Markets Plc
NatWest
2024 Annual Report and Accounts
Contents
NWM Group
Annual Report and Accounts 2024
1
Page
Strategic report
Performance highlights
2
Outlook
2
Our business model: how we create value
3
Strategic progress
5
Operating environment
6
Risk overview
8
Section 172(1) statement
12
Financial review
14
Risk and capital management
18
Report of the directors
69
Statement of directors’ responsibilities
73
Financial statements
74
Risk factors
159
Forward-looking statements
177
Approval of Strategic report
The Strategic report for the year ended 31 December 2024 set out on pages 2 to 13 was approved by the Board of Directors on 13
February 2025.
By order of the Board
Company Secretary
Sarah Beddows
13 February 2025
Chair
Frank Dangeard
Executive Directors
Jonathan Peberdy, CEO
Simon Lowe, CFO
Non-Executive Directors
Tamsin Rowe
Anne Simpson
Sabrina Wilson
Presentation of information
NatWest Markets Plc (‘NWM Plc’) is a wholly owned subsidiary of NatWest Group plc or ‘the ultimate holding company’.
The NatWest Markets Group (‘NWM Group’) or ‘we’ comprises NWM Plc and its subsidiary and associated undertakings.
The term ‘NatWest Group’ comprises NatWest Group plc and its subsidiaries.
The term ‘NatWest Markets’ refers to the primary business activities for NWM Group. These activities form part of the NatWest Group
Commercial & Institutional segment.
Performance highlights
NWM Group
Annual Report and Accounts 2024
2
Throughout another year of geopolitical and macroeconomic volatility, we stayed focused on what mattered most to our customers,
colleagues and key stakeholders. As part of the NatWest Group Commercial & Institutional segment, we made progress on our strategic
priorities by exploring further opportunities for growth and strengthening our relationships with NatWest Group customers.
We maintained our robust capital and liquidity position during the year and reported an operating profit before tax for the year ended 31
December 2024 of £37 million, compared with a loss of £75 million for the year ended 31 December 2023. We delivered stronger year-
on-year income across all our primary business lines – Capital Markets, Fixed Income and Currencies - partially offset by the impact of
FX reserves recycling and lower income from the profit share arrangement with fellow NatWest Group subsidiaries. An increase in other
operating expenses was largely driven by higher staff costs, offset by credits recognised in relation to property charges and VAT
recoveries.
Refer to the Strategic progress section on page 5 and the Financial review section on page 14 for further details on the NWM Group
performance for the period.
Financial highlights
2024
2023
Performance (£m)
Total income
1,237
1,069
Other operating expenses
(1)
1,106
1,082
Income excluding own credit adjustments
1,246
1,072
Operating profit/(loss) before tax
37
(75)
Capital and leverage
(2)
CET1 ratio
(3)
18.2%
17.1%
MREL ratio
(3)
48.2%
34.5%
Leverage ratio
5.5%
5.0%
Liquidity coverage ratio (LCR)
195%
183%
RWAs
£20.8bn
£22.1bn
(1)
Excludes litigation and conduct costs.
(2)
These metrics are shown for NWM Plc. Capital, leverage and risk-weighted assets (RWAs) are based on Prudential Regulation Authority (PRA) transitional arrangements for NWM Plc.
Regulatory capital is monitored and reported at NWM Plc level.
(3)
CET1 stands for Common Equity Tier 1 capital and MREL refers to the minimum requirement for own funds and eligible liabilities.
Non-financial highlights
2024
2023
Climate
Climate and sustainable funding and financing
(1)
£17.7bn
£14.8bn
Facilitated emissions (MtCO
2
e)
(2)
1.28
0.50
People
Culture index score
(3)
73%
75%
Purposeful Leadership score
(3)
74%
74%
(1)
NatWest Group uses its climate and sustainable funding and financing inclusion criteria (CSFFI criteria) to determine the assets, activities and companies that are eligible to be included
within its climate and sustainable funding and financing target. This includes both provision of committed (on and off-balance sheet) funding and financing, including provision of
services for underwriting issuances and private placements.
(2)
In 2024, the estimation of Facilitated emissions was updated to align to the latest Partnership for Carbon Accounting Financials (PCAF) guidance, which expanded the scope to include
syndicated lending and financial institutions and prescribed the reporting of facilitated emissions at 33%. For 2023, facilitated emissions were reported for corporate bond underwriting at
100% (1.5MtCo2e). Refer to page 63 of the NWM Group ARA for the disclosure of estimated facilitated emissions including the PCAF methodology.
(3)
NWM Group achieved the purposeful leadership target of 74% and a Culture index score of 73% against a target of 75%, as measured through the September 2024 Our View colleague
engagement survey, which is conducted on a half-yearly basis. The Culture index and Purposeful Leadership scores consist of 10 Culture and 12 Purposeful Leadership questions, as
defined and measured in Our View. All scores shown are for NWM Group. To enable like-for-like year-on-year comparisons, all scores shown are based on the Willis Towers Watson
(WTW) calculation methodology. Over 1,200 or 82% of NWM Group colleagues across all countries and levels participated in our September 2024 Our View colleague engagement
survey.
Outlook
(1,2)
Medium-term outlook
Metric
(3)
Estimate
CET1 ratio
~14%
MREL ratio
(4)
>30%
Leverage ratio
>4%
(1)
This supersedes all prior guidance.
(2)
The guidance, targets, expectations and trends discussed in this section represent management’s current expectations and are subject to change, including as a result of the factors
described in the ‘Risk factors’ section in this document. These statements constitute forward-looking statements. Refer to ‘Forward-looking statements’ in this document.
(3)
All metrics presented relate to NWM Plc.
(4)
Includes total regulatory capital, non-eligible capital and downstreamed internal MREL.
Our business model: how we create value
NWM Group
Annual Report and Accounts 2024
3
NWM Group provides access to financial markets for NatWest Group customers, through an integrated corporate and institutional
customer proposition, with full-service financing and risk management expertise.
Our key
strengths and
resources
Our strengths
Strong specialist capabilities that our customers value.
Digital First-led Currencies and Fixed Income businesses that are connected across NatWest Group to
support customers.
Innovative Capital Markets platform with industry-leading structuring and distribution expertise.
Recognised Climate and ESG capabilities, providing expertise and innovation in Sustainable Finance, ESG
advisory and thought leadership.
Our resources
Well positioned with national coverage and reach as part of one of the UK’s largest banks.
Our ability to source funding and distribute risk means we can support our larger customers who operate
in global markets.
A highly engaged, customer-focused, diverse workforce with significant expertise and experience.
Strong capital and liquidity positions.
What we do
Our customers
As part of NatWest Group, we support corporate and institutional customers. We work in close
collaboration with teams across the bank to provide capital markets and risk management solutions to
its customers.
Our operations
NWM Group is headquartered in the UK with trading hubs in Asia, Europe and the US. Financial
markets access is offered by NWM Group across NatWest Markets Plc (NWM Plc) and its subsidiaries,
including NatWest Markets Securities Inc. and NatWest Markets N.V. (NWM N.V.).
Our products and solutions
We provide liquidity and risk management in our Currencies and Fixed Income businesses through a
combination of voice and electronic distribution channels. Through our Capital Markets business, we
provide an integrated proposition across financing, solutions and advisory services, which also
incorporates Climate and ESG solutions and perspectives.
Our strategists and content experts across Currencies, Fixed Income and Capital Markets offer industry
and economic insights in the key economies where our customers do business.
We have a sharp focus on digitisation and automation, and we offer a range of digital FX, fixed income,
risk management and international payments options which use our applications or application
programme interfaces (APIs), including Agile Markets, FXmicropay and Rate Manager.
Fixed Income
We have long-standing expertise in the fixed income markets and offer cash bond, repo and interest
rate derivatives, with a focus on sterling, euros and US dollars, that supports our customers’ financing
and hedging needs. In addition, we provide liquidity and credit for investment-grade and high-yield
bonds and loans for both financial institutions and corporate issuers.
Currencies
We are an award-winning foreign exchange service provider offering FX spot, forwards, cross-currency
swaps and options, as well as an FX prime service and FX digital solutions.
Capital Markets
We help customers to access global debt capital markets across a wide variety of products and target
markets, including bonds, loans, commercial paper, medium-term notes (MTNs) and private placements. We
also provide bespoke financing solutions to customers, including structuring, distribution, on balance sheet
financing and risk management products.
Creating value
for our
stakeholders
NatWest Group
We provide access to financial markets for NatWest Group customers, through an integrated proposition and
expertise. The benefit of combined capabilities of the Commercial & Institutional segment enables NatWest
Markets to unlock greater opportunities to meet more of our customer needs.
NatWest Markets investors
We maintained a robust capital base and liquidity positions, giving confidence to existing and future
investors on the resilience of NWM Group.
Our business model: how we create value continued
NWM Group
Annual Report and Accounts 2024
4
Creating value
for our
stakeholders
(continued)
Also refer to Board
engagement with key
stakeholders on page 12.
Customers
In 2024, we continued to focus on anticipating our customers’ needs and providing excellent customer
service and execution. Our support with financing and risk solutions has been recognised by a number
of industry awards
(1)
including:
–
‘World’s Best FX Prime Brokerage’ and ‘UK’s Best FX Bank’ for the fifth consecutive year at
the Euromoney Foreign Exchange Awards 2024.
–
'Best Prime Broker’ for the fourth consecutive year and ‘Best e-FX solution for corporates’ for
the first time at the e-FX Awards 2024.
–
‘Best Foreign Exchange Bank in the UK’ for the fifth consecutive year at the Global Finance
2024 Awards.
–
‘Most Impressive Corporate MTN Dealer’, which recognised performance in the international
bond markets at the Global Capital Bond Awards 2024.
–
'Best ESG SSA Bookrunner/Dealer’, ‘Best FIG MTN Private Placement Dealer’ and ‘Best GBP
Bookrunner/Dealer’ at the CMD Portal 2024 Awards.
–
‘Lead manager of the year, green bonds – financial institution’ and ‘Lead manager of the year,
social bonds – supranational, sub-sovereign and agency’ at the Environmental Finance’s Bond
Awards 2024.
Colleagues
We are focused on developing our talent and people proposition to facilitate greater franchise
mobility and encouraging a culture of innovation, and enterprise-wide collaboration. In 2024, we
reviewed the Commercial & Institutional approach to aligning role sizes, grades, corporate titles and
market data benchmarking to ensure consistency across the franchise, which was supported at
NWM Plc Performance and Remuneration Committee. Our People policies and procedures are,
wherever possible, aligned to NatWest Group. Information on NatWest Group-wide progress can be
found in the ‘Our Colleagues’ section in the NatWest Group 2024 Annual Report and Accounts
(NatWest Group ARA).
We are also focused on creating a diverse, equitable and inclusive workplace. NWM Group aligns with
NatWest Group’s diversity, equity and inclusion (DE&I) targets and strategy, and promotes NatWest
Group-wide initiatives, such as the One Bank DE&I Action Committee.
As at 31 December 2024,
we had 24% women in our top three layers globally, meeting the NWM
Group agreed gender target
(2)
. The reported mean gender pay gap is 36.1% (median: 30.5%) and the
mean gender bonus gap is 59.9% (median: 57.1%). Of the 78% of colleagues who disclosed their
ethnicity, we have an aggregate 21% from ethnic minority groups in our top four layers in the UK,
compared to the agreed ethnicity target of 22%.
Regulators and industry bodies
We provided insights via our active participation in trade associations and industry-wide forums on
key topics such as the EMIR REFIT (Regulatory Fitness and Performance Programme).
We actively participate in industry-wide climate-related and ESG forums, which contribute to the
development of market standards and legislation. In 2024, we focused on the governance of
sustainability-linked products by engaging with the Financial Markets Standards Board’s ESG
Committee and the EU Taxonomy usability by engaging with the Association for Financial Markets
in Europe.
Community and environment
We continued to share ESG thought leadership with our Commercial & Institutional customers and the
wider public through events, webinars, podcasts and bespoke product solutions.
In 2024, we hosted an event focused on the ‘Decarbonisation of the UK Real Economy’. The day was
opened by Chris Stark, who now leads the UK Government’s Mission Control for Clean Power 2030
initiative, and Lord Stern, Chair of the Grantham Research Institute on Climate Change and the
Environment at the London School of Economics, followed by a plenary session and workshops focused
on transition plans and sustainability disclosure requirements.
We held the second annual ‘Women Mobilising Sustainability’ event during London Climate Action Week.
The event hosted a panel of female leaders who shared their views on how sustainability can create
business opportunities and enhance enterprise value, highlighting the economic benefits of sustainability
strategies.
(1)
The award submission may be submitted at the NatWest Group parent level, incorporating content from NWM Plc.
(2)
The NWM Group gender target for 2024 was 24%, a decrease from the prior year’s target by 5 percentage points. This adjustment reflects the ongoing Commercial & Institutional segment development and
resulting organisational changes, including the transition of roles from NWM Group to the broader NatWest Group. These shifts were anticipated to impact NWM Group’s ability to achieve a higher gender
target.
(3)
We will no longer be disclosing NWM Group’s DE&I metrics from 2025 onwards, as the targets are set at the NatWest Group level. Refer to page 42 of the NatWest Group ARA for details on the Group level
DE&I Targets and Gender / Ethnicity Pay Gap.
Strategic progress
NWM Group
Annual Report and Accounts 2024
5
Our three strategic priorities unite our ambition to succeed with customers and a purpose that turns possibilities into progress.
We serve our chosen customers through a multi-specialist proposition aligned to our strengths
Strategic priorities
Progress in 2024
Our priorities
Disciplined growth
will support segments
where our customers
need us most and
meet the evolving
needs of our
customers.
We deepened relationships in our areas of specialism across
fixed income, FX and capital markets: providing liquidity,
products and solutions that support our customers’ financing
and risk management needs.
We played a leading role in EDF's £500 million, 40-year bond
issuance.
We executed a £405 million hybrid mandate for Centrica plc,
marking the issuer's return to the capital markets for the first
time since 2015.
More than 600 additional mid-corporate customers were
onboarded in 2024 and are now using our FX service for the
first time.
We continued to advance and demonstrate leadership across
climate and ESG solutions by supporting:
new instruments: sole structurer and lender of NatWest
Markets’ inaugural €240 million Green Net Asset Value Line
facility for one of Clarion Partners Europe's commingled funds.
the update of existing frameworks to new regulatory and
market developments:
structuring coordinator for Statnett’s
2024 Green Finance framework update and alignment to the
EU Taxonomy.
Be more customer-centric and
develop a greater focus on our
specialisms, by tailoring our
services to meet the specific
needs of clients in areas such
as UK Debt Capital Markets.
Enhance our competitive edge
where we compete against
global investment banks.
Create relevance with our
customers as a multi-specialist
provider recognised for deep
expertise (including structured
finance, funds, climate and
sustainable finance) that
customers value.
Bank-wide
simplification
will
underpin our strategy
of succeeding with
customers by
becoming a ‘future-fit’
platform and
technology-driven
bank.
We continued to build cloud capability to enhance our
computer processing, memory and storage to meet changing
demands and support risk calculations.
In December 2024, NatWest Group decided to simplify the
operating model in Europe. NWM N.V. will become the
primary European corporate and institutional customer-facing
entity, subject to regulatory approval.
We integrated FXmicropay with Fiserv's OpenFX platform to
deliver guaranteed FX rates in over 135 currencies to their
point-of-sale terminals, simplifying trading and risk
management for the customer.
We have simplified and improved the customer user
experience by removing the need for individual login details
across two NatWest products. Users of both Agile Markets -
our NatWest Markets platform, and Bankline - our main digital
channel for mid-market and corporate customers, can now
access both products through one single sign-on solution.
We launched GlobalSend, our new digital product that lets
customers make bulk payments internationally in 52 different
currencies.
–
Simplify our products and
services to clients so we can
provide an improved customer
experience and benefits at
lower cost.
–
Continue to develop a simpler,
more technology-focused
operating model for greater
agility and scalability.
–
Modernise and simplify core
platforms.
–
Improve colleague productivity
by streamlining governance and
resources.
Active balance sheet
and risk
management
will
deliver improved
capital management
with better pricing,
data and distribution
capabilities.
We remained acutely focused on managing our capital and
financial resources across all business lines.
We leveraged NWM Group’s structuring and distribution
expertise to help deliver NatWest Group’s balance sheet and
risk management priorities, most notably through significant
risk transfer transactions which contributed to NWG’s RWA
management in 2024.
–
Be more agile in the way we
deploy capital to customers
who need our support and
where we can most profitably
use it. This means allocating
capital dynamically and
decisively.
–
Continue to build risk
management capabilities and
broaden distribution
capabilities.
–
Improve returns through
disciplined continuous review.
Operating environment
NWM Group
Annual Report and Accounts 2024
6
We continued to adapt to evolving market trends in 2024. The environment we operate in is constantly changing, so understanding the
multiple influences on our business enables us to be prepared for change, to respond quickly and to create value for the long term.
Competitive landscape
Overview
We work in close collaboration with teams across NatWest Group to
provide full-service risk management, trading and debt financing
solutions to both financial institutions and UK, European, and US
corporate customers. We operate in a highly competitive market
with large domestic banks, a number of investment banks and
universal banks that offer combined investment and commercial
banking capabilities.
Competitive dynamics intensified across the principal markets we
operated in during 2024 as the capital markets backdrop improved
and peers looked to capture opportunities. That said, corporate and
investment banks continued to face heightened geopolitical risks,
elevated interest rates and changing financial regulation. Against this
backdrop, peers responded with measures to improve operational
efficiency, they implemented new technology - including the adoption
of AI and machine learning to better manage risk and personalise
banking services - and increased focus on their ESG offerings.
In 2024, Debt Capital Markets (DCM) sentiment turned more
positive, with inflation steadying and central banks starting to cut
interest rates. This led to refinancing volumes increasing on
favourable market conditions.
Fixed income, Currencies and
Commodities (FICC) divisions delivered a robust yearly performance
with a pick up in client activity and elevated volatility driving up broad
FICC and equity markets trading volumes.
Our response
The strategy we have developed over the years continued to
ensure we were well positioned to respond to evolving threats
from other players in the banking market during 2024.
Furthermore, our expertise in Climate finance, ESG advisory, fixed
income, FX and our debt capital markets proposition continued to
support customers’ core risk-management needs and provide
capabilities from advisory, execution and distribution, to secondary
market liquidity.
Economy
Overview
2024 saw inflation fall across many of the markets that we operate
in, with CPI between 2% and 3% in the UK, US and Eurozone. This
enabled central banks to reduce their policy rates - by 100bps in
the US and Eurozone and by 50bps in the UK. Yields on
government debt ended the year higher than they started and, in
foreign exchange, the dollar strengthened against most major
currencies, while the euro weakened. In equities, US markets
outperformed with major indices such as the S&P500 up 23%,
compared to 9% for the Eurostox 50 and 6% for the FTSE100.
Our response
Our business risks and capital usage will vary as markets move in
response to changing economic conditions and other geopolitical
developments. These moves will also affect liquidity conditions,
customer activity, market risks and pricing behaviour. This is
normal for our business and we will remain focused on meeting the
needs of all our customers.
Regulation
Overview
We operate in highly-regulated markets which continue to evolve
in scope. We are primarily regulated by:
the Financial Conduct Authority (FCA) and Prudential
Regulation Authority (PRA) in the UK;
the European Central Bank (ECB), the Autoriteit Financiële
Markten (the Dutch Authority for the Financial Markets) and
De Nederlandsche Bank (DNB) in the Netherlands, the host
state regulators of the jurisdictions in which NWM N.V. has a
branch office and the Commission de Surveillance du Secteur
Financier (CSSF) in Luxembourg in respect of RBSI Depositary
Services S.A.;
the Federal Financial Supervisory Authority (‘BaFin’) in
Germany;
the Securities and Exchange Commission, Commodity Futures
Trading Commission, Federal Reserve Bank of New York,
Financial Industry Regulatory Authority, and National Futures
Association in the US; and
the Monetary Authority of Singapore and the Japan Financial
Services Agency in Asia.
Our response
We have a global framework to identify, capture and implement new
and changing regulations across our international footprint. This
includes an established prudential programme which coordinates the
regulatory changes encompassed by the finalised Basel III
framework. The programme oversees required capital model
changes, Internal Models Approach (IMA) eligibility and business
readiness for the new and revised regulations, as well as required
changes across trading, risk, finance and technology, and simulates
the capital impact of the revised regulations.
In 2024, we also continued to work with the US Department of
Justice-appointed monitor to embed a strong control environment
for our business.
We also had direct engagement with regulatory bodies, as and when
required, to keep them informed of ongoing compliance with
regulations and market standards, as well as indirect contact
through trade associations to help shape future regulatory
requirements.
Cyber threats and digital security
Overview
Cyberattacks pose a constant risk to our operations through our
digital estate and indirectly through our supply chain - reinforcing
the importance of due diligence with the third parties we rely on.
Our response
To provide service continuity for customers, and limit disruption,
we continued to monitor and assess a diverse and evolving array
of external and internal threats. We continue to invest significant
resources in the development and evolution of cybersecurity
controls. We perform due diligence and governance checks in
relation to our third-party suppliers to ensure they are aligned to
our security controls and practices.
Operating environment continued
NWM Group
Annual Report and Accounts 2024
7
Climate change
Overview
Climate-related risks have the potential to affect asset values,
operational costs and business models, not only through increasing
frequency and severity of extreme weather events and biodiversity
loss, but also as the transition to a net-zero economy accelerates.
These risks, transmitted through the economy to NWM Group,
continue to evolve, reflecting increasing regulatory, legislative,
political and societal change. Likewise, our response continues to
develop.
Our response
Throughout 2024, we continued to play a key role in delivering
NatWest Group’s climate ambition and climate-related targets. This
included supporting the continued implementation of NatWest
Group’s Climate transition plan, focusing on prioritising climate-
related opportunities based on their relative commercial and
decarbonisation potential to support our customers and the wider
economy transition to net zero. We also recognise the power of
partnerships and collaborations in the transition to net zero.
To this extent, we completed £17.7 billion of climate and sustainable
funding and financing in 2024, contributing a cumulative £48.1 billion
towards the NatWest Group target to provide £100 billion climate
and sustainable funding and financing between 1 July 2021 and the
end of 2025
(1)
.
During 2024, through our Dutch subsidiary NatWest Markets N.V.
and driven by European environmental regulation, we continued to
develop our approach to include nature.
NatWest Group’s ability to achieve its strategy, including its climate
ambitions and targets has a significant dependency on factors and
uncertainties beyond its direct control, including timely and
appropriate UK Government policies,
technology developments, as
well as supplier, customer and societal response.
For further detail on the NWM Group response, refer to Climate and
nature risk on page 61 and Climate and sustainability-related risk
factors on page 173.
Technology, data and digital services
Overview
The increasing demand for digital products and services, and the
need to simplify complex, legacy technology to optimise investment
and accelerate transformation, are key factors across the
technology landscape impacting the market. Customer demand for
digital products and services continues to grow, and innovative
technology - like generative AI and blockchain - plays a key role in
the distribution and development of these products. Complex,
legacy technology and corresponding technical debt, coupled with
the volume of change required to respond to regulatory demands,
drives the need for simplification. This simplification will enable
organisations to respond more effectively and efficiently to changing
market, customer and regulatory demands.
Our response
We continued to focus on how we can develop and distribute digital
products to meet customer needs, partnering with other parts of
the Commercial & Institutional segment to build connections to key
customer channels. Building engineering excellence is key to
unlocking speed and efficiency, and we partnered with our
technology function, NatWest Digital X, to ensure we’re achieving
this while maintaining a safe and sustainable digital ecosystem for
our customers. Simplification and modernisation of our technology
estate continued to be an area of focus, an important enabler for
increased pace of delivery and the agility required to respond to
customer needs quickly.
Human rights and modern slavery
Overview
NatWest Group (including NWM Group) understands that it has an
important role in promoting respect for human rights. Its approach
is informed and guided by internationally recognised standards,
including the United Nations Guiding Principles on Business and
Human Rights.
Our response
In 2024, we continued to enhance policies and practices covering
colleagues, customers, investments and suppliers. We participated
in benchmarks and monitored developments in regulatory
frameworks, such as the EU’s Corporate Sustainability Due
Diligence Directive, which will guide us further.
Our ongoing programme of engagement with various
stakeholders, including charities, investors and non-governmental
organisations, continues to deepen our knowledge and
understanding of human rights issues. We remain signatories of
the UN Global Compact and continue to adhere to reporting
requirements under a range of initiatives, including the Equator
Principles.
In 2024, NatWest Group published its eighth Modern Slavery and
Human Trafficking Statement, which sets out the steps that we
are taking to identify and address modern slavery and human
trafficking within our own operations and throughout our value
chain. We continued to raise awareness of modern slavery and
human trafficking and foster action with colleagues. To coincide
with Anti-Slavery Day, we ran a week-long campaign which
included a series of events with modern slavery charities. We also
refreshed our online learning module for all colleagues on
‘Preventing Modern Slavery and Human Trafficking in the financial
service sector’ and developed a mandatory, standalone learning
module for colleagues in our Supply Chain Services business area.
For the sixth year, our NatWest Markets colleagues supported the
TRIBE Freedom Foundation in 2024 and raised over £9,500 to
assist in anti-slavery projects, which will contribute towards long-
term support for survivors and prevention of modern slavery.
(1)
Climate and sustainable funding and financing as defined in the NatWest Group Climate and
Sustainable Funding and Financing Inclusion (CSFFI) criteria represents only a proportion of our
overall funding and financing.
Risk overview
NWM Group
Annual Report and Accounts 2024
8
Our approach to risk management
NWM Group operates within NatWest Group’s enterprise-wide risk management framework (EWRMF), which provides a common risk
language to facilitate effective risk management. The framework applies to all subsidiary legal entities to help deliver NWM Group’s
strategy in a safe and sustainable way.
Enterprise-wide risk management framework
01
The enterprise-wide risk management framework (EWRMF) sets out our approach to managing risk across NWM Group and
provides a common risk language and framework to facilitate effective risk management.
02
The building blocks of the EWRMF are: risk appetite, risk governance, three lines of defence and risk culture.
Risk appetite
Risk appetite is defined as
the type and aggregate
level of risk NWM Group is
willing to accept in pursuit
of its strategic objectives
and business plans.
Risk governance
NWM Group's governance
structure facilitates sound risk
management decision-making,
in line with standards of good
corporate governance.
Three lines of defence
NWM Group adopts a three
lines of defence model of risk
governance. Everyone has a
responsibility for intelligent
risk-taking
.
Risk culture
The EWRMF is centred on
the embedding of a strong
risk culture that encompasses
both prudential and conduct
risk outcomes and prescribed
behaviours.
03
The EWRMF sets out a common risk language and standard definitions to ensure consistency in the application of risk
management terminology
.
Common risk language, architecture and approach
Risk directory and principal
risks
The risk directory
provides a common
language to ensure that
consistent terminology is
used across NWM Group
to describe the principal
risks.
Principal risk policies
Risk policies are in place for
each principal risk and define,
at a high level, the cascade of
qualitative expectations,
guidance and standards that
stipulate the nature and
extent of permissible risk-
taking.
Risk standards
Risk standards provide a more
granular expression of the risk
policies and provide the detail
for the first line of defence to
develop operational
policies/procedures.
Risk toolkits
Risk toolkits define the
approaches, tools and
techniques for managing risk
(split by all principal risks,
financial and non-financial
risks).
04
The risk toolkit cycle outlines the NWM Group-
wide approach to identify, assess, mitigate,
monitor and report risks.
05
Principal risks are used as the basis for setting risk
appetite and risk identification.
For further details on risk culture, risk governance (including the three lines of defence model) and risk appetite, refer to pages 19 to 22
of the Risk management framework.
Principal risks
Report
Identify and assess
Financial risks
Non-financial risks
Capital risk
Financial crime risk
Liquidity and funding risk
Model risk
Reporting of the risk profile,
emerging themes, current
issues and other key
information.
Effective risk identification and
assessment to understand the
risk profile.
Credit risk
Operational risk
Traded market risk
Reputational risk
Monitor
Mitigate
Non-traded market risk
Compliance risk
Pension risk
Conduct risk
Climate and nature risk
Monitoring of the risk profile
through principal risk
indicators or other key
metrics.
Determination of the
appropriate action for
how risks are managed or
mitigated.
Risk overview continued
NWM Group
Annual Report and Accounts 2024
9
Principal risks
To ensure common language and a consistent approach across NWM Group, the risk directory defines and documents all principal risks
that NWM Group may face, categorised into financial and non-financial. The risk directory is an important component of the EWRMF,
underpinning the linkage between strategy, risk appetite, risk reporting and governance. Principal risks are the Board approved EWRMF
categories that describe the highest-level financial and non-financial risks in the risk directory and are outlined in the table below. Refer
to the Risk and capital management section for further details on each principal risk, including mitigation and key developments.
Principal risks - financial
Principal risks – non-financial
Capital risk -
T
he risk that there is the inability to conduct business
in base or stress conditions on a risk or leverage basis due to
insufficient qualifying capital as well as the failure to assess, monitor,
plan and manage capital adequacy requirements.
Liquidity and funding risk -
Liquidity risk is the risk of being unable
to meet actual or potential financial obligations in a timely manner
when they fall due in the short term. Funding risk is the risk that
current or prospective financial obligations cannot be met as they
fall due in the medium to long term, either at all or without
increasing funding costs unacceptably.
Credit risk -
The risk that customers, counterparties or issuers fail
to meet a contractual obligation to settle outstanding amounts.
Traded market risk -
The risk of losses in trading book positions
from fluctuations in market variables, such as interest rates, credit
spreads, foreign exchange rates, equity prices, implied volatilities
and asset correlations.
Non-traded market risk -
The risk to the value of assets or
liabilities outside the trading book, or the risk to income, that arises
from changes in market prices such as interest rates, foreign
exchange rates and equity prices, or from changes in managed
rates.
Pension risk -
The inability to meet contractual obligations and
other liabilities to the established employee or related company
pension scheme.
Climate and nature risk -
The threat of financial loss or adverse
non-financial impacts associated with climate change and nature
loss respectively and the political, economic and environmental
responses to it.
Financial crime risk
-
The risk that NWM Group's products,
services, employees and/or third parties are intentionally or
unintentionally used to facilitate financial crime in the form of
money laundering, terrorist financing, bribery and corruption,
sanctions and tax evasion, as well as external or internal
fraud
.
Model risk -
The potential for adverse consequences from
model errors or the inappropriate use of modelled outputs to
inform business decisions.
Operational risk -
The risk of loss resulting from inadequate
or failed internal processes, people and systems, or external
events. It arises from day-to-day operations and is relevant
to every aspect of the business
.
Reputational risk -
The risk of damage to stakeholder trust
due to negative consequences arising from internal actions
or external events.
Compliance risk -
The risk that NWM Group fails to observe
the letter and spirit of all relevant laws, codes, rules,
regulations and standards of good market practice.
Conduct risk -
The risk of inappropriate behaviour towards
customers, or in the markets in which NWM Group operates,
which leads to poor or inappropriate customer outcomes.
Risk profile
The overall financial risk profile remained within risk appetite, supported by stable economic conditions. Key developments in 2024
included:
NWM Group retained robust capital, liquidity and funding positions.
Total RWAs were £20.8 billion at 31 December 2024, compared with £22.1 billion at 31 December 2023. The decrease in the
year was driven by lower counterparty credit risk, lower market risk, and a decrease from the annual update to operational
risk RWAs. This was partially offset by an increase in credit risk.
Credit risk performance remained stable with limited signs of deterioration.
The overall trend for non-financial risk improved in 2024. Areas of focus included:
Implementing an enhanced model risk management framework and the continued embedding of the enhanced risk and control
self-assessment approach with a focus on material operational risks across key processes.
Continuing significant investment to support the delivery of the multi-year transformation plan across financial crime risk
management. Further enhancements were made to the compliance and conduct framework, with the risk toolkits, risk
standards and regulatory compliance operational policy framework being embedded throughout the year. New teams have
been put in place within the Conduct and Compliance department. These teams will increase oversight and capability in the
areas of training, policy, assurance, data analytics, communications and culture. Business areas also completed attestations
against the level 1 conduct and regulatory compliance policies.
Risk overview continued
NWM Group
Annual Report and Accounts 2024
10
Top and emerging risks
Top and emerging risks are future scenarios that could have a significantly negative impact on our ability to operate, or deliver, our
strategy and are managed through the EWRMF toolkit. They usually combine elements of several principal risks and require a
coordinated management response. Top risks could occur or require management action within two years, while emerging risks are
evolving and/or could occur over a longer time horizon but have the potential to become a top risk. In 2024, the Executive Risk
Committee, the Board Risk Committee and the Board received regular reporting on top and emerging risks.
Top risk
scenarios in
focus in 2024
Description
Mitigants
Increased
competition
Competitive pressures could intensify, impeding NWM
Group’s ability to grow or retain market share,
impacting revenues and profitability. Drivers of
competition mainly relate to developments in
technology, evolving incumbents, challengers, new
entrants to the market, shifts in customer behaviour and
changes in regulation. For example, increased
competition from technology conglomerates, who may
have competitive advantages in scale, technology and
customer engagement (including brand recognition).
NWM Group closely monitors the competitive
environment and adapts its strategy as appropriate.
This includes using scenario analysis and assessing how
mega-trends will impact industry competitive dynamics.
Strategic responses are focused on investing to deliver
innovative and compelling propositions for customers.
Cyberattack
There is a constantly evolving threat from cyberattacks
which are increasing in terms of frequency,
sophistication, impact and severity. This includes hostile
attempts to gain access to and exploit potential
vulnerabilities of IT systems including via malware. Any
failure in NWM Group’s cybersecurity policies,
procedures or controls may result in significant financial
losses, major business disruption, inability to deliver
customer services, loss of data and associated
reputational damage.
NWM Group continues to invest in additional capability
to defend against threats including developing and
evolving cybersecurity policies, procedures and controls
that are designed to minimise the potential effect of
such attacks. The focus is to manage the impact of the
attacks and maintain services for NWM Group’s
customers. This includes testing and proving cyber
resilience capabilities via stress testing of NWM Group’s
important business services.
Economic and
interest rate
volatility
Economic conditions could deteriorate, depending on
factors including weak economic activity, volatility in
interest rates, liquidity pressures, sharp falls in asset
prices, escalating geopolitical tensions and concerns
regarding sovereign debt or sovereign credit ratings.
Any of these may have a materially adverse effect on
NWM Group’s future financial prospects.
A range of complementary approaches is used to
mitigate the risks, such as targeted scenario analysis,
stress tests, targeted customer reviews and reviews of
risk appetite. Stress tests included completion of
regulatory stress tests such as the Bank of England
2023/24 system-wide exploratory scenario as well as a
range of internal scenarios.
Climate
ambitions
NWM Group’s strategy relating to climate change,
ambitions, targets and transition planning entail
significant financial and non-financial risks and is unlikely
to be achieved without significant and timely
government policy, technology and customer
behavioural changes.
Recognising the delivery threats to some of NatWest
Group’s climate ambitions, which if they were to
crystallise, would manifest themselves in the shape of
financial and non-financial risks. NatWest Group plans to
review its climate ambitions during 2025 in the context
of the UK Committee on Climate Change’s (UK CCC)
Seventh Carbon Budget which is expected to be
published on 26 February 2025 and the UK CCC’s 2025
Progress Report which is due for release in the summer
of 2025.
Operational risk
scenarios
Operational risks are inherent in NWM Group’s
businesses and a broad range of scenarios are
considered. NWM Group could be adversely impacted by
scenarios including a failure to access current, complete,
and accurate data, or disruption to services if a third-
party service provider experienced any interruptions.
These scenarios could result in business and customer
interruption and related reputational damage, significant
compensation costs, regulatory sanctions and/or a
breach of applicable regulations.
NWM Group devotes significant resources to third-party
risk management. Focus areas include identifying
critical-service suppliers, developing robust exit and
contingency plans in the event of supply chain
disruption, and ensuring appropriate monitoring and
oversight of third-party performance.
Effective and ethical use of data is critical to NWM
Group’s goals, with continued focus on delivering our
long-term data strategy alongside enhancing control
and policy frameworks governing data usage.
Evolving
regulation
NWM Group’s businesses are subject to substantial
regulation and oversight, both of which are constantly
evolving and may have an adverse impact on NWM
Group. Areas of ongoing focus include evolving ECB
regulations and Basel 3.1 standards implementation and
potential global regulatory divergence, including the
resulting effect on RWAs and models.
NWM Group constantly monitors regulatory change and
works with the regulators to help shape those
developments that materially impact NWM Group,
responding when necessary, either bilaterally or in
partnership with one of the affiliated industry bodies.
NWM Group implements new regulatory requirements
where applicable and uses frequent engagement
meetings with regulators to discuss key regulatory
priorities.
Risk overview continued
NWM Group
Annual Report and Accounts 2024
11
Top and emerging risks continued
Emerging risk
scenarios in
focus in 2024
Description
Mitigants
Artificial
intelligence
Innovations in artificial intelligence (AI), including
generative AI, may rapidly transform and disrupt
customer interactions, the industry and the economy.
NWM Group’s ability to continue to deploy AI solutions
and integrate AI in systems and controls will become
increasingly important to retaining and growing
business. There can be no certainty that NWM
Group’s innovation strategy will be successful, and
competitors may be more successful in implementing
AI technologies, in turn, affecting industry competitive
dynamics. Developments in AI may also result in
increased model risk and rising levels of fraud.
NWM Group closely monitors developments in
disruptive technologies, including AI. Strategy is
developed as appropriate to leverage AI across NWM
Group with a focus on helping improve customer
journeys, personalisation, colleague effectiveness and
improved risk and capital management. Using AI
safely and ethically is a key area of focus, alongside
compliance with evolving AI regulation. This includes
developing a robust set of controls for the use of AI
models and tools across NWM Group.
Biodiversity and
nature loss
The risks arising from the loss and/or decline of the
state of biodiversity and nature are uncertain but
could negatively impact the global financial system.
These risks may include the reduction of any aspect of
biological diversity and other forms of environmental
degradation such as air, water and land pollution, soil
quality degradation and water stress. There is also
increasing investor, regulatory and stakeholder
scrutiny regarding how businesses address these
risks.
Using emerging industry guidance such as the Task
Force on Nature-related Financial Disclosures
framework, NWM Group is seeking to further its
understanding of nature-related risks. This includes
how its business activities impact nature, the
dependencies NWM Group and its counterparties
(including its suppliers) and customers have on nature,
and the risks and opportunities nature can generate.
Digital
currency
NWM Group operates in markets which would be
exposed to any developments in digital currency,
including a UK central bank digital currency (CBDC).
The Bank of England and His Majesty’s Treasury are
exploring the case and design for a CBDC, the digital
pound. The introduction of new digital currencies,
including a digital pound, could result in deposit
outflows, higher funding costs, and/or other
implications for UK banks including NWM Group.
NatWest Group maintains an Executive Steering
Group on digital assets including overseeing
developments and engagement on digital currencies,
such as CBDCs.
NatWest Group engages with the UK Government and
regulators on digital currency developments.
This
includes engagement with policymakers on a bilateral
and industry level. For example, NatWest Group is
represented on the Bank of England’s CBDC
Engagement Forum, and responds to relevant
consultations, discussion papers and other
publications.
Geopolitical
risk
NWM Group is exposed to risks arising from
geopolitical events or political developments.
Geopolitical tensions remain elevated and a range of
potential scenarios and impacts are considered. This
includes the potential impact of armed conflict, global
trade and supply chain disruption, volatility in
commodity prices, protectionist policies or trade
barriers and state sponsored cyberattacks.
NWM Group closely monitors the geopolitical risk
outlook and undertakes regular scenario analysis to
understand the potential impacts and takes mitigating
actions as required. This includes second and third
order analysis of impacts, for example, through
customers’ supply chain disruption or disruption to
third-party providers.
Physical
climate risk
Intensifying physical climate-related risks, including
climate events, materially increasing in frequency
and/or severity, results in direct impacts on property,
infrastructure, supply chains, geopolitics and economic
activity. This could lead to significant credit, market
and/or non-financial risks and, if those risks are not
mitigated, losses.
NWM Group continues to develop a range of climate
scenario narratives that include increased focus on
physical risks. These seek to explore the potential
implications from the global warming already observed
as a result of historical emissions and will inform short-
term event driven physical risk modelling. The impact
of possible climate tipping points, which could lead to
large irreversible changes in the climate system, are
also being explored.
Shadow
banking
NWM Group is exposed to vulnerabilities within
shadow banking or market-based finance (MBF), given
the interlinkages between UK banks and MBF. This
includes the potential for stress events or shocks to
financial markets.
NWM Group closely monitors exposure to shadow
banking or MBF. An internal framework for the
identification, management, control and mitigation of
the risks associated with exposure to shadow banking
or MBF is maintained. This includes effective reporting
and governance in respect of such exposure.
Section 172(1) statement
NWM Group
Annual Report and Accounts 2024
12
Board engagement with key stakeholders
Here we highlight who our key stakeholders are, what matters to them, and how the NWM Plc Board (the ‘Board’) engages with them
to create value.
What matters to them
Engagement
Customers
The Board knows the
importance of providing the
right service to our customers
at the right time and
supporting them in managing
their financial risks and
achieving their short- and long-
term goals.
The Board received regular updates on customer issues via reports from the NWM Plc
CEO and business heads, as well as briefings on the operation of the Commercial &
Institutional segment.
The Board was updated on the nature and extent of financing activity provided to
customers throughout the reporting period, during which there continued to be significant
changes in macroeconomic conditions. The Board was also regularly updated on resource
allocation between different customer products and segments.
The NWM Plc CEO continued to meet with customers throughout 2024 to understand their
needs and how NWM Plc, as part of the Commercial & Institutional segment, can best
support them now and in the future.
Outcome:
This approach allowed for informed decision-making that supported strategic objectives.
Colleagues
The Board appreciates the
importance to our workforce of
our implementing a wide range
of meaningful initiatives -
including diversity, equity and
inclusion - to promote a
positive workplace and deliver
our strategy.
The Board asked colleagues to share thoughts on what it’s like to work for NatWest Group,
including in NWM Plc, by completing colleague opinion surveys.
The NatWest Group-level Colleague Advisory Panel provided a mechanism for directors to
engage directly with colleagues on topics of strategic interest.
Colleagues were regularly encouraged to report any concerns relating to wrongdoing or
misconduct using NatWest Group’s whistleblowing service, Speak Up.
Outcome:
By actively engaging with colleagues, the Board was able to prioritise fostering a more
inclusive and supportive environment, promoting a positive organisational culture.
Community and environment
The Board recognises the
growing importance of climate
change and its potential impact
on our society and aims to
have a positive effect on our
communities.
The Board received regular updates on the progress made on sustainable finance and relevant
regulatory initiatives, along with dedicated sessions held in relation to the NWM Group strategy on
climate and ESG, including nature and biodiversity, as well as the carbon markets.
Outcome:
The Board was able to stay well informed about progress against climate goals, keep up
with nature-related developments and carbon markets, and provide appropriate feedback to
management.
Regulators
The Board promotes an
ongoing, constructive and open
dialogue with all relevant
regulatory bodies. In 2024, the
focus was on the impact of
macroeconomic conditions on
the market, the operation of
the Commercial & Institutional
segment and management
changes.
The NWM Plc Chair, executive directors and non-executive directors had regular meetings with
the PRA and FCA during 2024.
The Board received regular reports on regulatory matters and outcomes of engagement in the
UK, Europe, US and Asia from the Corporate Governance and Regulatory Officer.
The Board played an active role in monitoring the delivery of important regulatory priorities.
The Board maintained a strong focus on compliance with international regulatory standards.
Outcome:
The Board was able to stay well informed about regulatory expectations and developments
and maintained a proactive approach to compliance and governance.
Suppliers
The Board is mindful of the role
suppliers play in making sure a
reliable service is delivered to
customers. The Board supports
maintaining a diverse and
responsible supply chain and a
target of net-zero greenhouse
gas emissions by 2050.
The Board regularly received analytics, including updates on the support functions transferred to
NatWest Group and the operation of the Commercial & Institutional segment. This meant we were
aware of and able to isolate any issues for remediation.
The Board received regular updates on the performance monitoring of critical internal service
management services, provided under the now-embedded functionalised operating model and
reviewed and approved risk standards for outsourcing.
Outcome:
The Board had a heightened awareness of operational performance and challenges that
enabled decision-making in line with strategic priorities, supporting the overall success of the
company.
Section 172(1) statement continued
NWM Group
Annual Report and Accounts 2024
13
In this statement we describe how our directors had regard to the matters set out in section 172(1) (a) to (f) of the Companies Act 2006
(section 172) when performing their duty to promote the success of the company.
Board engagement with stakeholders
The NWM Plc Board reviews and confirms its key stakeholder
groups for the purposes of section 172 annually. For 2024,
these remained: customers, colleagues, community and
environment, regulators, and suppliers. Examples of how the
NWM Plc Board has engaged with key stakeholders, including
the impact of principal decisions, can be found in this
statement and on page 12.
Supporting effective NWM Plc Board
discussions and decision-making
Our NWM Plc Board and committee paper template supports
consideration of stakeholders and includes a section for
authors to include an assessment of the relevant stakeholder
impacts for the directors to consider.
Our directors are mindful that it is not always possible to
achieve an outcome which meets the requirements, needs
and/or expectations of all stakeholders who are, or may be,
impacted. For decisions which are particularly challenging or
complex, directors are given more detailed information to
support decision-making.
Principal decisions
Principal decisions are those decisions taken by the NWM Plc
Board that are material, or of strategic importance to the
company, or significant to NWM Plc’s key stakeholders. Set out
below is an example of a principal decision taken by the NWM
Plc Board during 2024.
The factors considered were:
a)
likely long-term consequences
b)
employee interests
c)
relationships with customers, suppliers and others
d)
the impact on community and environment
e)
maintaining a reputation for high standards of business
conduct
f)
acting fairly between members of the company.
Case study: NWM CEO succession
What was the decision-making process?
On 11 September 2024, the Board approved the appointment
of Jonathan Peberdy as the CEO of NatWest Markets Plc,
effective 1 October 2024.
Jonathan joined the Board as Executive Director and CEO on
1 October 2024.
The appointment followed a rigorous search process led by
the Commercial & Institutional CEO, Robert Begbie and
supported by an external search firm, with input from senior
executives including NatWest Group CEO, Paul Thwaite and
NatWest Group CRO, Keiran Foad. The process was overseen
by the NatWest Group Nominations and Governance
Committee, with the NWM Plc Board closely involved through
regular updates and broader discussions.
To support the Board in its decision-making, it received
detailed presentations during 2024 which described the
process leading to Mr Peberdy being identified as the
preferred candidate. This included presentations on role-
specification criteria, how the candidate longlist and shortlist
were compiled and reviewed, and directors’ interview
feedback on skills, experience and suitability. The Board also
reviewed Mr Peberdy’s external appointments and time
commitments, and confirmed that it had no concerns about
Mr Peberdy’s ability to fulfil the role. The Board approved the
appointment, noting that Mr Peberdy was a highly
experienced people leader with a deep knowledge of both
NatWest Group and financial services markets. It was also
noted that he had a strong track record of managing
customer relationships and working collaboratively across
NatWest Group – skills he would be expected to continue to
demonstrate in the CEO role.
How did the directors fulfil their duties under
section 172? How were stakeholder interests
considered?
Regulators were updated at appropriate points during the
CEO search process. The Board carefully considered Mr
Peberdy’s fitness and propriety, which he had consistently
demonstrated in his previous role as Head of Capital Markets.
The Board noted that Mr Peberdy’s appointment would ensure
a smooth and orderly handover of the CEO role, provide
stability and ensure strong leadership with a high degree of
cultural fit.
Actions and outcomes
Mr Peberdy took up the NWM CEO role on 1 October 2024.
Financial review
NWM Group
Annual Report and Accounts 2024
14
Presentation of information
NatWest Markets Plc (‘NWM Plc’) is a wholly owned subsidiary of
NatWest Group plc or ‘the ultimate holding company’. The term
‘NWM Group’ or ‘we’ refers to NWM Plc and its subsidiary and
associated undertakings.
The term ‘NatWest Group’ refers to NatWest Group plc and its
subsidiary and associated undertakings. The term ‘NWH Group’
refers to NatWest Holdings Limited (‘NWH’) and its subsidiary and
associated undertakings.
The term ‘NatWest Bank Plc’ or ‘NWB
Plc’ refers to National Westminster Bank Plc.
NWM Group publishes its financial statements in pounds sterling
(‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent
millions and thousands of millions of pounds sterling, respectively,
and references to ‘pence’ represent pence where amounts are
denominated in pound sterling (‘GBP’). Reference to ‘dollars’ or
‘$’ are to United States of America (‘US’) dollars. The
abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of
millions of dollars, respectively. The abbreviation ‘€’ represents
the ‘euro’, and the abbreviations ‘€m’ and ‘€bn’ represent
millions and thousands of millions of euros, respectively.
Non-IFRS financial measures
NWM Group prepares its financial statements in accordance with
generally accepted accounting principles (GAAP). This document
contains a number of adjusted or alternative performance
measures, also known as non-GAAP or non-IFRS performance
measures. These measures are adjusted for certain items which
management believe are not representative of the underlying
performance of the business and which distort period-on-period
comparison. These non-IFRS measures provide users of the
financial statements with a consistent basis for comparing
business performance between financial periods and information
on elements of performance that are one-off in nature. The non-
IFRS measures also include the calculation of metrics that are
used throughout the banking industry. These non-IFRS measures
are not measures within the scope of IFRS and are not a
substitute for IFRS measures. Refer to the section, ‘non-IFRS
financial measures’, on page 158 for further information and
calculations of non-IFRS financial measures included throughout
this document, and, where relevant, the most directly
comparable IFRS financial measures.
Performance overview
NWM Group reported a profit for the year ended 31 December
2024 of £63 million compared with a loss of £98 million for the
year ended 31 December 2023. Higher income largely reflected
stronger performances across the primary business lines.
Operating expenses increased in 2024, driven by higher litigation
and conduct costs and other operating expenses.
Financial performance
Income of £1,237 million in 2024 was up by £168 million
compared with £1,069 million in 2023. The increase was
largely driven by stronger performances across the primary
business lines, partially offset by FX reserves recycling and
lower income from the profit share arrangement with fellow
NatWest Group subsidiaries.
Operating expenses of £1,208 million increased by £66 million
compared with £1,142 million in 2023. Litigation and conduct
costs of £102 million reflected ongoing progress in closing
legacy matters, including any associated conduct remediation
activity, and were up by £42 million compared with £60
million in 2023. Other operating expenses of £1,106 million
were £24 million higher than £1,082 million in 2023, largely
due to increases in staff costs, severance costs, bank levies
and other smaller movements, offset by credits recognised in
relation to property charges and VAT recoveries.
Total assets and liabilities increased by £5.3 billion and £4.7
billion to £183.2 billion and £176.2 billion respectively at 31
December 2024, compared with the prior year. Funded assets
were up by £6.5 billion, mainly driven by increases in loans to
customers, trading assets, cash and balances at central banks
and other financial assets, partially offset by a decrease in
settlement balances.
Capital and leverage
Total NWM Plc RWAs were £20.8 billion at 31 December
2024, compared with £22.1 billion at 31 December 2023. The
decrease in the year was driven by lower market risk,
counterparty credit risk, and a decrease from the annual
update to operational risk RWAs; partially offset by an
increase in credit risk.
NWM Plc’s Common Equity Tier 1 (CET1) ratio was 18.2% at
31 December 2024, compared with 17.1% at 31 December
2023. The increase in the year was largely driven by the
decrease in RWAs.
Total MREL for NWM Plc at 31 December 2024 was £10.0
billion, or 48.2% of RWAs, compared with £7.6 billion or 34.5%
of RWAs at 31 December 2023. The increase in total MREL in
2024 was largely due to the issuance of three new MREL
instruments with NatWest Group plc amounting to $2.15
billion, a new internal AT1 instrument of $0.75 billion, and two
new internal Tier 2 instruments amounting to $1.16 billion,
partially offset by the redemption of an internal €0.95 billion
Tier 2 instrument.
NWM Plc’s leverage ratio was 5.5% at 31 December 2024
compared with 5.0% at 31 December 2023. The increase in
2024 reflected higher Tier 1 capital, largely due to the new
internal AT1 instrument of $0.75 billion, partially offset by an
increase in leverage exposure.
Liquidity and funding
NWM Plc’s liquidity portfolio increased by £6.3 billion to £21.0
billion at 31 December 2024, compared with £14.7 billion at
31 December 2023, largely driven by funding raised to
support banking book growth. The LCR increased to 195%
(31 December 2023 - 183%), mainly due to the increase in
liquidity portfolio, partially offset by higher outflows. Stressed
coverage ratio was 204% at 31 December 2024, compared
with 162% at 31 December 2023.
NWM Plc issued a total of £6.0 billion across a number of
public benchmark transactions during 2024, comprised of
€3.75 billion, CHF0.18 billion and £0.5 billion of notes under its
EMTN programme and $2.75 billion of notes under its US
MTN programme. NWM Plc also raised funding in other
formats throughout 2024 including, but not limited to,
structured note issuance.
NWM Plc 2025 funding plan currently anticipates £4-5 billion
of public benchmark issuance. On 10 January 2025, NWM Plc
issued a total of €1.0 billion of benchmark notes under the
EMTN programme.
Financial review continued
NWM Group
Annual Report and Accounts 2024
15
NWM Group business review
The table below presents an analysis of key lines of NWM Group’s income statement. Commentary refers to the table below as well as
the statutory income statement presented on page 83.
2024
2023
Variance
Income statement
£m
£m
£m
%
Net interest income
432
355
77
22
Non-interest income
805
714
91
13
Total income
1,237
1,069
168
16
Litigation and conduct costs
(102)
(60)
(42)
70
Other operating expenses
(1,106)
(1,082)
(24)
2
Operating expenses
(1,208)
(1,142)
(66)
6
Operating profit/(loss) before impairment releases/losses
29
(73)
102
(140)
Impairment releases/(losses)
8
(2)
10
(500)
Operating profit/(loss) before tax
37
(75)
112
(149)
Tax credit/(charge)
26
(23)
49
(213)
Profit/(loss) for the year
63
(98)
161
(164)
Income
(1)
Fixed Income
190
153
37
24
Currencies
525
496
29
6
Capital Markets
666
463
203
44
Capital Management Unit and other
(2)
(49)
(7)
(42)
600
Income including shared revenue before OCA
1,332
1,105
227
21
Transfer pricing arrangements with fellow NatWest Group subsidiaries
(3)
(86)
(33)
(53)
161
Income excluding OCA
1,246
1,072
174
16
Own credit adjustments (OCA)
(9)
(3)
(6)
200
Total income
1,237
1,069
168
16
(1)
Product performance includes gross income earned on a NatWest Group-wide basis, including amounts contributed to other NatWest Group subsidiaries. Income including shared
revenue before OCA includes revenue share from other NatWest Group subsidiaries but before revenue share is paid to or contributed to those subsidiaries.
(2)
Capital Management Unit was set up in Q3 2020 to manage capital usage and optimisation across all parts of NatWest Markets, with the income materially relating to legacy positions. In
2024, Other materially relates to FX reserves recycling.
(3)
Transfer pricing arrangements with fellow NatWest Group subsidiaries includes shared revenue paid to or contributed to those subsidiaries and a profit share arrangement with fellow
NatWest Group subsidiaries. The profit share arrangement was introduced during 2023 to reward NWM Group on an arm’s length basis for its contribution to the performance of the
NatWest Group Commercial & Institutional business segment, 2023 being the first full year with the Commercial & Institutional segment in place. The profit share is not allocated to
individual NatWest Markets product areas.
Net interest income
largely represents interest income from lending activity and capital hedges, offset by interest expense from the
funding costs of the business. The increase of £77 million compared with 2023 largely reflects growth in lending activity.
Non-interest income
increased by £91 million in 2024, largely driven by stronger performances across the primary business lines
reflecting strong customer demand in capital markets and robust trading income, partially offset by FX reserves recycling relating
to legacy overseas operations closure activity completed during the year. In addition, the amount recognised under the profit share
arrangement with fellow NatWest Group subsidiaries of £146 million was £31 million lower than the amount recognised in 2023.
Operating expenses
were up by £66 million compared with 2023. Litigation and conduct costs reflected ongoing progress in closing
legacy matters, including any associated conduct remediation activity, and were up by £42 million compared with 2023. Other
operating expenses increased by £24 million compared with 2023, largely due to increases in staff costs, severance costs, bank
levies and other smaller movements, offset by credits recognised in 2024 in relation to property charges and VAT recoveries
relating to earlier periods.
Financial review continued
NWM Group
Annual Report and Accounts 2024
16
NWM Group business review continued
Balance sheet profile as at 31 December 2024
NWM Group’s balance sheet profile is summarised below. Commentary refers to the tables below as well as the consolidated balance
sheet on page 84.
Assets
Liabilities
2024
2023
2024
2023
£bn
£bn
£bn
£bn
Cash and balances at central banks
16.2
13.8
Securities
13.9
12.0
10.5
9.8
Short positions
Reverse repos
(1)
27.1
23.7
30.6
26.9
Repos
(2)
Derivative cash collateral posted
(3)
7.3
8.9
12.3
15.1
Derivative cash collateral received
(4)
Other trading assets
0.6
0.7
1.1
1.8
Other trading liabilities
Total trading assets
48.9
45.3
54.5
53.6
Total trading liabilities
Loans - amortised cost
19.1
14.2
9.4
9.3
Deposits - amortised cost
Settlement balances
2.0
7.2
1.7
6.6
Settlement balances
Amounts due from holding company
Amounts due to holding company
and fellow subsidiaries
0.3
1.7
6.8
5.8
and fellow subsidiaries
Other financial assets
17.9
15.7
31.3
23.6
Other financial liabilities
Other assets
0.7
0.7
0.5
0.6
Other liabilities
Funded assets
105.1
98.6
104.2
99.5
Liabilities excluding derivatives
Derivative assets
78.1
79.3
72.0
72.0
Derivative liabilities
Total assets
183.2
177.9
176.2
171.5
Total liabilities
of which:
32.5
25.1
Wholesale funding
(5)
16.8
9.9
Short-term wholesale funding
(5)
Net derivative assets
(6)
2.4
2.9
3.5
3.6
Net derivative liabilities
(6)
(1)
Comprises bank reverse repos of £5.9 billion (2023 - £6.3 billion) and customer reverse repos of £21.2 billion (2023 - £17.4 billion).
(2)
Comprises bank repos of £7.2 billion (2023 - £4.0 billion) and customer repos of £23.4 billion (2023 - £22.9 billion).
(3)
Comprises derivative cash collateral posted relating to banks of £3.6 billion (2023 - £4.3 billion) and customers of £3.7 billion (2023 - £4.6 billion).
(4)
Comprises derivative cash collateral received relating to banks of £5.3 billion (2023 - £6.8 billion) and customers of £7.0 billion (2023 - £8.3 billion).
(5)
Predominantly comprises bank deposits (excluding repos), debt securities in issue and third-party subordinated liabilities.
(6)
Refer to page 50 for further details.
Total assets and liabilities
increased by £5.3 billion and £4.7 billion respectively at 31 December 2024. Funded assets, which
exclude derivatives, increased by £6.5 billion, largely driven by higher loans at amortised cost, trading assets, cash and balances at
central banks and other financial assets, partially offset by a decrease in settlement balances. Derivative asset fair values were
down by £1.2 billion compared with 31 December 2023, and derivative liabilities were unchanged.
Cash and balances at central banks
increased by £2.4 billion, mainly driven by funding raised to support planned banking book
growth and liquidity requirements.
Trading assets
which primarily relate to client-led activity as well as derivative cash collateral posted, were up by £3.6 billion,
driven by increases in reverse repos and securities, partially offset by a decrease in derivative cash collateral posted.
Trading
liabilities
increased by £0.9 billion, as increases in repos and short positions were largely offset by a decrease in derivative cash
collateral received.
Loans – amortised cost
increased by £4.9 billion, driven by higher loans to customers reflecting growth in Capital Markets.
Settlement balance assets and liabilities
were down by £5.2 billion and £4.9 billion respectively, largely due to comparatively higher
levels of customer activity in the period leading up to 31 December 2023.
Other financial assets
increased by £2.2 billion mainly driven by an increase in held-to-collect securities purchased to support
customer primary issuance.
Other financial liabilities
increased by £7.7 billion driven by new issuance in the year to support planned growth in the business,
partially offset by maturities. The balance as at 31 December 2024 includes £21.9 billion of medium-term notes issued.
Derivative assets and derivative liabilities
were down by £1.2 billion and unchanged respectively, largely reflecting FX rate volatility
across major currencies including the strengthening of USD in Q4 2024, and variations in interest rates across different currencies
and tenors.
Board of directors and secretary
NWM Group
Annual Report and Accounts 2024
17
Board and committees
Chair
Frank Dangeard
(1)
Chair of the Board and Chair of the Nominations and Governance
Committee
Executive directors
Jonathan Peberdy
Chief Executive Officer
Simon Lowe
Chief Financial Officer
Independent non-executive directors
Anne Simpson
Chair of Audit Committee
Chair of Board Risk Committee
(interim basis until a permanent
successor is appointed)
Tamsin Rowe
Chair of the Performance and Remuneration Committee
Sabrina Wilson
Board changes in 2024
Jonathan Peberdy appointed as Chief Executive Officer on 1
October 2024.
Robert Begbie resigned as Chief Executive Officer on 1 October
2024.
Vivek Ahuja resigned as a Director and Chair of Board Risk
Committee on 17 January 2025.
Auditors
Ernst & Young LLP,
Chartered Accountants and Statutory Auditor
25 Churchill Place
London E14 5EY
Registered
office
NatWest Markets Plc
36 St Andrew Square
Edinburgh
EH2 2YB
Registered in Scotland No. SC090312
Principal
offices
NatWest Markets Plc
250 Bishopsgate
London EC2M 4AA
NatWest Markets N.V.
Claude Debussylaan 94
1082 MD Amsterdam, The Netherlands
NatWest Markets Securities Inc.
600 Washington Boulevard, Stamford
06901, CT, USA
(1)
Frank Dangeard will continue to serve on the NWG plc Board and as Chair of NatWest Markets Plc, post May 2025, to support orderly succession planning for the Board of NatWest
Markets Plc.
NWM Group
Annual Report and Accounts 2024
18
Risk and capital management
Presentation of information
Where marked as audited in the section header, certain
information in the Risk and capital management section (pages
18 to 68) is within the scope of the Independent auditor’s report.
Risk and capital management is generally conducted on an
overall basis within NatWest Group such that common policies,
procedures, frameworks and models apply across NatWest
Group. Therefore, for the most part, discussion on these
qualitative aspects reflects those in NatWest Group as relevant
for the businesses and operations in NWM Group.
Risk management framework
Introduction
NWM Group operates under NatWest Group’s enterprise-wide
risk management framework, which is centred on the embedding
of a strong risk culture. The framework ensures the governance,
capabilities and methods are in place to facilitate risk
management and decision-making across the organisation.
The framework ensures that NWM Group’s principal risks –
which are detailed in this section – are appropriately controlled
and managed. It sets out the standards and objectives for risk
management as well as defining the division of roles and
responsibilities.
This seeks to ensure a consistent approach to risk management
across NWM Group. It aligns risk management with NWM
Group’s overall strategic objectives.
The framework, which is designed and maintained by NatWest
Group’s independent Risk function, is owned by the NatWest
Group Chief Risk Officer. It is reviewed and approved annually by
the Board. The framework incorporates risk governance, the
three lines of defence operating model and the Risk function’s
mandate.
Risk appetite, supported by a robust set of principles, policies and
practices, defines the levels of tolerance for a variety of risks and
provides a structured approach to risk-taking within agreed
boundaries.
While all NWM Group colleagues are responsible for managing
risk, the Risk function provides oversight and monitoring of risk
management activities, including the implementation of the
framework and adherence to its supporting policies, standards
and operational procedures. The Chief Risk Officer plays an
integral role in providing the Board with advice on NWM Group’s
risk profile, the performance of its controls and in providing
challenge where a proposed business strategy may exceed risk
tolerance.
In addition, there is a process to identify and manage top and
emerging risks, which are those that could have a significant
negative impact on NWM Group’s ability to meet its strategic
objectives. Both top and emerging risks may incorporate aspects
of – or correlate to – a number of principal risks and are reported
alongside them to the Board on a regular basis.
Page
Risk management framework
Introduction
18
Culture
19
Governance
20
Risk appetite
22
Identification and measurement
23
Mitigation
23
Stress testing
23
Market risk
Traded market risk
27
Non-traded market risk
30
Capital, liquidity and funding risk
Definitions and sources
33
Capital management
34
Liquidity and funding management
34
Minimum requirements
35
Measurement
35
Credit risk
Impairment, provisioning and write-offs
41
Economic loss drivers and ECL sensitivity
43
Trading activities and banking activities
49
Pension risk
58
Compliance and conduct risk
59
Financial crime risk
60
Climate and nature risk
61
Operational risk
65
Model risk
67
Reputational risk
68
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
19
Culture
The approach to risk culture, under the banner of intelligent risk-
taking, ensures a focus on robust risk management behaviours
and practices. This underpins the strategy and values across all
three lines of defence, enables NWM Group to support better
customer outcomes, develop a stronger and more sustainable
business and deliver an improved cost base.
NWM Group expects leaders to act as role models for strong risk
behaviours and practices building clarity, developing capability
and motivating employees to reach the required standards set
out in the intelligent risk-taking approach. Colleagues are
expected to:
Consistently role-model the values and behaviours in Our
Code, based on strong ethical standards.
Empower others to take risks aligned to NWM Group’s
strategy, explore issues from a fresh perspective, and tackle
challenges in new and better ways across organisational
boundaries.
Manage risk in line with appropriate risk appetite.
Ensure each decision made keeps NWM Group, colleagues,
customers, communities and shareholders safe and secure.
Understand their role in managing risk, remaining clear and
capable, grounded in knowledge of regulatory obligations.
Consider risk in all actions and decisions.
Escalate risks and issues early; taking action to mitigate risks
and learning from mistakes and near-misses, reporting and
communicating these transparently.
Challenge others’ attitudes, ideas and actions.
The target intelligent risk-taking behaviours are embedded in
NatWest Group’s Critical People Capabilities and are clearly
aligned to the core values of inclusive, curious, robust,
sustainable and ambitious. These aim to act as an effective basis
for a strong risk culture because the Critical People Capabilities
form the basis of all recruitment and selection processes.
Training
Enabling employees to have the capabilities and confidence to
manage risk is core to NWM Group’s learning strategy. NWM
Group offers a wide range of learning, both technical and
behavioural, across the risk disciplines. This training may be
mandatory, role-specific or for personal development. Mandatory
learning for all staff is focused on keeping employees, customers
and NWM Group safe. This is easily accessed online and is
assigned to each person according to their role and business
area. The system allows monitoring at all levels to ensure
completion.
Our Code
NWM Group operates under NatWest Group’s conduct guidance,
Our Code, which provides direction on expected behaviour and
sets out the standards of conduct that support the values. The
code explains the effect of decisions that are taken and describes
the principles that must be followed.
These principles cover conduct-related issues as well as wider
business activities. They focus on desired outcomes, with
practical guidelines to align the values with commercial strategy
and actions. The embedding of these principles facilitates sound
decision-making and a clear focus on good customer outcomes.
Any employee falling short of the expected standards would be
subject to internal disciplinary policies and procedures and if
appropriate, the relevant authority would be notified. The
accountability review process is used to assess how this should
be reflected in variable pay outcomes for the individuals
concerned. The NatWest Group remuneration policy ensures that
the remuneration arrangements for all employees reflect the
principles and standards prescribed by the PRA rulebook and the
FCA handbook.
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
20
Governance
Committee structure
The diagram shows NWM Plc’s risk governance structure in 2024 and the main purposes of each committee.
NWM Plc
Board of Directors
NWM Securities Inc. Board
NWM Securities Japan
Limited Board
NWM N.V.
Supervisory Board
Board Risk Committee
Provides oversight and challenge
on current and potential future
risk exposures, future risk
strategy and the effectiveness of
the risk management framework.
Audit Committee
Monitors the integrity of financial
statements and formal
announcements relating to actual
and forecast performance.
Executive Committee
(1)
Manages and oversees the NWM
Group other than those aspects
reserved to the NWM Plc Board
of Directors or an appropriate
Board Committee.
Executive Risk
Committee
(2)
Reviews, challenges and
debates all material and
enterprise-wide risk
and control matters.
Operating
Committee
(3)
Oversees all aspects of
NWM Group’s control
environment and delivers
the adoption of Group-
wide risk frameworks.
Assets & Liabilities
Committee
(4)
Oversees management of
NWM Group’s current
and future balance sheet
aligned with chosen
business strategy and
approved risk appetite.
Pension Committee
(5)
Considers the financial
strategy, risk
management and policy
implications of NatWest
Markets’ pension
schemes.
(1)
The NWM Chief Executive Officer has established the Executive Committee to support him in discharging his individual responsibilities in managing the day to day activities of NWM.
(2)
The Executive Risk Committee is chaired by the NWM Chief Risk Officer and supports him in discharging his risk management accountabilities.
(3)
The Operating Committee is chaired by the NWM Chief Operating Officer and supports him in discharging his individual accountabilities in accordance with the authority delegated to him
by the NWM Chief Executive Officer.
(4)
The Assets & Liabilities Committee is chaired by the NWM Chief Financial Officer and supports him in discharging his individual accountabilities relating to treasury and balance sheet
management.
(5)
The Pension Committee is chaired by the NWM Chief Financial Officer and supports him in discharging his individual accountabilities relating to the management of NatWest Markets’
pension schemes.
(6)
The Climate & Sustainability Committee was retired on 10 July 2024.
The committee’s activities are being taken forward through the broader governance framework.
(7)
The Financial Crime Risk Committee, the NWM Electronic Trading Risk Committee, the Reputational Risk Committee, the Valuations Committee, the Policy Approval Committee, the
NWM Model Risk Committee, the Provisions Committee and the Credit Risk Committee are not shown here. They support the Executive Risk Committee in discharging its risk
management responsibilities.
The Board Risk Committee (BRC) is responsible for:
Providing oversight and advice to the Board on current and potential future risk exposures and future risk profile. including risk
appetite and the approval and effectiveness of internal controls required to manage risk.
Reviewing the performance of NWM Group relative to risk appetite.
Reviewing all material risk exposures and management’s recommendations to monitor, control and mitigate such exposures,
including all principal risks.
Approving the Key Risk Policies.
Providing input to remuneration decisions from a risk management perspective.
Reviewing and recommending to the Board the assumptions, scenarios and metrics used for stress tests.
The Executive Risk Committee (ERC) is responsible for:
Supporting the Chief Risk Officer and other accountable individuals in discharging their risk management accountabilities.
Reviewing performance relative to risk appetite.
Reviewing and debating all material risk exposures across NWM Group and management’s recommendations to monitor and
control such exposures.
Reviewing the EWRMF, supporting its recommendation to BRC and overseeing its implementation across NWM Group.
Reviewing the Key Risk Policies and supporting their recommendation to BRC.
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
21
Governance
Risk management structure
The diagram shows NWM Group’s risk management structure in 2024.
NatWest Group
Chief Executive
Officer
Chief Executive
Officer,
Commercial &
Institutional
NWM Chief
Executive Officer
NatWest Group
Chief
Risk Officer
NWM Chief Risk
Officer
Country Risk
Head, NWM US
Head of NWM
Risk, APAC
NWM N.V.
Chief Risk Officer
Head of Traded
Market Risk
Head of Financial
Crime
Risk Chief
Operating Officer
and Head of
Operational Risk
Head of Capital
Optimisation Risk
Head of Conduct
& Compliance
Head of Credit
Risk
(1)
The NWM Chief Risk Officer reports directly to the NWM Chief Executive Officer and the NatWest Group Chief Risk Officer. The NWM Chief Risk Officer also has an additional reporting
line to the chair of the NWM Board Risk Committee, and a right of access to the committee.
(2)
The NWM Group Risk function is independent and provides oversight of risk management activities to ensure risks are adequately monitored and controlled. The heads of risk work
closely with the NWM N.V. Chief Risk Officer, the US Country Risk Head and the Head of NWM Risk, APAC to ensure consistency across the international businesses.
(3)
The NWH Group Risk function provides services across NatWest Group, including – where agreed – to the NWM Chief Risk Officer. These services are managed, as applicable, through
service level agreements and resource augmentation agreements.
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
22
Three lines of defence
NWM Group uses the industry-standard three lines of defence
model to articulate accountabilities and responsibilities for
managing risk. This supports the embedding of effective risk
management throughout the organisation.
First line of defence
The first line of defence incorporates most roles in NWM Group,
including those in the customer-facing businesses, Technology
and Services as well as support functions such as People and
Transformation, Legal and Finance.
The first line of defence is empowered to take risks within the
constraints of the risk management framework, policies, risk
appetite statements set by NatWest Group and measures set by
the NWM Group Board.
The first line of defence is responsible for managing its direct
risks, and with the support of specialist functions, it is also
responsible for managing its consequential risks, by identifying,
assessing, mitigating, monitoring and reporting risks.
Second line of defence
The second line of defence comprises the Risk function and is
independent of the first line.
The second line of defence is empowered to design and maintain
the risk management framework and its components. It
undertakes proactive risk oversight and continuous monitoring
activities to confirm that NWM Group engages in permissible and
sustainable risk-taking activities.
The second line of defence advises on, monitors, challenges,
approves and escalates where required and reports on the risk-
taking activities of the first line of defence, ensuring that these
are within the constraints of the risk management framework,
policies, risk appetite statements set by NatWest Group and
measures set by the NWM Group Board.
Third line of defence
The third line of defence is the Internal Audit function and is
independent of the first and second lines.
The third line of defence is responsible for providing independent
assurance to the Board, its subsidiary legal entity boards and
executive management on the overall design and operating
effectiveness of the risk management framework and its
components. This includes the adequacy and effectiveness of key
internal controls, governance and the risk management in place
to monitor, manage and mitigate the principal risks to NWM
Group and its subsidiary companies.
The third line of defence executes its duties freely and objectively
in accordance with the Chartered Institute of Internal Auditors’
Code of Ethics and International Standards on independence and
objectivity.
Risk appetite
Risk appetite defines the type and aggregate level of risk NWM
Group is willing to accept in pursuit of its strategic objectives and
business plans. Risk appetite supports sound risk-taking, the
promotion of robust risk practices and risk behaviours, and is
calibrated at least annually.
For certain principal risks, risk capacity defines the maximum
level of risk NWM Group can assume before breaching
constraints determined by regulatory capital and liquidity
requirements, the operational environment, and from a conduct
perspective. Establishing risk capacity helps determine where risk
appetite should be set, ensuring there is a buffer between
internal risk appetite and NWM Group’s ultimate capacity to
absorb losses.
Risk appetite framework
The risk appetite framework supports effective risk management
by promoting sound risk-taking through a structured approach,
within agreed boundaries. It also ensures emerging risks and risk-
taking activities that might be out of appetite are identified,
assessed, escalated and addressed in a timely manner.
To facilitate this, a detailed review of the framework is carried
out annually which is approved by the Board. The review
includes:
Assessing the adequacy of the framework compared to
internal and external expectations.
Ensuring the framework remains effective and acts as a
strong control environment for risk appetite.
Assessing the level of embedding of risk appetite across the
organisation.
Establishing risk appetite
In line with the risk appetite framework, risk appetite is
maintained across NWM Group through risk appetite statements.
These are in place for all principal risks and describe the extent
and type of activities that can be undertaken.
Risk appetite statements consist of qualitative statements of
appetite supported by risk limits and triggers that operate as a
defence against excessive risk-taking. Risk measures and their
associated limits are an integral part of the risk appetite
approach and a key part of embedding risk appetite in day-to-
day risk management decisions. A clear tolerance for each
principal risk is set in alignment with business activities.
The process of reviewing and updating risk appetite statements
is completed alongside the business and financial planning
process. This ensures that plans and risk appetite are
appropriately aligned.
The Board sets risk appetite for all principal risks to help ensure
NWM Group is well placed to meet its priorities and long-term
targets, even in challenging economic environments. This
supports NWM Group in remaining resilient and secure as it
pursues its strategic business objectives.
Risk appetite statements and associated measures are reviewed
at least annually by the Board on the Board Risk Committee’s
recommendation to ensure they remain appropriate and aligned
to strategy.
NWM Group’s risk profile is continually monitored and frequently
reviewed. Management focus is concentrated on all principal
risks as well as the top and emerging risks that may correlate to
them. Risk profile relative to risk appetite is reported regularly to
senior management and the Board.
NWM Group key risk policies define at a high level the qualitative
expectations, guidance and standards that stipulate the nature
and extent of permissible risk taking across all principal risks.
They form part of the qualitative expression of risk appetite and
are consistently applied across NWM Group and its subsidiaries.
Key risk policies are reviewed and approved by the Board Risk
Committee at least annually.
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
23
Identification and measurement
Identification and measurement within the risk management
process comprises:
Regular assessment of the overall risk profile, incorporating
market developments and trends, as well as external and
internal factors.
Monitoring of the risks associated with lending and credit
exposures.
Assessment of trading and non-trading portfolios.
Review of potential risks in new business activities and
processes.
Analysis of potential risks in any complex and unusual
business transactions.
The financial and non-financial risks that NWM Group faces are
detailed in the NatWest Group risk directory. This provides a
common risk language to ensure consistent terminology is used
across NWM Group. The NatWest Group risk directory is subject
to annual review to ensure it continues to fully reflect the risks
that NWM Group faces.
Mitigation
Mitigation is a critical aspect of ensuring that risk profile remains
within risk appetite. Risk mitigation strategies are discussed and
agreed within NWM Group.
When evaluating possible strategies, costs and benefits, residual
risks (risks that are retained) and secondary risks (those that
arise from risk mitigation actions themselves) are also considered.
Monitoring and review processes are in place to evaluate results.
Early identification, and effective management of changes in
legislation and regulation are critical to the successful mitigation
of compliance and conduct risk. The effects of all changes are
managed to ensure the timely achievement of compliance. Those
changes assessed as having a high or medium-high impact are
managed more closely. Emerging risks that could affect future
results and performance are also closely monitored. Action is
taken to mitigate potential risks as and when required. Further
in-depth analysis, including the stress testing of exposures, is also
carried out.
Testing and monitoring
Specific activities relating to compliance and conduct, credit and
financial crime risks are subject to testing and monitoring by the
Risk function. This confirms to both internal and external
stakeholders – including the Board, senior management, the
customer-facing businesses, Internal Audit and NatWest Group’s
regulators – that risk policies and procedures are being correctly
implemented and that they are operating adequately and
effectively. Thematic reviews and targeted reviews are also
carried out where relevant to ensure appropriate customer
outcomes.
Stress testing
Stress testing – capital management
Stress testing is a key risk management tool and a fundamental
component of NWM Group’s approach to capital management. It
is used to quantify and evaluate the potential impact of specified
changes to risk factors on the financial strength of NWM Group,
including its capital position.
Stress testing includes:
Scenario testing, which examines the impact of a
hypothetical future state to define changes in risk factors.
Sensitivity testing, which examines the impact of an
incremental change to one or more risk factors.
The process for stress testing consists of four broad stages:
Define | | Identify macro and NWM Group- |
scenarios | specific vulnerabilities and risks. | |
| Define and calibrate scenarios to | |
examine risks and vulnerabilities. | ||
| Formal governance process to | |
agree scenarios. | ||
Assess impact | | Translate scenarios into risk drivers. |
| Assess impact to current and | |
projected profit and loss and | ||
balance sheet across NWM Group. | ||
Calculate | | Aggregate impacts into overall |
results and | results. | |
assess | ||
| Results form part of the risk | |
implications | management process. | |
| Scenario results are used to inform | |
NWM Group’s business and capital | ||
plans. | ||
Develop and | | Stress scenario results are analysed |
agree | by subject matter experts. | |
management | Appropriate management actions | |
actions | are then developed. | |
| Scenario results and management | |
actions are reviewed by the Board | ||
Risk Committee and recommended | ||
to the Board for approval. |
Stress testing is used widely across NatWest Group, including at
NWM Group level. The diagram below summarises key areas of
focus.
Stress testing
usage within
NatWest
Group
Contingency
planning & management
actions
Assess financial
performance
Capital
adequacy
Earnings
stability
Sector review
& credit limit
setting
Business
vulnerabilities
analysis
Tail risk
assessment
Early
warning
indicators
(4)
Risk
mitigation
(1)
Strategic
financial
& capital
planning
(2)
Risk
appetite
(3)
Risk
monitoring
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
24
Specific areas that involve capital management include:
Strategic financial and capital planning
– by assessing the
impact of sensitivities and scenarios on the capital plan and
capital ratios.
Risk appetite
– by gaining a better understanding of the
drivers of, and the underlying risks associated with, risk
appetite.
Risk monitoring
– by monitoring the risks and horizon-
scanning events that could potentially affect NWM Group’s
financial strength and capital position.
Risk mitigation
–
by identifying actions to mitigate risks, or
those that could be taken, in the event of adverse changes to
the business or economic environment. Principal risk
mitigating actions are documented in NWM Group’s recovery
plan
.
Reverse stress testing is also carried out in order to identify and
assess scenarios that would cause NWM Group’s business model
to become unviable. Reverse stress testing allows potential
vulnerabilities in the business model to be examined more fully.
Capital sufficiency – going concern forward-looking view
Going concern capital requirements are examined on a forward-
looking basis – including as part of the annual budgeting process
– by assessing the resilience of capital adequacy and leverage
ratios under hypothetical future states. These assessments
include assumptions about regulatory and accounting factors
(such as IFRS 9). They incorporate economic variables and key
assumptions on balance sheet and profit and loss drivers, such as
impairments, to demonstrate that NWM Group and its operating
subsidiaries maintain sufficient capital.
A range of future states are tested. In particular, capital
requirements are assessed:
Based on a forecast of future business performance, given
expectations of economic and market conditions over the
forecast period.
Based on a forecast of future business performance under
adverse economic and market conditions over the forecast
period. Scenarios of different severity may be examined.
The potential impact of normal and adverse economic and
market conditions on capital requirements is assessed through
stress testing, the results of which are not only used widely
across NWM Group but also by the regulators to set specific
capital buffers. NWM Group takes part in stress tests run by
regulatory authorities to test industry-wide vulnerabilities under
crystallising global and domestic systemic risks.
Stress and peak-to-trough movements are used to help assess
the amount of capital NWM Group needs to hold in stress
conditions in accordance with the capital risk appetite
framework.
Internal assessment of capital adequacy
An internal assessment of material risks is carried out annually to
enable an evaluation of the amount, type and distribution of
capital required to cover these risks. This is referred to as the
Internal Capital Adequacy Assessment Process (ICAAP). The
ICAAP consists of a point-in-time assessment of exposures and
risks at the end of the financial year together with a forward-
looking stress capital assessment. The ICAAP is approved by the
Board and submitted to the PRA.
The ICAAP is used to form a view of capital adequacy separately
to the minimum regulatory requirements. The ICAAP is used by
the PRA to assess NWM Group’s specific capital requirements
through the Pillar 2 framework.
Capital allocation
NWM Group has mechanisms to allocate capital across its
businesses. These aim to optimise the use of capital resources
taking into account applicable regulatory requirements, strategic
and business objectives and risk appetite. The framework for
allocating capital is approved by the CFO with support from the
Assets & Liabilities Committee.
Governance
Capital management is subject to substantial review and
governance. The Board approves the capital plans, including
those for key legal entities and businesses as well as the results
of the stress tests relating to those capital plans.
Stress testing – liquidity
Liquidity risk monitoring and contingency planning
A suite of tools is used to monitor, limit and stress-test the
liquidity and funding risks on the balance sheet. Limit frameworks
are in place to control the level of liquidity risk, asset and liability
mismatches and funding concentrations. Liquidity and funding
risks are reviewed at significant legal entity and business levels
daily, with performance reported to the Assets & Liabilities
Committee on a regular basis. Liquidity condition indicators are
monitored daily. This ensures any build-up of stress is detected
early and the response escalated appropriately through recovery
planning.
Internal assessment of liquidity
Under the liquidity risk management framework, NWM Group
maintains the Internal Liquidity Adequacy Assessment Process.
This includes assessment of net stressed liquidity outflows under
a range of severe but plausible stress scenarios. Each scenario
evaluates either an idiosyncratic, market-wide or combined
stress event as described in the table below.
Type | Description |
The market perceives NWM Group to be | |
Idiosyncratic | suffering from a severe stress event, which |
scenario | results in an immediate assumption of |
increased credit risk or concerns over | |
solvency. | |
A market stress event affecting all | |
participants in a market through contagion, | |
Market-wide | potential counterparty failure and other |
scenario | market risks. NWM Group is affected under |
this scenario but no more severely than any | |
other participants with equivalent exposure. | |
This scenario models the combined impact | |
Combined | of an idiosyncratic and market stress |
scenario | occurring at once, severely affecting funding |
markets and the liquidity of some assets. |
NWM Group uses the most severe outcome to set the internal
stress testing scenario which underpins its internal liquidity risk
appetite. This complements the regulatory liquidity coverage ratio
requirement.
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
25
Stress testing – recovery and resolution planning
Within NWM Group, both NWM Plc and RBSH N.V. each have a
recovery plan explaining how they would identify and respond to
a financial stress event and restore their financial position so that
they remain viable on an ongoing basis.
The recovery plan ensures risks that could delay the
implementation of a recovery strategy are highlighted and
preparations are made to minimise the impact of these risks.
Preparations include:
Developing a series of recovery indicators to provide early
warning of potential stress events.
Clarifying roles, responsibilities and escalation routes to
minimise uncertainty or delay.
Developing a recovery playbook to provide a concise
description of the actions required during recovery.
Detailing a range of options to address different stress
conditions.
Appointing dedicated option owners to reduce the risk of
delay and capacity concerns.
The plan is intended to enable critical services and products to be
maintained, as well as core business lines, while operating and
restoring financial health. It is assessed for appropriateness on an
ongoing basis. The NWM Plc plan is reviewed and approved by
the Board prior to submission to the PRA.
Fire drill simulations of possible recovery events are used to test
the effectiveness of the recovery plans. The fire drills are
designed to replicate possible financial stress conditions and allow
senior management to rehearse the responses and decisions that
may be required in an actual stress event. The results and
lessons learnt from the fire drills are used to enhance the overall
approach to recovery planning.
Under the resolution assessment part of the PRA rulebook,
NatWest Group is required to carry out an assessment of its
preparations for resolution, submit a report of the assessment to
the PRA and publish a summary of this report.
Resolution would be implemented if NatWest Group was assessed
by the UK authorities to have failed and the appropriate regulator
put it into resolution. The process of resolution is owned and
implemented by the Bank of England (as the UK Resolution
Authority). NatWest Group ensures ongoing maintenance and
enhancements of its resolution capabilities, in line with regulatory
requirements. These requirements include the development of
contingency plans to wind-down parts of the trading book.
Stress testing – market risk
Non-traded market risk
Scenario analysis based on hypothetical adverse scenarios is
performed on non-traded exposures as part of the Bank of
England and European Banking Authority stress test exercises.
NatWest Group also produces an internal scenario analysis as
part of its financial planning cycles.
Non-traded exposures are capitalised through the ICAAP. This
covers gap risk, basis risk, credit spread risk, pipeline risk,
structural foreign exchange risk, prepayment risk, equity risk and
accounting volatility risk. The ICAAP is completed with a
combination of value and earnings measures. The total non-
traded market risk capital requirement is determined by adding
the different charges for each sub risk type.
The ICAAP methodology captures at least ten years of historical
volatility, produced with a 99% confidence level. Methodologies
are reviewed by NatWest Group Model Risk and the results are
approved by the NatWest Group Balance Sheet Management
Committee.
Non-traded market risk stress results are combined with those
for other risks into the capital plan presented to the Board. The
cross-risk capital planning process is conducted once a year, with
a planning horizon of five years. The scenario narratives cover
both regulatory scenarios and macroeconomic scenarios
identified by NatWest Group.
Vulnerability-based stress testing begins with the analysis of a
portfolio and expresses its key vulnerabilities in terms of plausible,
vulnerability scenarios under which the portfolio would suffer
material losses. These scenarios can be historical,
macroeconomic or forward-looking/hypothetical. Vulnerability-
based stress testing is used for internal management information
and is not subject to limits. The results for relevant scenarios are
reported to senior management.
Traded market risk
NWM Group carries out regular market risk stress testing to
identify vulnerabilities and potential losses in excess of, or not
captured in, value-at-risk. The calculated stresses measure the
impact of changes in risk factors on the fair values of the trading
portfolios.
NWM Group conducts historical, macroeconomic and
vulnerability-based stress testing. Historical stress testing is a
measure that is used for internal management. Using the
historical simulation framework employed for value-at-risk, the
current portfolio is stressed using historical data since 1 January
2005. This methodology simulates the impact of the 99.9
percentile loss that would be incurred by historical risk factor
movements over the period, assuming variable holding periods
specific to the risk factors and the businesses.
Historical stress tests form part of the market risk limit
framework and their results are reported regularly to senior
management. Macroeconomic stress tests are carried out
periodically as part of the bank-wide, cross-risk capital planning
process. The scenario narratives are translated into risk factor
shocks using historical events and insights by economists, risk
managers and the first line.
Market risk stress results are combined with those for other risks
into the capital plan presented to the Board. The cross-risk
capital planning process is conducted at least once a year, with a
planning horizon of five years. The scenario narratives cover both
regulatory scenarios and macroeconomic scenarios.
Vulnerability-based stress testing begins with the analysis of a
portfolio and expresses its key vulnerabilities in terms of plausible
vulnerability scenarios under which the portfolio would suffer
material losses. These scenarios can be historical,
macroeconomic or forward-looking/hypothetical. Vulnerability-
based stress testing is used for internal management information
and is not subject to limits. The results for relevant scenarios are
reported to senior management
.
Risk and capital management continued
Risk management framework continued
NWM Group
Annual Report and Accounts 2024
26
Internal scenarios – climate and nature
During 2024, NWM Group continued to review and refine its
internal scenarios where appropriate, while building out the
underlying tools at a granular level (climate decisioning
framework and environmental decisioning framework).
In addition, NWM Group vulnerabilities are considered as part of
the development of all NatWest Group-wide integrated scenarios
and exercises.
In 2024, NatWest Group deployed an enhanced in-house
corporate transition risk model, as part of an internal scenario
analysis exercise, to assess climate transition related credit risks
to corporate counterparties.
This involved running the following two climate scenarios:
A disruptive transition scenario, where the onset of climate
policy from the Network for Greening the Financial System
(NGFS) delayed transition scenario is accelerated from 2031
to 2025, which could result in an accompanying macro-
economic shock.
The orderly transition scenario, which explores a rapid
increase in carbon prices, based on the NGFS net zero 2050
scenario, but no accompanying macro-economic shock.
These scenarios tested NatWest Group’s resilience to alternative
transition pathways, including a disruptive transition, and to
identify losses that are sensitive to scenario policy and
technology assumptions.
The corporate transition risk model and internal exercise builds
on the learnings from the climate biennial exploratory scenario
and NatWest Group’s first-generation deployment in 2023. It also
supports the processes for integration of climate into ICAAP and
credit risk business use-cases. The model is capable of
accounting for sector specific exposure to climate-related
transition risks and counterparty specific response to a limited set
of demand shocks and rising carbon prices, by mitigating
emissions and passing costs through to customers.
Regulatory stress testing
In October 2023, the Bank of England undertook round one of its
system-wide exploratory scenario (SWES) to enhance
understanding of the behaviours of banks and non-bank financial
institutions under a scenario informed by the liability driven
investment and ‘dash for cash’ crises.
NatWest Group submitted its response to round one during H1
2024. The Bank of England subsequently published the
anonymised results in the June 2024 Financial Stability Report
providing a narrative account of the market-wide response.
Round two commenced in June 2024. Participants were asked to
reconsider their assumptions in light of round one results and
submit revised actions if applicable. The overall results of the
SWES exercise were published in November 2024.
Further details can be found at:
https://www.bankofengland.co.uk/financial-stability-
report/2024/june-2024
https://www.bankofengland.co.uk/stress-testing/2024/stress-
testing-uk-banking-system-scenarios-2024-desk-based
https://www.bankofengland.co.uk/financial-stability/boe-
system-wide-exploratory-scenario-exercise
In addition to its participation in NatWest Group’s stress testing
programme, NWM Group has a further regulatory commitment in
relation to its traded risk model approvals for market risk (IMA)
and counterparty credit risk (IMM). A robust stress testing
framework is a regulatory requirement.
The purpose of this stress testing framework includes the
identification of possible causes of large losses, an estimation of
their size and potential impact on capital adequacy together with
the identification of steps that could be taken to manage those
exposures as required. Such risk management-led stress testing
covers both traded market risk and counterparty credit risk and
is used to monitor and set risk appetite.
The requirements of NWM Group’s stress testing programme are
codified in NWM Group’s stress testing policy and associated
mandatory procedures.
Risk and capital management continued
NWM Group
Annual Report and Accounts 2024
27
risk (audited)
NWM Group is exposed to traded market risk through its trading
activities and to non-traded market risk through its banking
activities. Traded and non-traded market risk exposures are
managed and discussed separately. The traded market risk
section begins below. The non-traded market risk section begins
on page 30.
Pension-related activities also give rise to market risk. Refer to
page 58 for more information on risk related to pensions.
Traded market risk
Definition (audited)
Traded market risk is the risk of losses in trading book positions
from fluctuations in market variables, such as interest rates,
credit spreads, foreign exchange rates, equity prices, implied
volatilities and asset correlations.
Sources of risk (audited)
NWM Group is exposed to traded market risk through trading
activities that it enters into where such risk arises from market-
making activity and by facilitating customer-facing business that
cannot be immediately offset with other customers or market
participants. From a market risk perspective, activities are
focused on rates; currencies; and traded credit. NWM Group
undertakes transactions in financial instruments including debt
securities, as well as securities financing and derivatives.
The key categories of traded market risk are interest rate risk,
credit spread risk and foreign currency price risk.
Trading activities may also give rise to counterparty credit risk.
Key developments in 2024
The year was marked by periods of increased market
volatility reflecting UK political developments, global
inflationary concerns, the ongoing Russia-Ukraine conflict
and geopolitical tensions in the Middle East.
The significant volatility in Gilts, sterling swaps and inflation
entered the rolling window for the value-at-risk (VaR)
calculation during 2024. However, traded VaR and stressed
value-at-risk (SVaR) remained within appetite and, on an
average basis, at similar levels compared to 2023, aided by
NWM Group’s continued disciplined approach to risk-taking.
Traded market risk policy defines the key principles and
approach to managing and reporting traded market risks across
NWM Group. Responsibility for identifying, measuring, monitoring
and controlling market risk arising from trading activities lies with
the relevant trading business. The Market Risk function
independently advises on, monitors and challenges the risk-taking
activities undertaken by the trading business ensuring these are
within the constraints of the market risk framework, policies, and
Risk appetite
NWM Group’s qualitative appetite for traded market risk is set
out in the traded market risk appetite statement. Quantitative
appetite is expressed in terms of exposure limits. The limits at
NWM Group level comprise VaR, SVaR and stress-testing. More
details on these are provided on the following pages.
For each trading business, a document known as a dealing
authority compiles details of all applicable limits and trading
restrictions. The desk-level mandates comprise qualitative limits
related to the product types within the scope of each desk, as
well as quantitative metrics specific to the desk’s market risk
exposures. These additional limits and metrics aim to control
various risk dimensions such as exposure size, aged inventory,
currency and tenor.
The limits are reviewed to reflect changes in risk appetite,
business plans, portfolio composition and the market and
economic environments and recalibrated to ensure that they
remain aligned to NWM Group RWA targets. Limit reviews focus
on optimising the alignment between traded market risk
exposure and capital usage.
To ensure approved limits are not breached and that NWM
Group remains within its risk appetite, triggers have been set
such that if exposures exceed a specified level, action plans are
developed by the relevant business and the Market Risk function
and implemented.
The risk appetite statements and associated measures are
reviewed at least annually by the relevant legal entity board on
the relevant board risk committee’s recommendation to ensure
they remain appropriate and aligned to strategy. For more detail
on risk appetite, refer to page 22.
Monitoring and mitigation
Traded market risk is identified and assessed by gathering,
analysing, monitoring and reporting market risk information at
desk, business and NWM Group-wide levels. Industry expertise
continued system developments and techniques such as stress
testing are also used to enhance the effectiveness of the
identification and assessment of all material market risks.
Traded market risk exposures are monitored against limits and
analysed daily. A daily report summarising the position of
exposures against limits at desk, business and NWM Group levels
is provided to senior management and market risk managers
across the function. Limit reporting is supplemented with
regulatory capital and stress testing information as well as ad-
hoc reporting.
A risk review of trading businesses is undertaken weekly with
senior risk and front office staff. This includes a review of profit
and loss drivers, notable position concentrations and other
positions of concern.
Business profit and loss performance is monitored automatically
through loss triggers which, if breached, require a remedial
action plan to be agreed between the Market Risk function and
the business. The loss triggers are set using both a fall-from-peak
approach and an absolute loss level. In addition, regular updates
on traded market risk positions are provided to NWM Group’s
Executive Risk Committee and Board Risk Committee.
Risk and capital management continued
Traded market risk continued
NWM Group
Annual Report and Accounts 2024
28
NWM Group uses VaR, SVaR and the incremental risk charge
(IRC) to capitalise traded market risk. Risks that are not
adequately captured by VaR or SVaR are captured by the Risks
Not In VaR (RNIV) framework to ensure that NWM Group is
adequately capitalised for market risk. In addition, stress testing
is used to identify any vulnerabilities and potential losses.
The key inputs into these measurement methods are market
data and risk factor sensitivities. Sensitivities refer to the changes
in trade or portfolio value that result from small changes in
market parameters that are subject to the market risk limit
framework. Revaluation ladders are used in place of sensitivities
to capture the impact of large moves in risk factors or the joint
impact of two risk factors.
The suite of internal metrics used for risk management purposes
at NWM Group level have been designed to capture correlation
effects and to allow for an aggregated view of traded market risk
across risk types, markets and business lines while also taking
Value-at-risk
For internal risk management purposes, VaR assumes a time
horizon of one trading day and a confidence level of 99%.
The internal VaR model – which captures all trading book
positions including those products approved by the regulator – is
based on a historical simulation, utilising market data from the
previous 500 days, and is sensitive to recent market conditions.
The model also captures the potential impact of interest rate risk,
credit spread risk, foreign currency price risk, equity price risk
and commodity price risk.
When simulating potential movements in such risk factors, a
combination of absolute, relative and rescaled returns is used.
The performance and adequacy of the VaR model are tested
regularly through the following processes:
Back-testing: Internal and regulatory back-testing is
conducted on a daily basis. For further information on back-
testing, refer to the following page.
Ongoing model validation: VaR model performance is
assessed both regularly and, on an ad-hoc basis if market
conditions or portfolio profile change significantly.
Model Risk Management review: As part of the model
lifecycle, all risk models (including the VaR model) are
independently reviewed to ensure the model is still fit for
purpose given current market conditions and portfolio
profile. For further detail on the independent model
validation carried out by Model Risk Management, refer to
page 67. More information relating to pricing and market
risk models is presented in the NatWest Group Pillar 3
Report.
One-day 99% traded internal VaR
The table below shows one-day 99% internal VaR for the trading portfolios of NWM Group, split by exposure type.
| 2024 | 2023 | |||||||
Average | Maximum | Minimum | Period end | Average | Maximum | Minimum | Period end | |
Traded internal VaR (1-day 99%) | £m | £m | £m | £m | £m | £m | £m | £m |
Interest rate | 6.6 | 12.1 | 3.0 | 3.8 | 9.8 | 19.3 | 4.3 | 7.4 |
Credit spread | 7.7 | 10.1 | 5.6 | 5.6 | 6.2 | 7.1 | 4.9 | 6.8 |
Currency | 2.0 | 6.7 | 0.5 | 1.3 | 2.3 | 7.0 | 0.9 | 1.8 |
Equity | 0.1 | 0.3 | - | - | - | 0.1 | - | 0.1 |
Diversification (1) | (6.3) | (5.4) | (7.0) | (7.2) | ||||
Total | 10.1 | 16.2 | 5.3 | 5.3 | 11.3 | 20.0 | 6.6 | 8.9 |
(1)
NWM Group benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation 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.
On an average basis, traded VaR remained at similar levels in 2024 compared to 2023.
The decrease in average total traded VaR and interest rate VaR reflected the decrease in curve risk in sterling and euro flow
trading.
Risk and capital management continued
Traded market risk continued
NWM Group
Annual Report and Accounts 2024
29
VaR back-testing
The main approach employed to assess the VaR model’s ongoing performance is back-testing, which counts the number of days when
a loss exceeds the corresponding daily VaR estimate, measured at a 99% confidence level.
Two types of profit and loss (P&L) are used in back-testing comparisons: Actual P&L and Hypothetical P&L. For more details on the
back-testing approach and the differences between internal and regulatory VaR, refer to the Market risk section of the NatWest Group
Pillar 3 Report.
The table below shows regulatory back-testing exceptions in NWM Plc for the 250-business-day period to 31 December 2024 for one-
day 99% traded regulatory VaR compared with Actual and Hypothetical (Hypo) P&L.
Back-testing exceptions | ||
Actual | Hypo | |
NWM Plc | - | - |
In the 250-day rolling window to 31 December 2024, there were no NWM Plc Actual or Hypothetical VaR P&L back-testing
exceptions.
The table below shows internal back-testing exceptions in the major NWM businesses for the 250-business-day period to 31 December
2024. Internal back-testing compares one-day 99% traded internal VaR with Actual and Hypo P&L.
Back-testing exceptions | ||
Actual | Hypo | |
Rates | - | - |
Currencies | - | 3 |
Credit | - | - |
xVA | - | - |
The back-testing exceptions were driven by losses in Currencies in February, July and December 2024 due to increased foreign
exchange and rates market volatility.
Stressed VaR (SVaR)
As with VaR, the SVaR methodology produces estimates of the potential change in the market value of a portfolio, over a specified
time horizon, at a given confidence level. SVaR is a VaR-based measure using historical data from a one-year period of stressed
market conditions. A simulation of 99% VaR is run on the current portfolio for each 250-day period from 2005 to the current VaR date,
moving forward one day at a time. The SVaR is the worst VaR outcome of the simulated results.
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 with
a confidence level of 99%. NWM Group’s internal traded SVaR model captures all trading book positions.
The table below analyses 10-day 99% internal SVaR for the trading portfolios of NWM Group.
| 2024 | 2023 | |||||||
Average | Maximum | Minimum | Period end | Average | Maximum | Minimum | Period end | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Total internal traded SVaR | 56 | 136 | 31 | 41 | 56 | 140 | 28 | 36 |
Traded SVaR, on an average basis, remained at similar levels in 2024 compared to 2023.
Risk and capital management continued
Traded market risk continued
NWM Group
Annual Report and Accounts 2024
30
Risks Not In VaR (RNIVs)
The RNIV framework is used to identify and quantify market risks
that are not fully captured by the internal VaR and SVaR models.
RNIV calculations form an integral part of ongoing model and
data improvement efforts to capture all market risks in scope for
model approval in VaR and SVaR.
For further qualitative and quantitative disclosures on RNIVs,
refer to the Market risk section of the NatWest Group Pillar 3
Report.
Stress testing
For information on stress testing, refer to page 23.
Incremental risk charge (IRC)
The IRC model quantifies the impact of rating migration and
default events on the market value of instruments with
embedded credit risk (in particular, bonds and credit default
swaps) held in the trading book. It further captures basis risk
between different instruments, maturities and reference entities.
For further qualitative and quantitative disclosures on the IRC,
refer to the Market risk section of the NatWest Group Pillar 3
Report.
Definition (audited)
Non-traded market risk is the risk to the value of assets or
liabilities outside the trading book, or the risk to income, that
arises from changes in market prices such as interest rates,
foreign exchange rates and equity prices, or from changes in
managed rates.
Sources of risk (audited)
Non-traded market risk exists in all balance-sheet exposure that
makes reference to market risk factors. The key sources of non-
traded market risk are interest rate risk, credit spread risk,
Key developments in 2024
NWM Plc’s non-traded market risk internal VaR decreased
on an average and period-end basis compared to 2023. The
decrease was driven by interest rate VaR.
NWM Plc maintains a structural hedge of its common equity
and reserves. At 31 December 2024 the notional amount of
the structural hedge in place was £3.4 billion (£3.4 billion at
31 December 2023). NWM N.V. also maintains a structural
hedge of its common equity and reserves; at 31 December
2024, the notional amount of this hedge, in sterling
equivalent terms, was £1.2 billion (£1.4 billion at 31
December 2023).
Responsibility for identifying, measuring, monitoring and
controlling market risk arising from non-trading activities lies with
the relevant business. Oversight is provided by NWM Group’s
Non-Traded Market Risk function.
Risk positions are reported regularly to NWM Group’s Executive
Risk Committee and the Board Risk Committee, as well as to the
Assets & Liabilities Committee (ALCo). Non-traded market risk
policy statements set out the governance and risk management
framework.
Non-traded market risk is managed separately on both sides of
the ring-fence. It is aggregated and monitored against risk
Risk appetite
NWM Group’s qualitative appetite is set out in the non-traded
market risk appetite statement.
Its quantitative appetite is expressed in terms of exposure limits
set, where Board-approved, at legal entity level. At NWM Plc
level, the Board limit comprises a VaR measure. This is
supplemented with SVaR, sensitivities (including of the CET1
ratio), earnings-at-risk and economic-value-of-equity measures
monitored at Executive governance level.
To ensure limits are not breached, triggers have been set such
that if exposures exceed a specified level, action plans are
developed by the business, Non-Traded Market Risk and Finance
for implementation. Limits are reviewed regularly to reflect
changes in risk appetite, business plans, portfolio composition and
the external environment. For further information on risk
appetite, refer to page 22.
Risk and capital management continued
Non-traded market risk continued
NWM Group
Annual Report and Accounts 2024
31
Non-traded internal VaR (one-day 99%)
The following table shows NWM Plc’s one-day internal banking book VaR at a 99% confidence level, split by risk type. VaR values for
each year are calculated based on one-day values for each of the 12 month-end reporting dates. For NWM N.V. VaR, refer to the
NWM N.V. ARA.
| 2024 | 2023 | |||||||
Average | Maximum | Minimum | Period end | Average | Maximum | Minimum | Period end | |
NWM Plc | £m | £m | £m | £m | £m | £m | £m | £m |
Interest rate | 3.4 | 4.9 | 1.3 | 2.3 | 5.2 | 7.4 | 3.0 | 5.6 |
Credit spread | 5.1 | 6.3 | 4.2 | 4.2 | 5.6 | 7.3 | 3.8 | 7.3 |
Structural foreign exchange rate | 2.9 | 3.4 | 2.5 | 2.9 | 3.5 | 4.8 | 2.8 | 4.8 |
Equity risk | 1.0 | 1.2 | 0.8 | 0.9 | 1.2 | 1.2 | 1.1 | 1.1 |
Diversification (1) | (4.5) | (5.3) | (6.0) | (5.7) | ||||
Total | 7.9 | 10.3 | 4.9 | 5.0 | 9.5 | 13.1 | 7.1 | 13.1 |
(1)
NWM Plc benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation 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.
NWM Plc’s total non-traded VaR decreased on an average
and period-end basis compared to 2023.
Interest rate VaR decreased, mainly driven by earlier periods
of interest rate volatility falling out of the VaR calculation
window.
Interest rate risk
Non-traded interest rate risk (NTIRR) mainly arises from capital
hedges, in portfolios held for liquidity purposes and from interest
rate repricing mismatches between assets and liabilities in other
portfolios. When aggregated, these products form portfolios of
assets and liabilities with varying degrees of sensitivity to changes
in market interest rates. Mismatches can give rise to volatility in
net interest income as interest rates vary.
NTIRR comprises the following three primary risk types:
Gap risk: arises from the timing of rate changes in non-
trading book instruments. The extent of gap risk depends on
whether changes to the term structure of interest rates
occur consistently across the yield curve (parallel risk) or
differentially by period (non-parallel risk).
Basis risk: captures the impact of relative changes in interest
rates for financial instruments that have similar tenors but
are priced using different interest rate indices, or on the
same interest rate indices but with different tenors.
Option risk: arises from option derivative positions or from
optional elements embedded in assets, liabilities and/or off-
balance sheet items, where NWM Group or its customer can
alter the level and timing of their cash flows.
NWM Group manages its interest rate positions within limits at
legal entity level and hedges these positions externally using cash
and derivatives (primarily interest rate swaps).
Credit spread risk
Credit spread risk arises from the potential adverse economic
impact of a change in the spread between bond (or other credit-
sensitive instrument) yields and swap rates, where the portfolios
are accounted at fair value through other comprehensive income.
Credit risk also arises on loan portfolios classified at fair value.
To ensure NWM Group can continue to meet its obligations in the
event that access to wholesale funding markets is restricted, it
maintains a liquidity buffer in the form of bond portfolios –
comprising primarily high-quality securities – and central bank
cash.
Credit spread risk is monitored daily through sensitivities and VaR
measures. Exposures and limit utilisations are reported to senior
management on a regular basis. The dealing mandates in place
for the bond portfolios further mitigate the risk by imposing
constraints by duration, asset class and credit rating.
Risk and capital management continued
Non-traded market risk continued
NWM Group
Annual Report and Accounts 2024
32
Foreign exchange risk
Non-traded foreign exchange risk arises from two main sources:
Structural foreign exchange rate risk – mainly arises from
the capital deployed in foreign subsidiaries and branches.
Transactional foreign exchange rate risk – arises from
customer transactions and profits and losses that are in a
currency other than the functional currency.
Structural foreign exchange rate risk is assessed and managed
by NWM Plc Treasury, with the aim of reducing NWM Plc’s solo
CET1 ratio sensitivity to unexpected movements in spot foreign
exchange rates.
The position is managed within risk appetite levels under
delegated authority from NWM Plc ALCo. The sensitivity of the
CET1 ratio to exchange rates is reported to NWM Plc senior
management monthly.
Gains or losses arising from the retranslation of net investments
in overseas operations are recognised in equity reserves and
reduce the sensitivity of capital ratios to foreign exchange rate
movements primarily arising from the retranslation of non-
sterling denominated RWAs.
Foreign exchange exposures arising from customer transactions
are hedged by businesses on a regular basis in line with NatWest
Group policy.
Foreign exchange exposures
The table below shows NWM Group’s structural foreign currency exposures.
Structural | Residual | ||||
Net investments | Net | foreign | structural | ||
in foreign | investment | currency | Economic | foreign currency | |
operations | hedges | exposures | hedges | exposures | |
2024 | £m | £m | £m | £m | £m |
US dollar (1) | 1,824 | (598) | 1,226 | (1,226) | - |
Euro | 2,392 | (355) | 2,037 | - | 2,037 |
Swiss franc | 180 | (180) | - | - | - |
Other non-sterling | 313 | (38) | 275 | - | 275 |
4,709 | (1,171) | 3,538 | (1,226) | 2,312 | |
2023 | |||||
US dollar (1) | 1,181 | (228) | 953 | (902) | 51 |
Euro | 2,420 | (420) | 2,000 | - | 2,000 |
Swiss franc | 192 | (192) | - | - | - |
Other non-sterling | 355 | (74) | 281 | - | 281 |
4,148 | (914) | 3,234 | (902) | 2,332 |
(1)
Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes.
Sterling weakened against the US dollar, to 1.25 at 31
December 2024 compared to 1.27 at 31 December 2023. It
strengthened against the euro, to 1.20 at 31 December
2024 compared to 1.15 at 31 December 2023.
Changes in foreign currency exchange rates affect equity in
proportion to structural foreign currency exposure. For
example, a 5% strengthening or weakening in foreign
currencies against sterling would result in a gain or loss of
£0.2 billion in equity, respectively.
Risk and capital management continued
NWM Group
Annual Report and Accounts 2024
33
Capital, liquidity and funding risk
NWM Group continually ensures a comprehensive approach is
taken to the management of capital, liquidity and funding,
underpinned by frameworks, risk appetite and policies, to
manage and mitigate capital, liquidity & funding risks. The
framework ensures the tools and capability are in place to
facilitate the management and mitigation of risk ensuring the
Group operates within its regulatory requirements and risk
appetite.
Regulatory capital consists of reserves and instruments issued
that are available, have a degree of permanency and are
capable of absorbing losses. A number of strict conditions are set
by applicable regulations to determine capital eligibility.
Capital risk is the inability to conduct business in base or stress
conditions on a risk or leverage basis due to insufficient qualifying
capital as well as the failure to assess, monitor, plan and manage
capital adequacy requirements.
Liquidity risk is defined as the risk that the Group or any of its
subsidiaries or branches cannot meet its actual or potential
financial obligations in a timely manner as they fall due in the
short term.
Funding risk is the current or prospective risk that the Group or
its subsidiaries or branches cannot meet financial obligations as
they fall due in the medium to long term, either at all or without
increasing funding costs unacceptably.
Liquidity and funding risks arise in a number of ways, including
through the maturity transformation role that banks perform.
The risks are dependent on factors such as:
Maturity profile;
Composition of sources and uses of funding;
The quality and size of the liquidity portfolio;
Wholesale market conditions; and
Depositor and investor behaviour.
Sources (audited)
Capital
The eligibility of instruments and financial resources as regulatory
capital is laid down by applicable regulation. Capital is
categorised by applicable regulation under two tiers (Tier 1 and
Tier 2) according to the ability to absorb losses on either a going
or gone concern basis, degree of permanency and the ranking of
loss absorption. There are three broad categories of capital
across these two tiers:
CET1 capital
- CET1 capital must be perpetual and capable
of unrestricted and immediate use to cover risks or losses as
soon as these occur. This includes ordinary shares issued and
retained earnings.
Additional Tier 1 (AT1) capital
- This is the second type of loss
absorbing capital and must be capable of absorbing losses on
a going concern basis. These instruments are perpetual in
nature, with an initial call period of at least five years from
issue and are written off or converted into CET1 capital if a
pre-specified CET1 ratio is reached. The sum of CET1 and
AT1 capital is referred to as Tier 1 capital.
Tier 2 capital
- Tier 2 capital is the bank entities’
supplementary capital and provides loss absorption on a gone
concern basis. Gone concern refers to the situation in which
resources must be available to enable an orderly resolution,
in the event that the Bank of England (BoE) deems that NWM
Plc has failed. Tier 2 capital absorbs losses after Tier 1
capital. It typically consists of subordinated debt securities
with a minimum initial maturity of five years.
Minimum requirement for own funds and eligible liabilities
(MREL)
In addition to capital, other specific loss absorbing instruments,
including senior notes with a residual maturity of at least one
year issued by NWM Plc, may be used to cover certain gone
concern capital requirements.
Liquidity
NWM Group maintains a prudent approach to the definition of
liquidity portfolio to ensure it is available when and where
required, taking into account regulatory, legal and other
constrains.
Liquidity portfolio is divided into primary and secondary liquidity
as follows:
Primary liquidity is LCR eligible assets and includes cash and
balances at central banks, Treasury bills and high-quality
government securities.
Secondary liquidity is assets eligible as collateral for local
central bank liquidity facilities. These assets include own-
issued securitisations or whole loans that are retained on
balance sheet and pre-positioned with a central bank so that
they may be converted into additional sources of liquidity at
very short notice.
Funding
NWM Group’s primary funding sources are as follows:
Type | Description |
Wholesale | Includes: |
markets | Short-term (less than 1 year) |
unsecured money market | |
funding. | |
Commercial paper and | |
certificates of deposit. | |
Secured repo market funding. | |
Term debt | Includes: |
Long-term (typically more than 1 | |
year) senior unsecured and | |
secured debt securities. | |
Long-term subordinated liabilities. | |
Internal capital | Includes: |
and MREL | Equity, AT1, Tier 2 capital |
instruments and MREL issued to | |
NatWest Group plc (under the | |
Single Point of Entry regime). |
Managing capital, liquidity and funding requirements:
regulated entities
In line with paragraph 135 of IAS 1 ‘Presentation of Financial
Statements’, NWM Group manages capital having regard to
regulatory requirements. Regulatory capital, MREL, RWA and
leverage is monitored and reported on an individual regulated
bank legal entity basis (‘bank entity’), which is the CRR
transitional basis as relevant in the UK and EU.
Liquidity metrics including the LCR are presented for the solo
legal entity as regulated by the PRA. Disclosures for funding
sources and notes issued are presented for NWM Group rather
Risk and capital management continued
Capital, liquidity and funding risk continued
NWM Group
Annual Report and Accounts 2024
34
Key developments in 2024
NWM Plc’s RWAs decreased by £1.3 billion to £20.8 billion at
31 December 2024, reflecting lower market risk,
counterparty credit risk, and a decrease from the annual
update to operational risk RWAs; partially offset by an
increase in credit risk.
NWM Plc’s CET1 ratio increased by 110 basis points to 18.2%
at 31 December 2024, from 17.1% at 31 December 2023,
largely driven by the decrease in RWAs.
NWM Plc issued a $750 million Additional Tier 1 (AT1)
instrument to NatWest Group plc in 2024.
NWM Plc’s MREL at 31 December 2024 was £10.0 billion, or
48.2% of RWAs, compared to £7.6 billion or 34.5% of RWAs at
31 December 2023. The increase in total MREL was due to a
£0.7 billion increase in eligible capital and a £1.7 billion
increase in senior unsecured debt. The increase in eligible
capital was mainly due to the AT1 instrument issued to
NatWest Group plc of $0.75 billion and two new internal Tier
2 instruments amounting to $1.16 billion, partially offset by
the redemption of an internal €0.95 billion Tier 2 instrument.
The increase in senior unsecured debt was driven by the
issuance of three new MREL instruments with NatWest Group
plc amounting to $2.15 billion.
NWM Plc’s leverage ratio increased by 50 basis points to
5.5%. The increase was largely driven by a £0.6 billion
increase in Tier 1 capital, primarily due to the AT1 instrument
issued to NatWest Group plc, partially offset by a £2.9 billion
increase in leverage exposure.
The key drivers for the
leverage exposure were an increase in other financial assets
and net derivatives, partially offset by a decrease in trading
assets and net settlement balances.
The NWM Plc liquidity portfolio increased by £6.3 billion to
£21.0 billion at 31 December 2024, compared with £14.7
billion at the prior year end, largely driven by funding raised
to support banking book growth.
The spot LCR for NWM Plc was 195% at 31 December 2024,
compared with 183% at 31 December 2023. The average
LCR was 192%, compared with 240% at 31 December 2023.
Capital management
Capital management is the process by which banks ensure that
they have sufficient capital and other loss absorbing instruments
to operate effectively. This includes meeting minimum regulatory
requirements, operating within Board-approved risk appetite,
maintaining credit ratings and supporting strategic goals. Capital
management is critical in supporting banks businesses. Capital
management within NWM Group is executed in accordance with
the NatWest Group-wide framework.
NWM Plc’s capital plans are produced and updated by the bank
on a monthly basis. This process includes integration into
NatWest Group’s wider annual budgeting process and is
summarised below. Other elements of capital management,
including risk appetite and stress testing, are set out on pages 22
and 23.
Produce | | A capital plan is produced for NWM Plc |
capital | using a five-year planning horizon under | |
plans | expected and stress conditions. Stressed | |
capital plans are produced to support | ||
internal stress testing through the ICAAP | ||
or for regulatory purposes. | ||
| A shorter term (rolling 12 month) | |
forecast is updated frequently in | ||
response to actual performance, changes | ||
in internal and external business | ||
environment and to manage risks and | ||
opportunities. |
Assess | | Capital plans are developed to ensure |
capital | that capital of sufficient quantity and | |
adequacy | quality is planned to be available to | |
support NWM Group’s business and | ||
strategic plans over the planning horizon | ||
within approved risk appetite, as | ||
determined via stress testing, and | ||
minimum regulatory requirements. | ||
| Impact assessment captures input from | |
across NWM Group including from | ||
businesses. | ||
Inform | | Capital planning informs potential capital |
capital | actions including managing capital | |
actions | through new issuance, redemptions or | |
internal transactions. | ||
| Decisions on capital actions will be | |
influenced by strategic and regulatory | ||
requirements, the cost and prevailing | ||
market conditions. | ||
| As part of capital planning, NWM Group | |
will monitor its portfolio of capital | ||
securities and assess the optimal blend. |
Capital planning is one of the tools that NWM Group uses to
monitor and manage capital adequacy risk on a going and gone
concern basis, including the risk of excessive leverage.
Liquidity and funding management
Liquidity and funding management follows a similar process to
that outlined above for capital.
Liquidity portfolio management
The size of the portfolio is determined by reference to NWM
Group’s liquidity risk appetite. Consistent with NatWest Group,
NWM Group retains a prudent approach to setting the
composition of the liquidity portfolio, which is subject to internal
policies and limits covering quality of counterparty, maturity mix
and currency mix. NWM Group categorises its liquidity portfolio,
including its locally managed liquidity portfolios, into primary and
secondary liquid assets. The majority of the NWM Plc portfolio is
managed by NatWest Holdings Treasury on behalf of NWM Plc,
for which the NatWest Markets Treasurer is responsible.
NatWest Markets Securities Inc. and NatWest Markets N.V., both
of which are significant operating subsidiaries of NWM Plc, hold
locally managed liquidity portfolios to comply with local
regulations that differ from PRA rules.
The liquidity value of the portfolio is determined by taking current
market prices and applying a discount or haircut, to determine a
liquidity value that represents the amount of cash that can be
generated by the asset.
Funding risk management
NWM Group manages funding risk through a comprehensive
framework which measures and monitors the funding risk on the
balance sheet.
The long-term obligations of NWM Group must be met with
diverse and stable funding sources, the behavioural maturity of
these liabilities must at a minimum equal those of the assets.
Risk and capital management continued
Capital, liquidity and funding risk continued
NWM Group
Annual Report and Accounts 2024
35
Minimum requirements
Capital ratios
NWM Plc is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum Pillar 1 capital
requirements and additional capital buffers that the entity is expected to have to meet.
Type | CET1 | Total tier 1 | Total capital |
Minimum capital requirements | 4.5% | 6.0% | 8.0% |
Capital conservation buffer (1) | 2.5% | 2.5% | 2.5% |
Countercyclical capital buffer (1) | 1.0% | 1.0% | 1.0% |
Total | 8.0% | 9.5% | 11.5% |
(1)
The UK countercyclical buffer (CCyB) rate is currently being maintained at 2%. This may vary in either direction in the future subject to how risks develop. Foreign exposures may be
subject to different CCyB rates depending on the rate set in those jurisdictions. The capital conservation buffer and the countercyclical capital buffer are required to be met with CET1
capital only.
(2)
In addition, NWM Plc is subject to Pillar 2A requirements for CET1, AT1 and T2.
Refer to the NWM Plc Pillar 3 report for further details on these additional capital requirements.
Leverage ratio
The table below summarises the minimum ratios of capital to leverage exposure under the binding PRA UK leverage framework
applicable for NWM Plc.
Type | CET1 | Total tier 1 |
Minimum ratio | 2.44% | 3.25% |
Countercyclical leverage ratio buffer (1) | 0.3% | 0.3% |
Total | 2.74% | 3.55% |
(1)
The countercyclical leverage ratio buffer is set at 35% of NWM Plc’s CCyB. The UK CCyB is currently being maintained at 2%. Foreign exposure may be subject to different CCyB rates
depending on the rates set in those jurisdictions.
Liquidity ratio
NWM Plc has a minimum Liquidity Coverage Ratio (LCR) requirement under the PRA framework of 100%.
Measurement
Capital, RWAs and leverage
Capital resources, RWAs and leverage based on the PRA transitional arrangements in respect of ECL provisions
(2)
for NWM Plc are set
out below. Regulatory capital is monitored and reported at legal entity level for large subsidiaries of NatWest Group.
2024 | 2023 | |
Capital adequacy ratios | % | % |
CET1 | 18.2 | 17.1 |
Tier 1 | 24.3 | 20.2 |
Total | 27.8 | 23.0 |
Total MREL | 48.2 | 34.5 |
Capital | £m | £m |
CET1 | 3,779 | 3,776 |
Tier 1 | 5,067 | 4,455 |
Total | 5,779 | 5,072 |
Total MREL (1) | 10,038 | 7,627 |
RWAs | ||
Credit risk | 8,908 | 7,895 |
Counterparty credit risk | 5,797 | 6,516 |
Market risk | 5,105 | 6,366 |
Operational risk | 1,002 | 1,322 |
Total RWAs | 20,812 | 22,099 |
(1)
Includes senior debt instruments issued to NatWest Group plc with a regulatory value of £4.3 billion (2023 - £2.6 billion).
(2)
The IFRS 9 transitional capital rules in respect to ECL provisions will no longer apply from 1 January 2025.
Leverage
2024 | 2023 | |
Tier 1 capital (£m) | 5,067 | 4,455 |
Leverage exposure (£m) (1) | 92,859 | 89,929 |
Leverage ratio (%) | 5.5 | 5.0 |
(1)
Leverage exposure is broadly aligned to the accounting value of on and off-balance sheet exposures, subject to specific adjustments for derivatives, securities financing positions and off-
balance sheet exposures.
Risk and capital management continued
Capital, liquidity and funding risk continued
NWM Group
Annual Report and Accounts 2024
36
Leverage exposure
The leverage metrics for UK entities are calculated in accordance with the Leverage ratio (CRR) part of the PRA Rulebook.
2024 | 2023 | |
Leverage | £m | £m |
Cash and balances at central banks | 11,069 | 8,607 |
Trading assets | 26,186 | 28,411 |
Derivatives | 74,982 | 75,832 |
Financial assets | 37,408 | 32,930 |
Other assets | 3,292 | 4,878 |
Total assets | 152,937 | 150,658 |
Derivatives | ||
- netting | (72,159) | (73,927) |
- potential future exposures | 15,093 | 15,691 |
Securities financing transactions gross up | 1,959 | 1,301 |
Undrawn commitments | 8,638 | 8,493 |
Regulatory deductions and other adjustments | (2,266) | (3,373) |
Exclusion of core UK-group exposures | (288) | (310) |
Claims on central banks | (11,055) | (8,604) |
Leverage exposure | 92,859 | 89,929 |
Liquidity portfolio
The table below shows the composition of the liquidity portfolio with primary liquidity aligned to high-quality liquid assets on a
regulatory LCR basis. Secondary liquidity comprises of assets which are eligible as collateral for local central bank liquidity facilities and
do not form part of the LCR eligible high-quality liquid assets.
2024 | 2023 | |
£m | £m | |
Cash and balances at central banks | 10,965 | 8,547 |
High quality government/MDB/PSE and GSE bonds (1) | 8,962 | 6,054 |
Extremely high quality covered bonds | - | 1 |
LCR Level 1 eligible assets | 19,927 | 14,602 |
LCR Level 2 eligible assets (2) | 1,031 | 104 |
Primary liquidity (HQLA) (3) | 20,958 | 14,706 |
Secondary liquidity (4) | 30 | 39 |
Total liquidity value | 20,988 | 14,745 |
(1)
Multilateral development bank abbreviated to MDB, public sector entities abbreviated to PSE and government sponsored entities abbreviated to GSE.
(2)
Includes Level 2A and Level 2B.
(3)
High-quality liquid assets abbreviated to HQLA.
(4)
Comprises assets eligible for discounting at the Bank of England and other central banks which do not form part of the LCR high-quality liquid assets.
The table below shows the liquidity value of the liquidity portfolio by currency.
GBP | USD | EUR | Other | Total | |
Total liquidity portfolio | £m | £m | £m | £m | £m |
2024 | 11,667 | 3,353 | 4,996 | 972 | 20,988 |
2023 | 5,153 | 3,350 | 6,150 | 92 | 14,745 |
Risk and capital management continued
Capital, liquidity and funding risk continued
NWM Group
Annual Report and Accounts 2024
37
The table below shows NWM Group’s carrying values of the principal funding sources based on contractual maturity.
| 2024 | 2023 | |||||
Short-term | Long-term | Short-term | Long-term | |||
less than | more than | less than | more than | |||
1 year | 1 year | Total | 1 year | 1 year | Total | |
£m | £m | £m | £m | £m | £m | |
Bank deposits | 4,056 | 509 | 4,565 | 1,622 | 645 | 2,267 |
of which: repos (amortised cost) | 2,487 | - | 2,487 | 452 | - | 452 |
Customer deposits | 4,784 | 56 | 4,840 | 6,990 | 8 | 6,998 |
of which: repos (amortised cost) | 482 | - | 482 | 418 | - | 418 |
Trading liabilities (1) | ||||||
Repos (2) | 29,752 | 810 | 30,562 | 26,634 | 268 | 26,902 |
Derivative cash collateral received | 12,307 | - | 12,307 | 15,062 | - | 15,062 |
Other bank and customer deposits | 627 | 268 | 895 | 768 | 382 | 1,150 |
Debt securities in issue | 20 | 237 | 257 | 418 | 288 | 706 |
42,706 | 1,315 | 44,021 | 42,882 | 938 | 43,820 | |
Other financial liabilities | ||||||
Customer deposits (designated at fair value) | 221 | 1,316 | 1,537 | 193 | 1,066 | 1,259 |
Debt securities in issue | ||||||
Commercial paper and certificates of deposits | 7,228 | 377 | 7,605 | 4,228 | 205 | 4,433 |
Medium term notes (MTNs) | 7,548 | 14,304 | 21,852 | 3,759 | 13,849 | 17,608 |
Subordinated liabilities | - | 269 | 269 | - | 274 | 274 |
14,997 | 16,266 | 31,263 | 8,180 | 15,394 | 23,574 | |
Amounts due to holding company and | ||||||
fellow subsidiaries (3) | ||||||
Internal MREL | 929 | 3,429 | 4,358 | 434 | 2,636 | 3,070 |
Other bank and customer deposits | 1,204 | - | 1,204 | 1,620 | - | 1,620 |
Subordinated liabilities | - | 1,115 | 1,115 | 839 | 183 | 1,022 |
2,133 | 4,544 | 6,677 | 2,893 | 2,819 | 5,712 | |
Total funding | 68,676 | 22,690 | 91,366 | 62,567 | 19,804 | 82,371 |
Of which: available in resolution (4) | 4,813 | 3,093 | ||||
(1)
Funding sources excludes short positions of £10,491 million (2023 - £9,803 million) reflected as trading liabilities on the balance sheet.
(2)
Comprises Central and other bank repos of £7,174 million (2023 - £3,957 million), other financial institution repos of £20,398 million (2023 - £20,394 million) and other corporate repos of
£2,990 million (2023 - £2,551 million).
(3)
Amounts due to holding company and fellow subsidiaries relating to non-financial instruments of £94 million (2023 - £90 million) have been excluded from the table.
(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 statements of
the Bank of England including the Statement of Policy published in December 2021 (updating June 2018).
Risk and capital management continued
Capital, liquidity and funding risk continued
NWM Group
Annual Report and Accounts 2024
38
Senior notes and subordinated liabilities - residual maturity profile by instrument type (audited)
The table below shows NWM Group’s debt securities in issue, subordinated liabilities and internal resolution instruments by residual
maturity.
Trading | ||||||||
liabilities | Other financial liabilities | |||||||
Debt securities | Amounts due to holding company and fellow | |||||||
in issue | Debt securities in issue | subsidiaries | ||||||
Commercial | Subordinated | Subordinated | Total notes | |||||
MTNs | paper and CDs | MTNs | liabilities | Total | Internal MREL | liabilities | in issue | |
2024 | £m | £m | £m | £m | £m | £m | £m | £m |
Less than 1 year | 20 | 7,228 | 7,548 | - | 14,776 | 929 | - | 15,725 |
1-3 years | 35 | 377 | 9,959 | - | 10,336 | 1,751 | - | 12,122 |
3-5 years | 42 | - | 3,652 | - | 3,652 | 1,678 | 987 | 6,359 |
More than 5 years | 160 | - | 693 | 269 | 962 | - | 128 | 1,250 |
Total | 257 | 7,605 | 21,852 | 269 | 29,726 | 4,358 | 1,115 | 35,456 |
2023 | ||||||||
Less than 1 year | 418 | 4,228 | 3,759 | - | 7,987 | 434 | 839 | 9,678 |
1-3 years | 48 | 205 | 9,342 | 18 | 9,565 | 1,722 | - | 11,335 |
3-5 years | - | - | 3,851 | - | 3,851 | 914 | - | 4,765 |
More than 5 years | 240 | - | 656 | 256 | 912 | - | 183 | 1,335 |
Total | 706 | 4,433 | 17,608 | 274 | 22,315 | 3,070 | 1,022 | 27,113 |
The table below shows the currency breakdown of total notes in issue.
GBP | USD | EUR | Other | Total | |
2024 | £m | £m | £m | £m | £m |
Commercial paper and CDs | 2,461 | 1,461 | 3,683 | - | 7,605 |
MTNs | 2,306 | 5,069 | 11,804 | 2,930 | 22,109 |
External subordinated liabilities | 18 | 17 | 234 | - | 269 |
Internal MREL due to NatWest Group plc | - | 3,473 | 885 | - | 4,358 |
Subordinated liabilities due to NatWest Group plc | - | 1,115 | - | - | 1,115 |
Total | 4,785 | 11,135 | 16,606 | 2,930 | 35,456 |
2023 total | 2,948 | 8,153 | 13,017 | 2,995 | 27,113 |
Risk and capital management continued
NWM Group
Annual Report and Accounts 2024
39
Definition (audited)
Credit risk is the risk that customers, counterparties or issuers fail
to meet a contractual obligation to settle outstanding amounts.
The principal sources of credit risk for NWM Group are lending,
off-balance sheet products, derivatives and securities financing,
Key developments in 2024 (audited)
The credit profile remained stable and NWM Group has yet to
see signs of financial stress materially affect customers’ ability
to repay.
Current and potential credit exposure increased in the context
of planned business growth.
NWM Group continued to progress embedding climate change
considerations in credit assessment and monitoring, including
scenario analysis and development of second generation
climate risk scorecards.
Governance (audited)
The Credit Risk function provides oversight and challenge of
frontline credit risk management activities. Authority is delegated
to credit risk officers who operate within designated limits set at a
customer level and a portfolio level.
Governance activities include:
Defining and proposing credit risk appetite measures for
Board approval.
Establishing credit risk policy, standards and toolkits which set
out the mandatory limits and parameters required to ensure
that credit risk is managed within risk appetite and which
provide the minimum standards for the identification,
assessment, management, monitoring and reporting of credit
risk.
Oversight of the first line of defence to ensure that credit risk
remains within the appetite set by the Board and that it is
being managed adequately and effectively.
Assessing the adequacy of expected credit loss (ECL)
provisions including approving key IFRS 9 inputs (such as
significant increase in credit risk (SICR) thresholds) and any
necessary in-model and post model adjustments through
provisions and model committees.
Development and approval of credit grading models.
Providing regular reporting on credit risk to the Board.
The Credit Risk Committee provides oversight of the overall credit
Risk appetite
Credit risk appetite is approved by the Board and is set and
monitored through a risk appetite framework.
The framework has been designed to reflect factors that influence
the ability to operate within risk appetite. Tools such as stress
testing and economic capital are used to measure credit risk
volatility and develop links between the framework and risk
appetite limits.
Risk appetite statements and associated measures are reviewed
and approved at least annually by the Board on the Board Risk
Committee’s recommendation to ensure they remain appropriate
and aligned to strategy.
The framework is used to manage concentrations of risk which
may arise across four lenses – single name, sector, country and
product and asset classes.
The framework is supported by a suite of transactional
acceptance standards that set out the risk parameters within
which businesses should operate.
Credit stewardship (audited)
Risks are identified through relationship management and credit
stewardship of customers and portfolios. Credit stewardship takes
place throughout the customer relationship, beginning with the
initial approval. It includes the application of credit assessment
standards, credit risk mitigation and collateral, ensuring that credit
documentation is complete and appropriate, carrying out regular
portfolio or customer reviews and problem debt identification and
management.
Asset quality (audited)
All credit grades map to an asset quality (AQ) scale, used for
financial reporting. This AQ scale is based on Basel probability of
defaults (PDs). Performing loans are defined as AQ1-AQ9 (where
the PD is less than 100%) and defaulted non-performing loans as
AQ10 or Stage 3 under IFRS 9 (where the PD is 100%). Loans are
defined as defaulted when the payment status becomes 90 days
past due, or earlier if there is clear evidence that the borrower is
Counterparty credit risk
Counterparty credit risk arises from the obligations of customers
under derivative and securities financing transactions. It is a
material part of NWM Group’s credit risk.
NWM Group mitigates counterparty credit risk through
collateralisation and netting agreements, which allow amounts
owed by NWM Group to a counterparty to be netted against
amounts the counterparty owes NWM Group.
Mitigation
Mitigation techniques, as set out in the appropriate credit risk
toolkits and transactional acceptance standards, are used in the
management of credit portfolios across NWM Group. These
techniques mitigate credit concentrations in relation to an
individual customer, a borrower group or a collection of related
borrowers. Where possible, customer credit balances are netted
against obligations. Mitigation tools can include structuring a
security interest in a physical or financial asset, the use of credit
derivatives including credit default swaps, credit-linked debt
instruments and securitisation structures, and the use of
guarantees and similar instruments (for example, credit insurance)
from related and third parties.
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
40
Assessment and monitoring
Customers, including corporates, banks and other financial
institutions are typically managed on an individual basis.
Customers are aggregated as a single risk when sufficiently
interconnected to the extent that a failure of one could lead to the
failure of another.
A credit assessment is carried out before credit facilities are made
available to customers. The assessment process is dependent on
the complexity of the transaction. Credit approvals are subject to
environmental, social and governance risk policies which restrict
exposure to certain highly carbon intensive industries as well as
those with potentially heightened reputational impacts. Customer
specific climate risk commentary is now mandatory.
For lower-risk transactions below specific thresholds, credit
decisions can be approved through a combination of fully
automated or relationship manager self-sanctioning within the
business. This process is facilitated through an auto-decision
making system, which utilises scorecards, strategies and policy
rules.
For other transactions, both business approval and credit
approval are required. The joint business and credit approvers act
within a delegated approval authority under the Wholesale Credit
Authorities policy. The level of delegated authority held by
approvers is dependent on their experience and expertise with
only a small number of senior executives holding the highest
approval authority.
Transactional acceptance standards provide detailed transactional
lending and risk acceptance metrics and structuring guidance. As
such, these standards provide a mechanism to manage risk
appetite at the customer/transaction level and are supplementary
to the established credit risk appetite.
Credit quality, and loss given default (LGD) are reviewed annually.
The review process assesses borrower performance, the
adequacy of security, compliance with terms and conditions, and
refinancing risk.
Problem debt management
Early problem identification
Each sector has defined early warning indicators to identify
customers experiencing financial difficulty, and to increase
monitoring if needed. Early warning indicators may be internal,
such as a customer’s bank account activity, or external, such as a
publicly listed customer’s share price. If early warning indicators
show a customer is experiencing potential or actual difficulty, or if
relationship managers or credit officers identify other signs of
financial difficulty, they may decide to classify the customer within
the Wholesale Problem Debt Management framework. Broader
macro-economic trends including commodity prices, foreign
exchange rates and consumer and government spend are also
tracked, helping inform decisions on sector risk appetite.
Customer level early warning indicators are regularly reviewed to
ensure alignment with prevailing economic conditions, ensuring
both the volume and focus of alerts is aligned to the point-in-time
risk within each sector.
The Wholesale Problem Debt Management framework
This framework focuses on customers to provide early
identification of credit deterioration, support intelligent risk-taking,
ensure fair and consistent customer outcomes and provide key
insights into lending portfolios. Expert judgement is applied by
experienced credit risk officers to classify cases into categories
that reflect progressively deteriorating credit risk to NWM Group.
There are two classifications in the framework that apply to non-
defaulted customers who are in financial stress – Heightened
Monitoring and Risk of Credit Loss. For the purposes of
provisioning, all exposures categorised as Heightened Monitoring
or Risk of Credit Loss are categorised as Stage 2 and subject to a
lifetime loss assessment. The framework also applies to those
customers that have met NWM Group’s default criteria (AQ10
exposures). Defaulted exposures are categorised as Stage 3
impaired for provisioning purposes.
Customers classified in the Heightened Monitoring category are
those who are still performing but have certain characteristics –
such as trading issues, covenant breaches, material PD
downgrades and past due facilities – that may affect the ability to
meet repayment obligations. Heightened Monitoring customers
require pre-emptive actions to return or maintain their facilities
within risk appetite.
Risk of Credit Loss customers are performing customers that
have met the criteria for Heightened Monitoring and also pose a
risk of credit loss to NWM Group in the next 12 months should
mitigating action not be taken or not be successful.
Once classified as either Heightened Monitoring or Risk of Credit
Loss, a number of mandatory actions are taken in accordance
with policies. Actions include a review of the customer’s credit
grade, facility and security documentation and the valuation of
security. Depending on the severity of the financial difficulty and
the size of the exposure, the customer relationship strategy is
reassessed by credit officers, by specialist credit risk or
relationship management units in the relevant business, or by
Restructuring.
Restructuring
Where customers are categorised as Risk of Credit Loss,
relationships are mainly managed by the Restructuring team in
NatWest Bank Plc as a service to NWM Group. The team protects
NWM Group’s capital by working with corporate and commercial
customers to support their turnaround and recovery strategies
and enable them to return to mainstream banking.
Forbearance takes place when a concession is made on the
contractual terms of a loan/debt in response to a customer’s
financial difficulties. The aim of forbearance is to support and
restore the customer to financial health while minimising risk. The
type of forbearance offered is tailored to the customer’s individual
circumstances and may involve covenant waivers, amendments
to margins, payment concessions and loan rescheduling (including
extensions in contractual maturity), capitalisation of arrears, and
Provisioning for forbearance
Provisions for forborne loans are assessed in accordance with
normal provisioning policies. The customer’s financial position and
prospects – as well as the likely effect of the forbearance,
including any concessions granted, and revised PD or LGD
gradings – are considered in order to establish whether an
impairment provision increase is required.
Loans granted forbearance are individually credit assessed in
most cases. Performing loans subject to forbearance treatment
are categorised as Stage 2 and subject to a lifetime loss
assessment.
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
41
In line with regulatory guidance, forbearance may lead to a
customer being classified as non-performing.
In the case of non-performing forborne loans, an individual loan
impairment provision assessment generally takes place prior to
forbearance being granted. The amount of the loan impairment
provision may change once the terms of the forbearance are
known, resulting in an additional provision charge or a release of
the provision in the period the forbearance is granted.
The transfer of loans from impaired to performing status follows
assessment by relationship managers and credit. When no further
losses are anticipated and the customer is expected to meet the
loan’s revised terms, any provision is written-off or released and
the balance of the loan can be returned to performing status once
the exit criteria, as set out by regulatory guidance, are met.
Credit grading models
Credit grading models is the collective term used to describe all
models, frameworks and methodologies used to calculate PD,
exposure at default (EAD), LGD, maturity and the production of
credit grades.
Credit grading models are designed to provide:
An assessment of customer and transaction characteristics.
A meaningful differentiation of credit risk.
Accurate internal default rate, loss and exposure estimates
that are used in the capital calculation or wider risk
management purposes.
In the overall assessment of credit risk, impairment provisioning
and write-offs are used as key indicators of credit quality.
NWM Group’s IFRS 9 provisioning models, which use existing
internal ratings based (IRB) models as a starting point, incorporate
term structures and economic forecasts. Regulatory conservatism
within the IRB models has been removed as appropriate to
comply with the IFRS 9 requirement for unbiased ECL estimates.
Five key areas may materially influence the measurement of
credit impairment under IFRS 9 – two of these relate to model
build and three relate to model application:
Model build:
The determination of economic indicators that have most
influence on credit loss for each portfolio and the severity of
impact (this leverages existing stress testing models which are
reviewed annually).
The build of term structures to extend the determination of
the risk of loss beyond 12 months that will influence the
impact of lifetime loss for exposures in Stage 2.
Model application:
The assessment of the SICR and the formation of a
framework capable of consistent application.
The determination of asset lifetimes that reflect behavioural
characteristics while also representing management actions
and processes (using historical data and experience).
The choice of forward-looking economic scenarios and their
respective probability weights.
For accounting policy information, refer to Accounting policy 3.11.
IFRS 9 ECL model design principles (audited)
Modelling of ECL for IFRS 9 follows the conventional approach to
divide the estimation of credit losses into its component parts of
PD, LGD and EAD.
To meet IFRS 9 requirements, the PD, LGD and EAD parameters
differ from their Pillar 1 IRB counterparts in the following aspects:
Unbiased
– conservatism has been removed from IFRS 9
parameters to produce unbiased estimates.
Point-in-time
– IFRS 9 parameters reflect actual economic
conditions at the reporting date instead of long-run average
or downturn conditions.
Economic forecasts
– IFRS 9 PD estimates and, where
appropriate, EAD and LGD estimates reflect forward-looking
economic conditions.
Lifetime measurement
– IFRS 9 PD, LGD and EAD are
provided as multi-period term structures up to exposure
lifetimes instead of over a fixed one-year horizon.
IFRS 9 requires that, at each reporting date, an entity shall assess
whether the credit risk on an account has increased significantly
since initial recognition. Part of this assessment requires a
comparison to be made between the current lifetime PD (i.e. the
PD over the remaining lifetime at the reporting date) and the
equivalent lifetime PD as determined at the date of initial
recognition.
For assets originated before IFRS 9 was introduced, comparable
lifetime origination PDs did not exist. These have been
retrospectively created using the relevant model inputs applicable
at initial recognition.
PD estimates
PD models use a point-in-time/through-the-cycle framework to
convert one-year regulatory PDs into point-in-time estimates that
reflect economic conditions at the reporting date. The framework
utilises credit cycle indices (CCIs) for a comprehensive set of
region/industry segments. Further detail on CCIs is provided in the
Economic loss drivers section.
One-year PDs are extended to lifetime PDs using a conditional
transition matrix approach and economic forecasts.
LGD estimates
The general approach for the IFRS 9 LGD models is to leverage
corresponding IRB LGD models with bespoke adjustments to
ensure estimates are unbiased and, where relevant, include
economic forecasts.
Economic forecasts are incorporated into LGD estimates using the
existing point-in-time/through-the-cycle framework. For low-
default portfolios, including sovereigns and banks, loss data is too
scarce to substantiate estimates that vary with economic
conditions. Consequently, for these portfolios, LGD estimates are
assumed to be constant throughout the projection horizon.
EAD estimates
EAD values are projected using product specific credit conversion
factors (CCFs), closely following the product segmentation and
approach of the respective IRB model. The CCFs are estimated
over multi-year time horizons and contain no regulatory
conservatism or downturn assumptions.
No explicit economic forecasts are incorporated, on the basis of
analysis showing the movement in CCFs is mainly attributable to
changes in exposure management practices rather than
economic conditions.
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
42
Governance and post model adjustments (audited)
The IFRS 9 PD, EAD and LGD models are subject to NatWest
Group’s model risk policy that stipulates periodic model
monitoring, periodic re-validation and defines approval procedures
and authorities according to model materiality. Various post model
adjustments were applied where management judged they were
necessary to ensure an adequate level of overall ECL provision.
All post model adjustments were subject to review, challenge and
approval through model or provisioning committees.
Post model adjustments will remain a key focus area of NWM
Group’s ongoing ECL adequacy assessment process. A holistic
framework has been established including reviewing a range of
economic data, external benchmark information and portfolio
performance trends with a particular focus on segments of the
portfolio that are likely to be more susceptible to high inflation,
high interest rates and supply chain disruption.
ECL post model adjustments (audited)
The table below shows ECL post model adjustments.
2024 | 2023 | |
£m | £m | |
Deferred model calibrations | - | - |
Economic uncertainty | 10 | 13 |
Other adjustments | - | - |
Total | 10 | 13 |
Of which: | ||
- Stage 1 | 8 | 10 |
- Stage 2 | 2 | 3 |
- Stage 3 | - | - |
SICR (audited)
Exposures that are considered significantly credit deteriorated
since initial recognition are classified in Stage 2 and assessed for
lifetime ECL measurement (exposures not considered deteriorated
carry a 12-month ECL). NWM Group has adopted a framework to
identify deterioration based primarily on relative movements in
lifetime PD supported by additional qualitative backstops. The
principles applied are consistent across NWM Group and align to
credit risk management practices, where appropriate.
The framework comprises the following elements:
IFRS 9 lifetime PD assessment (the primary driver) –
on
modelled portfolios, the assessment is based on the relative
deterioration in forward-looking lifetime PD and is assessed
monthly. To assess whether credit deterioration has occurred,
the residual lifetime PD at balance sheet date (which PD is
established at date of initial recognition) is compared to the
current PD. If the current lifetime PD exceeds the residual
origination PD by more than a threshold amount, deterioration
is assumed to have occurred and the exposure transferred
into Stage 2 for a lifetime loss assessment. In broad terms, a
doubling of PD would indicate a SICR. However, the PD uplift
must be at least 0.1%.
Qualitative high-risk backstops
– the PD assessment is
complemented with the use of qualitative high-risk backstops
to further inform whether significant deterioration in lifetime
risk of default has occurred. The qualitative high-risk backstop
assessment includes the use of the mandatory 30+ days past
due backstop, as prescribed by IFRS 9 guidance, and other
features such as forbearance support and exposures
managed within the Wholesale Problem Debt Management
framework.
The criteria are based on a significant amount of empirical
analysis and seek to meet three key objectives:
Criteria effectiveness
– the criteria should be effective in
identifying significant credit deterioration and prospective
default population.
Stage 2 stability
– the criteria should not introduce
unnecessary volatility in the Stage 2 population.
Portfolio analysis
– the criteria should produce results which
are intuitive when reported as part of the wider credit
portfolio.
Monitoring the effect on relative PD deterioration when originating
new lending at times of weaker economic outlook (therefore,
higher PDs at initial recognition) is important to ensure SICR
criteria remains effective.
Asset lifetimes (audited)
The choice of initial recognition and asset duration is another
critical judgement in determining the quantum of lifetime losses
that apply.
The date of initial recognition reflects the date that a transaction
(or account) was first recognised on the balance sheet; the PD
recorded at that time provides the baseline used for subsequent
determination of SICR as detailed above.
For asset duration, the approach applied (in line with IFRS 9
requirements) is:
Term lending
– the contractual maturity date, reduced for
behavioural trends where appropriate (such as, expected
prepayment and amortisation).
Revolving facilities
– asset duration is based on annual
customer review schedules and will be set to the next review
date.
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
43
Economic loss drivers (audited)
Introduction
The portfolio segmentation and selection of economic loss drivers
for IFRS 9 follows the approach used in stress testing. The stress
models for each portfolio segment (defined by product or asset
class and where relevant, industry sector and region) are based
on a selected, small number of economic variables, that best
explain the movements in portfolio loss rates. The process to
select economic loss drivers involves empirical analysis and expert
judgement.
The most significant economic loss drivers for the UK portfolios
include UK gross domestic product (GDP), world GDP, the
unemployment rate, the house price index, and the Bank of
England base rate. Similar metrics are used for other key country
exposures in NWM Group.
Economic scenarios
At 31 December 2024, the range of anticipated future economic
conditions was defined by a set of four internally developed
scenarios and their respective probabilities. In addition to the base
case, they comprised upside, downside and extreme downside
scenarios. The scenarios primarily reflected the current risks
faced by the economy. This approach was similar to that used at
31 December 2023.
For 31 December 2024, the four scenarios were deemed
appropriate in capturing the uncertainty in economic forecasts
and the non-linearity in outcomes under different scenarios. These
four scenarios were developed to provide sufficient coverage
across potential rises in unemployment, inflation, asset price
declines and the degree of permanent damage to the economy,
around which there remains pronounced levels of uncertainty.
Since 31 December 2023, the economic outlook has evolved. The
economy came out of post-COVID-19 stagnation with an upswing
in the first half of 2024 as household income recovered. The
growth lost momentum in the second half of 2024 and the outlook
remains that of moderate growth. Inflation declined over the year,
although the progress is slower than expected and inflation is
likely to take longer to reach the target of 2%. As a result, rates
are expected to remain higher-for-longer than previously
expected. The unemployment rate increased modestly but it is
underpinned by a still resilient labour market. There was emerging
risk to the labour market due to higher tax burdens, but the
impact is likely to be moderate. House prices were previously
assumed to decline in 2024, but they performed better than
expected. However, the higher interest rate environment poses a
risk to the recovery.
Headline macro variables: what are the risks and where are they captured?
Extreme | |||||
Mini narratives – potential developments, vulnerabilities and risks | Upside | Base case | Downside | downside | |
Outperformance sustained – economy remains close to H1 2024 pace on strong | |||||
consumer | |||||
Steady growth – staying close to trend pace from H2 2024 and beyond | |||||
Growth | Stalling – 2024 strength proves fleeting, lagged effect of higher rates and cautious | ||||
consumer stalls the rebound | |||||
Extreme stress – extreme fall in GDP, with policy support to facilitate sharp recovery | |||||
Close to deflation – inflationary pressures diminish amidst pronounced weakness in | |||||
demand | |||||
Battle won – continued downward drift in services inflation, ensuring 2% target is | |||||
met on sustained basis | |||||
Inflation | |||||
Sticky – strong growth and/or wage policies and/or interest rate cuts keep services | |||||
inflation well above target | |||||
Structural factors – sustained bouts of energy, food and goods price inflation on | |||||
geopolitics/deglobalisation | |||||
Tighter, still – job growth rebounds strongly, pushing unemployment back down to | |||||
sub-3.5% | |||||
Labour | Cooling continues – gradual loosening prompts a gentle rise in unemployment (but | ||||
market | remains low), job growth recovers | ||||
Job shedding – prolonged weakness in economy prompts redundancies, reduced | |||||
hours, building slack | |||||
Depression – unemployment hits levels close to previous peaks amid severe stress | |||||
Limited cuts – higher growth and inflation keeps the MPC cautious | |||||
Rates | Steady – approximately one cut per quarter | ||||
short- | Mid-cycle quickening – sharp declines through 2025 to support recovery | ||||
term | Sharp drop – drastic easing in policy to support a sharp deterioration in the | ||||
economy | |||||
Rates | Above consensus – 4% | ||||
long- | Middle – 3-3.5% | ||||
term | Close to 2010s – 1-2%/2.5% | ||||
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
44
Main macroeconomic variables
The main macroeconomic variables for each of the four scenarios used for ECL modelling are set out in the table below.
| 2024 | 2023 | |||||||||
Extreme | Weighted | Extreme | Weighted | |||||||
Upside | Base case | Downside | downside | average | Upside | Base case | Downside | downside | average | |
Five-year summary | % | % | % | % | % | % | % | % | % | % |
GDP | 2.0 | 1.3 | 0.5 | (0.2) | 1.1 | 1.8 | 1.0 | 0.5 | (0.3) | 0.9 |
Unemployment rate | 3.6 | 4.3 | 5.0 | 6.7 | 4.6 | 3.5 | 4.6 | 5.2 | 6.8 | 4.8 |
House price index | 5.8 | 3.5 | 0.8 | (4.3) | 2.7 | 3.9 | 0.3 | (0.4) | (5.7) | 0.3 |
Commercial real estate price | 5.4 | 1.2 | (1.0) | (5.7) | 1.1 | 3.1 | (0.2) | (2.0) | (6.8) | (0.6) |
Consumer price index | 2.4 | 2.2 | 3.5 | 1.6 | 2.4 | 1.7 | 2.6 | 5.2 | 1.8 | 2.8 |
Bank of England base rate | 4.4 | 4.0 | 3.0 | 1.6 | 3.6 | 3.8 | 3.7 | 5.6 | 2.9 | 4.0 |
Stock price index | 6.3 | 5.0 | 3.4 | 1.1 | 4.5 | 4.8 | 3.3 | 1.2 | (0.4) | 2.8 |
World GDP | 3.8 | 3.2 | 2.5 | 1.6 | 3.0 | 3.7 | 3.2 | 2.7 | 1.8 | 3.0 |
Probability weight | 23.2 | 45.0 | 19.1 | 12.7 | 21.2 | 45.0 | 20.4 | 13.4 | ||
(1)
The five-year summary runs from 2024-28 for 31 December 2024 and from 2023-27 for 31 December 2023.
(2)
The table shows compound annual growth rate (CAGR) for GDP, average levels for the unemployment rate and Bank of England base rate and Q4 to Q4 CAGR for other parameters.
Probability weightings of scenarios
NWM Group’s quantitative approach to IFRS 9 multiple economic
scenarios (MES) involves selecting a suitable set of discrete
scenarios to characterise the distribution of risks in the economic
outlook and assigning appropriate probability weights. This
quantitative approach is used for 31 December 2024.
The approach involves comparing UK GDP paths for NWM
Group’s scenarios against a set of 1,000 model runs, following
which a percentile in the distribution is established that most
closely corresponded to the scenario. The probability weight for
the base case is set first based on judgement, while probability
weights for the alternate scenarios are assigned based on these
percentiles scores.
The assigned probability weights were judged to be aligned with
the subjective assessment of balance of the risks in the economy.
The weights were marginally less downside skewed compared to
those used at 31 December 2023. The downside risks associated
with a materially high inflation have reduced, with inflation lower
at the end of 2024 compared to a year ago. However, the
economic outlook is still subject to considerable uncertainty
especially with respect to persistence of inflation, restrictive trade
policies and various geopolitical flashpoints. Given that backdrop,
NWM Group judges it appropriate that downside-biased scenarios
have higher combined probability weights than the upside-biased
scenario. It presents good coverage to the range of outcomes
assumed in the scenarios, including the potential for a robust
recovery on the upside and exceptionally challenging outcomes on
the downside. A 23.2% weighting was applied to the upside
scenario, a 45.0% weighting applied to the base case scenario, a
19.1% weighting applied to the downside scenario and a 12.7%
UK gross domestic product (£bn)
Q1 2024
Q1 2025
Q1 2026
Q1 2027
Q1 2028
Q1 2029
2000
2100
2200
2300
2400
2500
2600
2700
2800
2900
3000
Upside
Base case
Downside
Extreme downside
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
45
Bank of England base rate (%)
Q1 2024
Q1 2025
Q1 2026
Q1 2027
Q1 2028
Q1 2029
0
1
2
3
4
5
6
Upside
Base case
Downside
Extreme downside
UK unemployment rate (%)
Q1 2024
Q1 2025
Q1 2026
Q1 2027
Q1 2028
Q1 2029
0
1
2
3
4
5
6
7
8
9
Upside
Base case
Downside
Extreme downside
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
46
Annual figures | |||||
Extreme | Weighted | ||||
Upside | Base case | Downside | downside | average | |
GDP - annual growth | % | % | % | % | % |
2024 | 0.9 | 0.9 | 0.9 | 0.9 | 0.9 |
2025 | 2.0 | 1.4 | 0.4 | (4.1) | 0.6 |
2026 | 3.2 | 1.5 | (0.5) | (0.3) | 1.3 |
2027 | 2.3 | 1.4 | 0.2 | 1.4 | 1.4 |
2028 | 1.6 | 1.4 | 1.3 | 1.4 | 1.4 |
2029 | 1.6 | 1.4 | 1.7 | 1.4 | 1.5 |
Unemployment rate - annual average | |||||
2024 | 4.2 | 4.2 | 4.2 | 4.2 | 4.2 |
2025 | 3.9 | 4.4 | 4.8 | 5.4 | 4.5 |
2026 | 3.3 | 4.4 | 5.5 | 8.0 | 4.8 |
2027 | 3.3 | 4.3 | 5.5 | 8.3 | 4.8 |
2028 | 3.4 | 4.3 | 5.3 | 7.6 | 4.7 |
2029 | 3.4 | 4.2 | 5.0 | 6.9 | 4.5 |
House price index - four quarter change | |||||
2024 | 3.5 | 3.5 | 3.5 | 3.5 | 3.5 |
2025 | 7.8 | 3.5 | (1.2) | (7.6) | 2.2 |
2026 | 7.2 | 3.4 | (2.8) | (14.7) | 1.1 |
2027 | 5.1 | 3.4 | 0.1 | (8.0) | 2.2 |
2028 | 5.4 | 3.4 | 4.4 | 6.9 | 4.4 |
2029 | 5.6 | 3.4 | 4.2 | 6.3 | 4.4 |
Commercial real estate price - four quarter change | |||||
2024 | (0.9) | (0.9) | (0.9) | (0.9) | (0.9) |
2025 | 14.1 | 2.4 | (6.8) | (23.7) | 0.1 |
2026 | 4.4 | 1.5 | (2.5) | (12.7) | 0.2 |
2027 | 5.5 | 1.4 | 2.8 | 6.7 | 3.3 |
2028 | 4.2 | 1.5 | 2.6 | 5.7 | 2.8 |
2029 | 2.7 | 1.4 | 2.5 | 5.4 | 2.3 |
Consumer price index - four quarter change | |||||
2024 | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 |
2025 | 2.9 | 2.3 | 5.8 | 0.6 | 2.9 |
2026 | 2.4 | 2.1 | 4.2 | 1.1 | 2.4 |
2027 | 2.1 | 2.0 | 2.6 | 1.8 | 2.1 |
2028 | 2.0 | 2.0 | 2.4 | 2.0 | 2.1 |
2029 | 2.0 | 2.0 | 2.5 | 2.0 | 2.1 |
Bank of England base rate - annual average | |||||
2024 | 5.11 | 5.11 | 5.11 | 5.11 | 5.11 |
2025 | 4.63 | 4.21 | 3.42 | 1.40 | 3.80 |
2026 | 4.02 | 3.52 | 2.10 | 0.18 | 2.94 |
2027 | 4.00 | 3.50 | 2.00 | 0.40 | 2.94 |
2028 | 4.00 | 3.50 | 2.15 | 1.03 | 3.04 |
2029 | 4.00 | 3.50 | 2.50 | 1.83 | 3.21 |
Stock price index - four quarter change | |||||
2024 | 11.6 | 11.6 | 11.6 | 11.6 | 11.6 |
2025 | 8.1 | 3.4 | (10.5) | (35.0) | (3.0) |
2026 | 5.1 | 3.4 | 5.8 | 15.1 | 5.3 |
2027 | 3.5 | 3.4 | 5.8 | 13.1 | 4.8 |
2028 | 3.5 | 3.4 | 5.8 | 11.6 | 4.7 |
2029 | 3.0 | 3.4 | 5.8 | 10.4 | 4.5 |
Risk and capital management continued
Credit risk continued
Economic loss drivers (audited)
NWM Group
Annual Report and Accounts 2024
47
Worst points
| 2024 | 2023 | |||||||||
Extreme | Weighted | Extreme | Weighted | |||||||
Downside | downside | average | Downside | downside | average | |||||
% | Quarter | % | Quarter | % | % | Quarter | % | Quarter | % | |
GDP | - | Q1 2024 | (4.1) | Q4 2025 | - | (1.2) | Q3 2024 | (4.5) | Q4 2024 | 0.3 |
Unemployment rate - peak | 5.6 | Q4 2026 | 8.5 | Q1 2027 | 4.9 | 5.8 | Q1 2025 | 8.5 | Q2 2025 | 5.2 |
House price index | (1.9) | Q2 2027 | (25.6) | Q3 2027 | - | (12.5) | Q4 2025 | (31.7) | Q2 2026 | (6.5) |
Commercial real estate price | (10.5) | Q2 2026 | (35.0) | Q3 2026 | (1.8) | (16.6) | Q1 2025 | (39.9) | Q3 2025 | (10.2) |
Consumer price index | ||||||||||
- highest four quarter change | 6.1 | Q1 2026 | 3.5 | Q1 2024 | 3.5 | 10.3 | Q1 2023 | 10.3 | Q1 2023 | 10.3 |
Bank of England base rate | ||||||||||
- extreme level | 2.0 | Q1 2024 | 0.1 | Q1 2024 | 2.9 | 6.5 | Q4 2024 | 5.3 | Q4 2023 | 5.3 |
Stock price index | (0.2) | Q4 2025 | (27.4) | Q4 2025 | - | (14.3) | Q4 2024 | (39.3) | Q4 2024 | (2.4) |
(1)
The figures show falls relative to the starting period for GDP, house price index, commercial real estate price and stock price index. For unemployment rate, it shows highest value
through the scenario horizon. For consumer price index, it shows highest annual percentage change. For Bank of England base rate, it shows highest or lowest value through the
horizon. The calculations are performed over five years, with a starting point of Q4 2023 for 31 December 2024 scenarios and Q4 2022 for 31 December 2023 scenarios.
Measurement uncertainty and ECL sensitivity analysis
(audited)
The recognition and measurement of ECL is complex and
involves the use of significant judgement and estimation,
particularly in times of economic volatility and uncertainty. This
includes the formulation and incorporation of multiple forward-
looking economic conditions into ECL to meet the measurement
objective of IFRS 9. The ECL provision is sensitive to the model
inputs and economic assumptions underlying the estimate.
The impact arising from the base case, upside, downside and
extreme downside scenarios was simulated. In the simulations,
NWM Group has assumed that the economic macro variables
associated with these scenarios replace the existing base case
economic assumptions, giving them a 100% probability weighting
and therefore serving as a single economic scenario.
These scenarios were applied to all modelled portfolios in the
analysis below, with the simulation impacting both PDs and
LGDs. Post model adjustments included in the ECL estimates that
were modelled were sensitised in line with the modelled ECL
movements, but those that were judgemental in nature, primarily
those for deferred model calibrations and economic uncertainty,
were not (refer to the Governance and post model adjustments
section) on the basis these would be re-evaluated by
management through ECL governance for any new economic
scenario outlook and not be subject to an automated calculation.
As expected, the scenarios create differing impacts on ECL by
portfolio and the impacts are deemed reasonable. In this
simulation, it is assumed that existing modelled relationships
between key economic variables and loss drivers hold, but in
practice other factors would also have an impact, for example,
potential customer behaviour changes and policy changes by
lenders that might impact on the wider availability of credit.
The focus of the simulations is on ECL provisioning requirements
on performing exposures in Stage 1 and Stage 2. The simulations
are run on a stand-alone basis and are independent of each
other; the potential ECL impacts reflect the simulated impact at
31 December 2024. Scenario impacts on SICR should be
considered when evaluating the ECL movements of Stage 1 and
Stage 2. In all scenarios the total exposure was the same but
exposure by stage varied in each scenario.
Stage 3 provisions are not subject to the same level of
measurement uncertainty – default is an observed event as at
the balance sheet date. Stage 3 provisions therefore were not
considered in this analysis.
NWM Group’s core criterion to identify a SICR is founded on PD
deterioration. Under the simulations, PDs change and result in
exposures moving between Stage 1 and Stage 2 contributing to
the ECL impact.
Risk and capital management continued
Credit risk continued
NWM Group
Annual Report and Accounts 2024
48
Moderate | Extreme | ||||
Moderate upside | downside | downside | |||
31 December 2024 | Actual | Base scenario | scenario | scenario | scenario |
Stage 1 modelled loans (£m) | 18,918 | 19,032 | 19,034 | 18,916 | 18,134 |
Stage 1 modelled ECL (£m) | 25 | 22 | 20 | 26 | 46 |
Stage 1 coverage (%) | 0.13% | 0.12% | 0.11% | 0.14% | 0.25% |
Stage 2 modelled loans (£m) | 347 | 233 | 231 | 349 | 1,131 |
Stage 2 modelled ECL (£m) | 5 | 5 | 4 | 6 | 14 |
Stage 2 coverage (%) | 1.44% | 2.15% | 1.73% | 1.72% | 1.24% |
Stage 1 and Stage 2 modelled loans (£m) | 19,265 | 19,265 | 19,265 | 19,265 | 19,265 |
Stage 1 and Stage 2 modelled ECL (£m) | 30 | 27 | 24 | 32 | 60 |
Stage 1 and Stage 2 coverage (%) | 0.16% | 0.14% | 0.12% | 0.17% | 0.31% |
Variance – (lower)/higher to actual total Stage 1 and Stage 2 ECL (£m) | (3) | (6) | 2 | 30 | |
Reconciliation to Stage 1 and Stage 2 flow exposures (£m) | |||||
Modelled loans | 19,265 | 19,265 | 19,265 | 19,265 | 19,265 |
Other asset classes | 33,558 | 33,558 | 33,558 | 33,558 | 33,558 |
(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 2024
and therefore does not include variation in future undrawn exposure values.
(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.
(3)
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 2024. The simulations
change the composition of Stage 1 and Stage 2 exposure, but total exposure was unchanged under each scenario as the loan population was static.
(4)
Refer to the Economic loss drivers section for details of economic scenarios.
(5)
Refer to the NWM Group 2023 Annual Report and Accounts for 2023 comparatives.
Measurement uncertainty and ECL adequacy (audited)
Given the continued economic uncertainty, NWM Group
utilised a framework of quantitative and qualitative measures
to support the levels of ECL coverage. This included economic
data, credit performance insights and problem debt trends.
This was particularly important for consideration of post model
adjustments.
As the effects of these economic risks evolve into 2025, there
is a risk of further credit deterioration. However, the income
statement effect of this should be mitigated by the forward-
looking provisions retained on the balance sheet at 31
December 2024.
There are a number of key factors that could drive further
downside to impairments, through deteriorating economic and
credit metrics and increased stage migration as credit risk
increases for more customers. Such factors which could
impact the IFRS 9 models, include an adverse deterioration in
unemployment, GDP and stock price index in the economies in
Risk and capital management continued
NWM Group
Annual Report and Accounts 2024
49
Credit risk – Trading activities
This section details the credit risk profile of NWM Group's trading activities.
The table below shows securities financing transactions in NWM Group. Balance sheet captions include balances held at all
classifications under IFRS.
| Reverse repos | Repos | |||||
Of which: | Outside | Of which: | Outside | |||
can be | netting | can be | netting | |||
Total | offset | arrangements | Total | offset | arrangements | |
2024 | £m | £m | £m | £m | £m | £m |
Gross | 45,774 | 45,734 | 40 | 48,705 | 48,002 | 703 |
IFRS offset | (15,174) | (15,174) | - | (15,174) | (15,174) | - |
Carrying value | 30,600 | 30,560 | 40 | 33,531 | 32,828 | 703 |
Master netting arrangements | (1,549) | (1,549) | - | (1,549) | (1,549) | - |
Securities collateral | (28,799) | (28,799) | - | (31,279) | (31,279) | - |
Potential for offset not recognised under IFRS | (30,348) | (30,348) | - | (32,828) | (32,828) | - |
Net | 252 | 212 | 40 | 703 | - | 703 |
2023 | ||||||
Gross | 41,750 | 41,292 | 458 | 44,028 | 43,308 | 720 |
IFRS offset | (16,257) | (16,257) | - | (16,257) | (16,257) | - |
Carrying value | 25,493 | 25,035 | 458 | 27,771 | 27,051 | 720 |
Master netting arrangements | (669) | (669) | - | (669) | (669) | - |
Securities collateral | (24,175) | (24,175) | - | (26,382) | (26,382) | - |
Potential for offset not recognised under IFRS | (24,844) | (24,844) | - | (27,051) | (27,051) | - |
Net | 649 | 191 | 458 | 720 | - | 720 |
Debt securities (audited)
The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the
lowest of Standard & Poor’s, Moody’s and Fitch. Refer to Note 12 on Trading assets and trading liabilities for details on short positions.
Central and local government | ||||||
Financial | ||||||
UK | US | Other | institutions | Corporate | Total | |
2024 | £m | £m | £m | £m | £m | £m |
AAA | - | - | 1,335 | 1,368 | - | 2,703 |
AA to AA+ | - | 3,734 | 74 | 569 | 2 | 4,379 |
A to AA- | 2,077 | - | 1,266 | 381 | 519 | 4,243 |
BBB- to A- | - | - | 831 | 562 | 885 | 2,278 |
Non-investment grade | - | - | - | 108 | 167 | 275 |
Total | 2,077 | 3,734 | 3,506 | 2,988 | 1,573 | 13,878 |
2023 | ||||||
AAA | - | - | 1,333 | 1,132 | - | 2,465 |
AA to AA+ | - | 2,600 | 19 | 762 | 4 | 3,385 |
A to AA- | 2,729 | - | 1,017 | 251 | 283 | 4,280 |
BBB- to A- | - | - | 693 | 295 | 489 | 1,477 |
Non-investment grade | - | - | - | 198 | 149 | 347 |
Total | 2,729 | 2,600 | 3,062 | 2,638 | 925 | 11,954 |
Risk and capital management continued
Credit risk – Trading activities continued
NWM Group
Annual Report and Accounts 2024
50
Derivatives
(audited)
The table below shows third party derivatives by type of contract. The master netting agreements and collateral shown do not result
in a net presentation on the balance sheet under IFRS.
| 2024 | 2023 | |||||||||
| Notional | ||||||||||
GBP | USD | EUR | Other | Total | Assets | Liabilities | Notional | Assets | Liabilities | |
£bn | £bn | £bn | £bn | £bn | £m | £m | £bn | £m | £m | |
Gross exposure | 79,894 | 74,421 | 83,276 | 76,879 | ||||||
IFRS offset | (2,727) | (2,727) | (5,242) | (5,242) | ||||||
Carrying value | 3,106 | 3,334 | 5,417 | 1,150 | 13,007 | 77,167 | 71,694 | 12,773 | 78,034 | 71,637 |
Of which: | ||||||||||
Interest rate (1) | 2,801 | 1,886 | 4,768 | 285 | 9,740 | 36,582 | 31,276 | 9,656 | 43,767 | 37,974 |
Exchange rate | 305 | 1,442 | 642 | 865 | 3,254 | 40,474 | 40,183 | 3,101 | 34,085 | 33,337 |
Credit | - | 6 | 7 | - | 13 | 111 | 235 | 16 | 182 | 326 |
Equity and commodity | - | - | - | - | - | - | - | - | - | - |
Carrying value | 13,007 | 77,167 | 71,694 | 12,773 | 78,034 | 71,637 | ||||
Counterparty mark-to-market netting | (61,531) | (61,531) | (59,827) | (59,827) | ||||||
Cash collateral | (9,815) | (5,797) | (12,272) | (6,590) | ||||||
Securities collateral | (3,396) | (896) | (3,084) | (1,663) | ||||||
Net exposure | 2,425 | 3,470 | 2,851 | 3,557 | ||||||
Banks (2) | 204 | 342 | 333 | 556 | ||||||
Other financial institutions (3) | 1,424 | 1,443 | 1,424 | 1,295 | ||||||
Corporate (4) | 764 | 1,653 | 1,058 | 1,667 | ||||||
Government (5) | 33 | 32 | 36 | 39 | ||||||
Net exposure | 2,425 | 3,470 | 2,851 | 3,557 | ||||||
UK | 1,041 | 1,744 | 1,277 | 1,884 | ||||||
Europe | 874 | 977 | 800 | 1,209 | ||||||
US | 443 | 605 | 607 | 381 | ||||||
RoW | 67 | 144 | 167 | 83 | ||||||
Net exposure | 2,425 | 3,470 | 2,851 | 3,557 | ||||||
Asset quality of | ||||||||||
uncollateralised derivative assets | ||||||||||
AQ1-AQ4 | 2,028 | 2,376 | ||||||||
AQ5-AQ8 | 394 | 471 | ||||||||
AQ9-AQ10 | 3 | 4 | ||||||||
Net exposure | 2,425 | 2,851 | ||||||||
(1)
The notional amount of interest rate derivatives includes £6,733 billion (2023 – £6,677 billion) in respect of contracts cleared through central clearing counterparties.
(2)
Transactions with certain counterparties with which NWM Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms 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.
(3)
Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NWM Group’s external rating.
(4)
Mainly large corporates with which NWM Group may have netting arrangements in place with no collateral posting.
(5)
NWM Group
Annual Report and Accounts 2024
51
Risk and capital management continued
Introduction
This section details the credit risk profile of NWM Group’s banking activities. Refer to Accounting policy 3.11 and Note 14 to the
consolidated financial statements for policies and critical judgements relating to impairment loss determination.
(audited)
Refer to Note 9 to the consolidated financial statements for balance sheet analysis of financial assets that are classified as amortised
cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment.
Financial assets
| 31 December 2024 | 31 December 2023 | |||||
Gross | ECL | Net | Gross | ECL | Net | |
£bn | £bn | £bn | £bn | £bn | £bn | |
Balance sheet total gross amortised cost and FVOCI | 55.2 | 51.0 | ||||
In scope of IFRS 9 ECL framework | 53.1 | 43.7 | ||||
% in scope | 96% | 86% | ||||
Loans to customers - in scope - amortised cost | 18.0 | - | 18.0 | 13.0 | - | 13.0 |
Loans to customers - in scope - FVOCI | - | - | - | 0.1 | - | 0.1 |
Loans to banks - in scope - amortised cost | 1.1 | - | 1.1 | 1.2 | - | 1.2 |
Total loans - in scope | 19.1 | - | 19.1 | 14.3 | - | 14.3 |
Stage 1 | 18.7 | - | 18.7 | 13.7 | - | 13.7 |
Stage 2 | 0.4 | - | 0.4 | 0.6 | - | 0.6 |
Stage 3 | - | - | - | - | - | - |
Other financial assets - in scope - amortised cost | 29.4 | - | 29.4 | 25.4 | - | 25.4 |
Other financial assets - in scope - FVOCI | 4.6 | - | 4.6 | 4.0 | - | 4.0 |
Total other financial assets - in scope | 34.0 | - | 34.0 | 29.4 | - | 29.4 |
Stage 1 | 34.0 | - | 34.0 | 29.3 | - | 29.3 |
Stage 2 | - | - | - | 0.1 | - | 0.1 |
Stage 3 | - | - | - | - | - | - |
Out of scope of IFRS 9 ECL framework | 2.1 | na | 2.1 | 7.3 | na | 7.3 |
Loans to customers - out of scope - amortised cost | - | na | - | - | na | - |
Loans to banks - out of scope - amortised cost | - | na | - | 0.1 | na | 0.1 |
Other financial assets - out of scope - amortised cost | 2.1 | na | 2.1 | 7.1 | na | 7.1 |
Other financial assets - out of scope - FVOCI | - | na | - | 0.1 | na | 0.1 |
na = not applicable
The assets outside the scope of IFRS 9 ECL framework were as
follows:
Settlement balances, items in the course of collection, cash
balances and other non-credit risk assets of £2.1 billion (2023
– £7.3 billion). These were assessed as having no ECL unless
there was evidence that they were defaulted.
Equity shares of £0.1 billion (2023 – £0.1 billion) as not within
the IFRS 9 ECL framework by definition.
Fair value adjustments on loans and debt securities hedged
by interest rate swaps, where the underlying loan was within
the IFRS 9 ECL scope of nil (2023 – nil).
In-scope assets also include an additional £0.3 billion (2023 – £1.3
billion) of inter-Group assets not shown in the table above.
Total contingent liabilities (including financial guarantees) and
commitments within IFRS 9 ECL scope of £14.8 billion (2023 –
£15.6 billion) comprised Stage 1 £14.3 billion (2023 – £15.1
billion); Stage 2 £0.5 billion (2023 – £0.5 billion); and Stage 3 nil
Risk and capital management continued
Credit risk – Banking activities continued
NWM Group
Annual Report and Accounts 2024
52
Portfolio summary
(audited)
The table below shows gross loans and ECL, by stage, within the scope of the IFRS 9 ECL framework.
2024 | 2023 | |
£m | £m | |
Loans - amortised cost and FVOCI | ||
Stage 1 | 18,759 | 13,686 |
Stage 2 | 352 | 558 |
Stage 3 | 52 | 25 |
Of which: individual | 45 | 17 |
Of which: collective | 7 | 8 |
Inter-Group (1) | 260 | 1,264 |
Total | 19,423 | 15,533 |
ECL provisions | ||
Stage 1 | 25 | 24 |
Stage 2 | 5 | 8 |
Stage 3 | 17 | 24 |
Of which: individual | 10 | 16 |
Of which: collective | 7 | 8 |
Inter-Group (1) | - | 1 |
Total | 47 | 57 |
ECL provisions coverage (2) | ||
Stage 1 (%) | 0.13 | 0.18 |
Stage 2 (%) | 1.42 | 1.43 |
Stage 3 (%) | 32.69 | 96.00 |
Total | 0.25 | 0.39 |
Impairment losses | ||
ECL charge/(releases) | ||
Stage 1 | (3) | 1 |
Stage 2 | 3 | 4 |
Stage 3 | (8) | (3) |
Of which: individual | (7) | (2) |
Of which: collective | (1) | (1) |
Third party | (8) | 2 |
Inter-Group | - | - |
Total | (8) | 2 |
Amounts written-off | 2 | 5 |
Of which: individual | 2 | 4 |
Of which: collective | - | 1 |
(1)
NWM Group’s intercompany assets were classified in Stage 1. The ECL for these loans was £0.2 million (2023 – £0.6 million).
(2)
ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on loans and total ECL provisions, including ECL for other (non-loan)
assets and unutilised exposure. Some segments with a high proportion of debt securities or unutilised exposure may result in a not meaningful coverage ratio.
(3)
The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to the financial instruments within the scope of the IFRS 9 ECL 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 £16.2 billion (2023 – £13.8 billion) and
debt securities of £17.8 billion (2023 – £15.6 billion).
(4)
The stage allocation of the ECL charge was aligned to the stage transition approach that underpins the analysis in the Flow statement section.
Risk and capital management continued
Credit risk – Banking activities continued
NWM Group
Annual Report and Accounts 2024
53
Sector analysis – portfolio summary
(audited)
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment by
sector, asset quality and geographical region based on the country of operation of the customer. The tables below report only third-
party exposures and related ECL provisions, charges and write-offs.
Corporate | ||||
and other (1) | FI (2) | Sovereign | Total | |
2024 | £m | £m | £m | £m |
Loans by geography | 599 | 17,903 | 661 | 19,163 |
- UK | 199 | 6,446 | - | 6,645 |
- Other Europe | 319 | 4,273 | 625 | 5,217 |
- RoW | 81 | 7,184 | 36 | 7,301 |
Loans by stage and asset quality | 599 | 17,903 | 661 | 19,163 |
Stage 1 | 471 | 17,627 | 661 | 18,759 |
- AQ1-AQ4 | 196 | 16,218 | 661 | 17,075 |
- AQ5-AQ8 | 275 | 1,409 | - | 1,684 |
- AQ9 | - | - | - | - |
Stage 2 | 76 | 276 | - | 352 |
- AQ1-AQ4 | 22 | 164 | - | 186 |
- AQ5-AQ8 | 54 | 112 | - | 166 |
- AQ9 | - | - | - | - |
Stage 3 | 52 | - | - | 52 |
- AQ10 | 52 | - | - | 52 |
of which: individual | 45 | - | - | 45 |
of which: collective | 7 | - | - | 7 |
Weighted average life (3) | ||||
- ECL measurement (years) | 3 | 3 | - | 3 |
Weighted average 12 months PDs (3) | ||||
- IFRS 9 (%) | 1.31 | 0.16 | 0.01 | 0.19 |
- Basel (%) | 1.31 | 0.14 | 0.01 | 0.16 |
ECL provisions by geography | 23 | 23 | 1 | 47 |
- UK | 5 | 11 | 1 | 17 |
- Other Europe | 11 | 5 | - | 16 |
- RoW | 7 | 7 | - | 14 |
ECL provisions by stage | 23 | 23 | 1 | 47 |
- Stage 1 | 4 | 20 | 1 | 25 |
- Stage 2 | 2 | 3 | - | 5 |
- Stage 3 | 17 | - | - | 17 |
of which: individual | 10 | - | - | 10 |
of which: collective | 7 | - | - | 7 |
ECL provisions coverage (%) | 3.84 | 0.13 | 0.15 | 0.25 |
- Stage 1 (%) | 0.85 | 0.11 | 0.15 | 0.13 |
- Stage 2 (%) | 2.63 | 1.09 | - | 1.42 |
- Stage 3 (%) | 32.69 | - | - | 32.69 |
ECL (release)/charge - Third party | (9) | 1 | - | (8) |
Amounts written-off | 2 | - | - | 2 |
Other financial assets by asset quality (4) | 117 | 13,967 | 19,913 | 33,997 |
- AQ1-AQ4 | 114 | 13,659 | 19,913 | 33,686 |
- AQ5-AQ8 | 3 | 308 | - | 311 |
- AQ9 | - | - | - | - |
Off-balance sheet | 6,296 | 8,518 | - | 14,814 |
- Loan commitments | 6,272 | 7,829 | - | 14,101 |
- Financial guarantees | 24 | 689 | - | 713 |
Off-balance sheet by asset quality (4) | 6,296 | 8,518 | - | 14,814 |
- AQ1-AQ4 | 6,122 | 8,107 | - | 14,229 |
- AQ5-AQ8 | 171 | 411 | - | 582 |
- AQ9 | - | - | - | - |
- AQ10 | 3 | - | - | 3 |
For the notes to this table refer to the following page.
Risk and capital management continued
Credit risk – Banking activities continued
Sector analysis – portfolio summary
(audited)
Corporate | ||||
and other (1) | FI (2) | Sovereign | Total | |
2023 | £m | £m | £m | £m |
Loans by geography | 1,113 | 12,798 | 358 | 14,269 |
- UK | 578 | 4,049 | 59 | 4,686 |
- Other Europe | 412 | 3,952 | 227 | 4,591 |
- RoW | 123 | 4,797 | 72 | 4,992 |
Loans by stage and asset quality | 1,113 | 12,798 | 358 | 14,269 |
Stage 1 | 941 | 12,387 | 358 | 13,686 |
- AQ1-AQ4 | 353 | 11,633 | 358 | 12,344 |
- AQ5-AQ8 | 588 | 753 | - | 1,341 |
- AQ9 | - | 1 | - | 1 |
Stage 2 | 147 | 411 | - | 558 |
- AQ1-AQ4 | 55 | 411 | - | 466 |
- AQ5-AQ8 | 72 | - | - | 72 |
- AQ9 | 20 | - | - | 20 |
Stage 3 | 25 | - | - | 25 |
- AQ10 | 25 | - | - | 25 |
of which: individual | 17 | - | - | 17 |
of which: collective | 8 | - | - | 8 |
Weighted average life (3) | ||||
- ECL measurement (years) | 4 | 2 | - | 2 |
Weighted average 12 months PDs (3) | ||||
- IFRS 9 (%) | 1.62 | 0.17 | 0.01 | 0.25 |
- Basel (%) | 1.55 | 0.13 | 0.01 | 0.20 |
ECL provisions by geography | 31 | 24 | 1 | 56 |
- UK | 8 | 11 | 1 | 20 |
- Other Europe | 15 | 7 | - | 22 |
- RoW | 8 | 6 | - | 14 |
ECL provisions by stage | 31 | 24 | 1 | 56 |
- Stage 1 | 4 | 19 | 1 | 24 |
- Stage 2 | 3 | 5 | - | 8 |
- Stage 3 | 24 | - | - | 24 |
of which: individual | 16 | - | - | 16 |
of which: collective | 8 | - | - | 8 |
ECL provisions coverage (%) | 2.79 | 0.19 | 0.28 | 0.39 |
- Stage 1 (%) | 0.43 | 0.15 | 0.28 | 0.18 |
- Stage 2 (%) | 2.04 | 1.22 | - | 1.43 |
- Stage 3 (%) | 96.00 | - | - | 96.00 |
ECL (release)/charge - Third party | (8) | 10 | - | 2 |
Amounts written-off | 4 | 1 | - | 5 |
Other financial assets by asset quality (4) | 82 | 12,059 | 17,250 | 29,391 |
- AQ1-AQ4 | 82 | 11,709 | 17,250 | 29,041 |
- AQ5-AQ8 | - | 350 | - | 350 |
- AQ9 | - | - | - | - |
Off-balance sheet | 6,728 | 8,897 | - | 15,625 |
- Loan commitments | 6,695 | 8,150 | - | 14,845 |
- Financial guarantees | 33 | 747 | - | 780 |
Off-balance sheet by asset quality (4) | 6,728 | 8,897 | - | 15,625 |
- AQ1-AQ4 | 6,232 | 8,697 | - | 14,929 |
- AQ5-AQ8 | 473 | 200 | - | 673 |
- AQ9 | - | - | - | - |
- AQ10 | 23 | - | - | 23 |
(1)
Previously published sectors for the Non-personal portfolio have been re-presented to reflect internal sector reporting. Property is now included in corporate and other.
(2)
Financial institutions (FI) include transactions, such as securitisations, where the underlying assets may be in other sectors.
(3)
Not within audit scope.
(4)
AQ bandings are based on Basel PDs and mapping is as follows:
Internal asset quality band | Probability of default range | Indicative S&P rating |
AQ1 | 0% -0.034% | AAA to AA |
AQ2 | 0.034% - 0.048% | AA to AA- |
AQ3 | 0.048% - 0.095% | A+ to A |
AQ4 | 0.095% - 0.381% | BBB+ to BBB- |
AQ5 | 0.381% - 1.076% | BB+ to BB |
AQ6 | 1.076% - 2.153% | BB- to B+ |
AQ7 | 2.153% - 6.089% | B+ to B |
AQ8 | 6.089% - 17.222% | B- to CCC+ |
AQ9 | 17.222% - 100% | CCC to C |
AQ10 | 100% | D |
NWM Group
Annual Report and Accounts 2024
54
Risk and capital management continued
Credit risk – Banking activities continued
NWM Group
Annual Report and Accounts 2024
55
Sector analysis – portfolio summary
(audited)
The table below shows gross loans and ECL by stage, for the portfolio including selected sectors in corporate and other.
Loans - amortised cost and FVOCI | Off-balance sheet | ECL provisions | |||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Loan | Contingent | Stage 1 | Stage 2 | Stage 3 | Total | ||
2024 | £m | £m | £m | £m | commitments | liabilities | £m | £m | £m | £m | |
Financial institutions | (1) | 17,627 | 276 | - | 17,903 | 7,829 | 689 | 20 | 3 | - | 23 |
Sovereign | 661 | - | - | 661 | - | - | 1 | - | - | 1 | |
Corporate & Other | (2) | 471 | 76 | 52 | 599 | 6,272 | 24 | 4 | 2 | 17 | 23 |
Of which: | |||||||||||
Agriculture | - | - | - | - | - | - | - | - | - | - | |
Airlines and aerospace | - | - | - | - | 155 | - | - | - | - | - | |
Automotive | - | - | - | - | 577 | - | - | - | - | - | |
Building materials | 2 | - | - | 2 | 163 | 1 | - | - | - | - | |
Chemicals | 8 | - | - | 8 | 62 | - | - | - | - | - | |
Industrials | 24 | - | - | 24 | 163 | 5 | - | - | - | - | |
Land transport & logistics | 53 | 26 | - | 79 | 732 | - | - | - | - | - | |
Leisure | 4 | - | - | 4 | 158 | - | - | - | - | - | |
Mining and metals | - | - | 3 | 3 | - | - | - | - | 3 | 3 | |
Oil and gas | - | - | 9 | 9 | - | 1 | - | - | 2 | 2 | |
Power utilities | 78 | - | - | 78 | 2,684 | 2 | - | - | - | - | |
Property | (3) | 19 | 17 | 5 | 41 | 110 | 9 | - | 1 | 2 | 3 |
Retail | 3 | - | - | 3 | 233 | 2 | - | - | - | - | |
Shipping | 2 | - | - | 2 | - | - | - | - | - | - | |
Water and waste | 29 | - | - | 29 | 32 | - | - | - | - | - | |
Total | 18,759 | 352 | 52 | 19,163 | 14,101 | 713 | 25 | 5 | 17 | 47 | |
2023 | |||||||||||
Financial institutions | (1) | 12,387 | 411 | - | 12,798 | 8,150 | 747 | 19 | 5 | - | 24 |
Sovereign | 358 | - | - | 358 | - | - | 1 | - | - | 1 | |
Corporate & Other | (2) | 941 | 147 | 25 | 1,113 | 6,695 | 33 | 4 | 3 | 24 | 31 |
Of which: | |||||||||||
Agriculture | 1 | - | - | 1 | 1 | - | - | - | - | - | |
Airlines and aerospace | 23 | - | - | 23 | 279 | - | - | - | - | - | |
Automotive | 2 | - | - | 2 | 601 | - | - | - | - | - | |
Building materials | 4 | - | 4 | 8 | 171 | 1 | - | - | 2 | 2 | |
Chemicals | 11 | - | - | 11 | 67 | - | - | - | - | - | |
Industrials | 29 | 57 | - | 86 | 235 | 5 | 1 | 1 | - | 2 | |
Land transport & logistics | 51 | 5 | - | 56 | 311 | 2 | - | - | - | - | |
Leisure | 3 | - | - | 3 | 158 | - | - | - | - | - | |
Mining and metals | - | - | 3 | 3 | - | - | - | - | 3 | 3 | |
Oil and gas | 2 | - | 1 | 3 | 52 | 1 | - | - | 3 | 3 | |
Power utilities | 113 | - | - | 113 | 2,735 | 2 | - | - | - | - | |
Property | (3) | 19 | 21 | 10 | 50 | 188 | 13 | - | - | 7 | 7 |
Retail | 5 | 2 | - | 7 | 392 | 2 | - | 1 | - | 1 | |
Shipping | 2 | - | - | 2 | - | - | - | - | - | - | |
Water and waste | 30 | 14 | - | 44 | 35 | - | - | - | - | - | |
Total | 13,686 | 558 | 25 | 14,269 | 14,845 | 780 | 24 | 8 | 24 | 56 | |
(1)
Includes transactions such as securitisations, where the underlying assets may be in other sectors.
(2)
Previously published sectors for the Non-personal portfolio have been re-presented to reflect internal sector reporting. Property is now included in corporate and other.
(3)
Property comprises commercial real estate, housing associations and construction.
Risk and capital management continued
Credit risk – Banking activities continued
NWM Group
Annual Report and Accounts 2024
56
Sector analysis – portfolio summary
(audited)
Forbearance
The table below shows forbearance, Heightened Monitoring and Risk of Credit Loss by sector. The table shows current exposure but
reflects risk transfers where there is a guarantee by another customer.
Corporate | ||||
and other | FI | Sovereign | Total | |
2024 | £m | £m | £m | £m |
Forbearance (flow) | 8 | - | - | 8 |
Forbearance (stock) | 13 | - | - | 13 |
Heightened Monitoring and Risk of Credit Loss | 16 | - | - | 16 |
2023 | ||||
Forbearance (flow) | 7 | - | - | 7 |
Forbearance (stock) | 11 | - | - | 11 |
Heightened Monitoring and Risk of Credit Loss | 4 | - | - | 4 |
Credit risk enhancement and mitigation
(audited)
The table below shows exposures of modelled portfolios within the scope of the ECL framework and related credit risk enhancement
and mitigation (CREM).
Maximum credit risk | CREM by type | CREM coverage | Exposure post CREM | ||||||||
Gross | |||||||||||
exposure | ECL | Total | Stage 3 | Financial (1) | Property | Other (2) | Total | Stage 3 | Total | Stage 3 | |
2024 | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
Financial assets | |||||||||||
Cash and balances at central banks | 16.2 | - | 16.2 | - | - | - | - | - | - | 16.2 | - |
Loans - amortised cost (3) | 19.2 | - | 19.2 | - | 3.8 | - | - | 3.8 | - | 15.4 | - |
Debt securities | 17.8 | - | 17.8 | - | - | - | - | - | - | 17.8 | - |
Total financial assets | 53.2 | - | 53.2 | - | 3.8 | - | - | 3.8 | - | 49.4 | - |
Contingent liabilities | |||||||||||
and commitments | 14.8 | - | 14.8 | - | 0.9 | 0.1 | - | 1.0 | - | 13.8 | - |
Total off-balance sheet | 14.8 | - | 14.8 | - | 0.9 | 0.1 | - | 1.0 | - | 13.8 | - |
Total exposure | 68.0 | - | 68.0 | - | 4.7 | 0.1 | - | 4.8 | - | 63.2 | - |
2023 | |||||||||||
Financial assets | |||||||||||
Cash and balances at central banks | 13.8 | - | 13.8 | - | - | - | - | - | - | 13.8 | - |
Loans - amortised cost (3) | 14.3 | 0.1 | 14.2 | - | 2.2 | - | - | 2.2 | - | 12.0 | - |
Debt securities | 15.6 | - | 15.6 | - | - | - | - | - | - | 15.6 | - |
Total financial assets | 43.7 | 0.1 | 43.6 | - | 2.2 | - | - | 2.2 | - | 41.4 | - |
Contingent liabilities | |||||||||||
and commitments | 15.6 | - | 15.6 | - | 1.3 | 0.1 | - | 1.4 | - | 14.2 | - |
Total off-balance sheet | 15.6 | - | 15.6 | - | 1.3 | 0.1 | - | 1.4 | - | 14.2 | - |
Total exposure | 59.3 | 0.1 | 59.2 | - | 3.5 | 0.1 | - | 3.6 | - | 55.6 | - |
(1)
Includes cash and securities collateral.
(2)
Includes guarantees and charges over trade debtors.
(3)
NWM Group holds collateral in respect of individual loans – amortised cost to banks and customers. This collateral includes mortgages over property; charges over business assets such
as plant and equipment, inventories and trade debtors; and guarantees of lending from parties other than the borrower. NWM Group obtains collateral in the form of securities in reverse
repurchase agreements. Collateral values are capped at the value of the loan.
Risk and capital management continued
Credit risk – Banking activities continued
NWM Group
Annual Report and Accounts 2024
57
Flow statement
(audited)
The flow statement that follows shows the main ECL and related income statement movements. It also shows the changes in ECL as
well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those
reported in other tables, principally in relation to exposures in Stage 1 and Stage 2.
These differences do not have a material ECL effect. Other points to note:
Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both
modelled and non-modelled portfolios are included.
Stage transfers (for example, exposures moving from Stage 1 into Stage 2) are a key feature of the ECL movements, with the net
re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an
ECL benefit for accounts improving stage.
Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual
income statement gains or losses at the point of write-off or accounting write-down.
Other (P&L only items) includes any subsequent changes in the value of written-down assets along with other direct write-off items
such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL
movements.
Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for any
debt sale activity.
Stage 1 | Stage 2 | Stage 3 | Total | |||||
Financial | Financial | Financial | Financial | |||||
assets | ECL | assets | ECL | assets | ECL | assets | ECL | |
NWM Group | £m | £m | £m | £m | £m | £m | £m | £m |
At 1 January 2024 | 49,168 | 24 | 687 | 8 | 24 | 24 | 49,879 | 56 |
Currency translation and other adjustments | (539) | - | (8) | - | 1 | (5) | (546) | (5) |
Transfers from Stage 1 to Stage 2 | (594) | (1) | 594 | 1 | - | - | - | - |
Transfers from Stage 2 to Stage 1 | 642 | 5 | (642) | (5) | - | - | - | - |
Transfers to Stage 3 | (1) | - | (28) | (1) | 29 | 1 | - | - |
Net re-measurement of ECL on stage transfer | (4) | 6 | - | 2 | ||||
Changes in risk parameters | (8) | (2) | 1 | (9) | ||||
Other changes in net exposure | 3,798 | 9 | (254) | (2) | 1 | (2) | 3,545 | 5 |
Other (P&L only items) | - | 1 | (7) | (6) | ||||
Income statement (releases)/charges | (3) | 3 | (8) | (8) | ||||
Amounts written-off | - | - | - | - | (2) | (2) | (2) | (2) |
At 31 December 2024 | 52,474 | 25 | 349 | 5 | 53 | 17 | 52,876 | 47 |
Net carrying amount | 52,449 | 344 | 36 | 52,829 | ||||
At 1 January 2023 | 39,875 | 20 | 491 | 8 | 58 | 26 | 40,424 | 54 |
2023 movements | 9,293 | 4 | 196 | - | (34) | (2) | 9,455 | 2 |
At 31 December 2023 | 49,168 | 24 | 687 | 8 | 24 | 24 | 49,879 | 56 |
Net carrying amount | 49,144 | 679 | - | 49,823 | ||||
Risk and capital management continued
Reviews the pension impact on the capital plan for NWM
Pension risk
NWM Group
Annual Report and Accounts 2024
58
Definition
Pension risk is defined as the inability to meet contractual
obligations and other liabilities to the established employee or
related company pension scheme.
Sources of risk
NWM Group has exposure to pension risk through its defined
benefit schemes worldwide. The two largest NWM Group
schemes are the AA and the NatWest Markets sections of The
NatWest Group Pension Fund with a combined £0.8 billion of
assets and £0.6 billion of liabilities at 31 December 2024 (2023 –
£0.9 billion of assets and £0.6 billion of liabilities). Refer to Note 5
to the consolidated financial statements for further details on
NWM Group’s pension obligations, including sensitivities to the
main risk factors.
Pension scheme liabilities vary with changes in long-term interest
rates and inflation as well as with pensionable salaries, the
longevity of scheme members and legislation. Pension scheme
assets vary with changes in interest rates, inflation expectations,
credit spreads, exchange rates, and equity and property prices.
However, as a result of the buy-in transaction executed in 2023,
the AA section of the NatWest Group Pension Fund, which is
NWM Group’s largest scheme, is protected against all material
longevity and investment risks.
Conversely, the scheme is exposed to the risk that the insurer
defaults on payments due to the scheme.
NWM Group is also exposed to the risk that the schemes’ assets,
together with future returns and additional future contributions,
are estimated to be insufficient to meet liabilities as they fall due.
In such circumstances, NWM Group could be obliged (or might
choose) to make additional contributions to the schemes or be
required to hold additional capital to mitigate this risk.
During 2024, the Court of Appeal upheld the initial High Court
ruling in respect of Virgin Media v NTL Pension Trustees II Limited
(and others), calling into question the validity of rule amendments
made to defined benefit pension schemes contracted-out on a
Reference Scheme Test basis between 6 April 1997 and 5 April
2016. Amendments to these pension schemes over this time
required confirmation from the Scheme Actuary that the
Reference Scheme Test would continue to be met. In the absence
of such a confirmation, the Rule amendment would be void. There
were no other developments on this matter as further disclosed in
Note 5 to the consolidated financial statements since last year
and it will be kept under review.
Key developments in 2024
The 2023 triennial valuation for the AA section and NatWest
Markets section of the NatWest Group Pension Fund was
completed with no requirement for any deficit contributions.
Governance
The NWM Pension Committee, chaired by the Chief Financial
Officer, reviews and monitors risk management, asset and liability
strategy and financing issues on behalf of NWM Group. As part of
its remit, the Committee:
Considers the financial strategy, risk management and policy
implications of NWM Group pension schemes.
Reviews and recommends NWM Group pension risk appetite
to the NWM Group Executive Risk Committee and the NWM
Group Board Risk Committee.
Group and escalates any concerns to the NWM Group Assets
& Liabilities Committee.
The performance of NatWest Group’s material pension funds
(including those sponsored by NWM Group) is reviewed by
NatWest Group’s Assets & Liabilities Committee.
Risk appetite
NWM Group maintains an independent view of the risk inherent in
its pension funds. NWM Group has a pension risk appetite
statement incorporating defined metrics against which risk is
measured that is reviewed and approved at least annually by the
Board on the Board Risk Committee’s recommendation to ensure
they remain appropriate and aligned to strategy.
Policies and standards are in place to provide formal controls for
pension risk reporting, modelling, governance and stress testing.
A pension risk policy, which sits within the enterprise-wide risk
management framework, is also in place and is subject to
associated framework controls.
Monitoring and measurement
Pension risk is monitored by the NWM Group Executive Risk
Committee and the NWM Group Board Risk Committee by way of
the monthly risk management report, whilst the NatWest Group
Asset & Liability Management Committee receives updates on the
performance of NatWest Group’s material pension funds. Relevant
pension risk matters are escalated to the Board as applicable.
Stress tests are carried out each year on NWM Group’s material
defined benefit pension schemes. These tests are also used to
satisfy the requests of regulatory bodies such as the Bank of
England.
The stress testing framework includes pension risk capital
calculations for the purposes of the Internal Capital Adequacy
Assessment Process as well as additional stress tests for a
number of internal management purposes. The results of the
stress tests and their consequential impact on NWM Group’s
balance sheet, income statement and capital position are
incorporated into NWM Group’s and overall NatWest Group stress
test results.
Mitigation
As a result of the buy-in transaction for NWM Group’s largest
scheme (the AA section of the NatWest Group Pension Fund), the
scheme is now protected against all material longevity and
investment risks.
If, in an extreme scenario, the insurer was unable to make
payments due to the scheme under the buy-in insurance contract,
NWM Group would continue to be responsible for financially
supporting the scheme to meet pension benefits. However, there
are significant mitigations in place against this risk, in particular
the insurance regulatory regime and residual surplus assets
retained within the scheme. The financial strength of the third-
party insurer will also be monitored on a periodic basis by the
Trustee and NatWest Group.
The NatWest Markets section of the NatWest Group Pension Fund
is also well protected against interest rate and inflation risks and is
being run on a low investment risk basis.
The potential impact of climate change is one of the factors
considered in managing the assets of the pension schemes. The
Trustee monitors the risk to its investments from changes in the
global economy and invests, where return justifies the risk, in
sectors that reduce the world’s reliance on fossil fuels, or that
may otherwise promote environmental benefits.
Risk and capital management continued
Pension risk continued
NWM Group
Annual Report and Accounts 2024
59
Governance
Further details regarding the NatWest Group Pension Fund
Trustee’s approach to managing climate change risk can be found
in its Responsible Ownership Policy, its net zero commitment and
its climate disclosures produced on an annual basis, as required
by The Occupational Pension Schemes (Climate Change
Governance and Reporting) Regulations 2021.
Compliance and conduct risk
Definition
Compliance risk is the risk that NWM Group fails to observe the
letter and spirit of all relevant laws, codes, rules, regulations and
standards of good market practice.
Conduct risk is the risk of inappropriate behaviour towards
customers, or in the markets in which NWM Group operates,
which leads to poor or inappropriate customer outcomes.
The consequences of failing to meet compliance and/or conduct
responsibilities can be significant and could result, for example, in
legal action, regulatory enforcement, material financial loss and/or
reputational damage.
Sources of risk
Compliance and conduct risks exist across all stages of NWM
Group’s relationships with its customers and arise from a variety
of activities including product design, marketing and sales,
complaint handling, staff training, and handling of confidential
inside information.
As set out in Note 25 to the consolidated financial statements,
members of NatWest Group are party to legal proceedings and
are subject to investigation and other regulatory action in the UK,
the US and other jurisdictions.
Key developments in 2024
Further enhancements were made to the compliance and
conduct framework, with the risk toolkits, risk standards and
regulatory compliance operational policy framework being
embedded throughout the year. New teams have been put in
place within the Conduct and Compliance department. These
teams will increase oversight and capability in the areas of
training, policy, assurance, data analytics, communications
and culture. Business areas also completed self-assessments
against the Conduct Risk policy and Regulatory Compliance
Risk policy to ensure risks are being measured and managed
accurately and effectively.
The NatWest Group-wide programme continued to make
significant progress, with the second phase of Consumer Duty
rules having come into force on 31 July 2024. As a mainly
wholesale entity, NWM is less impacted by Consumer Duty but
has implemented for applicable client groups and remained
closely involved with the group wide delivery.
In line with a NWM plea agreement with the US Department
of Justice (DoJ) regarding historical spoofing conduct by
former employees, an independent monitor was appointed in
2022. Now into the second year of the Monitorship, work
continues to implement the enhancements recommended by
the Monitor.
NWM Group defines appropriate standards of compliance and
conduct and ensures adherence to those standards through its
risk management framework. To support ongoing oversight of the
management of the compliance and conduct risk profile, there are
a number of committees in place across both the first and second
line of defence. Relevant compliance and conduct matters are
escalated through the Executive Risk Committee and Board Risk
Committee.
Risk appetite
The risk appetite statement and associated measures for
compliance and conduct risks are approved at least annually by
the Board on the Board Risk Committee’s recommendation to
ensure they remain appropriate and aligned to strategy. Risk
appetite statements articulate the levels of risk that legal entities,
businesses and functions work within when pursuing their
strategic objectives and business plans.
A range of controls is operated to ensure the business delivers
good customer outcomes and is conducted in accordance with
legal and regulatory requirements. A suite of risk policies, risk
standards and regulatory compliance operational policies
addressing compliance and conduct risks set appropriate
standards across NWM Group including some NatWest Group
policies and procedures. Ongoing monitoring and targeted
assurance are carried out as appropriate.
Monitoring and measurement
Compliance and conduct risks are measured and managed
through continuous assessment and regular reporting to NWM
Group’s senior risk committees and at Board level. The
compliance and conduct risk framework facilitates the consistent
monitoring and measurement of compliance with laws and
regulations and the delivery of consistently good customer
outcomes. The first line of defence is responsible for effective risk
identification, reporting and monitoring, with oversight, challenge
and review by the second line. Compliance and conduct risk
management is also integrated into NWM Group’s strategic
planning cycle.
Mitigation
Activity to mitigate the most material compliance and conduct
risks is carried out across NWM Group with specific areas of focus
in the customer-facing businesses and legal entities. Examples of
mitigation include consideration of customer needs in business
and product planning, targeted training, conflicts of interest
management, market conduct surveillance, complaints
management, mapping of priority regulatory requirements and
independent monitoring activity. Internal policies help support a
strong customer and market conduct focus across NWM Group.
Risk and capital management continued
NWM Group
Annual Report and Accounts 2024
60
Financial crime risk
Definition
Financial crime risk is the risk that NWM Group's products,
services, employees and/or third parties are intentionally or
unintentionally used to facilitate financial crime in the form of
money laundering, terrorist financing, bribery and corruption,
sanctions and tax evasion, as well as external or internal fraud.
Sources of risk
Financial crime risk may be present if NWM Group’s customers,
employees or third parties undertake or facilitate financial crime,
or if NWM Group’s products or services are used intentionally or
unintentionally
to facilitate such crime. Financial crime risk is an
inherent risk across all lines of business.
Key developments in 2024
Continued significant investment was made to support the
delivery of a multi-year transformation plan across financial
crime risk management.
Enhancements were made to technology, data quality, and
data analytics to improve the effectiveness of systems used
to monitor customers and transactions.
Financial crime roadshows and events were held throughout
the year to further embed financial crime risk management
culture and behaviours.
There was active participation in public/private partnerships
including the Joint Money Laundering Intelligence Taskforce
and Data Fusion. In 2024, NatWest Group (together with
seven other UK banks) shared datasets with the National
Crime Agency (NCA) and seconded staff to the NCA to form
a joint public/private intelligence team to work on the
resulting risks identified, for reporting to law enforcement.
This is a joint project, governed equally by the banks and the
NCA, that has directly advanced high-priority organised
crime investigations and identified new criminal networks
exploiting the UK’s financial system.
Governance
The Financial Crime Risk Committee (FCRC), which is chaired by
the Head of Financial Crime, is NWM Group’s second line of
defence financial crime risk oversight forum. The committee
reviews and monitors key financial crime risks providing guidance,
challenge, recommendations and decisions on issues affecting
NWM Group globally. Where appropriate, the committee escalates
material financial crime risks and issues across NWM Group to the
NWM Executive Risk Committee and NWM Group Board Risk
Committee. The committee is an escalation point for the Financial
Crime oversight committee, which is first line owned and the
principal financial crime committee in NWM Group.
Risk appetite
Financial crime risk appetite is approved by the Board. The risk
appetite statements and associated measures for financial crime
risks are reviewed and approved at least annually by the Board
on the Board Risk Committee’s recommendation to ensure they
remain appropriate and aligned to strategy.
There is no appetite to operate in an environment where systems
and controls do not enable the effective identification, assessment,
monitoring, management and mitigation of financial crime risk.
NatWest Group’s systems and controls must be comprehensive
and proportionate to the nature, scale and complexity of its
businesses.
NWM Group operates a framework with preventative and
detective controls designed to mitigate the risk that it could
facilitate financial crime. These controls are supported by a suite
of policies, procedures and guidance to ensure they operate
effectively.
Monitoring and measurement
Financial crime risks are identified and reported through
continuous risk management and regular reporting to NWM
Group’s senior risk committees and both the NatWest Group and
NWM Group Boards. Quantitative and qualitative data is reviewed
and assessed to measure whether financial crime risk is within
risk appetite.
Mitigation
Through the financial crime framework, relevant policies, systems,
processes and controls are used to mitigate and manage financial
crime risk. This includes the use of dedicated screening and
monitoring systems and controls to identify people, organisations,
transactions and behaviours that may require further investigation
or other actions. Centralised expertise within NatWest Group is
available to detect and disrupt threats to NWM Group and its
customers.
Intelligence is shared with law enforcement, regulators and
government bodies to strengthen national and international
defences against those who would misuse the financial system for
criminal motives.
Risk and capital management continued
Facilitated emissions – bond underwriting and syndicated lending
Climate and nature risk
NWM Group
Annual Report and Accounts 2024
61
Definition
Climate and nature
(1)
risk is the threat of financial loss or adverse
non-financial impacts associated with climate change and nature
loss respectively and the political, economic and environmental
responses to it.
Sources of risk
Physical risks may arise from climate events such as heatwaves,
droughts, floods, storms and nature-related events such as land
or air pollution. They can potentially result in financial losses,
impairing asset values and the creditworthiness of borrowers.
NWM Group could be exposed to physical risks directly by the
effects on its properties and, indirectly, by the impacts on the
wider economy as well as on the property, business interests and
supply chains of its customers.
Transition risks may arise from the process of adjustment towards
a low-carbon, nature restored economy. Changes in policy,
technology and sentiment could prompt reassessment of
customers’ financial risk and may lead to falls in the value of a
large range of assets. NWM Group could be exposed to transition
risks directly through the costs of adaptation of its own operations
as well as supply chain disruption leading to financial impacts.
Potential indirect effects include the impact on the wider
economy, including on customers, which may erode NatWest
Group’s competitiveness and profitability, as well as threaten
reputational damage.
Liability risks may arise should stakeholders consider NWM
Group’s climate and nature risk management practices and
disclosures insufficient, and responsible for or attributable to,
stakeholders’ losses. On the other hand, liability risks may also
arise where some jurisdictions believe financial institutions have
taken their sustainability-related initiatives too far, with some
imposing sanctions in these circumstances.
NWM Group business activities
NWM Group identified a number of climate-related risks that may
affect its businesses and strategy.
Emissions resulting from NWM Group business activities include:
Financing activities – financed and facilitated.
Emissions attributable to the trading book (including fixed
income and currencies).
Emissions from NWM Group’s own operations
(2)
.
Financing activities
Financed emissions – lending and investments
(2)
Given the smaller size of the banking book relative to NWM
Group’s underwriting activities and trading book, financed
emissions currently play a limited role within NWM Group. On-
balance sheet exposure, as defined by the Partnership for Carbon
Accounting Financials (PCAF) standard, account for
approximately 18% of NWM Group’s total assets, as at 31
December 2024. The undrawn loan commitments are currently
excluded by the PCAF standard, and therefore could potentially
increase the financed emission estimations, for example, if called
up by customers during challenging market conditions.
Due to a lack of granular availability of customer-level climate
data, financial institutions are still developing measurement
methodologies and capabilities to assess their Scope 3 emissions.
Therefore, estimated financed emission figures linked to lending
exposures for financial institutions is expected to increase once
Scope 3 emissions data is incorporated.
Facilitation activities differ from on-balance sheet lending financed
emissions in two respects. They are off-balance sheet
(representing services rather than financing) and they can take
the form of a flow activity (temporary association with
transactions) rather than a stock activity (recorded on the
balance sheet).
NWM Group’s capital markets underwriting and syndicated
lending activities are generally driven by existing NatWest Group
lending relationships. Facilitated emissions can fluctuate year-on-
year subject to mandates and changes in those lending
relationships. Refer to page 63 for the NWM Group estimate of
facilitated emissions.
Estimating financed and facilitated emissions and assessing
climate impact on NWM Group’s business activities involves data
limitations and other challenges, particularly as estimation
methodologies evolve.
Trading book
Trading book activities (which includes fixed income and
currencies) are also impacted by climate-related risks.
NWM Group’s scenario analysis work continued to build internal
capability and benchmark against industry thinking in 2024. As it
relates to market risk stress testing for issuer risk, counterparty
risk and macro-parameters, NWM Group continues to be resilient
to climate-driven market moves.
Due to the size of the trading book within NWM Group, the
associated carbon emissions have the potential to be significant.
However, at present, the scale of these emissions is uncertain
given that trading book positions typically have shorter holding
horizons and are more dynamic than those in the banking book.
This continues to be an industry-wide challenge with no agreed
approach on quantification of trading book related emissions.
Key developments in 2024
The effective management of climate and nature risk requires the
full integration of climate and nature-related risk factors into
strategic planning, transactions and decision-making. The risk
management approach has evolved since 2021 alongside NWM
Group and NatWest Group’s ongoing, multi-year progressive
pathway to mature climate risk management capabilities. NWM
Group’s capability to manage climate risks is more mature than its
capability to manage nature-related risks.
In January 2024, the scope of NatWest Group’s (including
NWM Group) climate risk policy was expanded to recognise
nature-related risks beyond climate change.
NWM Group in conjunction with NatWest Group began to roll
out climate decisioning framework (CDF) tools. These
comprise climate risk scorecards and climate transition plan
assessment tools. The roll-out is phased on a test and learn
basis and the output scores from these tools do not drive
credit risk decision making as yet.
Governance
The NWM Plc Board is responsible for monitoring and overseeing
climate and nature-related risk within NWM Group’s overall
business strategy and risk appetite. This includes progress
towards delivering on NatWest Group’s strategy, including climate
ambitions and targets.
(1)
NWM Group use the terms ‘nature’ and ‘environment’ interchangeably in recognition of
both the NWG climate and nature policy and also European Central Bank (ECB)
terminology.
(2)
NatWest Group report emissions at a consolidated group level. NWM Group own
operations and NWM Group financed emissions are therefore subsumed into NatWest
Group’s estimation of own operational footprint and estimated financed emissions for the
consolidated group.
Risk and capital management continued
Climate and nature risk continued
NWM Group
Annual Report and Accounts 2024
62
The greenwashing scenario is a stylised example of conduct
The NWM Plc Board Risk Committee is responsible for the
oversight of NWM Group’s risk profile. As part of the integrated
cross-bank approach, the NWM Plc CEO is designated to support
the NatWest Group CEO in discharging the Senior Management
Function (SMF) 1 accountability for identifying and managing the
risk and opportunities arising from climate change. The NWM
Executive Committee and broader governance framework
support the assessment and management of climate-related risks
and opportunities across NWM Group.
In 2024, the NWM Group Climate & Sustainability Committee was
retired, and the governance of climate-related risks and
opportunities was embedded into existing committees. As part of
the new governance structure, the NWM Group Climate & ESG
Steering Committee was established to act as the principal
decision-making forum for overseeing the establishment and safe
and secure delivery of the NWM Group Climate & ESG
Programme.
Risk appetite
Work continued in 2024 to mature NWM Group’s climate-related
risk management capabilities, while building out nature-related
awareness. NWM Group has operational limits and a suite of key
risk indicators. These measures provide management with
information, including balance sheet exposure to heightened
climate risk sectors, financed and facilitated emissions.
In January 2024, the scope of NatWest Group’s (including NWM
Group) climate risk policy was expanded to recognise nature-
related risks beyond climate change.
Nature elements apply to EU
legal entities subject to ECB prudential regulation, i.e. NWM N.V.
Group and will underpin the maturing approach to nature-related
risks beyond climate change.
Identification, assessment, monitoring and mitigation
NWM Group in conjunction with NatWest Group continues to
enhance its processes to effectively identify and assess the
potential size and scope of climate-related risks, through the
approaches detailed below. The approach to nature-related risks
is not as mature as the approach to climate-related risks.
Scenario analysis
Scenario analysis allows NWM Group to test a range of possible
future climate pathways and understand the nature and
magnitude of the risks they present. The purpose of scenario
analysis is not to forecast the future but to understand and
prepare to manage risks that could arise.
NatWest Group focused on continuing to develop the capabilities
to use scenario analysis to seek to identify the most material
climate risks for its customers, seeking to harness insights to
inform risk management practices and support decision making.
NatWest Group leads the development of credit risk scenario
modelling capabilities for NatWest Group as a whole, as well as
including other legal entities within NatWest Group, such as NWM
Group. This includes both the developed capability and the
execution of scenario analysis for NWM Group.
In 2024, NWM Group, as part of NatWest Group, partnered with
climate experts from the University of Exeter to create bespoke
climate risk scenario narratives that explored the range of
physical and transition risks which could impact NatWest Group
and its customers over the next five to ten years. These
narratives are being used to inform the scenarios used by NWM
Group and NatWest Group for a range of processes, as well as to
enhance the overall understanding of the scale and complexity of
near-term climate risks.
Scenario analysis was undertaken in 2023 and further developed
in 2024 to test the resilience of NWM Group’s control environment
to potential greenwashing risks
failures in the green and sustainable finance markets. The key
outcome of this forward-looking assessment of potential extreme
but plausible events on our customers and the bank, was
assessed as improved, against our 2023 assessment.
NatWest Group, including NWM Group, continued to develop its
specialist climate data capabilities, including bringing in new data
sets to increase the granularity for which climate risks are
assessed. NWM Group, as part of NatWest Group, continues to
work with industry and customers to develop solutions.
Credit risk: portfolio level assessment
The heightened climate-related risk sector assessment seeks to
identify sectors that are likely to see increased credit risks for
NatWest Group because of climate-related factors, over a 10 to
15-year horizon. NWM Group exposure to selected heightened
climate-related risk sectors is summarised on page 55 (loans, loan
commitments and contingent obligations by sector).
Credit risk: transaction level assessment
In 2024, CDF tools were rolled out on a test and learn basis,
replacing the initial suite of climate risk scorecards for the in-
scope population. NWM Group uses these tools to engage with its
customers to support them in better understanding climate-
related risks for their business and conduct climate transition plan
assessments. Through this process, NWM Group continues to
build capability among first and second line risk colleagues, and a
culture where consideration of climate risk is part of the credit
journey.
Traded market risk
The NWM Group traded market risk stress test translates
“delayed transition” scenarios through the NatWest Group’s gross
value add modelling framework to shock credit spreads.
Consistent macro-economic variables are overlaid, and this
captures both the costs and opportunities associated with the
climate transition and their impact on the trading book. Stress
exposures continue to be calculated and monitored monthly along
with other climate-related market risks, for example, holdings of
green gilts.
Liquidity risk
Within NWM Group, climate risk is included in liquidity stress
testing which assesses potential outflows under a range of
extreme but plausible stress scenarios. Climate risk, which falls
within the market-wide scenario theme, is captured in the form of
major climate-related disruption in the UK and northern Europe.
This leads to widespread disruption and a temporary fall in
economic output, with higher demand for cash from certain
impacted business sectors due to the uncertainty. Volatility in
financial markets impacts sterling, UK bonds and asset prices,
while non-UK/European depositors re-evaluate their exposure to
the UK/European financial sector. For 2024 reporting, climate is
not the most severe scenario within the wider scenario suite used
for calculating the stressed outflow coverage ratio disclosed on
page 14.
Stress testing and ICAAP
Climate risk is explicitly considered under one of the 2024 ICAAP
scenarios. Starting with a metric for transition difficulty, the
approach differentially widens counterparty credit spreads to
reflect relative risks arising from specific sector membership. The
approach aligns to internal traded market risk transition risk
assessments.
Nature including environmental assessment
Activity in 2024 focused on the identification and assessment of
environmental factors, including physical and transition risks
within the NWM N.V. Group corporate portfolio.
Risk and capital management continued
Climate and nature risk continued
NWM Group
Annual Report and Accounts 2024
63
2024, NWM Group updated the estimation of absolute Scope 1
An Environmental Decisioning Framework (EDF) was trialled in
2024. The first-generation environmental scorecard focused on a
limited number of counterparties, using internal and external data.
Developed on a test and learn basis, insight gained from EDF will
be used to inform future activity.
NWM N.V Group completed a scenario in 2024 on its power and
utility sector customers, evaluating the impact of sizeable copper
price increases on underlying credit risk. Findings from the stress
test revealed that the sector exposure was resilient to copper
price shocks, with immaterial impact on credit quality.
Materiality assessment
In 2024, NatWest Group including NWM Group, enhanced its
understanding of nature risks by completing a pilot Locate,
Evaluate, Assess and Prepare assessment as recommended by
the Taskforce on Nature-related Financial Disclosures.
NWM Group, through its Dutch subsidiary NWM N.V. Group,
continues to monitor sustainability-related disclosure obligations
and started to set up activities to perform materiality
assessments. This includes exploration of enhancements required
to address future applicable materiality assessment expectations.
During 2024, an assessment was conducted with support from an
external service provider which sought to develop our thinking on
sustainability topics and inform future potential approaches to
conducting materiality assessments under incoming reporting
regulations.
Estimate of facilitated emissions on bond underwriting and
syndicated lending
Banks play a key role as facilitators between issuers and
investors, and borrowers and lenders, by offering and conducting
financial intermediation activities critical to the functioning of
capital markets.
Following the issuance of the PCAF Part B Global Greenhouse
Gas Accounting and Reporting Standard for Facilitated Emissions
in December 2023
(1)
, and further guidance received in September
and Scope 2 facilitated emissions for capital market activities to
include:
Capital markets bond underwriting activities, including green
bonds as defined by the International Capital Market
Association’s Green Bond Principles
(2,4)
and the role of co-
manager
(5)
.
This constituted 60% of NWM Group’s capital
markets bond underwriting including financial institutions with
the balance being securitisations, sovereigns, supranational
and agencies (SSA) which are out of scope for PCAF.
Capital markets syndicated lending activities
(6,7)
of £6.4 billion,
including the syndication of green loans as defined by the
Loan Markets Association.
NWM Group absolute Scope 1 and Scope 2 facilitated emissions
weighted at 33%, were 1.28 MtCO2e for 2024.
It is important to note that the absolute amounts presented are
estimates and may be subject to change given shifting baselines
year-on-year
(8)
and evolving PCAF guidance. Facilitated emissions
can fluctuate subject to NWM attributable bond underwriting and
syndicated lending mandates.
With reference to the table below:
The expansion in scope for syndicated lending has contributed
to an increase in facilitated emissions for Airlines and
Aerospace and Chemicals where total facilitated emissions
were 0.20 MtCO2e and 0.19 MtCO2e respectively each being
15% of total emissions.
Oil and gas represented 1% of the total NWM Group
attributable bond underwriting and syndicated lending and
constitutes 3% of the facilitated emissions in 2024.
For Power Utilities, NWM Group attributable bond
underwriting and syndicated lending increased by 34%
between 2023 and 2024 resulting in an increase of facilitated
emissions to 0.58 MtCO2e. However, 82% of the attributable
bond underwriting and syndicated lending was green
(2,4)
relative to 60% of green corporate bonds in 2023.
The table below shows NWM Group’s estimated facilitated emissions from bond underwriting and syndicated lending activities in 2024,
as attributed to NWM Group and split between conventional and green issuance, where applicable
(4,9)
.
2024 | 2023 | ||||||
Facilitated | |||||||
Facilitated emissions from bond | emissions from | ||||||
underwriting and syndicated lending | corporate bond | ||||||
Attributable | (33% weighting) MtCO2e | underwriting (9) | |||||
bond underwriting and | Sector % | Green % | Sector % | ||||
syndicated lending (9) | of total | of sector | PCAF data | of total | |||
Sector | £m | % | MtCO2e | emissions | emissions | quality score | emissions |
Power utilities | 4,329 | 5% | 0.58 | 45% | 82% | 2.7 | 36% |
Airlines and aerospace | 1,624 | 2% | 0.20 | 15% | - | 2.9 | - |
Chemicals | 1,065 | 1% | 0.19 | 15% | - | 3.6 | 18% |
Leisure | 2,007 | 2% | 0.04 | 3% | - | 3.4 | - |
Oil and gas | 812 | 1% | 0.04 | 3% | - | 3.3 | 2% |
Land transport and logistics | 716 | 1% | 0.04 | 3% | - | 3.4 | 10% |
Retail | 3,103 | 3% | 0.03 | 2% | - | 2.5 | 1% |
Water and waste | 1,103 | 1% | 0.02 | 2% | 11% | 2.0 | 5% |
Manufacturing | 3,031 | 3% | 0.02 | 1% | - | 2.9 | 5% |
Financial institutions | 63,777 | 68% | 0.02 | 1% | 1% | 2.9 | - |
Automotive | 2,679 | 3% | 0.02 | 1% | - | 3.0 | 1% |
Commercial real estate | 872 | 1% | 0.01 | 1% | 90% | 3.0 | - |
Other | 9,249 | 9% | 0.10 | 8% | 35% | 3.3 | 22% |
Of which: business and professional services | 2,123 | 2% | 0.07 | 6% | 43% | 3.0 | 1% |
technology, media and telecoms | 5,317 | 6% | 0.01 | 1% | 7% | 3.1 | 1% |
Total | 94,367 | 100% | 1.28 | 100% | 3.0 | 100% | |
For the footnotes refer to the following page.
Risk and capital management continued
Climate and nature risk continued
NWM Group
Annual Report and Accounts 2024
64
NWM Group methodology used for estimation
In 2024, NWM Group applied a 33% weighting factor for emissions estimations in line with the PCAF Standard
(1)
In 2023, NWM
Group applied a 100% weighting factor
(9)
(1.5 MtCO2e).
NWM Group followed the PCAF published standard
(1)
guidance to define an issuer as an organisation that issues debt or equity
capital markets instruments
(3)
. SSA issuers, as well as securitised products, are out of scope for the standard published by PCAF
(1)
.
For syndicated lending, NWM Group included the roles of active and passive underwriting and best efforts, the role of coordination
is not in scope by PCAF
(1,6,7)
.
For 2024 reporting, NWM Group included financial institutions within estimates for facilitated emissions. Own issuances are included
in financed emissions and therefore excluded from facilitated emissions.
Currently, there is no commonly agreed methodology for measuring the carbon footprint of green bonds and loans
(2)
. NWM Group
shows the breakdown of conventional versus green bonds and loans to highlight the expected difference of facilitated emissions
associated with the conventional versus green activities
(2,4)
. Sustainability linked and sustainable bond and loan activities are treated
as conventional for the purpose of estimating and reporting on facilitated emissions.
The 2023 PCAF standard
(1)
allows splitting the responsibility among the transaction facilitators (passive and active) use of either
league tables based on fees or the value of the volume. For bond underwriting, NWM Group used league tables based on volumes
for active and passive roles and actual allocation for co-manager roles, to align with the NatWest Group sustainable funding and
financing inclusion criteria. For loan syndication, NWM Group used both league tables based on volumes and deal information.
In line with the PCAF published standard
(1)
, to estimate greenhouse gas emissions, NWM Group sourced customer-level emissions
data, where possible. If customer-level data was unavailable, emission sector averages (with a PCAF data quality score of five)
were used for emission intensities from 2023 and applied against 2024 volumes
(8)
.
Scope 3 emissions have not yet been estimated for facilitated emissions. PCAF recommends that Scope 3 emissions for all sectors
are disclosed in climate reporting from the beginning of 2025. NWM Group continues to review Scope 3 estimation methodologies
and the availability of appropriate data for inclusion in future reporting.
PCAF scores are categorised between 1-5. PCAF scores of 1 or 2 are typically considered to have a higher degree of confidence
in the estimation of facilitated emissions, as these are directly sourced from reports published by the customer. A PCAF score of 5
is typically considered to have a lower degree of confidence, as these are estimated by the reporting entity. The PCAF data quality
score is based on the PCAF approach taken to estimate Scope 1 and Scope 2 emissions within a given sector. Where estimation
methodologies differ between Scope 1 and Scope 2, NWM Group use the least favourable of a customers’ PCAF scores in the
weighted average calculation.
(1)
https://carbonaccountingfinancials.com/files/PCAF-PartB-Facilitated-Emissions-Standard-Dec2023.pdf
(2)
Green bonds and loans have been excluded by PCAF from facilitated emissions calculations for 2024. It is expected that green bonds and loans have a reduced emissions intensity, but no
calculation or methodology has been developed to quantify the emissions associated with green bonds, loans and other known use of proceeds bonds. Green bond underwriting is included in NWM
Group’s 2024 facilitated emissions calculation for consistency with prior year disclosures, and syndicated lending for 2024 reporting, but no differentiation is made between conventional and green
bond underwriting and syndicated lending emissions to account for this and NWM Group have not attributed a lower emission intensity to green bond underwriting and syndicated lending
emissions.
(3)
The PCAF standard does not currently outline an estimation approach for short-term assets (such as commercial papers), as such these products are currently excluded from the facilitated
emissions estimation.
(4)
NatWest Group 2024 climate and sustainable funding and financing inclusion criteria was used to determine the assets, activities and companies eligible for inclusion.
https://www.natwestgroup.com/content/dam/natwestgroup_com/natwestgroup/pdf/Climate-and-Sustainable-Finance-Inclusion-Criteria.pdf
(5)
Co-managers are not captured by the PCAF standard. We include transactions where we act as a co-manager in alignment with the GHG accounting ‘follow the money approach’ and with
NatWest Group’s climate and sustainable funding and financing inclusion criteria
(4)
.
(6)
A syndicated loan transaction is defined as a loan made available by two or more providers under a common loan agreement and ranking credit is assigned upon signature of the loan
documentation. Where a financial institution provides an underwriting facility that puts the institution’s capital at risk, this should be treated separately from the role they provide in arranging and
facilitating an issuance
(1)
.
(7)
The syndicated loan market is a private market with no requirement for banks to report collectively into third-party league tables. Based upon its own market knowledge, NWM Group identified
relevant loan markets volumes based upon an internal scope and methodology with an aim to align to guidance from PCAF issued in December 2024
(1)
. The numbers reported are therefore
presented on a best endeavours basis and are subject to change as guidance develops.
(8)
NWM Group aims to estimate facilitated emissions using the latest data available, recognising there may be a lag between the availability of emissions data and the date of record for reporting. As a
consequence of this lag, more recent changes in a counterparties activities may not be reflected in the estimate of facilitated emissions. NWM Group continues to refine its estimates as NWM Group
enhances its understanding, calculation methodologies and data. Also, methodologies to calculate emissions for certain sectors are still under development. Based on these limitations, NWM Group
expects its estimates to change as NWM Group improves the granularity and coverage of customer climate data and develop methodologies further.
(9)
The 2024 scope for the estimated facilitated emissions was expanded when compared to 2023, to include syndicated lending, financial institutions and co-managers, and reported at 33%. In 2023,
the scope was limited to corporate bond underwriting only, with the estimated facilitated emissions reported at a 100% i.e. 1.5 MtCO2. The equivalent of this reported estimated emissions at 33% is
0.5 MtCO2.
(10)
The table should be read in conjunction with the NWM Group Climate and sustainability risk factors included on pages 173 to 176 and cautionary statements on pages 92 to 97 of the NatWest
Group plc Sustainability Report 2024.
Risk and capital management continued
Mitigation
Operational risk
NWM Group
Annual Report and Accounts 2024
65
Definition
Operational risk is the risk of loss resulting from inadequate or
failed internal processes, people and systems, or external events.
It arises from day-to-day operations and is relevant to every
aspect of the business.
Sources of risk
Operational risk may arise from a failure to manage operations,
systems, processes, transactions, and assets appropriately. This
includes human error, an inability to deliver change adequately or
on time, the non-availability of technology services, or the loss of
customer data. It also includes systems failure, theft of NWM
Group property, information loss, the impact of natural or man-
made disasters and the threat of cyberattacks.
Operational risk can also arise from a failure to account for
changes in law or regulations or to take appropriate measures to
protect assets.
Key developments in 2024
The continued embedding of the enhanced risk and control
self-assessment approach with a focus on material
operational risks and controls across key end-to-end
processes.
An enhanced approach to introduce a single risk and control
performance assessment has been developed and tested
during 2024. This will replace the current Control
Environment Certification (CEC) approach from 2025.
The automation of data-led insights into the operational risk
profile to proactively drive management of the risks and
oversight thereof.
The embedding of robust operational risk appetite measures
which provide comprehensive coverage of the key
operational risks.
The introduction of an effective and well-defined approach
to leverage artificial intelligence to enhance controls
articulation and manage controls data quality on an ongoing
basis.
Governance
The risk governance arrangements in place for operational risk
are aligned to the requirements set out in the Board-approved
enterprise-wide risk management framework and are consistent
with achieving safety, soundness and sustainable risk outcomes.
The Operating Committee discusses operational risk matters
relating to the control environment, NWM Group’s
implementation of the enterprise-wide risk management
framework, risk identification and oversight of return-to-appetite
plans. Significant issues are escalated to the Board Risk
Committee.
Risk appetite
Operational risk appetite supports effective management of all
operational risks. It expresses the level and types of operational
risk NWM Group is willing to accept to achieve its strategic
objectives and business plans. NWM Group’s operational risk
appetite quantitative and qualitative statements encompass the
full range of operational risks faced by its subsidiaries and
branches, businesses and functions.
The risk appetite statement and associated measures for
operational risk are reviewed and approved at least annually by
the NWM Group Board on the NWM Group Board Risk
Committee’s recommendation to ensure they remain appropriate
and aligned to strategy.
Risks are mitigated by applying key preventative and detective
controls. This is an integral step in the risk self-assessment
methodology which is used to determine residual risk exposure.
Control owners are accountable for the design, execution,
performance, and maintenance of key controls. Key controls are
regularly assessed for adequacy and tested for effectiveness. The
results are monitored and, where a material change in
performance is identified, the associated risk is re-evaluated.
All residual risks that exceed the target appetite position are
subject to action plans to bring them within appetite.
Supporting our understanding of control is the CEC process. This
is a bi-annual process, which requires senior members of the
executive and management to assess the adequacy and
effectiveness of their internal control frameworks which supports
certification that their business or function is compliant with the
Internal Control over Financial Reporting (Sarbanes-Oxley
Section 404) regulatory requirements and with the requirements
of the UK Corporate Governance Code section on Risk
Management and Internal Controls.
CEC covers material risks and the underlying key controls,
including financial, operational and compliance controls, as well
as supporting risk management frameworks. The CEC outcomes,
including forward-looking assessments for the next two half-
yearly cycles and progress on control environment
improvements,
are reported to NWM Board Risk Committee.
They are also shared with external auditors.
Monitoring and measurement
Operational risk is measured and managed through continuous
assessment and regular reporting to NWM Group’s senior risk
committees and at Board-level.
Risk and control self-assessments are used across business areas
and support functions to identify and assess material operational
risks, financial crime, conduct risks and key controls. All risks and
controls are mapped to NatWest Group’s risk directory. Risk
assessments are refreshed at least every two years or sooner in
response to internal and external events via a triggers process to
ensure they remain relevant and that they capture any emerging
risks.
The process is designed to confirm that risks are effectively
managed in line with risk appetite. Key controls are tested at the
appropriate frequency to verify that they remain fit-for-purpose
and operate effectively to reduce the identified risks.
NWM Group uses the standardised approach to calculate its Pillar
1 operational risk capital requirement. This is based on
multiplying three years’ average historical gross income by
coefficients set by the regulator based on business line.
As part of the wider Internal Capital Adequacy Assessment
Process an operational risk economic capital model is used to
assess Pillar 2A, which is a risk-sensitive add-on to Pillar 1. The
model uses historical loss data (internal and external) and
forward-looking scenario analysis to provide a risk-sensitive view
of NWM’s Pillar 2A capital requirement.
Scenario analysis is used to assess how severe but plausible
operational risks will affect NWM Group. It provides a forward-
looking basis for evaluating and managing operational risk
exposures.
Refer to the Capital, liquidity and funding risk section for the
operational risk capital requirement figures.
Risk and capital management continued
Operational risk continued
NWM Group
Annual Report and Accounts 2024
66
Cybersecurity Risk Management Processes
Event and loss data management
The operational risk event and loss data management process
ensures NWM Group captures and records operational risk
financial and non-financial impacts that meet defined criteria.
Loss data is used for internal, regulatory and industry reporting
and is included in capital modelling when calculating economic
capital for operational risk. The most serious events are
escalated in a simple, standardised process to all senior
management, by way of an Early Event Escalation process. NWM
Group has not experienced a material cybersecurity breach or
associated material loss in the last three years.
All financial impacts and recoveries associated with an
operational risk event are reported against the date they were
recorded in NatWest Group’s financial accounts. A single event
can result in multiple losses (or recoveries) that may take time to
crystallise. Losses and recoveries with a financial accounting date
in 2024 may relate to events that occurred, or were identified in,
prior years. NatWest Group purchases insurance, against specific
losses, including cyberattacks, and to comply with statutory or
contractual requirements.
Operational resilience and cybersecurity
NWM Group manages and monitors operational resilience
through its enhanced risk and control self-assessment
methodology. This is underpinned by setting and monitoring of
forward-looking risk indicators and performance metrics for the
operational resilience of important business services. Significant
progress has been made in meeting regulatory expectations for
operational resilience, with involvement in a number of industry-
wide operational resilience forums. This enables a cross-sector
view of the operational resilience risk profile and the pace of
ongoing innovation and change, both internally and externally.
NWM Group operates layered security controls and its
architecture is designed to provide inherent protection against
threats. This approach avoids reliance on any one type or
method of security control. Minimum security control
requirements are set out in key risk policies
(1)
, standards,
processes and procedures.
Throughout 2024, NWM Group continued to monitor and
manage the threat landscape focusing on:
Initial access brokers and nation states – increasingly
sophisticated attacks from ransomware gangs and ongoing
challenges given the geopolitical tensions that are increasing
the likelihood of disruptive cyberattacks.
Developments in innovation and technology, assessing the
inherent risk and developing appropriate response to mitigate
associated risks, for example, artificial intelligence and cloud
adoption.
As cyberattacks evolve, NatWest Group continues to invest in
additional capability designed to defend against emerging risks.
(1)
Risk policies are in place for each principal risk and define, at a high level, the cascade
of qualitative expectations, guidance and standards that stipulate the nature and
extent of permissible risk-taking. They are consistently applied across NatWest Group
and subsidiary legal entities and form part of the qualitative expression of risk appetite
for each principal risk.
Our cybersecurity risk management forms an integral part of
NatWest Group’s overall enterprise-wide risk management
framework (EWRMF) that is designed around a three lines of
defence model. Specifically, management of cybersecurity risk is
a subset of the NatWest Group’s wider operational risk
management. To support our cybersecurity risk management,
NatWest Group has a cyber security Board level risk appetite
measure and policies. These policies are reviewed at least
annually and benchmarked against industry best practice
standards, including the “Information Security Forum: Standard
Of Good Practice” (ISF: SOGP), and relevant publications by
competent authorities such as the National Cyber Security
Centre (NCSC), to help us identify and remediate any gaps in our
controls and procedures. In addition, NWM has a number of legal
entity specific cybersecurity operational limits which inform
internal risk monitoring.
Our cybersecurity risk management framework is designed to
mitigate the impact of cybersecurity threats and incidents. The
framework also includes a structured approach for identifying
and managing both internal cybersecurity incidents and external
incidents impacting our third-party suppliers.
Cybersecurity threats for 2024
NatWest Group is continuously exposed to cybersecurity threats
across its business and supply chain, which are closely monitored
by NatWest Group. In the year ended 31 December 2024, we did
not identify any cybersecurity threats that have materially
affected or are reasonably likely to materially affect NatWest
Group. However, given the nature of cybersecurity threats, we
cannot eliminate all risks from cybersecurity threats, or provide
assurances that we have not experienced an undetected
cybersecurity incident. For more information about these risks,
please see “Risk Factors – NatWest Group is subject to
increasingly sophisticated and frequent cyberattacks.” in this
annual report.
Board cybersecurity risk oversight
The NatWest Group Board ensures there is a framework of
prudent and effective controls which enables risks – including
information and cyber security risk - to be assessed and
managed.
NatWest Group’s first line of defence is responsible for setting
NatWest Group’s information and cybersecurity risk management
strategy, including: delivering effective and efficient cybersecurity
products, policies and services and identifying, considering and
assessing material cybersecurity threats on an ongoing basis.
Risk and capital management continued
Model risk
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Annual Report and Accounts 2024
67
Definition
Model risk is the potential for adverse consequences from model
errors or the inappropriate use of modelled outputs to inform
business decisions. A model is defined as a quantitative method,
system, or approach that applies statistical, economic, financial,
accounting, mathematical or data science theories, techniques
and assumptions to process input data into estimates.
Sources of risk
NWM Group uses a variety of models in the course of its business
activities. Examples include the use of model outputs to support
measuring and assessing risk exposures (including credit and
market risk), valuation of positions, calculating regulatory capital
and liquidity requirements and automation of operational
processes. The models used for stress-testing purposes also play
a key role in ensuring NWM Group holds sufficient capital, even in
stressed market scenarios.
Model applications may give rise to different risks depending on
the business segment in which they are used. Model risk is
therefore assessed separately for each business segment in
addition to the overall assessment made for NWM Group.
Key developments in 2024
NWM Group remained within model risk appetite throughout
2024.
The Model Risk Management Enhancement Programme was
set up to support NatWest Group’s response to the PRA’s
Supervisory Statement 1/23 (SS1/23). A self-assessment
against SS1/23 was completed, reviewed by the Board and
submitted to the PRA. Effort was focused on implementing an
enhanced model risk management framework, including an
expanded model identification exercise and roll-out of a new
model tiering approach.
Model inventory design changes were carefully delivered to
support the implementation of framework enhancements.
Focus also continued on improving the completeness and
accuracy of model risk data contained within the inventory
through enhanced oversight metrics and targeted
remediation work.
Governance
A governance framework is in place to ensure policies and
processes relating to models are appropriate and effective. Two
roles are key to this – model risk owners and model validation
leads. Model risk owners are responsible for model approval and
ongoing performance monitoring. Model validation leads, in the
second line of defence, are responsible for oversight, including
ensuring that models are independently validated prior to use
and on an ongoing basis aligned to the model’s tier.
The NWM Group model management committee is used to
escalate model risk matters to senior management where
required.
The committee also supports model risk owners in their
approvals of models for use. Models used for regulatory reporting
may additionally require regulatory approval before
implementation. Further escalation can also be made to the
NatWest Group Model Risk Oversight Committee. The NatWest
Group Model Risk Oversight committee further enhances model
risk governance by providing a platform for executive level
discussion on emerging model risks, identification of systemic
risks and the evolution of model risk management practices.
NWM Group is considered in scope of the NatWest Group Model
Risk Oversight committee.
Risk appetite
Model risk appetite is set in order to limit the level of model risk
that NWM Group is willing to accept in the course of its business
activities. NWM Group risk appetite and associated measures are
reviewed and approved by the NWM Group Board on
recommendation of the Board Risk Committee at least annually
and aligns to the NatWest Group’s model risk appetite statement.
The first line is responsible for monitoring performance against
appetite, reporting on the model population and remediating
models outside appetite.
Monitoring and measurement
Model risk is measured and managed through continuous
assessment and regular reporting to NatWest Group’s senior risk
committees and at Board level.
Policies, toolkits and model standards related to the development,
validation, approval, implementation, use and ongoing monitoring
of models are in place to ensure adequate control across the
lifecycle of an individual model.
All models developed for use are assigned a model tier, based on
the model’s materiality and complexity. Risk-based
model tiering
is used to prioritise risk management activities throughout the
model lifecycle, and to identify and classify those models which
pose the highest risk to NWM
Group’s business activities, safety
and/or soundness.
Validation of material models is conducted by an independent risk
function comprising of skilled, well-informed subject matter
experts. This is completed for new models or material
amendments to existing models and as part of an ongoing
periodic programme to assess model performance. The
frequency of periodic revalidation is aligned to the tier of the
model. The independent validation focuses on a variety of model
features, including model inputs, model processing, model
outputs, the implementation of the model and the quality of the
ongoing performance monitoring. Independent validation also
focuses on the quality and accuracy of the development
documentation and the model’s compliance with regulation.
The model materiality combined with the validation rating
provides the basis for model risk appetite measures and enables
model risk to be robustly monitored and managed across NWM
Group.
Ongoing performance monitoring is conducted by model owners
and overseen by the model validators to ensure parameter
estimates and model constructs remain fit for purpose, model
assumptions remain valid and that models are being used
consistently with their intended purpose. This allows timely action
to be taken to remediate poor model performance and/or any
control gaps or weaknesses.
Mitigation
By their nature – as approximations of reality –
model risk is
inherent in the use of models. It is managed by refining or
redeveloping models where appropriate – due to changes in
market conditions, business assumptions or processes – and by
applying adjustments to model outputs (either quantitative or
based on expert opinion). Enhancements may also be made to
the process within which the model output is used in order to
further limit risk levels.
Risk and capital management continued
Reputational risk
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Annual Report and Accounts 2024
68
Definition
Reputational risk is defined as the risk of damage to stakeholder
trust due to negative consequences arising from internal actions
or external events.
Sources of risk
The three primary drivers of reputational risk are: failure in
internal risk management systems, processes or culture; NWM
Group’s actions materially conflicting with stakeholder
expectations; and contagion (when NWM Group’s reputation is
damaged by failures in key sectors including NWM Group’s
supply chain or other partnerships).
Key developments in 2024
Reputational risk assessment guidance was updated.
Colleagues in relevant roles received updated training on key
aspects of the policy and framework.
Enhancements were made to the environmental, social and
ethical (ESE) risk framework, including implementation of the
ESE human rights risk acceptance criteria.
Governance
A reputational risk policy supports reputational risk management
across NWM Group. Reputational risk registers are used to
manage reputational risks identified within relevant business
areas. These are reported to the relevant NWM Group business
risk committee.
Material reputational risks to NWM Group are escalated via the
NatWest Group reputational risk register, which is reported at
every meeting of the NatWest Group Reputational Risk
Committee.
The NatWest Group Reputational Risk Committee
also opines on matters that represent material reputational risks.
The Executive and Board Risk Committees oversee the
identification and reporting of reputational risk.
Risk appetite
NWM Group manages and articulates its appetite for reputational
risk through a qualitative reputational risk appetite statement and
associated quantitative measures which are set at NatWest
Group level.
NatWest Group seeks to identify, measure and manage risk
aligned to stakeholder trust. However, reputational risk is
inherent in NatWest Group’s operating environment and public
trust is a specific factor in setting reputational risk appetite.
Monitoring and measurement
Relevant internal and external factors are monitored through
regular reporting via reputational risk registers at NWM Group
business level. They are escalated, where appropriate, to the
relevant NWM Group executive committee and, where material,
to the NatWest Group Reputational Risk Committee.
Additional principal risk indicators for material risks being
monitored are also reported to the NatWest Group Reputational
Risk Committee and to the Executive and Board Risk
Committees.
Mitigation
Standards of conduct are in place across NWM Group requiring
strict adherence to policies, procedures and ways of working to
ensure business is transacted in a way that meets – or exceeds –
stakeholder expectations.
External events that could cause reputational damage are
identified and mitigated through NWM Group’s top and emerging
risks process (where sufficiently material) as well as through the
NatWest Group and business-level reputational risk registers.
NatWest Group has in recent years been the subject of
investigations and reviews by a number of regulators and
governmental authorities, some of which have resulted in past
fines, settlements and public censure. Refer to the Litigation and
regulatory matters section of Note 25 to the consolidated
financial statements for details of material matters currently
affecting NWM Group.
Report of the directors
NWM Group
Annual Report and Accounts 2024
69
The directors present their report together with the audited
accounts for the year ended 31 December 2024. The statements
in this report are correct as of 31 December 2024, subsequent
changes to Board membership are detailed in Board of directors
and secretary on page 17.
Other information incorporated into this report by reference can
be found at:
Page
Financial review
14
Board of directors and secretary
17
Share capital and reserves
141
Post balance sheet events
155
Risk factors
159
Group structure
NatWest Markets Plc (‘NWM Plc’) is a wholly-owned subsidiary of
The NatWest Markets Group (‘NWM Group’) comprises NWM Plc
and its subsidiary and associated undertakings. The term
‘NatWest Group’ comprises NatWest Group plc and its
subsidiaries. NatWest Group plc is incorporated in the UK and
has its registered office at 36 St Andrew Square, Edinburgh, EH2
Details of NWM Plc’s principal subsidiary undertakings and their
activities are shown in Note 16 to the consolidated financial
statements. A full list of related undertakings of NWM Plc is
shown in Note 34 to the consolidated financial statements.
The financial statements of NWG plc can be obtained from
NatWest Group Corporate Governance, Gogarburn, Edinburgh,
EH12 1HQ, the Registrar of Companies or at natwestgroup.com.
Activities
Results and dividends
The loss attributable to the ordinary shareholders of NWM Group
for the year ended 31 December 2024 was £20 million compared
with a loss of £168 million for the year ended 31 December 2023,
as set out in the consolidated income statement on page 83.
No dividends were paid to NatWest Group plc during the year.
Employees
At 31 December 2024, NWM Group employed 1,700 people
(excluding temporary staff). Details of all related costs are
included in Note 3 to the consolidated financial statements
.
Corporate Governance statement
For the financial year ended 31 December 2024, the company
has chosen to report against the Wates Corporate Governance
Principles for Large Companies (the Wates Principles) and the
disclosures below explain how the company has applied the
Wates Principles in the context of its corporate governance
arrangements.
1. Purpose and leadership
Strategy
NatWest Group’s strategy is set and approved by the NatWest
Group plc Board. The NWM Plc Board (‘the Board’) reviews and
sets the strategic direction of NWM Plc and, as appropriate, the
strategies for each of its businesses within the parameters set by
the NatWest Group plc Board. It subsequently oversees the
execution of the strategy and holds management to account for
its delivery.
Further information on NatWest Group’s progress against its
strategy can be found in the NatWest Group plc 2024 Annual
Report and Accounts.
Culture
The NatWest Group plc Board is supported in monitoring culture
across NatWest Group by the Group Sustainable Banking
Committee and the Group Board Risk Committee. NatWest
Group is on a journey towards a generative risk culture whereby
risk is simply part of the way people work and think.
Building a healthy culture that embodies Our Values is a core
priority for NatWest Group.
Our Values, which guide the way NatWest Group identifies the
right people to serve customers well, and how to manage,
engage and reward colleagues, are at the heart of Our Code (the
NatWest Group-wide Code of Conduct).
There is regular reporting to the Board on culture, so as to
provide appropriate oversight of culture matters. More
specifically, with regards to risk culture, continued progress has
been made towards addressing historical conduct issues,
including risk appetite enhancements and increased monitoring of
conduct risk and surveillance remediation. This supports our
ambition to create a positive culture and strengthen ‘good
conduct’ outcomes for clients.
2. Board Composition
The Board
The Board is structured to ensure that the directors provide
NatWest Markets Plc with the appropriate combination of skills,
experience, knowledge, and diversity, as well as independence.
The Board has seven directors comprising: the Chair, two
executive directors (being the Chief Executive Officer and Chief
Financial Officer) and four independent non-executive directors.
The size of the Board is considered appropriate, taking into
account the size and scale of NWM Plc’s business.
The Chair
The role of the Chair is to lead the Board and ensure its overall
effectiveness. This is distinct and separate from that of the Chief
Executive Officer who manages the business day-to-day.
Non-Executive Directors
The majority of the Board comprises independent non-executive
Directors. Their role is to challenge and scrutinise the
performance of management and to help develop proposals on
strategy. They also review the performance of management in
meeting agreed goals and objectives and monitor the firm’s risk
profile. The non-executive directors combine broad business and
commercial expertise and bring experience from a wealth of
areas including audit, banking, finance, human resources,
technology, and telecommunications.
Report of the directors continued
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Annual Report and Accounts 2024
70
The Board periodically undertakes an independence assessment
of the non-executive directors. With the exception of the Chair,
who is a member of the NatWest Group plc Board, all non-
executive directors are considered to be independent and there
are no relationships or circumstances that are likely to affect
their judgement.
Induction Training
All new directors undergo a formal induction programme upon
joining the Board which is coordinated by the Company
Secretary and tailored to their individual needs. This includes
meetings with other directors, senior executives and business
heads. Meetings with the external auditor, legal counsel and
other key stakeholders are arranged as appropriate. Directors
also receive comprehensive guidance from the Company
Secretary on NWM Plc’s corporate governance framework and
associated policies, including their duties as directors.
Continuous Development
Non-executive directors discuss their professional development
periodically with the Chair. Directors maintain their knowledge
and familiarity with NWM Plc through regular meetings with
senior management (including representatives of NatWest Group)
and participate in scheduled Board training and other external
sessions as appropriate.
During 2024, teach-in sessions on Nature and Biodiversity, Basel
3.1 and Balance Sheet Management amongst others were
arranged for the directors. Directors may also request individual
in-depth briefings from time to time on areas of particular
interest.
Board Diversity
The Board is committed to promoting diversity and inclusion in
the boardroom and aims to meet industry targets and
recommendations wherever possible. The Board has a
Boardroom Inclusion Policy which aims to promote diversity and
inclusion in the composition of the Board of Directors and in the
nomination and appointment process. The Policy reflects the
values of the wider NatWest Group, its Inclusion Policy and
relevant legal, regulatory or best practice requirements.
Committees
The responsibilities of the Board are executed, in part, through its
committees (namely, the Audit Committee, the Board Risk
Committee, the Performance and Remuneration Committee and
the Nominations Committee). All matters that the Board has
specifically delegated to these committees are set out in their
terms of reference (ToRs). All other matters, including
responsibility for the day-to-day operation of NWM Plc (that are
not specifically reserved for the Board or delegated to a
committee) are delegated to the NWM Plc Chief Executive Officer
(CEO) in accordance with such policies and directions as the
Board determines appropriate, including the NWM Plc CEO’s role
profile.
Succession
The Board is responsible for ensuring that NWM Plc has in place
succession plans for the Board and senior management so as to
maintain an appropriate balance of skills and experience. The
NatWest Group Nominations and Governance Committee is also
required to approve all appointments to the Board, reflecting the
company’s position as a subsidiary of NatWest Group.
Board Effectiveness
The effectiveness of the Board, including the Chair, individual
directors and committees, is assessed periodically. The Board
considers such assessments to play an important role in the
identification of areas for further improvement, focus and for
strengthening its overall performance.
The Company Secretary
In fulfilling its role, the Board is supported by the Company
Secretary. The Company Secretary is responsible for ensuring
good information flows between the Board and its committees
and between senior management and non-executive directors,
as well as facilitating induction and assisting with professional
development of non-executive directors, as required. The
directors may also seek independent, professional advice, where
necessary, at NWM Plc’s expense.
3. Director Responsibilities
Policy & Framework
NatWest Group has in place a Corporate Governance
Framework, including a Corporate Governance Policy. All
directors of NWM Plc are required to ensure that they are
familiar with the Corporate Governance Framework and that
NWM Plc complies with it. NWM Plc also produces and maintains
a document called ‘Our Governance’ which sets out the high-
level governance framework for NWM Plc at both regional and
global levels.
The Board has a programme of seven scheduled meetings every
year. The Board ToRs include a formal schedule of matters
specifically reserved for the Board which are reviewed at least
annually. Each director has a role profile which clearly articulates
their responsibilities and accountabilities. Similarly, any additional
regulatory responsibilities and accountabilities where any of the
directors undertake a Senior Manager Function (as defined under
the Prudential Regulation Authority’s and Financial Conduct
Authority’s ‘Senior Manager Regimes’) are set out in their
Statement of Responsibilities.
To support them in the discharge of their duties, all directors
receive regular and timely information on all key aspects of the
business including financial performance, strategy, key risks, and
market conditions.
Conflicts of Interest
The Board follows NatWest Group’s guidance relating to
directors’ conflicts of interest.
The Board has the power to authorise any actual or potential
conflicts of interest in accordance with the Companies Act 2006
and NWM Plc’s Articles of Association. The company maintains a
register of directors’ interests and appointments and there is
discussion of directors’ conflicts in Board meetings, as required.
During the year, none of the directors declared any material
interest, directly or indirectly, in any contract of significance with
any company within NatWest Group.
All directors were reminded of their obligations in respect of
transacting in NWM Plc securities (Personal Account Dealing) and
all directors have confirmed that they have complied with their
obligations.
Report of the directors continued
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Annual Report and Accounts 2024
71
Board Committees
In order to provide effective oversight and leadership, the Board
has established a number of committees with particular
responsibilities:
The Audit Committee
comprises at least two independent non-
executive directors, one of whom is the Chair of the Board Risk
Committee. The Committee assists the Board in discharging its
responsibilities for monitoring the integrity of the financial
statements. It reviews the accounting policies, financial reporting
and regulatory compliance practices of NWM Plc, its system and
standards of internal controls, and monitors the processes for
internal audit and external audit.
The Board Risk Committee
comprises at least two independent
non-executive directors, one of whom is the Chair of the Audit
Committee and one of whom is a member of the NWM RemCo.
The Committee provides oversight and advice to the Board in
relation to current and potential future risk exposures and future
risk profile, including determination of risk appetite, the
effectiveness of the risk management framework and (in
conjunction with the Audit Committee) internal controls required
to manage risk. The Committee also reviews compliance with
NatWest Group Policy Framework and reviews the performance
of NWM Plc relative to risk appetite.
The Performance and Remuneration Committee (RemCo)
comprises at least four independent non-executive directors and
oversees the implementation of the Group-wide Remuneration
Policy within NWM. It also considers and makes
recommendations on remuneration arrangements for senior
executives of NWM Plc.
The Nominations Committee
comprises the Chair and at least
two other independent non-executive directors. It is responsible
for assisting the Board in the formal selection and appointment of
directors. It reviews the structure, size and composition of the
Board and membership and chairship of Board committees.
4. Opportunity and risk
The role of the Board is to promote the long-term success of
NWM Plc and the delivery of sustainable value to its shareholder.
The Board reviews and approves risk appetite for strategic and
material risks in accordance with NatWest Group’s risk appetite
framework; monitors performance against risk appetite for NWM
Plc; and considers any material risks and approves (as
appropriate) recommended actions escalated by the NWM Plc
Board Risk Committee.
NWM Plc’s risk strategy is informed and shaped by an
understanding of the risk landscape including a range of
significant risks and uncertainties in the external economic,
political and regulatory environments.
NWM Plc complies with NatWest Group’s risk appetite
framework, which is approved annually by the NWG plc Board, in
line with NatWest Group’s risk appetite statements, frameworks
and policies. NatWest Group risk appetite is set in line with overall
strategy.
NatWest Group operates an integrated risk management
framework, which is centred on the embedding of a strong risk
culture. The framework ensures the tools and capability are in
place to facilitate sound risk management and decision-making
across the organisation.
NWM Plc also complies with the NatWest Group Policy
Framework, the purpose of which is to ensure that NatWest
Group establishes and maintains NatWest Group-wide policies
that adequately address the risks inherent in its business
activities.
Further information on NWM Plc’s risk management framework
including risk culture, risk governance, risk appetite, risk controls
and limits, and risk identification and measurement can be found
in the Risk overview section of this report.
5. Remuneration
The NatWest Group Remuneration Policy provides a consistent
policy across all NatWest Group companies and ensures
compliance with regulatory requirements. The remuneration
policy is aligned with the business strategy, objectives, values and
long-term interests of the company. The policy supports a culture
where individuals are rewarded for delivering sustained
performance in line with risk appetite and for demonstrating the
right conduct and behaviours.
The Performance and Remuneration Committee (RemCo)
reviews remuneration for executives of the company and
considers reports on the wider workforce including annual pay
outcomes and diversity information. The RemCo helps to ensure
that the remuneration policies, procedures and practices being
applied are appropriate at NWM Plc level.
Executive remuneration structures incentivise individuals to
deliver sustainable performance based on strategic objectives for
NatWest Group and the relevant business area. Performance is
assessed against a balanced scorecard of financial and non-
financial measures and variable pay is subject to deferral as well
as malus and clawback provisions to ensure rewards are justified
in the long-term.
The approach to performance management provides clarity for
colleagues on how their contribution links to NatWest Group’s
purpose and colleagues are set goals across a balanced
scorecard of financial and non-financial measures. NatWest
Group continues to pay colleagues fairly for the work they do
supported by simple and transparent pay structures in line with
industry best practices. This clarity and certainty on how pay is
delivered is also helping to improve employees’ financial
wellbeing, which is a core priority in NatWest Group’s wellbeing
plans. In the UK, NatWest Group’s rates of pay continue to
exceed the Living Wage Foundation benchmarks and NatWest
Group ensure employees performing the same role are paid
fairly.
NatWest Group ensures colleagues have a common awareness
of the financial and economic factors affecting its performance
through quarterly ‘Results Explained’ communications and
Workplace Live events with the Group Chief Executive Officer
and Chief Financial Officer.
Further information on the remuneration policy, pay ratios and
employee share plans can be found in the Directors’
remuneration report (DRR) of the NatWest Group plc 2024
Annual Report and Account. Gender and Ethnicity Pay Gap
information can be found in the Strategic report section of the
NatWest Group plc 2024 Annual Report and Accounts along with
the steps being taken to build an inclusive and engaged
workforce.
Report of the directors continued
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Annual Report and Accounts 2024
72
6. Stakeholder relationships and engagement
NWM Plc is committed to managing the wider social,
environmental and economic impacts of its operations which
includes the way it deals with its customers and manages the
sustainability of its supply chain.
The Board recognises the importance of engaging with
stakeholders and discussions at Board meetings are focused
around the impact that NWM Plc’s activities may have on key
stakeholder groups. The Board reporting style has a specific
section focussing on the stakeholder impacts to support decision-
making.
For further details on the Board’s engagement with employees,
customers, suppliers and others, and how these stakeholders’
interests have influenced one of the Board’s principal decisions,
refer to pages 12 to 13 of the Strategic report.
Internal control over financial reporting
The internal controls over financial reporting for NWM Group are
consistent with those at NatWest Group level. NWM Group has
designed and assessed the effectiveness of its internal control
over financial reporting as of 31 December 2023 based on the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in the 2013 publication of ‘Internal
Control – Integrated Framework’. As part of the assessment,
management have considered the additional activities required
for its internal control over financial reporting during the year,
such as oversight on controls performed on NWM Group’s behalf,
to better reflect the size, scale and overall materiality of the
business profile compared to the NatWest Group framework. Any
deficiencies identified are reported to NWM Group Audit
Committee along with management’s remediation plans.
Directors’ interests
Where directors of NWM Plc are also directors of NWG plc, their
interests in the shares of the ultimate holding company at 31
December 2024 are shown in the Annual report on remuneration
section of the NatWest Group plc 2024 Annual Report and
Accounts.
None of the directors held an interest in the loan capital of the
ultimate holding company or in the shares or loan capital of NWM
Plc or any of its subsidiaries, during the period from 1 January
2024 to 13 February 2025.
Directors' indemnities
In terms of section 236 of the Companies Act 2006 (the
‘Companies Act’), Qualifying Third Party Indemnity Provisions
have been issued by the ultimate holding company to NWM Plc
directors, individuals authorised by the PRA/FCA and certain
directors and/or officers of NatWest Group’s subsidiaries and all
trustees of NatWest Group pension schemes.
Going concern
NWM Plc’s business activities and financial position, the factors
likely to affect its future development and performance and its
objectives and policies in managing the financial risks to which it
is exposed, and its capital are discussed in the Financial review.
The risk factors which could materially affect NWM Plc’s future
results are set out on pages 159 to 176. NWM Plc’s regulatory
capital resources and significant developments in 2024, and
anticipated future developments are detailed in the Capital,
liquidity and funding section on pages 33 to 38. This section also
describes NWM Plc’s funding and liquidity profile, including
changes in key metrics and the build-up of liquidity reserves.
Having reviewed NWM Plc’s principal risks, forecasts, projections
and other relevant evidence, the directors have a reasonable
expectation that NWM Plc will continue in operational existence
for a period of 12 months from the date of this report.
Accordingly, the financial statements of NWM Plc have been
prepared on a going concern basis.
Political donations
During 2024, no political donations were made in the UK or EU,
nor any political expenditure incurred in the UK or EU.
Directors’ disclosure to auditors
Each of the directors at the date of approval of this report
confirms that:
(a)
so far as the director is aware, there is no relevant audit
information of which NWM Plc’s auditors are unaware; and
(b)
the director has taken all the steps that they ought to have
taken as a director to make himself/herself aware of any
relevant audit information and to establish that NWM Plc’s
auditors are aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the Companies
Act.
Auditors
Ernst & Young LLP (EY LLP) are the auditors and have indicated
their willingness to continue in office. A resolution to re-appoint
EY LLP as NWM Plc’s auditors will be proposed at the
forthcoming NatWest Group Annual General Meeting.
PricewaterhouseCoopers LLP (PwC) will be appointed as auditors
from 2026.
External audit services will transition from EY LLP to
PwC for the 2026 year-end external audit.
PwC will shadow the
2025 year-end audit, which will be completed by EY LLP, and will
attend NWM Audit Committee meetings during 2025, as
appropriate.
By order of the Board
Sarah Beddows
Company Secretary
13 February 2025
NatWest Markets Plc
is registered in Scotland No. SC090312
Statement of directors’ responsibilities
NWM Group
Annual Report and Accounts 2024
73
This statement should be read in conjunction with the responsibilities of the auditor set out in their report on pages 75 to 82.
The directors are responsible for the preparation of the Annual Report and Accounts. The directors are required to prepare Group
financial statements, and as permitted by the Companies Act 2006 have elected to prepare company financial statements, for each
financial year in accordance with UK adopted International Accounting Standards, International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board and IFRS as adopted by the European Union. They are responsible for
preparing financial statements that present fairly the financial position, financial performance and cash flows of NWM Group and NWM
Plc. In preparing those financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable, relevant and reliable; and
state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in
the financial statements.
prepare the financial statements on a going concern basis unless it is inappropriate to presume that the company and Group will
continue in business
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of NWM Group and to enable them to ensure that the Annual Report and Accounts complies with the Companies Act 2006.
They are also responsible for safeguarding the assets of NWM Plc and NWM Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic report and Report of the directors,
that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and
financial information included on the company’s website.
The directors confirm that to the best of their knowledge:
the financial statements, prepared in accordance with UK adopted International Accounting Standards, IFRS as issued by the
International Accounting Standards Board and IFRS as adopted by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of NWM Plc and the undertakings included in the consolidation taken as a whole; and
the Strategic report and Report of the directors (incorporating the Financial review) includes a fair review of the development and
performance of the business and the position of NWM Plc and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they face.
By order of the Board
Anne Simpson
Jonathan Peberdy
Simon Lowe
Non-executive director
Chief Executive Officer
Chief Financial Officer
13 February 2025
Board of directors
Chair
Executive directors
Non-executive directors
Frank Dangeard
Jonathan Peberdy
Simon Lowe
Tamsin Rowe
Anne Simpson
Sabrina Wilson
Financial statements
NWM Group
Annual Report and Accounts 2024
74
Contents
Page
Independent auditor’s report
75
Consolidated income statement
83
Consolidated statement of comprehensive income
83
Balance sheet
84
Statement of changes in equity
85
Cash flow statement
87
Accounting policies
88
Notes to the accounts
1
Net interest income
94
2
Non-interest income
94
3
Operating expenses
95
4
Geographical segment analysis
96
5
Pensions
97
6
Auditor’s remuneration
101
7
Tax
101
8
Profit/loss dealt with in the accounts of NWM Plc
103
9
Financial instruments - classification
104
10
Financial instruments - valuation
108
11
Financial instruments - maturity analysis
121
12
Trading assets and liabilities
125
13
Derivatives
126
14
Loan impairment provisions
136
15
Other financial assets
137
16
Investment in group undertakings
138
17
Other assets
138
18
Other financial liabilities
138
19
Subordinated liabilities
139
20
Other liabilities
140
21
Share capital and reserves
141
22
Structured entities
142
23
Asset transfers
143
24
Capital resources
144
25
Memorandum items
145
26
Non-cash and other items
150
27
Analysis of changes in financing during the year
151
28
Analysis of cash and cash equivalents
151
29
Directors’ and key management remuneration
152
30
Transactions with directors and key management
152
31
Related parties
153
32
Ultimate holding company
155
33
Post balance sheet events
155
34
Related undertakings
156
Independent auditors’ report to the members of NatWest
Markets plc
NWM Group
Annual Report and Accounts 2024
75
Opinion
In our opinion:
The financial statements of NatWest Markets Plc (the ‘Bank’) and its subsidiaries (together, the ‘Group’) give a true and fair view of
the state of the Group’s and of the Bank’s affairs as at 31 December 2024 and of the Group’s profit for the year then ended;
The Group financial statements have been properly prepared in accordance with UK adopted International Accounting Standards
(‘IAS’) and International Financial Reporting Standards (‘IFRS’) as adopted by the European Union and IFRS as issued by the
International Accounting Standards Board (‘IASB’);
The Bank’s financial statements have been properly prepared in accordance with UK adopted International Accounting Standards
as applied in accordance with section 408 of the Companies Act 2006, and IFRS as issued by the IASB;
The financial statements of the Group have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements (see table below) of the Group and the Bank for the year ended 31 December 2024 which
comprise:
Group
Bank
Consolidated balance sheet as at 31 December 2024
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year then
ended
Consolidated statement of changes in equity for the year then ended
Consolidated cash flow statement for the year then ended
Related Notes 1 to 34 to the financial statements, including
accounting policy information; and
Risk and capital management sections identified as ‘audited’
Balance sheet as at 31 December 2024
Statement of changes in equity for the year then
ended
Cash flow statement for the year then ended
Related Notes 1 to 34 to the financial
statements, including accounting policy
information; and
Risk and capital management sections identified
as ‘audited’
The financial reporting framework that has been applied in their preparation is applicable law and UK adopted International Accounting
Standards and as regards to the Group financial statements, IFRS as adopted by the European Union and IFRS as issued by the IASB,
and as regards the Bank’s financial statements, as applied in accordance with section 408 of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group and the Bank in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Bank and we remain
independent of the Group and Bank in conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group and Bank’s ability to
continue to adopt the going concern basis of accounting included:
In conjunction with our walkthrough of the Group’s financial close process, we confirmed our understanding of the directors’ going
concern assessment process. We engaged with management to determine if key factors were considered in the assessment.
We evaluated the directors’ going concern assessment which included assessing their evaluation of business and strategic plans on
future capital adequacy, liquidity and funding positions of the Group and Bank. The assessment of these positions considered the
results of internal stress tests and other factors including non-financial risks.
We evaluated the directors’ going concern assessment by considering the Group and Bank’s ability to continue as a going concern
under different scenarios considering the current uncertain geopolitical and economic outlook.
We reviewed the Group’s going concern disclosures included in the Annual Report and Accounts in order to assess that the
disclosures were appropriate and in conformity with the reporting standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group and Bank’s ability to continue as a going concern for a period of
twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this
report.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s or
Bank’s ability to continue as a going concern.
Independent auditor’s report to the members of NatWest Markets Plc continued
NWM Group
Annual Report and Accounts 2024
76
Overview of our audit approach
Audit scope
We performed an audit of the complete financial information of two components, audit procedures on specific
balances for one component, specified procedures for one component, and a combination of specific and
specified procedures on Central functions. We performed central procedures for certain audit areas and
balances as outlined in the Tailoring the scope section of our report.
Key audit
matter
Valuation of financial instruments with higher risk characteristics
Provisions for litigation
IT systems and controls impacting financial reporting
Materiality
Overall Group and Bank materiality of £59m which represents 1% of shareholder’s equity of the Bank
adjusted for Additional Tier 1 instruments maturing in 2025 as disclosed in Note 21 Share capital and
reserves.
An overview of the scope of the Bank and Group audits
Tailoring the scope
In the current year our audit scoping has been updated to reflect the new requirements of ISA (UK) 600 (Revised). We have followed a
risk-based approach when developing our audit approach to obtain sufficient appropriate audit evidence on which to base our audit
opinion. We performed risk assessment procedures, with input from our component auditors, to identify and assess risks of material
misstatement of the Group financial statements and identified significant accounts and disclosures. When identifying components at
which audit work needed to be performed to respond to the identified risks of material misstatement of the Group financial statements,
we considered our understanding of the Group and its business environment, the potential impact of climate change, the applicable
financial framework, the Group’s system of internal control at the entity level, the existence of centralised processes, applications and
any relevant internal audit results.
The scoping for the current year is as follows:
Component
Scope
Key locations
NatWest Markets Plc
Full
United Kingdom, India, Poland and Singapore
NatWest Markets N.V.
Full
United Kingdom, India, Netherlands and Poland
NatWest Markets Securities Inc.
Specific
United States
NatWest Markets Securities Japan
Limited Central functions*
Specified procedures
Specific/specified
procedures
Japan
United Kingdom, India
*Central functions comprise EY functional component teams focused on the audit of specific balances and/or specified procedures including aspects of treasury, credit, operating costs, and
financial reporting processes across in scope legal entity components.
In addition to the scope of the Central functions above, we determined that centralised audit procedures can be performed across the
identified components in the following audit areas:
Key audit area on which procedures were performed centrally
Component subject to central procedures
Valuation of financial instruments of financial instruments with higher
risk characteristics
NatWest Markets Plc and NatWest Markets N.V.
Certain procedures relating to provisions for litigation
All components
IT systems and controls impacting financial reporting
All components
We identified two components as individually relevant to the Group due to materiality or financial size of the components relative to the
Group and significant risks being associated with the components.
For those individually relevant components, we identified the significant accounts where audit work needed to be performed at these
components by applying professional judgement, having considered the Group significant accounts on which centralised procedures
will be performed, the reasons for identifying the financial reporting component as an individually relevant component and the size of
the component’s account balance relative to the Group significant financial statement account balance.
We then considered whether the remaining Group significant account balances not yet subject to audit procedures, in aggregate, could
give rise to a risk of material misstatement of the Group financial statements. We selected two components of the group to include in
our audit scope to address this risk. In addition, the Central functions component teams assist in auditing specific balances across in
scope legal entity components.
Having identified the components for which work will be performed, we determined the scope to assign to each component.
Our scoping to address the risk of material misstatement for each key audit matter is included in the key audit matters section of our
report.
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Annual Report and Accounts 2024
77
The table below illustrates the coverage obtained from the work performed by our audit teams. We considered total assets, total
equity and total income to verify we had appropriate overall coverage.
Full scope
Specific scope
Specified
procedures
Total
Total assets
98%
1%
0%
99%
Total equity
96%
2%
>1%
100%
Total income (absolute)
76%
18%
>5%
100%
1 Full scope: audit procedures on all significant accounts
2 Specific scope: audit procedures on selected accounts.
3 Specified procedures: audit procedures as designed by the Group audit engagement team.
The audit scope of the specific scope components may not have included testing of all significant accounts within the components.
However, the testing will have contributed to the total coverage of significant accounts tested for the overall Group.
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the
components by us, as the Group audit engagement team, or by component auditors operating under our instruction.
The Group audit engagement team interacted regularly with the component audit teams, where appropriate, throughout the course of
the audit, which included holding planning meetings, maintaining regular communications on the status of the audit, reviewing key
working papers and taking responsibility for the scope and direction of the audit process. The Group audit engagement team
continued to follow a programme of virtual or in person oversight visits that have been designed to ensure that the Senior Statutory
Auditor, or another Group audit partner, has ongoing interactions with all in scope locations. During the current year’s audit cycle,
visits were undertaken by the Group audit engagement team to India and Poland. These visits involved meetings with local
management, discussions with our teams on the audit approach and significant issues arising from their work. The Group audit
engagement team interacted regularly with the component audit teams and maintained a continuous and open dialogue, as well as
holding formal closing meetings quarterly, to ensure that the Group audit engagement team were fully aware of their progress and
results of their procedures.
This, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group
financial statements.
Climate change
Stakeholders are increasingly interested in how climate change will impact the Group. NWM Group has determined that the most
significant future impacts from climate change on its operations will be from physical risk, transition risk and liability risk. These are
explained in the Climate and nature risk section within the Risk and capital management section in the Annual Report and Accounts,
which forms part of the “Other information,” rather than the audited financial statements. Our procedures on these unaudited
disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our
knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other
information”.
In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any
consequential material impact on its financial statements.
The Group has explained in the Accounting policies how they have reflected the impact of climate change in their financial statements
and the significant judgements and estimates relating to climate change. The Group notes that many of the effects arising from climate
change will be longer term in nature, with an inherent level of uncertainty, and have limited effect on accounting judgements and
estimates for the current period.
Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating the Group’s
assessment of the impact of climate risk, their climate commitments and the significant judgements disclosed in the Accounting
policies, and whether these have been appropriately reflected in forward looking accounting estimates following the requirements of
UK adopted International Accounting Standards, IFRS as adopted by the European Union and IFRS as issued by the IASB. As part of
this evaluation, we performed our own risk assessment to determine the risk of material misstatement in the financial statements from
climate change which needed to be considered in our audit.
We also evaluated the directors’ considerations of climate change risks in their assessment of going concern and associated
disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are described above.
Based on our work, whilst we have not identified the impact of climate change on the financial statements to be a standalone key
audit matter, we have considered the impact on the following key audit matter, valuation of financial instruments with higher risk
characteristics. Details of the impact, our procedures and findings are included in our explanation of the key audit matter below.
Independent auditor’s report to the members of NatWest Markets Plc continued
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Annual Report and Accounts 2024
78
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Our response to the risk
Valuation of financial instruments with higher risk characteristics
As at 31 December 2024 the Group held financial
instruments with higher risk characteristics. These
included, but are not limited to, reported level 3
assets of £1.1 billion (2023: £1.3 billion) and level 3
liabilities of £0.5 billion (2023: £0.7 billion) whose
value is dependent upon unobservable inputs. Refer
to the Accounting policies and Note 10 to the
financial statements.
The valuation of those financial instruments with
higher risk characteristics can include significant
judgement as outlined below. The fair value of these
instruments can involve complex valuation models
and significant fair value adjustments, both of which
may be reliant on inputs where there is limited
market observability.
Management’s estimates which required significant
judgement include:
Complex models
:
complex model-dependent
valuations of financial instruments, which
include interest rate swaps linked to pre-
payment behaviour and interest rate options
with exotic features;
Illiquid inputs:
Pricing inputs and calibrations for
illiquid instruments, including fair value loan
exposures for which there is no active market.
Additionally, derivative instruments whose
valuation is dependent on discount rates
associated with complex collateral
arrangements; and
Fair value adjustments
:
The appropriateness of
fair value adjustments made to derivative
valuations including Funding Valuation
Adjustments (FVA) and Credit Valuation
Adjustments (CVA) relating to counterparties
whose credit spread may not be observable,
and material product and deal specific
valuation adjustments on long dated derivative
portfolios
.
Controls testing:
We evaluated the design and operating effectiveness of controls relating to
financial instrument valuation including independent price verification,
valuation models governance, collateral management, income statement
analysis and the associated controls over relevant information technology
systems. We also observed the Valuation Committees where valuation
inputs, assumptions and adjustments were discussed and approved.
Overall assessment:
We involved our financial instrument valuation and
modelling specialists to assist us in performing procedures including the
following:
Complex models:
Testing a sample of complex model-dependent
valuations by performing independent revaluation to assess the
appropriateness of models and the adequacy of assumptions and inputs
used by the Group;
Illiquid inputs:
Independently re-pricing a sample of financial instruments
that had been valued using illiquid pricing inputs, using alternative
pricing sources where available, to evaluate management’s valuation;
and
Fair value adjustments:
Comparing fair value adjustment methodologies
to current market practice and assessing the appropriateness and
adequacy of the valuation adjustment framework in light of emerging
market practice and changes in the risk profile of the underlying
portfolio; and revaluing a sample of counterparty level FVA and CVA,
comparing funding spreads to third party data, independently
challenging illiquid CVA inputs, and testing material product and deal
specific adjustments on the long-dated derivatives portfolio.
Throughout our audit procedures we considered the current uncertain
geopolitical and economic outlook, including market volatility and the impact
of climate change on the valuation of financial instruments. We performed
analysis focusing on long-dated illiquid positions to understand if there were
indicators that pricing did not appropriately capture climate related risks.
In addition, we assessed whether there were any indicators of aggregate bias
in financial instrument marking and methodology assumptions.
We performed back-testing analysis of recent trade activity and asset
disposals to evaluate the drivers of significant differences between book value
and trade value to assess the impact on the fair value of similar instruments
within the portfolio. We performed an analysis of significant collateral
discrepancies with counterparties to assess the potential impact on the fair
value of the underlying (and similar) financial instruments.
How we scoped our audit to respond to the risk and involvement with component teams
We performed a risk assessment to identify financial instruments with higher risk of valuation characteristics. We performed
procedures centrally across all components for which this risk is relevant.
Key observations communicated to the Group Audit Committee
We are satisfied that the assumptions used by management to reflect the fair value of financial instruments with higher risk
characteristics are in accordance with IFRS. We highlighted the following to the Group Audit Committee:
Complex model-dependent valuations were appropriate based on the output of our independent revaluations, analysis of trade
activity, assessment of the output of the independent price verification process, inspection of collateral disagreements and peer
benchmarking;
The fair value estimates of financial instruments with illiquid inputs appropriately reflected pricing information available at 31
December 2024; and
Valuation adjustments applied to derivative portfolios for credit, funding and other risks were recorded in accordance with the
requirements of IFRS considering trade activity for positions with common risk characteristics, analysis of market data and peer
benchmarking.
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79
Risk
Our response to the risk
Provisions for litigation
At 31 December 2024, the Group has
reported £108 million (2023: £141 million) of
provisions for conduct, litigation and other
regulatory matters. Refer to the Accounting
policies and Notes 20 and 25 to the financial
statements.
Regulatory scrutiny and the continued
litigious environment give rise to a high level
of management judgement in determining
the appropriate provision for each case.
Management judgement is needed to
determine whether a present obligation
existed, and a provision should be recorded
as at 31 December 2024 in accordance
with the accounting criteria set out under
IAS 37.
We identified certain significant legal
matters where management’s estimates
required significant judgement including:
IAS 37 assessment
:
Determination of
whether an outflow in respect of these
legal matters is probable and can be
estimated reliably.
Controls testing
:
We evaluated the design and operating effectiveness of key
controls over the identification, estimation, monitoring and disclosure of provisions
whilst considering the potential for management override of controls. The controls
tested, among others, included those to identify and monitor claims, determine
when a provision is required and to ensure the completeness and accuracy of data
used to estimate provisions.
IAS 37 assessment: We examined relevant regulatory and legal correspondence to
assess developments in the significant legal matters identified. We understood and
assessed the provisioning methodology as well as testing the underlying data and
assumptions used in the determination of the provisions recorded for these matters.
We considered the accuracy of management’s historical estimates and considered
peer bank settlements in similar cases, where appropriate.
We conducted inquiries with internal legal counsel and obtained confirmations from
the Group’s external legal counsel to assist us in evaluating the existence of an
obligation and in assessing management’s estimate of potential outflow at year-end.
We assessed management’s conclusion by evaluating the underlying information
used in estimating the provisions including the consideration of alternate sources.
How we scoped our audit to respond to the risk and involvement with component teams
We performed a risk assessment to identify significant legal matters where management’s estimates required significant
judgement. We performed centralised procedures to address the risk and we instructed our NatWest Markets Securities Inc.
component team to perform certain additional procedures under our supervision.
Key observations communicated to the Group Audit Committee
We are satisfied that provisions for significant legal matters were reasonable and recognised in accordance with IAS 37.
Independent auditor’s report to the members of NatWest Markets Plc continued
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Risk
Our response to the risk
IT systems and controls impacting financial reporting
The IT environment is complex and pervasive to the
operations of the Group due to the large volume of
transactions processed in numerous locations daily,
with extensive reliance on automated controls.
Appropriate IT controls are required to ensure that
applications process data as expected and that
changes are made in an appropriate manner. This
risk is also impacted by the growing dependency on
third parties, increasing use of cloud platforms,
decommissioning of legacy systems, and migration
to new systems. Such controls contribute to
mitigating the risk of potential fraud or errors as a
result of changes to applications and data.
The Group has implemented user access
management controls across IT applications,
databases and operating systems. We continue to
identify user access-related deficiencies and thus
the risk of inappropriate access remains.
We evaluated the design and operating effectiveness of IT general controls,
including access over the applications, operating systems and databases
relevant to financial reporting.
We tested user access by assessing the controls in place for in-scope
applications, in particular testing the addition and periodic recertification of
users’ access. We continue to focus on key controls enforced by the
Group’s user access management tools, including ensuring the
completeness of user data, automated identification of movers and leavers
and the adequacy of the overall control environment in addressing access-
related IT risks to financial reporting. There have been no significant
changes in the suite of access management controls operated by the
Group in the current year.
For systems outsourced to third party service providers, we tested IT
general controls through evaluating the relevant Service Organisation
Controls (‘SOC’) reports (where available). This included assessing the
timing of the reporting, the controls tested by the service auditor and
whether they addressed relevant IT risks. We also tested required
complementary user entity controls performed by management. Where a
SOC report was not available, we identified and reviewed compensating
business controls to address risks to financial reporting.
Several systems
have been migrated to a cloud-hosted infrastructure model, however
access management processes and controls remained in-house, and they
formed part of our testing.
Where control deficiencies were identified, we tested remediation activities
performed by management and/or compensating controls in place and
assessed the impact, of any residual risk over financial statement reporting.
We also performed a further aggregation analysis of access management
deficiencies identified by EY, management, and Internal Audit to consider
the pervasiveness of findings identified, and the impact on our overall
approach to access management testing. We noted that no further
changes to our approach were required.
How we scoped our audit to respond to the risk and involvement with component teams
All audit work performed to address this risk was undertaken by the Group audit engagement team.
Key observations communicated to the Group Audit Committee
Based on our testing procedures, including validating management’s remediation activities and testing of compensating controls, we
are satisfied that reliance can be placed upon IT controls impacting material financial reporting systems. Where issues were noted in
relation to IT general controls, these were remediated by 31 December 2024 or mitigated by compensating controls.
In the prior year, our auditor’s report included a key audit matter in relation to Expected Credit Loss provisions (‘ECL’) under IFRS 9.
During the current year we reassessed this risk and concluded that it was no longer significant due to the ECL remaining below our
materiality, the historic low levels of default and an economic environment with lower inflation and interest rates.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group and Bank to be £59 million (2023: £63 million), which is 1% (2023: 1%) of shareholder’s equity
of the Bank adjusted for Additional Tier 1 instruments maturing in 2025 as disclosed in Note 21 Share capital and reserves.
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Performance materiality
The application of materiality at the individual account or balance level.
It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was
that performance materiality was 50% (2023: 50%) of our planning materiality, namely £29.5m (2023: £31.5m).
We have set
performance materiality at this percentage (which is at the lowest end of the acceptable range of our audit methodology) based on
various considerations including the past history of misstatements.
Audit work was undertaken at component locations for the purpose of responding to the assessed risks of material misstatement of
the Group financial statements. The performance materiality set for each component is based on the relative scale and risk of the
component to the Group as a whole and our assessment of the risk of misstatement at that component.
In the current year, the
range of performance materiality allocated to components was between £18m to £29.5m (2023: £16m to £31.5m).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Group Audit Committee that we would report to them all uncorrected audit differences in excess of £3m (2023:
£3m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the Annual Report and Accounts including the Strategic report, Financial
review, Risk and capital management sections not identified as ‘audited’, Report of the directors, Statement of directors’
responsibilities, Risk factors, Forward-looking statements and Non-IFRS financial measures, other than the financial statements and our
auditor’s report thereon.
The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to
a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic report and the Report of the directors for the financial year for which the financial statements
are prepared is consistent with the financial statements; and the Strategic report and Report of the directors have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Bank and its environment obtained in the course of the audit, we
have not identified material misstatements in the Strategic report or the Report of the directors.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:
adequate accounting records have not been kept by the Bank, or returns adequate for our audit have not been received from
branches not visited by us; or
the Bank financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the Statement of directors’ responsibilities, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group and Bank’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Bank or to cease operations, or have no realistic alternative but to do so.
Independent auditor’s report to the members of NatWest Markets Plc continued
NWM Group
Annual Report and Accounts 2024
82
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud.
The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion.
The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
Group and the Bank, and management.
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the
most significant are the regulations of the Prudential Regulation Authority, the Financial Conduct Authority and the Companies
Act 2006.
We understood how the Group is complying with those frameworks by making inquiries of management, Internal Audit and those
responsible for legal and compliance matters. We also reviewed correspondence between the Group and regulatory bodies;
reviewed minutes of the Board and other key committees; and gained an understanding of the Group’s governance framework.
We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by
considering the controls established to address risks identified to prevent or detect fraud. We also assessed the risks of fraud in
our key audit matters. Our procedures over our key audit matters and other significant accounting estimates included
challenging management on the assumptions made and judgements required in determining these estimates. Our procedures
also involved journal entry testing, with a focus on journals meeting our defined risk criteria based on our understanding of the
business.
We designed our audit procedures to identify non-compliance with laws and regulations. Our procedures involved inquiries of
legal counsel, management and Internal Audit. We also tested controls and performed procedures to respond to any financial
statement impacts of non-compliance with laws and regulations. These procedures were performed by both the Group audit
engagement team and component teams with oversight from the Group audit engagement team.
The Group operates in the banking industry which is a highly regulated environment. As such, the Senior Statutory Auditor
considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence and
capabilities, involving specialists where appropriate.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Other matters we are required to address
Following the recommendation from the NatWest Group Audit Committee we were appointed by NatWest Group Plc at its annual
general meeting on 4 May 2016 to audit the financial statements of the Group and the Bank for the year ended 31 December
2016 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is nine years, covering periods
from our appointment through 31 December 2024.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Bank and we remain
independent of the Group and the Bank in conducting the audit.
The audit opinion is consistent with the additional report to the Group Audit Committee.
Use of our report
This report is made solely to the Group’s and the Bank’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006.
Our audit work has been undertaken so that we might state to the Group’s and the Bank’s members those
matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Group and the Bank, and the Group’s and the Bank’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Manprit Dosanjh (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London, United Kingdom
13 February 2025
Consolidated income statement
For the year ended 31 December 2024
NWM Group
Annual Report and Accounts 2024
83
2024
2023
Note
£m
£m
Interest receivable
Interest payable
(2,288 )
(1,831 )
Net interest income
1
Fees and commissions receivable
Fees and commissions payable
(213 )
(175 )
Income from trading activities
Other operating income
(43 )
Non-interest income
2
Total income
Staff costs
(452 )
(418 )
Premises and equipment
(75 )
(66 )
Other administrative expenses
(671 )
(642 )
Depreciation and amortisation
(10 )
(16 )
Operating expenses
3
(1,208 )
(1,142 )
Profit/(loss) before impairment releases/losses
(73 )
Impairment releases/(losses)
14
(2 )
Operating profit/(loss) before tax
(75 )
Tax credit/(charge)
7
(23 )
Profit/(loss) for the year
(98 )
Attributable to:
Ordinary shareholders
(20 )
(168 )
Paid-in equity holders
Non-controlling interests
(98 )
Consolidated statement of comprehensive income
For the year ended 31 December 2024
2024
2023
£m
£m
Profit/(losses) for the year
(98 )
Items that do not qualify for reclassification
Remeasurement of retirement benefit schemes
(13 )
(113 )
Changes in fair value of credit in financial liabilities designated at FVTPL
(33 )
(39 )
FVOCI financial assets
Tax
(9 )
(103 )
Items that do qualify for reclassification
FVOCI financial assets
Cash flow hedges
(1)
(29 )
Currency translation
(14 )
(132 )
Tax
(48 )
(22 )
Other comprehensive loss after tax
(31 )
(100 )
Total comprehensive income/(loss) for the year
(198 )
Attributable to:
Ordinary shareholders
(50 )
(268 )
Paid-in equity holders
Non-controlling interests
(198 )
(1)
Refer to footnotes 3 and 4 of the statement of changes in equity.
Balance sheet
As at 31 December 2024
NWM Group
Annual Report and Accounts 2024
84
NWM Group
NWM Plc
2024
2023
2024
2023
Note
£m
£m
£m
£m
Assets
Cash and balances at central banks
9
11,069
8,607
Trading assets
12
26,186
28,411
Derivatives
13
74,982
75,832
Settlement balances
9
550
2,168
Loans to banks - amortised cost
9
897
910
Loans to customers - amortised cost
9
17,089
12,104
Amounts due from holding company and fellow subsidiaries
31
3,341
6,472
Other financial assets
15
16,081
13,444
Investments in group undertakings
16
2,263
2,320
Other assets
17
479
390
Total assets
152,937
150,658
Liabilities
Bank deposits
9
4,069
1,909
Customer deposits
9
2,350
3,060
Amounts due to holding company and fellow subsidiaries
31
10,757
14,385
Settlement balances
9
444
400
Trading liabilities
12
30,130
34,079
Derivatives
13
70,016
69,404
Other financial liabilities
18
27,966
20,655
Other liabilities
20
386
453
Total liabilities
146,118
144,345
Owners' equity
21
6,819
6,313
Non-controlling interests
(2 )
-
-
Total equity
6,819
6,313
Total liabilities and equity
152,937
150,658
Owners’ equity of NWM Plc as at 31 December 2024 includes the loss for the year of £33 million (2023 loss - £169 million).
Anne Simpson
Jonathan Peberdy
Simon Lowe
NatWest Markets Plc
Non-executive director
Chief Executive Officer
Chief Financial Officer
Statement of changes in equity
For the year ended 31 December 2024
NWM Group
Annual Report and Accounts 2024
85
NWM Group
NWM Plc
2024
2023
2024
2023
Note
£m
£m
£m
£m
Called-up share capital - at 1 January and 31 December
21
400
400
Paid-in equity - at 1 January
904
904
Issued
592
-
At 31 December
21
1,496
904
Share premium account - at 1 January and 31 December
1,946
1,946
Merger reserve - at 1 January
(14 )
-
-
Additions
(14 )
-
-
Amortisation
-
-
At 31 December
(11 )
(14 )
-
-
FVOCI reserve - at 1 January
-
(2)
Unrealised gains
14
6
Realised (gains)/losses
(5 )
(2)
-
Tax
(3 )
(4 )
(3)
(4)
At 31 December
9
-
Cash flow hedging reserve - at 1 January
(164 )
(294 )
(187)
(284)
Amount recognised in equity
(3)
(299 )
(29 )
(290)
(56)
Amount transferred from equity to earnings
(4)
257
201
Tax
(48 )
16
(48)
At 31 December
(177 )
(164 )
(204)
(187)
Foreign exchange reserve - at 1 January
(157)
(78)
Retranslation of net assets
(98 )
(143 )
(14)
(85)
Foreign currency gains/(losses) on hedges of net assets
(7)
5
Recycled to profit or loss on disposal of businesses
(8 )
36
1
At 31 December
(142)
(157)
Retained earnings - at 1 January
3,407
3,632
Profit/(loss) attributable to ordinary shareholders and other equity owners
(98 )
(33)
(169)
Paid-in equity dividends paid
(73 )
(70 )
(73)
(70)
Capital contribution
(2)
-
115
Realised gains/(losses) in period on FVOCI equity shares
- gross
(2 )
1
-
- tax
8
-
Remeasurement of the retirement benefit schemes
- gross
(13 )
(113 )
(13)
(113)
- tax
16
40
Changes in fair value of credit in financial liabilities designated at FVTPL
- gross
(33 )
(39 )
(8)
(16)
- tax
2
6
Share-based payments
- gross
(3 )
(14 )
(3)
(14)
- tax
(4 )
10
(4)
Amortisation of merger reserve
(3 )
-
-
At 31 December
3,314
3,407
Owners' equity at 31 December
6,819
6,313
Statement of changes in equity for the year ended 31 December 2024 continued
NWM Group
Annual Report and Accounts 2024
86
NWM Group
NWM Plc
2024
2023
2024
2023
Note
£m
£m
£m
£m
Non-controlling interests - at 1 January
(2 )
(2 )
-
-
Currency translation adjustments and other movements
(1 )
-
-
Profit attributable to non-controlling interests
-
-
Dividends paid
(7 )
-
-
At 31 December
(2 )
-
-
Total equity at 31 December
6,819
6,313
Attributable to:
Ordinary shareholders
5,323
5,409
Paid-in equity holders
1,496
904
Non-controlling interests
(2 )
-
-
6,819
6,313
(1)
The total distributable reserves for NWM Plc is £2,968 million (2023 – £3,063 million).
(2)
During H1 2023, NatWest Markets invoked a claim against the parent, NatWest Group plc, in respect of a legacy (non-trading) matter which was covered by an indemnity agreement.
This resulted in a capital contribution.
(3)
The change in the cash flow hedging reserve is driven by realised accrued interest transferred into the income statement and an increase in swap rates in the year. The portfolio of
hedging instruments are predominantly receive fixed swaps
(4)
As referred in Note 13, the amount transferred from equity to the income statement is mostly recorded within net interest income mainly within loans to banks and customers –
amortised cost and balances at central banks.
Cash flow statement
For the year ended 31 December 2024
NWM Group
Annual Report and Accounts 2024
87
NWM Group
NWM Plc
2024
2023
2024
2023
Note
£m
£m
£m
£m
Cash flows from operating activities
Operating profit/(loss) before tax
(75 )
(32)
(141)
Adjustments for:
Non-cash and other items
26
(104)
21
Changes in operating assets and liabilities
26
(226 )
(51)
(672)
Income taxes (paid)/received
(89 )
(81)
116
Net cash flows from operating activities
(1)
(135 )
(268)
(676)
Cash flows from investing activities
Sale and maturity of other financial assets
4,622
3,752
Purchase of other financial assets
(8,020 )
(9,253 )
(7,364)
(6,771)
Income received on other financial assets
882
573
Fair value given for businesses acquired
(27 )
-
-
Additional investment in associates
(1 )
(1)
-
Dividends received from subsidiaries
94
349
Sale of property, plant and equipment
-
1
Purchase of property, plant and equipment
(2 )
(3 )
(1)
-
Net cash flows from investing activities
(1,333 )
(3,251 )
(1,768)
(2,096)
Cash flows from financing activities
Issue of paid-in equity
592
-
Issue of subordinated liabilities
918
-
Redemption of subordinated liabilities
(814 )
(676 )
(814)
(595)
Interest paid on subordinated liabilities
(91 )
(71 )
(82)
(57)
Issue of MRELs
1,680
1,699
Maturity of MRELs
(433 )
(1,744 )
(433)
(1,744)
Interest paid on MRELs
(179 )
(175 )
(179)
(175)
Dividends paid
(80 )
(70 )
(73)
(70)
Capital Contribution
-
115
Net cash flows from financing activities
(922 )
1,609
(827)
Effects of exchange rate on cash and cash equivalents
(532 )
(526 )
(291)
(336)
Net decrease in cash and cash equivalents
(407 )
(1,885 )
(718)
(3,935)
Cash and cash equivalents at 1 January
16,988
20,923
Cash and cash equivalents at 31 December
28
16,270
16,988
(1)
NWM Group includes interest received of £2,658 million (2023 - £1,981 million) and interest paid of £2,233 million (2023 - £1,738 million), and NWM Plc includes interest received of
£2,397 million (2023 - £1,836 million) and interest paid of £2,056 million (2023 - £1,611 million).
NWM Group
Annual Report and Accounts 2024
88
registered in Scotland. The financial statements are presented in
the functional currency, pounds sterling.
The audited financial statements include these accounting
policies, the accompanying notes to the financial statements on
pages 94 to 157 and the audited sections of the Risk and capital
management section on pages 18 to 68 which together form an
integral part of the primary financial statements.
concern basis after assessing the principal risks, forecasts,
projections and other relevant evidence over the twelve months
from the date the financial statements are approved (see the
Report of the directors) and in accordance with UK -adopted
International Accounting Standards (IAS), International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), and IFRS as adopted by the
related judgements are set out below.
The financial statements are presented on a historical cost basis
except for certain financial instruments which are stated at fair
value.
The effect of the amendments to IFRS effective from 1 January
2024 on our financial statements was immaterial.
We have applied the exception from the accounting requirements
for deferred taxes in IAS 12 Income taxes in respect of Pillar 2
income taxes issued by the IASB in May 2023. Accordingly, we
have not recognised or disclosed information about deferred tax
assets and liabilities related to Pillar 2 income taxes.
NWM Plc and the entities it controls. Control arises when we
have the power to direct the activities of an entity so as to affect
the return from the entity. Control is assessed by reference to
our ability to enforce our will on the other entity, typically through
voting rights. The consolidated financial statements are prepared
A subsidiary is included in the consolidated financial statements
at fair value on acquisition from the date it is controlled by us
until the date we cease to control it through a sale or a
significant change in circumstances. Changes in our interest in a
subsidiary that do not result in us ceasing to control that
subsidiary are accounted for as equity transactions.
and estimates
Business planning
Key financial estimates are based on management's latest five-
year revenue and cost forecasts. The outputs from this forecast
affect forward-looking accounting estimates. Measurement of
deferred tax and expected credit losses are highly sensitive to
reasonably possible changes in those anticipated conditions. In
2024, our scenario planning was enhanced by the further
integration of NatWest Group’s climate transition plan, including
the assessment of climate-related risks and opportunities.
Our Climate transition plan includes an assessment of:
Changes in products, services and business operations
to support customer transition towards net zero.
Financial impacts of supporting customer transition,
including investment required. The linkage between our
financial plan and our Climate transition plan will
continue to be developed and refreshed annually as
part of the financial planning cycle.
The climate impact of policies, using the UK Climate
Change Committee (UK CCC) Balanced Net Zero (BNZ)
pathway scenario, aligned with the UK’s Sixth Carbon
Budget. In addition, we have used the credibility ratings
for sectoral policies provided by the UK CCC 2023
Progress Report, published in July, to the Parliament to
develop a BNZ adjusted pathway to reflect estimated
time delays of these policies.
There remains considerable uncertainty regarding this policy
response, including the effect of wider geo-political
uncertainty on governmental ambitions regarding climate
transition and the effect of decarbonisation on wider
economic growth, technology development and customer
behaviours.
Information used in other accounting estimates
We make use of reasonable and supportable information to make
accounting judgements and estimates. This includes information
about the observable effects of the physical and transition risks of
climate change on the current creditworthiness of borrowers,
asset values and market indicators. Many of the effects arising
from climate change will be longer term in nature, with an
inherent level of uncertainty, and have limited effect on
accounting judgements and estimates for the current period.
Some physical and transition risks can manifest in the shorter
term. The following items represent the most significant effects:
The classification of financial instruments linked to climate,
or other sustainability indicators. Consideration is given to
whether the effect of climate-related terms prevent the
instrument cashflows being solely payments of principal and
interest.
The use of market indicators as inputs to fair value is
assumed to include current information and knowledge
Accounting policies continued
NWM Group
Annual Report and Accounts 2024
89
2. Critical accounting policies
The judgements and assumptions involved in our accounting policies that are considered by the Board to be the most important to the
portrayal of our financial condition are noted below. The use of estimates, assumptions or models that differ from those adopted by us
would affect our reported results. Management’s consideration of uncertainty is outlined in the relevant sections, including the ECL
estimate in the Risk and capital management section.
Information used for significant estimate
Policy | Judgement | Estimate | Further information |
Deferred tax | Determination of whether sufficient | Our estimates are based on the | Note 7 |
sustainable taxable profits will be | five-year revenue and cost | ||
generated in future years to recover the | forecasts (which include inherent | ||
deferred tax asset. | uncertainties). | ||
Fair value – | Classification of a fair value instrument as | Estimation of the fair value, | Note 10 |
financial | level 3, where the valuation is driven by | where it is reasonably possible to | |
instruments | unobservable inputs. | have alternative assumptions in | |
determining the FV. | |||
Provisions for | Determination of whether a present | Provisions remain sensitive to the | Note 20 |
liabilities and | obligation exists in respect of customer | assumptions used in the estimate. | |
charges | redress, litigation and other regulatory, | We consider a wide range of | |
property and other provisions. | possible outcomes. It is often not | ||
Legal proceedings often require a high | practical to meaningfully quantify | ||
degree of judgement and these are likely | ranges of possible outcomes, | ||
to change as the matter progresses. | given the uncertainties involved. |
Changes in judgements and assumptions could result in a material adjustment to those estimates in future reporting periods.
Deferred tax is the estimated tax expected to be payable or
recoverable in respect of temporary differences between the
carrying amount of an asset or liability for accounting purposes
and the carrying amount for tax purposes in the future. Deferred
tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent
their recovery is probable.
Deferred tax is calculated using tax rates expected to apply in
the periods when the assets will be realised or the liabilities
settled, based on tax rates and laws enacted, or substantively
enacted, at the balance sheet date.
Deferred tax asset recoverability is based on the level of
supporting offsetable deferred tax liabilities we have and of our
future taxable profits. These future taxable profits are based on
our five-year revenue and cost forecasts and the expectation of
long-term economic growth beyond this period. The five-year
forecast takes account of management’s current expectations of
competitiveness and profitability. The long-term growth rate
reflects external indicators which will include market expectations
on climate risk. We do not consider any additional adjustments to
We measure financial instruments at fair value when they are
classified as mandatory fair value through profit or loss; held-for-
trading; designated fair value through profit or loss and fair value
through other comprehensive income and they are recognised in
the financial statements at fair value. All derivatives are
measured at fair value.
We manage some portfolios of financial assets and financial
liabilities based on our net exposure to either market or credit
risk. In these cases, the fair value is derived from the net risk
exposure of that portfolio with portfolio level adjustments applied
to incorporate bid-offer spreads, counterparty credit risk, and
funding costs (see ‘Valuation Adjustments’).
Where the market for a financial instrument is not active, fair
value is established using a valuation technique. These valuation
techniques involve a degree of estimation, the extent of which
depends on the instrument’s complexity and the availability of
market-based data. The complexity and uncertainty in the
financial instrument’s fair value is categorised using the fair value
hierarchy.
The use of market indicators as inputs to fair value is assumed to
include current information and knowledge regarding the effect
We recognise a provision for a present obligation resulting from a
past event when it is more likely than not that we will be required
to pay to settle the obligation and the amount of the obligation
can be estimated reliably.
Provision is made for restructuring costs, including the costs of
redundancy, when we have a constructive obligation. An
obligation exists when we have a detailed formal plan for the
restructuring and have raised a valid expectation in those
affected either by starting to implement the plan or by
announcing its main features.
We recognise any onerous cost of the present obligation under a
contract as a provision. An onerous cost is the unavoidable cost
of meeting our contractual obligations that exceed the expected
economic benefits. When we intend to vacate a leasehold
property or right of use asset, the asset would be tested for
impairment and a provision may be recognised for the ancillary
Accounting policies continued
NWM Group
Annual Report and Accounts 2024
90
Interest receivable and payable are recognised in the income
statement using the effective interest rate method for all financial
instruments measured at amortised cost; debt instruments
measured as fair value through other comprehensive income;
and the effective part of any related accounting hedging
instruments.
value is recognised as part of the movement in fair value and is
reported in income from trading activities or other operating
income as relevant. Fees in respect of customer services are
recognised as the right to consideration accrues through the
performance 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. The
price is usually fixed and always determinable. Fees in respect of
services to fellow subsidiaries reflect relative contribution
determined using a share of profits, and the most likely value is
recognised throughout the year taking account of whether a
Employee costs, such as salaries, paid absences, and other
benefits are recognised over the period in which the employees
provide the related services to us. Employees may receive
variable compensation in cash, in deferred cash or debt
instruments of NWM Group or in ordinary shares of NatWest
Group plc subject to deferral, clawback and forfeiture criteria. We
operate a number of share-based compensation schemes under
which we grant awards of NatWest Group plc shares and share
options to our employees. Such awards are subject to vesting
is charged to the income statement on a straight-line basis over
the period during which services are provided, taking account of
forfeiture and clawback criteria. The value of employee services
received in exchange for NatWest Group plc shares and share
options is recognised as an expense over the vesting period,
subject to deferral, clawback cancellation and forfeiture criteria
with a corresponding increase in equity. The fair value of shares
granted is the market price adjusted for the expected effect of
dividends as employees are not entitled to dividends until shares
are vested.
The fair value of options granted is determined using option
pricing models to estimate the numbers of shares likely to vest.
These consider the exercise price of the option, the current share
price, the risk-free interest rate, the expected volatility of the
share price over the life of the option and other relevant factors
such as the dividend yield.
Defined contribution pension scheme
A scheme where we pay fixed contributions and there is no legal
or constructive obligation to pay further contributions or benefits.
Contributions are recognised in the income statement as
employee service costs accrue.
Defined benefit pension scheme
A scheme that defines the benefit an employee will receive on
retirement and is dependent on one or more factors such as age,
salary, and years of service. The net of the recognisable scheme
assets and obligations is reported on the balance sheet in other
assets or other liabilities. The defined benefit obligation is
measured on an actuarial basis. The charge to the income
statement for pension costs (mainly the service cost and the net
interest on the net defined benefit asset or liability) is recognised
in operating expenses.
Actuarial gains and losses (i.e., gains and/or losses on re-
measuring the net defined benefit asset or liability
due to
changes in actuarial measurement assumptions) are recognised
in other comprehensive income in full in the period in which they
arise, and not subject to recycling to the income statement.
The difference between scheme assets and scheme liabilities, the
net defined benefit asset or liability, is recognised on the balance
sheet if the criteria of the asset ceiling test are met. This requires
the net defined benefit surplus to be limited to the present value
of any economic benefits available to us in the form of refunds
from the plan or reduced contributions to it.
We recognise a liability where a minimum funding requirement
exists for any of our defined benefit pension schemes. This
reflects agreed minimum funding and the availability of a net
surplus as described above. When estimating the liability for
minimum funding requirements we only include contributions that
are substantively or contractually agreed and do not include
contingent and discretionary features, including dividend-linked
contributions or contributions subject to contingent events
requiring future verification.
We recognise a net defined benefit asset when the net defined
benefit surplus can generate a benefit in the form of a refund or
reduction in future contributions to the plan. The net benefit
pension asset is recognised at the present value of the benefits
that will be available to us excluding interest and the effect of the
asset ceiling (if any), excluding interest. Changes in the present
value of the net benefit pension asset are recognised immediately
Foreign exchange differences arising on the settlement of foreign
currency transactions and from the translation of monetary
assets and liabilities are reported in income from trading activities
except for differences arising on cash flow hedges and hedges of
net investments in foreign operations.
Non-monetary items denominated in foreign currencies that are
stated at fair value are translated into the functional currency at
the foreign exchange rates ruling at the dates the values are
determined. Translation differences are recognised in the income
statement except for differences arising on non-monetary
financial assets classified as fair value through other
Income and expenses of foreign subsidiaries and branches are
translated into sterling at average exchange rates unless these
do not approximate the foreign exchange rates ruling at the
dates of the transactions. Foreign exchange differences arising
on the translation of a foreign operation are recognised in other
comprehensive income. The amount accumulated in equity is
reclassified from equity to the income statement on disposal of a
Tax encompassing current tax and deferred tax is recognised in
the income statement except when taxable items are recognised
in other comprehensive income or equity. Tax consequences
arising from servicing financial instruments classified as equity are
recognised in the income statement.
Accounting for taxes is judgemental and carries a degree of
uncertainty because tax law is subject to interpretation, which
might be questioned by the relevant tax authority. We recognise
the most likely current and deferred tax liability or asset,
assessed for uncertainty using consistent judgements and
estimates. Current and deferred tax assets are only recognised
where their recovery is deemed probable, and current and
deferred tax liabilities are recognised at the amount that
represents the best estimate of the probable outcome having
Accounting policies continued
3. Material accounting policies continued
NWM Group
Annual Report and Accounts 2024
91
Financial instruments are measured at fair value on initial
recognition on the balance sheet.
Monetary financial assets are classified into one of the following
subsequent measurement categories (subject to business model
assessment and review of contractual cash flow for the purposes
amortised cost
measured at cost using the effective interest
rate method, less any impairment allowance;
fair value through other comprehensive income (FVOCI)
measured at fair value, using the effective interest rate
method and changes in fair value through other
comprehensive income;
mandatory fair value through profit or loss (MFVTPL)
measured at fair value and changes in fair value reported in
the income statement; or
designated at fair value through profit or loss (DFV)
measured
at fair value and changes in fair value reported in the income
statement.
Classification by business model reflects how we manage our
financial assets to generate cash flows. A business model
assessment helps to ascertain the measurement approach
depending on whether cash flows result from holding financial
assets to collect the contractual cash flows, from selling those
financial assets, or both.
Business model assessment of assets is made at portfolio level,
being the level at which they are managed to achieve a
predefined business objective. This is expected to result in the
most consistent classification of assets because it aligns with the
stated objectives for the portfolio, its risk management,
manager’s remuneration and the ability to monitor sales of assets
from a portfolio. When a significant change to our business is
communicated to external parties, we reassess our business
model for managing those financial assets. We reclassify financial
assets if we have a significant change to the business model. A
reclassification is applied prospectively from the reclassification
prepayment and extension terms; and discounts or penalties to
interest rates that are part of meeting environmental, social and
governance targets as well as other contingent and leverage
features, non-recourse arrangements and features that could
modify the timing and/or amount of the contractual cash flows
that might reset the effective rate of interest; are considered in
determining whether cash flows are solely payments of principal
and interest.
Certain financial assets may be designated at fair value through
profit or loss (DFV) upon initial recognition if such designation
eliminates, or significantly reduces, accounting mismatch
Equity shares are measured at fair value through profit or loss
unless specifically elected as at fair value through other
comprehensive income (FVOCI).
Upon disposal, the cumulative gains or losses in fair value
through other comprehensive income reserve are recycled to the
income statement for monetary assets and for non-monetary
assets (equity shares) the cumulative gains or losses are
transferred directly to retained earnings.
amortised cost are recognised on the settlement date; all other
regular way transactions in financial assets are recognised on the
amortised cost
measured at cost using the effective interest
rate method;
held for trading
measured at fair value and changes in fair
value reported in income statement; or
designated at fair value through profit or loss
measured at
fair value and changes in fair value reported in the income
statement except changes in fair value attributable to the
credit risk component recognised in other comprehensive
Under a financial guarantee contract, we, in return for a fee,
undertake to meet a customer’s obligations under the terms of a
debt instrument if the customer fails to do so. A financial
guarantee not designated as fair value through profit or loss is
recognised as a liability; initially at fair value and subsequently at
the higher of its initial value less cumulative amortisation and any
provision under the contract measured in accordance with our
ECL accounting policy. Amortisation is calculated to recognise
fees receivable in the income statement over the period of the
guarantee. A separate asset is recognised in respect of fees
Financial assets and financial liabilities are offset, and the net
amount presented on the balance sheet when, and only when,
we currently have a legally enforceable right to set off the
recognised amounts and we intend either to settle on a net basis
or to realise the asset and settle the liability simultaneously. We
are party to a number of arrangements, including master netting
agreements, that give us the right to offset financial assets and
financial liabilities, but where we do not intend to settle the
amounts net or simultaneously, the assets and liabilities
We classify a financial instrument that we issue as a liability if it is
a contractual obligation to deliver cash or another financial asset,
or to exchange financial assets or financial liabilities on potentially
unfavourable terms and as equity if we evidence a residual
interest in our assets after the deduction of liabilities. Incremental
costs and related tax that are directly attributable to an equity
Derivatives are reported on the balance sheet at fair value.
We use derivatives as part of our trading activities, to manage
our own risk such as interest rate, foreign exchange, or credit
risk or in certain customer transactions. Not all derivatives used
to manage risk are in hedge accounting relationships (an IFRS
method to reduce accounting mismatch from changes in the fair
value of derivatives reported in the income statement).
Gains and losses arising from changes in the fair value of
derivatives that are not in hedge relationships are recognised in
Income from trading activities unless those derivatives are
managed together with financial instruments designated at fair
value; these gains and losses are included in Other operating
income.
Hedge accounting relationships are designated and documented
at inception in line with the requirements of IAS 39 Financial
instruments – Recognition and Measurement. The documentation
identifies the hedged item, the hedging instrument and details of
the risk that is being hedged and the way in which effectiveness
will be assessed at inception and during the period of the hedge.
Accounting policies continued
3. Material accounting policies continued
NWM Group
Annual Report and Accounts 2024
92
When designating a hedging relationship, we consider: the
economic relationship between the hedged item (including the
risk being hedged) and the hedging instrument; the nature of the
risk; the risk management objective and strategy for undertaking
the hedge; and the appropriateness of the method that will be
used to assess hedge effectiveness.
Designated hedging relationships must be expected to be highly
effective both on a prospective and retrospective basis. This is
assessed using regression techniques which model the degree of
offsetting between the changes in fair value or cash flows
attributable to the hedged risk and the changes in fair value of
the designated hedging derivatives. Ineffectiveness is measured
based on actual levels of offsetting and recognised in the income
statement.
We enter into three types of hedge accounting relationships.
Fair value hedge
The gain or loss on the hedging instrument and the hedged item
attributable to the hedged risk is recognised in the income
statement. Where the hedged item is measured at amortised
cost, the balance sheet amount of the hedged item is also
adjusted.
Cash flow hedge
The effective portion of the designated hedge relationship is
recognised in other comprehensive income and the ineffective
portion in the income statement. When the hedged item
(forecasted cash flows) results in the recognition of a financial
asset or financial liability, the cumulative gain or loss is
reclassified from equity to the income statement in the same
periods in which the hedged forecasted cash flows affect the
income statement.
Hedge of net investment in a foreign operation
In the hedge of a net investment in a foreign operation, the
effective portion of the designated hedge relationship is
recognised in other comprehensive income. Any ineffective
portion is recognised in profit or loss. Non-derivative financial
liabilities as well as derivatives may be designated as a hedging
instrument in a net investment hedge.
Discontinuation of hedge accounting
Hedge accounting is discontinued if the hedge no longer meets
the criteria for hedge accounting
i.e. the hedge is not highly
effective in offsetting changes in fair value or cash flows
attributable to the hedged risk, consistent with the documented
risk management strategy; the hedging instrument expires or is
sold, terminated or exercised; or if hedge designation is revoked.
For fair value hedging any cumulative adjustment is amortised to
the income statement over the life of the hedged item. Where the
hedged item is no longer on the balance sheet the adjustment to
the hedged item is reported in the income statement.
For cash flow hedging the cumulative unrealised gain or loss is
reclassified from equity to the income statement when the
hedged cash flows occur or, if the forecast transaction results in
the recognition of a financial asset or financial liability, when the
hedged forecast cash flows affect the income statement. Where
a forecast transaction is no longer expected to occur, the
cumulative unrealised gain or loss is reclassified from equity to
the income statement immediately.
For net investment hedging on disposal or partial disposal of a
foreign operation, the amount accumulated in equity is
Our investments in Group undertakings (subsidiaries) are stated
losses (ECL)
At each balance sheet date each financial asset or portfolio of
financial assets measured at amortised cost or at fair value
through other comprehensive income, issued financial guarantee
and loan commitment (other than those classified as held for
trading) is assessed for impairment. Any change in impairment is
reported in the income statement.
Loss allowances are forward-looking, based on 12-month ECL
where there has not been a significant increase in credit risk
rating, otherwise allowances are based on lifetime expected
losses.
ECL is a probability-weighted estimate of credit losses. The
probability is determined by the risk of default which is applied to
the cash flow estimates. In the absence of a change in credit
rating, allowances are recognised when there is a reduction in
the net present value of expected cash flows.
Following a
significant increase in credit risk, ECL is adjusted from 12 months
to lifetime. This will lead to a higher impairment charge.
The measurement of expected credit loss considers the ability of
borrowers to make payments as they fall due. Future cashflows
are discounted, so long-dated cashflows are less likely to affect
current expectations on credit loss. Our assessment of sector-
specific risks, and whether additional adjustments are required,
includes expectations on the ability of those sectors to meet their
financing needs in the market.
Changes in credit stewardship and credit risk appetite that stem
from climate transition policies may directly affect our positions.
Judgement is exercised as follows:
Non-modelled portfolios
- use a standardised capital
requirement under Basel II. Under IFRS 9, they have bespoke
treatments for the identification of significant increase in
credit risk. Benchmark PDs, EADs and LGDs are reviewed
annually for appropriateness. The ECL calculation is based on
expected future cash flows, which is typically applied at a
portfolio level.
Multiple economic scenarios (MES)
– the central, or base,
scenario is most critical to the ECL calculation, independent
of the method used to generate a range of alternative
outcomes and their probabilities.
Significant increase in credit risk
- IFRS 9 requires that at
each reporting date, an entity shall assess whether the credit
risk on an account has increased significantly since initial
recognition. Part of this assessment requires a comparison to
be made between the current lifetime PD (i.e. the current
probability of default over the remaining lifetime) with the
equivalent lifetime PD as determined at the date of initial
recognition.
On restructuring where a financial asset is not derecognised, the
revised cash flows are used in re-estimating the credit loss.
Where restructuring causes derecognition of the original financial
asset, the fair value of the replacement asset is used as the
closing cash flow of the original asset.
Where, in the course of the orderly realisation of a loan, it is
exchanged for equity shares or property, the exchange is
accounted for as the sale of the loan and the acquisition of equity
securities or investment property. Where our acquired interest is
in equity shares, relevant policies for control, associates and joint
Accounting policies continued
3. Material accounting policies continued
NWM Group
Annual Report and Accounts 2024
93
Impaired financial assets are written off and therefore
derecognised from the balance sheet when we conclude that
there is no longer any realistic prospect of recovery of part, or
all, of the loan. For financial assets that are individually assessed
for impairment, the timing of the write-off is determined on a
case-by-case basis. Such financial assets are reviewed regularly,
and write-off will be prompted by bankruptcy, insolvency, re-
negotiation, and similar events.
Uncollateralised impaired business loans
are generally written off
within five years.
International Financial Reporting Standards
Effective 1 January 2026
Amendments to the Classification and Measurement of
Financial Instruments (Amendments to IFRS 9 and IFRS 7 –
Issued May 2024)
Effective 1 January 2027
Presentation and Disclosures in Financial Statements (IFRS 18
– Issued April 2024)
Subsidiaries without Public Accountability (IFRS 19 – Issued
May 2024)
We are assessing the effect of adopting these accounting
NWM Group
Annual Report and Accounts 2024
94
Notes to the consolidated financial statements
2024 | 2023 | |
£m | £m | |
Balances at central banks and loans to banks - amortised cost | 640 | 759 |
Loans to customers - amortised cost | 1,005 | 672 |
Amounts due from holding company and fellow subsidiaries | 9 | 30 |
Other financial assets | 1,066 | 725 |
Interest receivable | 2,720 | 2,186 |
Bank deposits | 163 | 120 |
Customer deposits | 302 | 312 |
Amounts due to holding company and fellow subsidiaries | 369 | 319 |
Other financial liabilities | 1,454 | 1,080 |
Interest payable | 2,288 | 1,831 |
Net interest income | 432 | 355 |
Interest income on financial instruments measured at amortised cost and debt instruments classified as FVOCI is measured using the
effective interest rate method, which allocates the interest income or interest expense over the expected life of the asset or liability at
the rate that exactly discounts all estimated future cash flows to equal the instrument's initial carrying amount. Calculation of the
effective interest rate takes into account fees payable or receivable that are an integral part of the instrument's yield, premiums or
discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are
considered when estimating future cash flows.
2024 | 2023 | |
Analysis of net fees and commissions | £m | £m |
Fees and commissions receivable | ||
- Lending and financing | 118 | 91 |
- Brokerage | 45 | 42 |
- Underwriting fees | 154 | 122 |
- Other | 159 | 122 |
Total | 476 | 377 |
Fees and commissions payable | (213) | (175) |
Net fees and commissions | 263 | 202 |
Income from trading activities | ||
Foreign exchange | 204 | 166 |
Interest rate | 542 | 385 |
Credit | (152) | (72) |
Changes in fair value of own debt and derivative liabilities attributable to own credit risk | ||
- debt securities in issue and derivative liabilities | (9) | (2) |
585 | 477 | |
Other operating income | ||
Loss on redemption of own debt | - | (14) |
Changes in fair value of financial assets and liabilities designated at fair value through profit or loss (1) | (132) | (154) |
Dividend income | 9 | 5 |
Foreign exchange recycling (losses)/gains (2) | (70) | 8 |
Other income (3) | 150 | 190 |
(43) | 35 | |
Total | 805 | 714 |
(1)
Includes related derivatives.
(2)
Foreign exchange reserves recycling relating to legacy overseas operations closure activity completed during the year.
(3)
Other income includes a profit share agreement with fellow NatWest Group subsidiaries that commenced in 2023. The profit share arrangement was introduced during the year to
reward NWM Group on an arm’s length basis for its contribution to the performance of the NatWest Group Commercial & Institutional business segment, 2023 being the first full year
with the Commercial & Institutional segment in place.
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
95
2024 | 2023 | |
£m | £m | |
Wages, salaries and other staff costs | 289 | 264 |
Temporary and contract costs | 11 | 7 |
Social security costs | 43 | 40 |
Bonus awards | 105 | 93 |
Pension costs | 4 | 14 |
- defined benefit schemes (see Note 5) | (19) | (6) |
- defined contribution schemes | 23 | 20 |
Staff costs | 452 | 418 |
Premises and equipment | 75 | 66 |
Depreciation and amortisation | 10 | 16 |
Other administrative expenses (1,2) | 671 | 642 |
Administrative expenses | 756 | 724 |
1,208 | 1,142 |
(1)
Includes £543 million (2023 - £540 million) recharges from other NatWest Group entities, mainly NWB Plc which provides the majority of shared services (including technology) and
operational processes.
(2)
Includes litigation and other regulatory costs. Further details are provided in Note 20.
For accounting policy information refer to Accounting policy 3.2.
The average number of persons employed, rounded to the nearest hundred, during the year, excluding temporary staff, was 1,700
(2023 – 1,600). The number of persons employed by NWM Group at 31 December 2024, excluding temporary staff, was as follows:
2024 | 2023 | |
UK | 1,000 | 900 |
USA | 300 | 300 |
Rest of the World | 400 | 500 |
Total | 1,700 | 1,700 |
Bonus awards
The following tables analyse NWM Group's bonus awards.
2024 | 2023 | Change | |
£m | £m | % | |
March awards (1) | 4 | 3 | 33% |
Deferred cash awards | 82 | 67 | 22% |
Deferred share awards | 29 | 23 | 26% |
Total deferred bonus awards | 111 | 90 | 23% |
Total bonus awards (2) | 115 | 93 | 24% |
2024 | 2023 | |
Reconciliation of bonus awards to income statement charge | £m | £m |
Bonuses awarded | 115 | 93 |
Less: deferral of charge for amounts awarded for current year | (44) | (35) |
Income statement charge for amounts awarded in current year | 71 | 58 |
Add: current year charge for amounts deferred from prior years | 35 | 36 |
Less: forfeiture of amounts deferred from prior years | (1) | (1) |
Income statement charge for amounts deferred from prior years | 34 | 35 |
Income statement charge for bonus awards (2) | 105 | 93 |
(1)
March cash awards are limited to £2000 for all employees.
(2)
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
96
The geographical analysis in the tables below has been compiled on the basis of location of office where the transactions are recorded.
UK |
USA |
Europe |
RoW |
Total |
|
2024 |
£m |
£m |
£m |
£m |
£m |
Total revenue |
2,725 |
297 |
625 |
91 |
3,738 |
Interest receivable |
2,238 |
32 |
438 |
12 |
2,720 |
Interest payable |
(1,900) |
(63) |
(323) |
(2) |
(2,288) |
Fees and commissions receivable |
73 |
134 |
213 |
56 |
476 |
Fees and commissions payable |
(161) |
(26) |
(25) |
(1) |
(213) |
Income from trading activities |
414 |
135 |
13 |
23 |
585 |
Other operating income |
- |
(4) |
(39) |
- |
(43) |
Total income |
664 |
208 |
277 |
88 |
1,237 |
Operating (loss)/profit before tax |
(195) |
75 |
112 |
45 |
37 |
Total assets |
123,458 |
25,793 |
32,984 |
931 |
183,166 |
Total liabilities |
128,675 |
23,495 |
23,449 |
618 |
176,237 |
Contingent liabilities and commitments (1) |
8,356 |
- |
6,453 |
1 |
14,810 |
2023 |
|||||
Total revenue |
2,273 |
167 |
545 |
90 |
3,075 |
Interest receivable |
1,729 |
39 |
406 |
12 |
2,186 |
Interest payable |
(1,548) |
(1) |
(280) |
(2) |
(1,831) |
Fees and commissions receivable |
68 |
72 |
180 |
57 |
377 |
Fees and commissions payable |
(133) |
(22) |
(20) |
- |
(175) |
Income from trading activities |
394 |
66 |
(2) |
19 |
477 |
Other operating income |
82 |
(10) |
(39) |
2 |
35 |
Total income |
592 |
144 |
245 |
88 |
1,069 |
Operating (loss)/profit before tax |
(235) |
44 |
91 |
25 |
(75) |
Total assets |
119,783 |
23,724 |
32,539 |
1,871 |
177,917 |
Total liabilities |
125,058 |
22,106 |
22,853 |
1,522 |
171,539 |
Contingent liabilities and commitments (1) |
8,855 |
- |
6,744 |
21 |
15,620 |
(1)
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
97
Defined contribution schemes
NWM Group sponsors a number of defined contribution pension
schemes in different territories, which new employees are offered
the opportunity to join.
Defined benefit schemes
NWM Group sponsors a number of pension schemes in the UK
and overseas, including the AA and NatWest Markets (NWM)
sections of the NatWest Group Pension Fund which operate
under UK trust law and are managed and administered on behalf
of their members in accordance with the terms of the trust deed,
the scheme rules and UK legislation.
Pension fund trustees are appointed to operate each fund and
ensure benefits are paid in accordance with the scheme rules
and national law. The trustees are the legal owner of a scheme’s
assets and have a duty to act in the best interests of all scheme
members.
The schemes generally provide a pension of one-sixtieth of final
pensionable salary for each year of service prior to retirement up
to a maximum of 40 years and are contributory for current
members. These have been closed to new entrants for over ten
years, although active members continue to build up additional
pension benefits, currently subject to 2% maximum annual salary
inflation, while they remain employed by NWM Group.
The corporate trustee is NatWest Pension Trustee Limited (the
Trustee), a wholly owned subsidiary of NWB Plc. The Board of
the Trustee includes member trustee directors selected from
eligible active staff, deferred and pensioner members who apply
and trustee directors appointed by NatWest Group. Under UK
legislation, a defined benefit pension scheme is required to meet
the statutory funding objective of having sufficient and
appropriate assets to cover its liabilities (the pensions that have
been promised to members).
Investment strategy
The assets of the AA section represent 79% of all plan assets at
31 December 2024 (2023 – 79% of plan assets) and are invested
as shown below.
During 2023, the Trustee completed a buy-in insurance
transaction for the AA section covering 99% of the section’s
defined benefit obligation. In exchange for an upfront premium
paid to the insurer, the buy-in insurance contract provides a
stream of cashflows to the Trustee replicating payments due to
members.
The premium was determined by the insurer using its pricing
basis. Under IAS 19, the value placed on this asset mirrors the
valuation of the defined benefit obligations covered, incorporating
an assessment of credit risk. The value of the buy-in insurance
contract moves in line with movements in the defined benefit
obligations covered, meaning that the scheme is protected
against demographic and market risk.
The NWM section employs physical, derivative and non-derivative
instruments to achieve a desired asset class exposure and to
reduce the scheme’s interest rate, inflation and currency risk.
This means that the net funding position is considerably less
sensitive to changes in market conditions than the value of the
assets or liabilities in isolation.
In particular, the Trustee hedges
movements in interest rates and inflation.
Swaps have been executed at prevailing market rates and within
standard market bid/offer spreads with a number of
counterparty banks, including NWB Plc.
| 2024 |
2023 |
|||||
Major classes of plan assets as a percentage of total plan assets |
Quoted |
Unquoted |
Total |
Quoted |
Unquoted |
Total |
of the AA section |
% |
% |
% |
% |
% |
% |
Corporate and other bonds |
1.6 |
1.9 |
3.5 |
1.6 |
2.7 |
4.3 |
Buy-in insurance contracts |
- |
77.5 |
77.5 |
- |
79.4 |
79.4 |
Cash and other assets |
- |
19.0 |
19.0 |
- |
16.3 |
16.3 |
1.6 |
98.4 |
100.0 |
1.6 |
98.4 |
100.0 |
|
Notes to the consolidated financial statements continued
5 Pensions continued
NWM Group
Annual Report and Accounts 2024
98
The schemes do not invest directly in NWM Group but can have exposure to NWM Group. The trustees are responsible for ensuring
that indirect investments in NWM Group do not exceed the 5% regulatory limit.
| AA section | All schemes (3) | ||||||
Present | Present | ||||||
Fair | value of | Net | Fair | value of | Asset | Net | |
value of | defined | pension | value of | defined | ceiling/ | pension | |
plan | benefit | asset/ | plan | benefit | minimum | asset/ | |
assets | obligation (1) | (liability) | assets | obligation (1) | funding (2) | (liability) | |
Changes in value of net pension asset/(liability) | £m | £m | £m | £m | £m | £m | £m |
At 1 January 2023 | 766 | (531) | 235 | 940 | (693) | (69) | 178 |
Currency translation and other adjustments | - | - | - | - | 3 | - | 3 |
Income statement - operating expenses | 38 | (27) | 11 | 47 | (38) | (3) | 6 |
Other comprehensive income | (88) | (21) | (109) | (95) | (25) | 7 | (113) |
Contributions by employer | 3 | - | 3 | 9 | - | - | 9 |
Benefits paid | (28) | 28 | - | (31) | 31 | - | - |
Assets and liabilities extinguished on settlements | - | - | - | - | - | - | - |
Transfers to/from fellow subsidiaries | - | - | - | - | - | - | - |
At 1 January 2024 | 691 | (551) | 140 | 870 | (722) | (65) | 83 |
Currency translation and other adjustments | - | - | - | - | - | - | - |
Income statement - operating expenses | |||||||
Net interest expense | 32 | (26) | 6 | 41 | (33) | (3) | 5 |
Gain on curtailments | - | - | - | - | 17 | - | 17 |
Current service cost | - | (1) | (1) | - | (3) | - | (3) |
32 | (27) | 5 | 41 | (19) | (3) | 19 | |
Other comprehensive income | |||||||
Return on plan assets excluding recognised interest income | (58) | - | (58) | (83) | - | - | (83) |
Experience gains and losses | - | 5 | 5 | - | (9) | - | (9) |
Effect of changes in actuarial financial assumptions | - | 40 | 40 | - | 51 | - | 51 |
Effect of changes in demographic assumptions | - | 6 | 6 | - | 7 | - | 7 |
Asset ceiling adjustments | - | - | - | - | - | 21 | 21 |
(58) | 51 | (7) | (83) | 49 | 21 | (13) | |
Contributions by employer (5) | 3 | - | 3 | 8 | - | - | 8 |
Benefits paid | (26) | 26 | - | (26) | 36 | - | 10 |
Transfers to/from fellow subsidiaries | - | - | - | (1) | 1 | - | - |
At 31 December 2024 (4) | 642 | (501) | 141 | 809 | (655) | (47) | 107 |
(1)
Defined benefit obligations are subject to annual valuation by independent actuaries.
(2)
In recognising the net surplus or deficit of a pension scheme, the funded status of each scheme is adjusted to reflect any minimum funding requirement imposed on the sponsor and any
ceiling on the amount that the sponsor has an unconditional right to recover from a scheme.
(3)
Includes the NWM Section which has a net pension asset of £nil at 31 December 2024 (2023 - net pension asset of £nil). This scheme has plan assets of £149 million, a defined benefit
obligation of £101 million and an asset ceiling of £48 million (2023 - £162 million, £96 million and £66 million respectively).
(4)
During 2024, the Court of Appeal upheld the initial High Court ruling in respect of Virgin Media v NTL Pension Trustees II Limited (and others), calling into question the validity of rule
amendments made between 1997 and 2016. In 2023, a selection of amendments from the relevant period judged as material, were reviewed. While uncertainties remain, the review
indicated the risk of a change in the defined benefit obligation (DBO) was remote, so no adjustment was made to the DBO value. This position is unchanged at year end.
(5)
NWM Group expects to make contributions to the AA section of £1 million and to the NWM section of £1 million in 2025.
All schemes | ||
2024 | 2023 | |
Amounts recognised on the balance sheet | £m | £m |
Fund asset at fair value | 809 | 870 |
Present value of fund liabilities | (655) | (722) |
Funded status | 154 | 148 |
Assets ceiling/minimum funding | (47) | (65) |
107 | 83 | |
2024 | 2023 | |
Net pension asset/(liability) comprises | £m | £m |
Net assets of schemes in surplus (included in Other assets, Note 17) | 146 | 145 |
Net liabilities of schemes in deficit (included in Other liabilities, Note 20) | (39) | (62) |
107 | 83 |
Notes to the consolidated financial statements continued
5 Pensions continued
NWM Group
Annual Report and Accounts 2024
99
Funding and contributions by NWM Group
In the UK, the trustees of defined benefit pension schemes are
required to perform funding valuations at least every three years.
The trustees and the sponsoring company, with the support of
the Scheme Actuary, agree the assumptions used to value the
liabilities and determine future funding requirements. The funding
assumptions incorporate a margin for prudence over and above
the expected cost of providing the benefits promised to
members, taking into account the sponsor’s covenant and the
investment strategy of the scheme. Similar arrangements apply
in the other territories where NWM Group sponsors defined
benefit pension schemes.
The triennial funding valuation of the AA and NWM sections as at
31 December 2023 was completed during 2024. This determined
the funding level to be 121% and 129% respectively, based on
pension liabilities of £641 million and £125 million.
The key assumptions used to determine the uninsured funding
liabilities were the discount rate, which is determined based on a
gilt yield curve plus 0.4% per annum, and mortality assumptions,
which result in life expectancies of 27.8/29.9 years for AA section
male/female pensioners who were age 60 and 29.8/31.5 years
from age 60 for AA section males/females who were aged 40 at
the valuation date.
Accounting assumptions
Placing a value on NWM Group’s defined benefit pension
schemes’ liabilities require NWM Group’s management to make a
number of assumptions, with the support of independent
actuaries. The ultimate cost of the defined benefit obligations
depends upon actual future events and the assumptions made
are unlikely to be exactly borne out in practice, meaning the final
cost may be higher or lower than expected
.
The most significant assumptions used for the AA section are shown below:
Principal IAS 19 actuarial assumptions |
||
2024 |
2023 |
|
% |
% |
|
Discount rate |
5.6 |
4.8 |
Inflation assumption (RPI) |
3.2 |
3.1 |
Rate of increase in deferred pensions |
2.7 |
2.5 |
Rate of increase in pensions in payment |
2.9 |
2.9 |
Lump sum conversion rate at retirement |
15.0 |
15.0 |
Longevity at age 60: |
years |
years |
Current pensioners |
||
Males |
27.2 |
27.4 |
Females |
29.3 |
29.4 |
Future pensioners, currently aged 40 |
||
Males |
28.9 |
29.0 |
Females |
30.6 |
30.7 |
The above financial assumptions are long-term assumptions set with reference to the period over which the obligations are expected to be settled.
Discount rate
The IAS 19 valuation uses a single discount rate set by reference to the yield on a basket of ‘high quality’ sterling corporate bonds.
rate used in the IAS 19 valuations. The criteria include issue size, quality of pricing and the exclusion of outliers. Judgement is also
required in determining the shape of the yield curve at long durations: a constant credit spread relative to gilts is assumed. Sensitivity
to the main assumptions is presented below
Notes to the consolidated financial statements continued
5 Pensions continued
NWM Group
Annual Report and Accounts 2024
100
The table below shows how the present value of the net pension asset of the AA section would change if the key assumptions used
were changed independently. In practice the variables have a degree of correlation and do not move completely in isolation.
(Decrease) | (Decrease) | Increase | |
increase | increase | in net pension | |
in value of | in value of | (obligations)/ | |
assets | liabilities | assets | |
2024 | £m | £m | £m |
0.5% increase in interest rates/discount rate | (28) | (28) | - |
0.25% increase in inflation | 10 | 10 | - |
0.5% increase in credit spreads | (28) | (28) | - |
Longevity increase of one year | 18 | 18 | - |
0.25% additional rate of increase in pensions in payment | 13 | 13 | - |
Increase in equity values of 10% (1) | 1 | na | 1 |
2023 | |||
0.5% increase in interest rates/discount rate | (35) | (35) | - |
0.25% increase in inflation | 12 | 12 | - |
0.5% increase in credit spreads | (35) | (35) | - |
Longevity increase of one year | 19 | 19 | - |
0.25% additional rate of increase in pensions in payment | 15 | 15 | - |
Increase in equity values of 10% (1) | 1 | na | 1 |
(1)
Includes both quoted and private equity.
Note the longevity sensitivities quoted above reflect the impact of a one-year increase to single life annuities. As can be seen from the
table above, the funded status of the AA section is no longer sensitive to credit spreads and longevity, because the insured asset value
moves in line with the underlying liabilities.
The defined benefit obligation is attributable to the different classes of AA section members in the following proportions:
2024 | 2023 | |
Membership category | % | % |
Active members | - | - |
Deferred members | 47.8 | 51.4 |
Pensioners and dependants | 52.2 | 48.6 |
100.0 | 100.0 |
The experience history of the AA section is shown below:
2024 | 2023 | |
Experience history of defined benefit schemes | £m | £m |
Fair value of plan assets | 642 | 691 |
Present value of plan obligations | (501) | (551) |
Net surplus | 141 | 140 |
Experience gains/(losses) on plan liabilities | 5 | (16) |
Experience losses on plan assets | (58) | (88) |
Actual return on plan assets | (26) | (50) |
Actual return on plan assets | (3.6%) | (6.6%) |
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
101
Amounts payable to the NWM Group’s auditors for statutory audit and other services are set out below:
2024 |
2023 |
|
£m |
£m |
|
Fees payable for: |
||
- the audit of the NWM Group’s annual accounts |
7.2 |
7.1 |
- the audit of NWM Plc’s subsidiaries |
4.6 |
3.9 |
- audit-related assurance services |
1.5 |
1.5 |
Total audit and audit-related assurance services fees |
13.3 |
12.4 |
Other assurance services |
- |
0.1 |
Corporate finance services |
0.3 |
0.3 |
Total other services |
0.3 |
0.4 |
2024 |
2023 |
|
£m |
£m |
|
Current tax |
||
Charge for the year |
(56) |
(2) |
Under provision in respect of prior years |
(19) |
(67) |
(75) |
(69) |
|
Deferred tax |
||
Credit for the year |
54 |
52 |
Net increase in the carrying value of deferred tax assets in respect of UK |
||
and Netherlands losses |
50 |
12 |
Under provision in respect of prior years |
(3) |
(18) |
Tax credit/(charge) for the year |
26 |
(23) |
Current tax for the year ended 31 December 2024 is based on rates of 25% for the standard rate of UK corporation tax and 3% for
the UK banking surcharge.
The actual tax charge differs from the expected tax credit, computed by applying the standard rate of UK corporation tax of 25%
(2023 – 23.5%), as follows:
2024 |
2023 |
|
£m |
£m |
|
Expected tax (charge)/credit |
(9) |
18 |
Losses and temporary differences in year where no deferred tax asset recognised |
(3) |
- |
Foreign profits and losses taxed at other rates |
(7) |
(15) |
Items not allowed for tax: |
||
- losses on disposal and write-downs |
(17) |
- |
- UK bank levy |
(6) |
(3) |
- regulatory and legal actions |
(25) |
1 |
- other disallowable items |
- |
(10) |
Non-taxable RPI related uplift on index linked gilts |
18 |
6 |
Other non-taxable items |
9 |
(2) |
Unrecognised losses brought forward and utilised |
18 |
27 |
Increase/(decrease) in the carrying value of deferred tax assets in respect of: |
||
- UK losses |
- |
(3) |
- Netherlands losses |
50 |
15 |
Banking surcharge |
2 |
11 |
Tax on paid-in equity dividends |
18 |
17 |
Adjustments in respect of prior years (1) |
(22) |
(85) |
Actual tax credit/(charge) |
26 |
(23) |
(1)
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
uncertain tax positions.
Notes to the consolidated financial statements continued
7 Tax continued
NWM Group
Annual Report and Accounts 2024
102
NWM Group’s corporate income tax credit and its provisions for corporate income taxes necessarily involve a significant degree of
estimation and judgement. The tax treatment of some transactions is uncertain and tax computations are yet to be agreed with the
relevant tax authorities. NWM Group recognises anticipated tax liabilities based on all available evidence and, where appropriate, in the
light of external advice. Any difference between the final outcome and the amounts provided will affect current and deferred corporate
income tax charges in the period when the matter is resolved.
Deferred tax
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Deferred tax asset (included in Other assets, Note 17) | 172 | 55 | 87 | - |
Deferred tax liability (included in Other liabilities, Note 20) | (37) | (54) | (35) | (49) |
Net deferred tax asset/(liability) | 135 | 1 | 52 | (49) |
Net deferred tax asset/(liability) comprised:
NWM Group | |||||||
Accelerated | Tax losses | ||||||
capital | Expense | Financial | carried | ||||
Pension | allowances | provisions | instruments (1) | forward | Other | Total | |
£m | £m | £m | £m | £m | £m | £m | |
At 1 January 2023 | (82) | (108) | 23 | 66 | 49 | (3) | (55) |
(Charge)/credit to income statement | (3) | 33 | (15) | 8 | 6 | 17 | 46 |
Credit/(charge) to other comprehensive income | 38 | - | - | (41) | - | (4) | (7) |
Currency translation and other adjustments | - | 17 | - | - | - | - | 17 |
At 31 December 2023 | (47) | (58) | 8 | 33 | 55 | 10 | 1 |
(Charge)/credit to income statement | (1) | 59 | (2) | 12 | 31 | 2 | 101 |
Credit to other comprehensive income | 15 | - | - | 14 | - | 8 | 37 |
Currency translation and other adjustments | (1) | - | - | - | (3) | - | (4) |
At 31 December 2024 | (34) | 1 | 6 | 59 | 83 | 20 | 135 |
NWM Plc | |||||||
Accelerated | Tax losses | ||||||
capital | Expense | Financial | carried | ||||
Pension | allowances | provisions | instruments (1) | forward | Other | Total | |
£m | £m | £m | £m | £m | £m | £m | |
At 1 January 2023 | (82) | (102) | 23 | 66 | 3 | - | (92) |
(Charge)/credit to income statement | (3) | 29 | (15) | 10 | (3) | 15 | 33 |
Credit/(charge) to other comprehensive income | 38 | - | - | (41) | - | (4) | (7) |
Currency translation and other adjustments | - | 17 | - | - | - | - | 17 |
At 31 December 2023 | (47) | (56) | 8 | 35 | - | 11 | (49) |
(Charge)/credit to income statement | (1) | 57 | (1) | 9 | - | (1) | 63 |
Credit to other comprehensive income | 15 | - | - | 15 | - | 8 | 38 |
At 31 December 2024 | (33) | 1 | 7 | 59 | - | 18 | 52 |
(1)
The in-year movement predominantly relates to cash flow hedges.
Deferred tax assets in respect of unused tax losses are recognised if the losses can be used to offset probable future taxable profits
after taking into account the expected reversal of other temporary differences. Recognised deferred tax assets in respect of tax losses
are analysed below.
2024 | 2023 | |
£m | £m | |
UK tax losses carried forward | ||
- NWM Plc | - | - |
Total | - | - |
Overseas tax losses carried forward | ||
- NWM N.V. | 83 | 55 |
Total | 83 | 55 |
Notes to the consolidated financial statements continued
7 Tax continued
NWM Group
Annual Report and Accounts 2024
103
The deferred tax asset of £172 million as at 31 December 2024
(2023 - £55 million) principally comprises losses which arose in
the Netherlands, and temporary differences. These deferred tax
assets are recognised to the extent that it is probable that there
will be future taxable profits to recover them.
The main UK corporation tax increased from 19% to 25%, and
the UK banking surcharge decreased from 8% to 3%, from 1 April
2023.
Judgement
- NWM Group has considered the carrying value of
deferred tax assets and management considers that sufficient
sustainable taxable profits will be generated in future years to
recover the remaining deferred tax asset.
– These estimates are partly based on forecast
performance. They have regard to inherent uncertainties. The
deferred tax asset in NWM Plc is supported substantially by way
of future reversing taxable temporary differences on which
deferred tax liabilities are recognised at 31 December 2024.
UK tax losses
Under UK tax rules, tax losses can be carried forward indefinitely.
As the recognised tax losses in NWM Plc arose prior to 1 April
2015, credit in future periods is given against 25% of profits at
the main rate of UK corporation tax, excluding the Banking
NWM Plc
- A deferred tax asset of £0 million (2023 - £0 million)
has been recognised at 31 December 2024. The basis of
recognition in NWM plc is by way of future reversing taxable
temporary differences on which deferred tax liabilities are
recognised at 31 December 2024. Losses of £5,520 million have
not been recognised in the deferred tax balance at 31 December
2024.
Overseas tax losses
NWM N.V
.
– A deferred tax asset of £83 million (2023 - £55
million) has been recognised in respect of losses of £322 million of
total losses of £2,308 million carried forward at 31 December
2024. NWM N.V. Group considers it to be probable, based on its
5 year budget forecast, that future taxable profit will be available
against which the tax losses and tax credits can be partially
utilised. The tax losses and the tax credits have no expiry date.
Unrecognised deferred tax
Deferred tax assets of £3,455 million (2023 - £3,460 million) have
not been recognised in respect of tax losses and other deductible
temporary differences carried forward of £12,365 million (2023 -
£12,567 million) in jurisdictions where doubt exists over the
availability of future taxable profits. Of these losses and other
deductible temporary differences, £4,535 million expire after ten
years. The balance of tax losses and other deductible temporary
differences carried forward has no expiry date.
There are no unrecognised deferred tax liabilities in respect of
retained earnings of overseas subsidiaries and held-over gains on
As permitted by section 408(3) of the Companies Act 2006, no income statement for NWM Plc has been presented as a primary
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
104
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
judgement in respect of business models and contractual cashflows.
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held to
collect and sell. Information that is considered in determining the applicable business model includes: the portfolio’s policies and
objectives; how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent solely
payments of principal and interest (SPPI). A level of judgement is made in assessing terms that could change the contractual cash
flows so that it would not meet the condition for SPPI, including contingent and leverage features,
non-recourse arrangements and
We originate loans that include features that change the contractual cash flows based on the borrower meeting certain contractually
specified environmental, social and governance (ESG) targets. These are known as ESG-linked (or sustainability-linked) loans. As part
of the terms of these loans, the contractual interest rate is reduced or increased if the borrower meets (or fails to meet) specific
targets linked to the activity of the borrower for example reducing carbon emissions, increase the level of diversity at Board level, or
achieving a sustainable supply chain. ESG features are first assessed to ascertain whether the adjustment to the contractual cash
flows results in a de minimis exposure to risks or volatility in those contractual cash flows. If this is the case the classification of the loan
is not affected. If the effect of the ESG feature is assessed as being more than de minimis, we apply judgement to ensure that the ESG
features do not generate compensation for risks that are not in line with a basic lending arrangement. This includes amongst other
aspects a review of the consistency of the ESG targets with the asset or activity of the borrower, and consideration of the targets
within our risk appetite. Some of these loans are an integral part of NatWest Group’s climate and sustainable funding and financing
target.
IFRS 9.
| NWM Group | ||||||
MFVTPL | DFV | FVOCI | Amortised cost | Other assets | Total | |
Assets | £m | £m | £m | £m | £m | £m |
Cash and balances at central banks | 16,229 | 16,229 | ||||
Trading assets | 48,883 | 48,883 | ||||
Derivatives (1) | 78,105 | 78,105 | ||||
Settlement balances | 2,043 | 2,043 | ||||
Loans to banks - amortised cost (2) | 1,171 | 1,171 | ||||
Loans to customers - amortised cost | 17,921 | 17,921 | ||||
Amounts due from holding company and fellow subsidiaries | 29 | - | - | 260 | 54 | 343 |
Other financial assets | 49 | 5 | 4,611 | 13,185 | 17,850 | |
Other assets | 621 | 621 | ||||
31 December 2024 | 127,066 | 5 | 4,611 | 50,809 | 675 | 183,166 |
Cash and balances at central banks | 13,831 | 13,831 | ||||
Trading assets | 45,324 | 45,324 | ||||
Derivatives (1) | 79,332 | 79,332 | ||||
Settlement balances | 7,227 | 7,227 | ||||
Loans to banks - amortised cost (2) | 1,246 | 1,246 | ||||
Loans to customers - amortised cost | 12,986 | 12,986 | ||||
Amounts due from holding company and fellow subsidiaries | 273 | - | - | 1,263 | 194 | 1,730 |
Other financial assets | 48 | 5 | 4,115 | 11,555 | 15,723 | |
Other assets | 518 | 518 | ||||
31 December 2023 | 124,977 | 5 | 4,115 | 48,108 | 712 | 177,917 |
Notes to the consolidated financial statements continued
9 Financial instruments – classification continued
NWM Group
Annual Report and Accounts 2024
105
| NWM Group | |||||
Held-for-trading | DFV | Amortised cost | Other liabilities | Total | |
Liabilities | £m | £m | £m | £m | £m |
Bank deposits (3) | 4,565 | 4,565 | |||
Customer deposits | 4,840 | 4,840 | |||
Amounts due to holding company and fellow subsidiaries | 613 | - | 6,075 | 83 | 6,771 |
Settlement balances | 1,729 | 1,729 | |||
Trading liabilities | 54,512 | 54,512 | |||
Derivatives (1) | 72,036 | 72,036 | |||
Other financial liabilities | - | 3,507 | 27,756 | 31,263 | |
Other liabilities (4) | 44 | 477 | 521 | ||
31 December 2024 | 127,161 | 3,507 | 45,009 | 560 | 176,237 |
Bank deposits (3) | 2,267 | 2,267 | |||
Customer deposits | 6,998 | 6,998 | |||
Amounts due to holding company and fellow subsidiaries | 1,028 | - | 4,696 | 78 | 5,802 |
Settlement balances | 6,641 | 6,641 | |||
Trading liabilities | 53,623 | 53,623 | |||
Derivatives (1) | 71,981 | 71,981 | |||
Other financial liabilities | - | 3,106 | 20,468 | 23,574 | |
Other liabilities (4) | 48 | 605 | 653 | ||
31 December 2023 | 126,632 | 3,106 | 41,118 | 683 | 171,539 |
(1)
Includes net hedging derivative assets of £110 million (2023 - £118 million) and net hedging derivative liabilities of £474 million (2023 - £267 million).
(2)
Includes items in the course of collection from other banks of £44 million (2023 - £92 million).
(3)
Includes items in the course of transmission to other banks of £102 million (2023 - £81 million).
(4)
The following tables show the bank’s financial assets and financial liabilities in accordance with the categories of financial instruments
in IFRS 9.
| NWM Plc | |||||
MFVTPL | FVOCI | Amortised cost | Other assets | Total | |
Assets | £m | £m | £m | £m | £m |
Cash and balances at central banks | 11,069 | 11,069 | |||
Trading assets | 26,186 | 26,186 | |||
Derivatives (1) | 74,982 | 74,982 | |||
Settlement balances | 550 | 550 | |||
Loans to banks - amortised cost (2) | 897 | 897 | |||
Loans to customers - amortised cost | 17,089 | 17,089 | |||
Amounts due from holding company and fellow subsidiaries | 1,080 | - | 2,176 | 85 | 3,341 |
Other financial assets | 48 | 4,106 | 11,927 | 16,081 | |
Investment in group undertakings | 2,263 | 2,263 | |||
Other assets | 479 | 479 | |||
31 December 2024 | 102,296 | 4,106 | 43,708 | 2,827 | 152,937 |
Cash and balances at central banks | 8,607 | 8,607 | |||
Trading assets | 28,411 | 28,411 | |||
Derivatives (1) | 75,832 | 75,832 | |||
Settlement balances | 2,168 | 2,168 | |||
Loans to banks - amortised cost (2) | 910 | 910 | |||
Loans to customers - amortised cost | 12,104 | 12,104 | |||
Amounts due from holding company and fellow subsidiaries | 3,313 | - | 2,925 | 234 | 6,472 |
Other financial assets | 47 | 3,756 | 9,641 | 13,444 | |
Investment in group undertakings | 2,320 | 2,320 | |||
Other assets | 390 | 390 | |||
31 December 2023 | 107,603 | 3,756 | 36,355 | 2,944 | 150,658 |
Notes to the consolidated financial statements continued
9 Financial instruments – classification continued
NWM Group
Annual Report and Accounts 2024
106
| NWM Plc | |||||
Held-for-trading | DFV | Amortised cost | Other liabilities | Total | |
Liabilities | £m | £m | £m | £m | £m |
Bank deposits (3) | 4,069 | 4,069 | |||
Customer deposits | 2,350 | 2,350 | |||
Amounts due to holding company and fellow subsidiaries | 3,899 | - | 6,761 | 97 | 10,757 |
Settlement balances | 444 | 444 | |||
Trading liabilities | 30,130 | 30,130 | |||
Derivatives (1) | 70,016 | 70,016 | |||
Other financial liabilities | - | 2,426 | 25,540 | 27,966 | |
Other liabilities (4) | 8 | 378 | 386 | ||
31 December 2024 | 104,045 | 2,426 | 39,172 | 475 | 146,118 |
Bank deposits (3) | 1,909 | 1,909 | |||
Customer deposits | 3,060 | 3,060 | |||
Amounts due to holding company and fellow subsidiaries | 7,810 | - | 6,456 | 119 | 14,385 |
Settlement balances | 400 | 400 | |||
Trading liabilities | 34,079 | 34,079 | |||
Derivatives (1) | 69,404 | 69,404 | |||
Other financial liabilities | - | 2,176 | 18,479 | 20,655 | |
Other liabilities (4) | 7 | 446 | 453 | ||
31 December 2023 | 111,293 | 2,176 | 30,311 | 565 | 144,345 |
(1)
Includes net hedging derivative assets of £110 million (2023 - £118 million) and net hedging derivative liabilities of £474 million (2023 - £267 million).
(2)
Includes items in the course of collection from other banks of £28 million (2023 - £90 million).
(3)
Includes items in the course of transmission to other banks of £97 million (2023 - £68 million).
(4)
Includes lease liabilities of £5 million (2023 - £2 million), held at amortised cost.
The tables below present information on financial assets and liabilities that are offset on the balance sheet under IFRS or subject to
enforceable master netting agreements together with financial collateral received or given.
| NWM Group | |||||||||
Instruments which can be offset | Potential for offset not recognised by IFRS | ||||||||
Net amount | |||||||||
Effect of | after effect | ||||||||
master | of netting | Instruments | |||||||
netting | agreements | outside | |||||||
Balance | and similar | Cash | Securities | and related | netting | Balance | |||
Gross | IFRS offset | sheet | agreements | collateral | collateral | collateral | agreements | sheet total | |
2024 | £m | £m | £m | £m | £m | £m | £m | £m | £m |
Derivative assets | 80,313 | (2,727) | 77,586 | (61,849) | (10,421) | (3,396) | 1,920 | 519 | 78,105 |
Derivative liabilities | 74,293 | (2,727) | 71,566 | (61,849) | (5,821) | (896) | 3,000 | 470 | 72,036 |
Net position | 6,020 | - | 6,020 | - | (4,600) | (2,500) | (1,080) | 49 | 6,069 |
Trading reverse repos | 42,261 | (15,174) | 27,087 | (1,469) | - | (25,406) | 212 | 40 | 27,127 |
Trading repos | 45,033 | (15,174) | 29,859 | (1,469) | - | (28,390) | - | 703 | 30,562 |
Net position | (2,772) | - | (2,772) | - | - | 2,984 | 212 | (663) | (3,435) |
Non trading reverse repos | 3,473 | - | 3,473 | (80) | - | (3,393) | - | - | 3,473 |
Non trading repos | 2,969 | - | 2,969 | (80) | - | (2,889) | - | - | 2,969 |
Net position | 504 | - | 504 | - | - | (504) | - | - | 504 |
2023 | |||||||||
Derivative assets | 84,096 | (5,242) | 78,854 | (60,165) | (13,233) | (3,084) | 2,372 | 478 | 79,332 |
Derivative liabilities | 76,721 | (5,242) | 71,479 | (60,165) | (6,590) | (1,663) | 3,061 | 502 | 71,981 |
Net position | 7,375 | - | 7,375 | - | (6,643) | (1,421) | (689) | (24) | 7,351 |
Trading reverse repos | 39,573 | (16,257) | 23,316 | (664) | - | (22,461) | 191 | 378 | 23,694 |
Trading repos | 42,441 | (16,257) | 26,184 | (664) | - | (25,520) | - | 718 | 26,902 |
Net position | (2,868) | - | (2,868) | - | - | 3,059 | 191 | (340) | (3,208) |
Non trading reverse repos | 1,718 | - | 1,718 | (5) | - | (1,713) | - | 81 | 1,799 |
Non trading repos | 867 | - | 867 | (5) | - | (862) | - | 2 | 869 |
Net position | 851 | - | 851 | - | - | (851) | - | 79 | 930 |
Notes to the consolidated financial statements continued
9 Financial instruments - classification continued
NWM Group
Annual Report and Accounts 2024
107
| NWM Plc | |||||||||
Instruments which can be offset | Potential for offset not recognised by IFRS | ||||||||
Net amount | |||||||||
after effect | |||||||||
of netting | Instruments | ||||||||
Effect of | agreements | outside | |||||||
Balance | master | Cash | Securities | and related | netting | Balance | |||
Gross | IFRS offset | sheet | netting | collateral | collateral | collateral | agreements | sheet total | |
2024 | £m | £m | £m | £m | £m | £m | £m | £m | £m |
Derivative assets | 85,300 | (10,801) | 74,499 | (61,961) | (8,304) | (2,660) | 1,574 | 483 | 74,982 |
Derivative liabilities | 79,339 | (9,717) | 69,622 | (61,961) | (4,205) | (798) | 2,658 | 394 | 70,016 |
Net position (1) | 5,961 | (1,084) | 4,877 | - | (4,099) | (1,862) | (1,084) | 89 | 4,966 |
Trading reverse repos | 12,213 | (2,130) | 10,083 | (283) | - | (9,789) | 11 | 16 | 10,099 |
Trading repos | 11,719 | (2,130) | 9,589 | (283) | - | (9,306) | - | 704 | 10,293 |
Net position | 494 | - | 494 | - | - | (483) | 11 | (688) | (194) |
Non trading reverse repos | 3,473 | - | 3,473 | (80) | - | (3,393) | - | - | 3,473 |
Non trading repos | 2,969 | - | 2,969 | (80) | - | (2,889) | - | - | 2,969 |
Net position | 504 | - | 504 | - | - | (504) | - | - | 504 |
2023 | |||||||||
Derivative assets | 89,762 | (14,325) | 75,437 | (59,881) | (10,752) | (2,688) | 2,116 | 395 | 75,832 |
Derivative liabilities | 82,553 | (13,544) | 69,009 | (59,881) | (5,376) | (1,141) | 2,611 | 395 | 69,404 |
Net position (1) | 7,209 | (781) | 6,428 | - | (5,376) | (1,547) | (495) | - | 6,428 |
- | |||||||||
Trading reverse repos | 12,858 | (1,898) | 10,960 | (130) | - | (10,830) | - | 355 | 11,315 |
Trading repos | 13,306 | (1,898) | 11,408 | (130) | - | (11,278) | - | 717 | 12,125 |
Net position | (448) | - | (448) | - | - | 448 | - | (362) | (810) |
Non trading reverse repos | 1,718 | - | 1,718 | (5) | - | (1,713) | - | 81 | 1,799 |
Non trading repos | 867 | - | 867 | (5) | - | (862) | - | 2 | 869 |
Net position | 851 | - | 851 | - | - | (851) | - | 79 | 930 |
(1)
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
108
Page | |
Financial instruments | |
Critical accounting policy: Fair value | 108 |
Valuation | |
Fair value hierarchy (D) | 109 |
Valuation techniques (D) | 109 |
Inputs to valuation models (D) | 109 |
Valuation control (D) | 110 |
Key areas of judgement (D) | 110 |
Assets and liabilities split by fair value | |
hierarchy level (T) | 111 |
Valuation adjustments | |
Fair value adjustments made (T) | 113 |
Funding valuation adjustments (FVA) (D) | 113 |
Credit valuation adjustments (CVA) (D) | 113 |
Bid-offer (D) | 113 |
Product and deal specific (D) | 113 |
Own credit (D) | 113 |
Level 3 additional information | |
Level 3 ranges of unobservable inputs (D) | 114 |
Level 3 instruments, valuation | |
techniques and inputs (T) | 114 |
Level 3 sensitivities (D) | 115 |
Alternative assumptions (D) | 115 |
Other considerations (D) | 115 |
High and low range of fair value of | |
level 3 assets and liabilities (T) | 116 |
Movement in Level 3 assets and liabilities | |
over the reporting period (D) | 117 |
Movement in level 3 assets and liabilities (T) | 117 |
Fair value of financial instruments measured | |
at amortised cost | |
Fair value of financial instruments | |
measured at amortised cost on the balance sheet (T) | 119 |
(D) = Descriptive; (T) = Table |
instruments
Financial instruments classified as mandatory fair value through
profit or loss; held-for-trading; designated fair value through
profit or loss and fair value through other comprehensive income
are recognised in the financial statements at fair value. All
derivatives are measured at fair value.
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 participants at the measurement date. A fair value
measurement considers the characteristics of the asset or liability
and the assumptions that a market participant would consider
when pricing the asset or liability.
NWM Group manages some portfolios of financial assets and
financial liabilities based on its net exposure to either market or
credit risk. In these cases, the fair value is derived from the net
risk exposure of that portfolio with portfolio level adjustments
applied to incorporate bid-offer spreads, counterparty credit risk,
and funding costs (see ‘Valuation Adjustments’).
Where the market for a financial instrument is not active, fair
value is established using a valuation technique. These valuation
techniques involve a degree of estimation, the extent of which
depends on the instrument’s complexity and the availability of
market-based data. The complexity and uncertainty in the
financial instrument’s fair value is categorised using the fair value
For accounting policy information refer to Accounting policies 2.2,
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
109
Fair value hierarchy
Financial instruments carried at fair value have been classified
under the fair value hierarchy. The classification ranges from
level 1 to level 3, with more expert judgement and price
uncertainty for those classified at level 3.
The determination of an instrument’s level cannot be made at a
global product level as a single product type can be in more than
one level. For example, a single name corporate credit default
swap could be in level 2 or level 3 depending on the level of
market activity for the referenced entity.
Level 1
– instruments valued using unadjusted quoted prices in
active and liquid markets, for identical financial instruments.
Examples include government bonds, listed equity shares and
certain exchange-traded derivatives.
Level 2
- instruments valued using valuation techniques that have
observable inputs. Observable inputs are those that are readily
available with limited adjustments required. Examples include
most government agency securities, investment-grade corporate
bonds, certain mortgage products – including collateralised loan
obligations (CLOs), most bank loans, repos and reverse repos,
state and municipal obligations, most notes issued, certain money
market securities, loan commitments and most over the counter
(OTC) derivatives.
Level 3
- instruments valued using a valuation technique where
at least one input which could have a significant effect on the
instrument’s valuation, is not based on observable market data.
Examples include non-derivative instruments which trade
infrequently, certain syndicated and commercial mortgage loans,
private equity, and derivatives with unobservable model inputs.
Valuation techniques
NWM Group derives the fair value of its instruments differently
depending on whether the instrument is a non-modelled or a
modelled product.
Non-modelled products
are valued directly from a price input,
typically on a position-by-position basis. Examples include equities
and most debt securities.
Non-modelled products can fall into any fair value levelling
hierarchy depending on the observable market activity, liquidity,
and assessment of valuation uncertainty of the instruments. The
assessment of fair value and the classification of the instrument
to a fair value level is subject to the valuation controls discussed
in the Valuation control section.
Modelled products
valued using a pricing model range in
complexity from comparatively vanilla products such as interest
rate swaps and options (e.g., interest rate caps and floors)
through to more complex derivatives (e.g., balance guaranteed
swaps).
For modelled products the fair value is derived using the model
and the appropriate model inputs or parameters, as opposed to a
cash price equivalent. Model inputs are taken either directly or
indirectly from available data, where some inputs are also
modelled.
Fair value classification of modelled instruments is either level 2
or level 3, depending on the product/model combination, the
observability and quality of input parameters and other factors.
All these must be assessed to classify a position. The modelled
product is assigned to the lowest fair value hierarchy level of any
significant input used in that valuation.
Most derivative instruments, for example vanilla interest rate
swaps, foreign exchange swaps and liquid single name credit
derivatives, are classified as level 2. This is because they are
vanilla products valued using standard market models and with
observable inputs. Level 2 products range from vanilla to more
complex products, where the more complex products remain
classified as level 2 due to the low materiality of any
unobservable inputs.
Inputs to valuation models
When using valuation techniques, the fair value can be
significantly affected by the choice of valuation model and
underlying assumptions. Factors considered include the cashflow
amounts and timing of those cash flows, and application of
appropriate discount rates, incorporating both funding and credit
risk. Values between and beyond available data points are
obtained by interpolation and extrapolation. The principal inputs
to these valuation techniques are as follows:
Bond prices
- quoted prices are generally available for
government bonds, certain corporate securities, and some
mortgage-related products.
Credit spreads/margins
- these reflect credit default swap levels
or the return required over a benchmark rate or index to
compensate for the referenced credit risk. Where available, these
are derived from the price of credit default swaps or other credit-
based instruments, such as debt securities. When direct prices
are not available; credit spreads/margins are determined with
reference to available prices of entities with similar
characteristics.
Interest rates
- these are principally based on interest rate swap
prices referencing Interbank Offered Rates (IBOR) and overnight
interest rates, including SONIA (Sterling Overnight Interbank
Average Rate). Other quoted interest rates may also be used
from both the bond, and futures markets.
Foreign currency exchange rates
- there are observable prices
both for spot and forward contracts and futures in the world's
major currencies.
Equity and equity index prices
- quoted prices are generally
readily available for equity shares listed on the world's major
stock exchanges and for major indices on such shares.
Price volatilities and correlations
- volatility is a measure of the
tendency of a price to change with time. Correlation measures
the degree which two or more prices or variables are observed
to move together. Variables that move in the same direction
show positive correlation; those that move in opposite directions
are negatively correlated.
Prepayment rates
- rates used to reflect how fast a pool of
assets prepay. The fair value of a financial instrument that can be
prepaid by the issuer or borrower differs from that of an
instrument that cannot be prepaid. When valuing prepayable
instruments, the value of this prepayment option is considered.
Recovery rates/loss given default
- these are used as an input to
valuation models and reserves for asset-backed securities and
other credit products as an indicator of severity of losses on
default. Recovery rates are primarily sourced from market data
providers or the value of the underlying collateral
.
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
110
Valuation control
NWM Group's control environment for the determination of the
fair value of financial instruments includes formalised procedures
for the review and validation of fair values. The review of market
prices and inputs is performed by an independent price
verification (IPV) team.
IPV is a key element of the control environment. Valuations are
first performed by the business which entered into the
transaction. These valuations are then reviewed by the IPV team,
independent of those trading the financial instruments, in light of
available pricing evidence.
Independent pricing data is collated from a range of sources.
Each source is reviewed for quality and the independent data
applied in the IPV processes using a formalised input quality
hierarchy. Consensus services are one source of independent
data and encompass interest rate, currency, credit, and bond
markets, providing comprehensive coverage of vanilla products
and a wide selection of exotic products.
Where measurement differences are identified through the IPV
process these are grouped by the quality hierarchy of the
independent data. If the size of the difference exceeds defined
thresholds, an adjustment is made to bring the valuation to within
the independently calculated fair value range.
IPV takes place at least monthly, for all fair value financial
instruments. The IPV control includes formalised reporting and
escalation of any valuation differences in breach of established
thresholds.
The quality and completeness of the information gathered in the
IPV process gives an indication as to the liquidity and valuation
uncertainty of an instrument and forms part of the information
considered when determining fair value hierarchy classifications.
Initial fair value level classification of a financial instrument is
carried out by the IPV team. These initial classifications are
subject to senior management review. Particular attention is paid
to instruments transferring from one level to another, new
instrument classes or products, instruments where the
transaction price is significantly different from the fair value and
instruments where valuation uncertainty is high.
Valuation Committees are made up of valuation specialists and
senior business representatives from various functions and
oversee pricing, reserving and valuations issues. These
committees meet monthly to review and ratify any methodology
changes. The Executive Valuation Committee, a NatWest Group
committee, meets quarterly to address key material and
subjective valuation issues, to review items escalated by
Valuation Committees and to discuss other relevant industry
matters.
The Group model risk policy sets the policy for model
documentation, testing and review. Governance of the model risk
policy is carried out by the Group model risk oversight
committee, which comprises model risk owners and independent
model experts. All models are required to be independently
validated in accordance with the Model Risk Policy.
Over the years the business has simplified, with most products
classified as level 1 or 2 of the fair value hierarchy. However, the
diverse range of products historically traded by NWM Group
means some products remain classified as level 3. Level 3
indicates a significant level of pricing uncertainty, where expert
judgement is used. As such, extra disclosures are required in
respect of level 3 instruments.
In general, the degree of expert judgement used and hence
valuation uncertainty depends on the degree of liquidity of an
instrument or input.
Where markets are liquid, little judgement is required. However,
when the information regarding the liquidity in a particular
market is not clear, a judgement may need to be made. For
example, for an equity traded on an exchange, daily volumes of
trading can be seen, but for an OTC derivative, assessing the
liquidity of the market with no central exchange is more
challenging.
A key related matter is where a market moves from liquid to
illiquid or vice versa. Where this movement is considered
temporary, the fair value level is not changed. For example, if
there is little market trading in a product on a reporting date but
at the previous reporting date and during the intervening period
the market has been liquid. In this case, the instrument will
continue to be classified at the same level in the hierarchy.
This is to provide consistency so that transfers between levels
are driven by genuine changes in market liquidity and do not
reflect short term or seasonal effects. Material movements
between levels are reviewed quarterly by the business and IPV.
The breadth and depth of the IPV data allows for a rules-based
quality assessment to be made of market activity, liquidity, and
pricing uncertainty, which assists with the process of allocation to
an appropriate level. Where suitable independent pricing
information is not readily available, the quality assessment will
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
111
The table below shows the assets and liabilities held by NWM Group split by fair value hierarchy level. Level 1 are considered the most
liquid instruments, and level 3 the most illiquid, valued using expert judgement and so carry the most significant price uncertainty.
| NWM Group | ||||||||
| 2024 | 2023 | |||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Assets | ||||||||
Trading assets | ||||||||
Loans | - | 34,727 | 278 | 35,005 | - | 33,161 | 209 | 33,370 |
Securities | 8,772 | 5,106 | - | 13,878 | 8,447 | 3,493 | 14 | 11,954 |
Derivatives | ||||||||
Interest rate | - | 37,019 | 483 | 37,502 | 1 | 44,272 | 670 | 44,943 |
Foreign exchange | - | 40,382 | 110 | 40,492 | - | 34,143 | 65 | 34,208 |
Other | - | 64 | 47 | 111 | - | 73 | 108 | 181 |
Amounts due from holding company and fellow | ||||||||
subsidiaries | - | 29 | - | 29 | - | 273 | - | 273 |
Other financial assets | ||||||||
Loans | - | 1 | 93 | 94 | - | - | 111 | 111 |
Securities | 3,163 | 1,313 | 95 | 4,571 | 2,905 | 1,058 | 94 | 4,057 |
Total financial assets held at fair value | 11,935 | 118,641 | 1,106 | 131,682 | 11,353 | 116,473 | 1,271 | 129,097 |
As % of total fair value assets | 9% | 90% | 1% | 9% | 90% | 1% | ||
Liabilities | ||||||||
Amounts due to holding company and fellow | ||||||||
subsidiaries | - | 613 | - | 613 | - | 1,028 | - | 1,028 |
Trading liabilities | ||||||||
Deposits | - | 43,764 | - | 43,764 | - | 43,113 | 1 | 43,114 |
Debt securities in issue | - | 257 | - | 257 | - | 706 | - | 706 |
Short positions | 8,766 | 1,724 | 1 | 10,491 | 7,936 | 1,865 | 2 | 9,803 |
Derivatives | ||||||||
Interest rate | - | 31,223 | 287 | 31,510 | - | 37,838 | 454 | 38,292 |
Foreign exchange | - | 40,225 | 66 | 40,291 | - | 33,306 | 58 | 33,364 |
Other | - | 115 | 120 | 235 | - | 137 | 188 | 325 |
Other financial liabilities | ||||||||
Deposits | - | 1,537 | - | 1,537 | - | 1,259 | - | 1,259 |
Debt securities in issue | - | 1,733 | 3 | 1,736 | - | 1,607 | 3 | 1,610 |
Subordinated liabilities | - | 234 | - | 234 | - | 237 | - | 237 |
Total financial liabilities held at fair value | 8,766 | 121,425 | 477 | 130,668 | 7,936 | 121,096 | 706 | 129,738 |
As % of total fair value liabilities | 7% | 93% | 0% | 6% | 93% | 1% | ||
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
112
| NWM Plc | ||||||||
| 2024 | 2023 | |||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
£m | £m | £m | £m | £m | £m | £m | £m | |
Assets | ||||||||
Trading assets | ||||||||
Loans | - | 15,921 | 181 | 16,102 | - | 19,030 | 193 | 19,223 |
Securities | 5,134 | 4,950 | - | 10,084 | 5,804 | 3,370 | 14 | 9,188 |
Derivatives | ||||||||
Interest rate | - | 33,827 | 443 | 34,270 | - | 40,594 | 643 | 41,237 |
Foreign exchange | - | 40,492 | 110 | 40,602 | - | 34,350 | 65 | 34,415 |
Other | - | 63 | 47 | 110 | - | 72 | 108 | 180 |
Amounts due from holding company and | ||||||||
fellow subsidiaries | - | 1,080 | - | 1,080 | - | 3,313 | - | 3,313 |
Other financial assets | ||||||||
Loans | - | 1 | 93 | 94 | - | - | 111 | 111 |
Securities | 2,750 | 1,220 | 90 | 4,060 | 2,604 | 1,001 | 87 | 3,692 |
Total financial assets held at fair value | 7,884 | 97,554 | 964 | 106,402 | 8,408 | 101,730 | 1,221 | 111,359 |
As % of total fair value assets | 7% | 92% | 1% | 8% | 91% | 1% | ||
Liabilities | ||||||||
Amounts due to holding company and fellow | ||||||||
subsidiaries | - | 3,899 | - | 3,899 | - | 7,810 | - | 7,810 |
Trading liabilities | ||||||||
Deposits | - | 21,137 | - | 21,137 | - | 25,706 | 1 | 25,707 |
Debt securities in issue | - | 257 | - | 257 | - | 706 | - | 706 |
Short positions | 7,089 | 1,646 | 1 | 8,736 | 5,859 | 1,805 | 2 | 7,666 |
Derivatives | ||||||||
Interest rate | - | 29,151 | 219 | 29,370 | - | 35,225 | 352 | 35,577 |
Foreign exchange | - | 40,351 | 66 | 40,417 | - | 33,450 | 58 | 33,508 |
Other | - | 109 | 120 | 229 | - | 131 | 188 | 319 |
Other financial liabilities | ||||||||
Deposits | - | 1,146 | - | 1,146 | - | 1,015 | - | 1,015 |
Debt securities in issue | - | 1,280 | - | 1,280 | - | 1,161 | - | 1,161 |
Total financial liabilities held at fair value | 7,089 | 98,976 | 406 | 106,471 | 5,859 | 107,009 | 601 | 113,469 |
As % of total fair value liabilities | 7% | 93% | 0% | 5% | 94% | 1% | ||
(1)
Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
(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
management – Credit risk.
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
113
Valuation adjustments
When valuing financial instruments in the trading book,
adjustments are made to mid-market valuations to cover bid-
offer spread, funding and credit risk. These adjustments are
presented in the table below:
NWM Group | ||
2024 | 2023 | |
£m | £m | |
Funding valuation adjustments | (3) | 9 |
Credit valuation adjustments | 190 | 236 |
Bid-offer | 49 | 70 |
Product and deal specific | 156 | 104 |
Total | 392 | 419 |
NWM Plc | ||
2024 | 2023 | |
£m | £m | |
Funding valuation adjustments | 8 | 23 |
Credit valuation adjustments | 88 | 126 |
Bid-offer | 45 | 66 |
Product and deal specific | 129 | 105 |
Total | 270 | 320 |
The decrease in FVA was driven by net exposures switching from
positive to negative, primarily due to interest rates increasing.
The decrease in CVA was driven by a reduction in exposures,
primarily due to interest rates increasing and trade unwinds. The
decrease in bid-offer was driven by risk reduction.
New trading
activity was the driver of the increase in product and deal
specific, partially offset by trade unwinds.
Funding valuation adjustments (FVA)
FVA represents an estimate of the adjustment that a market
participant would make to incorporate funding costs and benefits
that arise in relation to derivative exposures. FVA is calculated as
a portfolio level adjustment and can result in either a funding
charge (positive) or funding benefit (negative).
Funding levels are applied to estimated potential future
exposures. For uncollateralised derivatives, the exposure reflects
the future valuation of the derivative. For collateralised
derivatives, the exposure reflects the difference between the
future valuation of the derivative and the level of collateral
posted.
Credit valuation adjustments (CVA)
CVA represents an estimate of the adjustment to fair value that
is made to incorporate the counterparty credit risk inherent in
derivative exposures. CVA is calculated on a portfolio basis
reflecting an estimate of the amount a third party would charge
to assume the credit risk.
Collateral held under a credit support agreement is factored into
the CVA calculation. In such cases where NWM Group holds
collateral against counterparty exposures, CVA is held to the
extent that residual risk remains.
FVA and CVA are actively managed by a credit and market risk
hedging process, and therefore movements in CVA and FVA are
partially offset by trading revenue on the hedges.
Bid-offer
Fair value positions are required to be marked to exit levels,
represented by bid (long positions) or offer (short positions) levels.
Non-derivative positions are typically marked directly to bid or
offer prices. However derivative exposures are adjusted to exit
levels by taking bid-offer reserves calculated on a portfolio basis.
The reserving approach is based on current market bid-offer
spreads and standard market bucketing of risk.
Bid-offer spreads vary by maturity and risk type to reflect
different spreads in the market. For positions where there is no
observable quote, the bid-offer spreads are widened in
comparison to proxies to reflect reduced liquidity or observability.
Netting is applied on a portfolio basis to reflect the value at which
NWM Group believes it could exit the net risk of the portfolio,
rather than the sum of exit costs for each of the portfolio’s
individual trades. This is applied where the asset and liability
positions are managed as a portfolio for risk and reporting
purposes.
Product and deal specific
On initial recognition of financial assets and liabilities valued using
valuation techniques which have a significant dependence on
information other than observable market data, any difference
between the transaction price and that derived from the
valuation technique is deferred. Such amounts are recognised in
the income statement over the life of the transaction; when
market data becomes observable; or when the transaction
matures or is closed out as appropriate. On 31 December 2024,
net gains of £139 million (2023 - £78 million) were carried
forward. During the year, net gains of £218 million (2023 - £119
million) were deferred and £157 million (2023 - £115 million) were
recognised in the income statement.
Where system generated valuations do not accurately reflect
market prices, manual valuation adjustments are applied either at
a position or portfolio level. Manual adjustments are subject to
the scrutiny of independent control teams and are subject to
monthly review by senior management.
Own Credit
NWM Group considers the effect of its own credit standing when
valuing financial liabilities recorded at fair value. Own credit
spread adjustments are made when valuing issued debt held at
fair value, including issued structured notes. An own credit
adjustment is applied to positions where it is believed that
counterparties would consider NWM Group’s creditworthiness
when pricing trades. Accumulated changes in fair value due to
credit risk are £44 million (2023 – nil).
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
114
Level 3 additional information
For illiquid assets and liabilities, classified as level 3, additional information is provided on the valuation techniques used and price
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions with
significant unobservable inputs or modelling parameters.
Level 3 ranges of unobservable inputs
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the fair
value calculation, the unobservable inputs and input range.
| NWM Group | |||||||
2024 | 2023 | ||||||
Financial instrument | Valuation technique | Unobservable inputs | Units | Low | High | Low | High |
Trading assets and Other financial assets | |||||||
Loans | Price-based | Price | - | % | 123 | - | 123 |
Discount cash flow | Credit spreads | bps | 36 | 93 | 49 | 119 | |
Debt securities | Price-based | Price | % | - | 116 | - | 119 |
Equity Shares | Price-based | Price | GBP | - | 47,312 | - | 32,142 |
Net asset valuation | Fund NAV | % 80 | 120 | 80 | 120 | ||
Derivative assets and liabilities | |||||||
Credit derivatives | Credit derivative pricing | Credit spreads | bps | 15 | 86 | 13 | 600 |
Option pricing | Correlation | % | (15) | 95 | (15) | 95 | |
Volatility | % | 30 | 80 | 30 | 80 | ||
Upfront points | % | - | 99 | - | 99 | ||
Recovery rate | % | - | 60 | - | 60 | ||
Interest rate & FX | Option pricing | Correlation | % | (50) | 98 | (50) | 99 |
derivatives | Volatility | % | 3 | 99 | 30 | 111 | |
Constant | |||||||
prepayment rate | % | 2 | 20 | 2 | 22 | ||
Mean reversion | % | - | 20 | - | 20 | ||
Inflation volatility | % | 1 | 2 | 2 | 2 | ||
Inflation rate | % | 2 | 2 | 2 | 3 | ||
| NWM Plc | |||||||
2024 | 2023 | ||||||
Financial instrument | Valuation technique | Unobservable inputs | Units | Low | High | Low | High |
Trading assets and Other financial assets | |||||||
Loans | Price-based | Price | % | - | 123 | - | 123 |
Discount cash flow | Credit spreads | bps | 36 | 93 | 49 | 119 | |
Debt securities | Price-based | Price | % | - | 104 | - | 104 |
Equity Shares | Price-based | Price | GBP | - | 6,675 | - | 6,744 |
Derivative assets and liabilities | |||||||
Credit derivatives | Credit derivative pricing | Credit spreads | bps | 15 | 86 | 13 | 600 |
Option pricing | Correlation | % | (15) | 95 | (15) | 95 | |
Volatility | 30 | % | 80 | 30 | 80 | ||
Upfront points | % | - | 99 | - | 99 | ||
Recovery rate | % | - | 60 | - | 60 | ||
Interest rate & FX | Option pricing | Correlation | % | (50) | 98 | (50) | 99 |
derivatives | Volatility | % | 3 | 99 | 30 | 111 | |
Constant | |||||||
prepayment rate | % | 2 | 20 | 2 | 22 | ||
Mean reversion | % | - | 20 | - | 20 | ||
Inflation volatility | % | 1 | 2 | 2 | 2 | ||
Inflation rate | % | 2 | 2 | 2 | 3 | ||
(1)
Valuation: for private equity investments, values may be estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived from
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 or
similar measures.
(2)
NWM Group and NWM Plc do not have any material liabilities measured at fair value that are issued with an inseparable third party credit enhancement
.
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
115
Level 3 sensitivities
The level 3 sensitivities presented below are calculated at a trade
or low-level portfolio basis rather than an overall portfolio basis.
As individual sensitivities are aggregated with no reflection of the
correlated nature between instruments, the overall portfolio
sensitivity may not be accurately reflected. For example, some
portfolios may be negatively correlated to others, where a
downwards movement in one asset would produce an upwards
movement in another. However, due to the additive presentation
of the below figures, this correlation impact cannot be displayed.
As such, the actual potential downside sensitivity of the total
portfolio may be less than the non-correlated sum of the additive
figures as shown in the below table.
Alternative assumptions
Reasonably plausible alternative assumptions of unobservable
inputs are determined based on a specified target level of
certainty of 90%.
Alternative assumptions are determined with reference to all
available evidence including consideration of the following: quality
of independent pricing information considering consistency
between different sources, variation over time, perceived
tradability or otherwise of available quotes; consensus service
dispersion ranges; volume of trading activity and market bias
(e.g. one-way inventory); day 1 profit or loss arising on new
trades; number and nature of market participants; market
conditions; modelling consistency in the market; size and nature
of risk; length of holding of position; and market intelligence.
Other considerations
Whilst certain inputs used to calculate CVA, FVA and own credit
adjustments are not based on observable market data, the
uncertainty of these inputs is not considered to have a significant
effect on the net valuation of the related derivative portfolios and
issued debt.
As such, the fair value levelling of the derivative portfolios and
issued debt is not determined by CVA, FVA or own credit inputs.
In addition, any fair value sensitivity driven by these inputs is not
included in the level 3 sensitivities presented.
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
116
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 fair
value inputs as described in the previous table.
| NWM Group | ||||||
| 2024 | 2023 | |||||
Level 3 | Favourable | Unfavourable | Level 3 | Favourable | Unfavourable | |
£m | £m | £m | £m | £m | £m | |
Assets | ||||||
Trading assets | ||||||
Loans | 278 | - | - | 209 | - | - |
Securities | - | - | - | 14 | - | - |
Derivatives | ||||||
Interest rate | 483 | 20 | (20) | 670 | 20 | (20) |
Foreign exchange | 110 | - | - | 65 | - | - |
Other | 47 | - | - | 108 | 10 | (10) |
Other financial assets | ||||||
Loans | 93 | - | - | 111 | - | - |
Securities | 95 | 10 | (10) | 94 | 10 | (10) |
Total | 1,106 | 30 | (30) | 1,271 | 40 | (40) |
Liabilities | ||||||
Trading liabilities | ||||||
Deposits | - | - | - | 1 | - | - |
Short positions | 1 | - | - | 2 | - | - |
Derivatives | ||||||
Interest rate | 287 | 10 | (10) | 454 | 10 | (10) |
Foreign exchange | 66 | - | - | 58 | - | - |
Other | 120 | 10 | (10) | 188 | 10 | (10) |
Other financial liabilities | ||||||
Debt securities in issue | 3 | - | - | 3 | - | - |
Total | 477 | 20 | (20) | 706 | 20 | (20) |
| NWM Plc | ||||||
| 2024 | 2023 | |||||
Level 3 | Favourable | Unfavourable | Level 3 | Favourable | Unfavourable | |
£m | £m | £m | £m | £m | £m | |
Assets | ||||||
Trading assets | ||||||
Loans | 181 | - | - | 193 | - | - |
Securities | - | - | - | 14 | - | - |
Derivatives | ||||||
Interest rate | 443 | 20 | (20) | 643 | 20 | (20) |
Foreign exchange | 110 | - | - | 65 | - | - |
Other | 47 | - | - | 108 | 10 | (10) |
Other financial assets | ||||||
Loans | 93 | - | - | 111 | - | - |
Securities | 90 | 10 | (10) | 87 | 10 | (10) |
Total | 964 | 30 | (30) | 1,221 | 40 | (40) |
Liabilities | ||||||
Trading liabilities | ||||||
Deposits | - | - | - | 1 | - | - |
Short positions | 1 | - | - | 2 | - | - |
Derivatives | ||||||
Interest rate | 219 | - | - | 352 | 10 | (10) |
Foreign exchange | 66 | - | - | 58 | - | - |
Other | 120 | 10 | (10) | 188 | 10 | (10) |
Total | 406 | 10 | (10) | 601 | 20 | (20) |
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
117
Movement in Level 3 assets and liabilities over the reporting period
The following table shows the movement in level 3 assets and liabilities in the year.
NWM Group | ||||||||
Other | Other | Other | Other | |||||
Derivatives | trading | financial | Total | Derivatives | trading | financial | Total | |
assets | assets (2) | assets (3) | assets | liabilities | liabilities (2) | liabilities | liabilities | |
2024 | £m | £m | £m | £m | £m | £m | £m | £m |
At 1 January | 843 | 223 | 205 | 1,271 | 700 | 3 | 3 | 706 |
Amounts recorded in the income | ||||||||
statement (1) | (131) | (16) | 1 | (146) | (124) | - | - | (124) |
Amount recorded in the statement of | ||||||||
comprehensive income | - | - | 3 | 3 | - | - | - | - |
Level 3 transfers in | 7 | 1 | - | 8 | 1 | 2 | - | 3 |
Level 3 transfers out | (3) | (19) | (1) | (23) | (2) | (2) | - | (4) |
Purchases/originations | 148 | 117 | 3 | 268 | 121 | 1 | - | 122 |
Settlements/other decreases | (44) | (27) | (18) | (89) | (31) | - | - | (31) |
Sales | (179) | - | (4) | (183) | (186) | (2) | - | (188) |
Foreign exchange and other adjustments | (1) | (1) | (1) | (3) | (6) | (1) | - | (7) |
At 31 December | 640 | 278 | 188 | 1,106 | 473 | 1 | 3 | 477 |
Amounts recorded in the income | ||||||||
statement in respect of balances held | ||||||||
at period end - unrealised | 73 | 2 | - | 75 | 53 | - | - | 53 |
2023 | ||||||||
At 1 January | 1,023 | 396 | 237 | 1,656 | 999 | 1 | - | 1,000 |
Amounts recorded in the income | ||||||||
statement (1) | (150) | (89) | 3 | (236) | (323) | - | - | (323) |
Amount recorded in the statement of | ||||||||
comprehensive income | - | - | 20 | 20 | - | - | - | - |
Level 3 transfers in | 6 | 15 | - | 21 | 7 | 2 | - | 9 |
Level 3 transfers out | (5) | (32) | - | (37) | (9) | (2) | - | (11) |
Purchases/originations | 178 | 8 | 3 | 189 | 195 | 2 | 3 | 200 |
Settlements/other decreases | (70) | (8) | (7) | (85) | (51) | - | - | (51) |
Sales | (137) | (66) | (52) | (255) | (116) | - | - | (116) |
Foreign exchange and other adjustments | (2) | (1) | 1 | (2) | (2) | - | - | (2) |
At 31 December | 843 | 223 | 205 | 1,271 | 700 | 3 | 3 | 706 |
Amounts recorded in the income | ||||||||
statement in respect of balances held | ||||||||
at period end - unrealised | 67 | (39) | 3 | 31 | (130) | - | - | (130) |
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
118
NWM Plc | ||||||||
Other | Other | Other | Other | |||||
Derivatives | trading | financial | Total | Derivatives | trading | financial | Total | |
assets | assets (2) | assets (3) | assets | liabilities | liabilities (2) | liabilities | liabilities | |
2024 | £m | £m | £m | £m | £m | £m | £m | £m |
At 1 January | 816 | 207 | 198 | 1,221 | 598 | 3 | - | 601 |
Amounts recorded in the income | ||||||||
statement (1) | (136) | (18) | - | (154) | (77) | - | - | (77) |
Amount recorded in the statement of | ||||||||
comprehensive income | - | - | 3 | 3 | - | - | - | - |
Level 3 transfers in | 7 | - | - | 7 | 1 | 2 | - | 3 |
Level 3 transfers out | (3) | (19) | - | (22) | (2) | (2) | - | (4) |
Purchases/originations | 138 | 23 | 3 | 164 | 103 | 1 | - | 104 |
Settlements/other decreases | (44) | (12) | (18) | (74) | (32) | - | - | (32) |
Sales | (179) | - | (3) | (182) | (185) | (2) | - | (187) |
Foreign exchange and other adjustments | 1 | - | - | 1 | (1) | (1) | - | (2) |
At 31 December | 600 | 181 | 183 | 964 | 405 | 1 | - | 406 |
Amounts recorded in the income statement | ||||||||
in respect of balances held at period end | ||||||||
- unrealised | 12 | 1 | - | 13 | 38 | - | - | 38 |
2023 | ||||||||
At 1 January | 988 | 348 | 205 | 1,541 | 857 | 1 | - | 858 |
Amounts recorded in the income | ||||||||
statement (1) | (142) | (92) | 3 | (231) | (251) | - | - | (251) |
Amount recorded in the statement of | ||||||||
comprehensive income | - | - | 21 | 21 | - | - | - | - |
Level 3 transfers in | 6 | 15 | - | 21 | 5 | 2 | - | 7 |
Level 3 transfers out | (5) | (7) | - | (12) | (6) | (2) | - | (8) |
Purchases/originations | 178 | 2 | - | 180 | 151 | 2 | - | 153 |
Settlements/other decreases | (70) | (1) | (7) | (78) | (43) | - | - | (43) |
Sales | (137) | (60) | (26) | (223) | (116) | - | - | (116) |
Foreign exchange and other adjustments | (2) | 2 | 2 | 2 | 1 | - | - | 1 |
At 31 December | 816 | 207 | 198 | 1,221 | 598 | 3 | - | 601 |
Amounts recorded in the income statement | ||||||||
in respect of balances held at period end | ||||||||
- unrealised | 62 | (39) | 3 | 26 | (108) | - | - | (108) |
(1)
For NWM Group, net losses on trading assets and liabilities of £23 million (2023 – £84 million net gains) were recorded in income from trading activities. Net gains on other
instruments of £1 million (2023 – £3 million net gains) were recorded in other operating income and interest income as appropriate. For NWM Plc, net losses on trading assets and
liabilities of £77 million (2023 – £17 million net gains) were recorded in income from trading activities. Net losses on other instruments of nil (2023 – £3 million net gains) were
recorded in other operating income and interest income as appropriate.
(2)
Other trading assets and other trading liabilities comprise assets and liabilities held at fair value in trading portfolios.
(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.
Notes to the consolidated financial statements continued
10 Financial instruments – valuation continued
NWM Group
Annual Report and Accounts 2024
119
Fair value of financial instruments measured at amortised cost on the balance sheet
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance sheet.
| NWM Group | |||||
Items where fair | |||||
Carrying | Fair | Fair value hierarchy level | value approximates | ||
value | value | Level 2 | Level 3 | carrying value | |
2024 | £bn | £bn | £bn | £bn | £bn |
Financial assets | |||||
Cash and balances at central banks | 16.2 | 16.2 | - | - | 16.2 |
Settlement balances | 2.0 | 2.0 | - | - | 2.0 |
Loans to banks | 1.2 | 1.2 | 0.5 | - | 0.7 |
Loans to customers | 17.9 | 17.9 | 3.1 | 14.8 | - |
Amounts due from holding company | |||||
and fellow subsidiaries | 0.3 | 0.3 | - | 0.2 | 0.1 |
Other financial assets - securities | 13.2 | 13.3 | 5.6 | 7.7 | - |
2023 | |||||
Financial assets | |||||
Cash and balances at central banks | 13.8 | 13.8 | - | - | 13.8 |
Settlement balances | 7.2 | 7.2 | - | - | 7.2 |
Loans to banks | 1.2 | 1.2 | 0.2 | 0.1 | 0.9 |
Loans to customers | 13.0 | 13.0 | 1.6 | 11.4 | - |
Amounts due from holding company | |||||
and fellow subsidiaries | 1.3 | 1.3 | - | 1.2 | 0.1 |
Other financial assets - securities | 11.6 | 11.5 | 0.9 | 10.6 | - |
2024 | |||||
Financial liabilities | |||||
Bank deposits | 4.6 | 4.6 | 2.5 | 2.0 | 0.1 |
Customer deposits | 4.8 | 4.8 | 0.5 | 4.2 | 0.1 |
Amounts due to holding company | |||||
and fellow subsidiaries | 6.1 | 6.1 | 5.5 | 0.6 | - |
Settlement balances | 1.7 | 1.7 | - | - | 1.7 |
Other financial liabilities | |||||
Debt securities in issue | 27.7 | 27.7 | 22.8 | 4.9 | - |
2023 | |||||
Financial liabilities | |||||
Bank deposits | 2.3 | 2.3 | 0.5 | 1.7 | 0.1 |
Customer deposits | 7.0 | 7.0 | 0.4 | 6.5 | 0.1 |
Amounts due to holding company | |||||
and fellow subsidiaries | 4.7 | 4.7 | 4.1 | 0.6 | - |
Settlement balances | 6.6 | 6.6 | - | - | 6.6 |
Other financial liabilities | |||||
Debt securities in issue | 20.4 | 20.2 | 16.5 | 3.7 | - |
10 Financial instruments – valuation continued
Fair value of financial instruments measured at amortised cost on the balance sheet continued
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
120
| NWM Plc | |||||
Items where fair | |||||
Carrying | Fair | Fair value hierarchy level | value approximates | ||
value | value | Level 2 | Level 3 | carrying value | |
2024 | £bn | £bn | £bn | £bn | £bn |
Financial assets | |||||
Cash and balances at central banks | 11.1 | 11.1 | - | - | 11.1 |
Settlement balances | 0.6 | 0.6 | - | - | 0.6 |
Loans to banks | 0.9 | 0.9 | 0.4 | - | 0.5 |
Loans to customers | 17.1 | 17.1 | 3.1 | 14.0 | - |
Amounts due from holding company | |||||
and fellow subsidiaries | 2.2 | 2.2 | - | 2.0 | 0.2 |
Other financial assets - securities | 11.9 | 12.0 | 5.5 | 6.5 | - |
2023 | |||||
Financial assets | |||||
Cash and balances at central banks | 8.6 | 8.6 | - | - | 8.6 |
Settlement balances | 2.2 | 2.2 | - | - | 2.2 |
Loans to banks | 0.9 | 0.9 | 0.2 | 0.1 | 0.6 |
Loans to customers | 12.1 | 12.1 | 1.6 | 10.5 | - |
Amounts due from holding company | |||||
and fellow subsidiaries | 2.9 | 2.8 | - | 2.6 | 0.2 |
Other financial assets - securities | 9.6 | 9.6 | 0.7 | 8.9 | - |
2024 | |||||
Financial liabilities | |||||
Bank deposits | 4.1 | 4.1 | 2.5 | 1.5 | 0.1 |
Customer deposits | 2.4 | 2.4 | 0.5 | 1.8 | 0.1 |
Amounts due to holding company | |||||
and fellow subsidiaries | 6.8 | 6.8 | 5.5 | 1.2 | 0.1 |
Settlement balances | 0.4 | 0.4 | - | - | 0.4 |
Other financial liabilities | |||||
Debt securities in issue | 25.5 | 25.5 | 21.5 | 4.0 | - |
2023 | |||||
Financial liabilities | |||||
Bank deposits | 1.9 | 2.0 | 0.5 | 1.4 | 0.1 |
Customer deposits | 3.1 | 3.1 | 0.4 | 2.6 | 0.1 |
Amounts due to holding company | |||||
and fellow subsidiaries | 6.5 | 6.5 | 4.1 | 1.4 | 1.0 |
Settlement balances | 0.4 | 0.4 | - | - | 0.4 |
Other financial liabilities | |||||
Debt securities in issue | 18.5 | 18.2 | 15.2 | 3.0 | - |
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are as
follows:
Short-term financial instruments
For certain short-term financial instruments, including but not
limited to; cash and balances at central banks, settlement
balances, loans with short-term maturities and customer demand
deposits, carrying value is deemed a reasonable approximation of
fair value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks
measured at amortised cost, NWM Group’s loans are segregated
into appropriate portfolios reflecting the characteristics of the
constituent loans. Loans are valued using contractual cashflows
that are discounted using a market discount rate that
incorporates the current spread for the borrower or where this is
not observable, the spread for borrowers of a similar credit
standing.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active
markets or from quoted prices of similar financial instruments.
The remaining population is valued using discounted cashflows at
current offer rates.
Fair values of deposits are estimated using contractual cashflows
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
121
Remaining maturity
The following table shows the residual maturity of financial instruments, based on contractual date of maturity:
| NWM Group | ||||||
| 2024 | 2023 | |||||
Less than | More than | Less than | More than | |||
12 months | 12 months | Total | 12 months | 12 months | Total | |
£m | £m | £m | £m | £m | £m | |
Assets | ||||||
Cash and balances at central banks | 16,229 | - | 16,229 | 13,831 | - | 13,831 |
Trading assets | 37,134 | 11,749 | 48,883 | 36,496 | 8,828 | 45,324 |
Derivatives | 33,968 | 44,137 | 78,105 | 29,995 | 49,337 | 79,332 |
Settlement balances | 2,043 | - | 2,043 | 7,227 | - | 7,227 |
Loans to banks - amortised cost | 1,152 | 19 | 1,171 | 1,246 | - | 1,246 |
Loans to customers - amortised cost | 8,157 | 9,764 | 17,921 | 5,032 | 7,954 | 12,986 |
Amounts due from holding company and fellow subsidiaries (1) | 271 | 18 | 289 | 1,462 | 74 | 1,536 |
Other financial assets | 1,239 | 16,611 | 17,850 | 1,453 | 14,270 | 15,723 |
Liabilities | ||||||
Bank deposits | 4,056 | 509 | 4,565 | 1,622 | 645 | 2,267 |
Customer deposits | 4,784 | 56 | 4,840 | 6,990 | 8 | 6,998 |
Amounts due to holding company and fellow subsidiaries (2) | 2,136 | 4,553 | 6,689 | 2,897 | 2,827 | 5,724 |
Settlement balances | 1,729 | - | 1,729 | 6,641 | - | 6,641 |
Trading liabilities | 44,481 | 10,031 | 54,512 | 45,336 | 8,287 | 53,623 |
Derivatives | 34,172 | 37,864 | 72,036 | 30,433 | 41,548 | 71,981 |
Other financial liabilities | 14,997 | 16,266 | 31,263 | 8,181 | 15,393 | 23,574 |
Lease liabilities | 9 | 32 | 41 | 8 | 33 | 41 |
| NWM Plc | ||||||
| 2024 | 2023 | |||||
Less than | More than | Less than | More than | |||
12 months | 12 months | Total | 12 months | 12 months | Total | |
£m | £m | £m | £m | £m | £m | |
Assets | ||||||
Cash and balances at central banks | 11,069 | - | 11,069 | 8,607 | - | 8,607 |
Trading assets | 17,697 | 8,489 | 26,186 | 21,047 | 7,364 | 28,411 |
Derivatives | 33,889 | 41,093 | 74,982 | 29,990 | 45,842 | 75,832 |
Settlement balances | 550 | - | 550 | 2,168 | - | 2,168 |
Loans to banks - amortised cost | 878 | 19 | 897 | 910 | - | 910 |
Loans to customers - amortised cost | 7,730 | 9,359 | 17,089 | 4,745 | 7,359 | 12,104 |
Amounts due from holding company and fellow subsidiaries (1) | 2,363 | 893 | 3,256 | 5,145 | 1,093 | 6,238 |
Other financial assets | 736 | 15,345 | 16,081 | 916 | 12,528 | 13,444 |
Liabilities | ||||||
Bank deposits | 3,601 | 468 | 4,069 | 1,351 | 558 | 1,909 |
Customer deposits | 2,305 | 45 | 2,350 | 3,059 | 1 | 3,060 |
Amounts due to holding company and fellow subsidiaries (2) | 5,796 | 4,864 | 10,660 | 11,439 | 2,827 | 14,266 |
Settlement balances | 444 | - | 444 | 400 | - | 400 |
Trading liabilities | 21,797 | 8,333 | 30,130 | 27,341 | 6,738 | 34,079 |
Derivatives | 34,081 | 35,935 | 70,016 | 30,234 | 39,170 | 69,404 |
Other financial liabilities | 13,383 | 14,583 | 27,966 | 6,149 | 14,506 | 20,655 |
Lease liabilities | 2 | 3 | 5 | 2 | - | 2 |
(1)
Amounts due from holding company and fellow subsidiaries relating to non-financial instruments of £54 million (2023 – £194 million) for NWM Group and £85 million (2023 - £234 million)
for NWM Plc have been excluded from the tables.
(2)
Amounts due to holding company and fellow subsidiaries relating to non-financial instruments of £82 million (2023 - £78 million) for NWM Group and £97 million (2023 - £119 million) for
NWM Plc have been excluded from the tables.
Notes to the consolidated financial statements continued
11 Financial instruments - maturity analysis continued
NWM Group
Annual Report and Accounts 2024
122
Assets and liabilities by contractual cash flows up to
20 years
The tables below show the contractual undiscounted cash flows
receivable and payable, up to a period of 20 years, including
future receipts and payments of interest of financial assets and
liabilities by contractual maturity. The balances in the following
tables do not agree directly with the consolidated balance sheet,
as the tables include all cash flows relating to principal and future
coupon payments, presented on an undiscounted basis. The
tables have been prepared on the following basis:
Financial assets have been reflected in the time band of the latest
date on which they could be repaid, unless earlier repayment can
be demanded by NWM Group. Financial liabilities are included at
the earliest date on which the counterparty can require
repayment, regardless of whether or not such early repayment
results in a penalty. If repayment is triggered by, or is subject to,
specific criteria such as market price hurdles being reached, the
asset is included in the time band that contains the latest date on
which it can be repaid, regardless of early repayment. The
liability is included in the time band that contains the earliest
possible date on which the conditions could be fulfilled, without
considering the probability of the conditions being met.
For
example, if a structured note is automatically prepaid when an
equity index exceeds a certain level, the cash outflow will be
included in the less than three months’ period whatever the level
of the index at the year end.
The settlement date of debt securities in issue, issued by certain
securitisation vehicles consolidated by NWM Group depends on
when cash flows are received from the securitised assets. Where
these assets are prepayable, the timing of the cash outflow
relating to securities assumes that each asset will be prepaid at
the earliest possible date. As the repayments of assets and
liabilities are linked, the repayment of assets in securitisations is
shown on the earliest date that the asset can be prepaid, as this
is the basis used for liabilities.
The principal amounts of financial liabilities that are repayable
after 20 years or where the counterparty has no right to
repayment of the principal, are excluded from the table along
with interest payments after 20 years.
The maturity of guarantees and commitments is based on the
earliest possible date they would be drawn in order to evaluate
NWM Group’s liquidity position.
MFVTPL assets of £127 billion (2023 - £125 billion) for NWM
Group, £102 billion (2023 - £107 billion) for NWM Plc, HFT
liabilities of £127 billion (2023 - £126 billion) for NWM Group and
£104 billion (2023 - £111 billion) for NWM Plc have been excluded
from the following tables.
Notes to the consolidated financial statements continued
11 Financial instruments - maturity analysis continued
NWM Group
Annual Report and Accounts 2024
123
| NWM Group | ||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | 10-20 years | |
2024 | £m | £m | £m | £m | £m | £m |
Assets by contractual maturity up to 20 years | ||||||
Cash and balances at central banks | 16,229 | - | - | - | - | - |
Derivatives held for hedging | (9) | 28 | 51 | 28 | 5 | 8 |
Settlement balances | 2,043 | - | - | - | - | - |
Loans to banks - amortised cost | 1,148 | 5 | 20 | - | - | - |
Loans to customers - amortised cost | 3,221 | 5,741 | 3,790 | 4,093 | 3,781 | 283 |
Amounts due from holding company and fellow subsidiaries (1) | 242 | - | - | - | - | - |
Other financial assets (2) | 1,226 | 948 | 3,862 | 1,621 | 4,769 | 4,940 |
Finance lease | - | - | - | - | - | - |
24,100 | 6,722 | 7,723 | 5,742 | 8,555 | 5,231 | |
2024 | ||||||
Liabilities by contractual maturity up to 20 years | ||||||
Bank deposits | 2,945 | 1,117 | 429 | 81 | - | - |
Customer deposits | 3,483 | 1,332 | 51 | - | - | 14 |
Amounts due to holding company and fellow subsidiaries (3) | 339 | 1,184 | 1,757 | 2,667 | 128 | - |
Settlement balances | 1,729 | - | - | - | - | - |
Derivatives held for hedging | 31 | 290 | 271 | 155 | 2 | - |
Other financial liabilities | 4,733 | 8,498 | 12,496 | 4,582 | 501 | 550 |
Lease liabilities | 2 | 7 | 16 | 10 | 6 | - |
13,262 | 12,428 | 15,020 | 7,495 | 637 | 564 | |
Guarantees and commitments notional amount (4) | ||||||
Guarantees (5) | 696 | - | - | - | - | - |
Commitments (6) | 13,107 | - | - | - | - | - |
13,803 | - | - | - | - | - | |
| NWM Group | ||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | 10-20 years | |
2023 | £m | £m | £m | £m | £m | £m |
Assets by contractual maturity up to 20 years | ||||||
Cash and balances at central banks | 13,831 | - | - | - | - | - |
Derivatives held for hedging | (1) | (13) | 47 | 63 | 7 | 2 |
Settlement balances | 7,227 | - | - | - | - | - |
Loans to banks - amortised cost | 1,228 | 19 | - | - | - | - |
Loans to customers - amortised cost | 2,189 | 3,924 | 4,926 | 2,111 | 1,799 | 93 |
Amounts due from holding company and fellow subsidiaries (1) | 1,189 | - | 1 | - | 8 | 65 |
Other financial assets (2) | 1,109 | 1,039 | 2,334 | 1,606 | 4,266 | 4,765 |
Finance lease | - | - | 1 | - | - | - |
26,772 | 4,969 | 7,309 | 3,780 | 6,080 | 4,925 | |
2023 | ||||||
Liabilities by contractual maturity up to 20 years | ||||||
Bank deposits | 1,087 | 541 | 645 | - | - | - |
Customer deposits | 5,317 | 1,708 | 3 | 1 | 2 | 19 |
Amounts due to holding company and fellow subsidiaries (3) | 1,434 | 435 | 1,730 | 915 | 183 | - |
Settlement balances | 6,641 | - | - | - | - | - |
Derivatives held for hedging | 28 | 110 | 199 | 84 | 14 | - |
Other financial liabilities | 2,400 | 6,183 | 10,075 | 4,166 | 348 | 505 |
Lease liabilities | 1 | 4 | 9 | 15 | 12 | - |
16,908 | 8,981 | 12,661 | 5,181 | 559 | 524 | |
Guarantees and commitments notional amount (4) | ||||||
Guarantees (5) | 754 | - | - | - | - | - |
Commitments (6) | 13,789 | - | - | - | - | - |
14,543 | - | - | - | - | - | |
For notes to the above table refer to the following page.
Notes to the consolidated financial statements continued
11 Financial instruments - maturity analysis continued
NWM Group
Annual Report and Accounts 2024
124
| NWM Plc | ||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | 10-20 years | |
2024 | £m | £m | £m | £m | £m | £m |
Assets by contractual maturity up to 20 years | ||||||
Cash and balances at central banks | 11,069 | - | - | - | - | - |
Derivatives held for hedging | (9) | 28 | 51 | 28 | 5 | 8 |
Settlement balances | 550 | - | - | - | - | - |
Loans to banks - amortised cost | 879 | 1 | 20 | - | - | - |
Loans to customers - amortised cost | 3,156 | 5,343 | 3,605 | 3,908 | 3,695 | 283 |
Amounts due from holding company and fellow subsidiaries (1) | 1,001 | 283 | 520 | 372 | - | - |
Other financial assets (2) | 894 | 835 | 3,800 | 1,572 | 4,528 | 4,565 |
17,540 | 6,490 | 7,996 | 5,880 | 8,228 | 4,856 | |
2024 | ||||||
Liabilities by contractual maturity up to 20 years | ||||||
Bank deposits | 2,741 | 862 | 387 | 81 | - | - |
Customer deposits | 1,604 | 722 | 47 | - | - | - |
Amounts due to holding company and fellow subsidiaries (3) | 581 | 1,318 | 1,857 | 2,878 | 128 | - |
Settlement balances | 444 | - | - | - | - | - |
Derivatives held for hedging | 31 | 290 | 271 | 155 | 2 | - |
Other financial liabilities | 4,002 | 7,605 | 11,742 | 4,271 | 298 | 116 |
Lease liabilities | 1 | 2 | 3 | - | - | - |
9,404 | 10,799 | 14,307 | 7,385 | 428 | 116 | |
Guarantees and commitments notional amount (4) | ||||||
Guarantees (5) | 272 | - | - | - | - | - |
Commitments (6) | 7,384 | - | - | - | - | - |
7,656 | - | - | - | - | - | |
| NWM Plc | ||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | 10-20 years | |
2023 | £m | £m | £m | £m | £m | £m |
Assets by contractual maturity up to 20 years | ||||||
Cash and balances at central banks | 8,607 | - | - | - | - | - |
Derivatives held for hedging | (1) | (13) | 46 | 62 | 6 | 2 |
Settlement balances | 2,168 | - | - | - | - | - |
Loans to banks - amortised cost | 892 | 19 | - | - | - | - |
Loans to customers - amortised cost | 2,136 | 3,632 | 4,505 | 1,932 | 1,751 | 93 |
Amounts due from holding company and fellow subsidiaries (1) | 1,692 | 132 | 742 | 277 | 8 | 65 |
Other financial assets (2) | 956 | 816 | 2,186 | 1,596 | 3,986 | 3,914 |
16,450 | 4,586 | 7,479 | 3,867 | 5,751 | 4,074 | |
2023 | ||||||
Liabilities by contractual maturity up to 20 years | ||||||
Bank deposits | 1,075 | 280 | 558 | - | - | - |
Customer deposits | 1,911 | 1,172 | 3 | 1 | 2 | 3 |
Amounts due to holding company and fellow subsidiaries (3) | 3,194 | 435 | 1,729 | 915 | 183 | - |
Settlement balances | 400 | - | - | - | - | - |
Derivatives held for hedging | 29 | 109 | 199 | 84 | 14 | - |
Other financial liabilities | 1,702 | 4,703 | 9,920 | 3,898 | 340 | 167 |
Lease liabilities | - | 1 | - | - | - | - |
8,311 | 6,700 | 12,409 | 4,898 | 539 | 170 | |
Guarantees and commitments notional amount (4) | ||||||
Guarantees (5) | 296 | - | - | - | - | - |
Commitments (6) | 7,798 | - | - | - | - | - |
8,094 | - | - | - | - | - | |
(1)
Amounts due from holding company and fellow subsidiaries relating to non-financial instruments have been excluded from the tables.
(2)
Other financial assets excludes equity shares.
(3)
Amounts due to holding company and fellow subsidiaries relating to non-financial instruments have been excluded from the tables.
(4)
Refer to Note 25 Memorandum items – Contingent liabilities and commitments.
(5)
NWM Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. NWM Group expects most guarantees it provides to expire unused.
(6)
NWM 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 met
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
125
Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
Assets | £m | £m | £m | £m |
Loans | ||||
Reverse repos | 27,127 | 23,694 | 10,099 | 11,315 |
Collateral given | 7,333 | 8,914 | 5,606 | 7,263 |
Other loans | 545 | 762 | 397 | 645 |
Total loans | 35,005 | 33,370 | 16,102 | 19,223 |
Securities | ||||
Central and local government | ||||
- UK | 2,077 | 2,729 | 2,077 | 2,729 |
- US | 3,734 | 2,600 | 186 | 33 |
- Other | 3,506 | 3,062 | 3,506 | 3,062 |
Financial institutions and Corporate | 4,561 | 3,563 | 4,315 | 3,364 |
Total securities | 13,878 | 11,954 | 10,084 | 9,188 |
Total | 48,883 | 45,324 | 26,186 | 28,411 |
Liabilities | ||||
Deposits | ||||
Repos | 30,562 | 26,902 | 10,293 | 12,125 |
Collateral received | 12,307 | 15,062 | 9,993 | 12,455 |
Other deposits | 895 | 1,150 | 851 | 1,127 |
Total deposits | 43,764 | 43,114 | 21,137 | 25,707 |
Debt securities in issue | 257 | 706 | 257 | 706 |
Short positions | ||||
Central and local government | ||||
- UK | 2,680 | 1,893 | 2,680 | 1,893 |
- US | 1,677 | 2,071 | 14 | 17 |
- Other | 4,755 | 4,049 | 4,755 | 4,033 |
Financial institutions and Corporate | 1,379 | 1,790 | 1,287 | 1,723 |
Total short positions | 10,491 | 9,803 | 8,736 | 7,666 |
Total | 54,512 | 53,623 | 30,130 | 34,079 |
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
126
NWM Group uses derivatives as part of its trading activities or to manage its own risk such as interest rate, foreign exchange, or credit
risk.
| NWM Group |
|||||||||
| Notional |
Asset |
Liability |
|||||||
Traded on |
Traded on |
Traded on |
|||||||
recognised |
Traded over |
recognised |
Traded over |
recognised |
Traded over |
||||
exchanges |
the counter |
Total |
exchanges |
the counter |
Total |
exchanges |
the counter |
Total |
|
2024 |
£bn |
£bn |
£bn |
£m |
£m |
£m |
£m |
£m |
£m |
Interest rate |
1,067 |
8,706 |
9,773 |
20 |
37,482 |
37,502 |
2 |
31,508 |
31,510 |
- Swaps |
- |
6,452 |
6,452 |
- |
28,952 |
28,952 |
- |
23,091 |
23,091 |
- Options |
737 |
1,492 |
2,229 |
20 |
8,530 |
8,550 |
2 |
8,417 |
8,419 |
- Forwards and futures |
330 |
762 |
1,092 |
- |
- |
- |
- |
- |
- |
Exchange rate |
1 |
3,260 |
3,261 |
6 |
40,486 |
40,492 |
15 |
40,276 |
40,291 |
- Swaps |
- |
453 |
453 |
- |
8,407 |
8,407 |
- |
8,162 |
8,162 |
- Options |
1 |
851 |
852 |
6 |
5,385 |
5,391 |
15 |
5,561 |
5,576 |
- Spot, forwards and futures |
- |
1,956 |
1,956 |
- |
26,694 |
26,694 |
- |
26,553 |
26,553 |
Credit |
- |
13 |
13 |
- |
111 |
111 |
- |
235 |
235 |
Equity and commodity |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Total |
1,068 |
11,979 |
13,047 |
26 |
78,079 |
78,105 |
17 |
72,019 |
72,036 |
2023 |
|||||||||
Interest rate |
819 |
8,870 |
9,689 |
48 |
44,895 |
44,943 |
34 |
38,258 |
38,292 |
- Swaps |
- |
5,952 |
5,952 |
- |
34,181 |
34,181 |
- |
27,191 |
27,191 |
- Options |
510 |
1,676 |
2,186 |
48 |
10,714 |
10,762 |
34 |
11,067 |
11,101 |
- Forwards and futures |
309 |
1,242 |
1,551 |
- |
- |
- |
- |
- |
- |
Exchange rate |
1 |
3,108 |
3,109 |
- |
34,208 |
34,208 |
- |
33,364 |
33,364 |
- Swaps |
- |
449 |
449 |
- |
8,150 |
8,150 |
- |
7,355 |
7,355 |
- Options |
1 |
674 |
675 |
- |
4,181 |
4,181 |
- |
4,197 |
4,197 |
- Spot, forwards and futures |
- |
1,985 |
1,985 |
- |
21,877 |
21,877 |
- |
21,812 |
21,812 |
Credit |
- |
16 |
16 |
- |
181 |
181 |
- |
325 |
325 |
Equity and commodity |
- |
- |
- |
- |
- |
- |
- |
- |
- |
Total |
820 |
11,994 |
12,814 |
48 |
79,284 |
79,332 |
34 |
71,947 |
71,981 |
Notes to the consolidated financial statements continued
13 Derivatives continued
NWM Group
Annual Report and Accounts 2024
127
| NWM Plc | |||||||||
| Notional | Asset | Liability | |||||||
Traded on | Traded on | Traded on | |||||||
recognised | Traded over | recognised | Traded over | recognised | Traded over | ||||
exchanges | the counter | Total | exchanges | the counter | Total | exchanges | the counter | Total | |
2024 | £bn | £bn | £bn | £m | £m | £m | £m | £m | £m |
Interest rate | 1,048 | 8,204 | 9,252 | 20 | 34,250 | 34,270 | 2 | 29,368 | 29,370 |
- Swaps | - | 6,003 | 6,003 | - | 25,964 | 25,964 | - | 21,141 | 21,141 |
- Options | 736 | 1,495 | 2,231 | 20 | 8,286 | 8,306 | 2 | 8,227 | 8,229 |
- Forwards and futures | 312 | 706 | 1,018 | - | - | - | - | - | - |
Exchange rate | 1 | 3,273 | 3,274 | 6 | 40,596 | 40,602 | 15 | 40,402 | 40,417 |
- Swaps | - | 454 | 454 | - | 8,444 | 8,444 | - | 8,174 | 8,174 |
- Options | 1 | 851 | 852 | 6 | 5,386 | 5,392 | 15 | 5,561 | 5,576 |
- Spot, forwards and futures | - | 1,968 | 1,968 | - | 26,766 | 26,766 | - | 26,667 | 26,667 |
Credit | - | 13 | 13 | - | 110 | 110 | - | 229 | 229 |
Equity and commodity | - | - | - | - | - | - | - | - | - |
Total | 1,049 | 11,490 | 12,539 | 26 | 74,956 | 74,982 | 17 | 69,999 | 70,016 |
2023 | |||||||||
Interest rate | 794 | 8,473 | 9,267 | 48 | 41,189 | 41,237 | 34 | 35,543 | 35,577 |
- Swaps | - | 5,607 | 5,607 | - | 30,760 | 30,760 | - | 24,769 | 24,769 |
- Options | 511 | 1,679 | 2,190 | 48 | 10,429 | 10,477 | 34 | 10,774 | 10,808 |
- Forwards and futures | 283 | 1,187 | 1,470 | - | - | - | - | - | - |
Exchange rate | - | 3,116 | 3,116 | - | 34,415 | 34,415 | - | 33,508 | 33,508 |
- Swaps | - | 449 | 449 | - | 8,154 | 8,154 | - | 7,360 | 7,360 |
- Options | - | 673 | 673 | - | 4,184 | 4,184 | - | 4,194 | 4,194 |
- Spot, forwards and futures | - | 1,994 | 1,994 | - | 22,077 | 22,077 | - | 21,954 | 21,954 |
Credit | - | 15 | 15 | - | 180 | 180 | - | 319 | 319 |
Equity and commodity | - | - | - | - | - | - | - | - | - |
Total | 794 | 11,604 | 12,398 | 48 | 75,784 | 75,832 | 34 | 69,370 | 69,404 |
Included in the tables above is the notional amount of £6,733 billion (2023 - £6,677 billion) for NWM Group and £6,057 billion (2023 -
£6,063 billion) for NWM Plc of interest rate derivatives that are traded over the counter and settled through central clearing. NWM
Group and NWM Plc has no other type of derivatives that are settled through central counterparties.
Notes to the consolidated financial statements continued
13 Derivatives continued
NWM Group
Annual Report and Accounts 2024
128
Hedge accounting using derivatives
For accounting policy information refer to Accounting policies 3.5
and 3.9.
Refer to Note 31 for amounts due from/to fellow NatWest Group
subsidiaries.
NWM Group applies hedge accounting to reduce the accounting
mismatch caused in the income statement by using derivatives to
hedge the following risks: interest rate, foreign exchange and the
foreign exchange risk associated with net investment in foreign
operations.
NWM Group’s interest rate hedging relates to the management of
NWM Group’s non-trading structural interest rate risk, caused by
the mismatch between fixed interest rates and floating interest
rates on its financial instruments. NWM Group manages this risk
within approved limits. Residual risk positions are hedged with
derivatives, principally interest rate swaps.
Cash flow hedges of interest rate risk relate to exposures to the
variability in future interest payments and receipts due to the
movement of interest rates on forecast transactions and on
financial assets and financial liabilities. This variability in cash flows
is hedged by interest rate swaps, which convert variable cash
flows into fixed. For these cash flow hedge relationships, the
hedged items are actual and forecast variable interest rate cash
flows arising from financial assets and financial liabilities with
interest rates linked to the relevant interest rates, most notably
SOFR, EURIBOR, European Central Bank deposit rate, SONIA and
the Bank of England Official Bank Rate. The variability in cash
flows due to movements in the relevant interest rate is hedged;
this risk component is identified using the risk management
systems of NWM Group and encompasses the majority of cash
flow variability risk.
Suitable larger fixed rate financial instruments are subject to fair
value hedging in line with documented risk management
strategies.
Fair value hedges of interest rate risk involve interest rate swaps
transforming the fixed interest rate risk in financial assets and
financial liabilities to floating. The hedged risk is the risk of
changes in the hedged item’s fair value attributable to changes in
the interest rate risk component of the hedged item. The
significant interest rates identified as risk components are SOFR,
EURIBOR and SONIA. These risk components are identified using
the risk management systems of NWM Group and encompass the
majority of the hedged item’s fair value risk.
NWM Group hedges the exchange rate risk of its net investment
in foreign currency denominated operations with currency
borrowings and forward foreign exchange contracts.
NWM Group reviews the value of the investments’ net assets,
executing hedges where appropriate to reduce the sensitivity of
capital ratios to foreign exchange rate movement. Hedge
accounting relationships will be designated where required.
Exchange rate risk also arises in NWM Group where payments
are denominated in currencies other than the functional currency.
Residual risk positions are hedged with cross currency basis
swaps fixing the exchange rate the payments will be settled in.
The derivatives are documented as cash flow hedges.
For all cash flow hedging, fair value hedge relationships and net
investment hedging, NWM Group determines that there is an
economic relationship between the hedged item and hedging
instrument via assessing the initial and ongoing effectiveness by
comparing movements in the fair value of the expected highly
probable forecast interest cash flows/ fair value of the hedged
item attributable to the hedged risk with movements in the fair
value of the expected changes in cash flows from the hedging
instrument. The method used for comparing movements is either
regression testing, or the dollar offset method. The method for
testing effectiveness and the period over which the test is
performed depends on the applicable risk management strategy
and is applied consistently to each risk management strategy.
Hedge effectiveness is assessed on a cumulative basis and the
determination of effectiveness is in line with the requirements of
IAS 39.
NWM Group uses either the actual ratio between the hedged item
and hedging instrument(s) or one that minimises hedge
ineffectiveness to establish the hedge ratio for hedge accounting.
Hedge ineffectiveness is measured in line with the requirements of
IAS 39 and recognised in the income statement as it arises.
Notes to the consolidated financial statements continued
13 Derivatives continued
NWM Group
Annual Report and Accounts 2024
129
Derivatives in hedge accounting relationships
Included in the table below are derivatives held for hedging as follows.
NWM Group | ||||||||
2024 | 2023 | |||||||
Changes in fair | ||||||||
value used for | Changes in fair | |||||||
hedge | value used for hedge | |||||||
Notional | Assets | Liabilities | ineffectiveness (1) | Notional | Assets | Liabilities | ineffectiveness (1) | |
£bn | £m | £m | £m | £bn | £m | £m | £m | |
Fair value hedging | ||||||||
Interest rate contracts (2) | 22.7 | 215 | 472 | 241 | 18.9 | 260 | 611 | 372 |
Cash flow hedging | ||||||||
Interest rate contracts | 6.2 | 27 | 355 | 3 | 5.7 | 45 | 368 | 206 |
Exchange rate contracts | 8.3 | 110 | 455 | 3 | 5.5 | 104 | 251 | - |
Net investment hedging | ||||||||
Exchange rate contracts (2) | 0.1 | - | - | - | 0.1 | 2 | - | (2) |
37.3 | 352 | 1,282 | 247 | 30.2 | 411 | 1,230 | 576 | |
IFRS netting and clearing | ||||||||
house settlements | (242) | (808) | (293) | (963) | ||||
110 | 474 | 118 | 267 | |||||
NWM Plc | ||||||||
2024 | 2023 | |||||||
Changes in fair | ||||||||
value used for | Changes in fair | |||||||
hedge | value used for hedge | |||||||
Notional | Assets | Liabilities | ineffectiveness (1) | Notional | Assets | Liabilities | ineffectiveness (1) | |
£bn | £m | £m | £m | £bn | £m | £m | £m | |
Fair value hedging | ||||||||
Interest rate contracts (2) | 22.5 | 214 | 471 | 242 | 18.7 | 261 | 609 | 371 |
Cash flow hedging | ||||||||
Interest rate contracts | 5.1 | 5 | 354 | (2) | 4.3 | 23 | 364 | 173 |
Exchange rate contracts | 8.3 | 110 | 455 | 3 | 5.5 | 104 | 251 | - |
Net investment hedging | ||||||||
Exchange rate contracts | 0.1 | - | - | - | 0.1 | 2 | - | (2) |
36.0 | 329 | 1,280 | 243 | 28.6 | 390 | 1,224 | 542 | |
IFRS netting and clearing | ||||||||
house settlements | (219) | (806) | (272) | (957) | ||||
110 | 474 | 118 | 267 | |||||
(1)
The change in fair value per hedge ineffectiveness includes instruments that were derecognised in the year.
(2)
In addition to the derivative hedging instruments above, £1,134 million notional (2023 - £840 million) of non-derivative hedging instruments with a carrying value of £1,152 million (2023 -
£846 million) were used in net investment hedges. The non-derivative instruments are other financial liabilities, specifically debt securities in issue.
Notes to the consolidated financial statements continued
13 Derivatives continued
NWM Group
Annual Report and Accounts 2024
130
Hedge ineffectiveness
Hedge ineffectiveness recognised in other operating income in continuing operations comprised.
NWM Group | ||
2024 | 2023 | |
£m | £m | |
Fair value hedging | ||
Loss on hedged items attributable to the hedged risk | (241) | (370) |
Gain on the hedging instruments | 241 | 372 |
Fair value hedging ineffectiveness | - | 2 |
Cash flow hedging | ||
Interest rate risk | - | 1 |
Cash flow hedging ineffectiveness | - | 1 |
Total | - | 3 |
The main sources of ineffectiveness for interest rate risk hedge accounting relationships are:
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
hedged item attributable to the change in interest rate (fair value hedge);
Differences in the repricing basis between the hedging instrument and hedged cash flows (cash flow hedge); and
Upfront present values on the hedging derivatives where hedge accounting relationships have been designated after the trade
date (cash flow hedge and fair value hedge).
Notes to the consolidated financial statements continued
13 Derivatives continued
NWM Group
Annual Report and Accounts 2024
131
Maturity of notional hedging contracts
The following table shows the period in which notional of the hedging contract ends.
| NWM Group | |||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | Over 10 years | Total | |
2024 | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
Fair value hedging | |||||||
Interest rate risk | |||||||
Hedging assets | - | 0.4 | 2.7 | 0.6 | 0.2 | 0.2 | 4.1 |
Hedging liabilities | 0.8 | 3.3 | 6.7 | 6.8 | 1.0 | - | 18.6 |
2023 | |||||||
Fair value hedging | |||||||
Interest rate risk | |||||||
Hedging assets | - | - | 1.2 | 1.4 | 0.7 | 0.2 | 3.5 |
Hedging liabilities | 0.9 | 1.3 | 7.0 | 4.5 | 1.5 | 0.2 | 15.4 |
2024 | |||||||
Cash flow hedging | |||||||
Interest rate risk | |||||||
Hedging assets | 0.1 | 1.5 | 1.1 | 0.9 | 2.6 | - | 6.2 |
Exchange rate risk | |||||||
Hedging liabilities | - | 2.3 | 2.7 | 3.3 | - | - | 8.3 |
2023 | |||||||
Cash flow hedging | |||||||
Interest rate risk | |||||||
Hedging assets | 0.1 | 0.6 | 2.1 | 0.9 | 2.0 | - | 5.7 |
Exchange rate risk | |||||||
Hedging liabilities | - | 0.5 | 2.3 | 2.5 | 0.2 | - | 5.5 |
| NWM Plc | |||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | Over 10 years | Total | |
2024 | £bn | £bn | £bn | £bn | £bn | £bn | £bn |
Fair value hedging | |||||||
Interest rate risk | |||||||
Hedging assets | - | 0.4 | 2.7 | 0.5 | 0.3 | 0.2 | 4.1 |
Hedging liabilities | 0.8 | 3.2 | 6.7 | 6.7 | 1.0 | - | 18.4 |
2023 | |||||||
Fair value hedging | |||||||
Interest rate risk | |||||||
Hedging assets | - | - | 1.2 | 1.4 | 0.7 | 0.2 | 3.5 |
Hedging liabilities | 0.9 | 1.0 | 7.0 | 4.5 | 1.6 | 0.2 | 15.2 |
2024 | |||||||
Cash flow hedging | |||||||
Interest rate risk | |||||||
Hedging assets | - | 1.4 | 0.7 | 0.7 | 2.3 | - | 5.1 |
Exchange rate risk | |||||||
Hedging liabilities | - | 2.3 | 2.7 | 3.3 | - | - | 8.3 |
2023 | |||||||
Cash flow hedging | |||||||
Interest rate risk | |||||||
Hedging assets | 0.1 | 0.4 | 1.6 | 0.7 | 1.5 | - | 4.3 |
Exchange rate risk | |||||||
Hedging liabilities | - | 0.5 | 2.3 | 2.5 | 0.2 | - | 5.5 |
Notes to the consolidated financial statements continued
13 Derivatives continued
NWM Group
Annual Report and Accounts 2024
132
Average fixed interest rates
Average fixed rate for cash flow hedges, interest rate risk.
| NWM Group | |||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | Over 10 years | Total | |
2024 | % | % | % | % | % | % | % |
Average fixed interest rate | |||||||
Hedging assets | 2.65 | 1.33 | 1.77 | 1.50 | 3.65 | - | 2.44 |
2023 | |||||||
Average fixed interest rate | |||||||
Hedging assets | 2.03 | 1.77 | 1.48 | 1.49 | 2.03 | - | 1.72 |
| NWM Plc | |||||||
0-3 months | 3-12 months | 1-3 years | 3-5 years | 5-10 years | Over 10 years | Total | |
2024 | % | % | % | % | % | % | % |
Average fixed interest rate | |||||||
Hedging assets | - | 1.15 | 1.28 | 1.24 | 3.81 | - | 2.38 |
2023 | |||||||
Average fixed interest rate | |||||||
Hedging assets | 1.37 | 1.35 | 1.12 | 1.10 | 1.80 | - | 1.38 |
Average foreign exchange rates
For cash flow hedging of exchange rate risk, the average foreign exchange rates applicable across the relationships for NWM Group
and NWM Plc were as below for the main currencies hedged.
2024 | 2023 | |
USD/GBP | 1.27 | 1.25 |
JPY/GBP | 132.89 | 132.89 |
JPY/USD | 130.79 | 129.75 |
NOK/USD | 9.21 | 9.21 |
Notes to the consolidated financial statements continued
13 Derivatives continued
NWM Group
Annual Report and Accounts 2024
133
Analysis of hedged items and related hedging instruments
The table below analyses assets and liabilities including intercompany, subject to hedging derivatives.
NWM Group | |||
Carrying value | Impact on | Changes in fair | |
of hedged | hedged items | value used as a basis | |
assets and | included in | to determine | |
liabilities | carrying value | ineffectiveness (1) | |
2024 | £m | £m | £m |
Fair value hedging - interest rate (2) | |||
Other financial assets - securities | 4,091 | (51) | (35) |
Bank and customer deposits | 382 | - | (3) |
Other financial liabilities - debt securities in issue (4) | 18,379 | (99) | (197) |
Subordinated liabilities | 1,130 | (19) | (6) |
Total | 19,891 | (118) | (206) |
2023 | |||
Fair value hedging - interest rate (2) | |||
Other financial assets - securities | 3,661 | (40) | 84 |
Bank and customer deposits | 745 | (3) | (6) |
Other financial liabilities - debt securities in issue (4) | 15,198 | (307) | (402) |
Subordinated liabilities | 1,040 | (24) | (46) |
Total | 16,983 | (334) | (454) |
2024 | |||
Cash flow hedging - interest rate | |||
Loans to banks and customers - amortised cost (3) | 5,891 | (5) | |
Other financial assets - securities | 346 | 2 | |
Total | 6,237 | (3) | |
Cash flow hedging - exchange rate | |||
Other financial liabilities - debt securities in issue | 4,212 | (3) | |
2023 | |||
Cash flow hedging - interest rate | |||
Loans to banks and customers - amortised cost (3) | 5,684 | (200) | |
Other financial assets - securities | 102 | (5) | |
Total | 5,786 | (205) | |
Cash flow hedging - exchange rate | |||
Other financial liabilities - debt securities in issue | 2,736 | - | |
Refer to the following page for footnotes.
Notes to the consolidated financial statements continued
13 Derivatives continued
Analysis of hedged items and related hedging instruments - continued
NWM Group
Annual Report and Accounts 2024
134
NWM Plc | |||
Carrying value | Impact on | Changes in fair | |
of hedged | hedged items | value used as a basis | |
assets and | included in | to determine | |
liabilities | carrying value | ineffectiveness (1) | |
2024 | £m | £m | £m |
Fair value hedging - interest rate (2) | |||
Other financial assets - securities | 4,006 | (52) | (36) |
Bank and customer deposits | 382 | - | (3) |
Other financial liabilities - debt securities in issue (4) | 18,363 | (98) | (198) |
Subordinated liabilities | 1,130 | (19) | (6) |
Total | 19,875 | (117) | (207) |
2023 | |||
Fair value hedging - interest rate (2) | |||
Other financial assets - securities | 3,661 | (40) | 84 |
Bank and customer deposits | 745 | (3) | (6) |
Other financial liabilities - debt securities in issue (4) | 14,940 | (306) | (401) |
Subordinated liabilities | 1,040 | (24) | (46) |
Total | 16,725 | (333) | (453) |
2024 | |||
Cash flow hedging - interest rate | |||
Loans to banks and customers - amortised cost (3) | 4,725 | 1 | |
Other financial assets - securities | 346 | 1 | |
Total | 5,071 | 2 | |
Cash flow hedging - exchange rate | |||
Other financial liabilities - debt securities in issue | 4,212 | (3) | |
2023 | |||
Cash flow hedging - interest rate | |||
Loans to banks and customers - amortised cost (3) | 4,240 | (167) | |
Other financial assets - securities | 102 | (5) | |
Total | 4,342 | (172) | |
Cash flow hedging - exchange rate | |||
Other financial liabilities - debt securities in issue | 2,736 | - | |
(1)
The change in fair value per hedge ineffectiveness includes instruments that were derecognised in the year.
(2)
The hedged risk includes inflation risk.
(3)
Includes cash and balances at central banks.
(4)
The carrying value include £658 million (2023 - £429 million) of debt securities held at amortised cost.
Notes to the consolidated financial statements continued
13 Derivatives continued
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135
Analysis of cash flow and foreign exchange hedge reserve
The following table shows a pre-tax analysis of the cash flow hedge reserve and foreign exchange hedge reserve.
| NWM Group | ||||
2024 | 2023 | |||
Foreign | Foreign | |||
Cash flow | exchange | Cash flow | exchange | |
hedge reserve | hedge reserve | hedge reserve | hedge reserve | |
£m | £m | £m | £m | |
Continuing | ||||
Interest rate risk | (261) | - | (260) | - |
Foreign exchange risk | (9) | (5) | (4) | (13) |
De-designated | ||||
Interest rate risk | 17 | - | 41 | - |
Foreign exchange risk | - | (142) | - | (170) |
Total | (253) | (147) | (223) | (183) |
| NWM Plc | ||||
2024 | 2023 | |||
Foreign | Foreign | |||
Cash flow | exchange | Cash flow | exchange | |
hedge reserve | hedge reserve | hedge reserve | hedge reserve | |
£m | £m | £m | £m | |
Continuing | ||||
Interest rate risk | (287) | - | (284) | - |
Foreign exchange risk | (9) | (7) | (4) | 1 |
De-designated | ||||
Interest rate risk | 17 | - | 41 | - |
Foreign exchange risk | - | 1 | - | 27 |
Total | (279) | (6) | (247) | 28 |
| NWM Group | ||||
2024 | 2023 | |||
Foreign | Foreign | |||
Cash flow | exchange | Cash flow | exchange | |
hedge reserve | hedge reserve | hedge reserve | hedge reserve | |
£m | £m | £m | £m | |
Amount recognised in equity | ||||
Interest rate risk | (175) | - | 62 | - |
Foreign exchange risk | (124) | 15 | (91) | 19 |
Total | (299) | 15 | (29) | 19 |
Amount transferred from equity to earnings | ||||
Interest rate risk to net interest income | 151 | - | 121 | - |
Foreign exchange risk to net interest income | 119 | - | 86 | - |
Foreign exchange risk to non interest income | - | 21 | - | - |
Total | 270 | 21 | 207 | - |
| NWM Plc | ||||
2024 | 2023 | |||
Foreign | Foreign | |||
Cash flow | exchange | Cash flow | exchange | |
hedge reserve | hedge reserve | hedge reserve | hedge reserve | |
£m | £m | £m | £m | |
Amount recognised in equity | ||||
Interest rate risk | (166) | - | 36 | - |
Foreign exchange risk | (124) | (7) | (92) | 5 |
Total | (290) | (7) | (56) | 5 |
Amount transferred from equity to earnings | ||||
Interest rate risk to net interest income | 138 | - | 115 | - |
Foreign exchange risk to net interest income | 119 | - | 86 | - |
Foreign exchange risk to non interest income | - | (27) | - | - |
Total | 257 | (27) | 201 | - |
Notes to the consolidated financial statements continued
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136
Loan exposure and impairment metrics
The table below summarises loans and related credit impairment measures within the scope of ECL framework.
NWM Group | NWM Plc | |||
31 December | 31 December | 31 December | 31 December | |
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Loans - amortised cost | ||||
- Stage 1 | 18,759 | 13,686 | 17,789 | 12,584 |
- Stage 2 | 352 | 558 | 253 | 436 |
- Stage 3 | 52 | 25 | 25 | 25 |
Of which: individual | 45 | 17 | 18 | 17 |
Of which: collective | 7 | 8 | 7 | 8 |
- Inter-Group | 260 | 1,264 | 1,839 | 2,623 |
Total | 19,423 | 15,533 | 19,906 | 15,668 |
ECL provisions (1) | ||||
- Stage 1 | 25 | 24 | 21 | 17 |
- Stage 2 | 5 | 8 | 4 | 7 |
- Stage 3 | 17 | 24 | 16 | 24 |
Of which: individual | 10 | 16 | 9 | 16 |
Of which: collective | 7 | 8 | 7 | 8 |
- Inter-Group | - | 1 | 2 | 3 |
Total | 47 | 57 | 43 | 51 |
ECL provision coverage (2) | ||||
- Stage 1 (%) | 0.13 | 0.18 | 0.12 | 0.14 |
- Stage 2 (%) | 1.42 | 1.43 | 1.58 | 1.61 |
- Stage 3 (%) | 32.69 | 96.00 | 64.00 | 96.00 |
- Inter-Group (%) | 0.05 | 0.08 | 0.11 | 0.11 |
Total | 0.25 | 0.39 | 0.23 | 0.37 |
Impairment (releases)/losses | ||||
ECL (release)/charge | ||||
- Stage 1 | (3) | 1 | (1) | 3 |
- Stage 2 | 3 | 4 | 2 | 3 |
- Stage 3 | (8) | (3) | (7) | (3) |
Of which: individual | (7) | (2) | (6) | (2) |
Of which: collective | (1) | (1) | (1) | (1) |
- Third party | (8) | 2 | (6) | 3 |
- Inter-Group | - | - | (1) | - |
Total | (8) | 2 | (7) | 3 |
Amounts written off | 2 | 5 | 2 | 3 |
Of which: individual | 2 | 4 | 2 | 2 |
Of which: collective | - | 1 | - | 1 |
(1)
NWM Group’s intercompany assets were classified as Stage 1. The ECL for these loans was £0.2 million at 31 December 2024.
(2)
ECL provisions coverage is calculated as total ECL provisions divided by third party loans – amortised cost and FVOCI.
(3)
The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 51 for Financial instruments within the scope of the IFRS 9 ECL
framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £16.2 billion (2023 – £13.8 billion)
and debt securities of £17.8 billion (2023 – £15.6 billion).
For accounting policy information refer to Accounting policy
3.11.
Credit risk enhancement and mitigation
For information on Credit risk enhancement and mitigation held
as security, refer to Risk and capital management – Credit risk
enhancement and mitigation section.
Refer to Credit risk – IFRS 9 ECL model design principles section
for further details.
Approach for multiple economic scenarios (MES)
The base scenario plays a greater part in the calculation of ECL
than the approach to MES. Refer to Credit risk – Economic loss
drivers – Probability weightings of scenarios section for further
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
137
| NWM Group | |||||||
| Debt securities | |||||||
Central and local | |||||||
government | |||||||
Other | Equity | ||||||
US | Other | debt | Total | shares | Loans | Total | |
2024 | £m | £m | £m | £m | £m | £m | £m |
Mandatory fair value through profit or loss | - | - | 1 | 1 | 1 | 47 | 49 |
Designated as at fair value | - | 2 | 3 | 5 | - | - | 5 |
Fair value through other comprehensive income | 2,523 | 835 | 1,144 | 4,502 | 62 | 47 | 4,611 |
Amortised cost | - | - | 13,185 | 13,185 | - | - | 13,185 |
Total | 2,523 | 837 | 14,333 | 17,693 | 63 | 94 | 17,850 |
2023 | |||||||
Mandatory fair value through profit or loss | - | - | 1 | 1 | 1 | 46 | 48 |
Designated as at fair value | - | 3 | 2 | 5 | - | - | 5 |
Fair value through other comprehensive income | 2,472 | 573 | 948 | 3,993 | 57 | 65 | 4,115 |
Amortised cost | - | - | 11,555 | 11,555 | - | - | 11,555 |
Total | 2,472 | 576 | 12,506 | 15,554 | 58 | 111 | 15,723 |
| NWM Plc | |||||||
| Debt securities | |||||||
Central and local | |||||||
government | |||||||
Other | Equity | ||||||
US | Other | debt | Total | shares | Loans | Total | |
2024 | £m | £m | £m | £m | £m | £m | £m |
Mandatory fair value through profit or loss | - | - | 1 | 1 | - | 47 | 48 |
Fair value through other comprehensive income | 2,523 | 345 | 1,140 | 4,008 | 51 | 47 | 4,106 |
Amortised cost | - | - | 11,927 | 11,927 | - | - | 11,927 |
Total | 2,523 | 345 | 13,068 | 15,936 | 51 | 94 | 16,081 |
2023 | |||||||
Mandatory fair value through profit or loss | - | - | 1 | 1 | - | 46 | 47 |
Fair value through other comprehensive income | 2,393 | 352 | 900 | 3,645 | 46 | 65 | 3,756 |
Amortised cost | - | - | 9,641 | 9,641 | - | - | 9,641 |
Total | 2,393 | 352 | 10,542 | 13,287 | 46 | 111 | 13,444 |
There were no significant acquisitions of equity shares in either year. NWM Group disposed of equity shares in UBS Equity Funds of nil
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
138
Investments in group undertakings are carried at cost less impairment losses. Movements during the year were as follows:
NWM Plc | ||
2024 | 2023 | |
£m | £m | |
At 1 January | 2,320 | 2,626 |
Currency translation and other adjustments | (27) | (13) |
Additional investments in Group undertakings | 208 | - |
Disposals of investments in Group undertakings | (208) | - |
Net impairment of investments | (30) | (293) |
At 31 December | 2,263 | 2,320 |
The impairment of investments in both 2024 and 2023 is mainly related to NWM Plc’s investment in RBS Holdings N.V. due to changes
in its net asset value.
Additions and disposals in 2024 represent a £208 million AT1 redemption with NWM N.V. and an AT1 issuance of the same value to
NWM N.V.
NWM Plc’s subsidiaries are assessed for potential impairment of investment based on net asset value. Fair value measurement for this
purpose was categorised as Level 3 of the fair value hierarchy.
The principal subsidiary undertakings of the company are shown below. Their capital consists of ordinary shares and additional Tier 1
notes which are unlisted. All of these subsidiaries are included in NWM Group’s consolidated financial statements and have an
accounting reference date of 31 December.
Country of incorporation and | |||
Nature of business | principal area of operation | Group interest | |
NatWest Markets Securities Inc. | Broker dealer | US | 100% |
NatWest Markets N.V. | Banking | Netherlands | 100% |
For accounting policy information refer to Accounting policy 3.10.
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Property, plant and equipment | 42 | 57 | 14 | 12 |
Pension schemes in net surplus (Note 5) | 146 | 145 | 146 | 145 |
Accrued income | 36 | 39 | 23 | 28 |
Tax recoverable | 137 | 106 | 136 | 106 |
Deferred tax (Note 7) | 172 | 55 | 87 | - |
Other assets | 88 | 116 | 73 | 99 |
Total | 621 | 518 | 479 | 390 |
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Customer deposits - designated as at fair value through profit or loss | 1,537 | 1,259 | 1,146 | 1,015 |
Debt securities in issue | ||||
Medium term notes | 21,852 | 17,608 | 20,817 | 16,580 |
Commercial paper and certificates of deposit | 7,605 | 4,433 | 5,985 | 3,041 |
Subordinated liabilities | ||||
Designated as at fair value through profit or loss | 234 | 238 | - | - |
Amortised cost | 35 | 36 | 18 | 19 |
Total | 31,263 | 23,574 | 27,966 | 20,655 |
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
139
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Dated loan capital | 251 | 255 | - | - |
Undated loan capital | 18 | 19 | 18 | 19 |
Total | 269 | 274 | 18 | 19 |
(1)
Excludes amounts due to holding company and fellow subsidiaries of £1,115 million (2023 - £1,022 million) for NWM Group and NWM Plc.
The following tables analyse third party subordinated liabilities:
First call | Maturity | Capital | 2024 | 2023 | ||
Undated loan capital | date | date | treatment | £m | £m | |
£31 million | 7.380% notes | - | - | Not applicable | 1 | 1 |
£16 million | 5.630% notes | Sep-2026 | - | Not applicable | 17 | 18 |
18 | 19 |
The following tables analyse intercompany subordinated liabilities:
NWM Group and Bank | ||||||
2024 | 2023 | |||||
£m | £m | |||||
Dated loan capital | 1,115 | 1,022 | ||||
First call | Maturity | Capital | 2024 | 2023 | ||
Dated loan capital | date | date | treatment | £m | £m | |
$1000 million | 6.48% notes | - | Mar-2034 | Tier 2 | 801 | - |
€950 million | 3.28% notes | - | Mar-2024 | Tier 2 | - | 839 |
$250 million | 4.96% notes | - | Jan-2034 | Tier 2 | 186 | 183 |
$160 million | 6.26% notes | - | Aug-2030 | Tier 2 | 128 | - |
1,115 | 1,022 | |||||
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
140
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Lease liabilities | 41 | 41 | 5 | 2 |
Provisions for liabilities and charges | 146 | 180 | 126 | 124 |
Retirement benefit liabilities (Note 5) | 39 | 62 | 36 | 59 |
Accruals | 177 | 182 | 129 | 113 |
Deferred income | 43 | 47 | 34 | 38 |
Current tax | 9 | 3 | 6 | 2 |
Deferred tax (Note 7) | 37 | 54 | 35 | 49 |
Other liabilities | 29 | 84 | 15 | 66 |
Total | 521 | 653 | 386 | 453 |
NWM Group | |||
Litigation and | |||
other regulatory | Other (1) | Total | |
Provisions for liabilities and charges | £m | £m | £m |
At 1 January 2024 | 141 | 39 | 180 |
Currency translation and other movements | 1 | (2) | (1) |
Charge to income statement | 21 | 15 | 36 |
Release to income statement | (23) | (2) | (25) |
Provisions utilised | (32) | (12) | (44) |
At 31 December 2024 | 108 | 38 | 146 |
NWM Plc | |||
Litigation and | |||
other regulatory | Other (1) | Total | |
Provisions for liabilities and charges | £m | £m | £m |
At 1 January 2024 | 103 | 21 | 124 |
Currency translation and other movements | 1 | (1) | - |
Charge to income statement | 20 | 11 | 31 |
Release to income statement | (3) | (1) | (4) |
Provisions utilised | (17) | (8) | (25) |
At 31 December 2024 | 104 | 22 | 126 |
(1)
Materially comprises provisions relating to restructuring costs.
Provisions are liabilities of uncertain timing or amount and are recognised when there is a present obligation as a result of a past
event, the outflow of economic benefit is probable and the outflow can be estimated reliably. Any difference between the final outcome
and the amounts provided will affect the reported results in the period when the matter is resolved.
For accounting policy information refer to Accounting policy 2.3.
The key judgement is involved in determining whether a present obligation exists. There is often a high degree of uncertainty and
judgement is based on the specific facts and circumstances relating to individual events in determining whether there is a present
obligation. Judgement is also involved in estimation of the probability, timing and amount of any outflows. Where NWM Group can look
to another party such as an insurer to pay some or all of the expenditure required to settle a provision, any reimbursement is
recognised when, and only when, it is virtually certain that it will be received.
Estimates -
Provisions are liabilities of uncertain timing or amount and are recognised when there is a present obligation as a result of
a past event, the outflow of economic benefit is probable, and the outflow can be estimated reliably. Any difference between the final
outcome and the amounts provided will affect the reported results in the period when the matter is resolved.
Litigation and other regulatory: NWM Group is engaged in various legal proceedings, both in the UK and in overseas jurisdictions,
including the US. For further information in relation to legal proceedings and discussion of the associated uncertainties, refer to
Note 25.
Other provisions: These materially comprise provisions for onerous contracts and restructuring costs. Onerous contract provisions
comprise an estimate of the costs involved in fulfilling the terms and conditions of contracts net of any expected benefits to be
received. Redundancy and restructuring provisions comprise the estimated cost of restructuring, including redundancy costs where
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
141
Number of shares | ||||
2024 | 2023 | 2024 | 2023 | |
Allotted, called up and fully paid | £m | £m | 000s | 000s |
Ordinary shares of £1 | 400 | 400 | 399,517 | 399,517 |
NWM Plc has not paid ordinary dividends in 2024, consistent with
Paid-in equity
Comprises equity instruments issued by NWM Plc other than
those legally constituted as shares.
Additional Tier 1 instruments issued by NWM Plc having the legal
form of debt are classified as equity under IFRS. The coupons on
these instruments are non-cumulative and payable at NWM Plc’s
discretion.
2024 | 2023 | |
£m | £m | |
Additional Tier 1 instruments | ||
US$950 million 7.9604% instruments callable | ||
August 2025 | 749 | 749 |
US$200 million 5.540% instruments callable | ||
August 2025 | 155 | 155 |
US$750 million 7.3% instruments callable November | ||
2034 | 592 | - |
1,496 | 904 |
Capital recognised for regulatory purposes cannot be redeemed
without Prudential Regulation Authority consent. This includes
ordinary shares, preference shares and additional Tier 1
NWM Plc optimises capital efficiency by maintaining reserves in
subsidiaries, including regulated entities. Certain preference
shares and subordinated debt are also included within regulatory
capital. The remittance of reserves to the parent or the
redemption of shares or subordinated capital by regulated
entities may be subject to maintaining the capital resources
required by the relevant regulator.
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
142
A structured entity (SE) is an entity that has been designed
such that voting or similar rights are not the dominant factor
in deciding who controls the entity, for example when any
voting rights relate to administrative tasks only and the
relevant activities are directed by means of contractual
arrangements. SEs are usually established for a specific,
limited purpose, they do not carry out a business or trade and
typically have no employees.
Securitisations
In a securitisation, assets, or interests in a pool of assets, are
transferred to a SE which then issues liabilities to third party
investors.
NWM Group’s involvement in client securitisations takes a
number of forms. It may provide secured finance to, or
purchase asset-backed notes from, client sponsored SEs
secured on assets transferred by the client entity; purchase
asset backed securities issued by client sponsored SEs in the
primary or secondary markets; or provide liquidity facilities to
client sponsored SEs. In addition, NWM Group arranges or
acts as lead manager or placement agent in client primary
markets securitisations. NWM Group provides portfolio
structured derivative hedging solutions to clients.
Covered debt programme
NWM Group has assigned certain loans to customers and
other debt instruments to bankruptcy remote limited liability
partnerships to provide security for issues of debt securities by
NWM Group. NWM Group retains all of the risks and rewards
of these assets and continues to recognise them. The
partnerships are consolidated by the NWM Group, and the
related covered debt included within other financial liabilities.
At 31 December 2024, £1,345 million (2023 - £1,283 million) of
loans and other debt instruments provided security for £1,556
million (2023 – £1,497 million) debt securities in issue and
other borrowing by NWM Plc and NWM Group.
Lending of own issued securities
NWM Plc has issued, retained, and lent debt securities under
securities lending arrangements. Under standard terms in the
UK and US markets, the recipient has an unrestricted right to
sell or re-pledge collateral, subject to returning equivalent
securities on maturity of the transaction.
NWM Plc retains all
of the risks and rewards of own issued liabilities lent under
such arrangements and does not recognise them.
At 31
December 2024, £2,965 million (2023 - £2,312 million) of
secured own issued liabilities have been retained and lent
under securities lending arrangements. At 31 December 2024,
£3,127 million (2023 - £2,414 million) of loans and other debt
instruments provided security for secured own issued liabilities
that have been retained and lent under securities lending
arrangements.
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to
structured entities not controlled by NWM Group, and which
are established either by NWM Group or a third party. An
interest in a structured entity is any form of contractual or
non-contractual involvement which creates variability in
returns for NWM Group arising from the performance of the
entity. Such interests include holdings of debt or equity
securities, derivatives that transfer financial risks from the
entity to NWM Group, provision of lending and loan
commitments, financial guarantees and investment
management agreements. NWM Group enters into
transactions with unconsolidated structured entities in the
normal course of business to facilitate customer transactions,
to provide risk management services and for specific
investment opportunities. Structured entities may take the
form of funds, trusts, partnerships, securitisation vehicles, and
private investment companies. NWM Group considers itself to
be the sponsor of a structured entity where it is primarily
involved in the set up and design of the entity and where
NWM Group transfers assets to the entity, markets products
associated with the entity in its own name, and/or provides
guarantees in relation to the performance of the entity.
The nature and extent of NWM Group’s interests in structured entities is summarised below.
| 2024 | 2023 | |||||
Asset-backed | Investment | Asset-backed | Investment | |||
securitisation | funds | securitisation | funds | |||
vehicles | and other | Total | vehicles | and other | Total | |
£m | £m | £m | £m | £m | £m | |
Assets | ||||||
Trading assets | 252 | 216 | 468 | 303 | 311 | 614 |
Derivatives | 94 | - | 94 | 134 | - | 134 |
Loans to customers | 4,953 | 1,127 | 6,080 | 2,487 | 634 | 3,121 |
Other financial assets | 12,144 | 923 | 13,067 | 10,475 | 1,063 | 11,538 |
Total | 17,443 | 2,266 | 19,709 | 13,399 | 2,008 | 15,407 |
Liabilities | ||||||
Derivatives | 153 | 8 | 161 | 214 | 17 | 231 |
Total | 153 | 8 | 161 | 214 | 17 | 231 |
Off balance sheet | ||||||
Liquidity facilities/loan commitments | 1,989 | 375 | 2,364 | 1,758 | 312 | 2,070 |
Guarantees | - | 93 | 93 | - | 117 | 117 |
Total | 1,989 | 468 | 2,457 | 1,758 | 429 | 2,187 |
Maximum exposure | 19,279 | 2,726 | 22,005 | 14,943 | 2,420 | 17,363 |
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
143
Transfers that do not qualify for derecognition
NWM Group enters into securities financing, reverse repurchase and total return agreements in accordance with normal market
practice which includes the provision of additional collateral if necessary.
Under standard terms in the UK and US markets, the
recipient has an unrestricted right to sell or repledge collateral, subject to returning equivalent securities on maturity of the transaction.
Securities sold under repurchase transactions and transactions with the substance of securities repurchase agreements are not
derecognised if the NWM Group retains substantially all the risks and rewards of ownership. The fair value (and carrying value) of
securities transferred under such transactions included on the balance sheet, are set out below. All of these securities could be sold or
repledged by the holder.
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
The following assets have failed derecognition (1) | £m | £m | £m | £m |
Trading assets | 7,708 | 7,907 | 4,919 | 7,330 |
Other financial assets | 4,190 | 2,296 | 3,809 | 1,907 |
Total | 11,898 | 10,203 | 8,728 | 9,237 |
(1)
NWM Group pledges collateral with its counterparties in respect of derivative liabilities and bank and stock borrowings.
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
Assets pledged against liabilities | £m | £m | £m | £m |
Trading assets | 10,254 | 10,749 | 7,862 | 8,600 |
Other financial assets (1) | 3,952 | 5,483 | 3,311 | 4,621 |
14,206 | 16,232 | 11,173 | 13,221 | |
(1)
Includes pledges for stock borrowing.
The following table analyses assets that have been transferred but have failed the derecognition rules under IFRS 9 and therefore
continue to be recognised on NWM Plc’s balance sheet.
2024 | 2023 | |
Asset type | £m | £m |
Loans and other debt instruments - covered debt programme (1) | 1,688 | 1,637 |
Loans and other debt instruments - own issued retained lent securities (2) | 3,127 | 2,414 |
(1)
The associated liabilities for covered debt programme were £1,556 million (2023 - £1,497 million).
(2)
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
144
Regulatory capital for NWM Plc legal entity is assessed against minimum requirements that are set out under the UK Capital
Requirements Regulation. Transitional arrangements on the phasing in of end-point capital resources are set by the PRA.
The capital resources under the PRA transitional basis for NWM Plc are set out below.
2024 |
2023 |
|
Shareholders’ equity |
£m |
£m |
Shareholders’ equity |
6,819 |
6,313 |
Other equity instruments |
(1,496) |
(904) |
5,323 |
5,409 |
|
Regulatory adjustments and deductions |
||
Own credit |
37 |
25 |
Defined benefit pension fund adjustment |
(109) |
(94) |
Cash flow hedging reserve |
203 |
187 |
Prudential valuation adjustments |
(148) |
(160) |
Expected losses less impairments |
(6) |
(6) |
Instruments of financial sector entities where the institution has a significant investment |
(1,521) |
(1,585) |
Adjustments under IFRS 9 transitional arrangements |
- |
1 |
Other adjustments for regulatory purposes |
- |
(1) |
(1,544) |
(1,633) |
|
CET1 capital |
3,779 |
3,776 |
Additional Tier 1 (AT1) capital |
||
Qualifying instruments and related share premium |
1,496 |
904 |
Tier 1 deductions |
||
Instruments of financial sector entities where the institution has a significant investment |
(208) |
(225) |
Tier 1 capital |
5,067 |
4,455 |
Qualifying Tier 2 capital |
||
Qualifying instruments and related share premium |
1,124 |
1,022 |
Tier 2 deductions |
||
Instruments of financial sector entities where the institution has a significant investment |
(419) |
(421) |
Other regulatory adjustments |
7 |
16 |
(412) |
(405) |
|
Tier 2 capital |
712 |
617 |
Total regulatory capital |
5,779 |
5,072 |
In the management of capital resources, NWM Plc is governed by
NatWest Group's policy to maintain a strong capital base and to
utilise it efficiently throughout its activities to optimise the return
to shareholders while maintaining a prudent relationship between
the capital base and the underlying risks of the business. In
carrying out this policy, NatWest Group has regard to the
supervisory requirements of the PRA. The PRA uses capital ratios
as a measure of capital adequacy in the UK banking sector,
comparing a bank's capital resources with its risk-weighted
assets (the assets and off-balance sheet exposures are weighted
to reflect the inherent credit and other risks); by international
agreement, the Pillar 1 capital ratios, excluding capital buffers,
should be not less than 8% with a Common Equity Tier 1
component of not less than 4.5%. NWM Plc has complied with the
PRA’s capital requirements throughout the year. NWM Plc is also
subject to a Pillar 2 requirement.
Subsidiaries and sub-groups within NWM Group, principally
banking entities, are subject to various individual regulatory
capital requirements in the UK and overseas. Furthermore, the
payment of dividends by subsidiaries and the ability of members
of NatWest Group to lend money to other members of NatWest
Group is subject to restrictions such as local regulatory or legal
requirements, the availability of reserves and financial and
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
145
Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
December 2024. Although the NWM Group is exposed to credit risk in the event of a customer’s failure to meet its obligations, the
amounts shown do not, and are not intended to, provide any indication of NWM Group’s expectation of future losses.
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Contingent liabilities and commitments | ||||
Guarantees | 696 | 754 | 272 | 296 |
Other contingent liabilities | 17 | 26 | 17 | 26 |
Standby facilities, credit lines and other commitments | 14,097 | 14,840 | 8,319 | 8,763 |
Total | 14,810 | 15,620 | 8,608 | 9,085 |
(1)
Updated to reflect the regulatory treatment of revocable commitments.
Banking commitments and contingent obligations, which have
been entered into on behalf of customers and for which there are
corresponding obligations from customers, are not included in
assets and liabilities. NWM Group’s maximum exposure to credit
loss, in the event of its obligation crystallising and all
counterclaims, collateral or security proving valueless, is
represented by the contractual nominal amount of these
instruments included in the table above. These commitments and
contingent obligations are subject to NWM Group’s normal credit
Guarantees
- NWM Group gives guarantees on behalf of
customers. A financial guarantee represents an irrevocable
undertaking that NWM Group will meet a customer’s specified
obligations to a third party if the customer fails to do so. The
maximum amount that NWM Group could be required to pay
under a guarantee is its principal amount as in the table above.
NWM Group expects most guarantees it provides to expire
- these include standby letters of
credit, supporting customer debt issues and contingent liabilities
relating to customer trading activities such as those arising from
- under a loan commitment
NWM Group agrees to make funds available to a customer in the
future. Loan commitments, which are usually for a specified term
may be unconditionally cancellable or may persist, provided all
conditions in the loan facility are satisfied or waived.
Commitments to lend include commercial standby facilities and
credit lines, liquidity facilities to commercial paper conduits and
unutilised overdraft facilities.
Other commitments
- these include documentary credits, which
are commercial letters of credit providing for payment by NWM
Group to a named beneficiary against presentation of specified
documents, forward asset purchases, forward deposits placed
and undrawn note issuance and revolving underwriting facilities,
and other short-term trade related transactions.
Risk-sharing arrangements
NWM Plc and NWM N.V. have limited risk-sharing arrangements
in place to facilitate the smooth provision of services to NatWest
Markets’ customers. The arrangements, which NWM Plc
recognises as financial guarantees within Amounts due to
subsidiaries, include:
The provision of a funded guarantee of up to £0.8 billion by
NWM Plc to NWM N.V. that limits NWM N.V.’s exposure to
large individual customer credits. Funding is provided by
NWM Plc deposits placed with NWM N.V. of not less than the
guaranteed amount.
At 31 December 2024, the deposits
amounted to £0.4 billion and the guaranteed fees in the year
were £3.4 million.
The provision of unfunded guarantees by NWM Plc in respect
of NWM N.V.’s Legacy portfolio. At 31 December 2024 the
exposure at default covered by the guarantees was
approximately £0.2 billion (of which none was cash
collateralised). Fees of £0.6 million in relation to the
Indemnity deed
In April 2019, NWM Plc and NWB Plc entered into a cross
indemnity agreement for losses incurred within the entities in
relation to business transferred to or from the ring-fenced
bank under the NatWest Group’s structural re-organisation.
Under the agreement, NWM Plc is indemnified by NWB Plc
against losses relating to the NWB Plc transferring businesses
and ring-fenced bank obligations and NWB Plc is indemnified
by NWM Plc against losses relating to NWM Plc transferring
businesses and non-ring-fenced bank obligations with effect
from the relevant transfer date.
Notes to the consolidated financial statements continued
25 Memorandum items continued
NWM Group
Annual Report and Accounts 2024
146
NWM Plc and its subsidiary and associated undertakings (NWM
Group) are party to various legal proceedings and are involved in,
or subject to, various regulatory matters, including as the subject
of investigations and other regulatory and governmental action
(Matters) in the United Kingdom (UK), the United States (US), the
European Union (EU) and other jurisdictions.
NWM Group recognises a provision for a liability in relation to
these Matters when it is probable that an outflow of economic
benefits will be required to settle an obligation resulting from past
events, and a reliable estimate can be made of the amount of the
obligation.
In many of the Matters, it is not possible to determine whether
any loss is probable, or to estimate reliably the amount of any
loss, either as a direct consequence of the relevant proceedings
and regulatory matters or as a result of adverse impacts or
restrictions on NWM Group’s reputation, businesses and
operations. Numerous legal and factual issues may need to be
resolved, including through potentially lengthy discovery and
document production exercises and determination of important
factual matters, and by addressing novel or unsettled legal
questions relevant to the proceedings in question, before the
probability of a liability, if any, arising can reasonably be
estimated in respect of any Matter. NWM Group cannot predict
if, how, or when such claims will be resolved or what the
eventual settlement, damages, fine, penalty or other relief, if any,
may be, particularly for Matters that are at an early stage in
their development or where claimants seek substantial or
indeterminate damages.
There are situations where NWM Group may pursue an
approach that in some instances leads to a settlement
agreement. This may occur in order to avoid the expense,
management distraction or reputational implications of continuing
to contest liability, or in order to take account of the risks
inherent in defending or contesting Matters, even for those for
which NWM Group believes it has credible defences and should
prevail on the merits. The uncertainties inherent in all Matters
affect the amount and timing of any potential economic outflows
for both Matters with respect to which provisions have been
established and other contingent liabilities in respect of any such
Matter.
It is not practicable to provide an aggregate estimate of potential
liability for our Matters as a class of contingent liabilities.
The future economic outflow in respect of any Matter may
ultimately prove to be substantially greater than, or less than, the
aggregate provision, if any, that NWM Group has recognised in
respect of such Matter. Where a reliable estimate of the
economic outflow cannot be reasonably made, no provision has
been recognised. NWM Group expects that in future periods,
additional provisions and economic outflows relating to Matters
that may or may not be currently known by NWM Group will be
necessary, in amounts that are expected to be substantial in
some instances. Refer to Note 20 for information on material
provisions.
Matters which are, or could be, material, either individually or in
aggregate, having regard to NWM Group, considered as a whole,
in which NWM Group is currently involved are set out below. We
have provided information on the procedural history of certain
Matters, where we believe appropriate, to aid the understanding
of the Matter.
For a discussion of certain risks associated with NWM Group’s
litigation and regulatory matters (including the Matters), refer to
the Risk Factor relating to legal, regulatory and governmental
actions and investigations set out on pages 172 to 173.
Litigation
London Interbank Offered Rate (LIBOR) and other rates
litigation
NWM Plc and certain other members of NatWest Group,
including NatWest Group plc, are defendants in a number of
claims pending in the United States District Court for the
Southern District of New York (SDNY) with respect to the setting
of USD LIBOR. The complainants allege that the NWM Group
defendants and other panel banks violated various federal laws,
including the US commodities and antitrust laws, and state
statutory and common law, as well as contracts, by manipulating
LIBOR and prices of LIBOR-based derivatives in various markets
through various means.
The co-ordinated proceeding in the SDNY relating to USD LIBOR
now includes one remaining class action, which is on behalf of
persons who purchased LIBOR-linked instruments from
defendants and bonds issued by defendants, as well as several
non-class actions. The defendants in the co-ordinated proceeding
have filed a summary judgment motion on the issue of liability,
and briefing on that motion concluded in January 2025.
In March 2024, NWM Group companies reached an agreement
to settle the USD LIBOR class action that asserted claims on
behalf of lenders who made USD LIBOR based loans. The
settlement amount, which was covered in full by an existing
provision, has been paid and the settlement has now received
final court approval.
The non-class claims filed in the SDNY include claims that the
Federal Deposit Insurance Corporation (FDIC) is asserting on
behalf of certain failed US banks. In July 2017, the FDIC, on
behalf of 39 of those failed US banks, commenced substantially
similar claims against NWM Plc, NatWest Group plc and others in
the High Court of Justice of England and Wales. The action
alleges collusion with regard to the setting of USD LIBOR and
that the defendants breached UK and European competition law,
as well as asserting common law claims of fraud under US law.
The defendant banks consented to a request by the FDIC for
discontinuance of the claim in respect of 20 failed US banks,
leaving 19 failed US banks as claimants. The trial is currently
scheduled to commence in Q1 2026.
In addition to the USD LIBOR cases described above, there is a
class action relating to derivatives allegedly tied to JPY LIBOR
and Euroyen TIBOR, which was dismissed by the SDNY in
relation to NWM Plc and other NatWest Group companies in
September 2021. That dismissal is now the subject of an appeal
to the United States Court of Appeals for the Second Circuit (US
Court of Appeals).
Two other IBOR-related class actions involving NWM Plc,
concerning alleged manipulation of Euribor and Pound Sterling
LIBOR, were previously dismissed by the SDNY for various
reasons. The plaintiffs’ appeals in those two cases remain
pending.
In August 2020, a complaint was filed in the United States District
Court for the Northern District of California by several United
States retail borrowers against the USD ICE LIBOR panel banks
and their affiliates (including NatWest Group plc, NWM Plc,
NatWest Markets Securities Inc. (NWMSI) and NWB Plc), alleging
(i) that the very process of setting USD ICE LIBOR amounts to
illegal price-fixing; and (ii) that banks in the United States have
illegally agreed to use LIBOR as a component of price in variable
retail loans. In September 2022, the district court dismissed the
complaint. In December 2024, the United States Court of Appeals
for the Ninth Circuit affirmed the district court’s decision.
NWM Plc is also named as a defendant in a motion to certify a
class action relating to LIBOR in the Tel Aviv District Court in
Israel. NWM Plc filed a motion for cancellation of service outside
the jurisdiction, which was granted in July 2020. The claimants
Notes to the consolidated financial statements continued
25 Memorandum items continued
Litigation and regulatory matters
NWM Group
Annual Report and Accounts 2024
147
appealed that decision and in November 2020 the appeal was
refused and the claim dismissed by the Appellate Court. The
claim could in future be recommenced depending on the
outcome of an appeal to Israel’s Supreme Court in respect of the
dismissal of the substantive case against banks that had a
presence in Israel.
Foreign exchange litigation
NWM Plc, NWMSI and/or NatWest Group plc are defendants in
several cases relating to NWM Plc’s foreign exchange (FX)
business.
In May 2019, a cartel class action was filed in the Federal Court
of Australia against NWM Plc and four other banks on behalf of
persons who bought or sold currency through FX spots or
forwards between 1 January 2008 and 15 October 2013 with a
total transaction value exceeding AUD 0.5 million. The claimant
has alleged that the banks, including NWM Plc, contravened
Australian competition law by sharing information, coordinating
conduct, widening spreads and manipulating FX rates for certain
currency pairs during this period. NatWest Group plc and NWMSI
have been named in the action as ‘other cartel participants’, but
are not respondents. The claim was served in June 2019 and
NWM Plc filed its defence in March 2022. The court has ordered
that potential class members are required to either opt out of the
proceedings or register to be included in or benefit from any
potential settlement of the claim. Directions have been made for
the provision of evidence during 2025 and 2026.
In July and December 2019, two separate applications seeking
opt-out collective proceedings orders were filed in the UK
Competition Appeal Tribunal (CAT) against NatWest Group plc,
NWM Plc and other banks. Both applications were brought on
behalf of persons who, between 18 December 2007 and 31
January 2013, entered into a relevant FX spot or outright
forward transaction in the European Economic Area with a
relevant financial institution or on an electronic communications
network. In March 2022, the CAT declined to certify as collective
proceedings either of the applications, which was appealed by
the applicants, and the subject of an application for judicial
review.
In its amended judgment in November 2023, the Court of Appeal
allowed the appeal and decided that the claims should proceed
on an opt-out basis. Separately, the court determined which of
the two competing applicants can proceed as class
representative, and dismissed the application for judicial review of
the CAT’s decision. The other applicant has discontinued its claim
and withdrawn from the proceedings. The banks sought
permission to appeal the Court of Appeal decision directly to the
UK Supreme Court, which was granted in April 2024. The appeal
is scheduled to be heard in April 2025.
Two motions to certify FX-related class actions were filed in the
Tel Aviv District Court in Israel in September and October 2018,
and were subsequently consolidated into one motion. The
consolidated motion to certify, which names The Royal Bank of
Scotland plc (now NWM Plc) and several other banks as
defendants, was served on NWM Plc in May 2020. The applicants
sought the court’s permission to amend their motions to certify
the class actions. NWM Plc filed a motion challenging the
permission granted by the court for the
applicants to serve the
consolidated motion outside the Israeli jurisdiction. That NWM Plc
motion remains pending. In February 2024, NWM Plc executed
an agreement to settle the claim, subject to court approval. The
settlement amount is covered in full by an existing provision.
In December 2021, a summons was served in the Netherlands
against NatWest Group plc, NWM Plc and NWM N.V. by Stichting
FX Claims on behalf of a number of parties, seeking declarations
from the court concerning liability for anti-competitive FX market
conduct described in decisions of the European Commission (EC)
of 16 May 2019, along with unspecified damages. The claimant
amended its claim to also refer to a 2 December 2021 decision
by the EC, which
described anti-competitive FX market conduct.
NatWest Group plc, NWM Plc and other defendants contested
the jurisdiction of the Dutch court.
In March 2023, the district
court in Amsterdam accepted that it has jurisdiction to hear
claims against NWM N.V. but refused jurisdiction to hear any
claims against the other defendant banks (including NatWest
Group plc and NWM Plc) brought on behalf of the parties
represented by the claimant that are domiciled outside of the
Netherlands. The claimant is appealing that decision. The
defendant banks have brought cross-appeals which seek a ruling
that the Dutch court has no jurisdiction to hear any claims
against the defendant banks domiciled outside of the
Netherlands, irrespective of whether the claim has been brought
on behalf of a party represented by the claimant that is domiciled
within or outside of the Netherlands. The Amsterdam Court of
Appeal has stayed these appeal proceedings until the Court of
Justice of the European Union has answered preliminary
questions that have been referred to it in another matter.
In September 2023, a second summons was served by Stichting
FX Claims on NatWest Group plc, NWM Plc and NWM N.V., on
behalf of a new group of parties. The claimant seeks declarations
from the district court in Amsterdam concerning liability for anti-
competitive FX market conduct described in the above
referenced decisions of the EC of 16 May 2019 and 2 December
2021, along with unspecified damages. NatWest Group plc, NWM
Plc and other defendants are contesting the Dutch court's
jurisdiction. The district court has stayed the proceedings pending
judgment in the above-mentioned appeals.
In January 2025, a third summons was served by Stichting FX
Claims on NatWest Group plc, NWM Plc and NWM N.V., on
behalf of another new group of parties. The claimant seeks
similar declarations from the district court in Amsterdam to those
being sought in the above-mentioned claims, along with
unspecified damages.
Certain other foreign exchange transaction related claims have
been or may be threatened. NWM Group cannot predict whether
all or any of these claims will be pursued.
Government securities antitrust litigation
Class action antitrust claims commenced in March 2019 were
pending in the SDNY against NWM Plc, NWMSI and other banks
in respect of Euro-denominated bonds issued by various
European central banks (European government bonds or EGBs).
The complaint alleged a conspiracy among dealers of EGBs to
widen the bid-ask spreads they quoted to customers, thereby
increasing the prices customers paid for the EGBs or decreasing
the prices at which customers sold EGBs.
In March 2024, NWM Group companies reached an agreement
to settle the class action. The settlement amount, which was
covered in full by an existing provision, has been paid and the
settlement has now received final court approval.
Swaps antitrust litigation
NWM Plc, NWMSI and NatWest Group plc, as well as a number of
other interest rate swap dealers, are defendants in several cases
pending in the SDNY alleging violations of the US antitrust laws in
the market for interest rate swaps. There is a consolidated class
action complaint on behalf of persons who entered into interest
rate swaps with the defendants, as well as non-class action
claims by three swap execution facilities (TeraExchange, Javelin,
and trueEx). The plaintiffs allege that the swap execution facilities
would have successfully established exchange-like trading of
interest rate swaps if the defendants had not unlawfully
conspired to prevent that from happening through boycotts and
other means. Discovery in the non-class action claims is
complete. In March 2024, NWM Group companies reached an
agreement to settle the class action. The settlement amount has
Notes to the consolidated financial statements continued
25 Memorandum items continued
Litigation and regulatory matters
NWM Group
Annual Report and Accounts 2024
148
Group, remediation of systems and controls, public or private
been paid into escrow pending final court approval of the
settlement and was covered in full by an existing provision.
In June 2021, a class action antitrust complaint was filed against
a number of credit default swap dealers, in New Mexico federal
court on behalf of persons who, from 2005 onwards, settled
credit default swaps in the United States by reference to the
ISDA credit default swap auction protocol. The complaint alleges
that the defendants conspired to manipulate that benchmark
through various means in violation of the antitrust laws and the
Commodity Exchange Act. The defendants filed a motion to
dismiss the complaint and, in June 2023, such motion was denied
as regards to NWMSI and other financial institutions, but granted
as regards to NWM Plc on the ground that the court lacks
jurisdiction over that entity. As a result, the case entered the
discovery phase as against the non-dismissed defendants. In
January 2024, the SDNY issued an order barring the plaintiffs in
the New Mexico case from pursuing claims based on conduct
occurring before 30 June 2014 on the ground that such claims
were extinguished by a 2015 settlement agreement that resolved
a prior class action relating to credit default swaps. The SDNY’s
decision is the subject of a pending appeal to the US Court of
Appeals.
Odd lot corporate bond trading antitrust litigation
In July 2024, the US Court of Appeals vacated the SDNY’s
October 2021 dismissal of the class action antitrust complaint
alleging that from August 2006 onwards various securities
dealers, including NWMSI, conspired artificially to widen spreads
for odd lots of corporate bonds bought or sold in the United
States secondary market and to boycott electronic trading
platforms that would have allegedly promoted pricing competition
in the market for such bonds. The appellate court held that the
district judge who made the decision should not have been
presiding over the case because a member of the judge’s family
had owned stock in one of the defendants while the motion was
pending. The defendants are now seeking dismissal by a different
district court judge.
Spoofing litigation
In December 2021, three substantially similar class actions
complaints were filed in federal court in the United States against
NWM Plc and NWMSI alleging Commodity Exchange Act and
common law unjust enrichment claims arising from manipulative
trading known as spoofing. The complaints refer to NWM Plc’s
December 2021 spoofing-related guilty plea (described below
under “US investigations relating to fixed-income securities”) and
purport to assert claims on behalf of those who transacted in US
Treasury securities and futures and options on US Treasury
securities between 2008 and 2018. In July 2022, the defendants
filed a motion to dismiss these claims, which have been
consolidated into one matter in the United States District Court
for the Northern District of Illinois.
Madoff
NWM N.V. was named as a defendant in two actions filed by the
trustee for the bankrupt estates of Bernard L. Madoff and
Bernard L. Madoff Investment Securities LLC, in bankruptcy
court in New York, which together seek to clawback more than
US$298 million that NWM N.V. allegedly received from certain
Madoff feeder funds and certain swap counterparties. The claims
were previously dismissed, but as a result of an August 2021
decision by the US Court of Appeals, they are now proceeding in
the discovery phase in the bankruptcy court, where they have
been consolidated into one action.
US Anti-Terrorism Act litigation
NWM N.V. and certain other financial institutions are defendants
in several actions filed by a number of US nationals (or their
estates, survivors, or heirs), most of whom are or were US
military personnel, who were killed or injured in attacks in Iraq
between 2003 and 2011. NWM Plc is also a defendant in some of
these cases.
According to the plaintiffs’ allegations, the defendants are liable
for damages arising from the attacks because they allegedly
conspired with and/or aided and abetted Iran and certain Iranian
banks to assist Iran in transferring money to Hezbollah and the
Iraqi terror cells that committed the attacks, in violation of the US
Anti-Terrorism Act, by agreeing to engage in ‘stripping’ of
transactions initiated by the Iranian banks so that the Iranian
nexus to the transactions would not be detected.
The first of these actions, alleging conspiracy claims but not
aiding and abetting claims, was filed in the United States District
Court for the Eastern District of New York in November 2014. In
September 2019, the district court dismissed the case, finding
that the claims were deficient for several reasons, including lack
of sufficient allegations as to the alleged conspiracy and
causation. In January 2023, the US Court of Appeals affirmed the
district court’s dismissal of this case. The plaintiffs have now filed
a motion in the district court to re-open the case to assert aiding
and abetting claims that they previously did not assert, which the
defendants are opposing. Another action, filed in the SDNY in
2017, which asserted both conspiracy and aiding and abetting
claims, was dismissed by the SDNY in March 2019 on similar
grounds as the first case, but remains subject to appeal to the US
Court of Appeals.
Other follow-on actions that are substantially similar to those
described above are pending in the same courts.
1MDB litigation
A Malaysian court claim was served in Switzerland in November
2022 by 1MDB, a Sovereign Wealth Fund, in which Coutts & Co
Ltd was named, along with six others, as a defendant in respect
of losses allegedly incurred by 1MDB. It is claimed that Coutts &
Co Ltd is liable as a constructive trustee for having dishonestly
assisted the directors of 1MDB in the breach of their fiduciary
duties by failing (amongst other alleged claims) to undertake due
diligence in relation to a customer of Coutts & Co Ltd, through
which funds totalling c.US$1 billion were received and paid out
between 2009 and 2011. 1MDB seeks the return of that amount
plus interest. Coutts & Co Ltd filed an application in January 2023
challenging the validity of service and the Malaysian court’s
jurisdiction to hear the claim, and a hearing took place in
February 2024. In March 2024, the court granted that
application. 1MDB has appealed that decision and a prior
decision by the court not to allow them to discontinue their claim.
Both appeals are scheduled to be heard in November 2025.
Coutts & Co Ltd (a subsidiary of RBS Netherlands Holdings B.V.,
which in turn is a subsidiary of NWM Plc) is a company registered
in Switzerland and is in wind-down following the announced sale
of its business assets in 2015.
Regulatory matters
NWM Group’s financial condition can be affected by the actions
of various governmental and regulatory authorities in the UK, the
US, the EU and elsewhere. NWM Group companies have
engaged, and will continue to engage, in discussions with
relevant governmental and regulatory authorities, including in the
UK, the US, the EU and elsewhere, on an ongoing and regular
basis, and in response to informal and formal inquiries or
investigations, regarding operational, systems and control
evaluations and issues including those related to compliance with
applicable laws and regulations, including consumer protection,
investment advice, business conduct, competition/anti-trust, VAT
recovery, anti-bribery, anti-money laundering and sanctions
regimes.
Any matters discussed or identified during such discussions and
inquiries may result in, among other things, further inquiry or
investigation, other action being taken by governmental and
regulatory authorities, increased costs being incurred by NWM
Notes to the consolidated financial statements continued
25 Memorandum items continued
Litigation and regulatory matters
NWM Group
Annual Report and Accounts 2024
149
censure, restriction of NWM Group’s business activities and/or
fines. Any of the events or circumstances mentioned in this
paragraph or below could have a material adverse effect on
NWM Group, its business, authorisations and licences, reputation,
results of operations or the price of securities issued by it, or lead
to material additional provisions being taken.
NWM Group is co-operating fully with the matters described
below.
US investigations relating to fixed-income securities
In December 2021, NWM Plc pled guilty in the United States
District Court for the District of Connecticut to one count of wire
fraud and one count of securities fraud in connection with
historical spoofing conduct by former employees in US Treasuries
markets between January 2008 and May 2014 and, separately,
during approximately three months in 2018. The 2018 trading
occurred during the term of a non-prosecution agreement (NPA)
between NWMSI and the United States Attorney's Office for the
District of Connecticut (USAO CT), under which non-prosecution
was conditioned on NWMSI and affiliated companies not
engaging in criminal conduct during the term of the NPA. The
relevant trading in 2018 was conducted by two NWM traders in
Singapore and breached that NPA. The plea agreement reached
with the US Department of Justice (DOJ) and the USAO CT
resolved both the spoofing conduct and the breach of the NPA.
As required by the resolution and sentence imposed by the court,
NWM Plc is subject to a probationary period, which was
extended to end concurrently with the conclusion of the
independent monitorship, which is also required under the plea
agreement. The term of the independent monitorship and the
ongoing implementation of recommendations made by it is
currently scheduled to conclude in December 2025 but may be
extended by agreement with the DOJ. In addition, NWM Plc has
committed to compliance programme reviews and improvements
and agreed to reporting and co-operation obligations.
In the event that NWM Plc does not meet its obligations to the
DOJ, this may lead to adverse consequences such as increased
costs from any extension of monitorship and/or the period of the
probation, findings that NWM Plc violated its probation term, and
possible re-sentencing, amongst other consequences. Other
material adverse collateral consequences may occur as a result
of this matter, as further described in the Risk Factor relating to
legal, regulatory and governmental actions and investigations set
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
150
This note shows non-cash items adjusted for in the cash flow statement and movement in operating assets and liabilities.
NWM Group |
NWM Plc |
|||
2024 |
2023 |
2024 |
2023 |
|
£m |
£m |
£m |
£m |
|
Impairment (releases)/losses |
(8) |
2 |
(7) |
1 |
Depreciation and amortisation |
10 |
16 |
3 |
6 |
Net impairment of investments in Group undertakings |
- |
- |
30 |
293 |
Change in fair value taken to profit or loss on other financial liabilities |
||||
and subordinated liabilities |
(12) |
90 |
(17) |
73 |
Elimination of foreign exchange differences |
560 |
261 |
325 |
108 |
Foreign exchange recycling losses/(gains) |
70 |
(8) |
36 |
1 |
Other non-cash items |
270 |
198 |
256 |
203 |
Income receivable on other financial assets |
(1,029) |
(642) |
(927) |
(582) |
(Profit)/loss on sale of other financial assets |
(1) |
1 |
- |
- |
Dividends receivable from subsidiaries |
- |
- |
(94) |
(349) |
Profit on sale of other assets and net assets and liabilities |
- |
(1) |
- |
(1) |
Interest payable on MRELs and subordinated liabilities |
291 |
252 |
283 |
241 |
Loss on redemption of own debt |
- |
14 |
- |
14 |
Charges and release on provisions |
11 |
(4) |
27 |
19 |
Defined benefit pension schemes |
(19) |
(6) |
(19) |
(6) |
Non-cash and other items |
143 |
173 |
(104) |
21 |
Change in operating assets and liabilities |
||||
Change in trading assets |
(5,397) |
372 |
1,380 |
(2,317) |
Change in derivatives assets |
929 |
20,794 |
562 |
20,371 |
Change in settlement balances assets |
5,184 |
(4,669) |
1,618 |
(482) |
Change in net loans to banks |
(19) |
247 |
(19) |
222 |
Change in net loans to customers |
(4,932) |
(2,812) |
(4,983) |
(2,946) |
Change in amounts due from holding company and fellow subsidiaries |
655 |
(573) |
969 |
1,879 |
Change in other financial assets |
17 |
84 |
17 |
62 |
Change in other assets |
33 |
46 |
33 |
40 |
Change in bank deposits |
2,298 |
(802) |
2,160 |
(1,027) |
Change in customer deposits |
(2,158) |
3,384 |
(710) |
395 |
Change in amounts due to holding company and fellow subsidiaries |
(414) |
184 |
(5,009) |
2,117 |
Change in settlement balances liabilities |
(4,912) |
4,631 |
44 |
(733) |
Change in trading liabilities |
888 |
831 |
(3,948) |
854 |
Change in derivatives liabilities |
55 |
(21,604) |
612 |
(21,350) |
Change in other financial liabilities |
7,674 |
2,627 |
7,305 |
2,353 |
Change in other liabilities |
(127) |
(123) |
(82) |
(110) |
Change in operating assets and liabilities |
(226) |
2,617 |
(51) |
(672) |
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
151
27 Analysis of changes in financing during the year
| NWM Group | ||||||
Share capital, share | ||||||
premium and | Subordinated | |||||
paid-in equity | liabilities (1) | MRELs (2) | ||||
2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | £m | £m | |
At 1 January | 3,250 | 3,250 | 1,296 | 1,985 | 3,070 | 3,173 |
Issue of paid-in equity | 592 | - | ||||
Issue of subordinated liabilities | 918 | - | ||||
Redemption of subordinated liabilities | (814) | (676) | ||||
Interest paid on subordinated liabilities | (91) | (71) | ||||
Issue of MRELs | 1,680 | 1,699 | ||||
Maturity and redemption of MRELs | (433) | (1,744) | ||||
Interest paid on MRELs | (179) | (175) | ||||
Net cash flows from financing activities | 592 | - | 13 | (747) | 1,068 | (220) |
Effects of foreign exchange | (12) | (61) | 25 | (124) | ||
Changes in fair value of subordinated liabilities and MRELs | 10 | 33 | (22) | 57 | ||
Interest payable on subordinated liabilities and MRELs | 74 | 68 | 217 | 184 | ||
Loss on redemption of own debt | - | 14 | - | - | ||
Other | - | - | 3 | 4 | - | - |
At 31 December | 3,842 | 3,250 | 1,384 | 1,296 | 4,358 | 3,070 |
| NWM Plc | ||||||
Share capital, share | ||||||
premium and | Subordinated | |||||
paid-in equity | liabilities (1) | MRELs (2) | ||||
2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | £m | £m | |
At 1 January | 3,250 | 3,250 | 1,041 | 1,661 | 3,070 | 3,173 |
Issue of paid-in equity | 592 | - | ||||
Issue of subordinated liabilities | 918 | - | ||||
Redemption of subordinated liabilities | (814) | (595) | ||||
Interest paid on subordinated liabilities | (82) | (57) | ||||
Issue of MRELs | 1,680 | 1,699 | ||||
Maturity and redemption of MRELs | (433) | (1,744) | ||||
Interest paid on MRELs | (179) | (175) | ||||
Net cash flows from financing activities | 592 | - | 22 | (652) | 1,068 | (220) |
Effects of foreign exchange | (1) | (55) | 25 | (124) | ||
Changes in fair value of subordinated liabilities and MRELs | 5 | 16 | (22) | 57 | ||
Interest payable on subordinated liabilities and MRELs | 66 | 57 | 217 | 184 | ||
Loss on redemption of own debt | - | 14 | - | - | ||
At 31 December | 3,842 | 3,250 | 1,133 | 1,041 | 4,358 | 3,070 |
(1)
Subordinated liabilities include intercompany subordinated liabilities.
(2)
MREL balances are included in amounts due to holding company and fellow subsidiaries.
In the cash flow statement, cash and cash equivalents comprises cash, loans to banks and treasury bills with an original maturity of
less than three months that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
NWM Group | NWM Plc | |||
2024 | 2023 | 2024 | 2023 | |
£m | £m | £m | £m | |
Cash and balances at central banks | 16,229 | 13,831 | 11,069 | 8,607 |
Trading assets | 6,885 | 8,723 | 3,220 | 4,065 |
Other financial assets | - | 139 | - | 139 |
Loans to banks including intragroup balances (1) | 1,422 | 2,250 | 1,981 | 4,177 |
Cash and cash equivalents | 24,536 | 24,943 | 16,270 | 16,988 |
(1)
NWM Group includes cash collateral posted with bank counterparties in respect of derivative liabilities of £3,658 million (2023 - £4,305 million), and NWM Plc includes cash collateral
posted with bank counterparties in respect of derivative liabilities of £2,825 million (2023 - £3,656 million).
which they operate. NatWest Markets N.V. had mandatory reserve deposits with De Nederlandsche Bank N.V. of €95 million (2023 -
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
152
2024 | 2023 | |
Directors' remuneration | £000 | £000 |
Non-executive directors emoluments | 391 | 319 |
Chairman and executive directors emoluments | 2,774 | 2,477 |
3,165 | 2,796 | |
Amounts receivable under LTIPs, share option and other plans | 792 | 604 |
Total | 3,957 | 3,400 |
The total emoluments and amounts receivable under long-term incentive plans and share option plans of the highest paid director
were £2,247,000 (2023 - £2,153,000).
The executive directors may participate in NatWest Group’s long-term incentive plans, executive share option and share save
schemes. Where directors of the Bank are also directors of NatWest Group, details of their share interests can be found in the 2024
Annual Report and Accounts of the NatWest Group, in line with regulations applying to NatWest Group as a premium listed company.
Compensation of key management
The aggregate remuneration of directors and other members of key management during the year was as follows:
2024 | 2023 | |
£000 | £000 | |
Short term benefits | 14,496 | 12,635 |
Post employment benefits | 554 | 592 |
Share-based payments | 4,943 | 3,878 |
19,993 | 17,105 |
Short term benefits include benefits expected to be settled wholly within twelve months of Balance Sheet date. Post-employment
benefits include defined benefit contributions for active members and pension funding to support contributions to the defined
contribution schemes. Share-based payments include awards vesting under rewards schemes.
30 Transactions with directors and key management
At 31 December 2024, amounts outstanding in relation to transactions, arrangements and agreements entered into by authorised
institutions in NatWest Group, as defined in UK legislation, were £91,766 in respect of loans to one director of the company at any time
during the financial period (2023 - £229,540).
For the purposes of IAS 24 Related party disclosures, key management comprises directors of the company and members of the
Executive Committee. Amounts in the table below are attributed to each person at their highest level of NatWest Group key
management.
2024 | 2023 | |
£000 | £000 | |
Loans to customers - amortised cost | 92 | 230 |
Customer deposits | 817 | 2,163 |
Key management has banking relationships with NatWest Group entities which are entered into in the normal course of business and
on substantially the same terms, including interest rates and security, as for comparable transactions with other persons of a similar
standing or, where applicable, with other employees. These transactions did not involve more than the normal risk of repayment or
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
153
31 Related parties
UK Government
The UK Government’s shareholding in NatWest Group plc is
managed by UK Government Investments Limited, a company
wholly owned by the UK Government. At 31 December 2024 HM
Treasury’s holding in NatWest Group plc’s ordinary shares was
9.99% (31 December 2023 - 37.97%). As a result, the UK
Government through HM Treasury is no longer the controlling
shareholder of NatWest Group plc as per UK listing rules. The UK
Government and UK Government-controlled bodies remain
related parties of the NatWest Group.
NWM Group enters into transactions with many of these bodies.
Transactions include the payment of: taxes principally UK
corporation tax (refer to Note 7) and value added tax; national
insurance contributions; local authority rates; and regulatory fees
and levy; together with banking transactions such as loans and
deposits undertaken in the normal course of banker-customer
relationships.
Bank of England facilities
NWM Group may participate in a number of schemes operated
by the Bank of England in the normal course of business.
In March 2024 Bank of England Levy replaced the Cash Ratio
Deposit scheme. Members of NatWest Group that are UK
authorised institutions are required to pay the levy having eligible
liabilities greater than £600 million. They also have access to
Bank of England reserve accounts: sterling current accounts that
earn interest at the Bank of England Base rate.
Other related parties
(a)
In their roles as providers of finance, NWM Group companies
provide development and other types of capital support to
businesses.
(b) To further strategic partnerships, NWM Group may seek to
invest in third parties or allow third parties to hold a minority
interest in a subsidiary of NWM Group. We disclose as related
parties for associates and joint ventures and where equity
interest are over 10%. Ongoing business transactions with
these entities are on normal commercial terms.
(c)
In accordance with IAS 24, transactions, or balances between
NWM Group entities that have been eliminated on
consolidation are not reported.
(d)
NWM Group is recharged from other NatWest Group entities,
mainly NWB Plc which provides the majority of shared
services (including technology) and operational processes.
(e) The primary financial statements include transactions and
balances with its subsidiaries which have been further
disclosed in the relevant parent company notes
.
Holding company and fellow subsidiaries
Transactions NWM Group enters with its holding company and fellow subsidiaries also meet the definition of related party transactions.
The table below discloses transactions between NWM Group and fellow subsidiaries of NatWest Group.
2024 |
2023 |
|||||
Holding company |
Fellow subsidiaries |
Total |
Holding company |
Fellow subsidiaries |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Interest receivable |
1 |
7 |
8 |
1 |
29 |
30 |
Interest payable |
(231) |
(137) |
(368) |
(274) |
(45) |
(319) |
Fees and commissions receivable |
6 |
74 |
80 |
3 |
68 |
71 |
Fees and commissions payable |
- |
(49) |
(49) |
- |
(39) |
(39) |
Other operating income (1) |
- |
146 |
146 |
- |
177 |
177 |
Other administration expenses (2) |
- |
(541) |
(541) |
- |
(540) |
(540) |
(224) |
(500) |
(724) |
(270) |
(350) |
(620) |
|
(1)
Other operating income relates to profit share arrangement with fellow NatWest Group subsidiaries that commenced in 2023. The profit share arrangement was introduced to reward
NWM Group on an arm’s length basis for its contribution to the performance of the NatWest Group Commercial & Institutional business segment, 2023 being the first full year with the
Commercial & Institutional segment in place.
(2)
Includes internal service recharges of £541 million (2023 - £540 million).
31 Related parties continued
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
154
Amounts due from/to holding company and fellow subsidiaries are as below:
| NWM Group |
||||||
| 2024 |
2023 |
|||||
Holding |
Fellow |
Holding |
Fellow |
|||
company |
subsidiaries |
Total |
company |
subsidiaries |
Total |
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Assets |
||||||
Trading assets |
- |
29 |
29 |
- |
273 |
273 |
Loans to banks - amortised cost |
- |
242 |
242 |
- |
1,246 |
1,246 |
Loans to customers - amortised cost |
18 |
- |
18 |
17 |
- |
17 |
Other assets |
- |
54 |
54 |
- |
194 |
194 |
Amounts due from holding company and fellow subsidiaries |
18 |
325 |
343 |
17 |
1,713 |
1,730 |
Derivatives (1) |
616 |
322 |
938 |
761 |
537 |
1,298 |
Liabilities |
||||||
Bank deposits - amortised cost |
- |
548 |
548 |
- |
537 |
537 |
Customer deposits - amortised cost |
- |
43 |
43 |
- |
55 |
55 |
Trading liabilities |
561 |
52 |
613 |
735 |
293 |
1,028 |
Other financial liabilities - subordinated liabilities |
1,115 |
- |
1,115 |
1,022 |
- |
1,022 |
MREL instruments issued to NatWest Group plc |
4,358 |
- |
4,358 |
3,070 |
- |
3,070 |
Other liabilities |
- |
94 |
94 |
17 |
73 |
90 |
Amounts due to holding company and fellow subsidiaries |
6,034 |
737 |
6,771 |
4,844 |
958 |
5,802 |
Derivatives (1) |
62 |
280 |
342 |
84 |
260 |
344 |
| NWM Plc |
||||||||
| 2024 |
2023 |
|||||||
Holding |
Fellow |
Holding |
Fellow |
|||||
company |
subsidiaries |
Subsidiaries |
Total |
company |
subsidiaries Subsidiaries |
Total |
||
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|
Assets |
||||||||
Trading assets |
- |
29 |
1,051 |
1,080 |
- |
272 |
3,041 |
3,313 |
Loans to banks - amortised cost |
- |
168 |
840 |
1,008 |
- |
1,049 |
799 |
1,848 |
Loans to customers - amortised cost |
- |
- |
830 |
830 |
- |
- |
772 |
772 |
Settlement balances |
- |
- |
128 |
128 |
- |
- |
91 |
91 |
Other financial assets |
- |
- |
210 |
210 |
- |
- |
214 |
214 |
Other assets |
- |
54 |
31 |
85 |
- |
183 |
51 |
234 |
Amounts due from holding company and fellow subsidiaries |
- |
251 |
3,090 |
3,341 |
- |
1,504 |
4,968 |
6,472 |
Derivatives (1) |
616 |
322 |
3,355 |
4,293 |
761 |
537 |
2,442 |
3,740 |
Liabilities |
||||||||
Bank deposits - amortised cost |
- |
549 |
166 |
715 |
- |
538 |
109 |
647 |
Customer deposits - amortised cost |
- |
41 |
508 |
549 |
- |
55 |
745 |
800 |
Trading liabilities |
561 |
52 |
3,286 |
3,899 |
735 |
292 |
6,783 |
7,810 |
Settlement balances |
- |
- |
14 |
14 |
- |
- |
906 |
906 |
Other financial liabilities - subordinated liabilities |
1,115 |
- |
- |
1,115 |
1,022 |
- |
- |
1,022 |
MREL instruments issued to NatWest Group plc |
4,358 |
- |
- |
4,358 |
3,070 |
- |
- |
3,070 |
Other liabilities |
- |
68 |
39 |
107 |
17 |
50 |
63 |
130 |
Amounts due to holding company and fellow subsidiaries |
6,034 |
710 |
4,013 |
10,757 |
4,844 |
935 |
8,606 |
14,385 |
Derivatives (1) |
62 |
280 |
3,381 |
3,723 |
84 |
260 |
2,676 |
3,020 |
(1)
Intercompany derivatives are included within derivative classification on the balance sheet.
There was £45 million (2023 - £28 million) of NWM Group commitments and guarantees related to transactions with fellow group
companies.
Notes to the consolidated financial statements continued
NWM Group
Annual Report and Accounts 2024
155
32 Ultimate holding company
NWM Group’s ultimate holding company is NatWest Group plc which is incorporated in the United Kingdom and registered in Scotland.
As at 31 December 2024, NatWest Group plc heads the largest group in which NWM Group is consolidated. Copies of the consolidated
accounts may be obtained from Legal, Governance & Regulatory Affairs, NatWest Group plc, Gogarburn, PO Box 1000, Edinburgh
On 10 January 2025, NWM Plc issued a total of €1.0 billion of notes under the EMTN programme in benchmark transactions. There
has been no adjustment to the 31 December 2024 statutory financial statements.
Other than as disclosed in the accounts, there have been no other significant events between 31 December 2024 and the date of
approval of these accounts which would require a change to or additional disclosure
Notes to the financial statements continued
NWM Group
Annual Report and Accounts 2024
156
34 Related undertakings
Legal entities and activities at 31 December 2024
In accordance with the Companies Act 2006, NWM Plc’s related undertakings and the accounting treatment for each are listed below.
All undertakings are wholly owned by NWM Plc or subsidiaries of NWM Plc and are consolidated by reason of contractual control
(Section 1162(2) CA 2006), unless otherwise indicated. NWM Group interest refers to ordinary shares of equal values and voting rights
unless further analysis is provided in the notes. Activities are classified in accordance with Annex I to the Capital Requirements
Directive (“CRD V”) and the definitions in Article 4 of the UK Capital Requirements Regulation.
The following table details active related undertakings incorporated in the UK which are 100% owned by NWM Group and
fully consolidated for accounting purposes
Regulatory |
|||
Entity name |
Activity |
treatment |
Notes |
280 Bishopsgate Finance Ltd |
INV |
FC |
(1) |
Care Homes 2 Ltd |
BF |
FC |
(1) |
Care Homes 3 Ltd |
BF |
FC |
(1) |
Care Homes Holdings Ltd |
BF |
FC |
(1) |
Lombard Corporate Finance (11) Ltd |
BF |
FC |
(1) |
NatWest Markets Secretarial Services Ltd |
SC |
FC |
(1) |
NatWest Markets Secured Funding LLP |
BF |
FC |
(7) |
Price Productions Ltd |
BF |
FC |
(1) |
R.B. Equipment Leasing Ltd |
BF |
FC |
(1) |
R.B. Leasing Company Ltd |
BF |
FC |
(2) |
Regulatory |
|||
Entity name |
Activity |
treatment |
Notes |
RBOS (UK) Ltd |
BF |
FC |
(1) |
RBS Property Developments Ltd |
INV |
FC |
(22) |
Royal Bank Investments Ltd |
BF |
FC |
(2) |
Royal Bank Ventures Investments Ltd |
BF |
FC |
(2) |
West Register (Hotels Number 3) Ltd |
INV |
DE |
(2) |
West Register (Property Investments) Ltd |
BF |
DE |
(2) |
West Register (Realisations) Ltd |
INV |
DE |
(2) |
The following table details active related undertakings incorporated outside the UK which are 100% owned by NWM Group
and fully consolidated for accounting purposes
Regulatory |
|||
Entity name |
Activity |
treatment |
Notes |
Alcover A.G. |
BF |
DE |
(16) |
Alternative Investment Fund B.V. |
BF |
FC |
(6) |
Atlas Nominees Ltd |
OTH |
FC |
(3) |
Candlelight Acquisition LLC |
BF |
FC |
(15) |
Coutts & Co Ltd |
CI |
FC |
(14) |
Coutts General Partner (Cayman) V Ltd |
BF |
FC |
(3) |
Financial Asset Securities Corp. |
BF |
FC |
(13) |
KEB Investors, L.P. |
BF |
FC |
(12) |
Maja Finance S.R.L. |
BF |
FC |
(3) |
NatWest Markets Group Holdings Corporation |
BF |
FC |
(6) |
NatWest Markets N.V. |
CI |
FC |
(3) |
NatWest Markets Securities Inc. |
INV |
FC |
(19) |
NatWest Markets Securities Japan Ltd |
INV |
FC |
(3) |
NatWest Services Inc. |
SC |
FC |
(18) |
Regulatory |
|||
Entity name |
Activity |
treatment |
Notes |
Random Properties Acquisition Corp. III |
INV |
FC |
(3) |
RBS Acceptance Inc. |
BF |
FC |
(3) |
RBS Commercial Funding Inc. |
BF |
FC |
(3) |
RBS Employment (Guernsey) Ltd |
SC |
FC |
(21) |
RBS Financial Products Inc. |
BF |
FC |
(3) |
RBS Group (Australia) Pty Ltd |
BF |
FC |
(8) |
RBS Holdings III (Australia) Pty Ltd |
BF |
FC |
(8) |
RBS Holdings N.V. |
BF |
FC |
(6) |
RBS Holdings USA Inc. |
BF |
FC |
(3) |
RBS International Depositary Services S.A. |
CI |
FC |
(10) |
RBS Investments (Ireland) Ltd |
BF |
FC |
(4) |
RBS Netherlands Holdings B.V. |
BF |
FC |
(6) |
RBS Nominees (Hong Kong) Ltd |
BF |
FC |
(19) |
RBS Nominees (Ireland) Ltd |
BF |
FC |
(4) |
The following table details active related undertakings incorporated in the UK where NWM Group ownership is less than
100%
Accounting |
Regulatory |
Group |
|||
Entity name |
Activity |
treatment |
treatment |
% |
Notes |
NatWest Markets Secured Funding |
|||||
| (LM) Ltd |
BF |
FC |
PC |
20 |
(7) |
RBS Sempra Commodities LLP |
BF |
FC |
FC |
51 |
(2) |
The following table details active related undertakings incorporated outside the UK where NWM Group ownership is less
than 100%
Accounting |
Regulatory |
Group |
|||
Entity name |
Activity |
treatment |
treatment |
% |
Notes |
Eris Finance S.R.L. |
BF |
IA |
PC |
45 |
(12) |
Lunar Funding VIII Ltd |
BF |
FC |
DE |
0 |
(5) |
Lunar Luxembourg SA |
BF |
FC |
DE |
0 |
(10) |
Lunar Luxembourg Series 2019- |
|||||
| 04 |
BF |
FC |
DE |
0 |
(10) |
Lunar Luxembourg Series 2019- |
|||||
| 05 |
BF |
FC |
DE |
0 |
(10) |
Lunar Luxembourg Series 2019- |
|||||
| 06 |
BF |
FC |
DE |
0 |
(10) |
Accounting |
Regulatory |
Group |
|||
Entity name |
Activity |
treatment |
treatment |
% |
Notes |
Lunar Luxembourg Series 2020- |
|||||
| 01 |
BF |
FC |
DE |
0 |
(10) |
Lunar Luxembourg Series 2020- |
|||||
| 02 |
BF |
FC |
DE |
0 |
(10) |
Lunar Luxembourg Series 2022-01 |
BF |
FC |
DE |
0 |
(10) |
NatWest Markets Secured |
|||||
| Funding DAC |
BF |
FC |
FC |
0 |
(11) |
Solar Funding II Ltd |
BF |
FC |
FC |
0 |
(20) |
Sparrow Capital Call 2024-1 Ltd |
BF |
FC |
DE |
0 |
(20) |
Notes to the financial statements continued
34 Related undertakings continued
NWM Group
Annual Report and Accounts 2024
157
The following table details related undertakings that are not active (actively being dissolved)
Accounting | Regulatory | Group | ||
Entity name | treatment | treatment | % | Notes |
Herge Holdings B.V. | IA | PC | 63 | (17) |
Lombard Corporate Finance (6) Ltd | FC | FC | 100 | (1) |
Patalex Productions Ltd | FC | FC | 100 | (1) |
Priority Sites Ltd | FC | DE | 100 | (1) |
Accounting | Regulatory | Group | ||
Entity name | treatment | treatment | % | Notes |
RB Investments 3 Ltd | FC | FC | 100 | (1) |
RBS Management Services (UK) Ltd | FC | FC | 100 | (1) |
RBS Mezzanine Ltd | FC | FC | 100 | (22) |
The following table details related undertakings that are dormant
| Accounting | Regulatory | Group | ||
Entity name | treatment | treatment | % | Notes |
N.C. Head Office Nominees Ltd | FC | FC | 100 | (2) |
Project & Export Finance (Nominees) Ltd | FC | FC | 100 | (1) |
RBOS Nominees Ltd | FC | FC | 100 | (1) |
Accounting | Regulatory | Group | ||
Entity name | treatment | treatment | % | Notes |
Sixty Seven Nominees Ltd | FC | FC | 100 | (1) |
The Royal Bank Of Scotland (1727) Ltd | FC | FC | 100 | (2) |
The following table details the overseas branches of NWM Group
Subsidiary | Geographic location |
NatWest Markets N.V. | France, Germany, Italy, Sweden |
Subsidiary | Geographic location |
Germany, India, Japan, Singapore, | |
NatWest Markets Plc | United Arab Emirates |
Key:
BF
Banking and financial institution
CI
Credit institution
INV
Investment (shares or property) holding company
SC
Service company
TR
Trustee
OTH
Other
DE
Deconsolidated
FC
Full consolidation
PC
Pro-rata consolidation
AHC
Associate held at cost
EAJV
Equity accounting – joint venture
IA
Investment accounting
NC
Not consolidated
Notes | Registered addresses | Country of incorporation |
(1) | 250 Bishopsgate, London, EC2M 4AA, England | UK |
(2) | RBS Gogarburn, 175 Glasgow Road, Edinburgh, EH12 1HQ, Scotland | UK |
(3) | 251 Little Falls Drive, Wilmington, DE, 19808 | USA |
(4) | Ulster Bank Head Office, Block B Central Park, Leopardstown, Dublin 18, D18 N153, Ireland | RoI |
(5) | Grand Pavilion Commercial Centre, 802 West Bay Road, P.O. Box 31119 | Cayman Islands |
(6) | Claude Debussylaan 94, Amsterdam, 1082 MD | Netherlands |
(7) | 1 Bartholomew Lane London EC2N 2AX, England | UK |
(8) | Ashurst, Level 16, 80 Collins Street, South Tower, Melbourne, VIC, 3000 | Australia |
(9) | 114 West 47th Street, New York, 10036 | USA |
(10) | 40, Avenue J.F Kennedy, Kirchberg, L 1855 | Luxembourg |
(11) | 5 Harbourmaster Place, Dublin 1, D01 E7E8 | RoI |
(12) | Alfieri V. 1, Conegliano | Italy |
(13) | Clarendon House, Two Church Street, Suite 104, Reid Street, Hamilton, HM 11 | Bermuda |
(14) | Maples Corporate Services Limited, P.O. Box 309, 121 South Church Street, George Town, Grand Cayman, KY1-1104 | Cayman Islands |
(15) | Schuetzengassse 4, CH-8001 Zurich | Switzerland |
(16) | Tirolerweg 8, Zug, CH- 6300 | Switzerland |
(17) | Verlengde Poolseweg 16, Breda, 4818C | Netherlands |
(18) | Victoria Place, 5th Floor, 31 Victoria Street, Hamilton, HM 10 | Bermuda |
(19) | 5/F Manulife Place, 348 Kwun Tong Road, Kowloon | Hong Kong |
(20) | IFC5, St.Helier, JE1 1ST | Jersey |
(21) | Les Echelons Court, Les Echelons, St Peter Port, GY1 1AR | Guernsey |
(22) | 7 Castle Street, Edinburgh, EH2 3AH | United Kingdom |
Non-IFRS measures
NWM Group
Annual Report and Accounts 2024
158
NWM Group prepares its financial statements in accordance with
IFRS as issued by the IASB which constitutes a body of generally
accepted accounting principles (GAAP). This document contains a
number of adjusted or alternative performance measures, also
known as non-GAAP or non-IFRS financial measures. These
measures are adjusted for certain items which management
believe are not representative of the underlying performance of
the business and which distort period-on-period comparison.
These non-IFRS measures are not measures within the scope of
IFRS and are not a substitute for IFRS measures. These measures
include:
Management analysis of operating expenses shows litigation
and conduct costs on a separate line. These amounts are
included within staff costs and other administrative expenses
in the statutory analysis. Other operating expenses excludes
litigation and conduct costs which are more volatile and may
distort comparisons with prior periods.
Funded assets are defined as total assets less derivative
assets. This measure allows review of balance sheet trends
exclusive of the volatility associated with derivative fair values.
Management view of income by business including shared
revenue and before own credit adjustments. This measure is
used to show underlying income generation in NatWest
Markets excluding the impact of own credit adjustments.
Revenue share refers to income generated by NatWest
Markets products from customers that have their primary
relationship with other NatWest Group subsidiaries, a
proportion of which is shared between NatWest Markets and
those subsidiaries.
Transfer Pricing arrangements with fellow NatWest Group
subsidiaries includes revenue share and a profit share
arrangement with fellow NatWest Group subsidiaries. The
profit share arrangement was introduced during 2023 to
reward NWM Group on an arm’s length basis for its
contribution to the performance of the NatWest Group
Commercial & Institutional business segment, 2023 being the
first full year with the Commercial & Institutional segment in
place. The profit share is not allocated to individual NatWest
Markets product areas.
Own credit adjustments are applied to positions where it is
believed that the counterparties would consider NWM Group’s
creditworthiness when pricing trades. The fair value of certain
issued debt securities, including structured notes, is adjusted
to reflect the changes in own credit spreads and the resulting
gain or loss recognised in income.
Operating expenses – management view
Year ended
31 December 2024
31 December 2023
Litigation
Other
Statutory
Litigation
Other
Statutory
and conduct
operating
operating
and conduct
operating
operating
costs
expenses
expenses
costs
expenses
expenses
£m
£m
£m
£m
£m
£m
Staff expenses
27
425
452
12
406
418
Premises and equipment
-
75
75
-
66
66
Other administrative expenses
75
596
671
48
594
642
Depreciation and amortisation
-
10
10
-
16
16
Total
102
1,106
1,208
60
1,082
1,142
Risk Factors
NWM Group
Annual Report and Accounts 2024
159
Principal Risks and Uncertainties
Set out below are certain risk factors that could have a material
adverse effect on NWM Group’s future results, its financial
condition, and/or prospects, and cause them to be materially
different from what is forecast or expected, and directly or
indirectly impact the value of its securities. These risk factors are
broadly categorised and should be read in conjunction with other
risk factors in this section and other parts of this annual report,
including the forward-looking statements section, the strategic
report and the risk and capital management section. They should
not be regarded as a complete and comprehensive statement of
all potential risks and uncertainties facing NWM Group.
Economic and political risk
NWM Group, its customers and its counterparties face
continued economic and political risks and uncertainties in
the UK and global markets, including as a result of inflation
and interest rates, supply chain disruption, and geopolitical
developments.
NWM Group is affected by global economic and market
conditions, particularly those in the UK. Uncertain and volatile
economic conditions in the UK or globally can create a challenging
operating environment for financial services companies such as
NWM Group. The outlook for the UK and the global economy is
affected by many dynamic factors including: GDP, unemployment,
inflation and interest rates, asset prices (including residential and
commercial property), energy prices, monetary and fiscal policy
(such as increases in bank levies), supply chain disruption,
protectionist policies or trade barriers (including tariffs).
Economic and market conditions could be exacerbated by a
number of factors including: instability in the UK and/or global
financial systems, market volatility and change, fluctuations in the
value of the pound sterling, new or extended economic sanctions,
volatility in commodity prices, political uncertainty, concerns
regarding sovereign debt (including sovereign credit ratings), any
lack or perceived lack of creditworthiness of a counterparty or
borrower that may trigger market-wide liquidity problems,
changing demographics in the markets that NWM Group and its
customers serve, rapid changes to the economic environment due
to the adoption of technology, automation, artificial intelligence, or
due to the consequences of climate change, biodiversity loss,
nature degradation and/or increasing social and other inequalities.
NWM Group is also exposed to risks arising out of geopolitical
events or political developments that may hinder economic or
financial activity levels and may, directly or indirectly, impact UK,
regional or global trade and/or NWM Group’s customers and
counterparties. NWM Group’s business and performance could be
negatively affected by political, military or diplomatic events,
geopolitical tensions, armed conflict (for example, the Russia-
Ukraine conflict and Middle East conflicts), terrorist acts or
threats, more severe and frequent extreme weather events,
widespread public health crises, and the responses to any of the
above scenarios by various governments and markets.
In recent years, the UK has experienced significant political
uncertainty. NWM Group may also face political uncertainty in
Scotland if there is another Scottish independence referendum.
Scottish independence may adversely affect NWM Group plc both
in relation to its entities incorporated in Scotland and in other
jurisdictions.
Any changes to Scotland’s relationship with the UK or the EU may
adversely affect the environment in which NatWest Group plc and
its subsidiaries operate and may require further changes to
NatWest Group (including NWM Group’s structure), independently
or in conjunction with other mandatory or strategic structural and
organisational changes, any of which could adversely affect NWM
Group.
The value of NWM Group’s own and other securities may be
materially affected by market risk (including as a result of market
fluctuations). Market volatility, illiquid market conditions and
disruptions in the financial markets may make it very difficult to
value certain of NWM Group’s own and other securities,
particularly during periods of market displacement. This could
cause a decline in the value of NWM Group’s own and other
securities, or inaccurate carrying values for certain financial
instruments. Similarly, NWM Group trades a considerable amount
of financial instruments (including derivatives) and volatile market
conditions could result in a significant decline in NWM Group’s net
trading income or result in a trading loss.
In addition, financial markets are susceptible to severe events
evidenced by, or resulting in, rapid depreciation in asset values,
which may be accompanied by a reduction in asset liquidity.
Under these conditions, hedging and other risk management
strategies may not be as effective at mitigating losses as they
would be under more normal market conditions. Moreover, under
these conditions, market participants are particularly exposed to
trading strategies employed by many market participants
simultaneously (and often automatically) and on a large scale,
increasing NWM Group’s counterparty risk. NWM Group’s risk
management and monitoring processes seek to quantify and
mitigate NWM Group’s exposure to extreme market moves.
However, market events have historically been difficult to predict,
and NWM Group, its customers and its counterparties could
experience significant losses if severe market events were to
occur.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
Fluctuations in currency exchange rates may adversely
affect NWM Group’s results and financial condition.
Decisions of central banks (including the BoE, the ECB, and the
US Federal Reserve) and political or market events which are
outside NWM Group’s control, may lead to sharp and sudden
fluctuations in currency exchange rates.
Although NWM Group is principally a UK-focused banking group, it
is subject to structural foreign exchange risk from capital
deployed in NWM Group and its foreign subsidiaries and branches.
NWM Group also issues instruments in non-sterling currencies,
such as USD, that assist in meeting NWM Group’s regulatory
requirements. In addition, NWM Group conducts banking activity
in non-sterling currencies (for example, loans, deposits and
dealing activity) which affect its revenue. NWM Group also uses
service providers based outside the UK for certain services and as
a result certain operating expenses are subject to fluctuations in
currency exchange rate. NWM Group maintains policies and
procedures designed to manage the impact of its exposure to
fluctuations in currency exchange rates. Nevertheless, changes in
currency exchange rates, particularly in the sterling-US dollar and
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
160
sterling-euro rates, may adversely affect various accounting and
financial metrics including the value of assets, liabilities (including
the total amount of instruments eligible to contribute towards the
minimum requirement for own funds and eligible liabilities
(‘MREL’)), income and expenses, RWAs and hence the reported
earnings and financial condition of NWM Group.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
Changes in interest rates will continue to affect NWM
Group’s business and results.
NWM Group’s performance is affected by changes in interest
rates. Benchmark overnight interest rates, such as the UK base
rate, decreased in 2024, and forward rates suggest that interest
rates will continue to decline in 2025. Stable interest rates support
more predictable income flow and less volatility in asset and
liability valuations, although persistently low and negative interest
rates may adversely affect NWM Group. Further, volatility in
interest rates may result in unexpected outcomes both for interest
income and asset and liability valuations which may adversely
affect NWM Group. For example, decreases in key benchmark
rates such as the UK base rate may adversely affect NWM
Group’s income, and unexpected movements in spreads between
key benchmark rates such as sovereign and swap rates may, in
turn, affect liquidity portfolio valuations. In addition, unexpected
sharp rises in rates may also have negative impacts on some
asset and derivative valuations.
Moreover, customer and investor responses to rapid changes in
interest rates can have an adverse effect on NWM Group. For
example, customers may make deposit choices that provide them
with higher returns than those being offered by NWM Group.
Alternatively, NWM Group may not respond with competitive
products as rapidly, for example following an interest rate change
which may in turn decrease NWM Group’s net interest income.
Movements in interest rates also influence and reflect the
macroeconomic situation more broadly, affecting factors such as
business and consumer confidence, property prices, default rates
on loans, customer behaviour (which may adversely impact the
effectiveness of NWM Group’s hedging strategy), and other
indicators that may indirectly affect NWM Group.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
HM Treasury (or UKGI on its behalf) could exercise, or be
perceived as being capable of exercising, influence over
NatWest Group and NWM Group is controlled by NatWest
Group.
In its Autumn Budget 2024, the UK Government confirmed its
commitment to exit its shareholding in NatWest Group plc by
2025-2026 subject to market conditions and sales representing
value for money for taxpayers. Accordingly, following various prior
sell-downs of parts of its shareholding in NatWest Group plc, HM
Treasury is no longer a “controlling shareholder” of NatWest
Group plc. As at 13 January 2025, HM Treasury held 8.90% of the
ordinary share capital with voting rights of NatWest Group plc.
HM Treasury has indicated that it intends to respect the
commercial decisions of NatWest Group and that NatWest Group
entities (including NWM Group) will continue to have their own
independent board of directors and management team
determining their own strategy.
However, for as long as HM Treasury remains NatWest Group
plc’s largest single shareholder, HM Treasury and UK Government
Investments Limited (‘UKGI’) (as manager of HM Treasury’s
shareholding) could exercise, or be perceived as being capable of
exercising, influence over NatWest Group (including NWM Group),
on matters such as changes to NatWest Group’s (including NWM
Group’s) directors and senior management, NatWest Group’s
(including NWM Group’s) capital strategy, dividend policy,
remuneration policy or how NatWest Group conducts its
operations. HM Treasury or UKGI’s approach largely depends on
government policy, which could change. Any exercise of such
influence, or the perception that such influence may be exercised,
may have an adverse effect on NatWest Group’s (including NWM
Group’s) reputation, the price of NatWest Group’s (including NWM
Group’s) securities, or the governance or business strategy of
NWM Group.
The way in which HM Treasury or UKGI exercises HM Treasury’s
rights as NatWest Group plc’s largest single shareholder could
give rise to conflicts between the interests of HM Treasury and
the interests of other shareholders, including as a result of a
change in government policy, which may in turn adversely affect
NatWest Group (including NWM Group).
In addition, NWM Plc is a wholly owned subsidiary of NatWest
Group plc, and NatWest Group plc therefore controls NWM Plc’s
board of directors and NWM Group’s corporate policies and
strategic direction. The interests of NatWest Group plc (as an
equity holder and as NWM Group’s parent) and the interests of
the C&I business segment may differ from, and conflict with, the
interests of NWM Group or of potential investors in its securities.
See also, ‘NWM Group has been in a period of, and may continue
to be subject to, significant structural and other change.’
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, reputation,
and/or the price of its securities.
Business change and execution risk
NWM Group has been in a period of, and may continue to be
subject to, significant structural and other change.
As part of NatWest Group’s strategy (including the strategic
priorities of disciplined growth, bank-wide simplification and active
balance sheet and risk management), NWM Group’s own strategy
has evolved to mostly focus on serving NatWest Group’s
corporate and institutional customer base via the creation of
NatWest Group’s C&I business segment. NatWest Group plc
reports NWM Group’s results under the C&I operating segment
structure, although NWM Plc continues to also report on a
standalone legal entity basis.
The C&I business segment was created to promote closer
operational and strategic alignment to support NatWest Group
growth, with more integrated services to customers across
NatWest Group entities, within and outside the ring-fenced banks
with the potential increased risk of breach of the UK ring-fencing
regime requiring effective conflicts of interest policies. As a result
of further focusing on NatWest Group’s core C&I customers, NWM
Group’s prospects have become further dependent on the
success and strategy of NatWest Group and its C&I business
segment in particular.
NWM Group’s ability to serve its customers may be adversely
affected by the execution of NatWest Group’s strategy in respect
of its C&I business segment and customer reactions to the
changing nature of NWM Group’s business model may be more
adverse than expected. Previously anticipated revenue and
profitability levels may not be achieved (including in relation to: the
ability to support customer transactions whilst meeting NWM
Group capital targets, and changes to the availability of risk
capital), in the timescales envisaged or at all.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
161
An adverse macroeconomic environment, political and regulatory
uncertainty, market volatility and change, and/or strong market
competition may require NWM Group to adjust aspects of its
strategy or the timeframe for its implementation. It is anticipated
that NWM Plc will continue to generate operating losses in the
short-term and as a result its capital levels may decline.
NWM Group’s strategy requires it to focus on bank-wide
simplification, a significant proportion of which is dependent on
simplification of its IT systems and therefore may not be realised if
IT capabilities are not delivered in line with assumptions. In
addition, the scale of changes that have been concurrently
implemented require the implementation and application of robust
governance and controls frameworks and robust IT systems.
There is a risk that NWM Group may not be successful in
maintaining such governance and control frameworks and IT
systems.
As part of NWM Group’s strategy, NWM Group has set a number
of financial, capital and operational targets and expectations,
which are expected to require further reductions to its wider cost
base. The financial, operational and capital targets and
expectations envisaged by NWM’s strategy may not be met or
maintained in the timeframes expected or at all. In addition,
targets and expectations for NWM Group are based on
management plans, projections and models, and are subject to a
number of key assumptions and judgements, any of which may
prove to be inaccurate. NWM Group has implemented a shared
services model and transfer pricing arrangements with some
entities within NatWest Group’s ring-fenced sub-group (including
NatWest Bank Plc and The Royal Bank of Scotland Plc). NWM
Group therefore relies directly or indirectly on NatWest Group
entities to provide services to itself and its customers. This
reliance has increased as a result of NWM Group joining NatWest
Group’s C&I business segment.
A failure of NWM Group to receive these services may result in
operational risk. See, ‘Operational risks (including reliance on third
party suppliers and outsourcing of certain activities) are inherent
in NWM Group’s businesses.’ In addition, any change to the cost
and/or scope of services provided by NatWest Group may impact
NWM Group’s competitive position and its ability to meet its other
targets.
NWM’s strategy entails legal, execution, operational and
regulatory (including compliance with the UK ring-fencing regime),
conflicts, IT system, cybersecurity, culture, people, conduct,
business and financial risks to NWM Group. As a result, NWM
Group may not be able to successfully implement some or all
aspects of its strategy or may not meet any or all of the related
strategic targets or expectations.
Additionally, as a result of the UK’s withdrawal from the EU,
certain aspects of the services provided by NWM Group require
local licences or individual equivalence decisions (temporary or
otherwise) by relevant regulators. In April 2024, the European
Parliament approved the Banking Package (CRR III/CRD VI). From
10 January 2027, non-EU firms providing ‘banking services’ will be
required to apply for and obtain authorisation to operate as third
country branches in each relevant EU member state where they
provide these services, unless an exemption applies.
NatWest
Group continues to evaluate its EU operating model, making
adaptations as necessary. In December 2024, NatWest Group
decided to simplify the operating model in Europe. NWM N.V. will
become the primary European corporate and institutional
customer-facing entity, subject to regulatory approval. Changes
to, or uncertainty regarding, NWM Group’s EU operating model
have been, and may continue to be, costly and may: (i) adversely
affect customers and counterparties who are dependent on
trading with the EU or personnel from the EU; (ii) result in further
costs and/or regulatory sanction due to a failure to receive the
required regulatory permissions and/or further changes to NWM
Group’s business operations, product offering, customer
engagement, and regulatory requirements; and/or (iii) impact
NWM Plc’s direct access to euro ECB liquidity facilities and euro
central bank reserves.
Furthermore, transferring business to an EEA based subsidiary,
including in connection with NatWest Group’s Western European
corporate portfolio, is a complex exercise and involves legal,
regulatory and execution risks, and could result in a loss of
business and/or customers or higher than anticipated costs (see
also, ‘The transfer of NatWest Group’s Western European
corporate portfolio involves certain risks.’). Any of the above
could, in turn, adversely affect NWM Group.
As a result of RBS Holdings N.V. and its subsidiary NatWest
Markets N.V. (both subsidiaries of NWM Group) being classified as
a “significant supervised group”, ECB direct supervision of both
subsidiaries began on 1 January 2024, which could have an
adverse effect on NWM Group’s business strategy, operating
model and prudential requirements in the short and medium term.
Each of the risks identified above, individually or collectively, could
adversely affect NWM Group’s products and services offering or
office locations, competitive position, ability to meet targets and
commitments, reputation with customers or business model and
may result in higher-than-expected costs, all of which could
adversely affect NWM Group and its ability to deliver its strategy.
There is a risk that the intended benefits of NatWest Group’s and
NWM Group’s strategies may not be realised in the timelines or in
the manner contemplated, or at all. Various aspects of NWM
Group’s strategy may not be successful, may not be completed as
planned, or at all, or could be phased or could progress in a
manner other than as expected. This could lead to additional
management actions by NatWest Group (or NWM Group),
regulatory action or reduced liquidity and/or funding opportunities.
Any of the above may lead to NWM Group not being viable,
competitive, or profitable, and may have a material adverse effect
on NWM Group’s future results, financial condition, prospects,
and/or reputation.
The transfer of NatWest Group’s Western European
corporate portfolio involves certain risks.
To improve efficiencies and best serve customers following the
UK’s withdrawal from the EU, certain assets, liabilities,
transactions and activities of NatWest Group (including its
Western European corporate portfolio principally consisting of
term funding and revolving credit facilities) (the ‘Transfer
Business’), are expected to be: (i) transferred from the ring-fenced
subgroup of NatWest Group to NWM Group, and/or (ii) transferred
to the ring-fenced subgroup of NatWest Group from NWM Group,
subject to regulatory and customer requirements. The timing,
success and quantum of any of these transfers remain uncertain
as is the impact of these transactions on its results of operations.
As a result, this may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
Financial resilience risk
NWM Group may not achieve its ambitions or targets, meet
its guidance, generate returns, or implement its strategy
effectively.
NWM Group has set a number of financial, capital and operational
targets and provided guidance including in respect of: CET1 ratio
and leverage ratio targets (for NWM Plc and NWM N.V.), MREL
targets, targets in relation to local regulation, funding plans and
requirements, employee engagement, diversity and inclusion as
well as climate strategy (including its climate and sustainable
funding and financing targets).
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
162
NWM Group’s ability to meet its ambitions, targets, guidance, and
make discretionary capital distributions is subject to various
internal and external factors, risks and uncertainties. These
include but are not limited to: UK and global macroeconomic,
political, market and regulatory uncertainties, customer behaviour,
operational risks and risks relating to NWM Group’s business
model and strategy (including risks associated with climate and
other sustainability-related issues). See also, ‘NWM Group, its
customers and its counterparties face continued economic and
political risks and uncertainties in the UK and global markets,
including as a result of inflation and interest rates, supply chain
disruption, and geopolitical developments.’
A number of factors may impact NWM Plc and NWM N.V.’s
abilities to maintain their respective CET1 ratio targets, including
the macroeconomic environment, impairments, the extent of
organic capital generation and the receipt and payment of
dividends. Furthermore, the focus on maintaining a disciplined cost
base may result in limited investment in other areas which could
affect NWM Group’s long-term product offering or competitive
position and its ability to meet its other targets, including those
related to customer satisfaction.
In addition, challenging trading conditions may adversely affect
NWM Group’s business and its ability to achieve its targets, meet
its guidance, and execute its strategy. Furthermore, NWM
Group’s strategy may not be successfully executed or it may not
meet its ambitions, targets, guidance and expectations.
Any of the above may lead to NWM Group not being a viable,
competitive or profitable banking business and may have a
material adverse effect on NWM Group’s future results, financial
condition, prospects, and/or reputation.
NWM Plc and/or its regulated subsidiaries may not meet the
prudential regulatory requirements for regulatory capital.
NWM Group is required by regulators in the UK, the EU and other
jurisdictions in which it undertakes regulated activities to maintain
adequate financial resources. Adequate capital provides NWM
Group with financial flexibility in the face of turbulence and
uncertainty in the global economy and specifically in its core UK
operations.
NWM Plc’s and NWM N.V.’s target CET1 ratios are based on
regulatory requirements and management actions (see the
targets set forth in each respective entity’s Outlook section) that
rely on internal modelling and risk appetite (including under
stress). As at 31 December 2024, NWM Plc’s solo CET1 ratio was
18% and its CET1 target ratio for the medium term is around
14%. NWM Plc’s current capital strategy is based on the
management of RWAs and other capital management initiatives
(including the reduction of RWAs and the periodic payment of
dividends to NatWest Group plc, NWM Plc’s parent company).
Other factors that could influence NWM Plc and NWM N.V.’s
CET1 ratios include:
a depletion of NWM Plc or NWM N.V.’s capital resources
through reduced profits (which would in turn impact retained
earnings) and may result from revenue attrition or increased
liabilities, sustained periods of low interest rates, reduced
asset values resulting in write-downs or reserve adjustments,
impairments, changes in accounting policy, accounting
charges or foreign exchange movements;
a change in the quantum of NWM Plc’s or NWM N.V.’s RWAs,
stemming from exceeding target RWA levels, regulatory
changes (including their interpretation or application), foreign
exchange movements or a failure in internal controls or
procedures to accurately measure and report RWAs/leverage
exposure. An increase in RWAs would lead to a reduction in
the CET1 ratio (and increase the amount of internal MREL
required for NWM Plc);
changes in prudential regulatory requirements including the
Total Capital Requirement for NWM Plc (as regulated by the
PRA) or NWM N.V. (as regulated by the ECB), including Pillar 2
requirements and regulatory buffers as well as any applicable
scalars;
further losses (including as a result of extreme one-off
incidents such as cyberattack, fraud or conduct issues) would
deplete capital resources and place downward pressure on
the CET1 ratio; or
the timing of planned liquidation, disposal and/or capital
releases of capital including on activity or legacy entities
owned by NWM Plc and NWM N.V.
See also ‘NWM Group has been in a period of, and may continue
to be subject to, significant structural and other change.’
Management actions taken under a stress scenario may affect,
among other things, NWM Group’s product offering, its credit
ratings, its ability to operate its businesses and pursue its
strategy, any of which may negatively impact investor confidence,
and the value of NWM Group’s securities. See also, ‘NWM Plc
and/or its regulated subsidiaries may not manage their capital,
liquidity or funding effectively which could trigger the execution of
certain management actions or recovery options,’ ‘NatWest
Group (including NWM Group) may become subject to the
application of UK statutory stabilisation or resolution powers
which may result in, for example, the write-down or conversion of
NWM Group entities’ Eligible Liabilities’, and NWM Group may be
adversely affected if NatWest Group fails to meet the
requirements of regulatory stress tests.’
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group is reliant on access to the capital markets to
meet its funding requirements, both directly through
wholesale markets, and indirectly through its parent
(NatWest Group plc) for the subscription to its internal
capital and MREL. The inability to do so may adversely
affect NWM Group.
NWM Plc’s funding plan anticipates that in 2025, it will issue £4-5
billion of public benchmark issuance, based on its current and
anticipated business activities. NWM Group (which includes
NatWest Markets N.V.) therefore has significant anticipated
funding requirements, which may increase in the future (including
as a result of changes to NatWest Group’s and NWM Group’s EU
operating model), and is reliant on frequent access to the capital
markets for funding, at a cost that can be passed through to its
customers. This access entails execution risk, regulatory risk, risk
of reduced commercial activity, risk of loss of market confidence
in NWM Group if it cannot finance its activities and risk of a
ratings downgrade, which could be influenced by a number of
internal or external factors, including, those summarised in these
risk factors.
In addition, NWM Plc receives capital and funding from NatWest
Group plc. NWM Plc has set target levels for different tiers of
capital and for the internal MREL, as percentages of its RWAs.
The level of capital and funding required for NWM Plc to meet its
internal targets is therefore a function of the level of RWAs and its
leverage exposure in NWM Plc and this may vary over time.
NWM Plc’s internal MREL comprises the regulatory value of
capital instruments and loss-absorbing senior funding issued by
NWM Plc to its parent, NatWest Group plc, in all cases with a
residual maturity of at least one year. The BoE has identified that
the preferred resolution strategy for NatWest Group is as a single
point-of-entry.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
163
As a result, NatWest Group plc is the only entity able to issue
Group MREL eligible liabilities to third-party investors, using the
proceeds to fund the internal capital and MREL targets and/or
requirements of its operating entities, including NWM Plc. NWM
Plc is therefore dependent not only on NatWest Group plc to fund
its internal capital targets, but also on NatWest Group plc’s ability
to source appropriate funding. NWM Plc is also dependent on
NatWest Group plc to continue to fund NWM Plc’s internal MREL
targets over time and its ability to issue and maintain sufficient
amounts of external MREL liabilities to support this. In turn, NWM
Plc is required to fund the internal capital requirements and MREL
of its subsidiaries.
Any inability of NWM Group to adequately access the capital
markets, to manage its balance sheet in line with assumptions in
its funding plans, or to issue internal capital and MREL may
adversely affect NWM Group, such that NWM Group may not
constitute a viable banking business and/or NWM Plc or NWM
N.V. may fail to meet their respective regulatory capital and/or
MREL (at present, NWM N.V. does not have its own MREL).
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group may not meet the prudential regulatory
requirements for liquidity and funding or may not be able to
adequately access sources of liquidity and funding, which
could trigger the execution of certain management actions
or recovery options.
Liquidity and the ability to raise funds continues to be a key area
of focus for NWM Group and the industry as a whole. NatWest
Group and NWM Plc (on a standalone basis) are required by
regulators in the UK, the EU and other jurisdictions in which they
undertake regulated activities to maintain adequate liquidity and
funding resources. To satisfy its liquidity and funding
requirements, NWM Group may therefore access sources of
liquidity and funding through deposits and wholesale funding,
including debt capital markets and trading liabilities such as
repurchase agreements. As at 31 December 2024, NWM Group
held £9.4 billion in deposits from banks and customers.
The level of deposits and wholesale funding may fluctuate due to
factors outside NWM Group’s control. These factors include: loss
of customers, changes in customer behaviour, loss of customer
and/or investor confidence (including in individual NWM Group
entities or the UK banking sector or the banking sector as a
whole), changes in interest rates, government support, increasing
competitive pressures for bank funding or the reduction or
cessation of deposits and other funding by counterparties, any of
which could result in a significant outflow of deposits or reduction
in wholesale funding within a short period of time. See also, ‘NWM
Group has significant exposure to counterparty and borrower risk
including credit losses, which may have an adverse effect on
NWM Group’. An inability to grow, roll-over, or any material
decrease in, NWM Group’s deposits, short-term wholesale funding
and short-term liability financing could, particularly if accompanied
by one of the other factors described above, adversely affect
NWM Group.
NWM Group engages from time to time in ‘fee based borrow’
transactions whereby collateral (such as government bonds) is
borrowed from counterparties on an unsecured basis in return for
a fee. This borrowed collateral may be used by NWM Group to
finance parts of its balance sheet, either in its repo financing
business, derivatives portfolio or more generally across its balance
sheet. If such ‘fee based borrow’ transactions are unwound whilst
used to support the financing of parts of NWM Group balance
sheet, then unsecured funding from other sources would be
required to replace such financing.
There is a risk that NWM Group would be unable to replace such
financing on acceptable terms or at all, which could adversely
affect its liquidity position and have an adverse effect on NWM
Group. In addition, because ‘fee base borrow’ transactions are
conducted off-balance sheet (due to the collateral being
borrowed) investors may find it more difficult to gauge NWM
Group’s creditworthiness, which may be affected if these
transactions were to be unwound in a stress scenario. Any lack of
or perceived lack of creditworthiness may adversely affect NWM
Group
.
Macroeconomic developments, political uncertainty, changes in
interest rates, and market volatility, could affect NWM Group’s
ability to access sources of liquidity and funding on satisfactory
terms, or at all. This may result in higher funding costs and failure
to comply with regulatory capital, funding and leverage
requirements. As a result, NWM Plc and its subsidiaries could be
required to change their funding plans and/or their funding
operations. For example, impairments or other losses as well as
increases to capital deductions may result in a decrease to NWM
Plc’s capital base, and/or that of its subsidiaries.
If NatWest Group plc is unable to issue securities externally as
planned, this may have a negative impact on NWM Plc’s current
and forecasted MREL position, particularly if NatWest Group plc is
unable to downstream capital and/or funding to NWM Plc. This
could exacerbate funding and liquidity risk, which may adversely
affect NWM Group.
As at 31 December 2024, NWM Group reported a liquidity
coverage ratio of 195%. If its liquidity position and/or funding were
to come under stress and if NWM Group is unable to raise funds
through deposits, wholesale funding sources or other reliable
funding sources, on acceptable terms, or at all, its liquidity position
would likely be adversely affected. This would mean that NWM
Group might be unable to: meet deposit withdrawals on demand
or satisfy buyback requests, repay borrowings as they mature,
meet its obligations under committed financing facilities, comply
with regulatory funding requirements, undertake certain capital
and/or debt management activities, or fund new loans,
investments and businesses.
If, under a stress scenario, the level of liquidity falls outside of
NWM Group’s risk appetite, there are a range of recovery
management actions that NWM Group could take to manage its
liquidity levels, but any such actions may not be sufficient to
restore adequate liquidity levels, and the related implementation
may have adverse consequences for NWM Group. Under the PRA
Rulebook, NatWest Group must maintain a recovery plan
acceptable to its regulator, such that a breach of NWM Group’s
applicable liquidity requirements would trigger consideration of
NWM Plc’s recovery actions, and in turn may prompt
consideration and execution of NatWest Group’s recovery plan, to
attempt to remediate a deficient liquidity position.
NWM Group may need to liquidate assets to meet its liabilities,
including disposals of assets not previously identified for disposal
to reduce its funding or payment commitments or trigger the
execution of certain management actions or recovery options.
This could also lead to higher funding costs and/or changes to
NWM Group’s funding plans or its operations. In a time of reduced
liquidity or market stress, NWM Group may be unable to sell some
of its assets or may need to sell assets at depressed prices, which
in either case may adversely affect NWM Group.
NWM Group entities independently manage liquidity risk on a
stand-alone basis, including through holding their own liquidity
portfolios. They have restricted access to liquidity or funding from
other NatWest Group entities. NWM Group entities’ management
of their own liquidity portfolios and the structure of capital support
are subject to operational and execution risk.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
164
Continuing market volatility may impact capital and RWAs and
NWM Group and its subsidiaries may be required to adapt their
funding plans or change their operations in order to satisfy their
respective capital and funding requirements, which may have a
negative impact on NWM Group. Market volatility may also result
in increases to leverage exposure.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Plc and/or its regulated subsidiaries may not manage
their capital, liquidity or funding effectively which could
trigger the execution of certain management actions or
recovery options.
Under the PRA Rulebook, NatWest Group must maintain a
recovery plan acceptable to its regulator, such that a breach of
NWM Plc’s applicable capital or leverage, liquidity or funding
requirements would trigger consideration of NWM Plc’s recovery
actions, and in turn may prompt consideration and execution of
NatWest Group’s recovery actions. If, under stressed conditions,
the liquidity, capital or leverage ratio were to decline, there are a
range of recovery management actions (focused on risk reduction
and mitigation) that NWM Plc could undertake that may or may
not be sufficient to restore adequate liquidity, capital and leverage
ratios. Additional management options relating to existing capital
issuances, asset or business disposals, capital payments and
dividends from NWM Plc to its parent, could also be undertaken to
support NWM Plc’s capital and leverage requirements. NatWest
Group may also address a shortage of capital in NWM Plc by
providing parental support to NWM Plc. NatWest Group’s (and
NWM Plc’s) regulator may also request that NWM Group carry
out additional capital management actions. The BoE has identified
single point-of-entry at NatWest Group plc, as the preferred
resolution strategy for NatWest Group. However, under certain
conditions set forth in the BRRD, as the UK resolution authority,
the BoE also has the power to execute the ‘bail-in’ of certain
securities of NWM Group without further action at NatWest Group
level.
Any capital management actions taken under a stress scenario
may, in turn, affect: NWM Group’s product offering, credit ratings,
ability to operate its businesses and pursue its strategy as well as
negatively impacting investor confidence and the value of NWM
Group’s securities. See also, ‘NatWest Group (including NWM
Group) may become subject to the application of UK statutory
stabilisation or resolution powers which may result in, for
example, the write-down or conversion of NWM Group entities’
Eligible Liabilities.’ In addition, if NWM Plc or NWM N.V.’s liquidity
position were to be adversely affected, this may require assets to
be liquidated or may result in higher funding costs, which may
adversely affect NWM Group’s operating performance.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
Any reduction in the credit rating and/or outlooks assigned
to NatWest Group plc, any of its subsidiaries (including NWM
Plc or NWM Group subsidiaries) or any of their respective
debt securities could adversely affect the availability of
funding for NWM Group, reduce NWM Group’s liquidity and
funding position and increase the cost of funding.
Rating agencies regularly review NatWest Group plc, NWM Plc
and other NatWest Group entities’ credit ratings and outlooks.
NWM Group entities’ credit ratings and outlooks, could be
negatively affected (directly and indirectly) by a number of factors
that can change over time, including, without limitation: credit
rating agencies’ assessment of NWM Group’s strategy and
management’s capability; its financial condition including in
respect of profitability, asset quality, capital, funding and liquidity,
and risk management practices; the level of political support for
the sectors and regions in which NWM Group operates; the legal
and regulatory frameworks applicable to NWM Group’s legal
structure; business activities and the rights of its creditors;
changes in rating methodologies; changes in the relative size of
the loss-absorbing buffers protecting bondholders and depositors;
the competitive environment; political, geopolitical and economic
conditions in NWM Group’s key markets (including inflation and
interest rates, supply chain disruptions and geopolitical
developments); any reduction of the UK’s sovereign credit rating
and market uncertainty. In addition, credit rating agencies are
increasingly taking into account sustainability-related factors,
including climate, environmental, social and governance-related
risk, as part of the credit rating analysis, as are investors in their
investment decisions.
Any reductions in the credit rating of NatWest Group plc, NWM
Plc or of certain other NatWest Group entities could significantly
affect NWM Group. Adverse consequences for NWM Group from
downgrades could include, without limitation, a reduction in the
access to capital markets or in the size of its deposit base, and
trigger additional collateral or other requirements in its funding
arrangements or the need to amend such arrangements, which
could adversely affect NWM Group’s liquidity and funding position,
cost of funding, and could limit the range of counterparties willing
to enter into transactions with NWM Group on favourable terms,
or at all. This may in turn adversely affect NWM Group’s
competitive position and threaten its prospects.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group operates in markets that are highly competitive,
with competitive pressures and technology disruption.
NatWest Group (including NWM Group) faces increasing
competitive pressures and technology disruption from incumbent
traditional UK banks, challenger banks and building societies
(including those resulting from mergers between these entities),
fintech companies, large technology conglomerates and new
market entrants who could look to scale technology and/or other
competitive advantages to compete with NatWest Group for
customer engagement. “BigTech” companies are seen as threats
to incumbent banking providers because of their customer
innovation and global reach. In addition, digital-first banks (often
referred to as “neobanks”) and fintechs are aiming to compete
with incumbent banking providers on the basis that customers
increasingly use a constellation of providers to support their
complex and evolving needs (e.g., personal financial management
and paying for goods and services in foreign currency).
NWM Group expects competition to continue and intensify in
response to various trends including: evolving customer
behaviour, technological changes (including digital currencies,
stablecoins and the growth of digital banking), competitor
behaviour, new market entrants, competitive foreign exchange
offerings, industry trends resulting in increased disaggregation or
unbundling of financial services or, conversely, the re-
intermediation of traditional banking services, and the impact of
regulatory actions, among others. In particular, NWM Group may
be unable to grow or retain its market share due to new (or more
competitive) banking, lending and payment products and services
that are offered by rapidly evolving incumbents and challengers
(including shadow banks, alternative or direct lenders and new
entrants). These competitive pressures and the introduction of
disruptive technology may result in a shift in customer behaviour
and impact NWM Group’s revenues and profitability.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
165
Moreover, innovations in biometrics, artificial intelligence,
automation, cloud services, blockchain, cryptocurrencies and
quantum computing may rapidly facilitate industry transformation.
Increasingly, many of NWM Group’s products and services are,
and will become, more technology intensive, including through
digitalisation, automation and the use of artificial intelligence while
needing to continue complying with applicable and evolving
regulations. NWM Group’s ability to develop or acquire digital
solutions and their integration into NWM Group’s structures,
systems and controls has become increasingly important for
retaining and growing NWM Group’s market share and customer-
facing businesses.
NWM Group’s innovation strategy (which includes investments in
its IT capability intended to improve its core infrastructure and
customer interface capabilities as well as investments and
strategic partnerships with third party technology providers) may
not be successful or may not result in NWM Group offering
innovative products and services in the future. Furthermore,
current or future competitors may be more successful than NWM
Group in implementing technologies for delivering products or
services to their customers, which may adversely affect its
competitive position. In addition, continued consolidation and/or
technological developments in the financial services industry could
result in the emergence of new competitors or NWM Group’s
competitors gaining greater capital and other resources, including
the ability to offer a broader and more attractive or better value
range of products and services and geographic diversity. For
example, new market entrants, including non-traditional financial
services providers, such as technology conglomerates, may have
competitive advantages in scale, and technology and may be able
to develop and deliver financial services at a lower cost base.
NWM Group may also fail to identify future opportunities or fail to
derive benefits from technological innovation, changing customer
behaviour and changing regulatory demands. Competitors may
be better able to attract and retain customers and key
employees, have more effective IT systems, and have access to
lower cost funding and/or be able to attract deposits or provide
investment-banking services on more favourable terms than
NWM Group. Although NWM Group invests in new technologies
and participates in industry and research-led technology
development initiatives, such investments may be insufficient or
ineffective, especially given NWM Group’s focus on business
simplification and cost efficiencies. This could affect NWM Group’s
ability to offer innovative products or technologies to customers.
If NWM Group is unable to offer competitive, attractive and
innovative products that are also profitable and released in a
timely manner, it will lose market share, incur losses on some or
all of its initiatives and possibly lose growth opportunities. For
example, NWM Group is investing in the automation of certain
solutions and interactions within its customer-facing businesses,
including through artificial intelligence. There can be no certainty
that such initiatives will allow NWM Group to compete effectively
or will deliver the expected cost savings for NWM Group. In
addition, the implementation of NatWest Group’s strategy,
delivery on its climate ambition and cost-controlling measures,
may also have an impact on NWM Group’s ability to compete
effectively and provide satisfactory returns. Moreover, activist
investors have increasingly become engaged and interventionist in
recent years, which may pose a threat to NatWest Group’s (and
NWM Group’s) strategic initiatives.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group may be adversely affected if NatWest Group
fails to meet the requirements of regulatory stress tests.
NatWest Group is subject to annual and other stress tests by its
regulator in the UK. Stress tests are designed to assess the
resilience of banks such as NWM Group to potential adverse
economic or financial developments and ensure that they have
robust, forward-looking capital planning processes that account
for the risks associated with their business profile.
If the stress tests reveal that a bank’s existing regulatory capital
buffers are not sufficient to absorb the impact of the stress, then
it is possible that NatWest Group and/or NWM Group may need to
take action to strengthen their capital positions.
Failure by NatWest Group to meet its quantitative and qualitative
requirements of the stress tests set forth by its UK regulators may
result in: NatWest Group’s regulators requiring NatWest Group to
generate additional capital, reputational damage, increased
supervision and/or regulatory sanctions and/or loss of investor
confidence.
Any of the above may have a material adverse effect on NatWest
Group’s (and NWM Group’s) future results, financial condition,
prospects, and/or reputation.
NWM Group has significant exposure to counterparty and
borrower risk including credit losses, which may have an
adverse effect on NWM Group.
Credit risk may arise from a variety of business activities,
including, but not limited to: extending credit to customers
through various lending commitments; entering into swap or other
derivative contracts under which counterparties have obligations
to make payments to NWM Group (including un-collateralised
derivatives); providing short or long-term funding that is secured
by physical or financial collateral whose value may at times be
insufficient to fully cover the loan repayment amount; posting
margin and/or collateral and other commitments to clearing
houses, clearing agencies, exchanges, banks, securities firms and
other financial counterparties; and investing and trading in
securities and loan pools, whereby the value of these assets may
fluctuate based on realised or expected defaults on the underlying
obligations or loans. See also, ‘Risk and capital management —
Credit Risk’. Any negative developments in the activities listed
above may negatively impact NWM Group’s customers and credit
exposures, which may, in turn, adversely affect NWM Group’s
profitability.
NWM N.V., a subsidiary of NWM Plc, has a portfolio of loans and
loan commitments to Western European corporate customers. As
a result, through the NWM N.V. business and NWM Group’s other
activities, NWM Group has exposure to many different sectors,
customers and counterparties, and risks arising from actual or
perceived changes in credit quality and the recoverability of
monies due from borrowers and other counterparties are inherent
in a wide range of NWM Group’s businesses. These risks may be
concentrated for those businesses for which customer income is
heavily weighted towards a specific geographic region, industry or
customer base. Furthermore, these risks are likely to increase due
to a potential transfer of NatWest Group’s Transfer Business (see
‘The transfer of NatWest Group’s Western European corporate
portfolio involves certain risks’)
.
The credit quality of NWM Group’s borrowers and other
counterparties may be affected by UK and global macroeconomic
and political uncertainties, as well as prevailing economic and
market conditions. Refer to ‘NWM Group, its customers and its
counterparties face continued economic and political risks and
uncertainties in the UK and global markets, including as a result of
inflation and interest rates, supply chain disruption, and
geopolitical developments’.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
166
Any further deterioration in these conditions or changes to legal
or regulatory landscapes could worsen borrower and
counterparty credit quality or impact the enforcement of
contractual rights, increasing credit risk.
NWM Group is exposed to the financial sector, including sovereign
debt securities, financial institutions, financial intermediation
providers (including providing facilities to financial sponsors and
funds, backed by assets or investor commitments) and securitised
products (typically senior lending to special purpose vehicles
backed by pools of financial assets). Concerns about, or a default
by, a financial institution or intermediary could lead to significant
liquidity problems and losses or defaults by other financial
institutions or intermediaries, since the commercial & financial
soundness of many financial institutions and intermediaries is
closely related and interdependent as a result of credit, trading,
clearing and other relationships. Any perceived lack of
creditworthiness of a counterparty or borrower may lead to
market-wide liquidity problems and losses for NWM Group. In
addition, the value of collateral may be correlated with the
probability of default by the relevant counterparty (‘wrong way
risk’), which would increase NWM Group’s potential loss. Any of
the above risks may also adversely affect financial intermediaries,
such as clearing agencies, clearing houses, banks, securities firms
and exchanges with which NWM Group interacts on a regular
basis. See also, ‘NWM Group is reliant on access to the capital
markets to meet its funding requirements, both directly through
wholesale markets, and indirectly through its parent (NatWest
Group plc) for the subscription to its internal capital and MREL.
The inability to do so may adversely affect NWM Group.’ and
‘NWM Group may not meet the prudential regulatory
requirements for liquidity and funding or may not be able to
adequately access sources of liquidity and funding, which could
trigger the execution of certain management actions or recovery
options.’ As a result, adverse changes in borrower and
counterparty credit risk may cause additional impairment charges
under IFRS 9, increased repurchase demands, higher costs,
additional write-downs and losses for NWM Group and an inability
to engage in routine funding transactions.
NWM Group has applied an internal analysis of multiple economic
scenarios (MES) together with the determination of specific
overlay adjustments to inform its IFRS 9 ECL (Expected Credit
Loss). The recognition and measurement of ECL is complex and
involves the use of significant judgement and estimation. This
includes the formulation and incorporation of multiple forward-
looking economic scenarios into ECL to meet the measurement
objective of IFRS 9. The ECL provision is sensitive to the model
inputs and economic assumptions underlying the estimate. Going
forward, NWM Group anticipates observable credit deterioration
of a proportion of assets resulting in a systematic uplift in defaults,
which is mitigated by those economic assumption scenarios being
reflected in the Stage 2 ECL across portfolios, along with a
combination of post model overlays in both wholesale and retail
portfolios reflecting the uncertainty of credit outcomes. See also,
‘Risk and capital management – Credit risk’. A credit deterioration
would also lead to RWA increases. Furthermore, the assumptions
and judgements used in the MES and ECL assessment at 31
December 2024 may not prove to be adequate resulting in
incremental ECL provisions for NWM Group.
NWM Group has exposure to shadow banking entities (i.e. entities
which carry out activities of a similar nature to banks but without
the same regulatory oversight), and is, as result, required to
identify and monitor its exposure to these entities, implement and
maintain an internal framework for the identification,
management, control and mitigation of the risks associated with
exposure to shadow banking entities, and ensure effective
reporting and governance in respect of such exposure.
If NWM Group is unable to properly identify and monitor its
shadow banking exposure, maintain an adequate framework,
and/or ensure effective reporting and governance in respect of
shadow banking exposure, this may adversely affect NWM Group.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group could incur losses or be required to maintain
higher levels of capital as a result of limitations or failure of
various models.
Given the complexity of NWM Group’s business, strategy and
capital requirements, NWM Group relies on models for a wide
range of purposes, including to manage its business, assess the
value of its assets and its risk exposure, as well as to anticipate
capital and funding requirements (including to facilitate NatWest
Group’s mandated stress testing). In addition, NWM Group utilises
models for valuations, credit approvals, calculation of loan
impairment charges on an IFRS 9 basis, financial reporting and to
help address financial crime (criminal activities in the form of
money laundering, terrorist financing, bribery and corruption, tax
evasion and sanctions as well as external or internal fraud
(collectively, ‘financial crime’)). NWM Group’s models, and the
parameters and assumptions on which they are based, are
periodically reviewed.
Model outputs are inherently uncertain, because they are
imperfect representations of real-world phenomena, are
simplifications of complex real-world systems and processes, and
are based on a limited set of observations. NWM Group may face
adverse consequences as a result of actions or decisions based on
models that are poorly developed, incorrectly implemented,
outdated, non-compliant, or used inappropriately. This includes
models that are based on inaccurate or non-representative data
(for example, where there have been changes in the micro or
macroeconomic environment in which NWM Group operates) or
as a result of the modelled outcome being misunderstood, or used
for purposes for which it was not designed. This could result in
findings of deficiencies by NatWest Group’s (and in particular,
NWM Group’s) regulators (including as part of NatWest Group’s
mandated stress testing), increased capital requirements, may
render some business lines uneconomical, may require
management action or may subject NWM Group to regulatory
sanction, any of which in turn may also have an adverse effect on
NWM Group and its customers.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group’s financial statements are sensitive to
underlying accounting policies, judgements, estimates and
assumptions.
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
reported amounts of assets, liabilities, income, expenses,
exposures and RWAs. While estimates, judgements and
assumptions take into account historical experience and other
factors (including market practice and expectations of future
events that are believed to be reasonable under the
circumstances), actual results may differ due to the inherent
uncertainty in making estimates, judgements and assumptions
(particularly those involving the use of complex models).
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
167
Further, accounting policy and financial statement reporting
requirements increasingly require management to adjust existing
judgements, estimates and assumptions for the effects of climate-
related, sustainability and other matters that are inherently
uncertain and for which there is little historical experience which
may affect the comparability of NWM Group’s future financial
results with its historical results. Actual results may differ due to
the inherent uncertainty in making climate-related and
sustainability estimates, judgements and assumptions.
Accounting policies deemed critical to NWM Group’s results and
financial position, based upon materiality and significant
judgements and estimates, involve a high degree of uncertainty
and may have a material impact on its results. For 2024, these
include fair value, deferred tax and conduct and litigation
provisions. These are set out in the section ‘Critical accounting
policies’.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
Changes in accounting standards may materially impact
NWM Group’s financial results.
NWM Group prepares its consolidated financial statements in
conformity with the requirements of the Companies Act 2006 and
in accordance with IFRS as issued by the International Accounting
Standards Board. Changes in accounting standards or guidance
by accounting bodies or in the timing of their implementation,
whether immediate or foreseeable, could result in NWM Group
having to recognise additional liabilities on its balance sheet, or in
further write-downs or impairments to its assets.
NWM Group’s trading assets amounted to £48.9 billion as at 31
December 2024. The valuation of financial instruments, including
derivatives, measured at fair value can be subjective, in particular
where models are used which include unobservable inputs.
Generally, to establish the fair value of these instruments, NWM
Group relies on quoted market prices or, where the market for a
financial instrument is not sufficiently credible, internal valuation
models that utilise observable market data. In certain
circumstances, the data for individual financial instruments or
classes of financial instruments utilised by such valuation models
may not be available or may become unavailable due to prevailing
market conditions. In these circumstances, NWM Group’s internal
valuation models require NWM Group to make assumptions,
judgements and estimates to establish fair value, which are
complex and often relate to matters that are inherently uncertain.
Any of these factors could require NWM Group to recognise fair
value losses which may have an adverse effect on NWM Group’s
income generation and financial position.
From time to time, the International Accounting Standards Board
may issue new accounting standards or interpretations that could
materially impact how NWM Group calculates, reports and
discloses its financial results and financial condition, and which
may affect NWM Group capital ratios, including the CET1 ratio
and the required levels of regulatory capital. New accounting
standards and interpretations that have been issued by the
International Accounting Standards Board but which have not yet
been adopted by NWM Group are discussed in ‘Future accounting
developments’.
NatWest Group is subject to regulatory oversight in respect
of resolution, and NatWest Group could be adversely
affected should the BoE in the future deem NatWest Group’s
preparations to be inadequate.
NatWest Group is subject to regulatory oversight by the BoE and
the PRA and is required (under the PRA rulebook) to carry out an
assessment of its preparations for resolution, submit a report of
the assessment to the PRA, and disclose a summary of this
report.
NatWest Group has dedicated significant resources towards the
preparation of NatWest Group for a potential resolution scenario.
In August 2024, the BoE communicated its assessment of
NatWest Group’s preparations and did not identify any areas for
further enhancement, shortcomings, deficiencies or substantive
impediments. NatWest Group (and NWM Group) could be
adversely affected should future BoE assessments deem NatWest
Group’s preparations to be inadequate.
If future BoE assessments identify any areas for further
enhancement, shortcomings, deficiencies or substantive
impediments in NatWest Group’s ability to achieve the resolvability
outcomes or reveal that NatWest Group is not adequately
prepared to be resolved, or does not have adequate plans in
place to meet resolvability requirements, NatWest Group may be
required to take action to enhance its preparations to be
resolvable, resulting in additional costs and the dedication of
additional resources. Such a scenario may have an impact on
NatWest Group (and NWM Group) as, depending on the BoE’s
assessment, potential action may include, but is not limited to,
restrictions on NatWest Group’s maximum individual and
aggregate exposures, a requirement to dispose of specified
assets, a requirement to change its legal or operational structure,
a requirement to cease carrying out certain activities and/or to
maintain a specified amount of MREL.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NatWest Group (including NWM Group) may become subject
to the application of UK statutory stabilisation or resolution
powers which may result in, for example, the write-down or
conversion of NWM Group entities’ Eligible Liabilities.
The BoE, the PRA, the FCA, and HM Treasury (together, the
‘Authorities’) are granted substantial powers to resolve and
stabilise UK-incorporated financial institutions. Five stabilisation
options exist: (i) transfer of all of the business of a relevant entity
or the shares of the relevant entity to a private sector purchaser;
(ii) transfer of all or part of the business of the relevant entity to a
‘bridge bank’ wholly or partially-owned by the BoE; (iii) transfer of
part of the assets, rights or liabilities of the relevant entity to one
or more asset management vehicles for management of the
transferor’s assets, rights or liabilities; (iv) the write-down,
conversion, transfer, modification, or suspension of the relevant
entity’s equity, capital instruments and liabilities; and (v)
temporary public ownership of the relevant entity. These options
may be applied to NatWest Group plc as the parent company or
to NWM Group, as a subsidiary, where certain conditions are met
(such as, whether the firm is failing or likely to fail, or whether it is
reasonably likely that action will be taken (outside of resolution)
that will result in the firm no longer failing or being likely to fail).
Moreover, there are modified insolvency and administration
procedures for relevant entities within NatWest Group, and the
Authorities have the power to modify or override certain
contractual arrangements in certain circumstances and amend
the law for the purpose of enabling their powers to be used
effectively and may promulgate provisions with retrospective
applicability. Similar powers may also be exercised with respect to
NWM N.V., in the Netherlands by the relevant Dutch and
European regulatory authorities. Under the UK Banking Act 2009,
the Authorities are generally required to have regard to specified
objectives in exercising the powers provided for by the UK
Banking Act 2009. One of the objectives (which is required to be
balanced as appropriate with the other specified objectives) refers
to the protection and enhancement of the stability of the financial
system of the UK.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
168
Moreover, the ‘no creditor worse off’ safeguard provides that
where certain resolution actions are taken, the Authorities are
required to ensure that no creditor is in a worse position than if
the bank had entered into normal insolvency proceedings.
Although, this safeguard may not apply in relation to an
application of the separate write-down and conversion power
relating to capital instruments in circumstances where a
stabilisation power is not also used, the UK Banking Act 2009 still
requires the Authorities to respect the hierarchy on insolvency
when using the write-down and conversion power. Further,
holders of debt instruments which are subject to the power may,
however, have ordinary shares transferred to or issued to them
by way of compensation.
Uncertainty exists as to how the Authorities may exercise their
powers including the determination of actions to be undertaken in
relation to the ordinary shares and other securities issued by
NatWest Group (including NWM Group), which may depend on
factors outside of NWM Group’s control. Moreover, the UK
Banking Act 2009 provisions remain largely untested in practice,
particularly in respect of resolutions of large financial institutions
and groups.
If NatWest Group is at or is approaching the point such that
regulatory intervention is required, there may correspondingly be
a material adverse effect on NWM Group’s future results, financial
condition, prospects, and/or reputation.
Operational and IT resilience risk
Operational risks (including reliance on third party suppliers
and outsourcing of certain activities) are inherent in NWM
Group’s businesses.
Operational risk is the risk of loss or disruption resulting from
inadequate or failed internal processes, procedures, people or
systems, or from external events, including legal and regulatory
risks, third party processes, procedures, people or systems. NWM
Group operates in several countries, offering a diverse range of
products and services supported directly or indirectly by third
party suppliers. As a result, operational risks or losses can arise
from a number of internal or external factors (including for
example, payment errors or financial crime and fraud), for which
there is continued scrutiny by third parties on NWM Group’s
compliance with financial crime requirements; see ‘NWM Group is
exposed to the risks of various litigation matters, regulatory and
governmental actions and investigations as well as remedial
undertakings, the outcomes of which are inherently difficult to
predict, and which could have an adverse effect on NWM Group.’
These risks are also present when NWM Group relies on critical
service providers (suppliers) or vendors to provide services to it or
its customers, as is increasingly the case as NWM Group
outsources certain activities, including with respect to the
implementation of technologies, innovation (such as cloud services
and artificial intelligence) and responding to regulatory and
market changes.
Operational risks also exist due to the implementation of NatWest
Group’s strategy, and the organisational and operational changes
involved, including: NatWest Group’s cost-controlling and
simplification measures; continued digitalisation and the
integration of artificial intelligence in the business; acquisition,
divestments and other transactions; the implementation of
recommendations from internal and external reviews with respect
to certain governance processes, policies, systems and controls of
NatWest Group entities; and conditions affecting the financial
services industry generally (including macroeconomic and other
geopolitical developments) as well as the legal and regulatory
uncertainty resulting from these conditions. Any of the above may
place significant pressure on NWM Group’s ability to maintain
effective internal controls and governance frameworks.
In recent years, NWM Group has materially increased its
dependence on NatWest Bank Plc and other NatWest Group
entities for numerous critical services and operations, including,
without limitation, property, technology, finance, accounting,
treasury, legal, risk, regulatory compliance and reporting, financial
crime, human resources, and certain other support and
administrative functions. A failure by NatWest Bank Plc or other
NatWest Group entities to adequately supply these services may
expose NWM Group to critical business failure risk, increased
costs, regulatory sanctions, and other liabilities. These and any
increases in the cost of these services may adversely affect NWM
Group.
NWM Group also faces operational risks as it continues to invest
in the automation of certain solutions and customer interactions,
including through artificial intelligence. Such initiatives may result
in operational, reputational and conduct risks if the technology is
not used appropriately, is defective or inadequate, or is not fully
integrated into NWM Group’s current solutions, systems and
controls.
The effective management of operational risks is critical to
meeting customer service expectations and retaining and
attracting customer business. Although NWM Group has
implemented risk controls and mitigation actions, with resources
and planning having been devoted to mitigate operational risk,
such measures may not be effective in controlling each of the
operational risks faced by NWM Group.
Ineffective management of such risks may have a material
adverse effect on NWM Group’s future results, financial condition,
prospects, and/or reputation.
NWM Group is subject to sophisticated and frequent
cyberattacks, and compliance with cybersecurity and data
protection regulations is becoming increasingly complex.
NWM Group experiences a constant threat from cyberattacks
across the entire NatWest Group (including NWM Group) and
against NatWest Group and NWM Group’s supply chain networks,
reinforcing the importance of the due diligence of, ongoing risk
management of and close working relationship with, the third
parties on which NWM Group relies. NWM Group is reliant on
technology, against which there is a constantly evolving series of
attacks, that are increasing in terms of frequency, sophistication,
impact and severity. As cyberattacks evolve and become more
sophisticated, NWM Group is required to continue to invest
significant resources in additional capability designed to defend
against emerging threats.
Third parties continue to make hostile attempts to gain access to,
introduce malware (including ransomware) into, and exploit
potential vulnerabilities of, financial services institutions’ IT
systems, including those of NWM Group. For example, in 2024,
NatWest Group and its supply chain were subjected to a small
number of attempted Distributed Denial of Service and
ransomware attacks. These hostile attempts were addressed
without material impact on NWM Group or its customers by
deploying cybersecurity capabilities and controls that seek to
manage the impact of any such attacks, and sustain availability of
services for NWM Group’s customers. Consequently, NWM Group
continues to invest significant resources in developing and
evolving cybersecurity capabilities and controls that are designed
to mitigate the potential effect of such attacks. However, given
the nature of the threat, there can be no assurance that these
capabilities and controls will prevent the potential adverse effect
of an attack from occurring. See also, ‘NWM Group’s operations
are highly dependent on its complex IT systems and any IT failure
could adversely affect NWM Group.’
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
169
Any failure in NWM Group’s information and cybersecurity
policies, procedures or controls, may result in significant financial
losses, major business disruption, inability to deliver customer
services, or loss of, or ability to access, data or systems or other
sensitive information (including as a result of an outage) and may
cause associated reputational damage. Any of these factors could
increase costs (including costs relating to notification of, or
compensation for customers and credit monitoring), result in
regulatory investigations or sanctions being imposed or may affect
NWM Group’s ability to retain and attract customers. Regulators
in the UK, US, Europe and Asia continue to recognise
cybersecurity as an important systemic risk to the financial sector
and have highlighted the need for financial institutions to improve
their monitoring and control of, and resilience (particularly of
critical services) to cyberattacks, and to provide timely reporting
or notification of them, as appropriate (including for example, the
SEC cybersecurity requirements and the EU Digital Operational
Resilience Act (‘DORA’)). Furthermore, cyberattacks on NWM
Group’s counterparties and suppliers may also have an adverse
effect on NWM Group’s operations.
Additionally, malicious third parties may induce employees,
customers, third party providers or other users with access to
NWM Group’s systems to wrongfully disclose sensitive information
to gain access to NWM Group’s data or systems or that of NWM
Group’s customers or employees. Cybersecurity and information
security events can derive from groups or factors such as:
internal or external threat actors, human error, fraud or malice on
the part of NWM Group’s employees or third parties, including
third party providers, or may result from technological failure
(including defective, inadequate or inappropriately used artificial
intelligence based solutions).
NWM Group expects greater regulatory engagement, supervision
and enforcement to continue in relation to its overall resilience to
withstand IT and IT-related disruption, either through a
cyberattack or some other disruptive event. Such increased
regulatory engagement, supervision and enforcement is uncertain
in relation to the scope, cost, consequence and the pace of
change, which may have an adverse effect on NWM Group. Due
to NWM Group’s reliance on technology, the adoption of
innovative solutions, the integration of automated processes and
artificial intelligence in its business, and the increasing
sophistication, frequency and impact of cyberattacks, such
attacks may have an adverse effect on NWM Group.
In accordance with applicable UK and EU data protection, and
cybersecurity laws and regulations, NWM Group is required to
ensure it implements timely appropriate and effective
organisational and technological safeguards against unauthorised
or unlawful access to the data of NWM Group, its customers and
its employees. In order to meet this requirement, NWM Group
relies on the effectiveness of its internal policies, controls and
procedures to protect the confidentiality, integrity and availability
of information held on its IT systems, networks and devices as
well as with third parties with whom NWM Group interacts. A
failure to monitor and manage data in accordance with applicable
requirements may result in financial losses, regulatory fines and
investigations and associated reputational damage.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group’s operations and strategy are highly dependent
on the accuracy and effective use of data.
NWM Group relies on the availability, sourcing, and effective use
of accurate and high quality data to support, monitor, evaluate,
manage and enhance its operations, innovate its products
offering, meet its regulatory obligations, and deliver its strategy.
Investment is being made in data tools and analytics, including
raising awareness around ethical data usage (for example, in
relation to the use of artificial intelligence) and privacy across
NWM Group. The availability and accessibility of current,
complete, detailed, accurate and, wherever possible, machine-
readable customer segment and sub-sector data, together with
appropriate governance and accountability for data, is fast
becoming a critical strategic asset, which is subject to increased
regulatory focus.
Failure to have or be able to access that data or the ineffective
use or governance of that data could result in a failure to manage
and report important risks and opportunities or satisfy customers’
expectations including the inability to deliver products and
services. This could also place NWM Group at a competitive
disadvantage by increasing its costs, inhibiting its efforts to reduce
costs or its ability to improve its systems, controls and processes.
Any of the above could result in a failure to deliver NWM Group’s
strategy.
These data weaknesses and limitations, or the unethical or
inappropriate use of data, and/or non-compliance with data
protection laws could give rise to conduct and litigation risks and
may increase the risk of operational challenges, losses,
reputational damage or other adverse consequences due to
inappropriate models, systems, processes, decisions or other
actions.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group relies on attracting, retaining, developing and
remunerating diverse senior management and skilled
personnel, and is required to maintain good employee
relations.
NWM Group’s success depends on its ability to attract, retain
(through creating an inclusive environment), and develop highly
skilled and qualified diverse personnel, including senior
management, directors, and key employees (including for
technology and data focused roles), in a highly competitive market
and under internal cost efficiency pressures.
The inability to compensate employees competitively and/or any
reduction of compensation, the perception that NWM Group may
not be a viable or competitive business, heightened regulatory
oversight of banks and the increasing scrutiny of, and (in some
cases) restrictions placed upon, employee compensation
arrangements, negative economic developments or other factors,
may have an adverse effect on NWM Group’s ability to hire, retain
and engage well qualified employees, especially at a senior level,
which could adversely affect NWM Group.
This increases the cost of hiring, training and retaining diverse
skilled personnel. In addition, certain economic, market and
regulatory conditions and political developments may reduce the
pool of candidates for key management and non-executive roles,
including non-executive directors with the right skills, knowledge
and experience, or may increase the number of departures of
existing employees. Moreover, a failure to foster a diverse and
inclusive workforce may adversely affect NWM Group’s employee
engagement and the formulation and execution of its strategy,
and could also have a negative effect on its reputation with
customers, investors and regulators.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
170
Some of NWM Group’s employees are represented by employee
representative bodies, including trade unions and works councils.
Engagement with its employees and such bodies is important to
NWM Group in maintaining good employee relations. Any
breakdown of these relationships may adversely affect NWM
Group.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group’s operations are highly dependent on its
complex IT systems and any IT failure could adversely affect
NWM Group.
NWM Group’s operations are highly dependent on the ability to
process a very large number of transactions efficiently and
accurately while complying with applicable laws and regulations.
The proper functioning of NatWest Group’s (including NWM
Group’s) transactional and payment systems, financial crime and
fraud detection systems and controls, risk management, credit
analysis and reporting, accounting, customer service and other IT
systems, including cloud services providers (some of which are
owned and operated by other entities in NatWest Group or third
parties), is critical to NWM Group’s operations.
Individually or collectively, any system failure, loss of service
availability (including defective or inadequate automated
processes or artificial intelligence based solutions), or breach of
data security could potentially cause significant damage to: (i)
important business services across NWM Group; and (ii) NWM
Group’s ability to provide services to its customers, which could
result in reputational damage, significant compensation costs and
regulatory sanctions (including fines resulting from regulatory
investigations) or a breach of applicable regulations and could
affect NWM Group’s regulatory approvals, competitive position,
business and brands, which could undermine its ability to attract
and retain customers and talent.
NWM Group outsources certain functions as it innovates and
offers new digital solutions to its customers. Outsourcing,
alongside remote working, heighten the above risks. NWM Group
uses IT systems that enable remote working interface with third-
party systems, and NWM Group could experience service denials
or disruptions if such systems exceed capacity or if NWM Group
or a third-party system fails or experiences any interruptions, all
of which could result in business and customer interruption and
related reputational damage, significant compensation costs,
regulatory sanctions and/or a breach of applicable regulations.
In 2024, NWM Group continued to make considerable investments
to further simplify, upgrade and improve its IT and technology
capabilities (including migration of certain services to cloud
platforms). NWM Group continues to develop and enhance digital
services for its customers and seeks to improve its competitive
position through enhancing controls and procedures and
strengthening the resilience of services including cybersecurity.
Any failure of these investment and rationalisation initiatives to
achieve the expected results, due to cost challenges, poor
implementation, defects, or otherwise, may adversely affect NWM
Group’s operations, its reputation and ability to retain or grow its
customer business or adversely affect its competitive position,
thereby negatively impacting NWM Group. See also, ‘NWM Group
has been in a period of, and may continue to be subject to,
significant structural and other change’.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
A failure in NWM Group’s risk management framework
could adversely affect NWM Group, including its ability to
achieve its strategic objectives.
A failure in design, or adherence to, NatWest Group’s risk
management framework could adversely affect NWM Group,
including its ability to achieve its strategic objectives. Risk
management is an integral part of all of NWM Group’s activities
and delivery of its long-term strategy. NatWest Group’s
Enterprise-Wide Risk Management Framework sets out NWM
Group’s approach for managing risk within NWM Group including
in relation to risk governance and risk appetite. A failure to
adhere to this framework and to agreed risk appetite statements,
or any material weaknesses or deficiencies in the framework’s
controls and procedures, could adversely affect NWM Group’s
financial condition and strategic delivery, as well as accurate
reporting of risk exposures.
Financial risk management is highly dependent on the use and
effectiveness of internal stress tests and models and ineffective
risk management may arise from a wide variety of factors,
including lack of transparency or incomplete risk reporting,
manual processes and controls, inaccurate data, inadequate IT
systems, unidentified conflicts or misaligned incentives, lack of
accountability control and governance, incomplete risk monitoring
(including trade surveillance) and failures of systems to properly
process all relevant data, risks related to unanticipated behaviour
or performance in algorithmic trading and management,
insufficient challenges or assurance processes, or a failure to
commence or timely complete risk remediation projects. Failure to
manage risks effectively, or within regulatory expectations, could
adversely affect NWM Group’s reputation or its relationship with
its regulators, customers, shareholders or other stakeholders.
In addition, financial crime risk management is dependent on the
use and effectiveness of financial crime assessment, systems and
controls. Weak or ineffective financial crime processes and
controls may risk NWM Group inadvertently facilitating financial
crime which may result in regulatory investigation, sanction,
litigation, fines and/or reputational damage. Financial crime
continues to evolve, whether through fraud, scams, cyberattacks
or other criminal activity. These risks are exacerbated as NWM
Group continues to innovate its product offering and increasingly
offers digital solutions to its customers. NatWest Group (including
NWM Group) has made and continues to make significant, multi-
year investments to strengthen and improve its overall financial
crime control framework with prevention systems and capabilities,
including investment in new technologies and capabilities to
further enhance customer due diligence, transaction monitoring,
sanctions and anti-bribery and corruption systems. A number of
NWM Group’s financial crime controls are operated by NatWest
Group on behalf of NWM Group.
NWM Group’s operations are inherently exposed to conduct risks,
which include business decisions, actions or reward mechanisms
that are not responsive to or aligned with NWM Group’s
regulatory obligations, customer needs or do not reflect NWM
Group’s strategy, ineffective product management, unethical or
inappropriate use of data, information asymmetry, implementation
and utilisation of new technologies, outsourcing of customer
service and product delivery, inappropriate behaviour towards
customers, customer outcomes, the possibility of mis-selling of
financial products and mishandling of customer complaints. Some
of these risks have materialised in the past and ineffective
management and oversight of conduct risks may lead to further
remediation and regulatory intervention or enforcement. NWM
Group’s businesses are also exposed to risks from employee,
contractor, or service providers misconduct including non-
compliance with policies and regulations, negligence or fraud
(including financial crimes and fraud), any of which could result in
regulatory fines or sanctions and serious reputational or financial
harm to NWM Group.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
171
Remote working arrangements for NWM Group employees place
heavy reliance on the IT systems that enable remote working and
may place additional pressure on NWM Group’s ability to maintain
effective internal controls and governance frameworks and
increase operational risk. Remote working arrangements are also
subject to regulatory scrutiny to ensure adequate recording,
surveillance and supervision of regulated activities and compliance
with regulatory requirements and expectations, including
requirements to: meet threshold conditions for regulated activities;
ensure the ability to oversee functions (including any outsourced
functions); ensure no detriment is caused to customers; and
ensure no increased risk of financial crime.
In addition, the UK’s Net Zero Strategy and NatWest Group’s
(including NWM Group) strategy relating to climate and
sustainability are important drivers as to how NWM Group
integrates climate (including physical and transition risks) and
other sustainability related risks into its risk management
framework and practices (including for financing activities or
engaging with counterparties (including suppliers)). Furthermore,
legislative and regulatory authorities are publishing expectations
as to how banks should prudently manage and transparently
disclose climate and other sustainability-related risks. Any failure
of NWM Group to fully and timely embed climate and other
sustainability-related risks into its risk management practices and
framework to appropriately identify, assess, prioritise and monitor
such risks may have an adverse effect on NWM Group. Similarly,
if NWM Group is unable to apply the appropriate product
governance processes in line with NatWest Group’s (including
NWM Group) strategy and applicable legal and regulatory
requirements and expectations, it may have an adverse effect on
NWM Group.
NWM Group seeks to embed a risk awareness culture across the
organisation and has implemented policies and allocated new
resources across all levels of the organisation to manage and
mitigate conduct risk and expects to continue to invest in risk
management, including the ongoing development of a NatWest
Group risk management strategy in line with regulatory
expectations. However, such efforts may not insulate NWM Group
from instances of misconduct and no assurance can be given that
NWM Group’s strategy and control framework will be effective.
See also, ‘NWM Group has been in a period of, and may continue
to be subject to, significant structural and other change.’
Any failure in NWM Group’s risk management framework may
have a material adverse effect on NWM Group’s future results,
financial condition, prospects, and/or reputation and may result in
the inability to achieve its strategic objectives for its customers,
employees and wider stakeholders.
NWM Group’s operations are subject to inherent reputational
risk.
Reputational risk relates to stakeholder and public perceptions of
NWM Group arising from an actual or perceived failure to meet
stakeholder or the public’s expectations, including with respect to
NatWest Group’s strategy and related targets, NWM Group’s
strategy, or due to any events, behaviour, action or inaction by
NWM Group, its employees or those with whom NWM Group is
associated.
See also, ‘NWM Group’s businesses are subject to substantial
regulation and oversight, which are constantly evolving and may
adversely affect NWM Group.’ This includes harm to its brand,
which may be detrimental to NWM Group’s business, including its
ability to build or sustain business relationships with customers,
stakeholders and regulators, and may cause low employee
morale, regulatory censure or reduced access to, or an increase
in the cost of, funding.
Reputational risk may arise whenever there is, or there is
perceived to be, a material lapse in standards of integrity,
controls, compliance, customer or operating efficiency, or
regulatory or press scrutiny, and may adversely affect NWM
Group’s ability to attract and retain customers.
In particular, NWM Group’s ability to attract and retain customers,
and talent, and engage with counterparties may be adversely
affected by factors including: negative public opinion resulting
from the actual or perceived manner in which NWM Group or any
other member of NatWest Group conducts or modifies its business
activities and operations, media coverage (whether accurate or
otherwise), employee misconduct, NWM Group’s financial
performance, IT systems failures or cyberattacks, data breaches,
financial crime and fraud, the level of direct and indirect
government support for NatWest Group plc, or the actual or
perceived practices in the banking and financial industry in
general, or a wide variety of other factors.
Technologies, in particular online social networks and other
broadcast tools that facilitate communication with large audiences
in short timeframes and with minimal costs, may also significantly
increase and accelerate the impact of damaging information and
allegations.
Although NWM Group has a Reputational Risk Policy and
framework to identify, measure and manage material reputational
risk exposures, there is a risk that it may not be successful in
avoiding or mitigating damage to its business or its various brands
from reputational risk.
Any of the above aspects of reputational risk may have a material
adverse effect on NWM Group’s future results, financial condition,
prospects, and/or reputation.
Legal and regulatory risk
NWM Group’s businesses are subject to substantial
regulation and oversight, which are constantly evolving and
may adversely affect NWM Group.
NWM Group is subject to extensive laws, regulations, guidelines,
corporate governance practice and disclosure requirements,
administrative actions and policies in each jurisdiction in which it
operates, which represents ongoing compliance and conduct
risks. Many of these are constantly evolving and are subject to
further material changes, which may increase compliance and
conduct risks, particularly as the laws of different jurisdictions
(including those of the EU/EEA and UK) diverge. NWM Group
expects government and regulatory intervention in the financial
services industry to remain high for the foreseeable future.
Regulators and governments continue to focus on reforming the
prudential regulation of the financial services industry and the
manner in which the business of financial services is conducted.
Measures have included: enhanced capital, liquidity and funding
requirements, through initiatives such as the Basel 3.1 standards
implementation (and any resulting effect on RWAs and models),
the UK ring-fencing regime, the strengthening of the recovery and
resolution framework applicable to financial institutions in the UK,
the EU and the US, financial industry reforms (such as the FSMA
2023), corporate governance requirements, rules relating to the
compensation of senior management and other employees,
enhanced data protection and IT resilience requirements (such as
DORA), financial market infrastructure reforms, enhanced
regulations in respect of the provision of ‘investment services and
activities’.
There is also increased regulatory focus in certain areas, including
conduct, model risk governance, consumer protection in retail or
other financial markets, competition and disputes regimes, anti-
money laundering, anti-corruption, anti-bribery, anti-tax evasion,
payment systems, sanctions and anti-terrorism laws and
regulations.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
172
In addition, there is significant oversight by competition authorities
of the jurisdictions in which NWM Group operates. The
competitive landscape for banks and other financial institutions in
the UK, EU/EEA, Asia and the US is rapidly changing. Recent
regulatory and legal changes have resulted and may continue to
result in new market participants and changed competitive
dynamics in certain key areas. Regulatory and competition
authorities, including the CMA, are also looking at and focusing
more on how they can support competition and innovation in
digital and other markets. Recent regulatory changes and
heightened levels of public and regulatory scrutiny in the UK, the
EU and the US have resulted in increased capital, funding and
liquidity requirements, changes in the competitive landscape,
changes in other regulatory requirements and increased
operating costs, and have impacted, and will continue to impact,
product offerings and business models.
Moreover, uncertainties remain as to the extent to which EU/EEA
laws will diverge from UK law. For example, bank regulation in the
UK may diverge from European bank regulation following the
enactment of the Financial Services and Markets Act 2023
(‘FSMA 2023’) and the Retained EU Law (Revocation and Reform)
Act 2023. In particular, FSMA 2023 provides for the revocation of
retained EU laws relating to financial services regulation, but sets
out that this process will likely take a number of years and that
the intention is that specific retained EU laws will not be revoked
until such time as replacement regulatory rules are in place. The
actions taken by regulators in response to any new or revised
bank regulation and other rules affecting financial services, may
adversely affect NWM Group, including its business, non-UK
operations, group structure, compliance costs, intragroup
arrangements and capital requirements.
Other areas in which, and examples of where, governmental
policies, regulatory and accounting changes and increased public
and regulatory scrutiny may have an adverse effect (some of
which could be material) on NWM Group include, but are not
limited to, the following:
general changes in government, regulatory, competition or
central bank policy (such as changes to the BoE Levy
(including as a result of the proposed Bank Resolution
(Recapitalisation) Bill), or changes in regulatory regimes that
may influence investor decisions in the jurisdictions in which
NWM Group operates;
rules relating to foreign ownership, expropriation,
nationalisation and confiscation or appropriation of assets;
new or increased regulations relating to customer data
protection as well as IT controls and resilience, such as the
India Digital Personal Data Protection Act 2023;
the introduction of, and changes to, taxes, levies or fees
applicable to NWM Group’s operations, such as changes in tax
rates, changes in the scope and administration of the Bank
Levy, increases in the bank corporation tax surcharge in the
UK, restrictions on the tax deductibility of interest payments or
further restrictions imposed on the treatment of carry-forward
tax losses that reduce the value of deferred tax assets and
require increased payments of tax;
the potential introduction by the BoE of a Central Bank Digital
Currency which could result in deposit outflows, higher
funding costs, and/or other implications for UK banks including
NWM Group;
regulatory enforcement in the form of PRA imposed financial
penalties for failings in banks’ regulatory reporting governance
and controls, and ongoing regulatory scrutiny; the PRA’s
thematic reviews of the governance, controls and processes
for preparing regulatory returns of selected UK banks,
including NatWest Group (of which NWM Group is a part of);
changes in policy and practice regarding enforcement,
investigations and sanctions, supervisory activities and
reviews;
‘Dear CEO’ and similar letters issued by supervisors and
regulators from time to time ;
recent or proposed US regulations around cybersecurity
incidents, climate disclosures, and other climate and
sustainability-related rules;
increased risk of legal action against NWM Group for financing
or contributing to climate change and nature-related
degradation, or greenwashing;
new or increased regulations relating to financial crime; and
any regulatory requirements relating to the use of artificial
intelligence and large language models across the financial
services industry (such as the European Union Artificial
Intelligence Act).
Any of these developments (including any failure to comply with
or correctly interpret new rules and regulations) could also have
an adverse effect on NWM Group’s authorisations and licences,
the products and services that NWM Group may offer, its
reputation and the value of its assets, NWM Group’s operations or
legal entity structure, and the manner in which NWM Group
conducts its business.
Material consequences could arise should NWM Group be found
to be non-compliant with these regulatory requirements.
Regulatory developments may also result in an increased number
of regulatory investigations and proceedings and have increased
the risks relating to NWM Group’s ability to comply with the
applicable body of rules and regulations in the manner and within
the timeframes required.
Changes in laws, rules or regulations, or in their interpretation or
enforcement, or the implementation of new laws, rules or
regulations, including contradictory or conflicting laws, rules or
regulations by key regulators or policymakers in different
jurisdictions, or failure by NWM Group to comply with such laws,
rules and regulations, may adversely affect NWM Group’s
business, results of operations and outlook. In addition,
uncertainty and insufficient international regulatory coordination
as enhanced supervisory standards are developed and
implemented may adversely affect NWM Group’s reputation,
ability to engage in effective business, capital and risk
management planning.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
NWM Group is exposed to the risks of various litigation
matters, regulatory and governmental actions and
investigations as well as remedial undertakings, the
outcomes of which are inherently difficult to predict, and
which could have an adverse effect on NWM Group.
NWM Group’s operations are diverse and complex and it operates
in legal and regulatory environments that expose it to potentially
significant civil actions (including those following on from
regulatory sanction), as well as criminal, regulatory and
governmental proceedings. NWM Group has resolved a number of
legal and regulatory actions over the past several years but
continues to be, and may in the future be, involved in such actions
in the US, the UK, Asia, Europe and other jurisdictions.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
173
NWM Group is, has been or will likely be involved in a number of
significant legal and regulatory actions, including investigations,
proceedings and ongoing reviews (both formal and informal) by
governmental law enforcement and other agencies and litigation
proceedings, including in relation to the offering of securities,
conduct in the foreign exchange market, the setting of
benchmark rates such as LIBOR and related derivatives trading,
the issuance, underwriting, and sales and trading of fixed-income
securities (including government securities), product mis-selling,
customer mistreatment, anti-money laundering, antitrust, VAT
recovery, record keeping, reporting, and various other issues.
There is also an increasing risk of new class action claims being
brought against NWM Group in the Competition Appeal Tribunal
for breaches of competition law, as well as a risk of activist
actions, particularly relating to climate change and sustainability-
related matters. Legal and regulatory actions are subject to many
uncertainties, and their outcomes, including the timing, amount of
fines, damages or settlements or the form of any settlements,
which may be material and in excess of any related provisions,
are often difficult to predict, particularly in the early stages of a
case or investigation. NWM Group’s expectation for resolution
may change and substantial additional provisions and costs may
be recognised in respect of any matter.
The resolution of significant investigations includes NWM Plc’s
December 2021 spoofing-related guilty plea in the United States
that was agreed with the US Department of Justice (‘DOJ’), and
involves a multi-year period of probation, an independent
corporate monitor and the ongoing implementation of
recommendations made by it, and commitments to compliance
programme reviews and improvements, and reporting obligations.
In the event that NWM Plc does not meet its obligations to the
DOJ, this may lead to adverse consequences such as findings that
NWM Plc violated its probation term and possible re-sentencing,
increased costs from any extension of monitorship and/or the
period of the probation, amongst other consequences. For
additional information relating to this and other legal and
regulatory proceedings and matters to which NWM Group is
currently exposed, see ‘Litigation and regulatory matters’ at Note
25 to the consolidated accounts.
Recently resolved matters or adverse outcomes or resolution of
current or future legal or regulatory matters, could increase the
risk of greater regulatory and third-party scrutiny and/or result in
future legal or regulatory actions, and could have material
financial, reputational, or collateral consequences for NWM
Group’s business and result in restrictions or limitations on NWM
Group’s operations.
These may include the effective or actual disqualification from
carrying on certain regulated activities and consequences
resulting from the need to reapply for various important licences
or obtain waivers to conduct certain existing activities of NWM
Group, particularly but not solely in the US, which may take a
significant period of time and the results and implications of which
are uncertain. Disqualification from carrying on any activities,
whether automatically as a result of the resolution of a particular
matter or as a result of the failure to obtain such licences or
waivers could adversely affect NWM Group’s business, in
particular in the US. This in turn and/or any fines, settlement
payments or penalties may have an adverse effect on NWM
Group. Similar consequences could result from legal or regulatory
actions relating to other parts of NatWest Group.
Failure to comply with undertakings made by NWM Group to its
regulators, or the conditions of probation resulting from the
spoofing-related guilty plea, may result in additional measures or
penalties being taken against NWM Group.
In addition, any failure to administer conduct redress processes
adequately, or to handle individual complaints fairly or
appropriately, could result in further claims as well as the
imposition of additional measures or limitations on NWM Group’s
operations, additional supervision by NWM Group’s regulators,
and loss of investor confidence.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
Changes in tax legislation (or application thereof) failure to
generate future taxable profits may impact the recoverability
of certain deferred tax assets recognised by NWM Group.
In accordance with the accounting policies set out in the section
‘Critical accounting policies’, NWM Group has recognised deferred
tax assets on losses available to relieve future profits from tax
only to the extent it is probable that they will be recovered. The
deferred tax assets are quantified on the basis of current tax
legislation and accounting standards and are subject to change in
respect of the future rates of tax or the rules for computing
taxable profits and offsetting allowable losses.
Failure to generate sufficient future taxable profits or further
changes in tax legislation or the application thereof (including with
respect to rates of tax) or accounting standards may reduce the
recoverable amount of the recognised tax loss deferred tax
assets, amounting to £83 million as at 31 December 2024.
Changes to the treatment of certain deferred tax assets may
impact NWM Group’s capital position. In addition, NWM Group’s
interpretation or application of relevant tax laws may differ from
those of the relevant tax authorities and provisions are made for
potential tax liabilities that may arise on the basis of the amounts
expected to be paid to tax authorities. The amounts ultimately
paid may differ materially from the amounts provided depending
on the ultimate resolution of such matters.
Any of the above may have a material adverse effect on NWM
Group’s future results, financial condition, prospects, and/or
reputation.
Climate and sustainability-related risks
NWM Group and its Value Chain face climate and
sustainability-related risks that may adversely affect NWM
Group.
Climate change has been identified as a source of systemic risk,
with potentially severe consequences for financial institutions. The
financial impacts of climate and sustainability-related risks are
expected to be widespread and may disrupt the orderly
functioning of financial markets and have an adverse effect on
financial institutions, including NWM Group.
Financial and non-financial risks from climate change can arise
through physical and transition risks. In addition, physical and
transition risks can trigger further losses, stemming directly or
indirectly from legal claims, litigation and conduct liability (referred
to as ‘liability risk’).
Whilst there are significant uncertainties relating to the location,
magnitude and timing of climate-related physical risks, scientific
research suggests physical risks may occur in increasing
frequency and severity. Climate-related events like flood, wildfires
and climatic changes can damage assets and disrupt operations,
leading to increased costs, changes in asset values and loan
defaults.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
174
Damage or disruption to NWM Group customers’ and
counterparties’ (including suppliers’) properties, premises and
operations could disrupt business, result in the deterioration of the
value of collateral or insurance shortfalls, impair asset values and
negatively impact the creditworthiness of customers and their
ability and/or willingness to pay fees, afford new products or
repay their debts, leading to increased default rates,
delinquencies, write-offs and impairment charges in NWM Group’s
portfolios. In addition, NWM Group’s premises and operations, or
those of its critical outsourced functions may experience damage
or disruption leading to increased costs for NWM Group.
To meet the goals of the UK’s Net Zero Strategy by 2050 will
require a net-zero transition across all sectors of the UK
economy. The timing and pace of the transition to a net-zero
economy will depend on many factors and uncertainties and may
be near-term, gradual and orderly, or delayed, rapid and
disorderly, or a combination of these. A transition to a net-zero
economy requires significant and timely policy and regulatory
changes, immediate actions from national and regional
governments, new technological innovations and changes to
supply and demand systems within industries. The transition to a
net-zero economy may also trigger changes in consumer
behaviour and market sentiment. In addition, there is significant
uncertainty about how climate change and the world’s transition
to a net-zero economy will unfold over time and how and when
climate and other sustainability-related risks will manifest. These
timeframes are considerably longer than NWM Group’s historical
and current strategic, financial, resilience and investment planning
horizons.
NWM Group and its value chain (including its investors,
customers, counterparties (including its suppliers), business
partners and employees) (‘NWM Group’s Value Chain’) may face
financial and non-financial risks arising from broader (i.e. non-
climate-related) sustainability issues such as risks relating to
nature loss (such as the loss and/or decline of the state of nature
including but not limited to, the reduction of any aspect of
biological diversity and other forms of environmental degradation
such as air, water and land pollution, soil quality degradation and
water stress). NatWest Group recognises that climate and nature-
related risks are interlinked and therefore NatWest Group aims to
work towards enhancing processes and capabilities to include
assessments of nature-related risks and opportunities within
governance, risk management and stakeholder engagement
practices
.
Climate and nature-related risks may:
adversely affect the broader economy, influencing interest
rates, inflation and growth, impacting profitability and
stability;
adversely affect asset pricing and valuations of NWM Group’s
own and other securities and, in turn, the wider financial
system;
adversely affect economic activities directly (for example
through lower corporate profitability or the devaluation of
assets) or indirectly (for example through macro-financial
changes);
adversely affect the viability or resilience of business models
over the medium to longer term, particularly those business
models most vulnerable to climate and sustainability-related
risks;
trigger losses stemming directly or indirectly from liability
risks and/or reputational damage, including as a result of
adverse media coverage or activists, the public or NWM
Group’s Value Chain associating NWM Group or its
customers with adverse climate and sustainability-related
issues;
adversely affect NWM Group’s ability to contribute to deliver
on NatWest Group’s strategy, including achieving its climate
ambitions and targets; and
exacerbate other risk categories to which NWM Group is
exposed, including credit risk, operational risk (including
business continuity), market risk (both traded and non-
traded), liquidity and funding risk (for example, net cash
outflows or depletion of liquidity buffers), reputational risk,
pension risk, regulatory compliance risk and conduct risk.
In addition to nature-related risks, NWM Group and NWM Group’s
Value Chain may face financial and non-financial risks arising from
other sustainability-related issues such as (i) risks related to social
issues (including human rights), for example, negative impact on
people’s standard of living and health, political and geopolitical
tensions and conflict endangering people’s lives and security,
displacement of communities, the violation of indigenous people’s
rights, unjust working conditions and labour rights breaches
(including discrimination, lack of diversity and inclusion, inequality,
gender/ethnicity pay gap and payments under the minimum
wage), modern slavery, accessible banking and financial inclusion,
financial crime, data privacy breaches, innovation, digitalisation
and AI, and lack of support for the vulnerable; and (ii)
governance-related risks (including board diversity, ethical
corporate culture, executive compensation and management
structure).
There is also growing expectation from customers, investors,
policymakers, regulators and society of the need for a ”just
transition” – in recognition that the transition to net zero should
happen in a way that is as fair and inclusive as possible to
everyone concerned. Although NatWest Group (including NWM
Group) continues to evaluate and assess whether and, if so, how
it integrates ‘just transition’ considerations into its strategy and
decision-making, a failure (or perception of failure) by NatWest
Group (including NWM Group) to sufficiently factor these
considerations into existing products and service offerings may
adversely affect NatWest Group (including NWM Group), including
NatWest Group’s (including NWM Group) reputation.
If NWM Group fails to identify, assess, prioritise, monitor, react to
and prevent appropriately: (i) climate and sustainability-related
impacts, risks and opportunities; and (ii) changing regulatory and
market expectations and societal preferences that NWM Group
and NWM Group’s Value Chain face, in a timely manner or at all,
this may have a material adverse effect on NWM Group’s
business, future results, financial condition, prospects (including
cash flows, access to finance or cost of capital over the short,
medium or long term), reputation or the price of its securities.
NatWest Group’s strategy relating to climate change,
ambitions, targets and transition plan entail significant
execution and/or reputational risks and are unlikely to be
achieved without significant and timely government policy,
technology and customer behavioural changes.
At NatWest Group’s Annual General Meeting in April 2022,
ordinary shareholders passed an advisory ‘Say on Climate’
resolution endorsing NatWest Group’s previously announced
strategic direction on climate change, including its ambitions to at
least halve the climate impact of its financing activity by 2030,
achieve alignment with the 2015 Paris Agreement and reach net
zero across its financed emissions, assets under management and
operational value chain by 2050. NatWest Group may also
announce other climate and sustainability-related ambitions,
targets and initiatives and/or retire or change existing ones.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
175
Making the changes necessary by NWM Group to contribute to
achieve NatWest Group’s climate ambitions and targets and
executing its transition plan, together with the active
management of climate and sustainability-related risks and other
regulatory, policy and market changes, is likely to necessitate
material changes to NWM Group’s business, operating model, its
existing exposures and the products and services NWM Group
provides to its customers (potentially on accelerated timescales).
NWM Group may be required to: (i) in the medium and long term
significantly reduce its financed emissions and its exposure to
customers that do not align with a transition to net zero or do not
have a credible transition plan in place, and (ii) divest or
discontinue certain activities for regulatory or legal reasons or in
response to the transition to a less carbon-dependent economy.
Increases in lending and financing activities may wholly or partially
offset some or all these reductions, which may increase the
extent of changes and reductions necessary.
Making the necessary changes, or failing to make the necessary
changes in a timely manner, or at all to achieve NatWest Group’s
climate ambitions and targets and executing its transition plan,
together with the active management of climate and
sustainability-related risks and other regulatory, policy and market
changes may have an adverse effect on NatWest Group and
NatWest Group’s ability to achieve its climate and financial
ambitions and targets, take advantage of climate change-related
opportunities and generate sustainable returns.
NWM Group’s ability to contribute to achieving NatWest Group’s
strategy, including contributing to achieve NatWest Group’s
climate ambitions and targets, will significantly depend on many
factors and uncertainties beyond NWM Group’s control. These
include: (i) the extent and pace of climate change, including the
timing and manifestation of physical and transition risks; (ii) the
macroeconomic environment; (iii) the effectiveness of actions of
governments, legislators, regulators and businesses; (iv) the
response of the wider society, NWM Group’s Value Chain and
other stakeholders to mitigate the impact of climate and
sustainability-related risks; (v) changes in customer behaviour and
demand; (vi) appetite for new markets, credit appetite,
concentration risk appetite, lending opportunities; (vii)
developments in the available technology; (viii) the rollout of low
carbon infrastructure; and (ix) the availability of accurate,
verifiable, reliable, auditable, consistent and comparable data.
These external factors and other uncertainties will make it
challenging for NWM Group to contribute to achieving NatWest
Group’s climate ambitions and targets and there is a significant
risk that all or some of these ambitions and targets will not be
achieved or not achieved within the intended timescales.
NWM Group’s ability to contribute to achieving NatWest Group’s
climate ambitions and targets depends to a significant extent on
the timely implementation and integration of appropriate
government policies. The UK Climate Change Committee (‘UK
CCC’) 2024 Progress Report to the UK Parliament states that the
UK is not on track to hit its legislated target to reduce emissions in
2030 by 68% compared to 1990 levels and only a third of the
emission reductions required to achieve the UK’s 2030 target are
currently covered by credible plans, with action needed across all
sectors of the economy. NatWest Group’s climate ambitions are
unlikely to be achieved without timely and appropriate
government policy and technology developments, as well as
supplier, customer and societal response required to support the
transition.
The UK CCC is expected to publish its Seventh Carbon Budget on
26 February 2025. NatWest Group expects this to take into
account new UK policy initiatives announced by the UK
government in November 2024 and NatWest Group plans to
review its climate ambitions in the context of the of the UK’s
Seventh Carbon Budget, once released.
Climate and sustainability matters are also becoming increasingly
politicised and polarised. Some of NWM Group’s customers,
investors or other stakeholders may decide not to do business
with NWM Group because, according to their own assessment,
NatWest Group’s (including NWM Group) strategy, ambitions and
targets related to climate and sustainability do not meet their
expectations, either for lacking the necessary ambition or
progress, or for being perceived as overly concerned about
sustainability.
Any delay or failure by NWM Group in putting into effect, making
progress against or meeting NatWest Group’s climate and
sustainability-related ambitions, targets and plans may have a
material adverse effect on NWM Group’s future results, financial
condition, prospects, and/or reputation and may increase the
climate and sustainability-related risks NWM Group faces.
There are significant limitations related to accessing
accurate, reliable, verifiable, auditable, consistent and
comparable climate and other sustainability-related data
that contribute to substantial uncertainties in accurately
modelling and reporting on climate and sustainability
information, as well as making appropriate important
internal decisions.
Accurate assessment and reporting of climate and sustainability-
related impacts, risks, opportunities and other climate and
sustainability-related matters, and related metrics depends on
access to accurate, reliable, verifiable, auditable, consistent and
comparable data from counterparties (including suppliers),
customers, or other third parties. Data of adequate quality may
not be generally available or, if available, may not be accurate,
reliable, verifiable, auditable, consistent, or comparable. In the
absence of other sources, reporting on climate and sustainability-
related matters (including reporting on NatWest Group’s (including
NWM Group) financed and facilitated emissions) may be based on
estimated or aggregated information developed by third parties
(including customers) that may be prepared in an inconsistent
way using different methodologies, interpretations, or assumptions
that may not be accurate for a given counterparty (including
supplier) or customer. There may also be data gaps and
limitations that are addressed using estimates based on
assumptions about matters that are inherently uncertain or proxy
data, such as sectoral averages or use of emissions estimated by
a third party, again developed in a variety of ways and in some
cases not in a timely manner causing data to be potentially
outdated at the time when they are used.
Significant risks, uncertainties and variables are inherent in the
assessment, measurement and mitigation of climate and
sustainability-related risks. These include data quality gaps and
limitations mentioned above, as well as the pace at which climate
science, greenhouse gas accounting standards and various
emissions reduction solutions develop. In addition, there is
significant uncertainty about how climate change and the world’s
transition to a net-zero economy will unfold over time and how
and when climate and sustainability-related risks will manifest.
These timeframes are considerably longer than NWM Group’s
historical and current strategic, financial, resilience and
investment planning horizons.
As a result, NWM Group’s assessment of climate and
sustainability impacts, risks, opportunities and other climate and
sustainability-related matters is likely to evolve and its climate and
sustainability-related disclosures may be amended, updated or
restated in the future as the quality and completeness of NWM
Group’s data and methodologies continue to improve.
Risk Factors continued
NWM Group
Annual Report and Accounts 2024
176
These data quality challenges, gaps and limitations may also have
a material impact on NWM Group’s ability to make effective
business decisions about climate and sustainability-related
impacts, risks, opportunities and other climate and sustainability-
related matters, including risk management decisions, to comply
with disclosure requirements and to monitor and report progress
in meeting ambitions, targets and pathways all of which may have
an adverse effect on NWM Group.
Climate-related risks are challenging to model due to their
forward-looking nature, the lack of and/or quality of historical
testing capabilities, lack of accuracy, standardisation and
incompleteness of emissions and other climate and sub-sector
related data and the immature nature of risk measurement and
modelling methodologies. As a result, it is very difficult to predict
and model the impact of climate-related risks into precise financial
and economic outcomes. The evaluation of climate-related risk
exposure and the development of associated potential risk
mitigation techniques also largely depend on the choice of climate
scenario modelling methodology and the assumptions made which
involves a number of risks and uncertainties.
Accordingly, these risks and uncertainties coupled with
significantly long timeframes make the outputs of climate-related
risk modelling, climate-related targets (including emission
reduction targets) and pathways, inherently more uncertain than
outputs modelled for traditional financial planning cycles based on
historical financial information.
Capabilities within NWM Group to appropriately assess, model,
report and manage climate and sustainability-related impacts and
risks and the suitability of the assumptions required to model and
manage climate and sustainability-related risks appropriately
continue to develop and mature. Even when those capabilities are
appropriately developed, the high level of uncertainty regarding
any assumptions modelled, the highly subjective nature of risk
measurement and mitigation techniques, incorrect or inadequate
assumptions and judgements and data quality gaps and limitations
may lead to inadequate risk management information and
frameworks, or ineffective business adaptation or mitigation
strategies or regulatory non-compliance.
Any of the above may have a material adverse effect on NWM
Group’s business, future results, financial condition, prospects,
reputation and the price of its securities.
NWM Group is becoming subject to more extensive, and
sophisticated climate and other sustainability-related laws,
regulation and oversight and there is an increasing risk of
regulatory enforcement, investigation and litigation.
NWM Group and its subsidiaries are increasingly becoming subject
to more extensive, and sophisticated sustainability-related laws
and regulations in the UK, EU and the US, including in relation to
mandatory climate and other sustainability reporting and due
diligence, climate transition plan, product labelling and combatting
“greenwashing”.
Compliance with these complex, evolving and often diverging
legal, regulatory and supervisory requirements and voluntary
standards and initiatives is likely to require NWM Group to
implement significant changes to its business models, IT systems,
products, governance, internal controls over financial and non-
financial reporting, disclosure controls and procedures, modelling
capability and risk management systems, which may increase the
cost of doing business, result in higher capital requirements, and
entail additional change risk and increased compliance, regulatory
sanctions, conduct and litigation (including settlements) costs. A
failure by NWM Group or any of its subsidiaries to comply with
these climate and sustainability-related legal, regulatory and
supervisory requirements and standards and meet expectations
of NWM Group’s Value Chain in this respect may result in
investigations and regulatory sanction each of which may have an
adverse effect on NWM Group and the successful implementation
of NatWest Group’s (including NWM Group) strategy relating to
climate and sustainability.
Certain non-UK subsidiaries of NWM Group in the EU and
elsewhere may also be subject to EU, national and other climate
and sustainability laws and regulations which in some cases may
differ. Divergence between UK, EU, US and other climate and
sustainability-related legal, regulatory and supervisory
requirements and their interpretation may increase the cost of
doing business (including increased operating costs) and may
result in regulatory non-compliance and litigation risk. Failure by
NWM Group to comply with these divergent legal, regulatory and
supervisory requirements (if applicable to NWM Group) may have
an adverse effect on NWM Group’s ability to contribute to the
successful implementation of NatWest Group’s strategy relating to
climate change including when contributing to setting up NatWest
Group’s climate ambitions and targets and to executing NatWest
Group’s transition plan and may result in NWM Group and/or its
subsidiaries not meeting investors’ expectations.
Increasing new climate and sustainability-related jurisprudence,
laws and regulations in the UK and other jurisdictions, regulatory
scrutiny, expose financial institutions, including NWM Group, to
face increasing litigation, conduct, enforcement and contract
liability risks related to climate change, nature-related
degradation, human rights violations and other social, governance
and sustainability-related issues. Furthermore, regulatory and
enforcement activity around climate and sustainability initiatives
that promote more extensive sustainability-related requirements
and those that impose divestment and other sanctions against
financial institutions that implement climate and sustainability-
related initiatives is becoming increasingly divergent and
conflicting between jurisdictions, in particular in the United States.
Any failure of NWM Group to develop and implement robust and
effective governance, controls and procedures over climate and
sustainability-related impact assessment, disclosure, reporting and
other communications and sustainability-related claims (including
in relation to NWM Group’s products, services and strategy) and
comply with them in line with applicable legal and regulatory
requirements and expectations, may give rise to increased
complaints, regulatory enforcement (including sanctions),
investigation and litigation and may adversely affect NWM
Group’s regulatory compliance, investor base and reputation.
Furthermore, there is a risk that shareholders, campaign groups,
customers and activist groups could seek to take legal action
against NWM Group for financing, facilitating or contributing to
actual or perceived harm to the environment or people, climate
change, nature-related degradation and human rights violations,
failure to implement or follow adequate governance procedures
and for not supporting the principles of ‘just transition’ (i.e.
maximising the social benefits of the transition, mitigating the
social risks of the transition, empowering those affected by the
change, anticipating future shifts to address issues up front and
mobilising investments from the public and private sectors).
Any of the above may have a material adverse effect on NWM
Group’s business, future results, financial condition, prospects,
reputation and the price of its securities.
Forward looking statements
NWM Group
Annual Report and Accounts 2024
177
Certain sections in this document contain ‘forward-looking
statements’ as that term is defined in the United States Private
Securities Litigation Reform Act of 1995, such as statements with
respect to NWM Group’s financial condition, results of operations
and business, including its strategic priorities, financial, investment
and capital targets, and climate and sustainability-related targets,
commitments and ambitions described herein. Statements that
are not historical facts, including statements about NatWest
Group’s beliefs and expectations, are forward-looking statements.
Words such as ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘commit’,
‘believe’, ‘should’, ‘intend’, ‘will’, ‘plan’, ‘could’, ‘probability’, ‘risk’,
‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’,
‘optimistic’, ‘prospects’ and similar expressions or variations on
these expressions are intended to identify forward-looking
statements. In particular, this document includes forward-looking
targets and guidance relating to financial performance measures,
such as income growth, operating expense, cost reductions,
impairment loss rates, balance sheet reduction, (including the
reduction of RWAs), CET1 ratio (and key drivers of the CET1
ratio, including timing, impact and details), Pillar 2 and other
regulatory buffer requirements and MREL and non-financial
performance measures, such as climate and sustainability-related
performance ambitions, targets and metrics, including in relation
to initiatives to transition to a net zero economy, climate and
sustainable funding and financing and financed emissions.
Limitations inherent to forward-looking statements
These statements are based on current plans, expectations,
estimates, targets and projections, and are subject to significant
inherent risks, uncertainties and other factors, both external and
relating to NatWest Group’s and NWM Group’s strategy or
operations, which may result in NWM Group being unable to
achieve the current plans, expectations, estimates, targets,
projections and other anticipated outcomes expressed or implied
by such forward-looking statements. In addition, certain of these
disclosures are dependent on choices relying on key model
characteristics and assumptions and are subject to various
limitations, including assumptions and estimates made by
management. By their nature, certain of these disclosures are
only estimates and, as a result, actual future results, gains or
losses could differ materially from those that have been estimated.
Accordingly, undue reliance should not be placed on these
statements. The forward-looking statements contained in this
document speak only as of the date we make them and we
expressly disclaim any obligation or undertaking to update or
revise any forward-looking statements contained herein, whether
to reflect any change in our expectations with regard thereto, any
change in events, conditions or circumstances on which any such
statement is based, or otherwise, except to the extent legally
required.
Important factors that could affect the actual outcome
of the forward-looking statements
We caution you that a large number of important factors could
adversely affect our results or our ability to implement our
strategy, cause us to fail to meet our targets, predictions,
expectations and other anticipated outcomes or affect the
accuracy of forward-looking statements described in this
document. These factors include, but are not limited to, those set
forth in the risk factors and the other uncertainties described in
NatWest Markets Plc’s Annual Report and its other public filings.
The principal risks and uncertainties that could adversely affect
NWM Group’s future results, its financial condition and/or
prospects and cause them to be materially different from what is
forecast or expected, include, but are not limited to: economic
and political risk (including in respect of: economic and political
risks and uncertainties in the UK and global markets, including as
a result of inflation and interest rates, supply chain disruption, and
geopolitical developments; changes in interest rates and foreign
currency exchange rates; and HM Treasury’s ownership of
NatWest Group plc); business change and execution risk (including
in respect of: NatWest Group’s strategy and NatWest Group’s
creation of its Commercial & Institutional business segment (of
which NWM Group forms part) and the transfer of NatWest
Group’s Western European corporate portfolio); financial resilience
risk (including in respect of: NWM Group’s ability to meet targets,
generate returns or implement its strategy effectively; prudential
regulatory requirements for capital and MREL; NWM Group’s
reliance on access to capital markets directly or indirectly through
its parent (NatWest Group); capital, funding and liquidity risk;
reductions in the credit ratings; the competitive environment; the
requirements of regulatory stress tests; counterparty and
borrower risk; model risk; sensitivity to accounting policies,
judgments, estimates and assumptions (and the economic,
climate, competitive and other forward looking information
affecting those judgments, estimates and assumptions); changes
in applicable accounting standards; the adequacy of NatWest
Group’s resolution plans; and the application of UK statutory
stabilisation or resolution powers to NatWest Group); climate and
sustainability risk (including in respect of: risks relating to climate
change and sustainability-related risks; both the execution and
reputational risk relating to NatWest Group’s climate change-
related strategy, ambitions, targets and transition plan; climate
and sustainability-related data and model risk; increasing levels of
climate, environmental, human rights and other sustainability-
related laws, regulation and oversight; climate, environmental,
human rights and other sustainability-related litigation,
enforcement proceedings, investigations and conduct risk);
operational and IT resilience risk (including in respect of:
operational risks (including reliance on third party suppliers);
cyberattacks; the accuracy and effective use of data; attracting,
retaining and developing senior management and skilled
personnel; complex IT systems; NWM Group’s risk management
framework; and NWM Group's reputational risk); and legal,
regulatory and conduct risk (including in respect of: the impact of
substantial regulation and oversight; the outcome of legal,
regulatory and governmental actions and investigations as well as
remedial undertakings; and changes in tax legislation or failure to
generate future taxable profits).
Cautionary statement regarding forward-looking
statements
Secret
Forward looking statements continued
NWM Group
Annual Report and Accounts 2024
178
Cautionary statement regarding Non-IFRS financial
measures and APMs
NWM Group prepares its financial statements in accordance with
UK-adopted International Accounting Standards (IAS) and
International Financial Reporting Standards (IFRS). This document
may contain financial measures and ratios not specifically defined
under GAAP or IFRS (‘Non-IFRS’) and/or alternative performance
measures (‘APMs’) as defined in European Securities and Markets
Authority (‘ESMA’) guidelines. Non-IFRS measures and APMs are
adjusted for notable and other defined items which management
believes are not representative of the underlying performance of
the business and which distort period-on-period comparison. Non-
IFRS measures provide users of the financial statements with a
consistent basis for comparing business performance between
financial periods and information on elements of performance that
are one-off in nature. Any Non-IFRS measures and/or APMs
included in this document, are not measures within the scope of
IFRS, are based on a number of assumptions that are subject to
uncertainties and change, and are not a substitute for IFRS
measures.
The information, statements and opinions contained in this
document do not constitute a public offer under any applicable
legislation or an offer to sell or a solicitation of an offer to buy any
securities or financial instruments or any advice or
recommendation with respect to such securities or other financial
instruments.
Climate and sustainability-related disclosures
Climate and sustainability-related disclosures in this document are
not measures within the scope of International Financial Reporting
Standards (‘IFRS’), use a greater number and level of judgments,
assumptions and estimates, including with respect to the
classification of climate and sustainable funding and financing
activities, than our reporting of historical financial information in
accordance with IFRS. These judgments, assumptions and
estimates are highly likely to change materially over time, and,
when coupled with the longer time frames used in these
disclosures, make any assessment of materiality inherently
uncertain. In addition, our climate risk analysis, our ambition to be
net zero across our financed emissions, assets under
management and operational value chain by 2050 and the
implementation of our climate transition plan remain under
development, and the data underlying our analysis and strategy
remain subject to evolution over time. The process we have
adopted to define, gather and report data on our performance on
climate and sustainability-related measures is not subject to the
formal processes adopted for financial reporting in accordance
with IFRS and there are currently limited industry standards or
globally recognised established practices for measuring and
defining climate and sustainability-related metrics. As a result, we
expect that certain climate and sustainability-related disclosures
made in this document are likely to be amended, updated,
recalculated or restated in the future. Please also refer to the
cautionary statement in the section entitled ‘Climate and
sustainability-related and other forward-looking statements and
metrics’ of the NatWest Group 2024 Sustainability Disclosures
Report published by NatWest Group plc for the consolidated
group, including NatWest Markets Plc.