NatWest Group plc — Form 20-F Summary
Reporting period: Fiscal year ended 31 December 2022. The filing is an annual report, not a standalone Q4 filing; Q4-specific results are not clearly provided in the submitted text. Financial statements are prepared under IFRS as issued by the IASB.
Business context
NatWest is a UK-focused banking group operating through Retail Banking, Private Banking, Commercial & Institutional, and Central items & other. In 2022, the Group created the Commercial & Institutional segment and continued the phased withdrawal from the Republic of Ireland through the sale or transfer of Ulster Bank Ireland DAC assets and operations. Discontinued operations and comparative periods were re-presented accordingly.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total income, continuing operations | £13,156m | £10,429m | 26.1% |
| Net interest income | £9,842m | £7,535m | 30.6% |
| Operating expenses | £7,687m | £7,758m | (0.9)% |
| Operating profit before tax | £5,132m | £3,844m | 33.5% |
| Profit attributable to ordinary shareholders | £3,340m | £2,950m | 13.2% |
| Basic earnings per share | 33.8p | 27.3p | 6.5p increase |
| Return on tangible equity | 12.3% | 9.4% | 2.9 percentage points |
| Cost:income ratio | 58.4% | 74.4% | Improved |
| Net interest margin | 1.81% | 1.45% | 36 basis points higher |
| Bank net interest margin | 2.85% | 2.30% | 55 basis points higher |
| Net impairment charge | £337m | £1,173m release | £1,510m adverse movement |
| Customer loans at amortised cost | £366.3bn | £359.0bn | 2.0% |
| Customer deposits | £450.3bn | £479.8bn | (6.1)% |
| CET1 ratio | 14.2% | 18.2% | 400 basis points lower |
| Liquidity coverage ratio | 145% | 172% | 27 percentage points lower |
| Total wholesale funding | £74.4bn | £76.7bn | £2.3bn lower |
| Tangible net asset value per share | 264p | 272p | 8p lower |
Cash flow, liquidity and balance sheet
- Net cash flows from operating activities were an outflow of £43.6bn, compared with an inflow of £53.7bn in 2021. The principal drivers included a £29.5bn reduction in customer deposits, a £7.6bn increase in customer lending and lower trading and derivative liabilities.
- Investing activities generated £19.1bn of cash, including proceeds associated with disposals and asset sales.
- Financing activities used £10.7bn, including £3.2bn of dividends, £2.1bn of share repurchases, £3.4bn of subordinated liability repayments and £2.0bn of MREL repayments.
- Cash and cash equivalents decreased by £32.3bn to £158.4bn at year-end.
- Total assets declined 8% to £720.1bn, while total equity declined 13% to £36.5bn.
- Loans grew £7.3bn, driven primarily by £14.4bn of mortgage growth in Retail Banking and £5.7bn of growth in Commercial & Institutional, partly offset by the Republic of Ireland exit.
Material changes versus 2021
- Income growth was driven by higher interest rates, volume growth, increased transaction-related fees, stronger trading income and favourable yield-curve movements.
- Go-forward income excluding notable items was £13.1bn, exceeding management’s 2022 guidance. Go-forward other operating expenses fell 2.9% to £6.648bn, meeting the approximately 3% cost-reduction target.
- Credit provisions declined to £3.4bn from £3.8bn, and ECL coverage declined to 0.91% from 1.03%. The 2022 impairment charge reflected updated macroeconomic scenarios and greater weighting of downside conditions, while defaults remained low.
- Customer deposits fell principally because of market liquidity contraction, lower Commercial & Institutional balances and the Republic of Ireland withdrawal.
- The CET1 ratio declined mainly because of distributions and linked pension accruals, while risk-weighted assets were broadly stable versus 1 January 2022 at £176.1bn at year-end.
- Ordinary and special dividends paid during 2022 totaled approximately £2.1bn. The Group also repurchased £2.1bn of shares, including purchases from HM Treasury and the on-market buyback programme.
Guidance, outlook and unusual items
- Management reported that 2022 targets for income growth and cost reduction were achieved or exceeded. The filing states a target CET1 ratio of approximately 13% to 14% by the end of 2023.
- The directors recommended a 2022 final dividend of £1.0bn, or 10.0p per ordinary share, subject to shareholder approval. The filing does not provide a complete 2023 earnings or revenue forecast in the submitted text.
- The Republic of Ireland withdrawal generated a £1.0bn attributable loss and a £262m post-tax loss from discontinued operations in 2022. Further migrations and disposals were expected during 2023, including tracker and linked mortgages expected to complete in Q2 2023.
- A pension agreement replaced a potential £471m 2023 dividend-linked contribution with a trust structure holding equivalent assets. The assets remain on the Group balance sheet and may transfer to the pension fund if specified funding triggers are met.
- Notable income items included a £369m gain from interest-rate and foreign-exchange risk-management derivatives not in accounting hedge relationships, offset partly by £202m of losses on redemption of own debt and £88m of liquidity-asset bond disposal losses.
- Key uncertainties include inflation, rising or volatile interest rates, cost-of-living pressures, property prices, borrower defaults, funding outflows, Brexit-related operating changes, the Republic of Ireland withdrawal, litigation and regulatory investigations, cyber and IT resilience, climate transition risk and HM Treasury’s continuing shareholding.
- Reported provisions included £1.1bn for liabilities and charges, including £431m for customer redress and £240m for litigation and other regulatory matters. The Group states that further provisions and payments may be substantial in some cases.
Investor verification checklist
- Confirm the difference between the annual FY2022 information in this Form 20-F and any separate Q4 2022 earnings release, particularly quarterly revenue, profit, impairment and margin figures.
- Reconcile statutory IFRS results with management’s non-IFRS “go-forward group” measures and notable-item adjustments.
- Assess the sustainability of the 2022 net interest margin benefit as interest rates, deposit pricing and competition change.
- Monitor deposit trends, liquidity coverage, wholesale funding costs and the effect of continued distributions on CET1 capital.
- Track the timing, proceeds, losses and stranded-cost implications of the Ulster Bank Ireland disposals.
- Review ECL sensitivity to downside macroeconomic scenarios, UK household affordability, property prices and Commercial & Institutional credit exposure.
- Review outstanding litigation, customer remediation, LIBOR-related claims, the US spoofing resolution and regulatory investigations against disclosed provisions.
- Evaluate the recoverability of the £2.178bn deferred tax asset and the effect of future taxable profits or tax-law changes.
- Consider HM Treasury’s ownership, potential future sell-downs and their effects on share price, governance and capital distributions.