NatWest Group Plc: H1 2024 Performance Summary
Business Context and Reporting Period
This Form 6-K filing reports the half-year results for NatWest Group Plc for the period ended 30 June 2024, announced on 26 July 2024. The Group operates as a leading UK business and retail bank with 19 million customers. Strategic priorities include growing and simplifying the business, managing capital efficiently, and reducing the UK Government's stake, which has nearly halved this year. The Group has agreed to acquire Sainsbury's Bank (adding ~1 million accounts) and £2.5 billion of mortgages from Metro Bank.
Key Financial Metrics
| Metric | H1 2024 | H1 2023 | Variance |
|---|---|---|---|
| Profit Attributable to Ordinary Shareholders | £2,099 million | £2,299 million | (8.7%) |
| Operating Profit | £3,029 million | £3,589 million | (15.6%) |
| Total Income (excl. notable items) | £7,004 million | £7,383 million | (5.1%) |
| Net Interest Margin (NIM) | 2.07% | 2.23% | (16 bps) |
| Cost:Income Ratio (excl. litigation/conduct) | 55.5% | 49.3% | +6.2% |
| Net Impairment Charge | £48 million | £223 million | (78.5%) |
| Return on Tangible Equity (RoTE) | 16.4% | 18.2% | (1.8%) |
| Common Equity Tier 1 (CET1) Ratio | 13.6% | 13.4% | +20 bps |
| Liquidity Coverage Ratio (LCR) | 151% | 144% | +7% |
| Risk-Weighted Assets (RWAs) | £180.8 billion | £183.0 billion | (1.2%) |
Material Changes vs. Prior Period
- Income Decline: Total income excluding notable items fell 5.1% year-on-year, driven by lower average deposit balances, a shift in deposit mix toward interest-bearing accounts, and mortgage margin pressure. However, Q2 2024 income rose 5.2% sequentially.
- Expense Increase: Operating expenses rose 3.6% year-on-year. Excluding bank levies (£83 million) and costs related to a potential retail share offering (£24 million), expenses were up 1.1%, primarily due to inflationary staff costs and severance.
- Improved Asset Quality: The net impairment charge dropped significantly to £48 million (3 bps of gross loans) compared to £223 million in H1 2023. Default levels remain stable and low.
- Balance Sheet: Net loans to customers (excl. central items) decreased slightly by £0.3 billion, while customer deposits increased by £6.1 billion. The Loan-to-Deposit ratio stands at 83%.
Guidance, Outlook, and Risks
2024 Full Year Guidance:
- RoTE: Expected to be above 14%.
- Income: Excluding notable items, expected to be around £14.0 billion.
- Costs: Group operating costs (excl. litigation/conduct) expected to be broadly stable vs. 2023, excluding ~£0.1 billion increase in bank levies and £24 million for the potential retail share offering.
- Impairment: Loan impairment rate expected to be below 15 basis points.
Capital and Dividends: The Group announced an interim dividend of 6 pence per share (up 9% vs. prior year) and completed a £1.2 billion directed buyback in May. The CET1 ratio target remains 13-14%.
Risks and Contingencies:
- Economic Uncertainty: Management retains post-model adjustments of £302 million (9.0% of total provisions) to cover economic uncertainty, though this has decreased from £485 million at year-end 2023.
- Interest Rates: Higher-for-longer interest rates and inflationary pressures remain key risks, though inflation has eased in H1 2024.
- Regulatory: The Group is subject to ongoing monitoring regarding NatWest Markets remediation and compliance with Consumer Duty rules.
Investor Verification Checklist
- Deposit Mix Impact: Verify the sustainability of NIM recovery as customers continue to migrate from non-interest-bearing to interest-bearing accounts.
- Cost Control: Monitor the trajectory of operating expenses against the "broadly stable" guidance, specifically regarding inflationary wage pressures and severance costs.
- Acquisition Integration: Assess the timeline and regulatory approval status for the Sainsbury's Bank and Metro Bank mortgage acquisitions.
- Impairment Adequacy: Review the reduction in post-model adjustments and ensure provisions remain sufficient given the "higher-for-longer" interest rate environment.
- Government Stake Reduction: Track the pace of the UK Government's stake reduction and the impact of directed buybacks on share count and capital ratios.