NatWest Group Plc: Q3 2024 Performance Summary
Business Context and Reporting Period
This Form 6-K filing covers the third quarter ended September 30, 2024, and the nine-month period year-to-date (YTD). NatWest Group, the UK's largest bank for business, reported strong performance driven by lending growth, margin expansion, and cost discipline. The period included the acquisition of the Metro Bank mortgage portfolio, adding £2.3 billion to the loan book.
Key Financial Metrics
| Metric | Q3 2024 | Q2 2024 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Attributable Profit | £1,172 million | £1,181 million | £3,271 million | £3,165 million |
| Return on Tangible Equity (RoTE) | 18.3% | 18.5% | 17.0% | 17.1% |
| Total Income (excl. notable items) | £3,772 million | £3,590 million | £10,776 million | £10,897 million |
| Net Interest Margin (NIM) | 2.18% | 2.10% | 2.11% | 2.17% |
| Operating Expenses (excl. litigation) | £1,784 million | £1,928 million | £5,740 million | £5,600 million |
| Net Impairment Charge | £245 million | £(45) million release | £293 million | £452 million |
| Common Equity Tier 1 (CET1) Ratio | 13.9% | 13.6% | 13.9% | 13.4% |
| Liquidity Coverage Ratio (LCR) | 148% | 151% | 148% | 144% |
| Risk-Weighted Assets (RWAs) | £181.7 billion | £180.8 billion | £181.7 billion | £183.0 billion |
Material Changes vs. Prior Period
- Profitability: Q3 attributable profit remained stable at £1,172 million, with RoTE of 18.3%. YTD profit increased 3.3% to £3,271 million.
- Income Growth: Total income excluding notable items rose 5.1% quarter-on-quarter to £3.772 billion, driven by lending and deposit growth and margin expansion. NIM improved by 8 basis points to 2.18%.
- Cost Efficiency: Other operating expenses decreased £144 million quarter-on-quarter due to lower severance costs and the non-repetition of retail share offering costs. The cost:income ratio (excl. litigation) improved to 47.6%.
- Balance Sheet: Net loans to customers (excl. central items) grew by £8.4 billion in the quarter. Customer deposits (excl. central items) increased by £2.2 billion.
- Impairments: A net impairment charge of £245 million was recorded in Q3, compared to a release in Q2, primarily due to higher Stage 3 charges in Commercial & Institutional. However, the YTD charge of £293 million is significantly lower than the £452 million recorded in the prior year.
Guidance, Outlook, and Risks
2024 Guidance:
- RoTE expected to be above 15%.
- Income excluding notable items expected to be around £14.4 billion.
- Operating costs expected to be broadly stable compared to 2023, excluding ~£0.1 billion increase in bank levies and £24 million in retail share offering costs.
- Loan impairment rate expected to be below 15 basis points.
2026 Targets:
- RoTE expected to be greater than 13%.
- CET1 ratio target range of 13-14%.
- RWAs expected to be around £200 billion by end of 2025, with a pro-forma Basel 3.1 uplift of ~£8 billion in 2026.
Risks and Contingencies:
- 1MDB Litigation: A Malaysian court claim involving Coutts & Co Ltd regarding alleged losses of c.US$1 billion. Appeals are scheduled for December 2024.
- Ulster Bank Tracker Mortgages: Ongoing regulatory review and litigation in Ireland regarding tracker mortgage treatment. A recent Court of Appeal decision set aside certain findings, with remittal to the ombudsman.
- Capital Management: The group continues to participate in directed buybacks from the UK Government and considers on-market buybacks.
Investor Verification Checklist
- Verify the sustainability of the 2.18% Net Interest Margin given potential interest rate shifts.
- Monitor the impact of the Metro Bank mortgage portfolio acquisition on future credit quality and impairment rates.
- Review the status of the 1MDB litigation and Ulster Bank tracker mortgage provisions for potential future charges.
- Assess the trajectory of operating costs against the guidance of "broadly stable" excluding specific levies and one-off costs.
- Confirm the execution of the £100 billion climate and sustainable funding target, of which £85.4 billion has been provided YTD.