NatWest Group Plc: H1 2024 Interim Results Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited interim results for NatWest Group Plc for the six months ended 30 June 2024. The filing was approved by the Board on 25 July 2024. The Group operates as a leading UK business and retail bank, serving approximately 19 million customers. Key strategic developments during the period include the agreement to acquire Sainsbury's Bank assets (expected completion H1 2025) and a portfolio of prime residential mortgages from Metro Bank (expected completion H2 2024).
Key Financial Metrics
| Metric | H1 2024 | H1 2023 | Variance |
|---|---|---|---|
| Total Income | £7,134 million | £7,727 million | (7.7%) |
| Operating Profit | £3,029 million | £3,589 million | (15.6%) |
| Profit Attributable to Ordinary Shareholders | £2,099 million | £2,299 million | (8.7%) |
| Net Interest Margin (NIM) | 2.07% | 2.23% | (16 bps) |
| Cost:Income Ratio (excl. litigation) | 55.5% | 49.3% | +6.2% |
| Return on Tangible Equity (RoTE) | 16.4% | 18.2% | (1.8%) |
| Net Impairment Charge | £48 million | £223 million | (78.5%) |
| Common Equity Tier 1 (CET1) Ratio | 13.6% | 13.4% | +20 bps |
| Liquidity Coverage Ratio (LCR) | 151% | 144% | +7% |
Material Changes vs. Prior Period
- Income Decline: Total income decreased by 7.7% year-on-year, primarily due to lower average deposit balances, a shift in deposit mix toward interest-bearing accounts, and mortgage margin pressure. However, Q2 2024 income increased by 5.3% compared to Q1 2024.
- Expense Increase: Operating expenses rose 3.6% to £4,057 million, driven by inflationary staff costs, severance, and increased Bank of England levies. Excluding litigation and conduct costs, other operating expenses were 1.1% higher.
- Improved Asset Quality: The net impairment charge fell significantly to £48 million (3 basis points of gross loans) compared to £223 million in H1 2023. Default levels remain stable and low.
- Balance Sheet: Net loans to customers decreased by £2.1 billion, while customer deposits increased by £1.6 billion. Risk-weighted assets (RWAs) decreased by £2.2 billion to £180.8 billion.
Guidance, Outlook, and Risks
2024 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.
- Impairments: Loan impairment rate expected to be below 15 basis points.
2026 Outlook: RoTE expected to be greater than 13%.
Capital & Dividends:
- Interim dividend of 6 pence per share announced (up from 5.5 pence in H1 2023).
- Target CET1 ratio range of 13-14%.
- Expect to pay ordinary dividends of around 40% of attributable profit.
Key Risks:
- Economic: Inflation, interest rates, and geopolitical developments affecting the UK and global markets.
- Regulatory: Ongoing litigation (LIBOR, FX, Swaps) and regulatory investigations. Settlements for USD LIBOR and FX class actions reached in 2024 are covered by existing provisions.
- Climate: Execution risks related to the net zero transition plan and potential "greenwashing" regulations.
- Operational: Cybersecurity threats and reliance on complex IT systems.
Investor Verification Checklist
- Acquisition Timelines: Verify regulatory approval status and completion dates for the Sainsbury's Bank and Metro Bank mortgage acquisitions.
- Cost Control: Monitor the ability to keep operating costs stable in 2024 despite inflationary pressures and increased bank levies.
- Margin Pressure: Assess the sustainability of Net Interest Margin (NIM) as deposit mix shifts and mortgage redemptions continue.
- Government Stake: Track the reduction of HM Treasury's shareholding (fell below 20% in July 2024) and potential impact on share price volatility.
- Impairment Trends: Watch for changes in the loan impairment rate, particularly in the Commercial & Institutional and Retail mortgage portfolios, given the high interest rate environment.