Business context and reporting period
NatWest Group plc is a UK-focused banking group with Retail Banking, Private Banking, Commercial & Institutional, and Central items & other segments. This Form 20-F covers the fiscal year ended 31 December 2023 and is prepared under IFRS as issued by the IASB. It is not a standalone Q4 filing, although the filing includes selected fourth-quarter commentary. The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Key financial metrics
| Metric | 2023 | 2022 | Change/comment |
|---|---|---|---|
| Total income | £14,752m | £13,156m | Up 12.1% |
| Total income excluding notable items | £14,339m | £13,061m | Up 9.8% |
| Net interest income | £11,049m | £9,842m | Up £1,207m |
| Bank net interest margin | 3.04% | 2.85% | Up 19 basis points |
| Operating expenses | £7,996m | £7,687m | Up £309m |
| Cost:income ratio, excluding litigation and conduct | 51.8% | 55.5% | Improved by 3.7 percentage points |
| Operating profit before tax | £6,178m | £5,132m | Up 20.4% |
| Profit for the year | £4,632m | £3,595m | Up 28.8% |
| Profit attributable to ordinary shareholders | £4,394m | £3,340m | Up 31.6% |
| Basic earnings per share | 47.9p | 33.8p | Up 14.1p |
| Return on tangible equity | 17.8% | 12.3% | Above management guidance |
| Net impairment charge | £578m | £337m | 15 basis points of gross customer loans |
Balance sheet, liquidity and capital
- Total assets were £692.7 billion, down from £720.1 billion, primarily reflecting lower central-bank balances and derivative assets.
- Loans to customers increased to £381.4 billion from £366.3 billion. Loans excluding central items increased to £355.6 billion.
- Customer deposits declined to £431.4 billion from £450.3 billion; deposits excluding central items declined to £419.1 billion. The loan-to-deposit ratio excluding repos and reverse repos was 84%, compared with 79%.
- Cash and cash equivalents were £118.8 billion at year-end, down from £158.4 billion. Net cash flow from operating activities was an outflow of £17.4 billion, compared with an outflow of £43.6 billion in 2022.
- The liquidity coverage ratio was 144%, with stated headroom of £45.4 billion above the 100% minimum. The net stable funding ratio was 133%.
- CET1 capital was £24.4 billion and the CET1 ratio was 13.4%, or 13.2% excluding IFRS 9 transitional relief. The ratio was down from 14.2%, primarily because of distributions.
- Risk-weighted assets increased to £183.0 billion from £176.1 billion. The MREL ratio was 30.5%, and the UK leverage ratio was 5.0%.
- Total wholesale funding was £80 billion, including £21.7 billion of MRELs, while subordinated liabilities were £5.7 billion.
Material changes versus the prior comparable period
- Income benefited from higher interest rates, favourable yield-curve movements, lending growth and stronger markets income. These benefits were partly offset by migration from non-interest-bearing to interest-bearing deposits, lower deposit balances and lending margin pressure.
- Operating expenses increased because of wage awards, a £60 million colleague cost-of-living payment, inflationary utility and contract costs, technology investment and higher depreciation and amortisation. Headcount at year-end was approximately 61,600.
- Impairment provisions increased to £3.6 billion from £3.4 billion, and the ECL coverage ratio rose to 0.93% from 0.91%. Management retained £0.4 billion of post-model adjustments for economic uncertainty.
- Retail Banking loans grew £7.6 billion, including £5.9 billion of mortgage growth, but its operating profit declined to £2.6 billion from £2.8 billion as impairments and costs increased.
- Commercial & Institutional income rose 15.7% to £7.4 billion and operating profit rose to £3.2 billion from £2.5 billion. Private Banking income fell 6.3% to £990 million and operating profit fell to £291 million from £436 million.
- The phased withdrawal from the Republic of Ireland continued. Most remaining Ulster Bank Ireland activities are reported within Central items & other or discontinued operations. Discontinued operations generated a post-tax loss of £112 million, compared with a £262 million loss in 2022.
- Shareholder distributions included £1.5 billion of dividends paid and approximately £2.0 billion of share repurchases. NatWest also purchased £1.26 billion of shares from HM Treasury in May 2023 and cancelled part of those shares. HM Treasury held 37.97% of ordinary shares at year-end.
- Tangible net asset value per ordinary share rose to 292p from 264p, while ordinary shares in issue declined to 8.792 billion from 9.659 billion.
Guidance, outlook, commentary, risks and unusual items
- Management stated that the approximately £7.6 billion cost target was achieved and that 2023 RoTE of 17.8% was above the guided range. The supplied filing text does not provide a clear standalone 2024 revenue, margin, cost or RoTE guidance figure.
- The proposed final ordinary dividend is £1.0 billion, or 11.5p per share, subject to shareholder approval. The 2023 interim dividend was £491 million, or 5.5p per share.
- NatWest targets a CET1 ratio of approximately 13% to 14% and intends to distribute capital surplus to shareholders through dividends and buybacks, subject to regulatory, economic and capital conditions.
- Climate and sustainable funding and financing reached £29.3 billion in 2023 and £61.9 billion cumulatively since 1 July 2021. The target is £100 billion by the end of 2025, including at least £10 billion of lending for residential properties with EPC ratings of A or B from 2023 through 2025. These metrics involve management judgements and are not IFRS measures.
- Notable income items totalled £413 million, including £484 million of foreign-exchange recycling gains, partly offset by a £69 million property strategy charge, a £43 million liquidity-asset bond-sale loss and other items. These items make adjusted performance comparisons important.
- The filing identifies significant exposure to UK economic conditions, interest-rate and deposit competition, borrower and counterparty credit risk, property prices, liquidity and funding, capital and MREL requirements, regulatory change, Brexit-related operating complexity, cyber and IT disruption, financial crime, litigation, customer redress and reputational risk.
- Provisions for liabilities and charges were £990 million at year-end, including £486 million for customer redress and £156 million for litigation and other regulatory matters. The filing states that potential litigation and regulatory outflows cannot be reliably estimated in aggregate and may exceed recorded provisions.
- Key ongoing matters include benchmark-rate and foreign-exchange litigation, antitrust claims, the consequences of the 2021 US spoofing guilty plea and monitorship, customer account-closure reviews, Ulster Bank Ireland tracker-mortgage matters and other remediation. The filing states that the outcomes and timing of these matters remain uncertain.
- The filing reports no cybersecurity threats in 2023 that materially affected, or were reasonably likely to materially affect, the Group, while noting that undetected incidents cannot be ruled out.
Most important facts for investors to verify
- Reconcile statutory profit of £4.632 billion and attributable profit of £4.394 billion to adjusted income, notable items, discontinued operations and the £385 million deferred-tax-asset write-back.
- Assess the sensitivity of net interest income and margins to falling interest rates, deposit repricing, deposit outflows and mortgage margin pressure.
- Review ECL staging, the £0.4 billion of post-model adjustments, property exposure and the potential effect of UK household and corporate credit deterioration.
- Verify the sustainability of the 13%–14% CET1 target after dividends, buybacks, RWA growth, regulatory changes and possible stress-test outcomes.
- Review the liquidity profile, deposit trends, wholesale-funding maturities, MREL requirements and the reduction in cash and central-bank balances.
- Monitor the timing, cost and residual liabilities associated with the Republic of Ireland exit and other discontinued operations.
- Review litigation, customer-redress and regulatory provisions against the disclosed claims and investigations, particularly the spoofing monitorship, FX and benchmark-rate litigation, account-closure reviews and Ulster Bank matters.
- Confirm approval and payment of the proposed 11.5p final dividend and the size and execution of subsequent buyback programmes.
- Distinguish IFRS results from non-IFRS measures such as RoTE, adjusted income, cost:income ratio and climate and sustainable funding and financing.