NatWest Group(NWG) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The pre-impairment operating profit for the first half was £2.1 billion, but the company reported an operating loss of £770 million and an attributable loss of £705 million due to a net impairment charge of £2.9 billion [4][5][35] - The common equity Tier 1 (CET1) ratio for the first half was 17.2%, with a liquidity coverage ratio of 166% [5][7][55] Business Line Data and Key Metrics Changes - In U.K. Personal Banking, total income decreased by £115 million due to lower overdraft fees and reduced card spending [36] - Total Commercial Banking income was slightly down, but strong balance sheet growth from government lending initiatives helped increase net interest income [37] - NatWest Markets income increased by £270 million, with revenue growth driven by stabilized credit markets [37] Market Data and Key Metrics Changes - Total customer deposits grew by £39 billion during the first half, with retail banking deposits increasing by £11 billion and commercial banking deposits by £25 billion [22][57] - Net lending increased by £16 billion in total during the first half, with approximately half relating to government scheme drawdowns [13] Company Strategy and Development Direction - The company is focused on supporting customers during the pandemic while executing strategic priorities, including a £250 million cost reduction target [9][30] - There is a strategic initiative to refocus NatWest Markets, aiming to reduce risk-weighted assets (RWAs) to £32 billion in 2020 and to £20 billion over time [23][60] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the economic recovery, noting signs of increased mortgage applications and spending growth [13][30] - The company anticipates a significantly lower impairment charge in the second half, with full-year charges expected in the range of £3.5 billion to £4.5 billion [7][44] Other Important Information - The company has maintained a consistent approach to risk and underwriting standards, supporting existing customers through government-backed loan schemes [16][18] - The company has committed to making its operations climate positive over the next five years and has issued a $600 million green bond [29] Q&A Session All Questions and Answers Question: Can you provide insights on revenue expectations for the second half of the year? - Management indicated comfort with revenue expectations, noting that increased retail sales and new lending demand are anticipated as the economy recovers [67][70] Question: What are the drivers of the CET1 ratio? - The CET1 ratio is influenced by earnings and the unwinding of IFRS 9 impacts, with an estimated positive impact of 20 to 30 basis points expected in the next quarter [68][71] Question: How should we think about mortgage growth going forward? - The company expects to continue growing market share in mortgages, with retention levels improving and a strong recovery in mortgage applications observed [74][75] Question: What is the outlook on structural hedge and potential negative rates? - The company sees a low likelihood of negative rates impacting its operations, with only a 10% probability assigned to such an outcome [82]