NatWest Group(NWG) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Customer lending grew by 3.2% to GBP 384 billion in H1 2025, while customer deposits increased by 1% to GBP 436 billion [3] - Income rose by 13.7% year-on-year to GBP 8 billion, and costs decreased by 1.4% to GBP 3.9 billion, resulting in an operating profit of GBP 3.6 billion and an attributable profit of GBP 2.5 billion [3][4] - The return on tangible equity was reported at 18.1% [3] Business Line Data and Key Metrics Changes - Retail Banking and Private Banking mortgage balances grew by GBP 1.3 billion, with unsecured balances increasing by GBP 2.7 billion due to the addition of Sainsbury's Bank portfolios [11][12] - In Commercial and Institutional, gross customer loans increased by GBP 4.6 billion, driven by project finance and sustainable financing [12] - Overall income, excluding notable items, grew by 1.5% to GBP 4 billion in Q2 2025 [8] Market Data and Key Metrics Changes - The average liquidity coverage ratio was 150%, indicating a strong liquidity position [21] - The loan to deposit ratio stood at 86%, reflecting a well-diversified funding base [21] Company Strategy and Development Direction - The company aims to deliver GBP 200 billion of climate and transition finance by 2030, having already exceeded its previous target [6] - A strategic collaboration with AWS and Accenture was announced to enhance data capabilities and customer engagement through AI [6] - The company is focused on bank-wide simplification to improve customer and colleague experience [6] Management's Comments on Operating Environment and Future Outlook - Management expects total income for the full year to exceed GBP 16 billion, with a return on tangible equity greater than 16.5% [11][17] - The company anticipates two further base rate cuts this year, with rates expected to reach 3.75% by year-end [10] - Management expressed confidence in the credit portfolio, expecting a loan impairment rate below 20 basis points for the full year [16] Other Important Information - An interim dividend of GBP 9.5 was announced along with a share buyback program of GBP 750 million [4] - The CET1 ratio was reported at 13.6%, with a total capital ratio of 19.7% [21][22] Q&A Session Summary Question: Expected issuance before the end of the year - The company has issued GBP 750 million and may consider a cleanup transaction later this year or early next year depending on risk weights [34][36] Question: Concerns about rating gaps between agencies - Management acknowledged the gap with S&P and emphasized the strength of the balance sheet, aiming for an upgrade based on strong financial performance [39][40] Question: Economic assumptions and loan growth - Management indicated that while they have not provided specific guidance for 2026, they are currently operating closer to the lower end of the impairment range [60] - Project finance is described as lumpy but supported by strong relationships [63] Question: NSFR and ring-fencing implications - The NSFR is high due to a strong deposit franchise, and management does not expect changes in ring-fencing to impact the competitive nature of the mortgage market [69]