NatWest Group Q1 2025 Earnings Report

NatWest Group EPS Results

• Actual EPS: $0.39
• Consensus EPS: $0.32
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: N/A

NatWest Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.80 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

NatWest Group Announcement Details

• Quarter: Q1 2025
• Date: 5/2/2025
• Time: Before Market Opens
• Conference Call Date: Friday, May 2, 2025
• Conference Call Time: 4:30AM ET

NatWest Group (NYSE:NWG), together with its subsidiaries, provides banking and financial products and services to personal, commercial, corporate, and institutional customers in the United Kingdom and internationally. It operates through Retail Banking, Private Banking, and Commercial & Institutional segments. The Retail Banking segment offers a range of banking products and related financial services, such as current accounts, mortgages, personal unsecured lending, and personal deposits, as well as mobile and online banking services. The Private Banking segment provides private banking and wealth management products for high-net-worth individuals and their business interests. The Commercial & Institutional segment offers banking and financial solutions to large corporate organisations, multi-nationals, and financial institutions. The company was formerly known as The Royal Bank of Scotland Group plc and changed its name to NatWest Group plc in July 2020. NatWest Group plc was founded in 1727 and is headquartered in Edinburgh, the United Kingdom.

NatWest Group Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to the NatWest Group Q1 Results twenty twenty five Management Presentation. Today's presentation will be hosted by CEO, Paul Thwaite and CFO, Katie Murray. After the presentation, we will take questions.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Good morning, and thank you for joining us today. As usual, I'll start with a brief introduction before Katie takes you through the financial performance, and then we'll open it up for questions. Against a background of heightened global economic uncertainty, we continue to focus on advancing our strategy through three key priorities: disciplined growth, bank wide simplification and active balance sheet and risk management. Examples of our recent progress include the completion of our Sainsbury's bank transaction yesterday, which adds around 1,000,000 new customer accounts with about £2,500,000,000 of unsecured lending and £2,700,000,000 of savings. We launched a new mortgage enabling first time buyers to combine incomes with a family member or friend while retaining independent ownership to help them get on the property ladder sooner.

[Paul Thwaite, Group CEO & Director at NatWest Group]

In Business Banking, we marked the tenth anniversary of our Accelerator program, which has helped to grow and scale 10,000 small businesses across The UK by setting a new ambition to support a further 10,000 businesses in 2025. We also upgraded our ambition to lend 7,500,000,000.0 to The U. K. Social housing sector between 2024 and 2026 and announced that we're deploying $500,000,000 to retrofit social housing stock supported by a financial guarantee from the National Wealth Fund. On bank wide simplification, we are the first U.

[Paul Thwaite, Group CEO & Director at NatWest Group]

K. Headquartered bank to collaborate with OpenAI in order to meet customer needs faster and increase productivity. And as we simplify the organization, we are moving our private banking investment operations from Switzerland to The UK and relocating their data and technology teams to The UK and India. On active balance sheet and risk management, we made further progress optimizing RWAs in the quarter. And in an uncertain environment, our prudent risk management gives us a competitive advantage.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So let's turn to the financial headlines for the first quarter. We made a strong start to the year. Customer lending grew 0.9% to €375,000,000,000 Customer deposits increased 0.5% to €433,000,000,000 with growth in both Retail Banking and Commercial and Institutional. Assets under management and administration of EUR 48,500,000,000.0 included net AUM inflows in the quarter of EUR 800,000,000.0. We also provided EUR 8,000,000,000 of climate and sustainable funding and financing, bringing the total to GBP 101,000,000,000 since July 2021, exceeding our GBP $100,000,000,020.25 target.

[Paul Thwaite, Group CEO & Director at NatWest Group]

This activity clearly underpins our financial Income increased 15.8% year on year to $4,000,000,000 and costs were $1,900,000,000 resulting in operating profit of $1,800,000,000 and attributable profit of 1,300,000,000.0 Our return on tangible equity was 18.5%, driving strong capital generation of 49 basis points before shareholder distributions. Earnings per share were up 48% at 15.5p, and tangible net asset value per share was 347p, up 15% year on year. We continue to maintain a strong balance sheet with a CET1 ratio of 13.8%, and the government shareholding has reduced to less than 2%, in line with the stated intention to exit fully by twenty twenty five'twenty six. Given the strength of the first quarter, we are updating our 2025 guidance, we now expect to be at the upper end of the range for both income and returns. And with that, I'll now hand over to Katie.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Thank you, Paul. I'll start with our performance for the first quarter using the fourth quarter as a comparator. Income excluding all notable items was up 2.1% at GBP 4,000,000,000. Operating expenses were 12.7% lower at GBP 2,000,000,000 and the impairment charge was GBP 189,000,000 or 19 basis points of loans. Taking this together, we've delivered operating profit before tax of GBP 1,800,000,000.0.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Profit attributable to ordinary shareholders was GBP 1,300,000,000.0, and return on tangible equity was 18.5%. Turning now to our income performance. Overall income, excluding notable items, grew 2.1% to GBP 4,000,000,000. Excluding the impact of two fewer days in the quarter, income across our three businesses increased 3.7% or £143,000,000 Volume growth was also supported by margin expansion as tailwinds from the product structural hedge more than offset the impact of the base rate cut in February. Net interest margin was up eight basis points at two twenty seven, mainly reflecting deposit margin expansion.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We continue to assume three further base rate cuts this year, with rates reaching 3.75 by the year end. Expectations for The UK bank rates moved down in April, closer to our base case. But we recognize the uncertainty remains and the actual outcome may differ. Noninterest income across the three businesses increased 8% compared with the first quarter last year and was broadly stable when compared with a strong fourth quarter. This reflected another strong quarter of customer activity in our commercial and institutional business, in particular, in capital markets, currencies and fixed income.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We were pleased with the strength of noninterest income, but the first quarter performance should not be taken as a run rate. Given the strength of total income in the first quarter, we now expect 2025 income to be the upper end of our GBP 15,200,000,000.0 to GBP 15,700,000,000.0 range. Moving now to lending. We continue to be disciplined in our approach and deploying capital where returns are attractive. We were pleased to see a stronger mortgage markets together with ongoing demand from larger corporates and financial institutions.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Gross loans to customers across our three businesses increased by GBP 3,500,000,000.0 to GBP $375,000,000,000. Taking Retail Banking together with Private Banking, mortgage balances grew by GBP 2,100,000,000.0 with strong gross new lending reflecting some pull forward of second quarter completions, ahead of the stamp duty changes for the first time buyers on April 1. Our stock share remained stable at 12.6%. Unsecured balances increased slightly to GBP 16,900,000,000.0, driven by higher personal loans to our retail customers. Our unsecured portfolio will benefit in the second quarter from the completion of our transaction with Sainsbury's Bank, which I'll talk about shortly.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

In commercial and institutional, gross customer loans, excluding government schemes, increased by GBP 1,600,000,000.0. Within this, loans to corporates and institutions grew by GBP 1,500,000,000.0, mainly driven by infrastructure and project finance. You will also see in the appendix that we have shown the split of our corporate lending exposure by sector as presented in our year end Pillar three disclosures. I'll now turn to deposits. These were up GBP 2,100,000,000.0 across our three businesses to $433,000,000,000, continuing the quarterly growth trend of 2024.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

In Retail Banking, an increase in current account and term balances was partly offset by a reduction in instant access savings due to annual tax payments. This also drove a reduction in private banking balances of 1,200,000,000.0. The increase in commercial and institutional of 2,400,000,000.0 was mainly from larger customers in corporate and institutions. Migration from non interest bearing to interest bearing deposits was insignificant. And we have not seen any material change in customer behavior following base rate cuts nor since the onset of recent market volatility.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Noninteresting bearing balances remained 31% of the total, and term accounts are still around 16%. I'd like to turn now to our Sainsbury's Bank transaction, which completed yesterday. This transaction presents an opportunity to scale our customer base, adding 1,000,000 new customer accounts, which deliver incremental income at low marginal costs through our digital platform, offering sustainable growth. It also accelerates our strategy to grow our share of unsecured credit in a disciplined way by increasing our credit card stock share to around 11% and improving profitability. The transaction is self funded, bringing GBP 2,700,000,000.0 of savings, which increases retail banking deposits by 1.4%.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We expect these portfolios to add income of around GBP 100,000,000 this year, And we will incur onetime integration costs of around GBP 100,000,000 this year. The unsecured portfolio attracts a day one charge for expected credit losses of around GBP 80,000,000. In terms of capital, the portfolios add around GBP 1,800,000,000.0 of risk weighted assets with total day one impacts reducing the CET1 ratio by around 16 basis points. Sainsbury's customers will move to NatWest branded products over the coming months with access to all our products through digital, in person contact and our branches. And we're engaging with our new customers to ensure a smooth transition as they migrate.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Turning now to costs. First quarter costs of GBP 1,900,000,000.0 were down 8.5% on the fourth quarter, mainly as a result of seasonality and lower severance and property exit costs. As you know, our cost profile can be lumpy and you should not take this as the run rate. Our annual wage awards and higher national insurance contributions both take effect from April 1. We incurred just GBP 7,000,000 of our guided onetime integration costs in the first quarter, so you can expect these to increase from the second quarter onwards.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We remain on track for other operating expenses to be around GBP 8,000,000,000 for the full year, plus around GBP 100,000,000 of onetime integration costs. And we continue to focus on delivering cost savings from our investment programs to create capacity for further investment to accelerate our bank wide simplification. I'd like to turn now to impairments. Our diversified prime loan book continues to perform well. We're reporting a net impairment charge of GBP 189,000,000 for the first quarter, equivalent to 19 basis points of loans on an annualized basis.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

In light of heightened global economic uncertainty, we have maintained our post model adjustments at around GBP 300,000,000, despite our book performance indicating a small release. We have reviewed our macroeconomic assumptions. And whilst uncertainty has increased, we are comfortable with them at this stage, having embedded a combined weighting of 32% to both our downside scenarios. Our moderate downside scenario is closest to the modeled scenarios we have run and is worse than the latest economic consensus. We have no significant concerns about the credit portfolio at this time, and it is worth remembering that customer borrowing rates have been coming down in recent months together with inflation.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Given the current performance of the book, we continue to expect a loan impairment rate below 20 basis points for the full year. Turning now to capital. We ended the first quarter with a common equity Tier one ratio of 13.8%, up 20 basis points. We generated 49 basis points of capital before distributions, including 68 basis points from earnings and 10 basis points from CET1 capital improvements. This was partly offset by RWA growth, which consumed 28 basis points.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

As you know, we increased our ordinary dividend payout ratio from around 40% to around 50% this year. Accruing 50% of attributable profits was equivalent to 33 basis points. RWAs increased by GBP 3,800,000,000.0 to GBP 187,000,000,000. This includes GBP 2,200,000,000.0 from the annual update to operational risk GBP 800,000,000.0 from initial CRD4 model updates and GBP 2,000,000,000 of business movements, which broadly reflects our lending growth. This was partly offset by another strong quarter of RWA management, which included two successful significant risk transfers and resulted in a reduction of GBP 1,200,000,000.0.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We continue to expect between GBP 190,000,000,000 and GBP 195,000,000,000 of RWAs at the year end. Where the figure lands exactly within this range will largely depend on CRD IV model outcomes. Our target CET1 ratio remains 13% to 14%. Turning now to total capital and issuance. We have a robust capital position supported by strong capital generation from earnings and well timed issuance over 2024 and 2025.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Our total capital position comfortably exceeds minimum requirements for CET1, AT1 and Tier two. You can see on the right the consistency of our capital generation from earnings each quarter. You can also see that our 2025, AT1 and Tier two issuance is well progressed as we took advantage of market conditions in the first quarter. Overall, this puts us in a very strong position to deal with any changes in market conditions. Turning now to guidance for 2025.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We now expect income, excluding notable items, to be at the upper end of our previously guided range of GBP 15,200,000,000.0 to GBP 15,700,000,000.0 Other operating expenses to be around GBP 8,000,000,000, plus around GBP 100,000,000 of onetime integration costs and the loan impairment rate to be below 20 basis points. RWAs are expected to be between GBP 190,000,000,000 and GBP 195,000,000,000. And based on the strength of income, we now anticipate a return on tangible equity at the upper end of our 15% to 16% range. Looking beyond 2025, we believe the business is well positioned to continue to grow income, control costs and maintain strong capital and risk management, supporting our 2027 target for return on tangible equity of greater than 15%. And with that, I'll hand back to the operator for q and a.

[Operator]

We

[Operator]

will now take your questions. If you'd like to ask a question today, then you may do so by using the raise hand function on the Zoom app. If you are dialing in by phone, you can press 9 to raise your hand and 6 to unmute when prompted. Today's call is scheduled for one hour, so we ask that you limit yourself to two questions to allow more of you a chance to ask a question. We'll now pause for a moment to give everyone an opportunity to signal for questions.

[Operator]

We will now take our first question from Sheel Shah from JPMorgan. If you'd like to unmute and go ahead to ask your question.

[Sheel Shah, Executive Director at J.P. Morgan]

Hi. Thanks for the presentation. I've just got two questions, please, both on the income outlook. If we annualize the first quarter, we're running well above the target range you've indicated. So my question is more around the noninterest income.

[Sheel Shah, Executive Director at J.P. Morgan]

How much of the strength in the quarter do you think is sustainable? And if you can disaggregate between the the the various sort of segments within there, that would be helpful. Then secondly, on the lending margins, they've increased two bps in the quarter. Can I ask what was driving that and whether we should expect that same pace going forward? Thanks.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Shiel. Katie, both for you.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Sure. Super. Thanks very much, Shiel. So, no, look, a really good strong start to the year in terms of the quarter one performance. So very much expecting to land at the upper end of our guided range as we've spoken about in the call already.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We don't expect Q1 to be the run particularly for non interest income. There are a good few positives as we move forward from here. Obviously, we've had continued good growth in Q1. We've got 80% of our structural hedge tailwind already locked in for the year. We've also got that additional benefit of GBP 100,000,000 from the Sainsbury's portfolio coming through.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

There are a few things that offset that. There's we've got three Bank of England rate cuts we expect to start on the next one on Thursday of next week. The overall impact of that will be subject to deposit pass through and customer and competitor behavior. We do also recognize, as you all do, that there is heightened global economic uncertainty that may lead to a little bit of customer and consumer delay in borrowing and investment decisions. And then on non interest income, there are a number of factors there that influence the level from here, very much around kind of customer activity within there.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

If I look at your NIM point, as we look at that, so NIM eight basis points up in the first quarter, lending margin plus 2%, that was very much pointing to mix in terms of a little bit of pressure on mortgages, unsecured and corporate lending growing. And also there was a non repeat of a mortgage EIR that we had in Q4. Then deposit margin strong four basis points coming through and then funding another plus one basis point. And that's driven by the ongoing repositioning of our liquidity portfolio and also AT1 issuance plus some non repeat of Q4 tax charges. I know we seem to spend a lot of time chatting around funding another with you on these calls, but I would say I don't really see it as a key driver going forward of our NIM outcome.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

There is some volatility that line quarter to quarter. We do seek to take advantage of market conditions when they're appropriate. But overall, I think it's a good quarter for NIM, pleased with the performance from the start of the year and that supports us guiding you to the top of the range for income. And as you know, we don't give you specific NIM guidance on different component parts. Thanks very much, Sheila.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Katie. Thanks, Sheila.

[Operator]

Our next question comes from Benjamin Kevin Roberts from Goldman Sachs. Benjamin, if you'd like to unmute and ask your questions.

[Benjamin Caven-Roberts, Vice President at Goldman Sachs]

Good

[Benjamin Caven-Roberts, Vice President at Goldman Sachs]

morning. Thanks very much for taking my questions. So first, just on the backdrop for asset quality and the read across from tariffs. Could you share a bit more detail on your thought process for the Q1 impairment charge and the €300,000,000 PMA you currently hold? I recognize The U.

[Benjamin Caven-Roberts, Vice President at Goldman Sachs]

K. Is, of course, impacted differently versus other countries in respect of tariffs, But I wonder how you're thinking around the more holistic impact of the slowdown in growth from global trade tensions. And then secondly, just on capital allocation a bit more broadly. Where do you see the most attractive area of your business currently incremental capital? And has this evolved at all over recent months?

[Benjamin Caven-Roberts, Vice President at Goldman Sachs]

Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Ben. Katie, I'll I'll take those two.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Perfect.

[Paul Thwaite, Group CEO & Director at NatWest Group]

On the asset quality side, pleased pleased with the quarter. Asset quality remains been strong.

[Paul Thwaite, Group CEO & Director at NatWest Group]

You'll have seen the charge for the quarter nineteen basis points. That's inside our our 20 bps guidance, higher than quarter four last year, but there was a release in quarter four and lower, though, than quarter three last year. So we're encouraged, that there's no underlying deterioration. I guess to your wider observations, we're obviously monitoring and very vigilant in terms of the portfolio, looking through the different asset books and ensuring we understand any emerging trends, but there's nothing material to report yet. Customers are certainly resilient.

[Paul Thwaite, Group CEO & Director at NatWest Group]

I would say that they've proven their resilience over a number of shocks arguably over the last decade, you know, from Brexit through COVID, through energy, energy shocks and and interest rates. We've got a PMA, as you, mentioned, a total PMA of around 330, about 300 of that is for economic uncertainty. We feel that positions us well given you do have to acknowledge that there is obviously more global uncertainty certainly that has emerged since the end of the quarter. If you look at our book, you know, given the size of our corporate and commercial business, we reflect The UK economy at 70% services. We've given you some hopefully helpful disclosures in the in the the documents today around different sec sector concentrations, about 2% is manufacturing, for example, low single digits from a US perspective and mainly investment grade.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So we're we're vigilant. We're monitoring, but we feel very reassured by the the asset quality as it stands, and we think our clients are insulated from some of the some of the impacts. On capital allocation, your second question, strong position at the end of the quarter, 13.8%, represents around 50 basis points, 49 to be exact, around capital generation before the ordinary dividend. I think it's important to to see that that's come from both earnings and from good RWA management. So strong position there.

[Paul Thwaite, Group CEO & Director at NatWest Group]

In terms of I think that allows us to to capture demand when it's there from customers, and you'll see that we've obviously grown our our asset books in retail and commercial during the first quarter. We haven't fundamentally changed our capital allocation. We've been pleased with the growth and returns we can capture in mortgages and unsecured, and the same on the court the core corporate institutional side, which mainly came through our kind of CIB business. So no change in our, I guess, philosophy of capital allocation. But as ever, you know, I'm driven by our returns.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So if we see that there's better risk reward, we will deploy differently, but we haven't done that yet. Thanks, Ben.

[Benjamin Caven-Roberts, Vice President at Goldman Sachs]

Very clear. Thank you.

[Operator]

Our next question comes from Chris Can't of Bernstein Autonomous. If you'd like to unmute and ask your question, Chris.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Hey, Chris.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Hey.

[Christopher Cant, Head of Banks Strategy at Autonomous Research]

Good morning. Thanks for taking my questions. I just wanted to ask about the headlines we've had in respect of ring fencing, please. And just to understand, obviously, your signatory to the letter

[Christopher Cant, Head of Banks Strategy at Autonomous Research]

of the

[Christopher Cant, Head of Banks Strategy at Autonomous Research]

press asking for a review. What what would you like to happen in respect of ring fencing? And if you could explain a little bit your motivations for for wanting to change this. Obviously, one of your has argued we shouldn't get rid of ring fencing because it's good for customer protection. What is it that you feel this is doing that's adverse for the business?

[Christopher Cant, Head of Banks Strategy at Autonomous Research]

What what are the restrictions? Is it about costs? And if it if it is about costs in part, could you give us a indication of the rough quantum of duplicated costs for the group? Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Chris. I'll take I'll take the ring fencing question. So where where am I on this topic? So I've been consistent since I've been in this role around how important it is to have high quality regulation. I do actually think it's a it can be a source of competitive strength for for The UK sector.

[Paul Thwaite, Group CEO & Director at NatWest Group]

What I've also said is it's important we get the right balance between risk and protection. The regulatory architecture is very different since the time of the financial crisis, and it's also evolved a lot since the financial crisis. So if you think of recent introductions on the conduct side of consumer duty, recovery and resolution, obviously, followed followed ring fencing. So it's in that context, I guess, I I've I've signed the letter. And I do think there is more scope, for further progress on ring fencing and for for further reform.

[Paul Thwaite, Group CEO & Director at NatWest Group]

I did welcome publicly the changes that came through earlier in the year in February. Why why do I think there's more chance for reform, Chris, which I guess gets to the the heart of your question? Couple of reasons. One is one of the big drivers was obviously around financial stability, but the SCIOC review itself concluded that the recovery and resolution regime that followed ring fencing is arguably a more effective driver of that stability. So that's one reason.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So and then the consequence of that is it's driving cost and friction into, I guess, how we serve our customers. So I wouldn't just highlight the that it is a cost driven argument. Arguably, most most importantly, it's a customer driven argument. It does impact our customers. It adds to the cost complexity of serving customers across the ring fence.

[Paul Thwaite, Group CEO & Director at NatWest Group]

That includes UK commercial and and SMEs. So it can distort decisions. It can distort pricing and arguably limit banks' ability to to support the economy and the growth agenda. So that's, I guess, that's my rationale. I'm not gonna put a cost number on it.

[Paul Thwaite, Group CEO & Director at NatWest Group]

I know you asked that, but you wouldn't expect me to. I'm not gonna do that, but that's not the that's not the primary driver. I think the other question we need to ask ourselves as well, really, from a nation perspective is we are the only jurisdiction, you know, to have this particular regime. So where I am is it just feels timely and appropriate to review it. I think we it it is beholden on us to make sure that the prudential framework maximizes banks and the the sector's ability to support UK business.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So that's why I've I've called for for a timely review. So hopefully, that's clear, Chris, and gives you a sense of how I how I think about it. And, actually, the one point I didn't cover just thinking through your various, I guess, sub questions is, obviously, depositor protection is important, and I wouldn't be advocating for anything that that jeopardize this. But I think there's a lot of existing embedded protections through the FSCS scheme, the capital liquidity we hold through MREL, etcetera. So I think there's a lot of deposits of protection, so not looking to weaken that.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Chris.

[Operator]

Thank you. Our next question comes from Andrew Crooms from Citi. Andrew, if you'd like to ask your question, and unmute.

[Andrew Coombs, Equity Research Analyst at Citi]

Morning. A couple, please. One strategic, one numbers. On the strategic one, given that Sainsbury's Bank is now closed, perhaps you can comment on the strategy for that business from here, your ability to derive synergies to tap into the Sainsbury's customer base and potentially more broadly the Nektar rewards customer base. And then second on the numbers, the cash flow hedge.

[Andrew Coombs, Equity Research Analyst at Citi]

Thanks for the extra disclosure on slide nine. You talk about a three p positive decay in the quarter offset by yield curve steepening. Should we assume that quarterly decay run rate going forward? Is that fair?

[Paul Thwaite, Group CEO & Director at NatWest Group]

Great. Thanks thanks, Andrew. Katie, I'll take Sainsbury's, and you you follow-up on cash flow hedge. On on Sainsbury's, Andrew, delighted to close that yesterday. Brings a million customer accounts to to NatWest.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Also, strategically, it improves our market share in unsecured prime credit card market share goes up to 11% on the back of transactions. So I think strategically, it's it's compelling. It's not really a synergies led deal because we've taken the customers and the assets and the liabilities. We haven't taken in effect the infrastructure of Sainsbury's Bank. We do see opportunity there within, obviously, within the million customer accounts that are coming across.

[Paul Thwaite, Group CEO & Director at NatWest Group]

We get we have the ability to offer the breadth of our products, services, channels, mobile app functionality. We think we can we we can deliver to that customer base a very attractive proposition. And, obviously, that will be a key focus of ours as we migrate the customers over the course of the next six months. We do we have a very good and healthy working relationship with Sainsbury's on multiple points on multiple areas. So we do have the potential to think about the proposition and targeted offers using loyalty and nectar points.

[Paul Thwaite, Group CEO & Director at NatWest Group]

But we'll be very targeted and thoughtful about that and make sure it drives customer value and utility. But you can obviously expect to see that across not just the cards portfolio, across the across the opportunities we have. So that's where we are on Sainsbury's, pleased and excited by it. Katie?

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Lovely. Thanks. Hi, Andrew. So just in terms of the cash flow hedge, there's no change to my previous comments that I've made on on this. We do expect the majority of the hedge to unwind over the next two years.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

So that 3P that you see on Slide 19 is from that decay. It is a little bit of offset as we've seen yield curve changes kind of move around. But so we wouldn't probably guide you to quarter to quarter, but it certainly is over the next two years, we'd expect that to be that to be fully kind of matured out.

[Andrew Coombs, Equity Research Analyst at Citi]

Thank you. Mean, just sorry. Just to follow-up on that, a bit of a pointy question, but do you think that's reflected in consensus in the tangible NAV? Because you've again been in this court order on tangible NAV per share.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Yeah. So look at when when guess when we look at consensus, I do I do note that our average consensus is sitting around 27.8 for 2025. It's a better place than it it it was, but I would say it's broadly in consensus, but maybe not everybody. So maybe it's a useful useful wee reminder this morning for those that might want to look at it again.

[Paul Thwaite, Group CEO & Director at NatWest Group]

That's it. Thank you, Katie. Thank you, Andrew.

[Operator]

Our next question comes from Arman Rakkar of Barclays. Arman, if you'd like to unmute and ask your question.

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

Hello, guys.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Hi, Adam.

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

Yeah. Good morning, Paul. Good morning, Katie.

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

Thanks very much for the presentation of the questions. I guess I've got two questions. One is around just deposit income. And, you know, you you're you're delivering pretty impressive, like, deposit margin expansion despite base rate cuts. And my ultimate question is just around the sustainability of this deposit margin expansion because you've got so many moving parts there.

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

Right? You've got the structural hedge. You've got base rate cuts, but then you've got, you know, pass throughs and the various delays that that come through. So is is this the kind of run rate for deposit margin expansion in coming quarters? And if if there's part of that, you can lift the lid on what is the structural hedge contribution versus the other bit because it is impressive, and I just wanna kind of get an understanding of how enduring this is.

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

So, yeah, if you if you could kind of lift the lid on that. And and as part of that, I think you're executing pass throughs pretty robustly from here. I think the stuff that we're kind of monitoring, I can see kind of 60 to 70%. Do you think you can continue doing that from here, you know, with the with the three rate cuts you've got coming? Should we kind of continue to factor that as a as a glide path?

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

And then yeah. I mean, the the only other comment or kind of question is we we really don't know what to do with any of your guidance this year because there is just so such a clear upside risk to your guidance that we're inclined to just completely disregard it upon arrival. So I guess there's not really a question there. It's more of a statement. Right?

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

But but, you know, the net interest income is clearly compounding higher. The margin is better. The volume has tailwinds. To even hit, you know, the 15,700,000,000.0, I think the non net interest income would basically have to drop off a cliff. So yeah.

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

You can comment on that or you can just accept my observation. Thank you so much.

[Paul Thwaite, Group CEO & Director at NatWest Group]

You're you're high. I think observation stroke hypothesis, I think, I'm on. Okay. Right. Three questions, Katie.

[Paul Thwaite, Group CEO & Director at NatWest Group]

I'll come we'll come back to you for deposit income. On pass throughs, simple and quick answer, I mean, yeah, I agree with you. Yeah. We we've executed well in terms of the current reductions. We've given you given you some sensitivities.

[Paul Thwaite, Group CEO & Director at NatWest Group]

The numbers you you quoted around the past interest rates You you can see that in the in the data. Ultimately, it'll be a function of our funding needs, competitive behavior, customer reaction. But we feel we feel confident from a pricing perspective. We understand the elasticity in the customer base, and we're getting the balance right.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So that's where we are on on pass throughs, and we're we're we're very thoughtful both on on the level of pass through and the timing. Let me address the bigger question on on your observation on on guidance. I guess, where are we? We've obviously had a very strong start to the year. We've said we expect to be at the upper end for both returns and income.

[Paul Thwaite, Group CEO & Director at NatWest Group]

We're pleased with the income trajectory. We've given you pretty granular guidance on over lines in the the the p and l. Obviously, there are scenarios which would get you to to a higher return. But my view is, you know, worth what what is it? Six, seven weeks on since we last spoke to you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

There's obviously wider uncertainty with as ever, you'll hit you'll you'll I'll update you as we go through the year, but we feel we feel pleased with the quarter one that we've had.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Katie, deposit income.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Thanks On your kind of deposit question, I'm probably going to take you a little bit back up, Eman. I think it might be easier. So we don't guide on on them as as you know, but we have seen steady improvement in the deposit margin.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

And that's really as a result of the strong hedge that we've got in place. You understand that well, so I'm not going to take you through that in a huge amount of detail, not kind of break it down. You've definitely got all the details that you need on that hedge to enable you to model that. I think the kind of as you talk about, there are different factors coming through and it really comes on to as we get into the rate cuts, which we expect to see kind of coming one a quarter for the rest of the year, the level of kind of pass through that happens there, we model it on 60% as you know and that's been pretty accurate in terms of our recent experiences we've gone through. And then kind of what happens on competition as well as the kind of evolving trends that we see on kind of household M4 particularly as to what happens to those deposit those sorts of margins.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

But overall, thanks very much for the question. And I think you've got all the bits to kind of form your own conclusions.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Aman.

[Operator]

Our next question comes from Amit Goel of Mediobanca. Amit, if you'd like to unmute and ask your question.

[Amit Goel, Managing Director at Mediobanca]

Hi. Thank you. Hopefully, you can hear me okay.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Yeah. We can, Amit. Good good to hear you.

[Amit Goel, Managing Director at Mediobanca]

Great. Thank you. So so one is actually on the costs on on slide 10. So I mean, maybe you don't want me to kind of completely unpack it. But when I look at the underlying costs in the quarter, kind of annualize those and then add on the items, the integration, the NIC, 3.3% wage growth, the levies, etcetera, I still come to a number about $150,000,000 shy of the $8,100,000,000 target or guidance for the year.

[Amit Goel, Managing Director at Mediobanca]

So I'm just wondering whether that's potentially some higher admin expense or the premises or depreciation? Is there also a bit more potential upside coming through on the cost line? And just and or was there any other reason why cost was particularly good in Q1 and why that wouldn't necessarily repeat in the future quarters? And then secondly, just coming back on the ring fencing question, I appreciate your commentary on the cost piece. So I was just wondering if you were able to deploy more capital outside of the ring fence, to what extent would that help you from a kind of a growth or volume perspective and or kind of yield perspective if you can deploy liquidity?

[Amit Goel, Managing Director at Mediobanca]

You know, I don't know. Would you be able to deploy it to a slightly better better yields if we were to see some softening of the regime? Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Amit. Do want to take cost?

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Yeah. Absolutely. Thanks. Thanks, Amit. Look, when we look at costs, you know, our guidance is really unchanged from that.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We are on track to deliver our full year cost guidance of around that 8,000,000,000 plus GBP 100,000,000 of the onetime integration costs. And of that onetime integration costs, spent GBP 7,000,000,000 in the first quarter. So you're going to see that ramp up in the next few quarters as you go through. But you understand as well the costs are lumpy, and so I wouldn't expect Q1 to kind of happily feed through on the other quarters. But you've clearly got the component parts in terms of NIC comes in, in April or staff pay and award of 3.3% comes in from April as well.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

So you see them kind of coming through. What Paul and I are really focused on as we go towards that 8.1 number is to really kind of focus on the creating capacity so that we can then reinvest that in the business. So I would really encourage you to take the 8.1, accept that it's lumpy in different quarters and I know that's frustrating for you with models, but that's certainly the number that we're aiming for and we have every intention of hitting. And in doing so, make sure that we can drive the business to create capacity, continue to reinvest in our developments. Paul, I hand back

[Katie Murray, Group CFO & Executive Director at NatWest Group]

to you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Yep. Thank thanks, Katie. So on ring ring fencing, simple, Amit, as in, I guess, should there be any change? And I guess so the premise is that it it it is currently not not as efficient as it could be from a funding from a liquidity and capital perspective. So if there were to be any changes, that does present opportunities in terms of choices around how we would deploy that capital and liquidity.

[Paul Thwaite, Group CEO & Director at NatWest Group]

What wouldn't change is kind of, I guess, our capital discipline and the way we think about allocating capital to the best returning opportunities. But ultimately, it could could lead to more supportive customers and better better utilization and optimization of the capital and liquidity across the whole group. Thanks, Anders.

[Operator]

Our next question comes from Ed Firth at KBW. Ed, if you'd like to unmute and ask your question.

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

Yes. Good morning, everybody. I just wondered if I could just bring you back to your interest rate sensitivity. I think you put it in the appendix. I think it's a couple of hundred million for 25 basis points, something like that, of cuts.

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

Because if I look over the last twelve months, your margin is up almost 30 basis points, give or take a bit. And I know you're going to say, well, look at the structural hedge. But the structural hedge, you've given us good disclosure on that. That's 15 to 20 basis points of that at most. So you've probably done another 10 basis points of margin expansion in a falling interest rate environment.

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

And so I'm just trying to understand sort of how that works. I mean, I guess I get that the 25 basis point sensitivity is like a theoretical exercise you do. But I guess what that means is you're able to adjust product pricing to basically more than offset that pressure. And so I suppose the question is it's a bit rather what Aman was talking. I mean, is there a world where I mean, can we safely suggest now to to ignore that interest rate sensitivity and assume that you can continue to do that going forward, firstly?

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

And then secondly, is there a level of interest rates at which that doesn't you you won't be able to do that anymore? Because, I mean, I guess interest rate expectations are falling quite rapidly at the moment. So I mean, if we get that sort of 2.5% or something, is that the level at which suddenly you can't reprice enough because you start to hit deposit floors, etcetera? So that would be any comments you've around that

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

would be very helpful.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks thanks, Ed. Katie, why don't I just I'll say a couple of quick words on price

[Paul Thwaite, Group CEO & Director at NatWest Group]

on

[Paul Thwaite, Group CEO & Director at NatWest Group]

pricing developments generally, then you you maybe talk to some of the the specifics. Yeah. So so, Ed, the the comment I'd make is we've since the second half of mid twenty twenty three, we've invested a lot of time and money in terms of understanding our deposit pricing, our elasticity, and we're much we've been much able, much better able to price dynamically to to understand different segments in elasticity. We've extended the product range, both the range of products, but also the tiers within those products. So that probably talks to just a greater dynamic use of our pricing insights around how we how we price the books.

[Paul Thwaite, Group CEO & Director at NatWest Group]

It's worth bearing that in mind as well as the observations you have around around the structural hedge. Katie?

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Yeah. Sure. Absolutely. So, I mean, it's clearly, we we we put a lot of effort into that that sensitivity, so I'd really encourage you not not to ignore it. And you can see that it's it's something that we we evolve each each kind of half year and and year end for you to kind of see within there.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

But as you look at it, there are things obviously you need to bear in mind about it. It's on a static balance sheet. So as things evolve in the year, you can see changes. And what we have seen in different quarters is the mix does move a little bit from where we were in terms of fixed term accounts and where we were in non interest bearing. And we've seen a bit more coming into instant access, which obviously that for us is good for the deposit margin as that kind of comes through.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

The other thing I would kind of look to sort of see is actually to consider what's happening on some of the customer pricing as well as that kind of hedge tailwind. You know that our mortgage headwind has abated in terms of the effort there, so it's kind of going flow through. You heard my comments earlier in the kind of funding and other where we try to kind of eke out margin by taking advantage of different kind of positions within the market. But overall, if you think of what we've said about the hedge, we expect it to be kind of stable in terms of its size and then the deposit margins, the percentages in terms of the different deposit counts have been quite stable as well. So that kind of helps us kind of offset some of the rate cuts as we move through.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

So overall, at the different component have a look at the different component parts, but I'd really encourage you to use that sensitivity and think of how it comes through on different timings of different rate cuts. Thanks, Ed.

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

Sorry. Just as a follow-up, is there a rate at which that dynamic pricing becomes more challenging? And and I guess one thinking about deposit flaws.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Mean, I I think what we need to do is all look through, obviously, the history we've all lived through over the last, you know, the last five, ten years. You know, obviously, as as you kind of go back through a few years ago, I mean, five, six years ago, none of us thought we'd ever paid anything for our deposits ever again, you know, as a receiver side, and that's kind of that's obviously changed. I think what's happened is both the consumer and and ourselves have all got much more sophisticated, more flexibility in terms of where we want to hold our deposits, the kind of reemergence of the kind of the term account as a place to kind of get better kind of interest rates. So I think even when you see if we were to go down to those levels, which I mean isn't a level that's being proposed, I'd say, this. So it's not something we certainly see in our own economics.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

There would still be movement and flexibility on that, but that very much mirrors what's kind of have happened in the past as well.

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great.

[Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thanks very much.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Chris.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Thanks, Ed.

[Operator]

Our next question comes from Jonathan Pierce of Jefferies. Jonathan, if you'd like to unmute and ask your question.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Hey, Jonathan.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Hey, Jonathan.

[Jonathan Pierce, Equity Analyst at Jefferies]

Hello. Hi, guys. Good morning. Good morning. I've got two two questions, please.

[Jonathan Pierce, Equity Analyst at Jefferies]

The first, I suppose, demonstration of how clear and concise much of this is a tier one costs. I'm having to focus in on the a tier one soccer things about £6,000,000,000 now, which is 3.2% of your RWAs. Just wondering where we go from here because based on what you've got at the moment, the the annualized cost is about 400,000,000, which is quite a bit above consensus, but you have got some pretty big potential calls later in the year. Your Slide 13, I think it was suggested that you probably are largely done for the year and hence you'll just let those other ATO ones later in the year disappear without replacement. Is that the way to think about it?

[Jonathan Pierce, Equity Analyst at Jefferies]

Because I just like to get a better handle on what we should be putting in for a tier one coupons moving forwards. The second question is a bit bigger picture capital intentions 13.8 equity Tier one you're generating a lot every quarter. The directed buyback opportunity feels like it's, you know, receding by the day. How are you thinking about this? Are you keeping capital back for potential inorganic opportunities?

[Jonathan Pierce, Equity Analyst at Jefferies]

When we get to the interims, are we should we be expecting in market buybacks to be announced these kind of things and maybe connected to that the risk weighted asset optimization. It'd be helpful if you could give us a sense as to what the cost to the income is of that because accepting you want to hit your RWA guidance for the year, given the capital position, it doesn't necessarily feel like you need to be doing this if it's coming at an income cost. So as a rule of thumb, what's income hit from a billion of RWA optimization? It'd useful to know. Thanks a lot.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Right. Thanks, Jonathan. Katie, I'll take capital and then come back to you on oh, and then you take the specific on 81.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Sure.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Okay.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Thank

[Katie Murray, Group CFO & Executive Director at NatWest Group]

you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So, Jonathan, on on capital, as you say, strong print, 13.8%, upper end of our range. We've been consistent. We're happy to operate anywhere within the range, 13 to 14. It gives us a, obviously, material buffer on our minimum, which is 11.7.

[Paul Thwaite, Group CEO & Director at NatWest Group]

You talk there is the potential, as you say, it's the size of it is getting smaller, but there still is the potential for a directed buyback should we have the chance to participate. So it's worth bearing that in mind. We will review other buybacks as you'd expect with the board and update at the the half year and at the full year. That's that's when we we tend to do that. Nothing's changed around my philosophy, our philosophy in terms of capital allocation.

[Paul Thwaite, Group CEO & Director at NatWest Group]

We know how how important capital return is to shareholders. So that's yeah. There's that. I think hopefully, that's given you a very clear view of of where we are. On r w on RWAs and the the specific, I guess the way we think about that is is around the cost of capital on the trade.

[Paul Thwaite, Group CEO & Director at NatWest Group]

So we we don't disclose the number on the cost of that, but what what what we ensure any trades that we write, we have to be we we ensure that we're very happy with the return, and then, obviously, we can redeploy that capital at higher return. That so in effect, we we look at we look at those trades as as through the returns lens as in return accretive at a trade level, but also redeployments of the capital rather than just thinking about the income impact. 80 ones, Keith?

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Yeah. Sure. Absolutely. And thanks thanks for bringing it up, Jonathan. So you're right.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

We issued some 81 November and March, and I would say some of the cost probably isn't completely in all of the models, so it's worth having another look of a look at as well. The coupon cost is booked through profit attributable to paid in equity holders, just to remind you. That is about GBP 100,000,000 per quarter. And then the income obviously comes in proceeds of that is included with income. We do, as you saw, you can see on Slide 14, we're sitting a little bit higher than our regulatory requirement on AT1.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

The regulatory requirement is 2.1% versus the 3.2% that we're sitting at just now. That's really a reflection of some of the early issuance we did to take advantage of good kind of markets. Look, Jonathan, as you know, can't on future calls as we go through from here. So I'm not going to comment on that specifically today, but I guess that excess gives you some kind of indicator. Comfortable with where we're sitting and really pleased that we did do some of our issuance earlier in the year as well.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Hope that helps.

[Paul Thwaite, Group CEO & Director at NatWest Group]

And more broadly, Jonathan, just to close it off, obviously, we remain obviously very focused on capital allocation and distribution. Thanks.

[Jonathan Pierce, Equity Analyst at Jefferies]

Yeah. Thank you. Are you willing to give us a very rough rule of thumb though on the income impact of the RWA optimization? Because, you know, there was 1,200,000,000.0 in q one, I guess, it's a bit more coming later in the year. It's obviously a a bit of a headwind against income.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

So we're not looking to give you a specific number on that. Mean, obviously, as you know, we guide to total income and that would be a small number as part of that piece. It is one of the things when we look to the second half of year, kind of headwinds that you have where you do see as you ramp up, you'll see some kind of action come through in that. I'll just remind you there are various bits of RWA action we do, whether it's SRTs or credit insurance or obviously asset sales as well as kind of the data management activities we go. They all come at very different costs in terms of, as Paul said earlier, very committed to the cost of equity on those things and also where we can redeploy it.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

So overall, we see it's very beneficial for the shape of the balance sheet and the income statement. Thanks, Jonathan.

[Jonathan Pierce, Equity Analyst at Jefferies]

Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Jonathan.

[Operator]

Our next question comes from Guy Steppings of BNP Paribas Xane. Guy, if you'd to go ahead and ask your question.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Hey, Guy.

[Guy Stebbings, Executive Director at Exane]

Hi. Morning, both.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Morning.

[Guy Stebbings, Executive Director at Exane]

Thanks. Thanks for taking the questions.

[Guy Stebbings, Executive Director at Exane]

A couple of products, I guess. So the the first one was just coming back to to lending margin. And then firstly, what what are you seeing on on new mortgage spreads today versus prior quarters in the 70 basis points you you you saw for much of 2024? I mean, is it is it right to think that may have drifted down into sort of sixties on on application spreads today? And then on asset mix, how much the sort of seeing support on the corporate book in particular, and if that's a trend you would expect to persist?

[Guy Stebbings, Executive Director at Exane]

And then the the final question was back on risk transfer market, but but really in the context of the recent PRA comments. I think it seemed the concern is centered more on risk in the system from funding of banks to acquire the rest the market itself. But a peer of yours downplayed an exposure to selling the week. So just wonder if that was something you would sort of echo those remarks. Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Katie.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Sure, absolutely. So when we look at the mortgage margin, our book margin remains around 70 basis points in line with our previous guidance. That's a good indicator of the front book margin that we aim to write up for our risk appetite. We do know and clearly you can see that front book margins do vary week to week given the dynamic pricing and hedging that we have with good returns obviously available below that 70 basis point level, particularly when you look at the kind of lower LTVs.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

What I would say on kind of margins overall, you do expect us to be thoughtful on volume of new business as we continue to write and to flex our appetite at different times as some of the returns vary at different points on the pricing kind of charts. As you know, on mortgages and assets in general, our focus is very much on returns and not on the margins within there. And then if I look to your question on the asset book within the corporate book, you can see within our NIM walk this time around that we actually had a little bit of a positive in there, a slight negative on mortgages as I mentioned earlier, and the positive coming through from the corporate book and a little bit on unsecured as well. Then in terms of your second question, the Dear CFO letter, it was very focused on the financing of significant risk transfers in the trading book and that has no read across for us on the execution of our SRT transaction of our own assets and as part

[Katie Murray, Group CFO & Executive Director at NatWest Group]

of our

[Katie Murray, Group CFO & Executive Director at NatWest Group]

capital optimization activities. And we do not, of course, finance any of our SRT transactions.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Katie. Thanks, Guy.

[Guy Stebbings, Executive Director at Exane]

Thanks very much.

[Operator]

Our next question comes from Robin Down of HSBC. HSBC. Robin, if you'd like to unmute and ask your question.

[Robin Down, Analyst at HSBC]

Good morning, and thanks for taking the questions. Can I just build a little bit on your comment there about mortgage spreads and appetite for writing business? I think you mentioned earlier that Q1 you felt was influenced by stamp duty on the mortgage side. But if we look at the Bank of England approval numbers for March, they didn't really fall a great deal versus prior months. And certainly, a non seasonally adjusted basis, they looked actually quite strong at the March.

[Robin Down, Analyst at HSBC]

So I just wonder if you could give us an indication of where your kind of approval numbers were and what you're thinking about lending into Q2. And then maybe somebody on the

[Paul Thwaite, Group CEO & Director at NatWest Group]

Robin, we've lost you.

[Operator]

Yes. Unfortunately, we can't hear Robin anymore, but maybe you'd

[Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank]

like to answer

[Robin Down, Analyst at HSBC]

some your expectations.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Oh, Robin, we lost you there mid mid mid question.

[Robin Down, Analyst at HSBC]

Oh, which which which question? The mortgage mortgage?

[Paul Thwaite, Group CEO & Director at NatWest Group]

Yeah. You you have you might got to the end of your mortgage question.

[Robin Down, Analyst at HSBC]

Ah, okay. It's probably because I got Bloomberg running in the background. Yeah. It's just really a question of whether you could give us a sort of indication where your mortgage approvals were at the at the March and and what your kind of thoughts are in terms of mortgage growth in in kind of Q2? Because it just feels to me like there's more underlying demand there rather than necessarily just being a stamp duty issue.

[Robin Down, Analyst at HSBC]

And then the second question was around deposits. Obviously, Q1 seasonally is normally a very weak quarter for deposits. You've seen growth coming through, including in personal current accounts. So just wondering what your thoughts are there in terms of growth in Q2 and beyond and whether or not we should expect to see your structural hedge growing. I know you've talked about stability in the past, but whether we should actually be factoring in growth there.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Great. Thanks, Robin. On Katie, I'll come to you on deposits. The mortgage side, we we agree with you. You know, application levels through the quarter remained robust.

[Paul Thwaite, Group CEO & Director at NatWest Group]

There was a pull forward of some of the first time buyer transactions because of the stamp duty change. We can see in the data that our market share increased there from 8% a year ago to to 11, and we've kept our overall mortgage market stock share steady. So yeah. So application volumes remain strong. We don't see that as a kind of cliff edge moment in terms of the the stamp duty change.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Katie, deposits?

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Yeah. Sure. Absolutely. So if we look at the the deposits, we you if we think of our own economic data, we do expect the deposits to continue to kind of to grow in line with that. We're very much moving in line with market in that space.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

And then you can also see that the savings rate has continued to improve as well, which is obviously Now in terms of your comments and queries on the structural hedge, we have seen a little bit of growth in this quarter on the non interest bearing, particularly within retail banking and as we move forward from there. So Robin, I think what's helpful to do is to think back of how do we do our structural hedge. So we do a twelve month loop back. So that small amount of growth that we've seen coming through in terms of its eligible balances, you could, in theory, see that start to come through over the twelve month loop back.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

But I would say at the moment, we're kind of guiding you to pretty stable for this year around that 170,000,000. So I wouldn't expect it to deliver growth immediately into the size of that structural hedge. But it's something that certainly if we continue to see a growth and it became more meaningful, then it would go through, but it does come onto your kind of eligible balances. And that's certainly where our non interest bearing are are important with within there. Hope hope that helps.

[Robin Down, Analyst at HSBC]

Alright. Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Robin.

[Operator]

Our next and final question, it comes from Alvaro at Morgan Stanley. Alvaro, please unmute and go ahead.

[Alvaro Serrano, Managing Director at Morgan Stanley]

Hi. Just a couple of quick follow ups, really. Just on the deposit mix, term deposits have come down slightly. Katie, you just referred to some of that. As rates come lower, do you think you can see we could see more of that?

[Alvaro Serrano, Managing Director at Morgan Stanley]

Or it's just a seasonal blip? I guess people might not start not to bother to roll over some of the term deposits. Could we see that effect if we get closer to three? Or what level of rates do you think that could happen more at a bigger scale? And second, just to make sure that's still the intention.

[Alvaro Serrano, Managing Director at Morgan Stanley]

When you talk about your 13% to 14% now that the government sort of quickly going to come out, do you still intend to stay within that range and distribute anything above that range on an interim basis? Thank you. I every six months at the midyear and the the full year. Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Alvaro. Last but not least, on the second I'll I'll take the second question, Katie, then flip back to you on on the deposit side. On the the capital question, Alvaro, we're very happy to operate anywhere within the the target range of 13 to 14%. We consider the bottom end to be a strong capital level, but as you probably heard me say earlier, we'll decide at the half year and the full year with the board around capital distribution, but we know we know how important that is to shareholders. So no change in our philosophy at all from that perspective.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Katie?

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Sure. In terms of of deposit mix, you know, when I look at that term number, it was like 17%, now it's 16%. It's all kind of in the roundings of where of where those numbers are. I think one of the the things to think about as well as the kind of fixed rate ISA. So I the April was ISA season and we did see in both in the sector data and our and in our own data that it was a strong a strong season.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

So you see some nice pickup from there. So I can think how you see how it flows is from here. What we look at a lot is in terms of the when people's accounts are coming up to maturity, how much do they retain and how much do they either move into access and then we see it coming back into fixed as it goes through. And that kind of percentage has been pretty strong and is quite a high proportion of that. So in my own mind, one of the ways to think about it, you have the icy season which brings more money in and then you have people that are kind of managing their kind of term deposits as to as to where they are.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

Obviously, varies in terms of different sectors. Private is a little bit different as well as people are looking for sometimes for alternative investment. Then C and I, as you know, the numbers are much chunkier and it's a different kind of theme that you have in there. But overall, I think we're happy with how it's progressing. We expect it to continue to progress relatively well, but we'll move very much in line with kind of market for a flow.

[Katie Murray, Group CFO & Executive Director at NatWest Group]

So let's see how it plays out from here. Thanks very much, Alvaro.

[Alvaro Serrano, Managing Director at Morgan Stanley]

Great. Thank you.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thanks, Alvaro. And I guess I'll wrap things up if that's the last question. So I guess to conclude, we're pleased with the performance in quarter one. It's strong and it shows the continued momentum in the business. We continue to believe the business is very well positioned to deliver strong shareholder returns.

[Paul Thwaite, Group CEO & Director at NatWest Group]

And to that end, we've updated our returns guidance to the upper end of the 15% to 16% range for 25%. We will be holding a spotlight on our private banking business on June. So I hope most of you will get the chance to to join that. And, also, the spotlight we held on our commercial business is available on the website. So wishing you all a good weekend.

[Paul Thwaite, Group CEO & Director at NatWest Group]

Thank you.

[Operator]

That concludes today's presentation. Thank you for your participation. You may now disconnect.

Participants

Executives

• Paul Thwaite, Group CEO & Director
• Katie Murray, Group CFO & Executive Director

Analysts

• Sheel Shah, Executive Director at J.P. Morgan
• Benjamin Caven-Roberts, Vice President at Goldman Sachs
• Christopher Cant, Head of Banks Strategy at Autonomous Research
• Andrew Coombs, Equity Research Analyst at Citi
• Aman Rakkar, Director - Banks Equity Research at Barclays Investment Bank
• Amit Goel, Managing Director at Mediobanca
• Ed Firth, Managing Director at Keefe, Bruyette & Woods (KBW)
• Jonathan Pierce, Equity Analyst at Jefferies
• Guy Stebbings, Executive Director at Exane
• Robin Down, Analyst at HSBC
• Alvaro Serrano, Managing Director at Morgan Stanley