NatWest Group(NWG) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a strong income growth of 12%, with total income reaching GBP 16.4 billion, exceeding guidance of around GBP 16.3 billion [4] - Earnings per share grew 27% to GBP 0.68, while dividends per share increased 51% to GBP 0.325 [3] - The cost-income ratio improved to 48.6%, down 4.8 percentage points from the previous year [11] - The Common Equity Tier 1 (CET1) ratio stood at 14%, reflecting a 40 basis points increase from the prior year [17] Business Line Data and Key Metrics Changes - Customer loans increased by 5.6% to GBP 392.7 billion, driven by growth in mortgages and unsecured lending [6] - Customer deposits rose 2.4% to GBP 442 billion, with retail banking deposits increasing by GBP 7.8 billion or 4% [8] - Assets under management (AUM) grew nearly 20% to GBP 58.5 billion, with net flows of GBP 4.6 billion up 44% [8] Market Data and Key Metrics Changes - The company maintained a strong position in the UK market, being the largest bank for business, with growth across various sectors including social housing and project finance [6] - The average Liquidity Coverage Ratio (LCR) was 147%, indicating a comfortable surplus over minimum requirements [15] Company Strategy and Development Direction - The company aims to achieve disciplined growth with a focus on key customer segments and enhancing customer engagement [34] - Plans include leveraging simplification and investing in AI to drive growth and improve productivity [34] - The target for 2028 includes growing customer assets and liabilities at an annual rate greater than 4% and reducing the cost-income ratio to below 45% [35] Management's Comments on Operating Environment and Future Outlook - Management expects moderate growth in the macro environment for 2026, with a terminal bank rate projected at 3.25% [11] - The company anticipates a loan impairment rate below 25 basis points for 2026, reflecting a normalization in impairments [75] - There are no significant signs of stress across the business, and management remains confident in the performance of the loan book [13] Other Important Information - The company successfully completed its 2025 funding plan with GBP 7.1 billion in benchmark issuance [16] - Credit ratings improved, with Fitch upgrading the rating of NatWest Group PLC to A plus and S&P raising the rating to A-minus [32] Q&A Session Summary Question: How do you think about risk appetite and quantum of RWAs that can be optimized? - Management highlighted the execution of SRT transactions leading to significant RWA optimization and sees potential for further transactions in 2026 and 2027 [37][38] Question: How do you set the leverage buffer target in relation to the capital target or the RWA framework? - Management indicated that risk weights are expected to be the binding constraint moving forward, rather than leverage [51] Question: What is driving the impairment change guidance to 25 basis points? - Management explained that the guidance reflects a normalization in impairments and growth in the loan book, particularly in unsecured lending [74]