NatWest Group(US:NWG)2020-05-01 17:56Financial Data and Key Metrics Changes - The Q1 financial results were impacted by a net impairment charge of GBP 802 million, compared to GBP 86 million in the same quarter last year [3][4] - Operating profits were GBP 519 million, with an attributable profit of GBP 288 million, resulting in a return on tangible equity (RoTE) of 3.6% [4][37] - The CET1 ratio increased to 16.6%, partly due to the cancellation of the full-year dividend [4][58] Business Line Data and Key Metrics Changes - Retail and commercial net lending increased by GBP 13.1 billion or 4%, with GBP 4.8 billion attributed to personal banking, primarily from mortgage growth [14] - NatWest Markets' core income was GBP 412 million, up GBP 35 million or 9% from Q1 2019, driven by increased customer activity [34] - The cost reduction achieved in Q1 was GBP 26 million, with strategic costs amounting to GBP 131 million [35] Market Data and Key Metrics Changes - Customer deposits grew by GBP 15.6 billion during the quarter, particularly in March, reflecting increased cash conservation by consumers and businesses [62] - The bank's liquidity portfolio totaled GBP 201 billion, with a liquidity coverage ratio (LCR) of 152% [60][62] Company Strategy and Development Direction - The company is focused on maintaining strong liquidity, diversified funding, and capital strength while addressing immediate challenges [5][28] - A strategic cost target of GBP 250 million for 2020 remains, with a focus on careful and disciplined balance sheet deployment [23][30] - The company plans to merge its personal digital account, Bo, with its digital bank for SMEs, Mettle, to streamline operations [25] Management's Comments on Operating Environment and Future Outlook - The management acknowledged the unprecedented economic uncertainty due to Covid-19, emphasizing a strong focus on risk management and capital liquidity [28][29] - The outlook remains extremely uncertain, with no consensus on the economic impact of the pandemic [42][66] - The company is confident in its balance sheet strength and strategic priorities despite the challenges posed by the pandemic [29][30] Other Important Information - The impairment charge of GBP 802 million included GBP 628 million related to a multiple economic scenario overlay, increasing the expected credit loss (ECL) stock from GBP 3.7 billion to GBP 4.2 billion [44] - The average loan-to-value (LTV) ratio in the UK mortgage portfolio was 57%, with only 13% of the book having LTVs above 80% [18] Q&A Session Summary Question: Guidance on net interest margin (NIM) and payment holidays - Management indicated that around 190,000 mortgage repayment holidays were agreed, representing about 18% by value of the mortgage book, and it is too early to assess the long-term impact [73] - NIM guidance was discussed, with expectations of a decline due to rate cuts, but management believes the impact will be less severe than peers [120] Question: Economic assumptions and capital targets - The difference between applying an overlay and changing economic assumptions was clarified, emphasizing that the overlay captures forward-looking risks [87][90] - The CET1 target of 14% for 2021 remains, with management confident in their capital position despite economic uncertainties [92] Question: Impact of new government loan schemes - The Bounce Back Loan scheme for micro businesses was discussed, with details still being finalized with the government [106] Question: Outlook for NII and sensitivity of MES overlay - Management stated that GDP is a key driver for the MES overlay, and they are positioning the bank to manage various outcomes amid uncertainties [110]