Financial review continued

NatWest Markets N.V.

Annual Report and Accounts 2024

2

Performance overview

NWM N.V. Group reported an attributable profit of €159 million

for 2024 compared with €108 million in 2023, primarily reflecting

an increase in non-interest income of €44 million and the

recognition of additional deferred tax assets in 2024 of €40

million.

Income and balance sheet



Total income was €301 million compared with €269 million in

2023, primarily driven by higher net fees and commissions of

€207 million (2023 - €179 million) and higher income from

trading activities of €21 million (2023 - €2 million). This was

partially offset by lower net interest income of €120 million

(2023 - €132 million).



Total assets increased to €30.2 billion from €28.2 billion in

2023 and total liabilities increased to €28.2 billion compared

with €26.2 billion in 2023. The increase in total assets was

primarily driven by increases in trading assets and derivative

assets, partially offset by a decrease in amounts due from

holding companies and fellow subsidiaries. The increase in

total liabilities was mainly due to increases in trading

liabilities, derivative liabilities and other financial liabilities,

partially offset by decreases in customer deposits and

amounts due to holding companies and fellow subsidiaries.

Capital, liquidity and funding



NWM N.V. Group RWAs decreased to €7.9 billion from €8.2

billion at 31 December 2023, largely driven by a decrease in

client positions in the trading book, securities held for

investment purposes, and equity investments.



NWM N.V. Group remained well-capitalised, with a NWM

N.V. Group CET1 ratio of 20.4%, above guidance of ~14%.



The liquidity position also remained strong, with a liquidity

portfolio of €7.3 billion and LCR of 247%.



Capital, funding and liquidity remained closely monitored,

with increased tracking and scenario analysis to ensure

balance sheet strength.



Throughout 2024, NWM N.V. Group ensured a stable funding

base through various sources of funding, including the

customer deposit book, issuances of commercial paper and

capital instruments. During 2024, NWM N.V. Group issued

€0.5 billion senior unsecured debt securities based on its

Euro Medium Term Note (EMTN) programme (2023 - nil).



NWM N.V. Group maintains an active EMTN programme and

may need to utilise it to raise funding, based on its current

and anticipated business activities. NWM N.V. Group

therefore may be reliant on frequent access to the capital

markets for funding, at a cost that can be passed through to

its customers.

Key capital and liquidity metrics

2024

2023

Liquidity coverage ratio (LCR) (%)

144

Net stable funding ratio (NSFR) (%)

133

Liquidity portfolio (€bn)

6.5

Total wholesale funding (€bn)

(1)

4.0

Total funding including repo (€bn)

16.4

Common Equity Tier (CET1) ratio (%)

19.0

CRR leverage ratio (%)

7.0

Total capital ratio (%)

23.9

Risk-weighted assets (RWAs) (€bn)

8.2

(1)

Wholesale funding comprises bank deposits (excluding repos), debt securities in issue and third-party subordinated liabilities.

Outlook

Metric

Estimate

CET1 ratio

~14%

Leverage ratio

>4%

(1)

The 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 on pages 136 to 156.

Financial review continued

NatWest Markets N.V.

Annual Report and Accounts 2024

4

Summary consolidated income statement

2024

2023

Variance

€m

€m

€m

Interest receivable

502

453

49

11%

Interest payable

(382)

(321)

(61)

19%

Net interest income

120

132

(12)

(9%)

Fees and commissions receivable

236

202

34

17%

Fees and commissions payable

(29)

(23)

(6)

26%

Income from trading activities

21

2

19

nm

Other operating income

(47)

(44)

(3)

7%

Non-interest income

181

137

44

32%

Total income

301

269

32

12%

Staff costs

(84)

(79)

(5)

6%

Premises and equipment

(6)

(6)

-

-

Other administrative expenses

(85)

(82)

(3)

4%

Depreciation and amortisation

(2)

(2)

-

-

Operating expenses

(177)

(169)

(8)

5%

Profit before impairments

124

100

24

24%

Impairment releases

1

-

1

nm

Operating profit before tax

125

100

25

25%

Tax credit

34

8

26

nm

Profit for the year

159

108

51

47%

Attributable to:

Ordinary shareholders

135

84

51

61%

Paid-in equity holders

24

24

-

-

159

108

51

47%

nm = not meaningful

Operating profit before tax

was €125 million compared with

€100 million in 2023. The increase was primarily due to higher

total income which increased by €32 million to €301 million. This

was partially offset by an increase in operating expenses to

€177 million compared with €169 million in 2023.

Profit for the year was €159 million compared with €108 million

in 2023.

Net interest

income

was €120 million compared with €132

million in 2023,

primarily driven by changes in interest rates, as

well as shifts in the lending portfolio and funding book in

comparison with 2023. Interest receivable increased by €49

million to €502 million (2023 - €453 million). Interest payable

increased by €61 million to €382 million (2023 - €321 million).

The increase in interest receivable is mainly due to higher

interest receivable from other financial assets. The increase in

interest payable is mainly due to higher interest payable to other

financial liabilities.

Non-interest income

increased by €44 million to €181 million

compared with €137 million in 2023. Net fees and commissions

were an income of €207 million (2023 - €179 million income).

The increase in net fees and commission was mainly due to an

increase in transfer pricing income from NWM Plc to €153 million

(2023 - €128 million) and an increase in underwriting fees to €60

million (2023 - €55 million). Guarantee fees paid to NWM Plc for

risk sharing agreements decreased by €2 million to €5 million.

Income from trading activities was €21 million, compared with

€2 million in 2023. Other operating income was a loss of €47

million, compared with a loss of €44 million in 2023. This was

mainly driven by fair value changes of structured deposits and

by legacy items

.

Operating expenses

increased by €8 million to €177 million,

compared with €169 million in 2023. This was mainly due to staff

costs which were up €5 million to €84 million. Premises and

equipment costs were €6 million in 2024 and in 2023. Other

administrative expenses increased by €3 million to €85 million,

mainly driven by an increase in cost recharges from NatWest

Group companies of €4 million. Depreciation and amortisation

were €2 million in 2024 and in 2023.

Impairments

were a release of €1 million, compared with nil in

2023.

Tax credit

for 2024 was €34 million, compared with a tax credit

of €8 million in 2023. This was primarily driven by additional

recognition of deferred tax assets in 2024. Refer to Note 6 to

the consolidated financial statements for further details.

(1)

Legacy transactions pertain to NWM N.V.’s tail business from the period before the

repurposing of its banking license in 2019.

Financial review continued

NatWest Markets N.V.

Annual Report and Accounts 2024

5

Consolidated balance sheet as at 31 December 2024

2024

2023

Variance

€m

€m

€m

Assets

Cash and balances at central banks

6,187

5,979

208

3%

Trading assets

6,688

4,693

1,995

43%

Derivatives

11,860

9,890

1,970

20%

Settlement balances

866

565

301

53%

Loans to banks - amortised cost

225

236

(11)

(5%)

Loans to customers - amortised cost

935

951

(16)

(2%)

Amounts due from holding companies and fellow subsidiaries

1,203

3,174

(1,971)

(62%)

Other financial assets

2,111

2,605

(494)

(19%)

Other assets

119

95

24

25%

Total assets

30,194

28,188

2,006

7%

Liabilities

Bank deposits

597

411

186

45%

Customer deposits

2,999

4,531

(1,532)

(34%)

Amounts due to holding companies and fellow subsidiaries

2,558

3,952

(1,394)

(35%)

Settlement balances

685

679

6

1%

Trading liabilities

7,061

4,637

2,424

52%

Derivatives

10,510

8,814

1,696

19%

Other financial liabilities

3,368

2,805

563

20%

Subordinated liabilities

303

293

10

3%

Other liabilities

70

65

5

8%

Total liabilities

28,151

26,187

1,964

7%

Total equity

2,043

2,001

42

2%

Total liabilities and equity

30,194

28,188

2,006

7%

Total assets

Cash and balances at central banks

Trading assets

Loans to customers - amortised cost

Amounts due from holding companies and fellow subsidiaries

Other financial assets

Other

assets

Derivative assets and liabilities

Settlement balance assets and liabilities

Customer deposits

Amounts due to holding companies and fellow subsidiaries

Trading liabilities

Other financial liabilities

Total equity

Top and emerging risks

NatWest Markets N.V.

Annual Report and Accounts 2024

6

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 enterprise-wide risk management framework 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.

Top risk scenarios in

focus in 2024

Description

Mitigants

Increased competition

Competitive pressures could intensify, impeding NWM N.V.

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).

NatWest 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 N.V. 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.

NatWest 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 N.V. Group’s

customers. This includes testing and proving cyber

resilience capabilities via stress testing of NWM

N.V. 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 N.V. 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.

Climate ambitions

NatWest 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.

NatWest Group faces potential threats to its

climate ambition. Considering climate is cross-

cutting risk, these threats could lead to both

financial and non-financial risks. Identifying and

addressing these risks is essential to protect

NatWest Group's climate ambitions.

Operational risk scenarios

Operational risks are inherent in NWM N.V. Group’s

businesses and a broad range of scenarios are considered.

NWM N.V. 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

N.V. 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 N.V. Group’s businesses are subject to substantial

regulation and oversight, both of which are constantly

evolving and may have an adverse impact on NWM N.V.

Group.

NWM N.V. Group constantly monitors regulatory

change and works with the regulators to help

shape those developments that materially impact

NWM N.V. Group, responding when necessary,

either bilaterally or in partnership with one of the

affiliated industry bodies. NWM N.V. Group

implements new regulatory requirements where

applicable and uses frequent engagement

meetings with regulators to discuss key regulatory

priorities.

Top and emerging risks continued

NatWest Markets N.V.

Annual Report and Accounts 2024

7

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, including NWM N.V. 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 the upcoming 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 and the ECB Guide on

climate-related and environmental risks, NWM

N.V. Group, is seeking to further its understanding

of nature-related risks. This includes how its

business activities impact nature, the

dependencies NatWest Group (including NWM

N.V. Group) and its counterparties (including its

suppliers) and customers have on nature, and the

risks and opportunities nature can generate.

Digital currency

NWM N.V. Group operates in markets which would be

exposed to any developments in digital currency.

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 regulators on digital

currency developments. This includes engagement

with policymakers on a bilateral and industry level.

Geopolitical risk

NWM N.V. 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 N.V. 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.

NatWest 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

NatWest Group is exposed to vulnerabilities within shadow

banking or market-based finance (MBF), given the

interlinkages between banks and MBF. This includes the

potential for stress events or shocks to financial markets.

NatWest 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.

Climate-related disclosures

NatWest Markets N.V.

Annual Report and Accounts 2024

8

Basis of reporting

For readers convenience, the structure of the climate-related disclosures in this section is informed by the headings of the Taskforce on

Climate-Related Financial Disclosures (TCFD) recommendations (although their content is not necessarily consistent with each of the

TCFD-recommended disclosures and related guidance). The disclosures are focusing mostly on climate-related matters and are

supplemented by limited environmental matters, reflecting the fact that NWM N.V. Group is still in the early stages of embedding

environmental matters into its strategy and operations.

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 our existing processes to address future applicable materiality

assessment expectations. During 2024, we conducted an assessment 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, such as Corporate Sustainability Reporting Directive (CSRD).

Our first reporting obligation under the CSRD is expected to apply to the financial year 2025. We are in the process of implementing the

CSRD as well as the published European Sustainability Reporting Standards (ESRS), which are an integral part of the CSRD.

Governance

NWM N.V., as an indirect subsidiary of NWM Plc (and ultimately of NatWest Group plc), is part of the NatWest Group and NWM Group’s

integrated governance structure

(1)

. The NWM N.V. Managing Board, NWM N.V. Supervisory Board and senior management oversight of

climate and environmental (including nature) risks and opportunities is being integrated into our established governance structure and

operating rhythm.

Governance structure

The climate and environmental governance structure is summarised in the table below.

(1)

For definitions of the legal entities refer to the Presentation of information section in this report.

Forum

Role/responsibility

Supervisory

Board level

governance

NWM N.V. Supervisory Board

Oversees the delivery against the agreed strategy and objectives of NWM N.V.

Group, including tracking progress against sustainability goals, within the ambitions

of the wider NatWest Group.

Approves the risk appetite of NWM N.V. Group.

NWM N.V. Board Risk

Committee

Advises on current and future risk exposures.

Oversees NWM N.V. Group’s risk management, including its progress towards

meeting legal and regulatory expectations over climate and environmental matters.

NWM N.V. Audit Committee

Oversees all material external disclosures (financial and non-financial) and legal and

regulatory compliance.

Reviews and monitors internal controls required to manage risks across functions

and business areas.

Managing

Board level

governance

NWM N.V. Managing Board

Reports to Supervisory Board and is the principal decision-making corporate body for

the day-to-day activities of NWM N.V. Group. It is responsible for:

Implementing the NWM N.V. Group’s strategy, including sustainability objectives, and

receiving reports on progress from business heads.

Managing how climate and environmental (including nature) risks are identified,

measured, monitored, and mitigated.

Setting risk appetite for final approval by Supervisory Board and monitoring the risk

management response.

Identifying sustainability-related opportunities throughout the business.

NWM N.V. Risk and Control

Committee

Reviews and challenges all risks, including climate and environmental (including

nature) risks.

Responsible for implementation of and compliance with risk management

framework and reporting to NWM N.V. Managing Board on its performance and

issues observed.

Provides input on setting the risk appetite, oversees its management, and escalates

any excesses to the NWM N.V. Supervisory Board.

NWM N.V. Executive

Disclosure Committee

Reviews all material financial and non-financial disclosures.

Monitors, evaluates and enhances disclosure procedures and controls.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

9

Governance continued

Supervisory Board oversight

The NWM N.V. Supervisory Board considered climate and

environmental matters at all of its 5 scheduled meetings. Updates

included climate and nature risk which is embedded into the

Chief Risk Officer (CRO) report, as well as the business updates

including green, social and sustainability-related transactions and

market themes, both provided to the Supervisory Board at each

scheduled meeting. The progress update of NWM Climate & ESG

Programme was presented on a quarterly basis. For more details

regarding Climate & ESG Programme refer to Managing Board

oversight below. In addition to these updates, in December 2024

the NWM N.V. Supervisory Board discussed the NWM N.V.

Group’s refreshed approach to sustainability.

Managing Board oversight

NWM N.V. Climate & ESG Programme Board was set up in 2022,

under the authority of the NWM N.V. Managing Board, to

oversee the embedding of climate and environmental (including

nature) risks within NWM N.V. Group. The NWM N.V. Climate &

ESG Programme Board previously fed into the NWM Climate and

Sustainability Committee (CSC) which was responsible for

managing climate risks and opportunities of NWM Group,

including NWM N.V. Group. In 2024, the CSC was retired, and

the governance of climate risks and opportunities was embedded

into existing committees and functions, including those of NWM

N.V. Group. 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 efficient delivery of the NWM Group Climate &

ESG Programme, which includes delivery of Climate & ESG

change activities into NWM N.V. Group.

The membership of

NWM Group Climate & ESG Steering Committee includes NWM

N.V. Managing Board members and functional staff. Any matters

affecting NWM N.V. Group that require formal escalation are

referred to the NWM N.V. Managing Board.

In 2024 the NWM N.V. Managing Board considered climate and

environmental matters at all of its 9 regular meetings and

received the CRO report as well as the business updates at each

regular meeting. Updates on the NWM Climate & ESG

Programme were provided on a quarterly basis. In addition, the

NWM N.V. Managing Board discussed, amongst others, the

following sustainability-related topics during their meetings:

assessment of material risks impacting NWM N.V. Group,

including climate and environmental (including nature) risks, NWM

N.V. Group’s refreshed approach to sustainability, the

development of NWM N.V. Group’s materiality assessment

initiated in 2024, as well as the 2023 year-end climate-related

disclosures.

To support the development of the appropriate skills for

overseeing sustainability matters, training for NWM N.V.

Supervisory Board and NWM N.V. Managing Board members

continues to be provided and forms part of a mandatory learning

programme for board members. In 2024 the NWM N.V.

Supervisory Board and Managing Board members were provided

with the following training sessions:



April 2024: Training on the requirements for the upcoming

Corporate Sustainability Reporting Directive (CSRD) and

other sustainability-related legal and regulatory expectations,

as well as on greenwashing risks, provided by external

experts.



May 2024: Session on climate and nature-related business

opportunities, led by experts from NatWest Group Climate

Centre of Excellence (CoE) team.



December 2024: Session on carbon market initiatives

provided by subject matter experts from NWM Group.

Strategy

Strategic context

Becoming a vital and trusted partner to its customers is at the

heart of NatWest Group’s strategy. It unites its ambition and

purpose and is delivered by three clear strategic priorities:

disciplined growth, active balance sheet and risk management as

well as bank-wide simplification. These enable NatWest Group to

succeed with its customers and deliver sustainable shareholder

value. NatWest Group’s sustainability related ambitions and

targets enable it to focus on actions it can take to succeed with

its customers and deliver sustainable shareholder value. NatWest

Group’s climate transition plan lays out its plans to help its

customers on their journey toward net zero. While NatWest

Group continues to support its customers’ transition to a net-zero

economy, and monitor progress on supplier and fund

decarbonisation, its climate ambitions are unlikely to be achieved

without timely and appropriate government policy and

technology developments, as well as the supplier, customer and

societal response required to support the transition

(1)

.

As a subsidiary of NatWest Group, NWM N.V. Group aims to

support these strategic priorities within the European market.

Sustainability remains a key focus in this region, with the

European Union (EU) taking a leading role in global climate

action. The European Commission, through the European Green

Deal launched in 2020, has introduced a range of regulations

aimed at transforming the EU into a modern, resource-efficient,

and competitive economy. European companies are aligning with

these efforts: by January 2025, over 7000 European firms have

set net-zero commitments under the Science Based Targets

initiative. This shift is also reflected in capital markets, with ESG-

labelled bonds accounting for approximately 17% of European

primary debt issuance in 2024

(2)

.

Sustainability approach

In 2023 NWM N.V. Group formulated its own high level

aspirational ambition to become one of the forward-thinking

banks in Europe with a focus on sustainability matters. NWM N.V.

Group helps to both finance and facilitate the sustainability

journeys and activities of our customers. Whether we finance a

corporate or financial institution with a green, social, sustainable,

or sustainability linked (GSS/S) bond, or lead on a GSS/S bond or

securitisation, we facilitate our customers’ access to capital

through funding sources in the public or private capital markets.

Our sustainability aspiration is underpinned by four pillars that

form NWM N.V. Group’s approach to sustainability: customers,

propositions, market presence and tools and portfolio. This

approach has been informed by a business environment

assessment refreshed in 2024, identifying climate and

environmental (including nature) risks that could impact NWM

N.V. Group’s political, economic, social, technological, or legal

environment.

(1)

With regards to NatWest Group’s 2030 Scope 3 financed emissions ambitions, while UK

Government policies are expected to continue to provide incentives for customer transition

and technology development, delays to a range of net-zero related UK Government policies

indicate the pace of implementation is slower than required for the net-zero transition as

initially outlined in the UK Climate Change Committee’s (UK CCC) Sixth Carbon Budget,

issued in 2020. NatWest Group plans to review its climate ambitions and targets during

2025 in the context of the UK CCC’s Seventh Carbon Budget which is expected to be

published on 26 February 2025.

(2)

Source: Dealogic.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

10

Strategy continued

NWM N.V. Group continues to develop its sustainability approach. The sustainability priorities for 2025 focus on three key areas, cutting

across four pillars of our approach to sustainability described in more detail in the Sustainability pillars section below. These priorities

span our core customer groups: Western European Corporates (WEC) and Financial Institutions (FI), including sovereigns, agencies and

private finance:



Transition

: NWM N.V. Group plans to roll out the Climate Decisioning Framework (CDF) scorecards to understand our customers’

transition journeys and how they are managing climate risk, with the aim to promote transition finance solutions and offer benchmarking

and evaluation of transition plans in comparison to market standards to our customers.



Nature

: NWM N.V. Group plans to introduce the Environmental Decisioning Framework (EDF) to identify physical and transition nature

risks within our corporate portfolio, with the aim to incorporate nature and biodiversity considerations into our financing propositions.



Social

: NWM N.V. Group aims to address the social components of sustainability as well as the increasing sustainability-focused

European legal and regulatory expectations such as CSRD.

The section below outlines the NWM N.V. Group’s approach for each of the sustainability pillars and highlights key achievements in 2024.

NWM N.V. Group recognises that fully integrating sustainability matters into NWM N.V. Group’s strategy and business operations is an

ongoing journey and there is still further work to do in this regard.

Sustainability pillars

NWM N.V. Group’s approach to sustainability was formulated in 2023 and refreshed in 2024. It is built around four interconnected pillars.

NWM N.V. Group’s

Sustainability Pillars

Approach

Description

Customers

Continually engaging with

our customers to

understand their evolving

aspirations and needs.

Our aim is to support clients’ sustainability objectives through our suite of

products and services. We strive to respond to those customers’ needs by

developing innovative products and assist them in understanding their

climate and environmental footprint, for example by working with them to

establish their sustainable financing frameworks.

Propositions

Deepening and growing our

propositions across

sustainable asset classes

and digital solutions.

We develop sustainable products and services across fixed income and risk

management asset classes. We aim to develop transition finance product

offering and expand environmental products and solutions.

Market presence

Building market recognition

and contributing to

application of sustainability

principles in capital markets.

We strive to build out our market presence through our performance in

chosen sustainability asset classes and segments and thought leadership in

topics such as biodiversity and transition finance. We seek to bring

together industry, finance, and academia, through industry groups and

white papers.

Tools and portfolio

Developing and embedding

tools that enable risk

management, portfolio

transition and decision-

making.

We aim to embed climate and environmental decisioning tools into portfolio

management. In addition, we intend to leverage tools to identify new

customer funding and financing opportunities as well as to inform

sustainability decisions.

Key achievements in 2024

Customers

As part of supporting its customers’ transition to a net-zero

economy, NatWest Group has a target to provide £100 billion

climate and sustainable funding and financing between July 2021

and the end of 2025 which NWM N.V. Group has been contributing

to. As of 31 December 2024, NWM N.V. Group contributed €30.0

billon towards NatWest Group’s climate and sustainable funding

and financing target since 1 July 2021 and €12.2 billon during 2024

(2023: €8.9 billon)

(1)

. Refer to Metrics and targets section for more

information concerning climate and sustainable funding and

financing, including the inclusion criteria for its reporting.

In 2024, NWM N.V. Group participated in the issuance of €61.5

billion of GSS/S

(2)

bonds (2023: €40.1 billion) for our large corporate

and financial institution customers

(3)

. GSS/S labelled debt accounted

for 25% of the total underwriting in 2024 of €250 billion

(4)

.

Propositions

NWM N.V. Group, as part of NWM Group, also participates in

industry-wide sustainability forums to help develop market

standards and legislation. In 2024, NWM Group’s (including NWM

N.V. Group’s) work with the International Capital Markets

Association (ICMA) saw us act as joint coordinator of its sustainable

commercial paper (CP) taskforce, contributing to the publication of

its paper “The role of commercial paper in the sustainable finance

market

(5)

”.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

11

Strategy continued

This is the first market guidance for embedding sustainable finance

in CP. NWM Group (including NWM N.V. Group) also focused on

the EU taxonomy usability by engaging with the Association for

Financial Markets in Europe (AFME).

We also partnered with Strathclyde University and Copenhagen

Business School on analysis of the pricing dynamics of

Sustainability-Linked Bonds (SLBs). Published in the Journal of

Financial Economics

(1)

in December 2024, this work sheds light on

the key factors that influence the pricing of SLBs, offering both

theoretical and practical insights that can be applied by issuers and

investors in the market.

Market presence

NWM Group (including NWM N.V. Group) maintained its position as

one of the leading GSS bookrunners in the chosen markets and

geographies, ranking ninth by deal value among bookrunners for

supporting Western European

(2)

Corporate issuers for GSS labelled

debt (excluding Sustainability Linked Bonds) issued in all

currencies

(3)

.

We also facilitate by convening industry groups to support the

necessary industry infrastructure and standard setting, advising

our customers – from corporates and financial institutions to

sovereigns, multi-development banks and agencies – on evolving

products and services, as well as providing guidance on the

regulatory and policy landscape to assist delivery of their

sustainability strategies.

We continue to share sustainability thought leadership with our

customers and the wider public through events and webinars.

Throughout 2024, NWM N.V. Group organised 11 events (2023: 10

events), bringing together experts from industry and the investing

community, alongside academia, on topics, such as the energy

transition, climate adaptation and biodiversity. These sessions and

events were designed to generate discussion around these

challenging issues and consider solutions. Examples include:



For the third year in a row, in May 2024 NWM N.V. Group

sponsored the AFME European Sustainable Finance

Conference where our specialists contributed to panel

discussions covering a variety of topics, including sustainable

investment strategies, compliance, and the evolving role of

data and artificial intelligence to support sustainability strategies

and disclosures.



We also co-hosted the Stockholm “Women Mobilizing

Sustainability” roundtable event with the British Embassy in

Stockholm in September 2024. It was an opportunity for female

specialists from various sustainability-related fields to discuss

views on how sustainability can create business opportunities

and enhance enterprise value, highlighting the economic

benefits of sustainability strategies.

Tools and portfolio

As part of its sustainability integration activities, NWM N.V.

Group made progress in rolling-out Customer Decisioning

Framework (CDF) tools on a test-and-learn basis. In 2024

90% of NWM N.V. Group’s corporate clients and 41% of

financial institutions lending exposure underwent CDF

assessment. We are also developing an environmental risk

scorecard as part of the Environmental Decisioning

Framework (EDF). Refer to Risk Management section below

for more information on CDF and EDF.

(1)

Pricing of sustainability-linked bonds (sciencedirectassets.com)

(2)

Europe issuers refer to Europe, UK and Nordics.

(3)

Source: Dealogic, 31 December 2024 – excludes money market and short-term debt.

Risk management

Climate and nature risk

Climate and nature risk is defined as 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.

Climate risk has been included in the NatWest Group’s (including

NWM N.V. Group’s) risk directory since 2021, alongside a multi-

year progressive pathway which supports maturing its capability to

manage a relatively new prudential risk. In 2024, NatWest Group

(including NWM N.V. Group) broadened the definition to climate

and nature risk and updated its policy to reflect this. NWM N.V.

Group, as part of NatWest Group, is in the early stages of

embedding nature into its risk management processes. This section

provides more detail on activities undertaken to enhance NWM

N.V. Group’s understanding of the exposure to climate and nature

risks.

The approach of NatWest Group (including NWM N.V. Group) to

integrating climate risk continues to focus on embedding climate

risk management practices throughout the group, advancing its

capability to identify and assess, manage and mitigate, monitor and

report on these risks. NatWest Group (including NWM N.V. Group)

has made iterative progress, continuing to update its approach as

its capabilities mature.

Climate and nature risk is a principal risk in the NatWest Group

Enterprise Wide Risk Management Framework (EWRMF) and a

cross cutting risk which impacts other principal risks. As NatWest

Group’s (including NWM N.V. Group’s) capabilities mature, it plans

for the effective management of climate and nature risk through

existing policies captured within the NatWest Group EWRMF.

Further details can be found in the Risk and Capital Management

section of this report, including how climate and nature risk is

managed through existing policies.

NatWest Group (including NWM N.V. Group) continues to enhance

its processes to effectively identify and assess the potential size and

scope of climate risks through three key approaches:

Scenario analysis

Portfolio level assessment

Counterparty level assessment

Scenario analysis

Scenario analysis allows NatWest Group (including NWM N.V.

Group) to test a range of potential 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 leads the development of credit risk scenario modelling

capabilities for NatWest Group as a whole, as well as including

other legal entities, such as NWM N.V. Group. This includes both

the development of capability and the execution of scenario

analysis for NWM N.V. Group.

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, aiming to harness insights to inform risk

management practices and support decision making.

In 2024 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 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.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

12

Risk management continued

There are various challenges and limitations with climate scenario

analysis, including in relation to the immaturity of modelling

techniques (for example, not picking up tipping points such as the

slow down/potential collapse of the Atlantic meridional overturning

circulation (AMOC)) and limitations surrounding data on climate

risks. In addition, there is significant uncertainty as to how climate

change will evolve over time, how and when governments,

regulators, businesses, investors and customers respond and how

those responses impact the economy, asset valuations, economic

systems, policy and wider society. These risks and uncertainties,

coupled with significantly long timeframes, make the outputs of

climate risk modelling with respect to the potential use cases

identified inherently more uncertain than outputs modelled for

traditional financial planning cycles based on historical financial

information.

NatWest 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. NatWest Group

continues to work with industry and customers to develop solutions

for challenges and limitations related to climate scenario analysis.

NWM N.V. Group is in the early stages of embedding

environmental (including nature) risk into the scenario analysis

processes. Activity undertaken to develop an approach to

environmental scenario analysis for specific risk types is detailed

below, in addition to the information on climate scenario analysis.

Credit risk

In 2024 NatWest Group ran the annual internal climate scenario for

the second time. This allowed NatWest Group to enhance its

understanding of the climate transition risks facing the sectors and

counterparties in the wholesale portfolio, including the NWM N.V

Group’s wholesale portfolio. The exercise involved running two

transition risk scenarios:



The Disruptive Policy 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.

The exercise revealed that the NWM N.V. Group client portfolio is

more exposed to a Disruptive Policy scenario than an Orderly

Transition scenario in the analysed 10-year horizon. The projected

worst case of the 10-year cumulative impairment impact can be

absorbed by NWM N.V. Group’s annual profit and does not

materially affect the regulatory capital ratios.

Counterparties with high emissions intensity and lower transition

maturity are likely to suffer financial stress due to their inability to

compete with more emissions efficient peers that are further

developed in the transition of their business. This emphasises the

importance of actively engaging with our customers to develop

climate transition plans, and the subsequent assessment through

the CDF tools.

The key limitations of this climate scenario are (i) the quality and

completeness of key data items, such as emissions data and (ii) the

ability of climate scenarios to fully capture the range of climate

risks, such as the cascading risks from extreme weather events

arising from climate change or the impact of possible ‘tipping

points’ that could lead to large, irreversible changes in the climate

system. For example, a material slow down in the Atlantic

Meridional Overturning Circulation (AMOC).

In 2024, to help understand and establish an approach to

environmental stress testing, NWM N.V. Group completed a

scenario on its Power and Utility sector customers, evaluating the

impact of sizeable copper price increases on underlying credit risk.

A shock to copper prices could arise for a range of reasons. In this

scenario we focused on copper mining activities being significantly

reduced to mitigate for actual or perceived environmental

degradation. This scenario was selected due to portfolio exposure

to the Power and Utility sector and its reliance on raw materials

such as copper for its investment programme. In addition, the

scenario highlighted the inherent tension between increased

demand for raw materials to support and expedite decarbonisation

and the environmental impact associated with mining activities.

Findings from the stress test revealed that NWM N.V. Group’s

Power and Utility sector exposure was resilient to copper price

shocks, with immaterial impact on credit quality. The key limitations

of this exercise are related to constraints of technical

understanding, data availability and model capability. It did not

include analysis of factors such as regulatory compliance, pollution

liabilities, climate change impacts, and sustainability practices of the

companies or projects being evaluated.

Market risk

The NWM Group (including NWM N.V 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.

In addition, in 2024 NWM N.V. Group assessed the impact of the

environmental stresses generated for the counterparties included in

the credit risk stress test, in relation to a sizeable copper price

increase, where there is also traded market risk exposure. The

impact was analysed against the valuation adjustments (XVA)

under the credit spread delta (CR01) market risk scenario,

excluding single-name credit protection. The conclusion was that

the impact on profit and loss is immaterial.

Capital risk

Climate risk is explicitly considered under the 2024 Internal Capital

Adequacy Assessment Process (ICAAP) normative adverse

scenarios of NatWest Group (including NWM N.V. Group). ICAAP2

is NatWest Group’s primary scenario to test the resilience of the

balance sheet to climate driven macroeconomic stress. This

scenario falls into the ‘constrained progress’ transition archetype

(1)

with ‘severe’ physical risk. To calibrate and quantify the size of the

climate shocks implied by the qualitative narratives, NatWest Group

used scenarios developed by United Nations Environment

Programme Finance Initiative and National Institute of Economic

and Social Research

(2).

Transition risks (driven by carbon prices and

greenflation

(3)

) and chronic and acute physical risks were

incorporated.

(1)

Constrained progress transition archetype: Economic volatility and weak public finances act

to restrict the effectiveness of ambitious policy action. For example, the limited fiscal

resource means that policy is weighted towards tax-based disincentives rather than supply

side subsidies. Mediocre and volatile growth hampers green investment and this is

compounded by a sharp slowdown in the reduction of green premiums across all areas of

the transition. A boom-bust cycle in fossil fuels leads to fossil fuel asset stranding.

(2)

UNEP-FI and NIESR2 scenarios.

(3)

Greenflation: inflationary pressure as a result of transitioning from fossil fuels to renewable

energy and higher demand for transition minerals.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

13

Risk management continued

ICAAP1 is NatWest Group’s scenario to test the resilience of its

balance sheet to macroeconomic stress under the low rate

environment. In 2024 for the first time NatWest Group’s ICAAP1

scenario also included climate considerations. Physical climate

change and some forms of transition are inevitable in all forward-

looking views of the economy. This scenario aligns to the qualitative

‘Fragmented decline’ archetype

(1)

where the climate transition is

secondary to more urgent macroeconomic shocks. Simultaneously,

chronic physical risks act as a drag on growth and slows down the

economic recovery.

Liquidity risk

Within NWM N.V. Group climate and environmental (including

nature) risk drivers are included in the 2024 Internal Liquidity

Adequacy Assessment Process (ILAAP), including an internal

liquidity scenario in the form of major environmental disruption in

the UK and northern Europe. For 2024, outputs from the scenario

were not the most severe within the suite of scenarios, so although

included in the framework, did not directly impact the internal

stress testing results. Two climate related internal reverse stress

testing scenarios are also included in the ILAAP, one covering

physical risks arising from flooding in the Netherlands and one

covering transition risks arising from the earlier than planned

adoption of stricter emission standards. An environmental and

climate change Key Reporting Indicator (KRI) was developed to

track NWM N.V. Group’s liquidity exposure to corporate sectors

which are vulnerable to environmental and climate risk factors.

Portfolio level assessment

The Heightened Climate-related Risk Sector (HCRS) assessment

seeks to identify customers, assets and sub sectors that are likely

to see increased risks for NWM N.V. Group as a result of climate-

related factors. The assessment applies three lenses considering

transition, physical and liability risk. A detailed

view of heightened climate-related risk sectors is provided in the

Metrics and targets section of this disclosure.

Counterparty level assessment

In 2023, NWM N.V. Group started developing tools as part of the

NatWest Group’s Climate Decisioning Framework (CDF). 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 N.V. Group uses these tools to engage with its customers to

understand climate risks of their business and conduct climate

transition plan assessments. 90% of NWM N.V. Group’s corporate

clients and 41% of financial institutions lending exposure underwent

CDF assessment, which also involved targeted customer

engagement. Feedback from clients focused on the robustness of

data inputs from their disclosures, as well as mutual understanding

of where the data gaps exist. Through this process, NWM N.V.

Group continues to build capability to use CDF tools among first-

and second-line risk colleagues, and develop a culture where

climate risk considerations are embedded within existing processes.

To support improvement in customer engagement, NWM N.V.

Group delivered bespoke training to 70 colleagues in the first

quarter of 2024. The learning objectives of the “Understanding the

Climate Decisioning Framework (CDF)” mandatory programme

were to understand the theory behind CDF, as well as how to

complete the CDF inputs in the context of climate conversations

with our customers.

In 2024, NWM N.V. Group continued to develop its approach to

nature, driven by European regulatory expectations. This activity

focused on the identification and assessment of environmental

factors, including physical and transition risks within our corporate

portfolio. An Environmental Decisioning Framework (EDF) was

trialled in 2024, which considered 61 factors to produce a

customer environmental scorecard. The first-generation

assessment focused on a limited number of customers, 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 adheres to the onboarding process outlined in

the NatWest Group Environmental, Social and Ethical (ESE) risk

framework. Customers operating in high-risk sectors, as defined by

this framework, undergo the ESE risk assessment process

conducted by the ESE Risk Advisory team at NatWest Group.

Customers outside these high-risk sectors are subject to a

separate Climate and Environmental (C&E) risk assessment.

Under the ESE risk framework, the relationship management team

submits a questionnaire which triggers an ESE risk rating (Normal,

Sensitive, High, Restricted or Prohibited) based on the activity in

which the customer or transaction is involved. The rating defines

the level of ESE risk NatWest Group (including NWM N.V. Group) is

prepared to accept. It also determines the approval requirements

and the timing for the next ESE assessment within the customer

lifecycle. If the initial risk rating is other than “Normal”, a specialist

ESE assessment team conducts enhanced due diligence on the

customer relationship or transaction and confirms the ESE risk

rating. In case of a “Prohibited” rating, new customers or

transactions may not be supported and approval to exit existing

ones may be triggered.

NWM N.V. Group expanded its client onboarding process with the

C&E assessment as of March 2024, to meet the Dutch and

European regulatory expectations which are not currently

addressed by other risk assessments, such as the CDF, EDF or

ESE risk assessment mentioned above. This assessment is

performed at the start of a client relationship, to inform the

counterparty risk classification. It is then repeated annually, every

three years, or every five years, depending on the counterparty

risk classification. It is a qualitative evaluation which considers

counterparty risk factors, such as sectorial risk, greenhouse gas

(GHG) emission reporting, waste management, client strategy on

sustainability and net-zero transition, counterparty governance

structure, as well as adherence to EU and international standards.

At the end of December 2024, more than 40% of NWM N.V.

Group’s active client population (both new and existing clients) has

undergone this evaluation. The assessment methodology is

reviewed periodically to ensure that NWM N.V. Group remains

compliant with Dutch and European legal and regulatory

expectations related to climate and environmental (including

nature) risk assessment.

(1)

Fragmented decline archetype: Rising nationalism, increasing impacts of extreme weather events and geopolitical conflicts create a weak growth and high inflationary environment characterised

by energy and technology trade wars. Transition momentum is weak as green technological progress stalls and governments prioritize domestic energy security via fossil fuels. The renewed

enthusiasm for fossil fuels and removal of government support, leads to green assets stranding, increasing financial market volatility and further reducing green investment appetite.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

14

Metrics and targets

Heightened climate-related risk sectors

(1)

The below table shows all sectors with exposure classified as heightened climate-related risk. Exposure is based on loans, loan commitments

and contingent obligations which are in scope for IFRS9. The amounts reported in the table include all NWM N.V. Group lending to

customers including climate and sustainable lending.

Total wholesale heightened climate-related risk exposure increased by €0.7 billion during 2024, predominantly as a result of an increase of

the heightened exposure to the Land transport and logistics sector by €0.7 billion. This is related to an increase of the exposure to this

sector by €0.6 billion during 2024 as well as the fact that the Other Land transport sub-sector exposure of €0.1 billion has not been

classified as heightened in 2023.

The exposures in this table are classified as heightened climate-related risk based on inherent risk, which reflects the risk associated with a

particular sub-sector in the external market. NWM N.V. Group’s Power and Utilities heightened exposure, which accounts for 36.83% of

NWM N.V. Group total, consists of the following sub-sectors: Electricity Generation (€1.1 billion) and Power Transmission, Distribution and

Supply (€2.1 billion). However, these sub-sectors are not classified as heightened based on residual risk, which reflects the risk within the

NWM N.V. Group’s portfolio of these sub-sectors, after applying mitigation measures.

31 December 2024

31 December 2023

Loans

Off-

balance sheet

exposure(2)

Total

sector

exposure

Of which:

heightened

Heightened

As a % of

NWM N.V.

Group Total

Loans

Off-

balance

sheet

exposure(2)

Total

sector

exposure

Of which:

heightened

Heightened

As a % of

NWM N.V.

Group

Total

Sector/Portfolio

€m

€m

€m

€m

%

€m

€m

€m

€m

%

Power utilities

130

3,028

3,158

3,158

36.20%

Land transport and

logistics

63

358

421

315

3.61%

Automotive

2

635

637

635

7.28%

Industrials

99

271

370

35

0.40%

Building materials

5

196

201

201

2.30%

Food & Consumer

6

243

249

137

1.57%

Commercial real estate

26

114

140

141

1.62%

Chemicals

13

77

90

90

1.03%

Water and waste

20

38

58

57

0.65%

Airlines and aerospace

3

35

38

8

0.09%

Leisure

3

-

3

1

0.01%

Construction

2

69

71

71

0.81%

Shipping

2

-

2

2

0.02%

Retail

16

450

466

2

0.02%

Housing associations

-

-

-

-

-

Agriculture

1

-

1

1

0.01%

Oil and gas

3

3

6

6

0.07%

Mining and metals

-

-

-

-

-

Business Services

(3)

41

1

42

4

0.05%

Finance Companies

-

240

240

-

-

Textiles

(4)

2

-

2

-

-

Telecommunications

(4)

17

396

414

-

-

454

6,154

6,609

4,864

55.74%

1,193

7,538

8,730

(1)

Heightened climate-related risk sector assessment seeks to identify customers, assets and sub sectors that are likely to see increased credit risks as a result of climate-related factors,

over a 10-to-15-year horizon. The assessment applies three lenses which consider transition, physical and liability risk. The heightened climate-related risk sector assessment within this

disclosure provides an aggregate view at industry level; within each sector there will be a diverse mix of counterparties, and as such climate-related risk will vary from customer to

customer.

(2)

Off-balance sheet includes loan commitments and contingent liabilities.

(3)

This sector was not identified as a heightened climate-related risk sector under the updated methodology in 2024.

(4)

These sectors were identified as heightened climate-related risk sectors under the updated methodology in 2024 for the first time.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

15

Metrics and targets continued

Climate and sustainable funding and financing

As part of supporting its customers’ transition to a net zero economy, NatWest Group has a target to provide £100 billion climate and

sustainable funding and financing between July 2021 and the end of 2025, which NWM N.V. Group is contributing to. NatWest Group uses

its climate and sustainable financing and funding Inclusion (CSFFI) criteria

(1)

to determine the assets, activities and companies that are eligible

to be included within its climate and sustainable funding and financing target.

Since 1 July 2021 NatWest Group had provided £93.4 billion of climate and sustainable funding and financing by 31 December 2024 (£31.5

billion in 2024)

(2)

. As at December 2024 NWM N.V. Group contributed €30.0 billon towards this target since 1 July 2021 and €12.2 billon

during 2024.

The table below summarises NWM N.V. Group climate and sustainable funding and financing activity.

Full year ended

Full year ended

Cumulative progress

31 December

31 December

towards the £100bn

2024

2023

target (since 1 July 2021)

Climate and sustainable funding and financing

€m

€m

€m

Underwriting activity

Green and sustainability bond public issuances and private placements

(3)

10,896

7,619

26,283

Sustainability-linked bonds and private placements

(4)

9

380

Other general purpose wholesale underwriting within the

CSFFI criteria

(5)

589

642

1,231

Lending commitment

Sustainability-linked loans

(1,3)

693

619

2,147

Other general purpose wholesale lending within CSFFI criteria

(1)

Total

12,187

8,880

30,041

(1)

For the year ended 31 December 2024, the NatWest Group CSFFI criteria published in March 2024 were used to determine eligible assets, activities and companies for inclusion. For the year ended 31

December 2023, the CSFFI criteria published in December 2022 were applied. For the year ended 31 December 2022, the CSFFI criteria published in October 2021 were applied. For the year ended 31

December 2021, the CSFFI criteria published in February 2021 were applied. NatWest Group’s own Green, Social and Sustainability (GSS) bond issuances are not included in the table above. Full details of

the latest CSFFI criteria can be found at https://www.natwestgroup.com/content/dam/natwestgroup_com/natwestgroup/pdf/Climate-and-Sustainable-Finance-Inclusion-Criteria.pdf.

(2)

Lending amounts represent total commitment and include any undrawn portion of committed credit limits.

(3)

Underwriting of specific use of proceeds debt capital market issuance for project expenditures, sovereign and EU green bond auctions, as well as green loan commitments when customers meet the

CSFFI criteria. Amounts represent the NWM N.V. Group share (total underwriting amount lead managed or placed by NWM N.V. Group) of the notional deal amount and the allocated auction bond

volumes. During the year ended 31 December 2024, NWM N.V. Group lead managed or placed 70 green bonds (including auctions), and private placements totalling a notional amount of €78.2 billion (54

deals, €59.6 billion during full year 2023). The CSFFI criteria allows for the inclusion of eligible sustainability bonds, which contributed 2 deals and €0.4 billion of climate and sustainable funding and financing

in the year ended 31 December 2024.

(4)

Sustainability linked loans, bonds and private placements aligned with Loan Market Association (LMA) Sustainability Linked Loan principles and International Capital Market Association (ICMA) Sustainability

Linked Bond principles where deal targets include green performance indicators, aligned to CSFFI criteria.

(5)

In addition to transactions that directly meet CSFFI criteria based on use of proceeds for green purposes, the CSFFI criteria also include certain general purpose loans and wider financing (including bonds

and private placements) to customers who can evidence (to NatWest Group’s satisfaction through review of the customers’ profit and loss statement or balance sheet): 90% or more of revenues are in

the categories or sectors outlined in the CSFFI criteria, or for real estate and utilities companies 90% of their assets are in categories or sectors outlined by the CSFFI criteria, or for fund clients 90% of

assets under management are invested in activities that meet the CSFFI criteria.

Greenhouse gas emissions

Emissions resulting from NWM N.V. 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.

Given the smaller size of the banking book relative to NWM N.V. Group’s underwriting activities and trading book, financed emissions

currently play a limited role within NWM N.V. Group. Drawn lending exposures, as defined by the Partnership for Carbon Accounting

Financials (PCAF) standard, account for approximately 10% of NWM N.V. 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 are expected to increase once Scope 3 emissions data is

incorporated.

NatWest Group calculates and discloses estimated financed emissions at a consolidated group level. As a result, NWM N.V. Group’s financed

emissions estimates are subsumed within the NatWest Group financed emission estimates for the consolidated group.

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 N.V. 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. Estimating financed and facilitated emissions and assessing climate impact on NWM N.V. Group’s business

activities involves data limitations and other challenges, particularly as estimation methodologies evolve.

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

16

Metrics and targets continued

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 draft addendum received in September 2024,

NWM Group (including NWM N.V. Group) updated the estimation of absolute Scope 1 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.)



Capital markets syndicated lending activities

(6,7),

including the syndication of green loans as defined by the Loan Markets Association.

NWM N.V. Group absolute Scope 1 and Scope 2 facilitated emissions weighted at 33%, were 0.48 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 N.V. Group attributable bond underwriting and

syndicated lending mandates.

With reference to the table below:



In 2024 we included NWM N.V. Group syndicated lending of €1.6 billion across various sectors, aligned with the guidance issued by

PCAF in December 2023 and incorporated further clarification in November 2024.



For Power and Utilities, NWM N.V. Group attributable bond underwriting and syndicated lending increased by 25% between 2023 and

2024 resulting in an increase of facilitated emissions by 0.22 MCO2e; however, 81% of the attributable bond underwriting was green

bonds relative to 69% in 2023.



Airlines & Aerospace represent 3% of the total NWM N.V Group attributable bond underwriting and syndicated lending, relative to 0% in

2023, and constitutes 10% of the facilitated emissions in 2024.



Chemicals attributable bond underwriting and syndicated lending decreased by 48% between 2023 and 2024 resulting in a decrease of

facilitated emissions by 0.08 MCO2e.

The table below shows NWM N.V. Group’s estimated facilitated emissions from bond underwriting and syndicated lending activities in 2024,

as attributed to NWM N.V. Group and split between conventional and green issuance, where applicable

(4,9).

2024 Facilitated emissions from Bond

Underwriting and Syndicated Lending (33%

weighting) MtCO2e

2023 Facilitated emissions

from Bond Underwriting

(33% weighting)

2024 PCAF data

quality score

2024 NWM N.V. Group

attributable Bond

Underwriting & Syndicated

Lending(9)

Sector

MTCO2e

Sector % of

Total

Emissions

Green % of

Sector

Emissions

Sector %

of Total

Emissions

Power Utilities

43%

Airlines & Aerospace

-

Land Transport & Logistics

13%

Retail

1%

Chemicals

30%

Automotive

2%

Financial Institutions

-

Building Materials

5%

Water & Waste

2%

Other

4%

-

-

Total

Climate-related disclosures continued

NatWest Markets N.V.

Annual Report and Accounts 2024

17

Metrics and targets continued

NWM N.V. Group uses NWM Group’s methodology 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)

.



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)

. Sovereigns, supranationals and agency 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 NatWest Group’s sustainable financing and

funding 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. NWM Group includes transactions where it acts 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 table should be read in conjunction with the NWM N.V. Group risk factors included on pages 136 to 156

and the cautionary statements on pages 92 to 97 of the NatWest Group plc 2024

Sustainability Report.

At present, the scale of the carbon emissions associated with the trading book 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.

NatWest Group report emissions at a consolidated group level. NWM Group own operations are therefore subsumed into NatWest Group’s

estimation of own operational footprint for the consolidated group.

Risk and capital management

NatWest Markets N.V.

Annual Report and Accounts 2024

18

Presentation of information

Where marked as audited in the section header, certain

information in the Risk and capital management section (pages

18 to 53) is within the scope of the Independent auditor’s report.

Risk management framework

Introduction

NWM N.V. 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 N.V. 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 N.V. Group. It aligns risk management with NWM

N.V. 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 NatWest Group Board. The framework incorporates risk

governance, NatWest Group’s 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 N.V. 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 N.V. 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 centralised process in NWM Group to

identify and manage top and emerging risks, which are those

that could have a significant negative impact on its ability to

meet its strategic objectives. Both top and emerging risks may

incorporate aspects of – or correlate to – a number of principal

risks.

Page

Presentation of information

18

Risk management framework

Introduction

18

Culture

19

Governance

20

Risk appetite

23

Identification and measurement

24

Mitigation

24

Testing and monitoring

24

Capital, liquidity and funding risk

Definition

25

Capital management

26

Liquidity and funding management

26

Market risk

Traded market risk

28

Non-traded market risk

30

Credit risk

Models, impairment provisioning and write-offs

34

Economic loss drivers

36

Banking activities

40

Trading activities

46

Compliance and conduct risk

47

Financial crime risk

48

Climate and nature risk

49

Operational risk

50

Model risk

52

Reputational risk

53

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

19

Risk management framework continued

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 N.V. Group to support

better customer outcomes, develop a stronger and more

sustainable business and deliver an improved cost base.

NWM N.V. 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 N.V. 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 N.V. 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 NatWest Group’s learning strategy.

NatWest 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 NatWest 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

NatWest Group’s conduct guidance, Our Code, 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, the FCA,

DNB and the AFM.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

20

Risk management framework continued

Governance

Risk management structure

While NWM N.V. Group is part of NatWest Group – and operates within NatWest Group’s risk framework – the NWM N.V. Group

Supervisory Board is responsible for approving and overseeing the implementation of NWM N.V. Group’s business strategy (within the

parameters set by the NatWest Group Board). The NWM N.V. Group Board Risk Committee provides oversight and advice on all risk

related matters. Operational policies and compliance activities may be adapted in order to comply with local legal or regulatory

requirements.

Service level agreements are in place between NWM N.V. Group and NatWest Group entities (primarily NWM Plc) to accommodate

integrated risk management oversight.

The diagram shows NWM N.V. Group’s risk management structure in 2024.

NatWest Group

Chief Executive

Officer

NWM Plc Chief

Executive

Officer

NatWest Group

Chief Risk

Officer

NWM N.V.

Group Chief

Executive

Officer

NWM Plc Chief

Risk Officer

NWM N.V.

Group Chief

Risk Officer

Head of

Model Risk

Head of

Operational

Risk

Head of

Financial

Crime

Head of

Compliance

& Conduct

Head of

Market,

Liquidity &

Funding Risk

Head of

Credit Risk

Climate Risk

(1)

NWM N.V. Group is a wholly owned (indirect) subsidiary of NatWest Markets Group Plc.

(2)

The NWM N.V. Group Chief Risk Officer has a functional reporting line to the NWM Plc Chief Risk Officer.

(3)

The NWM N.V. Group Risk function is independent and provides oversight of risk management activities to ensure risks are adequately monitored and controlled.

(4)

The NWH Risk function provides risk management services across NatWest Group, including – where agreed – to the NWM N.V. Group Chief Risk Officer. These services are managed,

as appropriate, through service level agreements.

(5)

Risk management in NWM N.V. Group focuses on all material risks including credit, market, liquidity, operational, regulatory, financial crime, climate, model and conduct risk and business

activities which are managed through the Risk and Control committee. The day-to-day management of capital, liquidity, funding and non-traded market risk is the overall responsibility of

the Managing Board and further delegated to the Asset & Liability Management Committee.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

21

Risk management framework continued

The following table details NWM N.V. Group’s key boards and committees together with an overview of their responsibilities.

Board/Committee

Responsibilities

Supervisory Board

Membership:

Consisted of four members as at 31 December 2024.

The Supervisory Board is responsible for supervising NWM N.V. Group’s

management, its general affairs, and the business connected with it, as well

as advising the Managing Board. The Supervisory Board is responsible for

the review of all matters relative to accounting policies, internal control,

financial reporting functions, internal audit, external audit, risk management,

regulatory compliance and the product approval process. There is a

separate Risk and a separate Audit Committee. Its membership is composed

of members of the Supervisory Board.

Board Risk Committee (BRC)

Membership:

Current membership consists of an independent member

as Chairman and an independent member as a formal

member.

The Board Risk Committee provides oversight and advice on current and

future risk exposures, the effectiveness of the risk management framework,

future risk strategy and (with the Audit Committee) internal controls

required to manage risk.

Board Audit Committee

Membership:

Current membership consists of an independent member

as Chairman and an independent member as formal

member. The members must have thorough knowledge

of the financial aspects of risk management or the

necessary experience to permit a thorough assessment

of risks as well as thorough knowledge of financial

reporting, internal control systems, audits and accounting

(relating to financial institutions or other large

companies).

The Board Audit Committee:



Reviews and monitors all matters relating to accounting policies, internal

control, financial reporting functions, Internal Audit, External Auditor risk

assessment, regulatory compliance and the product approval process.



Establishes a procedure for the selection of an external auditor.



Assesses the monitoring of the external auditor and the statutory

control of the annual accounts.

Managing Board

Membership:

Consists of four members at 31 December 2024: the

NWM N.V. Group Chairman and Chief Executive Officer

(CEO), the NWM N.V. Group Chief Financial Officer (CFO)

the NWM N.V. Group Chief Risk Officer (CRO) and the

NWM N.V. Group Chief Operating Officer (COO).

The Managing Board reports to the Supervisory Board. It is the principal

decision-making corporate body for NWM N.V. Group and is responsible for

the day-to-day activities of NWM N.V. Group. The Managing Board is,

among others, responsible for setting policy framework, operating structure

and yearly plan (including objectives and budgets). In addition to their overall

corporate responsibilities, the members of the Managing Board manage one

or more units, for which they have primary responsibility.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

22

Risk management framework continued

Board/Committee

Responsibilities

Risk & Control Committee (RCC)

Membership:

Chaired by the NWM N.V. Group CRO. Members include

the NWM N.V. Group CEO, the NWM N.V. Group CFO,

the NWM N.V. Group COO, the NWM N.V. Group

General Counsel, the NWM N.V. Group Treasurer, the

NWM N.V. Group Head of Trading, the NWM N.V. Group

Head of Capital Markets, NWM N.V. Group Head of Sales

and the Heads of the respective NWM N.V. Group risk

disciplines.

The responsibilities of the RCC include:



Advising the Managing Board on the risk appetite of NWM N.V. Group

and receiving direction from the Managing Board on the risk appetite.



Providing input to NWM N.V. Group’s risk appetite setting process in the

context of NWM N.V. Group’s overall risk appetite.



Overseeing the risk framework within NWM N.V. Group and reporting

directly to the Managing Board on the performance of the framework

and on issues arising from it.



Monitoring the actual risk profile of NWM N.V. Group, ensuring that this

remains within the boundaries of the agreed risk appetite and escalating

excesses to the Managing Board. Prior to escalation, the RCC can ask

the appropriate owner who normally monitors and controls the risk

item, to address any excess.



The remit of the Committee also includes monitoring of capital, liquidity,

credit, market, conduct, financial crime, climate, operational, model, and

regulatory risks within NWM N.V. Group. Changes to the Terms of

Reference of the RCC must be approved by the Managing Board.

Disclosure Committee (DC)

Membership:

Chaired by the NWM N.V. Group CFO. Members include

the NWM N.V. Group CEO, the NWM N.V. Group CRO,

the NWM N.V. Group Treasurer, the NWM N.V. Group

General Counsel, Head of NatWest Group Accounting

Policy and NWM Financial Controller.

The responsibilities of the DC include:



Monitoring, evaluation and enhancing disclosure controls and

procedures; and internal controls over financial reporting.



Overseeing, evaluating, and approving all significant disclosures made

by NWM N.V. Group including:



The Annual Report and Accounts and corresponding interim disclosures.



Public filings to be made in connection with the announcement of

financial results, excluding filings with regulators.

Furthermore, the responsibilities of the DC include overseeing, evaluating

and reviewing accounting issues and developments and recommendations

on key accounting judgments, including risk and capital disclosures, prior to

presentation to the NWM N.V. Group Managing and Supervisory Board. The

DC will make recommendations to the NWM N.V. Group Managing and

Supervisory Board in relation to its review of these items.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

23

Risk management framework continued

Three lines of defence

NatWest 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 NatWest

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 N.V. Group Managing and Supervisory Boards.

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 N.V. 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 N.V. Group Managing and

Supervisory Boards.

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 NatWest Group 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 NatWest 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

N.V. 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 annually.

For certain principal risks, risk capacity defines the maximum

level of risk NWM N.V. 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 N.V. 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.

The NWM N.V. Group Supervisory Board reviews and approves

the risk appetite framework.

Establishing risk appetite

In line with the risk appetite framework, risk appetite is

maintained across NWM N.V. 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.

NWM N.V. Group operates within risk appetite set at NatWest

Group and NWM Plc level unless specific entity level

considerations need to prevail, for example, specific capital

structure considerations.

In addition to operating within NatWest Group and NWM Plc risk

appetite, NWM N.V. Group sets additional risk appetite limits for

its own strategic and most material risks where necessary.

NWM N.V. Group’s risk profile is continually monitored and

frequently reviewed and management focus is concentrated on

all strategic risks, material risks and emerging risks. Risk profile

relative to risk appetite is reported regularly to NWM N.V. Group

Board and senior management.

The risk appetite statement and associated measures are

reviewed and approved at least annually by the Risk & Control

Committee, the Managing Board and the Supervisory Board to

ensure they remain appropriate and aligned to strategy.

Risk controls 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 material risk types is set in alignment with business

activities.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

24

Risk management framework continued

NatWest Group’s key risk policies define at a high level the

qualitative expectations, guidance and standards that stipulate

the nature and extent of permissible risk taking. They form part

of the qualitative expression of risk appetite and are consistently

applied across NatWest Group and its subsidiaries. Key risk

policies are reviewed and approved by the Board Risk

Committee at least annually.

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 N.V. Group faces

are detailed in the NatWest Group risk directory. This provides a

common risk language to ensure consistent terminology is used

across NWM N.V. Group. The NatWest Group risk directory is

subject to annual review to ensure it continues to fully reflect the

risks that NWM N.V. 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 N.V. 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

Targeted risk processes and controls are subject to independent

testing and monitoring.

This activity is carried out to confirm to both internal and

external stakeholders – including the Board, senior

management, Internal Audit and NWM N.V. Group’s regulators –

that such processes and controls are being correctly

implemented and operate adequately and effectively.

Testing and monitoring activity focuses on processes and

controls relating to credit risk, market risk, financial crime risk,

operational risk, and compliance and conduct risk. However, a

range of controls and processes relating to other risk types is

also subject to testing and monitoring activity as deemed

appropriate within the context of a robust control environment.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

25

Capital, liquidity and funding risk

Definition

Regulatory capital consists of reserves and instruments issued

that are available to NWM N.V. Group that have a degree of

permanency and are capable of absorbing losses. A number of

strict conditions set by regulators must be satisfied to be eligible

to count as capital.

Capital adequacy risk is the risk that there is or will be

insufficient capital and other loss absorbing debt instruments to

operate effectively including meeting minimum regulatory

requirements, operating within Board-approved risk appetite

and supporting strategic goals.

Liquidity consists of assets that can be readily converted to cash

within a short timeframe at a reliable value. Liquidity risk is the

risk of being unable to meet financial obligations as and when

they fall due.

Funding consists of on-balance sheet liabilities that are used to

finance assets. Funding risk is the risk of not maintaining a

diversified, stable and cost-effective funding base.

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.

-

Depositor and investor behaviour.

For a description of sources of capital, liquidity and funding as

utilised by NatWest Group, refer to page 234 of the NatWest

Group plc 2024 Annual Report and Accounts.

Key developments in 2024

In September 2024, NWM N.V. Group redeemed and replaced

the €250 million AT1 Capital instrument that was issued in 2019.

NWM N.V. Group will benefit from a lower rate on the

replacement instrument. There was no impact on the total level

of NWM N.V. Group AT1 Capital.

Regulatory framework

Capital requirements regulation and directive

The European Union (EU) has implemented the Basel III

framework through the CRR and the Capital Requirements

Directive (CRD).

The initial package, known as CRD IV, was

implemented on 1 January 2014 on a phased basis with full

implementation completed on 1 January 2019.

On 7 June 2019, amendments to the CRR and CRD (known as

CRR2 and CRD5 respectively) were published in the Official

Journal of the European Union. The majority of these changes

were implemented in June 2021.

Further changes relating to the Basel 3.1 standard will be

implemented in EU by the new EU Banking Package (CRR III /

CRD VI) for which the European Commission issued a proposal

in October 2021, with near-final rules published in December

2023. The EU implementation date is 1 January 2025, except for

Market Risk rules which will be implemented on 1 January 2026.

The CRR3 changes mainly impact capital requirements for STD

and IRB Credit Risk, Market Risk, Credit Valuation Adjustment

(CVA) Risk, Counterparty Credit Risk (CCR) and Operational

Risk.

An aggregate “output floor” is also being introduced to ensure

that total RWAs for firms using advanced or internally modelled

methods and subject to the floor cannot fall below 72.5% of

RWAs under the standardised approach. The output floor

requirement will apply at RBS Holdings N.V. level which is an

approved intermediate parent undertaking (IPU), to the extent

that internal models are being used within RBS Holdings N.V.

Group.

Key elements of the CRR:

Higher and better capital requirements. Banks must have a total

amount of capital that corresponds to at least 8% of their assets,

measured according to their risks.

-

Pillar 1 requirement of: CET1 of 4.5% of RWAs; Tier 1 of

6.0%; and total capital of 8.0%.

-

Capital buffers: ‘capital conservation buffer’ of 2.5% of

RWAs; ‘countercyclical capital buffer’ of up to 2.5%; an

‘other systemically important institutions buffer’ for

domestically or EU important institutions and, if required by

a member state, an additional ‘systemic risk buffer’.

Liquidity measures. To ensure banks have sufficient liquidity, the

regulation introduces two liquidity requirements:

-

The liquidity coverage ratio 100% which aims to ensure that

banks have enough liquid assets (e.g. cash or other assets

that can be quickly converted into cash with little or no loss

of value) in the short term.

-

The net stable funding requirement of 100% which aims to

ensure that banks do not rely too much on short-term

funding to fund their medium- and long-term assets.

Limiting leverage. The regulation sets out a binding leverage

ratio, which aims to limit banks from financing too large a

portion of their activities with debt.

-

Minimum Tier 1 leverage ratio of 3.0%.

NWM N.V. Group manages changes to capital requirements

from new regulation (including model changes) and the resulting

impact on the Common Equity Tier 1 ratio alongside its strategy

of risk reduction and de-leveraging. For further information refer

to Capital management on the following page.

Banking Union: Single Supervisory Mechanism

On 15 October 2013, the EU Council formally adopted the

Regulation on the Single Supervisory Mechanism (SSM) which

became operational on 4 November 2014. The SSM is a new

framework for banking supervision in Europe with the aims of

ensuring the safety and soundness of the European banking

system and increasing financial integration and stability in

Europe.

The ECB must ensure that credit institutions not only meet the

minimum prudential capital requirements set by the CRD IV but

also have an additional buffer reflecting risks or elements of risks

not covered by the minimum requirements in CRD IV. This is

organised through the framework of the SSM.

The SSM must ensure that credit institutions have sufficient

capital to cover unexpected losses or survive severe stressed

economic and market conditions. The capital joint decision is the

key outcome of the Supervisory Review and Evaluation Process.

In this process, the supervisor reviews the governance and

internal control arrangements used by each individual bank to

manage its risks (i.e., the Internal Capital Adequacy Assessment

Process (ICAAP)).

Overall, this framework governs relations between the ECB,

national supervisors and banks, and is an important step

towards banking union in the EU.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

26

Capital, liquidity and funding risk continued

Capital management

NWM N.V. Group aims to maintain an appropriate level of capital

to meet its business needs (which include requirements of its

ultimate parent company, NatWest Group plc) and regulatory

requirements, whilst operating within an agreed risk appetite.

Determination of appropriate capital levels involves regular Asset

& Liability Management Committee (ALCo) capital monitoring,

planning and forecasts, and ICAAP. Capital plans are subjected

to internal governance reviews, eventually put through

Managing Board oversight and approval, as well as review of

the appropriate supervisory authority.

NWM N.V. Group operates a rigorous capital planning process

via ALCo aimed at ensuring the capital position is controlled

within the agreed parameters. This incorporates regular re-

forecasts of the capital position of NWM N.V. Group. In the event

that the projected position deteriorates below acceptable levels,

NWM N.V. Group would revise business plans accordingly.

NWM N.V. Group manages changes to capital requirements

from new regulation as well as model changes and the resulting

impact on the Common Equity Tier 1 ratio, focusing on risk

reduction and de-leveraging.

Through the ICAAP, NWM N.V. Group determines its desired

capital levels based on three complementary perspectives: the

normative baseline, normative adverse and economic internal

perspective. The normative baseline perspective ensures NWM

N.V.’s capital is managed to comply with current and known

future changes in regulatory capital requirements. In the

normative adverse perspective, NWM N.V. Group’s capital levels

are evaluated through the application of internally defined stress

tests that quantify changes in capital ratios under a range of

scenarios. In the economic internal perspective, NWM N.V.

Group calculates the required capital from an economic point of

view.

Liquidity and funding management

Liquidity and funding management follows a similar process to

that outlined above for capital. Liquidity and funding risk

tolerance forms part of NWM N.V. Group’s risk appetite

statement, which is reviewed and approved by the NWM N.V.

Group Managing Board.

The risk appetite statement defines key metrics, risk trigger

levels and capacity for liquidity and funding management within

NWM N.V. Group. The Board also sets the appetite for funding

risk to ensure that stable sources of funding are used to fund

NWM N.V. Group’s core assets. NWM N.V. Group monitors its

liquidity position against this risk tolerance on a daily basis. In

setting risk limits the Board considers the nature of NWM N.V.

Group’s activities, overall risk appetite, market best practice and

regulatory compliance.

In implementing NWM N.V. Group’s liquidity risk management

framework, a suite of tools is used to monitor, limit and stress

test the risks within the balance sheet. Limits are established to

manage the level of liquidity risk, and these include thresholds

for the amount and composition of funding sources, asset and

liability mismatches, and funding concentrations.

Liquidity portfolio management

The size of the portfolio is determined by referencing NatWest

Group’s liquidity risk appetite. NatWest Group retains a prudent

approach to setting the composition of the liquidity portfolio,

which is subject to internal policies and limits over quality of

counterparty, maturity mix and currency mix.

Within the liquidity portfolio, NWM N.V. Group holds cash at

central banks of €6.2 billion (2023 – €6.0 billion) and government

and other high-quality securities of €1.3 billion (2023 – €0.7

billion).

Funding risk management

Funding is raised through deposits from the money market, the

issuance of commercial papers and capital instruments. During

2024, NWM N.V. Group issued €0.5 billion senior unsecured debt

securities based on its Euro Medium Term Note (EMTN)

programme (2023 - nil).

Governance

The ALCo is responsible for ensuring NWM N.V. Group maintains

adequate capital, liquidity and funding at all times. The ALCo

manages and plans NWM N.V. Group’s adequacy levels taking

into account current and projected levels and provides input to

and oversees levels established within the framework of the

ICAAP and ILAAP.

ALCo also plans and manages capital, liquidity and funding

interaction with NatWest Group. Such interaction would need to

be capital neutral to NatWest Group and are required to be

structured in such a way so as to satisfy the ECB and PRA

regulatory requirements. The ALCo is in turn ultimately

governed by NWM N.V. Group’s Managing Board, which

approves ALCo and ICAAP and ILAAP decisions.

Risk and capital management continued

Capital, liquidity and funding risk continued

NatWest Markets N.V.

Annual Report and Accounts 2024

27

Capital ratios and risk-weighted assets

NWM N.V. Group aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements. NWM N.V.

Group’s capital ratios and RWAs on a CRR transitional basis are set out below. Refer to Note 21 to the consolidated financial

statements for a more detailed breakdown of regulatory capital.

2024

2023

Capital ratios

%

%

Common Equity Tier 1 (CET1)

20.4

19.0

Tier 1

23.6

22.1

Total

25.5

23.9

Risk-weighted assets

€m

€m

Credit risk

6,345

6,799

Market risk

(1)

1,107

1,103

Operational risk

489

332

7,941

8,234

(1)

Market Risk risk-weighted assets include Credit Valuation Adjustment (CVA) risk-weighted assets.

-

The CET1 ratio increased from 19.0% to 20.4% driven by

an increase in CET1 capital and a decrease in RWAs.

-

CET1 capital increased by €50 million mainly driven by the

addition of the approved distributable profits for 2024 to the

regulatory capital.

-

RWAs decreased from €8.2 billion to €7.9 billion reflecting a

decrease in credit risk, partially offset by higher operational

risk due to an increase in the 3-year average operating

income, which forms the basis for the operational risk RWA.

The decrease of €0.5 billion in credit risk was largely driven

by a decrease in client positions in the trading book,

securities held for investment purposes, and equity

investments.

million) have been excluded from the table.

NatWest Markets N.V.

Annual Report and Accounts 2024

28

Risk and capital management continued

Market risk

NWM N.V. 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.

Key developments in 2024

-

The year was marked by decreases in key interest rates

across key central banks: the European Central Bank (ECB)

main refinancing operations rate reached 3.40% in October

2024 (4.50% in September 2023).

-

The year was marked by periods of increased market

volatility reflecting UK political developments, easing

inflationary concerns, the ongoing Russia-Ukraine conflict

and geopolitical tensions in the Middle East.

-

The eurozone year-on-year inflation rate decreased slightly

towards the end of the year, approaching the targeted 2%.

It had reached 2.3% in November 2024 (2.9% in December

2023).

-

The ECB intends to discontinue reinvestments under the

pandemic emergency purchase programme at the end of

2024.

-

In November 2024, the ECB highlighted that eurozone

financial stability vulnerabilities remain elevated in a volatile

environment. Risks to eurozone economic growth have

shifted to the downside, as inflation has moved closer to

2%, while financial markets experienced several pronounced

but short-lived spikes in volatility in Q4 2024.

-

The euro / US dollar foreign exchange spot rate traded

over parity level at times during 2024. However, overall the

US dollar strengthened against the euro after the US

elections.

-

The euro / Swiss franc FX spot rate traded at parity in May

2024, subsequently declining in the remainder of the year.

This spot rate traded at 0.93 in December 2024.

the Managing and Supervisory Boards.

Risk appetite

NWM N.V. 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 N.V. Group level comprise value-at-risk (VaR)

and stressed value-at-risk (SVaR). More details on these are

provided on the following pages.

In addition, for each trading business, sub-business or desk, a

dealing authority is defined. Dealing authorities 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 VaR, SVaR, exposure

size measured via risk sensitivities, currency and tenor.

The limits are reviewed to reflect changes in risk appetite,

business plans, portfolio composition and the market and

economic environments.

NWM N.V. Group’s risk appetite is aligned with that of NWM

Group. A comprehensive structure and controls are in place

aimed at ensuring that this appetite is not exceeded. NWM N.V.

Group mitigates market risk among others by hedging

transactions with NWM Group.

To ensure approved limits are not breached and that NWM N.V.

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.

For further information on risk appetite, refer to page 23.

Monitoring and mitigation

Traded market risk is identified and assessed by gathering,

analysing, monitoring and reporting market risk information at

desk, business and NWM N.V. 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 and signed off daily by the Market Risk function. A daily

report summarising the position of exposures against limits at

desk, business and NWM N.V. Group levels is provided to the

trading desks.

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 NWM N.V. Group’s Market

Risk function and the business. The loss triggers are set using

both a fall-from-peak approach and an absolute loss level.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

29

Traded market risk

continued

Measurement

NWM Group uses a comprehensive set of methodologies and

techniques to measure traded market risk. At NWM N.V. Group

level, these chiefly comprise VaR and SVaR. In addition, stress

testing is used to identify any vulnerabilities and potential losses

in excess of VaR and SVaR. The incremental risk charge is not

material at NWM N.V. Group level.

Value-at-risk

VaR is a statistical estimate of the potential change in the

market value of a portfolio (and, thus, the impact on the income

statement) over a specified time horizon at a given confidence

level.

For internal risk management purposes, VaR assumes a time

horizon of one trading day and a confidence level of 99%.

NWM N.V. Group’s internal VaR model is based on a historical

simulation, utilising market data from the previous 500 days on

an equally weighted basis.

The model also captures the potential impact of interest rate

risk, credit spread risk and foreign currency price risk.

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. VaR model back-testing counts

the number of days when a loss exceeds the corresponding

daily VaR estimate, measured at a 99% confidence level.

-

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 52. More information relating to pricing and market

risk models is presented in the NatWest Group 2024 Pillar 3

Report.

One–day 99% traded internal VaR

The table below analyses the internal VaR for NWM N.V. Group’s trading portfolios segregated by type of market risk exposure.

2024

2023

Average

Maximum

Minimum

Period end

Average

Maximum

Minimum

Period end

€m

€m

€m

€m

€m

€m

€m

€m

Interest rate

0.8

2.3

0.2

0.6

Credit spread

0.4

0.5

0.3

0.4

Currency

0.2

1.0

-

0.1

Diversification

(1)

(0.4)

(0.3)

Total

1.0

2.3

-

0.8

(1)

NWM N.V. Group benefits from diversification, which reflects the risk reduction achieved by allocating investments across various financial instrument types, industry counterparties,

currencies and regions. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time.

-

NWM N.V. Group maintained open risk at a moderate level and traded VaR remained within set appetite during 2024 despite the

market volatility.

-

Overall, average one-day VaR remained stable year-on-year. Interest rate risk was the most significant risk driver during the year

as the volatility in interest rates was captured by the VaR model.

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.

The internal traded SVaR model captures all trading book positions.

The following table shows 10-day 99% internal SVaR for the trading portfolios of NWM N.V. 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

5.6

17.2

2.8

4.5

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

30

the bond portfolio maintained as a liquidity buffer in Treasury.

Key developments in 2024

-

During the year, NWM N.V. continued to apply the

structural hedging programme of its common equity and

reserves. At 31 December 2024, the notional amount of the

structural hedge in place was €1.4 billion. NWM N.V. policy

is to align the notional of the hedge to its business strategy.

-

Euro medium term notes (EMTNs) and short and medium

term notes (SMTNs) were issued out of Treasury and the

Investor Products desk to fund NWM N.V. Group.

-

NWM N.V. Group’s non-traded VaR remained moderate

and decreased year on year given the moderate open

positions in interest rate, foreign exchange and credit

spread risks.

-

In 2024, total one-day 99% non-traded internal VaR for

NWM N.V. was €0.4 million on an average basis (2023 -

€0.6 million) and €0.5 million on a period-end basis (2023 -

€0.5 million).

-

NWM N.V. continues to diversify the Treasury funding base.

framework for non-traded market risk.

Risk appetite

NWM N.V. 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.

The limits at NWM N.V. Group comprise a VaR measure

supplemented with SVaR, sensitivities, earnings-at-risk and

economic-value-of-equity. Other limits monitored at executive

governance level notably include a stress limit based on the

foreign exchange sensitivity of NWM N.V. Group’s CET1 ratio.

To ensure limits are not breached and that NWM N.V. Board

remains within its risk appetite, triggers at NWM N.V. Board and

lower levels have been set such that if exposures exceed a

specified level, action plans are developed by the business, the

Non-Traded Market Risk function and Finance for

implementation.

The limits are reviewed to reflect changes in risk appetite,

business plans, portfolio composition and the market and

economic environments.

NWM N.V. Group’s risk appetite is aligned with that of NWM

Group. A comprehensive structure and controls are in place

aimed at ensuring that this appetite is not exceeded. NWM N.V.

Group aims to mitigate market risk, to the extent possible, by

way of hedging transactions with NWM Group.

For further information on risk appetite, refer to page 23.

Monitoring and measurement

Non-traded market risk positions are reported monthly to the

NWM N.V. Risk and Control Committee (RCC) and subsequently

to the Managing and Supervisory Boards.

Interest rate risk

NWM N.V. Group policy is to manage interest rate sensitivity in

banking book portfolios within defined risk limits which are

monitored and approved by the NWM N.V. Group Risk & Control

Committee. Interest rate swaps are used to hedge some

exposures externally.

Key measures used to evaluate non-traded interest rate risk are

subject to approval granted by NWM Group model risk

governance. Limits on non-traded interest rate risk are set

according to the non-trading interest rate and foreign currency

risk policy statement and are subject to NWM N.V. Group Risk &

Control Committee approval.

Non-traded interest rate risk is measured using a version of the

same VaR methodology that is used by NWM Group. VaR

metrics are based on interest rate repricing gap reports as at

the reporting date.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

31

Non-traded market risk continued

One–day 99% banking book VaR

One-day banking book VaR at a 99% confidence level for NWM N.V. Group was as follows:

Average

Maximum

Minimum

Period end

€m

€m

€m

€m

2024

0.4

0.6

0.2

0.5

2023

0.6

1.6

0.2

0.5

Foreign exchange risk

Non-traded foreign exchange risk arises from two main sources:

– mainly arises from investments in foreign subsidiaries and

– arises from customer transactions and profits and losses that are in a currency other than the functional currency. Foreign

exchange exposures arising from customer transactions are hedged by businesses on a regular basis in line with NatWest Group

policy.

Structural foreign exchange rate risk positions are monitored by NWM NV Treasury, as part of an assessment of the overall sensitivity

of NWM N.V.’s CET1 capital ratio to changes in exchange rates.

Gains or losses arising from the retranslation of net investments in overseas operations are recognised in equity reserves.

The table below sets out NWM N.V. Group’s structural foreign currency exposures:

Net investments

Structural

in foreign

foreign currency

operations

exposures

€m

€m

US dollar

9

9

Other non-euro

(5)

(5)

4

4

US dollar

8

8

Other non-euro

(4)

(4)

4

4

Overall, the foreign exchange risk position remained broadly unchanged year on year.

The pre-tax sensitivity of the foreign exchange reserves to changes in exchange rates is proportional to the nominal exposure. At 31

December 2024, a 1% strengthening in all foreign currencies against the euro would result in a €0.04 million increase in foreign

exchange reserves before tax, while a 1% weakening in all foreign currencies against the euro would result in a €0.04 million reduction.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

32

Stress Testing Committee.

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 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.

unlikely to repay, for example bankruptcy or insolvency.

Counterparty credit risk

Counterparty credit risk arises from the obligations of customers

under derivative and securities financing transactions.

NWM N.V. Group mitigates counterparty credit risk through

collateralisation and netting agreements, which allow amounts

owed by NWM N.V. Group to a counterparty to be netted

against amounts the counterparty owes NWM N.V. 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 N.V. 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

NatWest Markets N.V.

Annual Report and Accounts 2024

33

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.

Credit is only granted to customers following joint approval by

an approver from the business and the credit risk function. 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 N.V. 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

NatWest Group’s default criteria (AQ10 exposures). Defaulted

exposures are categorised as Stage 3 impaired for provisioning

purposes.

Heightened Monitoring customers are performing customers

that have met certain characteristics, which have led to

significant credit deterioration. Collectively, characteristics reflect

circumstances that may affect the customer’s ability to meet

repayment obligations. Characteristics include trading issues,

covenant breaches, material PD downgrades and past due

facilities.

Heightened Monitoring customers require pre-emptive actions

(outside the customer’s normal trading patterns) to return or

maintain their facilities within NWM N.V Group’s current 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 N.V. 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 N.V. Group, however

ultimate credit decisions are taken by the NWM N.V. Group

Credit Team. The team protects NWM N.V. 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.

swaps.

Risk and capital management continued

Credit risk continued

NatWest Markets N.V.

Annual Report and Accounts 2024

34

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.

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.

which NWM N.V. Group operates.

Risk and capital management continued

NatWest Markets N.V.

Annual Report and Accounts 2024

40

Credit risk – Banking activities

Introduction

This section details the credit risk profile of NWM N.V. Group’s banking activities.

Refer to Accounting policy 4.11 and Note 12 to the consolidated financial statements for policies and critical judgements relating to

impairment loss determination.