NatWest Group Plc - Q3 2024 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the third quarter and nine-month period ended 30 September 2024 for NatWest Group Plc, a major UK banking group. The report details financial performance, capital adequacy, liquidity positions, and strategic progress, including the acquisition of the Metro Bank mortgage portfolio. The filing incorporates forward-looking statements regarding economic assumptions, regulatory changes (Basel 3.1), and climate transition targets.
Key Financial Metrics
| Metric | Q3 2024 | 9 Months 2024 | 9 Months 2023 |
|---|---|---|---|
| Total Income | £3,744 million | £10,878 million | £11,215 million |
| Operating Profit | £1,674 million | £4,703 million | £4,921 million |
| Profit Attributable to Ordinary Shareholders | £1,172 million | £3,271 million | £3,165 million |
| Return on Tangible Equity (RoTE) | 18.3% | 17.0% | 17.1% |
| Net Interest Margin (NIM) | 2.18% | 2.11% | 2.17% |
| Cost:Income Ratio (excl. litigation) | 47.6% | 52.8% | 49.9% |
| Net Impairment Charge | £245 million | £293 million | £452 million |
| Common Equity Tier 1 (CET1) Ratio | 13.9% | 13.9% | 13.4% |
| Liquidity Coverage Ratio (LCR) | 148% | 148% | 144% |
| Risk-Weighted Assets (RWAs) | £181.7 billion | £181.7 billion | £183.0 billion |
Material Changes vs. Prior Period
- Income Growth: Q3 2024 total income rose 2.3% quarter-on-quarter and 7.3% year-on-year, driven by lending growth, deposit margin expansion, and the Metro Bank acquisition. Excluding notable items, income increased 5.1% quarter-on-quarter.
- Cost Efficiency: Operating expenses decreased £180 million (9.0%) compared to Q2 2024, primarily due to lower severance costs and the non-repetition of retail share offering costs. Year-to-date expenses were broadly stable, excluding specific bank levy increases.
- Balance Sheet Expansion: Net loans to customers increased by £7.4 billion in Q3 to £386.7 billion. This includes £2.3 billion from the Metro Bank mortgage portfolio acquisition. Customer deposits decreased slightly by £1.9 billion in Q3 but grew £8.3 billion excluding central items year-to-date.
- Capital Strength: The CET1 ratio improved by 30 basis points to 13.9% in Q3, supported by strong capital generation (57 basis points in the quarter). RWAs increased marginally by £0.9 billion.
- Credit Quality: Net impairment charges remained low at 25 basis points of gross customer loans for the quarter. Default levels remain stable across the portfolio.
Guidance, Outlook, and Risks
2024 Outlook: Management expects to achieve a RoTE above 15% and total income excluding notable items of around £14.4 billion. Operating costs are expected to be broadly stable compared to 2023, excluding bank levies and share offering costs. The loan impairment rate is targeted below 15 basis points.
2026 Targets: The Group aims for a RoTE greater than 13% and a CET1 ratio in the range of 13-14%. RWAs are expected to be around £200 billion by the end of 2025, with a projected £8 billion uplift from Basel 3.1 implementation in 2026.
Capital Distribution: The Group targets ordinary dividends of around 40% of attributable profit and maintains capacity for directed buybacks from the UK Government, subject to HM Treasury intentions.
Risks and Contingencies:
- Regulatory & Legal: Ongoing litigation includes the 1MDB claim against Coutts & Co Ltd (appeals scheduled for December 2024) and tracker mortgage investigations in Ulster Bank Ireland (Court of Appeal allowed an appeal in September 2024).
- Economic: Risks include UK and global economic uncertainty, inflation, interest rate volatility, and geopolitical developments.
- Climate: Execution and reputational risks related to the net zero transition plan and climate-related data assumptions.
Investor Verification Checklist
- Metro Bank Integration: Verify the ongoing impact of the £2.3 billion mortgage portfolio acquisition on future NIM and RWA efficiency.
- Cost Guidance: Monitor the trajectory of operating costs against the "broadly stable" 2024 guidance, specifically regarding bank levies and potential litigation settlements.
- Capital Returns: Confirm the status of HM Treasury's intentions regarding directed buybacks and the timing of on-market buybacks.
- Basel 3.1 Impact: Assess the accuracy of the projected £8 billion RWA uplift in 2026 and its effect on the CET1 ratio target.
- Impairment Trends: Track the loan impairment rate to ensure it remains below the 15 basis points target, particularly in the Commercial & Institutional segment where Stage 3 charges increased in Q3.