NatWest Group(US:NWG)2024-02-16 22:22Financial Data and Key Metrics - In 2023, the company increased lending to customers by GBP 9 billion, opened over 100,000 new start-up accounts, and helped customers save GBP 21 billion more in fixed-term savings [2] - The net impairment charge for the full year was GBP 578 million, equivalent to 15 basis points of loans, with expectations of a low impairment rate below 20 basis points in 2024 [10] - The company reported a CET1 ratio of 13.4% at the end of Q4 2023, with capital generation of 154 basis points before notable items and RWA model updates [41] - Full-year income excluding notable items was GBP 14.3 billion, up 9.8%, with a return on tangible equity of 17.8% [48][88] Business Line Performance - Retail Banking remained the highest-returning business in 2023, with a return on equity of 23.8%, despite higher costs and impairments [8] - Commercial & Institutional Banking delivered the strongest year-on-year improvement, growing income by 16% and operating profit by 27%, contributing 52% of group operating profit [57] - Private Banking return on equity was 14.8%, affected by lower deposit balances and cost inflation [57] Market Performance - The company serves 19 million customers across Retail Banking, Private Banking, and Commercial & Institutional Banking, with leading market positions and a 20% share in the youth and new startup segments [7] - Mortgage flow share for the full year was 14%, with a stock share increase from 12.3% to 12.7% [89] - Deposits across the three businesses reduced by GBP 14 billion in 2023, with noninterest-bearing deposits decreasing to GBP 142 billion and term deposits increasing to GBP 68 million [9] Strategic Direction and Industry Competition - The company is focused on driving returns through disciplined growth, cost efficiency, and capital allocation, targeting a return on tangible equity greater than 13% by 2026 [54] - Investments in digitization and automation are expected to improve productivity and customer experience, with run rate savings of GBP 250 million annually since 2021 [71] - The company is actively managing its balance sheet, including the structural hedge, which is expected to deliver a tailwind in 2024 and beyond [6][74] Management Commentary on Operating Environment and Future Outlook - Management expects a low impairment rate below 20 basis points in 2024, driven by the current performance of the loan book and an updated economic outlook [10] - The company anticipates a reduction in interest rates, with five cuts starting in May 2024, which will impact income progression and deposit pass-through [5][76] - The macroeconomic environment remains uncertain, with geopolitical risks and potential impacts on global trade and supply chains [44] Other Important Information - The company announced a final dividend of 11.5 pence, bringing the total dividend to 17 pence, and a new on-market buyback of GBP 300 million, with total distributions for the year reaching GBP 3.6 billion [31] - The government stake in the company has reduced from 46% at the start of 2023 to under 35%, with plans for a full exit by 2026 [31] - The company provided GBP 29 billion of climate and sustainable funding in 2023, bringing the total to GBP 62 billion since July 2021, with a target of GBP 100 billion by the end of 2025 [48] Q&A Summary Question: Confidence in new RoTE targets and mortgage business growth [12] - The company expects RoTE to increase from 12% in 2024 to above 13% by 2026, driven by the structural hedge and disciplined capital allocation [12] - Mortgage growth is expected to be stable, with a focus on managing the balance sheet in a competitive market [12] Question: Impact of rate cuts on income and deposit pass-through [141] - The company assumes a 60% pass-through of rate cuts to customer deposit rates, with timing lags influenced by competition and customer behavior [141] Question: Structural hedge and deposit migration [108] - The structural hedge notional balance reduced to GBP 185 billion at the end of 2023, with expectations of further reduction in 2024, but at a slower pace [108][111] Question: Cost management and restructuring [173] - The company expects costs to remain broadly stable in 2024, with wage inflation and contract inflation mitigated through cost-saving measures [173] Question: Loan growth and economic outlook [133] - The company targets above-market loan growth, particularly in mortgages and corporate lending, with a focus on returns and disciplined capital allocation [133][158] Question: Revenue guidance and rate cut assumptions [193] - The company's revenue guidance for 2024 reflects uncertainty around rate cuts, competition, and customer behavior, with income expected to be stronger in the second half of the year [193][199] Question: TNAV and RoTE expectations [209] - The company expects TNAV to grow significantly, driven by the unwinding of the cash flow hedge reserve, with RoTE improving as rate cuts are completed [209][204]