n
Water & waste*
3,026
335
7
3,368
2,143
101
4
4
4
12
\n
Total
325,224
46,833
5,096
377,153
132,012
5,014
632
1,043
1,759
3,434
\n
2021
\n
Personal
190,175
14,423
2,782
207,380
40,351
60
149
614
1,179
1,942
\n
Mortgages
180,418
11,543
2,050
194,011
16,827
\u2014
32
174
562
768
\n
Credit cards
2,924
933
90
3,947
15,354
\u2014
59
141
60
260
\n
Other personal
6,833
1,947
642
9,422
8,170
60
58
299
557
914
\n
Wholesale
140,649
19,558
2,240
162,447
83,231
4,254
153
864
847
1,864
\n
Property*
28,679
3,101
742
32,522
15,882
460
24
111
239
374
\n
Financial institutions**
52,263
732
46
53,041
16,906
992
14
39
4
57
\n
Sovereigns
5,904
121
8
6,033
1,212
\u2014
19
1
2
22
\n
Corporate
53,803
15,604
1,444
70,851
49,231
2,802
96
713
602
1,411
\n
Of which:
\n
Agriculture*
3,722
1,229
133
5,084
993
24
11
39
78
128
\n
Airlines and aerospace*
779
668
44
1,491
1,528
221
1
39
15
55
\n
Automotive*
5,133
1,304
38
6,475
3,507
65
9
32
10
51
\n
Chemicals*
355
43
1
399
663
14
1
\u2014
\u2014
1
\n
Health
3,818
1,235
133
5,186
799
9
9
58
48
115
\n
Industrials*
2,311
620
28
2,959
2,770
243
4
15
13
32
\n
Land transport & logistics*
3,721
833
39
4,593
3,069
188
4
53
12
69
\n
Leisure*
3,712
4,050
340
8,102
1,874
107
11
247
133
391
\n
Mining & metals*
336
42
4
382
627
131
\u2014
2
4
6
\n
Oil and gas*
1,482
141
52
1,675
1,126
453
1
14
28
43
\n
Power utilities*
3,844
220
6
4,070
5,622
404
2
3
1
6
\n
Retail*
6,380
1,342
180
7,902
4,872
410
8
29
66
103
\n
Shipping*
506
334
27
867
90
12
1
11
10
22
\n
Water & waste*
2,714
230
4
2,948
1,850
91
2
5
2
9
\n
Total
330,824
33,981
5,022
369,827
123,582
4,314
302
1,478
2,026
3,806
\n
* Wholesale sectors marked with an asterisk contain an element of exposure classified as heightened climate-related risk. Elements of the personal mortgage portfolio are also exposed
\n
to heightened climate-related risk. The classification of sectors into heightened climate-related risk mentioned within this footnote is not within audit scope.
\n
**Financial institutions (FI) include transactions, such as securitisations, where the underlying assets may be in other sectors.
Wholesale forbearance
(audited)
\n
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is
\n
disclosed in the Personal portfolio section. The table shows current exposure but reflects risk transfers where there is a guarantee
\n
by another customer.
\n
Property
FI
Other corporate
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Forbearance (flow)
746
105
2,575
3,426
\n
Forbearance (stock)
933
107
4,709
5,749
\n
Heightened Monitoring and Risk of Credit Loss
976
112
3,445
4,533
\n
2021
\n
Forbearance (flow)
709
27
3,894
4,630
\n
Forbearance (stock)
1,033
35
5,659
6,727
\n
Heightened Monitoring and Risk of Credit Loss
1,225
83
4,492
5,800
\n
Sector analysis \u2013 portfolio summary
(audited)
\n
\ue001
Loans by geography and sector
\u2013 In line with NatWest
\n
Group\u2019s strategic focus, exposures continued to be mainly
\n
in the UK. Exposure to the Republic of Ireland reduced
\n
during the year as part of the phased withdrawal noted
\n
previously. In Personal, balance sheet growth was a result
\n
of strong mortgage demand during the year. In Wholesale,
\n
there was a reduction in the balance sheet in Q4, following
\n
a period of growth up to Q3. This was mainly due to a
\n
reduction in central items held in the course of treasury
\n
related management activities. There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. Repayment performance under COVID-19
\n
government lending schemes is closely tracked and
\n
exposure continued to decrease due to scheduled
\n
repayment activity and account closures. Exposures under
\n
the Bounce Bank Loan Scheme (BBLS) that benefit from the
\n
100% government guarantee account for approximately
\n
70% of remaining government scheme exposures. BBLS
\n
missed repayment rate and recoveries stock have increased
\n
but volumes continue to be in line with other lenders.
\n
\ue001
Loans by stage
\u2013 In both Wholesale and Personal,
\n
deterioration in forward-looking economics resulted in a
\n
larger proportion of accounts exhibiting a SICR compared
\n
to 2021. There was, therefore, a migration of exposures
\n
from Stage 1 into Stage 2 during 2022. Personal customers
\n
who had accessed payment holiday support, and where
\n
their risk profile was identified as relatively high, are no
\n
longer collectively migrated into Stage 2. The relevance of
\n
this collective SICR identification was no longer considered
\n
as pertinent in the context of the current high inflation
\n
environment and related uncertainty.
\n
\ue001
Loans \u2013 Past due analysis
\u2013 Overall, the past due profile of
\n
the key portfolios remained broadly stable. The
\n
implementation of the new regulatory default definition
\n
included refinements to the days past due calculations. This
\n
contributed to an increase in arrears in H1 2022 in
\n
Personal, however this moderated through the year.
\n
Particularly in mortgages, the exit from the Republic of
\n
Ireland also contributed to the reduction in past due
\n
exposures. In Wholesale, there was an increase in past due
\n
1-30 days in corporates.
\n
\ue001
Weighted average 12 months PDs
\u2013 In Personal, the Basel II
\n
point-in-time PDs improved slightly during 2022 due to
\n
stable credit performance in the portfolios. For IFRS 9 PDs,
\n
there were increases across mortgages and other personal
\n
lending as a result of new PD model implementations during
\n
the year, coupled with the deteriorating economic outlook
\n
in the second half of the year. For credit cards, the new
\n
IFRS 9 PD model implementation drove a net reduction in
\n
PD levels, primarily resulting from more accurate modelling
\n
of defaults driven by shifts in general unemployment. In
\n
Wholesale, the Basel II PDs were based on a through-the-
\n
cycle approach and improved reflecting positive portfolio
\n
performance.
\n
The IFRS 9 PDs increased due the deterioration in forward-
\n
looking economics. For further details refer to the Asset
\n
quality section.
\n
\ue001
ECL provision by geography
\u2013 In line with loans by
\n
geography, the vast majority of ECL related to exposures in
\n
the UK, noting the reduction in RoI was mostly due to the
\n
phased withdrawal of Ulster Bank RoI and moving of assets
\n
to discontinued operations and reclassifications.
\n
\ue001
ECL provisions by stage
\u2013 As mentioned above, Stage 1 and
\n
Stage 2 ECL increased due to deterioration in forward-
\n
looking economics, although the Stage 2 growth was more
\n
than offset by reductions in post model adjustments. Stage
\n
3 provisions have yet to be materially affected by the high
\n
inflation environment and supply chain disruption, with
\n
increases relating to the introduction of the new regulatory
\n
definition of default, largely offset by write offs.
\n
\ue001
ECL provisions coverage
\u2013 Overall provisions coverage
\n
reduced, due to the phased withdrawal of Ulster Bank RoI,
\n
a change in product mix and a decrease in judgemental
\n
post model adjustments which more than offset increases
\n
from the deteriorating economic outlook.
\n
\ue001
The ECL charge and loss rate
\u2013 ECL charge and loss rate
\n
was low, with charges from a deterioration in forward-
\n
looking economics countered by reductions in post model
\n
adjustments and the continued stable portfolio performance
\n
and low default trends.
\n
\ue001
Loans by residual maturity
\u2013 The maturity profile of the
\n
portfolios remained consistent with prior periods. In
\n
mortgages, as expected, the vast majority of exposures
\n
were greater than five years. In unsecured lending \u2013 cards
\n
and other \u2013 exposures were concentrated in less than five
\n
years. In Wholesale, in financial institutions and sovereigns,
\n
lending was concentrated in less than one year, In the rest
\n
of Wholesale, most of the lending was for residual maturity
\n
of one to five years.
\n
\ue001
Other financial assets by asset quality
\u2013 Consisting almost
\n
entirely of cash and balances at central banks and debt
\n
securities, held in the course of treasury related
\n
management activities, these assets were mainly within the
\n
AQ1-AQ4 bands.
\n
\ue001
Off-balance sheet exposures by asset quality
\u2013 In Personal,
\n
undrawn exposures were reflective of available credit lines
\n
in credit cards and current accounts. Additionally, the
\n
mortgage portfolio had undrawn exposures, where a formal
\n
offer had been made to a customer but had not yet drawn
\n
down; the value increased in line with the pipeline of offers.
\n
There was also a legacy portfolio of flexible mortgages
\n
where a customer had the right and ability to draw down
\n
further funds. The asset quality was aligned to the wider
\n
portfolio. In Wholesale, growth was primarily loan
\n
commitments to financial institutions and corporate sectors
\n
in the AQ1-AQ4 bands.
\ue001
Wholesale forbearance
\u2013 Forbearance flow and stock
\n
decreased in 2022 compared to 2021, noting that 2021 was
\n
adversely affected by COVID-19. Increased levels of
\n
forbearance were observed in Q4 2022. The retail & leisure,
\n
property and services sectors represented the largest share
\n
of forbearance flow. Labour shortages, the high inflation
\n
environment, rising fuel and energy costs, interest rate
\n
impacts and supply chain issues continue to weigh on these
\n
sectors. Payment holidays and covenant waivers were the
\n
most common forms of forbearance granted.
\n
\ue001
Heightened Monitoring and Risk of Credit Loss
\u2013
Economic
\n
headwinds continue to present an uncertain outlook. Risk of
\n
Credit Loss framework exposures and inflows decreased in
\n
2022 compared to 2021, noting again that 2021 was
\n
adversely affected by COVID-19. Inflows into the
\n
framework began to increase in Q4 2022. The sector
\n
breakdown of exposures within the framework remained
\n
consistent with prior periods. Retail SME customers do not
\n
form part of the Wholesale Risk of Credit Loss framework.
\n
Customers in this group, that are in financial difficulty, are
\n
instead managed by specialist problem debt management
\n
teams. The number of customers in arrears and recoveries
\n
increased significantly during 2022, driven by BBLS
\n
exposures. Excluding BBLS, the number of customers in this
\n
population in problem debt remains stable.
Credit risk enhancement and mitigation
(audited)
\n
The table below shows exposures of modelled portfolios within the scope of the ECL framework and related credit risk
\n
enhancement and mitigation (CREM).
\n
Maximum credit risk
CREM by type
CREM coverage
\n
Exposure post
\n
CREM
Gross
\n
exposure
\n
ECL
Total
Stage 3
\n
Financial
\n
(1)
\n
Property
Other (2)
Total
Stage 3
Total
Stage 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
143.2
\u2014
143.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
143.2
\u2014
\n
Loans - amortised cost
(3)
377.2
3.3
373.9
3.4
31.8
243.1
21.7
296.6
3.0
77.3
0.4
\n
Personal
(4)
217.2
1.7
215.5
1.9
0.9
202.1
\u2014
203.0
1.7
12.5
0.2
\n
Wholesale
(5)
160.0
1.6
158.4
1.5
30.9
41.0
21.7
93.6
1.3
64.8
0.2
\n
Debt securities
29.9
\u2014
29.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
29.9
\u2014
\n
Total financial assets
550.3
3.3
547.0
3.4
31.8
243.1
21.7
296.6
3.0
250.4
0.4
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
43.2
\u2014
43.2
0.3
0.7
4.4
\u2014
5.1
\u2014
38.1
0.3
\n
Wholesale
93.9
0.1
93.8
0.4
3.1
7.4
4.0
14.5
0.1
79.3
0.3
\n
Total off-balance sheet
137.0
0.1
136.9
0.7
3.8
11.8
4.0
19.6
0.1
117.3
0.6
\n
Total exposure
687.3
3.4
683.9
4.1
35.6
254.9
25.7
316.2
3.1
367.7
1.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
176.3
\u2014
176.3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
176.3
\u2014
\n
Loans - amortised cost
(3)
369.8
3.7
366.1
3.0
41.1
232.7
23.5
297.3
2.7
68.8
0.3
\n
Personal
(4)
207.4
1.9
205.5
1.6
1.3
192.6
\u2014
193.9
1.5
11.6
0.1
\n
Wholesale
(5)
162.4
1.8
160.6
1.4
39.8
40.1
23.5
103.4
1.2
57.2
0.2
\n
Debt securities
44.9
\u2014
44.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44.9
\u2014
\n
Total financial assets
591.0
3.7
587.3
3.0
41.1
232.7
23.5
297.3
2.7
290.0
0.3
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
40.4
\u2014
40.4
0.3
0.5
4.9
\u2014
5.4
\u2014
35.0
0.3
\n
Wholesale
87.5
0.1
87.4
0.3
3.2
7.9
3.9
15.0
0.1
72.4
0.2
\n
Total off-balance sheet
127.9
0.1
127.8
0.6
3.7
12.8
3.9
20.4
0.1
107.4
0.5
\n
Total exposure
718.9
3.8
715.1
3.6
44.8
245.5
27.4
317.7
2.8
397.4
0.8
\n
(1)
Includes cash and securities collateral.
\n
(2)
Includes guarantees, charges over trade debtors, other asset finance related physical collateral as well as the amount by which credit risk exposure is reduced through netting
\n
arrangements, mainly cash management pooling, which give NatWest Group a legal right to set off the financial asset against a financial liability due to the same counterparty.
\n
(3)
NatWest Group holds collateral in respect of individual loans \u2013 amortised cost to banks and customers. This collateral includes mortgages over property (both personal and
\n
commercial); charges over business assets such as plant and equipment; inventories and trade debtors; and guarantees of lending from parties other than the borrower. NatWest
\n
Group obtains collateral in the form of securities in reverse repurchase agreements. Collateral values are capped at the value of the loan.
\n
(4)
Stage 3 mortgage exposures have relatively limited uncovered exposure reflecting the security held. On unsecured credit cards and other personal borrowing, the residual
\n
uncovered amount reflects historical experience of continued cash recovery post default through ongoing engagement with customers.
\n
(5)
Stage 3 exposures post credit risk enhancement and mitigation in Wholesale mainly represent enterprise value and the impact of written down collateral values; an individual
\n
assessment to determine ECL will consider multiple scenarios and in some instances allocate a probability weighting to a collateral value in excess of the written down value.
\n
(6)
\u00a30.3 billion (2021
\u2013
\u00a30.3 billion) Personal Stage 3 balances primarily relate to loan commitments, the draw down of which is effectively prohibited.
\n
(7)
The Personal gross exposure value includes \u00a314.0 billion (2021
\u2013
\u00a311.8 billion) in respect of pipeline mortgages where a committed offer has been made to a customer but where
\n
the funds have not yet been drawn down. When drawn down, the exposure would be covered by a security over the borrower\u2019s property.
Personal portfolio
(audited)
\n
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
\n
2022
2021
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items
\n
& other
Total
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
Personal lending
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mortgages
186,891
13,709
2,357
\u2014
202,957
172,707
12,781
2,444
6,164
194,096
\n
Of which:
\n
Owner occupied
168,790
12,096
1,541
\u2014
182,427
158,059
11,219
1,597
5,563
176,438
\n
Buy-to-let
18,101
1,613
816
\u2014
20,530
14,648
1,562
847
601
17,658
\n
Interest only - variable
3,515
3,286
258
\u2014
7,059
4,348
4,889
346
120
9,703
\n
Interest only - fixed
17,954
8,591
261
\u2014
26,806
14,255
5,957
209
3
20,424
\n
Mixed
(1)
9,768
1
16
\u2014
9,785
8,616
1
17
34
8,668
\n
ECL provisions
(2)
355
9
6
\u2014
370
429
7
8
318
762
\n
Other personal lending
(3)
11,935
1,853
267
143
14,198
10,829
1,974
305
218
13,326
\n
ECL provisions
(2)
1,257
15
3
26
1,301
1,140
19
2
11
1,172
\n
Total personal lending
198,826
15,562
2,624
143
217,155
183,536
14,755
2,749
6,382
207,422
\n
Mortgage LTV ratios
\n
- Owner occupied
52%
59%
56%
\u2014
53%
54%
59%
57%
50%
54%
\n
- Stage 1
52%
59%
56%
\u2014
53%
54%
59%
56%
48%
54%
\n
- Stage 2
52%
61%
60%
\u2014
52%
52%
59%
62%
57%
52%
\n
- Stage 3
45%
59%
74%
\u2014
47%
49%
64%
77%
56%
53%
\n
- Buy-to-let
50%
59%
53%
\u2014
51%
50%
57%
53%
52%
51%
\n
- Stage 1
51%
59%
53%
\u2014
52%
50%
58%
53%
51%
51%
\n
- Stage 2
49%
53%
48%
\u2014
49%
52%
55%
50%
56%
52%
\n
- Stage 3
47%
55%
57%
\u2014
50%
51%
53%
60%
66%
56%
\n
Gross new mortgage lending
41,227
2,968
327
\u2014
44,522
35,290
2,874
340
40
38,544
\n
Of which:
\n
Owner occupied
36,305
2,701
221
\u2014
39,227
33,630
2,583
206
40
36,459
\n
Weighted average LTV
(4)
69%
65%
65%
\u2014
69.0%
69%
65%
67%
62%
68%
\n
Buy-to-let
4,922
267
106
\u2014
5,295
1,660
292
134
\u2014
2,086
\n
Weighted average LTV
(4)
64%
66%
60%
\u2014
64.0%
63%
65%
63%
60%
64%
\n
Interest only - variable rate
24
329
11
\u2014
364
25
832
37
\u2014
894
\n
Interest only - fixed rate
5,299
2,335
51
\u2014
7,685
2,388
1,563
36
\u2014
3,987
\n
Mixed
(1)
2,309
\u2014
2
\u2014
2,311
2,256
\u2014
7
\u2014
2,263
\n
Mortgage forbearance
\n
Forbearance flow
(5)
182
7
4
\u2014
193
316
19
4
50
389
\n
Forbearance stock
1,015
16
8
\u2014
1,039
1,156
3
8
944
2,111
\n
Current
649
8
6
\u2014
663
727
\u2014
5
616
1,348
\n
1-3 months in arrears
133
\u2014
2
\u2014
135
146
2
1
58
207
\n
>3 months in arrears
233
8
\u2014
\u2014
241
283
1
2
270
556
\n
(1)
Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.
\n
(2)
Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(3)
Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.
\n
(4)
The new lending LTV in the comparative has been amended to reflect LTV at the time of lending origination rather than LTV at the reporting period.
\n
(5)
Forbearance flows only include an account once per year, although some accounts may be subject to multiple forbearance deals. Forbearance deals post default are excluded from
\n
these flows.
\n
\ue001
The mortgage portfolio grew steadily during 2022, benefiting
\n
from buoyant housing market activity and customers re-
\n
mortgaging as interest rates rose across the market.
\n
\ue001
LTV ratios improved as house prices increased as a result of
\n
housing market demand.
\n
\ue001
The existing mortgage stock and new business were closely
\n
monitored against agreed risk appetite parameters. These
\n
included loan-to-value ratios, buy-to-let concentrations,
\n
new-build concentrations and credit quality. Affordability
\n
assessments and assumptions were continuously reviewed
\n
considering inflationary pressure, interest rate rises and
\n
taxation changes during the year.
\n
\ue001
The buy-to-let portfolio grew in 2022. This growth was
\n
expected and within risk appetite following strategy and
\n
customer journey simplification implemented in H2 2021.
\n
\ue001
Aligned to strong overall portfolio quality and low levels of
\n
early arrears, forbearance flows have decreased compared
\n
to the prior year.
\n
\ue001
Unsecured lending increased during 2022, with resilient
\n
customer demand after the easing of COVID-19 restrictions.
\n
\ue001
As noted previously, ECL increased, for further detail of
\n
movements in ECL provisions at product level refer to the
\n
Flow statements section.
Personal portfolio
(audited)
\n
Mortgage LTV distribution by stage
\n
The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9
\n
ECL reflected portfolios carried at fair value.
\n
Mortgages
ECL provisions
ECL provisions coverage (2)
\n
Retail Banking
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9
\n
ECL scope
\n
Total
\n
Of which;
\n
gross
\n
lending
\n
Stage 1
Stage 2
Stage 3
Total (1)
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
71,321
8,257
1,036
61
80,675
7,467
26
20
121
167
\u2014
0.2
11.7
0.2
\n
>50% and \u226470%
68,178
7,792
616
7
76,593
14,088
32
30
71
133
\u2014
0.4
11.5
0.2
\n
>70% and \u226480%
17,602
1,602
62
1
19,267
11,154
7
6
11
24
\u2014
0.4
17.7
0.1
\n
>80% and \u226490%
7,918
944
17
1
8,880
7,127
6
5
5
16
0.1
0.5
29.4
0.2
\n
>90% and \u2264100%
1,409
18
6
\u2014
1,433
1,389
3
\u2014
2
5
0.2
\u2014
33.3
0.3
\n
>100%
35
7
10
\u2014
52
2
2
\u2014
4
6
5.7
\u2014
40.0
11.5
\n
Total with LTVs
166,463
18,620
1,747
70
186,900
41,227
76
61
214
351
\u2014
0.3
12.3
0.2
\n
Other
59
1
1
\u2014
61
\u2014
3
\u2014
1
4
5.1
\u2014
100.0
6.6
\n
Total
166,522
18,621
1,748
70
186,961
41,227
79
61
215
355
\u2014
0.3
12.3
0.2
\n
2021
\n
\u226450%
61,233
4,548
644
63
66,488
5,845
7
60
140
207
\u2014
1.3
21.7
0.3
\n
>50% and \u226470%
68,271
4,674
483
9
73,437
12,397
10
64
84
158
\u2014
1.4
17.4
0.2
\n
>70% and \u226480%
24,004
1,255
93
1
25,353
10,964
3
18
15
36
\u2014
1.4
16.1
0.1
\n
>80% and \u226490%
5,983
250
22
1
6,256
4,985
1
8
5
14
\u2014
3.2
22.7
0.2
\n
>90% and \u2264100%
1,125
58
10
\u2014
1,193
1,098
\u2014
5
3
8
\u2014
8.6
30.0
0.7
\n
>100%
14
18
6
\u2014
38
\u2014
\u2014
1
2
3
\u2014
5.6
33.3
7.9
\n
Total with LTVs
160,630
10,803
1,258
74
172,765
35,289
21
156
249
426
\u2014
1.4
19.8
0.2
\n
Other
14
1
1
\u2014
16
1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Total
160,644
10,804
1,259
74
172,781
35,290
21
156
249
426
\u2014
1.4
19.8
0.2
\n
(1)
Excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(2)
ECL provisions coverage is ECL provisions divided by mortgages.
\n
\ue001
The reduced coverage level in the lower LTV bands for
\n
Retail Banking, relative to 31 December 2021, reflected the
\n
implementation of a new IFRS 9 LGD model with a modelling
\n
approach that now captures a reduced loss expectation
\n
from non-repossession recovery action.
\n
\ue001
Continued stable portfolio performance alongside the new
\n
IFRS 9 PD and LGD model implementations resulted in
\n
reduced coverage across most LTV bands in Stage 2 and
\n
Stage 3. The increased ECL across Stage 1 LTV bands was
\n
mainly due to higher Stage 1 PDs as a result of the new PD
\n
model implementation and also the proportionate allocation
\n
of the economic uncertainty post model adjustment to Stage
\n
1.
Personal portfolio
(audited)
\n
Retail Banking mortgage LTV distribution by region
\n
The table below shows gross mortgage lending by LTV band for Retail Banking, by geographical region.
\n
Flood risk*
\n
\u226450%
50%\u226480%
80%\u2264100%
>100%
Total
\n
Weighted
\n
average LTV
\n
Other
Total
Total
\n
lending at
\n
high/very high
\n
risk**
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
\u00a3m
\u00a3m
%
%
\n
South East
15,856
17,670
1,396
1
34,923
51
3
34,926
19
4.1
\n
Greater London
15,200
17,550
1,336
1
34,087
51
3
34,090
18
2.3
\n
Scotland
5,024
6,174
1,163
1
12,362
54
1
12,363
7
3.2
\n
North West
7,670
8,672
1,236
2
17,580
52
2
17,582
9
2.2
\n
South West
7,874
7,922
627
\u2014
16,423
50
1
16,424
9
3.0
\n
West Midlands
5,477
7,014
862
1
13,354
53
1
13,355
7
1.2
\n
East of England
9,241
11,492
987
2
21,722
52
2
21,724
12
2.1
\n
Rest of the UK
14,312
19,408
2,712
43
36,475
54
48
36,523
19
3.2
\n
Total
80,654
95,902
10,319
51
186,926
52
61
186,987
100
2.8
\n
2021
\n
South East
13,160
18,298
886
1
32,345
53
3
32,348
19
4.4
\n
Greater London
13,308
16,716
1,477
1
31,502
53
3
31,505
18
2.5
\n
Scotland
4,493
6,529
559
2
11,583
54
1
11,584
7
3.5
\n
North West
6,598
9,212
654
3
16,467
53
2
16,469
10
2.4
\n
South West
6,140
8,619
499
1
15,259
53
2
15,261
9
3.4
\n
West Midlands
4,323
7,449
553
1
12,326
55
1
12,327
6
1.8
\n
East of England
7,467
11,679
820
1
19,967
54
2
19,969
12
2.6
\n
Rest of the UK
10,937
20,278
2,001
26
33,242
56
2
33,244
19
3.6
\n
Total
66,426
98,780
7,449
36
172,691
54
16
172,707
100
3.1
\n
*Not within audit scope.
\n
**Flood hazard is modelled by looking at the four different types of flooding (surface water, ground water, coastal and river) and
\n
calculating the frequency and depth of flooding nationally to derive flood maps. Flood defences are considered where available.
\n
Flood scores are allocated per property based on the potential flood damage to property dependent on the type, frequency and
\n
depth of flooding modelled across different return periods. The scoring ranges from 0 to 53, with 0 being lowest and 53 being the
\n
highest risk. We consider a score of 11 and above to be high risk and properties with a score of 31 and above within the very high
\n
risk category after flood mitigants are taken into account. This is not within audit scope.
Retail Banking mortgages by Energy Performance Certificate (EPC) rating*
\n
The table below represents the energy efficiency of Retail Banking residential mortgages.
\n
31 December 2022
31 December 2021
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
EPC rating
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
A
424
12
436
282
8
290
\n
B
19,874
1,342
21,216
15,719
852
16,571
\n
C
28,049
5,228
33,277
22,138
3,178
25,316
\n
D
47,497
6,033
53,530
41,814
4,187
46,001
\n
E
17,153
1,687
18,840
16,238
1,332
17,570
\n
F
3,691
86
3,777
3,637
113
3,750
\n
G
789
21
810
734
27
761
\n
Unclassified
51,313
3,692
55,005
57,497
4,951
62,448
\n
Total
168,790
18,101
186,891
158,059
14,648
172,707
\n
*Not within audit scope.
\n
As at 31 December 2022, \u00a3138.8 billion, 68%, of the total UK residential mortgages portfolio, including both Private Banking and
\n
Retail Banking mortgages had Energy Performance Certificate (EPC) data available (2021 \u2013 \u00a3116.2 billion, 62%). Of which, 41.5%
\n
were rated as EPC A to C (2021 \u2013 38.3%). EPC data source and limitations are provided in section 5.2 of the 2022 NatWest Group
\n
Climate-related Disclosures Report
\n
Commercial real estate (CRE)*
\n
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential
\n
properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The
\n
sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and
\n
control frameworks.
\n
2022
2021
\n
UK
RoI
Other
Total
UK
RoI
Other
Total
\n
By geography and sub-sector (1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Investment
\n
Residential
(2)
4,583
2
13
4,598
4,326
10
16
4,352
\n
Office
(3)
2,781
10
\u2014
2,791
3,030
13
10
3,053
\n
Retail
(4)
3,754
\u2014
\u2014
3,754
4,157
24
\u2014
4,181
\n
Industrial
(5)
2,939
\u2014
184
3,123
2,758
2
106
2,866
\n
Mixed/other
(6)
876
7
46
929
1,175
24
49
1,248
\n
14,933
19
243
15,195
15,446
73
181
15,700
\n
Development
\n
Residential
(2)
1,693
7
\u2014
1,700
1,775
34
2
1,811
\n
Office
(3)
81
\u2014
\u2014
81
79
\u2014
\u2014
79
\n
Retail
(4)
56
\u2014
\u2014
56
48
\u2014
\u2014
48
\n
Industrial
(5)
90
\u2014
\u2014
90
67
\u2014
\u2014
67
\n
Mixed/other
(6)
14
1
\u2014
15
20
2
\u2014
22
\n
1,934
8
\u2014
1,942
1,989
36
2
2,027
\n
Total
16,867
27
243
17,137
17,435
109
183
17,727
\n
*Not within audit scope.
\n
(1)
Geographical splits are based on country of collateral risk.
\n
(2)
Properties including houses, flats and student accommodation.
\n
(3)
Properties including offices in central business districts, regional headquarters and business parks.
\n
(4)
Properties including high street retail, shopping centres, restaurants, bars and gyms.
\n
(5)
Properties including distribution centres, manufacturing and warehouses.
\n
(6)
Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.
Commercial real estate (CRE)
\n
CRE LTV distribution by stage
(audited)
\n
The table below shows CRE current exposure and related ECL by LTV band.
\n
Current exposure (gross of provisions)
ECL provisions
ECL provisions coverage
(2)
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9 ECL
\n
scope (1)
\n
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
7,010
658
57
67
7,792
36
12
16
64
0.5
1.8
28.1
0.8
\n
>50% and \u226470%
3,515
798
43
19
4,375
23
18
12
53
0.7
2.3
27.9
1.2
\n
>70% and \u2264100%
259
82
156
7
504
1
3
42
46
0.4
3.7
26.9
9.1
\n
>100%
102
10
23
1
136
1
1
14
16
1.0
10.0
60.9
11.8
\n
Total with LTVs
10,886
1,548
279
94
12,807
61
34
84
179
0.6
2.2
30.1
1.4
\n
Total portfolio
\n
average LTV%
45%
52%
75%
44%
47%
\n
Other
(3)
1,800
627
55
86
2,568
9
15
27
51
0.5
2.4
49.1
2.0
\n
Development
(4)
1,553
332
57
7
1,949
13
8
28
49
0.8
2.4
49.1
2.5
\n
Total
14,239
2,507
391
187
17,324
83
57
139
279
0.6
2.3
35.6
1.6
\n
2021
\n
\u226450%
6,767
388
34
268
7,457
5
7
9
21
0.1
1.8
26.5
0.3
\n
>50% and \u226470%
4,367
470
46
469
5,352
3
13
20
36
0.1
2.8
43.5
0.7
\n
>70% and \u2264100%
377
192
127
9
705
\u2014
9
32
41
\u2014
4.7
25.2
5.8
\n
>100%
215
7
86
4
312
\u2014
2
28
30
\u2014
28.6
32.6
9.6
\n
Total with LTVs
11,726
1,057
293
750
13,826
8
31
89
128
0.1
2.9
30.4
0.9
\n
Total portfolio
\n
average LTV%
48%
58%
88%
52%
50%
\n
Other
(3)
2,271
293
61
83
2,708
4
13
28
45
0.2
4.4
45.9
1.7
\n
Development
(4)
1,736
228
62
77
2,103
3
6
34
43
0.2
2.6
54.8
2.0
\n
Total
15,733
1,578
416
910
18,637
15
50
151
216
0.1
3.2
36.3
1.2
\n
(1)
Includes exposures relating to non-modelled portfolios and other exposures carried at fair value.
\n
(2)
ECL provisions coverage is ECL provisions divided by gross loans.
\n
(3)
Relates mainly to business banking, rate risk management products and unsecured corporate lending.
\n
(4)
Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.
\n
\ue001
Overall
\u2013 The majority of the CRE portfolio was located and
\n
managed in the UK. Business appetite and strategy was
\n
aligned across NatWest Group.
\n
\ue001
2022 trends
\u2013 The commercial property cycle turned around
\n
mid-year as rising interest rates started to put upward
\n
pressure on property yields. Commercial property values
\n
declined by an average of approximately 20% from their
\n
mid-year peak, ending the year approximately 14% lower.
\n
The industrial sector saw values fall fastest to date, yet it
\n
continues to attract strong occupier demand and may,
\n
therefore, be the first sector to see values stabilise.
\n
Secondary offices which don\u2019t match modern sustainability
\n
standards appear most at risk from further value loss. The
\n
residential sector has yet to show significant value declines,
\n
but transaction activity has slowed materially and is
\n
expected to remain weak until values have adjusted. The
\n
spike in mortgage costs last year would be expected to push
\n
prices down across the market in 2023. In contrast,
\n
residential rents appreciated rapidly in 2022 and
\n
professionally managed rental assets are expected to be
\n
relatively robust in 2023.
\n
\ue001
Credit quality
\u2013 Credit quality was stable for the first nine
\n
months of the year but the impacts from the increase in
\n
base rate, projected capital value falls, inflationary pressures
\n
and concerns over recession for some customers began to
\n
materialise. Inflows into the Risk of Credit Loss framework
\n
picked up in Q4, but remained relatively low in volume
\n
terms, compared to previous downturns.
\n
\ue001
Risk appetite
\u2013 Lending appetite is subject to regular review
\n
with some level of tightening undertaken in 2022. Demand
\n
for facilities reduced significantly in Q4 as the market
\n
reacted to the various negative news points.
Flow statements
(audited)
\n
The flow statements that follow show the main ECL and related
\n
income statement movements. They also show the changes in
\n
ECL as well as the changes in related financial assets used in
\n
determining ECL. Due to differences in scope, exposures may
\n
differ from
those reported in other tables, principally in relation
\n
to exposures in Stage 1 and Stage 2. These differences do not
\n
have a material ECL effect. Other points to note:
\n
\ue001
Financial assets include treasury liquidity portfolios,
\n
comprising balances at central banks and debt securities,
\n
as well as loans. Both modelled and non-modelled portfolios
\n
are included.
\n
\ue001
Stage transfers (for example, exposures moving from Stage
\n
1 into Stage 2) are a key feature of the ECL movements,
\n
with the net re-measurement cost of transitioning to a
\n
worse stage being a primary driver of income statement
\n
charges. Similarly, there is an ECL benefit for accounts
\n
improving stage.
\n
\ue001
Changes in risk parameters shows the reassessment of the
\n
ECL within a given stage, including any ECL overlays and
\n
residual income statement gains or losses at the point of
\n
write-off or accounting write-down.
\n
\ue001
Other (P&L only items) includes any subsequent changes in
\n
the value of written-down assets (for example, fortuitous
\n
recoveries) along with other direct write-off items such as
\n
direct recovery costs. Other (P&L only items) affects the
\n
income statement but does not affect balance sheet ECL
\n
movements.
\n
\ue001
Amounts written-off represent the gross asset written-down
\n
against accounts with ECL, including the net asset write-
\n
down for any debt sale activity.
\n
\ue001
There were flows from Stage 1 into Stage 3 including
\n
transfers due to unexpected default events.
\n
\ue001
The effect of any change in post model adjustments during
\n
the year is typically reported under changes in risk
\n
parameters, as are any effects arising from changes to the
\n
underlying models. Refer to the section on Governance and
\n
post model adjustments for further details.
\n
\ue001
All movements are captured monthly and aggregated.
\n
Interest suspended post default is included within Stage 3
\n
ECL with the movement in the value of suspended interest
\n
during the year reported under currency translation and
\n
other adjustments.
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
NatWest Group total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Currency translation and other adjustments
6,129
\u2014
144
3
56
33
6,329
36
\n
Transfers from Stage 1 to Stage 2
(55,848)
(226)
55,848
226
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
31,657
827
(31,657)
(827)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(621)
(4)
(3,679)
(265)
4,300
269
\u2014
\u2014
\n
Transfers from Stage 3
485
34
842
77
(1,327)
(111)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(701)
1,090
\u2014
352
741
\n
Changes in risk parameters
286
(399)
\u2014
140
27
\n
Other changes in net exposure
(12,164)
125
(7,911)
(293)
(1,969)
(96)
(22,044)
(264)
\n
Other (P&L only items)
\u2014
(5)
\u2014
(162)
(167)
\n
Income statement (releases)/charges
(290)
393
234
337
\n
Transfers to disposal groups and fair value
(8,277)
(11)
(657)
(42)
(590)
(286)
(9,524)
(339)
\n
Amounts written-off
\u2014
\u2014
(5)
(5)
(477)
(477)
(482)
(482)
\n
Unwinding of discount
\u2014
\u2014
\u2014
(91)
(91)
\n
At 31 December 2022
507,539
632
48,482
1,043
5,231
1,759
561,252
3,434
\n
Net carrying amount
506,907
47,439
3,472
557,818
\n
At 1 January 2021
446,666
519
81,667
3,081
6,524
2,586
534,857
6,186
\n
2021 movements
99,512
(217)
(46,110)
(1,603)
(1,286)
(560)
52,116
(2,380)
\n
At 31 December 2021
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Net carrying amount
545,876
34,079
3,212
583,167
Leverage exposure
\n
31 December
31 December
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
177,757
\n
Trading assets
45,577
59,158
\n
Derivatives
99,545
106,139
\n
Financial assets
404,374
412,817
\n
Other assets
18,864
17,106
\n
Assets of disposal groups
6,861
9,015
\n
Total assets
720,053
781,992
\n
Derivatives
\n
- netting and variation margin
(100,356)
(110,204)
\n
- potential future exposures
18,327
35,035
\n
Securities financing transactions gross up
4,147
1,397
\n
Other off balance sheet items
46,144
44,240
\n
Regulatory deductions and other adjustments
(7,114)
(8,980)
\n
Claims on central banks
(141,144)
(174,148)
\n
Exclusion of bounce back loans
(5,444)
(7,474)
\n
UK leverage exposure
534,613
561,858
\n
UK leverage ratio (%)
(1)
5.4
5.9
\n
(1)
The UK leverage exposure and transitional Tier 1 capital are calculated in accordance with the PRA Rulebook. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
\n
would be 5.3% (31 December 2021 \u2013 5.8%).
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLoansAndAdvancesToCustomersExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25946": { "value": "
Credit risk \u2013 Banking activities
\n
Introduction
\n
This section details the credit risk profile of NatWest Group\u2019s banking activities. Refer to Accounting policy 2.3 and Note 15 to the
\n
consolidated financial statements for policies and critical judgments relating to impairment loss determination.
\n
Presentation of discontinued operations and assets and liabilities of disposal groups
\n
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from
\n
the Republic of Ireland. Material developments since the beginning of 2022 are set out below.
\n
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
\n
Successful migration of six tranches of performing commercial loans to AIB was completed during 2022, with \u20ac2.1 billion of gross
\n
performing loans being fully migrated by year-end. It is expected that remaining migrations of commercial customers will be
\n
materially completed in phases over H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business
\n
are in the process of getting transferred to AIB under Transfer of Undertakings, Protection of Employment (TUPE) arrangements,
\n
with more than half having completed their move by the end of 2022. Losses on disposal of \u20ac123 million have been recognised in
\n
2022 in respect of the migrations completed to date.
\n
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the
\n
performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform,
\n
and 25 Ulster Bank branch locations in the Republic of Ireland.
\n
c.\u20ac5 billion of performing non-tracker mortgages migrated to PTSB in November 2022, with the remaining balances expected to
\n
migrate during H1 2023. In January 2023, 25 branches transferred to PTSB. The remaining performing non-tracker mortgages,
\n
micro-SME loans, Lombard Asset Finance business and all remaining eligible colleagues who will move under TUPE regulations,
\n
are also expected to transfer in 2023.
\n
Agreement with AIB for the sale of performing tracker and linked mortgages.
\n
In January 2023 the Competition and Consumer Protection Commission (CCPC) granted approval on the portfolio sale of
\n
performing tracker and linked mortgages to AIB. Completion of this sale is expected to occur in Q2 2023.
\n
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and
\n
as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as
\n
discontinued operations. Ulster Bank RoI continuing operations are now reported within Group central items & other. In 2022 we
\n
reclassified mortgage loans to fair value through profit or loss, which resulted in a \u20ac453 million reduction in mortgage financial
\n
assets in UBIDAC to 31 December 2022. This reclassification applies across both our continuing and discontinued operations.
\n
Refer to Note 8 to the consolidated financial statements for further details.
\n
Financial instruments within the scope of the IFRS 9 ECL framework
(audited)
\n
Refer to Note 10 to the consolidated financial statements for balance sheet analysis of financial assets that are classified as
\n
amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework
\n
assessment. The table below excludes loans in disposal group of \u00a31.5 billion (2021 \u2013 \u00a39.1 billion).
\n
31 December 2022
31 December 2021
\n
Gross
ECL
Net
Gross
ECL
Net
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Balance sheet total gross amortised cost and FVOCI
554.3
596.1
\n
In scope of IFRS 9 ECL framework
550.3
590.9
\n
% in scope
99%
99%
\n
Loans to customers - in scope - amortised cost
370.1
3.3
366.8
361.9
3.7
358.2
\n
Loans to customers - in scope - FVOCI
0.1
\u2014
0.1
0.3
\u2014
0.3
\n
Loans to banks - in scope - amortised cost
6.9
\u2014
6.9
7.6
\u2014
7.6
\n
Total loans - in scope
377.1
3.3
373.8
369.8
3.7
366.1
\n
Stage 1
325.2
0.6
324.6
330.8
0.3
330.5
\n
Stage 2
46.8
0.9
45.9
34.0
1.4
32.6
\n
Stage 3
5.1
1.8
3.3
5.0
2.0
3.0
\n
Other financial assets - in scope - amortised cost
156.4
\u2014
156.4
184.4
\u2014
184.4
\n
Other financial assets - in scope - FVOCI
16.8
\u2014
16.8
36.7
\u2014
36.7
\n
Total other financial assets - in scope
173.2
\u2014
173.2
221.1
\u2014
221.1
\n
Stage 1
172.4
\u2014
172.4
220.8
\u2014
220.8
\n
Stage 2
0.8
\u2014
0.8
0.3
\u2014
0.3
\n
Out of scope of IFRS 9 ECL framework
4.0
na
4.0
5.2
na
5.2
\n
Loans to customers - out of scope - amortised cost
(0.4)
na
(0.4)
0.8
na
0.8
\n
Loans to banks - out of scope - amortised cost
0.2
na
0.2
0.1
na
0.1
\n
Other financial assets - out of scope - amortised cost
4.1
na
4.1
4.0
na
4.0
\n
Other financial assets - out of scope - FVOCI
0.1
na
0.1
0.3
na
0.3
\n
The assets outside the scope of IFRS 9 ECL framework were as
\n
follows:
\n
\ue001
Settlement balances, items in the course of collection, cash
\n
balances and other non-credit risk assets of \u00a34.3 billion
\n
(2021 \u2013 \u00a33.7 billion). These were assessed as having no ECL
\n
unless there was evidence that they were defaulted.
\n
\ue001
Equity shares of \u00a30.4 billion (2021 \u2013 \u00a30.3 billion) as not
\n
within the IFRS 9 ECL framework by definition.
\n
\ue001
Fair value adjustments on loans hedged by interest rate
\n
swaps, where the underlying loan was within the IFRS 9
\n
ECL scope \u2013 \u00a3(0.6) billion (2021 \u2013 \u00a30.8 billion).
\n
\ue001
NatWest Group originated securitisations, where ECL was
\n
captured on the underlying loans of \u00a3nil billion (2021 \u2013 \u00a30.4
\n
billion).
\n
Contingent liabilities and commitments
\n
In addition to contingent liabilities and commitments disclosed
\n
in Note 26 to the consolidated financial statements,
\n
reputationally-committed limits were also included in the scope
\n
of the IFRS 9 ECL framework. These were offset by \u00a3(0.1)
\n
billion (2021 \u2013 \u00a30.8 billion) out of scope balances primarily
\n
related to facilities that, if drawn, would not be classified as
\n
amortised cost or FVOCI, or undrawn limits relating to financial
\n
assets exclusions. Total
contingent liabilities (including financial
\n
guarantees) and commitments within IFRS 9 ECL scope of
\n
\u00a3137.2 billion (2021 \u2013 \u00a3127.9 billion) comprised Stage 1 \u00a3119.2
\n
billion (2021 \u2013 \u00a3119.5 billion); Stage 2 \u00a317.3 billion (2021 \u2013 \u00a37.8
\n
billion); and Stage 3 \u00a30.7 billion (2021 \u2013 \u00a30.6 billion).
\n
The ECL relating to off balance sheet exposures was \u00a30.1
\n
billion (2021 \u2013 \u00a30.1 billion). The total ECL in the remainder of
\n
the Credit risk section of \u00a33.4 billion (2021 \u2013 \u00a33.8 billion)
\n
included ECL for both on and off balance sheet exposures for
\n
non-disposal groups.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework.
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
174,727
18,367
108,791
23,339
325,224
\n
Stage 2
21,561
801
24,226
245
46,833
\n
Stage 3
2,565
242
2,166
123
5,096
\n
Of which: individual
\u2014
168
905
48
1,121
\n
Of which: collective
2,565
74
1,261
75
3,975
\n
Subtotal excluding
\n
disposal group loans
198,853
19,410
135,183
23,707
377,153
\n
Disposal group loans
1,502
1,502
\n
Total
25,209
378,655
\n
ECL provisions
(1)
\n
Stage 1
251
21
342
18
632
\n
Stage 2
450
14
534
45
1,043
\n
Stage 3
917
26
747
69
1,759
\n
Of which: individual
\u2014
26
251
10
287
\n
Of which: collective
917
\u2014
496
59
1,472
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,618
61
1,623
132
3,434
\n
ECL on disposal group loans
53
53
\n
Total
185
3,487
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.14
0.11
0.31
0.08
0.19
\n
Stage 2 (%)
2.09
1.75
2.20
18.37
2.23
\n
Stage 3 (%)
35.75
10.74
34.49
56.10
34.52
\n
ECL provisions coverage excluding
\n
disposal group loans
0.81
0.31
1.20
0.56
0.91
\n
ECL provisions coverage on
\n
disposal group loans
3.53
3.53
\n
Total
0.73
0.92
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3)
229
(2)
122
(12)
337
\n
Stage 1
(146)
2
(135)
(11)
(290)
\n
Stage 2
268
(7)
108
24
393
\n
Stage 3
107
3
149
(25)
234
\n
Of which: individual
\u2014
3
57
(6)
54
\n
Of which: collective
107
\u2014
92
(19)
180
\n
Continuing operations
229
(2)
122
(12)
337
\n
Discontinued operations
(71)
(71)
\n
Total
(83)
266
\n
Amounts written-off
216
15
224
27
482
\n
Of which: individual
\u2014
15
153
\u2014
168
\n
Of which: collective
216
\u2014
71
27
314
\n
For the notes to this table refer to the following page.
Segment analysis \u2013 portfolio summary
(audited)
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
168,013
17,600
107,368
37,843
330,824
\n
Stage 2
13,594
967
18,477
943
33,981
\n
Stage 3
1,884
270
2,081
787
5,022
\n
Of which: individual
\u2014
270
884
61
1,215
\n
Of which: collective
1,884
\u2014
1,197
726
3,807
\n
Subtotal excluding disposal group loans
183,491
18,837
127,926
39,573
369,827
\n
Disposal group loans
9,084
9,084
\n
Total
48,657
378,911
\n
ECL provisions
(1)
\n
Stage 1
134
12
129
27
302
\n
Stage 2
590
29
784
75
1,478
\n
Stage 3
850
37
751
388
2,026
\n
Of which: individual
\u2014
37
313
13
363
\n
Of which: collective
850
\u2014
438
375
1,663
\n
Subtotal excluding ECL provisions
\n
on disposal group loans
1,574
78
1,664
490
3,806
\n
ECL provisions on disposal group loans
109
109
\n
Total
599
3,915
\n
ECL provisions coverage
(2)
\n
Stage 1 (%)
0.08
0.07
0.12
0.07
0.09
\n
Stage 2 (%)
4.34
3.00
4.24
7.95
4.35
\n
Stage 3 (%)
45.12
13.70
36.09
49.30
40.34
\n
ECL provisions coverage excluding
\n
disposal group loans
0.86
0.41
1.30
1.24
1.03
\n
ECL provisions coverage on disposal
\n
group loans
1.20
1.20
\n
Total
1.23
1.03
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3,4)
(36)
(54)
(1,160)
77
(1,173)
\n
Stage 1
(387)
(45)
(872)
(13)
(1,317)
\n
Stage 2
157
(15)
(299)
(7)
(164)
\n
Stage 3
194
6
11
97
308
\n
Of which: individual
\u2014
6
16
(2)
20
\n
Of which: collective
194
\u2014
(5)
99
288
\n
Continuing operations
(36)
(54)
(1,160)
77
(1,173)
\n
Discontinued operations
(162)
(162)
\n
Total
(85)
(1,335)
\n
Amounts written-off
220
6
562
88
876
\n
Of which: individual
\u2014
6
449
\u2014
455
\n
Of which: collective
220
\u2014
113
88
421
\n
(1)
Includes loans to customers and banks.
\n
(2)
Includes \u00a33 million (2021 \u2013 \u00a35 million) related to assets classified as FVOCI and \u00a30.1 billion (2021 \u2013 \u00a30.1 billion) related to off-balance sheet exposures.
\n
(3)
ECL provisions coverage is calculated as ECL provisions divided by loans \u2013 amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
\n
(4)
Includes a \u00a33 million charge (2021 \u2013 \u00a33 million release) related to other financial assets, of which nil (2021 \u2013 \u00a32 million release) related to assets classified as FVOCI; and \u00a35 million
\n
release (2021 \u2013 \u00a334 million release) related to contingent liabilities.
\n
(5)
The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to the Financial instruments within the scope of the IFRS 9 ECL
\n
framework section for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling \u00a3143.3 billion (2021 \u2013
\n
\u00a3176.3 billion) and debt securities of \u00a329.9 billion (2021 \u2013 \u00a344.9 billion).
\n
\ue001
Stage 1 and Stage 2 modelled ECL increased due to
\n
deterioration in forward-looking economics, although the
\n
Stage 2 growth was more than offset by reductions in post
\n
model adjustments.
\n
\ue001
Stage 2 loans increased during 2022 in line with portfolio
\n
growth alongside deterioration in forward-looking
\n
economics as a result of the high inflation environment and
\n
supply chain disruption growing throughout the second half
\n
of the year.
\n
\ue001
Stage 3 loans increased, as write-offs and repayments were
\n
more than offset by the effect of the new regulatory
\n
definition of default, which in isolation led to an increase of
\n
approximately \u00a30.7 billion in Stage 3 balances, mostly in
\n
mortgages.
\n
\ue001
Underlying flows into default remained subdued during
\n
2022. However, it is expected that defaults will increase in
\n
2023 as growing inflationary pressures on businesses,
\n
consumers and the broader economy continue to evolve.
\n
\ue001
There was a significant reduction in loans, ECL, and
\n
coverage in Central items & other due to the phased
\n
withdrawal of Ulster Bank RoI.
Segment analysis \u2013 portfolio summary
(audited)
\n
The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet
\n
exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these
\n
exposures.
\n
Loans - amortised cost
Off-balance sheet
\n
and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Wholesale
1,269
193
40
1,502
413
19
17
19
17
53
\n
Total
1,269
193
40
1,502
413
19
17
19
17
53
\n
2021
\n
Personal
\n
5,547
210
34
5,791
\u2014
\u2014
4
6
7
17
\n
Wholesale
2,647
639
7
3,293
1,665
115
10
78
4
92
\n
Total
8,194
849
41
9,084
1,665
115
14
84
11
109
\n
(1)
Ulster Bank mortgages moves to fair value in 2023 and are no longer subject to ECL assessment. Due to fair value treatment this portfolio is no longer included in the 2022 figures
\n
of credit risk tables for either disposal or non-disposal groups.
Segmental loans and impairment metrics
(audited)
\n
The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
Gross loans
ECL provisions
(2)
\n
Stage 2
(1)
Stage 2
(1)
\n
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
Stage 1
\n
Not past
\n
due
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Retail Banking
174,727
20,653
605
303
21,561
2,565
198,853
251
406
14
30
450
917
1,618
\n
Private Banking
18,367
730
39
32
801
242
19,410
21
14
\u2014
\u2014
14
26
61
\n
Personal
15,182
122
35
16
173
207
15,562
5
1
\u2014
\u2014
1
17
23
\n
Wholesale
3,185
608
4
16
628
35
3,848
16
13
\u2014
\u2014
13
9
38
\n
Commercial
\n
& Institutional
108,791
22,520
956
750
24,226
2,166
135,183
342
491
26
17
534
747
1,623
\n
Personal
2,475
17
17
7
41
46
2,562
3
1
\u2014
\u2014
1
12
16
\n
Wholesale
106,316
22,503
939
743
24,185
2,120
132,621
339
490
26
17
533
735
1,607
\n
Central items
\n
& other
23,339
234
4
7
245
123
23,707
18
42
1
2
45
69
132
\n
Personal
54
70
3
6
79
13
146
1
11
1
2
14
11
26
\n
Wholesale
23,285
164
1
1
166
110
23,561
17
31
\u2014
\u2014
31
58
106
\n
Total loans
325,224
44,137
1,604
1,092
46,833
5,096
377,153
632
953
41
49
1,043
1,759
3,434
\n
Of which:
\n
Personal
192,438
20,862
660
332
21,854
2,831
217,123
260
419
15
32
466
957
1,683
\n
Wholesale
132,786
23,275
944
760
24,979
2,265
160,030
372
534
26
17
577
802
1,751
\n
2021
\n
Retail Banking
168,013
12,275
863
456
13,594
1,884
183,491
134
516
38
36
590
850
1,574
\n
Private Banking
17,600
902
27
38
967
270
18,837
12
29
\u2014
\u2014
29
37
78
\n
Personal
14,350
137
24
11
172
232
14,754
6
2
\u2014
\u2014
2
18
26
\n
Wholesale
3,250
765
3
27
795
38
4,083
6
27
\u2014
\u2014
27
19
52
\n
Commercial
\n
& Institutional
107,368
17,352
455
670
18,477
2,081
127,926
129
750
23
11
784
751
1,664
\n
Personal
2,647
21
17
11
49
57
2,753
2
1
\u2014
\u2014
1
10
13
\n
Wholesale
104,721
17,331
438
659
18,428
2,024
125,173
127
749
23
11
783
741
1,651
\n
Central items & other
37,843
837
58
48
943
787
39,573
27
69
3
3
75
388
490
\n
Personal
5,165
510
52
46
608
609
6,382
7
15
3
3
21
301
329
\n
Wholesale
32,678
327
6
2
335
178
33,191
20
54
\u2014
\u2014
54
87
161
\n
Total loans
330,824
31,366
1,403
1,212
33,981
5,022
369,827
302
1,364
64
50
1,478
2,026
3,806
\n
Of which:
\n
Personal
190,175
12,943
956
524
14,423
2,782
207,380
149
534
41
39
614
1,179
1,942
\n
Wholesale
140,649
18,423
447
688
19,558
2,240
162,447
153
830
23
11
864
847
1,864
\n
For the notes to this table refer to the following page.
Segmental loans and impairment metrics
(audited)
\n
The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL
\n
framework.
\n
ECL provisions coverage
ECL
\n
Stage 2
(1,2)
\n
Stage 1
\n
Not past due
\n
1-30 DPD
>30 DPD
Total
Stage 3
Total
\n
Total
\n
(release) /
\n
charge (3)
\n
Amounts
\n
written-off
\n
2022
%
%
%
%
%
%
%
\u00a3m
\u00a3m
\n
Retail Banking
0.14
1.97
2.31
9.90
2.09
35.75
0.81
229
216
\n
Private Banking
0.11
1.92
\u2014
\u2014
1.75
10.74
0.31
(2)
15
\n
Personal
0.03
0.82
\u2014
\u2014
0.58
8.21
0.15
(3)
2
\n
Wholesale
0.50
2.14
\u2014
\u2014
2.07
25.71
0.99
1
13
\n
Commercial & Institutional
0.31
2.18
2.72
2.27
2.20
34.49
1.20
122
224
\n
Personal
0.12
5.88
\u2014
\u2014
2.44
26.09
0.62
4
2
\n
Wholesale
0.32
2.18
2.77
2.29
2.20
34.67
1.21
118
222
\n
Central items & other
0.08
17.95
25.00
28.57
18.37
56.10
0.56
(12)
27
\n
Personal
1.85
15.71
33.33
33.33
17.72
84.62
17.81
11
1
\n
Wholesale
0.07
18.90
\u2014
\u2014
18.67
52.73
0.45
(23)
26
\n
Total loans
0.19
2.16
2.56
4.49
2.23
34.52
0.91
337
482
\n
Of which:
\n
Personal
0.14
2.01
2.27
9.64
2.13
33.80
0.78
241
221
\n
Wholesale
0.28
2.29
2.75
2.24
2.31
35.41
1.09
96
261
\n
2021
\n
Retail Banking
0.08
4.20
4.40
7.89
4.34
45.12
0.86
(36)
220
\n
Private Banking
0.07
3.22
\u2014
\u2014
3.00
13.70
0.41
(54)
6
\n
Personal
0.04
1.46
\u2014
\u2014
1.16
7.76
0.18
1
3
\n
Wholesale
0.18
3.53
\u2014
\u2014
3.40
50.00
1.27
(55)
3
\n
Commercial & Institutional
0.12
4.32
5.05
1.64
4.24
36.09
1.30
(1,160)
562
\n
Personal
0.08
4.76
\u2014
\u2014
2.04
17.54
0.47
\u2014
1
\n
Wholesale
0.12
4.32
5.25
1.67
4.25
36.61
1.32
(1,160)
561
\n
Central items & other
0.07
8.24
5.17
6.25
7.95
49.30
1.24
77
88
\n
Personal
0.14
2.94
5.77
6.52
3.45
49.43
5.16
97
76
\n
Wholesale
0.06
16.51
\u2014
\u2014
16.12
48.88
0.49
(20)
12
\n
Total loans
0.09
4.35
4.56
4.13
4.35
40.34
1.03
(1,173)
876
\n
Of which:
\n
Personal
0.08
4.13
4.29
7.44
4.26
42.38
0.94
62
300
\n
Wholesale
0.11
4.51
5.15
1.60
4.42
37.81
1.15
(1,235)
576
\n
2019
\n
Retail Banking
0.08
3.15
4.35
7.79
3.44
43.27
0.88
\n
Private Banking
0.05
1.26
0.00
2.17
1.19
14.01
0.27
\n
Personal
0.03
1.11
0.00
2.44
1.07
11.98
0.24
\n
Wholesale
0.12
1.34
0.00
0.00
1.31
40.00
0.38
\n
Commercial & Institutional
0.15
1.79
4.35
2.60
1.86
47.84
1.23
\n
Personal
0.04
3.70
0.00
0.00
2.00
18.46
0.48
\n
Wholesale
0.15
1.78
4.63
2.66
1.86
48.64
1.25
\n
Central items & other
0.11
2.77
5.77
6.02
3.22
34.02
2.27
\n
Personal
0.11
2.12
6.25
5.71
2.79
31.49
4.57
\n
Wholesale
0.12
4.09
0.00
7.14
4.20
63.75
0.71
\n
Total loans
0.11
2.47
4.27
5.99
2.70
41.19
1.13
\n
Of which:
\n
Personal
0.08
3.04
4.23
7.15
3.35
35.90
1.10
\n
Wholesale
0.14
1.86
4.44
3.04
1.94
49.53
1.16
\n
(1)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(2)
ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios.
\ue001
Retail Banking
\u2013 Balance sheet growth during 2022 was
\n
primarily within mortgages with new lending a result of
\n
strong housing demand and re-mortgage activity and
\n
increased buy-to-let lending. Unsecured lending balances
\n
also increased as consumer demand and spending
\n
recovered following the easing of COVID-19 restrictions and
\n
with selective relaxation of lending criteria. Total ECL
\n
coverage reduced slightly during 2022, reflective of low
\n
unemployment and stable portfolio performance, while
\n
maintaining sufficient ECL coverage for key portfolios
\n
above 2019 levels, given increased inflationary and
\n
economic pressures. Increasing Stage 2 size and portfolio
\n
coverage in the second half of the year reflected the
\n
deterioration in economic outlook, with portfolio
\n
performance remaining broadly stable. Stage 3 ECL
\n
increased overall, mainly because of the IFRS 9 alignment
\n
to the new regulatory default definition, implemented on 1
\n
January 2022. The implementation of new mortgage IFRS 9
\n
models resulted in lower Stage 3 ECL coverage due to
\n
reduced loss estimates for cases where the customer was
\n
not subject to repossession activity and was the primary
\n
reason for the change in overall retail Stage 3 coverage
\n
during 2022.
\n
\ue001
Commercial & Institutional
\u2013 There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. There were also continued repayments of
\n
COVID-19 government lending schemes, and strategic
\n
reductions in certain sectors. Sector appetite continues to
\n
be reviewed regularly, with particular focus on sector
\n
clusters and sub-sectors that are vulnerable to inflationary
\n
pressures or deemed to represent a heightened risk. Stage
\n
1 and Stage 2 ECL increased due to deterioration in
\n
forward-looking economics, although the Stage 2 growth
\n
was more than offset by reductions in post model
\n
adjustments. Coverage decreased with the reduction in
\n
COVID-19 post model adjustments, but coverage on Stage
\n
1 and Stage 2 was significantly above 2019 levels, reflecting
\n
current inflationary and economic pressures.
\n
\ue001
Other
\u2013 Balance sheet reduction in 2022 compared to 2021
\n
was mainly due to a reduction in central items held in the
\n
course of treasury related management activities, and a
\n
decrease due to the phased withdrawal of Ulster Bank RoI.
Sector analysis \u2013 portfolio summary
(audited)
\n
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and
\n
past due by sector, asset quality and geographical region.
\n
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- UK
202,957
4,420
9,602
216,979
31,452
62,318
32,480
4,285
130,535
347,514
\n
- RoI
\u2014
40
104
144
34
1,102
74
\u2014
1,210
1,354
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
623
4,670
6,967
475
12,735
12,735
\n
- RoW
\u2014
\u2014
\u2014
\u2014
465
5,587
8,617
881
15,550
15,550
\n
Loans by stage
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Stage 1
182,245
3,275
6,918
192,438
27,542
53,048
46,738
5,458
132,786
325,224
\n
- Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Stage 3
1,925
109
797
2,831
716
1,476
47
26
2,265
5,096
\n
- Of which: individual
172
\u2014
13
185
314
564
33
25
936
1,121
\n
- Of which: collective
1,753
109
784
2,646
402
912
14
1
1,329
3,975
\n
Loans - past due analysis
(3,4)
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- Not past due
200,634
4,335
8,825
213,794
31,366
70,034
47,824
5,633
154,857
368,651
\n
- Past due 1-30 days
916
33
86
1,035
608
2,490
278
1
3,377
4,412
\n
- Past due 31-90 days
510
29
104
643
302
551
5
7
865
1,508
\n
- Past due 91-180 days
380
24
79
483
49
34
24
\u2014
107
590
\n
- Past due >180 days
517
39
612
1,168
249
568
7
\u2014
824
1,992
\n
Loans - Stage 2
18,787
1,076
1,991
21,854
4,316
19,153
1,353
157
24,979
46,833
\n
- Not past due
17,951
1,039
1,872
20,862
3,866
17,915
1,344
150
23,275
44,137
\n
- Past due 1-30 days
588
19
53
660
185
754
5
\u2014
944
1,604
\n
- Past due 31-90 days
248
18
66
332
265
484
4
7
760
1,092
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
6
5
4
6
3
1
5
5
\n
Weighted average 12 months
\n
PDs*
\n
- IFRS 9 (%)
0.50
2.62
4.78
0.71
1.88
2.11
0.23
0.19
1.41
1.01
\n
- Basel (%)
0.65
2.97
3.11
0.79
1.03
1.44
0.16
0.19
0.92
0.85
\n
ECL provisions by geography
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- UK
376
254
1,027
1,657
404
985
42
14
1,445
3,102
\n
- RoI
\u2014
3
23
26
13
66
1
\u2014
80
106
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
16
72
7
1
96
96
\n
- RoW
\u2014
\u2014
\u2014
\u2014
8
105
13
4
130
130
\n
ECL provisions by stage
376
257
1,050
1,683
441
1,228
63
19
1,751
3,434
\n
- Stage 1
81
62
117
260
107
218
32
15
372
632
\n
- Stage 2
62
122
282
466
105
457
14
1
577
1,043
\n
- Stage 3
233
73
651
957
229
553
17
3
802
1,759
\n
- Of which: individual
18
\u2014
10
28
80
163
13
3
259
287
\n
- Of which: collective
215
73
641
929
149
390
4
\u2014
543
1,472
\n
ECL provisions coverage (%)
0.19
5.76
10.82
0.78
1.35
1.67
0.13
0.34
1.09
0.91
\n
- Stage 1 (%)
0.04
1.89
1.69
0.14
0.39
0.41
0.07
0.27
0.28
0.19
\n
- Stage 2 (%)
0.33
11.34
14.16
2.13
2.43
2.39
1.03
0.64
2.31
2.23
\n
- Stage 3 (%)
12.10
66.97
81.68
33.80
31.98
37.47
36.17
11.54
35.41
34.52
\n
ECL (release)/charge
(74)
56
259
241
126
(47)
19
(2)
96
337
\n
- UK
(74)
57
247
230
118
(67)
14
(3)
62
292
\n
- RoI
\u2014
(1)
12
11
1
(26)
(2)
\u2014
(27)
(16)
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
4
\u2014
1
\u2014
5
5
\n
- RoW
\u2014
\u2014
\u2014
\u2014
3
46
6
1
56
56
\n
Amounts written-off
31
67
123
221
33
188
40
\u2014
261
482
\n
*Not within audit scope.
\n
For the notes to this table refer to page 216.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages
(1)
\n
Credit
\n
cards
\n
Other
\n
person
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
202,957
4,460
9,706
217,123
32,574
73,677
48,138
5,641
160,030
377,153
\n
- <1 year
3,347
2,655
3,368
9,370
6,740
24,297
36,192
2,958
70,187
79,557
\n
- 1-5 year
10,968
1,805
5,387
18,160
17,523
32,127
10,380
1,819
61,849
80,009
\n
- > 5 years
188,642
\u2014
951
189,593
8,311
17,253
1,566
864
27,994
217,587
\n
Other financial assets by asset
\n
quality
(2)
\u2014
\u2014
\u2014
\u2014
49
25
14,704
158,416
173,194
173,194
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
14,156
158,416
172,583
172,583
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
49
14
548
\u2014
611
611
\n
Off-balance sheet
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- Loan commitments
18,782
15,848
8,496
43,126
15,302
54,651
18,223
710
88,886
132,012
\n
- Financial guarantees
\u2014
\u2014
51
51
491
3,140
1,332
\u2014
4,963
5,014
\n
Off-balance sheet by asset quality
(2)
18,782
15,848
8,547
43,177
15,793
57,791
19,555
710
93,849
137,026
\n
- AQ1-AQ4
17,676
436
7,353
25,465
12,477
35,960
17,899
606
66,942
92,407
\n
- AQ5-AQ8
1,089
15,048
1,170
17,307
3,282
21,496
1,655
84
26,517
43,824
\n
- AQ9
2
74
4
80
5
24
\u2014
\u2014
29
109
\n
- AQ10
15
290
20
325
29
311
1
20
361
686
\n
For the notes to this table refer to page 216.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages (1)
Credit cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by geography
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- UK
187,847
3,877
9,253
200,977
31,574
62,952
39,086
4,542
138,154
339,131
\n
- RoI
6,164
70
147
6,381
130
1,222
116
4
1,472
7,853
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
439
3,831
5,066
840
10,176
10,176
\n
- RoW
\u2014
\u2014
22
22
379
2,846
8,773
647
12,645
12,667
\n
Loans by stage
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Stage 1
180,418
2,924
6,833
190,175
28,679
53,803
52,263
5,904
140,649
330,824
\n
- Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Stage 3
2,050
90
642
2,782
742
1,444
46
8
2,240
5,022
\n
- of which: individual
269
\u2014
19
288
329
583
7
8
927
1,215
\n
- of which: collective
1,781
90
623
2,494
413
861
39
\u2014
1,313
3,807
\n
Loans - past due analysis
(3,4)
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- Not past due
190,834
3,834
8,619
203,287
31,391
68,630
52,285
6,030
158,336
361,623
\n
- Past due 1-30 days
1,217
28
124
1,369
521
1,081
732
2
2,336
3,705
\n
- Past due 31-90 days
592
25
73
690
256
448
19
1
724
1,414
\n
- Past due 91-180 days
367
22
61
450
91
215
1
\u2014
307
757
\n
- Past due >180 days
1,001
38
545
1,584
263
477
4
\u2014
744
2,328
\n
Loans - Stage 2
11,543
933
1,947
14,423
3,101
15,604
732
121
19,558
33,981
\n
- Not past due
10,259
899
1,785
12,943
2,725
14,870
708
120
18,423
31,366
\n
- Past due 1-30 days
843
16
97
956
125
318
4
\u2014
447
1,403
\n
- Past due 31-90 days
441
18
65
524
251
416
20
1
688
1,212
\n
Weighted average life*
\n
- ECL measurement (years)
8
2
5
5
5
6
3
1
6
6
\n
Weighted average 12
\n
months PDs*
\n
- IFRS 9 (%)
0.16
4.84
2.73
0.36
0.76
1.85
0.14
0.14
1.00
0.65
\n
- Basel (%)
0.76
3.31
3.22
0.91
1.20
1.74
0.14
0.16
1.04
0.97
\n
ECL provisions by geography
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- UK
449
258
904
1,611
331
1,124
47
18
1,520
3,131
\n
- RoI
319
2
10
331
19
107
3
1
130
461
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
20
77
4
1
102
102
\n
- RoW
\u2014
\u2014
\u2014
\u2014
4
103
3
2
112
112
\n
ECL provisions by stage
768
260
914
1,942
374
1,411
57
22
1,864
3,806
\n
- Stage 1
32
59
58
149
24
96
14
19
153
302
\n
- Stage 2
174
141
299
614
111
713
39
1
864
1,478
\n
- Stage 3
562
60
557
1,179
239
602
4
2
847
2,026
\n
- of which: individual
19
\u2014
12
31
69
261
\u2014
2
332
363
\n
- of which: collective
543
60
545
1,148
170
341
4
\u2014
515
1,663
\n
ECL provisions coverage (%)
0.40
6.59
9.70
0.94
1.15
1.99
0.11
0.36
1.15
1.03
\n
- Stage 1 (%)
0.02
2.02
0.85
0.08
0.08
0.18
0.03
0.32
0.11
0.09
\n
- Stage 2 (%)
1.51
15.11
15.36
4.26
3.58
4.57
5.33
0.83
4.42
4.35
\n
- Stage 3 (%)
27.41
66.67
86.76
42.38
32.21
41.69
8.70
25.00
37.81
40.34
\n
ECL (release)/charge
(5)
46
(14)
30
62
(477)
(723)
(38)
3
(1,235)
(1,173)
\n
- UK
(52)
(14)
31
(35)
(457)
(647)
(12)
3
(1,113)
(1,148)
\n
- RoI
98
\u2014
(1)
97
(5)
(23)
2
\u2014
(26)
71
\n
- Other Europe
\u2014
\u2014
\u2014
\u2014
(7)
(7)
(21)
\u2014
(35)
(35)
\n
- RoW
\u2014
\u2014
\u2014
\u2014
(8)
(46)
(7)
\u2014
(61)
(61)
\n
Amounts written-off
85
74
141
300
271
271
34
\u2014
576
876
\n
*Not within audit scope.
\n
For the notes to this table refer to the following page.
Sector analysis \u2013 portfolio summary
(audited)
\n
Personal
Wholesale
\n
Mortgages
\n
Credit
\n
cards
\n
Other
\n
personal
Total
Property
Corporate
FI
Sovereign
Total
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Loans by residual maturity
194,011
3,947
9,422
207,380
32,522
70,851
53,041
6,033
162,447
369,827
\n
- <1 year
3,611
2,532
3,197
9,340
7,497
22,593
41,195
2,809
74,094
83,434
\n
- 1-5 year
12,160
1,415
5,393
18,968
16,293
33,301
10,969
1,967
62,530
81,498
\n
- > 5 years
178,240
\u2014
832
179,072
8,732
14,957
877
1,257
25,823
204,895
\n
Other financial assets by asset quality
(2)
\u2014
\u2014
\u2014
\u2014
55
11
11,516
209,553
221,135
221,135
\n
- AQ1-AQ4
\u2014
\u2014
\u2014
\u2014
\u2014
11
10,974
209,551
220,536
220,536
\n
- AQ5-AQ8
\u2014
\u2014
\u2014
\u2014
55
\u2014
542
2
599
599
\n
Off-balance sheet
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- Loan commitments
16,827
15,354
8,170
40,351
15,882
49,231
16,906
1,212
83,231
123,582
\n
- Financial guarantees
\u2014
\u2014
60
60
460
2,802
992
\u2014
4,254
4,314
\n
Off-balance sheet by asset quality
(2)
16,827
15,354
8,230
40,411
16,342
52,033
17,898
1,212
87,485
127,896
\n
- AQ1-AQ4
14,792
248
6,591
21,631
12,550
30,417
16,192
1,064
60,223
81,854
\n
- AQ5-AQ8
2,028
14,804
1,625
18,457
3,757
21,262
1,703
148
26,870
45,327
\n
- AQ9
\u2014
9
3
12
6
48
1
\u2014
55
67
\n
- AQ10
7
293
11
311
29
306
2
\u2014
337
648
\n
(1)
Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are
\n
reported in UK, which includes crown dependencies, reflecting the country of lending origination.
\n
(2)
30 DPD \u2013 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR.
\n
(3)
AQ bandings are based on Basel PDs and mapping is as follows:
\n
Internal asset
\n
quality band
\n
Probability of
\n
default range
\n
Indicative
\n
S&P rating
\n
AQ1
0% - 0.034%
AAA to AA
\n
AQ2
0.034% - 0.048%
AA to AA-
\n
AQ3
0.048% - 0.095%
A+ to A
\n
AQ4
0.095% - 0.381%
BBB+ to BBB-
\n
AQ5
0.381% - 1.076%
BB+ to BB
\n
AQ6
1.076% - 2.153%
BB- to B+
\n
AQ7
2.153% - 6.089%
B+ to B
\n
AQ8
6.089% - 17.222%
B- to CCC+
\n
AQ9
17.222% - 100%
CCC to C
\n
AQ10
100%
D
\n
\u00a30.3 billion (2021 \u2013 \u00a30.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited.
Sector analysis \u2013 portfolio summary
(audited)
\n
The table below shows ECL by stage, for the Personal portfolio and selected sectors of the Wholesale portfolios.
\n
Off-balance sheet
\n
Loans - amortised cost and FVOCI
ECL provisions
\n
Stage 1
Stage 2
Stage 3
Total
\n
Loan
\n
commitments
\n
Contingent
\n
liabilities
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Personal
192,438
21,854
2,831
217,123
43,126
51
260
466
957
1,683
\n
Mortgages
182,245
18,787
1,925
202,957
18,782
\u2014
81
62
233
376
\n
Credit cards
3,275
1,076
109
4,460
15,848
\u2014
62
122
73
257
\n
Other personal
6,918
1,991
797
9,706
8,496
51
117
282
651
1,050
\n
Wholesale
132,786
24,979
2,265
160,030
88,886
4,963
372
577
802
1,751
\n
Property*
27,542
4,316
716
32,574
15,302
491
107
105
229
441
\n
Financial institutions**
46,738
1,353
47
48,138
18,223
1,332
32
14
17
63
\n
Sovereigns
5,458
157
26
5,641
710
\u2014
15
1
3
19
\n
Corporate
53,048
19,153
1,476
73,677
54,651
3,140
218
457
553
1,228
\n
Of which:
\n
Agriculture*
3,646
1,034
93
4,773
968
24
21
31
43
95
\n
Airlines and aerospace*
483
1,232
19
1,734
1,715
174
2
40
8
50
\n
Automotive*
5,776
1,498
30
7,304
4,009
99
18
18
11
47
\n
Chemicals*
384
117
1
502
650
12
1
2
1
4
\n
Health
3,974
1,008
141
5,123
475
8
19
30
48
97
\n
Industrials*
2,148
1,037
82
3,267
3,135
195
10
16
24
50
\n
Land transport & logistics*
3,788
1,288
66
5,142
3,367
190
13
33
17
63
\n
Leisure*
3,416
3,787
260
7,463
1,907
102
27
147
115
289
\n
Mining & metals*
173
230
5
408
545
5
\u2014
1
5
6
\n
Oil and gas*
953
159
60
1,172
2,157
248
3
3
31
37
\n
Power utilities*
4,228
406
6
4,640
6,960
1,182
9
11
1
21
\n
Retail*
6,497
1,746
150
8,393
4,682
416
21
29
68
118
\n
Shipping*
161
151
14
326
110
22
\u2014
7
6
13
\n
Water & waste*
3,026
335
7
3,368
2,143
101
4
4
4
12
\n
Total
325,224
46,833
5,096
377,153
132,012
5,014
632
1,043
1,759
3,434
\n
2021
\n
Personal
190,175
14,423
2,782
207,380
40,351
60
149
614
1,179
1,942
\n
Mortgages
180,418
11,543
2,050
194,011
16,827
\u2014
32
174
562
768
\n
Credit cards
2,924
933
90
3,947
15,354
\u2014
59
141
60
260
\n
Other personal
6,833
1,947
642
9,422
8,170
60
58
299
557
914
\n
Wholesale
140,649
19,558
2,240
162,447
83,231
4,254
153
864
847
1,864
\n
Property*
28,679
3,101
742
32,522
15,882
460
24
111
239
374
\n
Financial institutions**
52,263
732
46
53,041
16,906
992
14
39
4
57
\n
Sovereigns
5,904
121
8
6,033
1,212
\u2014
19
1
2
22
\n
Corporate
53,803
15,604
1,444
70,851
49,231
2,802
96
713
602
1,411
\n
Of which:
\n
Agriculture*
3,722
1,229
133
5,084
993
24
11
39
78
128
\n
Airlines and aerospace*
779
668
44
1,491
1,528
221
1
39
15
55
\n
Automotive*
5,133
1,304
38
6,475
3,507
65
9
32
10
51
\n
Chemicals*
355
43
1
399
663
14
1
\u2014
\u2014
1
\n
Health
3,818
1,235
133
5,186
799
9
9
58
48
115
\n
Industrials*
2,311
620
28
2,959
2,770
243
4
15
13
32
\n
Land transport & logistics*
3,721
833
39
4,593
3,069
188
4
53
12
69
\n
Leisure*
3,712
4,050
340
8,102
1,874
107
11
247
133
391
\n
Mining & metals*
336
42
4
382
627
131
\u2014
2
4
6
\n
Oil and gas*
1,482
141
52
1,675
1,126
453
1
14
28
43
\n
Power utilities*
3,844
220
6
4,070
5,622
404
2
3
1
6
\n
Retail*
6,380
1,342
180
7,902
4,872
410
8
29
66
103
\n
Shipping*
506
334
27
867
90
12
1
11
10
22
\n
Water & waste*
2,714
230
4
2,948
1,850
91
2
5
2
9
\n
Total
330,824
33,981
5,022
369,827
123,582
4,314
302
1,478
2,026
3,806
\n
* Wholesale sectors marked with an asterisk contain an element of exposure classified as heightened climate-related risk. Elements of the personal mortgage portfolio are also exposed
\n
to heightened climate-related risk. The classification of sectors into heightened climate-related risk mentioned within this footnote is not within audit scope.
\n
**Financial institutions (FI) include transactions, such as securitisations, where the underlying assets may be in other sectors.
Wholesale forbearance
(audited)
\n
The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is
\n
disclosed in the Personal portfolio section. The table shows current exposure but reflects risk transfers where there is a guarantee
\n
by another customer.
\n
Property
FI
Other corporate
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Forbearance (flow)
746
105
2,575
3,426
\n
Forbearance (stock)
933
107
4,709
5,749
\n
Heightened Monitoring and Risk of Credit Loss
976
112
3,445
4,533
\n
2021
\n
Forbearance (flow)
709
27
3,894
4,630
\n
Forbearance (stock)
1,033
35
5,659
6,727
\n
Heightened Monitoring and Risk of Credit Loss
1,225
83
4,492
5,800
\n
Sector analysis \u2013 portfolio summary
(audited)
\n
\ue001
Loans by geography and sector
\u2013 In line with NatWest
\n
Group\u2019s strategic focus, exposures continued to be mainly
\n
in the UK. Exposure to the Republic of Ireland reduced
\n
during the year as part of the phased withdrawal noted
\n
previously. In Personal, balance sheet growth was a result
\n
of strong mortgage demand during the year. In Wholesale,
\n
there was a reduction in the balance sheet in Q4, following
\n
a period of growth up to Q3. This was mainly due to a
\n
reduction in central items held in the course of treasury
\n
related management activities. There was growth in
\n
Commercial & Institutional, particularly as a result of
\n
increased exposure to financial institutions, notably
\n
leveraged funds, and larger corporate customers, primarily
\n
within information technology, telecommunications and
\n
power utilities. Repayment performance under COVID-19
\n
government lending schemes is closely tracked and
\n
exposure continued to decrease due to scheduled
\n
repayment activity and account closures. Exposures under
\n
the Bounce Bank Loan Scheme (BBLS) that benefit from the
\n
100% government guarantee account for approximately
\n
70% of remaining government scheme exposures. BBLS
\n
missed repayment rate and recoveries stock have increased
\n
but volumes continue to be in line with other lenders.
\n
\ue001
Loans by stage
\u2013 In both Wholesale and Personal,
\n
deterioration in forward-looking economics resulted in a
\n
larger proportion of accounts exhibiting a SICR compared
\n
to 2021. There was, therefore, a migration of exposures
\n
from Stage 1 into Stage 2 during 2022. Personal customers
\n
who had accessed payment holiday support, and where
\n
their risk profile was identified as relatively high, are no
\n
longer collectively migrated into Stage 2. The relevance of
\n
this collective SICR identification was no longer considered
\n
as pertinent in the context of the current high inflation
\n
environment and related uncertainty.
\n
\ue001
Loans \u2013 Past due analysis
\u2013 Overall, the past due profile of
\n
the key portfolios remained broadly stable. The
\n
implementation of the new regulatory default definition
\n
included refinements to the days past due calculations. This
\n
contributed to an increase in arrears in H1 2022 in
\n
Personal, however this moderated through the year.
\n
Particularly in mortgages, the exit from the Republic of
\n
Ireland also contributed to the reduction in past due
\n
exposures. In Wholesale, there was an increase in past due
\n
1-30 days in corporates.
\n
\ue001
Weighted average 12 months PDs
\u2013 In Personal, the Basel II
\n
point-in-time PDs improved slightly during 2022 due to
\n
stable credit performance in the portfolios. For IFRS 9 PDs,
\n
there were increases across mortgages and other personal
\n
lending as a result of new PD model implementations during
\n
the year, coupled with the deteriorating economic outlook
\n
in the second half of the year. For credit cards, the new
\n
IFRS 9 PD model implementation drove a net reduction in
\n
PD levels, primarily resulting from more accurate modelling
\n
of defaults driven by shifts in general unemployment. In
\n
Wholesale, the Basel II PDs were based on a through-the-
\n
cycle approach and improved reflecting positive portfolio
\n
performance.
\n
The IFRS 9 PDs increased due the deterioration in forward-
\n
looking economics. For further details refer to the Asset
\n
quality section.
\n
\ue001
ECL provision by geography
\u2013 In line with loans by
\n
geography, the vast majority of ECL related to exposures in
\n
the UK, noting the reduction in RoI was mostly due to the
\n
phased withdrawal of Ulster Bank RoI and moving of assets
\n
to discontinued operations and reclassifications.
\n
\ue001
ECL provisions by stage
\u2013 As mentioned above, Stage 1 and
\n
Stage 2 ECL increased due to deterioration in forward-
\n
looking economics, although the Stage 2 growth was more
\n
than offset by reductions in post model adjustments. Stage
\n
3 provisions have yet to be materially affected by the high
\n
inflation environment and supply chain disruption, with
\n
increases relating to the introduction of the new regulatory
\n
definition of default, largely offset by write offs.
\n
\ue001
ECL provisions coverage
\u2013 Overall provisions coverage
\n
reduced, due to the phased withdrawal of Ulster Bank RoI,
\n
a change in product mix and a decrease in judgemental
\n
post model adjustments which more than offset increases
\n
from the deteriorating economic outlook.
\n
\ue001
The ECL charge and loss rate
\u2013 ECL charge and loss rate
\n
was low, with charges from a deterioration in forward-
\n
looking economics countered by reductions in post model
\n
adjustments and the continued stable portfolio performance
\n
and low default trends.
\n
\ue001
Loans by residual maturity
\u2013 The maturity profile of the
\n
portfolios remained consistent with prior periods. In
\n
mortgages, as expected, the vast majority of exposures
\n
were greater than five years. In unsecured lending \u2013 cards
\n
and other \u2013 exposures were concentrated in less than five
\n
years. In Wholesale, in financial institutions and sovereigns,
\n
lending was concentrated in less than one year, In the rest
\n
of Wholesale, most of the lending was for residual maturity
\n
of one to five years.
\n
\ue001
Other financial assets by asset quality
\u2013 Consisting almost
\n
entirely of cash and balances at central banks and debt
\n
securities, held in the course of treasury related
\n
management activities, these assets were mainly within the
\n
AQ1-AQ4 bands.
\n
\ue001
Off-balance sheet exposures by asset quality
\u2013 In Personal,
\n
undrawn exposures were reflective of available credit lines
\n
in credit cards and current accounts. Additionally, the
\n
mortgage portfolio had undrawn exposures, where a formal
\n
offer had been made to a customer but had not yet drawn
\n
down; the value increased in line with the pipeline of offers.
\n
There was also a legacy portfolio of flexible mortgages
\n
where a customer had the right and ability to draw down
\n
further funds. The asset quality was aligned to the wider
\n
portfolio. In Wholesale, growth was primarily loan
\n
commitments to financial institutions and corporate sectors
\n
in the AQ1-AQ4 bands.
Sector analysis \u2013 portfolio summary
\n
continued
(audited)
\n
\ue001
Wholesale forbearance
\u2013 Forbearance flow and stock
\n
decreased in 2022 compared to 2021, noting that 2021 was
\n
adversely affected by COVID-19. Increased levels of
\n
forbearance were observed in Q4 2022. The retail & leisure,
\n
property and services sectors represented the largest share
\n
of forbearance flow. Labour shortages, the high inflation
\n
environment, rising fuel and energy costs, interest rate
\n
impacts and supply chain issues continue to weigh on these
\n
sectors. Payment holidays and covenant waivers were the
\n
most common forms of forbearance granted.
\n
\ue001
Heightened Monitoring and Risk of Credit Loss
\u2013
Economic
\n
headwinds continue to present an uncertain outlook. Risk of
\n
Credit Loss framework exposures and inflows decreased in
\n
2022 compared to 2021, noting again that 2021 was
\n
adversely affected by COVID-19. Inflows into the
\n
framework began to increase in Q4 2022. The sector
\n
breakdown of exposures within the framework remained
\n
consistent with prior periods. Retail SME customers do not
\n
form part of the Wholesale Risk of Credit Loss framework.
\n
Customers in this group, that are in financial difficulty, are
\n
instead managed by specialist problem debt management
\n
teams. The number of customers in arrears and recoveries
\n
increased significantly during 2022, driven by BBLS
\n
exposures. Excluding BBLS, the number of customers in this
\n
population in problem debt remains stable.
Credit risk enhancement and mitigation
(audited)
\n
The table below shows exposures of modelled portfolios within the scope of the ECL framework and related credit risk
\n
enhancement and mitigation (CREM).
\n
Maximum credit risk
CREM by type
CREM coverage
\n
Exposure post
\n
CREM
Gross
\n
exposure
\n
ECL
Total
Stage 3
\n
Financial
\n
(1)
\n
Property
Other (2)
Total
Stage 3
Total
Stage 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
143.2
\u2014
143.2
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
143.2
\u2014
\n
Loans - amortised cost
(3)
377.2
3.3
373.9
3.4
31.8
243.1
21.7
296.6
3.0
77.3
0.4
\n
Personal
(4)
217.2
1.7
215.5
1.9
0.9
202.1
\u2014
203.0
1.7
12.5
0.2
\n
Wholesale
(5)
160.0
1.6
158.4
1.5
30.9
41.0
21.7
93.6
1.3
64.8
0.2
\n
Debt securities
29.9
\u2014
29.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
29.9
\u2014
\n
Total financial assets
550.3
3.3
547.0
3.4
31.8
243.1
21.7
296.6
3.0
250.4
0.4
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
43.2
\u2014
43.2
0.3
0.7
4.4
\u2014
5.1
\u2014
38.1
0.3
\n
Wholesale
93.9
0.1
93.8
0.4
3.1
7.4
4.0
14.5
0.1
79.3
0.3
\n
Total off-balance sheet
137.0
0.1
136.9
0.7
3.8
11.8
4.0
19.6
0.1
117.3
0.6
\n
Total exposure
687.3
3.4
683.9
4.1
35.6
254.9
25.7
316.2
3.1
367.7
1.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
176.3
\u2014
176.3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
176.3
\u2014
\n
Loans - amortised cost
(3)
369.8
3.7
366.1
3.0
41.1
232.7
23.5
297.3
2.7
68.8
0.3
\n
Personal
(4)
207.4
1.9
205.5
1.6
1.3
192.6
\u2014
193.9
1.5
11.6
0.1
\n
Wholesale
(5)
162.4
1.8
160.6
1.4
39.8
40.1
23.5
103.4
1.2
57.2
0.2
\n
Debt securities
44.9
\u2014
44.9
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
44.9
\u2014
\n
Total financial assets
591.0
3.7
587.3
3.0
41.1
232.7
23.5
297.3
2.7
290.0
0.3
\n
Contingent liabilities and commitments
\n
Personal
(6,7)
40.4
\u2014
40.4
0.3
0.5
4.9
\u2014
5.4
\u2014
35.0
0.3
\n
Wholesale
87.5
0.1
87.4
0.3
3.2
7.9
3.9
15.0
0.1
72.4
0.2
\n
Total off-balance sheet
127.9
0.1
127.8
0.6
3.7
12.8
3.9
20.4
0.1
107.4
0.5
\n
Total exposure
718.9
3.8
715.1
3.6
44.8
245.5
27.4
317.7
2.8
397.4
0.8
\n
(1)
Includes cash and securities collateral.
\n
(2)
Includes guarantees, charges over trade debtors, other asset finance related physical collateral as well as the amount by which credit risk exposure is reduced through netting
\n
arrangements, mainly cash management pooling, which give NatWest Group a legal right to set off the financial asset against a financial liability due to the same counterparty.
\n
(3)
NatWest Group holds collateral in respect of individual loans \u2013 amortised cost to banks and customers. This collateral includes mortgages over property (both personal and
\n
commercial); charges over business assets such as plant and equipment; inventories and trade debtors; and guarantees of lending from parties other than the borrower. NatWest
\n
Group obtains collateral in the form of securities in reverse repurchase agreements. Collateral values are capped at the value of the loan.
\n
(4)
Stage 3 mortgage exposures have relatively limited uncovered exposure reflecting the security held. On unsecured credit cards and other personal borrowing, the residual
\n
uncovered amount reflects historical experience of continued cash recovery post default through ongoing engagement with customers.
\n
(5)
Stage 3 exposures post credit risk enhancement and mitigation in Wholesale mainly represent enterprise value and the impact of written down collateral values; an individual
\n
assessment to determine ECL will consider multiple scenarios and in some instances allocate a probability weighting to a collateral value in excess of the written down value.
\n
(6)
\u00a30.3 billion (2021
\u2013
\u00a30.3 billion) Personal Stage 3 balances primarily relate to loan commitments, the draw down of which is effectively prohibited.
\n
(7)
The Personal gross exposure value includes \u00a314.0 billion (2021
\u2013
\u00a311.8 billion) in respect of pipeline mortgages where a committed offer has been made to a customer but where
\n
the funds have not yet been drawn down. When drawn down, the exposure would be covered by a security over the borrower\u2019s property.
Personal portfolio
(audited)
\n
Disclosures in the Personal portfolio section include drawn exposure (gross of provisions).
\n
2022
2021
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items
\n
& other
Total
\n
Retail
\n
Banking
\n
Private
\n
Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
Total
\n
Personal lending
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mortgages
186,891
13,709
2,357
\u2014
202,957
172,707
12,781
2,444
6,164
194,096
\n
Of which:
\n
Owner occupied
168,790
12,096
1,541
\u2014
182,427
158,059
11,219
1,597
5,563
176,438
\n
Buy-to-let
18,101
1,613
816
\u2014
20,530
14,648
1,562
847
601
17,658
\n
Interest only - variable
3,515
3,286
258
\u2014
7,059
4,348
4,889
346
120
9,703
\n
Interest only - fixed
17,954
8,591
261
\u2014
26,806
14,255
5,957
209
3
20,424
\n
Mixed
(1)
9,768
1
16
\u2014
9,785
8,616
1
17
34
8,668
\n
ECL provisions
(2)
355
9
6
\u2014
370
429
7
8
318
762
\n
Other personal lending
(3)
11,935
1,853
267
143
14,198
10,829
1,974
305
218
13,326
\n
ECL provisions
(2)
1,257
15
3
26
1,301
1,140
19
2
11
1,172
\n
Total personal lending
198,826
15,562
2,624
143
217,155
183,536
14,755
2,749
6,382
207,422
\n
Mortgage LTV ratios
\n
- Owner occupied
52%
59%
56%
\u2014
53%
54%
59%
57%
50%
54%
\n
- Stage 1
52%
59%
56%
\u2014
53%
54%
59%
56%
48%
54%
\n
- Stage 2
52%
61%
60%
\u2014
52%
52%
59%
62%
57%
52%
\n
- Stage 3
45%
59%
74%
\u2014
47%
49%
64%
77%
56%
53%
\n
- Buy-to-let
50%
59%
53%
\u2014
51%
50%
57%
53%
52%
51%
\n
- Stage 1
51%
59%
53%
\u2014
52%
50%
58%
53%
51%
51%
\n
- Stage 2
49%
53%
48%
\u2014
49%
52%
55%
50%
56%
52%
\n
- Stage 3
47%
55%
57%
\u2014
50%
51%
53%
60%
66%
56%
\n
Gross new mortgage lending
41,227
2,968
327
\u2014
44,522
35,290
2,874
340
40
38,544
\n
Of which:
\n
Owner occupied
36,305
2,701
221
\u2014
39,227
33,630
2,583
206
40
36,459
\n
Weighted average LTV
(4)
69%
65%
65%
\u2014
69.0%
69%
65%
67%
62%
68%
\n
Buy-to-let
4,922
267
106
\u2014
5,295
1,660
292
134
\u2014
2,086
\n
Weighted average LTV
(4)
64%
66%
60%
\u2014
64.0%
63%
65%
63%
60%
64%
\n
Interest only - variable rate
24
329
11
\u2014
364
25
832
37
\u2014
894
\n
Interest only - fixed rate
5,299
2,335
51
\u2014
7,685
2,388
1,563
36
\u2014
3,987
\n
Mixed
(1)
2,309
\u2014
2
\u2014
2,311
2,256
\u2014
7
\u2014
2,263
\n
Mortgage forbearance
\n
Forbearance flow
(5)
182
7
4
\u2014
193
316
19
4
50
389
\n
Forbearance stock
1,015
16
8
\u2014
1,039
1,156
3
8
944
2,111
\n
Current
649
8
6
\u2014
663
727
\u2014
5
616
1,348
\n
1-3 months in arrears
133
\u2014
2
\u2014
135
146
2
1
58
207
\n
>3 months in arrears
233
8
\u2014
\u2014
241
283
1
2
270
556
\n
(1)
Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures.
\n
(2)
Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(3)
Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature.
\n
(4)
The new lending LTV in the comparative has been amended to reflect LTV at the time of lending origination rather than LTV at the reporting period.
\n
(5)
Forbearance flows only include an account once per year, although some accounts may be subject to multiple forbearance deals. Forbearance deals post default are excluded from
\n
these flows.
\n
\ue001
The mortgage portfolio grew steadily during 2022, benefiting
\n
from buoyant housing market activity and customers re-
\n
mortgaging as interest rates rose across the market.
\n
\ue001
LTV ratios improved as house prices increased as a result of
\n
housing market demand.
\n
\ue001
The existing mortgage stock and new business were closely
\n
monitored against agreed risk appetite parameters. These
\n
included loan-to-value ratios, buy-to-let concentrations,
\n
new-build concentrations and credit quality. Affordability
\n
assessments and assumptions were continuously reviewed
\n
considering inflationary pressure, interest rate rises and
\n
taxation changes during the year.
\n
\ue001
The buy-to-let portfolio grew in 2022. This growth was
\n
expected and within risk appetite following strategy and
\n
customer journey simplification implemented in H2 2021.
\n
\ue001
Aligned to strong overall portfolio quality and low levels of
\n
early arrears, forbearance flows have decreased compared
\n
to the prior year.
\n
\ue001
Unsecured lending increased during 2022, with resilient
\n
customer demand after the easing of COVID-19 restrictions.
\n
\ue001
As noted previously, ECL increased, for further detail of
\n
movements in ECL provisions at product level refer to the
\n
Flow statements section.
Personal portfolio
(audited)
\n
Mortgage LTV distribution by stage
\n
The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9
\n
ECL reflected portfolios carried at fair value.
\n
Mortgages
ECL provisions
ECL provisions coverage (2)
\n
Retail Banking
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9
\n
ECL scope
\n
Total
\n
Of which;
\n
gross
\n
lending
\n
Stage 1
Stage 2
Stage 3
Total (1)
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
71,321
8,257
1,036
61
80,675
7,467
26
20
121
167
\u2014
0.2
11.7
0.2
\n
>50% and \u226470%
68,178
7,792
616
7
76,593
14,088
32
30
71
133
\u2014
0.4
11.5
0.2
\n
>70% and \u226480%
17,602
1,602
62
1
19,267
11,154
7
6
11
24
\u2014
0.4
17.7
0.1
\n
>80% and \u226490%
7,918
944
17
1
8,880
7,127
6
5
5
16
0.1
0.5
29.4
0.2
\n
>90% and \u2264100%
1,409
18
6
\u2014
1,433
1,389
3
\u2014
2
5
0.2
\u2014
33.3
0.3
\n
>100%
35
7
10
\u2014
52
2
2
\u2014
4
6
5.7
\u2014
40.0
11.5
\n
Total with LTVs
166,463
18,620
1,747
70
186,900
41,227
76
61
214
351
\u2014
0.3
12.3
0.2
\n
Other
59
1
1
\u2014
61
\u2014
3
\u2014
1
4
5.1
\u2014
100.0
6.6
\n
Total
166,522
18,621
1,748
70
186,961
41,227
79
61
215
355
\u2014
0.3
12.3
0.2
\n
2021
\n
\u226450%
61,233
4,548
644
63
66,488
5,845
7
60
140
207
\u2014
1.3
21.7
0.3
\n
>50% and \u226470%
68,271
4,674
483
9
73,437
12,397
10
64
84
158
\u2014
1.4
17.4
0.2
\n
>70% and \u226480%
24,004
1,255
93
1
25,353
10,964
3
18
15
36
\u2014
1.4
16.1
0.1
\n
>80% and \u226490%
5,983
250
22
1
6,256
4,985
1
8
5
14
\u2014
3.2
22.7
0.2
\n
>90% and \u2264100%
1,125
58
10
\u2014
1,193
1,098
\u2014
5
3
8
\u2014
8.6
30.0
0.7
\n
>100%
14
18
6
\u2014
38
\u2014
\u2014
1
2
3
\u2014
5.6
33.3
7.9
\n
Total with LTVs
160,630
10,803
1,258
74
172,765
35,289
21
156
249
426
\u2014
1.4
19.8
0.2
\n
Other
14
1
1
\u2014
16
1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Total
160,644
10,804
1,259
74
172,781
35,290
21
156
249
426
\u2014
1.4
19.8
0.2
\n
(1)
Excludes a non-material amount of provisions held on relatively small legacy portfolios.
\n
(2)
ECL provisions coverage is ECL provisions divided by mortgages.
\n
\ue001
The reduced coverage level in the lower LTV bands for
\n
Retail Banking, relative to 31 December 2021, reflected the
\n
implementation of a new IFRS 9 LGD model with a modelling
\n
approach that now captures a reduced loss expectation
\n
from non-repossession recovery action.
\n
\ue001
Continued stable portfolio performance alongside the new
\n
IFRS 9 PD and LGD model implementations resulted in
\n
reduced coverage across most LTV bands in Stage 2 and
\n
Stage 3. The increased ECL across Stage 1 LTV bands was
\n
mainly due to higher Stage 1 PDs as a result of the new PD
\n
model implementation and also the proportionate allocation
\n
of the economic uncertainty post model adjustment to Stage
\n
1.
Personal portfolio
(audited)
\n
Retail Banking mortgage LTV distribution by region
\n
The table below shows gross mortgage lending by LTV band for Retail Banking, by geographical region.
\n
Flood risk*
\n
\u226450%
50%\u226480%
80%\u2264100%
>100%
Total
\n
Weighted
\n
average LTV
\n
Other
Total
Total
\n
lending at
\n
high/very high
\n
risk**
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
\u00a3m
\u00a3m
%
%
\n
South East
15,856
17,670
1,396
1
34,923
51
3
34,926
19
4.1
\n
Greater London
15,200
17,550
1,336
1
34,087
51
3
34,090
18
2.3
\n
Scotland
5,024
6,174
1,163
1
12,362
54
1
12,363
7
3.2
\n
North West
7,670
8,672
1,236
2
17,580
52
2
17,582
9
2.2
\n
South West
7,874
7,922
627
\u2014
16,423
50
1
16,424
9
3.0
\n
West Midlands
5,477
7,014
862
1
13,354
53
1
13,355
7
1.2
\n
East of England
9,241
11,492
987
2
21,722
52
2
21,724
12
2.1
\n
Rest of the UK
14,312
19,408
2,712
43
36,475
54
48
36,523
19
3.2
\n
Total
80,654
95,902
10,319
51
186,926
52
61
186,987
100
2.8
\n
2021
\n
South East
13,160
18,298
886
1
32,345
53
3
32,348
19
4.4
\n
Greater London
13,308
16,716
1,477
1
31,502
53
3
31,505
18
2.5
\n
Scotland
4,493
6,529
559
2
11,583
54
1
11,584
7
3.5
\n
North West
6,598
9,212
654
3
16,467
53
2
16,469
10
2.4
\n
South West
6,140
8,619
499
1
15,259
53
2
15,261
9
3.4
\n
West Midlands
4,323
7,449
553
1
12,326
55
1
12,327
6
1.8
\n
East of England
7,467
11,679
820
1
19,967
54
2
19,969
12
2.6
\n
Rest of the UK
10,937
20,278
2,001
26
33,242
56
2
33,244
19
3.6
\n
Total
66,426
98,780
7,449
36
172,691
54
16
172,707
100
3.1
\n
*Not within audit scope.
\n
**Flood hazard is modelled by looking at the four different types of flooding (surface water, ground water, coastal and river) and
\n
calculating the frequency and depth of flooding nationally to derive flood maps. Flood defences are considered where available.
\n
Flood scores are allocated per property based on the potential flood damage to property dependent on the type, frequency and
\n
depth of flooding modelled across different return periods. The scoring ranges from 0 to 53, with 0 being lowest and 53 being the
\n
highest risk. We consider a score of 11 and above to be high risk and properties with a score of 31 and above within the very high
\n
risk category after flood mitigants are taken into account. This is not within audit scope.
Retail Banking mortgages by Energy Performance Certificate (EPC) rating*
\n
The table below represents the energy efficiency of Retail Banking residential mortgages.
\n
31 December 2022
31 December 2021
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
Owner
\n
Occupied
\n
Buy-to-let
\n
Total
\n
EPC rating
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
A
424
12
436
282
8
290
\n
B
19,874
1,342
21,216
15,719
852
16,571
\n
C
28,049
5,228
33,277
22,138
3,178
25,316
\n
D
47,497
6,033
53,530
41,814
4,187
46,001
\n
E
17,153
1,687
18,840
16,238
1,332
17,570
\n
F
3,691
86
3,777
3,637
113
3,750
\n
G
789
21
810
734
27
761
\n
Unclassified
51,313
3,692
55,005
57,497
4,951
62,448
\n
Total
168,790
18,101
186,891
158,059
14,648
172,707
\n
*Not within audit scope.
\n
As at 31 December 2022, \u00a3138.8 billion, 68%, of the total UK residential mortgages portfolio, including both Private Banking and
\n
Retail Banking mortgages had Energy Performance Certificate (EPC) data available (2021 \u2013 \u00a3116.2 billion, 62%). Of which, 41.5%
\n
were rated as EPC A to C (2021 \u2013 38.3%). EPC data source and limitations are provided in section 5.2 of the 2022 NatWest Group
\n
Climate-related Disclosures Report
\n
Commercial real estate (CRE)*
\n
The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential
\n
properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The
\n
sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and
\n
control frameworks.
\n
2022
2021
\n
UK
RoI
Other
Total
UK
RoI
Other
Total
\n
By geography and sub-sector (1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Investment
\n
Residential
(2)
4,583
2
13
4,598
4,326
10
16
4,352
\n
Office
(3)
2,781
10
\u2014
2,791
3,030
13
10
3,053
\n
Retail
(4)
3,754
\u2014
\u2014
3,754
4,157
24
\u2014
4,181
\n
Industrial
(5)
2,939
\u2014
184
3,123
2,758
2
106
2,866
\n
Mixed/other
(6)
876
7
46
929
1,175
24
49
1,248
\n
14,933
19
243
15,195
15,446
73
181
15,700
\n
Development
\n
Residential
(2)
1,693
7
\u2014
1,700
1,775
34
2
1,811
\n
Office
(3)
81
\u2014
\u2014
81
79
\u2014
\u2014
79
\n
Retail
(4)
56
\u2014
\u2014
56
48
\u2014
\u2014
48
\n
Industrial
(5)
90
\u2014
\u2014
90
67
\u2014
\u2014
67
\n
Mixed/other
(6)
14
1
\u2014
15
20
2
\u2014
22
\n
1,934
8
\u2014
1,942
1,989
36
2
2,027
\n
Total
16,867
27
243
17,137
17,435
109
183
17,727
\n
*Not within audit scope.
\n
(1)
Geographical splits are based on country of collateral risk.
\n
(2)
Properties including houses, flats and student accommodation.
\n
(3)
Properties including offices in central business districts, regional headquarters and business parks.
\n
(4)
Properties including high street retail, shopping centres, restaurants, bars and gyms.
\n
(5)
Properties including distribution centres, manufacturing and warehouses.
\n
(6)
Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential.
Commercial real estate (CRE)
\n
CRE LTV distribution by stage
(audited)
\n
The table below shows CRE current exposure and related ECL by LTV band.
\n
Current exposure (gross of provisions)
ECL provisions
ECL provisions coverage
(2)
\n
Stage 1
Stage 2
Stage 3
\n
Not within
\n
IFRS 9 ECL
\n
scope (1)
\n
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
%
%
%
%
\n
\u226450%
7,010
658
57
67
7,792
36
12
16
64
0.5
1.8
28.1
0.8
\n
>50% and \u226470%
3,515
798
43
19
4,375
23
18
12
53
0.7
2.3
27.9
1.2
\n
>70% and \u2264100%
259
82
156
7
504
1
3
42
46
0.4
3.7
26.9
9.1
\n
>100%
102
10
23
1
136
1
1
14
16
1.0
10.0
60.9
11.8
\n
Total with LTVs
10,886
1,548
279
94
12,807
61
34
84
179
0.6
2.2
30.1
1.4
\n
Total portfolio
\n
average LTV%
45%
52%
75%
44%
47%
\n
Other
(3)
1,800
627
55
86
2,568
9
15
27
51
0.5
2.4
49.1
2.0
\n
Development
(4)
1,553
332
57
7
1,949
13
8
28
49
0.8
2.4
49.1
2.5
\n
Total
14,239
2,507
391
187
17,324
83
57
139
279
0.6
2.3
35.6
1.6
\n
2021
\n
\u226450%
6,767
388
34
268
7,457
5
7
9
21
0.1
1.8
26.5
0.3
\n
>50% and \u226470%
4,367
470
46
469
5,352
3
13
20
36
0.1
2.8
43.5
0.7
\n
>70% and \u2264100%
377
192
127
9
705
\u2014
9
32
41
\u2014
4.7
25.2
5.8
\n
>100%
215
7
86
4
312
\u2014
2
28
30
\u2014
28.6
32.6
9.6
\n
Total with LTVs
11,726
1,057
293
750
13,826
8
31
89
128
0.1
2.9
30.4
0.9
\n
Total portfolio
\n
average LTV%
48%
58%
88%
52%
50%
\n
Other
(3)
2,271
293
61
83
2,708
4
13
28
45
0.2
4.4
45.9
1.7
\n
Development
(4)
1,736
228
62
77
2,103
3
6
34
43
0.2
2.6
54.8
2.0
\n
Total
15,733
1,578
416
910
18,637
15
50
151
216
0.1
3.2
36.3
1.2
\n
(1)
Includes exposures relating to non-modelled portfolios and other exposures carried at fair value.
\n
(2)
ECL provisions coverage is ECL provisions divided by gross loans.
\n
(3)
Relates mainly to business banking, rate risk management products and unsecured corporate lending.
\n
(4)
Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity.
\n
\ue001
Overall
\u2013 The majority of the CRE portfolio was located and
\n
managed in the UK. Business appetite and strategy was
\n
aligned across NatWest Group.
\n
\ue001
2022 trends
\u2013 The commercial property cycle turned around
\n
mid-year as rising interest rates started to put upward
\n
pressure on property yields. Commercial property values
\n
declined by an average of approximately 20% from their
\n
mid-year peak, ending the year approximately 14% lower.
\n
The industrial sector saw values fall fastest to date, yet it
\n
continues to attract strong occupier demand and may,
\n
therefore, be the first sector to see values stabilise.
\n
Secondary offices which don\u2019t match modern sustainability
\n
standards appear most at risk from further value loss. The
\n
residential sector has yet to show significant value declines,
\n
but transaction activity has slowed materially and is
\n
expected to remain weak until values have adjusted. The
\n
spike in mortgage costs last year would be expected to push
\n
prices down across the market in 2023. In contrast,
\n
residential rents appreciated rapidly in 2022 and
\n
professionally managed rental assets are expected to be
\n
relatively robust in 2023.
\n
\ue001
Credit quality
\u2013 Credit quality was stable for the first nine
\n
months of the year but the impacts from the increase in
\n
base rate, projected capital value falls, inflationary pressures
\n
and concerns over recession for some customers began to
\n
materialise. Inflows into the Risk of Credit Loss framework
\n
picked up in Q4, but remained relatively low in volume
\n
terms, compared to previous downturns.
\n
\ue001
Risk appetite
\u2013 Lending appetite is subject to regular review
\n
with some level of tightening undertaken in 2022. Demand
\n
for facilities reduced significantly in Q4 as the market
\n
reacted to the various negative news points.
Flow statements
(audited)
\n
The flow statements that follow show the main ECL and related
\n
income statement movements. They also show the changes in
\n
ECL as well as the changes in related financial assets used in
\n
determining ECL. Due to differences in scope, exposures may
\n
differ from
those reported in other tables, principally in relation
\n
to exposures in Stage 1 and Stage 2. These differences do not
\n
have a material ECL effect. Other points to note:
\n
\ue001
Financial assets include treasury liquidity portfolios,
\n
comprising balances at central banks and debt securities,
\n
as well as loans. Both modelled and non-modelled portfolios
\n
are included.
\n
\ue001
Stage transfers (for example, exposures moving from Stage
\n
1 into Stage 2) are a key feature of the ECL movements,
\n
with the net re-measurement cost of transitioning to a
\n
worse stage being a primary driver of income statement
\n
charges. Similarly, there is an ECL benefit for accounts
\n
improving stage.
\n
\ue001
Changes in risk parameters shows the reassessment of the
\n
ECL within a given stage, including any ECL overlays and
\n
residual income statement gains or losses at the point of
\n
write-off or accounting write-down.
\n
\ue001
Other (P&L only items) includes any subsequent changes in
\n
the value of written-down assets (for example, fortuitous
\n
recoveries) along with other direct write-off items such as
\n
direct recovery costs. Other (P&L only items) affects the
\n
income statement but does not affect balance sheet ECL
\n
movements.
\n
\ue001
Amounts written-off represent the gross asset written-down
\n
against accounts with ECL, including the net asset write-
\n
down for any debt sale activity.
\n
\ue001
There were flows from Stage 1 into Stage 3 including
\n
transfers due to unexpected default events.
\n
\ue001
The effect of any change in post model adjustments during
\n
the year is typically reported under changes in risk
\n
parameters, as are any effects arising from changes to the
\n
underlying models. Refer to the section on Governance and
\n
post model adjustments for further details.
\n
\ue001
All movements are captured monthly and aggregated.
\n
Interest suspended post default is included within Stage 3
\n
ECL with the movement in the value of suspended interest
\n
during the year reported under currency translation and
\n
other adjustments.
\n
Stage 1
Stage 2
Stage 3
Total
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
Financial
\n
assets
ECL
\n
NatWest Group total
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Currency translation and other adjustments
6,129
\u2014
144
3
56
33
6,329
36
\n
Transfers from Stage 1 to Stage 2
(55,848)
(226)
55,848
226
\u2014
\u2014
\u2014
\u2014
\n
Transfers from Stage 2 to Stage 1
31,657
827
(31,657)
(827)
\u2014
\u2014
\u2014
\u2014
\n
Transfers to Stage 3
(621)
(4)
(3,679)
(265)
4,300
269
\u2014
\u2014
\n
Transfers from Stage 3
485
34
842
77
(1,327)
(111)
\u2014
\u2014
\n
Net re-measurement of ECL on stage transfer
(701)
1,090
\u2014
352
741
\n
Changes in risk parameters
286
(399)
\u2014
140
27
\n
Other changes in net exposure
(12,164)
125
(7,911)
(293)
(1,969)
(96)
(22,044)
(264)
\n
Other (P&L only items)
\u2014
(5)
\u2014
(162)
(167)
\n
Income statement (releases)/charges
(290)
393
234
337
\n
Transfers to disposal groups and fair value
(8,277)
(11)
(657)
(42)
(590)
(286)
(9,524)
(339)
\n
Amounts written-off
\u2014
\u2014
(5)
(5)
(477)
(477)
(482)
(482)
\n
Unwinding of discount
\u2014
\u2014
\u2014
(91)
(91)
\n
At 31 December 2022
507,539
632
48,482
1,043
5,231
1,759
561,252
3,434
\n
Net carrying amount
506,907
47,439
3,472
557,818
\n
At 1 January 2021
446,666
519
81,667
3,081
6,524
2,586
534,857
6,186
\n
2021 movements
99,512
(217)
(46,110)
(1,603)
(1,286)
(560)
52,116
(2,380)
\n
At 31 December 2021
546,178
302
35,557
1,478
5,238
2,026
586,973
3,806
\n
Net carrying amount
545,876
34,079
3,212
583,167
Measurement
\n
Capital, risk-weighted assets and leverage: Key metrics
\n
The table below sets out the key capital and leverage ratios. NatWest Group is subject to the requirements set out in the PRA
\n
Rulebook. The capital and leverage ratios are therefore being presented under these frameworks on a transitional basis.
\n
2022
2021
\n
Capital adequacy ratios
(1)
%
%
\n
CET1
14.2
18.2
\n
Tier 1
16.4
21.0
\n
Total
19.3
24.7
\n
RWAs
\u00a3m
\u00a3m
\n
Credit risk
141,963
120,116
\n
Counterparty credit risk
6,723
7,907
\n
Market risk
8,300
7,917
\n
Operational risk
19,115
21,031
\n
Total RWAs
176,101
156,971
\n
Capital
\u00a3m
\u00a3m
\n
CET1
24,992
28,596
\n
Tier1
28,867
33,042
\n
Total
33,920
38,748
\n
Leverage ratios
\u00a3m
\u00a3m
\n
Tier 1 capital
28,867
33,042
\n
UK average Tier 1 capital
(2)
29,564
33,804
\n
UK average leverage exposure
(2)
531,429
568,802
\n
UK average leverage ratio (%)
(2)
5.6%
5.9%
\n
UK leverage ratio (%)
(3)
5.4%
5.9%
\n
(1)
Based on the current PRA rules, therefore includes the transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9
\n
expected credit loss (ECL) accounting. The impact of the IFRS 9 transitional adjustments at 31 December 2022 was \u00a30.4 billion for CET1 capital, \u00a336 million for total capital and \u00a371
\n
million RWAs (31 December 2021 \u2013 \u00a30.6 billion CET1 capital, \u00a30.5 billion total capital and \u00a336 million RWAs). Excluding these adjustments, the CET1 ratio would be 14.0% (31
\n
December 2021 \u2013 17.8%). The transitional relief on grandfathered instruments at 31 December 2022 was \u00a375 million (31 December 2021 - \u00a30.9 billion). Excluding both the
\n
transitional relief on grandfathered capital instruments and the transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting, the end-point Tier 1
\n
capital ratio would be 16.2% (31 December 2021 \u2013 20.3%) and the end-point Total capital ratio would be 19.2% (31 December 2021 \u2013 23.8%).
\n
(2)
Based on the daily average of on-balance sheet items and three month-end average of off-balance sheet items.
\n
(3)
The UK leverage exposure and transitional Tier 1 capital are calculated in accordance with current PRA rules. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
\n
would be 5.3% (31 December 2021 \u2013 5.8%).
", "dimensions": { "concept": "ifrs-full:DisclosureOfCreditRiskExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f38360": { "value": "
Leverage exposure
\n
31 December
31 December
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
177,757
\n
Trading assets
45,577
59,158
\n
Derivatives
99,545
106,139
\n
Financial assets
404,374
412,817
\n
Other assets
18,864
17,106
\n
Assets of disposal groups
6,861
9,015
\n
Total assets
720,053
781,992
\n
Derivatives
\n
- netting and variation margin
(100,356)
(110,204)
\n
- potential future exposures
18,327
35,035
\n
Securities financing transactions gross up
4,147
1,397
\n
Other off balance sheet items
46,144
44,240
\n
Regulatory deductions and other adjustments
(7,114)
(8,980)
\n
Claims on central banks
(141,144)
(174,148)
\n
Exclusion of bounce back loans
(5,444)
(7,474)
\n
UK leverage exposure
534,613
561,858
\n
UK leverage ratio (%)
(1)
5.4
5.9
\n
(1)
The UK leverage exposure and transitional Tier 1 capital are calculated in accordance with the PRA Rulebook. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio
\n
would be 5.3% (31 December 2021 \u2013 5.8%).
\n
Liquidity key metrics
\n
The table below sets out the key liquidity and related metrics monitored by NatWest Group.
\n
2022
2021
\n
NatWest Group
UK DoLSub
NatWest Group
UK DoLSub
\n
Liquidity coverage ratio
145%
131%
172%
169%
\n
Stressed outflow coverage
(1)
150%
131%
194%
195%
\n
Net stable funding ratio
145%
137%
157%
151%
\n
(1)
NatWest Group\u2019s stressed outflow coverage (SOC) is an internal measure calculated by reference to liquid assets as a percentage of net stressed contractual and behavioural
\n
outflows over three months under the worst of three severe stress scenarios of a market-wide stress, an idiosyncratic stress and a combination of both as per ILAAP. This
\n
assessment is performed in accordance with PRA guidance.
\n
Weighted undrawn commitments
\n
The table below provides a breakdown of weighted undrawn commitments.
\n
2022
2021
\n
\u00a3bn
\u00a3bn
\n
Unconditionally cancellable credit cards
1.9
1.8
\n
Other unconditionally cancellable items
3.6
3.1
\n
Unconditionally cancellable items
(1)
5.5
4.9
\n
Undrawn commitments <1 year which may not be cancelled
1.7
1.7
\n
Other off-balance sheet items with 20% credit conversion factor (CCF)
0.3
0.3
\n
Items with a 20% CCF
2.0
2.0
\n
Revolving credit risk facilities
28.4
27.5
\n
Term loans
4.4
3.3
\n
Mortgages
\u2014
\u2014
\n
Other undrawn commitments >1 year which may not be cancelled & off-balance sheet
1.0
1.1
\n
Items with a 50% CCF
33.8
31.9
\n
Items with a 100% CCF
4.9
5.3
\n
Total
46.2
44.1
\n
(1)
Based on a 10% CCF.
Loss-absorbing capital
\n
The following table illustrates the components of estimated loss-absorbing capital (LAC) in NatWest Group plc and operating
\n
subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory
\n
capital instruments issued from operating companies, to the extent they meet MREL criteria.
\n
The roll-off profile relating to senior debt and subordinated debt instruments is set out on page 257.
\n
2022
2021
\n
Par value (1)
\n
Balance
\n
sheet value
\n
Regulatory
\n
value (2.5)
\n
LAC value (3)
Par value
\n
Balance
\n
sheet value
\n
Regulatory
\n
value
\n
LAC value
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
CET1 capital
(4)
25.0
25.0
25.0
25.0
28.6
28.6
28.6
28.6
\n
Tier 1 capital: end-point CRR compliant AT1
\n
of which: NatWest Group plc (holdco)
3.9
3.9
3.9
3.9
3.9
3.9
3.9
3.9
\n
of which: NatWest Group plc operating
\n
subsidiaries (opcos)
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
3.9
3.9
3.9
3.9
3.9
3.9
3.9
3.9
\n
Tier 1 capital: end-point CRR non compliant
(6)
\n
of which: holdco
\u2014
\u2014
\u2014
\u2014
0.6
0.6
0.5
0.5
\n
of which: opcos
0.1
0.1
\u2014
\u2014
0.1
0.1
\u2014
\u2014
\n
0.1
0.1
\u2014
\u2014
0.7
0.7
0.5
0.5
\n
Tier 2 capital: end-point CRR compliant
\n
of which: holdco
6.0
5.5
4.9
5.4
7.1
7.1
4.9
6.0
\n
of which: opcos
0.1
0.1
\u2014
\u2014
0.3
0.3
\u2014
\u2014
\n
6.1
5.6
4.9
5.4
7.4
7.4
4.9
6.0
\n
Tier 2 capital: end-point CRR non compliant
(6)
\n
of which: holdco
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
of which: opcos
0.3
0.5
0.1
\u2014
0.6
0.9
0.3
0.1
\n
0.3
0.5
0.1
\u2014
0.6
0.9
0.3
0.1
\n
Senior unsecured debt securities
\n
of which: holdco
23.4
22.3
\u2014
21.2
22.8
23.4
\u2014
22.8
\n
of which: opcos
26.1
22.9
\u2014
\u2014
22.7
22.6
\u2014
\u2014
\n
49.5
45.2
\u2014
21.2
45.5
46.0
\u2014
22.8
\n
Tier 2 capital
\n
Other regulatory adjustments
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
0.5
\n
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
0.5
\n
Total
84.9
80.3
33.9
55.5
86.7
87.5
38.7
62.4
\n
RWAs
176.1
157.0
\n
UK leverage exposure
534.6
561.9
\n
LAC as a ratio of RWAs
31.5%
39.8%
\n
LAC as a ratio of UK leverage exposure
10.4%
11.1%
\n
(1)
Par value reflects the nominal value of securities issued.
\n
(2)
Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria.
\n
(3)
LAC value reflects NatWest Group\u2019s interpretation of the Bank of England\u2019s approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in
\n
December 2021 (updating June 2018). MREL policy and requirements remain subject to further potential development, as such NatWest Group\u2019s estimated position remains subject
\n
to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other
\n
instruments that do not meet the MREL criteria. The LAC calculation includes Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments.
\n
(4)
Corresponding shareholders\u2019 equity was \u00a336.5 billion (2021 - \u00a341.8 billion).
\n
(5)
Regulatory amounts reported for AT1, Tier 1 and Tier 2 includes grandfathered instruments as per the transitional provisions allowed under CRR2 (until 28 June 2025).
\n
(6)
(i) CRR1 non-compliant instruments (2021) - all Tier 1 and Tier 2 instruments that were grandfathered under CRR1 compliance have lost their regulatory value and no longer form
\n
part of our regulatory capital resources from 1 January 2022. As at 31 December 2021, these are reported under the \"Tier 1 capital: end-point CRR non-compliant\" and \"Tier 2
\n
capital: end-point CRR non-compliant\" categories.
\n
(ii) CRR2 non-compliant instruments (2022) - From January 2022, all Tier 1 and Tier 2 instruments that were grandfathered under CRR2 compliance (until 28 June 2025) are
\n
reported under \"Tier 1 capital: end-point CRR non-compliant\" and \"Tier 2 capital: end-point CRR non-compliant\" category.
Loss-absorbing capital
\n
The following table illustrates the components of the stock of outstanding issuance in NatWest Group plc and its operating
\n
subsidiaries including external and internal issuances
.
\n
NatWest
\n
Group plc
\n
NatWest
\n
Holdings
\n
Limited
NWB Plc
RBS plc
UBIDAC
NWM Plc
\n
NatWest
\n
Markets
\n
N.V.
\n
NWM
\n
Securities Inc.
\n
RBS
\n
International
\n
Limited
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Tier 1 (inclusive of AT1)
Externally issued
3.9
\u2014
0.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Tier 1 (inclusive of AT1)
Internally issued
\u2014
3.7
2.5
1.0
\u2014
0.9
0.2
\u2014
0.3
\n
3.9
3.7
2.6
1.0
\u2014
0.9
0.2
\u2014
0.3
\n
Tier 2
Externally issued
5.5
\u2014
0.1
\u2014
0.1
0.1
0.3
\u2014
\u2014
\n
Tier 2
Internally issued
\u2014
4.6
2.9
1.5
\u2014
1.5
0.1
0.3
\u2014
\n
5.5
4.6
3.0
1.5
0.1
1.6
0.4
0.3
\u2014
\n
Senior unsecured
Externally issued
22.3
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Senior unsecured
Internally issued
\u2014
10.4
6.4
0.4
0.5
3.2
\u2014
\u2014
0.3
\n
22.3
10.4
6.4
0.4
0.5
3.2
\u2014
\u2014
0.3
\n
Total outstanding issuance
31.7
18.7
12.0
2.9
0.6
5.7
0.6
0.3
0.6
\n
(1)
The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude,
\n
for example, issuance costs and fair value movements, while dated capital is required to be amortised on a straight-line basis over the final five years of maturity.
\n
(2)
Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR.
\n
(3)
Internal issuance for NWB Plc, RBS plc and UBIDAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc.
\n
(4)
Senior unsecured debt does not include CP, CD and short term/medium term notes issued from NatWest Group operating subsidiaries.
\n
(5)
Tier 1 (inclusive of AT1) does not include CET1 numbers.
Roll-off profile
\n
The following table illustrates the roll-off profile and weighted average spreads of NatWest Group\u2019s major wholesale funding
\n
programmes.
\n
Roll-off profile
\n
Senior debt roll-off profile
(1)
\n
As at and for year
\n
ended 31
\n
December
H1 2023
H2 2023
2024
2025
2026 & 2027
2028 & later
\n
NatWest Group plc
\n
- amount (\u00a3m)
22,266
1,350
874
2,142
2,904
6,049
8,947
\n
- weighted average rate spread (bps)
190
309
266
164
176
195
174
\n
NWM Plc
\n
- amount (\u00a3m)
18,283
3,380
887
3,664
5,213
4,380
759
\n
- weighted average rate spread (bps)
60
62
42
67
64
36
111
\n
NatWest Bank Plc
\n
- amount (\u00a3m)
1,664
1,641
23
\u2014
\u2014
\u2014
\u2014
\n
- weighted average rate spread (bps)
17
17
(6)
\u2014
\u2014
\u2014
\u2014
\n
NWM N.V.
\n
- amount (\u00a3m)
1,884
682
556
532
66
\u2014
48
\n
- weighted average rate spread (bps)
(104)
(175)
(141)
3
(49)
\u2014
95
\n
NWM S.I.
\n
- amount (\u00a3m)
216
\u2014
\u2014
83
\u2014
74
59
\n
- weighted average rate spread (bps)
131
\u2014
\u2014
98
\u2014
138
168
\n
RBSI
\n
- amount (\u00a3m)
839
645
194
\u2014
\u2014
\u2014
\u2014
\n
- weighted average rate spread (bps)
44
40
58
\u2014
\u2014
\u2014
\u2014
\n
Securitisation
\n
- amount (\u00a3m)
859
\u2014
\u2014
\u2014
296
375
188
\n
- weighted average rate spread (bps)
3
\u2014
\u2014
\u2014
8
\u2014
\u2014
\n
Covered bonds
\n
- amount (\u00a3m)
2,842
751
\u2014
2,091
\u2014
\u2014
\u2014
\n
- weighted average rate spread (bps)
127
44
\u2014
157
\u2014
\u2014
\u2014
\n
Total notes issued - amount (\u00a3m)
48,853
8,449
2,534
8,512
8,479
10,878
10,001
\n
Weighted average rate spread (bps)
113
70
78
105
96
122
164
\n
Subordinated debt instruments roll-off profile
(2)
\n
NatWest Group plc (\u00a3m)
5,521
126
537
1,298
918
875
1,767
\n
NWM Plc (\u00a3m)
142
122
\u2014
\u2014
\u2014
18
2
\n
NatWest Bank Plc (\u00a3m)
72
72
\u2014
\u2014
\u2014
\u2014
\u2014
\n
NWM N.V. (\u00a3m)
323
83
\u2014
\u2014
\u2014
\u2014
240
\n
UBIDAC (\u00a3m)
76
\u2014
\u2014
\u2014
\u2014
\u2014
76
\n
Total (\u00a3m)
6,134
403
537
1,298
918
893
2,085
\n
(1)
Based on final contractual instrument maturity.
\n
(2)
Based on first call date of instrument, however this does not indicate NatWest Group\u2019s strategy on capital and funding management. The table above does not include debt
\n
accounted Tier 1 instruments although those instruments form part of the total subordinated debt balance.
\n
(3)
The weighted average spread reflects the average net funding cost to NatWest Group and is calculated on an indicative basis and are quoted over term SONIA.
\n
(4)
The roll-off table is based on sterling-equivalent balance sheet values.
Liquidity portfolio
(audited)
\n
The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and
\n
regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part
\n
of the liquid asset portfolio for LCR or stressed outflow purposes.
\n
Liquidity value
\n
2022
2021
\n
NatWest
\n
Group (1)
\n
NWH
\n
Group (2)
\n
UK DoL
\n
Sub
\n
NatWest
\n
Group
\n
NWH
\n
Group
\n
UK DoL
\n
Sub
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
(3)
140,820
106,869
103,708
174,328
140,562
136,154
\n
AAA to AA- rated governments
18,589
9,843
9,843
31,073
21,710
21,123
\n
A+ and lower rated governments
317
\u2014
\u2014
25
\u2014
\u2014
\n
Government guaranteed issuers, public sector entities and
\n
government sponsored entities
134
120
100
307
295
174
\n
International organisations and multilateral
\n
development banks
1,734
1,112
1,021
2,720
1,807
1,466
\n
LCR level 1 bonds
20,774
11,075
10,964
34,125
23,812
22,763
\n
LCR level 1 assets
161,594
117,944
114,672
208,453
164,374
158,917
\n
LCR level 2 assets
\u2014
\u2014
\u2014
117
\u2014
\u2014
\n
Non-LCR eligible assets
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Primary liquidity
161,594
117,944
114,672
208,570
164,374
158,917
\n
Secondary liquidity
(3)
63,917
63,849
63,849
77,849
77,660
76,573
\n
Total liquidity value
225,511
181,793
178,521
286,419
242,034
235,490
\n
(1)
NatWest Group includes the UK Domestic Liquidity Sub-Group (UK DoLSub), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These
\n
include The Royal Bank of Scotland International Limited, NWM N.V., Ulster Bank Ireland DAC and NatWest Bank Europe GmbH who hold managed portfolios that comply with local
\n
regulations that may differ from PRA rules.
\n
(2)
NWH Group comprises UK DoLSub, Ulster Bank Ireland DAC and NatWest Bank Europe GmbH who hold managed portfolios that comply with local regulations that may differ from
\n
PRA rules.
\n
(3)
Comprises assets eligible for discounting at the Bank of England and other central banks.
\n
(4)
NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Annual Report and Accounts.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCashAndBankBalancesAtCentralBanksExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f39360": { "value": "
Funding sources
(audited)
\n
The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions
\n
include balances held at all classifications under IFRS 9.
\n
2022
2021
\n
Short-term less
\n
than 1 year
\n
Long-term more
\n
than 1 year
\n
Total
\n
Short-term less
\n
than 1 year
\n
Long-term more
\n
than 1 year
\n
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank Deposits
\n
Repos
1,446
\u2014
1,446
7,912
\u2014
7,912
\n
Other bank deposits
(1)
6,353
12,642
18,995
5,803
12,564
18,367
\n
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer Deposits
\n
Repos
9,575
254
9,829
14,541
\u2014
14,541
\n
Non-bank financial institutions
50,226
9
50,235
57,885
67
57,952
\n
Personal
224,706
1,209
225,915
230,525
829
231,354
\n
Corporate
164,314
25
164,339
175,850
113
175,963
\n
448,821
1,497
450,318
478,801
1,009
479,810
\n
Trading liabilities
(2)
\n
Repos
(3)
23,740
\u2014
23,740
19,389
\u2014
19,389
\n
Derivatives collateral
17,680
\u2014
17,680
17,718
\u2014
17,718
\n
Other bank and customer deposits
413
654
1,067
849
704
1,553
\n
Debt securities in issue - Medium term notes
54
743
797
178
796
974
\n
41,887
1,397
43,284
38,134
1,500
39,634
\n
Other financial liabilities
\n
Customer deposits
253
797
1,050
568
\u2014
568
\n
Debt securities in issue:
\n
Commercial paper and certificates of
\n
deposit
5,587
85
5,672
9,038
115
9,153
\n
Medium term notes
6,934
31,750
38,684
6,401
29,451
35,852
\n
Covered bonds
804
2,038
2,842
53
2,833
2,886
\n
Securitisation
(5)
\u2014
859
859
\u2014
867
867
\n
13,578
35,529
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
974
5,286
6,260
1,375
7,054
8,429
\n
Total funding
513,059
56,351
569,410
548,085
55,393
603,478
\n
Of which: available in resolution
(4)
24,899
29,624
\n
(1)
Includes \u00a312.0 billion (2021 \u2013 \u00a312.0 billion) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation.
\n
(2)
Excludes short positions of \u00a39.5 billion (2021 \u2013 \u00a325.0 billion).
\n
(3)
Comprises central & other bank repos of \u00a31.6 billion (2021 \u2013 \u00a30.8 billion), other financial institution repos of \u00a319.4 billion (2021 \u2013 \u00a317.0 billion) and other corporate repos of \u00a32.7
\n
billion (2021 \u2013 \u00a31.6 billion).
\n
(4)
Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or
\n
statements of the Bank of England including the Statement of Policy published by the Bank of England in December 2021 (updating June 2018). The balance consists of \u00a320.0 billion
\n
(2021 \u2013 \u00a323.4 billion) under debt securities in issue (senior MREL) and \u00a34.9 billion (2021 \u2013 \u00a36.2 billion) under subordinated liabilities.
\n
(5)
NatWest Group transfers credit risk on originated loans and mortgages without the transfer of assets to a structured entity, whereby it enters credit derivative and financial
\n
guarantee contracts with consolidated structured entities and they in turn issue debt securities to investors. This funding is legally ringfenced in the structured entity and is restricted
\n
to specifically cover investor credit protection claim payments in respect of the associated loans and mortgages.
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
24 Asset transfers
\n
This note provides an overview of asset transfers which do not qualify for derecognition and therefore continue to be recognised in
\n
NatWest Group\u2019s balance sheet.
\n
For accounting policy information see Accounting policies note 3.9.
\n
Transfers that do not qualify for derecognition
\n
NatWest Group enters into securities repurchase, lending and
\n
total return transactions in accordance with normal market
\n
practice which includes the provision of additional collateral if
\n
necessary. Under standard terms in the UK and US markets,
\n
the recipient has an unrestricted right to sell or repledge
\n
collateral, subject to returning equivalent securities on
\n
settlement of the transaction.
\n
Securities sold under repurchase transactions and transactions
\n
with the substance of securities repurchase agreements are not
\n
derecognised if NatWest Group retains substantially all the risks
\n
and rewards of ownership. The fair value (and carrying value)
\n
of securities transferred under such transactions included on
\n
the balance sheet, are set out below. All of these securities
\n
could be sold or repledged by the holder.
\n
2022
2021
\n
The following assets have failed derecognition
(1)
\u00a3m
\u00a3m
\n
Trading assets
6,668
13,084
\n
Loans to bank - amortised cost
16
38
\n
Loans to customers - amortised cost
398
1,837
\n
Other financial assets
2,901
11,746
\n
Total
9,983
26,705
\n
(1)
Associated liabilities were \u00a39,501 million (2021 \u2013 \u00a324,747 million).
\n
Assets pledged as collateral
\n
NatWest Group pledges collateral with its counterparties in respect of derivative liabilities and bank and stock borrowings.
\n
2022
2021
\n
Assets pledged against liabilities
\u00a3m
\u00a3m
\n
Trading assets
15,062
23,601
\n
Loans to banks - amortised cost
66
62
\n
Loans to customers - amortised cost
17,493
20,108
\n
Other financial assets
(1)
3,351
3,624
\n
Total
35,972
47,395
\n
(1)
Includes assets pledged for pension derivatives and stock borrowings.
\n
As part of the covered debt programme \u00a38,156 million of loans to customers and other debt instruments (2021 \u2013 \u00a38,965 million)
\n
have been transferred to bankruptcy remote limited liability partnerships within the NatWest Group to provide collateral for issues
\n
of debt securities and other borrowing by the NatWest Group of \u00a34,132 million (2021 \u2013 \u00a33,512 million). See Structured Entities Note.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRepurchaseAndReverseRepurchaseAgreementsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f40793": { "value": "Market risk
(audited)
\n
NatWest Group is exposed to non-traded market risk through
\n
its banking activities and to traded market risk through its
\n
trading activities. Non-traded and traded market risk exposures
\n
are managed and discussed separately. The non-traded market
\n
risk section begins below. The traded market risk section
\n
begins on page 272. Pension-related activities also give rise to
\n
market risk. Refer to page 276 for more information on risk
\n
related to pensions.
\n
Non-traded market risk
\n
Definition
(audited)
\n
Non-traded market risk is the risk to the value of assets or
\n
liabilities outside the trading book, or the risk to income, that
\n
arises from changes in market prices such as interest rates,
\n
foreign exchange rates and equity prices, or from changes in
\n
managed rates.
\n
Sources of risk
(audited)
\n
The key sources of non-traded market risk are interest rate
\n
risk, credit spread risk, foreign exchange risk, equity risk and
\n
accounting volatility risk.
\n
For detailed qualitative and quantitative information on each of
\n
these risk types, refer to the separate sub-sections following
\n
the VaR table below.
\n
Key developments in 2022
\n
\ue001
Interest rates in the UK increased sharply in 2022, to levels
\n
higher than expected at the end of 2021. The Bank of
\n
England base rate rose from 0.25% at 31 December 2021 to
\n
3.5% at 31 December 2022. The five-year sterling overnight
\n
index interest rate swap rate rose from 1.05% at 31
\n
December 2021 to 4.10% at 31 December 2022. The
\n
corresponding ten-year rate rose from 0.95% to 3.75%.
\n
\ue001
Overall, non-traded VaR decreased over the year, driven by
\n
a decrease in credit spread VaR. This reflected reduced
\n
holdings of bonds in the liquidity portfolio. Interest rate VaR
\n
rose, reflecting higher interest rate volatility, particularly in
\n
sterling. By year-end, interest rate risk had displaced credit
\n
spread risk as the main driver of non-traded VaR.
\n
\ue001
NatWest Group\u2019s structural hedge notional increased to
\n
\u00a3230 billion at 31 December 2022 from \u00a3206 billion at 31
\n
December 2021 as more balances were included in the
\n
hedging programme.
\n
\ue001
Higher swap rates were reflected in a higher yield on the
\n
structural hedge, which rose from 0.75% in 2021 to 0.96% in
\n
2022.
\n
\ue001
The sensitivity of net interest earnings to a 25-basis-point
\n
upward shift in the yield curve fell to a cumulative \u00a3886
\n
million over three years at 31 December 2022, from \u00a31,107
\n
million at 31 December 2021. The main contributors to
\n
lower sensitivity were lower deposit volumes and increased
\n
structural hedging.
\n
\ue001
Sterling weakened against the US dollar, to 1.21 at 31
\n
December 2022 compared to 1.35 at 31 December 2021. It
\n
also weakened against the euro, to 1.13 at 31 December
\n
2022 compared to 1.19 at 31 December 2021. Residual
\n
structural foreign currency exposures decreased over the
\n
year by \u00a31.5 billion, in sterling equivalent terms, mainly due
\n
to increased hedging.
\n
Governance
(audited)
\n
Responsibility for identifying, measuring, monitoring and
\n
controlling market risk arising from non-trading activities lies
\n
with the relevant business. Oversight is provided by the
\n
independent Risk function.
\n
Risk positions are reported regularly to the Executive Risk
\n
Committee, the Board Risk Committee, and the Board as well
\n
as to the Asset & Liability Management Committee. Non-traded
\n
market risk policy sets out the governance and risk
\n
management framework.
\n
Risk
appetite
\n
NatWest Group\u2019s qualitative appetite is set out in the non-
\n
traded market risk appetite statement.
\n
Its quantitative appetite is expressed in terms of value-at-risk
\n
(VaR), stressed value-at-risk (SVaR), sensitivity and stress limits,
\n
and earnings-at-risk limits.
\n
The limits are reviewed to reflect changes in risk appetite,
\n
business plans, portfolio composition and the market and
\n
economic environments. To ensure approved limits are not
\n
breached and that NatWest Group remains within its risk
\n
appetite, triggers have been set and are actively managed. For
\n
further information on risk appetite and risk controls, refer to
\n
pages 181 and 182.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
Risk measurement
(audited)
\n
Non-traded internal VaR (1-day 99%)
\n
The following table shows one-day internal banking book value-at-risk (VaR) at a 99% confidence level, split by risk type. VaR
\n
values for each year are calculated based on one-day values for each of the 12 month-end reporting dates.
\n
NatWest Group\u2019s VaR metrics are explained on page 272. Each of the key risk types are discussed in greater detail in their
\n
individual sub-sections following this table.
\n
2022
2021
\n
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Interest rate
30.4
60.7
7.6
37.7
10.2
13.7
6.4
8.6
\n
Credit spread
36.3
86.6
19.9
20.3
102.9
113.5
92.4
100.9
\n
Structural foreign exchange rate
8.9
11.3
6.1
11.3
11.4
13.2
9.2
12.0
\n
Equity
18.1
22.2
13.7
14.7
12.4
14.6
11.1
14.3
\n
Pipeline risk
(1)
1.5
4.5
0.3
2.4
0.5
1.2
0.3
1.2
\n
Diversification
(2)
(36.9)
(34.9)
(12.9)
(35.6)
\n
Total
58.3
91.2
45.5
51.5
124.5
147.1
101.4
101.4
\n
(1)
Pipeline risk is the risk of loss arising from personal customers owning an option to draw down a loan \u2013 typically a mortgage \u2013 at a committed rate, where interest rate changes
\n
may result in greater or fewer customers than anticipated taking up the committed offer.
\n
(2)
NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation
\n
between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
\n
\ue001
Overall, non-traded VaR decreased over the year, driven by
\n
a decrease in credit spread VaR. This reflected reduced
\n
holdings of bonds in the liquidity portfolio.
\n
\ue001
Interest rate VaR increased, reflecting higher interest rate
\n
volatility, particularly in sterling. By year-end, interest rate
\n
risk had displaced credit spread risk as the main driver of
\n
non-traded VaR.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
Interest rate risk
\n
Non-traded interest rate risk (NTIRR) arises from the provision
\n
to customers of a range of banking products with differing
\n
interest rate characteristics. When aggregated, these products
\n
form portfolios of assets and liabilities with varying degrees of
\n
sensitivity to changes in market interest rates. Mismatches can
\n
give rise to volatility in net interest income as interest rates
\n
vary.
\n
NTIRR comprises the following three primary risk types:
\n
\ue001
Gap risk: arises from the timing of rate changes in non-
\n
trading book instruments. The extent of gap risk depends
\n
on whether changes to the term structure of interest rates
\n
occur consistently across the yield curve (parallel risk) or
\n
differentially by period (non-parallel risk).
\n
\ue001
Basis risk: captures the impact of relative changes in
\n
interest rates for financial instruments that have similar
\n
tenors but are priced using different interest rate indices, or
\n
on the same interest rate indices but with different tenors.
\n
\ue001
Option risk: arises from option derivative positions or from
\n
optional elements embedded in assets, liabilities and/or off-
\n
balance sheet items, where NatWest Group or its customer
\n
can alter the level and timing of their cash flows. Option
\n
risk also includes pipeline risk.
\n
To manage exposures within its risk appetite, NatWest Group
\n
aggregates interest rate positions and hedges its residual
\n
exposure, primarily with interest rate swaps.
\n
Structural hedging aims to reduce gap risk and the sensitivity
\n
of earnings to interest rate shocks. It also provides some
\n
protection against prolonged periods of falling rates. Structural
\n
hedging is explained in greater detail below, followed by
\n
information on how NatWest Group measures NTIRR from both
\n
an economic value-based and an earnings-based perspective.
\n
Structural hedging
\n
NatWest Group has a significant pool of stable, non and low interest-bearing liabilities, principally comprising current accounts and
\n
savings, in addition to its equity and reserves. A proportion of these balances are hedged, either by investing directly in longer-
\n
term fixed-rate assets (such as fixed-rate mortgages) or by using interest rate swaps, which are generally booked as cash flow
\n
hedges of floating-rate assets, in order to provide a consistent and predictable revenue stream.
\n
After hedging the net interest rate exposure externally, NatWest Group allocates income to equity or products in structural hedges
\n
by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution
\n
for management purposes to products and interest rate returns. The programme aims to track a time series of medium-term swap
\n
rates, but the yield will be affected by changes in product volumes and NatWest Group\u2019s equity capital.
\n
The table below shows the total income and total yield, incremental income, and the period-end and average notional balances
\n
allocated to equity and products in respect of the structural hedges managed by NatWest Group. Total income represents the fixed
\n
leg of the hedge, while incremental income represents the difference between total income and short-term cash rates.
\n
2022
2021
\n
Incremental
\n
income
\n
Total
\n
income
\n
Period end
\n
notional
\n
Average
\n
notional
\n
Total yield
\n
Incremental
\n
income
\n
Total income
\n
Period end
\n
nontional
\n
Average
\n
nontional
\n
Total yield
\n
\u00a3m
\u00a3m
\u00a3bn
\u00a3bn
%
\u00a3m
\u00a3m
\u00a3bn
\u00a3bn
%
\n
Equity
71
363
21
21
1.77
426
448
21
22
2.05
\n
Product
(973)
1,571
184
176
0.89
744
861
161
145
0.59
\n
Other
(112)
201
25
26
0.77
139
115
24
23
0.51
\n
Total
(1,014)
2,135
230
223
0.96
1,309
1,424
206
190
0.75
\n
Equity structural hedges refer to income allocated primarily to equity and reserves. At 31 December 2022, the equity structural
\n
hedge notional was allocated between NWH Group and NWM Group in a ratio of approximately 77%/23% respectively.
\n
Product structural hedges refer to income allocated to customer products by NWH Group Treasury, mainly current account and
\n
savings balances in Commercial & Institutional and Retail Banking. Other structural hedges refer to hedges managed by the Coutts
\n
& Co, RBS International and UBIDAC legal entities.
\n
At 31 December 2022, approximately 94% by notional of total structural hedges were sterling-denominated.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
The following table presents the incremental income associated with product structural hedges at segment level.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Retail Banking
(463)
346
\n
Commercial & Institutional
(510)
398
\n
Total
(973)
744
\n
\ue001
The increase in hedge notional, on a period-end basis,
\n
mainly resulted from increased hedging of Personal and
\n
Commercial deposits.
\n
\ue001
The increase in total income reflected not only the increase
\n
in hedge notional but also higher yields. The total yield of
\n
the structural hedge also rose to 0.96% in 2022 from 0.75%
\n
in 2021, although the yield on the equity hedge fell as
\n
higher yielding hedges matured.
\n
\ue001
The five-year sterling swap rate rose to 4.10% at the end of
\n
December 2022 from 1.05% at the end of December 2021.
\n
The ten-year sterling swap rate also rose, from 0.95% to
\n
3.75%.
\n
\ue001
Incremental income, which measures the difference
\n
between total yield and short term interest rates, turned
\n
negative. This reflects the relative stability of the total yield
\n
of the structural hedge. Compared to the 21-basis-point
\n
increase in the structural hedge total yield, the sterling
\n
overnight index average (SONIA) increased 324 basis points
\n
to 3.43% at 31 December 2022 from 0.19% at 31 December
\n
2021.
\n
NTIRR can be measured using value-based or earnings-based approaches. Value-based approaches measure the change in value
\n
of the balance sheet assets and liabilities including all cash flows. Earnings-based approaches measure the potential impact on the
\n
income statement of changes in interest rates over a defined horizon, generally one to three years.
\n
NatWest Group uses VaR as its value-based approach and sensitivity of net interest earnings as its earnings-based approach.
\n
These two approaches provide complementary views of the impact of interest rate risk on the balance sheet at a point in time. The
\n
scenarios employed in the net interest earnings sensitivity approach may incorporate assumptions about how NatWest Group and
\n
its customers will respond to a change in the level of interest rates. In contrast, the VaR approach measures the sensitivity of the
\n
balance sheet at a point in time. Capturing all cash flows, VaR also highlights the impact of duration and repricing risks beyond the
\n
one-to-three-year period shown in earnings sensitivity calculations.
\n
Value-at-risk
\n
VaR is a statistical estimate of the potential change in the market value of a portfolio (and, thus, the impact on the income
\n
statement) over a specified time horizon at a given confidence level.
\n
NatWest Group\u2019s standard VaR metrics \u2013 which assume a time horizon of one trading day and a confidence level of 99% \u2013 are
\n
based on interest rate repricing gaps at the reporting date. Daily rate moves are modelled using observations from the last 500
\n
business days. These incorporate customer products plus associated funding and hedging transactions as well as non-financial
\n
assets and liabilities. Behavioural assumptions are applied as appropriate.
\n
The non-traded interest rate risk VaR metrics for NatWest Group\u2019s retail and commercial banking activities are included in the
\n
banking book VaR table presented earlier in this section. The VaR captures the risk resulting from mismatches in the repricing
\n
dates of assets and liabilities.
\n
It also includes any mismatch between the maturity profile of external hedges and NatWest Group\u2019s target maturity profile for the
\n
hedge.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
Sensitivity of net interest earnings
\n
Net interest earnings are sensitive to changes in the level of
\n
interest rates, mainly because maturing structural hedges are
\n
replaced at higher or lower rates and changes to coupons on
\n
managed rate customer products do not always match changes
\n
in market rates of interest or central bank policy rates.
\n
Earnings sensitivity is derived from a market-implied forward
\n
rate curve, which will incorporate expected changes in central
\n
bank policy rates such as the Bank of England base rate. A
\n
simple scenario is shown that projects forward earnings based
\n
on the 31 December 2022 balance sheet, which is assumed to
\n
remain constant. An earnings projection is derived from the
\n
market-implied curve, which is then subject to interest rate
\n
shocks. The difference between the market-implied projection
\n
and the shock gives an indication of underlying sensitivity to
\n
interest rate movements.
\n
Reported sensitivities should not be considered a forecast of
\n
future performance in these rate scenarios. Actions that could
\n
reduce interest earnings sensitivity include changes in pricing
\n
strategies on customer loans and deposits as well as hedging.
\n
Management action may also be taken to stabilise total income
\n
also taking into account non-interest income.
\n
Three-year 25-basis-point sensitivity table
\n
The table below shows the sensitivity of net interest earnings \u2013
\n
for both structural hedges and managed rate accounts \u2013 on a
\n
one, two and three-year forward-looking basis to an upward or
\n
downward interest rate shift of 25 basis points.
\n
In all scenarios, yield curves are assumed to move in parallel.
\n
+25 basis points upward shift
-25 basis points downward shift
\n
Year 1
Year 2
Year 3
Year 1
Year 2
Year 3
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Structural hedges
50
158
260
(50)
(158)
(260)
\n
Managed margin
148
141
136
(170)
(140)
(129)
\n
Total
198
299
396
(220)
(298)
(389)
\n
2021
\n
Structural hedges
40
132
224
(40)
(132)
(224)
\n
Managed margin
269
203
239
(245)
(199)
(177)
\n
Total
309
335
463
(285)
(331)
(401)
\n
(1)
Earnings sensitivity considers only the main drivers, namely structural hedging and margin management.
\n
(2)
Following a change in the basis of preparation of this table, it now excludes UBIDAC.
\n
\ue001
The overall sensitivity to shifts in the yield curve decreased
\n
year on year, mainly driven by increased structural hedge
\n
volumes and lower managed margin deposit volumes.
\n
\ue001
The sensitivity of the structural hedge increased because of
\n
the rise in hedged volumes, which increased the sensitivity
\n
to hedges maturing through the projection.
\n
\ue001
The increased volume of hedges reduces managed margin
\n
sensitivity because a significant part of the managed
\n
margin component is the residual sensitivity of unhedged
\n
deposit volumes.
\n
\ue001
Managed margin sensitivity further reduced due to lower
\n
deposit volumes at 31 December 2022 compared to 31
\n
December 2021.
\n
One-year 25 and 100-basis-point sensitivity table
\n
The following table analyses the one-year scenarios by currency. The sensitivity to a downward 100-basis-point shift in the yield
\n
curve has been introduced for 2022.
This shift was not presented for 2021, when yield curves were already close to zero (or were
\n
negative in euros).
\n
2022
2021
\n
Shifts in yield curve
Shifts in yield curve
\n
+25 basis points
-25 basis points
+100 basis points
-100 basis points
+25 basis points
-25 basis points
+100 basis points
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Euro
13
(12)
48
(50)
7
15
64
\n
Sterling
172
(194)
698
(784)
260
(265)
950
\n
US dollar
10
(11)
42
(53)
40
(33)
143
\n
Other
3
(3)
13
(16)
2
(2)
11
\n
Total
198
(220)
801
(903)
309
(285)
1,168
\n
(1)
Following a change in the basis of preparation of this table, it now excludes UBIDAC.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
Sensitivity of fair value through other comprehensive income (FVOCI) and cash flow hedging reserves to interest rate
\n
movements
\n
NatWest Group holds most of the bonds in its liquidity portfolio at fair value. Valuation changes that are not hedged (or not in
\n
effective hedge accounting relationships) are recognised in FVOCI reserves.
\n
Interest rate swaps are used to implement the structural hedging programme and also hedging of some personal and commercial
\n
lending portfolios, primarily fixed-rate mortgages. Generally, these swaps are booked in hedge accounting relationships. Changes
\n
in the valuation of swaps that are in effective cash flow hedge accounting relationships are recognised in cash flow hedge
\n
reserves.
\n
The table below shows the sensitivity of FVOCI reserves and cash flow hedge reserves to a parallel shift in all rates. Cash flow
\n
hedges are assumed to be fully effective and interest rate hedges of bonds in the liquidity portfolio are also assumed to be subject
\n
to fully effective hedge accounting. No change in the spread between bonds and swaps is assumed. Hedge accounting
\n
ineffectiveness would result in deviation from the results below, with gains or losses recognised in P&L instead of reserves. Hedge
\n
ineffectiveness P&L is monitored, and the effectiveness of cash flow and fair value hedge relationships is regularly tested in
\n
accordance with IFRS requirements. Note that a movement in the FVOCI reserve would have an impact on CET1 capital but a
\n
movement in the cash flow hedge reserve would not be expected to do so. Volatility in both reserves affects tangible net asset
\n
value.
\n
2022
2021
\n
+25 basis points
-25 basis points
+100 basis points
-100 basis points
+25 basis points
-25 basis points
+100 basis points
-100 basis points
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
FVOCI reserves
(3)
2
(13)
5
(46)
45
(187)
174
\n
Cash flow hedge reserves
(278)
281
(1,097)
1,138
(210)
214
(820)
877
\n
Total
(281)
283
(1,110)
1,143
(256)
259
(1,007)
1,051
\n
\ue001
The sensitivity of FVOCI and cash flow hedge reserves increased in 2022, mainly due to increased cash flow hedging, partly
\n
offset by a reduction in FVOCI sensitivity as a result of bond disposals.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
Credit spread risk
\n
Credit spread risk arises from the potential adverse economic
\n
impact of a change in the spread between bond yields and
\n
swap rates, where the bond portfolios are accounted at fair
\n
value through other comprehensive income.
\n
NatWest Group\u2019s bond portfolios primarily comprise high-quality
\n
securities maintained as a liquidity buffer to ensure it can
\n
continue to meet its obligations in the event that access to
\n
wholesale funding markets is restricted. Additionally, other high-
\n
quality bond portfolios are held for collateral purposes and to
\n
support payment systems.
\n
Credit spread risk is monitored daily through sensitivities and
\n
VaR measures (refer to the non-traded VaR table earlier in this
\n
section). Exposures and limit utilisations are reported to senior
\n
management on a regular basis. Dealing mandates in place for
\n
the bond portfolios further mitigate the risk by imposing
\n
constraints by duration, asset class and credit rating.
\n
Foreign exchange risk
\n
Non-traded foreign exchange risk arises from three main
\n
sources:
\n
\ue001
Structural foreign exchange rate risk \u2013 mainly arises from
\n
the capital deployed in foreign subsidiaries and branches.
\n
\ue001
Transactional foreign exchange rate risk \u2013 arises from
\n
customer transactions and profits and losses that are in a
\n
currency other than the functional currency.
\n
\ue001
Forecast earnings or costs in foreign currencies \u2013 NatWest
\n
Group assesses its potential exposure to forecast foreign
\n
currency income and expenses. NatWest Group hedges
\n
forward some forecast expenses.
\n
The most material non-traded open currency positions are the
\n
structural foreign exchange exposures arising from investments
\n
in foreign subsidiaries and branches. These exposures are
\n
assessed and managed to predefined risk appetite levels under
\n
delegated authority agreed by the CFO with support from the
\n
Asset & Liability Management Committee. NatWest Group seeks
\n
to limit the potential volatility impact on its CET1 ratio from
\n
exchange rate movements by deliberately maintaining a
\n
structural open currency position. Gains or losses arising from
\n
the retranslation of net investments in overseas operations are
\n
recognised in other comprehensive income and reduce the
\n
sensitivity of capital ratios to foreign exchange rate movements
\n
primarily arising from the retranslation of non-sterling
\n
denominated RWAs. Sensitivity is minimised where, for a given
\n
currency, the ratio of the structural open position to RWAs
\n
equals the CET1 ratio.
\n
The sensitivity of this ratio to exchange rates is monitored
\n
monthly and reported to the Asset & Liability Management
\n
Committee at least quarterly. Foreign exchange exposures
\n
arising from customer transactions are hedged by businesses on
\n
a regular basis in line with NatWest Group policy.
\n
Foreign exchange risk
(audited)
\n
The table below shows structural foreign currency exposures.
\n
Net investments in
\n
foreign operations
\n
Net investment
\n
hedges
\n
Structural foreign
\n
currency exposures
\n
pre-economic hedges
Economic hedges
\n
(1)
\n
Residual Structural
\n
foreign currency
\n
exposures
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
US dollar
1,278
(303)
975
(975)
\u2014
\n
Euro
6,189
(4,164)
2,025
\u2014
2,025
\n
Other non-sterling
996
(431)
565
\u2014
565
\n
Total
8,463
(4,898)
3,565
(975)
2,590
\n
2021
\n
US dollar
1,275
(260)
1,015
(1,015)
\u2014
\n
Euro
6,222
(2,669)
3,553
\u2014
3,553
\n
Other non-sterling
990
(421)
569
\u2014
569
\n
Total
8,487
(3,350)
5,137
(1,015)
4,122
\n
(1)
Economic hedges of US dollar net investments in foreign operations represent US dollar AT1 equity securities that do not qualify as net investment hedges for accounting purposes.
\n
They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available, but they are accounted for at historical cost
\n
under IFRS until redemption.
\n
\ue001
Residual structural foreign currency exposures fell in
\n
2022, mainly due to increased hedging of net
\n
investments in euro operations.
\n
\ue001
Changes in foreign currency exchange rates affect
\n
equity in proportion to structural foreign currency
\n
exposure pre economic hedges. For example, a 5%
\n
strengthening or weakening in foreign currencies against
\n
sterling would result in a gain or loss of \u00a30.2 billion in
\n
equity respectively.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
Equity risk
(audited)
\n
Non-traded equity risk is the potential variation in income and reserves arising from changes in equity valuations. Equity exposures
\n
may arise through strategic acquisitions, through participations in industry schemes (for example, SWIFT) or through private equity
\n
arrangements (for example, the Big Society scheme).
\n
Investments, acquisitions or disposals of a strategic nature are referred to the Acquisitions & Disposals Committee. Once approved
\n
by the CFO with support from the Acquisitions & Disposals Committee for execution, such transactions are referred for approval to
\n
the Board, the Executive Committee, the Chief Executive, the Chief Financial Officer or as otherwise required. Decisions to acquire
\n
or hold equity positions in the non-trading book that are not of a strategic nature are taken by authorised persons with delegated
\n
authority.
\n
Equity positions are carried at fair value on the balance sheet based on market prices where available. If market prices are not
\n
available, fair value is based on appropriate valuation techniques or management estimates.
\n
The table below shows the balance sheet carrying value of equity positions in the banking book.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Exchange-traded equity
154
16
\n
Private equity and other
170
226
\n
324
242
\n
The exposures may take the form of (i) equity shares listed on a recognised exchange, (ii) private equity shares defined as unlisted
\n
equity shares with no observable market parameters or (iii) other unlisted equity shares such as participation in SWIFT.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Net realised gains arising from disposals
106
8
\n
Unrealised gains included in Tier 1 or Tier 2 capital
(1)
89
88
\n
(1)
Includes gains or losses on FVOCI instruments only.
\n
\ue001
The increase in equity investments mainly reflects the acquisition of new investments in PTSB and Vodeno in H2 2022, partly
\n
offset by disposals.
\n
Accounting volatility risk
\n
Accounting volatility risk arises when an exposure is accounted
\n
for at amortised cost but economically hedged by a derivative
\n
that is accounted for at fair value. Although this is not an
\n
economic risk, the difference in accounting between the
\n
exposure and the hedge creates volatility in the income
\n
statement.
\n
Accounting volatility can be mitigated through hedge
\n
accounting. However, residual volatility will remain in cases
\n
where accounting rules mean that hedge accounting is not an
\n
option, or where there is some hedge ineffectiveness.
\n
Accounting volatility risk is reported to the Asset & Liability
\n
Management Committee monthly and capitalised as part of the
\n
Internal Capital Adequacy Assessment Process (ICAAP).
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
Traded market risk
\n
Definition
(audited)
\n
Traded market risk is the risk arising from changes in fair value
\n
on positions, assets, liabilities or commitments in trading
\n
portfolios as a result of fluctuations in market prices.
\n
Sources of risk
(audited)
\n
Traded market risk mainly arises from NatWest Group\u2019s trading
\n
activities. These activities provide a range of financing, risk
\n
management and investment services to clients \u2212 including
\n
corporations and financial institutions \u2212 around the world. From
\n
a market risk perspective, activities are focused on rates;
\n
currencies; and traded credit. NatWest Group undertakes
\n
transactions in financial instruments including debt securities,
\n
as well as securities financing and derivatives.
\n
All material traded market risk resides in NatWest Markets. The
\n
key categories are interest rate risk, credit spread risk and
\n
foreign currency price risk.
\n
Trading activities may also give rise to counterparty credit risk.
\n
For further detail refer to the Credit risk section.
\n
Key developments in 2022
\n
\ue001
The year was marked by periods of increased market
\n
volatility reflecting UK political developments, global
\n
inflationary concerns and the invasion of Ukraine
\n
\ue001
The significant volatility in Gilts, sterling swaps and inflation
\n
entered the rolling window for VaR calculation during 2022.
\n
However, traded VaR and SVaR remained within appetite
\n
and, on an average basis, decreased compared to 2021,
\n
aided by NatWest Group\u2019s continued disciplined approach
\n
to risk-taking.
\n
Governance
(audited)
\n
Market risk policy statements set out the governance and risk
\n
management framework. Responsibility for identifying,
\n
measuring, monitoring and controlling market risk arising from
\n
trading activities lies with the relevant trading business. The
\n
Market Risk function independently advises on, monitors and
\n
challenges the risk-taking activities undertaken by the trading
\n
business ensuring these are within the constraints of the
\n
market risk framework, policies, and risk appetite statements
\n
and measures.
\n
Risk appetite
\n
NatWest Group\u2019s qualitative appetite for traded market risk is
\n
set out in the traded market risk appetite statement.
\n
Quantitative appetite is expressed in terms of exposure limits.
\n
The limits at NatWest Group level comprise value-at-risk (VaR),
\n
stressed value-at-risk (SVaR) and stress-testing limits. More
\n
details on these are provided on the following pages.
\n
For each trading business, a document known as a dealing
\n
authority compiles details of all applicable limits and trading
\n
restrictions. The desk-level mandates comprise qualitative limits
\n
related to the product types within the scope of each desk, as
\n
well as quantitative metrics specific to the desk\u2019s market risk
\n
exposures. These additional limits and metrics aim to control
\n
various risk dimensions such as exposure size, aged inventory,
\n
currency and tenor.
\n
The limits are reviewed to reflect changes in risk appetite,
\n
business plans, portfolio composition and the market and
\n
economic environments and recalibrated to ensure that they
\n
remain aligned to NatWest Group RWA targets. Limit reviews
\n
focus on optimising the alignment between traded market risk
\n
exposure and capital usage.
\n
To ensure approved limits are not breached and that NatWest
\n
Group remains within its risk appetite, triggers have been set
\n
such that if exposures exceed a specified level, action plans are
\n
developed by the relevant business and the Market Risk
\n
function and implemented. For more detail on risk appetite and
\n
risk controls, refer to pages 181 and 182.
\n
Monitoring and mitigation
\n
Traded market risk is identified and assessed by gathering,
\n
analysing, monitoring and reporting market risk information at
\n
desk, business, business segment and NatWest Group-wide
\n
levels. Industry expertise, continued system developments and
\n
techniques such as stress testing are also used to enhance the
\n
effectiveness of the identification and assessment of all material
\n
market risks.
\n
Traded market risk exposures are monitored against limits and
\n
analysed daily. A daily report summarising the position of
\n
exposures against limits at desk, business, business segment
\n
and NatWest Group levels is provided to senior management
\n
and market risk managers across the function. Limit reporting
\n
is supplemented with regulatory capital and stress testing
\n
information as well as ad-hoc reporting.
\n
A risk review of trading businesses is undertaken weekly with
\n
senior risk and front office staff. This includes a review of profit
\n
and loss drivers, notable position concentrations and other
\n
positions of concern.
\n
Business profit and loss performance is monitored
\n
automatically through loss triggers which, if breached, require
\n
a remedial action plan to be agreed between the Market Risk
\n
function and the business. The loss triggers are set using both a
\n
fall-from-peak approach and an absolute loss level. In addition,
\n
regular updates on traded market risk positions are provided to
\n
the Executive Risk Committee, the Board Risk Committee and
\n
the Board.
\n
Measurement
\n
NatWest Group uses VaR, SVaR and the incremental risk
\n
charge to measure traded market risk. Risks that are not
\n
adequately captured by VaR or SVaR are captured by the Risks
\n
Not In VaR (RNIV) framework to ensure that NatWest Group is
\n
adequately capitalised for market risk. In addition, stress testing
\n
is used to identify any vulnerabilities and potential losses.
\n
The key inputs into these measurement methods are market
\n
data and risk factor sensitivities. Sensitivities refer to the
\n
changes in trade or portfolio value that result from small
\n
changes in market parameters that are subject to the market
\n
risk limit framework. Revaluation ladders are used in place of
\n
sensitivities to capture the impact of large moves in risk factors
\n
or the joint impact of two risk factors.
\n
These methods have been designed to capture correlation
\n
effects and allow NatWest Group to form an aggregated view
\n
of its traded market risk across risk types, markets and
\n
business lines while also taking into account the characteristics
\n
of each risk type.
\n
Value-at-risk
\n
For internal risk management purposes, VaR assumes a time
\n
horizon of one trading day and a confidence level of 99%.
\n
The internal VaR model \u2013 which captures all trading book
\n
positions including those products approved by the regulator \u2013
\n
is based on a historical simulation, utilising market data from
\n
the previous 500 days on an equally-weighted basis.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
The model also captures the potential impact of interest rate
\n
risk; credit spread risk; foreign currency price risk; equity price
\n
risk; and commodity price risk.
\n
When simulating potential movements in such risk factors, a
\n
combination of absolute, relative and rescaled returns is used.
\n
The performance and adequacy of the VaR model are tested
\n
regularly through the following processes:
\n
\ue001
Back-testing: Internal and regulatory back-testing is
\n
conducted on a daily basis. Information on internal back-
\n
testing is provided in this section. Information on regulatory
\n
back-testing appears in the Pillar 3 Report.
\n
\ue001
Ongoing model validation: VaR model performance is
\n
assessed both regularly, and on an ad-hoc basis, if market
\n
conditions or portfolio profile change significantly.
\n
\ue001
Model Risk Management review: As part of the model
\n
lifecycle, all risk models (including the VaR model) are
\n
independently reviewed to ensure the model is still fit for
\n
purpose given current market conditions and portfolio
\n
profile. For further detail on the independent model
\n
validation carried out by Model Risk Management refer to
\n
page 282. More information relating to pricing and market
\n
risk models is presented in the Pillar 3 Report.
\n
One-day 99% traded internal VaR
\n
Traded VaR (1-day 99%)
(audited)
\n
The table below shows one-day 99% internal VaR for NatWest Group\u2019s trading portfolios, split by exposure type.
\n
2022
2021
\n
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Interest rate
7.3
12.6
4.1
9.0
10.4
25.3
4.5
8.9
\n
Credit spread
7.8
12.0
6.0
6.4
11.3
13.4
9.4
10.7
\n
Currency
3.1
8.0
1.2
1.5
3.4
9.4
1.7
2.2
\n
Equity
\u2014
0.3
\u2014
\u2014
0.4
0.8
\u2014
0.2
\n
Commodity
\u2014
\u2014
\u2014
\u2014
0.1
0.5
\u2014
\u2014
\n
Diversification
(1)
(7.5)
(6.8)
(12.3)
(10.5)
\n
Total
10.7
15.1
7.2
10.1
13.3
23.9
9.3
11.5
\n
(1)
NatWest Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation
\n
between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
\n
\ue001
On an average basis, total traded VaR was lower in 2022
\n
than in 2021 despite the increased market volatility related
\n
to sterling Gilts, swaps and inflation entering the rolling
\n
window for VaR calculation during 2022.
\n
\ue001
The decrease in average interest rate VaR reflected the
\n
lower tenor basis risk in sterling flow trading in 2022 than in
\n
2021. This followed the application of a regulator-approved
\n
update to the VaR model in Q3 2021 to address the impact
\n
of the transition from LIBOR to alternative risk-free rates.
\n
\ue001
Credit spread VaR also decreased, mainly because the
\n
heightened market volatility in March 2020, resulting from
\n
the onset of the COVID-19 crisis, dropped out of the VaR
\n
window during H1 2022.
\n
0
\n
2
\n
4
\n
6
\n
8
\n
10
\n
12
\n
14
\n
16
\n
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
\n
Total Trading VaR
Interest Rate VaR
Credit VaR
FX VaR
Equity VaR
Commodity VaR
\n
\u00a3m
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
Traded market risk
\n
VaR back-testing
\n
The main approach employed to assess the VaR model\u2019s
\n
ongoing performance is back-testing, which counts the number
\n
of days when a loss exceeds the corresponding daily VaR
\n
estimate, measured at a 99% confidence level.
\n
Two types of profit and loss (P&L) are used in back-testing
\n
comparisons: Actual P&L and Hypothetical P&L. For more
\n
details on the back-testing approach, refer to the Pillar 3
\n
Report.
\n
The table below shows internal back-testing exceptions in the major NatWest Markets businesses for the 250-business-day period
\n
to 31 December 2022. Internal back-testing compares one-day 99% traded internal VaR with Actual and Hypothetical (Hypo) P&L.
\n
Back-testing exceptions
\n
Actual
Hypo
\n
Rates
2
6
\n
Currencies
\u2014
7
\n
Credit
\u2014
\u2014
\n
xVA
1
1
\n
\ue001
The exceptions in the Rates business were mainly driven by
\n
market moves in sterling, euro and US dollar rates and
\n
sterling inflation.
\n
\ue001
The exceptions in the Currencies business were mainly
\n
driven by market moves related to sterling, the euro and
\n
the US dollar.
\n
\ue001
The total xVA loss was driven by a loss due to the default of
\n
a counterparty.
\n
Stressed VaR (SVaR)
\n
As with VaR, the SVaR methodology produces estimates of the potential change in the market value of a portfolio, over a specified
\n
time horizon, at a given confidence level. SVaR is a VaR-based measure using historical data from a one-year period of stressed
\n
market conditions.
\n
A simulation of 99% VaR is run on the current portfolio for each 250-day period from 2005 to the current VaR date, moving
\n
forward one day at a time. The SVaR is the worst VaR outcome of the simulated results.
\n
This is in contrast with VaR, which is based on a rolling 500-day historical data set. A time horizon of ten trading days is assumed
\n
with a confidence level of 99%.
\n
The internal traded SVaR model captures all trading book positions.
\n
2022
2021
\n
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Total internal traded SVaR
70
206
34
40
95
175
46
66
\n
\ue001
Traded SVaR was, on an average basis, lower in 2022 than in 2021, following the reduction in tenor basis risk in sterling flow
\n
trading resulting from the VaR model update in Q3 2021.
\n
Risks Not In VaR (RNIVs)
\n
The RNIV framework is used to identify and quantify market
\n
risks that are not fully captured by the internal VaR and SVaR
\n
models.
\n
RNIV calculations form an integral part of ongoing model and
\n
data improvement efforts to capture all market risks in scope
\n
for model approval in VaR and SVaR.
\n
For further qualitative and quantitative disclosures on RNIVs,
\n
refer to the Market risk section of the Pillar 3 Report.
\n
Stress testing
\n
For information on stress testing, refer to page 182.
\n
Incremental risk charge (IRC)
\n
The IRC model quantifies the impact of rating migration and
\n
default events on the market value of instruments with
\n
embedded credit risk (in particular, bonds and credit default
\n
swaps) held in the trading book. It further captures basis risk
\n
between different instruments, maturities and reference
\n
entities. For further qualitative and quantitative disclosures on
\n
the IRC, refer to the Market risk section of the Pillar 3 Report.
\n
\n
Market risk \u2013 linkage to balance sheet
\n
The table below analyses NatWest Group\u2019s balance sheet by non-trading and trading business.
\n
2021
\n
Total
\n
Non-trading
\n
business
\n
Trading
\n
business
\n
Total
\n
Non-trading
\n
business
\n
Trading
\n
business
\n
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
Primary market risk factor
\n
Assets
\n
Cash and balances at central
\n
banks
\n
144.8
144.8
\u2014
177.8
177.8
\u2014
\n
Interest rate
\n
Trading assets
45.6
1.2
44.4
59.2
0.7
58.5
\n
Reverse repos
21.5
\u2014
21.5
20.7
\u2014
20.7
\n
Interest rate
\n
Securities
9.9
\u2014
9.9
25.0
\u2014
25.0
\n
interest rate, credit spreads, equity
\n
Other
14.2
1.2
13.0
13.5
0.7
12.8
\n
Interest rate
\n
Derivatives
99.5
1.3
98.2
106.1
1.6
104.5
\n
Interest rate, credit spreads, equity
\n
Settlement balances
2.6
0.2
2.4
2.1
0.2
1.9
\n
Settlement
\n
Loans to banks
7.1
7.0
0.1
7.7
7.6
0.1
\n
Interest rate
\n
Loans to customers
366.3
366.2
0.1
359.0
358.9
0.1
\n
Interest rate
\n
Other financial assets
30.9
30.9
\u2014
46.1
46.1
\u2014
\n
Interest rate, credit spreads, equity
\n
Intangible assets
7.1
7.1
\u2014
6.7
6.7
\u2014
\n
Interest rate, credit spreads, equity
\n
Other assets
9.3
9.3
\u2014
8.3
8.3
\u2014
\n
Assets of disposal groups
6.9
6.9
\u2014
9.0
9.0
\u2014
\n
Total assets
720.1
574.9
145.2
782.0
616.9
165.1
\n
Liabilities
\n
Bank deposits
20.4
20.4
\u2014
26.3
26.3
\u2014
\n
Interest rate
\n
Customer deposits
450.3
450.3
\u2014
479.8
479.8
\u2014
\n
Interest rate
\n
Settlement balances
2.0
\u2014
2.0
2.1
\u2014
2.1
\n
Settlement
\n
Trading liabilities
52.8
\u2014
52.8
64.6
0.1
64.5
\n
Repos
23.7
\u2014
23.7
19.4
\u2014
19.4
\n
Interest rate
\n
Short positions
9.5
\u2014
9.5
25.0
\u2014
25.0
\n
Interest rate, credit spreads
\n
Other
19.6
\u2014
19.6
20.2
0.1
20.1
\n
Interest rate
\n
Derivatives
94.0
1.5
92.5
100.8
3.6
97.2
\n
Interest rate, credit spreads
\n
Other financial liabilities
49.1
49.0
0.1
49.3
48.9
0.4
\n
Interest rate
\n
Subordinated liabilities
6.3
6.3
\u2014
8.4
8.4
\u2014
\n
Interest rate
\n
Notes in circulation
3.2
3.2
\u2014
3.0
3.0
\u2014
\n
Interest rate
\n
Other liabilities
5.5
5.5
\u2014
5.9
5.9
\u2014
\n
Total liabilities
683.6
536.2
147.4
740.2
576.0
164.2
\n
(1)
Non-trading businesses are entities that primarily have exposures that are not classified as trading book. For these exposures, with the exception of pension-related activities, the
\n
main measurement methods are sensitivity analysis of net interest income, internal non-traded VaR and fair value calculations. For more information refer to the non-traded market
\n
risk section.
\n
(2)
Trading businesses are entities that primarily have exposures that are classified as trading book under regulatory rules. For these exposures, the main methods used by NatWest
\n
Group to measure market risk are detailed in the traded market risk section.
\n
(3)
Foreign exchange risk affects all non-sterling denominated exposures on the balance sheet across trading and non-trading businesses, and therefore has not been listed in the
\nabove tables.", "dimensions": { "concept": "ifrs-full:DisclosureOfMarketRiskExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f41731": { "value": "Foreign exchange risk
(audited)
\n
The table below shows structural foreign currency exposures.
\n
Net investments in
\n
foreign operations
\n
Net investment
\n
hedges
\n
Structural foreign
\n
currency exposures
\n
pre-economic hedges
Economic hedges
\n
(1)
\n
Residual Structural
\n
foreign currency
\n
exposures
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
US dollar
1,278
(303)
975
(975)
\u2014
\n
Euro
6,189
(4,164)
2,025
\u2014
2,025
\n
Other non-sterling
996
(431)
565
\u2014
565
\n
Total
8,463
(4,898)
3,565
(975)
2,590
\n
2021
\n
US dollar
1,275
(260)
1,015
(1,015)
\u2014
\n
Euro
6,222
(2,669)
3,553
\u2014
3,553
\n
Other non-sterling
990
(421)
569
\u2014
569
\n
Total
8,487
(3,350)
5,137
(1,015)
4,122
\n
(1)
Economic hedges of US dollar net investments in foreign operations represent US dollar AT1 equity securities that do not qualify as net investment hedges for accounting purposes.
\n
They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available, but they are accounted for at historical cost
\n
under IFRS until redemption.
\n
\ue001
Residual structural foreign currency exposures fell in
\n
2022, mainly due to increased hedging of net
\n
investments in euro operations.
\n
\ue001
Changes in foreign currency exchange rates affect
\n
equity in proportion to structural foreign currency
\n
exposure pre economic hedges. For example, a 5%
\n
strengthening or weakening in foreign currencies against
\n
sterling would result in a gain or loss of \u00a30.2 billion in
\nequity respectively.", "dimensions": { "concept": "ifrs-full:DisclosureOfEffectOfChangesInForeignExchangeRatesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f45450": { "value": "12637000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:RevenueFromInterest", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45452": { "value": "9234000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:RevenueFromInterest", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45454": { "value": "9711000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:RevenueFromInterest", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45457": { "value": "2795000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45459": { "value": "1699000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45461": { "value": "2322000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45465": { "value": "9842000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestRevenueExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45467": { "value": "7535000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestRevenueExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45469": { "value": "7389000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestRevenueExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45472": { "value": "2915000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:FeeAndCommissionIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45474": { "value": "2694000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:FeeAndCommissionIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45476": { "value": "2704000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:FeeAndCommissionIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45479": { "value": "623000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:FeeAndCommissionExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45481": { "value": "574000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:FeeAndCommissionExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45483": { "value": "722000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:FeeAndCommissionExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45486": { "value": "1133000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:TradingIncomeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45488": { "value": "323000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:TradingIncomeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45490": { "value": "1125000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:TradingIncomeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45493": { "value": "-111000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherOperatingIncomeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45495": { "value": "451000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherOperatingIncomeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45497": { "value": "-93000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherOperatingIncomeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45501": { "value": "3314000000", "decimals": -6, "dimensions": { "concept": "nwg:NonInterestIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45503": { "value": "2894000000", "decimals": -6, "dimensions": { "concept": "nwg:NonInterestIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45505": { "value": "3014000000", "decimals": -6, "dimensions": { "concept": "nwg:NonInterestIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45508": { "value": "13156000000", "decimals": -6, "dimensions": { "concept": "nwg:TotalNetInterestIncomeAndNetNonInterestIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45510": { "value": "10429000000", "decimals": -6, "dimensions": { "concept": "nwg:TotalNetInterestIncomeAndNetNonInterestIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45512": { "value": "10403000000", "decimals": -6, "dimensions": { "concept": "nwg:TotalNetInterestIncomeAndNetNonInterestIncome", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45515": { "value": "3716000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:EmployeeBenefitsExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45517": { "value": "3676000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:EmployeeBenefitsExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45519": { "value": "3878000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:EmployeeBenefitsExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45522": { "value": "1112000000", "decimals": -6, "dimensions": { "concept": "nwg:PremisesAndEquipment", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45524": { "value": "1133000000", "decimals": -6, "dimensions": { "concept": "nwg:PremisesAndEquipment", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45526": { "value": "1222000000", "decimals": -6, "dimensions": { "concept": "nwg:PremisesAndEquipment", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45529": { "value": "2026000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:AdministrativeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45531": { "value": "2026000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:AdministrativeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45533": { "value": "1845000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:AdministrativeExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f45536": { "value": "833000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:DepreciationAndAmortisationExpense", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", 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}, "f47123": { "value": "9696000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestReceivedClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47124": { "value": "10007000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestReceivedClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47125": { "value": "2357000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestPaidClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47126": { "value": "1668000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestPaidClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47127": { "value": "2414000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:InterestPaidClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47130": { "value": "170000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherInflowsOutflowsOfCashClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47131": { "value": "195000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherInflowsOutflowsOfCashClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47132": { "value": "220000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherInflowsOutflowsOfCashClassifiedAsOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47133": { "value": "145000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherCashPaymentsFromOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47134": { "value": "164000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherCashPaymentsFromOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2021-01-01T00:00:00/2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47135": { "value": "179000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:OtherCashPaymentsFromOperatingActivities", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2020-01-01T00:00:00/2021-01-01T00:00:00", "unit": "iso4217:GBP" } }, "f47148": { "value": "Accounting policies
\n
\n
This section includes the basis of preparation, critical and significant accounting policies used to prepare the financial statements.
\n
Our accounting policies are the specific principles, bases, conventions, rules, and practices we apply in preparing and presenting
\n
the financial statements. Further information is provided where judgment and estimation is applied to critical accounting policies
\n
and key sources of estimation uncertainty.
\n
Future accounting developments details new, or amendments to existing, accounting standards, when they are effective from and
\n
where we are assessing their impact on future financial statements.
\n
1. Presentation of financial statements
\n
NatWest Group plc is incorporated in the UK and registered in
\n
Scotland. The financial statements are presented in the
\n
functional currency, pounds sterling.
\n
The audited financial statements include audited sections of the
\n
Risk and capital management section. The directors have
\n
prepared the financial statements on a going concern basis
\n
after assessing the principal risks, forecasts, projections and
\n
other relevant evidence over the twelve months from the date
\n
the financial statements are approved (see the Report of the
\n
directors) and in accordance with UK adopted International
\n
Accounting Standards (IAS), and International Financial
\n
Reporting Standards (IFRS) as issued by the International
\n
Accounting Standards Board (IASB). The critical and significant
\n
accounting policies and related judgments are set out below.
\n
The financial statements are presented on a historical cost basis
\n
except for certain financial instruments which are stated at fair
\n
value.
\n
The effect of the amendments to IFRS effective from 1 January
\n
2022 on our financial statements was immaterial.
\n
Our consolidated financial statements incorporate the results of
\n
NatWest Group plc and the entities it controls. Control arises
\n
when we have the power to direct the activities of an entity so
\n
as to affect the return from the entity. Control is assessed by
\n
reference to our ability to enforce our will on the other entity,
\n
typically through voting rights. The consolidated financial
\n
statements are prepared under consistent accounting policies.
\n
On acquisition of a subsidiary, the identifiable assets, liabilities
\n
and contingent liabilities are included in the consolidated
\n
financial statements at their fair value. A subsidiary is included
\n
in the consolidated financial statements from the date it is
\n
controlled by us until the date we cease to control it through a
\n
sale or a significant change in circumstances. Changes in our
\n
interest in a subsidiary that does not result in us ceasing to
\n
control that subsidiary are accounted for as equity transactions.
\n
We apply accounting for associates and joint arrangements
\n
(including joint ventures) to entities where we have significant
\n
influence, but not control, over the operating and financial
\n
policies.
We assess significant influence by reference to a
\n
presumption of voting rights of more than 20%, but less than
\n
50%, supplemented by a qualitative assessment of substantive
\n
rights which include representation at the Board of Directors,
\n
significant exchange of managerial personnel or technology
\n
amongst others. Joint ventures are arrangements where we
\n
have joint control and rights to the net assets of the entity.
\n
Investments in associates and joint ventures are recorded upon
\n
initial recognition at cost, increased or decreased each period
\n
by the share of the subsequent levels of profit or loss, and other
\n
changes in equity are considered in line with their nature.
\n
Transactions and balances between Group companies are
\n
eliminated in the consolidated financial statements to show only
\n
those transactions and balances external to us.
\n
The judgments and assumptions involved in our accounting
\n
policies that are considered by the Board to be the most
\n
important to the portrayal of its financial condition are noted
\n
below. The use of estimates, assumptions or models that differ
\n
from those adopted by us would affect our reported results.
\n
How Climate risk affects our accounting judgments and
\n
estimates
\n
Business planning
\n
Key financial estimates are based on management's latest five-
\n
year revenue and cost forecasts. The outputs from this forecast
\n
affect forward-looking accounting estimates. Measurement of
\n
deferred tax and expected credit losses are highly sensitive to
\n
reasonably possible changes in those anticipated conditions. In
\n
2022, our scenario planning supported the development of
\n
NatWest Group\u2019s initial iteration climate transition plan,
\n
including the assessment of climate-related risks and
\n
opportunities.
\n
\ue001
The initial iteration of our Climate transition plan includes
\n
an assessment of:
\n
\ue001
changes in business operations, products and
\n
services to support customer decarbonisation;
\n
\ue001
financial plans linked to business operations and
\n
strategy. During 2022, the financial planning
\n
process has been enhanced to incorporate climate
\n
related opportunities included in the climate
\n
transition plan. In 2023, we will link specific
\n
actions that are needed to align to our climate
\n
ambitions into the financial forecasts.
\n
\ue001
development in UK Government policies, aligned
\n
with the Committee on Climate Change Sixth
\n
carbon Budget published in 2021. We also assume
\n
certain broader policy responses and
\n
technological innovation to enable the wider
\n
transition of the economy.
\n
\ue001
There remains considerable uncertainty regarding this
\n
policy response, including the effect of wider geo-political
\n
uncertainty on governmental ambitions regarding climate
\n
transition and the effect of decarbonisation on wider
\n
economic growth, technology development and customer
\n
behaviours.
\n
Information used in other accounting estimates
\n
We make use of reasonable and supportable information to
\n
make accounting judgments and estimates. This includes
\n
information about the observable effects of the physical and
\n
transition risks of climate change on the current
\n
creditworthiness of borrowers, asset values and market
\n
indicators. It also includes the effect on our competitiveness and
\n
profitability. Many of the effects arising from climate change will
\n
be longer term in nature, with an inherent level of uncertainty,
\n
and have limited effect on accounting judgments and estimates
\n
for the current period. Some physical and transition risks can
\n
manifest in the shorter term. The following items represent the
\n
most significant effects:
\n
Risk and capital management
\n
\ue001
The classification of financial instruments linked to climate,
\n
or other sustainability indicators: consideration is given to
\n
whether the effect of climate related terms prevent the
\n
instrument cashflows being solely payments of principal
\n
and interest.
\n
\ue001
The measurement of expected credit loss considers the
\n
ability of borrowers to make payments as they fall due.
\n
Future cashflows are discounted, so long dated cashflows
\n
are less likely to affect current expectations on credit loss.
\n
Our assessment of sector specific risks, and whether
\n
additional adjustments are required, include expectations of
\n
the ability of those sectors to meet their financing needs in
\n
the market. Changes in credit stewardship and credit risk
\n
appetite that stem from climate considerations, such as oil
\n
and gas, will directly affect our positions.
\n
\ue001
The use of market indicators as inputs to fair value is
\n
assumed to include current information and knowledge
\n
regarding the effect of climate risk.
\n
Effect of climate change in the estimation of expected credit
\n
loss
\n
Since the implementation of IFRS 9 in January 2018 loan losses
\n
reflect expected credit losses taking account of relevant and
\n
reliable forward looking information. We are evaluating the
\n
effect of the physical and transition consequences of climate
\n
change on our experience of loan loss. We use available
\n
information regarding the effect of climate transition policy
\n
largely driven by carbon prices as an adjustment to
\n
macroeconomic factors that are used as inputs to the models
\n
that generate PD and LGD outcomes, which are key inputs to
\n
the ECL calculation. The determination of whether specific loss
\n
drivers and climate events generate specific losses is ongoing
\n
and is necessary to determine how sensitive changes in ECL
\n
could be to climate inputs. As at 31 December 2022, our
\n
quantification of the impact due to physical risk and how other
\n
climate risks may impact the ECL is ongoing.
\n
An impact assessment on how climate risk factors may require
\n
adjustment in our IFRS 9 model suite has also not been finalised.
\n
We judged that this information was not sufficiently complete to
\n
make a reliable estimate and given the immaterial change in
\n
ECL it indicated, determined it was not appropriate to adjust
\n
ECL.
\n
When this information is reliable, possibly during 2023, it could
\n
be used in our ECL calculation. A key part of this is determining
\n
that any adjustment resulting from the inclusion of new climate-
\n
related inputs does not double count or omit credit losses arising
\n
from other inputs. We will continue to develop our data, models
\n
and methodologies relating to climate evaluation and market
\n
practice will continue to evolve and this will affect the estimation
\n
of climate effect in ECL on an ongoing basis. We expect that the
\n
effect of climate risks on ECL will increase as government
\n
policy, organisations and individuals react to changes in climate
\n
as well as the probable increased occurrence of climate-related
\n
loss events (such as flooding and wildfire).
\n
2. Critical accounting policies
\n
The judgments and assumptions involved in our accounting
\n
policies that are considered by the Board to be the most
\n
important to the portrayal of our financial condition are noted
\n
below. The use of estimates, assumptions or models that differ
\n
from those adopted by us would affect our reported results.
\n
Management\u2019s consideration of uncertainty is outlined in the
\n
relevant sections of this document, including the ECL estimate in
\n
the Risk and capital management section.
\n
Information used for significant estimate
\n
Key financial estimates are based on management's latest five-
\n
year revenue and cost forecasts. Changes in judgments and
\n
assumptions could result in a material adjustment to those
\n
estimates in future reporting periods. Consideration of this
\n
source of estimate uncertainty has been set out in the notes
\n
below (as applicable).
\n
Policy
Judgment
Estimate
\n
Further
\n
information
\n
Deferred tax
Determination of whether sufficient taxable
\n
profits will be generated in future years to
\n
recover DTA.
\n
Our estimates are based on the five-year
\n
revenue and cost forecasts (which include
\n
inherent uncertainties).
\n
Note 7
\n
Fair value \u2013
\n
financial
\n
instruments
\n
Classification of a fair value instrument as level
\n
3, where the valuation is driven by
\n
unobservable inputs.
\n
Estimation of the fair value, where it is
\n
reasonably possible to have alternative
\n
assumptions in determining the FV.
\n
Note 11
\n
Loan
\n
impairment
\n
provisions
\n
Definition of default against which to apply PD,
\n
LGD and EAD models.
\n
Criteria for a significant increase in credit risk.
\n
Identification of risks not captured by the
\n
models.
\n
ECL estimates contain a number of
\n
measurement uncertainties (such as the
\n
selection of multiple economic scenarios) and
\n
disclosures include sensitivities to show impact
\n
on other reasonably possible scenarios.
\n
Note 15
\n
Provisions
\n
for liabilities
\n
and charges
\n
Determination of whether a present obligation
\n
exists in respect of customer redress, litigation
\n
and other regulatory, property and other
\n
provisions.
\n
Legal proceedings often require a high degree
\n
of judgment and these are likely to change as
\n
the matter progresses.
\n
Provisions remain sensitive to the assumptions
\n
used in the estimate. We consider a wide range
\n
of possible outcomes. It is often not practical to
\n
meaningfully quantify ranges of possible
\n
outcomes, given the uncertainties involved.
\n
Note 21
\n
\n
2.1. Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable
\n
in respect of temporary differences between the carrying
\n
amount of an asset or liability for accounting purposes and the
\n
carrying amount for tax purposes. Deferred tax liabilities are
\n
generally recognised for all taxable temporary differences and
\n
deferred tax assets are recognised to the extent their recovery
\n
is probable.
\n
Deferred tax is not recognised on temporary differences that
\n
arise from initial recognition of an asset or a liability in a
\n
transaction (other than a business combination) that at the time
\n
of the transaction affects neither accounting nor taxable profit
\n
or loss. Deferred tax is calculated using tax rates expected to
\n
apply in the periods when the assets will be realised or the
\n
liabilities settled, based on tax rates and laws enacted, or
\n
substantively enacted, at the balance sheet date.
\n
Deferred tax assets and liabilities are offset where we have a
\n
legally enforceable right to offset and where they relate to
\n
income taxes levied by the same taxation authority either on an
\n
individual NatWest Group company or on NatWest Group
\n
companies in the same tax group that intend, in future periods,
\n
to settle current tax liabilities and assets on a net basis or on a
\n
gross basis simultaneously.
\n
Deferred tax asset recoverability is based on the level of
\n
supporting offsetable deferred tax liabilities we have and of our
\n
future taxable profits. These future taxable profits are based on
\n
our five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
\n
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
\n
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
\n
\n
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
\n
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
\n
3. Significant accounting polices
\n
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
\n
3.2. Discontinued operations, Held for sale and Disposal
\n
group
\n
The results of discontinued operations (comprising the post-tax
\n
profit or loss of discontinued operations and the post-tax results
\n
of either the ongoing measurement at fair value less costs to
\n
sell or on disposal of the discontinued operation) are excluded
\n
from the results of continuing operations and are presented as
\n
a single amount as profit/(loss) from discontinued operations,
\n
net of tax in the income statement. Comparatives are
\n
represented for the income statement, cash flow statement,
\n
statement of changes in equity and related notes.
\n
An asset or disposal group (assets and liabilities) is classified as
\n
held for sale if we will recover its carrying amount principally
\n
through a sale transaction rather than through continuing use.
\n
These are measured at the lower of its carrying amount or fair
\n
value less cost to sell unless scoped out of IFRS 5 in which case
\n
the existing measurement provisions of IFRS apply. These are
\n
presented as single amounts; comparatives are not
\n
represented.
\n
3.3. Staff costs
\n
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
\n
\n
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
\n
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
\n
The difference between scheme assets and scheme liabilities,
\n
the net defined benefit asset or liability, is recognised on the
\n
balance sheet if the criteria of the asset ceiling test are met.
\n
This requires the net defined benefit surplus to be limited to the
\n
present value of any economic benefits available to us in the
\n
form of refunds from the plan or reduced contributions to it.
\n
We will recognise a liability where a minimum funding
\n
requirement exists for any of our defined benefit pension
\n
schemes. This reflects agreed minimum funding and the
\n
availability of a net surplus as determined as described above.
\n
When estimating the liability for minimum funding requirements
\n
we only include contributions that are substantively or
\n
contractually agreed and do not include contingent and
\n
discretionary features, including dividend-linked contributions
\n
or contributions subject to contingent events requiring future
\n
verification.
\n
We will recognise a net defined benefit asset when the net
\n
defined benefit surplus can generate a benefit in the form of a
\n
refund or reduction in future contributions to the plan. The net
\n
benefit pension asset is recognised at the present value of the
\n
benefits that will be available to us excluding interest and the
\n
effect of the asset ceiling (if any, excluding interest). Changes
\n
in the present value of the net benefit pension asset are
\n
recognised immediately in other comprehensive income.
\n
In instances where Trustees have the ability to declare
\n
augmented benefits to participants, we do not recognise a
\n
defined benefit pension asset and write-off the surplus
\n
immediately in other comprehensive income.
\n
3.4. Intangible assets and goodwill
\n
Intangible assets are identifiable non-monetary assets without
\n
physical substance acquired by us, and are stated at cost less
\n
accumulated amortisation and impairment losses. Amortisation
\n
is a method to spread the cost of such assets over time in the
\n
income statement.
\n
This is charged to the income statement over the assets'
\n
estimated useful economic lives using methods that best reflect
\n
the pattern of economic benefits.
\n
The estimated useful economic lives are:
\n
Computer software
3 to 12 years
\n
Other acquired intangibles
5 to 10 years
\n
Expenditure on internally generated goodwill and brands is
\n
charged to the income statement as incurred.
\n
Direct costs relating to the development of internal-use
\n
computer software are reported on the balance sheet after
\n
technical feasibility and economic viability have been
\n
established.
\n
These direct costs include payroll, the costs of materials and
\n
services, and directly attributable overheads. Capitalisation of
\n
costs ceases when the software can operate as intended.
\n
During and after development, accumulated costs are reviewed
\n
for impairment against the benefits that the software is
\n
expected to generate. Costs incurred prior to the establishment
\n
of technical feasibility and economic viability are expensed to
\n
the income statement as incurred, as are all training costs and
\n
general overheads. The costs of licences to use computer
\n
software that are expected to generate economic benefits
\n
beyond one year are also reported on the balance sheet
\n
Goodwill on the acquisition of a subsidiary is the excess of the
\n
fair value of the consideration paid, the fair value of any
\n
existing interest in the subsidiary and the amount of any non-
\n
controlling interest measured either at fair value or at its share
\n
of the subsidiary\u2019s net assets over the net fair value of the
\n
subsidiary\u2019s identifiable assets, liabilities, and contingent
\n
liabilities.
\n
Goodwill is measured at initial cost less any subsequent
\n
impairment losses. The gain or loss on the disposal of a
\n
subsidiary includes the carrying value of any related goodwill
\n
when such transactions occur.
\n
3.5. Impairment of non-financial assets
\n
At each balance sheet date, we assess whether there is any
\n
indication that its intangible assets or property, plant and
\n
equipment are impaired. If any such indication exists, we
\n
estimate the recoverable amount of the asset and compares it
\n
to its balance sheet value to calculate if an impairment loss
\n
should be charged to the income statement. The balance sheet
\n
value of the asset is reduced by the amount of the impairment
\n
loss. A reversal of an impairment loss on intangible assets or
\n
property, plant and equipment is recognised in the income
\n
statement provided the increased carrying value is not greater
\n
than it would have been had no impairment loss been
\n
recognised.
\n
Goodwill is tested for impairment annually or more frequently if
\n
events or changes in circumstances indicate that it might be
\n
impaired. Impairment losses on goodwill are not reversed.
\n
The recoverable amount of an asset that does not generate
\n
cash flows that are independent from those of other assets or
\n
groups of assets, is determined as part of the cash-generating
\n
unit to which the asset belongs. A cash-generating unit is the
\n
smallest identifiable group of assets that generates cash inflows
\n
that are largely independent of the cash inflows from other
\n
assets or groups of assets. For the purposes of impairment
\n
testing, goodwill acquired in a business combination is allocated
\n
to our cash-generating units or groups of cash-generating units
\n
expected to benefit from the combination.
\n
The recoverable amount of an asset or cash-generating unit is
\n
the higher of its fair value less cost to sell or its value in use.
\n
Value in use is the present value of future cash flows from the
\n
asset or cash-generating unit discounted at a rate that reflects
\n
market interest rates adjusted for risks specific to the asset or
\n
cash-generating unit that have not been considered in
\n
estimating future cash flows.
\n
\n
The assessment of asset impairment is based upon value in
\n
use. This represents the value of future cashflows and uses our
\n
five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
\n
3.6. Foreign currencies
\n
Foreign exchange differences arising on the settlement of
\n
foreign currency transactions and from the translation of
\n
monetary assets and liabilities are reported in income from
\n
trading activities except for differences arising on cash flow
\n
hedges and hedges of net investments in foreign operations.
\n
Non-monetary items denominated in foreign currencies that
\n
are stated at fair value are translated into the functional
\n
currency at the foreign exchange rates ruling at the dates the
\n
values are determined. Translation differences are recognised
\n
in the income statement except for differences arising on non-
\n
monetary financial assets classified as fair value through other
\n
comprehensive income.
\n
Income and expenses of foreign subsidiaries and branches are
\n
translated into sterling at average exchange rates unless these
\n
do not approximate the foreign exchange rates ruling at the
\n
dates of the transactions. Foreign exchange differences arising
\n
on the translation of a foreign operation are recognised in
\n
other comprehensive income. The amount accumulated in
\n
equity is reclassified from equity to the income statement on
\n
disposal of a foreign operation.
\n
3.7. Tax
\n
Tax encompassing current tax and deferred tax is recognised
\n
in the income statement except when taxable items are
\n
recognised in other comprehensive income or equity. Tax
\n
consequences arising from servicing financial instruments
\n
classified as equity are recognised in the income statement.
\n
Current tax is tax payable or recoverable in respect of the
\n
taxable profit or loss for the year arising in the income
\n
statement, other comprehensive income or equity. Provision is
\n
made for current tax at rates enacted, or substantively
\n
enacted, at the balance sheet date.
\n
Accounting for taxes is judgmental and carries a degree of
\n
uncertainty because tax law is subject to interpretation, which
\n
might be questioned by the relevant tax authority. We
\n
recognise the most likely current and deferred tax liability or
\n
asset, assessed for uncertainty using consistent judgments and
\n
estimates. Current and deferred tax assets are only recognised
\n
where their recovery is deemed probable, and current and
\n
deferred tax liabilities are recognised at the amount that
\n
represents the best estimate of the probable outcome having
\n
regard to their acceptance by the tax authorities.
\n
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
\n
\n
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
\n
3.9. Derecognition
\n
A financial asset is derecognised (removed from the balance
\n
sheet) when the contractual right to receive cash flows from
\n
the asset has expired or when it has been transferred and the
\n
transfer qualifies for derecognition. Conversely, an asset is not
\n
derecognised in a contract under which we retain substantially
\n
all the risks and rewards of ownership.
\n
A financial liability is removed from the balance sheet when the
\n
obligation is paid, or is cancelled, or expires. Cancellation
\n
includes the issuance of a substitute instrument on substantially
\n
different terms.
\n
3.10. Netting
\n
Financial assets and financial liabilities are offset, and the net
\n
amount presented on the balance sheet when, and only when,
\n
we currently have a legally enforceable right to set off the
\n
recognised amounts and we intend either to settle on a net
\n
basis or to realise the asset and settle the liability
\n
simultaneously. We are party to a number of arrangements,
\n
including master netting agreements, that give us the right to
\n
offset financial assets and financial liabilities, but where we do
\n
not intend to settle the amounts net or simultaneously, the
\n
assets and liabilities concerned are presented separately on the
\n
balance sheet.
\n
3.11. Capital instruments
\n
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
\n
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
\n
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
\n
\n
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
\n
4. Future accounting developments
\n
International Financial Reporting Standards
\n
Effective 1 January 2023
\n
\ue001
IFRS 17 Insurance Contracts (Amendments to IFRS 17
\n
Insurance Contracts);
\n
\ue001
Deferred Tax related to Assets and Liabilities arising from a
\n
Single Transaction (Amendments to IAS 12);
\n
\ue001
Definition of Accounting Estimates (Amendments to IAS 8);
\n
and
\n
\ue001
Disclosure of Accounting Policies (Amendments to IAS 1
\n
and IFRS Practice Statement 2).
\n
Effective 1 January 2024
\n
\ue001
Classification of Liabilities as Current or Non-current
\n
(Amendments to IAS 1);
\n
\ue001
Non-current Liabilities with Covenants (Amendments to IAS
\n
1)
\n
\ue001
Lease Liability in a sale and Leaseback (Amendments to
\n
IFRS 16).
\n
We are assessing the effect of adopting these standards and
\n
amendments on our financial statements but do not expect the
\n
effect to be material.
Notes to the consolidated
\n
financial statements
\n
\n
\n
1 Net interest income
\n
Net interest income is the difference between the interest NatWest Group earns from its interest-bearing assets, such as loans,
\n
balances with central banks and other financial assets, and the interest paid on its interest-bearing liabilities, such as deposits and
\n
subordinated liabilities.
\n
Interest receivable on financial instruments classified as amortised cost, debt instruments classified as FVOCI and the interest
\n
element of the effective portion of any designated hedging relationships are measured using the effective interest rate, which
\n
allocates the interest receivable or interest payable over the expected life of the financial instrument at the rate that exactly
\n
discounts all estimated future cash flows to equal the financial instrument's initial carrying amount. Calculation of the effective
\n
interest rate takes into account fees payable or receivable that are an integral part of the financial instrument\u2019s yield, premiums or
\n
discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are
\n
considered when estimating future cash flows. Negative interest on financial
assets is presented in interest payable and negative
\n
interest on
financial liabilities is presented in interest receivable.
\n
Included in interest receivable is finance lease income of \u00a3314 million (2021 - \u00a3298 million; 2020 - \u00a3289 million) which is recognised
\n
at a constant periodic rate of return before tax on the net investment.
\n
For accounting policy information see Accounting policies note 3.1.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Balances at central banks and loans to banks - amortised cost
1,987
445
336
\n
Loans to customers - amortised cost
10,085
8,536
8,892
\n
Other financial assets
565
253
483
\n
Interest receivable
12,637
9,234
9,711
\n
Balances with banks
379
204
144
\n
Customer deposits
785
556
911
\n
Other financial liabilities
1,196
670
846
\n
Subordinated liabilities
370
267
402
\n
Internal funding of trading businesses
65
2
19
\n
Interest payable
2,795
1,699
2,322
\n
Net interest income
9,842
7,535
7,389
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
\n
2 Non-interest income
\n
There are three main categories of non-interest income: net fees and commissions, trading income , and other operating income.
\n
Net fees and commissions is the difference between fees received from customers for services provided by NatWest Group, such as
\n
credit card annual fees, mortgage arrangement fees, underwriting fees, payment services, brokerage fees, trade finance,
\n
investment management fees, trustee and fiduciary services, and fees incurred in the provision of those services, such as credit
\n
card interchange fees, customer incentives, loan administration, foreign currency transaction charges, brokerage fees, and
\n
mortgage valuation reports.
\n
Trading income is earned from short-term financial assets and financial liabilities to either make a spread between purchase and
\n
sale price or held to take advantage of movements in prices and yields.
\n
Other operating income includes revenue from other operating activities which are not related to the principal activities of the
\n
company, such as share of profit or loss from associate, operating lease income, the profit or loss on the sale of a subsidiary or
\n
property, plant and equipment, profit or loss on own debt, and changes in the fair value of financial assets and liabilities designated
\n
at fair value through profit or loss.
\n
For accounting policy information see Accounting policies note 3.1 and 3.6.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Net fees and commissions
(2)
2,292
2,120
1,982
\n
Trading income
\n
Foreign exchange
305
364
569
\n
Interest rate
(3)
752
(130)
541
\n
Credit
17
83
3
\n
Changes in fair value of own debt and derivative liabilities attributable to own credit risk
\n
- debt securities in issue
42
6
(24)
\n
Equities, commodities and other
17
\u2014
36
\n
1,133
323
1,125
\n
Other operating income
\n
Loss on redemption of own debt
(161)
(145)
(324)
\n
Rental income on operating lease assets and investment property
230
225
232
\n
Changes in fair value of financial assets and liabilities designated at fair value
\n
through profit or loss
(4)
17
(8)
(54)
\n
Changes in fair value of other financial assets at fair value through profit or loss
(5,6)
(45)
5
2
\n
Hedge ineffectiveness
(20)
25
24
\n
Loss on disposal of amortised cost assets and liabilities
(15)
(15)
(18)
\n
(Loss)/profit on disposal of fair value through other comprehensive income assets
(168)
117
96
\n
(Loss)/profit on sale of property, plant and equipment
(7)
(5)
(30)
13
\n
Share of (losses)/profits of associated entities
(30)
216
(30)
\n
Profit/(loss) on disposal of subsidiaries and associates
\u2014
48
(16)
\n
Other income
(8,9)
86
13
(18)
\n
(111)
451
(93)
\n
3,314
2,894
3,014
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
(2)
Refer to Note 4 for further analysis.
\n
(3)
Includes fair value changes on derivatives which have not been designated in a hedge accounting relationship and gains and losses from the management of the NatWest Group\u2019s
\n
funding requirements involving the use of derivatives including FX. These are aimed at managing the interest rate and foreign exchange risk that NatWest Group is exposed to.
\n
(4)
Includes related derivatives.
\n
(5)
2022 includes a \u00a319 million gain from reclassification of mortgages from amortised cost to fair value through profit or loss. Refer to Note 10 for further details.
\n
(6)
Includes instruments that have failed solely payments of principal and interest testing under IFRS 9.
\n
(7)
2021 includes \u00a344 million loss on the purchase of freeholds for properties where the Group was the primary leaseholder.
\n
(8)
2022 includes \u00a392 million profit from insurance liabilities.
\n
(9)
2020 includes \u00a358 million loss on acquisition of a \u00a33.0 billion prime UK mortgages portfolio from Metro Bank plc.
\n
F
Additional information
\n
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
\n
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was
\n
60,000 (2021- 59,200; 2020 \u2013 61,400). The average number of temporary employees during 2022 was 2,500 (2021 \u2013 2,500; 2020 \u2013
\n
3,200).
\n
The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows:
\n
Continuing operations
2022
2021
2020
\n
Retail Banking
14,800
15,800
17,200
\n
Private Banking
2,100
1,900
1,900
\n
Commercial & Institutional
12,200
11,400
13,300
\n
Central items & other
(1)
31,900
28,700
26,800
\n
Total
61,000
57,800
59,200
\n
UK
41,200
40,600
42,500
\n
USA
300
300
300
\n
India
15,700
13,500
13,200
\n
Poland
1,500
1,400
1,200
\n
Republic of Ireland
1,400
1,200
1,400
\n
Rest of the World
900
800
600
\n
Total
61,000
57,800
59,200
\n
(1)
Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 \u2013 2,400; 2020 \u2013 2,600) includes 400 people employed in
\n
discontinued operations at 31 December 2022 (2021 \u2013 700; 2020 \u2013 700).
\n
\n
\n
Share-based payments
\n
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
\n
\n
\n
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
\n
\n
4 Segmental analysis
\n
NatWest Group analyses its performance between the different operating segments of the Group as required by IFRS 8, Operating
\n
segments. The presentation is consistent with internal financial reporting and how senior management assesses the performance
\n
of each operating segment.
\n
Changes in reportable segments:
\n
Two changes to reportable segments have been made:
\n
On 27 January 2022, NatWest Group announced that a new business segment, Commercial & Institutional, would be created,
\n
bringing together the Commercial, NatWest Markets and RBSI businesses to form a single business segment, with common
\n
management and objectives, to best support our customers across the full non-personal customer lifecycle.
\n
Following good progress with respect to the phased withdrawal from the Republic of Ireland, announced in February 2021,Ulster
\n
Bank RoI continuing operations are now included in Central items & other.
\n
Comparatives have been re-presented. The re-presentation of operating segments does not change the consolidated financial
\n
results of NatWest Group.
\n
Reportable operating segments:
\n
The business is organised into the following reportable segments: Retail Banking, Private Banking, Commercial & Institutional, and
\n
Central items & other.
\n
Retail Banking
serves personal customers in the UK and includes Ulster Bank customers in Northern Ireland.
\n
Private Banking
serves UK connected high-net-worth individuals and their business interests.
\n
Commercial & Institutional
brings together our Commercial Banking, NatWest Markets and RBS International businesses, to
\n
support our customers across the full non-personal customer lifecycle, both domestically and internationally. Our Markets offering
\n
helps our customers manage financial risks across different geographies, while our International offering provides full-service
\n
banking operations in the Channel Islands, Isle of Man, Gibraltar and Luxembourg.
\n
Central items & other
includes corporate functions, such as NatWest Group Treasury, finance, risk management, compliance,
\n
legal, communications and human resources. Central functions manages NatWest Group capital resources and NatWest Group-
\n
wide regulatory projects and provides services to the reportable segments. Balances in relation to litigation issues and the
\n
international private banking business are included in Central items in the relevant periods. Ulster Bank RoI is no longer an
\n
operating segment and its continuing operations now form part of Central items & other.
\n
Allocation of central balance sheet items
\n
NatWest Group allocates all central costs relating to Services and Functions to the business using appropriate drivers; these are
\n
reported as indirect costs in the segmental income statements. Assets and risk-weighted assets held centrally, mainly relating to
\n
NatWest Group Treasury, are allocated to the business using appropriate drivers
.
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Net interest income
5,224
777
4,171
(330)
9,842
\n
Net fees and commissions
422
250
1,580
40
2,292
\n
Other non-interest income
\u2014
29
662
331
1,022
\n
Total income
5,646
1,056
6,413
41
13,156
\n
Depreciation and amortisation
\u2014
\u2014
(161)
(672)
(833)
\n
Other operating expenses
(2,593)
(622)
(3,583)
(56)
(6,854)
\n
Impairment (losses)/releases
(229)
2
(122)
12
(337)
\n
Operating profit/(loss)
2,824
436
2,547
(675)
5,132
\n
2021
(1)
\n
Continuing operations
\n
Net interest income
4,074
480
2,974
7
7,535
\n
Net fees and commissions
377
258
1,440
45
2,120
\n
Other non-interest income
(6)
78
424
278
774
\n
Total income
4,445
816
4,838
330
10,429
\n
Depreciation and amortisation
(85)
\u2014
(173)
(665)
(923)
\n
Other operating expenses
(2,428)
(520)
(3,584)
(303)
(6,835)
\n
Impairment releases/(losses)
36
54
1,160
(77)
1,173
\n
Operating profit/(loss)
1,968
350
2,241
(715)
3,844
\n
\n
\n
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
\n
Total
\n
2020
(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Net interest income
3,868
489
3,054
(22)
7,389
\n
Net fees and commissions
379
257
1,303
43
1,982
\n
Other non-interest income
(66)
17
1,221
(140)
1,032
\n
Total income
4,181
763
5,578
(119)
10,403
\n
Depreciation and amortisation
\u2014
(8)
(182)
(723)
(913)
\n
Operating expenses
(2,540)
(447)
(3,849)
(109)
(6,945)
\n
Impairment losses
(792)
(100)
(2,074)
(132)
(3,098)
\n
Operating profit/(loss)
849
208
(527)
(1,083)
(553)
\n
Total revenue
(2)
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
Year ended 31 December 2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
External
5,773
874
6,747
3,180
16,574
\n
Inter-segmental
\u2014
389
116
(505)
\u2014
\n
Total
5,773
1,263
6,863
2,675
16,574
\n
Year ended 31 December 2021 (1)
\n
Continuing operations
\n
External
5,419
792
5,168
1,323
12,702
\n
Inter-segmental
14
127
123
(264)
\u2014
\n
Total
5,433
919
5,291
1,059
12,702
\n
Year ended 31 December 2020 (1)
\n
Continuing operations
\n
External
5,386
702
6,223
1,136
13,447
\n
Inter-segmental
39
163
80
(282)
\u2014
\n
Total
5,425
865
6,303
854
13,447
\n
Total income
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
Year ended 31 December 2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
External
5,646
780
6,777
(47)
13,156
\n
Inter-segmental
\u2014
276
(364)
88
\u2014
\n
Total
5,646
1,056
6,413
41
13,156
\n
Year ended 31 December 2021
(1)
\n
Continuing operations
\n
External
4,433
801
5,041
154
10,429
\n
Inter-segmental
12
15
(203)
176
\u2014
\n
Total
4,445
816
4,838
330
10,429
\n
Year ended 31 December 2020 (1)
\n
Continuing operations
\n
External
4,157
700
5,960
(414)
10,403
\n
Inter-segmental
24
63
(382)
295
\u2014
\n
Total
4,181
763
5,578
(119)
10,403
\n
\n
\n
Analysis of net fees and commissions
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Fees and commissions receivable
\n
- Payment services
314
25
642
43
1,024
\n
- Credit and debit card fees
401
15
227
18
661
\n
- Lending and financing
17
8
673
3
701
\n
- Brokerage
43
6
44
\u2014
93
\n
- Investment management, trustee
\n
and fiduciary services
(3)
4
219
46
\u2014
269
\n
- Underwriting fees
\u2014
\u2014
120
\u2014
120
\n
- Other
\u2014
3
88
(44)
47
\n
Total
779
276
1,840
20
2,915
\n
Fees and commissions payable
(357)
(26)
(260)
20
(623)
\n
Net fees and commissions
422
250
1,580
40
2,292
\n
2021 (1)
\n
Continuing operations
\n
Fees and commissions receivable
\n
- Payment services
306
35
577
49
967
\n
- Credit and debit card fees
344
10
149
19
522
\n
- Lending and financing
13
10
643
4
670
\n
- Brokerage
48
6
42
\u2014
96
\n
- Investment management, trustee
\n
and fiduciary services
(3)
3
230
45
2
280
\n
- Underwriting fees
\u2014
\u2014
127
\u2014
127
\n
- Other
\u2014
35
109
(112)
32
\n
Total
714
326
1,692
(38)
2,694
\n
Fees and commissions payable
(337)
(68)
(252)
83
(574)
\n
Net fees and commissions
377
258
1,440
45
2,120
\n
2020 (1)
\n
Fees and commissions receivable
\n
- Payment services
264
28
543
41
876
\n
- Credit and debit card fees
299
9
131
21
460
\n
- Lending and financing
42
7
625
2
676
\n
- Brokerage
54
6
94
1
155
\n
- Investment management, trustee
\n
and fiduciary services
3
225
41
2
271
\n
- Underwriting fees
\u2014
\u2014
183
\u2014
183
\n
- Other
1
26
89
(33)
83
\n
Total
663
301
1,706
34
2,704
\n
Fees and commissions payable
(284)
(44)
(403)
9
(722)
\n
Net fees and commissions
379
257
1,303
43
1,982
\n
2022
2021
2020
\n
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Retail Banking
226,375
192,282
209,973
192,715
197,618
178,617
\n
Private Banking
29,867
41,491
29,854
39,388
26,206
32,457
\n
Commercial & Institutional
404,817
383,768
425,718
411,757
491,544
460,338
\n
Central items & other
58,994
66,016
116,447
96,329
84,123
84,255
\n
Total
720,053
683,557
781,992
740,189
799,491
755,667
\n
\n
4 Segmental analysis continued
\n
Segmental analysis of goodwill
\n
The total carrying value of goodwill at 31 December 2022 and 2021 was \u00a35,522 million comprising Retail Banking \u00a32,607 million;
\n
Commercial & Institutional \u00a32,906 million; and Private Banking \u00a39 million. See note 17 for further details.
\n
Geographical segments
\n
The geographical analysis in the tables below has been compiled on the basis of location of office where the transactions are
\n
recorded.
\n
UK
USA
Europe
RoW
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Total revenue
15,795
117
558
104
16,574
\n
Interest receivable
12,242
37
344
14
12,637
\n
Interest payable
(2,567)
(2)
(221)
(5)
(2,795)
\n
Net fees and commissions
1,983
44
207
58
2,292
\n
Trading income
1,208
1
(104)
28
1,133
\n
Other operating income
(140)
14
12
3
(111)
\n
Total income
(4)
12,726
94
238
98
13,156
\n
Operating profit/(loss) before tax
5,716
(46)
(620)
82
5,132
\n
Total assets
589,758
25,979
101,164
3,152
720,053
\n
Total liabilities
579,476
27,039
75,092
1,950
683,557
\n
Contingent liabilities and commitments
117,915
\u2014
8,649
17
126,581
\n
2021 (1)
\n
Continuing operations
\n
Total revenue
12,100
87
482
33
12,702
\n
Interest receivable
8,949
20
257
8
9,234
\n
Interest payable
(1,483)
(2)
(211)
(3)
(1,699)
\n
Net fees and commissions
1,820
27
231
42
2,120
\n
Trading income
247
53
(1)
24
323
\n
Other operating income
387
2
62
\u2014
451
\n
Total income
(4)
9,920
100
338
71
10,429
\n
Operating profit/(loss) before tax
4,143
48
(387)
40
3,844
\n
Total assets
693,221
21,776
64,415
2,580
781,992
\n
Total liabilities
676,684
23,286
38,835
1,384
740,189
\n
Contingent liabilities and commitments
117,225
1
8,114
27
125,367
\n
2020 (1)
\n
Continuing operations
\n
Total revenue
12,511
211
551
174
13,447
\n
Interest receivable
9,479
\u2014
210
22
9,711
\n
Interest payable
(2,163)
\u2014
(158)
(1)
(2,322)
\n
Net fees and commissions
1,637
33
215
97
1,982
\n
Trading income
911
170
33
11
1,125
\n
Other operating income
(117)
(22)
42
4
(93)
\n
Total income
(4)
9,747
181
342
133
10,403
\n
Operating (loss)/profit before tax
(193)
(85)
(363)
88
(553)
\n
Total assets
704,725
25,439
66,884
2,443
799,491
\n
Total liabilities
686,500
26,932
41,018
1,217
755,667
\n
Contingent liabilities and commitments
118,654
\u2014
10,068
10
128,732
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
(2)
Total revenue comprises interest receivable, fees and commissions receivable, income from trading activities and other operating income.
\n
(3)
Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2021.
\n
(4)
Total income excludes internal service fee income which has been calculated on a cost plus mark-up basis.
\n
\n
5 Pensions
\n
NatWest Group operates two types of pension scheme: defined benefit and defined contribution. The defined contribution schemes
\n
invest contributions in a choice of funds and the accumulated contributions and investment returns are used by the employee to
\n
provide benefits on retirement, there is no legal or constructive obligation for NatWest Group to pay any further contributions or
\n
benefits. The defined benefit schemes provide pensions in retirement based on employees\u2019 pensionable salary and service.
\n
NatWest Group\u2019s balance sheet includes any defined benefit
\n
pension scheme surplus or deficit as a retirement benefit asset
\n
or liability reported in other assets and other liabilities. The
\n
surplus or deficit is the difference between the liabilities to be
\n
paid from the defined benefit scheme, and the assets held by
\n
the scheme to meet these liabilities. The liabilities are calculated
\n
by external actuaries using a number of financial and
\n
demographic assumptions.
\n
For some NatWest Group defined benefit schemes where there
\n
is a net defined benefit surplus in excess of the present value of
\n
any economic benefits that can be obtained from that surplus,
\n
the application of accounting standards means we do not
\n
recognise that surplus on the balance sheet.
\n
For accounting policy information see Accounting policies note
\n
3.3.
\n
Defined contribution schemes
\n
NatWest Group sponsors several defined contribution schemes
\n
in different territories, which new employees are entitled to join.
\n
NatWest Group pays specific contributions into individual
\n
investment funds on employees\u2019 behalf. Once those
\n
contributions are paid, there is no further liability on the
\n
NatWest Group balance sheet relating to the defined
\n
contribution scheme.
\n
Defined benefit schemes
\n
NatWest Group sponsors a number of pension schemes in the
\n
UK and overseas, including the Main section of the NatWest
\n
Group Pension Fund (the Main section) which operates under
\n
UK trust law and is managed and administered on behalf of its
\n
members in accordance with the terms of the trust deed, the
\n
scheme rules and UK legislation.
\n
Pension fund trustees are appointed to operate each fund and
\n
ensure benefits are paid in accordance with the scheme rules
\n
and national law. The trustees are the legal owner of a
\n
scheme\u2019s assets, and have a duty to act in the best interests of
\n
all scheme members.
\n
The schemes generally provide a pension of one-sixtieth of final
\n
pensionable salary for each year of service prior to retirement
\n
up to a maximum of 40 years and are contributory for current
\n
members. These have been closed to new entrants for over ten
\n
years, although active members continue to build up additional
\n
pension benefits, currently subject to 2% maximum annual
\n
salary inflation, while they remain employed by NatWest Group.
\n
The Main section corporate trustee is NatWest Pension Trustee
\n
Limited (the Trustee), a wholly owned subsidiary of NWB Plc,
\n
Principal Employer of the Main section. The Board of the
\n
Trustee comprises four member trustee directors selected from
\n
eligible active staff, deferred and pensioner members who
\n
apply and six appointed by NatWest Group. Under UK
\n
legislation, a defined benefit pension scheme is required to
\n
meet the statutory funding objective of having sufficient and
\n
appropriate assets to cover its liabilities (the pensions that have
\n
been promised to members).
\n
Similar governance principles apply to NatWest Group\u2019s other
\n
defined benefit pension schemes.
\n
Investment strategy
\n
The assets of the Main section, which is typical of other group
\n
schemes, represent 91% of all plan assets at 31 December 2022
\n
(2021 - 90%) and are invested as shown below.
\n
The Main section employs physical, derivative and non-
\n
derivative instruments to achieve a desired asset class
\n
exposure and to reduce the section\u2019s interest rate, inflation,
\n
and currency risk. This means that the net funding position is
\n
considerably less sensitive to changes in market conditions
\n
than the value of the assets or liabilities in isolation. In
\n
particular, movements in interest rate and inflation are
\n
substantially hedged by the Trustee.
\n
Over the year, increases in bond yields resulted in many
\n
pension schemes in the UK having to raise additional collateral
\n
to support Liability-driven investments positions held as part of
\n
their hedging strategies. Liability-driven investments (LDI) refer
\n
to assets that are expected to move broadly in line with
\n
liabilities on a specific basis. All of the Group\u2019s schemes
\n
affected by this were able to raise the collateral needed from
\n
existing assets, with no additional support from the Group. The
\n
Trustee of the Group Pension Fund takes a prudent approach
\n
to liquidity and collateral and holds sufficient collateral to
\n
withstand substantial rises in gilt yields. The level of collateral
\n
held by some of the Group\u2019s smaller schemes was increased
\n
over the year, so as to ensure they could withstand further
\n
large rises in gilt yields if required.
\n
\n
5 Pensions continued
\n
2022
2021
\n
Quoted
Unquoted
Total
Quoted
Unquoted
Total
\n
Major classes of plan assets as a percentage of
\n
total plan assets of the Main section
\n
%
%
%
%
%
%
\n
Equities
0.1
7.7
7.8
3.7
4.7
8.4
\n
Index linked bonds
37.7
\u2014
37.7
46.7
\u2014
46.7
\n
Government bonds
18.4
\u2014
18.4
9.8
\u2014
9.8
\n
Corporate and other bonds
15.3
6.7
22.0
10.7
4.4
15.1
\n
Real estate
\u2014
6.0
6.0
\u2014
4.4
4.4
\n
Derivatives
\u2014
8.2
8.2
\u2014
8.8
8.8
\n
Cash and other assets
\u2014
(0.1)
(0.1)
\u2014
6.8
6.8
\n
71.5
28.5
100.0
70.9
29.1
100.0
\n
The Main section\u2019s holdings of derivative instruments are summarised in the table below:
\n
2022
2021
\n
Fair value
Fair value
\n
Notional
am
\n
ounts
\n
Assets
Liabilities
\n
Notional
\n
amounts
\n
Assets
Liabilities
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Inflation rate swaps
21
1,873
990
20
1,408
796
\n
Interest rate swaps
103
14,317
12,546
172
8,385
4,421
\n
Currency forwards
12
310
113
12
61
98
\n
Equity and bond call options
\u2014
\u2014
\u2014
\u2014
1
\u2014
\n
Equity and bond put options
\u2014
2
70
\u2014
1
3
\n
Other
1
14
19
1
9
10
\n
Swaps have been executed at prevailing market rates and within standard market bid/offer spreads with a number of
\n
counterparties, including NWB Plc.
\n
At 31 December 2022, the gross notional value of the swaps was \u00a3124 billion (2021 - \u00a3192 billion) and had a net positive fair value
\n
of \u00a32,642 million (2021 - \u00a34,573 million) against which the counterparties had posted approximately 112% collateral.
\n
The schemes do not invest directly in NatWest Group but may have exposure to NatWest Group through indirect holdings. The
\n
trustees of the respective UK schemes are responsible for ensuring that indirect investments in NatWest Group do not exceed the
\n
regulatory limit of 5% of plan assets.
\n
\n
5 Pensions continued
\n
Main section
All schemes
\n
Fair value
\n
of plan
\n
assets
\n
Present value
\n
of defined
\n
benefit
\n
obligation (1)
\n
Asset
\n
ceiling/minimu
\n
m funding
\n
Net pension
\n
assets/(liability)
\n
Fair value of
\n
plan assets
\n
Present vlaue
\n
of defined
\n
benefit (2)
\n
Asset
\n
ceiling/minimu
\n
m funding
\n
Net pension
\n
assets (2)
\n
Changes in value of net pension
\n
assets/(liability)
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2021
51,323
(43,870)
(7,453)
\u2014
57,249
(48,864)
(7,783)
602
\n
Currency translation and other adjustments
\u2014
\u2014
\u2014
\u2014
(129)
116
3
(10)
\n
Income statement - operating expenses
713
(767)
(105)
(159)
795
(901)
(109)
(215)
\n
Other comprehensive income
841
1,056
(2,443)
(546)
872
1,061
(2,602)
(669)
\n
Contributions by employer
705
\u2014
\u2014
705
780
\u2014
\u2014
780
\n
Contributions by plan participants and
\n
other scheme members
8
(8)
\u2014
\u2014
13
(13)
\u2014
\u2014
\n
Assets/liabilities extinguished upon settlement
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Benefits paid
(1,569)
1,569
\u2014
\u2014
(1,793)
1,793
\u2014
\u2014
\n
At 1 January 2022
52,021
(42,020)
(10,001)
\u2014
57,787
(46,808)
(10,491)
488
\n
Currency translation and other adjustments
\u2014
\u2014
\u2014
\u2014
78
(65)
(11)
2
\n
Income statement - operating expenses
\n
Net interest expense
932
(744)
(180)
8
1,041
(834)
(191)
16
\n
Current service cost
\u2014
(143)
\u2014
(143)
\u2014
(194)
\u2014
(194)
\n
Past service cost
\u2014
(5)
\u2014
(5)
\u2014
(6)
\u2014
(6)
\n
Loss on curtailments and settlements
\u2014
\u2014
\u2014
\u2014
\u2014
(21)
\u2014
(21)
\n
932
(892)
(180)
(140)
1,041
(1,055)
(191)
(205)
\n
Other comprehensive income
\n
Return on plan assets excluding
\n
recognised interest income
\n
(3)
\n
(18,180)
\u2014
\u2014
(18,180)
(20,326)
\u2014
\u2014
(20,326)
\n
Experience gains and losses
\u2014
(2,053)
\u2014
(2,053)
\u2014
(2,137)
\u2014
(2,137)
\n
Effect of changes in actuarial
\n
financial assumptions
\n
(3)
\n
\u2014
18,744
\u2014
18,744
\u2014
20,714
\u2014
20,714
\n
Effect of changes in actuarial
\n
demographic assumptions
\u2014
23
\u2014
23
\u2014
(7)
\u2014
(7)
\n
Asset ceiling adjustments
\u2014
\u2014
898
898
\u2014
\u2014
916
916
\n
(18,180)
16,714
898
(568)
(20,326)
18,570
916
(840)
\n
Contributions by employer
708
\u2014
\u2014
708
775
\u2014
\u2014
775
\n
Contributions by plan participants and
\n
other scheme members
7
(7)
\u2014
\u2014
13
(13)
\u2014
\u2014
\n
Assets/liabilities extinguished upon settlement
\u2014
\u2014
\u2014
\u2014
(113)
113
\u2014
\u2014
\n
Benefits paid
(1,472)
1,472
\u2014
\u2014
(1,657)
1,657
\u2014
\u2014
\n
At 31 December 2022
34,016
(24,733)
(9,283)
\u2014
37,598
(27,601)
(9,777)
220
\n
(1)
Defined benefit obligations are subject to annual valuation by independent actuaries.
\n
(2)
NatWest Group recognises the net pension scheme surplus or deficit as a net asset or liability. In doing so, the funded status is adjusted to reflect any schemes with a surplus that
\n
NatWest Group may not be able to access, as well as any minimum funding requirement to pay in additional contributions. This is most relevant to the Main section, where the
\n
surplus is not recognised as the trustees may have control over the use of the surplus. Other NatWest Group schemes that this applies to include the Ulster Bank Pension Scheme
\n
(NI) and the NatWest Markets section.
\n
(3)
Changes in market conditions during 2022 resulted in a particularly large increase in discount rate, which is the key driver of the effect of changes in actuarial financial assumptions.
\n
Given the level of hedging in place, there was a corresponding reduction in the value of plan assets over the period. The experience losses shown are mainly as a result of inflation
\n
over the year being higher than expected.
\n
(4)
NatWest Group expects to make contributions to the Main section of \u00a3196 million in 2023. In 2022 NatWest Group made contributions of \u00a3708m to the Main scheme, including a
\n
\u00a3500m contribution paid in two instalments in January and March 2022 as required by the ring-fencing agreement with the Trustee. Such contributions do not constitute a minimum
\n
funding requirement as the obligation to pay only arises on the payment of a distribution to shareholders.
\n
\n
5 Pensions continued
\n
All schemes
\n
2022
2021
\n
Amounts recognised on the balance sheet
\u00a3m
\u00a3m
\n
Fund asset at fair value
37,598
57,787
\n
Present value of fund liabilities
(27,601)
(46,808)
\n
Funded status
9,997
10,979
\n
Assets ceiling/minimum funding
(9,777)
(10,491)
\n
220
488
\n
2022
2021
\n
Net pension assets/(liability) comprises
\u00a3m
\u00a3m
\n
Net assets of schemes in surplus (included in Other assets, Note 18)
318
602
\n
Net liabilities of schemes in deficit (included in Other liabilities, Note 21)
(98)
(114)
\n
220
488
\n
Funding and contributions by NatWest Group
\n
In the UK, the trustees of defined benefit pension schemes are
\n
required to perform funding valuations every three years. The
\n
trustees and the sponsor, with the support of the Scheme
\n
Actuary, agree the assumptions used to value the liabilities and
\n
to determine future contribution requirements. The funding
\n
assumptions incorporate a margin for prudence over and
\n
above the expected cost of providing the benefits promised to
\n
members, taking into account the sponsor\u2019s covenant and the
\n
investment strategy of the scheme. Similar arrangements apply
\n
in the other territories where NatWest Group sponsors defined
\n
benefit pension schemes.
\n
A full triennial funding valuation of the Main section, effective
\n
31 December 2020, was completed during financial year 2021.
\n
This triennial funding valuation determined the funding level to
\n
be 104%, pension liabilities to be \u00a349 billion and the surplus to
\n
be \u00a32 billion, all assessed on the agreed funding basis. The
\n
average cost of the future service of current members is 49% of
\n
salary before contributions from those members. In addition,
\n
the sponsor has agreed to meet administrative expenses.
\n
Following the ring-fencing agreement with the Trustee reached
\n
in 2018, additional contributions of up to \u00a3500 million p.a. are
\n
payable to the Main section should the Group make
\n
distributions to shareholders of an equal amount.
\n
These contributions are capped at \u00a31.5 billion in total; \u00a3500
\n
million was paid in 2022 (2021 \u2013 \u00a3500 million). The remaining
\n
distribution linked contribution to the Main section would have
\n
fallen due in 2023, but NatWest Bank has agreed with the
\n
Trustee that assets to the value of the contributions falling due
\n
will instead be paid to a new legal structure. These assets will
\n
be restricted and are reserved to ensure they are available
\n
should they be needed by the Trustee according to agreed
\n
criteria in the future. The assets under this arrangement would
\n
be available to the Group to the extent that they are not
\n
needed under the defined trigger events.
\n
The key assumptions used to determine the funding liabilities
\n
were the discount rate, which is determined based on fixed
\n
interest swap and gilt yields plus 0.64% per annum, and
\n
mortality assumptions, which result in life expectancies of
\n
27.7/29.4 years for males/females who are currently age 60
\n
and 28.9/30.7 years from age 60 for males/females who are
\n
currently aged 40.
\n
The 2020 triennial valuation of the Group Pension Fund
\n
included an allowance for the estimated impact of guaranteed
\n
minimum pension equalisation, which is reflected in the IAS 19
\n
valuation at 31 December 2022.
\n
Accounting Assumptions
\n
Placing a value on NatWest Group\u2019s defined benefit pension
\n
schemes\u2019 liabilities requires NatWest Group\u2019s management to
\n
make a number of assumptions, with the support of
\n
independent actuaries. The ultimate cost of the defined benefit
\n
obligations depends upon actual future events and the
\n
assumptions made are unlikely to be exactly borne out in
\n
practice, meaning the final cost may be higher or lower than
\n
expected.
\n
\n
5 Pensions continued
\n
The most significant assumptions used for the Main section are shown below:
\n
Principal IAS 19 actuarial assumptions
\n
(1)
\n
2022
2021
\n
%
%
\n
Discount rate
5.0
1.8
\n
Inflation assumption (RPI)
3.2
3.3
\n
Rate of increase in salaries
1.8
1.8
\n
Rate of increase in deferred pensions
3.2
3.7
\n
Rate of increase in pensions in payment
2.5
2.5
\n
Lump sum conversion rate at retirement
18
18
\n
Longevity at age 60:
years
years
\n
Current pensioners
\n
Males
27.3
27.3
\n
Females
29.1
29.0
\n
Future pensioners, currently aged 40
\n
Males
28.3
28.2
\n
Females
30.1
30.1
\n
(1)
The above financial assumptions are long term assumptions set with reference to the period over which the obligations are expected to be settled
\n
Discount rate
\n
The IAS 19 valuation uses a single discount rate set by reference to the yield on a basket of \u2018high quality\u2019 sterling corporate bonds.
\n
Significant judgment is required when setting the criteria for bonds to be included in the basket of bonds that is used to determine
\n
the discount rate used in the IAS 19 valuations. The criteria include issue size, quality of pricing and the exclusion of outliers.
\n
Judgment is also required in determining the shape of the yield curve at long durations; a constant credit spread relative to gilts is
\n
assumed. Sensitivity to the main assumptions is presented below.
\n
The weighted average duration of the Main section\u2019s defined benefit obligation at 31 December 2022 is 15.3 years (2021 \u2013 20
\n
years). The chart below shows the projected benefit payment pattern for the Main section in nominal terms. These cashflows are
\n
based on the most recent formal actuarial valuation, effective 31 December 2020.
\n
The larger outflow in 2023 represents an assumption in the actuarial valuation of the level of transfers out to 31 December 2023.
\n
0
\n
500
\n
1000
\n
1500
\n
2000
\n
2500
\n
2023
\n
2025
\n
2027
\n
2029
\n
2031
\n
2033
\n
2035
\n
2037
\n
2039
\n
2041
\n
2043
\n
2045
\n
2047
\n
2049
\n
2051
\n
2053
\n
2055
\n
2057
\n
2059
\n
2061
\n
2063
\n
2065
\n
2067
\n
2069
\n
2071
\n
2073
\n
2075
\n
2077
\n
2079
\n
2081
\n
2083
\n
2085
\n
2087
\n
2089
\n
2091
\n
2093
\n
2095
\n
Pensioner
Non pensioner
\n
Expected Cashflows (\u00a3m)
\n
Year
\n
\n
\n
The table below shows how the net pension asset of the Main section would change if the key assumptions used were changed
\n
independently. In practice the variables have a degree of correlation and do not move completely in isolation.
\n
(Decrease)/increase
\n
in value of assets
\n
(Decrease)/increase
\n
in value of liabilities
\n
Increase in net
\n
pension
\n
(obligations)/assets
\n
2022
\u00a3m
\u00a3m
\u00a3m
\n
0.25% increase in interest rates/discount rate
\n
(2)
\n
(1,389)
(907)
(482)
\n
0.25% increase in inflation
963
632
331
\n
0.25% increase in credit spreads
(3)
(907)
904
\n
Longevity increase of one year
\u2014
767
(767)
\n
0.25% additional rate of increase in pensions in payment
\u2014
679
(679)
\n
Increase in equity values of 10%
\n
(1)
\n
267
\u2014
267
\n
2021
\n
0.25% increase in interest rates/discount rate
(2,917)
(1,926)
(991)
\n
0.25% increase in inflation
1,883
1,329
554
\n
0.25% increase in credit spreads
(3)
(1,926)
1,923
\n
Longevity increase of one year
\u2014
1,790
(1,790)
\n
0.25% additional rate of increase in pensions in payment
\u2014
1,485
(1,485)
\n
Increase in equity values of 10%
\n
(1)
\n
442
\u2014
442
\n
(1)
Includes both quoted and private equity.
\n
(2)
A 0.5% increase in interest rates/discount rate would lead to a decrease of \u00a32,689m in the value of assets and a \u00a31,766m decrease in the value of liabilities at 31 December 2022.
\n
The funded status is most sensitive to movements in credit spreads and longevity. Note the longevity sensitivities quoted above
\n
reflect the impact of a one year increase to single life annuities. The table below shows the combined change in the funded status
\n
of the Main section as a result of larger movements in these assumptions, assuming no changes in other assumptions.
\n
Change in life expectancies
\n
- 2 years
- 1 years
No change
+ 1 year
+ 2 years
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Change in credit spreads
+50 bps
3.2
2.5
1.8
1.1
0.4
\n
No change
1.6
0.8
\u2014
(0.8)
(1.5)
\n
-50 bps
(0.3)
(1.2)
(2.0)
(2.8)
(3.6)
\n
2021
\n
Change in credit spreads
+50 bps
6.9
5.3
3.8
2.3
0.8
\n
No change
3.6
1.8
\u2014
(1.8)
(3.6)
\n
-50 bps
(0.3)
(2.4)
(4.5)
(6.6)
(8.7)
\n
The defined benefit obligation of the Main section is attributable to the different classes of scheme members in the following
\n
proportions:
\n
2022
2021
\n
Membership category
%
%
\n
Active members
8.4
10.7
\n
Deferred members
41.0
47.6
\n
Pensioners and dependants
50.6
41.7
\n
100.0
100.0
\n
The experience history of NatWest Group schemes is shown below:
\n
Main section
All schemes
\n
2022
2021
2020
2019
2018
2022
2021
2020
2019
2018
\n
History of defined benefit schemes
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Fair value of plan assets
34,016
52,021
51,323
46,555
43,806
37,598
57,787
57,249
51,925
48,752
\n
Present value of plan obligations
(24,733)
(42,020)
(43,870)
(39,669)
(35,466)
(27,601)
(46,808)
(48,864)
(44,115)
(39,607)
\n
Net surplus
9,283
10,001
7,453
6,886
8,340
9,997
10,979
8,385
7,810
9,145
\n
Experience (losses)/gains on plan
\n
liabilities
\n
(2,053)
241
427
275
(122)
(2,137)
237
455
279
(81)
\n
Experience (losses)/gains on plan
\n
assets
\n
(18,180)
841
5,486
3,021
(1,891)
(20,326)
872
6,027
3,556
(2,090)
\n
Actual return on plan assets
(17,248)
1,554
6,422
4,266
(768)
(19,285)
1,667
7,064
4,930
(848)
\n
Actual return on plan assets
(33.2%)
3.0%
13.8%
9.7%
(1.7%)
(33.4%)
2.9%
13.6%
10.1%
(1.7%)
\n
\n
6 Auditor\u2019s remuneration
\n
Amounts payable to NatWest Group's auditors for statutory audit and other services are set out below.
\n
All audit-related and other services are approved by the Group Audit Committee and are subject to strict controls to ensure the
\n
external auditor\u2019s independence is unaffected by the provision of other services. The Group Audit Committee recognises that for
\n
certain assignments, the auditors are best placed to perform the work economically; for other work, NatWest Group selects the
\n
supplier best placed to meet its requirements. NatWest Group\u2019s auditors are permitted to tender for such work in competition with
\n
other firms where the work is permissible under audit independence rules.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Fees payable for:
\n
- the audit of NatWest Group\u2019s annual accounts
(1)
4.7
4.4
4.7
\n
- the audit of NatWest Group plc\u2019s subsidiaries
(1)
31.9
29.6
30.6
\n
- audit-related assurance services
(1,2)
3.9
5.3
4.7
\n
Total audit and audit-related assurance services fees
40.5
39.3
40.0
\n
Other assurance services
1.2
0.4
0.6
\n
Corporate finance services
(3)
0.5
0.5
0.4
\n
Total other services
1.7
0.9
1.0
\n
(1)
The 2022 audit fee was approved by the Group Audit Committee. At 31 December 2022, \u00a316 million has been billed and \u00a313 million paid in respect of the 2022 NatWest Group audit
\n
fees.
\n
(2)
Comprises fees of \u00a31.1 million (2021 - \u00a31.1 million) in relation to reviews of interim financial information, \u00a32.3 million (2021 - \u00a33.5 million) in respect of reports to NatWest Group\u2019s
\n
regulators in the UK and overseas, and \u00a30.4 million (2021 - \u00a30.7 million) in relation to non-statutory audit opinions.
\n
(3)
Comprises fees of \u00a30.5 million (2021 - \u00a30.5 million) in respect of work performed by the auditors as reporting accountants on debt and equity issuances undertaken by NatWest
\n
Group.
\n
7 Tax
\n
NatWest Group\u2019s corporate income tax charge for the period is set out below, together with a reconciliation to the expected tax
\n
charge calculated using the UK standard corporation tax rate and details of the NatWest Group\u2019s deferred tax balances.
\n
For accounting policy information see Accounting policies note 3.7.
\n
Analysis of the tax charge for the year
\n
The tax charge comprises current and deferred tax in respect of profits and losses recognised or originating in the income
\n
statement. Tax on items originating outside the income statement is charged to other comprehensive income or direct to equity (as
\n
appropriate) and is therefore not reflected in the table below.
\n
Current tax is tax payable or recoverable in respect of the taxable profit or loss for the year and any adjustments to tax payable in
\n
prior years. Deferred tax is explained on page 330.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Current tax
\n
Charge for the year
(1,611)
(1,036)
(191)
\n
Over provision in respect of prior years
100
31
86
\n
(1,511)
(1,005)
(105)
\n
Deferred tax
\n
Credit/(charge) for the year
47
(185)
176
\n
UK tax rate change impact
(1)
(10)
165
75
\n
Net increase/(decrease) in the carrying value of deferred tax assets in respect of UK,
\n
RoI and Netherlands losses
267
12
(130)
\n
(Under)/over provision in respect of prior years
(2)
(68)
17
(90)
\n
Tax charge for the year
(1,275)
(996)
(74)
\n
(1)
It was announced in the UK Government\u2019s budget on 27 October 2021 that the main UK banking surcharge will decrease from 8% to 3% from 1 April 2023. This legislative change
\n
was enacted on 24 February 2022.
\n
(2)
Prior year tax adjustments incorporate refinements to tax computations made on submission and agreement with the tax authorities and adjustments to provisions in respect of
\n
uncertain tax positions.
\n
\n
\n
Factors affecting the tax charge for the year
\n
Taxable profits differ from profits reported in the income statement as certain amounts of income and expense may not be taxable
\n
or deductible. In addition, taxable profits may reflect items that have been included outside the income statement (for instance, in
\n
other comprehensive income) or adjustments that are made for tax purposes only.
\n
The expected tax charge for the year is calculated by applying the standard UK corporation tax rate of 19% (2021 and 2020 \u2013 19%)
\n
to the Operating profit or loss before tax in the income statement.
\n
The actual tax charge differs from the expected tax charge as follows:
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Expected tax (charge)/credit
(975)
(766)
92
\n
Losses and temporary differences in year where no deferred tax asset recognised
(118)
(51)
(43)
\n
Foreign profits taxed at other rates
(62)
(11)
(29)
\n
Non deductible goodwill impairment
\u2014
(16)
\u2014
\n
Items not allowed for tax:
\n
- losses on disposals and write-downs
(10)
(55)
(22)
\n
- UK bank levy
(20)
(18)
(32)
\n
- regulatory and legal actions
(7)
(74)
14
\n
- other disallowable items
(51)
(28)
(70)
\n
Non-taxable items:
\n
- RPI related uplift on index linked gilts
\n
(1)
\n
67
\u2014
\u2014
\n
- other non-taxable items
29
73
28
\n
Taxable foreign exchange movements
(19)
8
(3)
\n
Unrecognised losses brought forward and utilised
6
10
16
\n
Net increase/(decrease) in the carrying value of deferred tax assets in respect of:
\n
- UK losses
272
(9)
7
\n
- RoI losses
(5)
(27)
(137)
\n
- Netherlands losses
\u2014
48
\u2014
\n
Banking surcharge
(447)
(341)
(27)
\n
Tax on paid-in equity dividends
43
48
61
\n
UK tax rate change impact
(10)
165
75
\n
Adjustments in respect of prior years
32
48
(4)
\n
Actual tax charge
(1,275)
(996)
(74)
\n
(1)
The tax impact of this adjustment (\u00a3135 million credit) is allocated across the RPI related uplift on index linked gilts, Adjustments in respect of prior years and Banking surcharge
\n
reconciling items.
\n
Judgment: tax contingencies
\n
NatWest Group\u2019s corporate income tax charge and its provisions for corporate income taxes necessarily involve a degree of
\n
estimation and judgment. The tax treatment of some transactions is uncertain and tax computations are yet to be agreed with the
\n
tax authorities in a number of jurisdictions. NatWest Group recognises anticipated tax liabilities based on all available evidence and,
\n
where appropriate, in the light of external advice. Any difference between the final outcome and the amounts provided will affect
\n
current and deferred income tax charges in the period when the matter is resolved.
\n
Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable in respect of temporary differences where the carrying amount of
\n
an asset or liability differs for accounting and tax purposes. Deferred tax liabilities reflect the expected amount of tax payable in
\n
the future on these temporary differences. Deferred tax assets reflect the expected amount of tax recoverable in the future on
\n
these differences.
\n
The net deferred tax asset recognised by the NatWest Group is shown below, together with details of the accounting judgments
\n
and tax rates that have been used to calculate the deferred tax. Details are also provided of any deferred tax assets or liabilities
\n
that have not been recognised on the balance sheet.
\n
Analysis of deferred tax
\n
\u00a3m
\u00a3m
\n
Deferred tax asset
(2,178)
(1,195)
\n
Deferred tax liability
227
359
\n
Net deferred tax asset
(1,951)
(836)
\n
\n
\n
Pension
\n
Accelerated
\n
capital
\n
allowances
\n
Expense
\n
provisions
\n
Financial
\n
instruments (1)
\n
Tax losses
\n
carried forward
\n
Other
\n
Total
\n
\u00a3m
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2021
(4)
(64)
(85)
480
(905)
(32)
(610)
\n
Charge/(credit) to income statement:
\n
- continuing operations
19
21
(5)
(10)
(1)
(33)
(9)
\n
- discontinued operations
\u2014
\u2014
\u2014
\u2014
3
\u2014
3
\n
Charge/(credit) to other comprehensive income
10
\u2014
(7)
(222)
\u2014
(5)
(224)
\n
Currency translation and other adjustments
(1)
1
\u2014
\u2014
4
\u2014
4
\n
At 1 January 2022
24
(42)
(97)
248
(899)
(70)
(836)
\n
Charge/(credit) to income statement:
\n
- continuing operations
1
(43)
14
(171)
(51)
14
(236)
\n
- discontinued operations
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(Credit)/charge to other comprehensive income
(2)
\u2014
1
(913)
\u2014
(2)
(916)
\n
Currency translation and other adjustments
\u2014
10
\u2014
31
(2)
(2)
37
\n
At 31 December 2022
23
(75)
(82)
(805)
(952)
(60)
(1,951)
\n
(1)
The in-year movement predominantly relates to cash flow hedges.
\n
Deferred tax assets in respect of carried forward tax losses are recognised if the losses can be used to offset probable future
\n
taxable profits after taking into account the expected reversal of other temporary differences. Recognised deferred tax assets in
\n
respect of tax losses are analysed further below.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
UK tax losses carried forward
\n
- NWM Plc
3
56
\n
- NWB Plc
445
608
\n
- RBS plc
452
176
\n
Total
900
840
\n
Overseas tax losses carried forward
\n
- UBIDAC
6
11
\n
- NWM N.V.
46
48
\n
952
899
\n
Critical accounting policy: Deferred tax
\n
NatWest Group has recognised a deferred tax asset of \u00a32,178
\n
million (2021 - \u00a31,195 million) and a deferred tax liability of \u00a3227
\n
million (2021 - \u00a3359 million). These include amounts recognised
\n
in respect of UK and overseas tax losses of \u00a3952 million (2021 -
\n
\u00a3899 million).
\n
It was announced in the UK Government\u2019s budget on 27
\n
October 2021 that the UK banking surcharge will decrease from
\n
8% to 3% from 1 April 2023. This legislative change was enacted
\n
on 24 February 2022. NatWest Group\u2019s closing deferred tax
\n
assets and liabilities have therefore been recalculated taking
\n
into account this change of rate and the applicable period the
\n
deferred tax assets and liabilities are expected to crystallise.
\n
Judgment
-
NatWest Group has considered the carrying value of
\n
deferred tax assets and concluded that, based on
\n
management\u2019s estimates, sufficient taxable profits will be
\n
generated in future years to recover recognised deferred tax
\n
assets.
\n
Estimate
- These estimates are partly based on forecast
\n
performance beyond the horizon for management\u2019s detailed
\n
plans. They have regard to inherent uncertainties, such as
\n
climate change. The deferred tax assets in NWM Plc and
\n
UBIDAC are supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022
.
\n
UK tax losses
\n
Under UK tax rules, tax losses can be carried forward
\n
indefinitely. As the recognised tax losses in NatWest Group
\n
arose prior to 1 April 2015, credit in future periods is given
\n
against 25% of profits at the main rate of UK corporation tax,
\n
excluding the Banking Surcharge rate introduced by The
\n
Finance (No. 2) Act 2015.
\n
NWM Plc
\u2013 A deferred tax asset of \u00a33 million (2021 - \u00a356 million)
\n
has been recognised in respect of losses of \u00a312 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022. NWM Plc expects that the
\n
balance of recognised deferred tax asset at 31 December 2022
\n
will be recovered by the end of 2027. Of the losses remaining,
\n
\u00a35,538 million have not been recognised in the deferred tax
\n
balance at 31 December 2022.
\n
NWB Plc
\u2013 A deferred tax asset of \u00a3445 million (2021 - \u00a3608
\n
million) has been recognised in respect of losses of \u00a31,847
\n
million of total losses of \u00a32,718 million carried forward at 31
\n
December 2022. The losses arose principally as a result of
\n
significant impairment and conduct charges between 2009 and
\n
2012 during challenging economic conditions in the UK banking
\n
sector. NWB Plc returned to tax profitability during 2015 and
\n
expects the deferred tax asset to be utilised against future
\n
taxable profits by the end of 2027.
\n
RBS plc
\u2013 A deferred tax asset of \u00a3452 million (2021 - \u00a3176
\n
million) has been recognised in respect of losses of \u00a31,821
\n
million of total losses of \u00a33,692 million carried forward at 31
\n
December 2022. The losses were transferred from NatWest
\n
Markets Plc as a consequence of the ring fencing regulations.
\n
RBS plc expects the deferred tax asset to be utilised against
\n
future taxable profits by the end of 2029.
\n
\n
\n
Overseas tax losses
\n
UBIDAC
\u2013
A deferred tax asset of \u00a36 million (2021 - \u00a311 million)
\n
has been recognised in respect of losses of \u00a348 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022.
\n
NatWest Market N.V. (NWM N.V.)
\u2013
A deferred tax asset of \u00a346
\n
million (2021 - \u00a348 million) has been recognised in respect of
\n
losses of \u00a3186 million of total losses of \u00a32,914 million carried
\n
forward at 31 December 2022. NWM N.V. Group considers it to
\n
be probable, based on its 5 year budget forecast, that future
\n
taxable profit will be available against which the tax losses and
\n
tax credits can be partially utilised. The tax losses and the tax
\n
credits have no expiry date.
\n
Unrecognised deferred tax
\n
Deferred tax assets of \u00a35,534 million (2021 - \u00a35,437 million;
\n
2020 - \u00a34,965 million) have not been recognised in respect of
\n
tax losses and other deductible temporary differences carried
\n
forward of \u00a325,742 million (2021 - \u00a324,699 million; 2020 -
\n
\u00a325,091 million) in jurisdictions where doubt exists over the
\n
availability of future taxable profits. Of these losses and other
\n
deductible temporary differences, \u00a375 million expire within five
\n
years and \u00a34,774 million thereafter. The balance of tax losses
\n
and other deductible temporary differences carried forward has
\n
no expiry date.
\n
Deferred tax liabilities of \u00a3257 million (2021 - \u00a3302 million; 2020
\n
- \u00a3242 million) on aggregate underlying temporary differences
\n
of \u00a31,010 million (2021 - \u00a31,032 million; 2020 \u00a31,021 million)
\n
have not been recognised in respect of retained earnings of
\n
overseas subsidiaries and held-over gains on the incorporation
\n
of certain overseas branches. Retained earnings of overseas
\n
subsidiaries are expected to be reinvested indefinitely or
\n
remitted to the UK free from further taxation. No taxation is
\n
expected to arise in the foreseeable future in respect of held-
\n
over gains on which deferred tax is not recognised. Changes to
\n
UK tax legislation largely exempts from UK tax overseas
\n
dividends received on or after 1 July 2009.
\n
\n
8 Discontinued operations and assets and liabilities of disposal groups
\n
Discontinued operations are reported separately on the income statement to allow users to distinguish the profits and cash flows
\n
from continuing operations from those activities that are subject to disposal. Assets and liabilities which we intend to dispose of in a
\n
single transaction are also presented separately on the balance sheet.
\n
For accounting policy information see Accounting policies note 3.2.
\n
This note sets out the profit/(loss) from the discontinued operations (represented for comparative periods), the assets and liabilities
\n
of the disposal group and the operating cash flows attributable to the discontinued operations.
\n
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from
\n
the Republic of Ireland. Material developments since the beginning of 2022 are set out below.
\n
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
\n
Successful migration of six tranches of performing commercial loans to AIB was completed during 2022, with \u20ac2.1 billion of gross
\n
performing loans being fully migrated by year-end. It is expected that remaining migrations of commercial customers will be
\n
materially completed in phases over H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business
\n
are in the process of getting transferred to AIB under Transfer of Undertakings, Protection of Employment (TUPE) arrangements,
\n
with more than half having completed their move by the end of 2022. Losses on disposal of \u20ac123 million have been recognised in
\n
2022 in respect of the migrations completed to date.
\n
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the
\n
performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform,
\n
and 25 Ulster Bank branch locations in the Republic of Ireland.
\n
c.\u20ac5 billion of performing non-tracker mortgages migrated to PTSB in November 2022, with the remaining balances expected to
\n
migrate during H1 2023. In January 2023, 25 branches transferred to PTSB. The remaining performing non-tracker mortgages,
\n
micro-SME loans, Lombard Asset Finance business and all remaining eligible colleagues who will move under TUPE regulations,
\n
are also expected to transfer in 2023.
\n
Agreement with AIB for the sale of performing tracker and linked mortgages.
\n
In January 2023 the Competition and Consumer Protection Commission (CCPC) granted approval on the portfolio sale of
\n
performing tracker and linked mortgages to AIB. Completion of this sale is expected to occur in Q2 2023.
\n
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and
\n
as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as
\n
discontinued operations. This has resulted in a re-presentation of 2021 comparatives: a reduction of Operating profit before tax
\n
and Profit from continuing operations of \u00a3188 million, and an increase of Profit from discontinued operations of \u00a3188 million.
Total
\n
profit for the year remains unchanged. Ulster Bank RoI continuing operations are now reported within Group central items & other.
\n
In 2022 we reclassified mortgage loans to fair value through profit or loss, which resulted in a \u20ac453 million reduction in mortgage
\n
financial assets in UBIDAC to 31 December 2022. This reclassification applies across both our continuing and discontinued
\n
operations.
\n
(a) (Loss)/profit from discontinued operations, net of tax
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Interest receivable
177
339
360
\n
Net interest income
177
339
360
\n
Non-interest income
(1)
(472)
13
33
\n
Total income
(295)
352
393
\n
Operating expenses
(38)
(47)
(47)
\n
(Loss)/profit before impairment releases/(losses)
(333)
305
346
\n
Impairment releases/(losses)
71
162
(144)
\n
Operating (loss)/profit before tax
(262)
467
202
\n
Tax charge
\u2014
(3)
(9)
\n
(Loss)/profit from discontinued operations, net of tax
(262)
464
193
\n
(1)
Excludes gain of \u00a320 million (\u20ac24 million) recognised by NatWest Group as a result of acquisition of PTSB shares in relation to disposal of UBIDAC assets to PTSB.
\n
(b) Assets and liabilities of disposal groups
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Assets of disposal groups
\n
Loans to customers - amortised cost
1,458
9,002
\n
Other financial assets - loans to customers
5,397
\u2014
\n
Derivatives
\u2014
5
\n
Other assets
6
8
\n
6,861
9,015
\n
Liabilities of disposal groups
\n
Other liabilities
15
5
\n
15
5
\n
Net assets of disposal groups
6,846
9,010
\n
\n
\n
(c) Operating cash flows attributable to discontinued operations
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Net cash flows from operating activities
1,090
2,212
(816)
\n
Net cash flows from investing activities
6,164
\u2014
\u2014
\n
Net increase/(decrease) in cash and cash equivalents
7,254
2,212
(816)
\n
9 Earnings per share
\n
Earnings per share is a metric to measure how much profit NatWest Group makes for each share that is in issue during the
\n
year.
Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders by the weighted
\n
average number of ordinary shares outstanding. Diluted earnings per ordinary share is calculated by dividing the basic earnings by
\n
the weighted average number of ordinary shares outstanding plus the weighted average number of ordinary shares that would be
\n
issued on conversion of dilutive share options and convertible securities. The assessment of whether the effect of share options and
\n
convertible securities is dilutive or not, is based on the earnings from continuing operations.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Earnings
\n
Profit/(loss) from continuing operations attributable to ordinary shareholders
3,602
2,486
(946)
\n
(Loss)/profit from discontinued operations attributable to ordinary shareholders
(262)
464
193
\n
Profit/(loss) attributable to ordinary shareholders
3,340
2,950
(753)
\n
Weighted average number of shares (millions)
\n
Weighted average number of ordinary shares outstanding during the year
9,872
10,792
11,231
\n
Effect of dilutive share options and convertible securities
(1)
57
45
\u2014
\n
Diluted weighted average number of ordinary shares outstanding during the year
9,929
10,837
11,231
\n
(1)
As there was a loss from continuing operations attributable to the parent company for the period to 31 December 2020, the effect of share options and convertible securities was
\n
not dilutive.
\n
(2)
At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation. On 30 August 2022 the issued
\n
ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares and earnings per share have been adjusted
\n
retrospectively.
\n
10 Financial instruments \u2013 classification
\n
Financial instruments are contracts that give rise to a financial asset of one entity and a corresponding financial liability or equity
\n
instrument of a counterparty entity, such as: cash; derivatives; loans; deposits; and settlement balances.
This note presents
\n
financial instruments classified in accordance with IFRS 9 \u2013 Financial Instruments.
\n
Judgment: classification of financial assets
\n
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
\n
judgment in respect of business models and contractual cashflows.
\n
\ue001
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held
\n
to collect and sell. Information that is considered in determining the applicable business model includes the portfolio\u2019s policies
\n
and objectives, how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
\n
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
\n
\ue001
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent
\n
solely payments of principal and interest. A level of judgment is made in assessing terms that could change the contractual
\n
cash flows so that it would not meet the condition for solely payments of principal and interest, including contingent and
\n
leverage features,
non
-recourse arrangements and features that could modify the time value of money.
\n
We originate loans that include features that change the contractual cash flows based on the borrower meeting certain
\n
contractually specified environmental, social and governance (ESG) targets. These are known as ESG-linked (or sustainability-
\n
linked) loans. As part of the terms of these loans, the contractual interest rate is reduced or increased if the borrower meets (fails
\n
to meet) specific targets linked to the activity of the borrower for example reducing carbon emissions, increase the level of
\n
diversity at Board level, sustainable supply chain, etc. ESG features are first assessed to ascertain whether the adjustment to the
\n
contractual cash flows results in a de minimis exposure to risks or volatility in those contractual cash flows. If this is the case the
\n
classification of the loan is not affected. If the effect of the ESG feature is assessed as being more than de minimis, we apply
\n
judgement to ensure that the ESG features do not generate compensation for risks that are not in line with a basic lending
\n
arrangement. This includes amongst other aspects a review of the consistency of the ESG targets with the asset or activity of the
\n
borrower, consideration of the targets within our risk appetite etc. Some of these loans are an integral part of our climate and
\n
sustainable funding and financing target disclosed on page 25.
\n
For accounting policy information see Accounting policies notes 3.8, 3.9, 3.10 and 3.12.
\n
\n
\n
Judgment: classification of financial assets
\n
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
\n
MFVTPL
FVOCI
Amortised cost
Other assets
Total
\n
Assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
144,832
\n
Trading assets
45,577
45,577
\n
Derivatives
(1)
99,545
99,545
\n
Settlement balances
2,572
2,572
\n
Loans to bank - amortised cost
(2)
7,139
7,139
\n
Loans to customers - amortised cost
(3)
366,340
366,340
\n
Other financial assets
(4)
787
16,973
13,135
30,895
\n
Intangible assets
7,116
7,116
\n
Other assets
9,176
9,176
\n
Assets of disposal groups
(5)
6,861
6,861
\n
31 December 2022
145,909
16,973
534,018
23,153
720,053
\n
Cash and balances at central banks
177,757
177,757
\n
Trading assets
59,158
59,158
\n
Derivatives
(1)
106,139
106,139
\n
Settlement balances
2,141
2,141
\n
Loans to bank - amortised cost
(2)
7,682
7,682
\n
Loans to customers - amortised cost
(3)
358,990
358,990
\n
Other financial assets
317
37,266
8,562
46,145
\n
Intangible assets
6,723
6,723
\n
Other assets
8,242
8,242
\n
Assets of disposal groups
9,015
9,015
\n
31 December 2021
165,614
37,266
555,132
23,980
781,992
\n
Held-for-trading
DFV
Amortised cost
Other liabilities
Total
\n
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank deposits
(6)
20,441
20,441
\n
Customer deposits
450,318
450,318
\n
Settlement balances
2,012
2,012
\n
Trading liabilities
52,808
52,808
\n
Derivatives
(1)
94,047
94,047
\n
Other financial liabilities
(7)
2,377
46,730
49,107
\n
Subordinated liabilities
345
5,915
6,260
\n
Notes in circulation
3,218
3,218
\n
Other liabilities
(8)
1,205
4,141
5,346
\n
31 December 2022
146,855
2,722
529,839
4,141
683,557
\n
Bank deposits
(6)
26,279
26,279
\n
Customer deposits
479,810
479,810
\n
Settlement balances
2,068
2,068
\n
Trading liabilities
64,598
64,598
\n
Derivatives
(1)
100,835
100,835
\n
Other financial liabilities
(7)
1,671
47,655
49,326
\n
Subordinated liabilities
703
7,726
8,429
\n
Notes in circulation
3,047
3,047
\n
Other liabilities
(8)
1,356
4,441
5,797
\n
31 December 2021
165,433
2,374
567,941
4,441
740,189
\n
(1)
Includes net hedging derivatives assets of \u00a3143 million (2021 - \u00a344 million) and net hedging derivatives liabilities of \u00a3132 million (2021 - \u00a3120 million).
\n
(2)
Includes items in the course of collection from other banks of \u00a3229 million (2021 - \u00a367 million).
\n
(3)
Includes finance lease receivables of \u00a38,402 million (2021 - \u00a38,531 million).
\n
(4)
Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio. Refer to Note 8 for further information.
\n
(5)
Includes \u00a35,397 million of assets of disposal groups reclassified from amortised cost to FVTPL during the year. The portfolio is classified as level 3 in the fair value hierarchy.
\n
(6)
Includes items in the course of transmission to other banks of \u00a3242 million (2021 - \u00a356 million).
\n
(7)
The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been
\n
recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively.
\n
(8)
Includes lease liabilities of \u00a31,118 million (2021 - \u00a31,263 million) held at amortised cost.
\n
\n
\n
Reclassification of mortgages from amortised cost to fair value through profit or loss
\n
In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in
\n
both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting
\n
the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions
\n
around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups.
\n
The effect of the reclassification as at 1 July 2022 is shown below:
\n
Amortised cost
MFVTPL
Change in value
\n
\u00a3m
\u00a3m
\u00a3m
\n
Amounts reclassified on balance sheet
\n
Loans to customers
(1)
587
606
19
\n
Assets of disposal groups
(2)
10,676
10,383
(293)
\n
11,263
10,989
(274)
\n
(1)
Change in value recognised in continuing operations.
\n
(2)
Change in value recognised in discontinued operations.
\n
Additional information on finance lease receivables
\n
The following table shows the reconciliation of undiscounted finance lease receivables to net investment in finance leases:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Amount receivable under finance leases
\n
Within 1 year
3,235
3,272
\n
1 to 2 years
2,254
2,044
\n
2 to 3 years
1,388
1,443
\n
3 to 4 years
833
757
\n
4 to 5 years
411
429
\n
After 5 years
1,130
1,423
\n
Lease payments total
9,251
9,368
\n
Unguaranteed residual values
171
225
\n
Future drawdowns
(13)
(21)
\n
Unearned income
(889)
(891)
\n
Present value of lease payments
8,520
8,681
\n
Impairments
(118)
(150)
\n
Net investment in finance leases
8,402
8,531
\n
Additional information on reverse repos and repos
\n
The following table shows the value of reverse repos and repos included within the below balance sheet captions:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Reverse repos
\n
Trading assets
21,537
20,742
\n
Loans to banks - amortised cost
277
189
\n
Loans to customers - amortised cost
19,750
25,962
\n
Repos
\n
Bank deposits
1,446
7,912
\n
Customer deposits
9,829
14,541
\n
Trading liabilities
23,740
19,389
\n
\n
\n
Interest rate benchmark reform
\n
NatWest Group continues to work on the transition of USD IBOR exposures to risk free rates in advance of the cessation date of 30
\n
June 2023. Derivatives are expected to transition during April and May 2023 and other exposures in line with fallback provisions or
\n
deferred switches using widely accepted methodologies. The instruments yet to transition reflect an insignificant element of
\n
NatWest Group\u2019s exposures. Instruments with exposures to other rates transitioned at the end of 2021, or at the first contractual
\n
reset date, or at a date agreed with the counterparty.
\n
The level of exposures without explicit or agreed conversion provisions as of the preceding year were as follows:
\n
Rates subject to IBOR reform
\n
GBP LIBOR
USD IBOR
Other IBOR
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets
62
90
\u2014
152
\n
Loans to banks - amortised cost
\u2014
11
\u2014
11
\n
Loans to customers - amortised cost
4,788
4,565
267
9,620
\n
Other financial assets
864
768
\u2014
1,632
\n
Bank deposits
\u2014
37
\u2014
37
\n
Trading liabilities
31
166
\u2014
197
\n
Other financial liabilities
2,390
7,023
131
9,544
\n
Subordinated liabilities
\u2014
90
\u2014
90
\n
Loan commitments
(1)
1,016
6,366
55
7,437
\n
Derivatives notional (\u00a3bn)
4
1,152
\u2014
1,156
\n
(1)
Certain loan commitments are multi-currency facilities. Where these are fully undrawn, they are allocated to the principal currency of the facility. Where the facilities are partly
\n
drawn, the remaining loan commitment is allocated to the currency with the largest drawn amount.
\n
At 31 December 2021, NatWest Group held certain currency swaps with both legs subject to IBOR reform, for which only the GBP
\n
LIBOR leg has an explicit or agreed conversion provisions as of 31 December 2021, but not the entire contract. These include
\n
currency swaps of GBP LIBOR of \u00a38.7 billion with USD IBOR \u00a38.2 billion and Other IBOR \u00a30.5 billion; currency swaps of USD IBOR
\n
of \u00a3117 billion with GBP LIBOR \u00a391.7 billion and Other IBOR \u00a325.3 billion; currency swaps of EURIBOR of \u00a30.1 billion with GBP
\n
LIBOR \u00a30.1 billion; currency swaps of Other IBOR of \u00a30.4 billion with USD IBOR \u00a30.4 billion
\n
AT1 issuances
\n
NatWest Group has issued certain capital instruments, AT1, under which reset clauses are linked to IBOR rates subject to reform.
\n
Where under the contractual terms of the instrument the coupon resets to a rate which has IBOR as a specified component of its
\n
pricing structure, these are subject to IBOR reform and listed below:
\n
31 December
\n
2021
\n
\u00a3m
\n
US$1.15 billion 8% notes
734
\n
\n
\n
Financial instruments \u2013 financial assets and liabilities that can be offset
\n
The tables below present information on financial assets and financial liabilities that are offset on the balance sheet under IFRS or
\n
subject to enforceable master netting agreements together with financial collateral received or given.
\n
Instruments which can be offset
Potential for offset not recognised by IFRS
\n
Gross
\n
IFRS offset
\n
Balance sheet
\n
Effect of
\n
master netting
\n
and similar
\n
agreements
\n
Cash
\n
collateral
\n
Securities
\n
collateral
\n
Net amount after the
\n
effect of netting
\n
agreements and
\n
related collateral
\n
Instruments
\n
outside netting
\n
agreements
\n
Balance
\n
sheet total
\n
2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Derivative assets
117,606
(18,730)
98,876
(77,365)
(14,079)
(4,571)
2,861
669
99,545
\n
Derivative liabilities
115,177
(22,111)
93,066
(77,365)
(9,761)
(1,185)
4,755
981
94,047
\n
Net position
(1)
2,429
3,381
5,810
\u2014
(4,318)
(3,386)
(1,894)
(312)
5,498
\n
Trading reverse repos
35,612
(14,510)
21,102
(2,445)
\u2014
(18,458)
199
435
21,537
\n
Trading repos
33,767
(14,510)
19,257
(2,445)
\u2014
(16,812)
\u2014
4,483
23,740
\n
Net position
1,845
\u2014
1,845
\u2014
\u2014
(1,646)
199
(4,048)
(2,203)
\n
Non trading reverse repos
25,630
(5,702)
19,928
\u2014
\u2014
(19,928)
\u2014
98
20,026
\n
Non trading repos
16,977
(5,702)
11,275
\u2014
\u2014
(11,275)
\u2014
\u2014
11,275
\n
Net position
8,653
\u2014
8,653
\u2014
\u2014
(8,653)
\u2014
98
8,751
\n
2021
\n
Derivative assets
113,220
(7,961)
105,259
(85,006)
(15,035)
(2,428)
2,790
880
106,139
\n
Derivative liabilities
108,594
(8,568)
100,026
(85,006)
(9,909)
(2,913)
2,198
809
100,835
\n
Net position
(1)
4,626
607
5,233
\u2014
(5,126)
485
592
71
5,304
\n
Trading reverse repos
44,529
(24,422)
20,107
(900)
\u2014
(19,136)
71
635
20,742
\n
Trading repos
42,664
(24,422)
18,242
(900)
\u2014
(17,341)
1
1,147
19,389
\n
Net position
1,865
\u2014
1,865
\u2014
\u2014
(1,795)
70
(512)
1,353
\n
Non trading reverse repos
33,729
(7,594)
26,135
\u2014
\u2014
(26,135)
\u2014
16
26,151
\n
Non trading repos
30,047
(7,594)
22,453
\u2014
\u2014
(22,453)
\u2014
\u2014
22,453
\n
Net position
3,682
\u2014
3,682
\u2014
\u2014
(3,682)
\u2014
16
3,698
\n
(1)
The net IFRS offset balance of \u00a33,381 million (2021 - \u00a3607 million) relates to variation margin netting reflected on other balance sheet lines.
\n
\n
11 Financial instruments - valuation
\n
Financial instruments recognised at fair value are revalued using techniques that can include observable inputs (pricing information
\n
that is readily available in the market, for example UK Government securities), and unobservable inputs (pricing information that is
\n
not readily available, for example unlisted securities). Gains and losses are recognised in the income statement and statement of
\n
comprehensive income as appropriate.
This note presents information on the valuation of financial instruments.
\n
The table below provides an overview of the various sections contained within the note.
\n
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
\n
Valuation
\n
Fair value hierarchy
\n
Financial instruments carried at fair value have been classified
\n
under the fair value hierarchy. The classification ranges from
\n
level 1 to level 3, with more expert judgment and price
\n
uncertainty for those classified at level 3.
\n
The determination of an instrument\u2019s level cannot be made at
\n
a global product level as a single product type can be in more
\n
than one level. For example, a single name corporate credit
\n
default swap could be in level 2 or level 3 depending on the
\n
level of market activity for the referenced entity
.
\n
Level 1 \u2013 instruments valued using unadjusted quoted prices in
\n
active and liquid markets, for identical financial instruments.
\n
Examples include government bonds, listed equity shares and
\n
certain exchange-traded derivatives.
\n
Level 2 - instruments valued using valuation techniques that
\n
have observable inputs. Observable inputs are those that are
\n
readily available with limited adjustments required. Examples
\n
include most government agency securities, investment-grade
\n
corporate bonds, certain mortgage products - including CLOs,
\n
most bank loans, repos and reverse repos, state and municipal
\n
obligations, most notes issued, certain money market
\n
securities, loan commitments and most OTC derivatives.
\n
Level 3 - instruments valued using a valuation technique where
\n
at least one input which could have a significant effect on the
\n
instruments valuation, is not based on observable market data.
\n
Examples include non-derivative instruments which trade
\n
infrequently, certain syndicated and commercial mortgage
\n
loans, private equity, and derivatives with unobservable model
\n
inputs.
\n
Page
\n
Financial instruments
\n
Critical accounting policy: Fair value
339
\n
Valuation
\n
Fair value hierarchy
(D)
339
\n
Valuation techniques
(D)
340
\n
Inputs to valuation models
(D)
340
\n
Valuation control
(D)
340
\n
Key areas of judgment
(D)
341
\n
Table of assets and liabilities split by fair value
\n
hierarchy level
(T)
342
\n
Valuation adjustments
\n
Table of fair value adjustments made
(T)
343
\n
Funding valuation adjustments (FVA)
(D)
343
\n
Credit valuation adjustments (CVA)
(D)
343
\n
Bid-offer
(D)
343
\n
Product and deal specific
(D)
343
\n
Own credit
(D)
343
\n
Level 3 additional information
\n
Level 3 ranges of unobservable inputs
(D)
344
\n
Table of level 3 instruments, valuation
\n
techniques and inputs
(T)
344
\n
Level 3 sensitivities
(D)
345
\n
Alternative assumptions
(D)
345
\n
Other considerations
(D)
345
\n
Table of high and low range of fair value of
\n
level 3 assets and liabilities
(T)
345
\n
Movement in level 3 assets and liabilities
\n
over the reporting period
(D)
346
\n
Table of the movement in level 3 assets and liabilities
346
\n
Fair value of financial instruments measured
\n
at amortised cost
\n
Table showing the fair value of financial instruments
\n
measured at amortised cost on the balance sheet
(T)
347
\n
(D) = Descriptive; (T) = Table
\n
\n
\n
\n
Valuation techniques
\n
NatWest Group derives the fair value of its instruments
\n
differently depending on whether the instrument is a non-
\n
modelled or a modelled product.
\n
Non-modelled products
are valued directly from a price input,
\n
typically on a position-by-position basis. Examples include
\n
equities and most debt securities.
\n
Non-modelled products can fall into any fair value levelling
\n
hierarchy depending on the observable market activity,
\n
liquidity, and assessment of valuation uncertainty of the
\n
instruments. The assessment of fair value and the classification
\n
of the instrument to a fair value level is subject to the valuation
\n
controls discussed in the Valuation control section.
\n
Modelled products
valued using a pricing model range in
\n
complexity from comparatively vanilla products such as interest
\n
rate swaps and options (e.g., interest rate caps and floors)
\n
through to more complex derivatives (e.g., balance guarantee
\n
swaps).
\n
For modelled products the fair value is derived using the model
\n
and the appropriate model inputs or parameters, as opposed to
\n
a cash price equivalent. Model inputs are taken either directly
\n
or indirectly from available data, where some inputs are also
\n
modelled.
\n
Fair value classification of modelled instruments is either level 2
\n
or level 3, depending on the product/model combination, the
\n
observability and quality of input parameters and other factors.
\n
All these must be assessed to classify a position. The modelled
\n
product is assigned to the lowest fair value hierarchy level of
\n
any significant input used in that valuation.
\n
Most derivative instruments, for example vanilla interest rate
\n
swaps, foreign exchange swaps and liquid single name credit
\n
derivatives, are classified as level 2. This is because they are
\n
vanilla products valued using standard market models and with
\n
observable inputs. Level 2 products range from vanilla to more
\n
complex products, where more complex products remain
\n
classified as level 2 due to the low materiality of any
\n
unobservable inputs.
\n
Inputs to valuation models
\n
When using valuation techniques, the fair value can be
\n
significantly affected by the choice of valuation model and
\n
underlying assumptions. Factors considered include the
\n
cashflow amounts and timing of those cash flows, and
\n
application of appropriate discount rates, incorporating both
\n
funding and credit risk. Values between and beyond available
\n
data points are obtained by interpolation and extrapolation.
\n
The principal inputs to these valuation techniques are as
\n
follows:
\n
Bond prices - quoted prices are generally available for
\n
government bonds, certain corporate securities, and some
\n
mortgage-related products.
\n
Credit spreads - these express the return required over a
\n
benchmark rate or index to compensate for the referenced
\n
credit risk. Where available, these are derived from the price of
\n
credit default swaps or other credit-based instruments, such as
\n
debt securities. When direct prices are not available; credit
\n
spreads are determined with reference to available prices of
\n
entities with similar characteristics.
\n
Interest rates - these are principally based on interest rate
\n
swap prices referencing benchmark interest rates. Benchmark
\n
rates include Interbank Offered Rates (IBOR) and the Overnight
\n
Index Swap (OIS) rate, including SONIA (Sterling Overnight
\n
Interbank Average Rate). Other quoted interest rates may also
\n
be used from both the bond, and futures markets.
\n
Foreign currency exchange rates - there are observable prices
\n
both for spot and forward contracts and futures in the world's
\n
major currencies.
\n
Equity and equity index prices - quoted prices are generally
\n
readily available for equity shares listed on the world's major
\n
stock exchanges and for major indices on such shares.
\n
Price volatilities and correlations - volatility is a measure of the
\n
tendency of a price to change with time. Correlation measures
\n
the degree which two or more prices or variables are observed
\n
to move together. Variables that move in the same direction
\n
show positive correlation; those that move in opposite
\n
directions are negatively correlated.
\n
Prepayment rates - rates used to reflect how fast a pool of
\n
assets prepay. The fair value of a financial instrument that can
\n
be prepaid by the issuer or borrower differs from that of an
\n
instrument that cannot be prepaid. When valuing prepayable
\n
instruments, the value of this prepayment option is considered.
\n
Recovery rates/loss given default - these are used as an input
\n
to valuation models and reserves for asset-backed securities
\n
and other credit products as an indicator of severity of losses
\n
on default. Recovery rates are primarily sourced from market
\n
data providers, the value of the underlying collateral or inferred
\n
from observable credit spreads.
\n
Valuation control
\n
NatWest Group's control environment for the determination of
\n
the fair value of financial instruments includes formalised
\n
procedures for the review and validation of fair values. This
\n
review is performed by an independent price verification (IPV)
\n
team.
\n
IPV is a key element of the control environment. Valuations are
\n
first performed by the business which entered into the
\n
transaction. These valuations are then reviewed by the IPV
\n
team, independent of those trading the financial instruments, in
\n
light of available pricing evidence.
\n
Independent pricing data is collated from a range of sources.
\n
Each source is reviewed for quality and the independent data
\n
applied in the IPV processes using a formalised input quality
\n
hierarchy. Consensus services are one source of independent
\n
data and encompass interest rate, currency, credit, and bond
\n
markets, providing comprehensive coverage of vanilla products
\n
and a wide selection of exotic products.
\n
Where measurement differences are identified through the IPV
\n
process these are grouped by the quality hierarchy of the
\n
independent data. If the size of the difference exceeds defined
\n
thresholds, an adjustment is made to bring the valuation to
\n
within the independently calculated fair value range.
\n
IPV takes place at least monthly, for all fair value financial
\n
instruments. The IPV control includes formalised reporting and
\n
escalation of any valuation differences in breach of established
\n
thresholds.
\n
\n
The quality and completeness of the information gathered in
\n
the IPV process gives an indication as to the liquidity and
\n
valuation uncertainty of an instrument and forms part of the
\n
information considered when determining fair value hierarchy
\n
classifications.
\n
Initial fair value level classification of a financial instrument is
\n
carried out by the IPV team. These initial classifications are
\n
subject to senior management review. Particular attention is
\n
paid to instruments transferring from one level to another, new
\n
instrument classes or products, instruments where the
\n
transaction price is significantly different from the fair value
\n
and instruments where valuation uncertainty is high.
\n
Valuation Committees are made up of valuation specialists and
\n
senior business representatives from various functions and
\n
oversees pricing, reserving and valuations issues. These
\n
committees meet monthly to review and ratify any
\n
methodology changes. The Executive Valuation Committee
\n
meets quarterly to address key material and subjective
\n
valuation issues, to review items escalated by Valuation
\n
Committees and to discuss other relevant industry matters.
\n
The Group model risk policy sets the policy for model
\n
documentation, testing and review. Governance of the model
\n
risk policy is carried out by the Group model risk oversight
\n
committee, which comprises model risk owners and
\n
independent model experts. All models are required to be
\n
independently validated in accordance with the Model Risk
\n
Policy.
\n
Key areas of judgment
\n
Over the years the business has simplified, with most products
\n
classified as level 1 or 2 of the fair value hierarchy. However,
\n
the diverse range of products historically traded by NatWest
\n
Group means some products remain classified as level 3. Level
\n
3 indicates a significant level of pricing uncertainty, where
\n
expert judgment is used. As such, extra disclosures are
\n
required in respect of level 3 instruments
.
\n
In general, the degree of expert judgment used and hence
\n
valuation uncertainty depends on the degree of liquidity of an
\n
instrument or input.
\n
Where markets are liquid, little judgment is required. However,
\n
when the information regarding the liquidity in a particular
\n
market is not clear, a judgment may need to be made. For
\n
example, for an equity traded on an exchange, daily volumes of
\n
trading can be seen, but for an over the counter (OTC)
\n
derivative, assessing the liquidity of the market with no central
\n
exchange is more challenging.
\n
A key related matter is where a market moves from liquid to
\n
illiquid or vice versa. Where this movement is considered
\n
temporary, the fair value level is not changed. For example, if
\n
there is little market trading in a product on a reporting date
\n
but at the previous reporting date and during the intervening
\n
period the market has been liquid. In this case, the instrument
\n
will continue to be classified at the same level in the hierarchy.
\n
This is to provide consistency so that transfers between levels
\n
are driven by genuine changes in market liquidity and do not
\n
reflect short term or seasonal effects. Material movements
\n
between levels are reviewed quarterly by the Business and IPV.
\n
The breadth and depth of the IPV data allows for a rules-based
\n
quality assessment to be made of market activity, liquidity, and
\n
pricing uncertainty, which assists with the process of allocation
\n
to an appropriate level. Where suitable independent pricing
\n
information is not readily available, the quality assessment will
\n
result in the instrument being assessed as level 3.
\n
\n
\n
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered
\n
the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price
\n
uncertainty.
\n
2022
2021
\n
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
\u2014
35,260
395
35,655
\u2014
33,482
721
34,203
\n
Securities
7,463
2,458
1
9,922
19,563
5,371
21
24,955
\n
Derivatives
5
98,533
1,007
99,545
\u2014
105,222
917
106,139
\n
Other financial assets
\n
Loans
\u2014
172
727
899
\u2014
359
207
566
\n
Securities
10,380
6,278
203
16,861
28,880
7,951
186
37,017
\n
Total financial assets held at fair value
17,848
142,701
2,333
162,882
48,443
152,385
2,052
202,880
\n
As % of total fair value assets
11%
88%
1%
24%
75%
1%
\n
Liabilities
\n
Trading liabilities
\n
Deposits
\u2014
42,486
1
42,487
\u2014
38,658
2
38,660
\n
Debt securities in issue
\u2014
797
\u2014
797
\u2014
974
\u2014
974
\n
Short positions
7,462
2,062
\u2014
9,524
20,507
4,456
1
24,964
\n
Derivatives
2
93,070
975
94,047
\u2014
100,229
606
100,835
\n
Other financial liabilities
\n
Debt securities in issue
\u2014
1,327
\u2014
1,327
\u2014
1,103
\u2014
1,103
\n
Other deposits
\u2014
1,050
\u2014
1,050
\u2014
568
\u2014
568
\n
Subordinated liabilities
\u2014
345
\u2014
345
\u2014
703
\u2014
703
\n
Total financial liabilities held at fair value
7,464
141,137
976
149,577
20,507
146,691
609
167,807
\n
As % of total fair value liabilities
5%
94%
1%
12%
88%
0%
\n
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
\n
(2)
For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
\n
management \u2013 Credit risk.
\n
\n
Valuation adjustments
\n
When valuing financial instruments in the trading book,
\n
adjustments are made to mid-market valuations to cover bid-
\n
offer spread, funding and credit risk. These adjustments are
\n
presented in the table below:
\n
Adjustment
\n
2022
\n
\u00a3m
\n
2021
\n
\u00a3m
\n
Funding \u2013 FVA
173
90
\n
Credit \u2013 CVA
300
390
\n
Bid \u2013 Offer
130
113
\n
Product and deal specific
141
119
\n
744
712
\n
Funding valuation adjustments on the group defined benefit
\n
pension plan increased during the year, primarily driven by
\n
increases in GBP interest rates.
\n
The decrease in CVA was driven by a reduction in exposures,
\n
primarily due to increases in interest rates and trade exit
\n
activity, partially offset by the net impact of credit spreads
\n
widening and specific counterparty activity. The increase in
\n
bid-offer was driven by the net impact of risk changes, wider
\n
bid-offer spreads and an increase in the estimated costs of
\n
exiting certain less liquid risks. The increase in product and
\n
deal specific was driven by credit spreads widening and
\n
specific counterparty activity.
\n
Funding valuation adjustments (FVA)
\n
FVA represents an estimate of the adjustment that a market
\n
participant would make to incorporate funding costs and
\n
benefits that arise in relation to derivative exposures. FVA is
\n
calculated as a portfolio level adjustment and can result in
\n
either a funding charge (positive) or funding benefit (negative).
\n
Funding levels are applied to estimated potential future
\n
exposures. For uncollateralised derivatives, the exposure
\n
reflects the future valuation of the derivative. For collateralised
\n
derivatives, the exposure reflects the difference between the
\n
future valuation of the derivative and the level of collateral
\n
posted.
\n
Credit valuation adjustments (CVA)
\n
CVA represents an estimate of the adjustment to fair value that
\n
is made to incorporate the counterparty credit risk inherent in
\n
derivative exposures. CVA is actively managed by a credit and
\n
market risk hedging process, and therefore movements in CVA
\n
are partially offset by trading revenue on the hedges.
\n
The CVA is calculated on a portfolio basis reflecting an
\n
estimate of the amount a third party would charge to assume
\n
the credit risk.
\n
Collateral held under a credit support agreement is factored
\n
into the CVA calculation. In such cases where NatWest Group
\n
holds collateral against counterparty exposures, CVA is held to
\n
the extent that residual risk remains.
\n
Bid-offer
\n
Fair value positions are required to be marked to exit,
\n
represented by bid (long positions) or offer (short positions)
\n
levels. Non-derivative positions are typically marked directly to
\n
bid or offer prices. However derivative exposures are adjusted
\n
to exit levels by taking bid-offer reserves calculated on a
\n
portfolio basis. The bid-offer approach is based on current
\n
market spreads and standard market bucketing of risk.
\n
Bid-offer spreads vary by maturity and risk type to reflect
\n
different spreads in the market. For positions where there is no
\n
observable quote, the bid-offer spreads are widened in
\n
comparison to proxies to reflect reduced liquidity or
\n
observability.
\n
Netting is applied on a portfolio basis to reflect the value at
\n
which NatWest Group believes it could exit the net risk of the
\n
portfolio, rather than the sum of exit costs for each of the
\n
portfolio\u2019s individual trades. This is applied where the asset and
\n
liability positions are managed as a portfolio for risk and
\n
reporting purposes.
\n
Product and deal specific
\n
On initial recognition of financial assets and liabilities valued
\n
using valuation techniques which have a significant
\n
dependence on information other than observable market data,
\n
any difference between the transaction price and that derived
\n
from the valuation technique is deferred. Such amounts are
\n
recognised in the income statement over the life of the
\n
transaction; when market data becomes observable; or when
\n
the transaction matures or is closed out as appropriate. On 31
\n
December 2022, net gains of \u00a374 million (2021 - \u00a371 million)
\n
were carried forward. During the year, net gains of \u00a397 million
\n
(2021 - \u00a3103 million) were deferred and \u00a394 million (2021 - \u00a394
\n
million) were recognised in the income statement.
\n
Where system generated valuations do not accurately reflect
\n
market prices, manual valuation adjustments are applied either
\n
at a position or portfolio level. Manual adjustments are subject
\n
to the scrutiny of independent control teams and are subject to
\n
monthly review by senior management.
\n
Own Credit
\n
NatWest Group considers the effect of its own credit standing
\n
when valuing financial liabilities recorded at fair value. Own
\n
credit spread adjustments are made when valuing issued debt
\n
held at fair value, including issued structured notes. An own
\n
credit adjustment is applied to positions where it is believed
\n
that counterparties would consider NatWest Group\u2019s
\n
creditworthiness when pricing trades.
\n
\n
\n
Level 3 additional information
\n
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
\n
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
\n
with significant unobservable inputs or modelling parameters.
\n
Level 3 ranges of unobservable inputs
\n
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
\n
fair value calculation, the unobservable input and input range.
\n
2022
2021
\n
Financial instrument
Valuation technique
Unobservable inputs
Units
Low
High
Low
High
\n
Trading assets and Other financial assets
\n
Loans
Price-based
Price
%
\u2014
113
\u2014
106
\n
Discount cash flow
Credit spreads
bps
56
114
40
102
\n
Discount cash flow
Discount margin
bps
\u2014
\u2014
46
55
\n
Debt securities
Price-based
Price
%
\n
\u2014
255
\u2014
240
\n
Equity Shares
Price-based
Price
GBP
\u2014
34,027
\u2014
30,378
\n
Price-based
Price
%
\u2014
30
\u2014
7
\n
Discount cash flow
Discount margin
%
6
8
6
8
\n
Net asset valuation
Fund NAV
%
80
120
80
120
\n
Derivative assets and liabilities
\n
Credit derivatives
Credit derivative pricing
Credit spreads
bps
7
530
6
635
\n
Option pricing
Correlation
%
(15)
95
(15)
95
\n
Volatility
%
30
80
30
108
\n
Upfront points
%
\u2014
99
\u2014
100
\n
Recovery rate
%
\u2014
60
\u2014
60
\n
Interest rate & FX
Option pricing
Correlation
%
(50)
100
(50)
100
\n
derivatives
Volatility
%
30
127
17
77
\n
Constant Prepayment
\n
Rate
%
2
21
2
16
\n
Mean Reversion
%
\u2014
92
\u2014
92
\n
Inflation volatility
%
1
2
1
2
\n
Inflation rate
%
2
3
2
3
\n
(1)
Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
\n
earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV
\n
or similar measures.
\n
(2)
NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.
\n
\n
\n
Level 3 sensitivities
\n
The level 3 sensitivities presented below are calculated at a
\n
trade or low-level portfolio basis rather than an overall portfolio
\n
basis. As individual sensitivities are aggregated with no
\n
reflection of the correlated nature between instruments, the
\n
overall portfolio sensitivity may not be accurately reflected. For
\n
example, some portfolios may be negatively correlated to
\n
others, where a downwards movement in one asset would
\n
produce an upwards movement in another. However, due to
\n
the additive presentation of the above figures this correlation
\n
impact cannot be displayed. As such, the actual potential
\n
downside sensitivity of the total portfolio may be less than the
\n
non-correlated sum of the additive figures as shown in the
\n
below table.
\n
Alternative assumptions
\n
Reasonably plausible alternative assumptions of unobservable
\n
inputs are determined based on a specified target level of
\n
certainty of 90%.
\n
Alternative assumptions are determined with reference to all
\n
available evidence including consideration of the following:
\n
quality of independent pricing information considering
\n
consistency between different sources, variation over time,
\n
perceived tradability or otherwise of available quotes;
\n
consensus service dispersion ranges; volume of trading activity
\n
and market bias (e.g. one-way inventory); day 1 profit or loss
\n
arising on new trades; number and nature of market
\n
participants; market conditions; modelling consistency in the
\n
market; size and nature of risk; length of holding of position;
\n
and market intelligence.
\n
Other considerations
\n
Whilst certain inputs used to calculate CVA, FVA and own
\n
credit adjustments are not based on observable market data,
\n
the uncertainty of these inputs is not considered to have a
\n
significant effect on the net valuation of the related derivative
\n
portfolios and issued debt.
\n
As such, the fair value levelling of the derivative portfolios and
\n
issued debt is not determined by CVA, FVA or own credit
\n
inputs. In addition, any fair value sensitivity driven by these
\n
inputs is not included in the level 3 sensitivities presented.
\n
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
\n
fair value inputs as described in the previous table.
\n
2022
2021
\n
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
395
10
(10)
721
10
(10)
\n
Securities
1
\u2014
\u2014
21
\u2014
\u2014
\n
Derivatives
1,007
50
(50)
917
60
(70)
\n
Other financial assets
\n
Loans
727
\u2014
(10)
207
10
(10)
\n
Securities
203
20
(30)
186
20
(20)
\n
2,333
80
(100)
2,052
100
(110)
\n
Liabilities
\n
Trading liabilities
\n
Deposits
1
\u2014
\u2014
2
\u2014
\u2014
\n
Debt securities in issue
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Short positions
\u2014
\u2014
\u2014
1
\u2014
\n
Derivatives
975
30
(30)
606
30
(30)
\n
976
30
(30)
609
30
(30)
\n
\n
\n
Movement in level 3 assets and liabilities
\n
The following table shows the movement in level 3 assets and liabilities in the year.
\n
2022
2021
\n
Trading
\n
assets (2)
\n
Other financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
Trading
\n
assets (2)
\n
Other
\n
financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
1,658
394
2,052
609
1,388
335
1,723
894
\n
Amounts recorded in the income statement
(1)
157
(14)
143
381
(93)
(29)
(122)
(90)
\n
Amounts recorded in the statement of
\n
comprehensive income
\u2014
(20)
(20)
\u2014
\u2014
23
23
\u2014
\n
Level 3 transfers in
194
532
726
81
125
3
128
20
\n
Level 3 transfers out
(269)
(68)
(337)
(64)
(104)
(6)
(109)
(168)
\n
Purchases/originations
629
185
814
382
965
452
1,416
305
\n
Settlements/other decreases
(115)
\u2014
(115)
(41)
(47)
(364)
(411)
(28)
\n
Sales
(857)
(101)
(958)
(378)
(573)
(17)
(590)
(321)
\n
Foreign exchange and other
6
22
28
6
(3)
(3)
(6)
(3)
\n
At 31 December
1,403
930
2,333
976
1,658
394
2,052
609
\n
Amounts recorded in the income statement in respect
\n
of balances held at year end:
\n
- unrealised
157
(16)
141
381
(93)
(32)
(126)
(90)
\n
(1)
There were \u00a3224 million net losses on trading assets and liabilities (2021 \u2013 \u00a33 million net losses) recorded in income from trading activities. Net losses on other instruments of \u00a314
\n
million (2021 \u2013 \u00a329 million net losses) were recorded in other operating income and interest income as appropriate.
\n
(2)
Trading assets comprise assets held at fair value in trading portfolios.
\n
(3)
Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
\n
\n
\n
Fair value of financial instruments measured at amortised cost on the balance sheet
\n
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
\n
sheet.
\n
Fair value hierarchy level
\n
Carrying
Fair
\n
Items where fair value
\n
approximates carrying
\n
value
\n
value
value
Level 1
Level 2
Level 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
144.8
\n
Settlement balances
2.6
\n
Loans to banks
0.1
7.0
7.0
\u2014
4.2
2.8
\n
Loans to customers
366.3
354.5
\u2014
20.3
334.2
\n
Other financial assets - securities
13.1
12.8
3.6
3.2
6.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
177.8
\n
Settlement balances
2.1
\n
Loans to banks
0.1
7.5
7.5
\u2014
5.0
2.5
\n
Loans to customers
359.0
354.1
\u2014
28.0
326.1
\n
Other financial assets - securities
8.6
8.6
4.4
0.7
3.5
\n
2022
\n
Financial liabilities
\n
Bank deposits
4.7
15.7
15.3
\u2014
13.1
2.2
\n
Customer deposits
407.0
43.3
43.3
\u2014
12.7
30.6
\n
Settlement balances
2.0
\n
Other financial liabilities - debt securities in issue
46.7
46.1
\u2014
40.7
5.4
\n
Subordinated liabilities
5.9
5.6
\u2014
5.5
0.1
\n
Notes in circulation
3.2
\n
2021
\n
Financial liabilities
\n
Bank deposits
4.9
21.4
21.0
\u2014
18.7
2.3
\n
Customer deposits
442.4
37.4
37.6
\u2014
18.1
19.5
\n
Settlement balances
2.1
\n
Other financial liabilities - debt securities in issue
47.7
48.6
\u2014
41.4
7.2
\n
Subordinated liabilities
7.7
8.3
\u2014
8.2
0.1
\n
Notes in circulation
3.0
\n
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are
\n
as follows:
\n
Short-term financial instruments
\n
For certain short-term financial instruments, including but not
\n
limited to; cash and balances at central banks, settlement
\n
balances, loans with short-term maturities, notes in circulation
\n
and customer demand deposits, carrying value is deemed a
\n
reasonable approximation of fair value.
\n
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
\n
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
\n
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
\n
\n
12 Financial instruments - maturity analysis
\n
Remaining maturity
\n
This note shows the maturity profile of NatWest Group\u2019s financial assets and liabilities by
contractual date of maturity and
\n
contractual cash flows.
\n
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
\n
2022
2021
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Cash and balances at central banks
144,832
\u2014
144,832
177,757
\u2014
177,757
\n
Trading assets
35,944
9,633
45,577
40,263
18,895
59,158
\n
Derivatives
38,107
61,438
99,545
34,538
71,601
106,139
\n
Settlement balances
2,572
\u2014
2,572
2,141
\u2014
2,141
\n
Loans to banks - amortised cost
6,872
267
7,139
7,425
257
7,682
\n
Loans to customers - amortised cost
84,289
282,051
366,340
103,689
255,301
358,990
\n
Other financial assets
6,128
24,767
30,895
11,151
34,994
46,145
\n
Liabilities
\n
Bank deposits
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer deposits
448,821
1,497
450,318
478,801
1,009
479,810
\n
Settlement balances
2,012
\u2014
2,012
2,068
\u2014
2,068
\n
Trading liabilities
42,760
10,048
52,808
41,664
22,934
64,598
\n
Derivatives
39,331
54,716
94,047
34,593
66,242
100,835
\n
Other financial liabilities
13,796
35,311
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
973
5,287
6,260
1,375
7,054
8,429
\n
Notes in circulation
3,218
\u2014
3,218
3,047
\u2014
3,047
\n
Lease liabilities
137
981
1,118
238
1,025
1,263
\n
Assets and liabilities by contractual cash flows up to 20
\n
years
\n
The tables on the following page, show the contractual
\n
undiscounted cash flows receivable and payable, up to a period
\n
of 20 years, including future receipts and payments of interest
\n
of financial assets and liabilities by contractual maturity. The
\n
balances in the following tables do not agree directly with the
\n
consolidated balance sheet, as the tables include all cash flows
\n
relating to principal and future coupon payments, presented on
\n
an undiscounted basis. The tables have been prepared on the
\n
following basis:
\n
Financial assets have been reflected in the time band of the
\n
latest date on which they could be repaid, unless earlier
\n
repayment can be demanded by NatWest Group. Financial
\n
liabilities are included at the earliest date on which the
\n
counterparty can require repayment, regardless of whether or
\n
not such early repayment results in a penalty. If the repayment
\n
of a financial instrument is triggered by, or is subject to, specific
\n
criteria such as market price hurdles being reached, the asset
\n
is included in the time band that contains the latest date on
\n
which it can be repaid, regardless of early repayment.
\n
The liability is included in the time band that contains the
\n
earliest possible date on which the conditions could be fulfilled,
\n
without considering the probability of the conditions being met.
\n
For example, if a structured note is automatically prepaid when
\n
an equity index exceeds a certain level, the cash outflow will be
\n
included in the less than three months period, whatever the
\n
level of the index at the year end. The settlement date of debt
\n
securities in issue, issued by certain securitisation vehicles
\n
consolidated by NatWest Group, depends on when cash flows
\n
are received from the securitised assets. Where these assets
\n
are prepayable, the timing of the cash outflow relating to
\n
securities assumes that each asset will be prepaid at the
\n
earliest possible date. As the repayments of assets and
\n
liabilities are linked, the repayment of assets in securitisations is
\n
shown on the earliest date that the asset can be prepaid, as
\n
this is the basis used for liabilities.
\n
The principal amounts of financial assets and liabilities that are
\n
repayable after 20 years or where the counterparty has no
\n
right to repayment of the principal are excluded from the table,
\n
as are interest payments after 20 years.
\n
The maturity of guarantees and commitments is based on the
\n
earliest possible date they would be drawn in order to evaluate
\n
NatWest Group\u2019s liquidity position.
\n
MFVTPL assets of \u00a3145.8 billion (2021 - \u00a3165.6 billion) and HFT
\n
liabilities of \u00a3146.7 billion (2021 - \u00a3165.3 billion) have been
\n
excluded from the following tables.
\n
\n
\n
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
144,832
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
130
345
28
41
(44)
43
\n
Settlement balances
2,572
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,254
1,621
17
288
\u2014
\u2014
\n
Loans to customers - amortised cost
50,923
43,417
76,278
55,128
85,038
100,085
\n
Other financial assets
(1)
2,771
4,507
8,391
7,835
5,706
2,524
\n
Finance lease
96
267
857
482
549
296
\n
206,578
50,157
85,571
63,774
91,249
102,948
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
6,690
1,445
5,662
8,503
89
\u2014
\n
Customer deposits
437,830
11,389
1,252
2
14
20
\n
Settlement balances
2,012
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
280
(371)
586
306
116
85
\n
Other financial liabilities
6,720
6,640
18,833
13,906
7,361
294
\n
Subordinated liabilities
96
1,073
2,690
1,897
1,541
328
\n
Other liabilities- Notes in circulation
3,218
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
41
113
260
203
318
254
\n
456,887
20,289
29,283
24,817
9,439
981
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
3,150
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,779
\u2014
\u2014
\u2014
\u2014
\u2014
\n
121,929
\u2014
\u2014
\u2014
\u2014
\u2014
\n
2021
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
177,757
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(23)
(32)
72
15
10
17
\n
Settlement balances
2,141
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,735
1,689
21
\u2014
\u2014
\u2014
\n
Loans to customers - amortised cost
65,760
43,144
63,979
45,057
73,044
90,115
\n
Other financial assets
(1)
3,924
7,576
10,467
8,048
7,444
5,523
\n
Finance lease
290
340
746
504
704
377
\n
255,584
52,717
75,285
53,624
81,202
96,032
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
13,292
421
566
12,003
\u2014
\u2014
\n
Customer deposits
473,123
5,440
1,155
73
4
19
\n
Settlement balances
2,068
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(57)
(31)
561
155
(152)
(198)
\n
Other financial liabilities
6,967
9,293
16,953
10,062
7,905
292
\n
Subordinated liabilities
66
1,604
3,481
2,170
1,496
563
\n
Other liabilities- Notes in circulation
3,047
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
74
161
220
167
281
251
\n
498,580
16,888
22,936
24,630
9,534
927
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
2,055
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,536
\u2014
\u2014
\u2014
\u2014
\u2014
\n
120,591
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(1)
Other financial assets exclude equity shares.
\n
(2)
NatWest Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. NatWest Group expects most guarantees it provides to expire
\n
unused.
\n
(3)
NatWest Group has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being
\n
met by the counterparty. NatWest Group does not expect all facilities to be drawn, and some may lapse before drawdown
.
NatWest Group
Annual Report and Accounts 2022
350
\n
\n
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
\n
\n
14 Derivatives
\n
Derivative is a term covering a wide range of financial instruments that derive their
fair value from an underlying rate or price, for
\n
example interest rates or exchange rates (the underlying). NatWest Group uses derivatives as a part of its trading activities, to
\n
manage its own risks such as interest rate, foreign exchange, or credit risk and in certain customer transactions. This note
shows
\n
contracted volumes of derivatives, how they are used for hedging purposes and more specifically the effects of the application of
\n
hedge accounting.
\n
For accounting policy information see Accounting policies note 3.8 and 3.12.
\n
2022
2021
\n
Notional
Assets
Liabilities
Notional
Assets
Liabilities
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Exchange rate contracts
3,168
45,829
45,237
3,167
38,517
39,286
\n
Interest rate contracts
10,742
53,480
48,535
8,919
67,458
61,206
\n
Credit derivatives
15
236
275
14
154
343
\n
Equity and commodity contracts
\u2014
\u2014
\u2014
\u2014
10
\u2014
\n
99,545
94,047
106,139
100,835
\n
NatWest Group applies hedge accounting to reduce the
\n
accounting mismatch caused in the income statement by using
\n
derivatives to hedge the following risks: interest rate, foreign
\n
exchange and the foreign exchange risk associated with net
\n
investment in foreign operations.
\n
NatWest Group\u2019s interest rate hedging relates to the
\n
management of NatWest Group\u2019s non-trading structural
\n
interest rate risk, caused by the mismatch between fixed
\n
interest rates and floating interest rates on its financial
\n
instruments. NatWest Group manages this risk within approved
\n
limits. Residual risk positions are hedged with derivatives,
\n
principally interest rate swaps.
\n
Suitable larger fixed rate financial instruments are subject to
\n
fair value hedging in line with documented risk management
\n
strategies
\n
Cash flow hedges of interest rate risk relate to exposures to the
\n
variability in future interest payments and receipts due to the
\n
movement of benchmark interest rates on forecast transactions
\n
and on financial assets and financial liabilities. This variability in
\n
cash flows is hedged by interest rate swaps, which convert
\n
variable cash flows into fixed. For these cash flow hedge
\n
relationships, the hedged items are actual and forecast variable
\n
interest rate cash flows arising from financial assets and
\n
financial liabilities with interest rates linked to the relevant
\n
benchmark rates, most notably USD LIBOR, SOFR, EURIBOR,
\n
SONIA and the Bank of England Official Bank Rate. The
\n
variability in cash flows due to movements in the relevant
\n
benchmark rate is hedged; this risk component is identified
\n
using the risk management systems of NatWest Group and
\n
encompasses the majority of cash flow variability risk.
\n
Fair value hedges of interest rate risk involve interest rate
\n
swaps transforming the fixed interest rate risk in financial
\n
assets and financial liabilities to floating. The hedged risk is the
\n
risk of changes in the hedged item\u2019s fair value attributable to
\n
changes in the benchmark interest rate risk component of the
\n
hedged item. The significant benchmarks identified as risk
\n
components are USD LIBOR, SOFR, EURIBOR and SONIA.
\n
These risk components are identified using the risk
\n
management systems of NatWest Group and encompass the
\n
majority of the hedged item\u2019s fair value risk.
\n
NatWest Group hedges the exchange rate risk of its net
\n
investment in foreign currency denominated operations with
\n
currency borrowings and forward foreign exchange contracts.
\n
NatWest Group reviews the value of the investments\u2019 net
\n
assets, executing hedges where appropriate to reduce the
\n
sensitivity of capital ratios to foreign exchange rate movement.
\n
Hedge accounting relationships will be designated where
\n
required.
\n
Exchange rate risk also arises in NatWest Group where
\n
payments are denominated in currencies other than the
\n
functional currency. Residual risk positions are hedged with
\n
forward foreign exchange contracts, fixing the exchange rate
\n
the payments will be settled in. The derivatives are documented
\n
as cash flow hedges.
\n
For all cash flow hedging and fair value hedge relationships,
\n
and net investment hedging, NatWest Group determines that
\n
there is an adequate level of offsetting between the hedged
\n
item and hedging instrument at inception and on an ongoing
\n
basis. This is achieved by comparing movements in the fair
\n
value of the expected highly probable forecast cash flows/fair
\n
value of the hedged item attributable to the hedged risk with
\n
movements in the fair value of the expected changes in cash
\n
flows from the hedging instruments. The method used for
\n
comparing movements is either regression testing or the dollar
\n
offset method. The method for testing effectiveness and the
\n
period over which the test is performed depends on the
\n
applicable risk management strategy and is applied consistently
\n
to each risk management strategy. Hedge effectiveness is
\n
assessed on a cumulative basis and the determination of
\n
effectiveness is in line with the requirements of IAS39.
\n
NatWest Group uses either the actual ratio between the hedged
\n
item and hedging instrument(s) or one that minimises hedge
\n
ineffectiveness to establish the hedge ratio for hedge
\n
accounting. Hedge ineffectiveness is measured in line with the
\n
requirements of IAS39 and recognised in the income statement
\n
as it arises.
\n
\n
14 Derivatives continued
\n
Included in the table below are derivatives held for hedging purposes as follows:
\n
2022
2021
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectiven
\n
ess (1)
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectivene
\n
ss (1)
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
Interest rate contracts
58.7
1,554
3,009
482
65.6
1,176
2,057
897
\n
Cash flow hedging
\n
Interest rate contracts
167.6
2,681
6,207
(3,342)
133.1
952
1,149
(931)
\n
Exchange rate contracts
6.3
142
112
(3)
7.3
30
109
27
\n
Net investment hedging
\n
Exchange rate contracts
0.5
1
9
4
0.5
11
1
7
\n
233.1
4,378
9,337
(2,859)
206.5
2,169
3,316
\u2014
\n
IFRS netting/Clearing
\n
house settlements
(4,235)
(9,205)
(2,125)
(3,196)
\n
143
132
44
120
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
The following table shows the period in which the notional of hedging contract ends:
\n
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
20+ years
Total
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.5
1.9
4.7
4.9
4.2
2.5
1.1
19.8
\n
Hedging liabilities - interest rate risk
1.0
2.9
14.6
10.3
9.6
0.5
\u2014
38.9
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
6.6
9.4
46.5
21.9
10.1
\u2014
\u2014
94.5
\n
Average fixed interest rate (%)
1.36
1.98
1.71
2.04
1.02
3.12
\u2014
1.72
\n
Hedging liabilities
\n
Interest rate risk
17.3
26.8
15.7
5.1
7.5
0.7
\u2014
73.1
\n
Average fixed interest rate (%)
1.27
0.95
2.75
1.03
2.68
4.55
\u2014
1.63
\n
Hedging assets
\n
Exchange rate risk
0.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\n
Hedging liabilities
\n
Exchange rate risk
\u2014
1.1
2.8
2.1
0.2
\u2014
\u2014
6.2
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
2021
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.9
2.5
5.5
5.7
6.2
4.9
4.5
30.2
\n
Hedging liabilities - interest rate risk
1.1
4.2
11.8
9.3
8.4
0.6
0.0
35.4
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
5.4
8.1
14.3
24.5
11.4
\u2014
\u2014
63.7
\n
Average fixed interest rate (%)
1.40
1.19
1.35
0.65
0.82
\u2014
\u2014
0.97
\n
Hedging liabilities
\n
Interest rate risk
8.8
21.1
33.0
3.3
2.5
0.7
\u2014
69.4
\n
Average fixed interest rate (%)
0.50
0.24
0.41
0.47
1.01
4.55
0.44
\n
Hedging assets
\n
Exchange rate risk
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Hedging liabilities
\n
Exchange rate risk
0.1
2.4
3.5
1.3
\u2014
\u2014
\u2014
7.3
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
For cash flow hedging of exchange rate risk, the average foreign exchange rates applicable across the relationships were as below
\n
for the main currencies hedged.
\n
2022
2021
\n
INR/GBP
100.54
106.58
\n
USD/GBP
1.29
1.38
\n
CHF/GBP
1.15
1.25
\n
JPY/GBP
132.89
132.93
\n
JPY/USD
128.29
n/a
\n
NOK/USD
9.21
n/a
\n
CNH/GBP
n/a
8.74
\n
For net investment hedging of exchange rate risk, the average foreign exchange rates applicable were as below for the main
\n
currencies hedged.
\n
2022
2021
\n
SEK/GBP
13.23
11.74
\n
DKK/GBP
n/a
8.85
\n
NOK/GBP
12.34
12.12
\n
AED/USD
4.42
3.67
\n
USD/GBP
1.20
1.32
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
The table below analyses assets and liabilities subject to hedging derivatives.
\n
Carrying value of
\n
hedge assets and
\n
liabilities
\n
Impact on hedge items
\n
included in carrying
\n
value
\n
Changes in fair value used as
\n
a basis to determine
\n
ineffectivemness (1)
\n
Impact on hedge items
\n
ceased to be adjusted for
\n
hedging gains or losses
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
5,764
(526)
(1,236)
63
\n
Other financial assets - securities
12,897
(922)
(2,525)
(2)
\n
Total
18,661
(1,448)
(3,761)
61
\n
Bank and customer deposits
565
(3)
3
\u2014
\n
Other financial liabilities - debt securities in issue
35,856
(2,222)
2,790
\u2014
\n
Subordinated liabilities
5,504
(547)
526
\u2014
\n
Total
41,925
(2,772)
3,319
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customer - amortised cost
(2)
93,212
5,263
\n
Other financial assets - securities
1,176
73
\n
Total
94,388
5,336
\n
Bank and customer deposits
72,610
(2,008)
\n
Other financial liabilities - debt securities in issue
571
(46)
\n
Total
73,181
(2,054)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
(2)
\u2014
\u2014
\n
Other financial assets - securities
\u2014
\u2014
\n
Total
\u2014
\u2014
\n
Other financial liabilities - debt securities in issue
4,141
(2)
\n
Subordinated liabilities
\u2014
\u2014
\n
Other
204
5
\n
Total
4,345
3
\n
2021
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
6,603
701
(478)
69
\n
Other financial assets - securities
30,882
518
(1,576)
\u2014
\n
Total
37,485
1,219
(2,054)
69
\n
Other financial liabilities - debt securities in issue
34,371
454
953
\u2014
\n
Subordinated liabilities
6,235
(9)
255
\u2014
\n
Total
40,606
445
1,208
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customers - amortised cost
63,025
1,984
\n
Other financial assets - securities
714
26
\n
Total
63,739
2,010
\n
Bank and customer deposits
68,383
(1,084)
\n
Other financial liabilities - debt securities in issue
1,006
(21)
\n
Total
69,389
(1,105)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
21
\u2014
\n
Other financial assets - securities
2
\u2014
\n
Total
23
\u2014
\n
Cash flow hedging - exchange rate
\n
Other financial liabilities - debt securities in issue
6,337
(5)
\n
Subordinated liabilities
742
(12)
\n
Other
200
(10)
\n
Total
7,279
(27)
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year
.
\n
(2)
Includes cash and balances at central banks.
\n
Financial statements
Strategic report
Governance
Risk and capital management
Additional information
Financial review
\n
\n
The following table shows an analysis of the pre-tax cash flow hedge reserve and foreign exchange hedge reserve.
\n
2022
2021
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing
\n
Interest rate risk
(3,576)
\u2014
(295)
\u2014
\n
Foreign exchange risk
16
(85)
23
53
\n
De-designated
\n
Interest rate risk
(297)
\u2014
(297)
\u2014
\n
Foreign exchange risk
20
(880)
10
(759)
\n
Total
(3,837)
(965)
(559)
(706)
\n
2022
2021
\n
Foreign
Foreign
\n
Cash flow
exchange
Cash flow
exchange
\n
hedge reserve
hedge reserve
hedge reserve
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Amount recognised in equity
\n
Interest rate risk
(2,997)
(64)
(700)
\u2014
\n
Foreign exchange risk
24
(202)
13
88
\n
Total
(2,973)
(266)
(687)
88
\n
Amount transferred from equity to earnings
\n
Interest rate risk to net interest income
(252)
\u2014
(181)
\u2014
\n
Interest rate risk to non-interest income
(1)
(21)
\u2014
20
\u2014
\n
Interest rate risk to operating expenses
(14)
\u2014
\u2014
\u2014
\n
Foreign exchange risk to net interest income
(29)
\u2014
(4)
2
\n
Foreign exchange risk to non-interest income
15
7
1
(2)
\n
Foreign exchange risk to operating expenses
(3)
\u2014
3
\u2014
\n
Total
(304)
7
(161)
\u2014
\n
(1)
There was \u00a321 million (2021 - \u00a320 million) reclassified with the cash flow reserve to earnings due to forecasted cash flows that are no longer expected to occur.
\n
Hedge ineffectiveness recognised in other operating income comprises:
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
(Loss)/gain on hedged items attributable to the hedged risk
(442)
(846)
877
\n
Gain/(loss) on the hedging instruments
482
897
(875)
\n
Fair value hedging ineffectiveness
40
51
2
\n
Cash flow hedging
\n
Interest rate risk
(60)
(26)
22
\n
Cash flow hedging ineffectiveness
(60)
(26)
22
\n
Total
(20)
25
24
\n
The main sources of ineffectiveness for interest rate risk hedge accounting relationships are:
\n
\ue001
The effect of the counterparty credit risk on the fair value of the interest rate swap which is not reflected in the fair value of the
\n
hedged item attributable to the change in interest rate (fair value hedge).
\n
\ue001
Differences in the repricing basis between the hedging instrument and hedged cash flows (cash flow hedge); and
\n
\ue001
Upfront present values on the hedging derivatives where hedge accounting relationships have been designated after the trade
\n
date (cash flow hedge and fair value hedge).
\n
\n
15 Loan impairment provisions
\n
Loan exposure and impairment metrics
\n
There is a risk that customers and counterparties fail to meet their contractual obligation to settle outstanding amounts, known as
\n
expected credit losses (ECL). The calculation of ECL considers historic, current and forward-looking information to determine the
\n
amount we do not expect to recover. ECL is recognised on current and potential exposures, and contingent liabilities.
\n
For accounting policy information see Accounting policies note 2.3. Further disclosures on credit risk and information on ECL
\n
methodology are shown from page 190.
\n
The table below summarises loans and credit impairment measures within the scope of IFRS 9 Expected credit losses framework.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Loans - amortised cost and FVOCI
\n
Stage 1
325,224
330,824
\n
Stage 2
46,833
33,981
\n
Stage 3
5,096
5,022
\n
Of which: individual
1,121
1,215
\n
Of which: collective
3,975
3,807
\n
377,153
369,827
\n
ECL provisions
(1)
\n
- Stage 1
632
302
\n
- Stage 2
1,043
1,478
\n
- Stage 3
1,759
2,026
\n
Of which: individual
287
363
\n
Of which: collective
1,472
1,663
\n
3,434
3,806
\n
ECL provision coverage
(2)
\n
- Stage 1 (%)
0.19
0.09
\n
- Stage 2 (%)
2.23
4.35
\n
- Stage 3 (%)
34.52
40.34
\n
0.91
1.03
\n
Continuing operations
\n
Impairment (releases)/losses
\n
ECL (release)/charge
(3,4)
337
(1,173)
\n
Stage 1
(290)
(1,317)
\n
Stage 2
393
(164)
\n
Stage 3
234
308
\n
Of which: individual
54
20
\n
Of which: collective
180
288
\n
Amounts written off
482
876
\n
Of which: individual
168
455
\n
Of which: collective
314
421
\n
(1)
Includes loans to customers and banks.
\n
(2)
Includes \u00a33 million (2021 - \u00a35 million) related to assets classified as FVOCI and \u00a30.1 billion (2021 - \u00a30.1 billion related to off-balance sheet exposures.
\n
(3)
ECL provisions coverage is calculated as total ECL provisions divided by loans \u2013 amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
\n
(4)
Includes a \u00a33 million charge (2021 - \u00a33 million release) related to other financial assets, of which nil (2021 - \u00a32 million release) related to assets classified as FVOCI; and \u00a35
\n
million release (2021 - \u00a334 million release) related to contingent liabilities.
\n
(5)
The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to Financial instruments within the scope of the IFRS 9 ECL
\n
framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling \u00a3143.3 billion (2021 \u2013
\n
\u00a3176.3 billion) and debt securities of \u00a329.9 billion (2021 \u2013 \u00a344.9 billion).
\n
\n
\n
Credit risk enhancement and mitigation
\n
For information on Credit risk enhancement and mitigation held
\n
as security, refer to Risk and capital management \u2013 Credit risk
\n
enhancement and mitigation section.
\n
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
\n
IFRS 9 ECL model design principles
\n
Refer to Credit risk \u2013 IFRS 9 ECL model design principles
\n
section for further details.
\n
Approach for multiple economic scenarios (MES)
\n
The base scenario plays a greater part in the calculation of
\n
ECL than the approach to MES. Refer to Credit risk \u2013 Economic
\n
loss drivers - Probability weightings of scenarios section for
\n
further details.
\n
16 Other financial assets
\n
Other financial assets consist of debt securities, equity shares and loans that are not held for trading. Balances consist of local and
\n
central government securities, a component part of NatWest Group\u2019s liquidity portfolio.
\n
For accounting policy information see Accounting policy 3.8.
\n
Debt securities
\n
Central and local government
\n
UK
US
Other
Other debt
Total
Equity shares
Loans
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
2
2
3
782
787
\n
Fair value through other comprehensive
\n
income
(1)
\n
802
7,175
1,757
6,765
16,499
357
117
16,973
\n
Amortised cost
2,562
937
54
9,582
13,135
\u2014
\u2014
13,135
\n
Total
3,364
8,112
1,811
16,349
29,636
360
899
30,895
\n
2021
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
6
6
13
298
317
\n
Fair value through other comprehensive
\n
income
(1)
11,938
10,086
5,604
9,058
36,686
312
268
37,266
\n
Amortised cost
3,821
156
81
4,504
8,562
\u2014
\u2014
8,562
\n
Total
15,759
10,242
5,685
13,568
45,254
325
566
46,145
\n
(1)
Upon initial recognition, NatWest Group occasionally irrevocably
designates some of its equity investments as equity instruments at FVOCI when they meet the definition of equity
\n
under IAS 32 Financial instruments: presentation, are not held for trading or they are held for strategic purposes. Such classification is determined on an instrument-by-instrument
\n
basis. Gains and losses on these equity instruments are not recycled to the income statement and dividends are recognised in profit or loss except when they represent a recovery
\n
of part of the cost of the instrument, in which case such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.
\n
During the year NatWest Group acquired \u00a3146 million of equity shares in Permanent TSB Group Holdings p.l.c. as part
\n
consideration on the sale of certain assets. Refer to Note 8 for additional information on assets of disposal groups. In addition,
\n
NatWest Group acquired \u00a326 million of equity shares in Vodeno Limited.
\n
NatWest Group disposed of equity shares in Visa Inc. of \u00a399 million and UBS Equity Funds of \u00a369 million. There were no significant
\n
disposals in the prior year. There are no significant dividends on equity shares held at FVOCI in either year.
\n
\n
17 Intangible assets
\n
Intangible assets, such as internally generated software and goodwill generated on business combinations are not physical in
\n
nature. This note presents the cost of the assets, which is the amount NatWest Group initially paid or incurred, additions and
\n
disposals during the year, and any amortisation or impairment. Amortisation is a charge that reflects the usage of the asset and
\n
impairment is a reduction in value arising from specific events identified during the year.
\n
For accounting policy information see Accounting policies notes 3.4 and 3.5.
\n
2022
2021
\n
Goodwill
Other (1)
Total
Goodwill
Other (1)
Total
\n
Cost
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
9,939
3,050
12,989
9,939
2,592
12,531
\n
Currency translation and other adjustments
(8)
(3)
(11)
\u2014
29
29
\n
Additions
\u2014
743
743
\u2014
479
479
\n
Disposals and write-off of fully amortised assets
\u2014
(27)
(27)
\u2014
(50)
(50)
\n
At 31 December
9,931
3,763
13,694
9,939
3,050
12,989
\n
Accumulated amortisation and impairment
\n
At 1 January
4,417
1,849
6,266
4,332
1,544
5,876
\n
Currency translation and other adjustments
(8)
(4)
(12)
\u2014
31
31
\n
Disposals and write-off of fully amortised assets
\u2014
(17)
(17)
\u2014
(28)
(28)
\n
Impairment of intangible assets
\u2014
\u2014
\u2014
85
2
87
\n
Amortisation charge for the year
\u2014
341
341
\u2014
300
300
\n
At 31 December
4,409
2,169
6,578
4,417
1,849
6,266
\n
Net book value at 31 December
5,522
1,594
7,116
5,522
1,201
6,723
\n
(1)
Principally internally generated software.
\n
Intangible assets and goodwill are reviewed for indicators of
\n
impairment. No impairment was indicated at 31 December
\n
2022. In 2021 goodwill in the Retail Banking segment was
\n
impaired by \u00a385 million.
\n
NatWest Group\u2019s goodwill acquired in business combinations is
\n
reviewed for impairment annually at 31 December by cash-
\n
generating unit (CGU) (2022 and 2021: Retail Banking \u00a32,607
\n
million; Commercial Banking \u00a32,606 million; Private Banking \u00a39
\n
million; and RBS International \u00a3300 million). Analysis by
\n
reportable segment is in Note 4 Segmental analysis.
\n
Impairment testing involves the comparison of the carrying
\n
value of each CGU with its recoverable amount. The carrying
\n
values of the segments reflect the equity allocations made by
\n
management, which are consistent with NatWest Group\u2019s
\n
capital targets.
\n
Recoverable amount is the higher of fair value less costs of
\n
disposal and value in use. Fair value is the price that would be
\n
received to sell an asset in an orderly transaction between
\n
market participants. Value in use is the present value of
\n
expected future cash flows from the CGU.
\n
The recoverable amounts for all CGUs at 31 December 2022
\n
were based on value in use, using management's latest five-
\n
year revenue and cost forecasts. These are discounted cash
\n
flow projections over five years. The forecast is then
\n
extrapolated in perpetuity using a long-term growth rate to
\n
compute a terminal value, which comprises the majority of the
\n
value in use. The long-term growth rates have been based on
\n
expected growth of the CGUs (2022: 1.4% and 2021: 1.6%). The
\n
pre-tax risk discount rates are based on those observed to be
\n
applied to businesses regarded as peers of the CGUs (2022:
\n
15.3% for Retail Banking, Commercial Banking and Private
\n
Banking, 14% for RBS International, and 2021: 13.9% for Retail
\n
Banking, Commercial Banking and Private Banking, 12.1% for
\n
RBS International).
\n
\n
18 Other assets
\n
Other assets are not financial assets and reflect a grouping of assets that are not large enough to present separately on the
\n
balance sheet.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Interests in associates
(1)
688
716
\n
Property, plant and equipment
(2)
4,240
4,230
\n
Pension schemes in net surplus (Note 5)
318
602
\n
Prepayments
340
360
\n
Accrued income
327
248
\n
Tax recoverable
279
190
\n
Deferred tax (Note 7)
2,178
1,195
\n
Acceptances
237
225
\n
Other
569
476
\n
Other assets
9,176
8,242
\n
(1)
Includes interest in Business Growth Fund \u00a3677 million (2021 - \u00a3700 million).
\n
(2)
The estimated useful lives of NatWest Group\u2019s property, plant and equipment are: freehold buildings and long leasehold 50 years, short leaseholds for unexpired period of lease,
\n
property adaptation costs 10 to 15 years, computer equipment up to 5 years and other equipment 4 to 15 years.
\n
19 Other financial liabilities
\n
Other financial liabilities consist of customer deposits designated at fair value and debt securities in issue.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.11.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Customer deposits - designated as at fair value through profit or loss
1,050
568
\n
Debt securities in issue
\n
- MRELs
22,265
23,422
\n
- Other medium term notes
16,419
12,430
\n
- Commercial paper and certificates of deposit
5,672
9,153
\n
- Covered bonds
2,842
2,886
\n
- Securitisation
859
867
\n
Total
49,107
49,326
\n
\n
20 Subordinated liabilities
\n
Subordinated liabilities are debt securities that, in the event of winding up or bankruptcy, rank below other liabilities for interest
\n
payments and repayment.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.11.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Dated loan capital
5,968
8,051
\n
Undated loan capital
173
259
\n
Preference shares
119
119
\n
6,260
8,429
\n
Certain preference shares issued by the company are classified as liabilities; these securities remain subject to the capital
\n
maintenance rules of the Companies Act 2006.
\n
First call
Maturity
Capital
2022
2021
\n
Dated loan capital
date
date
treatment
\u00a3m
\u00a3m
\n
Natwest Group plc
\n
$2,250 million
6.13% notes
\u2014
Dec-22
Tier 2
\u2014
986
\n
$2,250 million
5.13% notes
\u2014
May-24
Tier 2
706
956
\n
$2,000 million
6.00% notes
\u2014
Dec-23
Tier 2
536
1073
\n
\u00a31,000 million
3.622% notes
Aug-25
Aug-30
Tier 2
964
995
\n
\u00a31,000 million
2.105% notes
Aug-26
Nov-31
Tier 2
1001
999
\n
$1,000 million
6.10% notes
\u2014
Jun-23
Tier 2
126
354
\n
$850 million
3.032% notes
Nov-30
Nov-35
Tier 2
555
584
\n
\u20ac750 million
1.043% notes
Jun-27
Sep-32
Tier 2
665
630
\n
$750 million
3.754% notes
Nov-24
Nov-29
Tier 2
626
558
\n
\u00a3650 million
7.416% notes
Mar-28
Jun-33
Tier 2
641
\u2014
\n
$650 million
6.425% notes
Jan-34
Jan-43
Not applicable
\u2014
554
\n
5,820
7,689
\n
Other subsidiaries
\n
$650 million
6.3% notes
Jan-34
Dec-43
Not applicable
\u2014
39
\n
\u20ac300 million
Floating rate notes
\u2014
Jun-22
Tier 2
\u2014
252
\n
\u20ac170 million
Floating rate notes
\u2014
Feb-41
Not applicable
223
331
\n
$150 million
7.125% notes
\u2014
Oct-93
Not applicable
18
113
\n
\u20ac145.6 million
Floating rate notes
\u2014
Apr-23
Tier 2
122
119
\n
$136 million
7.75% notes
\u2014
May-23
Not applicable
83
104
\n
6,266
8,647
\n
Undated loan capital
\n
Natwest Group plc
\n
$762 million
7.648% notes
Sep-31
\u2014
Not applicable
\u2014
51
\n
Other subsidiaries
\n
\u00a316 million
5.63% notes
Sep-26
\u2014
Not applicable
18
20
\n
\u00a319 million
5.63% notes
Jun-32
\u2014
Tier 2
\u2014
1
\n
\u00a321 million
6.2% notes
Mar-22
\u2014
Tier 2
\u2014
22
\n
\u00a331 million
7.38% notes
\u2014
\u2014
Not applicable
2
1
\n
\u00a353 million
7.125% notes
Oct-22
\u2014
Not applicable
\u2014
56
\n
\u20ac31 million
11.375% notes
\u2014
\u2014
Tier 2
48
45
\n
\u00a335 million
11.5%
notes
Dec-22
\u2014
Not applicable
72
31
\n
\u00a311 million
11.75% notes
\u2014
\u2014
Tier 2
25
24
\n
\u00a31.1 million
SONIA + 2.8266% notes
\u2014
\u2014
Tier 2
2
2
\n
\u00a34.9 million
2.5% fixed notes
\u2014
\u2014
Not applicable
6
6
\n
173
259
\n
Preference shares
\n
Other subsidiaries
\n
\u00a3140 million
Non-cumulative preference shares of \u00a31
\u2014
\u2014
Not applicable
119
119
\n
119
119
\n
Fair Value Hedging
(298)
(596)
\n
6,260
8,429
\n
(1)
Notes redeemed before call date as tax and regulatory benefits discontinued.
\n
\n
21 Other liabilities
\n
Other liabilities are amounts due to third parties that are not financial liabilities including lease liabilities, amounts due for goods
\n
and services that have been received but not invoiced,
tax due to HMRC, and retirement benefit liabilities. Liabilities which have a
\n
level of uncertainty regarding their timing or the future cost to settle them are included in other liabilities as provisions for liabilities
\n
and charges.
\n
2022
2021
\n
Other liabilities
\u00a3m
\u00a3m
\n
Lease liabilities
1,118
1,263
\n
Provisions for liabilities and charges
1,138
1,268
\n
Retirement benefit liabilities (Note 5)
98
114
\n
Accruals
1,407
1,508
\n
Deferred income
355
319
\n
Current tax
55
12
\n
Deferred tax (Note 7)
227
359
\n
Acceptances
237
225
\n
Other liabilities
(1)
711
729
\n
5,346
5,797
\n
(1)
Other liabilities include liabilities of disposal groups of \u00a315 million (2021 - \u00a35 million). See Note 8 for further information.
\n
Customer redress
\n
(1)
\n
Litigation and
\n
other regulatory
\n
Property
\n
Financial
\n
commitments and
\n
guarantees
\n
Other (2)
Total
\n
Provisions for liabilities and charges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
474
277
231
93
193
1,268
\n
Expected credit loss impairment release
\u2014
\u2014
\u2014
(6)
\u2014
(6)
\n
Currency translation and other movements
2
20
\u2014
\u2014
7
29
\n
Charge to income statement
178
36
31
\u2014
193
438
\n
Release to income statement
(45)
(14)
(71)
\u2014
(60)
(190)
\n
Provisions utilised
(178)
(79)
(37)
\u2014
(107)
(401)
\n
At 31 December 2022
431
240
154
87
226
1,138
\n
(1)
Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint
\n
deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group
\n
continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.
\n
(2)
Other materially comprises provisions relating to restructuring costs.
\n
Provisions are liabilities of uncertain timing or amount and are
\n
recognised when there is a present obligation as a result of a
\n
past event, the outflow of economic benefit is probable and the
\n
outflow can be estimated reliably. Any difference between the
\n
final outcome and the amounts provided will affect the reported
\n
results in the period when the matter is resolved.
\n
For accounting policy information see Accounting policies note
\n
2.4.
\n
Critical accounting policy: Provisions for liabilities
\n
The key judgment is involved in determining whether a present
\n
obligation exists. There is often a high degree of uncertainty
\n
and judgment is based on the specific facts and circumstances
\n
relating to individual events in determining whether there is a
\n
present obligation. Judgment is also involved in estimation of
\n
the probability, timing and amount of any outflows. Where
\n
NatWest Group can look to another party such as an insurer to
\n
pay some or all of the expenditure required to settle a
\n
provision, any reimbursement is recognised when, and only
\n
when, it is virtually certain that it will be received.
\n
Estimates -
Provisions are liabilities of uncertain timing or
\n
amount and are recognised when there is a present obligation
\n
as a result of a past event, the outflow of economic benefit is
\n
probable and the outflow can be estimated reliably.
\n
Any difference between the final outcome and the amounts
\n
provided will affect the reported results in the period when the
\n
matter is resolved.
\n
\ue001
Customer redress: Provisions reflect the estimated cost of
\n
redress attributable to claims where it is determined that a
\n
present obligation exists.
\n
\ue001
Litigation and other regulatory: NatWest Group is engaged
\n
in various legal proceedings, both in the UK and in overseas
\n
jurisdictions, including the US. For further information in
\n
relation to legal proceedings and discussion of the
\n
associated uncertainties, refer to Note 26.
\n
\ue001
Property: This includes provision for contractual costs
\n
associated with vacant properties.
\n
\ue001
Other provisions: These materially comprise provisions for
\n
onerous contracts and restructuring costs. Onerous
\n
contract provisions comprise an estimate of the costs
\n
involved in fulfilling the terms and conditions of contracts
\n
net of any expected benefits to be received. This includes
\n
provision for contractual costs associated with vacant
\n
properties. Redundancy and restructuring provisions
\n
comprise the estimated cost of restructuring, including
\n
redundancy costs where an obligation exists.
\n
Background information for all material provisions is given in
\n
Note 26
.
\n
\n
22 Share capital and other equity
\n
Share capital consists of ordinary shares and preference shares and is measured as the number of shares allotted and fully paid
\n
multiplied by the nominal value of a share. Other equity includes paid-in equity, merger reserves, capital redemption reserve and
\n
own shares held.
\n
For accounting policy information see Accounting policies note 3.11.
\n
Number of shares
\n
2022
2021
2022
2021
\n
Allotted, called up and fully paid
\u00a3m
\u00a3m
000s
000s
\n
Ordinary shares of \u00a31.0769
(1)
10,539
11,468
9,786,024
11,467,982
\n
Cumulative preference shares of \u00a31
0.5
0.5
483
483
\n
Non-cumulative preference shares of US$0.01
(2)
\u2014
\u2014
\u2014
10
\n
(1)
The nominal value of ordinary shares without rounding is \u00a31.076923076923077 per share
\n
(2)
The company redeemed the Series U Non-cumulative dollar preference shares on 31 March 2022.
\n
Movement in allotted, called up and fully paid ordinary shares
\u00a3m
Number of shares 000s
\n
At 1 January 2021
12,129
12,129,165
\n
Shares issued
38
37,584
\n
Share cancellation
(699)
(698,767)
\n
At 1 January 2022
11,468
11,467,982
\n
Share cancellation
(929)
(929,188)
\n
Share consolidation
\u2014
(752,770)
\n
At 31 December 2022
10,539
9,786,024
\n
Ordinary shares
\n
At a General Meeting of the company on 25 August 2022,
\n
shareholders approved a share consolidation of the company's
\n
ordinary shares. Every 14 existing ordinary shares of \u00a31 each
\n
in the capital of the company in issue as at 26 August 2022
\n
were consolidated into one intermediate ordinary share of
\n
\u00a314.00 and immediately divided into 13 new ordinary shares of
\n
\u00a31.0769 in the capital of the company.
\n
There is no authorised share capital under the company\u2019s
\n
constitution. At 31 December 2022, the directors had authority
\n
granted at the 2022 Annual General Meeting to issue up to
\n
\u00a3561,452,512 nominal of ordinary shares other than by pre-
\n
emption to existing shareholders. This figure was amended to
\n
\u00a3520,306,980 at the General Meeting on 25 August 2022 to
\n
preserve the position as if the share consolidation had not
\n
taken place.
\n
On 6 February 2019 the company held a General Meeting and
\n
shareholders approved a special resolution to give the
\n
company authority to make off-market purchases of up to
\n
4.99% of its issued ordinary share capital in any 12-month
\n
period from HM Treasury (or its nominee) at such times as the
\n
directors may determine is appropriate. Full details of the
\n
proposal are set out in the Circular and Notice of General
\n
Meeting available at natwestgroup.com. This authority was
\n
renewed at the Annual General Meeting in 2022, and amended
\n
at the General Meeting held on 25 August 2022 to preserve the
\n
position as if the share consolidation had not taken place.
\n
Shareholders will be asked to renew the authority at the
\n
Annual General Meeting in 2023.
\n
The company utilised the authority it obtained at the 2021 AGM
\n
to make an off-market purchase of 549,851,147 ordinary
\n
shares (nominal value \u00a3549,851,147) in the company from HMT
\n
on 28 March 2022, at a price of 220.5p per ordinary share for
\n
the total consideration of \u00a31,212,421,779, representing 4.91% of
\n
the company\u2019s issued ordinary share capital. The company
\n
cancelled all of the purchased ordinary shares.
\n
At the Annual General Meeting in 2022 shareholders authorised
\n
the company to make market purchases of up to 1,122,905,024
\n
ordinary shares in the company. The authority was amended at
\n
the General Meeting held on 25 August 2022 to preserve the
\n
position as if the share consolidation had not taken place and
\n
shareholders will be asked to renew the authority at the Annual
\n
General Meeting in 2023.
\n
The directors utilised the authority obtained at the 2021 AGM
\n
to conduct a share buyback programme (the Programme) of up
\n
to \u00a3750 million, as announced to the market on 30 July 2021.
\n
The Programme\u2019s purpose is to reduce the ordinary share
\n
capital of NatWest Group. Taking into account the reduction in
\n
issued ordinary share capital which occurred as a result of the
\n
off-market buyback announced on 19 March 2021, the
\n
maximum number of ordinary shares that could be purchased
\n
by the company under the Programme was 1,157,583,542.
\n
Phase 1 of the Programme commenced on 2 August 2021 and
\n
completed on 18 January 2022. 340,537,460 ordinary shares
\n
(nominal value \u00a3340,537,460) were purchased by the company
\n
at an average purchase price of 220.0199p per ordinary share
\n
for the total consideration of \u00a3749,250,031. Phase 2 of the
\n
Programme commenced on 21 February 2022 and completed
\n
on 15 July 2022. A further 346,835,822 ordinary shares
\n
(nominal value \u00a3346,835,822) were purchased by the company
\n
at an average purchase price of 216.2406p per ordinary share
\n
for the total consideration of \u00a3749,999,999. All of the purchased
\n
ordinary shares were cancelled, representing 11.23% of the
\n
company\u2019s issued ordinary share capital.
\n
In 2022 NatWest Group paid an interim dividend of \u00a3364 million,
\n
or 3.5p per ordinary share (2021 \u2013 \u00a3347 million, or 3p per
\n
ordinary share).
\n
In addition, the company also paid a special dividend of \u00a31,750
\n
million, or 16.8p per ordinary share.
\n
The company has announced that the directors have
\n
recommended a final dividend of \u00a31.0 billion, or 10.0p per
\n
ordinary share (2021 \u2013 \u00a3844 million, or 7.5p per ordinary share)
\n
subject to shareholder approval at the Annual General Meeting
\n
on 25 April 2023.
\n
If approved, payment will be made on 2 May 2023 to
\n
shareholders on the register at the close of business on 17
\n
March 2023. The ex-dividend date will be 16 March 2023.
\n
\n
\n
Cumulative preference shares
\n
At the 2021 Annual General Meeting, shareholders authorised
\n
the company to make an off-market purchase of preference
\n
shares in the company. In December 2021 the company used
\n
this authority to purchase 157,546 5.5% cumulative preference
\n
shares and 259,314 11% cumulative preference shares. The
\n
company cancelled all of the purchased preference shares.
\n
Non-cumulative preference shares
\n
The company announced on 2 February 2022 that it had given
\n
notice to holders of the redemption of the Series U Non-
\n
Cumulative Dollar Preference Shares. On 31 March 2022, the
\n
Series U Dollar Non-cumulative Preference Shares, of amount
\n
outstanding US$1,013,000,000 were redeemed at the
\n
redemption price of US$100,000 per Series U Dollar Preference
\n
Share plus accrued dividends equalling $635.94 per share.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Additional Tier 1 notes
\n
US$1.15 billion 8% notes callable August 2025
(1)
735
735
735
\n
US$2.65 billion 8.625% notes callable August 2021
(2)
\u2014
\u2014
2,046
\n
US$1.5 billion 6.000% notes callable
\n
December 2025 - June 2026
(3)
1,220
1,220
1,220
\n
GBP\u00a31.0 billion 5.125% notes callable
\n
May - November 2027
(4)
998
998
998
\n
GBP\u00a30.4 billion \u2013 March 2021 issuance
(5)
399
399
\u2014
\n
US$0.75 billion \u2013 June 2021 issuance
(6)
538
538
\u2014
\n
3,890
3,890
4,999
\n
(1)
Issued in August 2015. In the event of conversion, converted into ordinary shares at a price of $3.295 nominal per \u00a31 share.
\n
(2)
Issued in August 2016. In the event of conversion, converted into ordinary shares at a price of $2.284 nominal per \u00a31 share. In July 2021, paid-in equity reclassified to liabilities as
\n
the result of a call in August 2021 of US$2.65 billion AT1 Capital notes.
\n
(3)
Issued in June 2020. In the event of conversion, converted into ordinary shares at a price of $2.179 (translated at applicable exchange rate) per \u00a31 share.
\n
(4)
Issued in November 2020. In the event of conversion, converted into ordinary shares at a price of \u00a31.754 nominal per \u00a31 share.
\n
(5)
Issued in March 2021. In the event of conversion, converted into ordinary shares at a price of \u00a31.754 nominal per \u00a31 share.
\n
(6)
Issued in June 2021. In the event of conversion, converted into ordinary shares at a price of $2.448 (translated at applicable exchange rate) per \u00a31 share.
\n
Paid-in equity
-
comprises equity instruments issued by the
\n
company other than those legally constituted as shares.
\n
Additional Tier 1 instruments issued by NatWest Group plc
\n
having the legal form of debt are classified as equity under
\n
IFRS. The coupons on these instruments are non-cumulative
\n
and payable at the company\u2019s discretion. In the event NatWest
\n
Group\u2019s CET1 ratio falls below 7% any outstanding instruments
\n
will be converted into ordinary shares at a fixed price.
\n
Capital recognised for regulatory purposes cannot be
\n
redeemed without Prudential Regulation Authority consent. This
\n
includes ordinary shares, preference shares and additional Tier
\n
1
instruments.
\n
Merger reserve
-
the merger reserve comprises the premium
\n
on shares issued to acquire NatWest Bank Plc less goodwill
\n
amortisation charged under previous GAAP.
\n
Capital redemption reserve
-
under UK companies legislation,
\n
when shares are redeemed or purchased wholly or partly out
\n
of the company's profits, the amount by which the company's
\n
issued share capital is diminished must be transferred to the
\n
capital redemption reserve. The capital maintenance provisions
\n
of UK companies legislation apply to the capital redemption
\n
reserve as if it were part of the company\u2019s paid up share
\n
capital. On 15 June 2017, the Court of Session approved a
\n
reduction of NatWest plc capital so that the amounts which
\n
stood to the credit of the capital redemption reserve were
\n
transferred to retained earnings. The nominal value of the
\n
shares bought back from HM Treasury in March 2021 and via
\n
the Programme during 2022 have been transferred to the
\n
Capital redemption reserve.
\n
Own shares held
-
at 31 December 2022, 13 million ordinary
\n
shares of \u00a31.0769 each of the company (2021 - 15 million) were
\n
held by employee share trusts in respect of share awards and
\n
options granted to employees. During the year, the employee
\n
share trusts purchased no ordinary shares and delivered 2
\n
million ordinary shares in satisfaction of the exercise of options
\n
and the vesting of share awards under the employee share
\n
plans. The company retains the flexibility to use newly issued
\n
shares, shares purchased by the NatWest Group Employee
\n
Share Ownership Trust and any available treasury shares to
\n
satisfy obligations under its employee share plans.
The
\n
company does not use performance conditions or targets
\n
based on earnings per share (EPS), total shareholder return
\n
(TSR), and net asset value (NAV) in connection with its
\n
employee share plans.
\n
As part of the shares bought back from HM Treasury in March
\n
2021, the company transferred 200 million ordinary shares to
\n
treasury. The company has used a total of 76,513,524 treasury
\n
shares to satisfy the exercise of options and the vesting of
\n
share awards under the employee share plans. The balance of
\n
ordinary shares held in treasury as at 31 December 2022 was
\n
114,011,084. The figure has been adjusted to reflect the 13 for
\n
14 share consolidation on 30 August 2022.
\n
NatWest Group plc optimises capital efficiency by maintaining
\n
reserves in subsidiaries, including regulated entities. Certain
\n
preference shares and subordinated debt are also included
\n
within regulatory capital. The remittance of reserves to the
\n
company or the redemption of shares or subordinated capital
\n
by regulated entities may be subject to maintaining the capital
\n
resources required by the relevant regulator.
\n
UK law prescribes that only the reserves of the company are
\n
taken into account for the purpose of making distributions and
\n
in determining permissible applications of the share premium
\n
account.
\n
\n
23 Structured entities
\n
A structured entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in
\n
deciding who controls the entity, for example when any voting rights relate to administrative tasks only and the relevant activities
\n
are directed by means of contractual arrangements. SEs are usually established for a specific, limited purpose. They do not carry
\n
out a business or trade and typically have no employees.
\n
Securitisations
\n
In a securitisation, assets, or interests in a pool of assets, are
\n
transferred, or the credit risk is transferred via a derivative or
\n
financial guarantee to a SE which then issues liabilities to third
\n
party investors.
\n
NatWest Group\u2019s involvement in client securitisations takes a
\n
number of forms. It may provide secured finance to, or
\n
purchase asset-backed notes from, client sponsored SEs
\n
secured on assets transferred by the client entity; purchase
\n
asset backed securities issued by client sponsored SEs in the
\n
primary or secondary markets; or provide liquidity facilities to
\n
client sponsored SEs. In addition, NatWest Group arranges or
\n
acts as lead manager or placement agent in client primary
\n
markets securitisations. NatWest Group provides portfolio
\n
structured derivative hedging solutions to clients. NatWest
\n
Group undertakes own-asset securitisations to transfer the
\n
credit risk on portfolios of financial assets.
\n
Other credit risk transfer securitisations
\n
NatWest Group transfers credit risk on originated loans and
\n
mortgages without the transfer of assets to a SE. As part of
\n
this, NatWest Group enters into credit derivative and financial
\n
guarantee contracts with consolidated SEs. At 31 December
\n
2022, debt securities in issue by such SEs (and held by third
\n
parties) were \u00a3859 million (2021 - \u00a3867 million). The associated
\n
loans and mortgages at 31 December 2022 were \u00a34,361 million
\n
(2021 - \u00a37,137 million).
\n
At 31 December, ECL in relation to non-defaulted assets was
\n
reduced by \u00a320 million (2021 - \u00a328 million) as a result of
\n
financial guarantee contracts with consolidated SEs.
\n
Covered debt programme
\n
Group companies have assigned loans to customers and debt
\n
investments to bankruptcy remote limited liability partnerships
\n
to provide security for issues of debt securities. NatWest Group
\n
retains all of the risks and rewards of these assets and
\n
continues to recognise them. The partnerships are consolidated
\n
by NatWest Group and the related covered bonds included
\n
within other financial liabilities. At 31 December 2022, \u00a38,156
\n
million (2021 - \u00a38,965 million) of loans to customers provided
\n
security for debt securities in issue and other borrowing of
\n
\u00a34,132 million (2021 - \u00a33,512 million).
\n
Lending of own issued securities
\n
NatWest Group has issued, retained, and lent debt securities
\n
under securities lending arrangements. Under standard terms
\n
in the UK and US markets, the recipient has an unrestricted
\n
right to sell or repledge collateral, subject to returning
\n
equivalent securities on maturity of the transaction.
NatWest
\n
Group retains all of the risks and rewards of own issued
\n
liabilities lent under such arrangements and does not recognise
\n
them. At 31 December 2022, \u00a32,419 million (2021 - \u00a31,494
\n
million) of secured own issued liabilities have been retained and
\n
lent under securities lending arrangements. At 31 December
\n
2022, \u00a32,244 million (2021 - \u00a31,564 million) of loans and other
\n
debt instruments provided security for secured own issued
\n
liabilities that have been retained and lent under securities
\n
lending arrangements
.
\n
Unconsolidated structured entities
\n
NatWest Group\u2019s interest in unconsolidated structured entities is analysed below.
\n
2022
2021
\n
Asset backed
\n
securitisation
\n
vehicles
\n
Investment
\n
funds and
\n
others
Total
\n
Asset backed
\n
securitisation
\n
vehicles
\n
Investment
\n
funds and
\n
others
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets and derivatives
\n
Trading assets
616
137
753
490
117
607
\n
Derivative assets
343
\u2014
343
251
18
269
\n
Derivative liabilities
(388)
(22)
(410)
(170)
(1)
(171)
\n
Total
571
115
686
571
134
705
\n
Non trading assets
\n
Loans to customers
2,431
648
3,079
1,692
361
2,053
\n
Other financial assets
6,334
849
7,183
3,645
379
4,024
\n
Total
8,765
1,497
10,262
5,337
740
6,077
\n
Liquidity facilities/loan commitments
1,723
320
2,043
1,403
135
1,538
\n
Guarantees
\u2014
107
107
\u2014
\u2014
\u2014
\n
Maximum exposure
11,059
2,039
13,098
7,311
1,009
8,320
\n
\n
24 Asset transfers
\n
This note provides an overview of asset transfers which do not qualify for derecognition and therefore continue to be recognised in
\n
NatWest Group\u2019s balance sheet.
\n
For accounting policy information see Accounting policies note 3.9.
\n
Transfers that do not qualify for derecognition
\n
NatWest Group enters into securities repurchase, lending and
\n
total return transactions in accordance with normal market
\n
practice which includes the provision of additional collateral if
\n
necessary. Under standard terms in the UK and US markets,
\n
the recipient has an unrestricted right to sell or repledge
\n
collateral, subject to returning equivalent securities on
\n
settlement of the transaction.
\n
Securities sold under repurchase transactions and transactions
\n
with the substance of securities repurchase agreements are not
\n
derecognised if NatWest Group retains substantially all the risks
\n
and rewards of ownership. The fair value (and carrying value)
\n
of securities transferred under such transactions included on
\n
the balance sheet, are set out below. All of these securities
\n
could be sold or repledged by the holder.
\n
2022
2021
\n
The following assets have failed derecognition
(1)
\u00a3m
\u00a3m
\n
Trading assets
6,668
13,084
\n
Loans to bank - amortised cost
16
38
\n
Loans to customers - amortised cost
398
1,837
\n
Other financial assets
2,901
11,746
\n
Total
9,983
26,705
\n
(1)
Associated liabilities were \u00a39,501 million (2021 \u2013 \u00a324,747 million).
\n
Assets pledged as collateral
\n
NatWest Group pledges collateral with its counterparties in respect of derivative liabilities and bank and stock borrowings.
\n
2022
2021
\n
Assets pledged against liabilities
\u00a3m
\u00a3m
\n
Trading assets
15,062
23,601
\n
Loans to banks - amortised cost
66
62
\n
Loans to customers - amortised cost
17,493
20,108
\n
Other financial assets
(1)
3,351
3,624
\n
Total
35,972
47,395
\n
(1)
Includes assets pledged for pension derivatives and stock borrowings.
\n
As part of the covered debt programme \u00a38,156 million of loans to customers and other debt instruments (2021 \u2013 \u00a38,965 million)
\n
have been transferred to bankruptcy remote limited liability partnerships within the NatWest Group to provide collateral for issues
\n
of debt securities and other borrowing by the NatWest Group of \u00a34,132 million (2021 \u2013 \u00a33,512 million). See Structured Entities Note.
\n
\n
25 Capital resources
\n
NatWest Group\u2019s regulatory capital is assessed against minimum requirements that are set out under the Capital Requirements
\n
Regulation to determine the strength of its capital base.
\n
This note shows a reconciliation of shareholders\u2019 equity to regulatory capital.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Shareholders\u2019 equity (excluding non-controlling interests)
\n
Shareholders\u2019 equity
36,488
41,796
\n
Preference shares - equity
\u2014
(494)
\n
Other equity instruments
(3,890)
(3,890)
\n
32,598
37,412
\n
Regulatory adjustments and deductions
\n
Own credit
(58)
21
\n
Defined benefit pension fund adjustment
(227)
(465)
\n
Cash flow hedging reserve
2,771
395
\n
Deferred tax assets
(912)
(761)
\n
Prudential valuation adjustments
(275)
(274)
\n
Goodwill and other intangible assets
(7,116)
(6,312)
\n
Foreseeable ordinary dividends and pension contributions
(967)
(1,211)
\n
Adjustment for trust assets
(1)
(365)
\u2014
\n
Foreseeable charges - on-market share buyback programme
(800)
(825)
\n
Adjustment under IFRS 9 transitional arrangements
361
621
\n
Insufficient coverage for non-performing exposures
(18)
(5)
\n
(7,606)
(8,816)
\n
CET1 capital
24,992
28,596
\n
Additional Tier 1 (AT1) capital
\n
Qualifying instruments and related share premium
3,875
3,875
\n
Qualifying instruments and related share premium subject to phase out
\u2014
571
\n
AT1 capital
3,875
4,446
\n
Tier 1 capital
28,867
33,042
\n
Qualifying Tier 2 capital
\n
Qualifying instruments and related share premium
4,953
4,935
\n
Qualifying instruments issued by subsidiaries and held by third parties
82
314
\n
Other regulatory adjustments
18
457
\n
Tier 2 capital
5,053
5,706
\n
Total regulatory capital
33,920
38,748
\n
(1)
Prudent deduction in respect of agreement with the pension fund to establish new legal structure. See Notes 5 and 33.
\n
It is NatWest Group policy to maintain a strong capital base, to
\n
expand it as appropriate and to utilise it efficiently throughout
\n
its activities to optimise the return to shareholders while
\n
maintaining a prudent relationship between the capital base
\n
and the underlying risks of the business. In carrying out this
\n
policy, NatWest Group has regard to the supervisory
\n
requirements of the PRA. The PRA uses capital ratios as a
\n
measure of capital adequacy in the UK banking sector,
\n
comparing a bank's capital resources with its risk-weighted
\n
assets (the assets and off-balance sheet exposures are
\n
weighted to reflect the inherent credit and other risks); by
\n
international agreement, the Pillar 1 capital ratios should be not
\n
less than 8% with a Common Equity Tier 1 component of not
\n
less than 4.5%. NatWest Group has complied with the PRA\u2019s
\n
capital requirements throughout the year.
\n
A number of subsidiaries and sub-groups within NatWest
\n
Group, principally banking entities, are subject to various
\n
individual regulatory capital requirements in the UK and
\n
overseas. Furthermore, the payment of dividends by
\n
subsidiaries and the ability of members of NatWest Group to
\n
lend money to other members of NatWest Group may be
\n
subject to restrictions such as local regulatory or legal
\n
requirements, the availability of reserves and financial and
\n
operating performance.
\n
\n
26 Memorandum items
\n
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
\n
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
\n
December 2022. Although NatWest Group is exposed to credit risk in the event of a customer\u2019s failure to meet its obligations, the
\n
amounts shown do not, and are not intended to, provide any indication of NatWest Group's expectation of future losses.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Guarantees
3,150
2,055
\n
Other contingent liabilities
1,855
2,004
\n
Standby facilities, credit lines and other commitments
121,576
121,308
\n
Contingent liabilities and commitments
126,581
125,367
\n
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
\n
Guarantees \u2013 NatWest Group gives guarantees on behalf of
\n
customers. A financial guarantee represents an irrevocable
\n
undertaking that NatWest Group will meet a customer's
\n
specified obligations to third party if the customer fails to do so.
\n
The maximum amount that NatWest Group could be required
\n
to pay under a guarantee is its principal amount as disclosed in
\n
the table above. NatWest Group expects most guarantees it
\n
provides to expire unused.
\n
Other contingent liabilities - these include standby letters of
\n
credit, supporting customer debt issues and contingent
\n
liabilities relating to customer trading activities such as those
\n
arising from performance and customs bonds, warranties and
\n
indemnities.
\n
Standby facilities and credit lines - under a loan commitment,
\n
NatWest Group agrees to make funds available to a customer
\n
in the future. Loan commitments, which are usually for a
\n
specified term, may be unconditionally cancellable or may
\n
persist, provided all conditions in the loan facility are satisfied
\n
or waived. Commitments to lend include commercial standby
\n
facilities and credit lines, liquidity facilities to commercial paper
\n
conduits and unutilised overdraft facilities.
\n
Other commitments - these include documentary credits, which
\n
are commercial letters of credit providing for payment by
\n
NatWest Group to a named beneficiary against presentation of
\n
specified documents, forward asset purchases, forward
\n
deposits placed and undrawn note issuance and revolving
\n
underwriting facilities, and other short-term trade related
\n
transactions.
\n
Contractual obligations for future expenditure not provided for in the accounts
\n
The following table shows contractual obligations for future expenditure not provided for in the accounts at the year end.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Capital expenditure on property, plant and equipment
8
16
\n
Contracts to purchase goods or services
(1)
677
682
\n
685
698
\n
(1)
Of which due within 1 year: \u00a3321 million (2021 \u2013 \u00a3301 million).
\n
\n
\n
Trustee and other fiduciary activities
\n
In its capacity as trustee or other fiduciary role, NatWest Group
\n
may hold or place assets on behalf of individuals, trusts,
\n
companies, pension schemes and others. The assets and their
\n
income are not included in NatWest Group's financial
\n
statements. NatWest Group earned fee income of \u00a3266 million
\n
(2021 - \u00a3280 million; 2020 - \u00a3245 million) from these activities.
\n
The Financial Services Compensation Scheme
\n
The Financial Services Compensation Scheme (FSCS), the UK's
\n
statutory fund of last resort for customers of authorised
\n
financial services firms, pays compensation if a firm is unable to
\n
meet its obligations. The FSCS funds compensation for
\n
customers by raising management expenses levies and
\n
compensation levies on the industry. In relation to protected
\n
deposits, each deposit-taking institution contributes towards
\n
these levies in proportion to their share of total protected
\n
deposits on 31 December of the year preceding the scheme
\n
year (which runs from 1 April to 31 March), subject to annual
\n
maxima set by the Prudential Regulation Authority. In addition,
\n
the FSCS has the power to raise levies on a firm that has
\n
ceased to participate in the scheme and is in the process of
\n
ceasing to be authorised for the costs that it would have been
\n
liable to pay had the FSCS made a levy in the financial year it
\n
ceased to be a participant in the scheme.
\n
Litigation and regulatory matters
\n
NatWest Group plc and certain members of NatWest Group are
\n
party to legal proceedings and involved in regulatory matters,
\n
including as the subject of investigations and other regulatory
\n
and governmental action (Matters) in the United Kingdom (UK),
\n
the United States (US), the European Union (EU) and other
\n
jurisdictions.
\n
NatWest Group recognises a provision for a liability in relation
\n
to these Matters when it is probable that an outflow of
\n
economic benefits will be required to settle an obligation
\n
resulting from past events, and a reliable estimate can be made
\n
of the amount of the obligation.
\n
In many of these Matters, it is not possible to determine
\n
whether any loss is probable, or to estimate reliably the amount
\n
of any loss, either as a direct consequence of the relevant
\n
proceedings and regulatory matters or as a result of adverse
\n
impacts or restrictions on NatWest Group\u2019s reputation,
\n
businesses and operations. Numerous legal and factual issues
\n
may need to be resolved, including through potentially lengthy
\n
discovery and document production exercises and
\n
determination of important factual matters, and by addressing
\n
novel or unsettled legal questions relevant to the proceedings in
\n
question, before a liability can reasonably be estimated for any
\n
claim. NatWest Group cannot predict if, how, or when such
\n
claims will be resolved or what the eventual settlement,
\n
damages, fine, penalty or other relief, if any, may be,
\n
particularly for claims that are at an early stage in their
\n
development or where claimants seek substantial or
\n
indeterminate damages.
\n
There are situations where NatWest Group may pursue an
\n
approach that in some instances leads to a settlement
\n
agreement. This may occur in order to avoid the expense,
\n
management distraction or reputational implications of
\n
continuing to contest liability, or in order to take account of the
\n
risks inherent in defending claims or regulatory matters, even
\n
for those Matters for which NatWest Group believes it has
\n
credible defences and should prevail on the merits. The
\n
uncertainties inherent in all such Matters affect the amount and
\n
timing of any potential outflows for both Matters with respect
\n
to which provisions have been established and other contingent
\n
liabilities in respect of any such Matter.
\n
It is not practicable to provide an aggregate estimate of
\n
potential liability for our legal proceedings and regulatory
\n
matters as a class of contingent liabilities.
\n
The future outflow of resources in respect of any Matter may
\n
ultimately prove to be substantially greater than or less than
\n
the aggregate provision that NatWest Group has recognised.
\n
Where (and as far as) liability cannot be reasonably estimated,
\n
no provision has been recognised. NatWest Group expects that
\n
in future periods, additional provisions, settlement amounts and
\n
customer redress payments will be necessary, in amounts that
\n
are expected to be substantial in some instances. Please refer
\n
to Note 21 for information on material provisions.
\n
Matters which are, or could be material, having regard to
\n
NatWest Group, considered as a whole, in which NatWest
\n
Group is currently involved are set out below. We have
\n
provided information on the procedural history of certain
\n
Matters, where we believe appropriate, to aid the
\n
understanding of the Matter.
\n
For a discussion of certain risks associated with NatWest
\n
Group\u2019s litigation and regulatory matters, see the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
\n
Litigation
\n
Residential mortgage-backed securities (RMBS) litigation in
\n
the US
\n
NatWest Group companies continue to defend RMBS-related
\n
claims in the US in which the plaintiff, the Federal Deposit
\n
Insurance Corporation (FDIC), alleges that certain disclosures
\n
made in connection with the relevant offerings of RMBS
\n
contained materially false or misleading statements and/or
\n
omissions regarding the underwriting standards pursuant to
\n
which the mortgage loans underlying the RMBS were issued.
\n
London Interbank Offered Rate (LIBOR) and other rates
\n
litigation
\n
NWM Plc and certain other members of NatWest Group,
\n
including NatWest Group plc, are defendants in a number of
\n
class actions and individual claims pending in the United States
\n
District Court for the Southern District of New York (SDNY)
\n
with respect to the setting of LIBOR and certain other
\n
benchmark interest rates. The complaints allege that certain
\n
members of NatWest Group and other panel banks violated
\n
various federal laws, including the US commodities and
\n
antitrust laws, and state statutory and common law, as well as
\n
contracts, by manipulating LIBOR and prices of LIBOR-based
\n
derivatives in various markets through various means.
\n
Several purported class actions relating to USD LIBOR, as well
\n
as more than two dozen non-class actions concerning USD
\n
LIBOR, are part of a co-ordinated proceeding in the SDNY. The
\n
class actions include claims on behalf of persons who
\n
purchased LIBOR-linked instruments from defendants, bonds
\n
issued by defendants, persons who transacted futures and
\n
options on exchanges, and lenders who made LIBOR-based
\n
loans. The coordinated proceeding is currently in the discovery
\n
phase. In March 2020, NatWest Group companies finalised a
\n
settlement resolving the class action on behalf of bondholder
\n
plaintiffs (those who held bonds issued by non-defendants on
\n
which interest was paid from 2007 to 2010 at a rate expressly
\n
tied to USD LIBOR). The amount of the settlement (which was
\n
covered by an existing provision) was paid into escrow pending
\n
court approval of the settlement.
\n
\n
\n
Litigation and regulatory matters
\n
The non-class claims filed in the SDNY include claims that the
\n
FDIC is asserting on behalf of certain failed US banks. In July
\n
2017, the FDIC, on behalf of 39 of those failed US banks,
\n
commenced substantially similar claims against NatWest Group
\n
companies and others in the High Court of Justice of England
\n
and Wales. The action alleges collusion with regard to the
\n
setting of USD LIBOR and that the defendants breached UK
\n
and European competition law, as well as asserting common
\n
law claims of fraud under US law. The defendant banks
\n
consented to a request by the FDIC for discontinuance of the
\n
claim in respect of 20 failed US banks, leaving 19 failed US
\n
banks as claimants. The trial is currently anticipated to take
\n
place in Q4 2025.
\n
In addition to the USD LIBOR cases described above, there are
\n
two class actions relating to JPY LIBOR and Euroyen TIBOR
\n
that remain outstanding. The first class action, which relates to
\n
Euroyen TIBOR futures contracts, was dismissed by the SDNY
\n
in September 2020 on jurisdictional and other grounds, and
\n
that decision was affirmed by the US Court of Appeals in
\n
October 2022. The plaintiffs have petitioned the court for a
\n
rehearing of their appeal. The second class action, which
\n
relates to other derivatives allegedly tied to JPY LIBOR and
\n
Euroyen TIBOR, was dismissed by the SDNY in relation to NWM
\n
Plc and other NatWest Group companies in September 2021.
\n
That dismissal may be the subject of a future appeal
.
\n
Two other IBOR-related class actions, concerning alleged
\n
manipulation of Euribor and Pound Sterling LIBOR, were
\n
previously dismissed by the SDNY for various reasons. The
\n
plaintiffs\u2019 appeals in those two cases remain pending.
\n
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc
\n
LIBOR class action finalised a settlement resolving that case.
\n
The amount of that settlement has been paid into escrow
\n
pending final court approval of the settlement.
\n
Settlements in the class action relating to the Singapore
\n
Interbank Offered Rate and Singapore Swap Offer Rate and the
\n
class action relating to the Australian Bank Bill Swap Reference
\n
Rate received court approval in 2022, such that the settlements
\n
became final and the amounts previously paid into escrow
\n
were released to the plaintiffs.
\n
In August 2020, a complaint was filed in the United States
\n
District Court for the Northern District of California by several
\n
United States retail borrowers against the USD ICE LIBOR
\n
panel banks and their affiliates (including NatWest Group plc,
\n
NWM Plc, NWMSI and NWB Plc), alleging (i) that the very
\n
process of setting USD ICE LIBOR amounts to illegal price-
\n
fixing; and (ii) that banks in the United States have illegally
\n
agreed to use LIBOR as a component of price in variable retail
\n
loans. In September 2022, the district court dismissed the
\n
complaint, subject to re-pleading by the plaintiffs. The plaintiffs
\n
filed an amended complaint in October 2022, which the
\n
defendants are again seeking to have dismissed.
\n
NWM Plc is also named as a defendant in a motion to certify a
\n
class action relating to LIBOR in the Tel Aviv District Court in
\n
Israel. NWM Plc filed a motion for cancellation of service
\n
outside the jurisdiction, which was granted in July 2020. The
\n
claimants appealed that decision and in November 2020 the
\n
appeal was refused and the claim dismissed by the Appellate
\n
Court. The claim could in future be recommenced depending
\n
on the outcome of an appeal to Israel\u2019s Supreme Court in
\n
respect of the dismissal of the substantive case against banks
\n
that had a presence in Israel.
\n
FX litigation
\n
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
\n
several cases relating to NWM Plc\u2019s foreign exchange (FX)
\n
business. In 2015, NWM Plc paid US$255 million to settle the
\n
consolidated antitrust class action filed in the SDNY on behalf
\n
of persons who entered into over-the-counter FX transactions
\n
with defendants or who traded FX instruments on exchanges.
\n
In 2018, some members of the settlement class who opted out
\n
of that class action settlement filed their own non-class
\n
complaint in the SDNY asserting antitrust claims against NWM
\n
Plc, NWMSI and other banks.
\n
In April 2019, some of the claimants in the opt-out case
\n
described above, as well as others, served proceedings in the
\n
High Court of Justice of England and Wales, asserting
\n
competition claims against NWM Plc and several other banks.
\n
The claim was transferred from the High Court of Justice of
\n
England and Wales in December 2021 and registered in the UK
\n
Competition Appeal Tribunal (CAT) in January 2022. In
\n
December 2022, NWM Plc reached an agreement in principle,
\n
subject to documentation, to resolve both the SDNY and CAT
\n
cases. The settlement amount to be paid by NWM Plc is
\n
covered by an existing provision.
\n
An FX-related class action, on behalf of \u2018consumers and end-
\n
user businesses\u2019, is proceeding in the SDNY against NWM Plc
\n
and others. In March 2022, the SDNY denied the plaintiffs\u2019
\n
motion for class certification. Plaintiffs sought an immediate
\n
appeal of the decision but the appellate court declined to
\n
review the decision. As a result, the case is proceeding on an
\n
individual, non-class basis, and the defendants are seeking
\n
summary judgment dismissing the individual claims.
\n
In May 2019, a cartel class action was filed in the Federal Court
\n
of Australia against NWM Plc and four other banks on behalf of
\n
persons who bought or sold currency through FX spots or
\n
forwards between 1 January 2008 and 15 October 2013 with a
\n
total transaction value exceeding AUD $0.5 million. The
\n
claimant has alleged that the banks, including NWM Plc,
\n
contravened Australian competition law by sharing information,
\n
coordinating conduct, widening spreads and manipulating FX
\n
rates for certain currency pairs during this period. NatWest
\n
Group plc and NWMSI have been named in the action as \u2018other
\n
cartel participants\u2019, but are not respondents. The claim was
\n
served in June 2019 and NWM Plc filed its defence in March
\n
2022.
\n
In July and December 2019, two separate applications seeking
\n
opt-out collective proceedings orders were filed in the CAT
\n
against NatWest Group plc, NWM Plc and other banks. Both
\n
applications were brought on behalf of persons who, between
\n
18 December 2007 and 31 January 2013, entered into a
\n
relevant FX spot or outright forward transaction in the EEA
\n
with a relevant financial institution or on an electronic
\n
communications network. In March 2022, the CAT declined to
\n
certify as collective proceedings either of the applications. In
\n
October 2022, the CAT granted permission for the applicants to
\n
appeal that decision to the Court of Appeal. Separately, the
\n
applicants have served judicial review proceedings, which are
\n
due to be heard together with the appeal to the Court of
\n
Appeal in April 2023.
\n
Two motions to certify FX-related class actions were filed in the
\n
Tel Aviv District Court in Israel in September and October 2018,
\n
and were subsequently consolidated into one motion. The
\n
consolidated motion to certify, which names The Royal Bank of
\n
Scotland plc (now NWM Plc) and several other banks as
\n
defendants, was served on NWM Plc in May 2020. The
\n
applicants have sought the court\u2019s permission to amend their
\n
motions to certify the class actions.
\n
\n
\n
Litigation and regulatory matters
\n
NWM Plc has filed a motion challenging the permission granted
\n
by the court for the applicants to serve the consolidated motion
\n
outside the Israeli jurisdiction. That NWM Plc motion remains
\n
pending.
\n
In December 2021, a claim was issued in the Netherlands
\n
against NatWest Group plc, NWM Plc and NWM N.V. by
\n
Stichting FX Claims, seeking a declaration from the court that
\n
anti-competitive FX market conduct described in decisions of
\n
the European Commission (EC) of 16 May 2019 is unlawful,
\n
along with unspecified damages. The claimant has amended its
\n
claim to also refer to a December 2021 decision by the EC,
\n
which also described anti-competitive FX market conduct. The
\n
defendants are contesting the jurisdiction of the Dutch court.
\n
Certain other foreign exchange transaction related claims have
\n
been or may be threatened. NatWest Group cannot predict
\n
whether all or any of these claims will be pursued.
\n
Government securities antitrust litigation
\n
NWMSI and certain other US broker-dealers are defendants in
\n
a consolidated antitrust class action in the SDNY on behalf of
\n
persons who transacted in US Treasury securities or derivatives
\n
based on such instruments, including futures and options. The
\n
plaintiffs allege that the defendants rigged the US Treasury
\n
securities auction bidding process to deflate prices at which
\n
they bought such securities and colluded to increase the prices
\n
at which they sold such securities to the plaintiffs. In March
\n
2022, the SDNY dismissed the complaint, without leave to re-
\n
plead. The plaintiffs are appealing the dismissal.
\n
Class action antitrust claims commenced in March 2019 are
\n
pending in the SDNY against NWM Plc, NWMSI and other banks
\n
in respect of Euro-denominated bonds issued by European
\n
central banks (EGBs). The complaint alleges a conspiracy
\n
among dealers of EGBs to widen the bid-ask spreads they
\n
quoted to customers, thereby increasing the prices customers
\n
paid for the EGBs or decreasing the prices at which customers
\n
sold the bonds. The class consists of those who purchased or
\n
sold EGBs in the US between 2007 and 2012. In March 2022,
\n
the SDNY dismissed the claims against NWM Plc and NWMSI on
\n
the ground that the complaint\u2019s conspiracy allegations are
\n
insufficient. The plaintiffs have filed a motion for permission to
\n
file an amended complaint.
\n
Swaps antitrust litigation
\n
NWM Plc and other members of NatWest Group, including
\n
NatWest Group plc, as well as a number of other interest rate
\n
swap dealers, are defendants in several cases pending in the
\n
SDNY alleging violations of the US antitrust laws in the market
\n
for interest rate swaps. There is a consolidated class action
\n
complaint on behalf of persons who entered into interest rate
\n
swaps with the defendants, as well as non-class action claims
\n
by three swap execution facilities (TeraExchange, Javelin, and
\n
trueEx). The plaintiffs allege that the swap execution facilities
\n
would have successfully established exchange-like trading of
\n
interest rate swaps if the defendants had not unlawfully
\n
conspired to prevent that from happening through boycotts
\n
and other means. Discovery in these cases is complete, and the
\n
plaintiffs\u2019 motion for class certification remains pending.
\n
In June 2021, a class action antitrust complaint was filed
\n
against a number of credit default swap dealers in New Mexico
\n
federal court on behalf of persons who, from 2005 onwards,
\n
settled credit default swaps in the United States by reference to
\n
the ISDA credit default swap auction protocol. The complaint
\n
alleges that the defendants conspired to manipulate that
\n
benchmark through various means in violation of the antitrust
\n
laws and the Commodity Exchange Act.
\n
The defendants include several NatWest Group companies,
\n
including NatWest Group plc. Defendants are seeking dismissal.
\n
Odd lot corporate bond trading antitrust litigation
\n
In October 2021, the SDNY granted the defendants\u2019 motion to
\n
dismiss the class action antitrust complaint alleging that from
\n
August 2006 onwards various securities dealers, including
\n
NWMSI, conspired artificially to widen spreads for odd lots of
\n
corporate bonds bought or sold in the United States secondary
\n
market and to boycott electronic trading platforms that would
\n
have allegedly promoted pricing competition in the market for
\n
such bonds. The plaintiffs have filed an appeal.
\n
Spoofing litigation
\n
In December 2021, three substantially similar class actions
\n
complaints were filed in federal court in the United States
\n
against NWM Plc and NWMSI alleging Commodity Exchange
\n
Act and common law unjust enrichment claims arising from
\n
manipulative trading known as spoofing. The complaints refer
\n
to NWM Plc\u2019s December 2021 spoofing-related guilty plea
\n
(described below under \u201cUS investigations relating to fixed-
\n
income securities\u201d) and purport to assert claims on behalf of
\n
those who transacted in US Treasury securities and futures and
\n
options on US Treasury securities between 2008 and 2018. In
\n
July 2022, defendants filed a motion to dismiss these claims,
\n
which have been consolidated into one matter in the United
\n
States District Court for the Northern District of Illinois.
\n
Madoff
\n
NWM N.V. was named as a defendant in two actions filed by
\n
the trustee for the bankrupt estates of Bernard L. Madoff and
\n
Bernard L. Madoff Investment Securities LLC, in bankruptcy
\n
court in New York, which together seek to clawback more than
\n
US$298 million that NWM N.V. allegedly received from certain
\n
Madoff feeder funds and certain swap counterparties. The
\n
claims were previously dismissed, but as a result of an August
\n
2021 decision by the US Court of Appeals, they will now
\n
proceed in the bankruptcy court, where they have now been
\n
consolidated into one action, subject to NWM N.V.\u2019s legal and
\n
factual defences. In May 2022, NWM N.V. filed a motion to
\n
dismiss the amended complaint in the consolidated action.
\n
EUA trading litigation
\n
NWM Plc was a named defendant in civil proceedings before
\n
the High Court of Justice of England and Wales brought in 2015
\n
by ten
companies (all in liquidation) (the \u2018Liquidated
\n
Companies\u2019) and their respective liquidators (together, \u2018the
\n
Claimants\u2019). The Liquidated Companies previously traded in
\n
European Union Allowances (EUAs) in 2009 and were alleged
\n
to be VAT defaulting traders within (or otherwise connected to)
\n
EUA supply chains of which NWM Plc was a party. In March
\n
2020, the court held that NWM Plc and Mercuria Energy
\n
Europe Trading Limited (\u2018Mercuria\u2019) were liable for dishonestly
\n
assisting and knowingly being a party to fraudulent trading
\n
during a seven business day period in 2009.
\n
In October 2020, the High Court quantified total damages
\n
against NWM Plc and Mercuria at \u00a345 million plus interest and
\n
costs, and permitted the defendants to appeal to the Court of
\n
Appeal. In May 2021 the Court of Appeal set aside the High
\n
Court\u2019s judgment and ordered that a retrial take place before a
\n
different High Court judge. The claimants have been denied
\n
permission by the Supreme Court to appeal that decision and
\n
the retrial will therefore proceed on a date to be scheduled.
\n
Mercuria has also been denied permission by the Supreme
\n
Court to appeal the High Court\u2019s finding that NWM Plc and
\n
Mercuria were both vicariously liable.
\n
\n
\n
Litigation and regulatory matters
\n
Offshoring VAT assessments
\n
HMRC issued protective tax assessments in 2018 against
\n
NatWest Group plc totalling \u00a3143 million relating to unpaid VAT
\n
in respect of the UK branches of two NatWest Group
\n
companies registered in India. NatWest Group formally
\n
requested reconsideration by HMRC of their assessments, and
\n
this process was completed in November 2020. HMRC upheld
\n
their original decision and, as a result, NatWest Group plc
\n
lodged an appeal with the Tax Tribunal and an application for
\n
judicial review with the High Court of Justice of England and
\n
Wales, both in December 2020. In order to lodge the appeal
\n
with the Tax Tribunal, NatWest Group plc was required to pay
\n
\u00a3143 million to HMRC, and payment was made in December
\n
2020. The appeal and the application for judicial review have
\n
both been stayed pending resolution of a separate case
\n
involving another bank.
\n
US Anti-Terrorism Act litigation
\n
NWM N.V. and certain other financial institutions are
\n
defendants in several actions filed by a number of US nationals
\n
(or their estates, survivors, or heirs), most of whom are or were
\n
US military personnel, who were killed or injured in attacks in
\n
Iraq between 2003 and 2011. NWM Plc is also a defendant in
\n
some of these cases.
\n
According to the plaintiffs\u2019 allegations, the defendants are liable
\n
for damages arising from the attacks because they allegedly
\n
conspired with Iran and certain Iranian banks to assist Iran in
\n
transferring money to Hezbollah and the Iraqi terror cells that
\n
committed the attacks, in violation of the US Anti-Terrorism
\n
Act, by agreeing to engage in \u2018stripping\u2019 of transactions
\n
initiated by the Iranian banks so that the Iranian nexus to the
\n
transactions would not be detected.
\n
The first of these actions was filed in the United States District
\n
Court for the Eastern District of New York in November 2014.
\n
In September 2019, the district court dismissed the case,
\n
finding that the claims were deficient for several reasons,
\n
including lack of sufficient allegations as to the alleged
\n
conspiracy and causation. On 5 January 2023, the US Court of
\n
Appeals affirmed the district court\u2019s dismissal of this case.
\n
Another action, filed in the SDNY in 2017, was dismissed by the
\n
SDNY in March 2019 on similar grounds as the first case, but
\n
remains subject to appeal to the US Court of Appeals. Other
\n
follow-on actions that are substantially similar to the two that
\n
have now been dismissed are pending in the same courts.
\n
1MDB litigation
\n
A Malaysian court claim was served in Switzerland in
\n
November 2022 by 1MDB, a Sovereign Wealth Fund, in which
\n
Coutts & Co Ltd was named, along with six others, as a
\n
defendant in respect of losses allegedly incurred by 1MDB. It is
\n
claimed that Coutts & Co Ltd is liable as a constructive trustee
\n
for having dishonestly assisted the directors of 1MDB in the
\n
breach of their fiduciary duties by failing (amongst other
\n
alleged claims) to undertake due diligence in relation to a
\n
customer of Coutts & Co Ltd, through which funds totalling
\n
c.US$1 billion were received and paid out between 2009 and
\n
2011. The claimant seeks the return of that amount plus
\n
interest. Coutts & Co Ltd filed an application in January 2023
\n
challenging the validity of service and the Malaysian court\u2019s
\n
jurisdiction to hear the claim. Coutts & Co Ltd is a company
\n
registered in Switzerland and is in wind-down following the
\n
announced sale of its business assets in 2015.
\n
Regulatory matters (including investigations and customer
\n
redress programmes)
\n
NatWest Group\u2019s businesses and financial condition can be
\n
affected by the actions of various governmental and regulatory
\n
authorities in the UK, the US, the EU and elsewhere. NatWest
\n
Group has engaged, and will continue to engage, in discussions
\n
with relevant governmental and regulatory authorities,
\n
including in the UK, the US, the EU and elsewhere, on an
\n
ongoing and regular basis, and in response to informal and
\n
formal inquiries or investigations, regarding operational,
\n
systems and control evaluations and issues including those
\n
related to compliance with applicable laws and regulations,
\n
including consumer protection, investment advice, business
\n
conduct, competition/anti-trust, VAT recovery, anti-bribery,
\n
anti-money laundering and sanctions regimes. NatWest Group
\n
expects government and regulatory intervention in financial
\n
services to be high for the foreseeable future, including
\n
increased scrutiny from competition and other regulators in the
\n
retail and SME business sectors.
\n
Any matters discussed or identified during such discussions and
\n
inquiries may result in, among other things, further inquiry or
\n
investigation, other action being taken by governmental and
\n
regulatory authorities, increased costs being incurred by
\n
NatWest Group, remediation of systems and controls, public or
\n
private censure, restriction of NatWest Group\u2019s business
\n
activities and/or fines. Any of the events or circumstances
\n
mentioned in this paragraph or below could have a material
\n
adverse effect on NatWest Group, its business, authorisations
\n
and licences, reputation, results of operations or the price of
\n
securities issued by it, or lead to material additional provisions
\n
being taken.
\n
NatWest Group is co-operating fully with the matters described
\n
below.
\n
US investigations relating to fixed-income securities
\n
In December 2021, NWM Plc pled guilty in the United States
\n
District Court for the District of Connecticut to one count of
\n
wire fraud and one count of securities fraud in connection with
\n
historical spoofing conduct by former employees in US
\n
Treasuries markets between January 2008 and May 2014 and,
\n
separately, during approximately three months in 2018. The
\n
2018 trading occurred during the term of a non-prosecution
\n
agreement (NPA) between NWMSI and the United States
\n
Attorney's Office for the District of Connecticut (USAO CT),
\n
under which non-prosecution was conditioned on NWMSI and
\n
affiliated companies not engaging in criminal conduct during
\n
the term of the NPA. The relevant trading in 2018 was
\n
conducted by two NWM traders in Singapore and breached
\n
that NPA. The plea agreement reached with the US
\n
Department of Justice and the USAO CT resolved both the
\n
spoofing conduct and the breach of the NPA.
\n
As required by the resolution and sentence imposed by the
\n
court, NWM Plc is subject to a three-year period of probation.
\n
The plea agreement also imposes an independent corporate
\n
monitor. In addition, NWM Plc has committed to compliance
\n
programme reviews and improvements and agreed to
\n
reporting and co-operation obligations.
\n
Other material adverse collateral consequences may occur as
\n
a result of this matter, as further described in the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
\n
\n
\n
Litigation and regulatory matters
\n
RBSI inspection report and referral to enforcement
\n
The Isle of Man Financial Services Authority undertook an
\n
inspection at The Royal Bank of Scotland International Limited
\n
(RBSI), Isle of Man, in 2021, following which it issued an
\n
inspection report. The inspection was in relation to anti-money
\n
laundering and counter-terrorist financing controls and
\n
procedures relating to specific RBSI customers. In May 2022,
\n
the FSA notified RBSI that it had been referred to its
\n
Enforcement Division in relation to certain issues identified in
\n
the inspection report.
\n
RBSI reliance regime and referral to enforcement
\n
In January 2023, the Jersey Financial Services Commission
\n
notified RBSI that it had been referred to its Enforcement
\n
Division in relation to RBSI\u2019s operation of the reliance regime.
\n
The reliance regime is specific to certain Crown Dependencies
\n
and enables the bank to rely on regulated third parties for
\n
specific due diligence information.
\n
Investment advice review
\n
In October 2019, the FCA notified NatWest Group of its
\n
intention to appoint a Skilled Person under section 166 of the
\n
Financial Services and Markets Act 2000 to conduct a review of
\n
whether NatWest Group\u2019s past business review of investment
\n
advice provided during 2010 to 2015 was subject to
\n
appropriate governance and accountability and led to
\n
appropriate customer outcomes. The Skilled Person\u2019s review
\n
has concluded and, after discussion with the FCA, NatWest
\n
Group has now commenced additional review / remediation
\n
work.
\n
Review and investigation of treatment of tracker mortgage
\n
customers in Ulster Bank Ireland DAC
\n
In December 2015, correspondence was received from the CBI
\n
setting out an industry examination framework in respect of the
\n
sale of tracker mortgages from approximately 2001 until the
\n
end of 2015. The redress and compensation process has now
\n
largely concluded, although certain cases remain outstanding.
\n
UBIDAC customers have lodged tracker mortgage complaints
\n
with the Financial Services and Pensions Ombudsman (FSPO).
\n
UBIDAC is challenging three FSPO adjudications in the Irish
\n
High Court. The outcome and impact of that challenge on those
\n
and related complaints is uncertain but may be material.
\n
Other customer remediation in Ulster Bank Ireland DAC
\n
UBIDAC has identified further legacy business issues and these
\n
remediation programmes are ongoing.
\n
27 Analysis of the net investment in business interests and intangible assets
\n
This note shows cash flows relating to obtaining or losing control of associates or subsidiaries and net assets and liabilities
\n
purchased and sold. These cash flows are presented as investing activities on the cash flow statement.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Acquisition of interests in associates
(1)
\u2014
\u2014
\n
Additional investment in associates
\u2014
(51)
(40)
\n
Net assets/liabilities purchased
\u2014
(3,128)
\u2014
\n
Net outflow of cash in respect of acquisitions
(1)
(3,179)
(40)
\n
Sale of interests in associates
\u2014
\u2014
27
\n
Disposal of net assets and liabilities
6,270
114
288
\n
(Loss)/profit on disposal of net assets and liabilities
(106)
55
3
\n
Net inflow of cash in respect of disposals
6,164
169
318
\n
Cash expenditure on intangible assets
(743)
(479)
(348)
\n
Net inflow/(outflow) of cash
5,420
(3,489)
(70)
\n
\n
28 Analysis of changes in financing during the year
\n
This note shows cash flows and non-cash movements relating to the financing activities of the Group. These activities reflect
\n
movements in share capital, share premium, paid-in equity, subordinated liabilities and MRELs.
\n
Share capital, share premium,
\n
and paid-in equity
Subordinated liabilities
MRELs
\n
2022
2021
2020
2022
2021
2020
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
16,519
18,239
17,246
8,429
9,962
9,979
23,423
20,873
19,249
\n
Issue of paid-in equity
\u2014
937
2,218
\n
Issue of subordinated liabilities
648
1,634
1,631
\n
Redemption of subordinated liabilities
(3,693)
(4,765)
(3,502)
\n
Interest on subordinated liabilities
(374)
(321)
(510)
\n
Issue of MRELs
3,721
3,383
1,309
\n
Maturity and redemption of MRELs
(4,992)
\u2014
(2)
\n
Interest on MRELs
(703)
(647)
(671)
\n
Net cash inflow/(outflow) from financing
\u2014
937
2,218
(3,419)
(3,452)
(2,381)
(1,974)
2,736
636
\n
Ordinary shares issued
\u2014
87
52
\n
Share cancellation
(929)
(698)
\u2014
\n
Effects of foreign exchange
\u2014
\u2014
\u2014
597
(18)
(234)
1,889
(190)
(514)
\n
Changes in fair value of subordinated
\n
liabilities and MRELs
(594)
(434)
133
(1,806)
(649)
829
\n
Preference shares reclassified to
\n
subordinated liabilities
750
\u2014
\u2014
\n
Paid in equity reclassified to subordinated
\n
liabilities
\u2014
(2,046)
(1,277)
\u2014
1,915
1,632
\n
Loss on sale of subordinated liabilities
\n
and MRELs
161
145
324
\u2014
\u2014
\u2014
\n
Interest on subordinated liabilities
\n
and MRELs
370
311
509
733
653
673
\n
Other adjustments
\u2014
\u2014
\u2014
(34)
\u2014
\u2014
\u2014
\u2014
\u2014
\n
At 31 December
15,590
16,519
18,239
6,260
8,429
9,962
22,265
23,423
20,873
\n
29 Analysis of cash and cash equivalents
\n
In the cash flow statement, cash and cash equivalents comprises cash, loans to banks and treasury bills with an original maturity
\n
of less than three months that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
190,706
139,199
100,588
\n
Net (decrease)/increase in cash and cash equivalents
(32,257)
51,507
38,611
\n
At 31 December
158,449
190,706
139,199
\n
Comprising:
\n
Cash and balances at central banks
144,832
177,757
124,489
\n
Trading assets
8,551
7,137
9,220
\n
Other financial assets
19
16
173
\n
Loans to banks
(1)
5,047
5,796
5,317
\n
Cash and cash equivalents
158,449
190,706
139,199
\n
(1)
Includes cash collateral posted with bank counterparties in respect of derivative liabilities of \u00a34,895 million (2021 - \u00a34,293 million; 2020 - \u00a37,592 million).
\n
Certain members of NatWest Group are required by law or regulation to maintain balances with the central banks in the
\n
jurisdictions in which they operate. Natwest Markets N.V.
had mandatory reserve deposits with
De Nederlandsche Bank N.V.
of \u20ac64
\n
million (2021 - \u20ac60 million, 2020 - \u20ac81 million).
The Royal Bank of Scotland International (Holdings) Limited had balances with
\n
Central Bank of Luxembourg of \u00a3108 million (2021 - \u00a3123 million, 2020 - \u00a359 million)
\n
\n
30 Directors' and key management remuneration
\n
Directors and key management are remunerated for services rendered in the period. The executive directors may participate in
\n
the company's long-term incentive plans, executive share option and sharesave schemes and details of their interests in the
\n
company's shares arising from their participation are given in the directors' remuneration report. Details of the remuneration
\n
received by each director are also given in the directors' remuneration report
.
\n
Key management comprises members of the NatWest Group plc and NWH Ltd Boards, members of the NatWest Group plc and
\n
NWH Ltd Executive Committees, and the Chief Executives of NatWest Markets Plc and RBS International (Holdings) Limited. This is
\n
on the basis that these individuals have been identified as Persons Discharging Managerial Responsibilities of NatWest Group plc
\n
under the new governance structure.
\n
2022
2021
\n
Directors' remuneration
\u00a3000
\u00a3000
\n
Non-executive directors emoluments
1,685
1,641
\n
Chairman and executive directors emoluments
5,804
4,688
\n
7,489
6,329
\n
Amounts receivable under long-term incentive plans and share option plans
542
549
\n
Total
8,031
6,878
\n
Compensation of key management
\n
The aggregate remuneration of directors and other members of key management during the year was as follows:
\n
2022
2021
\n
\u00a3000
\u00a3000
\n
Short-term benefits
22,175
17,303
\n
Post-employment benefits
732
820
\n
Share-based payments
2,547
2,491
\n
25,454
20,614
\n
Short term benefits include benefits expected to be settled wholly within twelve months of Balance Sheet date. Post-employment
\n
benefits include defined benefit contributions for active members and pension funding to support contributions to the defined
\n
contribution schemes. Share-based payments include awards vesting under rewards schemes.
\n
31 Transactions with directors and key management
\n
This note presents information relating to any transactions with directors and key management. Key management comprises
\n
directors of the company and Persons Discharging Managerial Responsibilities (PDMRs) of NatWest Group plc.
\n
For the purposes of IAS 24 Related party disclosures, key management comprises directors of the company and PDMRs of NatWest
\n
Group plc. Key management have banking relationships with NatWest Group entities which are entered into in the normal course
\n
of business and on substantially the same terms, including interest rates and security, as for comparable transactions with other
\n
persons of a similar standing or, where applicable, with other employees. These transactions did not involve more than the normal
\n
risk of repayment or present other unfavourable features.
\n
Amounts in the table below are attributed to each person at their highest level of NatWest Group key management.
\n
2022
2021
\n
\u00a3000
\u00a3000
\n
Loans to customers - amortised cost
12,137
9,128
\n
Customer deposits
47,866
51,018
\n
At 31 December 2022, amounts outstanding in relation to transactions, arrangements and agreements entered into by authorised
\n
institutions in NatWest Group, as defined in UK legislation, were \u00a39,636,586 in respect of loans to 8 persons who were directors of
\n
the company at any time during the financial period.
\n
\n
32 Related parties
\n
A related party is a person or entity that is related to the entity that is preparing its financial statements. Transactions between an
\n
entity and any related party are disclosed in the financial statements in accordance with both accounting standards and relevant
\n
listing rules to ensure readers are aware of how financial statements may be affected by these transactions
.
\n
UK Government
\n
The UK Government through HM Treasury is the ultimate
\n
controlling party of The NatWest Group plc. The UK
\n
Government\u2019s shareholding is managed by UK Government
\n
Investments Limited, a company wholly owned by the UK
\n
Government. As a result the UK Government and UK
\n
Government controlled bodies are related parties of the Group.
\n
At 31 December 2022 HM Treasury\u2019s holding in the company\u2019s
\n
ordinary shares was 45.97%.
\n
NatWest Group enters into transactions with many of these
\n
bodies. Transactions include the payment of: taxes \u2013 principally
\n
UK corporation tax (Note 7) and value added tax; national
\n
insurance contributions; local authority rates; and regulatory
\n
fees and levies (including the bank levy (Note 3) and FSCS levy
\n
(Note 26) - together with banking transactions such as loans
\n
and deposits undertaken in the normal course of banker-
\n
customer relationships.
\n
Bank of England facilities
\n
NatWest Group may participate in a number of schemes
\n
operated by the Bank of England in the normal course of
\n
business.
\n
Members of NatWest Group that are UK authorised institutions
\n
are required to maintain non-interest bearing (cash ratio)
\n
deposits with the Bank of England amounting to 0.403% of their
\n
average eligible liabilities in excess of \u00a3600 million. They also
\n
have access to Bank of England reserve accounts: sterling
\n
current accounts that earn interest at the Bank of England Base
\n
rate.
\n
NatWest Group provides guarantees for certain subsidiaries
\n
liabilities to the Bank of England.
\n
Other related parties
\n
\ue001
In their roles as providers of finance, NatWest Group
\n
companies provide development and other types of capital
\n
support to businesses. These investments are made in the
\n
normal course of business.
\n
\ue001
To further strategic partnerships, NatWest group may seek
\n
to invest in third parties or allow third parties to hold a
\n
minority interest in a subsidiary of NatWest group. We
\n
disclose as related parties where stakes of 10 per cent or
\n
more are held. Ongoing business transactions with these
\n
entities are on normal commercial terms.
\n
\ue001
We hold investments and other assets of \u00a3871 million and
\n
total liabilities of \u00a34.5 million.
\n
\ue001
NatWest Group recharges NatWest Group Pension Fund with
\n
the cost of administration services incurred by it. The
\n
amounts involved are not material to NatWest Group.
\n
\ue001
During February 2023, the Group has entered into an
\n
agreement to establish a new legal structure to hold assets,
\n
consolidated on the Group\u2019s balance sheet, to meet potential
\n
future contributions required by the Main section of the
\n
Group\u2019 Pension Fund. This transaction will require a future
\n
transfer of \u00a3471 million to the Reservoir Trust
once the final
\n
dividend for 2022 approved by shareholders. This
\n
transaction does not create a pension liability with the Main
\n
section of the Group Pension Fund.
See further details in
\n
note 5 and note 33.
\n
\ue001
In accordance with IAS 24, transactions or balances
\n
between NatWest Group entities that have been eliminated
\n
on consolidation are not reported.
\n
\ue001
The primary financial statements of the parent company
\n
include transactions and balances with its subsidiaries which
\n
have been further disclosed in the relevant notes.
\n
\n
33 Post balance sheet events
\n
A
post balance sheet event is an event that takes place between 31 December 2022 (reporting date) and 16 February 2023 (date
\n
of approval of these financial statements). Significant events are included in the financial statements either to provide new
\n
information about conditions that existed at 31 December 2022, including estimates used to prepare the financial statements
\n
(known as an adjusting event) or to provide new information about conditions that did not exist at 31 December 2022 (non-
\n
adjusting events). This note provides information relating to material non-adjusting events.
\n
On 6 February 2023, NWB reached agreement with the trustees of the Main Section of the Group pension scheme to recognise
\n
that the final distribution linked contribution to the Main Scheme, of up to \u00a3471 million, in 2023 is not expected to be required. In its
\n
place, agreement was reached to establish a new legal
structure to hold assets with a value equivalent to \u00a3471 million. These
\n
assets would become transferrable to the Main section in the event that future triggers, reflecting a funding requirement, were
\n
met. The assets are not de-recognised from NWB balance sheet but are recorded as encumbered. The Group believes likelihood of
\n
triggers being met are remote given the current funding position of the Main section.
\n
Other than as disclosed in the accounts, there have been no other significant events between 31 December 2022 and the date of
\napproval of these accounts which would require a change or additional disclosure. ", "dimensions": { "concept": "ifrs-full:DisclosureOfNotesAndOtherExplanatoryInformationExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47149": { "value": "Accounting policies
This section includes the basis of preparation, critical and significant accounting policies used to prepare the financial statements.
\n
Our accounting policies are the specific principles, bases, conventions, rules, and practices we apply in preparing and presenting
\n
the financial statements. Further information is provided where judgment and estimation is applied to critical accounting policies
\n
and key sources of estimation uncertainty.
\n
Future accounting developments details new, or amendments to existing, accounting standards, when they are effective from and
\n
where we are assessing their impact on future financial statements.
\n
1. Presentation of financial statements
\n
NatWest Group plc is incorporated in the UK and registered in
\n
Scotland. The financial statements are presented in the
\n
functional currency, pounds sterling.
\n
The audited financial statements include audited sections of the
\n
Risk and capital management section. The directors have
\n
prepared the financial statements on a going concern basis
\n
after assessing the principal risks, forecasts, projections and
\n
other relevant evidence over the twelve months from the date
\n
the financial statements are approved (see the Report of the
\n
directors) and in accordance with UK adopted International
\n
Accounting Standards (IAS), and International Financial
\n
Reporting Standards (IFRS) as issued by the International
\n
Accounting Standards Board (IASB). The critical and significant
\n
accounting policies and related judgments are set out below.
\n
The financial statements are presented on a historical cost basis
\n
except for certain financial instruments which are stated at fair
\n
value.
\n
The effect of the amendments to IFRS effective from 1 January
\n
2022 on our financial statements was immaterial.
\n
Our consolidated financial statements incorporate the results of
\n
NatWest Group plc and the entities it controls. Control arises
\n
when we have the power to direct the activities of an entity so
\n
as to affect the return from the entity. Control is assessed by
\n
reference to our ability to enforce our will on the other entity,
\n
typically through voting rights. The consolidated financial
\n
statements are prepared under consistent accounting policies.
\n
On acquisition of a subsidiary, the identifiable assets, liabilities
\n
and contingent liabilities are included in the consolidated
\n
financial statements at their fair value. A subsidiary is included
\n
in the consolidated financial statements from the date it is
\n
controlled by us until the date we cease to control it through a
\n
sale or a significant change in circumstances. Changes in our
\n
interest in a subsidiary that does not result in us ceasing to
\n
control that subsidiary are accounted for as equity transactions.
\n
We apply accounting for associates and joint arrangements
\n
(including joint ventures) to entities where we have significant
\n
influence, but not control, over the operating and financial
\n
policies.
We assess significant influence by reference to a
\n
presumption of voting rights of more than 20%, but less than
\n
50%, supplemented by a qualitative assessment of substantive
\n
rights which include representation at the Board of Directors,
\n
significant exchange of managerial personnel or technology
\n
amongst others. Joint ventures are arrangements where we
\n
have joint control and rights to the net assets of the entity.
\n
Investments in associates and joint ventures are recorded upon
\n
initial recognition at cost, increased or decreased each period
\n
by the share of the subsequent levels of profit or loss, and other
\n
changes in equity are considered in line with their nature.
\n
Transactions and balances between Group companies are
\n
eliminated in the consolidated financial statements to show only
\n
those transactions and balances external to us.
\n
The judgments and assumptions involved in our accounting
\n
policies that are considered by the Board to be the most
\n
important to the portrayal of its financial condition are noted
\n
below. The use of estimates, assumptions or models that differ
\n
from those adopted by us would affect our reported results.
\n
How Climate risk affects our accounting judgments and
\n
estimates
\n
Business planning
\n
Key financial estimates are based on management's latest five-
\n
year revenue and cost forecasts. The outputs from this forecast
\n
affect forward-looking accounting estimates. Measurement of
\n
deferred tax and expected credit losses are highly sensitive to
\n
reasonably possible changes in those anticipated conditions. In
\n
2022, our scenario planning supported the development of
\n
NatWest Group\u2019s initial iteration climate transition plan,
\n
including the assessment of climate-related risks and
\n
opportunities.
\n
\ue001
The initial iteration of our Climate transition plan includes
\n
an assessment of:
\n
\ue001
changes in business operations, products and
\n
services to support customer decarbonisation;
\n
\ue001
financial plans linked to business operations and
\n
strategy. During 2022, the financial planning
\n
process has been enhanced to incorporate climate
\n
related opportunities included in the climate
\n
transition plan. In 2023, we will link specific
\n
actions that are needed to align to our climate
\n
ambitions into the financial forecasts.
\n
\ue001
development in UK Government policies, aligned
\n
with the Committee on Climate Change Sixth
\n
carbon Budget published in 2021. We also assume
\n
certain broader policy responses and
\n
technological innovation to enable the wider
\n
transition of the economy.
\n
\ue001
There remains considerable uncertainty regarding this
\n
policy response, including the effect of wider geo-political
\n
uncertainty on governmental ambitions regarding climate
\n
transition and the effect of decarbonisation on wider
\n
economic growth, technology development and customer
\n
behaviours.
\n
Information used in other accounting estimates
\n
We make use of reasonable and supportable information to
\n
make accounting judgments and estimates. This includes
\n
information about the observable effects of the physical and
\n
transition risks of climate change on the current
\n
creditworthiness of borrowers, asset values and market
\n
indicators. It also includes the effect on our competitiveness and
\n
profitability. Many of the effects arising from climate change will
\n
be longer term in nature, with an inherent level of uncertainty,
\n
and have limited effect on accounting judgments and estimates
\n
for the current period. Some physical and transition risks can
\n
manifest in the shorter term. The following items represent the
\n
most significant effects:
\ue001
The classification of financial instruments linked to climate,
\n
or other sustainability indicators: consideration is given to
\n
whether the effect of climate related terms prevent the
\n
instrument cashflows being solely payments of principal
\n
and interest.
\n
\ue001
The measurement of expected credit loss considers the
\n
ability of borrowers to make payments as they fall due.
\n
Future cashflows are discounted, so long dated cashflows
\n
are less likely to affect current expectations on credit loss.
\n
Our assessment of sector specific risks, and whether
\n
additional adjustments are required, include expectations of
\n
the ability of those sectors to meet their financing needs in
\n
the market. Changes in credit stewardship and credit risk
\n
appetite that stem from climate considerations, such as oil
\n
and gas, will directly affect our positions.
\n
\ue001
The use of market indicators as inputs to fair value is
\n
assumed to include current information and knowledge
\n
regarding the effect of climate risk.
\n
Effect of climate change in the estimation of expected credit
\n
loss
\n
Since the implementation of IFRS 9 in January 2018 loan losses
\n
reflect expected credit losses taking account of relevant and
\n
reliable forward looking information. We are evaluating the
\n
effect of the physical and transition consequences of climate
\n
change on our experience of loan loss. We use available
\n
information regarding the effect of climate transition policy
\n
largely driven by carbon prices as an adjustment to
\n
macroeconomic factors that are used as inputs to the models
\n
that generate PD and LGD outcomes, which are key inputs to
\n
the ECL calculation. The determination of whether specific loss
\n
drivers and climate events generate specific losses is ongoing
\n
and is necessary to determine how sensitive changes in ECL
\n
could be to climate inputs. As at 31 December 2022, our
\n
quantification of the impact due to physical risk and how other
\n
climate risks may impact the ECL is ongoing.
\n
An impact assessment on how climate risk factors may require
\n
adjustment in our IFRS 9 model suite has also not been finalised.
\n
We judged that this information was not sufficiently complete to
\n
make a reliable estimate and given the immaterial change in
\n
ECL it indicated, determined it was not appropriate to adjust
\n
ECL.
\n
When this information is reliable, possibly during 2023, it could
\n
be used in our ECL calculation. A key part of this is determining
\n
that any adjustment resulting from the inclusion of new climate-
\n
related inputs does not double count or omit credit losses arising
\n
from other inputs. We will continue to develop our data, models
\n
and methodologies relating to climate evaluation and market
\n
practice will continue to evolve and this will affect the estimation
\n
of climate effect in ECL on an ongoing basis. We expect that the
\n
effect of climate risks on ECL will increase as government
\n
policy, organisations and individuals react to changes in climate
\n
as well as the probable increased occurrence of climate-related
\n
loss events (such as flooding and wildfire).
\n
2. Critical accounting policies
\n
The judgments and assumptions involved in our accounting
\n
policies that are considered by the Board to be the most
\n
important to the portrayal of our financial condition are noted
\n
below. The use of estimates, assumptions or models that differ
\n
from those adopted by us would affect our reported results.
\n
Management\u2019s consideration of uncertainty is outlined in the
\n
relevant sections of this document, including the ECL estimate in
\n
the Risk and capital management section.
\n
Information used for significant estimate
\n
Key financial estimates are based on management's latest five-
\n
year revenue and cost forecasts. Changes in judgments and
\n
assumptions could result in a material adjustment to those
\n
estimates in future reporting periods. Consideration of this
\n
source of estimate uncertainty has been set out in the notes
\n
below (as applicable).
\n
Policy
Judgment
Estimate
\n
Further
\n
information
\n
Deferred tax
Determination of whether sufficient taxable
\n
profits will be generated in future years to
\n
recover DTA.
\n
Our estimates are based on the five-year
\n
revenue and cost forecasts (which include
\n
inherent uncertainties).
\n
Note 7
\n
Fair value \u2013
\n
financial
\n
instruments
\n
Classification of a fair value instrument as level
\n
3, where the valuation is driven by
\n
unobservable inputs.
\n
Estimation of the fair value, where it is
\n
reasonably possible to have alternative
\n
assumptions in determining the FV.
\n
Note 11
\n
Loan
\n
impairment
\n
provisions
\n
Definition of default against which to apply PD,
\n
LGD and EAD models.
\n
Criteria for a significant increase in credit risk.
\n
Identification of risks not captured by the
\n
models.
\n
ECL estimates contain a number of
\n
measurement uncertainties (such as the
\n
selection of multiple economic scenarios) and
\n
disclosures include sensitivities to show impact
\n
on other reasonably possible scenarios.
\n
Note 15
\n
Provisions
\n
for liabilities
\n
and charges
\n
Determination of whether a present obligation
\n
exists in respect of customer redress, litigation
\n
and other regulatory, property and other
\n
provisions.
\n
Legal proceedings often require a high degree
\n
of judgment and these are likely to change as
\n
the matter progresses.
\n
Provisions remain sensitive to the assumptions
\n
used in the estimate. We consider a wide range
\n
of possible outcomes. It is often not practical to
\n
meaningfully quantify ranges of possible
\n
outcomes, given the uncertainties involved.
\n
Note 21
2.1. Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable
\n
in respect of temporary differences between the carrying
\n
amount of an asset or liability for accounting purposes and the
\n
carrying amount for tax purposes. Deferred tax liabilities are
\n
generally recognised for all taxable temporary differences and
\n
deferred tax assets are recognised to the extent their recovery
\n
is probable.
\n
Deferred tax is not recognised on temporary differences that
\n
arise from initial recognition of an asset or a liability in a
\n
transaction (other than a business combination) that at the time
\n
of the transaction affects neither accounting nor taxable profit
\n
or loss. Deferred tax is calculated using tax rates expected to
\n
apply in the periods when the assets will be realised or the
\n
liabilities settled, based on tax rates and laws enacted, or
\n
substantively enacted, at the balance sheet date.
\n
Deferred tax assets and liabilities are offset where we have a
\n
legally enforceable right to offset and where they relate to
\n
income taxes levied by the same taxation authority either on an
\n
individual NatWest Group company or on NatWest Group
\n
companies in the same tax group that intend, in future periods,
\n
to settle current tax liabilities and assets on a net basis or on a
\n
gross basis simultaneously.
\n
Deferred tax asset recoverability is based on the level of
\n
supporting offsetable deferred tax liabilities we have and of our
\n
future taxable profits. These future taxable profits are based on
\n
our five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
\n
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
\n
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
\n
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
\n
3. Significant accounting polices
\n
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
\n
3.2. Discontinued operations, Held for sale and Disposal
\n
group
\n
The results of discontinued operations (comprising the post-tax
\n
profit or loss of discontinued operations and the post-tax results
\n
of either the ongoing measurement at fair value less costs to
\n
sell or on disposal of the discontinued operation) are excluded
\n
from the results of continuing operations and are presented as
\n
a single amount as profit/(loss) from discontinued operations,
\n
net of tax in the income statement. Comparatives are
\n
represented for the income statement, cash flow statement,
\n
statement of changes in equity and related notes.
\n
An asset or disposal group (assets and liabilities) is classified as
\n
held for sale if we will recover its carrying amount principally
\n
through a sale transaction rather than through continuing use.
\n
These are measured at the lower of its carrying amount or fair
\n
value less cost to sell unless scoped out of IFRS 5 in which case
\n
the existing measurement provisions of IFRS apply. These are
\n
presented as single amounts; comparatives are not
\n
represented.
\n
3.3. Staff costs
\n
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
\n
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
\n
The difference between scheme assets and scheme liabilities,
\n
the net defined benefit asset or liability, is recognised on the
\n
balance sheet if the criteria of the asset ceiling test are met.
\n
This requires the net defined benefit surplus to be limited to the
\n
present value of any economic benefits available to us in the
\n
form of refunds from the plan or reduced contributions to it.
\n
We will recognise a liability where a minimum funding
\n
requirement exists for any of our defined benefit pension
\n
schemes. This reflects agreed minimum funding and the
\n
availability of a net surplus as determined as described above.
\n
When estimating the liability for minimum funding requirements
\n
we only include contributions that are substantively or
\n
contractually agreed and do not include contingent and
\n
discretionary features, including dividend-linked contributions
\n
or contributions subject to contingent events requiring future
\n
verification.
\n
We will recognise a net defined benefit asset when the net
\n
defined benefit surplus can generate a benefit in the form of a
\n
refund or reduction in future contributions to the plan. The net
\n
benefit pension asset is recognised at the present value of the
\n
benefits that will be available to us excluding interest and the
\n
effect of the asset ceiling (if any, excluding interest). Changes
\n
in the present value of the net benefit pension asset are
\n
recognised immediately in other comprehensive income.
\n
In instances where Trustees have the ability to declare
\n
augmented benefits to participants, we do not recognise a
\n
defined benefit pension asset and write-off the surplus
\n
immediately in other comprehensive income.
\n
3.4. Intangible assets and goodwill
\n
Intangible assets are identifiable non-monetary assets without
\n
physical substance acquired by us, and are stated at cost less
\n
accumulated amortisation and impairment losses. Amortisation
\n
is a method to spread the cost of such assets over time in the
\n
income statement.
\n
This is charged to the income statement over the assets'
\n
estimated useful economic lives using methods that best reflect
\n
the pattern of economic benefits.
\n
The estimated useful economic lives are:
\n
Computer software
3 to 12 years
\n
Other acquired intangibles
5 to 10 years
\n
Expenditure on internally generated goodwill and brands is
\n
charged to the income statement as incurred.
\n
Direct costs relating to the development of internal-use
\n
computer software are reported on the balance sheet after
\n
technical feasibility and economic viability have been
\n
established.
\n
These direct costs include payroll, the costs of materials and
\n
services, and directly attributable overheads. Capitalisation of
\n
costs ceases when the software can operate as intended.
\n
During and after development, accumulated costs are reviewed
\n
for impairment against the benefits that the software is
\n
expected to generate. Costs incurred prior to the establishment
\n
of technical feasibility and economic viability are expensed to
\n
the income statement as incurred, as are all training costs and
\n
general overheads. The costs of licences to use computer
\n
software that are expected to generate economic benefits
\n
beyond one year are also reported on the balance sheet
\n
Goodwill on the acquisition of a subsidiary is the excess of the
\n
fair value of the consideration paid, the fair value of any
\n
existing interest in the subsidiary and the amount of any non-
\n
controlling interest measured either at fair value or at its share
\n
of the subsidiary\u2019s net assets over the net fair value of the
\n
subsidiary\u2019s identifiable assets, liabilities, and contingent
\n
liabilities.
\n
Goodwill is measured at initial cost less any subsequent
\n
impairment losses. The gain or loss on the disposal of a
\n
subsidiary includes the carrying value of any related goodwill
\n
when such transactions occur.
\n
3.5. Impairment of non-financial assets
\n
At each balance sheet date, we assess whether there is any
\n
indication that its intangible assets or property, plant and
\n
equipment are impaired. If any such indication exists, we
\n
estimate the recoverable amount of the asset and compares it
\n
to its balance sheet value to calculate if an impairment loss
\n
should be charged to the income statement. The balance sheet
\n
value of the asset is reduced by the amount of the impairment
\n
loss. A reversal of an impairment loss on intangible assets or
\n
property, plant and equipment is recognised in the income
\n
statement provided the increased carrying value is not greater
\n
than it would have been had no impairment loss been
\n
recognised.
\n
Goodwill is tested for impairment annually or more frequently if
\n
events or changes in circumstances indicate that it might be
\n
impaired. Impairment losses on goodwill are not reversed.
\n
The recoverable amount of an asset that does not generate
\n
cash flows that are independent from those of other assets or
\n
groups of assets, is determined as part of the cash-generating
\n
unit to which the asset belongs. A cash-generating unit is the
\n
smallest identifiable group of assets that generates cash inflows
\n
that are largely independent of the cash inflows from other
\n
assets or groups of assets. For the purposes of impairment
\n
testing, goodwill acquired in a business combination is allocated
\n
to our cash-generating units or groups of cash-generating units
\n
expected to benefit from the combination.
\n
The recoverable amount of an asset or cash-generating unit is
\n
the higher of its fair value less cost to sell or its value in use.
\n
Value in use is the present value of future cash flows from the
\n
asset or cash-generating unit discounted at a rate that reflects
\n
market interest rates adjusted for risks specific to the asset or
\n
cash-generating unit that have not been considered in
\n
estimating future cash flows.
The assessment of asset impairment is based upon value in
\n
use. This represents the value of future cashflows and uses our
\n
five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
\n
3.6. Foreign currencies
\n
Foreign exchange differences arising on the settlement of
\n
foreign currency transactions and from the translation of
\n
monetary assets and liabilities are reported in income from
\n
trading activities except for differences arising on cash flow
\n
hedges and hedges of net investments in foreign operations.
\n
Non-monetary items denominated in foreign currencies that
\n
are stated at fair value are translated into the functional
\n
currency at the foreign exchange rates ruling at the dates the
\n
values are determined. Translation differences are recognised
\n
in the income statement except for differences arising on non-
\n
monetary financial assets classified as fair value through other
\n
comprehensive income.
\n
Income and expenses of foreign subsidiaries and branches are
\n
translated into sterling at average exchange rates unless these
\n
do not approximate the foreign exchange rates ruling at the
\n
dates of the transactions. Foreign exchange differences arising
\n
on the translation of a foreign operation are recognised in
\n
other comprehensive income. The amount accumulated in
\n
equity is reclassified from equity to the income statement on
\n
disposal of a foreign operation.
\n
3.7. Tax
\n
Tax encompassing current tax and deferred tax is recognised
\n
in the income statement except when taxable items are
\n
recognised in other comprehensive income or equity. Tax
\n
consequences arising from servicing financial instruments
\n
classified as equity are recognised in the income statement.
\n
Current tax is tax payable or recoverable in respect of the
\n
taxable profit or loss for the year arising in the income
\n
statement, other comprehensive income or equity. Provision is
\n
made for current tax at rates enacted, or substantively
\n
enacted, at the balance sheet date.
\n
Accounting for taxes is judgmental and carries a degree of
\n
uncertainty because tax law is subject to interpretation, which
\n
might be questioned by the relevant tax authority. We
\n
recognise the most likely current and deferred tax liability or
\n
asset, assessed for uncertainty using consistent judgments and
\n
estimates. Current and deferred tax assets are only recognised
\n
where their recovery is deemed probable, and current and
\n
deferred tax liabilities are recognised at the amount that
\n
represents the best estimate of the probable outcome having
\n
regard to their acceptance by the tax authorities.
\n
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
\n
3.9. Derecognition
\n
A financial asset is derecognised (removed from the balance
\n
sheet) when the contractual right to receive cash flows from
\n
the asset has expired or when it has been transferred and the
\n
transfer qualifies for derecognition. Conversely, an asset is not
\n
derecognised in a contract under which we retain substantially
\n
all the risks and rewards of ownership.
\n
A financial liability is removed from the balance sheet when the
\n
obligation is paid, or is cancelled, or expires. Cancellation
\n
includes the issuance of a substitute instrument on substantially
\n
different terms.
\n
3.10. Netting
\n
Financial assets and financial liabilities are offset, and the net
\n
amount presented on the balance sheet when, and only when,
\n
we currently have a legally enforceable right to set off the
\n
recognised amounts and we intend either to settle on a net
\n
basis or to realise the asset and settle the liability
\n
simultaneously. We are party to a number of arrangements,
\n
including master netting agreements, that give us the right to
\n
offset financial assets and financial liabilities, but where we do
\n
not intend to settle the amounts net or simultaneously, the
\n
assets and liabilities concerned are presented separately on the
\n
balance sheet.
\n
3.11. Capital instruments
\n
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
\n
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
\n
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
\n
4. Future accounting developments
\n
International Financial Reporting Standards
\n
Effective 1 January 2023
\n
\ue001
IFRS 17 Insurance Contracts (Amendments to IFRS 17
\n
Insurance Contracts);
\n
\ue001
Deferred Tax related to Assets and Liabilities arising from a
\n
Single Transaction (Amendments to IAS 12);
\n
\ue001
Definition of Accounting Estimates (Amendments to IAS 8);
\n
and
\n
\ue001
Disclosure of Accounting Policies (Amendments to IAS 1
\n
and IFRS Practice Statement 2).
\n
Effective 1 January 2024
\n
\ue001
Classification of Liabilities as Current or Non-current
\n
(Amendments to IAS 1);
\n
\ue001
Non-current Liabilities with Covenants (Amendments to IAS
\n
1)
\n
\ue001
Lease Liability in a sale and Leaseback (Amendments to
\n
IFRS 16).
\n
We are assessing the effect of adopting these standards and
\n
amendments on our financial statements but do not expect the
\n
effect to be material.
Critical accounting policy: Deferred tax
\n
NatWest Group has recognised a deferred tax asset of \u00a32,178
\n
million (2021 - \u00a31,195 million) and a deferred tax liability of \u00a3227
\n
million (2021 - \u00a3359 million). These include amounts recognised
\n
in respect of UK and overseas tax losses of \u00a3952 million (2021 -
\n
\u00a3899 million).
\n
It was announced in the UK Government\u2019s budget on 27
\n
October 2021 that the UK banking surcharge will decrease from
\n
8% to 3% from 1 April 2023. This legislative change was enacted
\n
on 24 February 2022. NatWest Group\u2019s closing deferred tax
\n
assets and liabilities have therefore been recalculated taking
\n
into account this change of rate and the applicable period the
\n
deferred tax assets and liabilities are expected to crystallise.
\n
Judgment
-
NatWest Group has considered the carrying value of
\n
deferred tax assets and concluded that, based on
\n
management\u2019s estimates, sufficient taxable profits will be
\n
generated in future years to recover recognised deferred tax
\n
assets.
\n
Estimate
- These estimates are partly based on forecast
\n
performance beyond the horizon for management\u2019s detailed
\n
plans. They have regard to inherent uncertainties, such as
\n
climate change. The deferred tax assets in NWM Plc and
\n
UBIDAC are supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022
.
\n
UK tax losses
\n
Under UK tax rules, tax losses can be carried forward
\n
indefinitely. As the recognised tax losses in NatWest Group
\n
arose prior to 1 April 2015, credit in future periods is given
\n
against 25% of profits at the main rate of UK corporation tax,
\n
excluding the Banking Surcharge rate introduced by The
\n
Finance (No. 2) Act 2015.
\n
NWM Plc
\u2013 A deferred tax asset of \u00a33 million (2021 - \u00a356 million)
\n
has been recognised in respect of losses of \u00a312 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022. NWM Plc expects that the
\n
balance of recognised deferred tax asset at 31 December 2022
\n
will be recovered by the end of 2027. Of the losses remaining,
\n
\u00a35,538 million have not been recognised in the deferred tax
\n
balance at 31 December 2022.
\n
NWB Plc
\u2013 A deferred tax asset of \u00a3445 million (2021 - \u00a3608
\n
million) has been recognised in respect of losses of \u00a31,847
\n
million of total losses of \u00a32,718 million carried forward at 31
\n
December 2022. The losses arose principally as a result of
\n
significant impairment and conduct charges between 2009 and
\n
2012 during challenging economic conditions in the UK banking
\n
sector. NWB Plc returned to tax profitability during 2015 and
\n
expects the deferred tax asset to be utilised against future
\n
taxable profits by the end of 2027.
\n
RBS plc
\u2013 A deferred tax asset of \u00a3452 million (2021 - \u00a3176
\n
million) has been recognised in respect of losses of \u00a31,821
\n
million of total losses of \u00a33,692 million carried forward at 31
\n
December 2022. The losses were transferred from NatWest
\n
Markets Plc as a consequence of the ring fencing regulations.
\n
RBS plc expects the deferred tax asset to be utilised against
\n
future taxable profits by the end of 2029.
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
\n
IFRS 9 ECL model design principles
\n
Refer to Credit risk \u2013 IFRS 9 ECL model design principles
\n
section for further details.
\n
Approach for multiple economic scenarios (MES)
\n
The base scenario plays a greater part in the calculation of
\n
ECL than the approach to MES. Refer to Credit risk \u2013 Economic
\n
loss drivers - Probability weightings of scenarios section for
\n
further details.
Critical accounting policy: Provisions for liabilities
\n
The key judgment is involved in determining whether a present
\n
obligation exists. There is often a high degree of uncertainty
\n
and judgment is based on the specific facts and circumstances
\n
relating to individual events in determining whether there is a
\n
present obligation. Judgment is also involved in estimation of
\n
the probability, timing and amount of any outflows. Where
\n
NatWest Group can look to another party such as an insurer to
\n
pay some or all of the expenditure required to settle a
\n
provision, any reimbursement is recognised when, and only
\n
when, it is virtually certain that it will be received.
\n
Estimates -
Provisions are liabilities of uncertain timing or
\n
amount and are recognised when there is a present obligation
\n
as a result of a past event, the outflow of economic benefit is
\n
probable and the outflow can be estimated reliably.
\n
Any difference between the final outcome and the amounts
\n
provided will affect the reported results in the period when the
\n
matter is resolved.
\n
\ue001
Customer redress: Provisions reflect the estimated cost of
\n
redress attributable to claims where it is determined that a
\n
present obligation exists.
\n
\ue001
Litigation and other regulatory: NatWest Group is engaged
\n
in various legal proceedings, both in the UK and in overseas
\n
jurisdictions, including the US. For further information in
\n
relation to legal proceedings and discussion of the
\n
associated uncertainties, refer to Note 26.
\n
\ue001
Property: This includes provision for contractual costs
\n
associated with vacant properties.
\n
\ue001
Other provisions: These materially comprise provisions for
\n
onerous contracts and restructuring costs. Onerous
\n
contract provisions comprise an estimate of the costs
\n
involved in fulfilling the terms and conditions of contracts
\n
net of any expected benefits to be received. This includes
\n
provision for contractual costs associated with vacant
\n
properties. Redundancy and restructuring provisions
\n
comprise the estimated cost of restructuring, including
\n
redundancy costs where an obligation exists.
\n
Background information for all material provisions is given in
\n
Note 26
.
", "dimensions": { "concept": "ifrs-full:DisclosureOfSummaryOfSignificantAccountingPoliciesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47175": { "value": "Future accounting developments details new, or amendments to existing, accounting standards, when they are effective from and where we are assessing their impact on future financial statements.", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47179": { "value": "1. Presentation of financial statements
NatWest Group plc is incorporated in the UK and registered in
\n
Scotland. The financial statements are presented in the
\n
functional currency, pounds sterling.
\n
The audited financial statements include audited sections of the
\n
Risk and capital management section. The directors have
\n
prepared the financial statements on a going concern basis
\n
after assessing the principal risks, forecasts, projections and
\n
other relevant evidence over the twelve months from the date
\n
the financial statements are approved (see the Report of the
\n
directors) and in accordance with UK adopted International
\n
Accounting Standards (IAS), and International Financial
\n
Reporting Standards (IFRS) as issued by the International
\n
Accounting Standards Board (IASB). The critical and significant
\n
accounting policies and related judgments are set out below.
\n
The financial statements are presented on a historical cost basis
\n
except for certain financial instruments which are stated at fair
\n
value.
\n
The effect of the amendments to IFRS effective from 1 January
\n
2022 on our financial statements was immaterial.
\n
Our consolidated financial statements incorporate the results of
\n
NatWest Group plc and the entities it controls. Control arises
\n
when we have the power to direct the activities of an entity so
\n
as to affect the return from the entity. Control is assessed by
\n
reference to our ability to enforce our will on the other entity,
\n
typically through voting rights. The consolidated financial
\n
statements are prepared under consistent accounting policies.
\n
On acquisition of a subsidiary, the identifiable assets, liabilities
\n
and contingent liabilities are included in the consolidated
\n
financial statements at their fair value. A subsidiary is included
\n
in the consolidated financial statements from the date it is
\n
controlled by us until the date we cease to control it through a
\n
sale or a significant change in circumstances. Changes in our
\n
interest in a subsidiary that does not result in us ceasing to
\n
control that subsidiary are accounted for as equity transactions.
\n
We apply accounting for associates and joint arrangements
\n
(including joint ventures) to entities where we have significant
\n
influence, but not control, over the operating and financial
\n
policies.
We assess significant influence by reference to a
\n
presumption of voting rights of more than 20%, but less than
\n
50%, supplemented by a qualitative assessment of substantive
\n
rights which include representation at the Board of Directors,
\n
significant exchange of managerial personnel or technology
\n
amongst others. Joint ventures are arrangements where we
\n
have joint control and rights to the net assets of the entity.
\n
Investments in associates and joint ventures are recorded upon
\n
initial recognition at cost, increased or decreased each period
\n
by the share of the subsequent levels of profit or loss, and other
\n
changes in equity are considered in line with their nature.
\n
Transactions and balances between Group companies are
\n
eliminated in the consolidated financial statements to show only
\n
those transactions and balances external to us.
\n
The judgments and assumptions involved in our accounting
\n
policies that are considered by the Board to be the most
\n
important to the portrayal of its financial condition are noted
\n
below. The use of estimates, assumptions or models that differ
\n
from those adopted by us would affect our reported results.
\n
How Climate risk affects our accounting judgments and
\n
estimates
\n
Business planning
\n
Key financial estimates are based on management's latest five-
\n
year revenue and cost forecasts. The outputs from this forecast
\n
affect forward-looking accounting estimates. Measurement of
\n
deferred tax and expected credit losses are highly sensitive to
\n
reasonably possible changes in those anticipated conditions. In
\n
2022, our scenario planning supported the development of
\n
NatWest Group\u2019s initial iteration climate transition plan,
\n
including the assessment of climate-related risks and
\n
opportunities.
\n
\ue001
The initial iteration of our Climate transition plan includes
\n
an assessment of:
\n
\ue001
changes in business operations, products and
\n
services to support customer decarbonisation;
\n
\ue001
financial plans linked to business operations and
\n
strategy. During 2022, the financial planning
\n
process has been enhanced to incorporate climate
\n
related opportunities included in the climate
\n
transition plan. In 2023, we will link specific
\n
actions that are needed to align to our climate
\n
ambitions into the financial forecasts.
\n
\ue001
development in UK Government policies, aligned
\n
with the Committee on Climate Change Sixth
\n
carbon Budget published in 2021. We also assume
\n
certain broader policy responses and
\n
technological innovation to enable the wider
\n
transition of the economy.
\n
\ue001
There remains considerable uncertainty regarding this
\n
policy response, including the effect of wider geo-political
\n
uncertainty on governmental ambitions regarding climate
\n
transition and the effect of decarbonisation on wider
\n
economic growth, technology development and customer
\n
behaviours.
\n
Information used in other accounting estimates
\n
We make use of reasonable and supportable information to
\n
make accounting judgments and estimates. This includes
\n
information about the observable effects of the physical and
\n
transition risks of climate change on the current
\n
creditworthiness of borrowers, asset values and market
\n
indicators. It also includes the effect on our competitiveness and
\n
profitability. Many of the effects arising from climate change will
\n
be longer term in nature, with an inherent level of uncertainty,
\n
and have limited effect on accounting judgments and estimates
\n
for the current period. Some physical and transition risks can
\n
manifest in the shorter term. The following items represent the
\n
most significant effects:
\n
\n
Risk and capital management
\n
\ue001
The classification of financial instruments linked to climate,
\n
or other sustainability indicators: consideration is given to
\n
whether the effect of climate related terms prevent the
\n
instrument cashflows being solely payments of principal
\n
and interest.
\n
\ue001
The measurement of expected credit loss considers the
\n
ability of borrowers to make payments as they fall due.
\n
Future cashflows are discounted, so long dated cashflows
\n
are less likely to affect current expectations on credit loss.
\n
Our assessment of sector specific risks, and whether
\n
additional adjustments are required, include expectations of
\n
the ability of those sectors to meet their financing needs in
\n
the market. Changes in credit stewardship and credit risk
\n
appetite that stem from climate considerations, such as oil
\n
and gas, will directly affect our positions.
\n
\ue001
The use of market indicators as inputs to fair value is
\n
assumed to include current information and knowledge
\n
regarding the effect of climate risk.
\n
Effect of climate change in the estimation of expected credit
\n
loss
\n
Since the implementation of IFRS 9 in January 2018 loan losses
\n
reflect expected credit losses taking account of relevant and
\n
reliable forward looking information. We are evaluating the
\n
effect of the physical and transition consequences of climate
\n
change on our experience of loan loss. We use available
\n
information regarding the effect of climate transition policy
\n
largely driven by carbon prices as an adjustment to
\n
macroeconomic factors that are used as inputs to the models
\n
that generate PD and LGD outcomes, which are key inputs to
\n
the ECL calculation. The determination of whether specific loss
\n
drivers and climate events generate specific losses is ongoing
\n
and is necessary to determine how sensitive changes in ECL
\n
could be to climate inputs. As at 31 December 2022, our
\n
quantification of the impact due to physical risk and how other
\n
climate risks may impact the ECL is ongoing.
\n
An impact assessment on how climate risk factors may require
\n
adjustment in our IFRS 9 model suite has also not been finalised.
\n
We judged that this information was not sufficiently complete to
\n
make a reliable estimate and given the immaterial change in
\n
ECL it indicated, determined it was not appropriate to adjust
\n
ECL.
\n
When this information is reliable, possibly during 2023, it could
\n
be used in our ECL calculation. A key part of this is determining
\n
that any adjustment resulting from the inclusion of new climate-
\n
related inputs does not double count or omit credit losses arising
\n
from other inputs. We will continue to develop our data, models
\n
and methodologies relating to climate evaluation and market
\n
practice will continue to evolve and this will affect the estimation
\n
of climate effect in ECL on an ongoing basis. We expect that the
\n
effect of climate risks on ECL will increase as government
\n
policy, organisations and individuals react to changes in climate
\n
as well as the probable increased occurrence of climate-related
\nloss events (such as flooding and wildfire). ", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfPreparationOfFinancialStatementsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47180": { "value": "1. Presentation of financial statements
NatWest Group plc is incorporated in the UK and registered in
\n
Scotland. The financial statements are presented in the
\n
functional currency, pounds sterling.
\n
The audited financial statements include audited sections of the
\n
Risk and capital management section. The directors have
\n
prepared the financial statements on a going concern basis
\n
after assessing the principal risks, forecasts, projections and
\n
other relevant evidence over the twelve months from the date
\n
the financial statements are approved (see the Report of the
\n
directors) and in accordance with UK adopted International
\n
Accounting Standards (IAS), and International Financial
\n
Reporting Standards (IFRS) as issued by the International
\n
Accounting Standards Board (IASB). The critical and significant
\n
accounting policies and related judgments are set out below.
\n
The financial statements are presented on a historical cost basis
\n
except for certain financial instruments which are stated at fair
\n
value.
\n
The effect of the amendments to IFRS effective from 1 January
\n
2022 on our financial statements was immaterial.
\n
Our consolidated financial statements incorporate the results of
\n
NatWest Group plc and the entities it controls. Control arises
\n
when we have the power to direct the activities of an entity so
\n
as to affect the return from the entity. Control is assessed by
\n
reference to our ability to enforce our will on the other entity,
\n
typically through voting rights. The consolidated financial
\n
statements are prepared under consistent accounting policies.
\n
On acquisition of a subsidiary, the identifiable assets, liabilities
\n
and contingent liabilities are included in the consolidated
\n
financial statements at their fair value. A subsidiary is included
\n
in the consolidated financial statements from the date it is
\n
controlled by us until the date we cease to control it through a
\n
sale or a significant change in circumstances. Changes in our
\n
interest in a subsidiary that does not result in us ceasing to
\n
control that subsidiary are accounted for as equity transactions.
\n
We apply accounting for associates and joint arrangements
\n
(including joint ventures) to entities where we have significant
\n
influence, but not control, over the operating and financial
\n
policies.
We assess significant influence by reference to a
\n
presumption of voting rights of more than 20%, but less than
\n
50%, supplemented by a qualitative assessment of substantive
\n
rights which include representation at the Board of Directors,
\n
significant exchange of managerial personnel or technology
\n
amongst others. Joint ventures are arrangements where we
\n
have joint control and rights to the net assets of the entity.
\n
Investments in associates and joint ventures are recorded upon
\n
initial recognition at cost, increased or decreased each period
\n
by the share of the subsequent levels of profit or loss, and other
\n
changes in equity are considered in line with their nature.
\n
Transactions and balances between Group companies are
\n
eliminated in the consolidated financial statements to show only
\n
those transactions and balances external to us.
\n
The judgments and assumptions involved in our accounting
\n
policies that are considered by the Board to be the most
\n
important to the portrayal of its financial condition are noted
\n
below. The use of estimates, assumptions or models that differ
\n
from those adopted by us would affect our reported results.
\n
How Climate risk affects our accounting judgments and
\n
estimates
\n
Business planning
\n
Key financial estimates are based on management's latest five-
\n
year revenue and cost forecasts. The outputs from this forecast
\n
affect forward-looking accounting estimates. Measurement of
\n
deferred tax and expected credit losses are highly sensitive to
\n
reasonably possible changes in those anticipated conditions. In
\n
2022, our scenario planning supported the development of
\n
NatWest Group\u2019s initial iteration climate transition plan,
\n
including the assessment of climate-related risks and
\n
opportunities.
\n
\ue001
The initial iteration of our Climate transition plan includes
\n
an assessment of:
\n
\ue001
changes in business operations, products and
\n
services to support customer decarbonisation;
\n
\ue001
financial plans linked to business operations and
\n
strategy. During 2022, the financial planning
\n
process has been enhanced to incorporate climate
\n
related opportunities included in the climate
\n
transition plan. In 2023, we will link specific
\n
actions that are needed to align to our climate
\n
ambitions into the financial forecasts.
\n
\ue001
development in UK Government policies, aligned
\n
with the Committee on Climate Change Sixth
\n
carbon Budget published in 2021. We also assume
\n
certain broader policy responses and
\n
technological innovation to enable the wider
\n
transition of the economy.
\n
\ue001
There remains considerable uncertainty regarding this
\n
policy response, including the effect of wider geo-political
\n
uncertainty on governmental ambitions regarding climate
\n
transition and the effect of decarbonisation on wider
\n
economic growth, technology development and customer
\n
behaviours.
\n
Information used in other accounting estimates
\n
We make use of reasonable and supportable information to
\n
make accounting judgments and estimates. This includes
\n
information about the observable effects of the physical and
\n
transition risks of climate change on the current
\n
creditworthiness of borrowers, asset values and market
\n
indicators. It also includes the effect on our competitiveness and
\n
profitability. Many of the effects arising from climate change will
\n
be longer term in nature, with an inherent level of uncertainty,
\n
and have limited effect on accounting judgments and estimates
\n
for the current period. Some physical and transition risks can
\n
manifest in the shorter term. The following items represent the
\n
most significant effects:
\n
\n
Risk and capital management
\n
\ue001
The classification of financial instruments linked to climate,
\n
or other sustainability indicators: consideration is given to
\n
whether the effect of climate related terms prevent the
\n
instrument cashflows being solely payments of principal
\n
and interest.
\n
\ue001
The measurement of expected credit loss considers the
\n
ability of borrowers to make payments as they fall due.
\n
Future cashflows are discounted, so long dated cashflows
\n
are less likely to affect current expectations on credit loss.
\n
Our assessment of sector specific risks, and whether
\n
additional adjustments are required, include expectations of
\n
the ability of those sectors to meet their financing needs in
\n
the market. Changes in credit stewardship and credit risk
\n
appetite that stem from climate considerations, such as oil
\n
and gas, will directly affect our positions.
\n
\ue001
The use of market indicators as inputs to fair value is
\n
assumed to include current information and knowledge
\n
regarding the effect of climate risk.
\n
Effect of climate change in the estimation of expected credit
\n
loss
\n
Since the implementation of IFRS 9 in January 2018 loan losses
\n
reflect expected credit losses taking account of relevant and
\n
reliable forward looking information. We are evaluating the
\n
effect of the physical and transition consequences of climate
\n
change on our experience of loan loss. We use available
\n
information regarding the effect of climate transition policy
\n
largely driven by carbon prices as an adjustment to
\n
macroeconomic factors that are used as inputs to the models
\n
that generate PD and LGD outcomes, which are key inputs to
\n
the ECL calculation. The determination of whether specific loss
\n
drivers and climate events generate specific losses is ongoing
\n
and is necessary to determine how sensitive changes in ECL
\n
could be to climate inputs. As at 31 December 2022, our
\n
quantification of the impact due to physical risk and how other
\n
climate risks may impact the ECL is ongoing.
\n
An impact assessment on how climate risk factors may require
\n
adjustment in our IFRS 9 model suite has also not been finalised.
\n
We judged that this information was not sufficiently complete to
\n
make a reliable estimate and given the immaterial change in
\n
ECL it indicated, determined it was not appropriate to adjust
\n
ECL.
\n
When this information is reliable, possibly during 2023, it could
\n
be used in our ECL calculation. A key part of this is determining
\n
that any adjustment resulting from the inclusion of new climate-
\n
related inputs does not double count or omit credit losses arising
\n
from other inputs. We will continue to develop our data, models
\n
and methodologies relating to climate evaluation and market
\n
practice will continue to evolve and this will affect the estimation
\n
of climate effect in ECL on an ongoing basis. We expect that the
\n
effect of climate risks on ECL will increase as government
\n
policy, organisations and individuals react to changes in climate
\n
as well as the probable increased occurrence of climate-related
\nloss events (such as flooding and wildfire).", "dimensions": { "concept": "ifrs-full:DisclosureOfGeneralInformationAboutFinancialStatementsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47184": { "value": "NatWest Group plc ", "dimensions": { "concept": "ifrs-full:NameOfReportingEntityOrOtherMeansOfIdentification", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47185": { "value": "plc ", "dimensions": { "concept": "ifrs-full:LegalFormOfEntity", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47186": { "value": "UK ", "dimensions": { "concept": "ifrs-full:CountryOfIncorporation", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47187": { "value": "UK ", "dimensions": { "concept": "ifrs-full:DomicileOfEntity", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47394": { "value": "2. Critical accounting policies \nThe judgments and assumptions involved in our accounting \npolicies that are considered by the Board to be the most \nimportant to the portrayal of our financial condition are noted \nbelow. The use of estimates, assumptions or models that differ \nfrom those adopted by us would affect our reported results. \nManagement\u2019s consideration of uncertainty is outlined in the \nrelevant sections of this document, including the ECL estimate in \nthe Risk and capital management section. \nInformation used for significant estimate \nKey financial estimates are based on management's latest five- \nyear revenue and cost forecasts. Changes in judgments and \nassumptions could result in a material adjustment to those \nestimates in future reporting periods. Consideration of this \nsource of estimate uncertainty has been set out in the notes \nbelow (as applicable). \nPolicy Judgment Estimate \nFurther \ninformation \nDeferred tax Determination of whether sufficient taxable \nprofits will be generated in future years to \nrecover DTA. \nOur estimates are based on the five-year \nrevenue and cost forecasts (which include \ninherent uncertainties). \nNote 7 \nFair value \u2013 \nfinancial \ninstruments \nClassification of a fair value instrument as level \n3, where the valuation is driven by \nunobservable inputs. \nEstimation of the fair value, where it is \nreasonably possible to have alternative \nassumptions in determining the FV. \nNote 11 \nLoan \nimpairment \nprovisions \nDefinition of default against which to apply PD, \nLGD and EAD models. \nCriteria for a significant increase in credit risk. \nIdentification of risks not captured by the \nmodels. \nECL estimates contain a number of \nmeasurement uncertainties (such as the \nselection of multiple economic scenarios) and \ndisclosures include sensitivities to show impact \non other reasonably possible scenarios. \nNote 15 \nProvisions \nfor liabilities \nand charges \nDetermination of whether a present obligation \nexists in respect of customer redress, litigation \nand other regulatory, property and other \nprovisions. \nLegal proceedings often require a high degree \nof judgment and these are likely to change as \nthe matter progresses. \nProvisions remain sensitive to the assumptions \nused in the estimate. We consider a wide range \nof possible outcomes. It is often not practical to \nmeaningfully quantify ranges of possible \noutcomes, given the uncertainties involved. \nNote 21 2.1. Deferred tax \nDeferred tax is the tax expected to be payable or recoverable \nin respect of temporary differences between the carrying \namount of an asset or liability for accounting purposes and the \ncarrying amount for tax purposes. Deferred tax liabilities are \ngenerally recognised for all taxable temporary differences and \ndeferred tax assets are recognised to the extent their recovery \nis probable. \nDeferred tax is not recognised on temporary differences that \narise from initial recognition of an asset or a liability in a \ntransaction (other than a business combination) that at the time \nof the transaction affects neither accounting nor taxable profit \nor loss. Deferred tax is calculated using tax rates expected to \napply in the periods when the assets will be realised or the \nliabilities settled, based on tax rates and laws enacted, or \nsubstantively enacted, at the balance sheet date. \nDeferred tax assets and liabilities are offset where we have a \nlegally enforceable right to offset and where they relate to \nincome taxes levied by the same taxation authority either on an \nindividual NatWest Group company or on NatWest Group \ncompanies in the same tax group that intend, in future periods, \nto settle current tax liabilities and assets on a net basis or on a \ngross basis simultaneously. \nDeferred tax asset recoverability is based on the level of \nsupporting offsetable deferred tax liabilities we have and of our \nfuture taxable profits. These future taxable profits are based on \nour five-year revenue and cost forecasts and the expectation of \nlong term economic growth beyond this period. The five-year \nforecast takes account of management\u2019s current expectations \non competitiveness and profitability. The long term growth rate \nreflects external indicators which will include market \nexpectations on climate risk. We do not consider any additional \nadjustments to this indicator. \n2.2. Fair value \u2013 financial instruments \nFinancial instruments classified as mandatory fair value \nthrough profit or loss; held-for-trading; designated fair value \nthrough profit or loss and fair value through other \ncomprehensive income are recognised in the financial \nstatements at fair value. All derivatives are measured at fair \nvalue. \nFair value is the price that would be received to sell an asset or \npaid to transfer a liability in an orderly transaction between \nmarket participants at the measurement date. A fair value \nmeasurement considers the characteristics of the asset or \nliability and the assumptions that a market participant would \nconsider when pricing the asset or liability. \nWe manage some portfolios of financial assets and financial \nliabilities based on our net exposure to either market or credit \nrisk. In these cases, the fair value is derived from the net risk \nexposure of that portfolio with portfolio level adjustments \napplied to incorporate bid-offer spreads, counterparty credit \nrisk, and funding costs (see \u2018Valuation Adjustments\u2019). \nWhere the market for a financial instrument is not active, fair \nvalue is established using a valuation technique. These \nvaluation techniques involve a degree of estimation, the extent \nof which depends on the instrument\u2019s complexity and the \navailability of market-based data. The complexity and \nuncertainty in the financial instrument\u2019s fair value is \ncategorised using the fair value hierarchy. \nThe use of market indicators as inputs to fair value is assumed \nto include current information and knowledge regarding the \neffect of climate risk. \n2.3. Loan impairment provisions: expected credit losses \n(ECL) \nAt each balance sheet date each financial asset or portfolio of \nfinancial assets measured at amortised cost or at fair value \nthrough other comprehensive income, issued financial \nguarantee and loan commitment (other than those classified as \nheld for trading) is assessed for impairment. Any change in \nimpairment is reported in the income statement. \nLoss allowances are forward-looking, based on 12-month ECL \nwhere there has not been a significant increase in credit risk \nrating, otherwise allowances are based on lifetime expected \nlosses. \nECL are a probability-weighted estimate of credit losses. The \nprobability is determined by the risk of default which is applied \nto the cash flow estimates. In the absence of a change in credit \nrating, allowances are recognised when there is a reduction in \nthe net present value of expected cash flows. Following a \nsignificant increase in credit risk, ECL are adjusted from 12 \nmonths to lifetime. This will lead to a higher impairment charge. \nThe measurement of expected credit loss considers the ability \nof borrowers to make payments as they fall due. Future \ncashflows are discounted, so long-dated cashflows are less \nlikely to affect current expectations on credit loss. Our \nassessment of sector specific risks, and whether additional \nadjustments are required, include expectations of the ability of \nthose sectors to meet their financing needs in the market. \nChanges in credit stewardship and credit risk appetite that \nstem from climate considerations, such as oil and gas, will \ndirectly affect our positions. \nJudgment is exercised as follows: \n\ue001 Models \u2013 in certain low default portfolios, Basel parameter \nestimates are also applied for IFRS 9. \n\ue001 Non-modelled portfolios \u2013 use a standardised capital \nrequirement under Basel II. Under IFRS 9, they have \nbespoke treatments for the identification of significant \nincrease in credit risk. Benchmark PDs, EADs and LGDs are \nreviewed annually for appropriateness. The ECL calculation \nis based on expected future cash flows, which is typically \napplied at a portfolio level. \n\ue001 Multiple economic scenarios (MES) \u2013 the central, or base, \nscenario is most critical to the ECL calculation, independent \nof the method used to generate a range of alternative \noutcomes and their probabilities. \n\ue001 Significant increase in credit risk \u2013 IFRS 9 requires that at \neach reporting date, an entity shall assess whether the \ncredit risk on an account has increased significantly since \ninitial recognition. Part of this assessment requires a \ncomparison to be made between the current lifetime PD \n(i.e. the current probability of default over the remaining \nlifetime) with the equivalent lifetime PD as determined at \nthe date of initial recognition. \nOn restructuring where a financial asset is not derecognised, \nthe revised cash flows are used in re-estimating the credit loss. \nWhere restructuring causes derecognition of the original \nfinancial asset, the fair value of the replacement asset is used \nas the closing cash flow of the original asset. \nWhere in the course of the orderly realisation of a loan, it is \nexchanged for equity shares or property, the exchange is \naccounted for as the sale of the loan and the acquisition of \nequity securities or investment property. Where our acquired \ninterest is in equity shares, relevant policies for control, \nassociates and joint ventures apply. Impaired financial assets are written off and therefore \nderecognised from the balance sheet when we conclude that \nthere is no longer any realistic prospect of recovery of part, or \nall, of the loan. For financial assets that are individually \nassessed for impairment, the timing of the write-off is \ndetermined on a case-by-case basis. Such financial assets are \nreviewed regularly and write-off will be prompted by \nbankruptcy, insolvency, re-negotiation, and similar events. \nThe typical time frames from initial impairment to write-off for \nour collectively assessed portfolios are: \n\ue001 Retail mortgages: write-off usually occurs within five years, \nor earlier, when an account is closed, but can be longer \nwhere the customer engages constructively; \n\ue001 Credit cards: the irrecoverable amount is typically written \noff after twelve arrears cycles or at four years post default \nany remaining amounts outstanding are written off; \n\ue001 Overdrafts and other unsecured loans: write-off occurs \nwithin six years; \n\ue001 Commercial loans: write-offs are determined in the light of \nindividual circumstances; and Business loans are generally \nwritten off within five years. \n2.4. Provisions and contingent liabilities \nWe recognise a provision for a present obligation resulting from \na past event when it is more likely than not that we will be \nrequired to pay to settle the obligation and the amount of the \nobligation can be estimated reliably. \nProvision is made for restructuring costs, including the costs of \nredundancy, when we have a constructive obligation. An \nobligation exists when we have a detailed formal plan for the \nrestructuring and have raised a valid expectation in those \naffected either by starting to implement the plan or by \nannouncing its main features. \nWe recognise any onerous cost of the present obligation under \na contract as a provision. An onerous cost is the unavoidable \ncost of meeting our contractual obligations that exceed the \nexpected economic benefits. When we intend to vacate a \nleasehold property or right of use asset, the asset would be \ntested for impairment and a provision may be recognised for \nthe ancillary contractual occupancy costs. \nContingent liabilities are possible obligations arising from past \nevents, whose existence will be confirmed only by uncertain \nfuture events, or present obligations arising from past events \nthat are not recognised because either an outflow of economic \nbenefits is not probable, or the amount of the obligation cannot \nbe reliably measured. Contingent liabilities are not recognised \nbut information about them is disclosed unless the possibility of \nany outflow of economic benefits in settlement is remote. 4. Future accounting developments \nInternational Financial Reporting Standards \nEffective 1 January 2023 \n\ue001 IFRS 17 Insurance Contracts (Amendments to IFRS 17 \nInsurance Contracts); \n\ue001 Deferred Tax related to Assets and Liabilities arising from a \nSingle Transaction (Amendments to IAS 12); \n\ue001 Definition of Accounting Estimates (Amendments to IAS 8); \nand \n\ue001 Disclosure of Accounting Policies (Amendments to IAS 1 \nand IFRS Practice Statement 2). \nEffective 1 January 2024 \n\ue001 Classification of Liabilities as Current or Non-current \n(Amendments to IAS 1); \n\ue001 Non-current Liabilities with Covenants (Amendments to IAS \n1) \n\ue001 Lease Liability in a sale and Leaseback (Amendments to \nIFRS 16). \nWe are assessing the effect of adopting these standards and \namendments on our financial statements but do not expect the \neffect to be material. ", "dimensions": { "concept": "ifrs-full:ExplanationOfAssumptionAboutFutureWithSignificantRiskOfResultingInMaterialAdjustments", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47395": { "value": "
2. Critical accounting policies
\n
The judgments and assumptions involved in our accounting
\n
policies that are considered by the Board to be the most
\n
important to the portrayal of our financial condition are noted
\n
below. The use of estimates, assumptions or models that differ
\n
from those adopted by us would affect our reported results.
\n
Management\u2019s consideration of uncertainty is outlined in the
\n
relevant sections of this document, including the ECL estimate in
\n
the Risk and capital management section.
\n
Information used for significant estimate
\n
Key financial estimates are based on management's latest five-
\n
year revenue and cost forecasts. Changes in judgments and
\n
assumptions could result in a material adjustment to those
\n
estimates in future reporting periods. Consideration of this
\n
source of estimate uncertainty has been set out in the notes
\n
below (as applicable).
\n
Policy
Judgment
Estimate
\n
Further
\n
information
\n
Deferred tax
Determination of whether sufficient taxable
\n
profits will be generated in future years to
\n
recover DTA.
\n
Our estimates are based on the five-year
\n
revenue and cost forecasts (which include
\n
inherent uncertainties).
\n
Note 7
\n
Fair value \u2013
\n
financial
\n
instruments
\n
Classification of a fair value instrument as level
\n
3, where the valuation is driven by
\n
unobservable inputs.
\n
Estimation of the fair value, where it is
\n
reasonably possible to have alternative
\n
assumptions in determining the FV.
\n
Note 11
\n
Loan
\n
impairment
\n
provisions
\n
Definition of default against which to apply PD,
\n
LGD and EAD models.
\n
Criteria for a significant increase in credit risk.
\n
Identification of risks not captured by the
\n
models.
\n
ECL estimates contain a number of
\n
measurement uncertainties (such as the
\n
selection of multiple economic scenarios) and
\n
disclosures include sensitivities to show impact
\n
on other reasonably possible scenarios.
\n
Note 15
\n
Provisions
\n
for liabilities
\n
and charges
\n
Determination of whether a present obligation
\n
exists in respect of customer redress, litigation
\n
and other regulatory, property and other
\n
provisions.
\n
Legal proceedings often require a high degree
\n
of judgment and these are likely to change as
\n
the matter progresses.
\n
Provisions remain sensitive to the assumptions
\n
used in the estimate. We consider a wide range
\n
of possible outcomes. It is often not practical to
\n
meaningfully quantify ranges of possible
\n
outcomes, given the uncertainties involved.
Note 21
2.1. Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable
\n
in respect of temporary differences between the carrying
\n
amount of an asset or liability for accounting purposes and the
\n
carrying amount for tax purposes. Deferred tax liabilities are
\n
generally recognised for all taxable temporary differences and
\n
deferred tax assets are recognised to the extent their recovery
\n
is probable.
\n
Deferred tax is not recognised on temporary differences that
\n
arise from initial recognition of an asset or a liability in a
\n
transaction (other than a business combination) that at the time
\n
of the transaction affects neither accounting nor taxable profit
\n
or loss. Deferred tax is calculated using tax rates expected to
\n
apply in the periods when the assets will be realised or the
\n
liabilities settled, based on tax rates and laws enacted, or
\n
substantively enacted, at the balance sheet date.
\n
Deferred tax assets and liabilities are offset where we have a
\n
legally enforceable right to offset and where they relate to
\n
income taxes levied by the same taxation authority either on an
\n
individual NatWest Group company or on NatWest Group
\n
companies in the same tax group that intend, in future periods,
\n
to settle current tax liabilities and assets on a net basis or on a
\n
gross basis simultaneously.
\n
Deferred tax asset recoverability is based on the level of
\n
supporting offsetable deferred tax liabilities we have and of our
\n
future taxable profits. These future taxable profits are based on
\n
our five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
\n
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
\n
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
4. Future accounting developments
\n
International Financial Reporting Standards
\n
Effective 1 January 2023
\n
\ue001
IFRS 17 Insurance Contracts (Amendments to IFRS 17
\n
Insurance Contracts);
\n
\ue001
Deferred Tax related to Assets and Liabilities arising from a
\n
Single Transaction (Amendments to IAS 12);
\n
\ue001
Definition of Accounting Estimates (Amendments to IAS 8);
\n
and
\n
\ue001
Disclosure of Accounting Policies (Amendments to IAS 1
\n
and IFRS Practice Statement 2).
\n
Effective 1 January 2024
\n
\ue001
Classification of Liabilities as Current or Non-current
\n
(Amendments to IAS 1);
\n
\ue001
Non-current Liabilities with Covenants (Amendments to IAS
\n
1)
\n
\ue001
Lease Liability in a sale and Leaseback (Amendments to
\n
IFRS 16).
\n
We are assessing the effect of adopting these standards and
\n
amendments on our financial statements but do not expect the
\n
effect to be material.
Judgment: tax contingencies
\n
NatWest Group\u2019s corporate income tax charge and its provisions for corporate income taxes necessarily involve a degree of
\n
estimation and judgment. The tax treatment of some transactions is uncertain and tax computations are yet to be agreed with the
\n
tax authorities in a number of jurisdictions. NatWest Group recognises anticipated tax liabilities based on all available evidence and,
\n
where appropriate, in the light of external advice. Any difference between the final outcome and the amounts provided will affect
\n
current and deferred income tax charges in the period when the matter is resolved.
Critical accounting policy: Deferred tax
\n
NatWest Group has recognised a deferred tax asset of \u00a32,178
\n
million (2021 - \u00a31,195 million) and a deferred tax liability of \u00a3227
\n
million (2021 - \u00a3359 million). These include amounts recognised
\n
in respect of UK and overseas tax losses of \u00a3952 million (2021 -
\n
\u00a3899 million).
\n
It was announced in the UK Government\u2019s budget on 27
\n
October 2021 that the UK banking surcharge will decrease from
\n
8% to 3% from 1 April 2023. This legislative change was enacted
\n
on 24 February 2022. NatWest Group\u2019s closing deferred tax
\n
assets and liabilities have therefore been recalculated taking
\n
into account this change of rate and the applicable period the
\n
deferred tax assets and liabilities are expected to crystallise.
\n
Judgment
-
NatWest Group has considered the carrying value of
\n
deferred tax assets and concluded that, based on
\n
management\u2019s estimates, sufficient taxable profits will be
\n
generated in future years to recover recognised deferred tax
\n
assets.
\n
Estimate
- These estimates are partly based on forecast
\n
performance beyond the horizon for management\u2019s detailed
\n
plans. They have regard to inherent uncertainties, such as
\n
climate change. The deferred tax assets in NWM Plc and
\n
UBIDAC are supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022
.
Judgment: classification of financial assets
\n
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
\n
judgment in respect of business models and contractual cashflows.
\n
\ue001
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held
\n
to collect and sell. Information that is considered in determining the applicable business model includes the portfolio\u2019s policies
\n
and objectives, how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
\n
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
\n
\ue001
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent
\n
solely payments of principal and interest. A level of judgment is made in assessing terms that could change the contractual
\n
cash flows so that it would not meet the condition for solely payments of principal and interest, including contingent and
\n
leverage features,
non
-recourse arrangements and features that could modify the time value of money.
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAccountingJudgementsAndEstimatesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47500": { "value": "
2.1. Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable
\n
in respect of temporary differences between the carrying
\n
amount of an asset or liability for accounting purposes and the
\n
carrying amount for tax purposes. Deferred tax liabilities are
\n
generally recognised for all taxable temporary differences and
\n
deferred tax assets are recognised to the extent their recovery
\n
is probable.
\n
Deferred tax is not recognised on temporary differences that
\n
arise from initial recognition of an asset or a liability in a
\n
transaction (other than a business combination) that at the time
\n
of the transaction affects neither accounting nor taxable profit
\n
or loss. Deferred tax is calculated using tax rates expected to
\n
apply in the periods when the assets will be realised or the
\n
liabilities settled, based on tax rates and laws enacted, or
\n
substantively enacted, at the balance sheet date.
\n
Deferred tax assets and liabilities are offset where we have a
\n
legally enforceable right to offset and where they relate to
\n
income taxes levied by the same taxation authority either on an
\n
individual NatWest Group company or on NatWest Group
\n
companies in the same tax group that intend, in future periods,
\n
to settle current tax liabilities and assets on a net basis or on a
\n
gross basis simultaneously.
\n
Deferred tax asset recoverability is based on the level of
\n
supporting offsetable deferred tax liabilities we have and of our
\n
future taxable profits. These future taxable profits are based on
\n
our five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
3.7. Tax
\n
Tax encompassing current tax and deferred tax is recognised
\n
in the income statement except when taxable items are
\n
recognised in other comprehensive income or equity. Tax
\n
consequences arising from servicing financial instruments
\n
classified as equity are recognised in the income statement.
\n
Current tax is tax payable or recoverable in respect of the
\n
taxable profit or loss for the year arising in the income
\n
statement, other comprehensive income or equity. Provision is
\n
made for current tax at rates enacted, or substantively
\n
enacted, at the balance sheet date.
\n
Accounting for taxes is judgmental and carries a degree of
\n
uncertainty because tax law is subject to interpretation, which
\n
might be questioned by the relevant tax authority. We
\n
recognise the most likely current and deferred tax liability or
\n
asset, assessed for uncertainty using consistent judgments and
\n
estimates. Current and deferred tax assets are only recognised
\n
where their recovery is deemed probable, and current and
\n
deferred tax liabilities are recognised at the amount that
\n
represents the best estimate of the probable outcome having
\n
regard to their acceptance by the tax authorities.
Critical accounting policy: Deferred tax
\n
NatWest Group has recognised a deferred tax asset of \u00a32,178
\n
million (2021 - \u00a31,195 million) and a deferred tax liability of \u00a3227
\n
million (2021 - \u00a3359 million). These include amounts recognised
\n
in respect of UK and overseas tax losses of \u00a3952 million (2021 -
\n
\u00a3899 million).
\n
It was announced in the UK Government\u2019s budget on 27
\n
October 2021 that the UK banking surcharge will decrease from
\n
8% to 3% from 1 April 2023. This legislative change was enacted
\n
on 24 February 2022. NatWest Group\u2019s closing deferred tax
\n
assets and liabilities have therefore been recalculated taking
\n
into account this change of rate and the applicable period the
\n
deferred tax assets and liabilities are expected to crystallise.
\n
Judgment
-
NatWest Group has considered the carrying value of
\n
deferred tax assets and concluded that, based on
\n
management\u2019s estimates, sufficient taxable profits will be
\n
generated in future years to recover recognised deferred tax
\n
assets.
\n
Estimate
- These estimates are partly based on forecast
\n
performance beyond the horizon for management\u2019s detailed
\n
plans. They have regard to inherent uncertainties, such as
\n
climate change. The deferred tax assets in NWM Plc and
\n
UBIDAC are supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022
.
\n
UK tax losses
\n
Under UK tax rules, tax losses can be carried forward
\n
indefinitely. As the recognised tax losses in NatWest Group
\n
arose prior to 1 April 2015, credit in future periods is given
\n
against 25% of profits at the main rate of UK corporation tax,
\n
excluding the Banking Surcharge rate introduced by The
\n
Finance (No. 2) Act 2015.
\n
NWM Plc
\u2013 A deferred tax asset of \u00a33 million (2021 - \u00a356 million)
\n
has been recognised in respect of losses of \u00a312 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022. NWM Plc expects that the
\n
balance of recognised deferred tax asset at 31 December 2022
\n
will be recovered by the end of 2027. Of the losses remaining,
\n
\u00a35,538 million have not been recognised in the deferred tax
\n
balance at 31 December 2022.
\n
NWB Plc
\u2013 A deferred tax asset of \u00a3445 million (2021 - \u00a3608
\n
million) has been recognised in respect of losses of \u00a31,847
\n
million of total losses of \u00a32,718 million carried forward at 31
\n
December 2022. The losses arose principally as a result of
\n
significant impairment and conduct charges between 2009 and
\n
2012 during challenging economic conditions in the UK banking
\n
sector. NWB Plc returned to tax profitability during 2015 and
\n
expects the deferred tax asset to be utilised against future
\n
taxable profits by the end of 2027.
\n
RBS plc
\u2013 A deferred tax asset of \u00a3452 million (2021 - \u00a3176
\n
million) has been recognised in respect of losses of \u00a31,821
\n
million of total losses of \u00a33,692 million carried forward at 31
\n
December 2022. The losses were transferred from NatWest
\n
Markets Plc as a consequence of the ring fencing regulations.
\n
RBS plc expects the deferred tax asset to be utilised against
\n
future taxable profits by the end of 2029.
Overseas tax losses
\n
UBIDAC
\u2013
A deferred tax asset of \u00a36 million (2021 - \u00a311 million)
\n
has been recognised in respect of losses of \u00a348 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022.
\n
NatWest Market N.V. (NWM N.V.)
\u2013
A deferred tax asset of \u00a346
\n
million (2021 - \u00a348 million) has been recognised in respect of
\n
losses of \u00a3186 million of total losses of \u00a32,914 million carried
\n
forward at 31 December 2022. NWM N.V. Group considers it to
\n
be probable, based on its 5 year budget forecast, that future
\n
taxable profit will be available against which the tax losses and
\n
tax credits can be partially utilised. The tax losses and the tax
\n
credits have no expiry date.
\n
Unrecognised deferred tax
\n
Deferred tax assets of \u00a35,534 million (2021 - \u00a35,437 million;
\n
2020 - \u00a34,965 million) have not been recognised in respect of
\n
tax losses and other deductible temporary differences carried
\n
forward of \u00a325,742 million (2021 - \u00a324,699 million; 2020 -
\n
\u00a325,091 million) in jurisdictions where doubt exists over the
\n
availability of future taxable profits. Of these losses and other
\n
deductible temporary differences, \u00a375 million expire within five
\n
years and \u00a34,774 million thereafter. The balance of tax losses
\n
and other deductible temporary differences carried forward has
\n
no expiry date.
\n
Deferred tax liabilities of \u00a3257 million (2021 - \u00a3302 million; 2020
\n
- \u00a3242 million) on aggregate underlying temporary differences
\n
of \u00a31,010 million (2021 - \u00a31,032 million; 2020 \u00a31,021 million)
\n
have not been recognised in respect of retained earnings of
\n
overseas subsidiaries and held-over gains on the incorporation
\n
of certain overseas branches. Retained earnings of overseas
\n
subsidiaries are expected to be reinvested indefinitely or
\n
remitted to the UK free from further taxation. No taxation is
\n
expected to arise in the foreseeable future in respect of held-
\n
over gains on which deferred tax is not recognised. Changes to
\n
UK tax legislation largely exempts from UK tax overseas
\n
dividends received on or after 1 July 2009.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIncomeTaxExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47501": { "value": "
2.1. Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable
\n
in respect of temporary differences between the carrying
\n
amount of an asset or liability for accounting purposes and the
\n
carrying amount for tax purposes. Deferred tax liabilities are
\n
generally recognised for all taxable temporary differences and
\n
deferred tax assets are recognised to the extent their recovery
\n
is probable.
\n
Deferred tax is not recognised on temporary differences that
\n
arise from initial recognition of an asset or a liability in a
\n
transaction (other than a business combination) that at the time
\n
of the transaction affects neither accounting nor taxable profit
\n
or loss. Deferred tax is calculated using tax rates expected to
\n
apply in the periods when the assets will be realised or the
\n
liabilities settled, based on tax rates and laws enacted, or
\n
substantively enacted, at the balance sheet date.
\n
Deferred tax assets and liabilities are offset where we have a
\n
legally enforceable right to offset and where they relate to
\n
income taxes levied by the same taxation authority either on an
\n
individual NatWest Group company or on NatWest Group
\n
companies in the same tax group that intend, in future periods,
\n
to settle current tax liabilities and assets on a net basis or on a
\n
gross basis simultaneously.
\n
Deferred tax asset recoverability is based on the level of
\n
supporting offsetable deferred tax liabilities we have and of our
\n
future taxable profits. These future taxable profits are based on
\n
our five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
3.7. Tax
\n
Tax encompassing current tax and deferred tax is recognised
\n
in the income statement except when taxable items are
\n
recognised in other comprehensive income or equity. Tax
\n
consequences arising from servicing financial instruments
\n
classified as equity are recognised in the income statement.
Accounting for taxes is judgmental and carries a degree of
\n
uncertainty because tax law is subject to interpretation, which
\n
might be questioned by the relevant tax authority. We
\n
recognise the most likely current and deferred tax liability or
\n
asset, assessed for uncertainty using consistent judgments and
\n
estimates. Current and deferred tax assets are only recognised
\n
where their recovery is deemed probable, and current and
\n
deferred tax liabilities are recognised at the amount that
\n
represents the best estimate of the probable outcome having
\n
regard to their acceptance by the tax authorities.
Critical accounting policy: Deferred tax
\n
NatWest Group has recognised a deferred tax asset of \u00a32,178
\n
million (2021 - \u00a31,195 million) and a deferred tax liability of \u00a3227
\n
million (2021 - \u00a3359 million). These include amounts recognised
\n
in respect of UK and overseas tax losses of \u00a3952 million (2021 -
\n
\u00a3899 million).
\n
It was announced in the UK Government\u2019s budget on 27
\n
October 2021 that the UK banking surcharge will decrease from
\n
8% to 3% from 1 April 2023. This legislative change was enacted
\n
on 24 February 2022. NatWest Group\u2019s closing deferred tax
\n
assets and liabilities have therefore been recalculated taking
\n
into account this change of rate and the applicable period the
\n
deferred tax assets and liabilities are expected to crystallise.
\n
Judgment
-
NatWest Group has considered the carrying value of
\n
deferred tax assets and concluded that, based on
\n
management\u2019s estimates, sufficient taxable profits will be
\n
generated in future years to recover recognised deferred tax
\n
assets.
\n
Estimate
- These estimates are partly based on forecast
\n
performance beyond the horizon for management\u2019s detailed
\n
plans. They have regard to inherent uncertainties, such as
\n
climate change. The deferred tax assets in NWM Plc and
\n
UBIDAC are supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022
.
\n
UK tax losses
\n
Under UK tax rules, tax losses can be carried forward
\n
indefinitely. As the recognised tax losses in NatWest Group
\n
arose prior to 1 April 2015, credit in future periods is given
\n
against 25% of profits at the main rate of UK corporation tax,
\n
excluding the Banking Surcharge rate introduced by The
\n
Finance (No. 2) Act 2015.
\n
NWM Plc
\u2013 A deferred tax asset of \u00a33 million (2021 - \u00a356 million)
\n
has been recognised in respect of losses of \u00a312 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022. NWM Plc expects that the
\n
balance of recognised deferred tax asset at 31 December 2022
\n
will be recovered by the end of 2027. Of the losses remaining,
\n
\u00a35,538 million have not been recognised in the deferred tax
\n
balance at 31 December 2022.
\n
NWB Plc
\u2013 A deferred tax asset of \u00a3445 million (2021 - \u00a3608
\n
million) has been recognised in respect of losses of \u00a31,847
\n
million of total losses of \u00a32,718 million carried forward at 31
\n
December 2022. The losses arose principally as a result of
\n
significant impairment and conduct charges between 2009 and
\n
2012 during challenging economic conditions in the UK banking
\n
sector. NWB Plc returned to tax profitability during 2015 and
\n
expects the deferred tax asset to be utilised against future
\n
taxable profits by the end of 2027.
\n
RBS plc
\u2013 A deferred tax asset of \u00a3452 million (2021 - \u00a3176
\n
million) has been recognised in respect of losses of \u00a31,821
\n
million of total losses of \u00a33,692 million carried forward at 31
\n
December 2022. The losses were transferred from NatWest
\n
Markets Plc as a consequence of the ring fencing regulations.
\n
RBS plc expects the deferred tax asset to be utilised against
\n
future taxable profits by the end of 2029.
Overseas tax losses
\n
UBIDAC
\u2013
A deferred tax asset of \u00a36 million (2021 - \u00a311 million)
\n
has been recognised in respect of losses of \u00a348 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022.
\n
NatWest Market N.V. (NWM N.V.)
\u2013
A deferred tax asset of \u00a346
\n
million (2021 - \u00a348 million) has been recognised in respect of
\n
losses of \u00a3186 million of total losses of \u00a32,914 million carried
\n
forward at 31 December 2022. NWM N.V. Group considers it to
\n
be probable, based on its 5 year budget forecast, that future
\n
taxable profit will be available against which the tax losses and
\n
tax credits can be partially utilised. The tax losses and the tax
\n
credits have no expiry date.
\n
Unrecognised deferred tax
\n
Deferred tax assets of \u00a35,534 million (2021 - \u00a35,437 million;
\n
2020 - \u00a34,965 million) have not been recognised in respect of
\n
tax losses and other deductible temporary differences carried
\n
forward of \u00a325,742 million (2021 - \u00a324,699 million; 2020 -
\n
\u00a325,091 million) in jurisdictions where doubt exists over the
\n
availability of future taxable profits. Of these losses and other
\n
deductible temporary differences, \u00a375 million expire within five
\n
years and \u00a34,774 million thereafter. The balance of tax losses
\n
and other deductible temporary differences carried forward has
\n
no expiry date.
\n
Deferred tax liabilities of \u00a3257 million (2021 - \u00a3302 million; 2020
\n
- \u00a3242 million) on aggregate underlying temporary differences
\n
of \u00a31,010 million (2021 - \u00a31,032 million; 2020 \u00a31,021 million)
\n
have not been recognised in respect of retained earnings of
\n
overseas subsidiaries and held-over gains on the incorporation
\n
of certain overseas branches. Retained earnings of overseas
\n
subsidiaries are expected to be reinvested indefinitely or
\n
remitted to the UK free from further taxation. No taxation is
\n
expected to arise in the foreseeable future in respect of held-
\n
over gains on which deferred tax is not recognised. Changes to
\n
UK tax legislation largely exempts from UK tax overseas
\n
dividends received on or after 1 July 2009.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDeferredIncomeTaxExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47502": { "value": "
2.1. Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable
\n
in respect of temporary differences between the carrying
\n
amount of an asset or liability for accounting purposes and the
\n
carrying amount for tax purposes. Deferred tax liabilities are
\n
generally recognised for all taxable temporary differences and
\n
deferred tax assets are recognised to the extent their recovery
\n
is probable.
\n
Deferred tax is not recognised on temporary differences that
\n
arise from initial recognition of an asset or a liability in a
\n
transaction (other than a business combination) that at the time
\n
of the transaction affects neither accounting nor taxable profit
\n
or loss. Deferred tax is calculated using tax rates expected to
\n
apply in the periods when the assets will be realised or the
\n
liabilities settled, based on tax rates and laws enacted, or
\n
substantively enacted, at the balance sheet date.
\n
Deferred tax assets and liabilities are offset where we have a
\n
legally enforceable right to offset and where they relate to
\n
income taxes levied by the same taxation authority either on an
\n
individual NatWest Group company or on NatWest Group
\n
companies in the same tax group that intend, in future periods,
\n
to settle current tax liabilities and assets on a net basis or on a
\n
gross basis simultaneously.
\n
Deferred tax asset recoverability is based on the level of
\n
supporting offsetable deferred tax liabilities we have and of our
\n
future taxable profits. These future taxable profits are based on
\n
our five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
3.7. Tax
\n
Tax encompassing current tax and deferred tax is recognised
\n
in the income statement except when taxable items are
\n
recognised in other comprehensive income or equity. Tax
\n
consequences arising from servicing financial instruments
\n
classified as equity are recognised in the income statement.
\n
Current tax is tax payable or recoverable in respect of the
\n
taxable profit or loss for the year arising in the income
\n
statement, other comprehensive income or equity. Provision is
\n
made for current tax at rates enacted, or substantively
\n
enacted, at the balance sheet date.
\n
Accounting for taxes is judgmental and carries a degree of
\n
uncertainty because tax law is subject to interpretation, which
\n
might be questioned by the relevant tax authority. We
\n
recognise the most likely current and deferred tax liability or
\n
asset, assessed for uncertainty using consistent judgments and
\n
estimates. Current and deferred tax assets are only recognised
\n
where their recovery is deemed probable, and current and
\n
deferred tax liabilities are recognised at the amount that
\n
represents the best estimate of the probable outcome having
\n
regard to their acceptance by the tax authorities.
7 Tax
\n
NatWest Group\u2019s corporate income tax charge for the period is set out below, together with a reconciliation to the expected tax
\n
charge calculated using the UK standard corporation tax rate and details of the NatWest Group\u2019s deferred tax balances.
\n
For accounting policy information see Accounting policies note 3.7.
\n
Analysis of the tax charge for the year
\n
The tax charge comprises current and deferred tax in respect of profits and losses recognised or originating in the income
\n
statement. Tax on items originating outside the income statement is charged to other comprehensive income or direct to equity (as
\n
appropriate) and is therefore not reflected in the table below.
\n
Current tax is tax payable or recoverable in respect of the taxable profit or loss for the year and any adjustments to tax payable in
\n
prior years. Deferred tax is explained on page 330.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Current tax
\n
Charge for the year
(1,611)
(1,036)
(191)
\n
Over provision in respect of prior years
100
31
86
\n
(1,511)
(1,005)
(105)
\n
Deferred tax
\n
Credit/(charge) for the year
47
(185)
176
\n
UK tax rate change impact
(1)
(10)
165
75
\n
Net increase/(decrease) in the carrying value of deferred tax assets in respect of UK,
\n
RoI and Netherlands losses
267
12
(130)
\n
(Under)/over provision in respect of prior years
(2)
(68)
17
(90)
\n
Tax charge for the year
(1,275)
(996)
(74)
\n
(1)
It was announced in the UK Government\u2019s budget on 27 October 2021 that the main UK banking surcharge will decrease from 8% to 3% from 1 April 2023. This legislative change
\n
was enacted on 24 February 2022.
\n
(2)
Prior year tax adjustments incorporate refinements to tax computations made on submission and agreement with the tax authorities and adjustments to provisions in respect of
\n
uncertain tax positions.
Factors affecting the tax charge for the year
\n
Taxable profits differ from profits reported in the income statement as certain amounts of income and expense may not be taxable
\n
or deductible. In addition, taxable profits may reflect items that have been included outside the income statement (for instance, in
\n
other comprehensive income) or adjustments that are made for tax purposes only.
\n
The expected tax charge for the year is calculated by applying the standard UK corporation tax rate of 19% (2021 and 2020 \u2013 19%)
\n
to the Operating profit or loss before tax in the income statement.
\n
The actual tax charge differs from the expected tax charge as follows:
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Expected tax (charge)/credit
(975)
(766)
92
\n
Losses and temporary differences in year where no deferred tax asset recognised
(118)
(51)
(43)
\n
Foreign profits taxed at other rates
(62)
(11)
(29)
\n
Non deductible goodwill impairment
\u2014
(16)
\u2014
\n
Items not allowed for tax:
\n
- losses on disposals and write-downs
(10)
(55)
(22)
\n
- UK bank levy
(20)
(18)
(32)
\n
- regulatory and legal actions
(7)
(74)
14
\n
- other disallowable items
(51)
(28)
(70)
\n
Non-taxable items:
\n
- RPI related uplift on index linked gilts
\n
(1)
\n
67
\u2014
\u2014
\n
- other non-taxable items
29
73
28
\n
Taxable foreign exchange movements
(19)
8
(3)
\n
Unrecognised losses brought forward and utilised
6
10
16
\n
Net increase/(decrease) in the carrying value of deferred tax assets in respect of:
\n
- UK losses
272
(9)
7
\n
- RoI losses
(5)
(27)
(137)
\n
- Netherlands losses
\u2014
48
\u2014
\n
Banking surcharge
(447)
(341)
(27)
\n
Tax on paid-in equity dividends
43
48
61
\n
UK tax rate change impact
(10)
165
75
\n
Adjustments in respect of prior years
32
48
(4)
\n
Actual tax charge
(1,275)
(996)
(74)
\n
(1)
The tax impact of this adjustment (\u00a3135 million credit) is allocated across the RPI related uplift on index linked gilts, Adjustments in respect of prior years and Banking surcharge
\n
reconciling items.
\n
Judgment: tax contingencies
\n
NatWest Group\u2019s corporate income tax charge and its provisions for corporate income taxes necessarily involve a degree of
\n
estimation and judgment. The tax treatment of some transactions is uncertain and tax computations are yet to be agreed with the
\n
tax authorities in a number of jurisdictions. NatWest Group recognises anticipated tax liabilities based on all available evidence and,
\n
where appropriate, in the light of external advice. Any difference between the final outcome and the amounts provided will affect
\n
current and deferred income tax charges in the period when the matter is resolved.
\n
Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable in respect of temporary differences where the carrying amount of
\n
an asset or liability differs for accounting and tax purposes. Deferred tax liabilities reflect the expected amount of tax payable in
\n
the future on these temporary differences. Deferred tax assets reflect the expected amount of tax recoverable in the future on
\n
these differences.
\n
The net deferred tax asset recognised by the NatWest Group is shown below, together with details of the accounting judgments
\n
and tax rates that have been used to calculate the deferred tax. Details are also provided of any deferred tax assets or liabilities
\n
that have not been recognised on the balance sheet.
\n
Analysis of deferred tax
\n
\u00a3m
\u00a3m
\n
Deferred tax asset
(2,178)
(1,195)
\n
Deferred tax liability
227
359
\n
Net deferred tax asset
(1,951)
(836)
Pension
\n
Accelerated
\n
capital
\n
allowances
\n
Expense
\n
provisions
\n
Financial
\n
instruments (1)
\n
Tax losses
\n
carried forward
\n
Other
\n
Total
\n
\u00a3m
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2021
(4)
(64)
(85)
480
(905)
(32)
(610)
\n
Charge/(credit) to income statement:
\n
- continuing operations
19
21
(5)
(10)
(1)
(33)
(9)
\n
- discontinued operations
\u2014
\u2014
\u2014
\u2014
3
\u2014
3
\n
Charge/(credit) to other comprehensive income
10
\u2014
(7)
(222)
\u2014
(5)
(224)
\n
Currency translation and other adjustments
(1)
1
\u2014
\u2014
4
\u2014
4
\n
At 1 January 2022
24
(42)
(97)
248
(899)
(70)
(836)
\n
Charge/(credit) to income statement:
\n
- continuing operations
1
(43)
14
(171)
(51)
14
(236)
\n
- discontinued operations
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(Credit)/charge to other comprehensive income
(2)
\u2014
1
(913)
\u2014
(2)
(916)
\n
Currency translation and other adjustments
\u2014
10
\u2014
31
(2)
(2)
37
\n
At 31 December 2022
23
(75)
(82)
(805)
(952)
(60)
(1,951)
\n
(1)
The in-year movement predominantly relates to cash flow hedges.
\n
Deferred tax assets in respect of carried forward tax losses are recognised if the losses can be used to offset probable future
\n
taxable profits after taking into account the expected reversal of other temporary differences. Recognised deferred tax assets in
\n
respect of tax losses are analysed further below.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
UK tax losses carried forward
\n
- NWM Plc
3
56
\n
- NWB Plc
445
608
\n
- RBS plc
452
176
\n
Total
900
840
\n
Overseas tax losses carried forward
\n
- UBIDAC
6
11
\n
- NWM N.V.
46
48
\n
952
899
\n
Critical accounting policy: Deferred tax
\n
NatWest Group has recognised a deferred tax asset of \u00a32,178
\n
million (2021 - \u00a31,195 million) and a deferred tax liability of \u00a3227
\n
million (2021 - \u00a3359 million). These include amounts recognised
\n
in respect of UK and overseas tax losses of \u00a3952 million (2021 -
\n
\u00a3899 million).
\n
It was announced in the UK Government\u2019s budget on 27
\n
October 2021 that the UK banking surcharge will decrease from
\n
8% to 3% from 1 April 2023. This legislative change was enacted
\n
on 24 February 2022. NatWest Group\u2019s closing deferred tax
\n
assets and liabilities have therefore been recalculated taking
\n
into account this change of rate and the applicable period the
\n
deferred tax assets and liabilities are expected to crystallise.
\n
Judgment
-
NatWest Group has considered the carrying value of
\n
deferred tax assets and concluded that, based on
\n
management\u2019s estimates, sufficient taxable profits will be
\n
generated in future years to recover recognised deferred tax
\n
assets.
\n
Estimate
- These estimates are partly based on forecast
\n
performance beyond the horizon for management\u2019s detailed
\n
plans. They have regard to inherent uncertainties, such as
\n
climate change. The deferred tax assets in NWM Plc and
\n
UBIDAC are supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022
.
\n
UK tax losses
\n
Under UK tax rules, tax losses can be carried forward
\n
indefinitely. As the recognised tax losses in NatWest Group
\n
arose prior to 1 April 2015, credit in future periods is given
\n
against 25% of profits at the main rate of UK corporation tax,
\n
excluding the Banking Surcharge rate introduced by The
\n
Finance (No. 2) Act 2015.
\n
NWM Plc
\u2013 A deferred tax asset of \u00a33 million (2021 - \u00a356 million)
\n
has been recognised in respect of losses of \u00a312 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022. NWM Plc expects that the
\n
balance of recognised deferred tax asset at 31 December 2022
\n
will be recovered by the end of 2027. Of the losses remaining,
\n
\u00a35,538 million have not been recognised in the deferred tax
\n
balance at 31 December 2022.
\n
NWB Plc
\u2013 A deferred tax asset of \u00a3445 million (2021 - \u00a3608
\n
million) has been recognised in respect of losses of \u00a31,847
\n
million of total losses of \u00a32,718 million carried forward at 31
\n
December 2022. The losses arose principally as a result of
\n
significant impairment and conduct charges between 2009 and
\n
2012 during challenging economic conditions in the UK banking
\n
sector. NWB Plc returned to tax profitability during 2015 and
\n
expects the deferred tax asset to be utilised against future
\n
taxable profits by the end of 2027.
\n
RBS plc
\u2013 A deferred tax asset of \u00a3452 million (2021 - \u00a3176
\n
million) has been recognised in respect of losses of \u00a31,821
\n
million of total losses of \u00a33,692 million carried forward at 31
\n
December 2022. The losses were transferred from NatWest
\n
Markets Plc as a consequence of the ring fencing regulations.
\n
RBS plc expects the deferred tax asset to be utilised against
\n
future taxable profits by the end of 2029.
Overseas tax losses
\n
UBIDAC
\u2013
A deferred tax asset of \u00a36 million (2021 - \u00a311 million)
\n
has been recognised in respect of losses of \u00a348 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022.
\n
NatWest Market N.V. (NWM N.V.)
\u2013
A deferred tax asset of \u00a346
\n
million (2021 - \u00a348 million) has been recognised in respect of
\n
losses of \u00a3186 million of total losses of \u00a32,914 million carried
\n
forward at 31 December 2022. NWM N.V. Group considers it to
\n
be probable, based on its 5 year budget forecast, that future
\n
taxable profit will be available against which the tax losses and
\n
tax credits can be partially utilised. The tax losses and the tax
\n
credits have no expiry date.
\n
Unrecognised deferred tax
\n
Deferred tax assets of \u00a35,534 million (2021 - \u00a35,437 million;
\n
2020 - \u00a34,965 million) have not been recognised in respect of
\n
tax losses and other deductible temporary differences carried
\n
forward of \u00a325,742 million (2021 - \u00a324,699 million; 2020 -
\n
\u00a325,091 million) in jurisdictions where doubt exists over the
\n
availability of future taxable profits. Of these losses and other
\n
deductible temporary differences, \u00a375 million expire within five
\n
years and \u00a34,774 million thereafter. The balance of tax losses
\n
and other deductible temporary differences carried forward has
\n
no expiry date.
\n
Deferred tax liabilities of \u00a3257 million (2021 - \u00a3302 million; 2020
\n
- \u00a3242 million) on aggregate underlying temporary differences
\n
of \u00a31,010 million (2021 - \u00a31,032 million; 2020 \u00a31,021 million)
\n
have not been recognised in respect of retained earnings of
\n
overseas subsidiaries and held-over gains on the incorporation
\n
of certain overseas branches. Retained earnings of overseas
\n
subsidiaries are expected to be reinvested indefinitely or
\n
remitted to the UK free from further taxation. No taxation is
\n
expected to arise in the foreseeable future in respect of held-
\n
over gains on which deferred tax is not recognised. Changes to
\n
UK tax legislation largely exempts from UK tax overseas
\n
dividends received on or after 1 July 2009.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIncomeTaxExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47503": { "value": "
2.1. Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable
\n
in respect of temporary differences between the carrying
\n
amount of an asset or liability for accounting purposes and the
\n
carrying amount for tax purposes. Deferred tax liabilities are
\n
generally recognised for all taxable temporary differences and
\n
deferred tax assets are recognised to the extent their recovery
\n
is probable.
\n
Deferred tax is not recognised on temporary differences that
\n
arise from initial recognition of an asset or a liability in a
\n
transaction (other than a business combination) that at the time
\n
of the transaction affects neither accounting nor taxable profit
\n
or loss. Deferred tax is calculated using tax rates expected to
\n
apply in the periods when the assets will be realised or the
\n
liabilities settled, based on tax rates and laws enacted, or
\n
substantively enacted, at the balance sheet date.
\n
Deferred tax assets and liabilities are offset where we have a
\n
legally enforceable right to offset and where they relate to
\n
income taxes levied by the same taxation authority either on an
\n
individual NatWest Group company or on NatWest Group
\n
companies in the same tax group that intend, in future periods,
\n
to settle current tax liabilities and assets on a net basis or on a
\n
gross basis simultaneously.
\n
Deferred tax asset recoverability is based on the level of
\n
supporting offsetable deferred tax liabilities we have and of our
\n
future taxable profits. These future taxable profits are based on
\n
our five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\n
adjustments to this indicator.
3.7. Tax
\n
Tax encompassing current tax and deferred tax is recognised
\n
in the income statement except when taxable items are
\n
recognised in other comprehensive income or equity. Tax
\n
consequences arising from servicing financial instruments
\n
classified as equity are recognised in the income statement.
\n
Current tax is tax payable or recoverable in respect of the
\n
taxable profit or loss for the year arising in the income
\n
statement, other comprehensive income or equity. Provision is
\n
made for current tax at rates enacted, or substantively
\n
enacted, at the balance sheet date.
\n
Accounting for taxes is judgmental and carries a degree of
\n
uncertainty because tax law is subject to interpretation, which
\n
might be questioned by the relevant tax authority. We
\n
recognise the most likely current and deferred tax liability or
\n
asset, assessed for uncertainty using consistent judgments and
\n
estimates. Current and deferred tax assets are only recognised
\n
where their recovery is deemed probable, and current and
\n
deferred tax liabilities are recognised at the amount that
\n
represents the best estimate of the probable outcome having
\n
regard to their acceptance by the tax authorities.
7 Tax
\n
NatWest Group\u2019s corporate income tax charge for the period is set out below, together with a reconciliation to the expected tax
\n
charge calculated using the UK standard corporation tax rate and details of the NatWest Group\u2019s deferred tax balances.
\n
For accounting policy information see Accounting policies note 3.7.
\n
Analysis of the tax charge for the year
\n
The tax charge comprises current and deferred tax in respect of profits and losses recognised or originating in the income
\n
statement. Tax on items originating outside the income statement is charged to other comprehensive income or direct to equity (as
\n
appropriate) and is therefore not reflected in the table below.
\n
Current tax is tax payable or recoverable in respect of the taxable profit or loss for the year and any adjustments to tax payable in
\n
prior years. Deferred tax is explained on page 330.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Current tax
\n
Charge for the year
(1,611)
(1,036)
(191)
\n
Over provision in respect of prior years
100
31
86
\n
(1,511)
(1,005)
(105)
\n
Deferred tax
\n
Credit/(charge) for the year
47
(185)
176
\n
UK tax rate change impact
(1)
(10)
165
75
\n
Net increase/(decrease) in the carrying value of deferred tax assets in respect of UK,
\n
RoI and Netherlands losses
267
12
(130)
\n
(Under)/over provision in respect of prior years
(2)
(68)
17
(90)
\n
Tax charge for the year
(1,275)
(996)
(74)
\n
(1)
It was announced in the UK Government\u2019s budget on 27 October 2021 that the main UK banking surcharge will decrease from 8% to 3% from 1 April 2023. This legislative change
\n
was enacted on 24 February 2022.
\n
(2)
Prior year tax adjustments incorporate refinements to tax computations made on submission and agreement with the tax authorities and adjustments to provisions in respect of
\n
uncertain tax positions.
Factors affecting the tax charge for the year
\n
Taxable profits differ from profits reported in the income statement as certain amounts of income and expense may not be taxable
\n
or deductible. In addition, taxable profits may reflect items that have been included outside the income statement (for instance, in
\n
other comprehensive income) or adjustments that are made for tax purposes only.
\n
The expected tax charge for the year is calculated by applying the standard UK corporation tax rate of 19% (2021 and 2020 \u2013 19%)
\n
to the Operating profit or loss before tax in the income statement.
\n
The actual tax charge differs from the expected tax charge as follows:
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Expected tax (charge)/credit
(975)
(766)
92
\n
Losses and temporary differences in year where no deferred tax asset recognised
(118)
(51)
(43)
\n
Foreign profits taxed at other rates
(62)
(11)
(29)
\n
Non deductible goodwill impairment
\u2014
(16)
\u2014
\n
Items not allowed for tax:
\n
- losses on disposals and write-downs
(10)
(55)
(22)
\n
- UK bank levy
(20)
(18)
(32)
\n
- regulatory and legal actions
(7)
(74)
14
\n
- other disallowable items
(51)
(28)
(70)
\n
Non-taxable items:
\n
- RPI related uplift on index linked gilts
\n
(1)
\n
67
\u2014
\u2014
\n
- other non-taxable items
29
73
28
\n
Taxable foreign exchange movements
(19)
8
(3)
\n
Unrecognised losses brought forward and utilised
6
10
16
\n
Net increase/(decrease) in the carrying value of deferred tax assets in respect of:
\n
- UK losses
272
(9)
7
\n
- RoI losses
(5)
(27)
(137)
\n
- Netherlands losses
\u2014
48
\u2014
\n
Banking surcharge
(447)
(341)
(27)
\n
Tax on paid-in equity dividends
43
48
61
\n
UK tax rate change impact
(10)
165
75
\n
Adjustments in respect of prior years
32
48
(4)
\n
Actual tax charge
(1,275)
(996)
(74)
\n
(1)
The tax impact of this adjustment (\u00a3135 million credit) is allocated across the RPI related uplift on index linked gilts, Adjustments in respect of prior years and Banking surcharge
\n
reconciling items.
\n
Judgment: tax contingencies
\n
NatWest Group\u2019s corporate income tax charge and its provisions for corporate income taxes necessarily involve a degree of
\n
estimation and judgment. The tax treatment of some transactions is uncertain and tax computations are yet to be agreed with the
\n
tax authorities in a number of jurisdictions. NatWest Group recognises anticipated tax liabilities based on all available evidence and,
\n
where appropriate, in the light of external advice. Any difference between the final outcome and the amounts provided will affect
\n
current and deferred income tax charges in the period when the matter is resolved.
\n
Deferred tax
\n
Deferred tax is the tax expected to be payable or recoverable in respect of temporary differences where the carrying amount of
\n
an asset or liability differs for accounting and tax purposes. Deferred tax liabilities reflect the expected amount of tax payable in
\n
the future on these temporary differences. Deferred tax assets reflect the expected amount of tax recoverable in the future on
\n
these differences.
\n
The net deferred tax asset recognised by the NatWest Group is shown below, together with details of the accounting judgments
\n
and tax rates that have been used to calculate the deferred tax. Details are also provided of any deferred tax assets or liabilities
\n
that have not been recognised on the balance sheet.
\n
Analysis of deferred tax
\n
\u00a3m
\u00a3m
\n
Deferred tax asset
(2,178)
(1,195)
\n
Deferred tax liability
227
359
\n
Net deferred tax asset
(1,951)
(836)
Pension
\n
Accelerated
\n
capital
\n
allowances
\n
Expense
\n
provisions
\n
Financial
\n
instruments (1)
\n
Tax losses
\n
carried forward
\n
Other
\n
Total
\n
\u00a3m
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2021
(4)
(64)
(85)
480
(905)
(32)
(610)
\n
Charge/(credit) to income statement:
\n
- continuing operations
19
21
(5)
(10)
(1)
(33)
(9)
\n
- discontinued operations
\u2014
\u2014
\u2014
\u2014
3
\u2014
3
\n
Charge/(credit) to other comprehensive income
10
\u2014
(7)
(222)
\u2014
(5)
(224)
\n
Currency translation and other adjustments
(1)
1
\u2014
\u2014
4
\u2014
4
\n
At 1 January 2022
24
(42)
(97)
248
(899)
(70)
(836)
\n
Charge/(credit) to income statement:
\n
- continuing operations
1
(43)
14
(171)
(51)
14
(236)
\n
- discontinued operations
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(Credit)/charge to other comprehensive income
(2)
\u2014
1
(913)
\u2014
(2)
(916)
\n
Currency translation and other adjustments
\u2014
10
\u2014
31
(2)
(2)
37
\n
At 31 December 2022
23
(75)
(82)
(805)
(952)
(60)
(1,951)
\n
(1)
The in-year movement predominantly relates to cash flow hedges.
\n
Deferred tax assets in respect of carried forward tax losses are recognised if the losses can be used to offset probable future
\n
taxable profits after taking into account the expected reversal of other temporary differences. Recognised deferred tax assets in
\n
respect of tax losses are analysed further below.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
UK tax losses carried forward
\n
- NWM Plc
3
56
\n
- NWB Plc
445
608
\n
- RBS plc
452
176
\n
Total
900
840
\n
Overseas tax losses carried forward
\n
- UBIDAC
6
11
\n
- NWM N.V.
46
48
\n
952
899
\n
Critical accounting policy: Deferred tax
\n
NatWest Group has recognised a deferred tax asset of \u00a32,178
\n
million (2021 - \u00a31,195 million) and a deferred tax liability of \u00a3227
\n
million (2021 - \u00a3359 million). These include amounts recognised
\n
in respect of UK and overseas tax losses of \u00a3952 million (2021 -
\n
\u00a3899 million).
\n
It was announced in the UK Government\u2019s budget on 27
\n
October 2021 that the UK banking surcharge will decrease from
\n
8% to 3% from 1 April 2023. This legislative change was enacted
\n
on 24 February 2022. NatWest Group\u2019s closing deferred tax
\n
assets and liabilities have therefore been recalculated taking
\n
into account this change of rate and the applicable period the
\n
deferred tax assets and liabilities are expected to crystallise.
\n
Judgment
-
NatWest Group has considered the carrying value of
\n
deferred tax assets and concluded that, based on
\n
management\u2019s estimates, sufficient taxable profits will be
\n
generated in future years to recover recognised deferred tax
\n
assets.
\n
Estimate
- These estimates are partly based on forecast
\n
performance beyond the horizon for management\u2019s detailed
\n
plans. They have regard to inherent uncertainties, such as
\n
climate change. The deferred tax assets in NWM Plc and
\n
UBIDAC are supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022
.
\n
UK tax losses
\n
Under UK tax rules, tax losses can be carried forward
\n
indefinitely. As the recognised tax losses in NatWest Group
\n
arose prior to 1 April 2015, credit in future periods is given
\n
against 25% of profits at the main rate of UK corporation tax,
\n
excluding the Banking Surcharge rate introduced by The
\n
Finance (No. 2) Act 2015.
\n
NWM Plc
\u2013 A deferred tax asset of \u00a33 million (2021 - \u00a356 million)
\n
has been recognised in respect of losses of \u00a312 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022. NWM Plc expects that the
\n
balance of recognised deferred tax asset at 31 December 2022
\n
will be recovered by the end of 2027. Of the losses remaining,
\n
\u00a35,538 million have not been recognised in the deferred tax
\n
balance at 31 December 2022.
\n
NWB Plc
\u2013 A deferred tax asset of \u00a3445 million (2021 - \u00a3608
\n
million) has been recognised in respect of losses of \u00a31,847
\n
million of total losses of \u00a32,718 million carried forward at 31
\n
December 2022. The losses arose principally as a result of
\n
significant impairment and conduct charges between 2009 and
\n
2012 during challenging economic conditions in the UK banking
\n
sector. NWB Plc returned to tax profitability during 2015 and
\n
expects the deferred tax asset to be utilised against future
\n
taxable profits by the end of 2027.
\n
RBS plc
\u2013 A deferred tax asset of \u00a3452 million (2021 - \u00a3176
\n
million) has been recognised in respect of losses of \u00a31,821
\n
million of total losses of \u00a33,692 million carried forward at 31
\n
December 2022. The losses were transferred from NatWest
\n
Markets Plc as a consequence of the ring fencing regulations.
\n
RBS plc expects the deferred tax asset to be utilised against
\n
future taxable profits by the end of 2029.
Overseas tax losses
\n
UBIDAC
\u2013
A deferred tax asset of \u00a36 million (2021 - \u00a311 million)
\n
has been recognised in respect of losses of \u00a348 million, and is
\n
now entirely supported by way of future reversing taxable
\n
temporary differences on which deferred tax liabilities are
\n
recognised at 31 December 2022.
\n
NatWest Market N.V. (NWM N.V.)
\u2013
A deferred tax asset of \u00a346
\n
million (2021 - \u00a348 million) has been recognised in respect of
\n
losses of \u00a3186 million of total losses of \u00a32,914 million carried
\n
forward at 31 December 2022. NWM N.V. Group considers it to
\n
be probable, based on its 5 year budget forecast, that future
\n
taxable profit will be available against which the tax losses and
\n
tax credits can be partially utilised. The tax losses and the tax
\n
credits have no expiry date.
\n
Unrecognised deferred tax
\n
Deferred tax assets of \u00a35,534 million (2021 - \u00a35,437 million;
\n
2020 - \u00a34,965 million) have not been recognised in respect of
\n
tax losses and other deductible temporary differences carried
\n
forward of \u00a325,742 million (2021 - \u00a324,699 million; 2020 -
\n
\u00a325,091 million) in jurisdictions where doubt exists over the
\n
availability of future taxable profits. Of these losses and other
\n
deductible temporary differences, \u00a375 million expire within five
\n
years and \u00a34,774 million thereafter. The balance of tax losses
\n
and other deductible temporary differences carried forward has
\n
no expiry date.
\n
Deferred tax liabilities of \u00a3257 million (2021 - \u00a3302 million; 2020
\n
- \u00a3242 million) on aggregate underlying temporary differences
\n
of \u00a31,010 million (2021 - \u00a31,032 million; 2020 \u00a31,021 million)
\n
have not been recognised in respect of retained earnings of
\n
overseas subsidiaries and held-over gains on the incorporation
\n
of certain overseas branches. Retained earnings of overseas
\n
subsidiaries are expected to be reinvested indefinitely or
\n
remitted to the UK free from further taxation. No taxation is
\n
expected to arise in the foreseeable future in respect of held-
\n
over gains on which deferred tax is not recognised. Changes to
\n
UK tax legislation largely exempts from UK tax overseas
\n
dividends received on or after 1 July 2009.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredTaxesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47537": { "value": "
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
10 Financial instruments \u2013 classification
\n
Financial instruments are contracts that give rise to a financial asset of one entity and a corresponding financial liability or equity
\n
instrument of a counterparty entity, such as: cash; derivatives; loans; deposits; and settlement balances.
This note presents
\n
financial instruments classified in accordance with IFRS 9 \u2013 Financial Instruments.
\n
Judgment: classification of financial assets
\n
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
\n
judgment in respect of business models and contractual cashflows.
\n
\ue001
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held
\n
to collect and sell. Information that is considered in determining the applicable business model includes the portfolio\u2019s policies
\n
and objectives, how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
\n
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
\n
\ue001
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent
\n
solely payments of principal and interest. A level of judgment is made in assessing terms that could change the contractual
\n
cash flows so that it would not meet the condition for solely payments of principal and interest, including contingent and
\n
leverage features,
non
-recourse arrangements and features that could modify the time value of money.
\n
We originate loans that include features that change the contractual cash flows based on the borrower meeting certain
\n
contractually specified environmental, social and governance (ESG) targets. These are known as ESG-linked (or sustainability-
\n
linked) loans. As part of the terms of these loans, the contractual interest rate is reduced or increased if the borrower meets (fails
\n
to meet) specific targets linked to the activity of the borrower for example reducing carbon emissions, increase the level of
\n
diversity at Board level, sustainable supply chain, etc. ESG features are first assessed to ascertain whether the adjustment to the
\n
contractual cash flows results in a de minimis exposure to risks or volatility in those contractual cash flows. If this is the case the
\n
classification of the loan is not affected. If the effect of the ESG feature is assessed as being more than de minimis, we apply
\n
judgement to ensure that the ESG features do not generate compensation for risks that are not in line with a basic lending
\n
arrangement. This includes amongst other aspects a review of the consistency of the ESG targets with the asset or activity of the
\n
borrower, consideration of the targets within our risk appetite etc. Some of these loans are an integral part of our climate and
\n
sustainable funding and financing target disclosed on page 25.
\n
For accounting policy information see Accounting policies notes 3.8, 3.9, 3.10 and 3.12.
Judgment: classification of financial assets
\n
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
\n
MFVTPL
FVOCI
Amortised cost
Other assets
Total
\n
Assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
144,832
\n
Trading assets
45,577
45,577
\n
Derivatives
(1)
99,545
99,545
\n
Settlement balances
2,572
2,572
\n
Loans to bank - amortised cost
(2)
7,139
7,139
\n
Loans to customers - amortised cost
(3)
366,340
366,340
\n
Other financial assets
(4)
787
16,973
13,135
30,895
\n
Intangible assets
7,116
7,116
\n
Other assets
9,176
9,176
\n
Assets of disposal groups
(5)
6,861
6,861
\n
31 December 2022
145,909
16,973
534,018
23,153
720,053
\n
Cash and balances at central banks
177,757
177,757
\n
Trading assets
59,158
59,158
\n
Derivatives
(1)
106,139
106,139
\n
Settlement balances
2,141
2,141
\n
Loans to bank - amortised cost
(2)
7,682
7,682
\n
Loans to customers - amortised cost
(3)
358,990
358,990
\n
Other financial assets
317
37,266
8,562
46,145
\n
Intangible assets
6,723
6,723
\n
Other assets
8,242
8,242
\n
Assets of disposal groups
9,015
9,015
\n
31 December 2021
165,614
37,266
555,132
23,980
781,992
\n
Held-for-trading
DFV
Amortised cost
Other liabilities
Total
\n
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank deposits
(6)
20,441
20,441
\n
Customer deposits
450,318
450,318
\n
Settlement balances
2,012
2,012
\n
Trading liabilities
52,808
52,808
\n
Derivatives
(1)
94,047
94,047
\n
Other financial liabilities
(7)
2,377
46,730
49,107
\n
Subordinated liabilities
345
5,915
6,260
\n
Notes in circulation
3,218
3,218
\n
Other liabilities
(8)
1,205
4,141
5,346
\n
31 December 2022
146,855
2,722
529,839
4,141
683,557
\n
Bank deposits
(6)
26,279
26,279
\n
Customer deposits
479,810
479,810
\n
Settlement balances
2,068
2,068
\n
Trading liabilities
64,598
64,598
\n
Derivatives
(1)
100,835
100,835
\n
Other financial liabilities
(7)
1,671
47,655
49,326
\n
Subordinated liabilities
703
7,726
8,429
\n
Notes in circulation
3,047
3,047
\n
Other liabilities
(8)
1,356
4,441
5,797
\n
31 December 2021
165,433
2,374
567,941
4,441
740,189
\n
(1)
Includes net hedging derivatives assets of \u00a3143 million (2021 - \u00a344 million) and net hedging derivatives liabilities of \u00a3132 million (2021 - \u00a3120 million).
\n
(2)
Includes items in the course of collection from other banks of \u00a3229 million (2021 - \u00a367 million).
\n
(3)
Includes finance lease receivables of \u00a38,402 million (2021 - \u00a38,531 million).
\n
(4)
Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio. Refer to Note 8 for further information.
\n
(5)
Includes \u00a35,397 million of assets of disposal groups reclassified from amortised cost to FVTPL during the year. The portfolio is classified as level 3 in the fair value hierarchy.
\n
(6)
Includes items in the course of transmission to other banks of \u00a3242 million (2021 - \u00a356 million).
\n
(7)
The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been
\n
recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively.
\n
(8)
Includes lease liabilities of \u00a31,118 million (2021 - \u00a31,263 million) held at amortised cost.
Reclassification of mortgages from amortised cost to fair value through profit or loss
\n
In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in
\n
both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting
\n
the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions
\n
around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups.
\n
The effect of the reclassification as at 1 July 2022 is shown below:
\n
Amortised cost
MFVTPL
Change in value
\n
\u00a3m
\u00a3m
\u00a3m
\n
Amounts reclassified on balance sheet
\n
Loans to customers
(1)
587
606
19
\n
Assets of disposal groups
(2)
10,676
10,383
(293)
\n
11,263
10,989
(274)
\n
(1)
Change in value recognised in continuing operations.
\n
(2)
Change in value recognised in discontinued operations.
\n
Additional information on finance lease receivables
\n
The following table shows the reconciliation of undiscounted finance lease receivables to net investment in finance leases:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Amount receivable under finance leases
\n
Within 1 year
3,235
3,272
\n
1 to 2 years
2,254
2,044
\n
2 to 3 years
1,388
1,443
\n
3 to 4 years
833
757
\n
4 to 5 years
411
429
\n
After 5 years
1,130
1,423
\n
Lease payments total
9,251
9,368
\n
Unguaranteed residual values
171
225
\n
Future drawdowns
(13)
(21)
\n
Unearned income
(889)
(891)
\n
Present value of lease payments
8,520
8,681
\n
Impairments
(118)
(150)
\n
Net investment in finance leases
8,402
8,531
\n
Additional information on reverse repos and repos
\n
The following table shows the value of reverse repos and repos included within the below balance sheet captions:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Reverse repos
\n
Trading assets
21,537
20,742
\n
Loans to banks - amortised cost
277
189
\n
Loans to customers - amortised cost
19,750
25,962
\n
Repos
\n
Bank deposits
1,446
7,912
\n
Customer deposits
9,829
14,541
\n
Trading liabilities
23,740
19,389
Interest rate benchmark reform
\n
NatWest Group continues to work on the transition of USD IBOR exposures to risk free rates in advance of the cessation date of 30
\n
June 2023. Derivatives are expected to transition during April and May 2023 and other exposures in line with fallback provisions or
\n
deferred switches using widely accepted methodologies. The instruments yet to transition reflect an insignificant element of
\n
NatWest Group\u2019s exposures. Instruments with exposures to other rates transitioned at the end of 2021, or at the first contractual
\n
reset date, or at a date agreed with the counterparty.
\n
The level of exposures without explicit or agreed conversion provisions as of the preceding year were as follows:
\n
Rates subject to IBOR reform
\n
GBP LIBOR
USD IBOR
Other IBOR
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets
62
90
\u2014
152
\n
Loans to banks - amortised cost
\u2014
11
\u2014
11
\n
Loans to customers - amortised cost
4,788
4,565
267
9,620
\n
Other financial assets
864
768
\u2014
1,632
\n
Bank deposits
\u2014
37
\u2014
37
\n
Trading liabilities
31
166
\u2014
197
\n
Other financial liabilities
2,390
7,023
131
9,544
\n
Subordinated liabilities
\u2014
90
\u2014
90
\n
Loan commitments
(1)
1,016
6,366
55
7,437
\n
Derivatives notional (\u00a3bn)
4
1,152
\u2014
1,156
\n
(1)
Certain loan commitments are multi-currency facilities. Where these are fully undrawn, they are allocated to the principal currency of the facility. Where the facilities are partly
\n
drawn, the remaining loan commitment is allocated to the currency with the largest drawn amount.
\n
At 31 December 2021, NatWest Group held certain currency swaps with both legs subject to IBOR reform, for which only the GBP
\n
LIBOR leg has an explicit or agreed conversion provisions as of 31 December 2021, but not the entire contract. These include
\n
currency swaps of GBP LIBOR of \u00a38.7 billion with USD IBOR \u00a38.2 billion and Other IBOR \u00a30.5 billion; currency swaps of USD IBOR
\n
of \u00a3117 billion with GBP LIBOR \u00a391.7 billion and Other IBOR \u00a325.3 billion; currency swaps of EURIBOR of \u00a30.1 billion with GBP
\n
LIBOR \u00a30.1 billion; currency swaps of Other IBOR of \u00a30.4 billion with USD IBOR \u00a30.4 billion
\n
AT1 issuances
\n
NatWest Group has issued certain capital instruments, AT1, under which reset clauses are linked to IBOR rates subject to reform.
\n
Where under the contractual terms of the instrument the coupon resets to a rate which has IBOR as a specified component of its
\n
pricing structure, these are subject to IBOR reform and listed below:
\n
31 December
\n
2021
\n
\u00a3m
\n
US$1.15 billion 8% notes
734
Financial instruments \u2013 financial assets and liabilities that can be offset
\n
The tables below present information on financial assets and financial liabilities that are offset on the balance sheet under IFRS or
\n
subject to enforceable master netting agreements together with financial collateral received or given.
\n
Instruments which can be offset
Potential for offset not recognised by IFRS
\n
Gross
\n
IFRS offset
\n
Balance sheet
\n
Effect of
\n
master netting
\n
and similar
\n
agreements
\n
Cash
\n
collateral
\n
Securities
\n
collateral
\n
Net amount after the
\n
effect of netting
\n
agreements and
\n
related collateral
\n
Instruments
\n
outside netting
\n
agreements
\n
Balance
\n
sheet total
\n
2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Derivative assets
117,606
(18,730)
98,876
(77,365)
(14,079)
(4,571)
2,861
669
99,545
\n
Derivative liabilities
115,177
(22,111)
93,066
(77,365)
(9,761)
(1,185)
4,755
981
94,047
\n
Net position
(1)
2,429
3,381
5,810
\u2014
(4,318)
(3,386)
(1,894)
(312)
5,498
\n
Trading reverse repos
35,612
(14,510)
21,102
(2,445)
\u2014
(18,458)
199
435
21,537
\n
Trading repos
33,767
(14,510)
19,257
(2,445)
\u2014
(16,812)
\u2014
4,483
23,740
\n
Net position
1,845
\u2014
1,845
\u2014
\u2014
(1,646)
199
(4,048)
(2,203)
\n
Non trading reverse repos
25,630
(5,702)
19,928
\u2014
\u2014
(19,928)
\u2014
98
20,026
\n
Non trading repos
16,977
(5,702)
11,275
\u2014
\u2014
(11,275)
\u2014
\u2014
11,275
\n
Net position
8,653
\u2014
8,653
\u2014
\u2014
(8,653)
\u2014
98
8,751
\n
2021
\n
Derivative assets
113,220
(7,961)
105,259
(85,006)
(15,035)
(2,428)
2,790
880
106,139
\n
Derivative liabilities
108,594
(8,568)
100,026
(85,006)
(9,909)
(2,913)
2,198
809
100,835
\n
Net position
(1)
4,626
607
5,233
\u2014
(5,126)
485
592
71
5,304
\n
Trading reverse repos
44,529
(24,422)
20,107
(900)
\u2014
(19,136)
71
635
20,742
\n
Trading repos
42,664
(24,422)
18,242
(900)
\u2014
(17,341)
1
1,147
19,389
\n
Net position
1,865
\u2014
1,865
\u2014
\u2014
(1,795)
70
(512)
1,353
\n
Non trading reverse repos
33,729
(7,594)
26,135
\u2014
\u2014
(26,135)
\u2014
16
26,151
\n
Non trading repos
30,047
(7,594)
22,453
\u2014
\u2014
(22,453)
\u2014
\u2014
22,453
\n
Net position
3,682
\u2014
3,682
\u2014
\u2014
(3,682)
\u2014
16
3,698
\n
(1)
The net IFRS offset balance of \u00a33,381 million (2021 - \u00a3607 million) relates to variation margin netting reflected on other balance sheet lines.
11 Financial instruments - valuation
\n
Financial instruments recognised at fair value are revalued using techniques that can include observable inputs (pricing information
\n
that is readily available in the market, for example UK Government securities), and unobservable inputs (pricing information that is
\n
not readily available, for example unlisted securities). Gains and losses are recognised in the income statement and statement of
\n
comprehensive income as appropriate.
This note presents information on the valuation of financial instruments.
\n
The table below provides an overview of the various sections contained within the note.
\n
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
Page
\n
Financial instruments
\n
Critical accounting policy: Fair value
339
\n
Valuation
\n
Fair value hierarchy
(D)
339
\n
Valuation techniques
(D)
340
\n
Inputs to valuation models
(D)
340
\n
Valuation control
(D)
340
\n
Key areas of judgment
(D)
341
\n
Table of assets and liabilities split by fair value
\n
hierarchy level
(T)
342
\n
Valuation adjustments
\n
Table of fair value adjustments made
(T)
343
\n
Funding valuation adjustments (FVA)
(D)
343
\n
Credit valuation adjustments (CVA)
(D)
343
\n
Bid-offer
(D)
343
\n
Product and deal specific
(D)
343
\n
Own credit
(D)
343
\n
Level 3 additional information
\n
Level 3 ranges of unobservable inputs
(D)
344
\n
Table of level 3 instruments, valuation
\n
techniques and inputs
(T)
344
\n
Level 3 sensitivities
(D)
345
\n
Alternative assumptions
(D)
345
\n
Other considerations
(D)
345
\n
Table of high and low range of fair value of
\n
level 3 assets and liabilities
(T)
345
\n
Movement in level 3 assets and liabilities
\n
over the reporting period
(D)
346
\n
Table of the movement in level 3 assets and liabilities
346
\n
Fair value of financial instruments measured
\n
at amortised cost
\n
Table showing the fair value of financial instruments
\n
measured at amortised cost on the balance sheet
(T)
347
\n
(D) = Descriptive; (T) = Table
Valuation
\n
Fair value hierarchy
\n
Financial instruments carried at fair value have been classified
\n
under the fair value hierarchy. The classification ranges from
\n
level 1 to level 3, with more expert judgment and price
\n
uncertainty for those classified at level 3.
\n
The determination of an instrument\u2019s level cannot be made at
\n
a global product level as a single product type can be in more
\n
than one level. For example, a single name corporate credit
\n
default swap could be in level 2 or level 3 depending on the
\n
level of market activity for the referenced entity
.
\n
Level 1 \u2013 instruments valued using unadjusted quoted prices in
\n
active and liquid markets, for identical financial instruments.
\n
Examples include government bonds, listed equity shares and
\n
certain exchange-traded derivatives.
\n
Level 2 - instruments valued using valuation techniques that
\n
have observable inputs. Observable inputs are those that are
\n
readily available with limited adjustments required. Examples
\n
include most government agency securities, investment-grade
\n
corporate bonds, certain mortgage products - including CLOs,
\n
most bank loans, repos and reverse repos, state and municipal
\n
obligations, most notes issued, certain money market
\n
securities, loan commitments and most OTC derivatives.
\n
Level 3 - instruments valued using a valuation technique where
\n
at least one input which could have a significant effect on the
\n
instruments valuation, is not based on observable market data.
\n
Examples include non-derivative instruments which trade
\n
infrequently, certain syndicated and commercial mortgage
\n
loans, private equity, and derivatives with unobservable model
\n
inputs.
Valuation techniques
\n
NatWest Group derives the fair value of its instruments
\n
differently depending on whether the instrument is a non-
\n
modelled or a modelled product.
\n
Non-modelled products
are valued directly from a price input,
\n
typically on a position-by-position basis. Examples include
\n
equities and most debt securities.
\n
Non-modelled products can fall into any fair value levelling
\n
hierarchy depending on the observable market activity,
\n
liquidity, and assessment of valuation uncertainty of the
\n
instruments. The assessment of fair value and the classification
\n
of the instrument to a fair value level is subject to the valuation
\n
controls discussed in the Valuation control section.
\n
Modelled products
valued using a pricing model range in
\n
complexity from comparatively vanilla products such as interest
\n
rate swaps and options (e.g., interest rate caps and floors)
\n
through to more complex derivatives (e.g., balance guarantee
\n
swaps).
\n
For modelled products the fair value is derived using the model
\n
and the appropriate model inputs or parameters, as opposed to
\n
a cash price equivalent. Model inputs are taken either directly
\n
or indirectly from available data, where some inputs are also
\n
modelled.
\n
Fair value classification of modelled instruments is either level 2
\n
or level 3, depending on the product/model combination, the
\n
observability and quality of input parameters and other factors.
\n
All these must be assessed to classify a position. The modelled
\n
product is assigned to the lowest fair value hierarchy level of
\n
any significant input used in that valuation.
\n
Most derivative instruments, for example vanilla interest rate
\n
swaps, foreign exchange swaps and liquid single name credit
\n
derivatives, are classified as level 2. This is because they are
\n
vanilla products valued using standard market models and with
\n
observable inputs. Level 2 products range from vanilla to more
\n
complex products, where more complex products remain
\n
classified as level 2 due to the low materiality of any
\n
unobservable inputs.
\n
Inputs to valuation models
\n
When using valuation techniques, the fair value can be
\n
significantly affected by the choice of valuation model and
\n
underlying assumptions. Factors considered include the
\n
cashflow amounts and timing of those cash flows, and
\n
application of appropriate discount rates, incorporating both
\n
funding and credit risk. Values between and beyond available
\n
data points are obtained by interpolation and extrapolation.
\n
The principal inputs to these valuation techniques are as
\n
follows:
\n
Bond prices - quoted prices are generally available for
\n
government bonds, certain corporate securities, and some
\n
mortgage-related products.
\n
Credit spreads - these express the return required over a
\n
benchmark rate or index to compensate for the referenced
\n
credit risk. Where available, these are derived from the price of
\n
credit default swaps or other credit-based instruments, such as
\n
debt securities. When direct prices are not available; credit
\n
spreads are determined with reference to available prices of
\n
entities with similar characteristics.
\n
Interest rates - these are principally based on interest rate
\n
swap prices referencing benchmark interest rates. Benchmark
\n
rates include Interbank Offered Rates (IBOR) and the Overnight
\n
Index Swap (OIS) rate, including SONIA (Sterling Overnight
\n
Interbank Average Rate). Other quoted interest rates may also
\n
be used from both the bond, and futures markets.
\n
Foreign currency exchange rates - there are observable prices
\n
both for spot and forward contracts and futures in the world's
\n
major currencies.
\n
Equity and equity index prices - quoted prices are generally
\n
readily available for equity shares listed on the world's major
\n
stock exchanges and for major indices on such shares.
\n
Price volatilities and correlations - volatility is a measure of the
\n
tendency of a price to change with time. Correlation measures
\n
the degree which two or more prices or variables are observed
\n
to move together. Variables that move in the same direction
\n
show positive correlation; those that move in opposite
\n
directions are negatively correlated.
\n
Prepayment rates - rates used to reflect how fast a pool of
\n
assets prepay. The fair value of a financial instrument that can
\n
be prepaid by the issuer or borrower differs from that of an
\n
instrument that cannot be prepaid. When valuing prepayable
\n
instruments, the value of this prepayment option is considered.
\n
Recovery rates/loss given default - these are used as an input
\n
to valuation models and reserves for asset-backed securities
\n
and other credit products as an indicator of severity of losses
\n
on default. Recovery rates are primarily sourced from market
\n
data providers, the value of the underlying collateral or inferred
\n
from observable credit spreads.
\n
Valuation control
\n
NatWest Group's control environment for the determination of
\n
the fair value of financial instruments includes formalised
\n
procedures for the review and validation of fair values. This
\n
review is performed by an independent price verification (IPV)
\n
team.
\n
IPV is a key element of the control environment. Valuations are
\n
first performed by the business which entered into the
\n
transaction. These valuations are then reviewed by the IPV
\n
team, independent of those trading the financial instruments, in
\n
light of available pricing evidence.
\n
Independent pricing data is collated from a range of sources.
\n
Each source is reviewed for quality and the independent data
\n
applied in the IPV processes using a formalised input quality
\n
hierarchy. Consensus services are one source of independent
\n
data and encompass interest rate, currency, credit, and bond
\n
markets, providing comprehensive coverage of vanilla products
\n
and a wide selection of exotic products.
\n
Where measurement differences are identified through the IPV
\n
process these are grouped by the quality hierarchy of the
\n
independent data. If the size of the difference exceeds defined
\n
thresholds, an adjustment is made to bring the valuation to
\n
within the independently calculated fair value range.
\n
IPV takes place at least monthly, for all fair value financial
\n
instruments. The IPV control includes formalised reporting and
\n
escalation of any valuation differences in breach of established
\n
thresholds.
The quality and completeness of the information gathered in
\n
the IPV process gives an indication as to the liquidity and
\n
valuation uncertainty of an instrument and forms part of the
\n
information considered when determining fair value hierarchy
\n
classifications.
\n
Initial fair value level classification of a financial instrument is
\n
carried out by the IPV team. These initial classifications are
\n
subject to senior management review. Particular attention is
\n
paid to instruments transferring from one level to another, new
\n
instrument classes or products, instruments where the
\n
transaction price is significantly different from the fair value
\n
and instruments where valuation uncertainty is high.
\n
Valuation Committees are made up of valuation specialists and
\n
senior business representatives from various functions and
\n
oversees pricing, reserving and valuations issues. These
\n
committees meet monthly to review and ratify any
\n
methodology changes. The Executive Valuation Committee
\n
meets quarterly to address key material and subjective
\n
valuation issues, to review items escalated by Valuation
\n
Committees and to discuss other relevant industry matters.
\n
The Group model risk policy sets the policy for model
\n
documentation, testing and review. Governance of the model
\n
risk policy is carried out by the Group model risk oversight
\n
committee, which comprises model risk owners and
\n
independent model experts. All models are required to be
\n
independently validated in accordance with the Model Risk
\n
Policy.
\n
Key areas of judgment
\n
Over the years the business has simplified, with most products
\n
classified as level 1 or 2 of the fair value hierarchy. However,
\n
the diverse range of products historically traded by NatWest
\n
Group means some products remain classified as level 3. Level
\n
3 indicates a significant level of pricing uncertainty, where
\n
expert judgment is used. As such, extra disclosures are
\n
required in respect of level 3 instruments
.
\n
In general, the degree of expert judgment used and hence
\n
valuation uncertainty depends on the degree of liquidity of an
\n
instrument or input.
\n
Where markets are liquid, little judgment is required. However,
\n
when the information regarding the liquidity in a particular
\n
market is not clear, a judgment may need to be made. For
\n
example, for an equity traded on an exchange, daily volumes of
\n
trading can be seen, but for an over the counter (OTC)
\n
derivative, assessing the liquidity of the market with no central
\n
exchange is more challenging.
\n
A key related matter is where a market moves from liquid to
\n
illiquid or vice versa. Where this movement is considered
\n
temporary, the fair value level is not changed. For example, if
\n
there is little market trading in a product on a reporting date
\n
but at the previous reporting date and during the intervening
\n
period the market has been liquid. In this case, the instrument
\n
will continue to be classified at the same level in the hierarchy.
\n
This is to provide consistency so that transfers between levels
\n
are driven by genuine changes in market liquidity and do not
\n
reflect short term or seasonal effects. Material movements
\n
between levels are reviewed quarterly by the Business and IPV.
\n
The breadth and depth of the IPV data allows for a rules-based
\n
quality assessment to be made of market activity, liquidity, and
\n
pricing uncertainty, which assists with the process of allocation
\n
to an appropriate level. Where suitable independent pricing
\n
information is not readily available, the quality assessment will
\n
result in the instrument being assessed as level 3.
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered
\n
the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price
\n
uncertainty.
\n
2022
2021
\n
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
\u2014
35,260
395
35,655
\u2014
33,482
721
34,203
\n
Securities
7,463
2,458
1
9,922
19,563
5,371
21
24,955
\n
Derivatives
5
98,533
1,007
99,545
\u2014
105,222
917
106,139
\n
Other financial assets
\n
Loans
\u2014
172
727
899
\u2014
359
207
566
\n
Securities
10,380
6,278
203
16,861
28,880
7,951
186
37,017
\n
Total financial assets held at fair value
17,848
142,701
2,333
162,882
48,443
152,385
2,052
202,880
\n
As % of total fair value assets
11%
88%
1%
24%
75%
1%
\n
Liabilities
\n
Trading liabilities
\n
Deposits
\u2014
42,486
1
42,487
\u2014
38,658
2
38,660
\n
Debt securities in issue
\u2014
797
\u2014
797
\u2014
974
\u2014
974
\n
Short positions
7,462
2,062
\u2014
9,524
20,507
4,456
1
24,964
\n
Derivatives
2
93,070
975
94,047
\u2014
100,229
606
100,835
\n
Other financial liabilities
\n
Debt securities in issue
\u2014
1,327
\u2014
1,327
\u2014
1,103
\u2014
1,103
\n
Other deposits
\u2014
1,050
\u2014
1,050
\u2014
568
\u2014
568
\n
Subordinated liabilities
\u2014
345
\u2014
345
\u2014
703
\u2014
703
\n
Total financial liabilities held at fair value
7,464
141,137
976
149,577
20,507
146,691
609
167,807
\n
As % of total fair value liabilities
5%
94%
1%
12%
88%
0%
\n
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
\n
(2)
For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
\n
management \u2013 Credit risk.
Valuation adjustments
\n
When valuing financial instruments in the trading book,
\n
adjustments are made to mid-market valuations to cover bid-
\n
offer spread, funding and credit risk. These adjustments are
\n
presented in the table below:
\n
Adjustment
\n
2022
\n
\u00a3m
\n
2021
\n
\u00a3m
\n
Funding \u2013 FVA
173
90
\n
Credit \u2013 CVA
300
390
\n
Bid \u2013 Offer
130
113
\n
Product and deal specific
141
119
\n
744
712
\n
Funding valuation adjustments on the group defined benefit
\n
pension plan increased during the year, primarily driven by
\n
increases in GBP interest rates.
\n
The decrease in CVA was driven by a reduction in exposures,
\n
primarily due to increases in interest rates and trade exit
\n
activity, partially offset by the net impact of credit spreads
\n
widening and specific counterparty activity. The increase in
\n
bid-offer was driven by the net impact of risk changes, wider
\n
bid-offer spreads and an increase in the estimated costs of
\n
exiting certain less liquid risks. The increase in product and
\n
deal specific was driven by credit spreads widening and
\n
specific counterparty activity.
\n
Funding valuation adjustments (FVA)
\n
FVA represents an estimate of the adjustment that a market
\n
participant would make to incorporate funding costs and
\n
benefits that arise in relation to derivative exposures. FVA is
\n
calculated as a portfolio level adjustment and can result in
\n
either a funding charge (positive) or funding benefit (negative).
\n
Funding levels are applied to estimated potential future
\n
exposures. For uncollateralised derivatives, the exposure
\n
reflects the future valuation of the derivative. For collateralised
\n
derivatives, the exposure reflects the difference between the
\n
future valuation of the derivative and the level of collateral
\n
posted.
\n
Credit valuation adjustments (CVA)
\n
CVA represents an estimate of the adjustment to fair value that
\n
is made to incorporate the counterparty credit risk inherent in
\n
derivative exposures. CVA is actively managed by a credit and
\n
market risk hedging process, and therefore movements in CVA
\n
are partially offset by trading revenue on the hedges.
\n
The CVA is calculated on a portfolio basis reflecting an
\n
estimate of the amount a third party would charge to assume
\n
the credit risk.
\n
Collateral held under a credit support agreement is factored
\n
into the CVA calculation. In such cases where NatWest Group
\n
holds collateral against counterparty exposures, CVA is held to
\n
the extent that residual risk remains.
\n
Bid-offer
\n
Fair value positions are required to be marked to exit,
\n
represented by bid (long positions) or offer (short positions)
\n
levels. Non-derivative positions are typically marked directly to
\n
bid or offer prices. However derivative exposures are adjusted
\n
to exit levels by taking bid-offer reserves calculated on a
\n
portfolio basis. The bid-offer approach is based on current
\n
market spreads and standard market bucketing of risk.
\n
Bid-offer spreads vary by maturity and risk type to reflect
\n
different spreads in the market. For positions where there is no
\n
observable quote, the bid-offer spreads are widened in
\n
comparison to proxies to reflect reduced liquidity or
\n
observability.
\n
Netting is applied on a portfolio basis to reflect the value at
\n
which NatWest Group believes it could exit the net risk of the
\n
portfolio, rather than the sum of exit costs for each of the
\n
portfolio\u2019s individual trades. This is applied where the asset and
\n
liability positions are managed as a portfolio for risk and
\n
reporting purposes.
\n
Product and deal specific
\n
On initial recognition of financial assets and liabilities valued
\n
using valuation techniques which have a significant
\n
dependence on information other than observable market data,
\n
any difference between the transaction price and that derived
\n
from the valuation technique is deferred. Such amounts are
\n
recognised in the income statement over the life of the
\n
transaction; when market data becomes observable; or when
\n
the transaction matures or is closed out as appropriate. On 31
\n
December 2022, net gains of \u00a374 million (2021 - \u00a371 million)
\n
were carried forward. During the year, net gains of \u00a397 million
\n
(2021 - \u00a3103 million) were deferred and \u00a394 million (2021 - \u00a394
\n
million) were recognised in the income statement.
\n
Where system generated valuations do not accurately reflect
\n
market prices, manual valuation adjustments are applied either
\n
at a position or portfolio level. Manual adjustments are subject
\n
to the scrutiny of independent control teams and are subject to
\n
monthly review by senior management.
\n
Own Credit
\n
NatWest Group considers the effect of its own credit standing
\n
when valuing financial liabilities recorded at fair value. Own
\n
credit spread adjustments are made when valuing issued debt
\n
held at fair value, including issued structured notes. An own
\n
credit adjustment is applied to positions where it is believed
\n
that counterparties would consider NatWest Group\u2019s
\n
creditworthiness when pricing trades.
Level 3 additional information
\n
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
\n
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
\n
with significant unobservable inputs or modelling parameters.
\n
Level 3 ranges of unobservable inputs
\n
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
\n
fair value calculation, the unobservable input and input range.
\n
2022
2021
\n
Financial instrument
Valuation technique
Unobservable inputs
Units
Low
High
Low
High
\n
Trading assets and Other financial assets
\n
Loans
Price-based
Price
%
\u2014
113
\u2014
106
\n
Discount cash flow
Credit spreads
bps
56
114
40
102
\n
Discount cash flow
Discount margin
bps
\u2014
\u2014
46
55
\n
Debt securities
Price-based
Price
%
\n
\u2014
255
\u2014
240
\n
Equity Shares
Price-based
Price
GBP
\u2014
34,027
\u2014
30,378
\n
Price-based
Price
%
\u2014
30
\u2014
7
\n
Discount cash flow
Discount margin
%
6
8
6
8
\n
Net asset valuation
Fund NAV
%
80
120
80
120
\n
Derivative assets and liabilities
\n
Credit derivatives
Credit derivative pricing
Credit spreads
bps
7
530
6
635
\n
Option pricing
Correlation
%
(15)
95
(15)
95
\n
Volatility
%
30
80
30
108
\n
Upfront points
%
\u2014
99
\u2014
100
\n
Recovery rate
%
\u2014
60
\u2014
60
\n
Interest rate & FX
Option pricing
Correlation
%
(50)
100
(50)
100
\n
derivatives
Volatility
%
30
127
17
77
\n
Constant Prepayment
\n
Rate
%
2
21
2
16
\n
Mean Reversion
%
\u2014
92
\u2014
92
\n
Inflation volatility
%
1
2
1
2
\n
Inflation rate
%
2
3
2
3
\n
(1)
Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
\n
earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV
\n
or similar measures.
\n
(2)
NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.
Level 3 sensitivities
\n
The level 3 sensitivities presented below are calculated at a
\n
trade or low-level portfolio basis rather than an overall portfolio
\n
basis. As individual sensitivities are aggregated with no
\n
reflection of the correlated nature between instruments, the
\n
overall portfolio sensitivity may not be accurately reflected. For
\n
example, some portfolios may be negatively correlated to
\n
others, where a downwards movement in one asset would
\n
produce an upwards movement in another. However, due to
\n
the additive presentation of the above figures this correlation
\n
impact cannot be displayed. As such, the actual potential
\n
downside sensitivity of the total portfolio may be less than the
\n
non-correlated sum of the additive figures as shown in the
\n
below table.
\n
Alternative assumptions
\n
Reasonably plausible alternative assumptions of unobservable
\n
inputs are determined based on a specified target level of
\n
certainty of 90%.
\n
Alternative assumptions are determined with reference to all
\n
available evidence including consideration of the following:
\n
quality of independent pricing information considering
\n
consistency between different sources, variation over time,
\n
perceived tradability or otherwise of available quotes;
\n
consensus service dispersion ranges; volume of trading activity
\n
and market bias (e.g. one-way inventory); day 1 profit or loss
\n
arising on new trades; number and nature of market
\n
participants; market conditions; modelling consistency in the
\n
market; size and nature of risk; length of holding of position;
\n
and market intelligence.
\n
Other considerations
\n
Whilst certain inputs used to calculate CVA, FVA and own
\n
credit adjustments are not based on observable market data,
\n
the uncertainty of these inputs is not considered to have a
\n
significant effect on the net valuation of the related derivative
\n
portfolios and issued debt.
\n
As such, the fair value levelling of the derivative portfolios and
\n
issued debt is not determined by CVA, FVA or own credit
\n
inputs. In addition, any fair value sensitivity driven by these
\n
inputs is not included in the level 3 sensitivities presented.
\n
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
\n
fair value inputs as described in the previous table.
\n
2022
2021
\n
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
395
10
(10)
721
10
(10)
\n
Securities
1
\u2014
\u2014
21
\u2014
\u2014
\n
Derivatives
1,007
50
(50)
917
60
(70)
\n
Other financial assets
\n
Loans
727
\u2014
(10)
207
10
(10)
\n
Securities
203
20
(30)
186
20
(20)
\n
2,333
80
(100)
2,052
100
(110)
\n
Liabilities
\n
Trading liabilities
\n
Deposits
1
\u2014
\u2014
2
\u2014
\u2014
\n
Debt securities in issue
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Short positions
\u2014
\u2014
\u2014
1
\u2014
\n
Derivatives
975
30
(30)
606
30
(30)
\n
976
30
(30)
609
30
(30)
Movement in level 3 assets and liabilities
\n
The following table shows the movement in level 3 assets and liabilities in the year.
\n
2022
2021
\n
Trading
\n
assets (2)
\n
Other financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
Trading
\n
assets (2)
\n
Other
\n
financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
1,658
394
2,052
609
1,388
335
1,723
894
\n
Amounts recorded in the income statement
(1)
157
(14)
143
381
(93)
(29)
(122)
(90)
\n
Amounts recorded in the statement of
\n
comprehensive income
\u2014
(20)
(20)
\u2014
\u2014
23
23
\u2014
\n
Level 3 transfers in
194
532
726
81
125
3
128
20
\n
Level 3 transfers out
(269)
(68)
(337)
(64)
(104)
(6)
(109)
(168)
\n
Purchases/originations
629
185
814
382
965
452
1,416
305
\n
Settlements/other decreases
(115)
\u2014
(115)
(41)
(47)
(364)
(411)
(28)
\n
Sales
(857)
(101)
(958)
(378)
(573)
(17)
(590)
(321)
\n
Foreign exchange and other
6
22
28
6
(3)
(3)
(6)
(3)
\n
At 31 December
1,403
930
2,333
976
1,658
394
2,052
609
\n
Amounts recorded in the income statement in respect
\n
of balances held at year end:
\n
- unrealised
157
(16)
141
381
(93)
(32)
(126)
(90)
\n
(1)
There were \u00a3224 million net losses on trading assets and liabilities (2021 \u2013 \u00a33 million net losses) recorded in income from trading activities. Net losses on other instruments of \u00a314
\n
million (2021 \u2013 \u00a329 million net losses) were recorded in other operating income and interest income as appropriate.
\n
(2)
Trading assets comprise assets held at fair value in trading portfolios.
\n
(3)
Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
Fair value of financial instruments measured at amortised cost on the balance sheet
\n
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
\n
sheet.
\n
Fair value hierarchy level
\n
Carrying
Fair
\n
Items where fair value
\n
approximates carrying
\n
value
\n
value
value
Level 1
Level 2
Level 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
144.8
\n
Settlement balances
2.6
\n
Loans to banks
0.1
7.0
7.0
\u2014
4.2
2.8
\n
Loans to customers
366.3
354.5
\u2014
20.3
334.2
\n
Other financial assets - securities
13.1
12.8
3.6
3.2
6.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
177.8
\n
Settlement balances
2.1
\n
Loans to banks
0.1
7.5
7.5
\u2014
5.0
2.5
\n
Loans to customers
359.0
354.1
\u2014
28.0
326.1
\n
Other financial assets - securities
8.6
8.6
4.4
0.7
3.5
\n
2022
\n
Financial liabilities
\n
Bank deposits
4.7
15.7
15.3
\u2014
13.1
2.2
\n
Customer deposits
407.0
43.3
43.3
\u2014
12.7
30.6
\n
Settlement balances
2.0
\n
Other financial liabilities - debt securities in issue
46.7
46.1
\u2014
40.7
5.4
\n
Subordinated liabilities
5.9
5.6
\u2014
5.5
0.1
\n
Notes in circulation
3.2
\n
2021
\n
Financial liabilities
\n
Bank deposits
4.9
21.4
21.0
\u2014
18.7
2.3
\n
Customer deposits
442.4
37.4
37.6
\u2014
18.1
19.5
\n
Settlement balances
2.1
\n
Other financial liabilities - debt securities in issue
47.7
48.6
\u2014
41.4
7.2
\n
Subordinated liabilities
7.7
8.3
\u2014
8.2
0.1
\n
Notes in circulation
3.0
\n
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are
\n
as follows:
\n
Short-term financial instruments
\n
For certain short-term financial instruments, including but not
\n
limited to; cash and balances at central banks, settlement
\n
balances, loans with short-term maturities, notes in circulation
\n
and customer demand deposits, carrying value is deemed a
\n
reasonable approximation of fair value.
\n
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
\n
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
\n
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
14 Derivatives
\n
Derivative is a term covering a wide range of financial instruments that derive their
fair value from an underlying rate or price, for
\n
example interest rates or exchange rates (the underlying). NatWest Group uses derivatives as a part of its trading activities, to
\n
manage its own risks such as interest rate, foreign exchange, or credit risk and in certain customer transactions. This note
shows
\n
contracted volumes of derivatives, how they are used for hedging purposes and more specifically the effects of the application of
\n
hedge accounting.
\n
For accounting policy information see Accounting policies note 3.8 and 3.12.
\n
2022
2021
\n
Notional
Assets
Liabilities
Notional
Assets
Liabilities
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Exchange rate contracts
3,168
45,829
45,237
3,167
38,517
39,286
\n
Interest rate contracts
10,742
53,480
48,535
8,919
67,458
61,206
\n
Credit derivatives
15
236
275
14
154
343
\n
Equity and commodity contracts
\u2014
\u2014
\u2014
\u2014
10
\u2014
\n
99,545
94,047
106,139
100,835
\n
NatWest Group applies hedge accounting to reduce the
\n
accounting mismatch caused in the income statement by using
\n
derivatives to hedge the following risks: interest rate, foreign
\n
exchange and the foreign exchange risk associated with net
\n
investment in foreign operations.
\n
NatWest Group\u2019s interest rate hedging relates to the
\n
management of NatWest Group\u2019s non-trading structural
\n
interest rate risk, caused by the mismatch between fixed
\n
interest rates and floating interest rates on its financial
\n
instruments. NatWest Group manages this risk within approved
\n
limits. Residual risk positions are hedged with derivatives,
\n
principally interest rate swaps.
\n
Suitable larger fixed rate financial instruments are subject to
\n
fair value hedging in line with documented risk management
\n
strategies
\n
Cash flow hedges of interest rate risk relate to exposures to the
\n
variability in future interest payments and receipts due to the
\n
movement of benchmark interest rates on forecast transactions
\n
and on financial assets and financial liabilities. This variability in
\n
cash flows is hedged by interest rate swaps, which convert
\n
variable cash flows into fixed. For these cash flow hedge
\n
relationships, the hedged items are actual and forecast variable
\n
interest rate cash flows arising from financial assets and
\n
financial liabilities with interest rates linked to the relevant
\n
benchmark rates, most notably USD LIBOR, SOFR, EURIBOR,
\n
SONIA and the Bank of England Official Bank Rate. The
\n
variability in cash flows due to movements in the relevant
\n
benchmark rate is hedged; this risk component is identified
\n
using the risk management systems of NatWest Group and
\n
encompasses the majority of cash flow variability risk.
\n
Fair value hedges of interest rate risk involve interest rate
\n
swaps transforming the fixed interest rate risk in financial
\n
assets and financial liabilities to floating. The hedged risk is the
\n
risk of changes in the hedged item\u2019s fair value attributable to
\n
changes in the benchmark interest rate risk component of the
\n
hedged item. The significant benchmarks identified as risk
\n
components are USD LIBOR, SOFR, EURIBOR and SONIA.
\n
These risk components are identified using the risk
\n
management systems of NatWest Group and encompass the
\n
majority of the hedged item\u2019s fair value risk.
\n
NatWest Group hedges the exchange rate risk of its net
\n
investment in foreign currency denominated operations with
\n
currency borrowings and forward foreign exchange contracts.
\n
NatWest Group reviews the value of the investments\u2019 net
\n
assets, executing hedges where appropriate to reduce the
\n
sensitivity of capital ratios to foreign exchange rate movement.
\n
Hedge accounting relationships will be designated where
\n
required.
\n
Exchange rate risk also arises in NatWest Group where
\n
payments are denominated in currencies other than the
\n
functional currency. Residual risk positions are hedged with
\n
forward foreign exchange contracts, fixing the exchange rate
\n
the payments will be settled in. The derivatives are documented
\n
as cash flow hedges.
\n
For all cash flow hedging and fair value hedge relationships,
\n
and net investment hedging, NatWest Group determines that
\n
there is an adequate level of offsetting between the hedged
\n
item and hedging instrument at inception and on an ongoing
\n
basis. This is achieved by comparing movements in the fair
\n
value of the expected highly probable forecast cash flows/fair
\n
value of the hedged item attributable to the hedged risk with
\n
movements in the fair value of the expected changes in cash
\n
flows from the hedging instruments. The method used for
\n
comparing movements is either regression testing or the dollar
\n
offset method. The method for testing effectiveness and the
\n
period over which the test is performed depends on the
\n
applicable risk management strategy and is applied consistently
\n
to each risk management strategy. Hedge effectiveness is
\n
assessed on a cumulative basis and the determination of
\n
effectiveness is in line with the requirements of IAS39.
\n
NatWest Group uses either the actual ratio between the hedged
\n
item and hedging instrument(s) or one that minimises hedge
\n
ineffectiveness to establish the hedge ratio for hedge
\n
accounting. Hedge ineffectiveness is measured in line with the
\n
requirements of IAS39 and recognised in the income statement
\n
as it arises.
Included in the table below are derivatives held for hedging purposes as follows:
\n
2022
2021
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectiven
\n
ess (1)
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectivene
\n
ss (1)
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
Interest rate contracts
58.7
1,554
3,009
482
65.6
1,176
2,057
897
\n
Cash flow hedging
\n
Interest rate contracts
167.6
2,681
6,207
(3,342)
133.1
952
1,149
(931)
\n
Exchange rate contracts
6.3
142
112
(3)
7.3
30
109
27
\n
Net investment hedging
\n
Exchange rate contracts
0.5
1
9
4
0.5
11
1
7
\n
233.1
4,378
9,337
(2,859)
206.5
2,169
3,316
\u2014
\n
IFRS netting/Clearing
\n
house settlements
(4,235)
(9,205)
(2,125)
(3,196)
\n
143
132
44
120
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year.
The following table shows the period in which the notional of hedging contract ends:
\n
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
20+ years
Total
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.5
1.9
4.7
4.9
4.2
2.5
1.1
19.8
\n
Hedging liabilities - interest rate risk
1.0
2.9
14.6
10.3
9.6
0.5
\u2014
38.9
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
6.6
9.4
46.5
21.9
10.1
\u2014
\u2014
94.5
\n
Average fixed interest rate (%)
1.36
1.98
1.71
2.04
1.02
3.12
\u2014
1.72
\n
Hedging liabilities
\n
Interest rate risk
17.3
26.8
15.7
5.1
7.5
0.7
\u2014
73.1
\n
Average fixed interest rate (%)
1.27
0.95
2.75
1.03
2.68
4.55
\u2014
1.63
\n
Hedging assets
\n
Exchange rate risk
0.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\n
Hedging liabilities
\n
Exchange rate risk
\u2014
1.1
2.8
2.1
0.2
\u2014
\u2014
6.2
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
2021
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.9
2.5
5.5
5.7
6.2
4.9
4.5
30.2
\n
Hedging liabilities - interest rate risk
1.1
4.2
11.8
9.3
8.4
0.6
0.0
35.4
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
5.4
8.1
14.3
24.5
11.4
\u2014
\u2014
63.7
\n
Average fixed interest rate (%)
1.40
1.19
1.35
0.65
0.82
\u2014
\u2014
0.97
\n
Hedging liabilities
\n
Interest rate risk
8.8
21.1
33.0
3.3
2.5
0.7
\u2014
69.4
\n
Average fixed interest rate (%)
0.50
0.24
0.41
0.47
1.01
4.55
0.44
\n
Hedging assets
\n
Exchange rate risk
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Hedging liabilities
\n
Exchange rate risk
0.1
2.4
3.5
1.3
\u2014
\u2014
\u2014
7.3
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
For cash flow hedging of exchange rate risk, the average foreign exchange rates applicable across the relationships were as below
\n
for the main currencies hedged.
\n
2022
2021
\n
INR/GBP
100.54
106.58
\n
USD/GBP
1.29
1.38
\n
CHF/GBP
1.15
1.25
\n
JPY/GBP
132.89
132.93
\n
JPY/USD
128.29
n/a
\n
NOK/USD
9.21
n/a
\n
CNH/GBP
n/a
8.74
\n
For net investment hedging of exchange rate risk, the average foreign exchange rates applicable were as below for the main
\n
currencies hedged.
\n
2022
2021
\n
SEK/GBP
13.23
11.74
\n
DKK/GBP
n/a
8.85
\n
NOK/GBP
12.34
12.12
\n
AED/USD
4.42
3.67
\n
USD/GBP
1.20
1.32
The table below analyses assets and liabilities subject to hedging derivatives.
\n
Carrying value of
\n
hedge assets and
\n
liabilities
\n
Impact on hedge items
\n
included in carrying
\n
value
\n
Changes in fair value used as
\n
a basis to determine
\n
ineffectivemness (1)
\n
Impact on hedge items
\n
ceased to be adjusted for
\n
hedging gains or losses
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
5,764
(526)
(1,236)
63
\n
Other financial assets - securities
12,897
(922)
(2,525)
(2)
\n
Total
18,661
(1,448)
(3,761)
61
\n
Bank and customer deposits
565
(3)
3
\u2014
\n
Other financial liabilities - debt securities in issue
35,856
(2,222)
2,790
\u2014
\n
Subordinated liabilities
5,504
(547)
526
\u2014
\n
Total
41,925
(2,772)
3,319
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customer - amortised cost
(2)
93,212
5,263
\n
Other financial assets - securities
1,176
73
\n
Total
94,388
5,336
\n
Bank and customer deposits
72,610
(2,008)
\n
Other financial liabilities - debt securities in issue
571
(46)
\n
Total
73,181
(2,054)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
(2)
\u2014
\u2014
\n
Other financial assets - securities
\u2014
\u2014
\n
Total
\u2014
\u2014
\n
Other financial liabilities - debt securities in issue
4,141
(2)
\n
Subordinated liabilities
\u2014
\u2014
\n
Other
204
5
\n
Total
4,345
3
\n
2021
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
6,603
701
(478)
69
\n
Other financial assets - securities
30,882
518
(1,576)
\u2014
\n
Total
37,485
1,219
(2,054)
69
\n
Other financial liabilities - debt securities in issue
34,371
454
953
\u2014
\n
Subordinated liabilities
6,235
(9)
255
\u2014
\n
Total
40,606
445
1,208
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customers - amortised cost
63,025
1,984
\n
Other financial assets - securities
714
26
\n
Total
63,739
2,010
\n
Bank and customer deposits
68,383
(1,084)
\n
Other financial liabilities - debt securities in issue
1,006
(21)
\n
Total
69,389
(1,105)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
21
\u2014
\n
Other financial assets - securities
2
\u2014
\n
Total
23
\u2014
\n
Cash flow hedging - exchange rate
\n
Other financial liabilities - debt securities in issue
6,337
(5)
\n
Subordinated liabilities
742
(12)
\n
Other
200
(10)
\n
Total
7,279
(27)
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year
.
\n
(2)
Includes cash and balances at central banks.
The following table shows an analysis of the pre-tax cash flow hedge reserve and foreign exchange hedge reserve.
\n
2022
2021
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing
\n
Interest rate risk
(3,576)
\u2014
(295)
\u2014
\n
Foreign exchange risk
16
(85)
23
53
\n
De-designated
\n
Interest rate risk
(297)
\u2014
(297)
\u2014
\n
Foreign exchange risk
20
(880)
10
(759)
\n
Total
(3,837)
(965)
(559)
(706)
\n
2022
2021
\n
Foreign
Foreign
\n
Cash flow
exchange
Cash flow
exchange
\n
hedge reserve
hedge reserve
hedge reserve
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Amount recognised in equity
\n
Interest rate risk
(2,997)
(64)
(700)
\u2014
\n
Foreign exchange risk
24
(202)
13
88
\n
Total
(2,973)
(266)
(687)
88
\n
Amount transferred from equity to earnings
\n
Interest rate risk to net interest income
(252)
\u2014
(181)
\u2014
\n
Interest rate risk to non-interest income
(1)
(21)
\u2014
20
\u2014
\n
Interest rate risk to operating expenses
(14)
\u2014
\u2014
\u2014
\n
Foreign exchange risk to net interest income
(29)
\u2014
(4)
2
\n
Foreign exchange risk to non-interest income
15
7
1
(2)
\n
Foreign exchange risk to operating expenses
(3)
\u2014
3
\u2014
\n
Total
(304)
7
(161)
\u2014
\n
(1)
There was \u00a321 million (2021 - \u00a320 million) reclassified with the cash flow reserve to earnings due to forecasted cash flows that are no longer expected to occur.
\n
Hedge ineffectiveness recognised in other operating income comprises:
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
(Loss)/gain on hedged items attributable to the hedged risk
(442)
(846)
877
\n
Gain/(loss) on the hedging instruments
482
897
(875)
\n
Fair value hedging ineffectiveness
40
51
2
\n
Cash flow hedging
\n
Interest rate risk
(60)
(26)
22
\n
Cash flow hedging ineffectiveness
(60)
(26)
22
\n
Total
(20)
25
24
\n
The main sources of ineffectiveness for interest rate risk hedge accounting relationships are:
\n
\ue001
The effect of the counterparty credit risk on the fair value of the interest rate swap which is not reflected in the fair value of the
\n
hedged item attributable to the change in interest rate (fair value hedge).
\n
\ue001
Differences in the repricing basis between the hedging instrument and hedged cash flows (cash flow hedge); and
\n
\ue001
Upfront present values on the hedging derivatives where hedge accounting relationships have been designated after the trade
\n
date (cash flow hedge and fair value hedge).
", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47538": { "value": "
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
\n
3.9. Derecognition
\n
A financial asset is derecognised (removed from the balance
\n
sheet) when the contractual right to receive cash flows from
\n
the asset has expired or when it has been transferred and the
\n
transfer qualifies for derecognition. Conversely, an asset is not
\n
derecognised in a contract under which we retain substantially
\n
all the risks and rewards of ownership.
\n
A financial liability is removed from the balance sheet when the
\n
obligation is paid, or is cancelled, or expires. Cancellation
\n
includes the issuance of a substitute instrument on substantially
\n
different terms.
\n
3.10. Netting
\n
Financial assets and financial liabilities are offset, and the net
\n
amount presented on the balance sheet when, and only when,
\n
we currently have a legally enforceable right to set off the
\n
recognised amounts and we intend either to settle on a net
\n
basis or to realise the asset and settle the liability
\n
simultaneously. We are party to a number of arrangements,
\n
including master netting agreements, that give us the right to
\n
offset financial assets and financial liabilities, but where we do
\n
not intend to settle the amounts net or simultaneously, the
\n
assets and liabilities concerned are presented separately on the
\n
balance sheet.
\n
3.11. Capital instruments
\n
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
\n
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
\n
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
reclassified from equity to the income statement.
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47539": { "value": "
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
\n
3.9. Derecognition
\n
A financial asset is derecognised (removed from the balance
\n
sheet) when the contractual right to receive cash flows from
\n
the asset has expired or when it has been transferred and the
\n
transfer qualifies for derecognition. Conversely, an asset is not
\n
derecognised in a contract under which we retain substantially
\n
all the risks and rewards of ownership.
\n
A financial liability is removed from the balance sheet when the
\n
obligation is paid, or is cancelled, or expires. Cancellation
\n
includes the issuance of a substitute instrument on substantially
\n
different terms.
\n
3.10. Netting
\n
Financial assets and financial liabilities are offset, and the net
\n
amount presented on the balance sheet when, and only when,
\n
we currently have a legally enforceable right to set off the
\n
recognised amounts and we intend either to settle on a net
\n
basis or to realise the asset and settle the liability
\n
simultaneously. We are party to a number of arrangements,
\n
including master netting agreements, that give us the right to
\n
offset financial assets and financial liabilities, but where we do
\n
not intend to settle the amounts net or simultaneously, the
\n
assets and liabilities concerned are presented separately on the
\n
balance sheet.
3.12. Derivatives and hedging
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
these gains and losses are included in Other operating income.
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
reclassified from equity to the income statement.
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47540": { "value": "
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.12. Derivatives and hedging
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
these gains and losses are included in Other operating income.
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
reclassified from equity to the income statement.
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47541": { "value": "
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
11 Financial instruments - valuation
\n
Financial instruments recognised at fair value are revalued using techniques that can include observable inputs (pricing information
\n
that is readily available in the market, for example UK Government securities), and unobservable inputs (pricing information that is
\n
not readily available, for example unlisted securities). Gains and losses are recognised in the income statement and statement of
\n
comprehensive income as appropriate.
This note presents information on the valuation of financial instruments.
\n
The table below provides an overview of the various sections contained within the note.
\n
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
\n
Valuation
\n
Fair value hierarchy
\n
Financial instruments carried at fair value have been classified
\n
under the fair value hierarchy. The classification ranges from
\n
level 1 to level 3, with more expert judgment and price
\n
uncertainty for those classified at level 3.
\n
The determination of an instrument\u2019s level cannot be made at
\n
a global product level as a single product type can be in more
\n
than one level. For example, a single name corporate credit
\n
default swap could be in level 2 or level 3 depending on the
\n
level of market activity for the referenced entity
.
\n
Level 1 \u2013 instruments valued using unadjusted quoted prices in
\n
active and liquid markets, for identical financial instruments.
\n
Examples include government bonds, listed equity shares and
\n
certain exchange-traded derivatives.
\n
Level 2 - instruments valued using valuation techniques that
\n
have observable inputs. Observable inputs are those that are
\n
readily available with limited adjustments required. Examples
\n
include most government agency securities, investment-grade
\n
corporate bonds, certain mortgage products - including CLOs,
\n
most bank loans, repos and reverse repos, state and municipal
\n
obligations, most notes issued, certain money market
\n
securities, loan commitments and most OTC derivatives.
\n
Level 3 - instruments valued using a valuation technique where
\n
at least one input which could have a significant effect on the
\n
instruments valuation, is not based on observable market data.
\n
Examples include non-derivative instruments which trade
\n
infrequently, certain syndicated and commercial mortgage
\n
loans, private equity, and derivatives with unobservable model
\n
inputs.
\n
Page
\n
Financial instruments
\n
Critical accounting policy: Fair value
339
\n
Valuation
\n
Fair value hierarchy
(D)
339
\n
Valuation techniques
(D)
340
\n
Inputs to valuation models
(D)
340
\n
Valuation control
(D)
340
\n
Key areas of judgment
(D)
341
\n
Table of assets and liabilities split by fair value
\n
hierarchy level
(T)
342
\n
Valuation adjustments
\n
Table of fair value adjustments made
(T)
343
\n
Funding valuation adjustments (FVA)
(D)
343
\n
Credit valuation adjustments (CVA)
(D)
343
\n
Bid-offer
(D)
343
\n
Product and deal specific
(D)
343
\n
Own credit
(D)
343
\n
Level 3 additional information
\n
Level 3 ranges of unobservable inputs
(D)
344
\n
Table of level 3 instruments, valuation
\n
techniques and inputs
(T)
344
\n
Level 3 sensitivities
(D)
345
\n
Alternative assumptions
(D)
345
\n
Other considerations
(D)
345
\n
Table of high and low range of fair value of
\n
level 3 assets and liabilities
(T)
345
\n
Movement in level 3 assets and liabilities
\n
over the reporting period
(D)
346
\n
Table of the movement in level 3 assets and liabilities
346
\n
Fair value of financial instruments measured
\n
at amortised cost
\n
Table showing the fair value of financial instruments
\n
measured at amortised cost on the balance sheet
(T)
347
\n
(D) = Descriptive; (T) = Table
Valuation techniques
\n
NatWest Group derives the fair value of its instruments
\n
differently depending on whether the instrument is a non-
\n
modelled or a modelled product.
\n
Non-modelled products
are valued directly from a price input,
\n
typically on a position-by-position basis. Examples include
\n
equities and most debt securities.
\n
Non-modelled products can fall into any fair value levelling
\n
hierarchy depending on the observable market activity,
\n
liquidity, and assessment of valuation uncertainty of the
\n
instruments. The assessment of fair value and the classification
\n
of the instrument to a fair value level is subject to the valuation
\n
controls discussed in the Valuation control section.
\n
Modelled products
valued using a pricing model range in
\n
complexity from comparatively vanilla products such as interest
\n
rate swaps and options (e.g., interest rate caps and floors)
\n
through to more complex derivatives (e.g., balance guarantee
\n
swaps).
\n
For modelled products the fair value is derived using the model
\n
and the appropriate model inputs or parameters, as opposed to
\n
a cash price equivalent. Model inputs are taken either directly
\n
or indirectly from available data, where some inputs are also
\n
modelled.
\n
Fair value classification of modelled instruments is either level 2
\n
or level 3, depending on the product/model combination, the
\n
observability and quality of input parameters and other factors.
\n
All these must be assessed to classify a position. The modelled
\n
product is assigned to the lowest fair value hierarchy level of
\n
any significant input used in that valuation.
\n
Most derivative instruments, for example vanilla interest rate
\n
swaps, foreign exchange swaps and liquid single name credit
\n
derivatives, are classified as level 2. This is because they are
\n
vanilla products valued using standard market models and with
\n
observable inputs. Level 2 products range from vanilla to more
\n
complex products, where more complex products remain
\n
classified as level 2 due to the low materiality of any
\n
unobservable inputs.
\n
Inputs to valuation models
\n
When using valuation techniques, the fair value can be
\n
significantly affected by the choice of valuation model and
\n
underlying assumptions. Factors considered include the
\n
cashflow amounts and timing of those cash flows, and
\n
application of appropriate discount rates, incorporating both
\n
funding and credit risk. Values between and beyond available
\n
data points are obtained by interpolation and extrapolation.
\n
The principal inputs to these valuation techniques are as
\n
follows:
\n
Bond prices - quoted prices are generally available for
\n
government bonds, certain corporate securities, and some
\n
mortgage-related products.
\n
Credit spreads - these express the return required over a
\n
benchmark rate or index to compensate for the referenced
\n
credit risk. Where available, these are derived from the price of
\n
credit default swaps or other credit-based instruments, such as
\n
debt securities. When direct prices are not available; credit
\n
spreads are determined with reference to available prices of
\n
entities with similar characteristics.
\n
Interest rates - these are principally based on interest rate
\n
swap prices referencing benchmark interest rates. Benchmark
\n
rates include Interbank Offered Rates (IBOR) and the Overnight
\n
Index Swap (OIS) rate, including SONIA (Sterling Overnight
\n
Interbank Average Rate). Other quoted interest rates may also
\n
be used from both the bond, and futures markets.
\n
Foreign currency exchange rates - there are observable prices
\n
both for spot and forward contracts and futures in the world's
\n
major currencies.
\n
Equity and equity index prices - quoted prices are generally
\n
readily available for equity shares listed on the world's major
\n
stock exchanges and for major indices on such shares.
\n
Price volatilities and correlations - volatility is a measure of the
\n
tendency of a price to change with time. Correlation measures
\n
the degree which two or more prices or variables are observed
\n
to move together. Variables that move in the same direction
\n
show positive correlation; those that move in opposite
\n
directions are negatively correlated.
\n
Prepayment rates - rates used to reflect how fast a pool of
\n
assets prepay. The fair value of a financial instrument that can
\n
be prepaid by the issuer or borrower differs from that of an
\n
instrument that cannot be prepaid. When valuing prepayable
\n
instruments, the value of this prepayment option is considered.
\n
Recovery rates/loss given default - these are used as an input
\n
to valuation models and reserves for asset-backed securities
\n
and other credit products as an indicator of severity of losses
\n
on default. Recovery rates are primarily sourced from market
\n
data providers, the value of the underlying collateral or inferred
\n
from observable credit spreads.
\n
Valuation control
\n
NatWest Group's control environment for the determination of
\n
the fair value of financial instruments includes formalised
\n
procedures for the review and validation of fair values. This
\n
review is performed by an independent price verification (IPV)
\n
team.
\n
IPV is a key element of the control environment. Valuations are
\n
first performed by the business which entered into the
\n
transaction. These valuations are then reviewed by the IPV
\n
team, independent of those trading the financial instruments, in
\n
light of available pricing evidence.
\n
Independent pricing data is collated from a range of sources.
\n
Each source is reviewed for quality and the independent data
\n
applied in the IPV processes using a formalised input quality
\n
hierarchy. Consensus services are one source of independent
\n
data and encompass interest rate, currency, credit, and bond
\n
markets, providing comprehensive coverage of vanilla products
\n
and a wide selection of exotic products.
\n
Where measurement differences are identified through the IPV
\n
process these are grouped by the quality hierarchy of the
\n
independent data. If the size of the difference exceeds defined
\n
thresholds, an adjustment is made to bring the valuation to
\n
within the independently calculated fair value range.
\n
IPV takes place at least monthly, for all fair value financial
\n
instruments. The IPV control includes formalised reporting and
\n
escalation of any valuation differences in breach of established
\n
thresholds.
The quality and completeness of the information gathered in
\n
the IPV process gives an indication as to the liquidity and
\n
valuation uncertainty of an instrument and forms part of the
\n
information considered when determining fair value hierarchy
\n
classifications.
\n
Initial fair value level classification of a financial instrument is
\n
carried out by the IPV team. These initial classifications are
\n
subject to senior management review. Particular attention is
\n
paid to instruments transferring from one level to another, new
\n
instrument classes or products, instruments where the
\n
transaction price is significantly different from the fair value
\n
and instruments where valuation uncertainty is high.
\n
Valuation Committees are made up of valuation specialists and
\n
senior business representatives from various functions and
\n
oversees pricing, reserving and valuations issues. These
\n
committees meet monthly to review and ratify any
\n
methodology changes. The Executive Valuation Committee
\n
meets quarterly to address key material and subjective
\n
valuation issues, to review items escalated by Valuation
\n
Committees and to discuss other relevant industry matters.
\n
The Group model risk policy sets the policy for model
\n
documentation, testing and review. Governance of the model
\n
risk policy is carried out by the Group model risk oversight
\n
committee, which comprises model risk owners and
\n
independent model experts. All models are required to be
\n
independently validated in accordance with the Model Risk
\n
Policy.
\n
Key areas of judgment
\n
Over the years the business has simplified, with most products
\n
classified as level 1 or 2 of the fair value hierarchy. However,
\n
the diverse range of products historically traded by NatWest
\n
Group means some products remain classified as level 3. Level
\n
3 indicates a significant level of pricing uncertainty, where
\n
expert judgment is used. As such, extra disclosures are
\n
required in respect of level 3 instruments
.
\n
In general, the degree of expert judgment used and hence
\n
valuation uncertainty depends on the degree of liquidity of an
\n
instrument or input.
\n
Where markets are liquid, little judgment is required. However,
\n
when the information regarding the liquidity in a particular
\n
market is not clear, a judgment may need to be made. For
\n
example, for an equity traded on an exchange, daily volumes of
\n
trading can be seen, but for an over the counter (OTC)
\n
derivative, assessing the liquidity of the market with no central
\n
exchange is more challenging.
\n
A key related matter is where a market moves from liquid to
\n
illiquid or vice versa. Where this movement is considered
\n
temporary, the fair value level is not changed. For example, if
\n
there is little market trading in a product on a reporting date
\n
but at the previous reporting date and during the intervening
\n
period the market has been liquid. In this case, the instrument
\n
will continue to be classified at the same level in the hierarchy.
\n
This is to provide consistency so that transfers between levels
\n
are driven by genuine changes in market liquidity and do not
\n
reflect short term or seasonal effects. Material movements
\n
between levels are reviewed quarterly by the Business and IPV.
\n
The breadth and depth of the IPV data allows for a rules-based
\n
quality assessment to be made of market activity, liquidity, and
\n
pricing uncertainty, which assists with the process of allocation
\n
to an appropriate level. Where suitable independent pricing
\n
information is not readily available, the quality assessment will
\n
result in the instrument being assessed as level 3.
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered
\n
the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price
\n
uncertainty.
\n
2022
2021
\n
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
\u2014
35,260
395
35,655
\u2014
33,482
721
34,203
\n
Securities
7,463
2,458
1
9,922
19,563
5,371
21
24,955
\n
Derivatives
5
98,533
1,007
99,545
\u2014
105,222
917
106,139
\n
Other financial assets
\n
Loans
\u2014
172
727
899
\u2014
359
207
566
\n
Securities
10,380
6,278
203
16,861
28,880
7,951
186
37,017
\n
Total financial assets held at fair value
17,848
142,701
2,333
162,882
48,443
152,385
2,052
202,880
\n
As % of total fair value assets
11%
88%
1%
24%
75%
1%
\n
Liabilities
\n
Trading liabilities
\n
Deposits
\u2014
42,486
1
42,487
\u2014
38,658
2
38,660
\n
Debt securities in issue
\u2014
797
\u2014
797
\u2014
974
\u2014
974
\n
Short positions
7,462
2,062
\u2014
9,524
20,507
4,456
1
24,964
\n
Derivatives
2
93,070
975
94,047
\u2014
100,229
606
100,835
\n
Other financial liabilities
\n
Debt securities in issue
\u2014
1,327
\u2014
1,327
\u2014
1,103
\u2014
1,103
\n
Other deposits
\u2014
1,050
\u2014
1,050
\u2014
568
\u2014
568
\n
Subordinated liabilities
\u2014
345
\u2014
345
\u2014
703
\u2014
703
\n
Total financial liabilities held at fair value
7,464
141,137
976
149,577
20,507
146,691
609
167,807
\n
As % of total fair value liabilities
5%
94%
1%
12%
88%
0%
\n
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
\n
(2)
For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
\n
management \u2013 Credit risk.
Valuation adjustments
\n
When valuing financial instruments in the trading book,
\n
adjustments are made to mid-market valuations to cover bid-
\n
offer spread, funding and credit risk. These adjustments are
\n
presented in the table below:
\n
Adjustment
\n
2022
\n
\u00a3m
\n
2021
\n
\u00a3m
\n
Funding \u2013 FVA
173
90
\n
Credit \u2013 CVA
300
390
\n
Bid \u2013 Offer
130
113
\n
Product and deal specific
141
119
\n
744
712
\n
Funding valuation adjustments on the group defined benefit
\n
pension plan increased during the year, primarily driven by
\n
increases in GBP interest rates.
\n
The decrease in CVA was driven by a reduction in exposures,
\n
primarily due to increases in interest rates and trade exit
\n
activity, partially offset by the net impact of credit spreads
\n
widening and specific counterparty activity. The increase in
\n
bid-offer was driven by the net impact of risk changes, wider
\n
bid-offer spreads and an increase in the estimated costs of
\n
exiting certain less liquid risks. The increase in product and
\n
deal specific was driven by credit spreads widening and
\n
specific counterparty activity.
\n
Funding valuation adjustments (FVA)
\n
FVA represents an estimate of the adjustment that a market
\n
participant would make to incorporate funding costs and
\n
benefits that arise in relation to derivative exposures. FVA is
\n
calculated as a portfolio level adjustment and can result in
\n
either a funding charge (positive) or funding benefit (negative).
\n
Funding levels are applied to estimated potential future
\n
exposures. For uncollateralised derivatives, the exposure
\n
reflects the future valuation of the derivative. For collateralised
\n
derivatives, the exposure reflects the difference between the
\n
future valuation of the derivative and the level of collateral
\n
posted.
\n
Credit valuation adjustments (CVA)
\n
CVA represents an estimate of the adjustment to fair value that
\n
is made to incorporate the counterparty credit risk inherent in
\n
derivative exposures. CVA is actively managed by a credit and
\n
market risk hedging process, and therefore movements in CVA
\n
are partially offset by trading revenue on the hedges.
\n
The CVA is calculated on a portfolio basis reflecting an
\n
estimate of the amount a third party would charge to assume
\n
the credit risk.
\n
Collateral held under a credit support agreement is factored
\n
into the CVA calculation. In such cases where NatWest Group
\n
holds collateral against counterparty exposures, CVA is held to
\n
the extent that residual risk remains.
\n
Bid-offer
\n
Fair value positions are required to be marked to exit,
\n
represented by bid (long positions) or offer (short positions)
\n
levels. Non-derivative positions are typically marked directly to
\n
bid or offer prices. However derivative exposures are adjusted
\n
to exit levels by taking bid-offer reserves calculated on a
\n
portfolio basis. The bid-offer approach is based on current
\n
market spreads and standard market bucketing of risk.
\n
Bid-offer spreads vary by maturity and risk type to reflect
\n
different spreads in the market. For positions where there is no
\n
observable quote, the bid-offer spreads are widened in
\n
comparison to proxies to reflect reduced liquidity or
\n
observability.
\n
Netting is applied on a portfolio basis to reflect the value at
\n
which NatWest Group believes it could exit the net risk of the
\n
portfolio, rather than the sum of exit costs for each of the
\n
portfolio\u2019s individual trades. This is applied where the asset and
\n
liability positions are managed as a portfolio for risk and
\n
reporting purposes.
\n
Product and deal specific
\n
On initial recognition of financial assets and liabilities valued
\n
using valuation techniques which have a significant
\n
dependence on information other than observable market data,
\n
any difference between the transaction price and that derived
\n
from the valuation technique is deferred. Such amounts are
\n
recognised in the income statement over the life of the
\n
transaction; when market data becomes observable; or when
\n
the transaction matures or is closed out as appropriate. On 31
\n
December 2022, net gains of \u00a374 million (2021 - \u00a371 million)
\n
were carried forward. During the year, net gains of \u00a397 million
\n
(2021 - \u00a3103 million) were deferred and \u00a394 million (2021 - \u00a394
\n
million) were recognised in the income statement.
\n
Where system generated valuations do not accurately reflect
\n
market prices, manual valuation adjustments are applied either
\n
at a position or portfolio level. Manual adjustments are subject
\n
to the scrutiny of independent control teams and are subject to
\n
monthly review by senior management.
\n
Own Credit
\n
NatWest Group considers the effect of its own credit standing
\n
when valuing financial liabilities recorded at fair value. Own
\n
credit spread adjustments are made when valuing issued debt
\n
held at fair value, including issued structured notes. An own
\n
credit adjustment is applied to positions where it is believed
\n
that counterparties would consider NatWest Group\u2019s
\n
creditworthiness when pricing trades.
Level 3 additional information
\n
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
\n
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
\n
with significant unobservable inputs or modelling parameters.
\n
Level 3 ranges of unobservable inputs
\n
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
\n
fair value calculation, the unobservable input and input range.
\n
2022
2021
\n
Financial instrument
Valuation technique
Unobservable inputs
Units
Low
High
Low
High
\n
Trading assets and Other financial assets
\n
Loans
Price-based
Price
%
\u2014
113
\u2014
106
\n
Discount cash flow
Credit spreads
bps
56
114
40
102
\n
Discount cash flow
Discount margin
bps
\u2014
\u2014
46
55
\n
Debt securities
Price-based
Price
%
\n
\u2014
255
\u2014
240
\n
Equity Shares
Price-based
Price
GBP
\u2014
34,027
\u2014
30,378
\n
Price-based
Price
%
\u2014
30
\u2014
7
\n
Discount cash flow
Discount margin
%
6
8
6
8
\n
Net asset valuation
Fund NAV
%
80
120
80
120
\n
Derivative assets and liabilities
\n
Credit derivatives
Credit derivative pricing
Credit spreads
bps
7
530
6
635
\n
Option pricing
Correlation
%
(15)
95
(15)
95
\n
Volatility
%
30
80
30
108
\n
Upfront points
%
\u2014
99
\u2014
100
\n
Recovery rate
%
\u2014
60
\u2014
60
\n
Interest rate & FX
Option pricing
Correlation
%
(50)
100
(50)
100
\n
derivatives
Volatility
%
30
127
17
77
\n
Constant Prepayment
\n
Rate
%
2
21
2
16
\n
Mean Reversion
%
\u2014
92
\u2014
92
\n
Inflation volatility
%
1
2
1
2
\n
Inflation rate
%
2
3
2
3
\n
(1)
Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
\n
earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV
\n
or similar measures.
\n
(2)
NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.
Level 3 sensitivities
\n
The level 3 sensitivities presented below are calculated at a
\n
trade or low-level portfolio basis rather than an overall portfolio
\n
basis. As individual sensitivities are aggregated with no
\n
reflection of the correlated nature between instruments, the
\n
overall portfolio sensitivity may not be accurately reflected. For
\n
example, some portfolios may be negatively correlated to
\n
others, where a downwards movement in one asset would
\n
produce an upwards movement in another. However, due to
\n
the additive presentation of the above figures this correlation
\n
impact cannot be displayed. As such, the actual potential
\n
downside sensitivity of the total portfolio may be less than the
\n
non-correlated sum of the additive figures as shown in the
\n
below table.
\n
Alternative assumptions
\n
Reasonably plausible alternative assumptions of unobservable
\n
inputs are determined based on a specified target level of
\n
certainty of 90%.
\n
Alternative assumptions are determined with reference to all
\n
available evidence including consideration of the following:
\n
quality of independent pricing information considering
\n
consistency between different sources, variation over time,
\n
perceived tradability or otherwise of available quotes;
\n
consensus service dispersion ranges; volume of trading activity
\n
and market bias (e.g. one-way inventory); day 1 profit or loss
\n
arising on new trades; number and nature of market
\n
participants; market conditions; modelling consistency in the
\n
market; size and nature of risk; length of holding of position;
\n
and market intelligence.
\n
Other considerations
\n
Whilst certain inputs used to calculate CVA, FVA and own
\n
credit adjustments are not based on observable market data,
\n
the uncertainty of these inputs is not considered to have a
\n
significant effect on the net valuation of the related derivative
\n
portfolios and issued debt.
\n
As such, the fair value levelling of the derivative portfolios and
\n
issued debt is not determined by CVA, FVA or own credit
\n
inputs. In addition, any fair value sensitivity driven by these
\n
inputs is not included in the level 3 sensitivities presented.
\n
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
\n
fair value inputs as described in the previous table.
\n
2022
2021
\n
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
395
10
(10)
721
10
(10)
\n
Securities
1
\u2014
\u2014
21
\u2014
\u2014
\n
Derivatives
1,007
50
(50)
917
60
(70)
\n
Other financial assets
\n
Loans
727
\u2014
(10)
207
10
(10)
\n
Securities
203
20
(30)
186
20
(20)
\n
2,333
80
(100)
2,052
100
(110)
\n
Liabilities
\n
Trading liabilities
\n
Deposits
1
\u2014
\u2014
2
\u2014
\u2014
\n
Debt securities in issue
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Short positions
\u2014
\u2014
\u2014
1
\u2014
\n
Derivatives
975
30
(30)
606
30
(30)
\n
976
30
(30)
609
30
(30)
Movement in level 3 assets and liabilities
\n
The following table shows the movement in level 3 assets and liabilities in the year.
\n
2022
2021
\n
Trading
\n
assets (2)
\n
Other financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
Trading
\n
assets (2)
\n
Other
\n
financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
1,658
394
2,052
609
1,388
335
1,723
894
\n
Amounts recorded in the income statement
(1)
157
(14)
143
381
(93)
(29)
(122)
(90)
\n
Amounts recorded in the statement of
\n
comprehensive income
\u2014
(20)
(20)
\u2014
\u2014
23
23
\u2014
\n
Level 3 transfers in
194
532
726
81
125
3
128
20
\n
Level 3 transfers out
(269)
(68)
(337)
(64)
(104)
(6)
(109)
(168)
\n
Purchases/originations
629
185
814
382
965
452
1,416
305
\n
Settlements/other decreases
(115)
\u2014
(115)
(41)
(47)
(364)
(411)
(28)
\n
Sales
(857)
(101)
(958)
(378)
(573)
(17)
(590)
(321)
\n
Foreign exchange and other
6
22
28
6
(3)
(3)
(6)
(3)
\n
At 31 December
1,403
930
2,333
976
1,658
394
2,052
609
\n
Amounts recorded in the income statement in respect
\n
of balances held at year end:
\n
- unrealised
157
(16)
141
381
(93)
(32)
(126)
(90)
\n
(1)
There were \u00a3224 million net losses on trading assets and liabilities (2021 \u2013 \u00a33 million net losses) recorded in income from trading activities. Net losses on other instruments of \u00a314
\n
million (2021 \u2013 \u00a329 million net losses) were recorded in other operating income and interest income as appropriate.
\n
(2)
Trading assets comprise assets held at fair value in trading portfolios.
\n
(3)
Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
Fair value of financial instruments measured at amortised cost on the balance sheet
\n
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
\n
sheet.
\n
Fair value hierarchy level
\n
Carrying
Fair
\n
Items where fair value
\n
approximates carrying
\n
value
\n
value
value
Level 1
Level 2
Level 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
144.8
\n
Settlement balances
2.6
\n
Loans to banks
0.1
7.0
7.0
\u2014
4.2
2.8
\n
Loans to customers
366.3
354.5
\u2014
20.3
334.2
\n
Other financial assets - securities
13.1
12.8
3.6
3.2
6.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
177.8
\n
Settlement balances
2.1
\n
Loans to banks
0.1
7.5
7.5
\u2014
5.0
2.5
\n
Loans to customers
359.0
354.1
\u2014
28.0
326.1
\n
Other financial assets - securities
8.6
8.6
4.4
0.7
3.5
\n
2022
\n
Financial liabilities
\n
Bank deposits
4.7
15.7
15.3
\u2014
13.1
2.2
\n
Customer deposits
407.0
43.3
43.3
\u2014
12.7
30.6
\n
Settlement balances
2.0
\n
Other financial liabilities - debt securities in issue
46.7
46.1
\u2014
40.7
5.4
\n
Subordinated liabilities
5.9
5.6
\u2014
5.5
0.1
\n
Notes in circulation
3.2
\n
2021
\n
Financial liabilities
\n
Bank deposits
4.9
21.4
21.0
\u2014
18.7
2.3
\n
Customer deposits
442.4
37.4
37.6
\u2014
18.1
19.5
\n
Settlement balances
2.1
\n
Other financial liabilities - debt securities in issue
47.7
48.6
\u2014
41.4
7.2
\n
Subordinated liabilities
7.7
8.3
\u2014
8.2
0.1
\n
Notes in circulation
3.0
\n
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are
\n
as follows:
\n
Short-term financial instruments
\n
For certain short-term financial instruments, including but not
\n
limited to; cash and balances at central banks, settlement
\n
balances, loans with short-term maturities, notes in circulation
\n
and customer demand deposits, carrying value is deemed a
\n
reasonable approximation of fair value.
\n
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
\n
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
\n
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueMeasurementExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47542": { "value": "
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
\n
3.9. Derecognition
\n
A financial asset is derecognised (removed from the balance
\n
sheet) when the contractual right to receive cash flows from
\n
the asset has expired or when it has been transferred and the
\n
transfer qualifies for derecognition. Conversely, an asset is not
\n
derecognised in a contract under which we retain substantially
\n
all the risks and rewards of ownership.
\n
A financial liability is removed from the balance sheet when the
\n
obligation is paid, or is cancelled, or expires. Cancellation
\n
includes the issuance of a substitute instrument on substantially
\n
different terms.
\n
3.10. Netting
\n
Financial assets and financial liabilities are offset, and the net
\n
amount presented on the balance sheet when, and only when,
\n
we currently have a legally enforceable right to set off the
\n
recognised amounts and we intend either to settle on a net
\n
basis or to realise the asset and settle the liability
\n
simultaneously. We are party to a number of arrangements,
\n
including master netting agreements, that give us the right to
\n
offset financial assets and financial liabilities, but where we do
\n
not intend to settle the amounts net or simultaneously, the
\n
assets and liabilities concerned are presented separately on the
\n
balance sheet.
\n
3.11. Capital instruments
\n
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
\n
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
\n
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
10 Financial instruments \u2013 classification
\n
Financial instruments are contracts that give rise to a financial asset of one entity and a corresponding financial liability or equity
\n
instrument of a counterparty entity, such as: cash; derivatives; loans; deposits; and settlement balances.
This note presents
\n
financial instruments classified in accordance with IFRS 9 \u2013 Financial Instruments.
\n
Judgment: classification of financial assets
\n
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
\n
judgment in respect of business models and contractual cashflows.
\n
\ue001
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held
\n
to collect and sell. Information that is considered in determining the applicable business model includes the portfolio\u2019s policies
\n
and objectives, how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
\n
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
\n
\ue001
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent
\n
solely payments of principal and interest. A level of judgment is made in assessing terms that could change the contractual
\n
cash flows so that it would not meet the condition for solely payments of principal and interest, including contingent and
\n
leverage features,
non
-recourse arrangements and features that could modify the time value of money.
\n
We originate loans that include features that change the contractual cash flows based on the borrower meeting certain
\n
contractually specified environmental, social and governance (ESG) targets. These are known as ESG-linked (or sustainability-
\n
linked) loans. As part of the terms of these loans, the contractual interest rate is reduced or increased if the borrower meets (fails
\n
to meet) specific targets linked to the activity of the borrower for example reducing carbon emissions, increase the level of
\n
diversity at Board level, sustainable supply chain, etc. ESG features are first assessed to ascertain whether the adjustment to the
\n
contractual cash flows results in a de minimis exposure to risks or volatility in those contractual cash flows. If this is the case the
\n
classification of the loan is not affected. If the effect of the ESG feature is assessed as being more than de minimis, we apply
\n
judgement to ensure that the ESG features do not generate compensation for risks that are not in line with a basic lending
\n
arrangement. This includes amongst other aspects a review of the consistency of the ESG targets with the asset or activity of the
\n
borrower, consideration of the targets within our risk appetite etc. Some of these loans are an integral part of our climate and
\n
sustainable funding and financing target disclosed on page 25.
\n
For accounting policy information see Accounting policies notes 3.8, 3.9, 3.10 and 3.12.
Judgment: classification of financial assets
\n
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
\n
MFVTPL
FVOCI
Amortised cost
Other assets
Total
\n
Assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
144,832
\n
Trading assets
45,577
45,577
\n
Derivatives
(1)
99,545
99,545
\n
Settlement balances
2,572
2,572
\n
Loans to bank - amortised cost
(2)
7,139
7,139
\n
Loans to customers - amortised cost
(3)
366,340
366,340
\n
Other financial assets
(4)
787
16,973
13,135
30,895
\n
Intangible assets
7,116
7,116
\n
Other assets
9,176
9,176
\n
Assets of disposal groups
(5)
6,861
6,861
\n
31 December 2022
145,909
16,973
534,018
23,153
720,053
\n
Cash and balances at central banks
177,757
177,757
\n
Trading assets
59,158
59,158
\n
Derivatives
(1)
106,139
106,139
\n
Settlement balances
2,141
2,141
\n
Loans to bank - amortised cost
(2)
7,682
7,682
\n
Loans to customers - amortised cost
(3)
358,990
358,990
\n
Other financial assets
317
37,266
8,562
46,145
\n
Intangible assets
6,723
6,723
\n
Other assets
8,242
8,242
\n
Assets of disposal groups
9,015
9,015
\n
31 December 2021
165,614
37,266
555,132
23,980
781,992
\n
Held-for-trading
DFV
Amortised cost
Other liabilities
Total
\n
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank deposits
(6)
20,441
20,441
\n
Customer deposits
450,318
450,318
\n
Settlement balances
2,012
2,012
\n
Trading liabilities
52,808
52,808
\n
Derivatives
(1)
94,047
94,047
\n
Other financial liabilities
(7)
2,377
46,730
49,107
\n
Subordinated liabilities
345
5,915
6,260
\n
Notes in circulation
3,218
3,218
\n
Other liabilities
(8)
1,205
4,141
5,346
\n
31 December 2022
146,855
2,722
529,839
4,141
683,557
\n
Bank deposits
(6)
26,279
26,279
\n
Customer deposits
479,810
479,810
\n
Settlement balances
2,068
2,068
\n
Trading liabilities
64,598
64,598
\n
Derivatives
(1)
100,835
100,835
\n
Other financial liabilities
(7)
1,671
47,655
49,326
\n
Subordinated liabilities
703
7,726
8,429
\n
Notes in circulation
3,047
3,047
\n
Other liabilities
(8)
1,356
4,441
5,797
\n
31 December 2021
165,433
2,374
567,941
4,441
740,189
\n
(1)
Includes net hedging derivatives assets of \u00a3143 million (2021 - \u00a344 million) and net hedging derivatives liabilities of \u00a3132 million (2021 - \u00a3120 million).
\n
(2)
Includes items in the course of collection from other banks of \u00a3229 million (2021 - \u00a367 million).
\n
(3)
Includes finance lease receivables of \u00a38,402 million (2021 - \u00a38,531 million).
\n
(4)
Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio. Refer to Note 8 for further information.
\n
(5)
Includes \u00a35,397 million of assets of disposal groups reclassified from amortised cost to FVTPL during the year. The portfolio is classified as level 3 in the fair value hierarchy.
\n
(6)
Includes items in the course of transmission to other banks of \u00a3242 million (2021 - \u00a356 million).
\n
(7)
The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been
\n
recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively.
\n
(8)
Includes lease liabilities of \u00a31,118 million (2021 - \u00a31,263 million) held at amortised cost.
Reclassification of mortgages from amortised cost to fair value through profit or loss
\n
In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in
\n
both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting
\n
the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions
\n
around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups.
\n
The effect of the reclassification as at 1 July 2022 is shown below:
\n
Amortised cost
MFVTPL
Change in value
\n
\u00a3m
\u00a3m
\u00a3m
\n
Amounts reclassified on balance sheet
\n
Loans to customers
(1)
587
606
19
\n
Assets of disposal groups
(2)
10,676
10,383
(293)
\n
11,263
10,989
(274)
\n
(1)
Change in value recognised in continuing operations.
\n
(2)
Change in value recognised in discontinued operations.
\n
Additional information on finance lease receivables
\n
The following table shows the reconciliation of undiscounted finance lease receivables to net investment in finance leases:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Amount receivable under finance leases
\n
Within 1 year
3,235
3,272
\n
1 to 2 years
2,254
2,044
\n
2 to 3 years
1,388
1,443
\n
3 to 4 years
833
757
\n
4 to 5 years
411
429
\n
After 5 years
1,130
1,423
\n
Lease payments total
9,251
9,368
\n
Unguaranteed residual values
171
225
\n
Future drawdowns
(13)
(21)
\n
Unearned income
(889)
(891)
\n
Present value of lease payments
8,520
8,681
\n
Impairments
(118)
(150)
\n
Net investment in finance leases
8,402
8,531
\n
Additional information on reverse repos and repos
\n
The following table shows the value of reverse repos and repos included within the below balance sheet captions:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Reverse repos
\n
Trading assets
21,537
20,742
\n
Loans to banks - amortised cost
277
189
\n
Loans to customers - amortised cost
19,750
25,962
\n
Repos
\n
Bank deposits
1,446
7,912
\n
Customer deposits
9,829
14,541
\n
Trading liabilities
23,740
19,389
Interest rate benchmark reform
\n
NatWest Group continues to work on the transition of USD IBOR exposures to risk free rates in advance of the cessation date of 30
\n
June 2023. Derivatives are expected to transition during April and May 2023 and other exposures in line with fallback provisions or
\n
deferred switches using widely accepted methodologies. The instruments yet to transition reflect an insignificant element of
\n
NatWest Group\u2019s exposures. Instruments with exposures to other rates transitioned at the end of 2021, or at the first contractual
\n
reset date, or at a date agreed with the counterparty.
\n
The level of exposures without explicit or agreed conversion provisions as of the preceding year were as follows:
\n
Rates subject to IBOR reform
\n
GBP LIBOR
USD IBOR
Other IBOR
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets
62
90
\u2014
152
\n
Loans to banks - amortised cost
\u2014
11
\u2014
11
\n
Loans to customers - amortised cost
4,788
4,565
267
9,620
\n
Other financial assets
864
768
\u2014
1,632
\n
Bank deposits
\u2014
37
\u2014
37
\n
Trading liabilities
31
166
\u2014
197
\n
Other financial liabilities
2,390
7,023
131
9,544
\n
Subordinated liabilities
\u2014
90
\u2014
90
\n
Loan commitments
(1)
1,016
6,366
55
7,437
\n
Derivatives notional (\u00a3bn)
4
1,152
\u2014
1,156
\n
(1)
Certain loan commitments are multi-currency facilities. Where these are fully undrawn, they are allocated to the principal currency of the facility. Where the facilities are partly
\n
drawn, the remaining loan commitment is allocated to the currency with the largest drawn amount.
\n
At 31 December 2021, NatWest Group held certain currency swaps with both legs subject to IBOR reform, for which only the GBP
\n
LIBOR leg has an explicit or agreed conversion provisions as of 31 December 2021, but not the entire contract. These include
\n
currency swaps of GBP LIBOR of \u00a38.7 billion with USD IBOR \u00a38.2 billion and Other IBOR \u00a30.5 billion; currency swaps of USD IBOR
\n
of \u00a3117 billion with GBP LIBOR \u00a391.7 billion and Other IBOR \u00a325.3 billion; currency swaps of EURIBOR of \u00a30.1 billion with GBP
\n
LIBOR \u00a30.1 billion; currency swaps of Other IBOR of \u00a30.4 billion with USD IBOR \u00a30.4 billion
\n
AT1 issuances
\n
NatWest Group has issued certain capital instruments, AT1, under which reset clauses are linked to IBOR rates subject to reform.
\n
Where under the contractual terms of the instrument the coupon resets to a rate which has IBOR as a specified component of its
\n
pricing structure, these are subject to IBOR reform and listed below:
\n
31 December
\n
2021
\n
\u00a3m
\n
US$1.15 billion 8% notes
734
Financial instruments \u2013 financial assets and liabilities that can be offset
\n
The tables below present information on financial assets and financial liabilities that are offset on the balance sheet under IFRS or
\n
subject to enforceable master netting agreements together with financial collateral received or given.
\n
Instruments which can be offset
Potential for offset not recognised by IFRS
\n
Gross
\n
IFRS offset
\n
Balance sheet
\n
Effect of
\n
master netting
\n
and similar
\n
agreements
\n
Cash
\n
collateral
\n
Securities
\n
collateral
\n
Net amount after the
\n
effect of netting
\n
agreements and
\n
related collateral
\n
Instruments
\n
outside netting
\n
agreements
\n
Balance
\n
sheet total
\n
2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Derivative assets
117,606
(18,730)
98,876
(77,365)
(14,079)
(4,571)
2,861
669
99,545
\n
Derivative liabilities
115,177
(22,111)
93,066
(77,365)
(9,761)
(1,185)
4,755
981
94,047
\n
Net position
(1)
2,429
3,381
5,810
\u2014
(4,318)
(3,386)
(1,894)
(312)
5,498
\n
Trading reverse repos
35,612
(14,510)
21,102
(2,445)
\u2014
(18,458)
199
435
21,537
\n
Trading repos
33,767
(14,510)
19,257
(2,445)
\u2014
(16,812)
\u2014
4,483
23,740
\n
Net position
1,845
\u2014
1,845
\u2014
\u2014
(1,646)
199
(4,048)
(2,203)
\n
Non trading reverse repos
25,630
(5,702)
19,928
\u2014
\u2014
(19,928)
\u2014
98
20,026
\n
Non trading repos
16,977
(5,702)
11,275
\u2014
\u2014
(11,275)
\u2014
\u2014
11,275
\n
Net position
8,653
\u2014
8,653
\u2014
\u2014
(8,653)
\u2014
98
8,751
\n
2021
\n
Derivative assets
113,220
(7,961)
105,259
(85,006)
(15,035)
(2,428)
2,790
880
106,139
\n
Derivative liabilities
108,594
(8,568)
100,026
(85,006)
(9,909)
(2,913)
2,198
809
100,835
\n
Net position
(1)
4,626
607
5,233
\u2014
(5,126)
485
592
71
5,304
\n
Trading reverse repos
44,529
(24,422)
20,107
(900)
\u2014
(19,136)
71
635
20,742
\n
Trading repos
42,664
(24,422)
18,242
(900)
\u2014
(17,341)
1
1,147
19,389
\n
Net position
1,865
\u2014
1,865
\u2014
\u2014
(1,795)
70
(512)
1,353
\n
Non trading reverse repos
33,729
(7,594)
26,135
\u2014
\u2014
(26,135)
\u2014
16
26,151
\n
Non trading repos
30,047
(7,594)
22,453
\u2014
\u2014
(22,453)
\u2014
\u2014
22,453
\n
Net position
3,682
\u2014
3,682
\u2014
\u2014
(3,682)
\u2014
16
3,698
\n
(1)
The net IFRS offset balance of \u00a33,381 million (2021 - \u00a3607 million) relates to variation margin netting reflected on other balance sheet lines.
11 Financial instruments - valuation
\n
Financial instruments recognised at fair value are revalued using techniques that can include observable inputs (pricing information
\n
that is readily available in the market, for example UK Government securities), and unobservable inputs (pricing information that is
\n
not readily available, for example unlisted securities). Gains and losses are recognised in the income statement and statement of
\n
comprehensive income as appropriate.
This note presents information on the valuation of financial instruments.
\n
The table below provides an overview of the various sections contained within the note.
\n
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
\n
Valuation
\n
Fair value hierarchy
\n
Financial instruments carried at fair value have been classified
\n
under the fair value hierarchy. The classification ranges from
\n
level 1 to level 3, with more expert judgment and price
\n
uncertainty for those classified at level 3.
\n
The determination of an instrument\u2019s level cannot be made at
\n
a global product level as a single product type can be in more
\n
than one level. For example, a single name corporate credit
\n
default swap could be in level 2 or level 3 depending on the
\n
level of market activity for the referenced entity
.
\n
Level 1 \u2013 instruments valued using unadjusted quoted prices in
\n
active and liquid markets, for identical financial instruments.
\n
Examples include government bonds, listed equity shares and
\n
certain exchange-traded derivatives.
\n
Level 2 - instruments valued using valuation techniques that
\n
have observable inputs. Observable inputs are those that are
\n
readily available with limited adjustments required. Examples
\n
include most government agency securities, investment-grade
\n
corporate bonds, certain mortgage products - including CLOs,
\n
most bank loans, repos and reverse repos, state and municipal
\n
obligations, most notes issued, certain money market
\n
securities, loan commitments and most OTC derivatives.
\n
Level 3 - instruments valued using a valuation technique where
\n
at least one input which could have a significant effect on the
\n
instruments valuation, is not based on observable market data.
\n
Examples include non-derivative instruments which trade
\n
infrequently, certain syndicated and commercial mortgage
\n
loans, private equity, and derivatives with unobservable model
\n
inputs.
Page
\n
Financial instruments
\n
Critical accounting policy: Fair value
339
\n
Valuation
\n
Fair value hierarchy
(D)
339
\n
Valuation techniques
(D)
340
\n
Inputs to valuation models
(D)
340
\n
Valuation control
(D)
340
\n
Key areas of judgment
(D)
341
\n
Table of assets and liabilities split by fair value
\n
hierarchy level
(T)
342
\n
Valuation adjustments
\n
Table of fair value adjustments made
(T)
343
\n
Funding valuation adjustments (FVA)
(D)
343
\n
Credit valuation adjustments (CVA)
(D)
343
\n
Bid-offer
(D)
343
\n
Product and deal specific
(D)
343
\n
Own credit
(D)
343
\n
Level 3 additional information
\n
Level 3 ranges of unobservable inputs
(D)
344
\n
Table of level 3 instruments, valuation
\n
techniques and inputs
(T)
344
\n
Level 3 sensitivities
(D)
345
\n
Alternative assumptions
(D)
345
\n
Other considerations
(D)
345
\n
Table of high and low range of fair value of
\n
level 3 assets and liabilities
(T)
345
\n
Movement in level 3 assets and liabilities
\n
over the reporting period
(D)
346
\n
Table of the movement in level 3 assets and liabilities
346
\n
Fair value of financial instruments measured
\n
at amortised cost
\n
Table showing the fair value of financial instruments
\n
measured at amortised cost on the balance sheet
(T)
347
\n
(D) = Descriptive; (T) = Table
Valuation techniques
\n
NatWest Group derives the fair value of its instruments
\n
differently depending on whether the instrument is a non-
\n
modelled or a modelled product.
\n
Non-modelled products
are valued directly from a price input,
\n
typically on a position-by-position basis. Examples include
\n
equities and most debt securities.
\n
Non-modelled products can fall into any fair value levelling
\n
hierarchy depending on the observable market activity,
\n
liquidity, and assessment of valuation uncertainty of the
\n
instruments. The assessment of fair value and the classification
\n
of the instrument to a fair value level is subject to the valuation
\n
controls discussed in the Valuation control section.
\n
Modelled products
valued using a pricing model range in
\n
complexity from comparatively vanilla products such as interest
\n
rate swaps and options (e.g., interest rate caps and floors)
\n
through to more complex derivatives (e.g., balance guarantee
\n
swaps).
\n
For modelled products the fair value is derived using the model
\n
and the appropriate model inputs or parameters, as opposed to
\n
a cash price equivalent. Model inputs are taken either directly
\n
or indirectly from available data, where some inputs are also
\n
modelled.
\n
Fair value classification of modelled instruments is either level 2
\n
or level 3, depending on the product/model combination, the
\n
observability and quality of input parameters and other factors.
\n
All these must be assessed to classify a position. The modelled
\n
product is assigned to the lowest fair value hierarchy level of
\n
any significant input used in that valuation.
\n
Most derivative instruments, for example vanilla interest rate
\n
swaps, foreign exchange swaps and liquid single name credit
\n
derivatives, are classified as level 2. This is because they are
\n
vanilla products valued using standard market models and with
\n
observable inputs. Level 2 products range from vanilla to more
\n
complex products, where more complex products remain
\n
classified as level 2 due to the low materiality of any
\n
unobservable inputs.
\n
Inputs to valuation models
\n
When using valuation techniques, the fair value can be
\n
significantly affected by the choice of valuation model and
\n
underlying assumptions. Factors considered include the
\n
cashflow amounts and timing of those cash flows, and
\n
application of appropriate discount rates, incorporating both
\n
funding and credit risk. Values between and beyond available
\n
data points are obtained by interpolation and extrapolation.
\n
The principal inputs to these valuation techniques are as
\n
follows:
\n
Bond prices - quoted prices are generally available for
\n
government bonds, certain corporate securities, and some
\n
mortgage-related products.
\n
Credit spreads - these express the return required over a
\n
benchmark rate or index to compensate for the referenced
\n
credit risk. Where available, these are derived from the price of
\n
credit default swaps or other credit-based instruments, such as
\n
debt securities. When direct prices are not available; credit
\n
spreads are determined with reference to available prices of
\n
entities with similar characteristics.
\n
Interest rates - these are principally based on interest rate
\n
swap prices referencing benchmark interest rates. Benchmark
\n
rates include Interbank Offered Rates (IBOR) and the Overnight
\n
Index Swap (OIS) rate, including SONIA (Sterling Overnight
\n
Interbank Average Rate). Other quoted interest rates may also
\n
be used from both the bond, and futures markets.
\n
Foreign currency exchange rates - there are observable prices
\n
both for spot and forward contracts and futures in the world's
\n
major currencies.
\n
Equity and equity index prices - quoted prices are generally
\n
readily available for equity shares listed on the world's major
\n
stock exchanges and for major indices on such shares.
\n
Price volatilities and correlations - volatility is a measure of the
\n
tendency of a price to change with time. Correlation measures
\n
the degree which two or more prices or variables are observed
\n
to move together. Variables that move in the same direction
\n
show positive correlation; those that move in opposite
\n
directions are negatively correlated.
\n
Prepayment rates - rates used to reflect how fast a pool of
\n
assets prepay. The fair value of a financial instrument that can
\n
be prepaid by the issuer or borrower differs from that of an
\n
instrument that cannot be prepaid. When valuing prepayable
\n
instruments, the value of this prepayment option is considered.
\n
Recovery rates/loss given default - these are used as an input
\n
to valuation models and reserves for asset-backed securities
\n
and other credit products as an indicator of severity of losses
\n
on default. Recovery rates are primarily sourced from market
\n
data providers, the value of the underlying collateral or inferred
\n
from observable credit spreads.
\n
Valuation control
\n
NatWest Group's control environment for the determination of
\n
the fair value of financial instruments includes formalised
\n
procedures for the review and validation of fair values. This
\n
review is performed by an independent price verification (IPV)
\n
team.
\n
IPV is a key element of the control environment. Valuations are
\n
first performed by the business which entered into the
\n
transaction. These valuations are then reviewed by the IPV
\n
team, independent of those trading the financial instruments, in
\n
light of available pricing evidence.
\n
Independent pricing data is collated from a range of sources.
\n
Each source is reviewed for quality and the independent data
\n
applied in the IPV processes using a formalised input quality
\n
hierarchy. Consensus services are one source of independent
\n
data and encompass interest rate, currency, credit, and bond
\n
markets, providing comprehensive coverage of vanilla products
\n
and a wide selection of exotic products.
\n
Where measurement differences are identified through the IPV
\n
process these are grouped by the quality hierarchy of the
\n
independent data. If the size of the difference exceeds defined
\n
thresholds, an adjustment is made to bring the valuation to
\n
within the independently calculated fair value range.
\n
IPV takes place at least monthly, for all fair value financial
\n
instruments. The IPV control includes formalised reporting and
\n
escalation of any valuation differences in breach of established
\n
thresholds.
The quality and completeness of the information gathered in
\n
the IPV process gives an indication as to the liquidity and
\n
valuation uncertainty of an instrument and forms part of the
\n
information considered when determining fair value hierarchy
\n
classifications.
\n
Initial fair value level classification of a financial instrument is
\n
carried out by the IPV team. These initial classifications are
\n
subject to senior management review. Particular attention is
\n
paid to instruments transferring from one level to another, new
\n
instrument classes or products, instruments where the
\n
transaction price is significantly different from the fair value
\n
and instruments where valuation uncertainty is high.
\n
Valuation Committees are made up of valuation specialists and
\n
senior business representatives from various functions and
\n
oversees pricing, reserving and valuations issues. These
\n
committees meet monthly to review and ratify any
\n
methodology changes. The Executive Valuation Committee
\n
meets quarterly to address key material and subjective
\n
valuation issues, to review items escalated by Valuation
\n
Committees and to discuss other relevant industry matters.
\n
The Group model risk policy sets the policy for model
\n
documentation, testing and review. Governance of the model
\n
risk policy is carried out by the Group model risk oversight
\n
committee, which comprises model risk owners and
\n
independent model experts. All models are required to be
\n
independently validated in accordance with the Model Risk
\n
Policy.
\n
Key areas of judgment
\n
Over the years the business has simplified, with most products
\n
classified as level 1 or 2 of the fair value hierarchy. However,
\n
the diverse range of products historically traded by NatWest
\n
Group means some products remain classified as level 3. Level
\n
3 indicates a significant level of pricing uncertainty, where
\n
expert judgment is used. As such, extra disclosures are
\n
required in respect of level 3 instruments
.
\n
In general, the degree of expert judgment used and hence
\n
valuation uncertainty depends on the degree of liquidity of an
\n
instrument or input.
\n
Where markets are liquid, little judgment is required. However,
\n
when the information regarding the liquidity in a particular
\n
market is not clear, a judgment may need to be made. For
\n
example, for an equity traded on an exchange, daily volumes of
\n
trading can be seen, but for an over the counter (OTC)
\n
derivative, assessing the liquidity of the market with no central
\n
exchange is more challenging.
\n
A key related matter is where a market moves from liquid to
\n
illiquid or vice versa. Where this movement is considered
\n
temporary, the fair value level is not changed. For example, if
\n
there is little market trading in a product on a reporting date
\n
but at the previous reporting date and during the intervening
\n
period the market has been liquid. In this case, the instrument
\n
will continue to be classified at the same level in the hierarchy.
\n
This is to provide consistency so that transfers between levels
\n
are driven by genuine changes in market liquidity and do not
\n
reflect short term or seasonal effects. Material movements
\n
between levels are reviewed quarterly by the Business and IPV.
\n
The breadth and depth of the IPV data allows for a rules-based
\n
quality assessment to be made of market activity, liquidity, and
\n
pricing uncertainty, which assists with the process of allocation
\n
to an appropriate level. Where suitable independent pricing
\n
information is not readily available, the quality assessment will
\n
result in the instrument being assessed as level 3.
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered
\n
the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price
\n
uncertainty.
\n
2022
2021
\n
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
\u2014
35,260
395
35,655
\u2014
33,482
721
34,203
\n
Securities
7,463
2,458
1
9,922
19,563
5,371
21
24,955
\n
Derivatives
5
98,533
1,007
99,545
\u2014
105,222
917
106,139
\n
Other financial assets
\n
Loans
\u2014
172
727
899
\u2014
359
207
566
\n
Securities
10,380
6,278
203
16,861
28,880
7,951
186
37,017
\n
Total financial assets held at fair value
17,848
142,701
2,333
162,882
48,443
152,385
2,052
202,880
\n
As % of total fair value assets
11%
88%
1%
24%
75%
1%
\n
Liabilities
\n
Trading liabilities
\n
Deposits
\u2014
42,486
1
42,487
\u2014
38,658
2
38,660
\n
Debt securities in issue
\u2014
797
\u2014
797
\u2014
974
\u2014
974
\n
Short positions
7,462
2,062
\u2014
9,524
20,507
4,456
1
24,964
\n
Derivatives
2
93,070
975
94,047
\u2014
100,229
606
100,835
\n
Other financial liabilities
\n
Debt securities in issue
\u2014
1,327
\u2014
1,327
\u2014
1,103
\u2014
1,103
\n
Other deposits
\u2014
1,050
\u2014
1,050
\u2014
568
\u2014
568
\n
Subordinated liabilities
\u2014
345
\u2014
345
\u2014
703
\u2014
703
\n
Total financial liabilities held at fair value
7,464
141,137
976
149,577
20,507
146,691
609
167,807
\n
As % of total fair value liabilities
5%
94%
1%
12%
88%
0%
\n
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
\n
(2)
For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
\n
management \u2013 Credit risk.
Valuation adjustments
\n
When valuing financial instruments in the trading book,
\n
adjustments are made to mid-market valuations to cover bid-
\n
offer spread, funding and credit risk. These adjustments are
\n
presented in the table below:
\n
Adjustment
\n
2022
\n
\u00a3m
\n
2021
\n
\u00a3m
\n
Funding \u2013 FVA
173
90
\n
Credit \u2013 CVA
300
390
\n
Bid \u2013 Offer
130
113
\n
Product and deal specific
141
119
\n
744
712
\n
Funding valuation adjustments on the group defined benefit
\n
pension plan increased during the year, primarily driven by
\n
increases in GBP interest rates.
\n
The decrease in CVA was driven by a reduction in exposures,
\n
primarily due to increases in interest rates and trade exit
\n
activity, partially offset by the net impact of credit spreads
\n
widening and specific counterparty activity. The increase in
\n
bid-offer was driven by the net impact of risk changes, wider
\n
bid-offer spreads and an increase in the estimated costs of
\n
exiting certain less liquid risks. The increase in product and
\n
deal specific was driven by credit spreads widening and
\n
specific counterparty activity.
\n
Funding valuation adjustments (FVA)
\n
FVA represents an estimate of the adjustment that a market
\n
participant would make to incorporate funding costs and
\n
benefits that arise in relation to derivative exposures. FVA is
\n
calculated as a portfolio level adjustment and can result in
\n
either a funding charge (positive) or funding benefit (negative).
\n
Funding levels are applied to estimated potential future
\n
exposures. For uncollateralised derivatives, the exposure
\n
reflects the future valuation of the derivative. For collateralised
\n
derivatives, the exposure reflects the difference between the
\n
future valuation of the derivative and the level of collateral
\n
posted.
\n
Credit valuation adjustments (CVA)
\n
CVA represents an estimate of the adjustment to fair value that
\n
is made to incorporate the counterparty credit risk inherent in
\n
derivative exposures. CVA is actively managed by a credit and
\n
market risk hedging process, and therefore movements in CVA
\n
are partially offset by trading revenue on the hedges.
\n
The CVA is calculated on a portfolio basis reflecting an
\n
estimate of the amount a third party would charge to assume
\n
the credit risk.
\n
Collateral held under a credit support agreement is factored
\n
into the CVA calculation. In such cases where NatWest Group
\n
holds collateral against counterparty exposures, CVA is held to
\n
the extent that residual risk remains.
\n
Bid-offer
\n
Fair value positions are required to be marked to exit,
\n
represented by bid (long positions) or offer (short positions)
\n
levels. Non-derivative positions are typically marked directly to
\n
bid or offer prices. However derivative exposures are adjusted
\n
to exit levels by taking bid-offer reserves calculated on a
\n
portfolio basis. The bid-offer approach is based on current
\n
market spreads and standard market bucketing of risk.
\n
Bid-offer spreads vary by maturity and risk type to reflect
\n
different spreads in the market. For positions where there is no
\n
observable quote, the bid-offer spreads are widened in
\n
comparison to proxies to reflect reduced liquidity or
\n
observability.
\n
Netting is applied on a portfolio basis to reflect the value at
\n
which NatWest Group believes it could exit the net risk of the
\n
portfolio, rather than the sum of exit costs for each of the
\n
portfolio\u2019s individual trades. This is applied where the asset and
\n
liability positions are managed as a portfolio for risk and
\n
reporting purposes.
\n
Product and deal specific
\n
On initial recognition of financial assets and liabilities valued
\n
using valuation techniques which have a significant
\n
dependence on information other than observable market data,
\n
any difference between the transaction price and that derived
\n
from the valuation technique is deferred. Such amounts are
\n
recognised in the income statement over the life of the
\n
transaction; when market data becomes observable; or when
\n
the transaction matures or is closed out as appropriate. On 31
\n
December 2022, net gains of \u00a374 million (2021 - \u00a371 million)
\n
were carried forward. During the year, net gains of \u00a397 million
\n
(2021 - \u00a3103 million) were deferred and \u00a394 million (2021 - \u00a394
\n
million) were recognised in the income statement.
\n
Where system generated valuations do not accurately reflect
\n
market prices, manual valuation adjustments are applied either
\n
at a position or portfolio level. Manual adjustments are subject
\n
to the scrutiny of independent control teams and are subject to
\n
monthly review by senior management.
\n
Own Credit
\n
NatWest Group considers the effect of its own credit standing
\n
when valuing financial liabilities recorded at fair value. Own
\n
credit spread adjustments are made when valuing issued debt
\n
held at fair value, including issued structured notes. An own
\n
credit adjustment is applied to positions where it is believed
\n
that counterparties would consider NatWest Group\u2019s
\n
creditworthiness when pricing trades.
Level 3 additional information
\n
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
\n
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
\n
with significant unobservable inputs or modelling parameters.
\n
Level 3 ranges of unobservable inputs
\n
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
\n
fair value calculation, the unobservable input and input range.
\n
2022
2021
\n
Financial instrument
Valuation technique
Unobservable inputs
Units
Low
High
Low
High
\n
Trading assets and Other financial assets
\n
Loans
Price-based
Price
%
\u2014
113
\u2014
106
\n
Discount cash flow
Credit spreads
bps
56
114
40
102
\n
Discount cash flow
Discount margin
bps
\u2014
\u2014
46
55
\n
Debt securities
Price-based
Price
%
\n
\u2014
255
\u2014
240
\n
Equity Shares
Price-based
Price
GBP
\u2014
34,027
\u2014
30,378
\n
Price-based
Price
%
\u2014
30
\u2014
7
\n
Discount cash flow
Discount margin
%
6
8
6
8
\n
Net asset valuation
Fund NAV
%
80
120
80
120
\n
Derivative assets and liabilities
\n
Credit derivatives
Credit derivative pricing
Credit spreads
bps
7
530
6
635
\n
Option pricing
Correlation
%
(15)
95
(15)
95
\n
Volatility
%
30
80
30
108
\n
Upfront points
%
\u2014
99
\u2014
100
\n
Recovery rate
%
\u2014
60
\u2014
60
\n
Interest rate & FX
Option pricing
Correlation
%
(50)
100
(50)
100
\n
derivatives
Volatility
%
30
127
17
77
\n
Constant Prepayment
\n
Rate
%
2
21
2
16
\n
Mean Reversion
%
\u2014
92
\u2014
92
\n
Inflation volatility
%
1
2
1
2
\n
Inflation rate
%
2
3
2
3
\n
(1)
Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
\n
earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV
\n
or similar measures.
\n
(2)
NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.
Level 3 sensitivities
\n
The level 3 sensitivities presented below are calculated at a
\n
trade or low-level portfolio basis rather than an overall portfolio
\n
basis. As individual sensitivities are aggregated with no
\n
reflection of the correlated nature between instruments, the
\n
overall portfolio sensitivity may not be accurately reflected. For
\n
example, some portfolios may be negatively correlated to
\n
others, where a downwards movement in one asset would
\n
produce an upwards movement in another. However, due to
\n
the additive presentation of the above figures this correlation
\n
impact cannot be displayed. As such, the actual potential
\n
downside sensitivity of the total portfolio may be less than the
\n
non-correlated sum of the additive figures as shown in the
\n
below table.
\n
Alternative assumptions
\n
Reasonably plausible alternative assumptions of unobservable
\n
inputs are determined based on a specified target level of
\n
certainty of 90%.
\n
Alternative assumptions are determined with reference to all
\n
available evidence including consideration of the following:
\n
quality of independent pricing information considering
\n
consistency between different sources, variation over time,
\n
perceived tradability or otherwise of available quotes;
\n
consensus service dispersion ranges; volume of trading activity
\n
and market bias (e.g. one-way inventory); day 1 profit or loss
\n
arising on new trades; number and nature of market
\n
participants; market conditions; modelling consistency in the
\n
market; size and nature of risk; length of holding of position;
\n
and market intelligence.
\n
Other considerations
\n
Whilst certain inputs used to calculate CVA, FVA and own
\n
credit adjustments are not based on observable market data,
\n
the uncertainty of these inputs is not considered to have a
\n
significant effect on the net valuation of the related derivative
\n
portfolios and issued debt.
\n
As such, the fair value levelling of the derivative portfolios and
\n
issued debt is not determined by CVA, FVA or own credit
\n
inputs. In addition, any fair value sensitivity driven by these
\n
inputs is not included in the level 3 sensitivities presented.
\n
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
\n
fair value inputs as described in the previous table.
\n
2022
2021
\n
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
395
10
(10)
721
10
(10)
\n
Securities
1
\u2014
\u2014
21
\u2014
\u2014
\n
Derivatives
1,007
50
(50)
917
60
(70)
\n
Other financial assets
\n
Loans
727
\u2014
(10)
207
10
(10)
\n
Securities
203
20
(30)
186
20
(20)
\n
2,333
80
(100)
2,052
100
(110)
\n
Liabilities
\n
Trading liabilities
\n
Deposits
1
\u2014
\u2014
2
\u2014
\u2014
\n
Debt securities in issue
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Short positions
\u2014
\u2014
\u2014
1
\u2014
\n
Derivatives
975
30
(30)
606
30
(30)
\n
976
30
(30)
609
30
(30)
Movement in level 3 assets and liabilities
\n
The following table shows the movement in level 3 assets and liabilities in the year.
\n
2022
2021
\n
Trading
\n
assets (2)
\n
Other financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
Trading
\n
assets (2)
\n
Other
\n
financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
1,658
394
2,052
609
1,388
335
1,723
894
\n
Amounts recorded in the income statement
(1)
157
(14)
143
381
(93)
(29)
(122)
(90)
\n
Amounts recorded in the statement of
\n
comprehensive income
\u2014
(20)
(20)
\u2014
\u2014
23
23
\u2014
\n
Level 3 transfers in
194
532
726
81
125
3
128
20
\n
Level 3 transfers out
(269)
(68)
(337)
(64)
(104)
(6)
(109)
(168)
\n
Purchases/originations
629
185
814
382
965
452
1,416
305
\n
Settlements/other decreases
(115)
\u2014
(115)
(41)
(47)
(364)
(411)
(28)
\n
Sales
(857)
(101)
(958)
(378)
(573)
(17)
(590)
(321)
\n
Foreign exchange and other
6
22
28
6
(3)
(3)
(6)
(3)
\n
At 31 December
1,403
930
2,333
976
1,658
394
2,052
609
\n
Amounts recorded in the income statement in respect
\n
of balances held at year end:
\n
- unrealised
157
(16)
141
381
(93)
(32)
(126)
(90)
\n
(1)
There were \u00a3224 million net losses on trading assets and liabilities (2021 \u2013 \u00a33 million net losses) recorded in income from trading activities. Net losses on other instruments of \u00a314
\n
million (2021 \u2013 \u00a329 million net losses) were recorded in other operating income and interest income as appropriate.
\n
(2)
Trading assets comprise assets held at fair value in trading portfolios.
\n
(3)
Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
Fair value of financial instruments measured at amortised cost on the balance sheet
\n
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
\n
sheet.
\n
Fair value hierarchy level
\n
Carrying
Fair
\n
Items where fair value
\n
approximates carrying
\n
value
\n
value
value
Level 1
Level 2
Level 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
144.8
\n
Settlement balances
2.6
\n
Loans to banks
0.1
7.0
7.0
\u2014
4.2
2.8
\n
Loans to customers
366.3
354.5
\u2014
20.3
334.2
\n
Other financial assets - securities
13.1
12.8
3.6
3.2
6.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
177.8
\n
Settlement balances
2.1
\n
Loans to banks
0.1
7.5
7.5
\u2014
5.0
2.5
\n
Loans to customers
359.0
354.1
\u2014
28.0
326.1
\n
Other financial assets - securities
8.6
8.6
4.4
0.7
3.5
\n
2022
\n
Financial liabilities
\n
Bank deposits
4.7
15.7
15.3
\u2014
13.1
2.2
\n
Customer deposits
407.0
43.3
43.3
\u2014
12.7
30.6
\n
Settlement balances
2.0
\n
Other financial liabilities - debt securities in issue
46.7
46.1
\u2014
40.7
5.4
\n
Subordinated liabilities
5.9
5.6
\u2014
5.5
0.1
\n
Notes in circulation
3.2
\n
2021
\n
Financial liabilities
\n
Bank deposits
4.9
21.4
21.0
\u2014
18.7
2.3
\n
Customer deposits
442.4
37.4
37.6
\u2014
18.1
19.5
\n
Settlement balances
2.1
\n
Other financial liabilities - debt securities in issue
47.7
48.6
\u2014
41.4
7.2
\n
Subordinated liabilities
7.7
8.3
\u2014
8.2
0.1
\n
Notes in circulation
3.0
\n
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are
\n
as follows:
\n
Short-term financial instruments
\n
For certain short-term financial instruments, including but not
\n
limited to; cash and balances at central banks, settlement
\n
balances, loans with short-term maturities, notes in circulation
\n
and customer demand deposits, carrying value is deemed a
\n
reasonable approximation of fair value.
\n
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
\n
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
\n
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsDesignatedAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47543": { "value": "
2.2. Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value
\n
through profit or loss; held-for-trading; designated fair value
\n
through profit or loss and fair value through other
\n
comprehensive income are recognised in the financial
\n
statements at fair value. All derivatives are measured at fair
\n
value.
\n
Fair value is the price that would be received to sell an asset or
\n
paid to transfer a liability in an orderly transaction between
\n
market participants at the measurement date. A fair value
\n
measurement considers the characteristics of the asset or
\n
liability and the assumptions that a market participant would
\n
consider when pricing the asset or liability.
\n
We manage some portfolios of financial assets and financial
\n
liabilities based on our net exposure to either market or credit
\n
risk. In these cases, the fair value is derived from the net risk
\n
exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit
\n
risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair
\n
value is established using a valuation technique. These
\n
valuation techniques involve a degree of estimation, the extent
\n
of which depends on the instrument\u2019s complexity and the
\n
availability of market-based data. The complexity and
\n
uncertainty in the financial instrument\u2019s fair value is
\n
categorised using the fair value hierarchy.
\n
The use of market indicators as inputs to fair value is assumed
\n
to include current information and knowledge regarding the
\n
effect of climate risk.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
10 Financial instruments \u2013 classification
\n
Financial instruments are contracts that give rise to a financial asset of one entity and a corresponding financial liability or equity
\n
instrument of a counterparty entity, such as: cash; derivatives; loans; deposits; and settlement balances.
This note presents
\n
financial instruments classified in accordance with IFRS 9 \u2013 Financial Instruments.
\n
Judgment: classification of financial assets
\n
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
\n
judgment in respect of business models and contractual cashflows.
\n
\ue001
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held
\n
to collect and sell. Information that is considered in determining the applicable business model includes the portfolio\u2019s policies
\n
and objectives, how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
\n
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
\n
\ue001
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent
\n
solely payments of principal and interest. A level of judgment is made in assessing terms that could change the contractual
\n
cash flows so that it would not meet the condition for solely payments of principal and interest, including contingent and
\n
leverage features,
non
-recourse arrangements and features that could modify the time value of money.
\n
We originate loans that include features that change the contractual cash flows based on the borrower meeting certain
\n
contractually specified environmental, social and governance (ESG) targets. These are known as ESG-linked (or sustainability-
\n
linked) loans. As part of the terms of these loans, the contractual interest rate is reduced or increased if the borrower meets (fails
\n
to meet) specific targets linked to the activity of the borrower for example reducing carbon emissions, increase the level of
\n
diversity at Board level, sustainable supply chain, etc. ESG features are first assessed to ascertain whether the adjustment to the
\n
contractual cash flows results in a de minimis exposure to risks or volatility in those contractual cash flows. If this is the case the
\n
classification of the loan is not affected. If the effect of the ESG feature is assessed as being more than de minimis, we apply
\n
judgement to ensure that the ESG features do not generate compensation for risks that are not in line with a basic lending
\n
arrangement. This includes amongst other aspects a review of the consistency of the ESG targets with the asset or activity of the
\n
borrower, consideration of the targets within our risk appetite etc. Some of these loans are an integral part of our climate and
\n
sustainable funding and financing target disclosed on page 25.
\n
For accounting policy information see Accounting policies notes 3.8, 3.9, 3.10 and 3.12.
Judgment: classification of financial assets
\n
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
\n
MFVTPL
FVOCI
Amortised cost
Other assets
Total
\n
Assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
144,832
\n
Trading assets
45,577
45,577
\n
Derivatives
(1)
99,545
99,545
\n
Settlement balances
2,572
2,572
\n
Loans to bank - amortised cost
(2)
7,139
7,139
\n
Loans to customers - amortised cost
(3)
366,340
366,340
\n
Other financial assets
(4)
787
16,973
13,135
30,895
\n
Intangible assets
7,116
7,116
\n
Other assets
9,176
9,176
\n
Assets of disposal groups
(5)
6,861
6,861
\n
31 December 2022
145,909
16,973
534,018
23,153
720,053
\n
Cash and balances at central banks
177,757
177,757
\n
Trading assets
59,158
59,158
\n
Derivatives
(1)
106,139
106,139
\n
Settlement balances
2,141
2,141
\n
Loans to bank - amortised cost
(2)
7,682
7,682
\n
Loans to customers - amortised cost
(3)
358,990
358,990
\n
Other financial assets
317
37,266
8,562
46,145
\n
Intangible assets
6,723
6,723
\n
Other assets
8,242
8,242
\n
Assets of disposal groups
9,015
9,015
\n
31 December 2021
165,614
37,266
555,132
23,980
781,992
\n
Held-for-trading
DFV
Amortised cost
Other liabilities
Total
\n
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank deposits
(6)
20,441
20,441
\n
Customer deposits
450,318
450,318
\n
Settlement balances
2,012
2,012
\n
Trading liabilities
52,808
52,808
\n
Derivatives
(1)
94,047
94,047
\n
Other financial liabilities
(7)
2,377
46,730
49,107
\n
Subordinated liabilities
345
5,915
6,260
\n
Notes in circulation
3,218
3,218
\n
Other liabilities
(8)
1,205
4,141
5,346
\n
31 December 2022
146,855
2,722
529,839
4,141
683,557
\n
Bank deposits
(6)
26,279
26,279
\n
Customer deposits
479,810
479,810
\n
Settlement balances
2,068
2,068
\n
Trading liabilities
64,598
64,598
\n
Derivatives
(1)
100,835
100,835
\n
Other financial liabilities
(7)
1,671
47,655
49,326
\n
Subordinated liabilities
703
7,726
8,429
\n
Notes in circulation
3,047
3,047
\n
Other liabilities
(8)
1,356
4,441
5,797
\n
31 December 2021
165,433
2,374
567,941
4,441
740,189
\n
(1)
Includes net hedging derivatives assets of \u00a3143 million (2021 - \u00a344 million) and net hedging derivatives liabilities of \u00a3132 million (2021 - \u00a3120 million).
\n
(2)
Includes items in the course of collection from other banks of \u00a3229 million (2021 - \u00a367 million).
\n
(3)
Includes finance lease receivables of \u00a38,402 million (2021 - \u00a38,531 million).
\n
(4)
Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio. Refer to Note 8 for further information.
\n
(5)
Includes \u00a35,397 million of assets of disposal groups reclassified from amortised cost to FVTPL during the year. The portfolio is classified as level 3 in the fair value hierarchy.
\n
(6)
Includes items in the course of transmission to other banks of \u00a3242 million (2021 - \u00a356 million).
\n
(7)
The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been
\n
recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively.
\n
(8)
Includes lease liabilities of \u00a31,118 million (2021 - \u00a31,263 million) held at amortised cost.
Reclassification of mortgages from amortised cost to fair value through profit or loss
\n
In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in
\n
both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting
\n
the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions
\n
around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups.
\n
The effect of the reclassification as at 1 July 2022 is shown below:
\n
Amortised cost
MFVTPL
Change in value
\n
\u00a3m
\u00a3m
\u00a3m
\n
Amounts reclassified on balance sheet
\n
Loans to customers
(1)
587
606
19
\n
Assets of disposal groups
(2)
10,676
10,383
(293)
\n
11,263
10,989
(274)
\n
(1)
Change in value recognised in continuing operations.
\n
(2)
Change in value recognised in discontinued operations.
\n
Additional information on finance lease receivables
\n
The following table shows the reconciliation of undiscounted finance lease receivables to net investment in finance leases:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Amount receivable under finance leases
\n
Within 1 year
3,235
3,272
\n
1 to 2 years
2,254
2,044
\n
2 to 3 years
1,388
1,443
\n
3 to 4 years
833
757
\n
4 to 5 years
411
429
\n
After 5 years
1,130
1,423
\n
Lease payments total
9,251
9,368
\n
Unguaranteed residual values
171
225
\n
Future drawdowns
(13)
(21)
\n
Unearned income
(889)
(891)
\n
Present value of lease payments
8,520
8,681
\n
Impairments
(118)
(150)
\n
Net investment in finance leases
8,402
8,531
\n
Additional information on reverse repos and repos
\n
The following table shows the value of reverse repos and repos included within the below balance sheet captions:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Reverse repos
\n
Trading assets
21,537
20,742
\n
Loans to banks - amortised cost
277
189
\n
Loans to customers - amortised cost
19,750
25,962
\n
Repos
\n
Bank deposits
1,446
7,912
\n
Customer deposits
9,829
14,541
\n
Trading liabilities
23,740
19,389
Interest rate benchmark reform
\n
NatWest Group continues to work on the transition of USD IBOR exposures to risk free rates in advance of the cessation date of 30
\n
June 2023. Derivatives are expected to transition during April and May 2023 and other exposures in line with fallback provisions or
\n
deferred switches using widely accepted methodologies. The instruments yet to transition reflect an insignificant element of
\n
NatWest Group\u2019s exposures. Instruments with exposures to other rates transitioned at the end of 2021, or at the first contractual
\n
reset date, or at a date agreed with the counterparty.
\n
The level of exposures without explicit or agreed conversion provisions as of the preceding year were as follows:
\n
Rates subject to IBOR reform
\n
GBP LIBOR
USD IBOR
Other IBOR
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets
62
90
\u2014
152
\n
Loans to banks - amortised cost
\u2014
11
\u2014
11
\n
Loans to customers - amortised cost
4,788
4,565
267
9,620
\n
Other financial assets
864
768
\u2014
1,632
\n
Bank deposits
\u2014
37
\u2014
37
\n
Trading liabilities
31
166
\u2014
197
\n
Other financial liabilities
2,390
7,023
131
9,544
\n
Subordinated liabilities
\u2014
90
\u2014
90
\n
Loan commitments
(1)
1,016
6,366
55
7,437
\n
Derivatives notional (\u00a3bn)
4
1,152
\u2014
1,156
\n
(1)
Certain loan commitments are multi-currency facilities. Where these are fully undrawn, they are allocated to the principal currency of the facility. Where the facilities are partly
\n
drawn, the remaining loan commitment is allocated to the currency with the largest drawn amount.
\n
At 31 December 2021, NatWest Group held certain currency swaps with both legs subject to IBOR reform, for which only the GBP
\n
LIBOR leg has an explicit or agreed conversion provisions as of 31 December 2021, but not the entire contract. These include
\n
currency swaps of GBP LIBOR of \u00a38.7 billion with USD IBOR \u00a38.2 billion and Other IBOR \u00a30.5 billion; currency swaps of USD IBOR
\n
of \u00a3117 billion with GBP LIBOR \u00a391.7 billion and Other IBOR \u00a325.3 billion; currency swaps of EURIBOR of \u00a30.1 billion with GBP
\n
LIBOR \u00a30.1 billion; currency swaps of Other IBOR of \u00a30.4 billion with USD IBOR \u00a30.4 billion
\n
AT1 issuances
\n
NatWest Group has issued certain capital instruments, AT1, under which reset clauses are linked to IBOR rates subject to reform.
\n
Where under the contractual terms of the instrument the coupon resets to a rate which has IBOR as a specified component of its
\n
pricing structure, these are subject to IBOR reform and listed below:
\n
31 December
\n
2021
\n
\u00a3m
\n
US$1.15 billion 8% notes
734
Financial instruments \u2013 financial assets and liabilities that can be offset
\n
The tables below present information on financial assets and financial liabilities that are offset on the balance sheet under IFRS or
\n
subject to enforceable master netting agreements together with financial collateral received or given.
\n
Instruments which can be offset
Potential for offset not recognised by IFRS
\n
Gross
\n
IFRS offset
\n
Balance sheet
\n
Effect of
\n
master netting
\n
and similar
\n
agreements
\n
Cash
\n
collateral
\n
Securities
\n
collateral
\n
Net amount after the
\n
effect of netting
\n
agreements and
\n
related collateral
\n
Instruments
\n
outside netting
\n
agreements
\n
Balance
\n
sheet total
\n
2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Derivative assets
117,606
(18,730)
98,876
(77,365)
(14,079)
(4,571)
2,861
669
99,545
\n
Derivative liabilities
115,177
(22,111)
93,066
(77,365)
(9,761)
(1,185)
4,755
981
94,047
\n
Net position
(1)
2,429
3,381
5,810
\u2014
(4,318)
(3,386)
(1,894)
(312)
5,498
\n
Trading reverse repos
35,612
(14,510)
21,102
(2,445)
\u2014
(18,458)
199
435
21,537
\n
Trading repos
33,767
(14,510)
19,257
(2,445)
\u2014
(16,812)
\u2014
4,483
23,740
\n
Net position
1,845
\u2014
1,845
\u2014
\u2014
(1,646)
199
(4,048)
(2,203)
\n
Non trading reverse repos
25,630
(5,702)
19,928
\u2014
\u2014
(19,928)
\u2014
98
20,026
\n
Non trading repos
16,977
(5,702)
11,275
\u2014
\u2014
(11,275)
\u2014
\u2014
11,275
\n
Net position
8,653
\u2014
8,653
\u2014
\u2014
(8,653)
\u2014
98
8,751
\n
2021
\n
Derivative assets
113,220
(7,961)
105,259
(85,006)
(15,035)
(2,428)
2,790
880
106,139
\n
Derivative liabilities
108,594
(8,568)
100,026
(85,006)
(9,909)
(2,913)
2,198
809
100,835
\n
Net position
(1)
4,626
607
5,233
\u2014
(5,126)
485
592
71
5,304
\n
Trading reverse repos
44,529
(24,422)
20,107
(900)
\u2014
(19,136)
71
635
20,742
\n
Trading repos
42,664
(24,422)
18,242
(900)
\u2014
(17,341)
1
1,147
19,389
\n
Net position
1,865
\u2014
1,865
\u2014
\u2014
(1,795)
70
(512)
1,353
\n
Non trading reverse repos
33,729
(7,594)
26,135
\u2014
\u2014
(26,135)
\u2014
16
26,151
\n
Non trading repos
30,047
(7,594)
22,453
\u2014
\u2014
(22,453)
\u2014
\u2014
22,453
\n
Net position
3,682
\u2014
3,682
\u2014
\u2014
(3,682)
\u2014
16
3,698
\n
(1)
The net IFRS offset balance of \u00a33,381 million (2021 - \u00a3607 million) relates to variation margin netting reflected on other balance sheet lines.
11 Financial instruments - valuation
\n
Financial instruments recognised at fair value are revalued using techniques that can include observable inputs (pricing information
\n
that is readily available in the market, for example UK Government securities), and unobservable inputs (pricing information that is
\n
not readily available, for example unlisted securities). Gains and losses are recognised in the income statement and statement of
\n
comprehensive income as appropriate.
This note presents information on the valuation of financial instruments.
\n
The table below provides an overview of the various sections contained within the note.
\n
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
\n
Valuation
\n
Fair value hierarchy
\n
Financial instruments carried at fair value have been classified
\n
under the fair value hierarchy. The classification ranges from
\n
level 1 to level 3, with more expert judgment and price
\n
uncertainty for those classified at level 3.
\n
The determination of an instrument\u2019s level cannot be made at
\n
a global product level as a single product type can be in more
\n
than one level. For example, a single name corporate credit
\n
default swap could be in level 2 or level 3 depending on the
\n
level of market activity for the referenced entity
.
\n
Level 1 \u2013 instruments valued using unadjusted quoted prices in
\n
active and liquid markets, for identical financial instruments.
\n
Examples include government bonds, listed equity shares and
\n
certain exchange-traded derivatives.
\n
Level 2 - instruments valued using valuation techniques that
\n
have observable inputs. Observable inputs are those that are
\n
readily available with limited adjustments required. Examples
\n
include most government agency securities, investment-grade
\n
corporate bonds, certain mortgage products - including CLOs,
\n
most bank loans, repos and reverse repos, state and municipal
\n
obligations, most notes issued, certain money market
\n
securities, loan commitments and most OTC derivatives.
\n
Level 3 - instruments valued using a valuation technique where
\n
at least one input which could have a significant effect on the
\n
instruments valuation, is not based on observable market data.
\n
Examples include non-derivative instruments which trade
\n
infrequently, certain syndicated and commercial mortgage
\n
loans, private equity, and derivatives with unobservable model
\n
inputs.
\n
Page
\n
Financial instruments
\n
Critical accounting policy: Fair value
339
\n
Valuation
\n
Fair value hierarchy
(D)
339
\n
Valuation techniques
(D)
340
\n
Inputs to valuation models
(D)
340
\n
Valuation control
(D)
340
\n
Key areas of judgment
(D)
341
\n
Table of assets and liabilities split by fair value
\n
hierarchy level
(T)
342
\n
Valuation adjustments
\n
Table of fair value adjustments made
(T)
343
\n
Funding valuation adjustments (FVA)
(D)
343
\n
Credit valuation adjustments (CVA)
(D)
343
\n
Bid-offer
(D)
343
\n
Product and deal specific
(D)
343
\n
Own credit
(D)
343
\n
Level 3 additional information
\n
Level 3 ranges of unobservable inputs
(D)
344
\n
Table of level 3 instruments, valuation
\n
techniques and inputs
(T)
344
\n
Level 3 sensitivities
(D)
345
\n
Alternative assumptions
(D)
345
\n
Other considerations
(D)
345
\n
Table of high and low range of fair value of
\n
level 3 assets and liabilities
(T)
345
\n
Movement in level 3 assets and liabilities
\n
over the reporting period
(D)
346
\n
Table of the movement in level 3 assets and liabilities
346
\n
Fair value of financial instruments measured
\n
at amortised cost
\n
Table showing the fair value of financial instruments
\n
measured at amortised cost on the balance sheet
(T)
347
\n
(D) = Descriptive; (T) = Table
Valuation techniques
\n
NatWest Group derives the fair value of its instruments
\n
differently depending on whether the instrument is a non-
\n
modelled or a modelled product.
\n
Non-modelled products
are valued directly from a price input,
\n
typically on a position-by-position basis. Examples include
\n
equities and most debt securities.
\n
Non-modelled products can fall into any fair value levelling
\n
hierarchy depending on the observable market activity,
\n
liquidity, and assessment of valuation uncertainty of the
\n
instruments. The assessment of fair value and the classification
\n
of the instrument to a fair value level is subject to the valuation
\n
controls discussed in the Valuation control section.
\n
Modelled products
valued using a pricing model range in
\n
complexity from comparatively vanilla products such as interest
\n
rate swaps and options (e.g., interest rate caps and floors)
\n
through to more complex derivatives (e.g., balance guarantee
\n
swaps).
\n
For modelled products the fair value is derived using the model
\n
and the appropriate model inputs or parameters, as opposed to
\n
a cash price equivalent. Model inputs are taken either directly
\n
or indirectly from available data, where some inputs are also
\n
modelled.
\n
Fair value classification of modelled instruments is either level 2
\n
or level 3, depending on the product/model combination, the
\n
observability and quality of input parameters and other factors.
\n
All these must be assessed to classify a position. The modelled
\n
product is assigned to the lowest fair value hierarchy level of
\n
any significant input used in that valuation.
\n
Most derivative instruments, for example vanilla interest rate
\n
swaps, foreign exchange swaps and liquid single name credit
\n
derivatives, are classified as level 2. This is because they are
\n
vanilla products valued using standard market models and with
\n
observable inputs. Level 2 products range from vanilla to more
\n
complex products, where more complex products remain
\n
classified as level 2 due to the low materiality of any
\n
unobservable inputs.
\n
Inputs to valuation models
\n
When using valuation techniques, the fair value can be
\n
significantly affected by the choice of valuation model and
\n
underlying assumptions. Factors considered include the
\n
cashflow amounts and timing of those cash flows, and
\n
application of appropriate discount rates, incorporating both
\n
funding and credit risk. Values between and beyond available
\n
data points are obtained by interpolation and extrapolation.
\n
The principal inputs to these valuation techniques are as
\n
follows:
\n
Bond prices - quoted prices are generally available for
\n
government bonds, certain corporate securities, and some
\n
mortgage-related products.
\n
Credit spreads - these express the return required over a
\n
benchmark rate or index to compensate for the referenced
\n
credit risk. Where available, these are derived from the price of
\n
credit default swaps or other credit-based instruments, such as
\n
debt securities. When direct prices are not available; credit
\n
spreads are determined with reference to available prices of
\n
entities with similar characteristics.
\n
Interest rates - these are principally based on interest rate
\n
swap prices referencing benchmark interest rates. Benchmark
\n
rates include Interbank Offered Rates (IBOR) and the Overnight
\n
Index Swap (OIS) rate, including SONIA (Sterling Overnight
\n
Interbank Average Rate). Other quoted interest rates may also
\n
be used from both the bond, and futures markets.
\n
Foreign currency exchange rates - there are observable prices
\n
both for spot and forward contracts and futures in the world's
\n
major currencies.
\n
Equity and equity index prices - quoted prices are generally
\n
readily available for equity shares listed on the world's major
\n
stock exchanges and for major indices on such shares.
\n
Price volatilities and correlations - volatility is a measure of the
\n
tendency of a price to change with time. Correlation measures
\n
the degree which two or more prices or variables are observed
\n
to move together. Variables that move in the same direction
\n
show positive correlation; those that move in opposite
\n
directions are negatively correlated.
\n
Prepayment rates - rates used to reflect how fast a pool of
\n
assets prepay. The fair value of a financial instrument that can
\n
be prepaid by the issuer or borrower differs from that of an
\n
instrument that cannot be prepaid. When valuing prepayable
\n
instruments, the value of this prepayment option is considered.
\n
Recovery rates/loss given default - these are used as an input
\n
to valuation models and reserves for asset-backed securities
\n
and other credit products as an indicator of severity of losses
\n
on default. Recovery rates are primarily sourced from market
\n
data providers, the value of the underlying collateral or inferred
\n
from observable credit spreads.
\n
Valuation control
\n
NatWest Group's control environment for the determination of
\n
the fair value of financial instruments includes formalised
\n
procedures for the review and validation of fair values. This
\n
review is performed by an independent price verification (IPV)
\n
team.
\n
IPV is a key element of the control environment. Valuations are
\n
first performed by the business which entered into the
\n
transaction. These valuations are then reviewed by the IPV
\n
team, independent of those trading the financial instruments, in
\n
light of available pricing evidence.
\n
Independent pricing data is collated from a range of sources.
\n
Each source is reviewed for quality and the independent data
\n
applied in the IPV processes using a formalised input quality
\n
hierarchy. Consensus services are one source of independent
\n
data and encompass interest rate, currency, credit, and bond
\n
markets, providing comprehensive coverage of vanilla products
\n
and a wide selection of exotic products.
\n
Where measurement differences are identified through the IPV
\n
process these are grouped by the quality hierarchy of the
\n
independent data. If the size of the difference exceeds defined
\n
thresholds, an adjustment is made to bring the valuation to
\n
within the independently calculated fair value range.
\n
IPV takes place at least monthly, for all fair value financial
\n
instruments. The IPV control includes formalised reporting and
\n
escalation of any valuation differences in breach of established
\n
thresholds.
The quality and completeness of the information gathered in
\n
the IPV process gives an indication as to the liquidity and
\n
valuation uncertainty of an instrument and forms part of the
\n
information considered when determining fair value hierarchy
\n
classifications.
\n
Initial fair value level classification of a financial instrument is
\n
carried out by the IPV team. These initial classifications are
\n
subject to senior management review. Particular attention is
\n
paid to instruments transferring from one level to another, new
\n
instrument classes or products, instruments where the
\n
transaction price is significantly different from the fair value
\n
and instruments where valuation uncertainty is high.
\n
Valuation Committees are made up of valuation specialists and
\n
senior business representatives from various functions and
\n
oversees pricing, reserving and valuations issues. These
\n
committees meet monthly to review and ratify any
\n
methodology changes. The Executive Valuation Committee
\n
meets quarterly to address key material and subjective
\n
valuation issues, to review items escalated by Valuation
\n
Committees and to discuss other relevant industry matters.
\n
The Group model risk policy sets the policy for model
\n
documentation, testing and review. Governance of the model
\n
risk policy is carried out by the Group model risk oversight
\n
committee, which comprises model risk owners and
\n
independent model experts. All models are required to be
\n
independently validated in accordance with the Model Risk
\n
Policy.
\n
Key areas of judgment
\n
Over the years the business has simplified, with most products
\n
classified as level 1 or 2 of the fair value hierarchy. However,
\n
the diverse range of products historically traded by NatWest
\n
Group means some products remain classified as level 3. Level
\n
3 indicates a significant level of pricing uncertainty, where
\n
expert judgment is used. As such, extra disclosures are
\n
required in respect of level 3 instruments
.
\n
In general, the degree of expert judgment used and hence
\n
valuation uncertainty depends on the degree of liquidity of an
\n
instrument or input.
\n
Where markets are liquid, little judgment is required. However,
\n
when the information regarding the liquidity in a particular
\n
market is not clear, a judgment may need to be made. For
\n
example, for an equity traded on an exchange, daily volumes of
\n
trading can be seen, but for an over the counter (OTC)
\n
derivative, assessing the liquidity of the market with no central
\n
exchange is more challenging.
\n
A key related matter is where a market moves from liquid to
\n
illiquid or vice versa. Where this movement is considered
\n
temporary, the fair value level is not changed. For example, if
\n
there is little market trading in a product on a reporting date
\n
but at the previous reporting date and during the intervening
\n
period the market has been liquid. In this case, the instrument
\n
will continue to be classified at the same level in the hierarchy.
\n
This is to provide consistency so that transfers between levels
\n
are driven by genuine changes in market liquidity and do not
\n
reflect short term or seasonal effects. Material movements
\n
between levels are reviewed quarterly by the Business and IPV.
\n
The breadth and depth of the IPV data allows for a rules-based
\n
quality assessment to be made of market activity, liquidity, and
\n
pricing uncertainty, which assists with the process of allocation
\n
to an appropriate level. Where suitable independent pricing
\n
information is not readily available, the quality assessment will
\n
result in the instrument being assessed as level 3.
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered
\n
the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price
\n
uncertainty.
\n
2022
2021
\n
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
\u2014
35,260
395
35,655
\u2014
33,482
721
34,203
\n
Securities
7,463
2,458
1
9,922
19,563
5,371
21
24,955
\n
Derivatives
5
98,533
1,007
99,545
\u2014
105,222
917
106,139
\n
Other financial assets
\n
Loans
\u2014
172
727
899
\u2014
359
207
566
\n
Securities
10,380
6,278
203
16,861
28,880
7,951
186
37,017
\n
Total financial assets held at fair value
17,848
142,701
2,333
162,882
48,443
152,385
2,052
202,880
\n
As % of total fair value assets
11%
88%
1%
24%
75%
1%
\n
Liabilities
\n
Trading liabilities
\n
Deposits
\u2014
42,486
1
42,487
\u2014
38,658
2
38,660
\n
Debt securities in issue
\u2014
797
\u2014
797
\u2014
974
\u2014
974
\n
Short positions
7,462
2,062
\u2014
9,524
20,507
4,456
1
24,964
\n
Derivatives
2
93,070
975
94,047
\u2014
100,229
606
100,835
\n
Other financial liabilities
\n
Debt securities in issue
\u2014
1,327
\u2014
1,327
\u2014
1,103
\u2014
1,103
\n
Other deposits
\u2014
1,050
\u2014
1,050
\u2014
568
\u2014
568
\n
Subordinated liabilities
\u2014
345
\u2014
345
\u2014
703
\u2014
703
\n
Total financial liabilities held at fair value
7,464
141,137
976
149,577
20,507
146,691
609
167,807
\n
As % of total fair value liabilities
5%
94%
1%
12%
88%
0%
\n
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
\n
(2)
For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
\n
management \u2013 Credit risk.
Valuation adjustments
\n
When valuing financial instruments in the trading book,
\n
adjustments are made to mid-market valuations to cover bid-
\n
offer spread, funding and credit risk. These adjustments are
\n
presented in the table below:
\n
Adjustment
\n
2022
\n
\u00a3m
\n
2021
\n
\u00a3m
\n
Funding \u2013 FVA
173
90
\n
Credit \u2013 CVA
300
390
\n
Bid \u2013 Offer
130
113
\n
Product and deal specific
141
119
\n
744
712
\n
Funding valuation adjustments on the group defined benefit
\n
pension plan increased during the year, primarily driven by
\n
increases in GBP interest rates.
\n
The decrease in CVA was driven by a reduction in exposures,
\n
primarily due to increases in interest rates and trade exit
\n
activity, partially offset by the net impact of credit spreads
\n
widening and specific counterparty activity. The increase in
\n
bid-offer was driven by the net impact of risk changes, wider
\n
bid-offer spreads and an increase in the estimated costs of
\n
exiting certain less liquid risks. The increase in product and
\n
deal specific was driven by credit spreads widening and
\n
specific counterparty activity.
\n
Funding valuation adjustments (FVA)
\n
FVA represents an estimate of the adjustment that a market
\n
participant would make to incorporate funding costs and
\n
benefits that arise in relation to derivative exposures. FVA is
\n
calculated as a portfolio level adjustment and can result in
\n
either a funding charge (positive) or funding benefit (negative).
\n
Funding levels are applied to estimated potential future
\n
exposures. For uncollateralised derivatives, the exposure
\n
reflects the future valuation of the derivative. For collateralised
\n
derivatives, the exposure reflects the difference between the
\n
future valuation of the derivative and the level of collateral
\n
posted.
\n
Credit valuation adjustments (CVA)
\n
CVA represents an estimate of the adjustment to fair value that
\n
is made to incorporate the counterparty credit risk inherent in
\n
derivative exposures. CVA is actively managed by a credit and
\n
market risk hedging process, and therefore movements in CVA
\n
are partially offset by trading revenue on the hedges.
\n
The CVA is calculated on a portfolio basis reflecting an
\n
estimate of the amount a third party would charge to assume
\n
the credit risk.
\n
Collateral held under a credit support agreement is factored
\n
into the CVA calculation. In such cases where NatWest Group
\n
holds collateral against counterparty exposures, CVA is held to
\n
the extent that residual risk remains.
\n
Bid-offer
\n
Fair value positions are required to be marked to exit,
\n
represented by bid (long positions) or offer (short positions)
\n
levels. Non-derivative positions are typically marked directly to
\n
bid or offer prices. However derivative exposures are adjusted
\n
to exit levels by taking bid-offer reserves calculated on a
\n
portfolio basis. The bid-offer approach is based on current
\n
market spreads and standard market bucketing of risk.
\n
Bid-offer spreads vary by maturity and risk type to reflect
\n
different spreads in the market. For positions where there is no
\n
observable quote, the bid-offer spreads are widened in
\n
comparison to proxies to reflect reduced liquidity or
\n
observability.
\n
Netting is applied on a portfolio basis to reflect the value at
\n
which NatWest Group believes it could exit the net risk of the
\n
portfolio, rather than the sum of exit costs for each of the
\n
portfolio\u2019s individual trades. This is applied where the asset and
\n
liability positions are managed as a portfolio for risk and
\n
reporting purposes.
\n
Product and deal specific
\n
On initial recognition of financial assets and liabilities valued
\n
using valuation techniques which have a significant
\n
dependence on information other than observable market data,
\n
any difference between the transaction price and that derived
\n
from the valuation technique is deferred. Such amounts are
\n
recognised in the income statement over the life of the
\n
transaction; when market data becomes observable; or when
\n
the transaction matures or is closed out as appropriate. On 31
\n
December 2022, net gains of \u00a374 million (2021 - \u00a371 million)
\n
were carried forward. During the year, net gains of \u00a397 million
\n
(2021 - \u00a3103 million) were deferred and \u00a394 million (2021 - \u00a394
\n
million) were recognised in the income statement.
\n
Where system generated valuations do not accurately reflect
\n
market prices, manual valuation adjustments are applied either
\n
at a position or portfolio level. Manual adjustments are subject
\n
to the scrutiny of independent control teams and are subject to
\n
monthly review by senior management.
\n
Own Credit
\n
NatWest Group considers the effect of its own credit standing
\n
when valuing financial liabilities recorded at fair value. Own
\n
credit spread adjustments are made when valuing issued debt
\n
held at fair value, including issued structured notes. An own
\n
credit adjustment is applied to positions where it is believed
\n
that counterparties would consider NatWest Group\u2019s
\n
creditworthiness when pricing trades.
Level 3 additional information
\n
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
\n
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
\n
with significant unobservable inputs or modelling parameters.
\n
Level 3 ranges of unobservable inputs
\n
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
\n
fair value calculation, the unobservable input and input range.
\n
2022
2021
\n
Financial instrument
Valuation technique
Unobservable inputs
Units
Low
High
Low
High
\n
Trading assets and Other financial assets
\n
Loans
Price-based
Price
%
\u2014
113
\u2014
106
\n
Discount cash flow
Credit spreads
bps
56
114
40
102
\n
Discount cash flow
Discount margin
bps
\u2014
\u2014
46
55
\n
Debt securities
Price-based
Price
%
\n
\u2014
255
\u2014
240
\n
Equity Shares
Price-based
Price
GBP
\u2014
34,027
\u2014
30,378
\n
Price-based
Price
%
\u2014
30
\u2014
7
\n
Discount cash flow
Discount margin
%
6
8
6
8
\n
Net asset valuation
Fund NAV
%
80
120
80
120
\n
Derivative assets and liabilities
\n
Credit derivatives
Credit derivative pricing
Credit spreads
bps
7
530
6
635
\n
Option pricing
Correlation
%
(15)
95
(15)
95
\n
Volatility
%
30
80
30
108
\n
Upfront points
%
\u2014
99
\u2014
100
\n
Recovery rate
%
\u2014
60
\u2014
60
\n
Interest rate & FX
Option pricing
Correlation
%
(50)
100
(50)
100
\n
derivatives
Volatility
%
30
127
17
77
\n
Constant Prepayment
\n
Rate
%
2
21
2
16
\n
Mean Reversion
%
\u2014
92
\u2014
92
\n
Inflation volatility
%
1
2
1
2
\n
Inflation rate
%
2
3
2
3
\n
(1)
Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
\n
earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV
\n
or similar measures.
\n
(2)
NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.
Level 3 sensitivities
\n
The level 3 sensitivities presented below are calculated at a
\n
trade or low-level portfolio basis rather than an overall portfolio
\n
basis. As individual sensitivities are aggregated with no
\n
reflection of the correlated nature between instruments, the
\n
overall portfolio sensitivity may not be accurately reflected. For
\n
example, some portfolios may be negatively correlated to
\n
others, where a downwards movement in one asset would
\n
produce an upwards movement in another. However, due to
\n
the additive presentation of the above figures this correlation
\n
impact cannot be displayed. As such, the actual potential
\n
downside sensitivity of the total portfolio may be less than the
\n
non-correlated sum of the additive figures as shown in the
\n
below table.
\n
Alternative assumptions
\n
Reasonably plausible alternative assumptions of unobservable
\n
inputs are determined based on a specified target level of
\n
certainty of 90%.
\n
Alternative assumptions are determined with reference to all
\n
available evidence including consideration of the following:
\n
quality of independent pricing information considering
\n
consistency between different sources, variation over time,
\n
perceived tradability or otherwise of available quotes;
\n
consensus service dispersion ranges; volume of trading activity
\n
and market bias (e.g. one-way inventory); day 1 profit or loss
\n
arising on new trades; number and nature of market
\n
participants; market conditions; modelling consistency in the
\n
market; size and nature of risk; length of holding of position;
\n
and market intelligence.
\n
Other considerations
\n
Whilst certain inputs used to calculate CVA, FVA and own
\n
credit adjustments are not based on observable market data,
\n
the uncertainty of these inputs is not considered to have a
\n
significant effect on the net valuation of the related derivative
\n
portfolios and issued debt.
\n
As such, the fair value levelling of the derivative portfolios and
\n
issued debt is not determined by CVA, FVA or own credit
\n
inputs. In addition, any fair value sensitivity driven by these
\n
inputs is not included in the level 3 sensitivities presented.
\n
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
\n
fair value inputs as described in the previous table.
\n
2022
2021
\n
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
395
10
(10)
721
10
(10)
\n
Securities
1
\u2014
\u2014
21
\u2014
\u2014
\n
Derivatives
1,007
50
(50)
917
60
(70)
\n
Other financial assets
\n
Loans
727
\u2014
(10)
207
10
(10)
\n
Securities
203
20
(30)
186
20
(20)
\n
2,333
80
(100)
2,052
100
(110)
\n
Liabilities
\n
Trading liabilities
\n
Deposits
1
\u2014
\u2014
2
\u2014
\u2014
\n
Debt securities in issue
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Short positions
\u2014
\u2014
\u2014
1
\u2014
\n
Derivatives
975
30
(30)
606
30
(30)
\n
976
30
(30)
609
30
(30)
Movement in level 3 assets and liabilities
\n
The following table shows the movement in level 3 assets and liabilities in the year.
\n
2022
2021
\n
Trading
\n
assets (2)
\n
Other financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
Trading
\n
assets (2)
\n
Other
\n
financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
1,658
394
2,052
609
1,388
335
1,723
894
\n
Amounts recorded in the income statement
(1)
157
(14)
143
381
(93)
(29)
(122)
(90)
\n
Amounts recorded in the statement of
\n
comprehensive income
\u2014
(20)
(20)
\u2014
\u2014
23
23
\u2014
\n
Level 3 transfers in
194
532
726
81
125
3
128
20
\n
Level 3 transfers out
(269)
(68)
(337)
(64)
(104)
(6)
(109)
(168)
\n
Purchases/originations
629
185
814
382
965
452
1,416
305
\n
Settlements/other decreases
(115)
\u2014
(115)
(41)
(47)
(364)
(411)
(28)
\n
Sales
(857)
(101)
(958)
(378)
(573)
(17)
(590)
(321)
\n
Foreign exchange and other
6
22
28
6
(3)
(3)
(6)
(3)
\n
At 31 December
1,403
930
2,333
976
1,658
394
2,052
609
\n
Amounts recorded in the income statement in respect
\n
of balances held at year end:
\n
- unrealised
157
(16)
141
381
(93)
(32)
(126)
(90)
\n
(1)
There were \u00a3224 million net losses on trading assets and liabilities (2021 \u2013 \u00a33 million net losses) recorded in income from trading activities. Net losses on other instruments of \u00a314
\n
million (2021 \u2013 \u00a329 million net losses) were recorded in other operating income and interest income as appropriate.
\n
(2)
Trading assets comprise assets held at fair value in trading portfolios.
\n
(3)
Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
Fair value of financial instruments measured at amortised cost on the balance sheet
\n
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
\n
sheet.
\n
Fair value hierarchy level
\n
Carrying
Fair
\n
Items where fair value
\n
approximates carrying
\n
value
\n
value
value
Level 1
Level 2
Level 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
144.8
\n
Settlement balances
2.6
\n
Loans to banks
0.1
7.0
7.0
\u2014
4.2
2.8
\n
Loans to customers
366.3
354.5
\u2014
20.3
334.2
\n
Other financial assets - securities
13.1
12.8
3.6
3.2
6.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
177.8
\n
Settlement balances
2.1
\n
Loans to banks
0.1
7.5
7.5
\u2014
5.0
2.5
\n
Loans to customers
359.0
354.1
\u2014
28.0
326.1
\n
Other financial assets - securities
8.6
8.6
4.4
0.7
3.5
\n
2022
\n
Financial liabilities
\n
Bank deposits
4.7
15.7
15.3
\u2014
13.1
2.2
\n
Customer deposits
407.0
43.3
43.3
\u2014
12.7
30.6
\n
Settlement balances
2.0
\n
Other financial liabilities - debt securities in issue
46.7
46.1
\u2014
40.7
5.4
\n
Subordinated liabilities
5.9
5.6
\u2014
5.5
0.1
\n
Notes in circulation
3.2
\n
2021
\n
Financial liabilities
\n
Bank deposits
4.9
21.4
21.0
\u2014
18.7
2.3
\n
Customer deposits
442.4
37.4
37.6
\u2014
18.1
19.5
\n
Settlement balances
2.1
\n
Other financial liabilities - debt securities in issue
47.7
48.6
\u2014
41.4
7.2
\n
Subordinated liabilities
7.7
8.3
\u2014
8.2
0.1
\n
Notes in circulation
3.0
\n
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are
\n
as follows:
\n
Short-term financial instruments
\n
For certain short-term financial instruments, including but not
\n
limited to; cash and balances at central banks, settlement
\n
balances, loans with short-term maturities, notes in circulation
\n
and customer demand deposits, carrying value is deemed a
\n
reasonable approximation of fair value.
\n
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
\n
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
\n
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47577": { "value": "
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.10. Netting
\n
Financial assets and financial liabilities are offset, and the net
\n
amount presented on the balance sheet when, and only when,
\n
we currently have a legally enforceable right to set off the
\n
recognised amounts and we intend either to settle on a net
\n
basis or to realise the asset and settle the liability
\n
simultaneously. We are party to a number of arrangements,
\n
including master netting agreements, that give us the right to
\n
offset financial assets and financial liabilities, but where we do
\n
not intend to settle the amounts net or simultaneously, the
\n
assets and liabilities concerned are presented separately on the
\n
balance sheet.
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47578": { "value": "
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Impaired financial assets are written off and therefore
\n
derecognised from the balance sheet when we conclude that
\n
there is no longer any realistic prospect of recovery of part, or
\n
all, of the loan. For financial assets that are individually
\n
assessed for impairment, the timing of the write-off is
\n
determined on a case-by-case basis. Such financial assets are
\n
reviewed regularly and write-off will be prompted by
\n
bankruptcy, insolvency, re-negotiation, and similar events.
\n
The typical time frames from initial impairment to write-off for
\n
our collectively assessed portfolios are:
\n
\ue001
Retail mortgages: write-off usually occurs within five years,
\n
or earlier, when an account is closed, but can be longer
\n
where the customer engages constructively;
\n
\ue001
Credit cards: the irrecoverable amount is typically written
\n
off after twelve arrears cycles or at four years post default
\n
any remaining amounts outstanding are written off;
\n
\ue001
Overdrafts and other unsecured loans: write-off occurs
\n
within six years;
\n
\ue001
Commercial loans: write-offs are determined in the light of
\n
individual circumstances; and Business loans are generally
\n
written off within five years.
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
\n
IFRS 9 ECL model design principles
\n
Refer to Credit risk \u2013 IFRS 9 ECL model design principles
\n
section for further details.
\n
Approach for multiple economic scenarios (MES)
\n
The base scenario plays a greater part in the calculation of
\n
ECL than the approach to MES. Refer to Credit risk \u2013 Economic
\n
loss drivers - Probability weightings of scenarios section for
\n
further details.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47579": { "value": "
2.3. Loan impairment provisions: expected credit losses
\n
(ECL)
\n
At each balance sheet date each financial asset or portfolio of
\n
financial assets measured at amortised cost or at fair value
\n
through other comprehensive income, issued financial
\n
guarantee and loan commitment (other than those classified as
\n
held for trading) is assessed for impairment. Any change in
\n
impairment is reported in the income statement.
\n
Loss allowances are forward-looking, based on 12-month ECL
\n
where there has not been a significant increase in credit risk
\n
rating, otherwise allowances are based on lifetime expected
\n
losses.
\n
ECL are a probability-weighted estimate of credit losses. The
\n
probability is determined by the risk of default which is applied
\n
to the cash flow estimates. In the absence of a change in credit
\n
rating, allowances are recognised when there is a reduction in
\n
the net present value of expected cash flows. Following a
\n
significant increase in credit risk, ECL are adjusted from 12
\n
months to lifetime. This will lead to a higher impairment charge.
\n
The measurement of expected credit loss considers the ability
\n
of borrowers to make payments as they fall due. Future
\n
cashflows are discounted, so long-dated cashflows are less
\n
likely to affect current expectations on credit loss. Our
\n
assessment of sector specific risks, and whether additional
\n
adjustments are required, include expectations of the ability of
\n
those sectors to meet their financing needs in the market.
\n
Changes in credit stewardship and credit risk appetite that
\n
stem from climate considerations, such as oil and gas, will
\n
directly affect our positions.
\n
Judgment is exercised as follows:
\n
\ue001
Models
\u2013
in certain low default portfolios, Basel parameter
\n
estimates are also applied for IFRS 9.
\n
\ue001
Non-modelled portfolios
\u2013 use a standardised capital
\n
requirement under Basel II. Under IFRS 9, they have
\n
bespoke treatments for the identification of significant
\n
increase in credit risk. Benchmark PDs, EADs and LGDs are
\n
reviewed annually for appropriateness. The ECL calculation
\n
is based on expected future cash flows, which is typically
\n
applied at a portfolio level.
\n
\ue001
Multiple economic scenarios (MES)
\u2013 the central, or base,
\n
scenario is most critical to the ECL calculation, independent
\n
of the method used to generate a range of alternative
\n
outcomes and their probabilities.
\n
\ue001
Significant increase in credit risk
\u2013 IFRS 9 requires that at
\n
each reporting date, an entity shall assess whether the
\n
credit risk on an account has increased significantly since
\n
initial recognition. Part of this assessment requires a
\n
comparison to be made between the current lifetime PD
\n
(i.e. the current probability of default over the remaining
\n
lifetime) with the equivalent lifetime PD as determined at
\n
the date of initial recognition.
\n
On restructuring where a financial asset is not derecognised,
\n
the revised cash flows are used in re-estimating the credit loss.
\n
Where restructuring causes derecognition of the original
\n
financial asset, the fair value of the replacement asset is used
\n
as the closing cash flow of the original asset.
\n
Where in the course of the orderly realisation of a loan, it is
\n
exchanged for equity shares or property, the exchange is
\n
accounted for as the sale of the loan and the acquisition of
\n
equity securities or investment property. Where our acquired
\n
interest is in equity shares, relevant policies for control,
\n
associates and joint ventures apply.
Critical accounting policy: Loan impairment provisions
\n
Accounting policies note 2.3 sets out how the expected loss
\n
approach is applied. At 31 December 2022, customer loan
\n
impairment provisions amounted to \u00a33,434 million (2021 -
\n
\u00a33,806 million). A loan is impaired when there is objective
\n
evidence that the cash flows will not occur in the manner
\n
expected when the loan was advanced. Such evidence
\n
includes, changes in the credit rating of a borrower, the failure
\n
to make payments in accordance with the loan agreement,
\n
significant reduction in the value of any security, breach of
\n
limits or covenants, and observable data about relevant
\n
macroeconomic measures.
\n
The impairment loss is the difference between the carrying
\n
value of the loan and the present value of estimated future
\n
cash flows at the loan's original effective interest rate.
\n
The measurement of credit impairment under the IFRS
\n
expected loss model depends on management\u2019s assessment of
\n
any potential deterioration in the creditworthiness of the
\n
borrower, its modelling of expected performance and the
\n
application of economic forecasts. All three elements require
\n
judgments that are potentially significant to the estimate of
\n
impairment losses. For further information and sensitivity
\n
analysis, refer to Risk and capital management \u2013 Measurement
\n
uncertainty and ECL sensitivity analysis section.
\n
IFRS 9 ECL model design principles
\n
Refer to Credit risk \u2013 IFRS 9 ECL model design principles
\n
section for further details.
\n
Approach for multiple economic scenarios (MES)
\n
The base scenario plays a greater part in the calculation of
\n
ECL than the approach to MES. Refer to Credit risk \u2013 Economic
\n
loss drivers - Probability weightings of scenarios section for
\n
further details.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47715": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
21 Other liabilities
\n
Other liabilities are amounts due to third parties that are not financial liabilities including lease liabilities, amounts due for goods
\n
and services that have been received but not invoiced,
tax due to HMRC, and retirement benefit liabilities. Liabilities which have a
\n
level of uncertainty regarding their timing or the future cost to settle them are included in other liabilities as provisions for liabilities
\n
and charges.
\n
2022
2021
\n
Other liabilities
\u00a3m
\u00a3m
\n
Lease liabilities
1,118
1,263
\n
Provisions for liabilities and charges
1,138
1,268
\n
Retirement benefit liabilities (Note 5)
98
114
\n
Accruals
1,407
1,508
\n
Deferred income
355
319
\n
Current tax
55
12
\n
Deferred tax (Note 7)
227
359
\n
Acceptances
237
225
\n
Other liabilities
(1)
711
729
\n
5,346
5,797
\n
(1)
Other liabilities include liabilities of disposal groups of \u00a315 million (2021 - \u00a35 million). See Note 8 for further information.
\n
Customer redress
\n
(1)
\n
Litigation and
\n
other regulatory
\n
Property
\n
Financial
\n
commitments and
\n
guarantees
\n
Other (2)
Total
\n
Provisions for liabilities and charges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
474
277
231
93
193
1,268
\n
Expected credit loss impairment release
\u2014
\u2014
\u2014
(6)
\u2014
(6)
\n
Currency translation and other movements
2
20
\u2014
\u2014
7
29
\n
Charge to income statement
178
36
31
\u2014
193
438
\n
Release to income statement
(45)
(14)
(71)
\u2014
(60)
(190)
\n
Provisions utilised
(178)
(79)
(37)
\u2014
(107)
(401)
\n
At 31 December 2022
431
240
154
87
226
1,138
\n
(1)
Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint
\n
deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group
\n
continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.
\n
(2)
Other materially comprises provisions relating to restructuring costs.
\n
Provisions are liabilities of uncertain timing or amount and are
\n
recognised when there is a present obligation as a result of a
\n
past event, the outflow of economic benefit is probable and the
\n
outflow can be estimated reliably. Any difference between the
\n
final outcome and the amounts provided will affect the reported
\n
results in the period when the matter is resolved.
\n
For accounting policy information see Accounting policies note
\n
2.4.
\n
Critical accounting policy: Provisions for liabilities
\n
The key judgment is involved in determining whether a present
\n
obligation exists. There is often a high degree of uncertainty
\n
and judgment is based on the specific facts and circumstances
\n
relating to individual events in determining whether there is a
\n
present obligation. Judgment is also involved in estimation of
\n
the probability, timing and amount of any outflows. Where
\n
NatWest Group can look to another party such as an insurer to
\n
pay some or all of the expenditure required to settle a
\n
provision, any reimbursement is recognised when, and only
\n
when, it is virtually certain that it will be received.
\n
Estimates -
Provisions are liabilities of uncertain timing or
\n
amount and are recognised when there is a present obligation
\n
as a result of a past event, the outflow of economic benefit is
\n
probable and the outflow can be estimated reliably.
\n
Any difference between the final outcome and the amounts
\n
provided will affect the reported results in the period when the
\n
matter is resolved.
\n
\ue001
Customer redress: Provisions reflect the estimated cost of
\n
redress attributable to claims where it is determined that a
\n
present obligation exists.
\n
\ue001
Litigation and other regulatory: NatWest Group is engaged
\n
in various legal proceedings, both in the UK and in overseas
\n
jurisdictions, including the US. For further information in
\n
relation to legal proceedings and discussion of the
\n
associated uncertainties, refer to Note 26.
\n
\ue001
Property: This includes provision for contractual costs
\n
associated with vacant properties.
\n
\ue001
Other provisions: These materially comprise provisions for
\n
onerous contracts and restructuring costs. Onerous
\n
contract provisions comprise an estimate of the costs
\n
involved in fulfilling the terms and conditions of contracts
\n
net of any expected benefits to be received. This includes
\n
provision for contractual costs associated with vacant
\n
properties. Redundancy and restructuring provisions
\n
comprise the estimated cost of restructuring, including
\n
redundancy costs where an obligation exists.
\n
Background information for all material provisions is given in
\n
Note 26
.
26 Memorandum items
\n
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
\n
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
\n
December 2022. Although NatWest Group is exposed to credit risk in the event of a customer\u2019s failure to meet its obligations, the
\n
amounts shown do not, and are not intended to, provide any indication of NatWest Group's expectation of future losses.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Guarantees
3,150
2,055
\n
Other contingent liabilities
1,855
2,004
\n
Standby facilities, credit lines and other commitments
121,576
121,308
\n
Contingent liabilities and commitments
126,581
125,367
\n
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
\n
Guarantees \u2013 NatWest Group gives guarantees on behalf of
\n
customers. A financial guarantee represents an irrevocable
\n
undertaking that NatWest Group will meet a customer's
\n
specified obligations to third party if the customer fails to do so.
\n
The maximum amount that NatWest Group could be required
\n
to pay under a guarantee is its principal amount as disclosed in
\n
the table above. NatWest Group expects most guarantees it
\n
provides to expire unused.
\n
Other contingent liabilities - these include standby letters of
\n
credit, supporting customer debt issues and contingent
\n
liabilities relating to customer trading activities such as those
\n
arising from performance and customs bonds, warranties and
\n
indemnities.
\n
Standby facilities and credit lines - under a loan commitment,
\n
NatWest Group agrees to make funds available to a customer
\n
in the future. Loan commitments, which are usually for a
\n
specified term, may be unconditionally cancellable or may
\n
persist, provided all conditions in the loan facility are satisfied
\n
or waived. Commitments to lend include commercial standby
\n
facilities and credit lines, liquidity facilities to commercial paper
\n
conduits and unutilised overdraft facilities.
\n
Other commitments - these include documentary credits, which
\n
are commercial letters of credit providing for payment by
\n
NatWest Group to a named beneficiary against presentation of
\n
specified documents, forward asset purchases, forward
\n
deposits placed and undrawn note issuance and revolving
\n
underwriting facilities, and other short-term trade related
\n
transactions.
\n
Contractual obligations for future expenditure not provided for in the accounts
\n
The following table shows contractual obligations for future expenditure not provided for in the accounts at the year end.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Capital expenditure on property, plant and equipment
8
16
\n
Contracts to purchase goods or services
(1)
677
682
\n
685
698
\n
(1)
Of which due within 1 year: \u00a3321 million (2021 \u2013 \u00a3301 million).
Trustee and other fiduciary activities
\n
In its capacity as trustee or other fiduciary role, NatWest Group
\n
may hold or place assets on behalf of individuals, trusts,
\n
companies, pension schemes and others. The assets and their
\n
income are not included in NatWest Group's financial
\n
statements. NatWest Group earned fee income of \u00a3266 million
\n
(2021 - \u00a3280 million; 2020 - \u00a3245 million) from these activities.
\n
The Financial Services Compensation Scheme
\n
The Financial Services Compensation Scheme (FSCS), the UK's
\n
statutory fund of last resort for customers of authorised
\n
financial services firms, pays compensation if a firm is unable to
\n
meet its obligations. The FSCS funds compensation for
\n
customers by raising management expenses levies and
\n
compensation levies on the industry. In relation to protected
\n
deposits, each deposit-taking institution contributes towards
\n
these levies in proportion to their share of total protected
\n
deposits on 31 December of the year preceding the scheme
\n
year (which runs from 1 April to 31 March), subject to annual
\n
maxima set by the Prudential Regulation Authority. In addition,
\n
the FSCS has the power to raise levies on a firm that has
\n
ceased to participate in the scheme and is in the process of
\n
ceasing to be authorised for the costs that it would have been
\n
liable to pay had the FSCS made a levy in the financial year it
\n
ceased to be a participant in the scheme.
\n
Litigation and regulatory matters
\n
NatWest Group plc and certain members of NatWest Group are
\n
party to legal proceedings and involved in regulatory matters,
\n
including as the subject of investigations and other regulatory
\n
and governmental action (Matters) in the United Kingdom (UK),
\n
the United States (US), the European Union (EU) and other
\n
jurisdictions.
\n
NatWest Group recognises a provision for a liability in relation
\n
to these Matters when it is probable that an outflow of
\n
economic benefits will be required to settle an obligation
\n
resulting from past events, and a reliable estimate can be made
\n
of the amount of the obligation.
\n
In many of these Matters, it is not possible to determine
\n
whether any loss is probable, or to estimate reliably the amount
\n
of any loss, either as a direct consequence of the relevant
\n
proceedings and regulatory matters or as a result of adverse
\n
impacts or restrictions on NatWest Group\u2019s reputation,
\n
businesses and operations. Numerous legal and factual issues
\n
may need to be resolved, including through potentially lengthy
\n
discovery and document production exercises and
\n
determination of important factual matters, and by addressing
\n
novel or unsettled legal questions relevant to the proceedings in
\n
question, before a liability can reasonably be estimated for any
\n
claim. NatWest Group cannot predict if, how, or when such
\n
claims will be resolved or what the eventual settlement,
\n
damages, fine, penalty or other relief, if any, may be,
\n
particularly for claims that are at an early stage in their
\n
development or where claimants seek substantial or
\n
indeterminate damages.
\n
There are situations where NatWest Group may pursue an
\n
approach that in some instances leads to a settlement
\n
agreement. This may occur in order to avoid the expense,
\n
management distraction or reputational implications of
\n
continuing to contest liability, or in order to take account of the
\n
risks inherent in defending claims or regulatory matters, even
\n
for those Matters for which NatWest Group believes it has
\n
credible defences and should prevail on the merits. The
\n
uncertainties inherent in all such Matters affect the amount and
\n
timing of any potential outflows for both Matters with respect
\n
to which provisions have been established and other contingent
\n
liabilities in respect of any such Matter.
\n
It is not practicable to provide an aggregate estimate of
\n
potential liability for our legal proceedings and regulatory
\n
matters as a class of contingent liabilities.
\n
The future outflow of resources in respect of any Matter may
\n
ultimately prove to be substantially greater than or less than
\n
the aggregate provision that NatWest Group has recognised.
\n
Where (and as far as) liability cannot be reasonably estimated,
\n
no provision has been recognised. NatWest Group expects that
\n
in future periods, additional provisions, settlement amounts and
\n
customer redress payments will be necessary, in amounts that
\n
are expected to be substantial in some instances. Please refer
\n
to Note 21 for information on material provisions.
\n
Matters which are, or could be material, having regard to
\n
NatWest Group, considered as a whole, in which NatWest
\n
Group is currently involved are set out below. We have
\n
provided information on the procedural history of certain
\n
Matters, where we believe appropriate, to aid the
\n
understanding of the Matter.
\n
For a discussion of certain risks associated with NatWest
\n
Group\u2019s litigation and regulatory matters, see the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
\n
Litigation
\n
Residential mortgage-backed securities (RMBS) litigation in
\n
the US
\n
NatWest Group companies continue to defend RMBS-related
\n
claims in the US in which the plaintiff, the Federal Deposit
\n
Insurance Corporation (FDIC), alleges that certain disclosures
\n
made in connection with the relevant offerings of RMBS
\n
contained materially false or misleading statements and/or
\n
omissions regarding the underwriting standards pursuant to
\n
which the mortgage loans underlying the RMBS were issued.
\n
London Interbank Offered Rate (LIBOR) and other rates
\n
litigation
\n
NWM Plc and certain other members of NatWest Group,
\n
including NatWest Group plc, are defendants in a number of
\n
class actions and individual claims pending in the United States
\n
District Court for the Southern District of New York (SDNY)
\n
with respect to the setting of LIBOR and certain other
\n
benchmark interest rates. The complaints allege that certain
\n
members of NatWest Group and other panel banks violated
\n
various federal laws, including the US commodities and
\n
antitrust laws, and state statutory and common law, as well as
\n
contracts, by manipulating LIBOR and prices of LIBOR-based
\n
derivatives in various markets through various means.
\n
Several purported class actions relating to USD LIBOR, as well
\n
as more than two dozen non-class actions concerning USD
\n
LIBOR, are part of a co-ordinated proceeding in the SDNY. The
\n
class actions include claims on behalf of persons who
\n
purchased LIBOR-linked instruments from defendants, bonds
\n
issued by defendants, persons who transacted futures and
\n
options on exchanges, and lenders who made LIBOR-based
\n
loans. The coordinated proceeding is currently in the discovery
\n
phase. In March 2020, NatWest Group companies finalised a
\n
settlement resolving the class action on behalf of bondholder
\n
plaintiffs (those who held bonds issued by non-defendants on
\n
which interest was paid from 2007 to 2010 at a rate expressly
\n
tied to USD LIBOR). The amount of the settlement (which was
\n
covered by an existing provision) was paid into escrow pending
\n
court approval of the settlement.
Litigation and regulatory matters
\n
The non-class claims filed in the SDNY include claims that the
\n
FDIC is asserting on behalf of certain failed US banks. In July
\n
2017, the FDIC, on behalf of 39 of those failed US banks,
\n
commenced substantially similar claims against NatWest Group
\n
companies and others in the High Court of Justice of England
\n
and Wales. The action alleges collusion with regard to the
\n
setting of USD LIBOR and that the defendants breached UK
\n
and European competition law, as well as asserting common
\n
law claims of fraud under US law. The defendant banks
\n
consented to a request by the FDIC for discontinuance of the
\n
claim in respect of 20 failed US banks, leaving 19 failed US
\n
banks as claimants. The trial is currently anticipated to take
\n
place in Q4 2025.
\n
In addition to the USD LIBOR cases described above, there are
\n
two class actions relating to JPY LIBOR and Euroyen TIBOR
\n
that remain outstanding. The first class action, which relates to
\n
Euroyen TIBOR futures contracts, was dismissed by the SDNY
\n
in September 2020 on jurisdictional and other grounds, and
\n
that decision was affirmed by the US Court of Appeals in
\n
October 2022. The plaintiffs have petitioned the court for a
\n
rehearing of their appeal. The second class action, which
\n
relates to other derivatives allegedly tied to JPY LIBOR and
\n
Euroyen TIBOR, was dismissed by the SDNY in relation to NWM
\n
Plc and other NatWest Group companies in September 2021.
\n
That dismissal may be the subject of a future appeal
.
\n
Two other IBOR-related class actions, concerning alleged
\n
manipulation of Euribor and Pound Sterling LIBOR, were
\n
previously dismissed by the SDNY for various reasons. The
\n
plaintiffs\u2019 appeals in those two cases remain pending.
\n
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc
\n
LIBOR class action finalised a settlement resolving that case.
\n
The amount of that settlement has been paid into escrow
\n
pending final court approval of the settlement.
\n
Settlements in the class action relating to the Singapore
\n
Interbank Offered Rate and Singapore Swap Offer Rate and the
\n
class action relating to the Australian Bank Bill Swap Reference
\n
Rate received court approval in 2022, such that the settlements
\n
became final and the amounts previously paid into escrow
\n
were released to the plaintiffs.
\n
In August 2020, a complaint was filed in the United States
\n
District Court for the Northern District of California by several
\n
United States retail borrowers against the USD ICE LIBOR
\n
panel banks and their affiliates (including NatWest Group plc,
\n
NWM Plc, NWMSI and NWB Plc), alleging (i) that the very
\n
process of setting USD ICE LIBOR amounts to illegal price-
\n
fixing; and (ii) that banks in the United States have illegally
\n
agreed to use LIBOR as a component of price in variable retail
\n
loans. In September 2022, the district court dismissed the
\n
complaint, subject to re-pleading by the plaintiffs. The plaintiffs
\n
filed an amended complaint in October 2022, which the
\n
defendants are again seeking to have dismissed.
\n
NWM Plc is also named as a defendant in a motion to certify a
\n
class action relating to LIBOR in the Tel Aviv District Court in
\n
Israel. NWM Plc filed a motion for cancellation of service
\n
outside the jurisdiction, which was granted in July 2020. The
\n
claimants appealed that decision and in November 2020 the
\n
appeal was refused and the claim dismissed by the Appellate
\n
Court. The claim could in future be recommenced depending
\n
on the outcome of an appeal to Israel\u2019s Supreme Court in
\n
respect of the dismissal of the substantive case against banks
\n
that had a presence in Israel.
\n
FX litigation
\n
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
\n
several cases relating to NWM Plc\u2019s foreign exchange (FX)
\n
business. In 2015, NWM Plc paid US$255 million to settle the
\n
consolidated antitrust class action filed in the SDNY on behalf
\n
of persons who entered into over-the-counter FX transactions
\n
with defendants or who traded FX instruments on exchanges.
\n
In 2018, some members of the settlement class who opted out
\n
of that class action settlement filed their own non-class
\n
complaint in the SDNY asserting antitrust claims against NWM
\n
Plc, NWMSI and other banks.
\n
In April 2019, some of the claimants in the opt-out case
\n
described above, as well as others, served proceedings in the
\n
High Court of Justice of England and Wales, asserting
\n
competition claims against NWM Plc and several other banks.
\n
The claim was transferred from the High Court of Justice of
\n
England and Wales in December 2021 and registered in the UK
\n
Competition Appeal Tribunal (CAT) in January 2022. In
\n
December 2022, NWM Plc reached an agreement in principle,
\n
subject to documentation, to resolve both the SDNY and CAT
\n
cases. The settlement amount to be paid by NWM Plc is
\n
covered by an existing provision.
\n
An FX-related class action, on behalf of \u2018consumers and end-
\n
user businesses\u2019, is proceeding in the SDNY against NWM Plc
\n
and others. In March 2022, the SDNY denied the plaintiffs\u2019
\n
motion for class certification. Plaintiffs sought an immediate
\n
appeal of the decision but the appellate court declined to
\n
review the decision. As a result, the case is proceeding on an
\n
individual, non-class basis, and the defendants are seeking
\n
summary judgment dismissing the individual claims.
\n
In May 2019, a cartel class action was filed in the Federal Court
\n
of Australia against NWM Plc and four other banks on behalf of
\n
persons who bought or sold currency through FX spots or
\n
forwards between 1 January 2008 and 15 October 2013 with a
\n
total transaction value exceeding AUD $0.5 million. The
\n
claimant has alleged that the banks, including NWM Plc,
\n
contravened Australian competition law by sharing information,
\n
coordinating conduct, widening spreads and manipulating FX
\n
rates for certain currency pairs during this period. NatWest
\n
Group plc and NWMSI have been named in the action as \u2018other
\n
cartel participants\u2019, but are not respondents. The claim was
\n
served in June 2019 and NWM Plc filed its defence in March
\n
2022.
\n
In July and December 2019, two separate applications seeking
\n
opt-out collective proceedings orders were filed in the CAT
\n
against NatWest Group plc, NWM Plc and other banks. Both
\n
applications were brought on behalf of persons who, between
\n
18 December 2007 and 31 January 2013, entered into a
\n
relevant FX spot or outright forward transaction in the EEA
\n
with a relevant financial institution or on an electronic
\n
communications network. In March 2022, the CAT declined to
\n
certify as collective proceedings either of the applications. In
\n
October 2022, the CAT granted permission for the applicants to
\n
appeal that decision to the Court of Appeal. Separately, the
\n
applicants have served judicial review proceedings, which are
\n
due to be heard together with the appeal to the Court of
\n
Appeal in April 2023.
\n
Two motions to certify FX-related class actions were filed in the
\n
Tel Aviv District Court in Israel in September and October 2018,
\n
and were subsequently consolidated into one motion. The
\n
consolidated motion to certify, which names The Royal Bank of
\n
Scotland plc (now NWM Plc) and several other banks as
\n
defendants, was served on NWM Plc in May 2020. The
\n
applicants have sought the court\u2019s permission to amend their
\n
motions to certify the class actions.
Litigation and regulatory matters
\n
NWM Plc has filed a motion challenging the permission granted
\n
by the court for the applicants to serve the consolidated motion
\n
outside the Israeli jurisdiction. That NWM Plc motion remains
\n
pending.
\n
In December 2021, a claim was issued in the Netherlands
\n
against NatWest Group plc, NWM Plc and NWM N.V. by
\n
Stichting FX Claims, seeking a declaration from the court that
\n
anti-competitive FX market conduct described in decisions of
\n
the European Commission (EC) of 16 May 2019 is unlawful,
\n
along with unspecified damages. The claimant has amended its
\n
claim to also refer to a December 2021 decision by the EC,
\n
which also described anti-competitive FX market conduct. The
\n
defendants are contesting the jurisdiction of the Dutch court.
\n
Certain other foreign exchange transaction related claims have
\n
been or may be threatened. NatWest Group cannot predict
\n
whether all or any of these claims will be pursued.
\n
Government securities antitrust litigation
\n
NWMSI and certain other US broker-dealers are defendants in
\n
a consolidated antitrust class action in the SDNY on behalf of
\n
persons who transacted in US Treasury securities or derivatives
\n
based on such instruments, including futures and options. The
\n
plaintiffs allege that the defendants rigged the US Treasury
\n
securities auction bidding process to deflate prices at which
\n
they bought such securities and colluded to increase the prices
\n
at which they sold such securities to the plaintiffs. In March
\n
2022, the SDNY dismissed the complaint, without leave to re-
\n
plead. The plaintiffs are appealing the dismissal.
\n
Class action antitrust claims commenced in March 2019 are
\n
pending in the SDNY against NWM Plc, NWMSI and other banks
\n
in respect of Euro-denominated bonds issued by European
\n
central banks (EGBs). The complaint alleges a conspiracy
\n
among dealers of EGBs to widen the bid-ask spreads they
\n
quoted to customers, thereby increasing the prices customers
\n
paid for the EGBs or decreasing the prices at which customers
\n
sold the bonds. The class consists of those who purchased or
\n
sold EGBs in the US between 2007 and 2012. In March 2022,
\n
the SDNY dismissed the claims against NWM Plc and NWMSI on
\n
the ground that the complaint\u2019s conspiracy allegations are
\n
insufficient. The plaintiffs have filed a motion for permission to
\n
file an amended complaint.
\n
Swaps antitrust litigation
\n
NWM Plc and other members of NatWest Group, including
\n
NatWest Group plc, as well as a number of other interest rate
\n
swap dealers, are defendants in several cases pending in the
\n
SDNY alleging violations of the US antitrust laws in the market
\n
for interest rate swaps. There is a consolidated class action
\n
complaint on behalf of persons who entered into interest rate
\n
swaps with the defendants, as well as non-class action claims
\n
by three swap execution facilities (TeraExchange, Javelin, and
\n
trueEx). The plaintiffs allege that the swap execution facilities
\n
would have successfully established exchange-like trading of
\n
interest rate swaps if the defendants had not unlawfully
\n
conspired to prevent that from happening through boycotts
\n
and other means. Discovery in these cases is complete, and the
\n
plaintiffs\u2019 motion for class certification remains pending.
\n
In June 2021, a class action antitrust complaint was filed
\n
against a number of credit default swap dealers in New Mexico
\n
federal court on behalf of persons who, from 2005 onwards,
\n
settled credit default swaps in the United States by reference to
\n
the ISDA credit default swap auction protocol. The complaint
\n
alleges that the defendants conspired to manipulate that
\n
benchmark through various means in violation of the antitrust
\n
laws and the Commodity Exchange Act.
\n
The defendants include several NatWest Group companies,
\n
including NatWest Group plc. Defendants are seeking dismissal.
\n
Odd lot corporate bond trading antitrust litigation
\n
In October 2021, the SDNY granted the defendants\u2019 motion to
\n
dismiss the class action antitrust complaint alleging that from
\n
August 2006 onwards various securities dealers, including
\n
NWMSI, conspired artificially to widen spreads for odd lots of
\n
corporate bonds bought or sold in the United States secondary
\n
market and to boycott electronic trading platforms that would
\n
have allegedly promoted pricing competition in the market for
\n
such bonds. The plaintiffs have filed an appeal.
\n
Spoofing litigation
\n
In December 2021, three substantially similar class actions
\n
complaints were filed in federal court in the United States
\n
against NWM Plc and NWMSI alleging Commodity Exchange
\n
Act and common law unjust enrichment claims arising from
\n
manipulative trading known as spoofing. The complaints refer
\n
to NWM Plc\u2019s December 2021 spoofing-related guilty plea
\n
(described below under \u201cUS investigations relating to fixed-
\n
income securities\u201d) and purport to assert claims on behalf of
\n
those who transacted in US Treasury securities and futures and
\n
options on US Treasury securities between 2008 and 2018. In
\n
July 2022, defendants filed a motion to dismiss these claims,
\n
which have been consolidated into one matter in the United
\n
States District Court for the Northern District of Illinois.
\n
Madoff
\n
NWM N.V. was named as a defendant in two actions filed by
\n
the trustee for the bankrupt estates of Bernard L. Madoff and
\n
Bernard L. Madoff Investment Securities LLC, in bankruptcy
\n
court in New York, which together seek to clawback more than
\n
US$298 million that NWM N.V. allegedly received from certain
\n
Madoff feeder funds and certain swap counterparties. The
\n
claims were previously dismissed, but as a result of an August
\n
2021 decision by the US Court of Appeals, they will now
\n
proceed in the bankruptcy court, where they have now been
\n
consolidated into one action, subject to NWM N.V.\u2019s legal and
\n
factual defences. In May 2022, NWM N.V. filed a motion to
\n
dismiss the amended complaint in the consolidated action.
\n
EUA trading litigation
\n
NWM Plc was a named defendant in civil proceedings before
\n
the High Court of Justice of England and Wales brought in 2015
\n
by ten
companies (all in liquidation) (the \u2018Liquidated
\n
Companies\u2019) and their respective liquidators (together, \u2018the
\n
Claimants\u2019). The Liquidated Companies previously traded in
\n
European Union Allowances (EUAs) in 2009 and were alleged
\n
to be VAT defaulting traders within (or otherwise connected to)
\n
EUA supply chains of which NWM Plc was a party. In March
\n
2020, the court held that NWM Plc and Mercuria Energy
\n
Europe Trading Limited (\u2018Mercuria\u2019) were liable for dishonestly
\n
assisting and knowingly being a party to fraudulent trading
\n
during a seven business day period in 2009.
\n
In October 2020, the High Court quantified total damages
\n
against NWM Plc and Mercuria at \u00a345 million plus interest and
\n
costs, and permitted the defendants to appeal to the Court of
\n
Appeal. In May 2021 the Court of Appeal set aside the High
\n
Court\u2019s judgment and ordered that a retrial take place before a
\n
different High Court judge. The claimants have been denied
\n
permission by the Supreme Court to appeal that decision and
\n
the retrial will therefore proceed on a date to be scheduled.
\n
Mercuria has also been denied permission by the Supreme
\n
Court to appeal the High Court\u2019s finding that NWM Plc and
\n
Mercuria were both vicariously liable.
Litigation and regulatory matters
\n
Offshoring VAT assessments
\n
HMRC issued protective tax assessments in 2018 against
\n
NatWest Group plc totalling \u00a3143 million relating to unpaid VAT
\n
in respect of the UK branches of two NatWest Group
\n
companies registered in India. NatWest Group formally
\n
requested reconsideration by HMRC of their assessments, and
\n
this process was completed in November 2020. HMRC upheld
\n
their original decision and, as a result, NatWest Group plc
\n
lodged an appeal with the Tax Tribunal and an application for
\n
judicial review with the High Court of Justice of England and
\n
Wales, both in December 2020. In order to lodge the appeal
\n
with the Tax Tribunal, NatWest Group plc was required to pay
\n
\u00a3143 million to HMRC, and payment was made in December
\n
2020. The appeal and the application for judicial review have
\n
both been stayed pending resolution of a separate case
\n
involving another bank.
\n
US Anti-Terrorism Act litigation
\n
NWM N.V. and certain other financial institutions are
\n
defendants in several actions filed by a number of US nationals
\n
(or their estates, survivors, or heirs), most of whom are or were
\n
US military personnel, who were killed or injured in attacks in
\n
Iraq between 2003 and 2011. NWM Plc is also a defendant in
\n
some of these cases.
\n
According to the plaintiffs\u2019 allegations, the defendants are liable
\n
for damages arising from the attacks because they allegedly
\n
conspired with Iran and certain Iranian banks to assist Iran in
\n
transferring money to Hezbollah and the Iraqi terror cells that
\n
committed the attacks, in violation of the US Anti-Terrorism
\n
Act, by agreeing to engage in \u2018stripping\u2019 of transactions
\n
initiated by the Iranian banks so that the Iranian nexus to the
\n
transactions would not be detected.
\n
The first of these actions was filed in the United States District
\n
Court for the Eastern District of New York in November 2014.
\n
In September 2019, the district court dismissed the case,
\n
finding that the claims were deficient for several reasons,
\n
including lack of sufficient allegations as to the alleged
\n
conspiracy and causation. On 5 January 2023, the US Court of
\n
Appeals affirmed the district court\u2019s dismissal of this case.
\n
Another action, filed in the SDNY in 2017, was dismissed by the
\n
SDNY in March 2019 on similar grounds as the first case, but
\n
remains subject to appeal to the US Court of Appeals. Other
\n
follow-on actions that are substantially similar to the two that
\n
have now been dismissed are pending in the same courts.
\n
1MDB litigation
\n
A Malaysian court claim was served in Switzerland in
\n
November 2022 by 1MDB, a Sovereign Wealth Fund, in which
\n
Coutts & Co Ltd was named, along with six others, as a
\n
defendant in respect of losses allegedly incurred by 1MDB. It is
\n
claimed that Coutts & Co Ltd is liable as a constructive trustee
\n
for having dishonestly assisted the directors of 1MDB in the
\n
breach of their fiduciary duties by failing (amongst other
\n
alleged claims) to undertake due diligence in relation to a
\n
customer of Coutts & Co Ltd, through which funds totalling
\n
c.US$1 billion were received and paid out between 2009 and
\n
2011. The claimant seeks the return of that amount plus
\n
interest. Coutts & Co Ltd filed an application in January 2023
\n
challenging the validity of service and the Malaysian court\u2019s
\n
jurisdiction to hear the claim. Coutts & Co Ltd is a company
\n
registered in Switzerland and is in wind-down following the
\n
announced sale of its business assets in 2015.
\n
Regulatory matters (including investigations and customer
\n
redress programmes)
\n
NatWest Group\u2019s businesses and financial condition can be
\n
affected by the actions of various governmental and regulatory
\n
authorities in the UK, the US, the EU and elsewhere. NatWest
\n
Group has engaged, and will continue to engage, in discussions
\n
with relevant governmental and regulatory authorities,
\n
including in the UK, the US, the EU and elsewhere, on an
\n
ongoing and regular basis, and in response to informal and
\n
formal inquiries or investigations, regarding operational,
\n
systems and control evaluations and issues including those
\n
related to compliance with applicable laws and regulations,
\n
including consumer protection, investment advice, business
\n
conduct, competition/anti-trust, VAT recovery, anti-bribery,
\n
anti-money laundering and sanctions regimes. NatWest Group
\n
expects government and regulatory intervention in financial
\n
services to be high for the foreseeable future, including
\n
increased scrutiny from competition and other regulators in the
\n
retail and SME business sectors.
\n
Any matters discussed or identified during such discussions and
\n
inquiries may result in, among other things, further inquiry or
\n
investigation, other action being taken by governmental and
\n
regulatory authorities, increased costs being incurred by
\n
NatWest Group, remediation of systems and controls, public or
\n
private censure, restriction of NatWest Group\u2019s business
\n
activities and/or fines. Any of the events or circumstances
\n
mentioned in this paragraph or below could have a material
\n
adverse effect on NatWest Group, its business, authorisations
\n
and licences, reputation, results of operations or the price of
\n
securities issued by it, or lead to material additional provisions
\n
being taken.
\n
NatWest Group is co-operating fully with the matters described
\n
below.
\n
US investigations relating to fixed-income securities
\n
In December 2021, NWM Plc pled guilty in the United States
\n
District Court for the District of Connecticut to one count of
\n
wire fraud and one count of securities fraud in connection with
\n
historical spoofing conduct by former employees in US
\n
Treasuries markets between January 2008 and May 2014 and,
\n
separately, during approximately three months in 2018. The
\n
2018 trading occurred during the term of a non-prosecution
\n
agreement (NPA) between NWMSI and the United States
\n
Attorney's Office for the District of Connecticut (USAO CT),
\n
under which non-prosecution was conditioned on NWMSI and
\n
affiliated companies not engaging in criminal conduct during
\n
the term of the NPA. The relevant trading in 2018 was
\n
conducted by two NWM traders in Singapore and breached
\n
that NPA. The plea agreement reached with the US
\n
Department of Justice and the USAO CT resolved both the
\n
spoofing conduct and the breach of the NPA.
\n
As required by the resolution and sentence imposed by the
\n
court, NWM Plc is subject to a three-year period of probation.
\n
The plea agreement also imposes an independent corporate
\n
monitor. In addition, NWM Plc has committed to compliance
\n
programme reviews and improvements and agreed to
\n
reporting and co-operation obligations.
\n
Other material adverse collateral consequences may occur as
\n
a result of this matter, as further described in the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
Litigation and regulatory matters
\n
RBSI inspection report and referral to enforcement
\n
The Isle of Man Financial Services Authority undertook an
\n
inspection at The Royal Bank of Scotland International Limited
\n
(RBSI), Isle of Man, in 2021, following which it issued an
\n
inspection report. The inspection was in relation to anti-money
\n
laundering and counter-terrorist financing controls and
\n
procedures relating to specific RBSI customers. In May 2022,
\n
the FSA notified RBSI that it had been referred to its
\n
Enforcement Division in relation to certain issues identified in
\n
the inspection report.
\n
RBSI reliance regime and referral to enforcement
\n
In January 2023, the Jersey Financial Services Commission
\n
notified RBSI that it had been referred to its Enforcement
\n
Division in relation to RBSI\u2019s operation of the reliance regime.
\n
The reliance regime is specific to certain Crown Dependencies
\n
and enables the bank to rely on regulated third parties for
\n
specific due diligence information.
\n
Investment advice review
\n
In October 2019, the FCA notified NatWest Group of its
\n
intention to appoint a Skilled Person under section 166 of the
\n
Financial Services and Markets Act 2000 to conduct a review of
\n
whether NatWest Group\u2019s past business review of investment
\n
advice provided during 2010 to 2015 was subject to
\n
appropriate governance and accountability and led to
\n
appropriate customer outcomes. The Skilled Person\u2019s review
\n
has concluded and, after discussion with the FCA, NatWest
\n
Group has now commenced additional review / remediation
\n
work.
\n
Review and investigation of treatment of tracker mortgage
\n
customers in Ulster Bank Ireland DAC
\n
In December 2015, correspondence was received from the CBI
\n
setting out an industry examination framework in respect of the
\n
sale of tracker mortgages from approximately 2001 until the
\n
end of 2015. The redress and compensation process has now
\n
largely concluded, although certain cases remain outstanding.
\n
UBIDAC customers have lodged tracker mortgage complaints
\n
with the Financial Services and Pensions Ombudsman (FSPO).
\n
UBIDAC is challenging three FSPO adjudications in the Irish
\n
High Court. The outcome and impact of that challenge on those
\n
and related complaints is uncertain but may be material.
\n
Other customer remediation in Ulster Bank Ireland DAC
\n
UBIDAC has identified further legacy business issues and these
\n
remediation programmes are ongoing.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47716": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
21 Other liabilities
\n
Other liabilities are amounts due to third parties that are not financial liabilities including lease liabilities, amounts due for goods
\n
and services that have been received but not invoiced,
tax due to HMRC, and retirement benefit liabilities. Liabilities which have a
\n
level of uncertainty regarding their timing or the future cost to settle them are included in other liabilities as provisions for liabilities
\n
and charges.
\n
2022
2021
\n
Other liabilities
\u00a3m
\u00a3m
\n
Lease liabilities
1,118
1,263
\n
Provisions for liabilities and charges
1,138
1,268
\n
Retirement benefit liabilities (Note 5)
98
114
\n
Accruals
1,407
1,508
\n
Deferred income
355
319
\n
Current tax
55
12
\n
Deferred tax (Note 7)
227
359
\n
Acceptances
237
225
\n
Other liabilities
(1)
711
729
\n
5,346
5,797
\n
(1)
Other liabilities include liabilities of disposal groups of \u00a315 million (2021 - \u00a35 million). See Note 8 for further information.
\n
Customer redress
\n
(1)
\n
Litigation and
\n
other regulatory
\n
Property
\n
Financial
\n
commitments and
\n
guarantees
\n
Other (2)
Total
\n
Provisions for liabilities and charges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
474
277
231
93
193
1,268
\n
Expected credit loss impairment release
\u2014
\u2014
\u2014
(6)
\u2014
(6)
\n
Currency translation and other movements
2
20
\u2014
\u2014
7
29
\n
Charge to income statement
178
36
31
\u2014
193
438
\n
Release to income statement
(45)
(14)
(71)
\u2014
(60)
(190)
\n
Provisions utilised
(178)
(79)
(37)
\u2014
(107)
(401)
\n
At 31 December 2022
431
240
154
87
226
1,138
\n
(1)
Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint
\n
deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group
\n
continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.
\n
(2)
Other materially comprises provisions relating to restructuring costs.
\n
Provisions are liabilities of uncertain timing or amount and are
\n
recognised when there is a present obligation as a result of a
\n
past event, the outflow of economic benefit is probable and the
\n
outflow can be estimated reliably. Any difference between the
\n
final outcome and the amounts provided will affect the reported
\n
results in the period when the matter is resolved.
\n
For accounting policy information see Accounting policies note
\n
2.4.
\n
Critical accounting policy: Provisions for liabilities
\n
The key judgment is involved in determining whether a present
\n
obligation exists. There is often a high degree of uncertainty
\n
and judgment is based on the specific facts and circumstances
\n
relating to individual events in determining whether there is a
\n
present obligation. Judgment is also involved in estimation of
\n
the probability, timing and amount of any outflows. Where
\n
NatWest Group can look to another party such as an insurer to
\n
pay some or all of the expenditure required to settle a
\n
provision, any reimbursement is recognised when, and only
\n
when, it is virtually certain that it will be received.
\n
Estimates -
Provisions are liabilities of uncertain timing or
\n
amount and are recognised when there is a present obligation
\n
as a result of a past event, the outflow of economic benefit is
\n
probable and the outflow can be estimated reliably.
\n
Any difference between the final outcome and the amounts
\n
provided will affect the reported results in the period when the
\n
matter is resolved.
\n
\ue001
Customer redress: Provisions reflect the estimated cost of
\n
redress attributable to claims where it is determined that a
\n
present obligation exists.
\n
\ue001
Litigation and other regulatory: NatWest Group is engaged
\n
in various legal proceedings, both in the UK and in overseas
\n
jurisdictions, including the US. For further information in
\n
relation to legal proceedings and discussion of the
\n
associated uncertainties, refer to Note 26.
\n
\ue001
Property: This includes provision for contractual costs
\n
associated with vacant properties.
\n
\ue001
Other provisions: These materially comprise provisions for
\n
onerous contracts and restructuring costs. Onerous
\n
contract provisions comprise an estimate of the costs
\n
involved in fulfilling the terms and conditions of contracts
\n
net of any expected benefits to be received. This includes
\n
provision for contractual costs associated with vacant
\n
properties. Redundancy and restructuring provisions
\n
comprise the estimated cost of restructuring, including
\n
redundancy costs where an obligation exists.
\n
Background information for all material provisions is given in
\n
Note 26
.
26 Memorandum items
\n
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
\n
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
\n
December 2022. Although NatWest Group is exposed to credit risk in the event of a customer\u2019s failure to meet its obligations, the
\n
amounts shown do not, and are not intended to, provide any indication of NatWest Group's expectation of future losses.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Guarantees
3,150
2,055
\n
Other contingent liabilities
1,855
2,004
\n
Standby facilities, credit lines and other commitments
121,576
121,308
\n
Contingent liabilities and commitments
126,581
125,367
\n
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
\n
Guarantees \u2013 NatWest Group gives guarantees on behalf of
\n
customers. A financial guarantee represents an irrevocable
\n
undertaking that NatWest Group will meet a customer's
\n
specified obligations to third party if the customer fails to do so.
\n
The maximum amount that NatWest Group could be required
\n
to pay under a guarantee is its principal amount as disclosed in
\n
the table above. NatWest Group expects most guarantees it
\n
provides to expire unused.
\n
Other contingent liabilities - these include standby letters of
\n
credit, supporting customer debt issues and contingent
\n
liabilities relating to customer trading activities such as those
\n
arising from performance and customs bonds, warranties and
\n
indemnities.
\n
Standby facilities and credit lines - under a loan commitment,
\n
NatWest Group agrees to make funds available to a customer
\n
in the future. Loan commitments, which are usually for a
\n
specified term, may be unconditionally cancellable or may
\n
persist, provided all conditions in the loan facility are satisfied
\n
or waived. Commitments to lend include commercial standby
\n
facilities and credit lines, liquidity facilities to commercial paper
\n
conduits and unutilised overdraft facilities.
\n
Other commitments - these include documentary credits, which
\n
are commercial letters of credit providing for payment by
\n
NatWest Group to a named beneficiary against presentation of
\n
specified documents, forward asset purchases, forward
\n
deposits placed and undrawn note issuance and revolving
\n
underwriting facilities, and other short-term trade related
\n
transactions.
\n
Contractual obligations for future expenditure not provided for in the accounts
\n
The following table shows contractual obligations for future expenditure not provided for in the accounts at the year end.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Capital expenditure on property, plant and equipment
8
16
\n
Contracts to purchase goods or services
(1)
677
682
\n
685
698
\n
(1)
Of which due within 1 year: \u00a3321 million (2021 \u2013 \u00a3301 million).
Trustee and other fiduciary activities
\n
In its capacity as trustee or other fiduciary role, NatWest Group
\n
may hold or place assets on behalf of individuals, trusts,
\n
companies, pension schemes and others. The assets and their
\n
income are not included in NatWest Group's financial
\n
statements. NatWest Group earned fee income of \u00a3266 million
\n
(2021 - \u00a3280 million; 2020 - \u00a3245 million) from these activities.
\n
The Financial Services Compensation Scheme
\n
The Financial Services Compensation Scheme (FSCS), the UK's
\n
statutory fund of last resort for customers of authorised
\n
financial services firms, pays compensation if a firm is unable to
\n
meet its obligations. The FSCS funds compensation for
\n
customers by raising management expenses levies and
\n
compensation levies on the industry. In relation to protected
\n
deposits, each deposit-taking institution contributes towards
\n
these levies in proportion to their share of total protected
\n
deposits on 31 December of the year preceding the scheme
\n
year (which runs from 1 April to 31 March), subject to annual
\n
maxima set by the Prudential Regulation Authority. In addition,
\n
the FSCS has the power to raise levies on a firm that has
\n
ceased to participate in the scheme and is in the process of
\n
ceasing to be authorised for the costs that it would have been
\n
liable to pay had the FSCS made a levy in the financial year it
\n
ceased to be a participant in the scheme.
\n
Litigation and regulatory matters
\n
NatWest Group plc and certain members of NatWest Group are
\n
party to legal proceedings and involved in regulatory matters,
\n
including as the subject of investigations and other regulatory
\n
and governmental action (Matters) in the United Kingdom (UK),
\n
the United States (US), the European Union (EU) and other
\n
jurisdictions.
\n
NatWest Group recognises a provision for a liability in relation
\n
to these Matters when it is probable that an outflow of
\n
economic benefits will be required to settle an obligation
\n
resulting from past events, and a reliable estimate can be made
\n
of the amount of the obligation.
\n
In many of these Matters, it is not possible to determine
\n
whether any loss is probable, or to estimate reliably the amount
\n
of any loss, either as a direct consequence of the relevant
\n
proceedings and regulatory matters or as a result of adverse
\n
impacts or restrictions on NatWest Group\u2019s reputation,
\n
businesses and operations. Numerous legal and factual issues
\n
may need to be resolved, including through potentially lengthy
\n
discovery and document production exercises and
\n
determination of important factual matters, and by addressing
\n
novel or unsettled legal questions relevant to the proceedings in
\n
question, before a liability can reasonably be estimated for any
\n
claim. NatWest Group cannot predict if, how, or when such
\n
claims will be resolved or what the eventual settlement,
\n
damages, fine, penalty or other relief, if any, may be,
\n
particularly for claims that are at an early stage in their
\n
development or where claimants seek substantial or
\n
indeterminate damages.
\n
There are situations where NatWest Group may pursue an
\n
approach that in some instances leads to a settlement
\n
agreement. This may occur in order to avoid the expense,
\n
management distraction or reputational implications of
\n
continuing to contest liability, or in order to take account of the
\n
risks inherent in defending claims or regulatory matters, even
\n
for those Matters for which NatWest Group believes it has
\n
credible defences and should prevail on the merits. The
\n
uncertainties inherent in all such Matters affect the amount and
\n
timing of any potential outflows for both Matters with respect
\n
to which provisions have been established and other contingent
\n
liabilities in respect of any such Matter.
\n
It is not practicable to provide an aggregate estimate of
\n
potential liability for our legal proceedings and regulatory
\n
matters as a class of contingent liabilities.
\n
The future outflow of resources in respect of any Matter may
\n
ultimately prove to be substantially greater than or less than
\n
the aggregate provision that NatWest Group has recognised.
\n
Where (and as far as) liability cannot be reasonably estimated,
\n
no provision has been recognised. NatWest Group expects that
\n
in future periods, additional provisions, settlement amounts and
\n
customer redress payments will be necessary, in amounts that
\n
are expected to be substantial in some instances. Please refer
\n
to Note 21 for information on material provisions.
\n
Matters which are, or could be material, having regard to
\n
NatWest Group, considered as a whole, in which NatWest
\n
Group is currently involved are set out below. We have
\n
provided information on the procedural history of certain
\n
Matters, where we believe appropriate, to aid the
\n
understanding of the Matter.
\n
For a discussion of certain risks associated with NatWest
\n
Group\u2019s litigation and regulatory matters, see the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
\n
Litigation
\n
Residential mortgage-backed securities (RMBS) litigation in
\n
the US
\n
NatWest Group companies continue to defend RMBS-related
\n
claims in the US in which the plaintiff, the Federal Deposit
\n
Insurance Corporation (FDIC), alleges that certain disclosures
\n
made in connection with the relevant offerings of RMBS
\n
contained materially false or misleading statements and/or
\n
omissions regarding the underwriting standards pursuant to
\n
which the mortgage loans underlying the RMBS were issued.
\n
London Interbank Offered Rate (LIBOR) and other rates
\n
litigation
\n
NWM Plc and certain other members of NatWest Group,
\n
including NatWest Group plc, are defendants in a number of
\n
class actions and individual claims pending in the United States
\n
District Court for the Southern District of New York (SDNY)
\n
with respect to the setting of LIBOR and certain other
\n
benchmark interest rates. The complaints allege that certain
\n
members of NatWest Group and other panel banks violated
\n
various federal laws, including the US commodities and
\n
antitrust laws, and state statutory and common law, as well as
\n
contracts, by manipulating LIBOR and prices of LIBOR-based
\n
derivatives in various markets through various means.
\n
Several purported class actions relating to USD LIBOR, as well
\n
as more than two dozen non-class actions concerning USD
\n
LIBOR, are part of a co-ordinated proceeding in the SDNY. The
\n
class actions include claims on behalf of persons who
\n
purchased LIBOR-linked instruments from defendants, bonds
\n
issued by defendants, persons who transacted futures and
\n
options on exchanges, and lenders who made LIBOR-based
\n
loans. The coordinated proceeding is currently in the discovery
\n
phase. In March 2020, NatWest Group companies finalised a
\n
settlement resolving the class action on behalf of bondholder
\n
plaintiffs (those who held bonds issued by non-defendants on
\n
which interest was paid from 2007 to 2010 at a rate expressly
\n
tied to USD LIBOR). The amount of the settlement (which was
\n
covered by an existing provision) was paid into escrow pending
\n
court approval of the settlement.
Litigation and regulatory matters
\n
The non-class claims filed in the SDNY include claims that the
\n
FDIC is asserting on behalf of certain failed US banks. In July
\n
2017, the FDIC, on behalf of 39 of those failed US banks,
\n
commenced substantially similar claims against NatWest Group
\n
companies and others in the High Court of Justice of England
\n
and Wales. The action alleges collusion with regard to the
\n
setting of USD LIBOR and that the defendants breached UK
\n
and European competition law, as well as asserting common
\n
law claims of fraud under US law. The defendant banks
\n
consented to a request by the FDIC for discontinuance of the
\n
claim in respect of 20 failed US banks, leaving 19 failed US
\n
banks as claimants. The trial is currently anticipated to take
\n
place in Q4 2025.
\n
In addition to the USD LIBOR cases described above, there are
\n
two class actions relating to JPY LIBOR and Euroyen TIBOR
\n
that remain outstanding. The first class action, which relates to
\n
Euroyen TIBOR futures contracts, was dismissed by the SDNY
\n
in September 2020 on jurisdictional and other grounds, and
\n
that decision was affirmed by the US Court of Appeals in
\n
October 2022. The plaintiffs have petitioned the court for a
\n
rehearing of their appeal. The second class action, which
\n
relates to other derivatives allegedly tied to JPY LIBOR and
\n
Euroyen TIBOR, was dismissed by the SDNY in relation to NWM
\n
Plc and other NatWest Group companies in September 2021.
\n
That dismissal may be the subject of a future appeal
.
\n
Two other IBOR-related class actions, concerning alleged
\n
manipulation of Euribor and Pound Sterling LIBOR, were
\n
previously dismissed by the SDNY for various reasons. The
\n
plaintiffs\u2019 appeals in those two cases remain pending.
\n
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc
\n
LIBOR class action finalised a settlement resolving that case.
\n
The amount of that settlement has been paid into escrow
\n
pending final court approval of the settlement.
\n
Settlements in the class action relating to the Singapore
\n
Interbank Offered Rate and Singapore Swap Offer Rate and the
\n
class action relating to the Australian Bank Bill Swap Reference
\n
Rate received court approval in 2022, such that the settlements
\n
became final and the amounts previously paid into escrow
\n
were released to the plaintiffs.
\n
In August 2020, a complaint was filed in the United States
\n
District Court for the Northern District of California by several
\n
United States retail borrowers against the USD ICE LIBOR
\n
panel banks and their affiliates (including NatWest Group plc,
\n
NWM Plc, NWMSI and NWB Plc), alleging (i) that the very
\n
process of setting USD ICE LIBOR amounts to illegal price-
\n
fixing; and (ii) that banks in the United States have illegally
\n
agreed to use LIBOR as a component of price in variable retail
\n
loans. In September 2022, the district court dismissed the
\n
complaint, subject to re-pleading by the plaintiffs. The plaintiffs
\n
filed an amended complaint in October 2022, which the
\n
defendants are again seeking to have dismissed.
\n
NWM Plc is also named as a defendant in a motion to certify a
\n
class action relating to LIBOR in the Tel Aviv District Court in
\n
Israel. NWM Plc filed a motion for cancellation of service
\n
outside the jurisdiction, which was granted in July 2020. The
\n
claimants appealed that decision and in November 2020 the
\n
appeal was refused and the claim dismissed by the Appellate
\n
Court. The claim could in future be recommenced depending
\n
on the outcome of an appeal to Israel\u2019s Supreme Court in
\n
respect of the dismissal of the substantive case against banks
\n
that had a presence in Israel.
\n
FX litigation
\n
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
\n
several cases relating to NWM Plc\u2019s foreign exchange (FX)
\n
business. In 2015, NWM Plc paid US$255 million to settle the
\n
consolidated antitrust class action filed in the SDNY on behalf
\n
of persons who entered into over-the-counter FX transactions
\n
with defendants or who traded FX instruments on exchanges.
\n
In 2018, some members of the settlement class who opted out
\n
of that class action settlement filed their own non-class
\n
complaint in the SDNY asserting antitrust claims against NWM
\n
Plc, NWMSI and other banks.
\n
In April 2019, some of the claimants in the opt-out case
\n
described above, as well as others, served proceedings in the
\n
High Court of Justice of England and Wales, asserting
\n
competition claims against NWM Plc and several other banks.
\n
The claim was transferred from the High Court of Justice of
\n
England and Wales in December 2021 and registered in the UK
\n
Competition Appeal Tribunal (CAT) in January 2022. In
\n
December 2022, NWM Plc reached an agreement in principle,
\n
subject to documentation, to resolve both the SDNY and CAT
\n
cases. The settlement amount to be paid by NWM Plc is
\n
covered by an existing provision.
\n
An FX-related class action, on behalf of \u2018consumers and end-
\n
user businesses\u2019, is proceeding in the SDNY against NWM Plc
\n
and others. In March 2022, the SDNY denied the plaintiffs\u2019
\n
motion for class certification. Plaintiffs sought an immediate
\n
appeal of the decision but the appellate court declined to
\n
review the decision. As a result, the case is proceeding on an
\n
individual, non-class basis, and the defendants are seeking
\n
summary judgment dismissing the individual claims.
\n
In May 2019, a cartel class action was filed in the Federal Court
\n
of Australia against NWM Plc and four other banks on behalf of
\n
persons who bought or sold currency through FX spots or
\n
forwards between 1 January 2008 and 15 October 2013 with a
\n
total transaction value exceeding AUD $0.5 million. The
\n
claimant has alleged that the banks, including NWM Plc,
\n
contravened Australian competition law by sharing information,
\n
coordinating conduct, widening spreads and manipulating FX
\n
rates for certain currency pairs during this period. NatWest
\n
Group plc and NWMSI have been named in the action as \u2018other
\n
cartel participants\u2019, but are not respondents. The claim was
\n
served in June 2019 and NWM Plc filed its defence in March
\n
2022.
\n
In July and December 2019, two separate applications seeking
\n
opt-out collective proceedings orders were filed in the CAT
\n
against NatWest Group plc, NWM Plc and other banks. Both
\n
applications were brought on behalf of persons who, between
\n
18 December 2007 and 31 January 2013, entered into a
\n
relevant FX spot or outright forward transaction in the EEA
\n
with a relevant financial institution or on an electronic
\n
communications network. In March 2022, the CAT declined to
\n
certify as collective proceedings either of the applications. In
\n
October 2022, the CAT granted permission for the applicants to
\n
appeal that decision to the Court of Appeal. Separately, the
\n
applicants have served judicial review proceedings, which are
\n
due to be heard together with the appeal to the Court of
\n
Appeal in April 2023.
\n
Two motions to certify FX-related class actions were filed in the
\n
Tel Aviv District Court in Israel in September and October 2018,
\n
and were subsequently consolidated into one motion. The
\n
consolidated motion to certify, which names The Royal Bank of
\n
Scotland plc (now NWM Plc) and several other banks as
\n
defendants, was served on NWM Plc in May 2020. The
\n
applicants have sought the court\u2019s permission to amend their
\n
motions to certify the class actions.
Litigation and regulatory matters
\n
NWM Plc has filed a motion challenging the permission granted
\n
by the court for the applicants to serve the consolidated motion
\n
outside the Israeli jurisdiction. That NWM Plc motion remains
\n
pending.
\n
In December 2021, a claim was issued in the Netherlands
\n
against NatWest Group plc, NWM Plc and NWM N.V. by
\n
Stichting FX Claims, seeking a declaration from the court that
\n
anti-competitive FX market conduct described in decisions of
\n
the European Commission (EC) of 16 May 2019 is unlawful,
\n
along with unspecified damages. The claimant has amended its
\n
claim to also refer to a December 2021 decision by the EC,
\n
which also described anti-competitive FX market conduct. The
\n
defendants are contesting the jurisdiction of the Dutch court.
\n
Certain other foreign exchange transaction related claims have
\n
been or may be threatened. NatWest Group cannot predict
\n
whether all or any of these claims will be pursued.
\n
Government securities antitrust litigation
\n
NWMSI and certain other US broker-dealers are defendants in
\n
a consolidated antitrust class action in the SDNY on behalf of
\n
persons who transacted in US Treasury securities or derivatives
\n
based on such instruments, including futures and options. The
\n
plaintiffs allege that the defendants rigged the US Treasury
\n
securities auction bidding process to deflate prices at which
\n
they bought such securities and colluded to increase the prices
\n
at which they sold such securities to the plaintiffs. In March
\n
2022, the SDNY dismissed the complaint, without leave to re-
\n
plead. The plaintiffs are appealing the dismissal.
\n
Class action antitrust claims commenced in March 2019 are
\n
pending in the SDNY against NWM Plc, NWMSI and other banks
\n
in respect of Euro-denominated bonds issued by European
\n
central banks (EGBs). The complaint alleges a conspiracy
\n
among dealers of EGBs to widen the bid-ask spreads they
\n
quoted to customers, thereby increasing the prices customers
\n
paid for the EGBs or decreasing the prices at which customers
\n
sold the bonds. The class consists of those who purchased or
\n
sold EGBs in the US between 2007 and 2012. In March 2022,
\n
the SDNY dismissed the claims against NWM Plc and NWMSI on
\n
the ground that the complaint\u2019s conspiracy allegations are
\n
insufficient. The plaintiffs have filed a motion for permission to
\n
file an amended complaint.
\n
Swaps antitrust litigation
\n
NWM Plc and other members of NatWest Group, including
\n
NatWest Group plc, as well as a number of other interest rate
\n
swap dealers, are defendants in several cases pending in the
\n
SDNY alleging violations of the US antitrust laws in the market
\n
for interest rate swaps. There is a consolidated class action
\n
complaint on behalf of persons who entered into interest rate
\n
swaps with the defendants, as well as non-class action claims
\n
by three swap execution facilities (TeraExchange, Javelin, and
\n
trueEx). The plaintiffs allege that the swap execution facilities
\n
would have successfully established exchange-like trading of
\n
interest rate swaps if the defendants had not unlawfully
\n
conspired to prevent that from happening through boycotts
\n
and other means. Discovery in these cases is complete, and the
\n
plaintiffs\u2019 motion for class certification remains pending.
\n
In June 2021, a class action antitrust complaint was filed
\n
against a number of credit default swap dealers in New Mexico
\n
federal court on behalf of persons who, from 2005 onwards,
\n
settled credit default swaps in the United States by reference to
\n
the ISDA credit default swap auction protocol. The complaint
\n
alleges that the defendants conspired to manipulate that
\n
benchmark through various means in violation of the antitrust
\n
laws and the Commodity Exchange Act.
\n
The defendants include several NatWest Group companies,
\n
including NatWest Group plc. Defendants are seeking dismissal.
\n
Odd lot corporate bond trading antitrust litigation
\n
In October 2021, the SDNY granted the defendants\u2019 motion to
\n
dismiss the class action antitrust complaint alleging that from
\n
August 2006 onwards various securities dealers, including
\n
NWMSI, conspired artificially to widen spreads for odd lots of
\n
corporate bonds bought or sold in the United States secondary
\n
market and to boycott electronic trading platforms that would
\n
have allegedly promoted pricing competition in the market for
\n
such bonds. The plaintiffs have filed an appeal.
\n
Spoofing litigation
\n
In December 2021, three substantially similar class actions
\n
complaints were filed in federal court in the United States
\n
against NWM Plc and NWMSI alleging Commodity Exchange
\n
Act and common law unjust enrichment claims arising from
\n
manipulative trading known as spoofing. The complaints refer
\n
to NWM Plc\u2019s December 2021 spoofing-related guilty plea
\n
(described below under \u201cUS investigations relating to fixed-
\n
income securities\u201d) and purport to assert claims on behalf of
\n
those who transacted in US Treasury securities and futures and
\n
options on US Treasury securities between 2008 and 2018. In
\n
July 2022, defendants filed a motion to dismiss these claims,
\n
which have been consolidated into one matter in the United
\n
States District Court for the Northern District of Illinois.
\n
Madoff
\n
NWM N.V. was named as a defendant in two actions filed by
\n
the trustee for the bankrupt estates of Bernard L. Madoff and
\n
Bernard L. Madoff Investment Securities LLC, in bankruptcy
\n
court in New York, which together seek to clawback more than
\n
US$298 million that NWM N.V. allegedly received from certain
\n
Madoff feeder funds and certain swap counterparties. The
\n
claims were previously dismissed, but as a result of an August
\n
2021 decision by the US Court of Appeals, they will now
\n
proceed in the bankruptcy court, where they have now been
\n
consolidated into one action, subject to NWM N.V.\u2019s legal and
\n
factual defences. In May 2022, NWM N.V. filed a motion to
\n
dismiss the amended complaint in the consolidated action.
\n
EUA trading litigation
\n
NWM Plc was a named defendant in civil proceedings before
\n
the High Court of Justice of England and Wales brought in 2015
\n
by ten
companies (all in liquidation) (the \u2018Liquidated
\n
Companies\u2019) and their respective liquidators (together, \u2018the
\n
Claimants\u2019). The Liquidated Companies previously traded in
\n
European Union Allowances (EUAs) in 2009 and were alleged
\n
to be VAT defaulting traders within (or otherwise connected to)
\n
EUA supply chains of which NWM Plc was a party. In March
\n
2020, the court held that NWM Plc and Mercuria Energy
\n
Europe Trading Limited (\u2018Mercuria\u2019) were liable for dishonestly
\n
assisting and knowingly being a party to fraudulent trading
\n
during a seven business day period in 2009.
\n
In October 2020, the High Court quantified total damages
\n
against NWM Plc and Mercuria at \u00a345 million plus interest and
\n
costs, and permitted the defendants to appeal to the Court of
\n
Appeal. In May 2021 the Court of Appeal set aside the High
\n
Court\u2019s judgment and ordered that a retrial take place before a
\n
different High Court judge. The claimants have been denied
\n
permission by the Supreme Court to appeal that decision and
\n
the retrial will therefore proceed on a date to be scheduled.
\n
Mercuria has also been denied permission by the Supreme
\n
Court to appeal the High Court\u2019s finding that NWM Plc and
\n
Mercuria were both vicariously liable.
Litigation and regulatory matters
\n
Offshoring VAT assessments
\n
HMRC issued protective tax assessments in 2018 against
\n
NatWest Group plc totalling \u00a3143 million relating to unpaid VAT
\n
in respect of the UK branches of two NatWest Group
\n
companies registered in India. NatWest Group formally
\n
requested reconsideration by HMRC of their assessments, and
\n
this process was completed in November 2020. HMRC upheld
\n
their original decision and, as a result, NatWest Group plc
\n
lodged an appeal with the Tax Tribunal and an application for
\n
judicial review with the High Court of Justice of England and
\n
Wales, both in December 2020. In order to lodge the appeal
\n
with the Tax Tribunal, NatWest Group plc was required to pay
\n
\u00a3143 million to HMRC, and payment was made in December
\n
2020. The appeal and the application for judicial review have
\n
both been stayed pending resolution of a separate case
\n
involving another bank.
\n
US Anti-Terrorism Act litigation
\n
NWM N.V. and certain other financial institutions are
\n
defendants in several actions filed by a number of US nationals
\n
(or their estates, survivors, or heirs), most of whom are or were
\n
US military personnel, who were killed or injured in attacks in
\n
Iraq between 2003 and 2011. NWM Plc is also a defendant in
\n
some of these cases.
\n
According to the plaintiffs\u2019 allegations, the defendants are liable
\n
for damages arising from the attacks because they allegedly
\n
conspired with Iran and certain Iranian banks to assist Iran in
\n
transferring money to Hezbollah and the Iraqi terror cells that
\n
committed the attacks, in violation of the US Anti-Terrorism
\n
Act, by agreeing to engage in \u2018stripping\u2019 of transactions
\n
initiated by the Iranian banks so that the Iranian nexus to the
\n
transactions would not be detected.
\n
The first of these actions was filed in the United States District
\n
Court for the Eastern District of New York in November 2014.
\n
In September 2019, the district court dismissed the case,
\n
finding that the claims were deficient for several reasons,
\n
including lack of sufficient allegations as to the alleged
\n
conspiracy and causation. On 5 January 2023, the US Court of
\n
Appeals affirmed the district court\u2019s dismissal of this case.
\n
Another action, filed in the SDNY in 2017, was dismissed by the
\n
SDNY in March 2019 on similar grounds as the first case, but
\n
remains subject to appeal to the US Court of Appeals. Other
\n
follow-on actions that are substantially similar to the two that
\n
have now been dismissed are pending in the same courts.
\n
1MDB litigation
\n
A Malaysian court claim was served in Switzerland in
\n
November 2022 by 1MDB, a Sovereign Wealth Fund, in which
\n
Coutts & Co Ltd was named, along with six others, as a
\n
defendant in respect of losses allegedly incurred by 1MDB. It is
\n
claimed that Coutts & Co Ltd is liable as a constructive trustee
\n
for having dishonestly assisted the directors of 1MDB in the
\n
breach of their fiduciary duties by failing (amongst other
\n
alleged claims) to undertake due diligence in relation to a
\n
customer of Coutts & Co Ltd, through which funds totalling
\n
c.US$1 billion were received and paid out between 2009 and
\n
2011. The claimant seeks the return of that amount plus
\n
interest. Coutts & Co Ltd filed an application in January 2023
\n
challenging the validity of service and the Malaysian court\u2019s
\n
jurisdiction to hear the claim. Coutts & Co Ltd is a company
\n
registered in Switzerland and is in wind-down following the
\n
announced sale of its business assets in 2015.
\n
Regulatory matters (including investigations and customer
\n
redress programmes)
\n
NatWest Group\u2019s businesses and financial condition can be
\n
affected by the actions of various governmental and regulatory
\n
authorities in the UK, the US, the EU and elsewhere. NatWest
\n
Group has engaged, and will continue to engage, in discussions
\n
with relevant governmental and regulatory authorities,
\n
including in the UK, the US, the EU and elsewhere, on an
\n
ongoing and regular basis, and in response to informal and
\n
formal inquiries or investigations, regarding operational,
\n
systems and control evaluations and issues including those
\n
related to compliance with applicable laws and regulations,
\n
including consumer protection, investment advice, business
\n
conduct, competition/anti-trust, VAT recovery, anti-bribery,
\n
anti-money laundering and sanctions regimes. NatWest Group
\n
expects government and regulatory intervention in financial
\n
services to be high for the foreseeable future, including
\n
increased scrutiny from competition and other regulators in the
\n
retail and SME business sectors.
\n
Any matters discussed or identified during such discussions and
\n
inquiries may result in, among other things, further inquiry or
\n
investigation, other action being taken by governmental and
\n
regulatory authorities, increased costs being incurred by
\n
NatWest Group, remediation of systems and controls, public or
\n
private censure, restriction of NatWest Group\u2019s business
\n
activities and/or fines. Any of the events or circumstances
\n
mentioned in this paragraph or below could have a material
\n
adverse effect on NatWest Group, its business, authorisations
\n
and licences, reputation, results of operations or the price of
\n
securities issued by it, or lead to material additional provisions
\n
being taken.
\n
NatWest Group is co-operating fully with the matters described
\n
below.
\n
US investigations relating to fixed-income securities
\n
In December 2021, NWM Plc pled guilty in the United States
\n
District Court for the District of Connecticut to one count of
\n
wire fraud and one count of securities fraud in connection with
\n
historical spoofing conduct by former employees in US
\n
Treasuries markets between January 2008 and May 2014 and,
\n
separately, during approximately three months in 2018. The
\n
2018 trading occurred during the term of a non-prosecution
\n
agreement (NPA) between NWMSI and the United States
\n
Attorney's Office for the District of Connecticut (USAO CT),
\n
under which non-prosecution was conditioned on NWMSI and
\n
affiliated companies not engaging in criminal conduct during
\n
the term of the NPA. The relevant trading in 2018 was
\n
conducted by two NWM traders in Singapore and breached
\n
that NPA. The plea agreement reached with the US
\n
Department of Justice and the USAO CT resolved both the
\n
spoofing conduct and the breach of the NPA.
\n
As required by the resolution and sentence imposed by the
\n
court, NWM Plc is subject to a three-year period of probation.
\n
The plea agreement also imposes an independent corporate
\n
monitor. In addition, NWM Plc has committed to compliance
\n
programme reviews and improvements and agreed to
\n
reporting and co-operation obligations.
\n
Other material adverse collateral consequences may occur as
\n
a result of this matter, as further described in the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
Litigation and regulatory matters
\n
RBSI inspection report and referral to enforcement
\n
The Isle of Man Financial Services Authority undertook an
\n
inspection at The Royal Bank of Scotland International Limited
\n
(RBSI), Isle of Man, in 2021, following which it issued an
\n
inspection report. The inspection was in relation to anti-money
\n
laundering and counter-terrorist financing controls and
\n
procedures relating to specific RBSI customers. In May 2022,
\n
the FSA notified RBSI that it had been referred to its
\n
Enforcement Division in relation to certain issues identified in
\n
the inspection report.
\n
RBSI reliance regime and referral to enforcement
\n
In January 2023, the Jersey Financial Services Commission
\n
notified RBSI that it had been referred to its Enforcement
\n
Division in relation to RBSI\u2019s operation of the reliance regime.
\n
The reliance regime is specific to certain Crown Dependencies
\n
and enables the bank to rely on regulated third parties for
\n
specific due diligence information.
\n
Investment advice review
\n
In October 2019, the FCA notified NatWest Group of its
\n
intention to appoint a Skilled Person under section 166 of the
\n
Financial Services and Markets Act 2000 to conduct a review of
\n
whether NatWest Group\u2019s past business review of investment
\n
advice provided during 2010 to 2015 was subject to
\n
appropriate governance and accountability and led to
\n
appropriate customer outcomes. The Skilled Person\u2019s review
\n
has concluded and, after discussion with the FCA, NatWest
\n
Group has now commenced additional review / remediation
\n
work.
\n
Review and investigation of treatment of tracker mortgage
\n
customers in Ulster Bank Ireland DAC
\n
In December 2015, correspondence was received from the CBI
\n
setting out an industry examination framework in respect of the
\n
sale of tracker mortgages from approximately 2001 until the
\n
end of 2015. The redress and compensation process has now
\n
largely concluded, although certain cases remain outstanding.
\n
UBIDAC customers have lodged tracker mortgage complaints
\n
with the Financial Services and Pensions Ombudsman (FSPO).
\n
UBIDAC is challenging three FSPO adjudications in the Irish
\n
High Court. The outcome and impact of that challenge on those
\n
and related complaints is uncertain but may be material.
\n
Other customer remediation in Ulster Bank Ireland DAC
\n
UBIDAC has identified further legacy business issues and these
\n
remediation programmes are ongoing.
", "dimensions": { "concept": "ifrs-full:DisclosureOfProvisionsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47717": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.11. Capital instruments
\n
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
19 Other financial liabilities
\n
Other financial liabilities consist of customer deposits designated at fair value and debt securities in issue.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.11.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Customer deposits - designated as at fair value through profit or loss
1,050
568
\n
Debt securities in issue
\n
- MRELs
22,265
23,422
\n
- Other medium term notes
16,419
12,430
\n
- Commercial paper and certificates of deposit
5,672
9,153
\n
- Covered bonds
2,842
2,886
\n
- Securitisation
859
867
\n
Total
49,107
49,326
21 Other liabilities
\n
Other liabilities are amounts due to third parties that are not financial liabilities including lease liabilities, amounts due for goods
\n
and services that have been received but not invoiced,
tax due to HMRC, and retirement benefit liabilities. Liabilities which have a
\n
level of uncertainty regarding their timing or the future cost to settle them are included in other liabilities as provisions for liabilities
\n
and charges.
\n
2022
2021
\n
Other liabilities
\u00a3m
\u00a3m
\n
Lease liabilities
1,118
1,263
\n
Provisions for liabilities and charges
1,138
1,268
\n
Retirement benefit liabilities (Note 5)
98
114
\n
Accruals
1,407
1,508
\n
Deferred income
355
319
\n
Current tax
55
12
\n
Deferred tax (Note 7)
227
359
\n
Acceptances
237
225
\n
Other liabilities
(1)
711
729
\n
5,346
5,797
\n
(1)
Other liabilities include liabilities of disposal groups of \u00a315 million (2021 - \u00a35 million). See Note 8 for further information.
\n
Customer redress
\n
(1)
\n
Litigation and
\n
other regulatory
\n
Property
\n
Financial
\n
commitments and
\n
guarantees
\n
Other (2)
Total
\n
Provisions for liabilities and charges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
474
277
231
93
193
1,268
\n
Expected credit loss impairment release
\u2014
\u2014
\u2014
(6)
\u2014
(6)
\n
Currency translation and other movements
2
20
\u2014
\u2014
7
29
\n
Charge to income statement
178
36
31
\u2014
193
438
\n
Release to income statement
(45)
(14)
(71)
\u2014
(60)
(190)
\n
Provisions utilised
(178)
(79)
(37)
\u2014
(107)
(401)
\n
At 31 December 2022
431
240
154
87
226
1,138
\n
(1)
Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint
\n
deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group
\n
continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.
\n
(2)
Other materially comprises provisions relating to restructuring costs.
\n
Provisions are liabilities of uncertain timing or amount and are
\n
recognised when there is a present obligation as a result of a
\n
past event, the outflow of economic benefit is probable and the
\n
outflow can be estimated reliably. Any difference between the
\n
final outcome and the amounts provided will affect the reported
\n
results in the period when the matter is resolved.
\n
For accounting policy information see Accounting policies note
\n
2.4.
\n
Critical accounting policy: Provisions for liabilities
\n
The key judgment is involved in determining whether a present
\n
obligation exists. There is often a high degree of uncertainty
\n
and judgment is based on the specific facts and circumstances
\n
relating to individual events in determining whether there is a
\n
present obligation. Judgment is also involved in estimation of
\n
the probability, timing and amount of any outflows. Where
\n
NatWest Group can look to another party such as an insurer to
\n
pay some or all of the expenditure required to settle a
\n
provision, any reimbursement is recognised when, and only
\n
when, it is virtually certain that it will be received.
\n
Estimates -
Provisions are liabilities of uncertain timing or
\n
amount and are recognised when there is a present obligation
\n
as a result of a past event, the outflow of economic benefit is
\n
probable and the outflow can be estimated reliably.
\n
Any difference between the final outcome and the amounts
\n
provided will affect the reported results in the period when the
\n
matter is resolved.
\n
\ue001
Customer redress: Provisions reflect the estimated cost of
\n
redress attributable to claims where it is determined that a
\n
present obligation exists.
\n
\ue001
Litigation and other regulatory: NatWest Group is engaged
\n
in various legal proceedings, both in the UK and in overseas
\n
jurisdictions, including the US. For further information in
\n
relation to legal proceedings and discussion of the
\n
associated uncertainties, refer to Note 26.
\n
\ue001
Property: This includes provision for contractual costs
\n
associated with vacant properties.
\n
\ue001
Other provisions: These materially comprise provisions for
\n
onerous contracts and restructuring costs. Onerous
\n
contract provisions comprise an estimate of the costs
\n
involved in fulfilling the terms and conditions of contracts
\n
net of any expected benefits to be received. This includes
\n
provision for contractual costs associated with vacant
\n
properties. Redundancy and restructuring provisions
\n
comprise the estimated cost of restructuring, including
\n
redundancy costs where an obligation exists.
\n
Background information for all material provisions is given in
\n
Note 26
.
26 Memorandum items
\n
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
\n
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
\n
December 2022. Although NatWest Group is exposed to credit risk in the event of a customer\u2019s failure to meet its obligations, the
\n
amounts shown do not, and are not intended to, provide any indication of NatWest Group's expectation of future losses.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Guarantees
3,150
2,055
\n
Other contingent liabilities
1,855
2,004
\n
Standby facilities, credit lines and other commitments
121,576
121,308
\n
Contingent liabilities and commitments
126,581
125,367
\n
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
\n
Guarantees \u2013 NatWest Group gives guarantees on behalf of
\n
customers. A financial guarantee represents an irrevocable
\n
undertaking that NatWest Group will meet a customer's
\n
specified obligations to third party if the customer fails to do so.
\n
The maximum amount that NatWest Group could be required
\n
to pay under a guarantee is its principal amount as disclosed in
\n
the table above. NatWest Group expects most guarantees it
\n
provides to expire unused.
\n
Other contingent liabilities - these include standby letters of
\n
credit, supporting customer debt issues and contingent
\n
liabilities relating to customer trading activities such as those
\n
arising from performance and customs bonds, warranties and
\n
indemnities.
\n
Standby facilities and credit lines - under a loan commitment,
\n
NatWest Group agrees to make funds available to a customer
\n
in the future. Loan commitments, which are usually for a
\n
specified term, may be unconditionally cancellable or may
\n
persist, provided all conditions in the loan facility are satisfied
\n
or waived. Commitments to lend include commercial standby
\n
facilities and credit lines, liquidity facilities to commercial paper
\n
conduits and unutilised overdraft facilities.
\n
Other commitments - these include documentary credits, which
\n
are commercial letters of credit providing for payment by
\n
NatWest Group to a named beneficiary against presentation of
\n
specified documents, forward asset purchases, forward
\n
deposits placed and undrawn note issuance and revolving
\n
underwriting facilities, and other short-term trade related
\n
transactions.
\n
Contractual obligations for future expenditure not provided for in the accounts
\n
The following table shows contractual obligations for future expenditure not provided for in the accounts at the year end.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Capital expenditure on property, plant and equipment
8
16
\n
Contracts to purchase goods or services
(1)
677
682
\n
685
698
\n
(1)
Of which due within 1 year: \u00a3321 million (2021 \u2013 \u00a3301 million).
Trustee and other fiduciary activities
\n
In its capacity as trustee or other fiduciary role, NatWest Group
\n
may hold or place assets on behalf of individuals, trusts,
\n
companies, pension schemes and others. The assets and their
\n
income are not included in NatWest Group's financial
\n
statements. NatWest Group earned fee income of \u00a3266 million
\n
(2021 - \u00a3280 million; 2020 - \u00a3245 million) from these activities.
\n
The Financial Services Compensation Scheme
\n
The Financial Services Compensation Scheme (FSCS), the UK's
\n
statutory fund of last resort for customers of authorised
\n
financial services firms, pays compensation if a firm is unable to
\n
meet its obligations. The FSCS funds compensation for
\n
customers by raising management expenses levies and
\n
compensation levies on the industry. In relation to protected
\n
deposits, each deposit-taking institution contributes towards
\n
these levies in proportion to their share of total protected
\n
deposits on 31 December of the year preceding the scheme
\n
year (which runs from 1 April to 31 March), subject to annual
\n
maxima set by the Prudential Regulation Authority. In addition,
\n
the FSCS has the power to raise levies on a firm that has
\n
ceased to participate in the scheme and is in the process of
\n
ceasing to be authorised for the costs that it would have been
\n
liable to pay had the FSCS made a levy in the financial year it
\n
ceased to be a participant in the scheme.
\n
Litigation and regulatory matters
\n
NatWest Group plc and certain members of NatWest Group are
\n
party to legal proceedings and involved in regulatory matters,
\n
including as the subject of investigations and other regulatory
\n
and governmental action (Matters) in the United Kingdom (UK),
\n
the United States (US), the European Union (EU) and other
\n
jurisdictions.
\n
NatWest Group recognises a provision for a liability in relation
\n
to these Matters when it is probable that an outflow of
\n
economic benefits will be required to settle an obligation
\n
resulting from past events, and a reliable estimate can be made
\n
of the amount of the obligation.
\n
In many of these Matters, it is not possible to determine
\n
whether any loss is probable, or to estimate reliably the amount
\n
of any loss, either as a direct consequence of the relevant
\n
proceedings and regulatory matters or as a result of adverse
\n
impacts or restrictions on NatWest Group\u2019s reputation,
\n
businesses and operations. Numerous legal and factual issues
\n
may need to be resolved, including through potentially lengthy
\n
discovery and document production exercises and
\n
determination of important factual matters, and by addressing
\n
novel or unsettled legal questions relevant to the proceedings in
\n
question, before a liability can reasonably be estimated for any
\n
claim. NatWest Group cannot predict if, how, or when such
\n
claims will be resolved or what the eventual settlement,
\n
damages, fine, penalty or other relief, if any, may be,
\n
particularly for claims that are at an early stage in their
\n
development or where claimants seek substantial or
\n
indeterminate damages.
\n
There are situations where NatWest Group may pursue an
\n
approach that in some instances leads to a settlement
\n
agreement. This may occur in order to avoid the expense,
\n
management distraction or reputational implications of
\n
continuing to contest liability, or in order to take account of the
\n
risks inherent in defending claims or regulatory matters, even
\n
for those Matters for which NatWest Group believes it has
\n
credible defences and should prevail on the merits. The
\n
uncertainties inherent in all such Matters affect the amount and
\n
timing of any potential outflows for both Matters with respect
\n
to which provisions have been established and other contingent
\n
liabilities in respect of any such Matter.
\n
It is not practicable to provide an aggregate estimate of
\n
potential liability for our legal proceedings and regulatory
\n
matters as a class of contingent liabilities.
\n
The future outflow of resources in respect of any Matter may
\n
ultimately prove to be substantially greater than or less than
\n
the aggregate provision that NatWest Group has recognised.
\n
Where (and as far as) liability cannot be reasonably estimated,
\n
no provision has been recognised. NatWest Group expects that
\n
in future periods, additional provisions, settlement amounts and
\n
customer redress payments will be necessary, in amounts that
\n
are expected to be substantial in some instances. Please refer
\n
to Note 21 for information on material provisions.
\n
Matters which are, or could be material, having regard to
\n
NatWest Group, considered as a whole, in which NatWest
\n
Group is currently involved are set out below. We have
\n
provided information on the procedural history of certain
\n
Matters, where we believe appropriate, to aid the
\n
understanding of the Matter.
\n
For a discussion of certain risks associated with NatWest
\n
Group\u2019s litigation and regulatory matters, see the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
\n
Litigation
\n
Residential mortgage-backed securities (RMBS) litigation in
\n
the US
\n
NatWest Group companies continue to defend RMBS-related
\n
claims in the US in which the plaintiff, the Federal Deposit
\n
Insurance Corporation (FDIC), alleges that certain disclosures
\n
made in connection with the relevant offerings of RMBS
\n
contained materially false or misleading statements and/or
\n
omissions regarding the underwriting standards pursuant to
\n
which the mortgage loans underlying the RMBS were issued.
\n
London Interbank Offered Rate (LIBOR) and other rates
\n
litigation
\n
NWM Plc and certain other members of NatWest Group,
\n
including NatWest Group plc, are defendants in a number of
\n
class actions and individual claims pending in the United States
\n
District Court for the Southern District of New York (SDNY)
\n
with respect to the setting of LIBOR and certain other
\n
benchmark interest rates. The complaints allege that certain
\n
members of NatWest Group and other panel banks violated
\n
various federal laws, including the US commodities and
\n
antitrust laws, and state statutory and common law, as well as
\n
contracts, by manipulating LIBOR and prices of LIBOR-based
\n
derivatives in various markets through various means.
\n
Several purported class actions relating to USD LIBOR, as well
\n
as more than two dozen non-class actions concerning USD
\n
LIBOR, are part of a co-ordinated proceeding in the SDNY. The
\n
class actions include claims on behalf of persons who
\n
purchased LIBOR-linked instruments from defendants, bonds
\n
issued by defendants, persons who transacted futures and
\n
options on exchanges, and lenders who made LIBOR-based
\n
loans. The coordinated proceeding is currently in the discovery
\n
phase. In March 2020, NatWest Group companies finalised a
\n
settlement resolving the class action on behalf of bondholder
\n
plaintiffs (those who held bonds issued by non-defendants on
\n
which interest was paid from 2007 to 2010 at a rate expressly
\n
tied to USD LIBOR). The amount of the settlement (which was
\n
covered by an existing provision) was paid into escrow pending
\n
court approval of the settlement.
Litigation and regulatory matters
\n
The non-class claims filed in the SDNY include claims that the
\n
FDIC is asserting on behalf of certain failed US banks. In July
\n
2017, the FDIC, on behalf of 39 of those failed US banks,
\n
commenced substantially similar claims against NatWest Group
\n
companies and others in the High Court of Justice of England
\n
and Wales. The action alleges collusion with regard to the
\n
setting of USD LIBOR and that the defendants breached UK
\n
and European competition law, as well as asserting common
\n
law claims of fraud under US law. The defendant banks
\n
consented to a request by the FDIC for discontinuance of the
\n
claim in respect of 20 failed US banks, leaving 19 failed US
\n
banks as claimants. The trial is currently anticipated to take
\n
place in Q4 2025.
\n
In addition to the USD LIBOR cases described above, there are
\n
two class actions relating to JPY LIBOR and Euroyen TIBOR
\n
that remain outstanding. The first class action, which relates to
\n
Euroyen TIBOR futures contracts, was dismissed by the SDNY
\n
in September 2020 on jurisdictional and other grounds, and
\n
that decision was affirmed by the US Court of Appeals in
\n
October 2022. The plaintiffs have petitioned the court for a
\n
rehearing of their appeal. The second class action, which
\n
relates to other derivatives allegedly tied to JPY LIBOR and
\n
Euroyen TIBOR, was dismissed by the SDNY in relation to NWM
\n
Plc and other NatWest Group companies in September 2021.
\n
That dismissal may be the subject of a future appeal
.
\n
Two other IBOR-related class actions, concerning alleged
\n
manipulation of Euribor and Pound Sterling LIBOR, were
\n
previously dismissed by the SDNY for various reasons. The
\n
plaintiffs\u2019 appeals in those two cases remain pending.
\n
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc
\n
LIBOR class action finalised a settlement resolving that case.
\n
The amount of that settlement has been paid into escrow
\n
pending final court approval of the settlement.
\n
Settlements in the class action relating to the Singapore
\n
Interbank Offered Rate and Singapore Swap Offer Rate and the
\n
class action relating to the Australian Bank Bill Swap Reference
\n
Rate received court approval in 2022, such that the settlements
\n
became final and the amounts previously paid into escrow
\n
were released to the plaintiffs.
\n
In August 2020, a complaint was filed in the United States
\n
District Court for the Northern District of California by several
\n
United States retail borrowers against the USD ICE LIBOR
\n
panel banks and their affiliates (including NatWest Group plc,
\n
NWM Plc, NWMSI and NWB Plc), alleging (i) that the very
\n
process of setting USD ICE LIBOR amounts to illegal price-
\n
fixing; and (ii) that banks in the United States have illegally
\n
agreed to use LIBOR as a component of price in variable retail
\n
loans. In September 2022, the district court dismissed the
\n
complaint, subject to re-pleading by the plaintiffs. The plaintiffs
\n
filed an amended complaint in October 2022, which the
\n
defendants are again seeking to have dismissed.
\n
NWM Plc is also named as a defendant in a motion to certify a
\n
class action relating to LIBOR in the Tel Aviv District Court in
\n
Israel. NWM Plc filed a motion for cancellation of service
\n
outside the jurisdiction, which was granted in July 2020. The
\n
claimants appealed that decision and in November 2020 the
\n
appeal was refused and the claim dismissed by the Appellate
\n
Court. The claim could in future be recommenced depending
\n
on the outcome of an appeal to Israel\u2019s Supreme Court in
\n
respect of the dismissal of the substantive case against banks
\n
that had a presence in Israel.
\n
FX litigation
\n
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
\n
several cases relating to NWM Plc\u2019s foreign exchange (FX)
\n
business. In 2015, NWM Plc paid US$255 million to settle the
\n
consolidated antitrust class action filed in the SDNY on behalf
\n
of persons who entered into over-the-counter FX transactions
\n
with defendants or who traded FX instruments on exchanges.
\n
In 2018, some members of the settlement class who opted out
\n
of that class action settlement filed their own non-class
\n
complaint in the SDNY asserting antitrust claims against NWM
\n
Plc, NWMSI and other banks.
\n
In April 2019, some of the claimants in the opt-out case
\n
described above, as well as others, served proceedings in the
\n
High Court of Justice of England and Wales, asserting
\n
competition claims against NWM Plc and several other banks.
\n
The claim was transferred from the High Court of Justice of
\n
England and Wales in December 2021 and registered in the UK
\n
Competition Appeal Tribunal (CAT) in January 2022. In
\n
December 2022, NWM Plc reached an agreement in principle,
\n
subject to documentation, to resolve both the SDNY and CAT
\n
cases. The settlement amount to be paid by NWM Plc is
\n
covered by an existing provision.
\n
An FX-related class action, on behalf of \u2018consumers and end-
\n
user businesses\u2019, is proceeding in the SDNY against NWM Plc
\n
and others. In March 2022, the SDNY denied the plaintiffs\u2019
\n
motion for class certification. Plaintiffs sought an immediate
\n
appeal of the decision but the appellate court declined to
\n
review the decision. As a result, the case is proceeding on an
\n
individual, non-class basis, and the defendants are seeking
\n
summary judgment dismissing the individual claims.
\n
In May 2019, a cartel class action was filed in the Federal Court
\n
of Australia against NWM Plc and four other banks on behalf of
\n
persons who bought or sold currency through FX spots or
\n
forwards between 1 January 2008 and 15 October 2013 with a
\n
total transaction value exceeding AUD $0.5 million. The
\n
claimant has alleged that the banks, including NWM Plc,
\n
contravened Australian competition law by sharing information,
\n
coordinating conduct, widening spreads and manipulating FX
\n
rates for certain currency pairs during this period. NatWest
\n
Group plc and NWMSI have been named in the action as \u2018other
\n
cartel participants\u2019, but are not respondents. The claim was
\n
served in June 2019 and NWM Plc filed its defence in March
\n
2022.
\n
In July and December 2019, two separate applications seeking
\n
opt-out collective proceedings orders were filed in the CAT
\n
against NatWest Group plc, NWM Plc and other banks. Both
\n
applications were brought on behalf of persons who, between
\n
18 December 2007 and 31 January 2013, entered into a
\n
relevant FX spot or outright forward transaction in the EEA
\n
with a relevant financial institution or on an electronic
\n
communications network. In March 2022, the CAT declined to
\n
certify as collective proceedings either of the applications. In
\n
October 2022, the CAT granted permission for the applicants to
\n
appeal that decision to the Court of Appeal. Separately, the
\n
applicants have served judicial review proceedings, which are
\n
due to be heard together with the appeal to the Court of
\n
Appeal in April 2023.
\n
Two motions to certify FX-related class actions were filed in the
\n
Tel Aviv District Court in Israel in September and October 2018,
\n
and were subsequently consolidated into one motion. The
\n
consolidated motion to certify, which names The Royal Bank of
\n
Scotland plc (now NWM Plc) and several other banks as
\n
defendants, was served on NWM Plc in May 2020. The
\n
applicants have sought the court\u2019s permission to amend their
\n
motions to certify the class actions.
Litigation and regulatory matters
\n
NWM Plc has filed a motion challenging the permission granted
\n
by the court for the applicants to serve the consolidated motion
\n
outside the Israeli jurisdiction. That NWM Plc motion remains
\n
pending.
\n
In December 2021, a claim was issued in the Netherlands
\n
against NatWest Group plc, NWM Plc and NWM N.V. by
\n
Stichting FX Claims, seeking a declaration from the court that
\n
anti-competitive FX market conduct described in decisions of
\n
the European Commission (EC) of 16 May 2019 is unlawful,
\n
along with unspecified damages. The claimant has amended its
\n
claim to also refer to a December 2021 decision by the EC,
\n
which also described anti-competitive FX market conduct. The
\n
defendants are contesting the jurisdiction of the Dutch court.
\n
Certain other foreign exchange transaction related claims have
\n
been or may be threatened. NatWest Group cannot predict
\n
whether all or any of these claims will be pursued.
\n
Government securities antitrust litigation
\n
NWMSI and certain other US broker-dealers are defendants in
\n
a consolidated antitrust class action in the SDNY on behalf of
\n
persons who transacted in US Treasury securities or derivatives
\n
based on such instruments, including futures and options. The
\n
plaintiffs allege that the defendants rigged the US Treasury
\n
securities auction bidding process to deflate prices at which
\n
they bought such securities and colluded to increase the prices
\n
at which they sold such securities to the plaintiffs. In March
\n
2022, the SDNY dismissed the complaint, without leave to re-
\n
plead. The plaintiffs are appealing the dismissal.
\n
Class action antitrust claims commenced in March 2019 are
\n
pending in the SDNY against NWM Plc, NWMSI and other banks
\n
in respect of Euro-denominated bonds issued by European
\n
central banks (EGBs). The complaint alleges a conspiracy
\n
among dealers of EGBs to widen the bid-ask spreads they
\n
quoted to customers, thereby increasing the prices customers
\n
paid for the EGBs or decreasing the prices at which customers
\n
sold the bonds. The class consists of those who purchased or
\n
sold EGBs in the US between 2007 and 2012. In March 2022,
\n
the SDNY dismissed the claims against NWM Plc and NWMSI on
\n
the ground that the complaint\u2019s conspiracy allegations are
\n
insufficient. The plaintiffs have filed a motion for permission to
\n
file an amended complaint.
\n
Swaps antitrust litigation
\n
NWM Plc and other members of NatWest Group, including
\n
NatWest Group plc, as well as a number of other interest rate
\n
swap dealers, are defendants in several cases pending in the
\n
SDNY alleging violations of the US antitrust laws in the market
\n
for interest rate swaps. There is a consolidated class action
\n
complaint on behalf of persons who entered into interest rate
\n
swaps with the defendants, as well as non-class action claims
\n
by three swap execution facilities (TeraExchange, Javelin, and
\n
trueEx). The plaintiffs allege that the swap execution facilities
\n
would have successfully established exchange-like trading of
\n
interest rate swaps if the defendants had not unlawfully
\n
conspired to prevent that from happening through boycotts
\n
and other means. Discovery in these cases is complete, and the
\n
plaintiffs\u2019 motion for class certification remains pending.
\n
In June 2021, a class action antitrust complaint was filed
\n
against a number of credit default swap dealers in New Mexico
\n
federal court on behalf of persons who, from 2005 onwards,
\n
settled credit default swaps in the United States by reference to
\n
the ISDA credit default swap auction protocol. The complaint
\n
alleges that the defendants conspired to manipulate that
\n
benchmark through various means in violation of the antitrust
\n
laws and the Commodity Exchange Act.
\n
The defendants include several NatWest Group companies,
\n
including NatWest Group plc. Defendants are seeking dismissal.
\n
Odd lot corporate bond trading antitrust litigation
\n
In October 2021, the SDNY granted the defendants\u2019 motion to
\n
dismiss the class action antitrust complaint alleging that from
\n
August 2006 onwards various securities dealers, including
\n
NWMSI, conspired artificially to widen spreads for odd lots of
\n
corporate bonds bought or sold in the United States secondary
\n
market and to boycott electronic trading platforms that would
\n
have allegedly promoted pricing competition in the market for
\n
such bonds. The plaintiffs have filed an appeal.
\n
Spoofing litigation
\n
In December 2021, three substantially similar class actions
\n
complaints were filed in federal court in the United States
\n
against NWM Plc and NWMSI alleging Commodity Exchange
\n
Act and common law unjust enrichment claims arising from
\n
manipulative trading known as spoofing. The complaints refer
\n
to NWM Plc\u2019s December 2021 spoofing-related guilty plea
\n
(described below under \u201cUS investigations relating to fixed-
\n
income securities\u201d) and purport to assert claims on behalf of
\n
those who transacted in US Treasury securities and futures and
\n
options on US Treasury securities between 2008 and 2018. In
\n
July 2022, defendants filed a motion to dismiss these claims,
\n
which have been consolidated into one matter in the United
\n
States District Court for the Northern District of Illinois.
\n
Madoff
\n
NWM N.V. was named as a defendant in two actions filed by
\n
the trustee for the bankrupt estates of Bernard L. Madoff and
\n
Bernard L. Madoff Investment Securities LLC, in bankruptcy
\n
court in New York, which together seek to clawback more than
\n
US$298 million that NWM N.V. allegedly received from certain
\n
Madoff feeder funds and certain swap counterparties. The
\n
claims were previously dismissed, but as a result of an August
\n
2021 decision by the US Court of Appeals, they will now
\n
proceed in the bankruptcy court, where they have now been
\n
consolidated into one action, subject to NWM N.V.\u2019s legal and
\n
factual defences. In May 2022, NWM N.V. filed a motion to
\n
dismiss the amended complaint in the consolidated action.
\n
EUA trading litigation
\n
NWM Plc was a named defendant in civil proceedings before
\n
the High Court of Justice of England and Wales brought in 2015
\n
by ten
companies (all in liquidation) (the \u2018Liquidated
\n
Companies\u2019) and their respective liquidators (together, \u2018the
\n
Claimants\u2019). The Liquidated Companies previously traded in
\n
European Union Allowances (EUAs) in 2009 and were alleged
\n
to be VAT defaulting traders within (or otherwise connected to)
\n
EUA supply chains of which NWM Plc was a party. In March
\n
2020, the court held that NWM Plc and Mercuria Energy
\n
Europe Trading Limited (\u2018Mercuria\u2019) were liable for dishonestly
\n
assisting and knowingly being a party to fraudulent trading
\n
during a seven business day period in 2009.
\n
In October 2020, the High Court quantified total damages
\n
against NWM Plc and Mercuria at \u00a345 million plus interest and
\n
costs, and permitted the defendants to appeal to the Court of
\n
Appeal. In May 2021 the Court of Appeal set aside the High
\n
Court\u2019s judgment and ordered that a retrial take place before a
\n
different High Court judge. The claimants have been denied
\n
permission by the Supreme Court to appeal that decision and
\n
the retrial will therefore proceed on a date to be scheduled.
\n
Mercuria has also been denied permission by the Supreme
\n
Court to appeal the High Court\u2019s finding that NWM Plc and
\n
Mercuria were both vicariously liable.
Litigation and regulatory matters
\n
Offshoring VAT assessments
\n
HMRC issued protective tax assessments in 2018 against
\n
NatWest Group plc totalling \u00a3143 million relating to unpaid VAT
\n
in respect of the UK branches of two NatWest Group
\n
companies registered in India. NatWest Group formally
\n
requested reconsideration by HMRC of their assessments, and
\n
this process was completed in November 2020. HMRC upheld
\n
their original decision and, as a result, NatWest Group plc
\n
lodged an appeal with the Tax Tribunal and an application for
\n
judicial review with the High Court of Justice of England and
\n
Wales, both in December 2020. In order to lodge the appeal
\n
with the Tax Tribunal, NatWest Group plc was required to pay
\n
\u00a3143 million to HMRC, and payment was made in December
\n
2020. The appeal and the application for judicial review have
\n
both been stayed pending resolution of a separate case
\n
involving another bank.
\n
US Anti-Terrorism Act litigation
\n
NWM N.V. and certain other financial institutions are
\n
defendants in several actions filed by a number of US nationals
\n
(or their estates, survivors, or heirs), most of whom are or were
\n
US military personnel, who were killed or injured in attacks in
\n
Iraq between 2003 and 2011. NWM Plc is also a defendant in
\n
some of these cases.
\n
According to the plaintiffs\u2019 allegations, the defendants are liable
\n
for damages arising from the attacks because they allegedly
\n
conspired with Iran and certain Iranian banks to assist Iran in
\n
transferring money to Hezbollah and the Iraqi terror cells that
\n
committed the attacks, in violation of the US Anti-Terrorism
\n
Act, by agreeing to engage in \u2018stripping\u2019 of transactions
\n
initiated by the Iranian banks so that the Iranian nexus to the
\n
transactions would not be detected.
\n
The first of these actions was filed in the United States District
\n
Court for the Eastern District of New York in November 2014.
\n
In September 2019, the district court dismissed the case,
\n
finding that the claims were deficient for several reasons,
\n
including lack of sufficient allegations as to the alleged
\n
conspiracy and causation. On 5 January 2023, the US Court of
\n
Appeals affirmed the district court\u2019s dismissal of this case.
\n
Another action, filed in the SDNY in 2017, was dismissed by the
\n
SDNY in March 2019 on similar grounds as the first case, but
\n
remains subject to appeal to the US Court of Appeals. Other
\n
follow-on actions that are substantially similar to the two that
\n
have now been dismissed are pending in the same courts.
\n
1MDB litigation
\n
A Malaysian court claim was served in Switzerland in
\n
November 2022 by 1MDB, a Sovereign Wealth Fund, in which
\n
Coutts & Co Ltd was named, along with six others, as a
\n
defendant in respect of losses allegedly incurred by 1MDB. It is
\n
claimed that Coutts & Co Ltd is liable as a constructive trustee
\n
for having dishonestly assisted the directors of 1MDB in the
\n
breach of their fiduciary duties by failing (amongst other
\n
alleged claims) to undertake due diligence in relation to a
\n
customer of Coutts & Co Ltd, through which funds totalling
\n
c.US$1 billion were received and paid out between 2009 and
\n
2011. The claimant seeks the return of that amount plus
\n
interest. Coutts & Co Ltd filed an application in January 2023
\n
challenging the validity of service and the Malaysian court\u2019s
\n
jurisdiction to hear the claim. Coutts & Co Ltd is a company
\n
registered in Switzerland and is in wind-down following the
\n
announced sale of its business assets in 2015.
\n
Regulatory matters (including investigations and customer
\n
redress programmes)
\n
NatWest Group\u2019s businesses and financial condition can be
\n
affected by the actions of various governmental and regulatory
\n
authorities in the UK, the US, the EU and elsewhere. NatWest
\n
Group has engaged, and will continue to engage, in discussions
\n
with relevant governmental and regulatory authorities,
\n
including in the UK, the US, the EU and elsewhere, on an
\n
ongoing and regular basis, and in response to informal and
\n
formal inquiries or investigations, regarding operational,
\n
systems and control evaluations and issues including those
\n
related to compliance with applicable laws and regulations,
\n
including consumer protection, investment advice, business
\n
conduct, competition/anti-trust, VAT recovery, anti-bribery,
\n
anti-money laundering and sanctions regimes. NatWest Group
\n
expects government and regulatory intervention in financial
\n
services to be high for the foreseeable future, including
\n
increased scrutiny from competition and other regulators in the
\n
retail and SME business sectors.
\n
Any matters discussed or identified during such discussions and
\n
inquiries may result in, among other things, further inquiry or
\n
investigation, other action being taken by governmental and
\n
regulatory authorities, increased costs being incurred by
\n
NatWest Group, remediation of systems and controls, public or
\n
private censure, restriction of NatWest Group\u2019s business
\n
activities and/or fines. Any of the events or circumstances
\n
mentioned in this paragraph or below could have a material
\n
adverse effect on NatWest Group, its business, authorisations
\n
and licences, reputation, results of operations or the price of
\n
securities issued by it, or lead to material additional provisions
\n
being taken.
\n
NatWest Group is co-operating fully with the matters described
\n
below.
\n
US investigations relating to fixed-income securities
\n
In December 2021, NWM Plc pled guilty in the United States
\n
District Court for the District of Connecticut to one count of
\n
wire fraud and one count of securities fraud in connection with
\n
historical spoofing conduct by former employees in US
\n
Treasuries markets between January 2008 and May 2014 and,
\n
separately, during approximately three months in 2018. The
\n
2018 trading occurred during the term of a non-prosecution
\n
agreement (NPA) between NWMSI and the United States
\n
Attorney's Office for the District of Connecticut (USAO CT),
\n
under which non-prosecution was conditioned on NWMSI and
\n
affiliated companies not engaging in criminal conduct during
\n
the term of the NPA. The relevant trading in 2018 was
\n
conducted by two NWM traders in Singapore and breached
\n
that NPA. The plea agreement reached with the US
\n
Department of Justice and the USAO CT resolved both the
\n
spoofing conduct and the breach of the NPA.
\n
As required by the resolution and sentence imposed by the
\n
court, NWM Plc is subject to a three-year period of probation.
\n
The plea agreement also imposes an independent corporate
\n
monitor. In addition, NWM Plc has committed to compliance
\n
programme reviews and improvements and agreed to
\n
reporting and co-operation obligations.
\n
Other material adverse collateral consequences may occur as
\n
a result of this matter, as further described in the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
Litigation and regulatory matters
\n
RBSI inspection report and referral to enforcement
\n
The Isle of Man Financial Services Authority undertook an
\n
inspection at The Royal Bank of Scotland International Limited
\n
(RBSI), Isle of Man, in 2021, following which it issued an
\n
inspection report. The inspection was in relation to anti-money
\n
laundering and counter-terrorist financing controls and
\n
procedures relating to specific RBSI customers. In May 2022,
\n
the FSA notified RBSI that it had been referred to its
\n
Enforcement Division in relation to certain issues identified in
\n
the inspection report.
\n
RBSI reliance regime and referral to enforcement
\n
In January 2023, the Jersey Financial Services Commission
\n
notified RBSI that it had been referred to its Enforcement
\n
Division in relation to RBSI\u2019s operation of the reliance regime.
\n
The reliance regime is specific to certain Crown Dependencies
\n
and enables the bank to rely on regulated third parties for
\n
specific due diligence information.
\n
Investment advice review
\n
In October 2019, the FCA notified NatWest Group of its
\n
intention to appoint a Skilled Person under section 166 of the
\n
Financial Services and Markets Act 2000 to conduct a review of
\n
whether NatWest Group\u2019s past business review of investment
\n
advice provided during 2010 to 2015 was subject to
\n
appropriate governance and accountability and led to
\n
appropriate customer outcomes. The Skilled Person\u2019s review
\n
has concluded and, after discussion with the FCA, NatWest
\n
Group has now commenced additional review / remediation
\n
work.
\n
Review and investigation of treatment of tracker mortgage
\n
customers in Ulster Bank Ireland DAC
\n
In December 2015, correspondence was received from the CBI
\n
setting out an industry examination framework in respect of the
\n
sale of tracker mortgages from approximately 2001 until the
\n
end of 2015. The redress and compensation process has now
\n
largely concluded, although certain cases remain outstanding.
\n
UBIDAC customers have lodged tracker mortgage complaints
\n
with the Financial Services and Pensions Ombudsman (FSPO).
\n
UBIDAC is challenging three FSPO adjudications in the Irish
\n
High Court. The outcome and impact of that challenge on those
\n
and related complaints is uncertain but may be material.
\n
Other customer remediation in Ulster Bank Ireland DAC
\n
UBIDAC has identified further legacy business issues and these
\n
remediation programmes are ongoing.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAccruedExpensesAndOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47718": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
\n
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
\n
December 2022. Although NatWest Group is exposed to credit risk in the event of a customer\u2019s failure to meet its obligations, the
\n
amounts shown do not, and are not intended to, provide any indication of NatWest Group's expectation of future losses.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Guarantees
3,150
2,055
\n
Other contingent liabilities
1,855
2,004
\n
Standby facilities, credit lines and other commitments
121,576
121,308
\n
Contingent liabilities and commitments
126,581
125,367
\n
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47719": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
Other contingent liabilities - these include standby letters of
\n
credit, supporting customer debt issues and contingent
\n
liabilities relating to customer trading activities such as those
\n
arising from performance and customs bonds, warranties and
\n
indemnities.
There are situations where NatWest Group may pursue an
\n
approach that in some instances leads to a settlement
\n
agreement. This may occur in order to avoid the expense,
\n
management distraction or reputational implications of
\n
continuing to contest liability, or in order to take account of the
\n
risks inherent in defending claims or regulatory matters, even
\n
for those Matters for which NatWest Group believes it has
\n
credible defences and should prevail on the merits. The
\n
uncertainties inherent in all such Matters affect the amount and
\n
timing of any potential outflows for both Matters with respect
\n
to which provisions have been established and other contingent
\n
liabilities in respect of any such Matter.
Matters which are, or could be material, having regard to
\n
NatWest Group, considered as a whole, in which NatWest
\n
Group is currently involved are set out below. We have
\n
provided information on the procedural history of certain
\n
Matters, where we believe appropriate, to aid the
\n
understanding of the Matter.
", "dimensions": { "concept": "ifrs-full:DisclosureOfContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47720": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
Critical accounting policy: Provisions for liabilities
\n
The key judgment is involved in determining whether a present
\n
obligation exists. There is often a high degree of uncertainty
\n
and judgment is based on the specific facts and circumstances
\n
relating to individual events in determining whether there is a
\n
present obligation. Judgment is also involved in estimation of
\n
the probability, timing and amount of any outflows. Where
\n
NatWest Group can look to another party such as an insurer to
\n
pay some or all of the expenditure required to settle a
\n
provision, any reimbursement is recognised when, and only
\n
when, it is virtually certain that it will be received.
\n
Estimates -
Provisions are liabilities of uncertain timing or
\n
amount and are recognised when there is a present obligation
\n
as a result of a past event, the outflow of economic benefit is
\n
probable and the outflow can be estimated reliably.
\n
Any difference between the final outcome and the amounts
\n
provided will affect the reported results in the period when the
\n
matter is resolved.
\n
\ue001
Customer redress: Provisions reflect the estimated cost of
\n
redress attributable to claims where it is determined that a
\n
present obligation exists.
\n
\ue001
Litigation and other regulatory: NatWest Group is engaged
\n
in various legal proceedings, both in the UK and in overseas
\n
jurisdictions, including the US. For further information in
\n
relation to legal proceedings and discussion of the
\n
associated uncertainties, refer to Note 26.
\n
\ue001
Property: This includes provision for contractual costs
\n
associated with vacant properties.
\n
\ue001
Other provisions: These materially comprise provisions for
\n
onerous contracts and restructuring costs. Onerous
\n
contract provisions comprise an estimate of the costs
\n
involved in fulfilling the terms and conditions of contracts
\n
net of any expected benefits to be received. This includes
\n
provision for contractual costs associated with vacant
\n
properties. Redundancy and restructuring provisions
\n
comprise the estimated cost of restructuring, including
\n
redundancy costs where an obligation exists.
\n
Background information for all material provisions is given in
\n
Note 26
.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForProvisionsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47721": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
21 Other liabilities
\n
Other liabilities are amounts due to third parties that are not financial liabilities including lease liabilities, amounts due for goods
\n
and services that have been received but not invoiced,
tax due to HMRC, and retirement benefit liabilities. Liabilities which have a
\n
level of uncertainty regarding their timing or the future cost to settle them are included in other liabilities as provisions for liabilities
\n
and charges.
\n
2022
2021
\n
Other liabilities
\u00a3m
\u00a3m
\n
Lease liabilities
1,118
1,263
\n
Provisions for liabilities and charges
1,138
1,268
\n
Retirement benefit liabilities (Note 5)
98
114
\n
Accruals
1,407
1,508
\n
Deferred income
355
319
\n
Current tax
55
12
\n
Deferred tax (Note 7)
227
359
\n
Acceptances
237
225
\n
Other liabilities
(1)
711
729
\n
5,346
5,797
\n
(1)
Other liabilities include liabilities of disposal groups of \u00a315 million (2021 - \u00a35 million). See Note 8 for further information.
\n
Customer redress
\n
(1)
\n
Litigation and
\n
other regulatory
\n
Property
\n
Financial
\n
commitments and
\n
guarantees
\n
Other (2)
Total
\n
Provisions for liabilities and charges
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2022
474
277
231
93
193
1,268
\n
Expected credit loss impairment release
\u2014
\u2014
\u2014
(6)
\u2014
(6)
\n
Currency translation and other movements
2
20
\u2014
\u2014
7
29
\n
Charge to income statement
178
36
31
\u2014
193
438
\n
Release to income statement
(45)
(14)
(71)
\u2014
(60)
(190)
\n
Provisions utilised
(178)
(79)
(37)
\u2014
(107)
(401)
\n
At 31 December 2022
431
240
154
87
226
1,138
\n
(1)
Includes payment protection insurance provision which reflects the estimated cost of PPI redress attributable to claims prior to the Financial Conduct Authority (FCA) complaint
\n
deadline of 29 August 2019. All pre-deadline complaints have been processed which removes complaint volume estimation uncertainty from the provision estimate. NatWest Group
\n
continues to conclude remaining bank-identified closure work and conclude cases with the Financial Ombudsmen Service.
\n
(2)
Other materially comprises provisions relating to restructuring costs.
\n
Provisions are liabilities of uncertain timing or amount and are
\n
recognised when there is a present obligation as a result of a
\n
past event, the outflow of economic benefit is probable and the
\n
outflow can be estimated reliably. Any difference between the
\n
final outcome and the amounts provided will affect the reported
\n
results in the period when the matter is resolved.
\n
For accounting policy information see Accounting policies note
\n
2.4.
\n
Critical accounting policy: Provisions for liabilities
\n
The key judgment is involved in determining whether a present
\n
obligation exists. There is often a high degree of uncertainty
\n
and judgment is based on the specific facts and circumstances
\n
relating to individual events in determining whether there is a
\n
present obligation. Judgment is also involved in estimation of
\n
the probability, timing and amount of any outflows. Where
\n
NatWest Group can look to another party such as an insurer to
\n
pay some or all of the expenditure required to settle a
\n
provision, any reimbursement is recognised when, and only
\n
when, it is virtually certain that it will be received.
\n
Estimates -
Provisions are liabilities of uncertain timing or
\n
amount and are recognised when there is a present obligation
\n
as a result of a past event, the outflow of economic benefit is
\n
probable and the outflow can be estimated reliably.
\n
Any difference between the final outcome and the amounts
\n
provided will affect the reported results in the period when the
\n
matter is resolved.
\n
\ue001
Customer redress: Provisions reflect the estimated cost of
\n
redress attributable to claims where it is determined that a
\n
present obligation exists.
\n
\ue001
Litigation and other regulatory: NatWest Group is engaged
\n
in various legal proceedings, both in the UK and in overseas
\n
jurisdictions, including the US. For further information in
\n
relation to legal proceedings and discussion of the
\n
associated uncertainties, refer to Note 26.
\n
\ue001
Property: This includes provision for contractual costs
\n
associated with vacant properties.
\n
\ue001
Other provisions: These materially comprise provisions for
\n
onerous contracts and restructuring costs. Onerous
\n
contract provisions comprise an estimate of the costs
\n
involved in fulfilling the terms and conditions of contracts
\n
net of any expected benefits to be received. This includes
\n
provision for contractual costs associated with vacant
\n
properties. Redundancy and restructuring provisions
\n
comprise the estimated cost of restructuring, including
\n
redundancy costs where an obligation exists.
\n
Background information for all material provisions is given in
\n
Note 26
.
26 Memorandum items
\n
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
\n
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
\n
December 2022. Although NatWest Group is exposed to credit risk in the event of a customer\u2019s failure to meet its obligations, the
\n
amounts shown do not, and are not intended to, provide any indication of NatWest Group's expectation of future losses.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Guarantees
3,150
2,055
\n
Other contingent liabilities
1,855
2,004
\n
Standby facilities, credit lines and other commitments
121,576
121,308
\n
Contingent liabilities and commitments
126,581
125,367
\n
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
\n
Guarantees \u2013 NatWest Group gives guarantees on behalf of
\n
customers. A financial guarantee represents an irrevocable
\n
undertaking that NatWest Group will meet a customer's
\n
specified obligations to third party if the customer fails to do so.
\n
The maximum amount that NatWest Group could be required
\n
to pay under a guarantee is its principal amount as disclosed in
\n
the table above. NatWest Group expects most guarantees it
\n
provides to expire unused.
\n
Other contingent liabilities - these include standby letters of
\n
credit, supporting customer debt issues and contingent
\n
liabilities relating to customer trading activities such as those
\n
arising from performance and customs bonds, warranties and
\n
indemnities.
\n
Standby facilities and credit lines - under a loan commitment,
\n
NatWest Group agrees to make funds available to a customer
\n
in the future. Loan commitments, which are usually for a
\n
specified term, may be unconditionally cancellable or may
\n
persist, provided all conditions in the loan facility are satisfied
\n
or waived. Commitments to lend include commercial standby
\n
facilities and credit lines, liquidity facilities to commercial paper
\n
conduits and unutilised overdraft facilities.
\n
Other commitments - these include documentary credits, which
\n
are commercial letters of credit providing for payment by
\n
NatWest Group to a named beneficiary against presentation of
\n
specified documents, forward asset purchases, forward
\n
deposits placed and undrawn note issuance and revolving
\n
underwriting facilities, and other short-term trade related
\n
transactions.
\n
Contractual obligations for future expenditure not provided for in the accounts
\n
The following table shows contractual obligations for future expenditure not provided for in the accounts at the year end.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Capital expenditure on property, plant and equipment
8
16
\n
Contracts to purchase goods or services
(1)
677
682
\n
685
698
\n
(1)
Of which due within 1 year: \u00a3321 million (2021 \u2013 \u00a3301 million).
Trustee and other fiduciary activities
\n
In its capacity as trustee or other fiduciary role, NatWest Group
\n
may hold or place assets on behalf of individuals, trusts,
\n
companies, pension schemes and others. The assets and their
\n
income are not included in NatWest Group's financial
\n
statements. NatWest Group earned fee income of \u00a3266 million
\n
(2021 - \u00a3280 million; 2020 - \u00a3245 million) from these activities.
\n
The Financial Services Compensation Scheme
\n
The Financial Services Compensation Scheme (FSCS), the UK's
\n
statutory fund of last resort for customers of authorised
\n
financial services firms, pays compensation if a firm is unable to
\n
meet its obligations. The FSCS funds compensation for
\n
customers by raising management expenses levies and
\n
compensation levies on the industry. In relation to protected
\n
deposits, each deposit-taking institution contributes towards
\n
these levies in proportion to their share of total protected
\n
deposits on 31 December of the year preceding the scheme
\n
year (which runs from 1 April to 31 March), subject to annual
\n
maxima set by the Prudential Regulation Authority. In addition,
\n
the FSCS has the power to raise levies on a firm that has
\n
ceased to participate in the scheme and is in the process of
\n
ceasing to be authorised for the costs that it would have been
\n
liable to pay had the FSCS made a levy in the financial year it
\n
ceased to be a participant in the scheme.
\n
Litigation and regulatory matters
\n
NatWest Group plc and certain members of NatWest Group are
\n
party to legal proceedings and involved in regulatory matters,
\n
including as the subject of investigations and other regulatory
\n
and governmental action (Matters) in the United Kingdom (UK),
\n
the United States (US), the European Union (EU) and other
\n
jurisdictions.
\n
NatWest Group recognises a provision for a liability in relation
\n
to these Matters when it is probable that an outflow of
\n
economic benefits will be required to settle an obligation
\n
resulting from past events, and a reliable estimate can be made
\n
of the amount of the obligation.
\n
In many of these Matters, it is not possible to determine
\n
whether any loss is probable, or to estimate reliably the amount
\n
of any loss, either as a direct consequence of the relevant
\n
proceedings and regulatory matters or as a result of adverse
\n
impacts or restrictions on NatWest Group\u2019s reputation,
\n
businesses and operations. Numerous legal and factual issues
\n
may need to be resolved, including through potentially lengthy
\n
discovery and document production exercises and
\n
determination of important factual matters, and by addressing
\n
novel or unsettled legal questions relevant to the proceedings in
\n
question, before a liability can reasonably be estimated for any
\n
claim. NatWest Group cannot predict if, how, or when such
\n
claims will be resolved or what the eventual settlement,
\n
damages, fine, penalty or other relief, if any, may be,
\n
particularly for claims that are at an early stage in their
\n
development or where claimants seek substantial or
\n
indeterminate damages.
\n
There are situations where NatWest Group may pursue an
\n
approach that in some instances leads to a settlement
\n
agreement. This may occur in order to avoid the expense,
\n
management distraction or reputational implications of
\n
continuing to contest liability, or in order to take account of the
\n
risks inherent in defending claims or regulatory matters, even
\n
for those Matters for which NatWest Group believes it has
\n
credible defences and should prevail on the merits. The
\n
uncertainties inherent in all such Matters affect the amount and
\n
timing of any potential outflows for both Matters with respect
\n
to which provisions have been established and other contingent
\n
liabilities in respect of any such Matter.
\n
It is not practicable to provide an aggregate estimate of
\n
potential liability for our legal proceedings and regulatory
\n
matters as a class of contingent liabilities.
\n
The future outflow of resources in respect of any Matter may
\n
ultimately prove to be substantially greater than or less than
\n
the aggregate provision that NatWest Group has recognised.
\n
Where (and as far as) liability cannot be reasonably estimated,
\n
no provision has been recognised. NatWest Group expects that
\n
in future periods, additional provisions, settlement amounts and
\n
customer redress payments will be necessary, in amounts that
\n
are expected to be substantial in some instances. Please refer
\n
to Note 21 for information on material provisions.
\n
Matters which are, or could be material, having regard to
\n
NatWest Group, considered as a whole, in which NatWest
\n
Group is currently involved are set out below. We have
\n
provided information on the procedural history of certain
\n
Matters, where we believe appropriate, to aid the
\n
understanding of the Matter.
\n
For a discussion of certain risks associated with NatWest
\n
Group\u2019s litigation and regulatory matters, see the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
\n
Litigation
\n
Residential mortgage-backed securities (RMBS) litigation in
\n
the US
\n
NatWest Group companies continue to defend RMBS-related
\n
claims in the US in which the plaintiff, the Federal Deposit
\n
Insurance Corporation (FDIC), alleges that certain disclosures
\n
made in connection with the relevant offerings of RMBS
\n
contained materially false or misleading statements and/or
\n
omissions regarding the underwriting standards pursuant to
\n
which the mortgage loans underlying the RMBS were issued.
\n
London Interbank Offered Rate (LIBOR) and other rates
\n
litigation
\n
NWM Plc and certain other members of NatWest Group,
\n
including NatWest Group plc, are defendants in a number of
\n
class actions and individual claims pending in the United States
\n
District Court for the Southern District of New York (SDNY)
\n
with respect to the setting of LIBOR and certain other
\n
benchmark interest rates. The complaints allege that certain
\n
members of NatWest Group and other panel banks violated
\n
various federal laws, including the US commodities and
\n
antitrust laws, and state statutory and common law, as well as
\n
contracts, by manipulating LIBOR and prices of LIBOR-based
\n
derivatives in various markets through various means.
\n
Several purported class actions relating to USD LIBOR, as well
\n
as more than two dozen non-class actions concerning USD
\n
LIBOR, are part of a co-ordinated proceeding in the SDNY. The
\n
class actions include claims on behalf of persons who
\n
purchased LIBOR-linked instruments from defendants, bonds
\n
issued by defendants, persons who transacted futures and
\n
options on exchanges, and lenders who made LIBOR-based
\n
loans. The coordinated proceeding is currently in the discovery
\n
phase. In March 2020, NatWest Group companies finalised a
\n
settlement resolving the class action on behalf of bondholder
\n
plaintiffs (those who held bonds issued by non-defendants on
\n
which interest was paid from 2007 to 2010 at a rate expressly
\n
tied to USD LIBOR). The amount of the settlement (which was
\n
covered by an existing provision) was paid into escrow pending
\n
court approval of the settlement.
Litigation and regulatory matters
\n
The non-class claims filed in the SDNY include claims that the
\n
FDIC is asserting on behalf of certain failed US banks. In July
\n
2017, the FDIC, on behalf of 39 of those failed US banks,
\n
commenced substantially similar claims against NatWest Group
\n
companies and others in the High Court of Justice of England
\n
and Wales. The action alleges collusion with regard to the
\n
setting of USD LIBOR and that the defendants breached UK
\n
and European competition law, as well as asserting common
\n
law claims of fraud under US law. The defendant banks
\n
consented to a request by the FDIC for discontinuance of the
\n
claim in respect of 20 failed US banks, leaving 19 failed US
\n
banks as claimants. The trial is currently anticipated to take
\n
place in Q4 2025.
\n
In addition to the USD LIBOR cases described above, there are
\n
two class actions relating to JPY LIBOR and Euroyen TIBOR
\n
that remain outstanding. The first class action, which relates to
\n
Euroyen TIBOR futures contracts, was dismissed by the SDNY
\n
in September 2020 on jurisdictional and other grounds, and
\n
that decision was affirmed by the US Court of Appeals in
\n
October 2022. The plaintiffs have petitioned the court for a
\n
rehearing of their appeal. The second class action, which
\n
relates to other derivatives allegedly tied to JPY LIBOR and
\n
Euroyen TIBOR, was dismissed by the SDNY in relation to NWM
\n
Plc and other NatWest Group companies in September 2021.
\n
That dismissal may be the subject of a future appeal
.
\n
Two other IBOR-related class actions, concerning alleged
\n
manipulation of Euribor and Pound Sterling LIBOR, were
\n
previously dismissed by the SDNY for various reasons. The
\n
plaintiffs\u2019 appeals in those two cases remain pending.
\n
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc
\n
LIBOR class action finalised a settlement resolving that case.
\n
The amount of that settlement has been paid into escrow
\n
pending final court approval of the settlement.
\n
Settlements in the class action relating to the Singapore
\n
Interbank Offered Rate and Singapore Swap Offer Rate and the
\n
class action relating to the Australian Bank Bill Swap Reference
\n
Rate received court approval in 2022, such that the settlements
\n
became final and the amounts previously paid into escrow
\n
were released to the plaintiffs.
\n
In August 2020, a complaint was filed in the United States
\n
District Court for the Northern District of California by several
\n
United States retail borrowers against the USD ICE LIBOR
\n
panel banks and their affiliates (including NatWest Group plc,
\n
NWM Plc, NWMSI and NWB Plc), alleging (i) that the very
\n
process of setting USD ICE LIBOR amounts to illegal price-
\n
fixing; and (ii) that banks in the United States have illegally
\n
agreed to use LIBOR as a component of price in variable retail
\n
loans. In September 2022, the district court dismissed the
\n
complaint, subject to re-pleading by the plaintiffs. The plaintiffs
\n
filed an amended complaint in October 2022, which the
\n
defendants are again seeking to have dismissed.
\n
NWM Plc is also named as a defendant in a motion to certify a
\n
class action relating to LIBOR in the Tel Aviv District Court in
\n
Israel. NWM Plc filed a motion for cancellation of service
\n
outside the jurisdiction, which was granted in July 2020. The
\n
claimants appealed that decision and in November 2020 the
\n
appeal was refused and the claim dismissed by the Appellate
\n
Court. The claim could in future be recommenced depending
\n
on the outcome of an appeal to Israel\u2019s Supreme Court in
\n
respect of the dismissal of the substantive case against banks
\n
that had a presence in Israel.
\n
FX litigation
\n
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
\n
several cases relating to NWM Plc\u2019s foreign exchange (FX)
\n
business. In 2015, NWM Plc paid US$255 million to settle the
\n
consolidated antitrust class action filed in the SDNY on behalf
\n
of persons who entered into over-the-counter FX transactions
\n
with defendants or who traded FX instruments on exchanges.
\n
In 2018, some members of the settlement class who opted out
\n
of that class action settlement filed their own non-class
\n
complaint in the SDNY asserting antitrust claims against NWM
\n
Plc, NWMSI and other banks.
\n
In April 2019, some of the claimants in the opt-out case
\n
described above, as well as others, served proceedings in the
\n
High Court of Justice of England and Wales, asserting
\n
competition claims against NWM Plc and several other banks.
\n
The claim was transferred from the High Court of Justice of
\n
England and Wales in December 2021 and registered in the UK
\n
Competition Appeal Tribunal (CAT) in January 2022. In
\n
December 2022, NWM Plc reached an agreement in principle,
\n
subject to documentation, to resolve both the SDNY and CAT
\n
cases. The settlement amount to be paid by NWM Plc is
\n
covered by an existing provision.
\n
An FX-related class action, on behalf of \u2018consumers and end-
\n
user businesses\u2019, is proceeding in the SDNY against NWM Plc
\n
and others. In March 2022, the SDNY denied the plaintiffs\u2019
\n
motion for class certification. Plaintiffs sought an immediate
\n
appeal of the decision but the appellate court declined to
\n
review the decision. As a result, the case is proceeding on an
\n
individual, non-class basis, and the defendants are seeking
\n
summary judgment dismissing the individual claims.
\n
In May 2019, a cartel class action was filed in the Federal Court
\n
of Australia against NWM Plc and four other banks on behalf of
\n
persons who bought or sold currency through FX spots or
\n
forwards between 1 January 2008 and 15 October 2013 with a
\n
total transaction value exceeding AUD $0.5 million. The
\n
claimant has alleged that the banks, including NWM Plc,
\n
contravened Australian competition law by sharing information,
\n
coordinating conduct, widening spreads and manipulating FX
\n
rates for certain currency pairs during this period. NatWest
\n
Group plc and NWMSI have been named in the action as \u2018other
\n
cartel participants\u2019, but are not respondents. The claim was
\n
served in June 2019 and NWM Plc filed its defence in March
\n
2022.
\n
In July and December 2019, two separate applications seeking
\n
opt-out collective proceedings orders were filed in the CAT
\n
against NatWest Group plc, NWM Plc and other banks. Both
\n
applications were brought on behalf of persons who, between
\n
18 December 2007 and 31 January 2013, entered into a
\n
relevant FX spot or outright forward transaction in the EEA
\n
with a relevant financial institution or on an electronic
\n
communications network. In March 2022, the CAT declined to
\n
certify as collective proceedings either of the applications. In
\n
October 2022, the CAT granted permission for the applicants to
\n
appeal that decision to the Court of Appeal. Separately, the
\n
applicants have served judicial review proceedings, which are
\n
due to be heard together with the appeal to the Court of
\n
Appeal in April 2023.
\n
Two motions to certify FX-related class actions were filed in the
\n
Tel Aviv District Court in Israel in September and October 2018,
\n
and were subsequently consolidated into one motion. The
\n
consolidated motion to certify, which names The Royal Bank of
\n
Scotland plc (now NWM Plc) and several other banks as
\n
defendants, was served on NWM Plc in May 2020. The
\n
applicants have sought the court\u2019s permission to amend their
\n
motions to certify the class actions.
Litigation and regulatory matters
\n
NWM Plc has filed a motion challenging the permission granted
\n
by the court for the applicants to serve the consolidated motion
\n
outside the Israeli jurisdiction. That NWM Plc motion remains
\n
pending.
\n
In December 2021, a claim was issued in the Netherlands
\n
against NatWest Group plc, NWM Plc and NWM N.V. by
\n
Stichting FX Claims, seeking a declaration from the court that
\n
anti-competitive FX market conduct described in decisions of
\n
the European Commission (EC) of 16 May 2019 is unlawful,
\n
along with unspecified damages. The claimant has amended its
\n
claim to also refer to a December 2021 decision by the EC,
\n
which also described anti-competitive FX market conduct. The
\n
defendants are contesting the jurisdiction of the Dutch court.
\n
Certain other foreign exchange transaction related claims have
\n
been or may be threatened. NatWest Group cannot predict
\n
whether all or any of these claims will be pursued.
\n
Government securities antitrust litigation
\n
NWMSI and certain other US broker-dealers are defendants in
\n
a consolidated antitrust class action in the SDNY on behalf of
\n
persons who transacted in US Treasury securities or derivatives
\n
based on such instruments, including futures and options. The
\n
plaintiffs allege that the defendants rigged the US Treasury
\n
securities auction bidding process to deflate prices at which
\n
they bought such securities and colluded to increase the prices
\n
at which they sold such securities to the plaintiffs. In March
\n
2022, the SDNY dismissed the complaint, without leave to re-
\n
plead. The plaintiffs are appealing the dismissal.
\n
Class action antitrust claims commenced in March 2019 are
\n
pending in the SDNY against NWM Plc, NWMSI and other banks
\n
in respect of Euro-denominated bonds issued by European
\n
central banks (EGBs). The complaint alleges a conspiracy
\n
among dealers of EGBs to widen the bid-ask spreads they
\n
quoted to customers, thereby increasing the prices customers
\n
paid for the EGBs or decreasing the prices at which customers
\n
sold the bonds. The class consists of those who purchased or
\n
sold EGBs in the US between 2007 and 2012. In March 2022,
\n
the SDNY dismissed the claims against NWM Plc and NWMSI on
\n
the ground that the complaint\u2019s conspiracy allegations are
\n
insufficient. The plaintiffs have filed a motion for permission to
\n
file an amended complaint.
\n
Swaps antitrust litigation
\n
NWM Plc and other members of NatWest Group, including
\n
NatWest Group plc, as well as a number of other interest rate
\n
swap dealers, are defendants in several cases pending in the
\n
SDNY alleging violations of the US antitrust laws in the market
\n
for interest rate swaps. There is a consolidated class action
\n
complaint on behalf of persons who entered into interest rate
\n
swaps with the defendants, as well as non-class action claims
\n
by three swap execution facilities (TeraExchange, Javelin, and
\n
trueEx). The plaintiffs allege that the swap execution facilities
\n
would have successfully established exchange-like trading of
\n
interest rate swaps if the defendants had not unlawfully
\n
conspired to prevent that from happening through boycotts
\n
and other means. Discovery in these cases is complete, and the
\n
plaintiffs\u2019 motion for class certification remains pending.
\n
In June 2021, a class action antitrust complaint was filed
\n
against a number of credit default swap dealers in New Mexico
\n
federal court on behalf of persons who, from 2005 onwards,
\n
settled credit default swaps in the United States by reference to
\n
the ISDA credit default swap auction protocol. The complaint
\n
alleges that the defendants conspired to manipulate that
\n
benchmark through various means in violation of the antitrust
\n
laws and the Commodity Exchange Act.
\n
The defendants include several NatWest Group companies,
\n
including NatWest Group plc. Defendants are seeking dismissal.
\n
Odd lot corporate bond trading antitrust litigation
\n
In October 2021, the SDNY granted the defendants\u2019 motion to
\n
dismiss the class action antitrust complaint alleging that from
\n
August 2006 onwards various securities dealers, including
\n
NWMSI, conspired artificially to widen spreads for odd lots of
\n
corporate bonds bought or sold in the United States secondary
\n
market and to boycott electronic trading platforms that would
\n
have allegedly promoted pricing competition in the market for
\n
such bonds. The plaintiffs have filed an appeal.
\n
Spoofing litigation
\n
In December 2021, three substantially similar class actions
\n
complaints were filed in federal court in the United States
\n
against NWM Plc and NWMSI alleging Commodity Exchange
\n
Act and common law unjust enrichment claims arising from
\n
manipulative trading known as spoofing. The complaints refer
\n
to NWM Plc\u2019s December 2021 spoofing-related guilty plea
\n
(described below under \u201cUS investigations relating to fixed-
\n
income securities\u201d) and purport to assert claims on behalf of
\n
those who transacted in US Treasury securities and futures and
\n
options on US Treasury securities between 2008 and 2018. In
\n
July 2022, defendants filed a motion to dismiss these claims,
\n
which have been consolidated into one matter in the United
\n
States District Court for the Northern District of Illinois.
\n
Madoff
\n
NWM N.V. was named as a defendant in two actions filed by
\n
the trustee for the bankrupt estates of Bernard L. Madoff and
\n
Bernard L. Madoff Investment Securities LLC, in bankruptcy
\n
court in New York, which together seek to clawback more than
\n
US$298 million that NWM N.V. allegedly received from certain
\n
Madoff feeder funds and certain swap counterparties. The
\n
claims were previously dismissed, but as a result of an August
\n
2021 decision by the US Court of Appeals, they will now
\n
proceed in the bankruptcy court, where they have now been
\n
consolidated into one action, subject to NWM N.V.\u2019s legal and
\n
factual defences. In May 2022, NWM N.V. filed a motion to
\n
dismiss the amended complaint in the consolidated action.
\n
EUA trading litigation
\n
NWM Plc was a named defendant in civil proceedings before
\n
the High Court of Justice of England and Wales brought in 2015
\n
by ten
companies (all in liquidation) (the \u2018Liquidated
\n
Companies\u2019) and their respective liquidators (together, \u2018the
\n
Claimants\u2019). The Liquidated Companies previously traded in
\n
European Union Allowances (EUAs) in 2009 and were alleged
\n
to be VAT defaulting traders within (or otherwise connected to)
\n
EUA supply chains of which NWM Plc was a party. In March
\n
2020, the court held that NWM Plc and Mercuria Energy
\n
Europe Trading Limited (\u2018Mercuria\u2019) were liable for dishonestly
\n
assisting and knowingly being a party to fraudulent trading
\n
during a seven business day period in 2009.
\n
In October 2020, the High Court quantified total damages
\n
against NWM Plc and Mercuria at \u00a345 million plus interest and
\n
costs, and permitted the defendants to appeal to the Court of
\n
Appeal. In May 2021 the Court of Appeal set aside the High
\n
Court\u2019s judgment and ordered that a retrial take place before a
\n
different High Court judge. The claimants have been denied
\n
permission by the Supreme Court to appeal that decision and
\n
the retrial will therefore proceed on a date to be scheduled.
\n
Mercuria has also been denied permission by the Supreme
\n
Court to appeal the High Court\u2019s finding that NWM Plc and
\n
Mercuria were both vicariously liable.
Litigation and regulatory matters
\n
Offshoring VAT assessments
\n
HMRC issued protective tax assessments in 2018 against
\n
NatWest Group plc totalling \u00a3143 million relating to unpaid VAT
\n
in respect of the UK branches of two NatWest Group
\n
companies registered in India. NatWest Group formally
\n
requested reconsideration by HMRC of their assessments, and
\n
this process was completed in November 2020. HMRC upheld
\n
their original decision and, as a result, NatWest Group plc
\n
lodged an appeal with the Tax Tribunal and an application for
\n
judicial review with the High Court of Justice of England and
\n
Wales, both in December 2020. In order to lodge the appeal
\n
with the Tax Tribunal, NatWest Group plc was required to pay
\n
\u00a3143 million to HMRC, and payment was made in December
\n
2020. The appeal and the application for judicial review have
\n
both been stayed pending resolution of a separate case
\n
involving another bank.
\n
US Anti-Terrorism Act litigation
\n
NWM N.V. and certain other financial institutions are
\n
defendants in several actions filed by a number of US nationals
\n
(or their estates, survivors, or heirs), most of whom are or were
\n
US military personnel, who were killed or injured in attacks in
\n
Iraq between 2003 and 2011. NWM Plc is also a defendant in
\n
some of these cases.
\n
According to the plaintiffs\u2019 allegations, the defendants are liable
\n
for damages arising from the attacks because they allegedly
\n
conspired with Iran and certain Iranian banks to assist Iran in
\n
transferring money to Hezbollah and the Iraqi terror cells that
\n
committed the attacks, in violation of the US Anti-Terrorism
\n
Act, by agreeing to engage in \u2018stripping\u2019 of transactions
\n
initiated by the Iranian banks so that the Iranian nexus to the
\n
transactions would not be detected.
\n
The first of these actions was filed in the United States District
\n
Court for the Eastern District of New York in November 2014.
\n
In September 2019, the district court dismissed the case,
\n
finding that the claims were deficient for several reasons,
\n
including lack of sufficient allegations as to the alleged
\n
conspiracy and causation. On 5 January 2023, the US Court of
\n
Appeals affirmed the district court\u2019s dismissal of this case.
\n
Another action, filed in the SDNY in 2017, was dismissed by the
\n
SDNY in March 2019 on similar grounds as the first case, but
\n
remains subject to appeal to the US Court of Appeals. Other
\n
follow-on actions that are substantially similar to the two that
\n
have now been dismissed are pending in the same courts.
\n
1MDB litigation
\n
A Malaysian court claim was served in Switzerland in
\n
November 2022 by 1MDB, a Sovereign Wealth Fund, in which
\n
Coutts & Co Ltd was named, along with six others, as a
\n
defendant in respect of losses allegedly incurred by 1MDB. It is
\n
claimed that Coutts & Co Ltd is liable as a constructive trustee
\n
for having dishonestly assisted the directors of 1MDB in the
\n
breach of their fiduciary duties by failing (amongst other
\n
alleged claims) to undertake due diligence in relation to a
\n
customer of Coutts & Co Ltd, through which funds totalling
\n
c.US$1 billion were received and paid out between 2009 and
\n
2011. The claimant seeks the return of that amount plus
\n
interest. Coutts & Co Ltd filed an application in January 2023
\n
challenging the validity of service and the Malaysian court\u2019s
\n
jurisdiction to hear the claim. Coutts & Co Ltd is a company
\n
registered in Switzerland and is in wind-down following the
\n
announced sale of its business assets in 2015.
\n
Regulatory matters (including investigations and customer
\n
redress programmes)
\n
NatWest Group\u2019s businesses and financial condition can be
\n
affected by the actions of various governmental and regulatory
\n
authorities in the UK, the US, the EU and elsewhere. NatWest
\n
Group has engaged, and will continue to engage, in discussions
\n
with relevant governmental and regulatory authorities,
\n
including in the UK, the US, the EU and elsewhere, on an
\n
ongoing and regular basis, and in response to informal and
\n
formal inquiries or investigations, regarding operational,
\n
systems and control evaluations and issues including those
\n
related to compliance with applicable laws and regulations,
\n
including consumer protection, investment advice, business
\n
conduct, competition/anti-trust, VAT recovery, anti-bribery,
\n
anti-money laundering and sanctions regimes. NatWest Group
\n
expects government and regulatory intervention in financial
\n
services to be high for the foreseeable future, including
\n
increased scrutiny from competition and other regulators in the
\n
retail and SME business sectors.
\n
Any matters discussed or identified during such discussions and
\n
inquiries may result in, among other things, further inquiry or
\n
investigation, other action being taken by governmental and
\n
regulatory authorities, increased costs being incurred by
\n
NatWest Group, remediation of systems and controls, public or
\n
private censure, restriction of NatWest Group\u2019s business
\n
activities and/or fines. Any of the events or circumstances
\n
mentioned in this paragraph or below could have a material
\n
adverse effect on NatWest Group, its business, authorisations
\n
and licences, reputation, results of operations or the price of
\n
securities issued by it, or lead to material additional provisions
\n
being taken.
\n
NatWest Group is co-operating fully with the matters described
\n
below.
\n
US investigations relating to fixed-income securities
\n
In December 2021, NWM Plc pled guilty in the United States
\n
District Court for the District of Connecticut to one count of
\n
wire fraud and one count of securities fraud in connection with
\n
historical spoofing conduct by former employees in US
\n
Treasuries markets between January 2008 and May 2014 and,
\n
separately, during approximately three months in 2018. The
\n
2018 trading occurred during the term of a non-prosecution
\n
agreement (NPA) between NWMSI and the United States
\n
Attorney's Office for the District of Connecticut (USAO CT),
\n
under which non-prosecution was conditioned on NWMSI and
\n
affiliated companies not engaging in criminal conduct during
\n
the term of the NPA. The relevant trading in 2018 was
\n
conducted by two NWM traders in Singapore and breached
\n
that NPA. The plea agreement reached with the US
\n
Department of Justice and the USAO CT resolved both the
\n
spoofing conduct and the breach of the NPA.
\n
As required by the resolution and sentence imposed by the
\n
court, NWM Plc is subject to a three-year period of probation.
\n
The plea agreement also imposes an independent corporate
\n
monitor. In addition, NWM Plc has committed to compliance
\n
programme reviews and improvements and agreed to
\n
reporting and co-operation obligations.
\n
Other material adverse collateral consequences may occur as
\n
a result of this matter, as further described in the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
Litigation and regulatory matters
\n
RBSI inspection report and referral to enforcement
\n
The Isle of Man Financial Services Authority undertook an
\n
inspection at The Royal Bank of Scotland International Limited
\n
(RBSI), Isle of Man, in 2021, following which it issued an
\n
inspection report. The inspection was in relation to anti-money
\n
laundering and counter-terrorist financing controls and
\n
procedures relating to specific RBSI customers. In May 2022,
\n
the FSA notified RBSI that it had been referred to its
\n
Enforcement Division in relation to certain issues identified in
\n
the inspection report.
\n
RBSI reliance regime and referral to enforcement
\n
In January 2023, the Jersey Financial Services Commission
\n
notified RBSI that it had been referred to its Enforcement
\n
Division in relation to RBSI\u2019s operation of the reliance regime.
\n
The reliance regime is specific to certain Crown Dependencies
\n
and enables the bank to rely on regulated third parties for
\n
specific due diligence information.
\n
Investment advice review
\n
In October 2019, the FCA notified NatWest Group of its
\n
intention to appoint a Skilled Person under section 166 of the
\n
Financial Services and Markets Act 2000 to conduct a review of
\n
whether NatWest Group\u2019s past business review of investment
\n
advice provided during 2010 to 2015 was subject to
\n
appropriate governance and accountability and led to
\n
appropriate customer outcomes. The Skilled Person\u2019s review
\n
has concluded and, after discussion with the FCA, NatWest
\n
Group has now commenced additional review / remediation
\n
work.
\n
Review and investigation of treatment of tracker mortgage
\n
customers in Ulster Bank Ireland DAC
\n
In December 2015, correspondence was received from the CBI
\n
setting out an industry examination framework in respect of the
\n
sale of tracker mortgages from approximately 2001 until the
\n
end of 2015. The redress and compensation process has now
\n
largely concluded, although certain cases remain outstanding.
\n
UBIDAC customers have lodged tracker mortgage complaints
\n
with the Financial Services and Pensions Ombudsman (FSPO).
\n
UBIDAC is challenging three FSPO adjudications in the Irish
\n
High Court. The outcome and impact of that challenge on those
\n
and related complaints is uncertain but may be material.
\n
Other customer remediation in Ulster Bank Ireland DAC
\n
UBIDAC has identified further legacy business issues and these
\n
remediation programmes are ongoing.
\n
27 Analysis of the net investment in business interests and intangible assets
\n
This note shows cash flows relating to obtaining or losing control of associates or subsidiaries and net assets and liabilities
\n
purchased and sold. These cash flows are presented as investing activities on the cash flow statement.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Acquisition of interests in associates
(1)
\u2014
\u2014
\n
Additional investment in associates
\u2014
(51)
(40)
\n
Net assets/liabilities purchased
\u2014
(3,128)
\u2014
\n
Net outflow of cash in respect of acquisitions
(1)
(3,179)
(40)
\n
Sale of interests in associates
\u2014
\u2014
27
\n
Disposal of net assets and liabilities
6,270
114
288
\n
(Loss)/profit on disposal of net assets and liabilities
(106)
55
3
\n
Net inflow of cash in respect of disposals
6,164
169
318
\n
Cash expenditure on intangible assets
(743)
(479)
(348)
\n
Net inflow/(outflow) of cash
5,420
(3,489)
(70)
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherProvisionsContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47722": { "value": "
2.4. Provisions and contingent liabilities
\n
We recognise a provision for a present obligation resulting from
\n
a past event when it is more likely than not that we will be
\n
required to pay to settle the obligation and the amount of the
\n
obligation can be estimated reliably.
\n
Provision is made for restructuring costs, including the costs of
\n
redundancy, when we have a constructive obligation. An
\n
obligation exists when we have a detailed formal plan for the
\n
restructuring and have raised a valid expectation in those
\n
affected either by starting to implement the plan or by
\n
announcing its main features.
\n
We recognise any onerous cost of the present obligation under
\n
a contract as a provision. An onerous cost is the unavoidable
\n
cost of meeting our contractual obligations that exceed the
\n
expected economic benefits. When we intend to vacate a
\n
leasehold property or right of use asset, the asset would be
\n
tested for impairment and a provision may be recognised for
\n
the ancillary contractual occupancy costs.
\n
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
26 Memorandum items
\n
Contingent liabilities and commitments
\n
NatWest Group provides its customers with a variety of services to support their businesses, such as guarantees. These are
\n
reported as commitments.
Contingent liabilities are possible obligations dependent on a future event or present obligations which
\n
are either not probable or cannot be measured reliably.
\n
For accounting policy information see Accounting policies note 2.4.
\n
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
\n
December 2022. Although NatWest Group is exposed to credit risk in the event of a customer\u2019s failure to meet its obligations, the
\n
amounts shown do not, and are not intended to, provide any indication of NatWest Group's expectation of future losses.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Guarantees
3,150
2,055
\n
Other contingent liabilities
1,855
2,004
\n
Standby facilities, credit lines and other commitments
121,576
121,308
\n
Contingent liabilities and commitments
126,581
125,367
\n
Banking commitments and contingent obligations, which have
\n
been entered into on behalf of customers and for which there
\n
are corresponding obligations from customers, are not included
\n
in assets and liabilities. NatWest Group's maximum exposure to
\n
credit loss, in the event of its obligation crystallising and all
\n
counterclaims, collateral or security proving valueless, is
\n
represented by the contractual nominal amount of these
\n
instruments included in the table above. These commitments
\n
and contingent obligations are subject to NatWest Group's
\n
normal credit approval processes.
\n
Guarantees \u2013 NatWest Group gives guarantees on behalf of
\n
customers. A financial guarantee represents an irrevocable
\n
undertaking that NatWest Group will meet a customer's
\n
specified obligations to third party if the customer fails to do so.
\n
The maximum amount that NatWest Group could be required
\n
to pay under a guarantee is its principal amount as disclosed in
\n
the table above. NatWest Group expects most guarantees it
\n
provides to expire unused.
\n
Other contingent liabilities - these include standby letters of
\n
credit, supporting customer debt issues and contingent
\n
liabilities relating to customer trading activities such as those
\n
arising from performance and customs bonds, warranties and
\n
indemnities.
\n
Standby facilities and credit lines - under a loan commitment,
\n
NatWest Group agrees to make funds available to a customer
\n
in the future. Loan commitments, which are usually for a
\n
specified term, may be unconditionally cancellable or may
\n
persist, provided all conditions in the loan facility are satisfied
\n
or waived. Commitments to lend include commercial standby
\n
facilities and credit lines, liquidity facilities to commercial paper
\n
conduits and unutilised overdraft facilities.
\n
Other commitments - these include documentary credits, which
\n
are commercial letters of credit providing for payment by
\n
NatWest Group to a named beneficiary against presentation of
\n
specified documents, forward asset purchases, forward
\n
deposits placed and undrawn note issuance and revolving
\n
underwriting facilities, and other short-term trade related
\n
transactions.
\n
Contractual obligations for future expenditure not provided for in the accounts
\n
The following table shows contractual obligations for future expenditure not provided for in the accounts at the year end.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Capital expenditure on property, plant and equipment
8
16
\n
Contracts to purchase goods or services
(1)
677
682
\n
685
698
Trustee and other fiduciary activities
\n
In its capacity as trustee or other fiduciary role, NatWest Group
\n
may hold or place assets on behalf of individuals, trusts,
\n
companies, pension schemes and others. The assets and their
\n
income are not included in NatWest Group's financial
\n
statements. NatWest Group earned fee income of \u00a3266 million
\n
(2021 - \u00a3280 million; 2020 - \u00a3245 million) from these activities.
\n
The Financial Services Compensation Scheme
\n
The Financial Services Compensation Scheme (FSCS), the UK's
\n
statutory fund of last resort for customers of authorised
\n
financial services firms, pays compensation if a firm is unable to
\n
meet its obligations. The FSCS funds compensation for
\n
customers by raising management expenses levies and
\n
compensation levies on the industry. In relation to protected
\n
deposits, each deposit-taking institution contributes towards
\n
these levies in proportion to their share of total protected
\n
deposits on 31 December of the year preceding the scheme
\n
year (which runs from 1 April to 31 March), subject to annual
\n
maxima set by the Prudential Regulation Authority. In addition,
\n
the FSCS has the power to raise levies on a firm that has
\n
ceased to participate in the scheme and is in the process of
\n
ceasing to be authorised for the costs that it would have been
\n
liable to pay had the FSCS made a levy in the financial year it
\n
ceased to be a participant in the scheme.
\n
Litigation and regulatory matters
\n
NatWest Group plc and certain members of NatWest Group are
\n
party to legal proceedings and involved in regulatory matters,
\n
including as the subject of investigations and other regulatory
\n
and governmental action (Matters) in the United Kingdom (UK),
\n
the United States (US), the European Union (EU) and other
\n
jurisdictions.
\n
NatWest Group recognises a provision for a liability in relation
\n
to these Matters when it is probable that an outflow of
\n
economic benefits will be required to settle an obligation
\n
resulting from past events, and a reliable estimate can be made
\n
of the amount of the obligation.
\n
In many of these Matters, it is not possible to determine
\n
whether any loss is probable, or to estimate reliably the amount
\n
of any loss, either as a direct consequence of the relevant
\n
proceedings and regulatory matters or as a result of adverse
\n
impacts or restrictions on NatWest Group\u2019s reputation,
\n
businesses and operations. Numerous legal and factual issues
\n
may need to be resolved, including through potentially lengthy
\n
discovery and document production exercises and
\n
determination of important factual matters, and by addressing
\n
novel or unsettled legal questions relevant to the proceedings in
\n
question, before a liability can reasonably be estimated for any
\n
claim. NatWest Group cannot predict if, how, or when such
\n
claims will be resolved or what the eventual settlement,
\n
damages, fine, penalty or other relief, if any, may be,
\n
particularly for claims that are at an early stage in their
\n
development or where claimants seek substantial or
\n
indeterminate damages.
\n
There are situations where NatWest Group may pursue an
\n
approach that in some instances leads to a settlement
\n
agreement. This may occur in order to avoid the expense,
\n
management distraction or reputational implications of
\n
continuing to contest liability, or in order to take account of the
\n
risks inherent in defending claims or regulatory matters, even
\n
for those Matters for which NatWest Group believes it has
\n
credible defences and should prevail on the merits. The
\n
uncertainties inherent in all such Matters affect the amount and
\n
timing of any potential outflows for both Matters with respect
\n
to which provisions have been established and other contingent
\n
liabilities in respect of any such Matter.
\n
It is not practicable to provide an aggregate estimate of
\n
potential liability for our legal proceedings and regulatory
\n
matters as a class of contingent liabilities.
\n
The future outflow of resources in respect of any Matter may
\n
ultimately prove to be substantially greater than or less than
\n
the aggregate provision that NatWest Group has recognised.
\n
Where (and as far as) liability cannot be reasonably estimated,
\n
no provision has been recognised. NatWest Group expects that
\n
in future periods, additional provisions, settlement amounts and
\n
customer redress payments will be necessary, in amounts that
\n
are expected to be substantial in some instances. Please refer
\n
to Note 21 for information on material provisions.
\n
Matters which are, or could be material, having regard to
\n
NatWest Group, considered as a whole, in which NatWest
\n
Group is currently involved are set out below. We have
\n
provided information on the procedural history of certain
\n
Matters, where we believe appropriate, to aid the
\n
understanding of the Matter.
\n
For a discussion of certain risks associated with NatWest
\n
Group\u2019s litigation and regulatory matters, see the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
\n
Litigation
\n
Residential mortgage-backed securities (RMBS) litigation in
\n
the US
\n
NatWest Group companies continue to defend RMBS-related
\n
claims in the US in which the plaintiff, the Federal Deposit
\n
Insurance Corporation (FDIC), alleges that certain disclosures
\n
made in connection with the relevant offerings of RMBS
\n
contained materially false or misleading statements and/or
\n
omissions regarding the underwriting standards pursuant to
\n
which the mortgage loans underlying the RMBS were issued.
\n
London Interbank Offered Rate (LIBOR) and other rates
\n
litigation
\n
NWM Plc and certain other members of NatWest Group,
\n
including NatWest Group plc, are defendants in a number of
\n
class actions and individual claims pending in the United States
\n
District Court for the Southern District of New York (SDNY)
\n
with respect to the setting of LIBOR and certain other
\n
benchmark interest rates. The complaints allege that certain
\n
members of NatWest Group and other panel banks violated
\n
various federal laws, including the US commodities and
\n
antitrust laws, and state statutory and common law, as well as
\n
contracts, by manipulating LIBOR and prices of LIBOR-based
\n
derivatives in various markets through various means.
\n
Several purported class actions relating to USD LIBOR, as well
\n
as more than two dozen non-class actions concerning USD
\n
LIBOR, are part of a co-ordinated proceeding in the SDNY. The
\n
class actions include claims on behalf of persons who
\n
purchased LIBOR-linked instruments from defendants, bonds
\n
issued by defendants, persons who transacted futures and
\n
options on exchanges, and lenders who made LIBOR-based
\n
loans. The coordinated proceeding is currently in the discovery
\n
phase. In March 2020, NatWest Group companies finalised a
\n
settlement resolving the class action on behalf of bondholder
\n
plaintiffs (those who held bonds issued by non-defendants on
\n
which interest was paid from 2007 to 2010 at a rate expressly
\n
tied to USD LIBOR). The amount of the settlement (which was
\n
covered by an existing provision) was paid into escrow pending
\n
court approval of the settlement.
Litigation and regulatory matters
\n
The non-class claims filed in the SDNY include claims that the
\n
FDIC is asserting on behalf of certain failed US banks. In July
\n
2017, the FDIC, on behalf of 39 of those failed US banks,
\n
commenced substantially similar claims against NatWest Group
\n
companies and others in the High Court of Justice of England
\n
and Wales. The action alleges collusion with regard to the
\n
setting of USD LIBOR and that the defendants breached UK
\n
and European competition law, as well as asserting common
\n
law claims of fraud under US law. The defendant banks
\n
consented to a request by the FDIC for discontinuance of the
\n
claim in respect of 20 failed US banks, leaving 19 failed US
\n
banks as claimants. The trial is currently anticipated to take
\n
place in Q4 2025.
\n
In addition to the USD LIBOR cases described above, there are
\n
two class actions relating to JPY LIBOR and Euroyen TIBOR
\n
that remain outstanding. The first class action, which relates to
\n
Euroyen TIBOR futures contracts, was dismissed by the SDNY
\n
in September 2020 on jurisdictional and other grounds, and
\n
that decision was affirmed by the US Court of Appeals in
\n
October 2022. The plaintiffs have petitioned the court for a
\n
rehearing of their appeal. The second class action, which
\n
relates to other derivatives allegedly tied to JPY LIBOR and
\n
Euroyen TIBOR, was dismissed by the SDNY in relation to NWM
\n
Plc and other NatWest Group companies in September 2021.
\n
That dismissal may be the subject of a future appeal
.
\n
Two other IBOR-related class actions, concerning alleged
\n
manipulation of Euribor and Pound Sterling LIBOR, were
\n
previously dismissed by the SDNY for various reasons. The
\n
plaintiffs\u2019 appeals in those two cases remain pending.
\n
In June 2021, NWM Plc and the plaintiffs in the Swiss Franc
\n
LIBOR class action finalised a settlement resolving that case.
\n
The amount of that settlement has been paid into escrow
\n
pending final court approval of the settlement.
\n
Settlements in the class action relating to the Singapore
\n
Interbank Offered Rate and Singapore Swap Offer Rate and the
\n
class action relating to the Australian Bank Bill Swap Reference
\n
Rate received court approval in 2022, such that the settlements
\n
became final and the amounts previously paid into escrow
\n
were released to the plaintiffs.
\n
In August 2020, a complaint was filed in the United States
\n
District Court for the Northern District of California by several
\n
United States retail borrowers against the USD ICE LIBOR
\n
panel banks and their affiliates (including NatWest Group plc,
\n
NWM Plc, NWMSI and NWB Plc), alleging (i) that the very
\n
process of setting USD ICE LIBOR amounts to illegal price-
\n
fixing; and (ii) that banks in the United States have illegally
\n
agreed to use LIBOR as a component of price in variable retail
\n
loans. In September 2022, the district court dismissed the
\n
complaint, subject to re-pleading by the plaintiffs. The plaintiffs
\n
filed an amended complaint in October 2022, which the
\n
defendants are again seeking to have dismissed.
\n
NWM Plc is also named as a defendant in a motion to certify a
\n
class action relating to LIBOR in the Tel Aviv District Court in
\n
Israel. NWM Plc filed a motion for cancellation of service
\n
outside the jurisdiction, which was granted in July 2020. The
\n
claimants appealed that decision and in November 2020 the
\n
appeal was refused and the claim dismissed by the Appellate
\n
Court. The claim could in future be recommenced depending
\n
on the outcome of an appeal to Israel\u2019s Supreme Court in
\n
respect of the dismissal of the substantive case against banks
\n
that had a presence in Israel.
\n
FX litigation
\n
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
\n
several cases relating to NWM Plc\u2019s foreign exchange (FX)
\n
business. In 2015, NWM Plc paid US$255 million to settle the
\n
consolidated antitrust class action filed in the SDNY on behalf
\n
of persons who entered into over-the-counter FX transactions
\n
with defendants or who traded FX instruments on exchanges.
\n
In 2018, some members of the settlement class who opted out
\n
of that class action settlement filed their own non-class
\n
complaint in the SDNY asserting antitrust claims against NWM
\n
Plc, NWMSI and other banks.
\n
In April 2019, some of the claimants in the opt-out case
\n
described above, as well as others, served proceedings in the
\n
High Court of Justice of England and Wales, asserting
\n
competition claims against NWM Plc and several other banks.
\n
The claim was transferred from the High Court of Justice of
\n
England and Wales in December 2021 and registered in the UK
\n
Competition Appeal Tribunal (CAT) in January 2022. In
\n
December 2022, NWM Plc reached an agreement in principle,
\n
subject to documentation, to resolve both the SDNY and CAT
\n
cases. The settlement amount to be paid by NWM Plc is
\n
covered by an existing provision.
\n
An FX-related class action, on behalf of \u2018consumers and end-
\n
user businesses\u2019, is proceeding in the SDNY against NWM Plc
\n
and others. In March 2022, the SDNY denied the plaintiffs\u2019
\n
motion for class certification. Plaintiffs sought an immediate
\n
appeal of the decision but the appellate court declined to
\n
review the decision. As a result, the case is proceeding on an
\n
individual, non-class basis, and the defendants are seeking
\n
summary judgment dismissing the individual claims.
\n
In May 2019, a cartel class action was filed in the Federal Court
\n
of Australia against NWM Plc and four other banks on behalf of
\n
persons who bought or sold currency through FX spots or
\n
forwards between 1 January 2008 and 15 October 2013 with a
\n
total transaction value exceeding AUD $0.5 million. The
\n
claimant has alleged that the banks, including NWM Plc,
\n
contravened Australian competition law by sharing information,
\n
coordinating conduct, widening spreads and manipulating FX
\n
rates for certain currency pairs during this period. NatWest
\n
Group plc and NWMSI have been named in the action as \u2018other
\n
cartel participants\u2019, but are not respondents. The claim was
\n
served in June 2019 and NWM Plc filed its defence in March
\n
2022.
\n
In July and December 2019, two separate applications seeking
\n
opt-out collective proceedings orders were filed in the CAT
\n
against NatWest Group plc, NWM Plc and other banks. Both
\n
applications were brought on behalf of persons who, between
\n
18 December 2007 and 31 January 2013, entered into a
\n
relevant FX spot or outright forward transaction in the EEA
\n
with a relevant financial institution or on an electronic
\n
communications network. In March 2022, the CAT declined to
\n
certify as collective proceedings either of the applications. In
\n
October 2022, the CAT granted permission for the applicants to
\n
appeal that decision to the Court of Appeal. Separately, the
\n
applicants have served judicial review proceedings, which are
\n
due to be heard together with the appeal to the Court of
\n
Appeal in April 2023.
\n
Two motions to certify FX-related class actions were filed in the
\n
Tel Aviv District Court in Israel in September and October 2018,
\n
and were subsequently consolidated into one motion. The
\n
consolidated motion to certify, which names The Royal Bank of
\n
Scotland plc (now NWM Plc) and several other banks as
\n
defendants, was served on NWM Plc in May 2020. The
\n
applicants have sought the court\u2019s permission to amend their
\n
motions to certify the class actions.
Litigation and regulatory matters
\n
NWM Plc has filed a motion challenging the permission granted
\n
by the court for the applicants to serve the consolidated motion
\n
outside the Israeli jurisdiction. That NWM Plc motion remains
\n
pending.
\n
In December 2021, a claim was issued in the Netherlands
\n
against NatWest Group plc, NWM Plc and NWM N.V. by
\n
Stichting FX Claims, seeking a declaration from the court that
\n
anti-competitive FX market conduct described in decisions of
\n
the European Commission (EC) of 16 May 2019 is unlawful,
\n
along with unspecified damages. The claimant has amended its
\n
claim to also refer to a December 2021 decision by the EC,
\n
which also described anti-competitive FX market conduct. The
\n
defendants are contesting the jurisdiction of the Dutch court.
\n
Certain other foreign exchange transaction related claims have
\n
been or may be threatened. NatWest Group cannot predict
\n
whether all or any of these claims will be pursued.
\n
Government securities antitrust litigation
\n
NWMSI and certain other US broker-dealers are defendants in
\n
a consolidated antitrust class action in the SDNY on behalf of
\n
persons who transacted in US Treasury securities or derivatives
\n
based on such instruments, including futures and options. The
\n
plaintiffs allege that the defendants rigged the US Treasury
\n
securities auction bidding process to deflate prices at which
\n
they bought such securities and colluded to increase the prices
\n
at which they sold such securities to the plaintiffs. In March
\n
2022, the SDNY dismissed the complaint, without leave to re-
\n
plead. The plaintiffs are appealing the dismissal.
\n
Class action antitrust claims commenced in March 2019 are
\n
pending in the SDNY against NWM Plc, NWMSI and other banks
\n
in respect of Euro-denominated bonds issued by European
\n
central banks (EGBs). The complaint alleges a conspiracy
\n
among dealers of EGBs to widen the bid-ask spreads they
\n
quoted to customers, thereby increasing the prices customers
\n
paid for the EGBs or decreasing the prices at which customers
\n
sold the bonds. The class consists of those who purchased or
\n
sold EGBs in the US between 2007 and 2012. In March 2022,
\n
the SDNY dismissed the claims against NWM Plc and NWMSI on
\n
the ground that the complaint\u2019s conspiracy allegations are
\n
insufficient. The plaintiffs have filed a motion for permission to
\n
file an amended complaint.
\n
Swaps antitrust litigation
\n
NWM Plc and other members of NatWest Group, including
\n
NatWest Group plc, as well as a number of other interest rate
\n
swap dealers, are defendants in several cases pending in the
\n
SDNY alleging violations of the US antitrust laws in the market
\n
for interest rate swaps. There is a consolidated class action
\n
complaint on behalf of persons who entered into interest rate
\n
swaps with the defendants, as well as non-class action claims
\n
by three swap execution facilities (TeraExchange, Javelin, and
\n
trueEx). The plaintiffs allege that the swap execution facilities
\n
would have successfully established exchange-like trading of
\n
interest rate swaps if the defendants had not unlawfully
\n
conspired to prevent that from happening through boycotts
\n
and other means. Discovery in these cases is complete, and the
\n
plaintiffs\u2019 motion for class certification remains pending.
\n
In June 2021, a class action antitrust complaint was filed
\n
against a number of credit default swap dealers in New Mexico
\n
federal court on behalf of persons who, from 2005 onwards,
\n
settled credit default swaps in the United States by reference to
\n
the ISDA credit default swap auction protocol. The complaint
\n
alleges that the defendants conspired to manipulate that
\n
benchmark through various means in violation of the antitrust
\n
laws and the Commodity Exchange Act.
\n
The defendants include several NatWest Group companies,
\n
including NatWest Group plc. Defendants are seeking dismissal.
\n
Odd lot corporate bond trading antitrust litigation
\n
In October 2021, the SDNY granted the defendants\u2019 motion to
\n
dismiss the class action antitrust complaint alleging that from
\n
August 2006 onwards various securities dealers, including
\n
NWMSI, conspired artificially to widen spreads for odd lots of
\n
corporate bonds bought or sold in the United States secondary
\n
market and to boycott electronic trading platforms that would
\n
have allegedly promoted pricing competition in the market for
\n
such bonds. The plaintiffs have filed an appeal.
\n
Spoofing litigation
\n
In December 2021, three substantially similar class actions
\n
complaints were filed in federal court in the United States
\n
against NWM Plc and NWMSI alleging Commodity Exchange
\n
Act and common law unjust enrichment claims arising from
\n
manipulative trading known as spoofing. The complaints refer
\n
to NWM Plc\u2019s December 2021 spoofing-related guilty plea
\n
(described below under \u201cUS investigations relating to fixed-
\n
income securities\u201d) and purport to assert claims on behalf of
\n
those who transacted in US Treasury securities and futures and
\n
options on US Treasury securities between 2008 and 2018. In
\n
July 2022, defendants filed a motion to dismiss these claims,
\n
which have been consolidated into one matter in the United
\n
States District Court for the Northern District of Illinois.
\n
Madoff
\n
NWM N.V. was named as a defendant in two actions filed by
\n
the trustee for the bankrupt estates of Bernard L. Madoff and
\n
Bernard L. Madoff Investment Securities LLC, in bankruptcy
\n
court in New York, which together seek to clawback more than
\n
US$298 million that NWM N.V. allegedly received from certain
\n
Madoff feeder funds and certain swap counterparties. The
\n
claims were previously dismissed, but as a result of an August
\n
2021 decision by the US Court of Appeals, they will now
\n
proceed in the bankruptcy court, where they have now been
\n
consolidated into one action, subject to NWM N.V.\u2019s legal and
\n
factual defences. In May 2022, NWM N.V. filed a motion to
\n
dismiss the amended complaint in the consolidated action.
\n
EUA trading litigation
\n
NWM Plc was a named defendant in civil proceedings before
\n
the High Court of Justice of England and Wales brought in 2015
\n
by ten
companies (all in liquidation) (the \u2018Liquidated
\n
Companies\u2019) and their respective liquidators (together, \u2018the
\n
Claimants\u2019). The Liquidated Companies previously traded in
\n
European Union Allowances (EUAs) in 2009 and were alleged
\n
to be VAT defaulting traders within (or otherwise connected to)
\n
EUA supply chains of which NWM Plc was a party. In March
\n
2020, the court held that NWM Plc and Mercuria Energy
\n
Europe Trading Limited (\u2018Mercuria\u2019) were liable for dishonestly
\n
assisting and knowingly being a party to fraudulent trading
\n
during a seven business day period in 2009.
\n
In October 2020, the High Court quantified total damages
\n
against NWM Plc and Mercuria at \u00a345 million plus interest and
\n
costs, and permitted the defendants to appeal to the Court of
\n
Appeal. In May 2021 the Court of Appeal set aside the High
\n
Court\u2019s judgment and ordered that a retrial take place before a
\n
different High Court judge. The claimants have been denied
\n
permission by the Supreme Court to appeal that decision and
\n
the retrial will therefore proceed on a date to be scheduled.
\n
Mercuria has also been denied permission by the Supreme
\n
Court to appeal the High Court\u2019s finding that NWM Plc and
\n
Mercuria were both vicariously liable.
Litigation and regulatory matters
\n
Offshoring VAT assessments
\n
HMRC issued protective tax assessments in 2018 against
\n
NatWest Group plc totalling \u00a3143 million relating to unpaid VAT
\n
in respect of the UK branches of two NatWest Group
\n
companies registered in India. NatWest Group formally
\n
requested reconsideration by HMRC of their assessments, and
\n
this process was completed in November 2020. HMRC upheld
\n
their original decision and, as a result, NatWest Group plc
\n
lodged an appeal with the Tax Tribunal and an application for
\n
judicial review with the High Court of Justice of England and
\n
Wales, both in December 2020. In order to lodge the appeal
\n
with the Tax Tribunal, NatWest Group plc was required to pay
\n
\u00a3143 million to HMRC, and payment was made in December
\n
2020. The appeal and the application for judicial review have
\n
both been stayed pending resolution of a separate case
\n
involving another bank.
\n
US Anti-Terrorism Act litigation
\n
NWM N.V. and certain other financial institutions are
\n
defendants in several actions filed by a number of US nationals
\n
(or their estates, survivors, or heirs), most of whom are or were
\n
US military personnel, who were killed or injured in attacks in
\n
Iraq between 2003 and 2011. NWM Plc is also a defendant in
\n
some of these cases.
\n
According to the plaintiffs\u2019 allegations, the defendants are liable
\n
for damages arising from the attacks because they allegedly
\n
conspired with Iran and certain Iranian banks to assist Iran in
\n
transferring money to Hezbollah and the Iraqi terror cells that
\n
committed the attacks, in violation of the US Anti-Terrorism
\n
Act, by agreeing to engage in \u2018stripping\u2019 of transactions
\n
initiated by the Iranian banks so that the Iranian nexus to the
\n
transactions would not be detected.
\n
The first of these actions was filed in the United States District
\n
Court for the Eastern District of New York in November 2014.
\n
In September 2019, the district court dismissed the case,
\n
finding that the claims were deficient for several reasons,
\n
including lack of sufficient allegations as to the alleged
\n
conspiracy and causation. On 5 January 2023, the US Court of
\n
Appeals affirmed the district court\u2019s dismissal of this case.
\n
Another action, filed in the SDNY in 2017, was dismissed by the
\n
SDNY in March 2019 on similar grounds as the first case, but
\n
remains subject to appeal to the US Court of Appeals. Other
\n
follow-on actions that are substantially similar to the two that
\n
have now been dismissed are pending in the same courts.
\n
1MDB litigation
\n
A Malaysian court claim was served in Switzerland in
\n
November 2022 by 1MDB, a Sovereign Wealth Fund, in which
\n
Coutts & Co Ltd was named, along with six others, as a
\n
defendant in respect of losses allegedly incurred by 1MDB. It is
\n
claimed that Coutts & Co Ltd is liable as a constructive trustee
\n
for having dishonestly assisted the directors of 1MDB in the
\n
breach of their fiduciary duties by failing (amongst other
\n
alleged claims) to undertake due diligence in relation to a
\n
customer of Coutts & Co Ltd, through which funds totalling
\n
c.US$1 billion were received and paid out between 2009 and
\n
2011. The claimant seeks the return of that amount plus
\n
interest. Coutts & Co Ltd filed an application in January 2023
\n
challenging the validity of service and the Malaysian court\u2019s
\n
jurisdiction to hear the claim. Coutts & Co Ltd is a company
\n
registered in Switzerland and is in wind-down following the
\n
announced sale of its business assets in 2015.
\n
Regulatory matters (including investigations and customer
\n
redress programmes)
\n
NatWest Group\u2019s businesses and financial condition can be
\n
affected by the actions of various governmental and regulatory
\n
authorities in the UK, the US, the EU and elsewhere. NatWest
\n
Group has engaged, and will continue to engage, in discussions
\n
with relevant governmental and regulatory authorities,
\n
including in the UK, the US, the EU and elsewhere, on an
\n
ongoing and regular basis, and in response to informal and
\n
formal inquiries or investigations, regarding operational,
\n
systems and control evaluations and issues including those
\n
related to compliance with applicable laws and regulations,
\n
including consumer protection, investment advice, business
\n
conduct, competition/anti-trust, VAT recovery, anti-bribery,
\n
anti-money laundering and sanctions regimes. NatWest Group
\n
expects government and regulatory intervention in financial
\n
services to be high for the foreseeable future, including
\n
increased scrutiny from competition and other regulators in the
\n
retail and SME business sectors.
\n
Any matters discussed or identified during such discussions and
\n
inquiries may result in, among other things, further inquiry or
\n
investigation, other action being taken by governmental and
\n
regulatory authorities, increased costs being incurred by
\n
NatWest Group, remediation of systems and controls, public or
\n
private censure, restriction of NatWest Group\u2019s business
\n
activities and/or fines. Any of the events or circumstances
\n
mentioned in this paragraph or below could have a material
\n
adverse effect on NatWest Group, its business, authorisations
\n
and licences, reputation, results of operations or the price of
\n
securities issued by it, or lead to material additional provisions
\n
being taken.
\n
NatWest Group is co-operating fully with the matters described
\n
below.
\n
US investigations relating to fixed-income securities
\n
In December 2021, NWM Plc pled guilty in the United States
\n
District Court for the District of Connecticut to one count of
\n
wire fraud and one count of securities fraud in connection with
\n
historical spoofing conduct by former employees in US
\n
Treasuries markets between January 2008 and May 2014 and,
\n
separately, during approximately three months in 2018. The
\n
2018 trading occurred during the term of a non-prosecution
\n
agreement (NPA) between NWMSI and the United States
\n
Attorney's Office for the District of Connecticut (USAO CT),
\n
under which non-prosecution was conditioned on NWMSI and
\n
affiliated companies not engaging in criminal conduct during
\n
the term of the NPA. The relevant trading in 2018 was
\n
conducted by two NWM traders in Singapore and breached
\n
that NPA. The plea agreement reached with the US
\n
Department of Justice and the USAO CT resolved both the
\n
spoofing conduct and the breach of the NPA.
\n
As required by the resolution and sentence imposed by the
\n
court, NWM Plc is subject to a three-year period of probation.
\n
The plea agreement also imposes an independent corporate
\n
monitor. In addition, NWM Plc has committed to compliance
\n
programme reviews and improvements and agreed to
\n
reporting and co-operation obligations.
\n
Other material adverse collateral consequences may occur as
\n
a result of this matter, as further described in the Risk Factors
\n
relating to legal, regulatory and governmental actions and
\n
investigations set out on pages 423 to 424.
Litigation and regulatory matters
\n
RBSI inspection report and referral to enforcement
\n
The Isle of Man Financial Services Authority undertook an
\n
inspection at The Royal Bank of Scotland International Limited
\n
(RBSI), Isle of Man, in 2021, following which it issued an
\n
inspection report. The inspection was in relation to anti-money
\n
laundering and counter-terrorist financing controls and
\n
procedures relating to specific RBSI customers. In May 2022,
\n
the FSA notified RBSI that it had been referred to its
\n
Enforcement Division in relation to certain issues identified in
\n
the inspection report.
\n
RBSI reliance regime and referral to enforcement
\n
In January 2023, the Jersey Financial Services Commission
\n
notified RBSI that it had been referred to its Enforcement
\n
Division in relation to RBSI\u2019s operation of the reliance regime.
\n
The reliance regime is specific to certain Crown Dependencies
\n
and enables the bank to rely on regulated third parties for
\n
specific due diligence information.
\n
Investment advice review
\n
In October 2019, the FCA notified NatWest Group of its
\n
intention to appoint a Skilled Person under section 166 of the
\n
Financial Services and Markets Act 2000 to conduct a review of
\n
whether NatWest Group\u2019s past business review of investment
\n
advice provided during 2010 to 2015 was subject to
\n
appropriate governance and accountability and led to
\n
appropriate customer outcomes. The Skilled Person\u2019s review
\n
has concluded and, after discussion with the FCA, NatWest
\n
Group has now commenced additional review / remediation
\n
work.
\n
Review and investigation of treatment of tracker mortgage
\n
customers in Ulster Bank Ireland DAC
\n
In December 2015, correspondence was received from the CBI
\n
setting out an industry examination framework in respect of the
\n
sale of tracker mortgages from approximately 2001 until the
\n
end of 2015. The redress and compensation process has now
\n
largely concluded, although certain cases remain outstanding.
\n
UBIDAC customers have lodged tracker mortgage complaints
\n
with the Financial Services and Pensions Ombudsman (FSPO).
\n
UBIDAC is challenging three FSPO adjudications in the Irish
\n
High Court. The outcome and impact of that challenge on those
\n
and related complaints is uncertain but may be material.
\n
Other customer remediation in Ulster Bank Ireland DAC
\n
UBIDAC has identified further legacy business issues and these
\n
remediation programmes are ongoing.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47725": { "value": "2.4. Provisions and contingent liabilities
Contingent liabilities are possible obligations arising from past
\n
events, whose existence will be confirmed only by uncertain
\n
future events, or present obligations arising from past events
\n
that are not recognised because either an outflow of economic
\n
benefits is not probable, or the amount of the obligation cannot
\n
be reliably measured. Contingent liabilities are not recognised
\n
but information about them is disclosed unless the possibility of
\n
any outflow of economic benefits in settlement is remote.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47753": { "value": "
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
1 Net interest income
\n
Net interest income is the difference between the interest NatWest Group earns from its interest-bearing assets, such as loans,
\n
balances with central banks and other financial assets, and the interest paid on its interest-bearing liabilities, such as deposits and
\n
subordinated liabilities.
\n
Interest receivable on financial instruments classified as amortised cost, debt instruments classified as FVOCI and the interest
\n
element of the effective portion of any designated hedging relationships are measured using the effective interest rate, which
\n
allocates the interest receivable or interest payable over the expected life of the financial instrument at the rate that exactly
\n
discounts all estimated future cash flows to equal the financial instrument's initial carrying amount. Calculation of the effective
\n
interest rate takes into account fees payable or receivable that are an integral part of the financial instrument\u2019s yield, premiums or
\n
discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are
\n
considered when estimating future cash flows. Negative interest on financial
assets is presented in interest payable and negative
\n
interest on
financial liabilities is presented in interest receivable.
\n
Included in interest receivable is finance lease income of \u00a3314 million (2021 - \u00a3298 million; 2020 - \u00a3289 million) which is recognised
\n
at a constant periodic rate of return before tax on the net investment.
\n
For accounting policy information see Accounting policies note 3.1.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Balances at central banks and loans to banks - amortised cost
1,987
445
336
\n
Loans to customers - amortised cost
10,085
8,536
8,892
\n
Other financial assets
565
253
483
\n
Interest receivable
12,637
9,234
9,711
\n
Balances with banks
379
204
144
\n
Customer deposits
785
556
911
\n
Other financial liabilities
1,196
670
846
\n
Subordinated liabilities
370
267
402
\n
Internal funding of trading businesses
65
2
19
\n
Interest payable
2,795
1,699
2,322
\n
Net interest income
9,842
7,535
7,389
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47754": { "value": "
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
1 Net interest income
\n
Net interest income is the difference between the interest NatWest Group earns from its interest-bearing assets, such as loans,
\n
balances with central banks and other financial assets, and the interest paid on its interest-bearing liabilities, such as deposits and
\n
subordinated liabilities.
\n
Interest receivable on financial instruments classified as amortised cost, debt instruments classified as FVOCI and the interest
\n
element of the effective portion of any designated hedging relationships are measured using the effective interest rate, which
\n
allocates the interest receivable or interest payable over the expected life of the financial instrument at the rate that exactly
\n
discounts all estimated future cash flows to equal the financial instrument's initial carrying amount. Calculation of the effective
\n
interest rate takes into account fees payable or receivable that are an integral part of the financial instrument\u2019s yield, premiums or
\n
discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are
\n
considered when estimating future cash flows. Negative interest on financial
assets is presented in interest payable and negative
\n
interest on
financial liabilities is presented in interest receivable.
\n
Included in interest receivable is finance lease income of \u00a3314 million (2021 - \u00a3298 million; 2020 - \u00a3289 million) which is recognised
\n
at a constant periodic rate of return before tax on the net investment.
\n
For accounting policy information see Accounting policies note 3.1.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Balances at central banks and loans to banks - amortised cost
1,987
445
336
\n
Loans to customers - amortised cost
10,085
8,536
8,892
\n
Other financial assets
565
253
483
\n
Interest receivable
12,637
9,234
9,711
\n
Balances with banks
379
204
144
\n
Customer deposits
785
556
911
\n
Other financial liabilities
1,196
670
846
\n
Subordinated liabilities
370
267
402
\n
Internal funding of trading businesses
65
2
19
\n
Interest payable
2,795
1,699
2,322
\n
Net interest income
9,842
7,535
7,389
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47755": { "value": "
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
1 Net interest income
\n
Net interest income is the difference between the interest NatWest Group earns from its interest-bearing assets, such as loans,
\n
balances with central banks and other financial assets, and the interest paid on its interest-bearing liabilities, such as deposits and
\n
subordinated liabilities.
\n
Interest receivable on financial instruments classified as amortised cost, debt instruments classified as FVOCI and the interest
\n
element of the effective portion of any designated hedging relationships are measured using the effective interest rate, which
\n
allocates the interest receivable or interest payable over the expected life of the financial instrument at the rate that exactly
\n
discounts all estimated future cash flows to equal the financial instrument's initial carrying amount. Calculation of the effective
\n
interest rate takes into account fees payable or receivable that are an integral part of the financial instrument\u2019s yield, premiums or
\n
discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are
\n
considered when estimating future cash flows. Negative interest on financial
assets is presented in interest payable and negative
\n
interest on
financial liabilities is presented in interest receivable.
\n
Included in interest receivable is finance lease income of \u00a3314 million (2021 - \u00a3298 million; 2020 - \u00a3289 million) which is recognised
\n
at a constant periodic rate of return before tax on the net investment.
\n
For accounting policy information see Accounting policies note 3.1.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Balances at central banks and loans to banks - amortised cost
1,987
445
336
\n
Loans to customers - amortised cost
10,085
8,536
8,892
\n
Other financial assets
565
253
483
\n
Interest receivable
12,637
9,234
9,711
\n
Balances with banks
379
204
144
\n
Customer deposits
785
556
911
\n
Other financial liabilities
1,196
670
846
\n
Subordinated liabilities
370
267
402
\n
Internal funding of trading businesses
65
2
19
\n
Interest payable
2,795
1,699
2,322
\n
Net interest income
9,842
7,535
7,389
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47756": { "value": "
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
3.6. Foreign currencies
\n
Foreign exchange differences arising on the settlement of
\n
foreign currency transactions and from the translation of
\n
monetary assets and liabilities are reported in income from
\n
trading activities except for differences arising on cash flow
\n
hedges and hedges of net investments in foreign operations.
\n
Non-monetary items denominated in foreign currencies that
\n
are stated at fair value are translated into the functional
\n
currency at the foreign exchange rates ruling at the dates the
\n
values are determined. Translation differences are recognised
\n
in the income statement except for differences arising on non-
\n
monetary financial assets classified as fair value through other
\n
comprehensive income.
\n
Income and expenses of foreign subsidiaries and branches are
\n
translated into sterling at average exchange rates unless these
\n
do not approximate the foreign exchange rates ruling at the
\n
dates of the transactions. Foreign exchange differences arising
\n
on the translation of a foreign operation are recognised in
\n
other comprehensive income. The amount accumulated in
\n
equity is reclassified from equity to the income statement on
\n
disposal of a foreign operation.
2 Non-interest income
\n
There are three main categories of non-interest income: net fees and commissions, trading income , and other operating income.
\n
Net fees and commissions is the difference between fees received from customers for services provided by NatWest Group, such as
\n
credit card annual fees, mortgage arrangement fees, underwriting fees, payment services, brokerage fees, trade finance,
\n
investment management fees, trustee and fiduciary services, and fees incurred in the provision of those services, such as credit
\n
card interchange fees, customer incentives, loan administration, foreign currency transaction charges, brokerage fees, and
\n
mortgage valuation reports.
\n
Trading income is earned from short-term financial assets and financial liabilities to either make a spread between purchase and
\n
sale price or held to take advantage of movements in prices and yields.
\n
Other operating income includes revenue from other operating activities which are not related to the principal activities of the
\n
company, such as share of profit or loss from associate, operating lease income, the profit or loss on the sale of a subsidiary or
\n
property, plant and equipment, profit or loss on own debt, and changes in the fair value of financial assets and liabilities designated
\n
at fair value through profit or loss.
\n
For accounting policy information see Accounting policies note 3.1 and 3.6.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Net fees and commissions
(2)
2,292
2,120
1,982
\n
Trading income
\n
Foreign exchange
305
364
569
\n
Interest rate
(3)
752
(130)
541
\n
Credit
17
83
3
\n
Changes in fair value of own debt and derivative liabilities attributable to own credit risk
\n
- debt securities in issue
42
6
(24)
\n
Equities, commodities and other
17
\u2014
36
\n
1,133
323
1,125
\n
Other operating income
\n
Loss on redemption of own debt
(161)
(145)
(324)
\n
Rental income on operating lease assets and investment property
230
225
232
\n
Changes in fair value of financial assets and liabilities designated at fair value
\n
through profit or loss
(4)
17
(8)
(54)
\n
Changes in fair value of other financial assets at fair value through profit or loss
(5,6)
(45)
5
2
\n
Hedge ineffectiveness
(20)
25
24
\n
Loss on disposal of amortised cost assets and liabilities
(15)
(15)
(18)
\n
(Loss)/profit on disposal of fair value through other comprehensive income assets
(168)
117
96
\n
(Loss)/profit on sale of property, plant and equipment
(7)
(5)
(30)
13
\n
Share of (losses)/profits of associated entities
(30)
216
(30)
\n
Profit/(loss) on disposal of subsidiaries and associates
\u2014
48
(16)
\n
Other income
(8,9)
86
13
(18)
\n
(111)
451
(93)
\n
3,314
2,894
3,014
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
(2)
Refer to Note 4 for further analysis.
\n
(3)
Includes fair value changes on derivatives which have not been designated in a hedge accounting relationship and gains and losses from the management of the NatWest Group\u2019s
\n
funding requirements involving the use of derivatives including FX. These are aimed at managing the interest rate and foreign exchange risk that NatWest Group is exposed to.
\n
(4)
Includes related derivatives.
\n
(5)
2022 includes a \u00a319 million gain from reclassification of mortgages from amortised cost to fair value through profit or loss. Refer to Note 10 for further details.
\n
(6)
Includes instruments that have failed solely payments of principal and interest testing under IFRS 9.
\n
(7)
2021 includes \u00a344 million loss on the purchase of freeholds for properties where the Group was the primary leaseholder.
\n
(8)
2022 includes \u00a392 million profit from insurance liabilities.
\n
(9)
2020 includes \u00a358 million loss on acquisition of a \u00a33.0 billion prime UK mortgages portfolio from Metro Bank plc.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFeeAndCommissionIncomeExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47757": { "value": "
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
3.6. Foreign currencies
\n
Foreign exchange differences arising on the settlement of
\n
foreign currency transactions and from the translation of
\n
monetary assets and liabilities are reported in income from
\n
trading activities except for differences arising on cash flow
\n
hedges and hedges of net investments in foreign operations.
\n
Non-monetary items denominated in foreign currencies that
\n
are stated at fair value are translated into the functional
\n
currency at the foreign exchange rates ruling at the dates the
\n
values are determined. Translation differences are recognised
\n
in the income statement except for differences arising on non-
\n
monetary financial assets classified as fair value through other
\n
comprehensive income.
\n
Income and expenses of foreign subsidiaries and branches are
\n
translated into sterling at average exchange rates unless these
\n
do not approximate the foreign exchange rates ruling at the
\n
dates of the transactions. Foreign exchange differences arising
\n
on the translation of a foreign operation are recognised in
\n
other comprehensive income. The amount accumulated in
\n
equity is reclassified from equity to the income statement on
\n
disposal of a foreign operation.
2 Non-interest income
\n
There are three main categories of non-interest income: net fees and commissions, trading income , and other operating income.
\n
Net fees and commissions is the difference between fees received from customers for services provided by NatWest Group, such as
\n
credit card annual fees, mortgage arrangement fees, underwriting fees, payment services, brokerage fees, trade finance,
\n
investment management fees, trustee and fiduciary services, and fees incurred in the provision of those services, such as credit
\n
card interchange fees, customer incentives, loan administration, foreign currency transaction charges, brokerage fees, and
\n
mortgage valuation reports.
\n
Trading income is earned from short-term financial assets and financial liabilities to either make a spread between purchase and
\n
sale price or held to take advantage of movements in prices and yields.
\n
Other operating income includes revenue from other operating activities which are not related to the principal activities of the
\n
company, such as share of profit or loss from associate, operating lease income, the profit or loss on the sale of a subsidiary or
\n
property, plant and equipment, profit or loss on own debt, and changes in the fair value of financial assets and liabilities designated
\n
at fair value through profit or loss.
\n
For accounting policy information see Accounting policies note 3.1 and 3.6.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Net fees and commissions
(2)
2,292
2,120
1,982
\n
Trading income
\n
Foreign exchange
305
364
569
\n
Interest rate
(3)
752
(130)
541
\n
Credit
17
83
3
\n
Changes in fair value of own debt and derivative liabilities attributable to own credit risk
\n
- debt securities in issue
42
6
(24)
\n
Equities, commodities and other
17
\u2014
36
\n
1,133
323
1,125
\n
Other operating income
\n
Loss on redemption of own debt
(161)
(145)
(324)
\n
Rental income on operating lease assets and investment property
230
225
232
\n
Changes in fair value of financial assets and liabilities designated at fair value
\n
through profit or loss
(4)
17
(8)
(54)
\n
Changes in fair value of other financial assets at fair value through profit or loss
(5,6)
(45)
5
2
\n
Hedge ineffectiveness
(20)
25
24
\n
Loss on disposal of amortised cost assets and liabilities
(15)
(15)
(18)
\n
(Loss)/profit on disposal of fair value through other comprehensive income assets
(168)
117
96
\n
(Loss)/profit on sale of property, plant and equipment
(7)
(5)
(30)
13
\n
Share of (losses)/profits of associated entities
(30)
216
(30)
\n
Profit/(loss) on disposal of subsidiaries and associates
\u2014
48
(16)
\n
Other income
(8,9)
86
13
(18)
\n
(111)
451
(93)
\n
3,314
2,894
3,014
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
(2)
Refer to Note 4 for further analysis.
\n
(3)
Includes fair value changes on derivatives which have not been designated in a hedge accounting relationship and gains and losses from the management of the NatWest Group\u2019s
\n
funding requirements involving the use of derivatives including FX. These are aimed at managing the interest rate and foreign exchange risk that NatWest Group is exposed to.
\n
(4)
Includes related derivatives.
\n
(5)
2022 includes a \u00a319 million gain from reclassification of mortgages from amortised cost to fair value through profit or loss. Refer to Note 10 for further details.
\n
(6)
Includes instruments that have failed solely payments of principal and interest testing under IFRS 9.
\n
(7)
2021 includes \u00a344 million loss on the purchase of freeholds for properties where the Group was the primary leaseholder.
\n
(8)
2022 includes \u00a392 million profit from insurance liabilities.
\n
(9)
2020 includes \u00a358 million loss on acquisition of a \u00a33.0 billion prime UK mortgages portfolio from Metro Bank plc.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradingIncomeExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47758": { "value": "
3.1. Revenue recognition
\n
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\n
price is usually fixed and always determinable.
3.6. Foreign currencies
Foreign exchange differences arising on the settlement of
\n
foreign currency transactions and from the translation of
\n
monetary assets and liabilities are reported in income from
\n
trading activities except for differences arising on cash flow
\n
hedges and hedges of net investments in foreign operations.
Non-monetary items denominated in foreign currencies that
\n
are stated at fair value are translated into the functional
\n
currency at the foreign exchange rates ruling at the dates the
\n
values are determined. Translation differences are recognised
\n
in the income statement except for differences arising on non-
\n
monetary financial assets classified as fair value through other
\n
comprehensive income.
Income and expenses of foreign subsidiaries and branches are
\n
translated into sterling at average exchange rates unless these
\n
do not approximate the foreign exchange rates ruling at the
\n
dates of the transactions. Foreign exchange differences arising
\n
on the translation of a foreign operation are recognised in
\n
other comprehensive income. The amount accumulated in
\n
equity is reclassified from equity to the income statement on
disposal of a foreign operation.
2 Non-interest income
\n
There are three main categories of non-interest income: net fees and commissions, trading income , and other operating income.
\n
Net fees and commissions is the difference between fees received from customers for services provided by NatWest Group, such as
\n
credit card annual fees, mortgage arrangement fees, underwriting fees, payment services, brokerage fees, trade finance,
\n
investment management fees, trustee and fiduciary services, and fees incurred in the provision of those services, such as credit
\n
card interchange fees, customer incentives, loan administration, foreign currency transaction charges, brokerage fees, and
\n
mortgage valuation reports.
\n
Trading income is earned from short-term financial assets and financial liabilities to either make a spread between purchase and
\n
sale price or held to take advantage of movements in prices and yields.
\n
Other operating income includes revenue from other operating activities which are not related to the principal activities of the
\n
company, such as share of profit or loss from associate, operating lease income, the profit or loss on the sale of a subsidiary or
\n
property, plant and equipment, profit or loss on own debt, and changes in the fair value of financial assets and liabilities designated
\n
at fair value through profit or loss.
\n
For accounting policy information see Accounting policies note 3.1 and 3.6.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Net fees and commissions
(2)
2,292
2,120
1,982
\n
Trading income
\n
Foreign exchange
305
364
569
\n
Interest rate
(3)
752
(130)
541
\n
Credit
17
83
3
\n
Changes in fair value of own debt and derivative liabilities attributable to own credit risk
\n
- debt securities in issue
42
6
(24)
\n
Equities, commodities and other
17
\u2014
36
\n
1,133
323
1,125
\n
Other operating income
\n
Loss on redemption of own debt
(161)
(145)
(324)
\n
Rental income on operating lease assets and investment property
230
225
232
\n
Changes in fair value of financial assets and liabilities designated at fair value
\n
through profit or loss
(4)
17
(8)
(54)
\n
Changes in fair value of other financial assets at fair value through profit or loss
(5,6)
(45)
5
2
\n
Hedge ineffectiveness
(20)
25
24
\n
Loss on disposal of amortised cost assets and liabilities
(15)
(15)
(18)
\n
(Loss)/profit on disposal of fair value through other comprehensive income assets
(168)
117
96
\n
(Loss)/profit on sale of property, plant and equipment
(7)
(5)
(30)
13
\n
Share of (losses)/profits of associated entities
(30)
216
(30)
\n
Profit/(loss) on disposal of subsidiaries and associates
\u2014
48
(16)
\n
Other income
(8,9)
86
13
(18)
\n
(111)
451
(93)
\n
3,314
2,894
3,014
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
(2)
Refer to Note 4 for further analysis.
\n
(3)
Includes fair value changes on derivatives which have not been designated in a hedge accounting relationship and gains and losses from the management of the NatWest Group\u2019s
\n
funding requirements involving the use of derivatives including FX. These are aimed at managing the interest rate and foreign exchange risk that NatWest Group is exposed to.
\n
(4)
Includes related derivatives.
\n
(5)
2022 includes a \u00a319 million gain from reclassification of mortgages from amortised cost to fair value through profit or loss. Refer to Note 10 for further details.
\n
(6)
Includes instruments that have failed solely payments of principal and interest testing under IFRS 9.
\n
(7)
2021 includes \u00a344 million loss on the purchase of freeholds for properties where the Group was the primary leaseholder.
\n
(8)
2022 includes \u00a392 million profit from insurance liabilities.
\n
(9)
2020 includes \u00a358 million loss on acquisition of a \u00a33.0 billion prime UK mortgages portfolio from Metro Bank plc.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47760": { "value": "3.1. Revenue recognition
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
\n
Other interest relating to financial instruments measured at fair
\n
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
\n
arrangements are generally contractual and the cost of
\n
providing the service is incurred as the service is rendered. The
\nprice is usually fixed and always determinable. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRecognitionOfRevenue", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47761": { "value": "3.1. Revenue recognition
Interest receivable and payable are recognised in the income
\n
statement using the effective interest rate method for: all
\n
financial instruments measured at amortised cost; debt
\n
instruments measured as fair value through other
\n
comprehensive income; and the effective part of any related
\n
accounting hedging instruments. Finance lease income is
\n
recognised at a constant periodic rate of return before tax on
\n
the net investment on the lease.
Other interest relating to financial instruments measured at fair
value is recognised as part of the movement in fair value and is
\n
reported in income from trading activities or other operating
\n
income as relevant. Fees in respect of services are recognised
\n
as the right to consideration accrues through the performance
\n
of each distinct service obligation to the customer. The
arrangements are generally contractual and the cost of providing the service is incurred as the service is rendered. Theprice is usually fixed and always determinable. 3.2. Discontinued operations, Held for sale and Disposal
group
\n
The results of discontinued operations (comprising the post-tax
\n
profit or loss of discontinued operations and the post-tax results
\n
of either the ongoing measurement at fair value less costs to
\n
sell or on disposal of the discontinued operation) are excluded
\n
from the results of continuing operations and are presented as
\n
a single amount as profit/(loss) from discontinued operations,
\n
net of tax in the income statement. Comparatives are
\n
represented for the income statement, cash flow statement,
\n
statement of changes in equity and related notes.
\n
An asset or disposal group (assets and liabilities) is classified as
\n
held for sale if we will recover its carrying amount principally
\n
through a sale transaction rather than through continuing use.
\n
These are measured at the lower of its carrying amount or fair
\n
value less cost to sell unless scoped out of IFRS 5 in which case
\n
the existing measurement provisions of IFRS apply. These are
\n
presented as single amounts; comparatives are not
\n
represented.
\n
3.3. Staff costs
\n
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
The difference between scheme assets and scheme liabilities,
\n
the net defined benefit asset or liability, is recognised on the
\n
balance sheet if the criteria of the asset ceiling test are met.
\n
This requires the net defined benefit surplus to be limited to the
\n
present value of any economic benefits available to us in the
\n
form of refunds from the plan or reduced contributions to it.
\n
We will recognise a liability where a minimum funding
\n
requirement exists for any of our defined benefit pension
\n
schemes. This reflects agreed minimum funding and the
\n
availability of a net surplus as determined as described above.
\n
When estimating the liability for minimum funding requirements
\n
we only include contributions that are substantively or
\n
contractually agreed and do not include contingent and
\n
discretionary features, including dividend-linked contributions
\n
or contributions subject to contingent events requiring future
\n
verification.
We will recognise a net defined benefit asset when the net
\n
defined benefit surplus can generate a benefit in the form of a
\n
refund or reduction in future contributions to the plan. The net
\n
benefit pension asset is recognised at the present value of the
\n
benefits that will be available to us excluding interest and the
\n
effect of the asset ceiling (if any, excluding interest). Changes
\n
in the present value of the net benefit pension asset are
\n
recognised immediately in other comprehensive income.
In instances where Trustees have the ability to declare augmented benefits to participants, we do not recognise a defined benefit pension asset and write-off the surplus immediately in other comprehensive income. 3.6. Foreign currencies
Foreign exchange differences arising on the settlement of
\n
foreign currency transactions and from the translation of
\n
monetary assets and liabilities are reported in income from
\n
trading activities except for differences arising on cash flow
\n
hedges and hedges of net investments in foreign operations.
\n
Non-monetary items denominated in foreign currencies that
\n
are stated at fair value are translated into the functional
\n
currency at the foreign exchange rates ruling at the dates the
\n
values are determined. Translation differences are recognised
\n
in the income statement except for differences arising on non-
\n
monetary financial assets classified as fair value through other
\n
comprehensive income.
Income and expenses of foreign subsidiaries and branches are
\n
translated into sterling at average exchange rates unless these
\n
do not approximate the foreign exchange rates ruling at the
\n
dates of the transactions. Foreign exchange differences arising
\n
on the translation of a foreign operation are recognised in
\n
other comprehensive income. The amount accumulated in
\n
equity is reclassified from equity to the income statement on
disposal of a foreign operation.
2 Non-interest income
\n
There are three main categories of non-interest income: net fees and commissions, trading income , and other operating income.
\n
Net fees and commissions is the difference between fees received from customers for services provided by NatWest Group, such as
\n
credit card annual fees, mortgage arrangement fees, underwriting fees, payment services, brokerage fees, trade finance,
\n
investment management fees, trustee and fiduciary services, and fees incurred in the provision of those services, such as credit
\n
card interchange fees, customer incentives, loan administration, foreign currency transaction charges, brokerage fees, and
\n
mortgage valuation reports.
\n
Trading income is earned from short-term financial assets and financial liabilities to either make a spread between purchase and
\n
sale price or held to take advantage of movements in prices and yields.
\n
Other operating income includes revenue from other operating activities which are not related to the principal activities of the
\n
company, such as share of profit or loss from associate, operating lease income, the profit or loss on the sale of a subsidiary or
\n
property, plant and equipment, profit or loss on own debt, and changes in the fair value of financial assets and liabilities designated
\n
at fair value through profit or loss.
\n
For accounting policy information see Accounting policies note 3.1 and 3.6.
\n
2022
2021 (1)
2020 (1)
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Net fees and commissions
(2)
2,292
2,120
1,982
\n
Trading income
\n
Foreign exchange
305
364
569
\n
Interest rate
(3)
752
(130)
541
\n
Credit
17
83
3
\n
Changes in fair value of own debt and derivative liabilities attributable to own credit risk
\n
- debt securities in issue
42
6
(24)
\n
Equities, commodities and other
17
\u2014
36
\n
1,133
323
1,125
\n
Other operating income
\n
Loss on redemption of own debt
(161)
(145)
(324)
\n
Rental income on operating lease assets and investment property
230
225
232
\n
Changes in fair value of financial assets and liabilities designated at fair value
\n
through profit or loss
(4)
17
(8)
(54)
\n
Changes in fair value of other financial assets at fair value through profit or loss
(5,6)
(45)
5
2
\n
Hedge ineffectiveness
(20)
25
24
\n
Loss on disposal of amortised cost assets and liabilities
(15)
(15)
(18)
\n
(Loss)/profit on disposal of fair value through other comprehensive income assets
(168)
117
96
\n
(Loss)/profit on sale of property, plant and equipment
(7)
(5)
(30)
13
\n
Share of (losses)/profits of associated entities
(30)
216
(30)
\n
Profit/(loss) on disposal of subsidiaries and associates
\u2014
48
(16)
\n
Other income
(8,9)
86
13
(18)
\n
(111)
451
(93)
\n
3,314
2,894
3,014
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
(2)
Refer to Note 4 for further analysis.
\n
(3)
Includes fair value changes on derivatives which have not been designated in a hedge accounting relationship and gains and losses from the management of the NatWest Group\u2019s
\n
funding requirements involving the use of derivatives including FX. These are aimed at managing the interest rate and foreign exchange risk that NatWest Group is exposed to.
\n
(4)
Includes related derivatives.
\n
(5)
2022 includes a \u00a319 million gain from reclassification of mortgages from amortised cost to fair value through profit or loss. Refer to Note 10 for further details.
\n
(6)
Includes instruments that have failed solely payments of principal and interest testing under IFRS 9.
\n
(7)
2021 includes \u00a344 million loss on the purchase of freeholds for properties where the Group was the primary leaseholder.
\n
(8)
2022 includes \u00a392 million profit from insurance liabilities.
\n
(9)
2020 includes \u00a358 million loss on acquisition of a \u00a33.0 billion prime UK mortgages portfolio from Metro Bank plc.
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
\n
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was
\n
60,000 (2021- 59,200; 2020 \u2013 61,400). The average number of temporary employees during 2022 was 2,500 (2021 \u2013 2,500; 2020 \u2013
\n
3,200).
\n
The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows:
\n
Continuing operations
2022
2021
2020
\n
Retail Banking
14,800
15,800
17,200
\n
Private Banking
2,100
1,900
1,900
\n
Commercial & Institutional
12,200
11,400
13,300
\n
Central items & other
(1)
31,900
28,700
26,800
\n
Total
61,000
57,800
59,200
\n
UK
41,200
40,600
42,500
\n
USA
300
300
300
\n
India
15,700
13,500
13,200
\n
Poland
1,500
1,400
1,200
\n
Republic of Ireland
1,400
1,200
1,400
\n
Rest of the World
900
800
600
\n
Total
61,000
57,800
59,200
\n
(1)
Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 \u2013 2,400; 2020 \u2013 2,600) includes 400 people employed in
\n
discontinued operations at 31 December 2022 (2021 \u2013 700; 2020 \u2013 700).
Share-based payments
\n
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47788": { "value": "3.2. Discontinued operations, Held for sale and Disposal
group
\n
The results of discontinued operations (comprising the post-tax
\n
profit or loss of discontinued operations and the post-tax results
\n
of either the ongoing measurement at fair value less costs to
\n
sell or on disposal of the discontinued operation) are excluded
\n
from the results of continuing operations and are presented as
\n
a single amount as profit/(loss) from discontinued operations,
\n
net of tax in the income statement. Comparatives are
\n
represented for the income statement, cash flow statement,
\n
statement of changes in equity and related notes.
\n
An asset or disposal group (assets and liabilities) is classified as
\n
held for sale if we will recover its carrying amount principally
\n
through a sale transaction rather than through continuing use.
\n
These are measured at the lower of its carrying amount or fair
\n
value less cost to sell unless scoped out of IFRS 5 in which case
\n
the existing measurement provisions of IFRS apply. These are
\n
presented as single amounts; comparatives are not
\nrepresented.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47789": { "value": "3.2. Discontinued operations, Held for sale and Disposal
group
\n
The results of discontinued operations (comprising the post-tax
\n
profit or loss of discontinued operations and the post-tax results
\n
of either the ongoing measurement at fair value less costs to
\n
sell or on disposal of the discontinued operation) are excluded
\n
from the results of continuing operations and are presented as
\n
a single amount as profit/(loss) from discontinued operations,
\n
net of tax in the income statement. Comparatives are
\n
represented for the income statement, cash flow statement,
\n
statement of changes in equity and related notes.
\n
An asset or disposal group (assets and liabilities) is classified as
\n
held for sale if we will recover its carrying amount principally
\n
through a sale transaction rather than through continuing use.
\n
These are measured at the lower of its carrying amount or fair
\n
value less cost to sell unless scoped out of IFRS 5 in which case
\n
the existing measurement provisions of IFRS apply. These are
\n
presented as single amounts; comparatives are not
\nrepresented. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForNoncurrentAssetsOrDisposalGroupsClassifiedAsHeldForSaleAndDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47814": { "value": "
3.3. Staff costs
\n
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
\n
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
\n
The difference between scheme assets and scheme liabilities,
\n
the net defined benefit asset or liability, is recognised on the
\n
balance sheet if the criteria of the asset ceiling test are met.
\n
This requires the net defined benefit surplus to be limited to the
\n
present value of any economic benefits available to us in the
\n
form of refunds from the plan or reduced contributions to it.
\n
We will recognise a liability where a minimum funding
\n
requirement exists for any of our defined benefit pension
\n
schemes. This reflects agreed minimum funding and the
\n
availability of a net surplus as determined as described above.
\n
When estimating the liability for minimum funding requirements
\n
we only include contributions that are substantively or
\n
contractually agreed and do not include contingent and
\n
discretionary features, including dividend-linked contributions
\n
or contributions subject to contingent events requiring future
\n
verification.
\n
We will recognise a net defined benefit asset when the net
\n
defined benefit surplus can generate a benefit in the form of a
\n
refund or reduction in future contributions to the plan. The net
\n
benefit pension asset is recognised at the present value of the
\n
benefits that will be available to us excluding interest and the
\n
effect of the asset ceiling (if any, excluding interest). Changes
\n
in the present value of the net benefit pension asset are
\n
recognised immediately in other comprehensive income.
\n
In instances where Trustees have the ability to declare
\n
augmented benefits to participants, we do not recognise a
\n
defined benefit pension asset and write-off the surplus
\n
immediately in other comprehensive income.
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
\n
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was
\n
60,000 (2021- 59,200; 2020 \u2013 61,400). The average number of temporary employees during 2022 was 2,500 (2021 \u2013 2,500; 2020 \u2013
\n
3,200).
\n
The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows:
\n
Continuing operations
2022
2021
2020
\n
Retail Banking
14,800
15,800
17,200
\n
Private Banking
2,100
1,900
1,900
\n
Commercial & Institutional
12,200
11,400
13,300
\n
Central items & other
(1)
31,900
28,700
26,800
\n
Total
61,000
57,800
59,200
\n
UK
41,200
40,600
42,500
\n
USA
300
300
300
\n
India
15,700
13,500
13,200
\n
Poland
1,500
1,400
1,200
\n
Republic of Ireland
1,400
1,200
1,400
\n
Rest of the World
900
800
600
\n
Total
61,000
57,800
59,200
\n
(1)
Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 \u2013 2,400; 2020 \u2013 2,600) includes 400 people employed in
\n
discontinued operations at 31 December 2022 (2021 \u2013 700; 2020 \u2013 700).
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
5 Pensions
\n
NatWest Group operates two types of pension scheme: defined benefit and defined contribution. The defined contribution schemes
\n
invest contributions in a choice of funds and the accumulated contributions and investment returns are used by the employee to
\n
provide benefits on retirement, there is no legal or constructive obligation for NatWest Group to pay any further contributions or
\n
benefits. The defined benefit schemes provide pensions in retirement based on employees\u2019 pensionable salary and service.
\n
NatWest Group\u2019s balance sheet includes any defined benefit
\n
pension scheme surplus or deficit as a retirement benefit asset
\n
or liability reported in other assets and other liabilities. The
\n
surplus or deficit is the difference between the liabilities to be
\n
paid from the defined benefit scheme, and the assets held by
\n
the scheme to meet these liabilities. The liabilities are calculated
\n
by external actuaries using a number of financial and
\n
demographic assumptions.
\n
For some NatWest Group defined benefit schemes where there
\n
is a net defined benefit surplus in excess of the present value of
\n
any economic benefits that can be obtained from that surplus,
\n
the application of accounting standards means we do not
\n
recognise that surplus on the balance sheet.
\n
For accounting policy information see Accounting policies note
\n
3.3.
\n
Defined contribution schemes
\n
NatWest Group sponsors several defined contribution schemes
\n
in different territories, which new employees are entitled to join.
\n
NatWest Group pays specific contributions into individual
\n
investment funds on employees\u2019 behalf. Once those
\n
contributions are paid, there is no further liability on the
\n
NatWest Group balance sheet relating to the defined
\n
contribution scheme.
\n
Defined benefit schemes
\n
NatWest Group sponsors a number of pension schemes in the
\n
UK and overseas, including the Main section of the NatWest
\n
Group Pension Fund (the Main section) which operates under
\n
UK trust law and is managed and administered on behalf of its
\n
members in accordance with the terms of the trust deed, the
\n
scheme rules and UK legislation.
\n
Pension fund trustees are appointed to operate each fund and
\n
ensure benefits are paid in accordance with the scheme rules
\n
and national law. The trustees are the legal owner of a
\n
scheme\u2019s assets, and have a duty to act in the best interests of
\n
all scheme members.
\n
The schemes generally provide a pension of one-sixtieth of final
\n
pensionable salary for each year of service prior to retirement
\n
up to a maximum of 40 years and are contributory for current
\n
members. These have been closed to new entrants for over ten
\n
years, although active members continue to build up additional
\n
pension benefits, currently subject to 2% maximum annual
\n
salary inflation, while they remain employed by NatWest Group.
\n
The Main section corporate trustee is NatWest Pension Trustee
\n
Limited (the Trustee), a wholly owned subsidiary of NWB Plc,
\n
Principal Employer of the Main section. The Board of the
\n
Trustee comprises four member trustee directors selected from
\n
eligible active staff, deferred and pensioner members who
\n
apply and six appointed by NatWest Group. Under UK
\n
legislation, a defined benefit pension scheme is required to
\n
meet the statutory funding objective of having sufficient and
\n
appropriate assets to cover its liabilities (the pensions that have
\n
been promised to members).
\n
Similar governance principles apply to NatWest Group\u2019s other
\n
defined benefit pension schemes.
\n
Investment strategy
\n
The assets of the Main section, which is typical of other group
\n
schemes, represent 91% of all plan assets at 31 December 2022
\n
(2021 - 90%) and are invested as shown below.
\n
The Main section employs physical, derivative and non-
\n
derivative instruments to achieve a desired asset class
\n
exposure and to reduce the section\u2019s interest rate, inflation,
\n
and currency risk. This means that the net funding position is
\n
considerably less sensitive to changes in market conditions
\n
than the value of the assets or liabilities in isolation. In
\n
particular, movements in interest rate and inflation are
\n
substantially hedged by the Trustee.
\n
Over the year, increases in bond yields resulted in many
\n
pension schemes in the UK having to raise additional collateral
\n
to support Liability-driven investments positions held as part of
\n
their hedging strategies. Liability-driven investments (LDI) refer
\n
to assets that are expected to move broadly in line with
\n
liabilities on a specific basis. All of the Group\u2019s schemes
\n
affected by this were able to raise the collateral needed from
\n
existing assets, with no additional support from the Group. The
\n
Trustee of the Group Pension Fund takes a prudent approach
\n
to liquidity and collateral and holds sufficient collateral to
\n
withstand substantial rises in gilt yields. The level of collateral
\n
held by some of the Group\u2019s smaller schemes was increased
\n
over the year, so as to ensure they could withstand further
\n
large rises in gilt yields if required.
2022
2021
\n
Quoted
Unquoted
Total
Quoted
Unquoted
Total
\n
Major classes of plan assets as a percentage of
\n
total plan assets of the Main section
\n
%
%
%
%
%
%
\n
Equities
0.1
7.7
7.8
3.7
4.7
8.4
\n
Index linked bonds
37.7
\u2014
37.7
46.7
\u2014
46.7
\n
Government bonds
18.4
\u2014
18.4
9.8
\u2014
9.8
\n
Corporate and other bonds
15.3
6.7
22.0
10.7
4.4
15.1
\n
Real estate
\u2014
6.0
6.0
\u2014
4.4
4.4
\n
Derivatives
\u2014
8.2
8.2
\u2014
8.8
8.8
\n
Cash and other assets
\u2014
(0.1)
(0.1)
\u2014
6.8
6.8
\n
71.5
28.5
100.0
70.9
29.1
100.0
\n
The Main section\u2019s holdings of derivative instruments are summarised in the table below:
\n
2022
2021
\n
Fair value
Fair value
\n
Notional
am
\n
ounts
\n
Assets
Liabilities
\n
Notional
\n
amounts
\n
Assets
Liabilities
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Inflation rate swaps
21
1,873
990
20
1,408
796
\n
Interest rate swaps
103
14,317
12,546
172
8,385
4,421
\n
Currency forwards
12
310
113
12
61
98
\n
Equity and bond call options
\u2014
\u2014
\u2014
\u2014
1
\u2014
\n
Equity and bond put options
\u2014
2
70
\u2014
1
3
\n
Other
1
14
19
1
9
10
\n
Swaps have been executed at prevailing market rates and within standard market bid/offer spreads with a number of
\n
counterparties, including NWB Plc.
\n
At 31 December 2022, the gross notional value of the swaps was \u00a3124 billion (2021 - \u00a3192 billion) and had a net positive fair value
\n
of \u00a32,642 million (2021 - \u00a34,573 million) against which the counterparties had posted approximately 112% collateral.
\n
The schemes do not invest directly in NatWest Group but may have exposure to NatWest Group through indirect holdings. The
\n
trustees of the respective UK schemes are responsible for ensuring that indirect investments in NatWest Group do not exceed the
\n
regulatory limit of 5% of plan assets.
Main section
All schemes
\n
Fair value
\n
of plan
\n
assets
\n
Present value
\n
of defined
\n
benefit
\n
obligation (1)
\n
Asset
\n
ceiling/minimu
\n
m funding
\n
Net pension
\n
assets/(liability)
\n
Fair value of
\n
plan assets
\n
Present vlaue
\n
of defined
\n
benefit (2)
\n
Asset
\n
ceiling/minimu
\n
m funding
\n
Net pension
\n
assets (2)
\n
Changes in value of net pension
\n
assets/(liability)
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January 2021
51,323
(43,870)
(7,453)
\u2014
57,249
(48,864)
(7,783)
602
\n
Currency translation and other adjustments
\u2014
\u2014
\u2014
\u2014
(129)
116
3
(10)
\n
Income statement - operating expenses
713
(767)
(105)
(159)
795
(901)
(109)
(215)
\n
Other comprehensive income
841
1,056
(2,443)
(546)
872
1,061
(2,602)
(669)
\n
Contributions by employer
705
\u2014
\u2014
705
780
\u2014
\u2014
780
\n
Contributions by plan participants and
\n
other scheme members
8
(8)
\u2014
\u2014
13
(13)
\u2014
\u2014
\n
Assets/liabilities extinguished upon settlement
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Benefits paid
(1,569)
1,569
\u2014
\u2014
(1,793)
1,793
\u2014
\u2014
\n
At 1 January 2022
52,021
(42,020)
(10,001)
\u2014
57,787
(46,808)
(10,491)
488
\n
Currency translation and other adjustments
\u2014
\u2014
\u2014
\u2014
78
(65)
(11)
2
\n
Income statement - operating expenses
\n
Net interest expense
932
(744)
(180)
8
1,041
(834)
(191)
16
\n
Current service cost
\u2014
(143)
\u2014
(143)
\u2014
(194)
\u2014
(194)
\n
Past service cost
\u2014
(5)
\u2014
(5)
\u2014
(6)
\u2014
(6)
\n
Loss on curtailments and settlements
\u2014
\u2014
\u2014
\u2014
\u2014
(21)
\u2014
(21)
\n
932
(892)
(180)
(140)
1,041
(1,055)
(191)
(205)
\n
Other comprehensive income
\n
Return on plan assets excluding
\n
recognised interest income
\n
(3)
\n
(18,180)
\u2014
\u2014
(18,180)
(20,326)
\u2014
\u2014
(20,326)
\n
Experience gains and losses
\u2014
(2,053)
\u2014
(2,053)
\u2014
(2,137)
\u2014
(2,137)
\n
Effect of changes in actuarial
\n
financial assumptions
\n
(3)
\n
\u2014
18,744
\u2014
18,744
\u2014
20,714
\u2014
20,714
\n
Effect of changes in actuarial
\n
demographic assumptions
\u2014
23
\u2014
23
\u2014
(7)
\u2014
(7)
\n
Asset ceiling adjustments
\u2014
\u2014
898
898
\u2014
\u2014
916
916
\n
(18,180)
16,714
898
(568)
(20,326)
18,570
916
(840)
\n
Contributions by employer
708
\u2014
\u2014
708
775
\u2014
\u2014
775
\n
Contributions by plan participants and
\n
other scheme members
7
(7)
\u2014
\u2014
13
(13)
\u2014
\u2014
\n
Assets/liabilities extinguished upon settlement
\u2014
\u2014
\u2014
\u2014
(113)
113
\u2014
\u2014
\n
Benefits paid
(1,472)
1,472
\u2014
\u2014
(1,657)
1,657
\u2014
\u2014
\n
At 31 December 2022
34,016
(24,733)
(9,283)
\u2014
37,598
(27,601)
(9,777)
220
\n
(1)
Defined benefit obligations are subject to annual valuation by independent actuaries.
\n
(2)
NatWest Group recognises the net pension scheme surplus or deficit as a net asset or liability. In doing so, the funded status is adjusted to reflect any schemes with a surplus that
\n
NatWest Group may not be able to access, as well as any minimum funding requirement to pay in additional contributions. This is most relevant to the Main section, where the
\n
surplus is not recognised as the trustees may have control over the use of the surplus. Other NatWest Group schemes that this applies to include the Ulster Bank Pension Scheme
\n
(NI) and the NatWest Markets section.
\n
(3)
Changes in market conditions during 2022 resulted in a particularly large increase in discount rate, which is the key driver of the effect of changes in actuarial financial assumptions.
\n
Given the level of hedging in place, there was a corresponding reduction in the value of plan assets over the period. The experience losses shown are mainly as a result of inflation
\n
over the year being higher than expected.
\n
(4)
NatWest Group expects to make contributions to the Main section of \u00a3196 million in 2023. In 2022 NatWest Group made contributions of \u00a3708m to the Main scheme, including a
\n
\u00a3500m contribution paid in two instalments in January and March 2022 as required by the ring-fencing agreement with the Trustee. Such contributions do not constitute a minimum
\n
funding requirement as the obligation to pay only arises on the payment of a distribution to shareholders.
All schemes
\n
2022
2021
\n
Amounts recognised on the balance sheet
\u00a3m
\u00a3m
\n
Fund asset at fair value
37,598
57,787
\n
Present value of fund liabilities
(27,601)
(46,808)
\n
Funded status
9,997
10,979
\n
Assets ceiling/minimum funding
(9,777)
(10,491)
\n
220
488
\n
2022
2021
\n
Net pension assets/(liability) comprises
\u00a3m
\u00a3m
\n
Net assets of schemes in surplus (included in Other assets, Note 18)
318
602
\n
Net liabilities of schemes in deficit (included in Other liabilities, Note 21)
(98)
(114)
\n
220
488
\n
Funding and contributions by NatWest Group
\n
In the UK, the trustees of defined benefit pension schemes are
\n
required to perform funding valuations every three years. The
\n
trustees and the sponsor, with the support of the Scheme
\n
Actuary, agree the assumptions used to value the liabilities and
\n
to determine future contribution requirements. The funding
\n
assumptions incorporate a margin for prudence over and
\n
above the expected cost of providing the benefits promised to
\n
members, taking into account the sponsor\u2019s covenant and the
\n
investment strategy of the scheme. Similar arrangements apply
\n
in the other territories where NatWest Group sponsors defined
\n
benefit pension schemes.
\n
A full triennial funding valuation of the Main section, effective
\n
31 December 2020, was completed during financial year 2021.
\n
This triennial funding valuation determined the funding level to
\n
be 104%, pension liabilities to be \u00a349 billion and the surplus to
\n
be \u00a32 billion, all assessed on the agreed funding basis. The
\n
average cost of the future service of current members is 49% of
\n
salary before contributions from those members. In addition,
\n
the sponsor has agreed to meet administrative expenses.
\n
Following the ring-fencing agreement with the Trustee reached
\n
in 2018, additional contributions of up to \u00a3500 million p.a. are
\n
payable to the Main section should the Group make
\n
distributions to shareholders of an equal amount.
\n
These contributions are capped at \u00a31.5 billion in total; \u00a3500
\n
million was paid in 2022 (2021 \u2013 \u00a3500 million). The remaining
\n
distribution linked contribution to the Main section would have
\n
fallen due in 2023, but NatWest Bank has agreed with the
\n
Trustee that assets to the value of the contributions falling due
\n
will instead be paid to a new legal structure. These assets will
\n
be restricted and are reserved to ensure they are available
\n
should they be needed by the Trustee according to agreed
\n
criteria in the future. The assets under this arrangement would
\n
be available to the Group to the extent that they are not
\n
needed under the defined trigger events.
\n
The key assumptions used to determine the funding liabilities
\n
were the discount rate, which is determined based on fixed
\n
interest swap and gilt yields plus 0.64% per annum, and
\n
mortality assumptions, which result in life expectancies of
\n
27.7/29.4 years for males/females who are currently age 60
\n
and 28.9/30.7 years from age 60 for males/females who are
\n
currently aged 40.
\n
The 2020 triennial valuation of the Group Pension Fund
\n
included an allowance for the estimated impact of guaranteed
\n
minimum pension equalisation, which is reflected in the IAS 19
\n
valuation at 31 December 2022.
\n
Accounting Assumptions
\n
Placing a value on NatWest Group\u2019s defined benefit pension
\n
schemes\u2019 liabilities requires NatWest Group\u2019s management to
\n
make a number of assumptions, with the support of
\n
independent actuaries. The ultimate cost of the defined benefit
\n
obligations depends upon actual future events and the
\n
assumptions made are unlikely to be exactly borne out in
\n
practice, meaning the final cost may be higher or lower than
\n
expected.
The most significant assumptions used for the Main section are shown below:
\n
Principal IAS 19 actuarial assumptions
\n
(1)
\n
2022
2021
\n
%
%
\n
Discount rate
5.0
1.8
\n
Inflation assumption (RPI)
3.2
3.3
\n
Rate of increase in salaries
1.8
1.8
\n
Rate of increase in deferred pensions
3.2
3.7
\n
Rate of increase in pensions in payment
2.5
2.5
\n
Lump sum conversion rate at retirement
18
18
\n
Longevity at age 60:
years
years
\n
Current pensioners
\n
Males
27.3
27.3
\n
Females
29.1
29.0
\n
Future pensioners, currently aged 40
\n
Males
28.3
28.2
\n
Females
30.1
30.1
\n
(1)
The above financial assumptions are long term assumptions set with reference to the period over which the obligations are expected to be settled
\n
Discount rate
\n
The IAS 19 valuation uses a single discount rate set by reference to the yield on a basket of \u2018high quality\u2019 sterling corporate bonds.
\n
Significant judgment is required when setting the criteria for bonds to be included in the basket of bonds that is used to determine
\n
the discount rate used in the IAS 19 valuations. The criteria include issue size, quality of pricing and the exclusion of outliers.
\n
Judgment is also required in determining the shape of the yield curve at long durations; a constant credit spread relative to gilts is
\n
assumed. Sensitivity to the main assumptions is presented below.
\n
The weighted average duration of the Main section\u2019s defined benefit obligation at 31 December 2022 is 15.3 years (2021 \u2013 20
\n
years). The chart below shows the projected benefit payment pattern for the Main section in nominal terms. These cashflows are
\n
based on the most recent formal actuarial valuation, effective 31 December 2020.
\n
The larger outflow in 2023 represents an assumption in the actuarial valuation of the level of transfers out to 31 December 2023.
The table below shows how the net pension asset of the Main section would change if the key assumptions used were changed
\n
independently. In practice the variables have a degree of correlation and do not move completely in isolation.
\n
(Decrease)/increase
\n
in value of assets
\n
(Decrease)/increase
\n
in value of liabilities
\n
Increase in net
\n
pension
\n
(obligations)/assets
\n
2022
\u00a3m
\u00a3m
\u00a3m
\n
0.25% increase in interest rates/discount rate
\n
(2)
\n
(1,389)
(907)
(482)
\n
0.25% increase in inflation
963
632
331
\n
0.25% increase in credit spreads
(3)
(907)
904
\n
Longevity increase of one year
\u2014
767
(767)
\n
0.25% additional rate of increase in pensions in payment
\u2014
679
(679)
\n
Increase in equity values of 10%
\n
(1)
\n
267
\u2014
267
\n
2021
\n
0.25% increase in interest rates/discount rate
(2,917)
(1,926)
(991)
\n
0.25% increase in inflation
1,883
1,329
554
\n
0.25% increase in credit spreads
(3)
(1,926)
1,923
\n
Longevity increase of one year
\u2014
1,790
(1,790)
\n
0.25% additional rate of increase in pensions in payment
\u2014
1,485
(1,485)
\n
Increase in equity values of 10%
\n
(1)
\n
442
\u2014
442
\n
(1)
Includes both quoted and private equity.
\n
(2)
A 0.5% increase in interest rates/discount rate would lead to a decrease of \u00a32,689m in the value of assets and a \u00a31,766m decrease in the value of liabilities at 31 December 2022.
\n
The funded status is most sensitive to movements in credit spreads and longevity. Note the longevity sensitivities quoted above
\n
reflect the impact of a one year increase to single life annuities. The table below shows the combined change in the funded status
\n
of the Main section as a result of larger movements in these assumptions, assuming no changes in other assumptions.
\n
Change in life expectancies
\n
- 2 years
- 1 years
No change
+ 1 year
+ 2 years
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Change in credit spreads
+50 bps
3.2
2.5
1.8
1.1
0.4
\n
No change
1.6
0.8
\u2014
(0.8)
(1.5)
\n
-50 bps
(0.3)
(1.2)
(2.0)
(2.8)
(3.6)
\n
2021
\n
Change in credit spreads
+50 bps
6.9
5.3
3.8
2.3
0.8
\n
No change
3.6
1.8
\u2014
(1.8)
(3.6)
\n
-50 bps
(0.3)
(2.4)
(4.5)
(6.6)
(8.7)
\n
The defined benefit obligation of the Main section is attributable to the different classes of scheme members in the following
\n
proportions:
\n
2022
2021
\n
Membership category
%
%
\n
Active members
8.4
10.7
\n
Deferred members
41.0
47.6
\n
Pensioners and dependants
50.6
41.7
\n
100.0
100.0
\n
The experience history of NatWest Group schemes is shown below:
\n
Main section
All schemes
\n
2022
2021
2020
2019
2018
2022
2021
2020
2019
2018
\n
History of defined benefit schemes
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Fair value of plan assets
34,016
52,021
51,323
46,555
43,806
37,598
57,787
57,249
51,925
48,752
\n
Present value of plan obligations
(24,733)
(42,020)
(43,870)
(39,669)
(35,466)
(27,601)
(46,808)
(48,864)
(44,115)
(39,607)
\n
Net surplus
9,283
10,001
7,453
6,886
8,340
9,997
10,979
8,385
7,810
9,145
\n
Experience (losses)/gains on plan
\n
liabilities
\n
(2,053)
241
427
275
(122)
(2,137)
237
455
279
(81)
\n
Experience (losses)/gains on plan
\n
assets
\n
(18,180)
841
5,486
3,021
(1,891)
(20,326)
872
6,027
3,556
(2,090)
\n
Actual return on plan assets
(17,248)
1,554
6,422
4,266
(768)
(19,285)
1,667
7,064
4,930
(848)
\n
Actual return on plan assets
(33.2%)
3.0%
13.8%
9.7%
(1.7%)
(33.4%)
2.9%
13.6%
10.1%
(1.7%)
", "dimensions": { "concept": "ifrs-full:DisclosureOfEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47815": { "value": "
3.3. Staff costs
\n
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
\n
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
\n
The difference between scheme assets and scheme liabilities,
\n
the net defined benefit asset or liability, is recognised on the
\n
balance sheet if the criteria of the asset ceiling test are met.
\n
This requires the net defined benefit surplus to be limited to the
\n
present value of any economic benefits available to us in the
\n
form of refunds from the plan or reduced contributions to it.
\n
We will recognise a liability where a minimum funding
\n
requirement exists for any of our defined benefit pension
\n
schemes. This reflects agreed minimum funding and the
\n
availability of a net surplus as determined as described above.
\n
When estimating the liability for minimum funding requirements
\n
we only include contributions that are substantively or
\n
contractually agreed and do not include contingent and
\n
discretionary features, including dividend-linked contributions
\n
or contributions subject to contingent events requiring future
\n
verification.
\n
We will recognise a net defined benefit asset when the net
\n
defined benefit surplus can generate a benefit in the form of a
\n
refund or reduction in future contributions to the plan. The net
\n
benefit pension asset is recognised at the present value of the
\n
benefits that will be available to us excluding interest and the
\n
effect of the asset ceiling (if any, excluding interest). Changes
\n
in the present value of the net benefit pension asset are
\n
recognised immediately in other comprehensive income.
\n
In instances where Trustees have the ability to declare
\n
augmented benefits to participants, we do not recognise a
\n
defined benefit pension asset and write-off the surplus
\n
immediately in other comprehensive income.
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
\n
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was
\n
60,000 (2021- 59,200; 2020 \u2013 61,400). The average number of temporary employees during 2022 was 2,500 (2021 \u2013 2,500; 2020 \u2013
\n
3,200).
\n
The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows:
\n
Continuing operations
2022
2021
2020
\n
Retail Banking
14,800
15,800
17,200
\n
Private Banking
2,100
1,900
1,900
\n
Commercial & Institutional
12,200
11,400
13,300
\n
Central items & other
(1)
31,900
28,700
26,800
\n
Total
61,000
57,800
59,200
\n
UK
41,200
40,600
42,500
\n
USA
300
300
300
\n
India
15,700
13,500
13,200
\n
Poland
1,500
1,400
1,200
\n
Republic of Ireland
1,400
1,200
1,400
\n
Rest of the World
900
800
600
\n
Total
61,000
57,800
59,200
\n
(1)
Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 \u2013 2,400; 2020 \u2013 2,600) includes 400 people employed in
\n
discontinued operations at 31 December 2022 (2021 \u2013 700; 2020 \u2013 700).
Share-based payments
\n
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
", "dimensions": { "concept": "ifrs-full:DisclosureOfGeneralAndAdministrativeExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47817": { "value": "3.3. Staff costs
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
\n
\n
\n
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
\n
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
\n
The difference between scheme assets and scheme liabilities,
\n
the net defined benefit asset or liability, is recognised on the
\n
balance sheet if the criteria of the asset ceiling test are met.
\n
This requires the net defined benefit surplus to be limited to the
\n
present value of any economic benefits available to us in the
\n
form of refunds from the plan or reduced contributions to it.
\n
We will recognise a liability where a minimum funding
\n
requirement exists for any of our defined benefit pension
\n
schemes. This reflects agreed minimum funding and the
\n
availability of a net surplus as determined as described above.
\n
When estimating the liability for minimum funding requirements
\n
we only include contributions that are substantively or
\n
contractually agreed and do not include contingent and
\n
discretionary features, including dividend-linked contributions
\n
or contributions subject to contingent events requiring future
\n
verification.
\n
We will recognise a net defined benefit asset when the net
\n
defined benefit surplus can generate a benefit in the form of a
\n
refund or reduction in future contributions to the plan. The net
\n
benefit pension asset is recognised at the present value of the
\n
benefits that will be available to us excluding interest and the
\n
effect of the asset ceiling (if any, excluding interest). Changes
\n
in the present value of the net benefit pension asset are
\n
recognised immediately in other comprehensive income.
\n
In instances where Trustees have the ability to declare
\n
augmented benefits to participants, we do not recognise a
\n
defined benefit pension asset and write-off the surplus
\nimmediately in other comprehensive income. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47818": { "value": "3.3. Staff costs
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\nfactors such as the dividend yield.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47819": { "value": "3.3. Staff costs
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
\n
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
\n
The difference between scheme assets and scheme liabilities,
\n
the net defined benefit asset or liability, is recognised on the
\n
balance sheet if the criteria of the asset ceiling test are met.
\n
This requires the net defined benefit surplus to be limited to the
\n
present value of any economic benefits available to us in the
\n
form of refunds from the plan or reduced contributions to it.
\n
We will recognise a liability where a minimum funding
\n
requirement exists for any of our defined benefit pension
\n
schemes. This reflects agreed minimum funding and the
\n
availability of a net surplus as determined as described above.
\n
When estimating the liability for minimum funding requirements
\n
we only include contributions that are substantively or
\n
contractually agreed and do not include contingent and
\n
discretionary features, including dividend-linked contributions
\n
or contributions subject to contingent events requiring future
\n
verification.
\n
We will recognise a net defined benefit asset when the net
\n
defined benefit surplus can generate a benefit in the form of a
\n
refund or reduction in future contributions to the plan. The net
\n
benefit pension asset is recognised at the present value of the
\n
benefits that will be available to us excluding interest and the
\n
effect of the asset ceiling (if any, excluding interest). Changes
\n
in the present value of the net benefit pension asset are
\n
recognised immediately in other comprehensive income.
\n
In instances where Trustees have the ability to declare
\n
augmented benefits to participants, we do not recognise a
\n
defined benefit pension asset and write-off the surplus
immediately in other comprehensive income.
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
\n
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was
\n
60,000 (2021- 59,200; 2020 \u2013 61,400). The average number of temporary employees during 2022 was 2,500 (2021 \u2013 2,500; 2020 \u2013
\n
3,200).
\n
The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows:
\n
Continuing operations
2022
2021
2020
\n
Retail Banking
14,800
15,800
17,200
\n
Private Banking
2,100
1,900
1,900
\n
Commercial & Institutional
12,200
11,400
13,300
\n
Central items & other
(1)
31,900
28,700
26,800
\n
Total
61,000
57,800
59,200
\n
UK
41,200
40,600
42,500
\n
USA
300
300
300
\n
India
15,700
13,500
13,200
\n
Poland
1,500
1,400
1,200
\n
Republic of Ireland
1,400
1,200
1,400
\n
Rest of the World
900
800
600
\n
Total
61,000
57,800
59,200
\n
(1)
Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 \u2013 2,400; 2020 \u2013 2,600) includes 400 people employed in
\n
discontinued operations at 31 December 2022 (2021 \u2013 700; 2020 \u2013 700).
Share-based payments
\n
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47820": { "value": "3.3. Staff costs
Employee costs, such as salaries, paid absences, and other
\n
benefits are recognised over the period in which the employees
\n
provide the related services to us. Employees may receive
\n
variable compensation in cash, in deferred cash or debt
\n
instruments of NatWest Group or in ordinary shares of NatWest
\n
Group plc subject to deferral, clawback and forfeiture criteria.
\n
We operate a number of share-based compensation schemes
\n
under which we grant awards of NatWest Group plc shares
\n
and share options to our employees. Such awards are subject
\n
to vesting conditions.
\n
Variable compensation that is settled in cash or debt
\n
instruments is charged to the income statement on a straight-
\n
line basis over the period during which services are provided,
\n
taking account of forfeiture and clawback criteria. The value of
\n
employee services received in exchange for NatWest Group plc
\n
shares and share options is recognised as an expense over the
\n
vesting period, subject to deferral, clawback, cancelation and
\n
forfeiture criteria with a corresponding increase in equity. The
\n
fair value of shares granted is the market price adjusted for the
\n
expected effect of dividends as employees are not entitled to
\n
dividends until shares are vested.
\n
The fair value of options granted is determined using option
\n
pricing models to estimate the numbers of shares likely to vest.
\n
These consider the exercise price of the option, the current
\n
share price, the risk-free interest rate, the expected volatility of
\n
the share price over the life of the option and other relevant
\n
factors such as the dividend yield.
Defined contribution pension scheme
\n
A scheme where we pay fixed contributions and there is no
\n
legal or constructive obligation to pay further contributions or
\n
benefits. Contributions are recognised in the income statement
\n
as employee service costs accrue.
\n
Defined benefit pension scheme
\n
A scheme that defines the benefit an employee will receive on
\n
retirement and is dependent on one or more factors such as
\n
age, salary, and years of service. The net of the recognisable
\n
scheme assets and obligations is reported on the balance sheet
\n
in other assets or other liabilities. The defined benefit obligation
\n
is measured on an actuarial basis. The charge to the income
\n
statement for pension costs (mainly the service cost and the
\n
net interest on the net defined benefit asset or liability) is
\n
recognised in operating expenses.
\n
Actuarial gains and losses (i.e. gains and/or losses on re-
\n
measuring the net defined benefit asset or liability due to
\n
changes in actuarial measurement assumptions) are recognised
\n
in other comprehensive income in full in the period in which
\n
they arise, and not subject to recycling to the income
\n
statement.
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
\n
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was
\n
60,000 (2021- 59,200; 2020 \u2013 61,400). The average number of temporary employees during 2022 was 2,500 (2021 \u2013 2,500; 2020 \u2013
\n
3,200).
\n
The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows:
\n
Continuing operations
2022
2021
2020
\n
Retail Banking
14,800
15,800
17,200
\n
Private Banking
2,100
1,900
1,900
\n
Commercial & Institutional
12,200
11,400
13,300
\n
Central items & other
(1)
31,900
28,700
26,800
\n
Total
61,000
57,800
59,200
\n
UK
41,200
40,600
42,500
\n
USA
300
300
300
\n
India
15,700
13,500
13,200
\n
Poland
1,500
1,400
1,200
\n
Republic of Ireland
1,400
1,200
1,400
\n
Rest of the World
900
800
600
\n
Total
61,000
57,800
59,200
\n
(1)
Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 \u2013 2,400; 2020 \u2013 2,600) includes 400 people employed in
\n
discontinued operations at 31 December 2022 (2021 \u2013 700; 2020 \u2013 700).
Share-based payments
\n
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47953": { "value": "3.4. Intangible assets and goodwill
Intangible assets are identifiable non-monetary assets without
\n
physical substance acquired by us, and are stated at cost less
\n
accumulated amortisation and impairment losses. Amortisation
\n
is a method to spread the cost of such assets over time in the
\n
income statement.
\n
This is charged to the income statement over the assets'
\n
estimated useful economic lives using methods that best reflect
\n
the pattern of economic benefits.
\n
The estimated useful economic lives are:
\n
Computer software
3 to 12 years
\n
Other acquired intangibles
5 to 10 years
\n
Expenditure on internally generated goodwill and brands is
\n
charged to the income statement as incurred.
\n
Direct costs relating to the development of internal-use
\n
computer software are reported on the balance sheet after
\n
technical feasibility and economic viability have been
\n
established.
\n
These direct costs include payroll, the costs of materials and
\n
services, and directly attributable overheads. Capitalisation of
\n
costs ceases when the software can operate as intended.
\n
During and after development, accumulated costs are reviewed
\n
for impairment against the benefits that the software is
\n
expected to generate. Costs incurred prior to the establishment
\n
of technical feasibility and economic viability are expensed to
\n
the income statement as incurred, as are all training costs and
\n
general overheads. The costs of licences to use computer
\n
software that are expected to generate economic benefits
\n
beyond one year are also reported on the balance sheet
\n
Goodwill on the acquisition of a subsidiary is the excess of the
\n
fair value of the consideration paid, the fair value of any
\n
existing interest in the subsidiary and the amount of any non-
\n
controlling interest measured either at fair value or at its share
\n
of the subsidiary\u2019s net assets over the net fair value of the
\n
subsidiary\u2019s identifiable assets, liabilities, and contingent
\n
liabilities.
\n
Goodwill is measured at initial cost less any subsequent
\n
impairment losses. The gain or loss on the disposal of a
\n
subsidiary includes the carrying value of any related goodwill
\nwhen such transactions occur. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47954": { "value": "3.4. Intangible assets and goodwill
Intangible assets are identifiable non-monetary assets without
\n
physical substance acquired by us, and are stated at cost less
\n
accumulated amortisation and impairment losses. Amortisation
\n
is a method to spread the cost of such assets over time in the
\n
income statement.
\n
This is charged to the income statement over the assets'
\n
estimated useful economic lives using methods that best reflect
\n
the pattern of economic benefits.
\n
The estimated useful economic lives are:
\n
Computer software
3 to 12 years
\n
Other acquired intangibles
5 to 10 years
\n
Expenditure on internally generated goodwill and brands is
\n
charged to the income statement as incurred.
\n
Direct costs relating to the development of internal-use
\n
computer software are reported on the balance sheet after
\n
technical feasibility and economic viability have been
\n
established.
\n
These direct costs include payroll, the costs of materials and
\n
services, and directly attributable overheads. Capitalisation of
\n
costs ceases when the software can operate as intended.
\n
During and after development, accumulated costs are reviewed
\n
for impairment against the benefits that the software is
\n
expected to generate. Costs incurred prior to the establishment
\n
of technical feasibility and economic viability are expensed to
\n
the income statement as incurred, as are all training costs and
\n
general overheads. The costs of licences to use computer
\n
software that are expected to generate economic benefits
\n
beyond one year are also reported on the balance sheet
\n
Goodwill on the acquisition of a subsidiary is the excess of the
\n
fair value of the consideration paid, the fair value of any
\n
existing interest in the subsidiary and the amount of any non-
\n
controlling interest measured either at fair value or at its share
\n
of the subsidiary\u2019s net assets over the net fair value of the
\n
subsidiary\u2019s identifiable assets, liabilities, and contingent
\n
liabilities.
\n
Goodwill is measured at initial cost less any subsequent
\n
impairment losses. The gain or loss on the disposal of a
\n
subsidiary includes the carrying value of any related goodwill
\nwhen such transactions occur. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f47955": { "value": "3.4. Intangible assets and goodwill
Intangible assets are identifiable non-monetary assets without
\n
physical substance acquired by us, and are stated at cost less
\n
accumulated amortisation and impairment losses. Amortisation
\n
is a method to spread the cost of such assets over time in the
\n
income statement.
\n
This is charged to the income statement over the assets'
\n
estimated useful economic lives using methods that best reflect
\n
the pattern of economic benefits.
\n
The estimated useful economic lives are:
\n
Computer software
3 to 12 years
\n
Other acquired intangibles
5 to 10 years
\n
Expenditure on internally generated goodwill and brands is
\n
charged to the income statement as incurred.
\n
Direct costs relating to the development of internal-use
\n
computer software are reported on the balance sheet after
\n
technical feasibility and economic viability have been
\n
established.
\n
These direct costs include payroll, the costs of materials and
\n
services, and directly attributable overheads. Capitalisation of
\n
costs ceases when the software can operate as intended.
\n
During and after development, accumulated costs are reviewed
\n
for impairment against the benefits that the software is
\n
expected to generate. Costs incurred prior to the establishment
\n
of technical feasibility and economic viability are expensed to
\n
the income statement as incurred, as are all training costs and
\n
general overheads. The costs of licences to use computer
\n
software that are expected to generate economic benefits
\n
beyond one year are also reported on the balance sheet
\n
Goodwill on the acquisition of a subsidiary is the excess of the
\n
fair value of the consideration paid, the fair value of any
\n
existing interest in the subsidiary and the amount of any non-
\n
controlling interest measured either at fair value or at its share
\n
of the subsidiary\u2019s net assets over the net fair value of the
\n
subsidiary\u2019s identifiable assets, liabilities, and contingent
\n
liabilities.
\n
Goodwill is measured at initial cost less any subsequent
\n
impairment losses. The gain or loss on the disposal of a
\n
subsidiary includes the carrying value of any related goodwill
\nwhen such transactions occur. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForGoodwillExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48004": { "value": "3.5. Impairment of non-financial assets
At each balance sheet date, we assess whether there is any
\n
indication that its intangible assets or property, plant and
\n
equipment are impaired. If any such indication exists, we
\n
estimate the recoverable amount of the asset and compares it
\n
to its balance sheet value to calculate if an impairment loss
\n
should be charged to the income statement. The balance sheet
\n
value of the asset is reduced by the amount of the impairment
\n
loss. A reversal of an impairment loss on intangible assets or
\n
property, plant and equipment is recognised in the income
\n
statement provided the increased carrying value is not greater
\n
than it would have been had no impairment loss been
\n
recognised.
\n
Goodwill is tested for impairment annually or more frequently if
\n
events or changes in circumstances indicate that it might be
\n
impaired. Impairment losses on goodwill are not reversed.
\n
The recoverable amount of an asset that does not generate
\n
cash flows that are independent from those of other assets or
\n
groups of assets, is determined as part of the cash-generating
\n
unit to which the asset belongs. A cash-generating unit is the
\n
smallest identifiable group of assets that generates cash inflows
\n
that are largely independent of the cash inflows from other
\n
assets or groups of assets. For the purposes of impairment
\n
testing, goodwill acquired in a business combination is allocated
\n
to our cash-generating units or groups of cash-generating units
\n
expected to benefit from the combination.
\n
The recoverable amount of an asset or cash-generating unit is
\n
the higher of its fair value less cost to sell or its value in use.
\n
Value in use is the present value of future cash flows from the
\n
asset or cash-generating unit discounted at a rate that reflects
\n
market interest rates adjusted for risks specific to the asset or
\n
cash-generating unit that have not been considered in
\n
estimating future cash flows.
\n
\n
\n
The assessment of asset impairment is based upon value in
\n
use. This represents the value of future cashflows and uses our
\n
five-year revenue and cost forecasts and the expectation of
\n
long term economic growth beyond this period. The five-year
\n
forecast takes account of management\u2019s current expectations
\n
on competitiveness and profitability. The long term growth rate
\n
reflects external indicators which will include market
\n
expectations on climate risk. We do not consider any additional
\nadjustments to this indicator. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48087": { "value": "3.6. Foreign currencies
Foreign exchange differences arising on the settlement of
\n
foreign currency transactions and from the translation of
\n
monetary assets and liabilities are reported in income from
\n
trading activities except for differences arising on cash flow
\n
hedges and hedges of net investments in foreign operations.
\n
Non-monetary items denominated in foreign currencies that
\n
are stated at fair value are translated into the functional
\n
currency at the foreign exchange rates ruling at the dates the
\n
values are determined. Translation differences are recognised
\n
in the income statement except for differences arising on non-
\n
monetary financial assets classified as fair value through other
\n
comprehensive income.
\n
Income and expenses of foreign subsidiaries and branches are
\n
translated into sterling at average exchange rates unless these
\n
do not approximate the foreign exchange rates ruling at the
\n
dates of the transactions. Foreign exchange differences arising
\n
on the translation of a foreign operation are recognised in
\n
other comprehensive income. The amount accumulated in
\n
equity is reclassified from equity to the income statement on
\ndisposal of a foreign operation. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForForeignCurrencyTranslationExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48145": { "value": "
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsHeldForTradingExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48146": { "value": "
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialAssetsHeldForTradingExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48147": { "value": "
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialLiabilitiesHeldForTradingExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48148": { "value": "
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
Judgment: classification of financial assets
\n
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
\n
MFVTPL
FVOCI
Amortised cost
Other assets
Total
\n
Assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
144,832
\n
Trading assets
45,577
45,577
\n
Derivatives
(1)
99,545
99,545
\n
Settlement balances
2,572
2,572
\n
Loans to bank - amortised cost
(2)
7,139
7,139
\n
Loans to customers - amortised cost
(3)
366,340
366,340
\n
Other financial assets
(4)
787
16,973
13,135
30,895
\n
Intangible assets
7,116
7,116
\n
Other assets
9,176
9,176
\n
Assets of disposal groups
(5)
6,861
6,861
\n
31 December 2022
145,909
16,973
534,018
23,153
720,053
\n
Cash and balances at central banks
177,757
177,757
\n
Trading assets
59,158
59,158
\n
Derivatives
(1)
106,139
106,139
\n
Settlement balances
2,141
2,141
\n
Loans to bank - amortised cost
(2)
7,682
7,682
\n
Loans to customers - amortised cost
(3)
358,990
358,990
\n
Other financial assets
317
37,266
8,562
46,145
\n
Intangible assets
6,723
6,723
\n
Other assets
8,242
8,242
\n
Assets of disposal groups
9,015
9,015
\n
31 December 2021
165,614
37,266
555,132
23,980
781,992
\n
Held-for-trading
DFV
Amortised cost
Other liabilities
Total
\n
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank deposits
(6)
20,441
20,441
\n
Customer deposits
450,318
450,318
\n
Settlement balances
2,012
2,012
\n
Trading liabilities
52,808
52,808
\n
Derivatives
(1)
94,047
94,047
\n
Other financial liabilities
(7)
2,377
46,730
49,107
\n
Subordinated liabilities
345
5,915
6,260
\n
Notes in circulation
3,218
3,218
\n
Other liabilities
(8)
1,205
4,141
5,346
\n
31 December 2022
146,855
2,722
529,839
4,141
683,557
\n
Bank deposits
(6)
26,279
26,279
\n
Customer deposits
479,810
479,810
\n
Settlement balances
2,068
2,068
\n
Trading liabilities
64,598
64,598
\n
Derivatives
(1)
100,835
100,835
\n
Other financial liabilities
(7)
1,671
47,655
49,326
\n
Subordinated liabilities
703
7,726
8,429
\n
Notes in circulation
3,047
3,047
\n
Other liabilities
(8)
1,356
4,441
5,797
\n
31 December 2021
165,433
2,374
567,941
4,441
740,189
\n
(1)
Includes net hedging derivatives assets of \u00a3143 million (2021 - \u00a344 million) and net hedging derivatives liabilities of \u00a3132 million (2021 - \u00a3120 million).
\n
(2)
Includes items in the course of collection from other banks of \u00a3229 million (2021 - \u00a367 million).
\n
(3)
Includes finance lease receivables of \u00a38,402 million (2021 - \u00a38,531 million).
\n
(4)
Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio. Refer to Note 8 for further information.
\n
(5)
Includes \u00a35,397 million of assets of disposal groups reclassified from amortised cost to FVTPL during the year. The portfolio is classified as level 3 in the fair value hierarchy.
\n
(6)
Includes items in the course of transmission to other banks of \u00a3242 million (2021 - \u00a356 million).
\n
(7)
The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been
\n
recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively.
\n
(8)
Includes lease liabilities of \u00a31,118 million (2021 - \u00a31,263 million) held at amortised cost.
Reclassification of mortgages from amortised cost to fair value through profit or loss
\n
In June 2022 UBIDAC announced the cessation of new mortgage business to its customers. On 1 July 2022 UBIDAC mortgages in
\n
both its continuing and discontinued businesses were reclassified from amortised cost to fair value through profit or loss, reflecting
\n
the change in business model. We fair value these assets using a discounted cash flow method. Key inputs include assumptions
\n
around cash flows from legally binding sales agreements for those mortgage assets that form part of the assets of disposal groups.
\n
The effect of the reclassification as at 1 July 2022 is shown below:
\n
Amortised cost
MFVTPL
Change in value
\n
\u00a3m
\u00a3m
\u00a3m
\n
Amounts reclassified on balance sheet
\n
Loans to customers
(1)
587
606
19
\n
Assets of disposal groups
(2)
10,676
10,383
(293)
\n
11,263
10,989
(274)
\n
(1)
Change in value recognised in continuing operations.
\n
(2)
Change in value recognised in discontinued operations.
\n
Additional information on finance lease receivables
\n
The following table shows the reconciliation of undiscounted finance lease receivables to net investment in finance leases:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Amount receivable under finance leases
\n
Within 1 year
3,235
3,272
\n
1 to 2 years
2,254
2,044
\n
2 to 3 years
1,388
1,443
\n
3 to 4 years
833
757
\n
4 to 5 years
411
429
\n
After 5 years
1,130
1,423
\n
Lease payments total
9,251
9,368
\n
Unguaranteed residual values
171
225
\n
Future drawdowns
(13)
(21)
\n
Unearned income
(889)
(891)
\n
Present value of lease payments
8,520
8,681
\n
Impairments
(118)
(150)
\n
Net investment in finance leases
8,402
8,531
\n
Additional information on reverse repos and repos
\n
The following table shows the value of reverse repos and repos included within the below balance sheet captions:
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Reverse repos
\n
Trading assets
21,537
20,742
\n
Loans to banks - amortised cost
277
189
\n
Loans to customers - amortised cost
19,750
25,962
\n
Repos
\n
Bank deposits
1,446
7,912
\n
Customer deposits
9,829
14,541
\n
Trading liabilities
23,740
19,389
Interest rate benchmark reform
\n
NatWest Group continues to work on the transition of USD IBOR exposures to risk free rates in advance of the cessation date of 30
\n
June 2023. Derivatives are expected to transition during April and May 2023 and other exposures in line with fallback provisions or
\n
deferred switches using widely accepted methodologies. The instruments yet to transition reflect an insignificant element of
\n
NatWest Group\u2019s exposures. Instruments with exposures to other rates transitioned at the end of 2021, or at the first contractual
\n
reset date, or at a date agreed with the counterparty.
\n
The level of exposures without explicit or agreed conversion provisions as of the preceding year were as follows:
\n
Rates subject to IBOR reform
\n
GBP LIBOR
USD IBOR
Other IBOR
Total
\n
2021
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets
62
90
\u2014
152
\n
Loans to banks - amortised cost
\u2014
11
\u2014
11
\n
Loans to customers - amortised cost
4,788
4,565
267
9,620
\n
Other financial assets
864
768
\u2014
1,632
\n
Bank deposits
\u2014
37
\u2014
37
\n
Trading liabilities
31
166
\u2014
197
\n
Other financial liabilities
2,390
7,023
131
9,544
\n
Subordinated liabilities
\u2014
90
\u2014
90
\n
Loan commitments
(1)
1,016
6,366
55
7,437
\n
Derivatives notional (\u00a3bn)
4
1,152
\u2014
1,156
\n
(1)
Certain loan commitments are multi-currency facilities. Where these are fully undrawn, they are allocated to the principal currency of the facility. Where the facilities are partly
\n
drawn, the remaining loan commitment is allocated to the currency with the largest drawn amount.
\n
At 31 December 2021, NatWest Group held certain currency swaps with both legs subject to IBOR reform, for which only the GBP
\n
LIBOR leg has an explicit or agreed conversion provisions as of 31 December 2021, but not the entire contract. These include
\n
currency swaps of GBP LIBOR of \u00a38.7 billion with USD IBOR \u00a38.2 billion and Other IBOR \u00a30.5 billion; currency swaps of USD IBOR
\n
of \u00a3117 billion with GBP LIBOR \u00a391.7 billion and Other IBOR \u00a325.3 billion; currency swaps of EURIBOR of \u00a30.1 billion with GBP
\n
LIBOR \u00a30.1 billion; currency swaps of Other IBOR of \u00a30.4 billion with USD IBOR \u00a30.4 billion
\n
AT1 issuances
\n
NatWest Group has issued certain capital instruments, AT1, under which reset clauses are linked to IBOR rates subject to reform.
\n
Where under the contractual terms of the instrument the coupon resets to a rate which has IBOR as a specified component of its
\n
pricing structure, these are subject to IBOR reform and listed below:
\n
31 December
\n
2021
\n
\u00a3m
\n
US$1.15 billion 8% notes
734
Financial instruments \u2013 financial assets and liabilities that can be offset
\n
The tables below present information on financial assets and financial liabilities that are offset on the balance sheet under IFRS or
\n
subject to enforceable master netting agreements together with financial collateral received or given.
\n
Instruments which can be offset
Potential for offset not recognised by IFRS
\n
Gross
\n
IFRS offset
\n
Balance sheet
\n
Effect of
\n
master netting
\n
and similar
\n
agreements
\n
Cash
\n
collateral
\n
Securities
\n
collateral
\n
Net amount after the
\n
effect of netting
\n
agreements and
\n
related collateral
\n
Instruments
\n
outside netting
\n
agreements
\n
Balance
\n
sheet total
\n
2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Derivative assets
117,606
(18,730)
98,876
(77,365)
(14,079)
(4,571)
2,861
669
99,545
\n
Derivative liabilities
115,177
(22,111)
93,066
(77,365)
(9,761)
(1,185)
4,755
981
94,047
\n
Net position
(1)
2,429
3,381
5,810
\u2014
(4,318)
(3,386)
(1,894)
(312)
5,498
\n
Trading reverse repos
35,612
(14,510)
21,102
(2,445)
\u2014
(18,458)
199
435
21,537
\n
Trading repos
33,767
(14,510)
19,257
(2,445)
\u2014
(16,812)
\u2014
4,483
23,740
\n
Net position
1,845
\u2014
1,845
\u2014
\u2014
(1,646)
199
(4,048)
(2,203)
\n
Non trading reverse repos
25,630
(5,702)
19,928
\u2014
\u2014
(19,928)
\u2014
98
20,026
\n
Non trading repos
16,977
(5,702)
11,275
\u2014
\u2014
(11,275)
\u2014
\u2014
11,275
\n
Net position
8,653
\u2014
8,653
\u2014
\u2014
(8,653)
\u2014
98
8,751
\n
2021
\n
Derivative assets
113,220
(7,961)
105,259
(85,006)
(15,035)
(2,428)
2,790
880
106,139
\n
Derivative liabilities
108,594
(8,568)
100,026
(85,006)
(9,909)
(2,913)
2,198
809
100,835
\n
Net position
(1)
4,626
607
5,233
\u2014
(5,126)
485
592
71
5,304
\n
Trading reverse repos
44,529
(24,422)
20,107
(900)
\u2014
(19,136)
71
635
20,742
\n
Trading repos
42,664
(24,422)
18,242
(900)
\u2014
(17,341)
1
1,147
19,389
\n
Net position
1,865
\u2014
1,865
\u2014
\u2014
(1,795)
70
(512)
1,353
\n
Non trading reverse repos
33,729
(7,594)
26,135
\u2014
\u2014
(26,135)
\u2014
16
26,151
\n
Non trading repos
30,047
(7,594)
22,453
\u2014
\u2014
(22,453)
\u2014
\u2014
22,453
\n
Net position
3,682
\u2014
3,682
\u2014
\u2014
(3,682)
\u2014
16
3,698
\n
(1)
The net IFRS offset balance of \u00a33,381 million (2021 - \u00a3607 million) relates to variation margin netting reflected on other balance sheet lines.
11 Financial instruments - valuation
\n
Financial instruments recognised at fair value are revalued using techniques that can include observable inputs (pricing information
\n
that is readily available in the market, for example UK Government securities), and unobservable inputs (pricing information that is
\n
not readily available, for example unlisted securities). Gains and losses are recognised in the income statement and statement of
\n
comprehensive income as appropriate.
This note presents information on the valuation of financial instruments.
\n
The table below provides an overview of the various sections contained within the note.
\n
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
Page
\n
Financial instruments
\n
Critical accounting policy: Fair value
339
\n
Valuation
\n
Fair value hierarchy
(D)
339
\n
Valuation techniques
(D)
340
\n
Inputs to valuation models
(D)
340
\n
Valuation control
(D)
340
\n
Key areas of judgment
(D)
341
\n
Table of assets and liabilities split by fair value
\n
hierarchy level
(T)
342
\n
Valuation adjustments
\n
Table of fair value adjustments made
(T)
343
\n
Funding valuation adjustments (FVA)
(D)
343
\n
Credit valuation adjustments (CVA)
(D)
343
\n
Bid-offer
(D)
343
\n
Product and deal specific
(D)
343
\n
Own credit
(D)
343
\n
Level 3 additional information
\n
Level 3 ranges of unobservable inputs
(D)
344
\n
Table of level 3 instruments, valuation
\n
techniques and inputs
(T)
344
\n
Level 3 sensitivities
(D)
345
\n
Alternative assumptions
(D)
345
\n
Other considerations
(D)
345
\n
Table of high and low range of fair value of
\n
level 3 assets and liabilities
(T)
345
\n
Movement in level 3 assets and liabilities
\n
over the reporting period
(D)
346
\n
Table of the movement in level 3 assets and liabilities
346
\n
Fair value of financial instruments measured
\n
at amortised cost
\n
Table showing the fair value of financial instruments
\n
measured at amortised cost on the balance sheet
(T)
347
\n
(D) = Descriptive; (T) = Table
Valuation
\n
Fair value hierarchy
\n
Financial instruments carried at fair value have been classified
\n
under the fair value hierarchy. The classification ranges from
\n
level 1 to level 3, with more expert judgment and price
\n
uncertainty for those classified at level 3.
\n
The determination of an instrument\u2019s level cannot be made at
\n
a global product level as a single product type can be in more
\n
than one level. For example, a single name corporate credit
\n
default swap could be in level 2 or level 3 depending on the
\n
level of market activity for the referenced entity
.
\n
Level 1 \u2013 instruments valued using unadjusted quoted prices in
\n
active and liquid markets, for identical financial instruments.
\n
Examples include government bonds, listed equity shares and
\n
certain exchange-traded derivatives.
\n
Level 2 - instruments valued using valuation techniques that
\n
have observable inputs. Observable inputs are those that are
\n
readily available with limited adjustments required. Examples
\n
include most government agency securities, investment-grade
\n
corporate bonds, certain mortgage products - including CLOs,
\n
most bank loans, repos and reverse repos, state and municipal
\n
obligations, most notes issued, certain money market
\n
securities, loan commitments and most OTC derivatives.
\n
Level 3 - instruments valued using a valuation technique where
\n
at least one input which could have a significant effect on the
\n
instruments valuation, is not based on observable market data.
\n
Examples include non-derivative instruments which trade
\n
infrequently, certain syndicated and commercial mortgage
\n
loans, private equity, and derivatives with unobservable model
\n
inputs.
Valuation techniques
\n
NatWest Group derives the fair value of its instruments
\n
differently depending on whether the instrument is a non-
\n
modelled or a modelled product.
\n
Non-modelled products
are valued directly from a price input,
\n
typically on a position-by-position basis. Examples include
\n
equities and most debt securities.
\n
Non-modelled products can fall into any fair value levelling
\n
hierarchy depending on the observable market activity,
\n
liquidity, and assessment of valuation uncertainty of the
\n
instruments. The assessment of fair value and the classification
\n
of the instrument to a fair value level is subject to the valuation
\n
controls discussed in the Valuation control section.
\n
Modelled products
valued using a pricing model range in
\n
complexity from comparatively vanilla products such as interest
\n
rate swaps and options (e.g., interest rate caps and floors)
\n
through to more complex derivatives (e.g., balance guarantee
\n
swaps).
\n
For modelled products the fair value is derived using the model
\n
and the appropriate model inputs or parameters, as opposed to
\n
a cash price equivalent. Model inputs are taken either directly
\n
or indirectly from available data, where some inputs are also
\n
modelled.
\n
Fair value classification of modelled instruments is either level 2
\n
or level 3, depending on the product/model combination, the
\n
observability and quality of input parameters and other factors.
\n
All these must be assessed to classify a position. The modelled
\n
product is assigned to the lowest fair value hierarchy level of
\n
any significant input used in that valuation.
\n
Most derivative instruments, for example vanilla interest rate
\n
swaps, foreign exchange swaps and liquid single name credit
\n
derivatives, are classified as level 2. This is because they are
\n
vanilla products valued using standard market models and with
\n
observable inputs. Level 2 products range from vanilla to more
\n
complex products, where more complex products remain
\n
classified as level 2 due to the low materiality of any
\n
unobservable inputs.
\n
Inputs to valuation models
\n
When using valuation techniques, the fair value can be
\n
significantly affected by the choice of valuation model and
\n
underlying assumptions. Factors considered include the
\n
cashflow amounts and timing of those cash flows, and
\n
application of appropriate discount rates, incorporating both
\n
funding and credit risk. Values between and beyond available
\n
data points are obtained by interpolation and extrapolation.
\n
The principal inputs to these valuation techniques are as
\n
follows:
\n
Bond prices - quoted prices are generally available for
\n
government bonds, certain corporate securities, and some
\n
mortgage-related products.
\n
Credit spreads - these express the return required over a
\n
benchmark rate or index to compensate for the referenced
\n
credit risk. Where available, these are derived from the price of
\n
credit default swaps or other credit-based instruments, such as
\n
debt securities. When direct prices are not available; credit
\n
spreads are determined with reference to available prices of
\n
entities with similar characteristics.
\n
Interest rates - these are principally based on interest rate
\n
swap prices referencing benchmark interest rates. Benchmark
\n
rates include Interbank Offered Rates (IBOR) and the Overnight
\n
Index Swap (OIS) rate, including SONIA (Sterling Overnight
\n
Interbank Average Rate). Other quoted interest rates may also
\n
be used from both the bond, and futures markets.
\n
Foreign currency exchange rates - there are observable prices
\n
both for spot and forward contracts and futures in the world's
\n
major currencies.
\n
Equity and equity index prices - quoted prices are generally
\n
readily available for equity shares listed on the world's major
\n
stock exchanges and for major indices on such shares.
\n
Price volatilities and correlations - volatility is a measure of the
\n
tendency of a price to change with time. Correlation measures
\n
the degree which two or more prices or variables are observed
\n
to move together. Variables that move in the same direction
\n
show positive correlation; those that move in opposite
\n
directions are negatively correlated.
\n
Prepayment rates - rates used to reflect how fast a pool of
\n
assets prepay. The fair value of a financial instrument that can
\n
be prepaid by the issuer or borrower differs from that of an
\n
instrument that cannot be prepaid. When valuing prepayable
\n
instruments, the value of this prepayment option is considered.
\n
Recovery rates/loss given default - these are used as an input
\n
to valuation models and reserves for asset-backed securities
\n
and other credit products as an indicator of severity of losses
\n
on default. Recovery rates are primarily sourced from market
\n
data providers, the value of the underlying collateral or inferred
\n
from observable credit spreads.
\n
Valuation control
\n
NatWest Group's control environment for the determination of
\n
the fair value of financial instruments includes formalised
\n
procedures for the review and validation of fair values. This
\n
review is performed by an independent price verification (IPV)
\n
team.
\n
IPV is a key element of the control environment. Valuations are
\n
first performed by the business which entered into the
\n
transaction. These valuations are then reviewed by the IPV
\n
team, independent of those trading the financial instruments, in
\n
light of available pricing evidence.
\n
Independent pricing data is collated from a range of sources.
\n
Each source is reviewed for quality and the independent data
\n
applied in the IPV processes using a formalised input quality
\n
hierarchy. Consensus services are one source of independent
\n
data and encompass interest rate, currency, credit, and bond
\n
markets, providing comprehensive coverage of vanilla products
\n
and a wide selection of exotic products.
\n
Where measurement differences are identified through the IPV
\n
process these are grouped by the quality hierarchy of the
\n
independent data. If the size of the difference exceeds defined
\n
thresholds, an adjustment is made to bring the valuation to
\n
within the independently calculated fair value range.
\n
IPV takes place at least monthly, for all fair value financial
\n
instruments. The IPV control includes formalised reporting and
\n
escalation of any valuation differences in breach of established
\n
thresholds.
The quality and completeness of the information gathered in
\n
the IPV process gives an indication as to the liquidity and
\n
valuation uncertainty of an instrument and forms part of the
\n
information considered when determining fair value hierarchy
\n
classifications.
\n
Initial fair value level classification of a financial instrument is
\n
carried out by the IPV team. These initial classifications are
\n
subject to senior management review. Particular attention is
\n
paid to instruments transferring from one level to another, new
\n
instrument classes or products, instruments where the
\n
transaction price is significantly different from the fair value
\n
and instruments where valuation uncertainty is high.
\n
Valuation Committees are made up of valuation specialists and
\n
senior business representatives from various functions and
\n
oversees pricing, reserving and valuations issues. These
\n
committees meet monthly to review and ratify any
\n
methodology changes. The Executive Valuation Committee
\n
meets quarterly to address key material and subjective
\n
valuation issues, to review items escalated by Valuation
\n
Committees and to discuss other relevant industry matters.
\n
The Group model risk policy sets the policy for model
\n
documentation, testing and review. Governance of the model
\n
risk policy is carried out by the Group model risk oversight
\n
committee, which comprises model risk owners and
\n
independent model experts. All models are required to be
\n
independently validated in accordance with the Model Risk
\n
Policy.
\n
Key areas of judgment
\n
Over the years the business has simplified, with most products
\n
classified as level 1 or 2 of the fair value hierarchy. However,
\n
the diverse range of products historically traded by NatWest
\n
Group means some products remain classified as level 3. Level
\n
3 indicates a significant level of pricing uncertainty, where
\n
expert judgment is used. As such, extra disclosures are
\n
required in respect of level 3 instruments
.
\n
In general, the degree of expert judgment used and hence
\n
valuation uncertainty depends on the degree of liquidity of an
\n
instrument or input.
\n
Where markets are liquid, little judgment is required. However,
\n
when the information regarding the liquidity in a particular
\n
market is not clear, a judgment may need to be made. For
\n
example, for an equity traded on an exchange, daily volumes of
\n
trading can be seen, but for an over the counter (OTC)
\n
derivative, assessing the liquidity of the market with no central
\n
exchange is more challenging.
\n
A key related matter is where a market moves from liquid to
\n
illiquid or vice versa. Where this movement is considered
\n
temporary, the fair value level is not changed. For example, if
\n
there is little market trading in a product on a reporting date
\n
but at the previous reporting date and during the intervening
\n
period the market has been liquid. In this case, the instrument
\n
will continue to be classified at the same level in the hierarchy.
\n
This is to provide consistency so that transfers between levels
\n
are driven by genuine changes in market liquidity and do not
\n
reflect short term or seasonal effects. Material movements
\n
between levels are reviewed quarterly by the Business and IPV.
\n
The breadth and depth of the IPV data allows for a rules-based
\n
quality assessment to be made of market activity, liquidity, and
\n
pricing uncertainty, which assists with the process of allocation
\n
to an appropriate level. Where suitable independent pricing
\n
information is not readily available, the quality assessment will
\n
result in the instrument being assessed as level 3.
The table below shows the assets and liabilities held by NatWest Group split by fair value hierarchy level. Level 1 are considered
\n
the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price
\n
uncertainty.
\n
2022
2021
\n
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
\u2014
35,260
395
35,655
\u2014
33,482
721
34,203
\n
Securities
7,463
2,458
1
9,922
19,563
5,371
21
24,955
\n
Derivatives
5
98,533
1,007
99,545
\u2014
105,222
917
106,139
\n
Other financial assets
\n
Loans
\u2014
172
727
899
\u2014
359
207
566
\n
Securities
10,380
6,278
203
16,861
28,880
7,951
186
37,017
\n
Total financial assets held at fair value
17,848
142,701
2,333
162,882
48,443
152,385
2,052
202,880
\n
As % of total fair value assets
11%
88%
1%
24%
75%
1%
\n
Liabilities
\n
Trading liabilities
\n
Deposits
\u2014
42,486
1
42,487
\u2014
38,658
2
38,660
\n
Debt securities in issue
\u2014
797
\u2014
797
\u2014
974
\u2014
974
\n
Short positions
7,462
2,062
\u2014
9,524
20,507
4,456
1
24,964
\n
Derivatives
2
93,070
975
94,047
\u2014
100,229
606
100,835
\n
Other financial liabilities
\n
Debt securities in issue
\u2014
1,327
\u2014
1,327
\u2014
1,103
\u2014
1,103
\n
Other deposits
\u2014
1,050
\u2014
1,050
\u2014
568
\u2014
568
\n
Subordinated liabilities
\u2014
345
\u2014
345
\u2014
703
\u2014
703
\n
Total financial liabilities held at fair value
7,464
141,137
976
149,577
20,507
146,691
609
167,807
\n
As % of total fair value liabilities
5%
94%
1%
12%
88%
0%
\n
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
\n
(2)
For an analysis of debt securities held at mandatory fair value through profit or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
\n
management \u2013 Credit risk.
Valuation adjustments
\n
When valuing financial instruments in the trading book,
\n
adjustments are made to mid-market valuations to cover bid-
\n
offer spread, funding and credit risk. These adjustments are
\n
presented in the table below:
\n
Adjustment
\n
2022
\n
\u00a3m
\n
2021
\n
\u00a3m
\n
Funding \u2013 FVA
173
90
\n
Credit \u2013 CVA
300
390
\n
Bid \u2013 Offer
130
113
\n
Product and deal specific
141
119
\n
744
712
\n
Funding valuation adjustments on the group defined benefit
\n
pension plan increased during the year, primarily driven by
\n
increases in GBP interest rates.
\n
The decrease in CVA was driven by a reduction in exposures,
\n
primarily due to increases in interest rates and trade exit
\n
activity, partially offset by the net impact of credit spreads
\n
widening and specific counterparty activity. The increase in
\n
bid-offer was driven by the net impact of risk changes, wider
\n
bid-offer spreads and an increase in the estimated costs of
\n
exiting certain less liquid risks. The increase in product and
\n
deal specific was driven by credit spreads widening and
\n
specific counterparty activity.
\n
Funding valuation adjustments (FVA)
\n
FVA represents an estimate of the adjustment that a market
\n
participant would make to incorporate funding costs and
\n
benefits that arise in relation to derivative exposures. FVA is
\n
calculated as a portfolio level adjustment and can result in
\n
either a funding charge (positive) or funding benefit (negative).
\n
Funding levels are applied to estimated potential future
\n
exposures. For uncollateralised derivatives, the exposure
\n
reflects the future valuation of the derivative. For collateralised
\n
derivatives, the exposure reflects the difference between the
\n
future valuation of the derivative and the level of collateral
\n
posted.
\n
Credit valuation adjustments (CVA)
\n
CVA represents an estimate of the adjustment to fair value that
\n
is made to incorporate the counterparty credit risk inherent in
\n
derivative exposures. CVA is actively managed by a credit and
\n
market risk hedging process, and therefore movements in CVA
\n
are partially offset by trading revenue on the hedges.
\n
The CVA is calculated on a portfolio basis reflecting an
\n
estimate of the amount a third party would charge to assume
\n
the credit risk.
\n
Collateral held under a credit support agreement is factored
\n
into the CVA calculation. In such cases where NatWest Group
\n
holds collateral against counterparty exposures, CVA is held to
\n
the extent that residual risk remains.
\n
Bid-offer
\n
Fair value positions are required to be marked to exit,
\n
represented by bid (long positions) or offer (short positions)
\n
levels. Non-derivative positions are typically marked directly to
\n
bid or offer prices. However derivative exposures are adjusted
\n
to exit levels by taking bid-offer reserves calculated on a
\n
portfolio basis. The bid-offer approach is based on current
\n
market spreads and standard market bucketing of risk.
\n
Bid-offer spreads vary by maturity and risk type to reflect
\n
different spreads in the market. For positions where there is no
\n
observable quote, the bid-offer spreads are widened in
\n
comparison to proxies to reflect reduced liquidity or
\n
observability.
\n
Netting is applied on a portfolio basis to reflect the value at
\n
which NatWest Group believes it could exit the net risk of the
\n
portfolio, rather than the sum of exit costs for each of the
\n
portfolio\u2019s individual trades. This is applied where the asset and
\n
liability positions are managed as a portfolio for risk and
\n
reporting purposes.
\n
Product and deal specific
\n
On initial recognition of financial assets and liabilities valued
\n
using valuation techniques which have a significant
\n
dependence on information other than observable market data,
\n
any difference between the transaction price and that derived
\n
from the valuation technique is deferred. Such amounts are
\n
recognised in the income statement over the life of the
\n
transaction; when market data becomes observable; or when
\n
the transaction matures or is closed out as appropriate. On 31
\n
December 2022, net gains of \u00a374 million (2021 - \u00a371 million)
\n
were carried forward. During the year, net gains of \u00a397 million
\n
(2021 - \u00a3103 million) were deferred and \u00a394 million (2021 - \u00a394
\n
million) were recognised in the income statement.
\n
Where system generated valuations do not accurately reflect
\n
market prices, manual valuation adjustments are applied either
\n
at a position or portfolio level. Manual adjustments are subject
\n
to the scrutiny of independent control teams and are subject to
\n
monthly review by senior management.
\n
Own Credit
\n
NatWest Group considers the effect of its own credit standing
\n
when valuing financial liabilities recorded at fair value. Own
\n
credit spread adjustments are made when valuing issued debt
\n
held at fair value, including issued structured notes. An own
\n
credit adjustment is applied to positions where it is believed
\n
that counterparties would consider NatWest Group\u2019s
\n
creditworthiness when pricing trades.
Level 3 additional information
\n
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
\n
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
\n
with significant unobservable inputs or modelling parameters.
\n
Level 3 ranges of unobservable inputs
\n
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
\n
fair value calculation, the unobservable input and input range.
\n
2022
2021
\n
Financial instrument
Valuation technique
Unobservable inputs
Units
Low
High
Low
High
\n
Trading assets and Other financial assets
\n
Loans
Price-based
Price
%
\u2014
113
\u2014
106
\n
Discount cash flow
Credit spreads
bps
56
114
40
102
\n
Discount cash flow
Discount margin
bps
\u2014
\u2014
46
55
\n
Debt securities
Price-based
Price
%
\n
\u2014
255
\u2014
240
\n
Equity Shares
Price-based
Price
GBP
\u2014
34,027
\u2014
30,378
\n
Price-based
Price
%
\u2014
30
\u2014
7
\n
Discount cash flow
Discount margin
%
6
8
6
8
\n
Net asset valuation
Fund NAV
%
80
120
80
120
\n
Derivative assets and liabilities
\n
Credit derivatives
Credit derivative pricing
Credit spreads
bps
7
530
6
635
\n
Option pricing
Correlation
%
(15)
95
(15)
95
\n
Volatility
%
30
80
30
108
\n
Upfront points
%
\u2014
99
\u2014
100
\n
Recovery rate
%
\u2014
60
\u2014
60
\n
Interest rate & FX
Option pricing
Correlation
%
(50)
100
(50)
100
\n
derivatives
Volatility
%
30
127
17
77
\n
Constant Prepayment
\n
Rate
%
2
21
2
16
\n
Mean Reversion
%
\u2014
92
\u2014
92
\n
Inflation volatility
%
1
2
1
2
\n
Inflation rate
%
2
3
2
3
\n
(1)
Valuation for private equity investments may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
\n
earnings measures such as EBITDA or net asset value (NAV). Similarly, for equity or bond fund investments, prices may be estimated from valuation or credit statements using NAV
\n
or similar measures.
\n
(2)
NatWest Group does not have any material liabilities measured at fair value that are issued with an inseparable third-party credit enhancement.
Level 3 sensitivities
\n
The level 3 sensitivities presented below are calculated at a
\n
trade or low-level portfolio basis rather than an overall portfolio
\n
basis. As individual sensitivities are aggregated with no
\n
reflection of the correlated nature between instruments, the
\n
overall portfolio sensitivity may not be accurately reflected. For
\n
example, some portfolios may be negatively correlated to
\n
others, where a downwards movement in one asset would
\n
produce an upwards movement in another. However, due to
\n
the additive presentation of the above figures this correlation
\n
impact cannot be displayed. As such, the actual potential
\n
downside sensitivity of the total portfolio may be less than the
\n
non-correlated sum of the additive figures as shown in the
\n
below table.
\n
Alternative assumptions
\n
Reasonably plausible alternative assumptions of unobservable
\n
inputs are determined based on a specified target level of
\n
certainty of 90%.
\n
Alternative assumptions are determined with reference to all
\n
available evidence including consideration of the following:
\n
quality of independent pricing information considering
\n
consistency between different sources, variation over time,
\n
perceived tradability or otherwise of available quotes;
\n
consensus service dispersion ranges; volume of trading activity
\n
and market bias (e.g. one-way inventory); day 1 profit or loss
\n
arising on new trades; number and nature of market
\n
participants; market conditions; modelling consistency in the
\n
market; size and nature of risk; length of holding of position;
\n
and market intelligence.
\n
Other considerations
\n
Whilst certain inputs used to calculate CVA, FVA and own
\n
credit adjustments are not based on observable market data,
\n
the uncertainty of these inputs is not considered to have a
\n
significant effect on the net valuation of the related derivative
\n
portfolios and issued debt.
\n
As such, the fair value levelling of the derivative portfolios and
\n
issued debt is not determined by CVA, FVA or own credit
\n
inputs. In addition, any fair value sensitivity driven by these
\n
inputs is not included in the level 3 sensitivities presented.
\n
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
\n
fair value inputs as described in the previous table.
\n
2022
2021
\n
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Trading assets
\n
Loans
395
10
(10)
721
10
(10)
\n
Securities
1
\u2014
\u2014
21
\u2014
\u2014
\n
Derivatives
1,007
50
(50)
917
60
(70)
\n
Other financial assets
\n
Loans
727
\u2014
(10)
207
10
(10)
\n
Securities
203
20
(30)
186
20
(20)
\n
2,333
80
(100)
2,052
100
(110)
\n
Liabilities
\n
Trading liabilities
\n
Deposits
1
\u2014
\u2014
2
\u2014
\u2014
\n
Debt securities in issue
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Short positions
\u2014
\u2014
\u2014
1
\u2014
\n
Derivatives
975
30
(30)
606
30
(30)
\n
976
30
(30)
609
30
(30)
Movement in level 3 assets and liabilities
\n
The following table shows the movement in level 3 assets and liabilities in the year.
\n
2022
2021
\n
Trading
\n
assets (2)
\n
Other financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
Trading
\n
assets (2)
\n
Other
\n
financial
\n
assets (3)
\n
Total
\n
assets
\n
Total
\n
liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
1,658
394
2,052
609
1,388
335
1,723
894
\n
Amounts recorded in the income statement
(1)
157
(14)
143
381
(93)
(29)
(122)
(90)
\n
Amounts recorded in the statement of
\n
comprehensive income
\u2014
(20)
(20)
\u2014
\u2014
23
23
\u2014
\n
Level 3 transfers in
194
532
726
81
125
3
128
20
\n
Level 3 transfers out
(269)
(68)
(337)
(64)
(104)
(6)
(109)
(168)
\n
Purchases/originations
629
185
814
382
965
452
1,416
305
\n
Settlements/other decreases
(115)
\u2014
(115)
(41)
(47)
(364)
(411)
(28)
\n
Sales
(857)
(101)
(958)
(378)
(573)
(17)
(590)
(321)
\n
Foreign exchange and other
6
22
28
6
(3)
(3)
(6)
(3)
\n
At 31 December
1,403
930
2,333
976
1,658
394
2,052
609
\n
Amounts recorded in the income statement in respect
\n
of balances held at year end:
\n
- unrealised
157
(16)
141
381
(93)
(32)
(126)
(90)
\n
(1)
There were \u00a3224 million net losses on trading assets and liabilities (2021 \u2013 \u00a33 million net losses) recorded in income from trading activities. Net losses on other instruments of \u00a314
\n
million (2021 \u2013 \u00a329 million net losses) were recorded in other operating income and interest income as appropriate.
\n
(2)
Trading assets comprise assets held at fair value in trading portfolios.
\n
(3)
Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
Fair value of financial instruments measured at amortised cost on the balance sheet
\n
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
\n
sheet.
\n
Fair value hierarchy level
\n
Carrying
Fair
\n
Items where fair value
\n
approximates carrying
\n
value
\n
value
value
Level 1
Level 2
Level 3
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Financial assets
\n
Cash and balances at central banks
144.8
\n
Settlement balances
2.6
\n
Loans to banks
0.1
7.0
7.0
\u2014
4.2
2.8
\n
Loans to customers
366.3
354.5
\u2014
20.3
334.2
\n
Other financial assets - securities
13.1
12.8
3.6
3.2
6.0
\n
2021
\n
Financial assets
\n
Cash and balances at central banks
177.8
\n
Settlement balances
2.1
\n
Loans to banks
0.1
7.5
7.5
\u2014
5.0
2.5
\n
Loans to customers
359.0
354.1
\u2014
28.0
326.1
\n
Other financial assets - securities
8.6
8.6
4.4
0.7
3.5
\n
2022
\n
Financial liabilities
\n
Bank deposits
4.7
15.7
15.3
\u2014
13.1
2.2
\n
Customer deposits
407.0
43.3
43.3
\u2014
12.7
30.6
\n
Settlement balances
2.0
\n
Other financial liabilities - debt securities in issue
46.7
46.1
\u2014
40.7
5.4
\n
Subordinated liabilities
5.9
5.6
\u2014
5.5
0.1
\n
Notes in circulation
3.2
\n
2021
\n
Financial liabilities
\n
Bank deposits
4.9
21.4
21.0
\u2014
18.7
2.3
\n
Customer deposits
442.4
37.4
37.6
\u2014
18.1
19.5
\n
Settlement balances
2.1
\n
Other financial liabilities - debt securities in issue
47.7
48.6
\u2014
41.4
7.2
\n
Subordinated liabilities
7.7
8.3
\u2014
8.2
0.1
\n
Notes in circulation
3.0
\n
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are
\n
as follows:
\n
Short-term financial instruments
\n
For certain short-term financial instruments, including but not
\n
limited to; cash and balances at central banks, settlement
\n
balances, loans with short-term maturities, notes in circulation
\n
and customer demand deposits, carrying value is deemed a
\n
reasonable approximation of fair value.
\n
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
\n
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
\n
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
13 Trading assets and liabilities
\n
Trading assets and liabilities comprise assets and liabilities held at fair value and classified as held-for-trading. Financial
\n
instruments are classified as held for trading if they are held for the purpose of selling or repurchasing them in the short term, to
\n
make a spread between purchase and sale price or held to take advantage of movements in prices and yields.
\n
For accounting policy information see Accounting policies note 3.8.
\n
2022
2021
\n
Assets
\u00a3m
\u00a3m
\n
Loans
\n
Reverse repos
21,537
20,742
\n
Collateral given
13,005
12,047
\n
Other loans
1,113
1,414
\n
Total loans
35,655
34,203
\n
Securities
\n
Central and local government
\n
- UK
2,205
6,919
\n
- US
2,345
3,329
\n
- other
2,799
10,929
\n
Financial institutions and corporate
2,573
3,778
\n
Total securities
9,922
24,955
\n
Total
45,577
59,158
\n
Liabilities
\n
Deposits
\n
Repos
23,740
19,389
\n
Collateral received
17,680
17,718
\n
Other deposits
1,067
1,553
\n
Total deposits
42,487
38,660
\n
Debt securities in issue
797
974
\n
Short positions
9,524
24,964
\n
Total
52,808
64,598
14 Derivatives
\n
Derivative is a term covering a wide range of financial instruments that derive their
fair value from an underlying rate or price, for
\n
example interest rates or exchange rates (the underlying). NatWest Group uses derivatives as a part of its trading activities, to
\n
manage its own risks such as interest rate, foreign exchange, or credit risk and in certain customer transactions. This note
shows
\n
contracted volumes of derivatives, how they are used for hedging purposes and more specifically the effects of the application of
\n
hedge accounting.
\n
For accounting policy information see Accounting policies note 3.8 and 3.12.
\n
2022
2021
\n
Notional
Assets
Liabilities
Notional
Assets
Liabilities
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\n
Exchange rate contracts
3,168
45,829
45,237
3,167
38,517
39,286
\n
Interest rate contracts
10,742
53,480
48,535
8,919
67,458
61,206
\n
Credit derivatives
15
236
275
14
154
343
\n
Equity and commodity contracts
\u2014
\u2014
\u2014
\u2014
10
\u2014
\n
99,545
94,047
106,139
100,835
\n
NatWest Group applies hedge accounting to reduce the
\n
accounting mismatch caused in the income statement by using
\n
derivatives to hedge the following risks: interest rate, foreign
\n
exchange and the foreign exchange risk associated with net
\n
investment in foreign operations.
\n
NatWest Group\u2019s interest rate hedging relates to the
\n
management of NatWest Group\u2019s non-trading structural
\n
interest rate risk, caused by the mismatch between fixed
\n
interest rates and floating interest rates on its financial
\n
instruments. NatWest Group manages this risk within approved
\n
limits. Residual risk positions are hedged with derivatives,
\n
principally interest rate swaps.
\n
Suitable larger fixed rate financial instruments are subject to
\n
fair value hedging in line with documented risk management
\n
strategies
\n
Cash flow hedges of interest rate risk relate to exposures to the
\n
variability in future interest payments and receipts due to the
\n
movement of benchmark interest rates on forecast transactions
\n
and on financial assets and financial liabilities. This variability in
\n
cash flows is hedged by interest rate swaps, which convert
\n
variable cash flows into fixed. For these cash flow hedge
\n
relationships, the hedged items are actual and forecast variable
\n
interest rate cash flows arising from financial assets and
\n
financial liabilities with interest rates linked to the relevant
\n
benchmark rates, most notably USD LIBOR, SOFR, EURIBOR,
\n
SONIA and the Bank of England Official Bank Rate. The
\n
variability in cash flows due to movements in the relevant
\n
benchmark rate is hedged; this risk component is identified
\n
using the risk management systems of NatWest Group and
\n
encompasses the majority of cash flow variability risk.
\n
Fair value hedges of interest rate risk involve interest rate
\n
swaps transforming the fixed interest rate risk in financial
\n
assets and financial liabilities to floating. The hedged risk is the
\n
risk of changes in the hedged item\u2019s fair value attributable to
\n
changes in the benchmark interest rate risk component of the
\n
hedged item. The significant benchmarks identified as risk
\n
components are USD LIBOR, SOFR, EURIBOR and SONIA.
\n
These risk components are identified using the risk
\n
management systems of NatWest Group and encompass the
\n
majority of the hedged item\u2019s fair value risk.
\n
NatWest Group hedges the exchange rate risk of its net
\n
investment in foreign currency denominated operations with
\n
currency borrowings and forward foreign exchange contracts.
\n
NatWest Group reviews the value of the investments\u2019 net
\n
assets, executing hedges where appropriate to reduce the
\n
sensitivity of capital ratios to foreign exchange rate movement.
\n
Hedge accounting relationships will be designated where
\n
required.
\n
Exchange rate risk also arises in NatWest Group where
\n
payments are denominated in currencies other than the
\n
functional currency. Residual risk positions are hedged with
\n
forward foreign exchange contracts, fixing the exchange rate
\n
the payments will be settled in. The derivatives are documented
\n
as cash flow hedges.
\n
For all cash flow hedging and fair value hedge relationships,
\n
and net investment hedging, NatWest Group determines that
\n
there is an adequate level of offsetting between the hedged
\n
item and hedging instrument at inception and on an ongoing
\n
basis. This is achieved by comparing movements in the fair
\n
value of the expected highly probable forecast cash flows/fair
\n
value of the hedged item attributable to the hedged risk with
\n
movements in the fair value of the expected changes in cash
\n
flows from the hedging instruments. The method used for
\n
comparing movements is either regression testing or the dollar
\n
offset method. The method for testing effectiveness and the
\n
period over which the test is performed depends on the
\n
applicable risk management strategy and is applied consistently
\n
to each risk management strategy. Hedge effectiveness is
\n
assessed on a cumulative basis and the determination of
\n
effectiveness is in line with the requirements of IAS39.
\n
NatWest Group uses either the actual ratio between the hedged
\n
item and hedging instrument(s) or one that minimises hedge
\n
ineffectiveness to establish the hedge ratio for hedge
\n
accounting. Hedge ineffectiveness is measured in line with the
\n
requirements of IAS39 and recognised in the income statement
\n
as it arises.
Included in the table below are derivatives held for hedging purposes as follows:
\n
2022
2021
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectiven
\n
ess (1)
\n
Notional
Assets
Liabilities
\n
Changes in fair
\n
value used for
\n
hedge
ineffectivene
\n
ss (1)
\n
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\u00a3bn
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
Interest rate contracts
58.7
1,554
3,009
482
65.6
1,176
2,057
897
\n
Cash flow hedging
\n
Interest rate contracts
167.6
2,681
6,207
(3,342)
133.1
952
1,149
(931)
\n
Exchange rate contracts
6.3
142
112
(3)
7.3
30
109
27
\n
Net investment hedging
\n
Exchange rate contracts
0.5
1
9
4
0.5
11
1
7
\n
233.1
4,378
9,337
(2,859)
206.5
2,169
3,316
\u2014
\n
IFRS netting/Clearing
\n
house settlements
(4,235)
(9,205)
(2,125)
(3,196)
\n
143
132
44
120
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year.
The following table shows the period in which the notional of hedging contract ends:
\n
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
20+ years
Total
\n
2022
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\u00a3bn
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.5
1.9
4.7
4.9
4.2
2.5
1.1
19.8
\n
Hedging liabilities - interest rate risk
1.0
2.9
14.6
10.3
9.6
0.5
\u2014
38.9
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
6.6
9.4
46.5
21.9
10.1
\u2014
\u2014
94.5
\n
Average fixed interest rate (%)
1.36
1.98
1.71
2.04
1.02
3.12
\u2014
1.72
\n
Hedging liabilities
\n
Interest rate risk
17.3
26.8
15.7
5.1
7.5
0.7
\u2014
73.1
\n
Average fixed interest rate (%)
1.27
0.95
2.75
1.03
2.68
4.55
\u2014
1.63
\n
Hedging assets
\n
Exchange rate risk
0.1
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.1
\n
Hedging liabilities
\n
Exchange rate risk
\u2014
1.1
2.8
2.1
0.2
\u2014
\u2014
6.2
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
2021
\n
Fair value hedging
\n
Hedging assets - interest rate risk
0.9
2.5
5.5
5.7
6.2
4.9
4.5
30.2
\n
Hedging liabilities - interest rate risk
1.1
4.2
11.8
9.3
8.4
0.6
0.0
35.4
\n
Cash flow hedging
\n
Hedging assets
\n
Interest rate risk
5.4
8.1
14.3
24.5
11.4
\u2014
\u2014
63.7
\n
Average fixed interest rate (%)
1.40
1.19
1.35
0.65
0.82
\u2014
\u2014
0.97
\n
Hedging liabilities
\n
Interest rate risk
8.8
21.1
33.0
3.3
2.5
0.7
\u2014
69.4
\n
Average fixed interest rate (%)
0.50
0.24
0.41
0.47
1.01
4.55
0.44
\n
Hedging assets
\n
Exchange rate risk
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Hedging liabilities
\n
Exchange rate risk
0.1
2.4
3.5
1.3
\u2014
\u2014
\u2014
7.3
\n
Net investment hedging
\n
Exchange rate risk
0.5
\u2014
\u2014
\u2014
\u2014
\u2014
\u2014
0.5
\n
For cash flow hedging of exchange rate risk, the average foreign exchange rates applicable across the relationships were as below
\n
for the main currencies hedged.
\n
2022
2021
\n
INR/GBP
100.54
106.58
\n
USD/GBP
1.29
1.38
\n
CHF/GBP
1.15
1.25
\n
JPY/GBP
132.89
132.93
\n
JPY/USD
128.29
n/a
\n
NOK/USD
9.21
n/a
\n
CNH/GBP
n/a
8.74
\n
For net investment hedging of exchange rate risk, the average foreign exchange rates applicable were as below for the main
\n
currencies hedged.
\n
2022
2021
\n
SEK/GBP
13.23
11.74
\n
DKK/GBP
n/a
8.85
\n
NOK/GBP
12.34
12.12
\n
AED/USD
4.42
3.67
\n
USD/GBP
1.20
1.32
The table below analyses assets and liabilities subject to hedging derivatives.
\n
Carrying value of
\n
hedge assets and
\n
liabilities
\n
Impact on hedge items
\n
included in carrying
\n
value
\n
Changes in fair value used as
\n
a basis to determine
\n
ineffectivemness (1)
\n
Impact on hedge items
\n
ceased to be adjusted for
\n
hedging gains or losses
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
5,764
(526)
(1,236)
63
\n
Other financial assets - securities
12,897
(922)
(2,525)
(2)
\n
Total
18,661
(1,448)
(3,761)
61
\n
Bank and customer deposits
565
(3)
3
\u2014
\n
Other financial liabilities - debt securities in issue
35,856
(2,222)
2,790
\u2014
\n
Subordinated liabilities
5,504
(547)
526
\u2014
\n
Total
41,925
(2,772)
3,319
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customer - amortised cost
(2)
93,212
5,263
\n
Other financial assets - securities
1,176
73
\n
Total
94,388
5,336
\n
Bank and customer deposits
72,610
(2,008)
\n
Other financial liabilities - debt securities in issue
571
(46)
\n
Total
73,181
(2,054)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
(2)
\u2014
\u2014
\n
Other financial assets - securities
\u2014
\u2014
\n
Total
\u2014
\u2014
\n
Other financial liabilities - debt securities in issue
4,141
(2)
\n
Subordinated liabilities
\u2014
\u2014
\n
Other
204
5
\n
Total
4,345
3
\n
2021
\n
Fair value hedging - interest rate
\n
Loans to banks and customers - amortised cost
6,603
701
(478)
69
\n
Other financial assets - securities
30,882
518
(1,576)
\u2014
\n
Total
37,485
1,219
(2,054)
69
\n
Other financial liabilities - debt securities in issue
34,371
454
953
\u2014
\n
Subordinated liabilities
6,235
(9)
255
\u2014
\n
Total
40,606
445
1,208
\u2014
\n
Cash flow hedging - interest rate
\n
Loans to banks and customers - amortised cost
63,025
1,984
\n
Other financial assets - securities
714
26
\n
Total
63,739
2,010
\n
Bank and customer deposits
68,383
(1,084)
\n
Other financial liabilities - debt securities in issue
1,006
(21)
\n
Total
69,389
(1,105)
\n
Cash flow hedging - exchange rate
\n
Loans to banks and customer - amortised cost
21
\u2014
\n
Other financial assets - securities
2
\u2014
\n
Total
23
\u2014
\n
Cash flow hedging - exchange rate
\n
Other financial liabilities - debt securities in issue
6,337
(5)
\n
Subordinated liabilities
742
(12)
\n
Other
200
(10)
\n
Total
7,279
(27)
\n
(1)
The change in fair value used for hedge ineffectiveness includes instruments that were derecognised in the year
.
\n
(2)
Includes cash and balances at central banks.
The following table shows an analysis of the pre-tax cash flow hedge reserve and foreign exchange hedge reserve.
\n
2022
2021
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
Cash flow hecdge
\n
reserve
\n
Foreign exchange
\n
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing
\n
Interest rate risk
(3,576)
\u2014
(295)
\u2014
\n
Foreign exchange risk
16
(85)
23
53
\n
De-designated
\n
Interest rate risk
(297)
\u2014
(297)
\u2014
\n
Foreign exchange risk
20
(880)
10
(759)
\n
Total
(3,837)
(965)
(559)
(706)
\n
2022
2021
\n
Foreign
Foreign
\n
Cash flow
exchange
Cash flow
exchange
\n
hedge reserve
hedge reserve
hedge reserve
hedge reserve
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Amount recognised in equity
\n
Interest rate risk
(2,997)
(64)
(700)
\u2014
\n
Foreign exchange risk
24
(202)
13
88
\n
Total
(2,973)
(266)
(687)
88
\n
Amount transferred from equity to earnings
\n
Interest rate risk to net interest income
(252)
\u2014
(181)
\u2014
\n
Interest rate risk to non-interest income
(1)
(21)
\u2014
20
\u2014
\n
Interest rate risk to operating expenses
(14)
\u2014
\u2014
\u2014
\n
Foreign exchange risk to net interest income
(29)
\u2014
(4)
2
\n
Foreign exchange risk to non-interest income
15
7
1
(2)
\n
Foreign exchange risk to operating expenses
(3)
\u2014
3
\u2014
\n
Total
(304)
7
(161)
\u2014
\n
(1)
There was \u00a321 million (2021 - \u00a320 million) reclassified with the cash flow reserve to earnings due to forecasted cash flows that are no longer expected to occur.
\n
Hedge ineffectiveness recognised in other operating income comprises:
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Fair value hedging
\n
(Loss)/gain on hedged items attributable to the hedged risk
(442)
(846)
877
\n
Gain/(loss) on the hedging instruments
482
897
(875)
\n
Fair value hedging ineffectiveness
40
51
2
\n
Cash flow hedging
\n
Interest rate risk
(60)
(26)
22
\n
Cash flow hedging ineffectiveness
(60)
(26)
22
\n
Total
(20)
25
24
\n
The main sources of ineffectiveness for interest rate risk hedge accounting relationships are:
\n
\ue001
The effect of the counterparty credit risk on the fair value of the interest rate swap which is not reflected in the fair value of the
\n
hedged item attributable to the change in interest rate (fair value hedge).
\n
\ue001
Differences in the repricing basis between the hedging instrument and hedged cash flows (cash flow hedge); and
\n
\ue001
Upfront present values on the hedging derivatives where hedge accounting relationships have been designated after the trade
\n
date (cash flow hedge and fair value hedge).
", "dimensions": { "concept": "ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48149": { "value": "
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
Critical accounting policy: Fair value \u2013 financial instruments
\n
Financial instruments classified as mandatory fair value through profit or loss; held-for-trading; designated fair value through profit
\n
or loss and fair value through other comprehensive income are recognised in the financial statements at fair value. All derivatives
\n
are measured at fair value.
\n
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
\n
participants at the measurement date. A fair value measurement considers the characteristics of the asset or liability and the
\n
assumptions that a market participant would consider when pricing the asset or liability.
\n
NatWest Group manages some portfolios of financial assets and financial liabilities based on its net exposure to either market or
\n
credit risk. In these cases, the fair value is derived from the net risk exposure of that portfolio with portfolio level adjustments
\n
applied to incorporate bid-offer spreads, counterparty credit risk, and funding costs (see \u2018Valuation Adjustments\u2019).
\n
Where the market for a financial instrument is not active, fair value is established using a valuation technique. These valuation
\n
techniques involve a degree of estimation, the extent of which depends on the instrument\u2019s complexity and the availability of
\n
market-based data. The complexity and uncertainty in the financial instrument\u2019s fair value is categorised using the fair value
\n
hierarchy.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.12.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48155": { "value": "
3.8. Financial instruments
\n
Financial instruments are measured at fair value on initial
\n
recognition on the balance sheet.
\n
Monetary financial assets are classified into one of the following
\n
subsequent measurement categories (subject to business model
\n
assessment and review of contractual cash flow for the
\n
purposes of sole payments of principal and interest where
\n
applicable):
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method, less any impairment allowance;
\n
\ue001
fair value through other comprehensive income (FVOCI)
\n
measured at fair value, using the effective interest rate
\n
method and changes in fair value through other
\n
comprehensive income;
\n
\ue001
mandatory fair value through profit or loss (MFVTPL)
\n
measured at fair value and changes in fair value reported in
\n
the income statement; or
\n
\ue001
designated at fair value through profit or loss (DFV)
\n
measured at fair value and changes in fair value reported in
\n
the income statement.
\n
Classification by business model reflects how we manage our
\n
financial assets to generate cash flows. A business model
\n
assessment helps to ascertain the measurement approach
\n
depending on whether cash flows result from holding financial
\n
assets to collect the contractual cash flows, from selling those
\n
financial assets, or both.
\n
Business model assessment of assets is made at portfolio level,
\n
being the level at which they are managed to achieve a
\n
predefined business objective. This is expected to result in the
\n
most consistent classification of assets because it aligns with
\n
the stated objectives for the portfolio, its risk management,
\n
manager\u2019s remuneration and the ability to monitor sales of
\n
assets from a portfolio. When a significant change to our
\n
business is communicated to external parties, we reassess our
\n
business model for managing those financial assets. We
\n
reclassify financial assets if we have a significant change to the
\n
business model. A reclassification is applied prospectively from
\n
the reclassification date.
\n
The contractual terms of a financial asset; any leverage
\n
features; prepayment and extension terms; and discounts or
\n
penalties to interest rates that are part of meeting
\n
environmental, social and governance targets as well as other
\n
contingent and leverage features, non-recourse arrangements
\n
and features that could modify the timing and/or amount of the
\n
contractual cash flows that might reset the effective rate of
\n
interest; are considered in determining whether cash flows are
\n
solely payments of principal and interest.
\n
Certain financial assets may be designated at fair value
\n
through profit or loss (DFV) upon initial recognition if such
\n
designation eliminates, or significantly reduces, accounting
\n
mismatch
.
\n
Equity shares are measured at fair value through profit or loss
\n
unless specifically elected as at fair value through other
\n
comprehensive income (FVOCI).
\n
Upon disposal, the cumulative gains or losses in fair value
\n
through other comprehensive income reserve are recycled to
\n
the income statement for monetary assets and for non-
\n
monetary assets (equity shares) the cumulative gains or losses
\n
are transferred directly to retained earnings.
Regular way purchases and sales of financial assets classified
\n
as amortised cost are recognised on the settlement date; all
\n
other regular way transactions in financial assets are
\n
recognised on the trade date.
\n
Financial liabilities are classified into one of following
\n
measurement categories:
\n
\ue001
amortised cost
measured at cost using the effective interest
\n
rate method;
\n
\ue001
held for trading
measured at fair value and changes in fair
\n
value reported in income statement; or
\n
\ue001
designated at fair value through profit or loss
measured at
\n
fair value and changes in fair value reported in the income
\n
statement except changes in fair value attributable to the
\n
credit risk component recognised in other comprehensive
\n
income when no accounting mismatch occurs.
3.11. Capital instruments
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
Debt securities and subordinated liabilities
\n
Most debt securities are valued using quoted prices in active
\n
markets or from quoted prices of similar financial instruments.
\n
The remaining population is valued using discounted cashflows
\n
at current offer rates
16 Other financial assets
\n
Other financial assets consist of debt securities, equity shares and loans that are not held for trading. Balances consist of local and
\n
central government securities, a component part of NatWest Group\u2019s liquidity portfolio.
\n
For accounting policy information see Accounting policy 3.8.
\n
Debt securities
\n
Central and local government
\n
UK
US
Other
Other debt
Total
Equity shares
Loans
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
2
2
3
782
787
\n
Fair value through other comprehensive
\n
income
(1)
\n
802
7,175
1,757
6,765
16,499
357
117
16,973
\n
Amortised cost
2,562
937
54
9,582
13,135
\u2014
\u2014
13,135
\n
Total
3,364
8,112
1,811
16,349
29,636
360
899
30,895
\n
2021
\n
Mandatory fair value through profit or loss
\u2014
\u2014
\u2014
6
6
13
298
317
\n
Fair value through other comprehensive
\n
income
(1)
11,938
10,086
5,604
9,058
36,686
312
268
37,266
\n
Amortised cost
3,821
156
81
4,504
8,562
\u2014
\u2014
8,562
\n
Total
15,759
10,242
5,685
13,568
45,254
325
566
46,145
\n
(1)
Upon initial recognition, NatWest Group occasionally irrevocably
designates some of its equity investments as equity instruments at FVOCI when they meet the definition of equity
\n
under IAS 32 Financial instruments: presentation, are not held for trading or they are held for strategic purposes. Such classification is determined on an instrument-by-instrument
\n
basis. Gains and losses on these equity instruments are not recycled to the income statement and dividends are recognised in profit or loss except when they represent a recovery
\n
of part of the cost of the instrument, in which case such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.
\n
During the year NatWest Group acquired \u00a3146 million of equity shares in Permanent TSB Group Holdings p.l.c. as part
\n
consideration on the sale of certain assets. Refer to Note 8 for additional information on assets of disposal groups. In addition,
\n
NatWest Group acquired \u00a326 million of equity shares in Vodeno Limited.
\n
NatWest Group disposed of equity shares in Visa Inc. of \u00a399 million and UBS Equity Funds of \u00a369 million. There were no significant
\n
disposals in the prior year. There are no significant dividends on equity shares held at FVOCI in either year.
19 Other financial liabilities
\n
Other financial liabilities consist of customer deposits designated at fair value and debt securities in issue.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.11.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Customer deposits - designated as at fair value through profit or loss
1,050
568
\n
Debt securities in issue
\n
- MRELs
22,265
23,422
\n
- Other medium term notes
16,419
12,430
\n
- Commercial paper and certificates of deposit
5,672
9,153
\n
- Covered bonds
2,842
2,886
\n
- Securitisation
859
867
\n
Total
49,107
49,326
", "dimensions": { "concept": "ifrs-full:DisclosureOfDebtSecuritiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48293": { "value": "
3.9. Derecognition
\n
A financial asset is derecognised (removed from the balance
\n
sheet) when the contractual right to receive cash flows from
\n
the asset has expired or when it has been transferred and the
\n
transfer qualifies for derecognition. Conversely, an asset is not
\n
derecognised in a contract under which we retain substantially
\n
all the risks and rewards of ownership.
\n
A financial liability is removed from the balance sheet when the
\n
obligation is paid, or is cancelled, or expires. Cancellation
\n
includes the issuance of a substitute instrument on substantially
\n
different terms.
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialAssetsTransferredDuringPeriodWhichDoNotQualifyForDerecognitionExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48294": { "value": "
3.9. Derecognition
\n
A financial asset is derecognised (removed from the balance
\n
sheet) when the contractual right to receive cash flows from
\n
the asset has expired or when it has been transferred and the
\n
transfer qualifies for derecognition. Conversely, an asset is not
\n
derecognised in a contract under which we retain substantially
\n
all the risks and rewards of ownership.
\n
A financial liability is removed from the balance sheet when the
\n
obligation is paid, or is cancelled, or expires. Cancellation
\n
includes the issuance of a substitute instrument on substantially
\n
different terms.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerecognitionOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48306": { "value": "
3.10. Netting
\n
Financial assets and financial liabilities are offset, and the net
\n
amount presented on the balance sheet when, and only when,
\n
we currently have a legally enforceable right to set off the
\n
recognised amounts and we intend either to settle on a net
\n
basis or to realise the asset and settle the liability
\n
simultaneously. We are party to a number of arrangements,
\n
including master netting agreements, that give us the right to
\n
offset financial assets and financial liabilities, but where we do
\n
not intend to settle the amounts net or simultaneously, the
\n
assets and liabilities concerned are presented separately on the
\n
balance sheet.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForOffsettingOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48321": { "value": "
3.11. Capital instruments
\n
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
22 Share capital and other equity
\n
Share capital consists of ordinary shares and preference shares and is measured as the number of shares allotted and fully paid
\n
multiplied by the nominal value of a share. Other equity includes paid-in equity, merger reserves, capital redemption reserve and
\n
own shares held.
\n
For accounting policy information see Accounting policies note 3.11.
\n
Number of shares
\n
2022
2021
2022
2021
\n
Allotted, called up and fully paid
\u00a3m
\u00a3m
000s
000s
\n
Ordinary shares of \u00a31.0769
(1)
10,539
11,468
9,786,024
11,467,982
\n
Cumulative preference shares of \u00a31
0.5
0.5
483
483
\n
Non-cumulative preference shares of US$0.01
(2)
\u2014
\u2014
\u2014
10
\n
(1)
The nominal value of ordinary shares without rounding is \u00a31.076923076923077 per share
\n
(2)
The company redeemed the Series U Non-cumulative dollar preference shares on 31 March 2022.
\n
Movement in allotted, called up and fully paid ordinary shares
\u00a3m
Number of shares 000s
\n
At 1 January 2021
12,129
12,129,165
\n
Shares issued
38
37,584
\n
Share cancellation
(699)
(698,767)
\n
At 1 January 2022
11,468
11,467,982
\n
Share cancellation
(929)
(929,188)
\n
Share consolidation
\u2014
(752,770)
\n
At 31 December 2022
10,539
9,786,024
\n
Ordinary shares
\n
At a General Meeting of the company on 25 August 2022,
\n
shareholders approved a share consolidation of the company's
\n
ordinary shares. Every 14 existing ordinary shares of \u00a31 each
\n
in the capital of the company in issue as at 26 August 2022
\n
were consolidated into one intermediate ordinary share of
\n
\u00a314.00 and immediately divided into 13 new ordinary shares of
\n
\u00a31.0769 in the capital of the company.
\n
There is no authorised share capital under the company\u2019s
\n
constitution. At 31 December 2022, the directors had authority
\n
granted at the 2022 Annual General Meeting to issue up to
\n
\u00a3561,452,512 nominal of ordinary shares other than by pre-
\n
emption to existing shareholders. This figure was amended to
\n
\u00a3520,306,980 at the General Meeting on 25 August 2022 to
\n
preserve the position as if the share consolidation had not
\n
taken place.
\n
On 6 February 2019 the company held a General Meeting and
\n
shareholders approved a special resolution to give the
\n
company authority to make off-market purchases of up to
\n
4.99% of its issued ordinary share capital in any 12-month
\n
period from HM Treasury (or its nominee) at such times as the
\n
directors may determine is appropriate. Full details of the
\n
proposal are set out in the Circular and Notice of General
\n
Meeting available at natwestgroup.com. This authority was
\n
renewed at the Annual General Meeting in 2022, and amended
\n
at the General Meeting held on 25 August 2022 to preserve the
\n
position as if the share consolidation had not taken place.
\n
Shareholders will be asked to renew the authority at the
\n
Annual General Meeting in 2023.
\n
The company utilised the authority it obtained at the 2021 AGM
\n
to make an off-market purchase of 549,851,147 ordinary
\n
shares (nominal value \u00a3549,851,147) in the company from HMT
\n
on 28 March 2022, at a price of 220.5p per ordinary share for
\n
the total consideration of \u00a31,212,421,779, representing 4.91% of
\n
the company\u2019s issued ordinary share capital. The company
\n
cancelled all of the purchased ordinary shares.
\n
At the Annual General Meeting in 2022 shareholders authorised
\n
the company to make market purchases of up to 1,122,905,024
\n
ordinary shares in the company. The authority was amended at
\n
the General Meeting held on 25 August 2022 to preserve the
\n
position as if the share consolidation had not taken place and
\n
shareholders will be asked to renew the authority at the Annual
\n
General Meeting in 2023.
\n
The directors utilised the authority obtained at the 2021 AGM
\n
to conduct a share buyback programme (the Programme) of up
\n
to \u00a3750 million, as announced to the market on 30 July 2021.
\n
The Programme\u2019s purpose is to reduce the ordinary share
\n
capital of NatWest Group. Taking into account the reduction in
\n
issued ordinary share capital which occurred as a result of the
\n
off-market buyback announced on 19 March 2021, the
\n
maximum number of ordinary shares that could be purchased
\n
by the company under the Programme was 1,157,583,542.
\n
Phase 1 of the Programme commenced on 2 August 2021 and
\n
completed on 18 January 2022. 340,537,460 ordinary shares
\n
(nominal value \u00a3340,537,460) were purchased by the company
\n
at an average purchase price of 220.0199p per ordinary share
\n
for the total consideration of \u00a3749,250,031. Phase 2 of the
\n
Programme commenced on 21 February 2022 and completed
\n
on 15 July 2022. A further 346,835,822 ordinary shares
\n
(nominal value \u00a3346,835,822) were purchased by the company
\n
at an average purchase price of 216.2406p per ordinary share
\n
for the total consideration of \u00a3749,999,999. All of the purchased
\n
ordinary shares were cancelled, representing 11.23% of the
\n
company\u2019s issued ordinary share capital.
\n
In 2022 NatWest Group paid an interim dividend of \u00a3364 million,
\n
or 3.5p per ordinary share (2021 \u2013 \u00a3347 million, or 3p per
\n
ordinary share).
\n
In addition, the company also paid a special dividend of \u00a31,750
\n
million, or 16.8p per ordinary share.
\n
The company has announced that the directors have
\n
recommended a final dividend of \u00a31.0 billion, or 10.0p per
\n
ordinary share (2021 \u2013 \u00a3844 million, or 7.5p per ordinary share)
\n
subject to shareholder approval at the Annual General Meeting
\n
on 25 April 2023.
\n
If approved, payment will be made on 2 May 2023 to
\n
shareholders on the register at the close of business on 17
\n
March 2023. The ex-dividend date will be 16 March 2023.
\n
Cumulative preference shares
\n
At the 2021 Annual General Meeting, shareholders authorised
\n
the company to make an off-market purchase of preference
\n
shares in the company. In December 2021 the company used
\n
this authority to purchase 157,546 5.5% cumulative preference
\n
shares and 259,314 11% cumulative preference shares. The
\n
company cancelled all of the purchased preference shares.
\n
Non-cumulative preference shares
\n
The company announced on 2 February 2022 that it had given
\n
notice to holders of the redemption of the Series U Non-
\n
Cumulative Dollar Preference Shares. On 31 March 2022, the
\n
Series U Dollar Non-cumulative Preference Shares, of amount
\n
outstanding US$1,013,000,000 were redeemed at the
\n
redemption price of US$100,000 per Series U Dollar Preference
\n
Share plus accrued dividends equalling $635.94 per share.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Additional Tier 1 notes
\n
US$1.15 billion 8% notes callable August 2025
(1)
735
735
735
\n
US$2.65 billion 8.625% notes callable August 2021
(2)
\u2014
\u2014
2,046
\n
US$1.5 billion 6.000% notes callable
\n
December 2025 - June 2026
(3)
1,220
1,220
1,220
\n
GBP\u00a31.0 billion 5.125% notes callable
\n
May - November 2027
(4)
998
998
998
\n
GBP\u00a30.4 billion \u2013 March 2021 issuance
(5)
399
399
\u2014
\n
US$0.75 billion \u2013 June 2021 issuance
(6)
538
538
\u2014
\n
3,890
3,890
4,999
\n
(1)
Issued in August 2015. In the event of conversion, converted into ordinary shares at a price of $3.295 nominal per \u00a31 share.
\n
(2)
Issued in August 2016. In the event of conversion, converted into ordinary shares at a price of $2.284 nominal per \u00a31 share. In July 2021, paid-in equity reclassified to liabilities as
\n
the result of a call in August 2021 of US$2.65 billion AT1 Capital notes.
\n
(3)
Issued in June 2020. In the event of conversion, converted into ordinary shares at a price of $2.179 (translated at applicable exchange rate) per \u00a31 share.
\n
(4)
Issued in November 2020. In the event of conversion, converted into ordinary shares at a price of \u00a31.754 nominal per \u00a31 share.
\n
(5)
Issued in March 2021. In the event of conversion, converted into ordinary shares at a price of \u00a31.754 nominal per \u00a31 share.
\n
(6)
Issued in June 2021. In the event of conversion, converted into ordinary shares at a price of $2.448 (translated at applicable exchange rate) per \u00a31 share.
\n
Paid-in equity
-
comprises equity instruments issued by the
\n
company other than those legally constituted as shares.
\n
Additional Tier 1 instruments issued by NatWest Group plc
\n
having the legal form of debt are classified as equity under
\n
IFRS. The coupons on these instruments are non-cumulative
\n
and payable at the company\u2019s discretion. In the event NatWest
\n
Group\u2019s CET1 ratio falls below 7% any outstanding instruments
\n
will be converted into ordinary shares at a fixed price.
\n
Capital recognised for regulatory purposes cannot be
\n
redeemed without Prudential Regulation Authority consent. This
\n
includes ordinary shares, preference shares and additional Tier
\n
1
instruments.
\n
Merger reserve
-
the merger reserve comprises the premium
\n
on shares issued to acquire NatWest Bank Plc less goodwill
\n
amortisation charged under previous GAAP.
\n
Capital redemption reserve
-
under UK companies legislation,
\n
when shares are redeemed or purchased wholly or partly out
\n
of the company's profits, the amount by which the company's
\n
issued share capital is diminished must be transferred to the
\n
capital redemption reserve. The capital maintenance provisions
\n
of UK companies legislation apply to the capital redemption
\n
reserve as if it were part of the company\u2019s paid up share
\n
capital. On 15 June 2017, the Court of Session approved a
\n
reduction of NatWest plc capital so that the amounts which
\n
stood to the credit of the capital redemption reserve were
\n
transferred to retained earnings. The nominal value of the
\n
shares bought back from HM Treasury in March 2021 and via
\n
the Programme during 2022 have been transferred to the
\n
Capital redemption reserve.
\n
Own shares held
-
at 31 December 2022, 13 million ordinary
\n
shares of \u00a31.0769 each of the company (2021 - 15 million) were
\n
held by employee share trusts in respect of share awards and
\n
options granted to employees. During the year, the employee
\n
share trusts purchased no ordinary shares and delivered 2
\n
million ordinary shares in satisfaction of the exercise of options
\n
and the vesting of share awards under the employee share
\n
plans. The company retains the flexibility to use newly issued
\n
shares, shares purchased by the NatWest Group Employee
\n
Share Ownership Trust and any available treasury shares to
\n
satisfy obligations under its employee share plans.
The
\n
company does not use performance conditions or targets
\n
based on earnings per share (EPS), total shareholder return
\n
(TSR), and net asset value (NAV) in connection with its
\n
employee share plans.
\n
As part of the shares bought back from HM Treasury in March
\n
2021, the company transferred 200 million ordinary shares to
\n
treasury. The company has used a total of 76,513,524 treasury
\n
shares to satisfy the exercise of options and the vesting of
\n
share awards under the employee share plans. The balance of
\n
ordinary shares held in treasury as at 31 December 2022 was
\n
114,011,084. The figure has been adjusted to reflect the 13 for
\n
14 share consolidation on 30 August 2022.
\n
NatWest Group plc optimises capital efficiency by maintaining
\n
reserves in subsidiaries, including regulated entities. Certain
\n
preference shares and subordinated debt are also included
\n
within regulatory capital. The remittance of reserves to the
\n
company or the redemption of shares or subordinated capital
\n
by regulated entities may be subject to maintaining the capital
\n
resources required by the relevant regulator.
\n
UK law prescribes that only the reserves of the company are
\n
taken into account for the purpose of making distributions and
\n
in determining permissible applications of the share premium
\n
account.
", "dimensions": { "concept": "ifrs-full:DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48322": { "value": "
3.11. Capital instruments
\n
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\n
directly attributable incremental costs.
Merger reserve
-
the merger reserve comprises the premium
\n
on shares issued to acquire NatWest Bank Plc less goodwill
\n
amortisation charged under previous GAAP.
\n
Capital redemption reserve
-
under UK companies legislation,
\n
when shares are redeemed or purchased wholly or partly out
\n
of the company's profits, the amount by which the company's
\n
issued share capital is diminished must be transferred to the
\n
capital redemption reserve. The capital maintenance provisions
\n
of UK companies legislation apply to the capital redemption
\n
reserve as if it were part of the company\u2019s paid up share
\n
capital. On 15 June 2017, the Court of Session approved a
\n
reduction of NatWest plc capital so that the amounts which
\n
stood to the credit of the capital redemption reserve were
\n
transferred to retained earnings. The nominal value of the
\n
shares bought back from HM Treasury in March 2021 and via
\n
the Programme during 2022 have been transferred to the
\n
Capital redemption reserve.
", "dimensions": { "concept": "ifrs-full:DisclosureOfReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48324": { "value": "3.11. Capital instruments
We classify a financial instrument that we issue as a liability if it
\n
is a contractual obligation to deliver cash or another financial
\n
asset, or to exchange financial assets or financial liabilities on
\n
potentially unfavourable terms and as equity if we evidence a
\n
residual interest in our assets after the deduction of liabilities.
\n
Incremental costs and related tax that are directly attributable
\n
to an equity transaction are deducted from equity.
\n
The consideration for any ordinary shares of NatWest Group
\n
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\ndirectly attributable incremental costs.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIssuedCapitalExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48336": { "value": "The consideration for any ordinary shares of NatWest Group
plc purchased by us (known as treasury shares or own shares
\n
held) is deducted from equity. On the cancellation of treasury
\n
shares their nominal value is removed from equity and any
\n
excess of consideration over nominal value is treated in
\n
accordance with the capital maintenance provisions of the
\n
Companies Act 2006.
On the sale or re-issue of treasury shares the consideration
\n
received and related tax are credited to equity, net of any
\ndirectly attributable incremental costs.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForTreasurySharesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48357": { "value": "
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
\n
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48362": { "value": "
3.12. Derivatives and hedging
\n
Derivatives are reported on the balance sheet at fair value.
\n
We use derivatives as part of our trading activities, to manage
\n
our own risk such as interest rate, foreign exchange, or credit
\n
risk or in certain customer transactions. Not all derivatives used
\n
to manage risk are in hedge accounting relationships (an IFRS
\n
method to reduce accounting mismatch from changes in the
\n
fair value of the derivatives reported in the income statement).
\n
Gains and losses arising from changes in the fair value of
\n
derivatives that are not in hedge relationships are recognised in
\n
the income statement in Income from trading activities except
\n
for gains and losses on those derivatives that are managed
\n
together with financial instruments designated at fair value;
\n
these gains and losses are included in Other operating income.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48366": { "value": "3.12. Derivatives and hedging
Hedge accounting
\n
We enter into three types of hedge accounting relationships
\n
(see later). Hedge accounting relationships are designated and
\n
documented at inception in line with the requirements of IAS 39
\n
Financial instruments \u2013 Recognition and Measurement.
\n
The documentation identifies the hedged item, the hedging
\n
instrument and details of the risk that is being hedged and the
\n
way in which effectiveness will be assessed at inception and
\n
during the period of the hedge. When designating a hedging
\n
relationship, we consider: the economic relationship between
\n
the hedged item (including the risk being hedged) and the
\n
hedging instrument; the nature of the risk; the risk
\n
management objective and strategy for undertaking the hedge;
\n
and the appropriateness of the method that will be used to
\n
assess hedge effectiveness. Designated hedging relationships
\n
must be expected to be highly effective both on a prospective
\n
and retrospective basis. Effectiveness is assessed by reference
\n
to the degree of offsetting between the changes in fair value or
\n
cash flows attributable to the hedged risk and the changes in
\n
fair value of the designated hedging derivatives.
\n
Fair value hedge
- the gain or loss on the hedging instrument
\n
and the hedged item attributable to the hedged risk is
\n
recognised in the income statement. Where the hedged item is
\n
measured at amortised cost, the balance sheet amount of the
\n
hedged item is also adjusted.
\n
Cash flow hedge
- the effective portion of the designated hedge
\n
relationship is recognised in other comprehensive income and
\n
the ineffective portion in the income statement. When the
\n
hedged item (forecasted cash flows) results in the recognition
\n
of a financial asset or financial liability, the cumulative gain or
\n
loss is reclassified from equity to the income statement in the
\n
same periods in which the hedged forecasted cash flows affect
\n
the income statement.
\n
Hedge of net investment in a foreign operation
-
in the
\n
hedge of a net investment in a foreign operation, the effective
\n
portion of the designated hedge relationship is recognised in
\n
other comprehensive income. Any ineffective portion is
\n
recognised in profit or loss. Non-derivative financial liabilities as
\n
well as derivatives may be designated as a hedging instrument
\n
in a net investment hedge.
\n
Discontinuation of hedge accounting
\n
Hedge accounting is discontinued if the hedge no longer meets
\n
the criteria for hedge accounting i.e. the hedge is not highly
\n
effective in offsetting changes in fair value or cash flows
\n
attributable to the hedged risk, consistent with the documented
\n
risk management strategy; the hedging instrument expires or is
\n
sold, terminated or exercised; or if hedge designation is
\n
revoked.
For fair value hedging any cumulative adjustment is amortised
\n
to the income statement over the life of the hedged item.
\n
Where the hedge item is no longer on the balance sheet the
\n
adjustment to the hedged item is reported in the income
\n
statement. For cash flow hedging the cumulative unrealised
\n
gain or loss is reclassified from equity to the income statement
\n
when the hedged cash flows occur or, if the forecast
\n
transaction results in the recognition of a financial asset or
\n
financial liability, when the hedged forecast cash flows affect
\n
the income statement. Where a forecast transaction is no
\n
longer expected to occur, the cumulative unrealised gain or
\n
loss is reclassified from equity to the income statement
\n
immediately.
\n
For net investment hedging on disposal or partial disposal of a
\n
foreign operation, the amount accumulated in equity is
\n
reclassified from equity to the income statement.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForHedgingExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48503": { "value": "
4. Future accounting developments
\n
International Financial Reporting Standards
\n
Effective 1 January 2023
\n
\ue001
IFRS 17 Insurance Contracts (Amendments to IFRS 17
\n
Insurance Contracts);
\n
\ue001
Deferred Tax related to Assets and Liabilities arising from a
\n
Single Transaction (Amendments to IAS 12);
\n
\ue001
Definition of Accounting Estimates (Amendments to IAS 8);
\n
and
\n
\ue001
Disclosure of Accounting Policies (Amendments to IAS 1
\n
and IFRS Practice Statement 2).
\n
Effective 1 January 2024
\n
\ue001
Classification of Liabilities as Current or Non-current
\n
(Amendments to IAS 1);
\n
\ue001
Non-current Liabilities with Covenants (Amendments to IAS
\n
1)
\n
\ue001
Lease Liability in a sale and Leaseback (Amendments to
\n
IFRS 16).
\n
We are assessing the effect of adopting these standards and
\n
amendments on our financial statements but do not expect the
\n
effect to be material.
", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesAccountingEstimatesAndErrorsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48829": { "value": "
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
\n
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was
\n
60,000 (2021- 59,200; 2020 \u2013 61,400). The average number of temporary employees during 2022 was 2,500 (2021 \u2013 2,500; 2020 \u2013
\n
3,200).
\n
The number of persons employed at 31 December, excluding temporary staff, by reportable segment, was as follows:
\n
Continuing operations
2022
2021
2020
\n
Retail Banking
14,800
15,800
17,200
\n
Private Banking
2,100
1,900
1,900
\n
Commercial & Institutional
12,200
11,400
13,300
\n
Central items & other
(1)
31,900
28,700
26,800
\n
Total
61,000
57,800
59,200
\n
UK
41,200
40,600
42,500
\n
USA
300
300
300
\n
India
15,700
13,500
13,200
\n
Poland
1,500
1,400
1,200
\n
Republic of Ireland
1,400
1,200
1,400
\n
Rest of the World
900
800
600
\n
Total
61,000
57,800
59,200
\n
(1)
Central items & other includes Ulster Bank RoI. Total number of persons employed in Ulster Bank RoI of 2,200 (2021 \u2013 2,400; 2020 \u2013 2,600) includes 400 people employed in
\n
discontinued operations at 31 December 2022 (2021 \u2013 700; 2020 \u2013 700).
Share-based payments
\n
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutEmployeesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f48834": { "value": "
3 Operating expenses
\n
Operating expenses are expenses NatWest Group incurs in the running of the business such as all staff costs (for example salaries,
\n
bonus awards, pension costs and social security costs), premises and equipment costs (that arise from the occupation of premises
\n
and the use of equipment), depreciation and amortisation and other administrative expenses.
\n
For accounting policy information see Accounting policies note 3.3, 3.4 and 3.5.
\n
2022
2021
2020
\n
Continuing operations
\u00a3m
\u00a3m
\u00a3m
\n
Salaries
2,250
2,295
2,494
\n
Bonus awards
334
267
232
\n
Temporary and contract costs
234
240
258
\n
Social security costs
328
300
316
\n
Pension costs
363
354
340
\n
- defined benefit schemes (see Note 5)
205
215
215
\n
- defined contribution schemes
158
139
125
\n
Other
207
220
238
\n
Staff costs
3,716
3,676
3,878
\n
Premises and equipment
1,112
1,133
1,222
\n
UK bank levy
101
99
167
\n
Depreciation and amortisation
(1,2)
833
923
913
\n
Other administrative expenses
(3)
1,925
1,927
1,678
\n
Administrative expenses
3,971
4,082
3,980
\n
7,687
7,758
7,858
\n
(1)
Include depreciation on right of use assets of \u00a3119 million (2021 - \u00a3167 million; 2020 - \u00a3209 million).
\n
(2)
2021 includes impairment of goodwill of \u00a385 million.
\n
(3)
Includes litigation and conduct costs, net of amounts recovered. Refer to Note 21 for further details.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepreciationAndAmortisationExpenseExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f49008": { "value": "
Share-based payments
\n
As described in the Remuneration report, NatWest Group grants share-based awards to employees principally on the following
\n
bases:
\n
Award plan
Eligible employees
Nature of award
Vesting conditions
\n
(1)
\n
Settlement
\n
Sharesave
UK, Channel Islands,
\n
Gibraltar, Isle of Man,
\n
Poland and India.
\n
Option to buy shares
\n
under employee savings
\n
plan
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2027
\n
Deferred performance
\n
awards
\n
All
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
2023 to 2030
\n
Long-term incentives
(2)
\n
(3)
\n
Senior employees
Awards of ordinary shares
\n
and conditional shares
\n
Continuing employment or
\n
leavers in certain circumstances
\n
and/or satisfaction of the pre-
\n
vest assessment and underpins
\n
2023 to 2029
\n
(1)
All awards have vesting conditions which may not be met.
\n
(2)
Long-term incentives include buy-out awards offered to compensate certain new hires for the loss of forfeited awards from their previous employment.
All awards are granted
\n
under the Employee Share Plan.
\n
(3)
The existing Long-term incentive scheme has been closed to new awards and members as at 31 December 2022. The scheme will be replaced by
a new Restricted share plan
\n
scheme with similar granting and vesting conditions. No awards have been granted at the end of the reporting period.
\n
The fair value of Sharesave options granted in 2022 was determined using a pricing model that included: expected volatility of
\n
shares determined at the grant date based on historical volatility over a period of up to five years; expected option lives that equal
\n
the vesting period; estimated dividend yield on equity shares; and risk-free interest rates determined from UK gilts with terms
\n
matching the expected lives of the options.
\n
The exercise price of options and the fair value on granting awards of fully paid shares is the average market price over the five
\n
trading days (three trading days for Sharesave) preceding grant date. When estimating the fair value of the award, the number of
\n
shares granted, and the prevailing market price as defined on page 149 are used.
The fair value of the award is recognised as
\n
services are provided over the vesting period.
\n
Sharesave
2022
2021
2020
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
Average exercise
\n
price
\n
\u00a3
\n
Shares under
\n
option (million)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
\u00a3
\n
Shares under
\n
option (miilion)
\n
At 1 January
1.61
95
1.64
96
2.01
84
\n
Granted
1.86
25
1.80
24
1.12
35
\n
Exercised
1.88
(15)
1.76
(10)
1.83
\u2014
\n
Cancelled
1.60
(6)
2.02
(15)
2.20
(23)
\n
At 31 December
1.63
99
1.61
95
1.64
96
\n
Options are exercisable within six months of vesting; 5.1 million options were exercisable at 31 December 2022 (2021 \u2013 6.0 million;
\n
2020 \u2013 6.3 million). The weighted average share price at the date of exercise of options was \u00a32.59 (2021 - \u00a32.19; 2020 - \u00a31.57). At
\n
31 December 2022, exercise prices ranged from \u00a31.12 to \u00a32.27 (2021 - \u00a31.12 to \u00a32.27; 2020 - \u00a31.12 to \u00a32.27) and the remaining
\n
average contractual life was 2 years (2021 \u2013 2.1 years; 2020 \u2013 2.3 years). The fair value of options granted in 2022 was \u00a322.1
\n
million (2021 - \u00a317 million; 2020 - \u00a38 million).
\n
Deferred performance awards
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
132
65
169
77
196
76
\n
Granted
46
20
61
32
109
67
\n
Forfeited
(4)
(2)
(10)
(5)
(5)
(2)
\n
Vested
(81)
(37)
(88)
(39)
(131)
(64)
\n
At 31 December
93
46
132
65
169
77
\n
The awards granted in 2022 vest in equal tranches on their anniversaries, predominantly over three years.
\n
Long-term incentives
2022
2021
2020
\n
Value at grant
\n
Shares awarded
\n
(million)
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
Value at grant
\n
Shares awarded
\n
(million)_
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
44
21
50
24
63
25
\n
Granted
16
7
6
3
14
10
\n
Vested/exercised
(10)
(4)
(12)
(6)
(17)
(7)
\n
Lapsed
(1)
(1)
\u2014
\u2014
(10)
(4)
\n
At 31 December
49
23
44
21
50
24
\n
The market value of awards vested/exercised in 2022 was \u00a311.7 million (2021- \u00a313 million; 2020 - \u00a313 million).
Bonus awards
\n
The following tables analyse NatWest Group's bonus awards for 2022.
\n
2022
2021
Change
\n
\u00a3m
\u00a3m
%
\n
Non-deferred cash awards
(1)
40
38
5%
\n
Deferred cash awards
270
214
26%
\n
Deferred share awards
60
49
22%
\n
Total deferred bonus awards
330
263
25%
\n
Total bonus awards
(2)
370
301
23%
\n
Bonus awards as a % of operating profit before tax
(3)
7%
7%
\n
Proportion of bonus awards that are deferred
89%
87%
\n
of which
\n
- deferred cash awards
82%
81%
\n
- deferred share awards
18%
19%
\n
2022
2021
2020
\n
Reconciliation of bonus awards to income statement charge
\n
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awarded
370
301
206
\n
Less: deferral of charge for amounts awarded for current year
(127)
(99)
(77)
\n
Income statement charge for amounts awarded in current year
243
202
129
\n
Add: current year charge for amounts deferred from prior years
94
80
114
\n
Less: forfeiture of amounts deferred from prior years
(3)
(15)
(11)
\n
Income statement charge for amounts deferred from prior years
91
65
103
\n
Income statement charge for bonus awards
(2)
334
267
232
\n
(1)
Non-deferred cash awards are limited to \u00a32,000 for all employees.
\n
(2)
Excludes other performance related compensation.
\n
(3)
Operating profit before tax and bonus expense.
\n
Actual
Expected
\n
2024
\n
2020
2021
2022
2023
and beyond
\n
Year in which income statement charge is expected to
\n
be taken for deferred bonus awards
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bonus awards deferred from 2020 and earlier
114
80
19
8
4
\n
Bonus awards deferred from 2021
\u2014
\u2014
75
8
8
\n
Less: forfeiture of amounts deferred from prior years
(11)
(15)
(3)
\u2014
\u2014
\n
Bonus awards for 2022 deferred
\u2014
\u2014
\u2014
105
22
\n
103
65
91
121
34
", "dimensions": { "concept": "ifrs-full:DisclosureOfSharebasedPaymentArrangementsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f49435": { "value": "
4 Segmental analysis
\n
NatWest Group analyses its performance between the different operating segments of the Group as required by IFRS 8, Operating
\n
segments. The presentation is consistent with internal financial reporting and how senior management assesses the performance
\n
of each operating segment.
\n
Changes in reportable segments:
\n
Two changes to reportable segments have been made:
\n
On 27 January 2022, NatWest Group announced that a new business segment, Commercial & Institutional, would be created,
\n
bringing together the Commercial, NatWest Markets and RBSI businesses to form a single business segment, with common
\n
management and objectives, to best support our customers across the full non-personal customer lifecycle.
\n
Following good progress with respect to the phased withdrawal from the Republic of Ireland, announced in February 2021,Ulster
\n
Bank RoI continuing operations are now included in Central items & other.
\n
Comparatives have been re-presented. The re-presentation of operating segments does not change the consolidated financial
\n
results of NatWest Group.
\n
Reportable operating segments:
\n
The business is organised into the following reportable segments: Retail Banking, Private Banking, Commercial & Institutional, and
\n
Central items & other.
\n
Retail Banking
serves personal customers in the UK and includes Ulster Bank customers in Northern Ireland.
\n
Private Banking
serves UK connected high-net-worth individuals and their business interests.
\n
Commercial & Institutional
brings together our Commercial Banking, NatWest Markets and RBS International businesses, to
\n
support our customers across the full non-personal customer lifecycle, both domestically and internationally. Our Markets offering
\n
helps our customers manage financial risks across different geographies, while our International offering provides full-service
\n
banking operations in the Channel Islands, Isle of Man, Gibraltar and Luxembourg.
\n
Central items & other
includes corporate functions, such as NatWest Group Treasury, finance, risk management, compliance,
\n
legal, communications and human resources. Central functions manages NatWest Group capital resources and NatWest Group-
\n
wide regulatory projects and provides services to the reportable segments. Balances in relation to litigation issues and the
\n
international private banking business are included in Central items in the relevant periods. Ulster Bank RoI is no longer an
\n
operating segment and its continuing operations now form part of Central items & other.
\n
Allocation of central balance sheet items
\n
NatWest Group allocates all central costs relating to Services and Functions to the business using appropriate drivers; these are
\n
reported as indirect costs in the segmental income statements. Assets and risk-weighted assets held centrally, mainly relating to
\n
NatWest Group Treasury, are allocated to the business using appropriate drivers
.
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Net interest income
5,224
777
4,171
(330)
9,842
\n
Net fees and commissions
422
250
1,580
40
2,292
\n
Other non-interest income
\u2014
29
662
331
1,022
\n
Total income
5,646
1,056
6,413
41
13,156
\n
Depreciation and amortisation
\u2014
\u2014
(161)
(672)
(833)
\n
Other operating expenses
(2,593)
(622)
(3,583)
(56)
(6,854)
\n
Impairment (losses)/releases
(229)
2
(122)
12
(337)
\n
Operating profit/(loss)
2,824
436
2,547
(675)
5,132
\n
2021
(1)
\n
Continuing operations
\n
Net interest income
4,074
480
2,974
7
7,535
\n
Net fees and commissions
377
258
1,440
45
2,120
\n
Other non-interest income
(6)
78
424
278
774
\n
Total income
4,445
816
4,838
330
10,429
\n
Depreciation and amortisation
(85)
\u2014
(173)
(665)
(923)
\n
Other operating expenses
(2,428)
(520)
(3,584)
(303)
(6,835)
\n
Impairment releases/(losses)
36
54
1,160
(77)
1,173
\n
Operating profit/(loss)
1,968
350
2,241
(715)
3,844
Retail Banking
Private Banking
\n
Commercial &
\n
Institutional
\n
Central items &
\n
other
\n
Total
\n
2020
(1)
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Net interest income
3,868
489
3,054
(22)
7,389
\n
Net fees and commissions
379
257
1,303
43
1,982
\n
Other non-interest income
(66)
17
1,221
(140)
1,032
\n
Total income
4,181
763
5,578
(119)
10,403
\n
Depreciation and amortisation
\u2014
(8)
(182)
(723)
(913)
\n
Operating expenses
(2,540)
(447)
(3,849)
(109)
(6,945)
\n
Impairment losses
(792)
(100)
(2,074)
(132)
(3,098)
\n
Operating profit/(loss)
849
208
(527)
(1,083)
(553)
\n
Total revenue
(2)
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
Year ended 31 December 2022
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
External
5,773
874
6,747
3,180
16,574
\n
Inter-segmental
\u2014
389
116
(505)
\u2014
\n
Total
5,773
1,263
6,863
2,675
16,574
\n
Year ended 31 December 2021 (1)
\n
Continuing operations
\n
External
5,419
792
5,168
1,323
12,702
\n
Inter-segmental
14
127
123
(264)
\u2014
\n
Total
5,433
919
5,291
1,059
12,702
\n
Year ended 31 December 2020 (1)
\n
Continuing operations
\n
External
5,386
702
6,223
1,136
13,447
\n
Inter-segmental
39
163
80
(282)
\u2014
\n
Total
5,425
865
6,303
854
13,447
\n
Total income
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
Year ended 31 December 2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
External
5,646
780
6,777
(47)
13,156
\n
Inter-segmental
\u2014
276
(364)
88
\u2014
\n
Total
5,646
1,056
6,413
41
13,156
\n
Year ended 31 December 2021
(1)
\n
Continuing operations
\n
External
4,433
801
5,041
154
10,429
\n
Inter-segmental
12
15
(203)
176
\u2014
\n
Total
4,445
816
4,838
330
10,429
\n
Year ended 31 December 2020 (1)
\n
Continuing operations
\n
External
4,157
700
5,960
(414)
10,403
\n
Inter-segmental
24
63
(382)
295
\u2014
\n
Total
4,181
763
5,578
(119)
10,403
Analysis of net fees and commissions
\n
Retail Banking
Private Banking
\n
Commercial
\n
&
Institutional
\n
Central items &
\n
other
\n
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Fees and commissions receivable
\n
- Payment services
314
25
642
43
1,024
\n
- Credit and debit card fees
401
15
227
18
661
\n
- Lending and financing
17
8
673
3
701
\n
- Brokerage
43
6
44
\u2014
93
\n
- Investment management, trustee
\n
and fiduciary services
(3)
4
219
46
\u2014
269
\n
- Underwriting fees
\u2014
\u2014
120
\u2014
120
\n
- Other
\u2014
3
88
(44)
47
\n
Total
779
276
1,840
20
2,915
\n
Fees and commissions payable
(357)
(26)
(260)
20
(623)
\n
Net fees and commissions
422
250
1,580
40
2,292
\n
2021 (1)
\n
Continuing operations
\n
Fees and commissions receivable
\n
- Payment services
306
35
577
49
967
\n
- Credit and debit card fees
344
10
149
19
522
\n
- Lending and financing
13
10
643
4
670
\n
- Brokerage
48
6
42
\u2014
96
\n
- Investment management, trustee
\n
and fiduciary services
(3)
3
230
45
2
280
\n
- Underwriting fees
\u2014
\u2014
127
\u2014
127
\n
- Other
\u2014
35
109
(112)
32
\n
Total
714
326
1,692
(38)
2,694
\n
Fees and commissions payable
(337)
(68)
(252)
83
(574)
\n
Net fees and commissions
377
258
1,440
45
2,120
\n
2020 (1)
\n
Fees and commissions receivable
\n
- Payment services
264
28
543
41
876
\n
- Credit and debit card fees
299
9
131
21
460
\n
- Lending and financing
42
7
625
2
676
\n
- Brokerage
54
6
94
1
155
\n
- Investment management, trustee
\n
and fiduciary services
3
225
41
2
271
\n
- Underwriting fees
\u2014
\u2014
183
\u2014
183
\n
- Other
1
26
89
(33)
83
\n
Total
663
301
1,706
34
2,704
\n
Fees and commissions payable
(284)
(44)
(403)
9
(722)
\n
Net fees and commissions
379
257
1,303
43
1,982
\n
2022
2021
2020
\n
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Retail Banking
226,375
192,282
209,973
192,715
197,618
178,617
\n
Private Banking
29,867
41,491
29,854
39,388
26,206
32,457
\n
Commercial & Institutional
404,817
383,768
425,718
411,757
491,544
460,338
\n
Central items & other
58,994
66,016
116,447
96,329
84,123
84,255
\n
Total
720,053
683,557
781,992
740,189
799,491
755,667
Segmental analysis of goodwill
\n
The total carrying value of goodwill at 31 December 2022 and 2021 was \u00a35,522 million comprising Retail Banking \u00a32,607 million;
\n
Commercial & Institutional \u00a32,906 million; and Private Banking \u00a39 million. See note 17 for further details.
\n
Geographical segments
\n
The geographical analysis in the tables below has been compiled on the basis of location of office where the transactions are
\n
recorded.
\n
UK
USA
Europe
RoW
Total
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Continuing operations
\n
Total revenue
15,795
117
558
104
16,574
\n
Interest receivable
12,242
37
344
14
12,637
\n
Interest payable
(2,567)
(2)
(221)
(5)
(2,795)
\n
Net fees and commissions
1,983
44
207
58
2,292
\n
Trading income
1,208
1
(104)
28
1,133
\n
Other operating income
(140)
14
12
3
(111)
\n
Total income
(4)
12,726
94
238
98
13,156
\n
Operating profit/(loss) before tax
5,716
(46)
(620)
82
5,132
\n
Total assets
589,758
25,979
101,164
3,152
720,053
\n
Total liabilities
579,476
27,039
75,092
1,950
683,557
\n
Contingent liabilities and commitments
117,915
\u2014
8,649
17
126,581
\n
2021 (1)
\n
Continuing operations
\n
Total revenue
12,100
87
482
33
12,702
\n
Interest receivable
8,949
20
257
8
9,234
\n
Interest payable
(1,483)
(2)
(211)
(3)
(1,699)
\n
Net fees and commissions
1,820
27
231
42
2,120
\n
Trading income
247
53
(1)
24
323
\n
Other operating income
387
2
62
\u2014
451
\n
Total income
(4)
9,920
100
338
71
10,429
\n
Operating profit/(loss) before tax
4,143
48
(387)
40
3,844
\n
Total assets
693,221
21,776
64,415
2,580
781,992
\n
Total liabilities
676,684
23,286
38,835
1,384
740,189
\n
Contingent liabilities and commitments
117,225
1
8,114
27
125,367
\n
2020 (1)
\n
Continuing operations
\n
Total revenue
12,511
211
551
174
13,447
\n
Interest receivable
9,479
\u2014
210
22
9,711
\n
Interest payable
(2,163)
\u2014
(158)
(1)
(2,322)
\n
Net fees and commissions
1,637
33
215
97
1,982
\n
Trading income
911
170
33
11
1,125
\n
Other operating income
(117)
(22)
42
4
(93)
\n
Total income
(4)
9,747
181
342
133
10,403
\n
Operating (loss)/profit before tax
(193)
(85)
(363)
88
(553)
\n
Total assets
704,725
25,439
66,884
2,443
799,491
\n
Total liabilities
686,500
26,932
41,018
1,217
755,667
\n
Contingent liabilities and commitments
118,654
\u2014
10,068
10
128,732
\n
(1)
Comparative results have been re-presented from those previously published to reclassify certain operations as discontinued operations as described in Note 8.
\n
(2)
Total revenue comprises interest receivable, fees and commissions receivable, income from trading activities and other operating income.
\n
(3)
Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2021.
\n
(4)
Total income excludes internal service fee income which has been calculated on a cost plus mark-up basis.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEntitysReportableSegmentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f51565": { "value": "
6 Auditor\u2019s remuneration
\n
Amounts payable to NatWest Group's auditors for statutory audit and other services are set out below.
\n
All audit-related and other services are approved by the Group Audit Committee and are subject to strict controls to ensure the
\n
external auditor\u2019s independence is unaffected by the provision of other services. The Group Audit Committee recognises that for
\n
certain assignments, the auditors are best placed to perform the work economically; for other work, NatWest Group selects the
\n
supplier best placed to meet its requirements. NatWest Group\u2019s auditors are permitted to tender for such work in competition with
\n
other firms where the work is permissible under audit independence rules.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Fees payable for:
\n
- the audit of NatWest Group\u2019s annual accounts
(1)
4.7
4.4
4.7
\n
- the audit of NatWest Group plc\u2019s subsidiaries
(1)
31.9
29.6
30.6
\n
- audit-related assurance services
(1,2)
3.9
5.3
4.7
\n
Total audit and audit-related assurance services fees
40.5
39.3
40.0
\n
Other assurance services
1.2
0.4
0.6
\n
Corporate finance services
(3)
0.5
0.5
0.4
\n
Total other services
1.7
0.9
1.0
\n
(1)
The 2022 audit fee was approved by the Group Audit Committee. At 31 December 2022, \u00a316 million has been billed and \u00a313 million paid in respect of the 2022 NatWest Group audit
\n
fees.
\n
(2)
Comprises fees of \u00a31.1 million (2021 - \u00a31.1 million) in relation to reviews of interim financial information, \u00a32.3 million (2021 - \u00a33.5 million) in respect of reports to NatWest Group\u2019s
\n
regulators in the UK and overseas, and \u00a30.4 million (2021 - \u00a30.7 million) in relation to non-statutory audit opinions.
\n
(3)
Comprises fees of \u00a30.5 million (2021 - \u00a30.5 million) in respect of work performed by the auditors as reporting accountants on debt and equity issuances undertaken by NatWest
\n
Group.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAuditorsRemunerationExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f52198": { "value": "
8 Discontinued operations and assets and liabilities of disposal groups
\n
Discontinued operations are reported separately on the income statement to allow users to distinguish the profits and cash flows
\n
from continuing operations from those activities that are subject to disposal. Assets and liabilities which we intend to dispose of in a
\n
single transaction are also presented separately on the balance sheet.
\n
For accounting policy information see Accounting policies note 3.2.
\n
This note sets out the profit/(loss) from the discontinued operations (represented for comparative periods), the assets and liabilities
\n
of the disposal group and the operating cash flows attributable to the discontinued operations.
\n
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from
\n
the Republic of Ireland. Material developments since the beginning of 2022 are set out below.
\n
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
\n
Successful migration of six tranches of performing commercial loans to AIB was completed during 2022, with \u20ac2.1 billion of gross
\n
performing loans being fully migrated by year-end. It is expected that remaining migrations of commercial customers will be
\n
materially completed in phases over H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business
\n
are in the process of getting transferred to AIB under Transfer of Undertakings, Protection of Employment (TUPE) arrangements,
\n
with more than half having completed their move by the end of 2022. Losses on disposal of \u20ac123 million have been recognised in
\n
2022 in respect of the migrations completed to date.
\n
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the
\n
performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform,
\n
and 25 Ulster Bank branch locations in the Republic of Ireland.
\n
c.\u20ac5 billion of performing non-tracker mortgages migrated to PTSB in November 2022, with the remaining balances expected to
\n
migrate during H1 2023. In January 2023, 25 branches transferred to PTSB. The remaining performing non-tracker mortgages,
\n
micro-SME loans, Lombard Asset Finance business and all remaining eligible colleagues who will move under TUPE regulations,
\n
are also expected to transfer in 2023.
\n
Agreement with AIB for the sale of performing tracker and linked mortgages.
\n
In January 2023 the Competition and Consumer Protection Commission (CCPC) granted approval on the portfolio sale of
\n
performing tracker and linked mortgages to AIB. Completion of this sale is expected to occur in Q2 2023.
\n
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and
\n
as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as
\n
discontinued operations. This has resulted in a re-presentation of 2021 comparatives: a reduction of Operating profit before tax
\n
and Profit from continuing operations of \u00a3188 million, and an increase of Profit from discontinued operations of \u00a3188 million.
Total
\n
profit for the year remains unchanged. Ulster Bank RoI continuing operations are now reported within Group central items & other.
\n
In 2022 we reclassified mortgage loans to fair value through profit or loss, which resulted in a \u20ac453 million reduction in mortgage
\n
financial assets in UBIDAC to 31 December 2022. This reclassification applies across both our continuing and discontinued
\n
operations.
\n
(a) (Loss)/profit from discontinued operations, net of tax
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Interest receivable
177
339
360
\n
Net interest income
177
339
360
\n
Non-interest income
(1)
(472)
13
33
\n
Total income
(295)
352
393
\n
Operating expenses
(38)
(47)
(47)
\n
(Loss)/profit before impairment releases/(losses)
(333)
305
346
\n
Impairment releases/(losses)
71
162
(144)
\n
Operating (loss)/profit before tax
(262)
467
202
\n
Tax charge
\u2014
(3)
(9)
\n
(Loss)/profit from discontinued operations, net of tax
(262)
464
193
\n
(1)
Excludes gain of \u00a320 million (\u20ac24 million) recognised by NatWest Group as a result of acquisition of PTSB shares in relation to disposal of UBIDAC assets to PTSB.
\n
(b) Assets and liabilities of disposal groups
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Assets of disposal groups
\n
Loans to customers - amortised cost
1,458
9,002
\n
Other financial assets - loans to customers
5,397
\u2014
\n
Derivatives
\u2014
5
\n
Other assets
6
8
\n
6,861
9,015
\n
Liabilities of disposal groups
\n
Other liabilities
15
5
\n
15
5
\n
Net assets of disposal groups
6,846
9,010
(c) Operating cash flows attributable to discontinued operations
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Net cash flows from operating activities
1,090
2,212
(816)
\n
Net cash flows from investing activities
6,164
\u2014
\u2014
\n
Net increase/(decrease) in cash and cash equivalents
7,254
2,212
(816)
", "dimensions": { "concept": "ifrs-full:DisclosureOfDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f52199": { "value": "
8 Discontinued operations and assets and liabilities of disposal groups
\n
Discontinued operations are reported separately on the income statement to allow users to distinguish the profits and cash flows
\n
from continuing operations from those activities that are subject to disposal. Assets and liabilities which we intend to dispose of in a
\n
single transaction are also presented separately on the balance sheet.
\n
For accounting policy information see Accounting policies note 3.2.
\n
This note sets out the profit/(loss) from the discontinued operations (represented for comparative periods), the assets and liabilities
\n
of the disposal group and the operating cash flows attributable to the discontinued operations.
\n
Three legally binding agreements for the sale of UBIDAC business have been announced as part of the phased withdrawal from
\n
the Republic of Ireland. Material developments since the beginning of 2022 are set out below.
\n
Agreement with Allied Irish Banks, p.l.c. (AIB) for the transfer of performing commercial loans.
\n
Successful migration of six tranches of performing commercial loans to AIB was completed during 2022, with \u20ac2.1 billion of gross
\n
performing loans being fully migrated by year-end. It is expected that remaining migrations of commercial customers will be
\n
materially completed in phases over H1 2023. Colleagues who are wholly or mainly assigned to supporting this part of the business
\n
are in the process of getting transferred to AIB under Transfer of Undertakings, Protection of Employment (TUPE) arrangements,
\n
with more than half having completed their move by the end of 2022. Losses on disposal of \u20ac123 million have been recognised in
\n
2022 in respect of the migrations completed to date.
\n
Agreement with Permanent TSB Group Holdings p.l.c. (PTSB) for the sale of performing non-tracker mortgages, the
\n
performing loans in the micro-SME business, the UBIDAC Asset Finance business, including its Lombard digital platform,
\n
and 25 Ulster Bank branch locations in the Republic of Ireland.
\n
c.\u20ac5 billion of performing non-tracker mortgages migrated to PTSB in November 2022, with the remaining balances expected to
\n
migrate during H1 2023. In January 2023, 25 branches transferred to PTSB. The remaining performing non-tracker mortgages,
\n
micro-SME loans, Lombard Asset Finance business and all remaining eligible colleagues who will move under TUPE regulations,
\n
are also expected to transfer in 2023.
\n
Agreement with AIB for the sale of performing tracker and linked mortgages.
\n
In January 2023 the Competition and Consumer Protection Commission (CCPC) granted approval on the portfolio sale of
\n
performing tracker and linked mortgages to AIB. Completion of this sale is expected to occur in Q2 2023.
\n
The business activities relating to these sales that meet the requirements of IFRS 5 are presented as a discontinued operation and
\n
as a disposal group. Comparatives have been re-presented from those previously published to reclassify certain items as
\n
discontinued operations. This has resulted in a re-presentation of 2021 comparatives: a reduction of Operating profit before tax
\n
and Profit from continuing operations of \u00a3188 million, and an increase of Profit from discontinued operations of \u00a3188 million.
Total
\n
profit for the year remains unchanged. Ulster Bank RoI continuing operations are now reported within Group central items & other.
\n
In 2022 we reclassified mortgage loans to fair value through profit or loss, which resulted in a \u20ac453 million reduction in mortgage
\n
financial assets in UBIDAC to 31 December 2022. This reclassification applies across both our continuing and discontinued
\n
operations.
\n
(a) (Loss)/profit from discontinued operations, net of tax
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Interest receivable
177
339
360
\n
Net interest income
177
339
360
\n
Non-interest income
(1)
(472)
13
33
\n
Total income
(295)
352
393
\n
Operating expenses
(38)
(47)
(47)
\n
(Loss)/profit before impairment releases/(losses)
(333)
305
346
\n
Impairment releases/(losses)
71
162
(144)
\n
Operating (loss)/profit before tax
(262)
467
202
\n
Tax charge
\u2014
(3)
(9)
\n
(Loss)/profit from discontinued operations, net of tax
(262)
464
193
\n
(1)
Excludes gain of \u00a320 million (\u20ac24 million) recognised by NatWest Group as a result of acquisition of PTSB shares in relation to disposal of UBIDAC assets to PTSB.
\n
(b) Assets and liabilities of disposal groups
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Assets of disposal groups
\n
Loans to customers - amortised cost
1,458
9,002
\n
Other financial assets - loans to customers
5,397
\u2014
\n
Derivatives
\u2014
5
\n
Other assets
6
8
\n
6,861
9,015
\n
Liabilities of disposal groups
\n
Other liabilities
15
5
\n
15
5
\n
Net assets of disposal groups
6,846
9,010
(c) Operating cash flows attributable to discontinued operations
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Net cash flows from operating activities
1,090
2,212
(816)
\n
Net cash flows from investing activities
6,164
\u2014
\u2014
\n
Net increase/(decrease) in cash and cash equivalents
7,254
2,212
(816)
", "dimensions": { "concept": "ifrs-full:DisclosureOfNoncurrentAssetsHeldForSaleAndDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f52368": { "value": "
9 Earnings per share
\n
Earnings per share is a metric to measure how much profit NatWest Group makes for each share that is in issue during the
\n
year.
Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders by the weighted
\n
average number of ordinary shares outstanding. Diluted earnings per ordinary share is calculated by dividing the basic earnings by
\n
the weighted average number of ordinary shares outstanding plus the weighted average number of ordinary shares that would be
\n
issued on conversion of dilutive share options and convertible securities. The assessment of whether the effect of share options and
\n
convertible securities is dilutive or not, is based on the earnings from continuing operations.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Earnings
\n
Profit/(loss) from continuing operations attributable to ordinary shareholders
3,602
2,486
(946)
\n
(Loss)/profit from discontinued operations attributable to ordinary shareholders
(262)
464
193
\n
Profit/(loss) attributable to ordinary shareholders
3,340
2,950
(753)
\n
Weighted average number of shares (millions)
\n
Weighted average number of ordinary shares outstanding during the year
9,872
10,792
11,231
\n
Effect of dilutive share options and convertible securities
(1)
57
45
\u2014
\n
Diluted weighted average number of ordinary shares outstanding during the year
9,929
10,837
11,231
\n
(1)
As there was a loss from continuing operations attributable to the parent company for the period to 31 December 2020, the effect of share options and convertible securities was
\n
not dilutive.
\n
(2)
At the General Meeting and Class Meeting on 25 August 2022, the shareholders approved the proposed special dividend and share consolidation. On 30 August 2022 the issued
\n
ordinary share capital was consolidated in the ratio of 14 existing shares for 13 new shares. The average number of shares and earnings per share have been adjusted
\n
retrospectively.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEarningsPerShareExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f52422": { "value": "10 Financial instruments \u2013 classification
Judgment: classification of financial assets
\n
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
\n
MFVTPL
FVOCI
Amortised cost
Other assets
Total
\n
Assets
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Cash and balances at central banks
144,832
144,832
\n
Trading assets
45,577
45,577
\n
Derivatives
(1)
99,545
99,545
\n
Settlement balances
2,572
2,572
\n
Loans to bank - amortised cost
(2)
7,139
7,139
\n
Loans to customers - amortised cost
(3)
366,340
366,340
\n
Other financial assets
(4)
787
16,973
13,135
30,895
\n
Intangible assets
7,116
7,116
\n
Other assets
9,176
9,176
\n
Assets of disposal groups
(5)
6,861
6,861
\n
31 December 2022
145,909
16,973
534,018
23,153
720,053
\n
Cash and balances at central banks
177,757
177,757
\n
Trading assets
59,158
59,158
\n
Derivatives
(1)
106,139
106,139
\n
Settlement balances
2,141
2,141
\n
Loans to bank - amortised cost
(2)
7,682
7,682
\n
Loans to customers - amortised cost
(3)
358,990
358,990
\n
Other financial assets
317
37,266
8,562
46,145
\n
Intangible assets
6,723
6,723
\n
Other assets
8,242
8,242
\n
Assets of disposal groups
9,015
9,015
\n
31 December 2021
165,614
37,266
555,132
23,980
781,992
\n
Held-for-trading
DFV
Amortised cost
Other liabilities
Total
\n
Liabilities
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Bank deposits
(6)
20,441
20,441
\n
Customer deposits
450,318
450,318
\n
Settlement balances
2,012
2,012
\n
Trading liabilities
52,808
52,808
\n
Derivatives
(1)
94,047
94,047
\n
Other financial liabilities
(7)
2,377
46,730
49,107
\n
Subordinated liabilities
345
5,915
6,260
\n
Notes in circulation
3,218
3,218
\n
Other liabilities
(8)
1,205
4,141
5,346
\n
31 December 2022
146,855
2,722
529,839
4,141
683,557
\n
Bank deposits
(6)
26,279
26,279
\n
Customer deposits
479,810
479,810
\n
Settlement balances
2,068
2,068
\n
Trading liabilities
64,598
64,598
\n
Derivatives
(1)
100,835
100,835
\n
Other financial liabilities
(7)
1,671
47,655
49,326
\n
Subordinated liabilities
703
7,726
8,429
\n
Notes in circulation
3,047
3,047
\n
Other liabilities
(8)
1,356
4,441
5,797
\n
31 December 2021
165,433
2,374
567,941
4,441
740,189
\n
(1)
Includes net hedging derivatives assets of \u00a3143 million (2021 - \u00a344 million) and net hedging derivatives liabilities of \u00a3132 million (2021 - \u00a3120 million).
\n
(2)
Includes items in the course of collection from other banks of \u00a3229 million (2021 - \u00a367 million).
\n
(3)
Includes finance lease receivables of \u00a38,402 million (2021 - \u00a38,531 million).
\n
(4)
Includes amounts reclassified from amortised cost to FVTPL in relation to a mortgage portfolio. Refer to Note 8 for further information.
\n
(5)
Includes \u00a35,397 million of assets of disposal groups reclassified from amortised cost to FVTPL during the year. The portfolio is classified as level 3 in the fair value hierarchy.
\n
(6)
Includes items in the course of transmission to other banks of \u00a3242 million (2021 - \u00a356 million).
\n
(7)
The carrying amount of other customer accounts designated at fair value through profit or loss is the same as the principal amount for both periods. No amounts have been
\n
recognised in the profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial both during the period and cumulatively.
\n
(8)
Includes lease liabilities of \u00a31,118 million (2021 - \u00a31,263 million) held at amortised cost.
20 Subordinated liabilities
\n
Subordinated liabilities are debt securities that, in the event of winding up or bankruptcy, rank below other liabilities for interest
\n
payments and repayment.
\n
For accounting policy information see Accounting policies notes 3.8 and 3.11.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Dated loan capital
5,968
8,051
\n
Undated loan capital
173
259
\n
Preference shares
119
119
\n
6,260
8,429
\n
Certain preference shares issued by the company are classified as liabilities; these securities remain subject to the capital
\n
maintenance rules of the Companies Act 2006.
\n
First call
Maturity
Capital
2022
2021
\n
Dated loan capital
date
date
treatment
\u00a3m
\u00a3m
\n
Natwest Group plc
\n
$2,250 million
6.13% notes
\u2014
Dec-22
Tier 2
\u2014
986
\n
$2,250 million
5.13% notes
\u2014
May-24
Tier 2
706
956
\n
$2,000 million
6.00% notes
\u2014
Dec-23
Tier 2
536
1073
\n
\u00a31,000 million
3.622% notes
Aug-25
Aug-30
Tier 2
964
995
\n
\u00a31,000 million
2.105% notes
Aug-26
Nov-31
Tier 2
1001
999
\n
$1,000 million
6.10% notes
\u2014
Jun-23
Tier 2
126
354
\n
$850 million
3.032% notes
Nov-30
Nov-35
Tier 2
555
584
\n
\u20ac750 million
1.043% notes
Jun-27
Sep-32
Tier 2
665
630
\n
$750 million
3.754% notes
Nov-24
Nov-29
Tier 2
626
558
\n
\u00a3650 million
7.416% notes
Mar-28
Jun-33
Tier 2
641
\u2014
\n
$650 million
6.425% notes
Jan-34
Jan-43
Not applicable
\u2014
554
\n
5,820
7,689
\n
Other subsidiaries
\n
$650 million
6.3% notes
Jan-34
Dec-43
Not applicable
\u2014
39
\n
\u20ac300 million
Floating rate notes
\u2014
Jun-22
Tier 2
\u2014
252
\n
\u20ac170 million
Floating rate notes
\u2014
Feb-41
Not applicable
223
331
\n
$150 million
7.125% notes
\u2014
Oct-93
Not applicable
18
113
\n
\u20ac145.6 million
Floating rate notes
\u2014
Apr-23
Tier 2
122
119
\n
$136 million
7.75% notes
\u2014
May-23
Not applicable
83
104
\n
6,266
8,647
\n
Undated loan capital
\n
Natwest Group plc
\n
$762 million
7.648% notes
Sep-31
\u2014
Not applicable
\u2014
51
\n
Other subsidiaries
\n
\u00a316 million
5.63% notes
Sep-26
\u2014
Not applicable
18
20
\n
\u00a319 million
5.63% notes
Jun-32
\u2014
Tier 2
\u2014
1
\n
\u00a321 million
6.2% notes
Mar-22
\u2014
Tier 2
\u2014
22
\n
\u00a331 million
7.38% notes
\u2014
\u2014
Not applicable
2
1
\n
\u00a353 million
7.125% notes
Oct-22
\u2014
Not applicable
\u2014
56
\n
\u20ac31 million
11.375% notes
\u2014
\u2014
Tier 2
48
45
\n
\u00a335 million
11.5%
notes
Dec-22
\u2014
Not applicable
72
31
\n
\u00a311 million
11.75% notes
\u2014
\u2014
Tier 2
25
24
\n
\u00a31.1 million
SONIA + 2.8266% notes
\u2014
\u2014
Tier 2
2
2
\n
\u00a34.9 million
2.5% fixed notes
\u2014
\u2014
Not applicable
6
6
\n
173
259
\n
Preference shares
\n
Other subsidiaries
\n
\u00a3140 million
Non-cumulative preference shares of \u00a31
\u2014
\u2014
Not applicable
119
119
\n
119
119
\n
Fair Value Hedging
(298)
(596)
\n
6,260
8,429
\n
(1)
Notes redeemed before call date as tax and regulatory benefits discontinued.
", "dimensions": { "concept": "ifrs-full:DisclosureOfSubordinatedLiabilitiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f54747": { "value": "
Loans to banks and customers
\n
In estimating the fair value of net loans to customers and banks
\n
measured at amortised cost, NatWest Group\u2019s loans are
\n
segregated into appropriate portfolios reflecting the
\n
characteristics of the constituent loans. Two principal methods
\n
are used to estimate fair value:
\n
(a)
Contractual cashflows that are discounted using a market
\n
discount rate that incorporates the current spread for the
\n
borrower or where this is not observable, the spread for
\n
borrowers of a similar credit standing.
\n
(b)
Expected cash flows (unadjusted for credit losses) are
\n
discounted at the current offer rate for the same or similar
\n
products. The current methodology caps all loan values at
\n
par rather than modelling clients\u2019 option to repay loans
\n
early. This approach is adopted for lending portfolios in
\n
Retail Banking, Ulster Bank RoI, Commercial & Institutional
\n
(SME loans) and Private Banking in order to reflect the
\n
homogeneous nature of these portfolios.
2022
2021
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Cash and balances at central banks
144,832
\u2014
144,832
177,757
\u2014
177,757
\n
Trading assets
35,944
9,633
45,577
40,263
18,895
59,158
\n
Derivatives
38,107
61,438
99,545
34,538
71,601
106,139
\n
Settlement balances
2,572
\u2014
2,572
2,141
\u2014
2,141
\n
Loans to banks - amortised cost
6,872
267
7,139
7,425
257
7,682
\n
Loans to customers - amortised cost
84,289
282,051
366,340
103,689
255,301
358,990
\n
Other financial assets
6,128
24,767
30,895
11,151
34,994
46,145
\n
Liabilities
\n
Bank deposits
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer deposits
448,821
1,497
450,318
478,801
1,009
479,810
\n
Settlement balances
2,012
\u2014
2,012
2,068
\u2014
2,068
\n
Trading liabilities
42,760
10,048
52,808
41,664
22,934
64,598
\n
Derivatives
39,331
54,716
94,047
34,593
66,242
100,835
\n
Other financial liabilities
13,796
35,311
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
973
5,287
6,260
1,375
7,054
8,429
\n
Notes in circulation
3,218
\u2014
3,218
3,047
\u2014
3,047
\n
Lease liabilities
137
981
1,118
238
1,025
1,263
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
144,832
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
130
345
28
41
(44)
43
\n
Settlement balances
2,572
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,254
1,621
17
288
\u2014
\u2014
\n
Loans to customers - amortised cost
50,923
43,417
76,278
55,128
85,038
100,085
\n
Other financial assets
(1)
2,771
4,507
8,391
7,835
5,706
2,524
\n
Finance lease
96
267
857
482
549
296
\n
206,578
50,157
85,571
63,774
91,249
102,948
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
6,690
1,445
5,662
8,503
89
\u2014
\n
Customer deposits
437,830
11,389
1,252
2
14
20
\n
Settlement balances
2,012
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
280
(371)
586
306
116
85
\n
Other financial liabilities
6,720
6,640
18,833
13,906
7,361
294
\n
Subordinated liabilities
96
1,073
2,690
1,897
1,541
328
\n
Other liabilities- Notes in circulation
3,218
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
41
113
260
203
318
254
\n
456,887
20,289
29,283
24,817
9,439
981
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
3,150
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,779
\u2014
\u2014
\u2014
\u2014
\u2014
\n
121,929
\u2014
\u2014
\u2014
\u2014
\u2014
\n
2021
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
177,757
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(23)
(32)
72
15
10
17
\n
Settlement balances
2,141
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,735
1,689
21
\u2014
\u2014
\u2014
\n
Loans to customers - amortised cost
65,760
43,144
63,979
45,057
73,044
90,115
\n
Other financial assets
(1)
3,924
7,576
10,467
8,048
7,444
5,523
\n
Finance lease
290
340
746
504
704
377
\n
255,584
52,717
75,285
53,624
81,202
96,032
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
13,292
421
566
12,003
\u2014
\u2014
\n
Customer deposits
473,123
5,440
1,155
73
4
19
\n
Settlement balances
2,068
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(57)
(31)
561
155
(152)
(198)
\n
Other financial liabilities
6,967
9,293
16,953
10,062
7,905
292
\n
Subordinated liabilities
66
1,604
3,481
2,170
1,496
563
\n
Other liabilities- Notes in circulation
3,047
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
74
161
220
167
281
251
\n
498,580
16,888
22,936
24,630
9,534
927
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
2,055
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,536
\u2014
\u2014
\u2014
\u2014
\u2014
\n
120,591
\u2014
\u2014
\u2014
\u2014
\u2014
", "dimensions": { "concept": "ifrs-full:DisclosureOfLoansAndAdvancesToBanksExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f54775": { "value": "
Bank and customer deposits
\n
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
12 Financial instruments - maturity analysis
\n
Remaining maturity
\n
This note shows the maturity profile of NatWest Group\u2019s financial assets and liabilities by
contractual date of maturity and
\n
contractual cash flows.
\n
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
\n
2022
2021
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Cash and balances at central banks
144,832
\u2014
144,832
177,757
\u2014
177,757
\n
Trading assets
35,944
9,633
45,577
40,263
18,895
59,158
\n
Derivatives
38,107
61,438
99,545
34,538
71,601
106,139
\n
Settlement balances
2,572
\u2014
2,572
2,141
\u2014
2,141
\n
Loans to banks - amortised cost
6,872
267
7,139
7,425
257
7,682
\n
Loans to customers - amortised cost
84,289
282,051
366,340
103,689
255,301
358,990
\n
Other financial assets
6,128
24,767
30,895
11,151
34,994
46,145
\n
Liabilities
\n
Bank deposits
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer deposits
448,821
1,497
450,318
478,801
1,009
479,810
\n
Settlement balances
2,012
\u2014
2,012
2,068
\u2014
2,068
\n
Trading liabilities
42,760
10,048
52,808
41,664
22,934
64,598
\n
Derivatives
39,331
54,716
94,047
34,593
66,242
100,835
\n
Other financial liabilities
13,796
35,311
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
973
5,287
6,260
1,375
7,054
8,429
\n
Notes in circulation
3,218
\u2014
3,218
3,047
\u2014
3,047
\n
Lease liabilities
137
981
1,118
238
1,025
1,263
\n
Assets and liabilities by contractual cash flows up to 20
\n
years
\n
The tables on the following page, show the contractual
\n
undiscounted cash flows receivable and payable, up to a period
\n
of 20 years, including future receipts and payments of interest
\n
of financial assets and liabilities by contractual maturity. The
\n
balances in the following tables do not agree directly with the
\n
consolidated balance sheet, as the tables include all cash flows
\n
relating to principal and future coupon payments, presented on
\n
an undiscounted basis. The tables have been prepared on the
\n
following basis:
\n
Financial assets have been reflected in the time band of the
\n
latest date on which they could be repaid, unless earlier
\n
repayment can be demanded by NatWest Group. Financial
\n
liabilities are included at the earliest date on which the
\n
counterparty can require repayment, regardless of whether or
\n
not such early repayment results in a penalty. If the repayment
\n
of a financial instrument is triggered by, or is subject to, specific
\n
criteria such as market price hurdles being reached, the asset
\n
is included in the time band that contains the latest date on
\n
which it can be repaid, regardless of early repayment.
\n
The liability is included in the time band that contains the
\n
earliest possible date on which the conditions could be fulfilled,
\n
without considering the probability of the conditions being met.
\n
For example, if a structured note is automatically prepaid when
\n
an equity index exceeds a certain level, the cash outflow will be
\n
included in the less than three months period, whatever the
\n
level of the index at the year end. The settlement date of debt
\n
securities in issue, issued by certain securitisation vehicles
\n
consolidated by NatWest Group, depends on when cash flows
\n
are received from the securitised assets. Where these assets
\n
are prepayable, the timing of the cash outflow relating to
\n
securities assumes that each asset will be prepaid at the
\n
earliest possible date. As the repayments of assets and
\n
liabilities are linked, the repayment of assets in securitisations is
\n
shown on the earliest date that the asset can be prepaid, as
\n
this is the basis used for liabilities.
\n
The principal amounts of financial assets and liabilities that are
\n
repayable after 20 years or where the counterparty has no
\n
right to repayment of the principal are excluded from the table,
\n
as are interest payments after 20 years.
\n
The maturity of guarantees and commitments is based on the
\n
earliest possible date they would be drawn in order to evaluate
\n
NatWest Group\u2019s liquidity position.
\n
MFVTPL assets of \u00a3145.8 billion (2021 - \u00a3165.6 billion) and HFT
\n
liabilities of \u00a3146.7 billion (2021 - \u00a3165.3 billion) have been
\n
excluded from the following tables.
\n
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
144,832
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
130
345
28
41
(44)
43
\n
Settlement balances
2,572
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,254
1,621
17
288
\u2014
\u2014
\n
Loans to customers - amortised cost
50,923
43,417
76,278
55,128
85,038
100,085
\n
Other financial assets
(1)
2,771
4,507
8,391
7,835
5,706
2,524
\n
Finance lease
96
267
857
482
549
296
\n
206,578
50,157
85,571
63,774
91,249
102,948
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
6,690
1,445
5,662
8,503
89
\u2014
\n
Customer deposits
437,830
11,389
1,252
2
14
20
\n
Settlement balances
2,012
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
280
(371)
586
306
116
85
\n
Other financial liabilities
6,720
6,640
18,833
13,906
7,361
294
\n
Subordinated liabilities
96
1,073
2,690
1,897
1,541
328
\n
Other liabilities- Notes in circulation
3,218
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
41
113
260
203
318
254
\n
456,887
20,289
29,283
24,817
9,439
981
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
3,150
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,779
\u2014
\u2014
\u2014
\u2014
\u2014
\n
121,929
\u2014
\u2014
\u2014
\u2014
\u2014
\n
2021
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
177,757
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(23)
(32)
72
15
10
17
\n
Settlement balances
2,141
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,735
1,689
21
\u2014
\u2014
\u2014
\n
Loans to customers - amortised cost
65,760
43,144
63,979
45,057
73,044
90,115
\n
Other financial assets
(1)
3,924
7,576
10,467
8,048
7,444
5,523
\n
Finance lease
290
340
746
504
704
377
\n
255,584
52,717
75,285
53,624
81,202
96,032
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
13,292
421
566
12,003
\u2014
\u2014
\n
Customer deposits
473,123
5,440
1,155
73
4
19
\n
Settlement balances
2,068
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(57)
(31)
561
155
(152)
(198)
\n
Other financial liabilities
6,967
9,293
16,953
10,062
7,905
292
\n
Subordinated liabilities
66
1,604
3,481
2,170
1,496
563
\n
Other liabilities- Notes in circulation
3,047
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
74
161
220
167
281
251
\n
498,580
16,888
22,936
24,630
9,534
927
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
2,055
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,536
\u2014
\u2014
\u2014
\u2014
\u2014
\n
120,591
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(1)
Other financial assets exclude equity shares.
\n
(2)
NatWest Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. NatWest Group expects most guarantees it provides to expire
\n
unused.
\n
(3)
NatWest Group has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being
\n
met by the counterparty. NatWest Group does not expect all facilities to be drawn, and some may lapse before drawdown
.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepositsFromCustomersExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f54777": { "value": "Bank and customer deposits
Fair values of deposits are estimated using discounted cash
\n
flow valuation techniques. Where required, methodologies can
\n
be revised as additional information and valuation inputs
\n
become available.
\n
\n
\n
12 Financial instruments - maturity analysis
\n
Remaining maturity
\n
This note shows the maturity profile of NatWest Group\u2019s financial assets and liabilities by
contractual date of maturity and
\n
contractual cash flows.
\n
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
\n
2022
2021
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Cash and balances at central banks
144,832
\u2014
144,832
177,757
\u2014
177,757
\n
Trading assets
35,944
9,633
45,577
40,263
18,895
59,158
\n
Derivatives
38,107
61,438
99,545
34,538
71,601
106,139
\n
Settlement balances
2,572
\u2014
2,572
2,141
\u2014
2,141
\n
Loans to banks - amortised cost
6,872
267
7,139
7,425
257
7,682
\n
Loans to customers - amortised cost
84,289
282,051
366,340
103,689
255,301
358,990
\n
Other financial assets
6,128
24,767
30,895
11,151
34,994
46,145
\n
Liabilities
\n
Bank deposits
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer deposits
448,821
1,497
450,318
478,801
1,009
479,810
\n
Settlement balances
2,012
\u2014
2,012
2,068
\u2014
2,068
\n
Trading liabilities
42,760
10,048
52,808
41,664
22,934
64,598
\n
Derivatives
39,331
54,716
94,047
34,593
66,242
100,835
\n
Other financial liabilities
13,796
35,311
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
973
5,287
6,260
1,375
7,054
8,429
\n
Notes in circulation
3,218
\u2014
3,218
3,047
\u2014
3,047
\n
Lease liabilities
137
981
1,118
238
1,025
1,263
\n
Assets and liabilities by contractual cash flows up to 20
\n
years
\n
The tables on the following page, show the contractual
\n
undiscounted cash flows receivable and payable, up to a period
\n
of 20 years, including future receipts and payments of interest
\n
of financial assets and liabilities by contractual maturity. The
\n
balances in the following tables do not agree directly with the
\n
consolidated balance sheet, as the tables include all cash flows
\n
relating to principal and future coupon payments, presented on
\n
an undiscounted basis. The tables have been prepared on the
\n
following basis:
\n
Financial assets have been reflected in the time band of the
\n
latest date on which they could be repaid, unless earlier
\n
repayment can be demanded by NatWest Group. Financial
\n
liabilities are included at the earliest date on which the
\n
counterparty can require repayment, regardless of whether or
\n
not such early repayment results in a penalty. If the repayment
\n
of a financial instrument is triggered by, or is subject to, specific
\n
criteria such as market price hurdles being reached, the asset
\n
is included in the time band that contains the latest date on
\n
which it can be repaid, regardless of early repayment.
\n
The liability is included in the time band that contains the
\n
earliest possible date on which the conditions could be fulfilled,
\n
without considering the probability of the conditions being met.
\n
For example, if a structured note is automatically prepaid when
\n
an equity index exceeds a certain level, the cash outflow will be
\n
included in the less than three months period, whatever the
\n
level of the index at the year end. The settlement date of debt
\n
securities in issue, issued by certain securitisation vehicles
\n
consolidated by NatWest Group, depends on when cash flows
\n
are received from the securitised assets. Where these assets
\n
are prepayable, the timing of the cash outflow relating to
\n
securities assumes that each asset will be prepaid at the
\n
earliest possible date. As the repayments of assets and
\n
liabilities are linked, the repayment of assets in securitisations is
\n
shown on the earliest date that the asset can be prepaid, as
\n
this is the basis used for liabilities.
\n
The principal amounts of financial assets and liabilities that are
\n
repayable after 20 years or where the counterparty has no
\n
right to repayment of the principal are excluded from the table,
\n
as are interest payments after 20 years.
\n
The maturity of guarantees and commitments is based on the
\n
earliest possible date they would be drawn in order to evaluate
\n
NatWest Group\u2019s liquidity position.
\n
MFVTPL assets of \u00a3145.8 billion (2021 - \u00a3165.6 billion) and HFT
\n
liabilities of \u00a3146.7 billion (2021 - \u00a3165.3 billion) have been
\n
excluded from the following tables.
\n
\n
\n
\n
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
144,832
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
130
345
28
41
(44)
43
\n
Settlement balances
2,572
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,254
1,621
17
288
\u2014
\u2014
\n
Loans to customers - amortised cost
50,923
43,417
76,278
55,128
85,038
100,085
\n
Other financial assets
(1)
2,771
4,507
8,391
7,835
5,706
2,524
\n
Finance lease
96
267
857
482
549
296
\n
206,578
50,157
85,571
63,774
91,249
102,948
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
6,690
1,445
5,662
8,503
89
\u2014
\n
Customer deposits
437,830
11,389
1,252
2
14
20
\n
Settlement balances
2,012
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
280
(371)
586
306
116
85
\n
Other financial liabilities
6,720
6,640
18,833
13,906
7,361
294
\n
Subordinated liabilities
96
1,073
2,690
1,897
1,541
328
\n
Other liabilities- Notes in circulation
3,218
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
41
113
260
203
318
254
\n
456,887
20,289
29,283
24,817
9,439
981
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
3,150
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,779
\u2014
\u2014
\u2014
\u2014
\u2014
\n
121,929
\u2014
\u2014
\u2014
\u2014
\u2014
\n
2021
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
177,757
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(23)
(32)
72
15
10
17
\n
Settlement balances
2,141
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,735
1,689
21
\u2014
\u2014
\u2014
\n
Loans to customers - amortised cost
65,760
43,144
63,979
45,057
73,044
90,115
\n
Other financial assets
(1)
3,924
7,576
10,467
8,048
7,444
5,523
\n
Finance lease
290
340
746
504
704
377
\n
255,584
52,717
75,285
53,624
81,202
96,032
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
13,292
421
566
12,003
\u2014
\u2014
\n
Customer deposits
473,123
5,440
1,155
73
4
19
\n
Settlement balances
2,068
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(57)
(31)
561
155
(152)
(198)
\n
Other financial liabilities
6,967
9,293
16,953
10,062
7,905
292
\n
Subordinated liabilities
66
1,604
3,481
2,170
1,496
563
\n
Other liabilities- Notes in circulation
3,047
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
74
161
220
167
281
251
\n
498,580
16,888
22,936
24,630
9,534
927
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
2,055
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,536
\u2014
\u2014
\u2014
\u2014
\u2014
\n
120,591
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(1)
Other financial assets exclude equity shares.
\n
(2)
NatWest Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. NatWest Group expects most guarantees it provides to expire
\n
unused.
\n
(3)
NatWest Group has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being
\n
met by the counterparty. NatWest Group does not expect all facilities to be drawn, and some may lapse before drawdown
.", "dimensions": { "concept": "ifrs-full:DisclosureOfDepositsFromBanksExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f54817": { "value": "
12 Financial instruments - maturity analysis
\n
Remaining maturity
\n
This note shows the maturity profile of NatWest Group\u2019s financial assets and liabilities by
contractual date of maturity and
\n
contractual cash flows.
\n
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
\n
2022
2021
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
Less than 12
\n
months
\n
More than 12
\n
months
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets
\n
Cash and balances at central banks
144,832
\u2014
144,832
177,757
\u2014
177,757
\n
Trading assets
35,944
9,633
45,577
40,263
18,895
59,158
\n
Derivatives
38,107
61,438
99,545
34,538
71,601
106,139
\n
Settlement balances
2,572
\u2014
2,572
2,141
\u2014
2,141
\n
Loans to banks - amortised cost
6,872
267
7,139
7,425
257
7,682
\n
Loans to customers - amortised cost
84,289
282,051
366,340
103,689
255,301
358,990
\n
Other financial assets
6,128
24,767
30,895
11,151
34,994
46,145
\n
Liabilities
\n
Bank deposits
7,799
12,642
20,441
13,715
12,564
26,279
\n
Customer deposits
448,821
1,497
450,318
478,801
1,009
479,810
\n
Settlement balances
2,012
\u2014
2,012
2,068
\u2014
2,068
\n
Trading liabilities
42,760
10,048
52,808
41,664
22,934
64,598
\n
Derivatives
39,331
54,716
94,047
34,593
66,242
100,835
\n
Other financial liabilities
13,796
35,311
49,107
16,060
33,266
49,326
\n
Subordinated liabilities
973
5,287
6,260
1,375
7,054
8,429
\n
Notes in circulation
3,218
\u2014
3,218
3,047
\u2014
3,047
\n
Lease liabilities
137
981
1,118
238
1,025
1,263
\n
Assets and liabilities by contractual cash flows up to 20
\n
years
\n
The tables on the following page, show the contractual
\n
undiscounted cash flows receivable and payable, up to a period
\n
of 20 years, including future receipts and payments of interest
\n
of financial assets and liabilities by contractual maturity. The
\n
balances in the following tables do not agree directly with the
\n
consolidated balance sheet, as the tables include all cash flows
\n
relating to principal and future coupon payments, presented on
\n
an undiscounted basis. The tables have been prepared on the
\n
following basis:
\n
Financial assets have been reflected in the time band of the
\n
latest date on which they could be repaid, unless earlier
\n
repayment can be demanded by NatWest Group. Financial
\n
liabilities are included at the earliest date on which the
\n
counterparty can require repayment, regardless of whether or
\n
not such early repayment results in a penalty. If the repayment
\n
of a financial instrument is triggered by, or is subject to, specific
\n
criteria such as market price hurdles being reached, the asset
\n
is included in the time band that contains the latest date on
\n
which it can be repaid, regardless of early repayment.
\n
The liability is included in the time band that contains the
\n
earliest possible date on which the conditions could be fulfilled,
\n
without considering the probability of the conditions being met.
\n
For example, if a structured note is automatically prepaid when
\n
an equity index exceeds a certain level, the cash outflow will be
\n
included in the less than three months period, whatever the
\n
level of the index at the year end. The settlement date of debt
\n
securities in issue, issued by certain securitisation vehicles
\n
consolidated by NatWest Group, depends on when cash flows
\n
are received from the securitised assets. Where these assets
\n
are prepayable, the timing of the cash outflow relating to
\n
securities assumes that each asset will be prepaid at the
\n
earliest possible date. As the repayments of assets and
\n
liabilities are linked, the repayment of assets in securitisations is
\n
shown on the earliest date that the asset can be prepaid, as
\n
this is the basis used for liabilities.
\n
The principal amounts of financial assets and liabilities that are
\n
repayable after 20 years or where the counterparty has no
\n
right to repayment of the principal are excluded from the table,
\n
as are interest payments after 20 years.
\n
The maturity of guarantees and commitments is based on the
\n
earliest possible date they would be drawn in order to evaluate
\n
NatWest Group\u2019s liquidity position.
\n
MFVTPL assets of \u00a3145.8 billion (2021 - \u00a3165.6 billion) and HFT
\n
liabilities of \u00a3146.7 billion (2021 - \u00a3165.3 billion) have been
\n
excluded from the following tables.
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
\n
2022
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
144,832
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
130
345
28
41
(44)
43
\n
Settlement balances
2,572
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,254
1,621
17
288
\u2014
\u2014
\n
Loans to customers - amortised cost
50,923
43,417
76,278
55,128
85,038
100,085
\n
Other financial assets
(1)
2,771
4,507
8,391
7,835
5,706
2,524
\n
Finance lease
96
267
857
482
549
296
\n
206,578
50,157
85,571
63,774
91,249
102,948
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
6,690
1,445
5,662
8,503
89
\u2014
\n
Customer deposits
437,830
11,389
1,252
2
14
20
\n
Settlement balances
2,012
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
280
(371)
586
306
116
85
\n
Other financial liabilities
6,720
6,640
18,833
13,906
7,361
294
\n
Subordinated liabilities
96
1,073
2,690
1,897
1,541
328
\n
Other liabilities- Notes in circulation
3,218
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
41
113
260
203
318
254
\n
456,887
20,289
29,283
24,817
9,439
981
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
3,150
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,779
\u2014
\u2014
\u2014
\u2014
\u2014
\n
121,929
\u2014
\u2014
\u2014
\u2014
\u2014
\n
2021
\n
Assets by contractual maturity up to 20 years
\n
Cash and balances at central banks
177,757
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(23)
(32)
72
15
10
17
\n
Settlement balances
2,141
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Loans to banks - amortised cost
5,735
1,689
21
\u2014
\u2014
\u2014
\n
Loans to customers - amortised cost
65,760
43,144
63,979
45,057
73,044
90,115
\n
Other financial assets
(1)
3,924
7,576
10,467
8,048
7,444
5,523
\n
Finance lease
290
340
746
504
704
377
\n
255,584
52,717
75,285
53,624
81,202
96,032
\n
Liabilities by contractual maturity up to 20 years
\n
Bank deposits
13,292
421
566
12,003
\u2014
\u2014
\n
Customer deposits
473,123
5,440
1,155
73
4
19
\n
Settlement balances
2,068
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Derivatives held for hedging
(57)
(31)
561
155
(152)
(198)
\n
Other financial liabilities
6,967
9,293
16,953
10,062
7,905
292
\n
Subordinated liabilities
66
1,604
3,481
2,170
1,496
563
\n
Other liabilities- Notes in circulation
3,047
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Lease liabilities
74
161
220
167
281
251
\n
498,580
16,888
22,936
24,630
9,534
927
\n
Guarantees and commitments - notional amount
\n
Guarantees
(2)
2,055
\u2014
\u2014
\u2014
\u2014
\u2014
\n
Commitments
(3)
118,536
\u2014
\u2014
\u2014
\u2014
\u2014
\n
120,591
\u2014
\u2014
\u2014
\u2014
\u2014
\n
(1)
Other financial assets exclude equity shares.
\n
(2)
NatWest Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. NatWest Group expects most guarantees it provides to expire
\n
unused.
\n
(3)
NatWest Group has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being
\n
met by the counterparty. NatWest Group does not expect all facilities to be drawn, and some may lapse before drawdown
.
30 Directors' and key management remuneration
Directors and key management are remunerated for services rendered in the period. The executive directors may participate in
\n
the company's long-term incentive plans, executive share option and sharesave schemes and details of their interests in the
\n
company's shares arising from their participation are given in the directors' remuneration report. Details of the remuneration
\n
received by each director are also given in the directors' remuneration report
.
\n
Key management comprises members of the NatWest Group plc and NWH Ltd Boards, members of the NatWest Group plc and
\n
NWH Ltd Executive Committees, and the Chief Executives of NatWest Markets Plc and RBS International (Holdings) Limited. This is
\n
on the basis that these individuals have been identified as Persons Discharging Managerial Responsibilities of NatWest Group plc
\n
under the new governance structure.
\n
2022
2021
\n
Directors' remuneration
\u00a3000
\u00a3000
\n
Non-executive directors emoluments
1,685
1,641
\n
Chairman and executive directors emoluments
5,804
4,688
\n
7,489
6,329
\n
Amounts receivable under long-term incentive plans and share option plans
542
549
\n
Total
8,031
6,878
\n
Compensation of key management
\n
The aggregate remuneration of directors and other members of key management during the year was as follows:
\n
2022
2021
\n
\u00a3000
\u00a3000
\n
Short-term benefits
22,175
17,303
\n
Post-employment benefits
732
820
\n
Share-based payments
2,547
2,491
\n
25,454
20,614
\n
Short term benefits include benefits expected to be settled wholly within twelve months of Balance Sheet date. Post-employment
\n
benefits include defined benefit contributions for active members and pension funding to support contributions to the defined
\n
contribution schemes. Share-based payments include awards vesting under rewards schemes.
\n
31 Transactions with directors and key management
\n
This note presents information relating to any transactions with directors and key management. Key management comprises
\n
directors of the company and Persons Discharging Managerial Responsibilities (PDMRs) of NatWest Group plc.
\n
For the purposes of IAS 24 Related party disclosures, key management comprises directors of the company and PDMRs of NatWest
\n
Group plc. Key management have banking relationships with NatWest Group entities which are entered into in the normal course
\n
of business and on substantially the same terms, including interest rates and security, as for comparable transactions with other
\n
persons of a similar standing or, where applicable, with other employees. These transactions did not involve more than the normal
\n
risk of repayment or present other unfavourable features.
\n
Amounts in the table below are attributed to each person at their highest level of NatWest Group key management.
\n
2022
2021
\n
\u00a3000
\u00a3000
\n
Loans to customers - amortised cost
12,137
9,128
\n
Customer deposits
47,866
51,018
\n
At 31 December 2022, amounts outstanding in relation to transactions, arrangements and agreements entered into by authorised
\n
institutions in NatWest Group, as defined in UK legislation, were \u00a39,636,586 in respect of loans to 8 persons who were directors of
the company at any time during the financial period.
32 Related parties
\n
A related party is a person or entity that is related to the entity that is preparing its financial statements. Transactions between an
\n
entity and any related party are disclosed in the financial statements in accordance with both accounting standards and relevant
\n
listing rules to ensure readers are aware of how financial statements may be affected by these transactions
.
\n
UK Government
\n
The UK Government through HM Treasury is the ultimate
\n
controlling party of The NatWest Group plc. The UK
\n
Government\u2019s shareholding is managed by UK Government
\n
Investments Limited, a company wholly owned by the UK
\n
Government. As a result the UK Government and UK
\n
Government controlled bodies are related parties of the Group.
\n
At 31 December 2022 HM Treasury\u2019s holding in the company\u2019s
\n
ordinary shares was 45.97%.
\n
NatWest Group enters into transactions with many of these
\n
bodies. Transactions include the payment of: taxes \u2013 principally
\n
UK corporation tax (Note 7) and value added tax; national
\n
insurance contributions; local authority rates; and regulatory
\n
fees and levies (including the bank levy (Note 3) and FSCS levy
\n
(Note 26) - together with banking transactions such as loans
\n
and deposits undertaken in the normal course of banker-
\n
customer relationships.
\n
Bank of England facilities
\n
NatWest Group may participate in a number of schemes
\n
operated by the Bank of England in the normal course of
\n
business.
\n
Members of NatWest Group that are UK authorised institutions
\n
are required to maintain non-interest bearing (cash ratio)
\n
deposits with the Bank of England amounting to 0.403% of their
\n
average eligible liabilities in excess of \u00a3600 million. They also
\n
have access to Bank of England reserve accounts: sterling
\n
current accounts that earn interest at the Bank of England Base
\n
rate.
\n
NatWest Group provides guarantees for certain subsidiaries
\n
liabilities to the Bank of England.
\n
Other related parties
\n
\ue001
In their roles as providers of finance, NatWest Group
\n
companies provide development and other types of capital
\n
support to businesses. These investments are made in the
\n
normal course of business.
\n
\ue001
To further strategic partnerships, NatWest group may seek
\n
to invest in third parties or allow third parties to hold a
\n
minority interest in a subsidiary of NatWest group. We
\n
disclose as related parties where stakes of 10 per cent or
\n
more are held. Ongoing business transactions with these
\n
entities are on normal commercial terms.
\n
\ue001
We hold investments and other assets of \u00a3871 million and
\n
total liabilities of \u00a34.5 million.
\n
\ue001
NatWest Group recharges NatWest Group Pension Fund with
\n
the cost of administration services incurred by it. The
\n
amounts involved are not material to NatWest Group.
\n
\ue001
During February 2023, the Group has entered into an
\n
agreement to establish a new legal structure to hold assets,
\n
consolidated on the Group\u2019s balance sheet, to meet potential
\n
future contributions required by the Main section of the
\n
Group\u2019 Pension Fund. This transaction will require a future
\n
transfer of \u00a3471 million to the Reservoir Trust
once the final
\n
dividend for 2022 approved by shareholders. This
\n
transaction does not create a pension liability with the Main
\n
section of the Group Pension Fund.
See further details in
\n
note 5 and note 33.
\n
\ue001
In accordance with IAS 24, transactions or balances
\n
between NatWest Group entities that have been eliminated
\n
on consolidation are not reported.
\n
\ue001
The primary financial statements of the parent company
\n
include transactions and balances with its subsidiaries which
\n
have been further disclosed in the relevant notes.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRelatedPartyExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f56798": { "value": "
17 Intangible assets
\n
Intangible assets, such as internally generated software and goodwill generated on business combinations are not physical in
\n
nature. This note presents the cost of the assets, which is the amount NatWest Group initially paid or incurred, additions and
\n
disposals during the year, and any amortisation or impairment. Amortisation is a charge that reflects the usage of the asset and
\n
impairment is a reduction in value arising from specific events identified during the year.
\n
For accounting policy information see Accounting policies notes 3.4 and 3.5.
\n
2022
2021
\n
Goodwill
Other (1)
Total
Goodwill
Other (1)
Total
\n
Cost
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
9,939
3,050
12,989
9,939
2,592
12,531
\n
Currency translation and other adjustments
(8)
(3)
(11)
\u2014
29
29
\n
Additions
\u2014
743
743
\u2014
479
479
\n
Disposals and write-off of fully amortised assets
\u2014
(27)
(27)
\u2014
(50)
(50)
\n
At 31 December
9,931
3,763
13,694
9,939
3,050
12,989
\n
Accumulated amortisation and impairment
\n
At 1 January
4,417
1,849
6,266
4,332
1,544
5,876
\n
Currency translation and other adjustments
(8)
(4)
(12)
\u2014
31
31
\n
Disposals and write-off of fully amortised assets
\u2014
(17)
(17)
\u2014
(28)
(28)
\n
Impairment of intangible assets
\u2014
\u2014
\u2014
85
2
87
\n
Amortisation charge for the year
\u2014
341
341
\u2014
300
300
\n
At 31 December
4,409
2,169
6,578
4,417
1,849
6,266
\n
Net book value at 31 December
5,522
1,594
7,116
5,522
1,201
6,723
\n
(1)
Principally internally generated software.
\n
Intangible assets and goodwill are reviewed for indicators of
\n
impairment. No impairment was indicated at 31 December
\n
2022. In 2021 goodwill in the Retail Banking segment was
\n
impaired by \u00a385 million.
\n
NatWest Group\u2019s goodwill acquired in business combinations is
\n
reviewed for impairment annually at 31 December by cash-
\n
generating unit (CGU) (2022 and 2021: Retail Banking \u00a32,607
\n
million; Commercial Banking \u00a32,606 million; Private Banking \u00a39
\n
million; and RBS International \u00a3300 million). Analysis by
\n
reportable segment is in Note 4 Segmental analysis.
\n
Impairment testing involves the comparison of the carrying
\n
value of each CGU with its recoverable amount. The carrying
\n
values of the segments reflect the equity allocations made by
\n
management, which are consistent with NatWest Group\u2019s
\n
capital targets.
\n
Recoverable amount is the higher of fair value less costs of
\n
disposal and value in use. Fair value is the price that would be
\n
received to sell an asset in an orderly transaction between
\n
market participants. Value in use is the present value of
\n
expected future cash flows from the CGU.
\n
The recoverable amounts for all CGUs at 31 December 2022
\n
were based on value in use, using management's latest five-
\n
year revenue and cost forecasts. These are discounted cash
\n
flow projections over five years. The forecast is then
\n
extrapolated in perpetuity using a long-term growth rate to
\n
compute a terminal value, which comprises the majority of the
\n
value in use. The long-term growth rates have been based on
\n
expected growth of the CGUs (2022: 1.4% and 2021: 1.6%). The
\n
pre-tax risk discount rates are based on those observed to be
\n
applied to businesses regarded as peers of the CGUs (2022:
\n
15.3% for Retail Banking, Commercial Banking and Private
\n
Banking, 14% for RBS International, and 2021: 13.9% for Retail
\n
Banking, Commercial Banking and Private Banking, 12.1% for
\n
RBS International).
", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f56799": { "value": "
17 Intangible assets
\n
Intangible assets, such as internally generated software and goodwill generated on business combinations are not physical in
\n
nature. This note presents the cost of the assets, which is the amount NatWest Group initially paid or incurred, additions and
\n
disposals during the year, and any amortisation or impairment. Amortisation is a charge that reflects the usage of the asset and
\n
impairment is a reduction in value arising from specific events identified during the year.
\n
For accounting policy information see Accounting policies notes 3.4 and 3.5.
\n
2022
2021
\n
Goodwill
Other (1)
Total
Goodwill
Other (1)
Total
\n
Cost
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
9,939
3,050
12,989
9,939
2,592
12,531
\n
Currency translation and other adjustments
(8)
(3)
(11)
\u2014
29
29
\n
Additions
\u2014
743
743
\u2014
479
479
\n
Disposals and write-off of fully amortised assets
\u2014
(27)
(27)
\u2014
(50)
(50)
\n
At 31 December
9,931
3,763
13,694
9,939
3,050
12,989
\n
Accumulated amortisation and impairment
\n
At 1 January
4,417
1,849
6,266
4,332
1,544
5,876
\n
Currency translation and other adjustments
(8)
(4)
(12)
\u2014
31
31
\n
Disposals and write-off of fully amortised assets
\u2014
(17)
(17)
\u2014
(28)
(28)
\n
Impairment of intangible assets
\u2014
\u2014
\u2014
85
2
87
\n
Amortisation charge for the year
\u2014
341
341
\u2014
300
300
\n
At 31 December
4,409
2,169
6,578
4,417
1,849
6,266
\n
Net book value at 31 December
5,522
1,594
7,116
5,522
1,201
6,723
\n
(1)
Principally internally generated software.
\n
Intangible assets and goodwill are reviewed for indicators of
\n
impairment. No impairment was indicated at 31 December
\n
2022. In 2021 goodwill in the Retail Banking segment was
\n
impaired by \u00a385 million.
\n
NatWest Group\u2019s goodwill acquired in business combinations is
\n
reviewed for impairment annually at 31 December by cash-
\n
generating unit (CGU) (2022 and 2021: Retail Banking \u00a32,607
\n
million; Commercial Banking \u00a32,606 million; Private Banking \u00a39
\n
million; and RBS International \u00a3300 million). Analysis by
\n
reportable segment is in Note 4 Segmental analysis.
\n
Impairment testing involves the comparison of the carrying
\n
value of each CGU with its recoverable amount. The carrying
\n
values of the segments reflect the equity allocations made by
\n
management, which are consistent with NatWest Group\u2019s
\n
capital targets.
\n
Recoverable amount is the higher of fair value less costs of
\n
disposal and value in use. Fair value is the price that would be
\n
received to sell an asset in an orderly transaction between
\n
market participants. Value in use is the present value of
\n
expected future cash flows from the CGU.
\n
The recoverable amounts for all CGUs at 31 December 2022
\n
were based on value in use, using management's latest five-
\n
year revenue and cost forecasts. These are discounted cash
\n
flow projections over five years. The forecast is then
\n
extrapolated in perpetuity using a long-term growth rate to
\n
compute a terminal value, which comprises the majority of the
\n
value in use. The long-term growth rates have been based on
\n
expected growth of the CGUs (2022: 1.4% and 2021: 1.6%). The
\n
pre-tax risk discount rates are based on those observed to be
\n
applied to businesses regarded as peers of the CGUs (2022:
\n
15.3% for Retail Banking, Commercial Banking and Private
\n
Banking, 14% for RBS International, and 2021: 13.9% for Retail
\n
Banking, Commercial Banking and Private Banking, 12.1% for
\n
RBS International).
", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f56800": { "value": "
17 Intangible assets
\n
Intangible assets, such as internally generated software and goodwill generated on business combinations are not physical in
\n
nature. This note presents the cost of the assets, which is the amount NatWest Group initially paid or incurred, additions and
\n
disposals during the year, and any amortisation or impairment. Amortisation is a charge that reflects the usage of the asset and
\n
impairment is a reduction in value arising from specific events identified during the year.
\n
For accounting policy information see Accounting policies notes 3.4 and 3.5.
\n
2022
2021
\n
Goodwill
Other (1)
Total
Goodwill
Other (1)
Total
\n
Cost
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
9,939
3,050
12,989
9,939
2,592
12,531
\n
Currency translation and other adjustments
(8)
(3)
(11)
\u2014
29
29
\n
Additions
\u2014
743
743
\u2014
479
479
\n
Disposals and write-off of fully amortised assets
\u2014
(27)
(27)
\u2014
(50)
(50)
\n
At 31 December
9,931
3,763
13,694
9,939
3,050
12,989
\n
Accumulated amortisation and impairment
\n
At 1 January
4,417
1,849
6,266
4,332
1,544
5,876
\n
Currency translation and other adjustments
(8)
(4)
(12)
\u2014
31
31
\n
Disposals and write-off of fully amortised assets
\u2014
(17)
(17)
\u2014
(28)
(28)
\n
Impairment of intangible assets
\u2014
\u2014
\u2014
85
2
87
\n
Amortisation charge for the year
\u2014
341
341
\u2014
300
300
\n
At 31 December
4,409
2,169
6,578
4,417
1,849
6,266
\n
Net book value at 31 December
5,522
1,594
7,116
5,522
1,201
6,723
\n
(1)
Principally internally generated software.
\n
Intangible assets and goodwill are reviewed for indicators of
\n
impairment. No impairment was indicated at 31 December
\n
2022. In 2021 goodwill in the Retail Banking segment was
\n
impaired by \u00a385 million.
\n
NatWest Group\u2019s goodwill acquired in business combinations is
\n
reviewed for impairment annually at 31 December by cash-
\n
generating unit (CGU) (2022 and 2021: Retail Banking \u00a32,607
\n
million; Commercial Banking \u00a32,606 million; Private Banking \u00a39
\n
million; and RBS International \u00a3300 million). Analysis by
\n
reportable segment is in Note 4 Segmental analysis.
\n
Impairment testing involves the comparison of the carrying
\n
value of each CGU with its recoverable amount. The carrying
\n
values of the segments reflect the equity allocations made by
\n
management, which are consistent with NatWest Group\u2019s
\n
capital targets.
\n
Recoverable amount is the higher of fair value less costs of
\n
disposal and value in use. Fair value is the price that would be
\n
received to sell an asset in an orderly transaction between
\n
market participants. Value in use is the present value of
\n
expected future cash flows from the CGU.
\n
The recoverable amounts for all CGUs at 31 December 2022
\n
were based on value in use, using management's latest five-
\n
year revenue and cost forecasts. These are discounted cash
\n
flow projections over five years. The forecast is then
\n
extrapolated in perpetuity using a long-term growth rate to
\n
compute a terminal value, which comprises the majority of the
\n
value in use. The long-term growth rates have been based on
\n
expected growth of the CGUs (2022: 1.4% and 2021: 1.6%). The
\n
pre-tax risk discount rates are based on those observed to be
\n
applied to businesses regarded as peers of the CGUs (2022:
\n
15.3% for Retail Banking, Commercial Banking and Private
\n
Banking, 14% for RBS International, and 2021: 13.9% for Retail
\n
Banking, Commercial Banking and Private Banking, 12.1% for
\n
RBS International).
", "dimensions": { "concept": "ifrs-full:DisclosureOfGoodwillExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f56974": { "value": "
18 Other assets
\n
Other assets are not financial assets and reflect a grouping of assets that are not large enough to present separately on the
\n
balance sheet.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Interests in associates
(1)
688
716
\n
Property, plant and equipment
(2)
4,240
4,230
\n
Pension schemes in net surplus (Note 5)
318
602
\n
Prepayments
340
360
\n
Accrued income
327
248
\n
Tax recoverable
279
190
\n
Deferred tax (Note 7)
2,178
1,195
\n
Acceptances
237
225
\n
Other
569
476
\n
Other assets
9,176
8,242
\n
(1)
Includes interest in Business Growth Fund \u00a3677 million (2021 - \u00a3700 million).
\n
(2)
The estimated useful lives of NatWest Group\u2019s property, plant and equipment are: freehold buildings and long leasehold 50 years, short leaseholds for unexpired period of lease,
\n
property adaptation costs 10 to 15 years, computer equipment up to 5 years and other equipment 4 to 15 years.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f56975": { "value": "
18 Other assets
\n
Other assets are not financial assets and reflect a grouping of assets that are not large enough to present separately on the
\n
balance sheet.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Interests in associates
(1)
688
716
\n
Property, plant and equipment
(2)
4,240
4,230
\n
Pension schemes in net surplus (Note 5)
318
602
\n
Prepayments
340
360
\n
Accrued income
327
248
\n
Tax recoverable
279
190
\n
Deferred tax (Note 7)
2,178
1,195
\n
Acceptances
237
225
\n
Other
569
476
\n
Other assets
9,176
8,242
\n
(1)
Includes interest in Business Growth Fund \u00a3677 million (2021 - \u00a3700 million).
\n
(2)
The estimated useful lives of NatWest Group\u2019s property, plant and equipment are: freehold buildings and long leasehold 50 years, short leaseholds for unexpired period of lease,
\n
property adaptation costs 10 to 15 years, computer equipment up to 5 years and other equipment 4 to 15 years.
", "dimensions": { "concept": "ifrs-full:DisclosureOfPrepaymentsAndOtherAssetsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f57581": { "value": "
Share capital consists of ordinary shares and preference shares and is measured as the number of shares allotted and fully paid
\n
multiplied by the nominal value of a share. Other equity includes paid-in equity, merger reserves, capital redemption reserve and
\n
own shares held.
\n
For accounting policy information see Accounting policies note 3.11.
\n
Number of shares
\n
2022
2021
2022
2021
\n
Allotted, called up and fully paid
\u00a3m
\u00a3m
000s
000s
\n
Ordinary shares of \u00a31.0769
(1)
10,539
11,468
9,786,024
11,467,982
\n
Cumulative preference shares of \u00a31
0.5
0.5
483
483
\n
Non-cumulative preference shares of US$0.01
(2)
\u2014
\u2014
\u2014
10
\n
(1)
The nominal value of ordinary shares without rounding is \u00a31.076923076923077 per share
\n
(2)
The company redeemed the Series U Non-cumulative dollar preference shares on 31 March 2022.
\n
Movement in allotted, called up and fully paid ordinary shares
\u00a3m
Number of shares 000s
\n
At 1 January 2021
12,129
12,129,165
\n
Shares issued
38
37,584
\n
Share cancellation
(699)
(698,767)
\n
At 1 January 2022
11,468
11,467,982
\n
Share cancellation
(929)
(929,188)
\n
Share consolidation
\u2014
(752,770)
\n
At 31 December 2022
10,539
9,786,024
\n
Ordinary shares
\n
At a General Meeting of the company on 25 August 2022,
\n
shareholders approved a share consolidation of the company's
\n
ordinary shares. Every 14 existing ordinary shares of \u00a31 each
\n
in the capital of the company in issue as at 26 August 2022
\n
were consolidated into one intermediate ordinary share of
\n
\u00a314.00 and immediately divided into 13 new ordinary shares of
\n
\u00a31.0769 in the capital of the company.
\n
There is no authorised share capital under the company\u2019s
\n
constitution. At 31 December 2022, the directors had authority
\n
granted at the 2022 Annual General Meeting to issue up to
\n
\u00a3561,452,512 nominal of ordinary shares other than by pre-
\n
emption to existing shareholders. This figure was amended to
\n
\u00a3520,306,980 at the General Meeting on 25 August 2022 to
\n
preserve the position as if the share consolidation had not
\n
taken place.
\n
On 6 February 2019 the company held a General Meeting and
\n
shareholders approved a special resolution to give the
\n
company authority to make off-market purchases of up to
\n
4.99% of its issued ordinary share capital in any 12-month
\n
period from HM Treasury (or its nominee) at such times as the
\n
directors may determine is appropriate. Full details of the
\n
proposal are set out in the Circular and Notice of General
\n
Meeting available at natwestgroup.com. This authority was
\n
renewed at the Annual General Meeting in 2022, and amended
\n
at the General Meeting held on 25 August 2022 to preserve the
\n
position as if the share consolidation had not taken place.
\n
Shareholders will be asked to renew the authority at the
\n
Annual General Meeting in 2023.
\n
The company utilised the authority it obtained at the 2021 AGM
\n
to make an off-market purchase of 549,851,147 ordinary
\n
shares (nominal value \u00a3549,851,147) in the company from HMT
\n
on 28 March 2022, at a price of 220.5p per ordinary share for
\n
the total consideration of \u00a31,212,421,779, representing 4.91% of
\n
the company\u2019s issued ordinary share capital. The company
\n
cancelled all of the purchased ordinary shares.
\n
At the Annual General Meeting in 2022 shareholders authorised
\n
the company to make market purchases of up to 1,122,905,024
\n
ordinary shares in the company. The authority was amended at
\n
the General Meeting held on 25 August 2022 to preserve the
\n
position as if the share consolidation had not taken place and
\n
shareholders will be asked to renew the authority at the Annual
\n
General Meeting in 2023.
\n
The directors utilised the authority obtained at the 2021 AGM
\n
to conduct a share buyback programme (the Programme) of up
\n
to \u00a3750 million, as announced to the market on 30 July 2021.
\n
The Programme\u2019s purpose is to reduce the ordinary share
\n
capital of NatWest Group. Taking into account the reduction in
\n
issued ordinary share capital which occurred as a result of the
\n
off-market buyback announced on 19 March 2021, the
\n
maximum number of ordinary shares that could be purchased
\n
by the company under the Programme was 1,157,583,542.
\n
Phase 1 of the Programme commenced on 2 August 2021 and
\n
completed on 18 January 2022. 340,537,460 ordinary shares
\n
(nominal value \u00a3340,537,460) were purchased by the company
\n
at an average purchase price of 220.0199p per ordinary share
\n
for the total consideration of \u00a3749,250,031. Phase 2 of the
\n
Programme commenced on 21 February 2022 and completed
\n
on 15 July 2022. A further 346,835,822 ordinary shares
\n
(nominal value \u00a3346,835,822) were purchased by the company
\n
at an average purchase price of 216.2406p per ordinary share
\n
for the total consideration of \u00a3749,999,999. All of the purchased
\n
ordinary shares were cancelled, representing 11.23% of the
\n
company\u2019s issued ordinary share capital.
\n
In 2022 NatWest Group paid an interim dividend of \u00a3364 million,
\n
or 3.5p per ordinary share (2021 \u2013 \u00a3347 million, or 3p per
\n
ordinary share).
\n
In addition, the company also paid a special dividend of \u00a31,750
\n
million, or 16.8p per ordinary share.
\n
The company has announced that the directors have
\n
recommended a final dividend of \u00a31.0 billion, or 10.0p per
\n
ordinary share (2021 \u2013 \u00a3844 million, or 7.5p per ordinary share)
\n
subject to shareholder approval at the Annual General Meeting
\n
on 25 April 2023.
\n
If approved, payment will be made on 2 May 2023 to
\n
shareholders on the register at the close of business on 17
\n
March 2023. The ex-dividend date will be 16 March 2023.
\n
Cumulative preference shares
\n
At the 2021 Annual General Meeting, shareholders authorised
\n
the company to make an off-market purchase of preference
\n
shares in the company. In December 2021 the company used
\n
this authority to purchase 157,546 5.5% cumulative preference
\n
shares and 259,314 11% cumulative preference shares. The
\n
company cancelled all of the purchased preference shares.
\n
Non-cumulative preference shares
\n
The company announced on 2 February 2022 that it had given
\n
notice to holders of the redemption of the Series U Non-
\n
Cumulative Dollar Preference Shares. On 31 March 2022, the
\n
Series U Dollar Non-cumulative Preference Shares, of amount
\n
outstanding US$1,013,000,000 were redeemed at the
\n
redemption price of US$100,000 per Series U Dollar Preference
\n
Share plus accrued dividends equalling $635.94 per share.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
Additional Tier 1 notes
\n
US$1.15 billion 8% notes callable August 2025
(1)
735
735
735
\n
US$2.65 billion 8.625% notes callable August 2021
(2)
\u2014
\u2014
2,046
\n
US$1.5 billion 6.000% notes callable
\n
December 2025 - June 2026
(3)
1,220
1,220
1,220
\n
GBP\u00a31.0 billion 5.125% notes callable
\n
May - November 2027
(4)
998
998
998
\n
GBP\u00a30.4 billion \u2013 March 2021 issuance
(5)
399
399
\u2014
\n
US$0.75 billion \u2013 June 2021 issuance
(6)
538
538
\u2014
\n
3,890
3,890
4,999
\n
(1)
Issued in August 2015. In the event of conversion, converted into ordinary shares at a price of $3.295 nominal per \u00a31 share.
\n
(2)
Issued in August 2016. In the event of conversion, converted into ordinary shares at a price of $2.284 nominal per \u00a31 share. In July 2021, paid-in equity reclassified to liabilities as
\n
the result of a call in August 2021 of US$2.65 billion AT1 Capital notes.
\n
(3)
Issued in June 2020. In the event of conversion, converted into ordinary shares at a price of $2.179 (translated at applicable exchange rate) per \u00a31 share.
\n
(4)
Issued in November 2020. In the event of conversion, converted into ordinary shares at a price of \u00a31.754 nominal per \u00a31 share.
\n
(5)
Issued in March 2021. In the event of conversion, converted into ordinary shares at a price of \u00a31.754 nominal per \u00a31 share.
\n
(6)
Issued in June 2021. In the event of conversion, converted into ordinary shares at a price of $2.448 (translated at applicable exchange rate) per \u00a31 share.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIssuedCapitalExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f57860": { "value": "
Own shares held
-
at 31 December 2022, 13 million ordinary
\n
shares of \u00a31.0769 each of the company (2021 - 15 million) were
\n
held by employee share trusts in respect of share awards and
\n
options granted to employees. During the year, the employee
\n
share trusts purchased no ordinary shares and delivered 2
\n
million ordinary shares in satisfaction of the exercise of options
\n
and the vesting of share awards under the employee share
\n
plans. The company retains the flexibility to use newly issued
\n
shares, shares purchased by the NatWest Group Employee
\n
Share Ownership Trust and any available treasury shares to
\n
satisfy obligations under its employee share plans.
The
\n
company does not use performance conditions or targets
\n
based on earnings per share (EPS), total shareholder return
\n
(TSR), and net asset value (NAV) in connection with its
\n
employee share plans.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTreasurySharesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f57929": { "value": "
23 Structured entities
\n
A structured entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in
\n
deciding who controls the entity, for example when any voting rights relate to administrative tasks only and the relevant activities
\n
are directed by means of contractual arrangements. SEs are usually established for a specific, limited purpose. They do not carry
\n
out a business or trade and typically have no employees.
\n
Securitisations
\n
In a securitisation, assets, or interests in a pool of assets, are
\n
transferred, or the credit risk is transferred via a derivative or
\n
financial guarantee to a SE which then issues liabilities to third
\n
party investors.
\n
NatWest Group\u2019s involvement in client securitisations takes a
\n
number of forms. It may provide secured finance to, or
\n
purchase asset-backed notes from, client sponsored SEs
\n
secured on assets transferred by the client entity; purchase
\n
asset backed securities issued by client sponsored SEs in the
\n
primary or secondary markets; or provide liquidity facilities to
\n
client sponsored SEs. In addition, NatWest Group arranges or
\n
acts as lead manager or placement agent in client primary
\n
markets securitisations. NatWest Group provides portfolio
\n
structured derivative hedging solutions to clients. NatWest
\n
Group undertakes own-asset securitisations to transfer the
\n
credit risk on portfolios of financial assets.
\n
Other credit risk transfer securitisations
\n
NatWest Group transfers credit risk on originated loans and
\n
mortgages without the transfer of assets to a SE. As part of
\n
this, NatWest Group enters into credit derivative and financial
\n
guarantee contracts with consolidated SEs. At 31 December
\n
2022, debt securities in issue by such SEs (and held by third
\n
parties) were \u00a3859 million (2021 - \u00a3867 million). The associated
\n
loans and mortgages at 31 December 2022 were \u00a34,361 million
\n
(2021 - \u00a37,137 million).
\n
At 31 December, ECL in relation to non-defaulted assets was
\n
reduced by \u00a320 million (2021 - \u00a328 million) as a result of
\n
financial guarantee contracts with consolidated SEs.
\n
Covered debt programme
\n
Group companies have assigned loans to customers and debt
\n
investments to bankruptcy remote limited liability partnerships
\n
to provide security for issues of debt securities. NatWest Group
\n
retains all of the risks and rewards of these assets and
\n
continues to recognise them. The partnerships are consolidated
\n
by NatWest Group and the related covered bonds included
\n
within other financial liabilities. At 31 December 2022, \u00a38,156
\n
million (2021 - \u00a38,965 million) of loans to customers provided
\n
security for debt securities in issue and other borrowing of
\n
\u00a34,132 million (2021 - \u00a33,512 million).
\n
Lending of own issued securities
\n
NatWest Group has issued, retained, and lent debt securities
\n
under securities lending arrangements. Under standard terms
\n
in the UK and US markets, the recipient has an unrestricted
\n
right to sell or repledge collateral, subject to returning
\n
equivalent securities on maturity of the transaction.
NatWest
\n
Group retains all of the risks and rewards of own issued
\n
liabilities lent under such arrangements and does not recognise
\n
them. At 31 December 2022, \u00a32,419 million (2021 - \u00a31,494
\n
million) of secured own issued liabilities have been retained and
\n
lent under securities lending arrangements. At 31 December
\n
2022, \u00a32,244 million (2021 - \u00a31,564 million) of loans and other
\n
debt instruments provided security for secured own issued
\n
liabilities that have been retained and lent under securities
\n
lending arrangements
.
\n
Unconsolidated structured entities
\n
NatWest Group\u2019s interest in unconsolidated structured entities is analysed below.
\n
2022
2021
\n
Asset backed
\n
securitisation
\n
vehicles
\n
Investment
\n
funds and
\n
others
Total
\n
Asset backed
\n
securitisation
\n
vehicles
\n
Investment
\n
funds and
\n
others
Total
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
Trading assets and derivatives
\n
Trading assets
616
137
753
490
117
607
\n
Derivative assets
343
\u2014
343
251
18
269
\n
Derivative liabilities
(388)
(22)
(410)
(170)
(1)
(171)
\n
Total
571
115
686
571
134
705
\n
Non trading assets
\n
Loans to customers
2,431
648
3,079
1,692
361
2,053
\n
Other financial assets
6,334
849
7,183
3,645
379
4,024
\n
Total
8,765
1,497
10,262
5,337
740
6,077
\n
Liquidity facilities/loan commitments
1,723
320
2,043
1,403
135
1,538
\n
Guarantees
\u2014
107
107
\u2014
\u2014
\u2014
\n
Maximum exposure
11,059
2,039
13,098
7,311
1,009
8,320
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestsInOtherEntitiesExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f58163": { "value": "
Assets pledged as collateral
\n
NatWest Group pledges collateral with its counterparties in respect of derivative liabilities and bank and stock borrowings.
\n
2022
2021
\n
Assets pledged against liabilities
\u00a3m
\u00a3m
\n
Trading assets
15,062
23,601
\n
Loans to banks - amortised cost
66
62
\n
Loans to customers - amortised cost
17,493
20,108
\n
Other financial assets
(1)
3,351
3,624
\n
Total
35,972
47,395
\n
(1)
Includes assets pledged for pension derivatives and stock borrowings.
\n
As part of the covered debt programme \u00a38,156 million of loans to customers and other debt instruments (2021 \u2013 \u00a38,965 million)
\n
have been transferred to bankruptcy remote limited liability partnerships within the NatWest Group to provide collateral for issues
\n
of debt securities and other borrowing by the NatWest Group of \u00a34,132 million (2021 \u2013 \u00a33,512 million). See Structured Entities Note.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCollateralExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f58223": { "value": "
25 Capital resources
\n
NatWest Group\u2019s regulatory capital is assessed against minimum requirements that are set out under the Capital Requirements
\n
Regulation to determine the strength of its capital base.
\n
This note shows a reconciliation of shareholders\u2019 equity to regulatory capital.
\n
2022
2021
\n
\u00a3m
\u00a3m
\n
Shareholders\u2019 equity (excluding non-controlling interests)
\n
Shareholders\u2019 equity
36,488
41,796
\n
Preference shares - equity
\u2014
(494)
\n
Other equity instruments
(3,890)
(3,890)
\n
32,598
37,412
\n
Regulatory adjustments and deductions
\n
Own credit
(58)
21
\n
Defined benefit pension fund adjustment
(227)
(465)
\n
Cash flow hedging reserve
2,771
395
\n
Deferred tax assets
(912)
(761)
\n
Prudential valuation adjustments
(275)
(274)
\n
Goodwill and other intangible assets
(7,116)
(6,312)
\n
Foreseeable ordinary dividends and pension contributions
(967)
(1,211)
\n
Adjustment for trust assets
(1)
(365)
\u2014
\n
Foreseeable charges - on-market share buyback programme
(800)
(825)
\n
Adjustment under IFRS 9 transitional arrangements
361
621
\n
Insufficient coverage for non-performing exposures
(18)
(5)
\n
(7,606)
(8,816)
\n
CET1 capital
24,992
28,596
\n
Additional Tier 1 (AT1) capital
\n
Qualifying instruments and related share premium
3,875
3,875
\n
Qualifying instruments and related share premium subject to phase out
\u2014
571
\n
AT1 capital
3,875
4,446
\n
Tier 1 capital
28,867
33,042
\n
Qualifying Tier 2 capital
\n
Qualifying instruments and related share premium
4,953
4,935
\n
Qualifying instruments issued by subsidiaries and held by third parties
82
314
\n
Other regulatory adjustments
18
457
\n
Tier 2 capital
5,053
5,706
\n
Total regulatory capital
33,920
38,748
\n
(1)
Prudent deduction in respect of agreement with the pension fund to establish new legal structure. See Notes 5 and 33.
\n
It is NatWest Group policy to maintain a strong capital base, to
\n
expand it as appropriate and to utilise it efficiently throughout
\n
its activities to optimise the return to shareholders while
\n
maintaining a prudent relationship between the capital base
\n
and the underlying risks of the business. In carrying out this
\n
policy, NatWest Group has regard to the supervisory
\n
requirements of the PRA. The PRA uses capital ratios as a
\n
measure of capital adequacy in the UK banking sector,
\n
comparing a bank's capital resources with its risk-weighted
\n
assets (the assets and off-balance sheet exposures are
\n
weighted to reflect the inherent credit and other risks); by
\n
international agreement, the Pillar 1 capital ratios should be not
\n
less than 8% with a Common Equity Tier 1 component of not
\n
less than 4.5%. NatWest Group has complied with the PRA\u2019s
\n
capital requirements throughout the year.
\n
A number of subsidiaries and sub-groups within NatWest
\n
Group, principally banking entities, are subject to various
\n
individual regulatory capital requirements in the UK and
\n
overseas. Furthermore, the payment of dividends by
\n
subsidiaries and the ability of members of NatWest Group to
\n
lend money to other members of NatWest Group may be
\n
subject to restrictions such as local regulatory or legal
\n
requirements, the availability of reserves and financial and
\n
operating performance.
", "dimensions": { "concept": "ifrs-full:DisclosureOfObjectivesPoliciesAndProcessesForManagingCapitalExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f59278": { "value": "28 Analysis of changes in financing during the year
This note shows cash flows and non-cash movements relating to the financing activities of the Group. These activities reflect
\n
movements in share capital, share premium, paid-in equity, subordinated liabilities and MRELs.
\n
Share capital, share premium,
\n
and paid-in equity
Subordinated liabilities
MRELs
\n
2022
2021
2020
2022
2021
2020
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
16,519
18,239
17,246
8,429
9,962
9,979
23,423
20,873
19,249
\n
Issue of paid-in equity
\u2014
937
2,218
\n
Issue of subordinated liabilities
648
1,634
1,631
\n
Redemption of subordinated liabilities
(3,693)
(4,765)
(3,502)
\n
Interest on subordinated liabilities
(374)
(321)
(510)
\n
Issue of MRELs
3,721
3,383
1,309
\n
Maturity and redemption of MRELs
(4,992)
\u2014
(2)
\n
Interest on MRELs
(703)
(647)
(671)
\n
Net cash inflow/(outflow) from financing
\u2014
937
2,218
(3,419)
(3,452)
(2,381)
(1,974)
2,736
636
\n
Ordinary shares issued
\u2014
87
52
\n
Share cancellation
(929)
(698)
\u2014
\n
Effects of foreign exchange
\u2014
\u2014
\u2014
597
(18)
(234)
1,889
(190)
(514)
\n
Changes in fair value of subordinated
\n
liabilities and MRELs
(594)
(434)
133
(1,806)
(649)
829
\n
Preference shares reclassified to
\n
subordinated liabilities
750
\u2014
\u2014
\n
Paid in equity reclassified to subordinated
\n
liabilities
\u2014
(2,046)
(1,277)
\u2014
1,915
1,632
\n
Loss on sale of subordinated liabilities
\n
and MRELs
161
145
324
\u2014
\u2014
\u2014
\n
Interest on subordinated liabilities
\n
and MRELs
370
311
509
733
653
673
\n
Other adjustments
\u2014
\u2014
\u2014
(34)
\u2014
\u2014
\u2014
\u2014
\u2014
\n
At 31 December
15,590
16,519
18,239
6,260
8,429
9,962
22,265
23,423
20,873
\n
29 Analysis of cash and cash equivalents
\n
In the cash flow statement, cash and cash equivalents comprises cash, loans to banks and treasury bills with an original maturity
\n
of less than three months that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
190,706
139,199
100,588
\n
Net (decrease)/increase in cash and cash equivalents
(32,257)
51,507
38,611
\n
At 31 December
158,449
190,706
139,199
\n
Comprising:
\n
Cash and balances at central banks
144,832
177,757
124,489
\n
Trading assets
8,551
7,137
9,220
\n
Other financial assets
19
16
173
\n
Loans to banks
(1)
5,047
5,796
5,317
\n
Cash and cash equivalents
158,449
190,706
139,199
\n
(1)
Includes cash collateral posted with bank counterparties in respect of derivative liabilities of \u00a34,895 million (2021 - \u00a34,293 million; 2020 - \u00a37,592 million).
\n
Certain members of NatWest Group are required by law or regulation to maintain balances with the central banks in the
\n
jurisdictions in which they operate. Natwest Markets N.V.
had mandatory reserve deposits with
De Nederlandsche Bank N.V.
of \u20ac64
\n
million (2021 - \u20ac60 million, 2020 - \u20ac81 million).
The Royal Bank of Scotland International (Holdings) Limited had balances with
\nCentral Bank of Luxembourg of \u00a3108 million (2021 - \u00a3123 million, 2020 - \u00a359 million) ", "dimensions": { "concept": "ifrs-full:DisclosureOfCashFlowStatementExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f59428": { "value": "29 Analysis of cash and cash equivalents
In the cash flow statement, cash and cash equivalents comprises cash, loans to banks and treasury bills with an original maturity
\n
of less than three months that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
\n
2022
2021
2020
\n
\u00a3m
\u00a3m
\u00a3m
\n
At 1 January
190,706
139,199
100,588
\n
Net (decrease)/increase in cash and cash equivalents
(32,257)
51,507
38,611
\n
At 31 December
158,449
190,706
139,199
\n
Comprising:
\n
Cash and balances at central banks
144,832
177,757
124,489
\n
Trading assets
8,551
7,137
9,220
\n
Other financial assets
19
16
173
\n
Loans to banks
(1)
5,047
5,796
5,317
\n
Cash and cash equivalents
158,449
190,706
139,199
\n
(1)
Includes cash collateral posted with bank counterparties in respect of derivative liabilities of \u00a34,895 million (2021 - \u00a34,293 million; 2020 - \u00a37,592 million).
\n
Certain members of NatWest Group are required by law or regulation to maintain balances with the central banks in the
\n
jurisdictions in which they operate. Natwest Markets N.V.
had mandatory reserve deposits with
De Nederlandsche Bank N.V.
of \u20ac64
\n
million (2021 - \u20ac60 million, 2020 - \u20ac81 million).
The Royal Bank of Scotland International (Holdings) Limited had balances with
Central Bank of Luxembourg of \u00a3108 million (2021 - \u00a3123 million, 2020 - \u00a359 million)", "dimensions": { "concept": "ifrs-full:DisclosureOfCashAndCashEquivalentsExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f59519": { "value": "30 Directors' and key management remuneration
Directors and key management are remunerated for services rendered in the period. The executive directors may participate in
\n
the company's long-term incentive plans, executive share option and sharesave schemes and details of their interests in the
\n
company's shares arising from their participation are given in the directors' remuneration report. Details of the remuneration
\n
received by each director are also given in the directors' remuneration report
.
\n
Key management comprises members of the NatWest Group plc and NWH Ltd Boards, members of the NatWest Group plc and
\n
NWH Ltd Executive Committees, and the Chief Executives of NatWest Markets Plc and RBS International (Holdings) Limited. This is
\n
on the basis that these individuals have been identified as Persons Discharging Managerial Responsibilities of NatWest Group plc
\n
under the new governance structure.
\n
2022
2021
\n
Directors' remuneration
\u00a3000
\u00a3000
\n
Non-executive directors emoluments
1,685
1,641
\n
Chairman and executive directors emoluments
5,804
4,688
\n
7,489
6,329
\n
Amounts receivable under long-term incentive plans and share option plans
542
549
\n
Total
8,031
6,878
\n
Compensation of key management
\n
The aggregate remuneration of directors and other members of key management during the year was as follows:
\n
2022
2021
\n
\u00a3000
\u00a3000
\n
Short-term benefits
22,175
17,303
\n
Post-employment benefits
732
820
\n
Share-based payments
2,547
2,491
\n
25,454
20,614
\n
Short term benefits include benefits expected to be settled wholly within twelve months of Balance Sheet date. Post-employment
\n
benefits include defined benefit contributions for active members and pension funding to support contributions to the defined
\n
contribution schemes. Share-based payments include awards vesting under rewards schemes.
\n
31 Transactions with directors and key management
\n
This note presents information relating to any transactions with directors and key management. Key management comprises
\n
directors of the company and Persons Discharging Managerial Responsibilities (PDMRs) of NatWest Group plc.
\n
For the purposes of IAS 24 Related party disclosures, key management comprises directors of the company and PDMRs of NatWest
\n
Group plc. Key management have banking relationships with NatWest Group entities which are entered into in the normal course
\n
of business and on substantially the same terms, including interest rates and security, as for comparable transactions with other
\n
persons of a similar standing or, where applicable, with other employees. These transactions did not involve more than the normal
\n
risk of repayment or present other unfavourable features.
\n
Amounts in the table below are attributed to each person at their highest level of NatWest Group key management.
\n
2022
2021
\n
\u00a3000
\u00a3000
\n
Loans to customers - amortised cost
12,137
9,128
\n
Customer deposits
47,866
51,018
\n
At 31 December 2022, amounts outstanding in relation to transactions, arrangements and agreements entered into by authorised
\n
institutions in NatWest Group, as defined in UK legislation, were \u00a39,636,586 in respect of loans to 8 persons who were directors of
\nthe company at any time during the financial period. ", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutKeyManagementPersonnelExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f59735": { "value": "33 Post balance sheet events
A
post balance sheet event is an event that takes place between 31 December 2022 (reporting date) and 16 February 2023 (date
\n
of approval of these financial statements). Significant events are included in the financial statements either to provide new
\n
information about conditions that existed at 31 December 2022, including estimates used to prepare the financial statements
\n
(known as an adjusting event) or to provide new information about conditions that did not exist at 31 December 2022 (non-
\n
adjusting events). This note provides information relating to material non-adjusting events.
\n
On 6 February 2023, NWB reached agreement with the trustees of the Main Section of the Group pension scheme to recognise
\n
that the final distribution linked contribution to the Main Scheme, of up to \u00a3471 million, in 2023 is not expected to be required. In its
\n
place, agreement was reached to establish a new legal
structure to hold assets with a value equivalent to \u00a3471 million. These
\n
assets would become transferrable to the Main section in the event that future triggers, reflecting a funding requirement, were
\n
met. The assets are not de-recognised from NWB balance sheet but are recorded as encumbered. The Group believes likelihood of
\n
triggers being met are remote given the current funding position of the Main section.
\n
Other than as disclosed in the accounts, there have been no other significant events between 31 December 2022 and the date of
approval of these accounts which would require a change or additional disclosure.", "dimensions": { "concept": "ifrs-full:DisclosureOfEventsAfterReportingPeriodExplanatory", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f70377": { "value": "36 St Andrew Square \nEdinburgh, EH2 2YB ", "dimensions": { "concept": "ifrs-full:AddressOfRegisteredOfficeOfEntity", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f70388": { "value": "Edinburgh", "dimensions": { "concept": "ifrs-full:PrincipalPlaceOfBusiness", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f70433": { "value": "NatWest Group plc", "dimensions": { "concept": "ifrs-full:NameOfParentEntity", "language": "en", "entity": "scheme:2138005O9XJIJN4JPN90", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } } } }