Natwest Group PLC

Earnings Release • Jul 29, 2022

National Storage Mechanism | Additional information RNS Number : 1756U NatWest Group plc 29 July 2022 NatWest Group Interim Results 2022 NatWest Group plc natwestgroup.com NatWest Group plc Interim results for the period ended 30 June 2022 Chief Executive, Alison Rose, commented "NatWest Group delivered a strong performance in the first half of 2022, building on two years of progress against our strategic priorities. We are growing our lending to customers and continuing our ��3 billion investment programme to create a simpler and better banking experience whilst delivering sustainable dividends and returns for our shareholders. We know that continued increases in the cost of living are impacting people, families and businesses across the UK and we have put in place a range of targeted measures to support those who are likely to need it most. Our strong levels of profitability and capital generation mean we are well positioned to provide this support. By building deeper relationships with our customers at every stage of their lives, we will deliver sustainable growth and help them to thrive in a challenging environment." Strong H1 2022 performance - H1 2022 attributable profit of ��1,891 million and a return on tangible equity of 13.1%. The cost:income ratio was 58.3% in the first half compared with 67.6% in H1 2021. - Excluding notable items, income in the Go-forward group increased by ��819 million, or 16.2%, compared with H1 2021 principally reflecting the impact of base rate increases and volume growth. - Bank net interest margin (NIM) of 2.72% was 26 basis points higher than Q1 2022 driven by the impact of base rate rises. - Other operating expenses in the Go-forward group were ��50 million, or 1.5%, lower than H1 2021. - H1 2022 operating profit before impairments in the Go-forward group was ��2,787 million, up 53.5% on H1 2021. - A net impairment release of ��46 million in the Go-forward group in H1 2022 reflected the low levels of realised losses we continue to see across our portfolio, although we continue to monitor our book given the uncertain economic outlook. Robust balance sheet underpins sustainable growth - Go-forward group net lending increased by ��9.3 billion during H1 2022 to ��361.6 billion, with growth well balanced across the business. - Customer deposits in the Go-forward group increased by ��14.8 billion during H1 2022 to ��476.2 billon. - The liquidity coverage ratio (LCR) of 159%, representing ��76.1 billion above 100%, decreased by 13 percentage points compared with Q4 2021. Continued strong capital generation supports substantial distributions to shareholders - We are pleased to announce an interim dividend of 3.5 pence per share, up 17% on 2021 and a special dividend with share consolidation of ��1,750 million, or 16.8 pence per share, subject to shareholder approval. Taken together these will deliver 20.3p of dividends per share. - When combined with the directed buyback in the first quarter, the proposed interim and special dividends bring total distributions deducted from capital in the first half to ��3.3 billion, or c.32 pence per share. - CET1 ratio of 14.3% was c.160 basis points lower than 1 January 2022 as total distributions of c.190 basis points and increased RWAs of c.30 basis points were partially offset by the attributable profit of c.110 basis points. - RWAs increased by ��3.5 billion compared to 1 January 2022 to ��179.8 billion. Outlook(1) The economic outlook remains uncertain. The following statements are based on central economic forecasts, as detailed on pages 20 to 22, which include an anticipated increase in the central bank rate to 2.0% by the end of the year. We will monitor and react to market conditions and refine our internal forecasts as the economic position evolves. - In 2022, we expect income excluding notable items to be around ��12.5 billion in the Go-forward group(2). - We expect NIM to be greater than 2.70% for full year 2022 in the Go-forward group. - We are investing around ��3 billion(3) over 2021 to 2023 and, with continuing simplification, we plan to reduce Go-forward group operating expenses, excluding litigation and conduct costs, by around 3% in 2022 and to keep broadly stable in 2023, with positive jaws. In 2023 we expect some of the current inflationary impacts to be more significant, however this will be offset by ongoing savings from our investment programme. - We expect our 2022 and 2023 impairment charge to be lower than our through the cycle loss rate of 20-30 basis points, with 2022 below 10 basis points in the Go-forward group. - In 2023, we expect to achieve a return on tangible equity in the range of 14-16% for the Group. Capital and funding - We aim to end 2022 with a CET1 ratio of around 14% and target a ratio of 13-14% by 2023. - We intend to maintain ordinary dividends of around 40% of attributable profit and to distribute a minimum of ��1 billion in each of 2022 and 2023. - We intend to maintain capacity to participate in directed buybacks of the UK Government stake, recognising that any exercise of this authority would be dependent upon HMT's intentions and is limited to 4.99% of issued share capital in any 12-month period. - We will consider further on-market buybacks as part of our overall capital distribution approach as well as inorganic growth opportunities provided they are consistent with our strategy and have a strong shareholder value case. - As part of the NatWest Group capital and funding plans we intend to issue between ��3 billion to ��5 billion of MREL-compliant instruments in 2022, with a continued focus on issuance under our Green, Social and Sustainability Bond framework. NatWest Markets plc's funding plan targets ��4 billion to ��5 billion of public benchmark issuance. Ulster Bank RoI - We have made significant progress on our phased withdrawal from the Republic of Ireland and have binding agreements in place for c.90% of gross customer loans. We expect the majority of the commercial asset sale to Allied Irish Banks and the majority of the asset sale to Permanent TSB to be largely complete by the end of 2022 and for the tracker mortgage asset sale to Allied Irish Banks to complete in the first half of 2023. - With this progress, we continue to expect total exit costs of ���900 million, with the majority incurred by the end of 2023. In Q3 2022 we expect to incur around ���350 million of these exit costs as a result of the reclassification of UBIDAC mortgages to fair value. - We continue to expect the phased withdrawal to be capital accretive. (1) The guidance, targets, expectations, and trends discussed in this section represent NatWest Group plc management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc Risk Factors section on pages 406 to 426 of the 2021 Annual Report and Accounts and the Summary Risk Factors on pages 106 and 107 of this announcement. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement. (2) Go-forward group excludes Ulster Bank RoI and discontinued operations. (3) Denotes cash investment spend excluding certain regulatory and legacy programmes. Our Purpose in action We champion potential, helping people, families and businesses to thrive. We are breaking down barriers, building financial confidence and delivering sustainable growth and returns by living up to our purpose. Some key achievements from H1 2022 include: People and families - We have proactively contacted 2.7 million personal and business customers year to date, offering support and information on the cost of living. We have also launched an online Cost of Living hub to share resources and tools, and to inform customers of the support that is available to them through third parties. - We delivered 3.7 million financial capability interactions in H1 2022, including carrying out 0.4 million financial health checks. - In Retail Banking, we have completed ��1.4 billion of green mortgages (which give a discounted interest rate to energy efficient properties) since they were launched in Q4 2020, including ��661 million in H1 2022. - Our support for young people continues with the launch of our new pocket money product, NatWest Rooster Money, which helps children build money confidence and develop positive money habits around saving and spending. We acquired Rooster along with 130,000 customers and since the beginning of the year added 17,000 new customers plus a smooth connection to Rooster via the main Mobile App. Businesses - We completed ��11.9 billion of climate and sustainable funding and financing in H1 2022, bringing the cumulative contribution to ��20.0 billion against our target of ��100 billion between 1 July 2021 and the end of 2025. - We announced an additional ��1.25 billion lending package to the UK farming community and our 40,000 customers within it, building on an earlier set of measures for the sector announced in June 2022. - To provide certainty to SMEs, Business Current Accounts remain available without a minimum charge and we are freezing the standard published tariffs on these accounts for the next 12 months. - NatWest Markets won the 'Most Impressive Investment Bank for Corporate Green and ESG-Linked Bonds' as well as the 'Most Impressive FIG (Financial Institutions Group) House in Sterling' at the 2022 Global Capital Bond Awards in June 2022. Colleagues - To support our colleagues with the rising cost of living, we announced a permanent increase in base pay averaging ��1,000 for more than 22,000 colleagues globally. - We announced a three-year partnership with the University of Edinburgh to make climate education available to all colleagues across the bank, including the delivery of more in-depth Climate Change Transformation and Sector Specific programmes for over 16,000 roles which require a broader level of knowledge. - To support our colleagues who are carers, unpaid carers' leave can now be taken day-by-day, instead of only in full-week blocks, up to a maximum of four weeks in a year, and up to a maximum of 18 weeks in total. - Building on our campaign to support learning for the future, colleagues are now able to take two dedicated, learning-for-the-future days each year to support the development of future skills. Communities - To help with the rising cost of living, we announced a new ��4 million hardship fund to provide grants and support, delivered through partner organisations including Citizens Advice, StepChange and Money Advice Trust. - We launched the pilot scheme for the NatWest Thrive with Marcus Rashford programme. The programme aims to help more young people pursue their dreams, appreciate their strengths and become more money confident. - In collaboration with Aston University, we published the report 'Time to change: A blueprint for advancing the UK's ethnic minority businesses', which sets out recommendations for policymakers, companies and entrepreneurs to advance the growth potential of ethnic minority businesses. - To champion female entrepreneurship in the UK, NatWest Group and The Telegraph launched the '100 Female Entrepreneurs to Watch' list. 10 female entrepreneurs will be selected from the list for further support, and one business will receive a ��10,000 investment grant from NatWest Group as well as a year's mentorship from a Rose Review board member. - We pledged ��100,000 to support 500 Ukrainian students to continue their studies at Polish universities and polytechnics following the Russian invasion. Business performance summary Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ��m ��m ��m ��m ��m Continuing operations Total income 6,219 5,141 3,211 3,008 2,571 Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695) Profit before impairment releases 2,566 1,642 1,378 1,188 876 Operating profit before tax 2,620 2,325 1,396 1,224 1,473 Profit attributable to ordinary shareholders 1,891 1,842 1,050 841 1,222 Excluding notable items within total income (1) Total income excluding notable items (2) 5,898 5,111 3,114 2,784 2,532 Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695) Profit before impairment releases and excluding notable items 2,245 1,612 1,281 964 837 Operating profit before tax and excluding notable items 2,299 2,295 1,299 1,000 1,434 Go-forward group (3) Total income (2) 6,186 5,076 3,199 2,987 2,541 Total income excluding notable items (2) 5,865 5,046 3,102 2,763 2,502 Other operating expenses (3,241) (3,291) (1,636) (1,605) (1,608) Profit before impairment releases/(losses) (2) 2,787 1,816 1,507 1,280 971 Return on tangible equity 14.1% 12.8% 16.5% 11.9% 17.3% Performance key metrics and ratios Bank net interest margin (2,4) 2.59% 2.35% 2.72% 2.46% 2.35% Bank average interest earning assets (2,4) ��337bn ��321bn ��340bn ��333bn ��323bn Cost:income ratio (2) 58.3% 67.6% 56.7% 60.1% 65.5% Loan impairment rate (2) (3bps) (37bps) (2bps) (1bp) (65bps) Total earnings per share attributable to ordinary shareholders - basic 17.4p 15.6p 10.0p 7.5p 10.6p Return on tangible equity (2) 13.1% 11.7% 15.2% 11.3% 15.6% 30 June 31 March 31 December 2022 2022 2021 ��bn ��bn ��bn Balance sheet Total assets 806.5 785.4 782.0 Funded assets (2) 697.1 685.4 675.9 Loans to customers - amortised cost 362.6 365.3 359.0 Loans to customers and banks - amortised cost and FVOCI 376.4 375.7 369.8 Go-forward group net lending (2) 361.6 359.0 352.3 Total impairment provisions 3.5 3.7 3.8 Expected credit loss (ECL) coverage ratio 0.93% 0.98% 1.03% Assets under management and administration (AUMA) (2) 32.9 35.0 35.6 Go-forward group customer deposits (2) 476.2 465.6 461.4 Customer deposits 492.1 482.9 479.8 Liquidity and funding Liquidity coverage ratio (LCR) 159% 167% 172% Liquidity portfolio 268 275 286 Net stable funding ratio (NSFR) (5) 153% 152% 157% Loan:deposit ratio (2) 71% 73% 72% Total wholesale funding 76 76 77 Short-term wholesale funding 24 22 23 Capital and leverage Common Equity Tier (CET1) ratio (6) 14.3% 15.2% 18.2% Total capital ratio (6) 19.3% 20.4% 24.7% Pro forma CET1 ratio, pre foreseeable items (7) 15.6% 16.1% 19.5% Risk-weighted assets (RWAs) 179.8 176.8 157.0 UK leverage ratio (8) 5.2% 5.5% 5.9% Tangible net asset value (TNAV) per ordinary share 267p 269p 272p Number of ordinary shares in issue (millions) (9) 10,436 10,622 11,272 (1) Refer to the following page for details of notable items within total income. (2) Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. (3) Go-forward group excludes Ulster Bank RoI and discontinued operations. (4) NatWest Group excluding Ulster Bank RoI and liquid asset buffer. (5) The NSFR is presented on a spot basis. (6) Based on the PRA Rulebook Instrument transitional arrangements, therefore includes transitional relief on grandfathered capital instruments and transitional arrangements for the capital impact of IFRS 9 expected credit loss (ECL) accounting. For additional information, refer to page 66. On 1 January 2022 the proforma CET1 ratio was 15.9% following regulatory changes. (7) The pro forma CET1 ratio at 30 June 2022 excludes foreseeable items of ��2,341 million: ��500 million for ordinary dividends, ��1,750 million for special dividends and ��91 million foreseeable charges (31 March 2022 excludes foreseeable items of ��1,623 million: ��1,096 million for ordinary dividends and ��527 million foreseeable charges; 31 December 2021 excludes foreseeable charges of ��2,036 million: ��846 million for ordinary dividends and ��1,190 million foreseeable charges and pension contributions). (8) The UK leverage exposure is calculated in accordance with the Leverage Ratio (CRR) part of the PRA Rulebook, and transitional Tier 1 capital is calculated in accordance with the PRA Rulebook. For additional information, refer to page 67. (9) The number of ordinary shares in issue excludes own shares held. Summary consolidated income statement for the period ended 30 June 2022 Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ��m ��m ��m ��m ��m Net interest income 4,334 3,744 2,307 2,027 1,900 Non-interest income 1,885 1,397 904 981 671 Total income 6,219 5,141 3,211 3,008 2,571 Litigation and conduct costs (169) 18 (67) (102) 34 Other operating expenses (3,484) (3,517) (1,766) (1,718) (1,729) Operating expenses (3,653) (3,499) (1,833) (1,820) (1,695) Profit before impairment releases 2,566 1,642 1,378 1,188 876 Impairment releases 54 683 18 36 597 Operating profit before tax 2,620 2,325 1,396 1,224 1,473 Tax charge (795) (432) (409) (386) (199) Profit from continuing operations 1,825 1,893 987 838 1,274 Profit from discontinued operations, net of tax 190 177 127 63 83 Profit for the period 2,015 2,070 1,114 901 1,357 Attributable to: Ordinary shareholders 1,891 1,842 1,050 841 1,222 Preference shareholders - 9 - - 4 Paid-in equity shareholders 121 178 62 59 91 Non-controlling interests 3 41 2 1 40 2,015 2,070 1,114 901 1,357 Notable items within total income (1) Commercial & Institutional Fair value, disposal losses and asset disposals/strategic risk reduction (2) (45) (62) (45) - (44) Tax variable lease repricing - 32 - - 32 Own credit adjustments 52 1 34 18 (1) Central items & other Share of associate (losses)/profits for Business Growth Fund (13) 129 (36) 23 8 Loss on redemption of own debt (24) (138) - (24) (20) Liquidity Asset Bond sale gains/(losses) 36 25 (5) 41 20 Interest and FX risk management derivatives not in accounting hedge relationships 315 44 149 166 45 Own credit adjustments - (1) - - (1) Total 321 30 97 224 39 (1) Refer to page 1 of the Non-IFRS financial measures appendix. (2) As previously reported H1 2021 and Q2 2021 includes fair value and disposal gains/(losses) in the banking book H1 2021 - ��22 million (Q2 2021 - (��8) million) and H1 2021 - ��40 million (Q2 2021 - (��36) million) of asset disposals/strategic risk reduction relating to the costs of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of risk reduction transactions entered into, in respect of the strategic announcements of 14 February 2020. Business performance summary Chief Financial Officer review We have made good progress against our strategic objectives and our capital and liquidity position remains robust. We have delivered a strong financial performance in the first half of the year, with a RoTE of 13.1%, reflecting the strong profit and capital generation capacity of the business in the current interest rate environment. We also saw strong growth in lending and deposits across the business. We continue to monitor the evolving economic outlook and are mindful of the impact that higher levels of inflation, higher interest rates and supply chain shortages are having on our customers. We are pleased to announce an interim dividend of 3.5 pence per share and a special dividend of ��1,750 million, representing total distributions deducted from capital of ��3.3 billion when combined with the directed buyback in the first quarter. We have also now completed the ��750 million on-market buyback programme we announced in February. Financial performance Total income in the Go-forward group increased by 21.9% to ��6,186 million compared with H1 2021. Excluding notable items, income was 16.2% higher than H1 2021, primarily driven by volume growth and favourable yield curve movements. We have also seen increased payment card fees and markets income in Commercial & Institutional and higher spend-related fee income in Retail Banking. Bank NIM of 2.72% was 26 basis points higher than Q1 2022 reflecting the beneficial impact of recent base rate rises. Other operating expenses in the Go-forward group were ��50 million, or 1.5%, lower than H1 2021 as we continue with our 3-year investment programme. We remain on track to achieve our full year cost reduction target of around 3% in 2022, although savings will not be linear across the remaining quarters. We have reported a ��46 million impairment release in the Go-forward group for the first half of 2022, reflecting the continued low levels of realised losses we have seen across our portfolio; we do recognise the significant uncertainty in the economic outlook and are monitoring activity closely. Compared with Q1 2022, our ECL provisions have reduced by ��0.2 billion to ��3.5 billion, and our ECL coverage ratio has reduced from 0.98% to 0.93%. Whilst we are comfortable with the strong credit performance of our book, we continue to hold economic uncertainty post model adjustments (PMA) of ��0.6 billion, or 17.2%, of total impairment provisions. PMAs have been pivoted more towards expected pressure from cost of living increases and supply chain issues rather than concerns over COVID-19 impacts. We will continue to assess this position regularly. As a result, we are pleased to report an interim attributable profit of ��1,891 million, with earnings per share of 17.4 pence and a RoTE of 13.1%. Net lending in the Go-forward group increased by ��9.3 billion over the first half of the year. Mortgage lending increased by ��6.3 billion, with gross new lending of ��20.6 billion in the first half, compared with ��21.4 billion in H1 2021 and ��18.3 billion in H2 2021. Net lending in Commercial & Institutional grew by ��3.1 billion reflecting growth across all areas of the business including increases in facility utilisation and funds activity, partly offset by continued UK Government financial support scheme repayments. Customer deposits increased by ��14.8 billion in the Go-forward group during the first half of the year principally reflecting a ��5.7 billion increase in Commercial & Institutional, largely due to improved market liquidity, and treasury repo activity of ��4.7 billion. We have seen a slowdown in Retail Banking deposit growth, with balances up by ��1.6 billion in the first half of the year. TNAV per share reduced by 2 pence in the quarter to 267 pence principally reflecting the full year ordinary dividend payment and movements in cashflow hedging and other reserves partially offset by the attributable profit for the period. Capital The CET1 ratio remains strong at 14.3%, including 16 basis points of IFRS 9 transitional relief. The c.160 basis point reduction compared with 1 January 2022 principally reflects total distributions of c.190 basis points and increased RWAs of c.30 basis points partially offset by the attributable profit of c.110 basis points. The total capital ratio decreased by 540 basis points to 19.3% compared with Q4 2021. Compared to the 1 January position, RWAs increased by ��3.5 billion to ��179.8 billion principally reflecting lending growth, FX movements and model updates. When combined with the directed buyback in the first quarter, the proposed interim and special dividends bring total distributions deducted from capital in the first half to ��3.3 billion, or c.32 pence per share. The special dividend will return material capital to shareholders whilst ensuring the UK Government's shareholding remains below 50%, which the Board has determined is the interests of all the Group's stakeholders. The proposed consolidation will be set to reduce the share count as if we were buying back at the market price thereby offsetting the dilutive impact to TNAV per share of the substantial special dividend. Funding and liquidity The LCR decreased by 8 percentage points to 159% in the quarter, representing ��76.1 billion headroom above 100% minimum requirement. The main drivers of this include an increase in cash outflows from wholesale funding and credit facilities to our customers and an increase in customer lending which outstripped growth in customer deposits. Total wholesale funding increased by ��0.6 billion in the quarter to ��76.4 billion. Short term wholesale funding increased by ��1.6 billion in the quarter to ��23.6 billion. Business performance summary Retail Banking Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ��m ��m ��m ��m ��m Total income 2,554 2,150 1,337 1,217 1,094 Operating expenses (1,242) (1,187) (597) (645) (600) of which: Other operating expenses (1,184) (1,178) (593) (591) (593) Impairment (losses)/releases (26) 57 (21) (5) 91 Operating profit 1,286 1,020 719 567 585 Return on equity 26.3% 27.5% 29.5% 23.1% 32.0% Net interest margin 2.53% 2.26% 2.62% 2.43% 2.27% Cost:income ratio 48.6% 55.2% 44.7% 53.0% 54.8% Loan impairment rate 3bps (6)bps 4bps 1bps (20)bps As at 30 June 31 March 31 December 2022 2022 2021 ��bn ��bn ��bn Net loans to customers (amortised cost) 188.7 184.9 182.2 Customer deposits 190.5 189.7 188.9 RWAs 53.0 52.2 36.7 During H1 2022, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk, delivering a return on equity of 26% and an operating profit of ��1,286 million. To support our customers, we launched a new Cost of Living hub, online and in app, which provides tools and support including Financial Health Checks, budget planner, top 10 tips to save, advice on what to do if customers think they are going to miss a payment and links to third parties, including PayPlan and Citizens Advice. In addition, for our younger customers we launched NatWest Rooster Money aimed at building their money confidence and developing positive money habits around earning, saving, and spending. This complements our existing MoneySense education programme which has recently recommenced in-school workshops. Retail Banking completed ��1.5 billion of climate and sustainable funding and financing in H1 2022 which will contribute towards the NatWest Group target of ��100 billion between 1 July 2021 and the end of 2025. H1 2022 performance - Total income was ��404 million, or 18.8%, higher than H1 2021 reflecting higher deposit income, supported by recent base rate rises, combined with strong mortgage balance growth, higher unsecured balances and higher transactional-related fee income, partially offset by lower mortgage margins. - Other operating expenses were ��6 million, or 0.5%, higher than H1 2021 due to higher investment spend and increased costs for financial crime and fraud prevention. This was partly offset by a 9.2% reduction in operational headcount, as a result of continued customer digital adoption and automation of end-to-end customer journeys. Cost income ratio of 48.6 percent in H1 2022. - Impairment losses of ��26 million in H1 2022 continue to reflect a low level of stage 3 defaults, partly offset by provision releases in stage 2. ECL provision includes post model adjustments of ��179 million relating to economic uncertainty, as at 30 June 2022. - Net loans to customers increased by ��6.5 billion, or 3.6%, in H1 2022 reflecting continued mortgage growth of ��5.9 billion, with gross new mortgage lending of ��18.9 billion representing flow share of around 13%. Cards balances increased by ��0.3 billion and personal advances increased by ��0.3 billion in H1 2022 from improving customer demand. - Customer deposits increased by ��1.6 billion, or 0.8%, in H1 2022 with growth slowing towards pre-COVID-19 levels, reflecting higher customer spend levels. - RWAs increased by ��16.3 billion in H1 2022 primarily reflecting 1 January 2022 regulatory changes of ��15.3 billion, higher lending partially offset by quality improvements. Q2 2022 performance - Total income was ��120 million, or 9.9%, higher than Q1 2022 reflecting higher deposit income, supported by recent base rate rises, higher mortgage balances, higher unsecured balances and higher transactional-related fee income, partially offset by the non-repeat of an insurance profit share and lower mortgage margins. - Net interest margin was 19 basis points higher than Q1 2022 reflecting higher deposit returns, partly offset by mortgage margin pressure. Mortgage back book margin was 148 basis points in the period and application margins increased to around 60 basis points at the end of the quarter. - Other operating expenses were ��2 million, or 0.3%, higher than Q1 2022 primarily due to higher property related provision costs. - Impairment losses of ��21 million in Q2 2022 continue to reflect a low level of stage 3 defaults, partly offset by provision releases in stage 2. - Net loans to customers increased by ��3.8 billion, or 2.1% compared with Q1 2022 reflecting continued mortgage growth of ��3.3 billion, with gross new mortgage lending of ��9.8 billion representing flow share of around 13%. Cards balances increased by ��0.3 billion and personal advances increased by ��0.2 billion in Q2 2022 as customer demand and spend levels continued to improve. - Customer deposits increased by ��0.8 billion, or 0.4% in Q2 2022 with growth slowing towards pre-COVID-19 levels, reflecting higher customer spend levels. - RWAs increased by ��0.8 billion, or 1.5%, in Q2 2022 primarily reflecting lending growth partially offset by quality improvements. Business performance summary Private Banking Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ��m ��m ��m ��m ��m Total income 461 368 245 216 183 Operating expenses (285) (249) (146) (139) (128) of which: Other operating expenses (284) (254) (146) (138) (128) Impairment releases 11 27 6 5 27 Operating profit 187 146 105 82 82 Return on equity 20.9% 14.2% 23.5% 18.2% 15.9% Net interest margin 3.34% 2.62% 3.60% 3.07% 2.60% Cost:income ratio 61.8% 67.7% 59.6% 64.4% 69.9% Loan impairment rate (12)bps (30)bps (13)bps (11)bps (60)bps Net new money (��bn) (1) 1.4 1.6 0.6 0.8 1.0 As at 30 June 31 March 31 December 2022 2022 2021 ��bn ��bn ��bn Net loans to customers (amortised cost) 18.8 18.7 18.4 Customer deposits 41.6 40.3 39.3 RWAs 11.3 11.5 11.3 Assets under management (AUMs) (1) 28.1 29.6 30.2 Assets under administration (AUAs) (1) 4.8 5.4 5.4 Total assets under management and administration (AUMA) (1) 32.9 35.0 35.6 (1) Refer to the Non-IFRS financial measures appendix for details of basis of preparation and reconciliation of non-IFRS financial measures and performance metrics. Private Banking operating profit of ��187 million in H1 2022 was supported by robust deposit and lending growth with strong net new money despite volatile investment market conditions. Return on equity of 20.9% represents an increase of 7 percentage points compared with H1 2021. Coutts achieved B Corp Certification in July 2021, and since then we've engaged with over 60 clients and 10 suppliers to support them in achieving B Corp status. We have also worked with NatWest Group's 'Purpose Led Accelerator' to provide a deep dive on the B Corp Certification journey to 130 entrepreneurs and business leaders. H1 2022 performance - Total income was ��93 million, or 25.3%, higher than H1 2021 reflecting strong balance growth and higher deposit income, supported by recent interest rate rises and higher card and payment related fee income as transactional volumes continued to improve. Net interest margin was 72 basis points higher than H1 2021 reflecting higher deposit income. - Other operating expenses were ��30 million, or 11.8%, higher than H1 2021 principally due to continued investment in people and technology to enhance our AUMA growth propositions and increased costs for financial crime and fraud. - A net impairment release of ��11 million in H1 2022 reflects the continued low levels of credit risk in the portfolio. - Net loans to customers increased by ��0.4 billion, or 2.2%, in H1 2022 due to continued strong mortgage lending growth, whilst RWAs were broadly in line with Q4 2021. - Customer deposits increased by ��2.3 billion, or 5.9%, in H1 2022 as customers continue to build and retain liquidity. - AUMA balances decreased by ��2.7 billion, or 7.6%, in H1 2022 largely driven by lower global investment markets. Net new money was ��1.4 billion in H1 2022, which was ��0.2 billion less than H1 2021, and represented 7.9% of opening AUMA balances on an annualised basis representing a strong performance given volatile investment market conditions. Q2 2022 performance - Total income was ��29 million, or 13.4%, higher than Q1 2022 reflecting higher deposit income, supported by further interest rate rises and continued balance growth. Net interest margin increased by 53 basis points compared with Q1 2022 reflecting higher deposit returns. - Net loans to customers increased by ��0.1 billion, or 0.5%, compared with Q1 2022 supported by continued mortgage lending growth. - AUMA balances reduced by ��2.1 billion, or 6.0%, in the quarter as growth was more than offset by lower global investment markets. Net new money was ��0.6 billion, which was ��0.2bn lower than Q1 2022, and represented 8.0% of opening AUMA balances on an annualised basis. Business performance summary Commercial & Institutional Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ��m ��m ��m ��m ��m Net interest income 1,764 1,487 961 803 762 Non-interest income 1,173 987 601 572 459 Total income 2,937 2,474 1,562 1,375 1,221 Operating expenses (1,820) (1,824) (898) (922) (909) of which: Other operating expenses (1,734) (1,789) (854) (880) (874) Impairment releases 59 613 48 11 488 Operating profit 1,176 1,263 712 464 800 Return on equity 11.4% 12.1% 14.0% 8.8% 15.9% Net interest margin 2.84% 2.49% 3.09% 2.69% 2.52% Cost:income ratio 61.1% 73.0% 56.6% 66.3% 73.7% Loan impairment rate (9)bps (96)bps (15)bps (3)bps (153)bps As at 30 June 31 March 31 December 2022 2022 2021 ��bn ��bn ��bn Net loans to customers (amortised cost) 127.3 126.6 124.2 Customer deposits 223.2 217.9 217.5 Funded assets 343.4 334.6 321.3 RWAs 103.0 100.3 98.1 During H1 2022 Commercial & Institutional delivered a strong performance with a return on equity of 11.4% and operating profit of ��1,176 million. Commercial & Institutional remains well positioned to support its customers in the current macro-economic environment. Our balance sheet strength means we are able to meet our customers' financing requirements and our product suite allows us to support customers' risk management during times of macroeconomic volatility. Our specialist Relationship Managers and business hubs located across the UK offer advice and support to those facing a cost of business, as well as living, crisis. We continually monitor all sectors to proactively identify the most vulnerable. As a result, for example, we have developed a tailored support package for our agricultural customer base who are facing extreme impacts on supply costs and profit margins. Commercial & Institutional completed ��10.3 billion of climate and sustainable funding and financing in H1 2022 delivering a cumulative ��17.3 billion since 1 July 2021, contributing toward the NatWest Group target of ��100 billion between 1 July 2021 and the end of 2025. To ensure that as many SMEs as possible can realise benefits from their carbon-reduction efforts and innovation, we have reduced the lower threshold for our Green Loans offering for SMEs from ��50,000 to ��25,000. H1 2022 performance - Total income was ��463 million, or 18.7%, higher than H1 2021 primarily reflecting strong balance sheet growth, higher interest rates supporting deposit returns, improved markets and card payment fees. Markets income(1) of ��427 million, was ��98 million, or 29.8%, higher than H1 2021 with good performance across the product suite. - Net interest margin was 35 basis points higher than H1 2021 reflecting higher deposit returns. - Other operating expenses were ��55 million, or 3.1%, lower than H1 2021 due to ongoing cost management, and non-repeat of H1 2021 restructuring costs, partly offset by continued investment in the business. - An impairment release of ��59 million in H1 2022 compared with an impairment release of ��613 million in H1 2021, reflecting a continued low level of stage 3 defaults more than offset by good book provision releases. ECL provision includes post model adjustments of ��388 million relating to economic uncertainty, as at 30 June 2022. - Net loans to customers increased by ��3.1 billion, or 2.5%, in H1 2022 with growth in facility utilisation and funds activity within Corporate & Institutions, partly offset by continued UK Government financial support scheme repayments. Invoice and asset finance balances within the Commercial Mid-market business increased by ��0.8 billion. - Customer deposits increased by ��5.7 billion, or 2.6%, in H1 2022 due to overall increased customer liquidity and strong growth in the funds business. - RWAs increased by ��4.9 billion, or 5.0%, in H1 2022 primarily reflecting 1 January 2022 regulatory changes, business and FX movements, partly offset by risk parameter improvements. Q2 2022 performance - Total income was ��187 million, or 13.6%, higher than Q1 2022 due to continued balance sheet growth, higher deposit returns from an improved interest rate environment and increased card payment fees. - Net interest margin was 40 basis points higher than Q1 2022 reflecting higher deposit returns. - Other operating expenses were ��26 million, or 3.0%, lower than Q1 2022 primarily reflecting increased capitalisation of certain investment costs, business efficiencies partly offset by the annual pay revision. - Net loans to customers increased by ��0.7 billion, or 0.6%, in Q2 2022 due to increased funds activity and facility utilisation within Corporate & Institutions partly offset by UK Government scheme repayments, primarily in the Commercial Mid-market business. - Customer deposits increased by ��5.3 billion, or 2.4%, in Q2 2022 reflecting continued customer liquidity and increased fund inflows. - RWAs increased by ��2.7 billion, or 2.7%, in Q2 2022 mainly reflecting business movements and model updates. (1) Markets income excludes asset disposals/strategic risk reduction, own credit risk adjustments and central items. Business performance summary Ulster Bank RoI Continuing operations Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ���m ���m ���m ���m ���m Total income 38 74 13 25 34 Operating expenses (301) (273) (167) (134) (143) of which: Other operating expenses (288) (258) (154) (134) (138) Impairment releases/(losses) 9 (15) (26) 35 (11) Operating loss (254) (214) (180) (74) (120) As at 30 June 31 March 31 December 2022 2022 2021 ���bn ���bn ���bn Net loans to customers - amortised cost 1.2 7.5 7.9 Customer deposits 18.4 20.4 21.9 RWAs 12.6 13.2 10.9 Ulster Bank ROI continues to make progress on its phased withdrawal from the Republic of Ireland. - A significant milestone was reached with the successful completion of a migration of an initial tranche of commercial customers to Allied Irish Banks, p.l.c. (AIB). Remaining migrations of the c.���4.2 billion of gross performing commercial loans will be completed in phases mainly over H2 2022, with the final cohorts in H1 2023. - Confirmation was received from the Irish competition authority (the CCPC) that it had cleared the sale of c.���7.6 billion of gross performing non-tracker mortgages, the Lombard asset finance business, the business direct loan book, and 25 branches to Permanent TSB p.l.c. (PTSB). Shareholders of PTSB's holding company have also approved this transaction. - A legally binding agreement was reached with AIB for the sale of a c.���6 billion portfolio of gross performing tracker and linked mortgages. Completion of this sale, which is subject to obtaining any relevant regulatory approvals and satisfying the conditions of the legally binding agreement, is expected to occur in Q2 2023. UBIDAC now has binding agreements in place for c.90% of its total gross customer lending portfolio. - In other transactions, UBIDAC also announced that it will transfer its existing life assurance intermediary activities to Irish Life Financial Services Ltd and its Home and Car Insurance renewal rights to Aviva Direct. - 'Choose, Move & Close' letters have been sent to customers since April with tranches of letters being sent out on a weekly basis. Customers have six months to choose a new provider, move their banking relationship and close their account with Ulster Bank. - Work continues on managing the residual activities of the bank, including remaining asset sales. H1 2022 performance - Total income was ���36 million, or 48.6%, lower than H1 2021 reflecting reduced business levels following the decision to withdraw, coupled with the cost of an inter-group liquidity facility that was put in place as part of the arrangements to manage deposit outflows. - Other operating expenses were ���30 million, or 11.6%, higher than H1 2021, due to higher withdrawal-related programme costs and a one-off pension charge being partially offset by lower regulatory levies and a 5.3% reduction in headcount. Ulster Bank RoI incurred ���31 million of withdrawal-related direct costs in H1 2022. - A net impairment release of ���9 million in H1 2022 reflects improvements in the reducing portfolio and releases of COVID-related post-model adjustments, partially offset by new post-model adjustments for current macro-economic and divestment risks. - Net loans to customers decreased by ���6.7 billion, or 84.8%, in H1 2022 as ���5.9 billion of tracker loans were reclassified as Assets held for sale and as repayments continue to exceed gross new lending. - Customer deposits decreased by ���3.5 billion, or 16.0%, in H1 2022 due to reducing personal deposits as customers continue to close their accounts. - RWAs increased by ���1.7 billion in H1 2022 due to temporary model adjustments as a result of new regulations applicable to IRB models, partially offset by asset sales, other repayments and facility maturities in the context of the phased withdrawal. Q2 2022 performance - Total income was ���12 million, or 48.0%, lower than Q1 2022 reflecting reduced business levels and the cost of the inter-group liquidity facility. - Other operating expenses were ���20 million, or 14.9%, higher than Q1 2022 due to higher withdrawal-related programme costs and a one-off pension charge. - Impairment losses of ���26 million in Q2 2022 reflect post-model adjustments for current macro-economic and divestment risks. - RWAs reduced by ���0.6 billion in Q2 2022 due to asset sales, other repayments and facility maturities in the context of the phased withdrawal. Business performance summary Ulster Bank RoI continued Total Ulster Bank RoI including discontinued operations Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ���m ���m ���m ���m ���m Total income 219 279 101 118 137 Operating expenses (330) (299) (182) (148) (156) of which: Other operating expenses (317) (284) (169) (148) (151) Impairment releases/(losses) 83 13 53 30 (1) Operating loss (28) (7) (28) - (20) As at 30 June 31 March 31 December 2022 2022 2021 ���bn ���bn ���bn Net loans to customers - amortised cost 17.7 18.4 18.6 Customer deposits 18.4 20.4 21.9 RWAs 12.6 13.2 10.9 Central items & other Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2022 2021 2022 2022 2021 ��m ��m ��m ��m ��m Central items not allocated 184 83 10 174 110 An operating profit of ��184 million within central items not allocated includes gains resulting from risk management derivatives not in hedge accounting relationships of ��315 million. Segment performance Half year ended 30 June 2022 Go-forward group Total Central excluding Total Retail Private Commercial & items & Ulster Ulster NatWest Banking Banking Institutional other Bank RoI Bank RoI Group ��m ��m ��m ��m ��m ��m ��m Continuing operations Income statement Net interest income 2,340 315 1,764 (91) 4,328 6 4,334 Own credit adjustments - - 52 - 52 - 52 Other non-interest income 214 146 1,121 325 1,806 27 1,833 Total income 2,554 461 2,937 234 6,186 33 6,219 Direct expenses (320) (102) (736) (2,181) (3,339) (145) (3,484) Indirect expenses (864) (182) (998) 2,142 98 (98) - Other operating expenses (1,184) (284) (1,734) (39) (3,241) (243) (3,484) Litigation and conduct costs (58) (1) (86) (13) (158) (11) (169) Operating expenses (1,242) (285) (1,820) (52) (3,399) (254) (3,653) Operating profit/(loss) before impairment (losses)/releases 1,312 176 1,117 182 2,787 (221) 2,566 Impairment (losses)/releases (26) 11 59 2 46 8 54 Operating profit/(loss) 1,286 187 1,176 184 2,833 (213) 2,620 Income excluding notable items 2,554 461 2,930 (80) 5,865 33 5,898 Additional information Return on tangible equity (1) na na na na 14.1% na 13.1% Return on equity (1) 26.3% 20.9% 11.4% nm nm nm na Cost:income ratio (1) 48.6% 61.8% 61.1% nm 54.5% nm 58.3% Total assets (��bn) 216.2 30.0 451.5 87.1 784.8 21.7 806.5 Funded assets (��bn) (1) 216.2 30.0 343.4 85.8 675.4 21.7 697.1 Net loans to customers - amortised cost (��bn) 188.7 18.8 127.3 26.8 361.6 1.0 362.6 Loan impairment rate (1) 3bps (12)bps (9)bps nm (3)bps nm (3)bps Impairment provisions (��bn) (1.5) (0.1) (1.4) - (3.0) (0.4) (3.4) Impairment provisions - stage 3 (��bn) (0.9) - (0.7) - (1.6) (0.4) (2.0) Customer deposits (��bn) 190.5 41.6 223.2 20.9 476.2 15.9 492.1 Risk-weighted assets (RWAs) (��bn) 53.0 11.3 103.0 1.7 169.0 10.8 179.8 RWA equivalent (RWAe) (��bn) 53.0 11.3 101.4 2.2 167.9 10.8 178.7 Employee numbers (FTEs - thousands) 13.9 2.0 11.8 29.4 57.1 1.8 58.9 Third party customer asset rate (2) 2.59% 2.65% 3.01% nm nm nm nm Third party customer funding rate (2) (0.07%) (0.07%) (0.06%) nm nm 0.05% nm Bank average interest earning assets (��bn) (1) 186.8 19.0 125.2 nm 336.9 na 336.9 Bank net interest margin (1) 2.53% 3.34% 2.84% nm 2.59% na 2.59% nm = not meaningful, na = not applicable. For the notes to this table, refer to page 18. Segment performance Half year ended 30 June 2021 Go-forward group Total Central excluding Total Retail Private Commercial & items & Ulster Ulster NatWest Banking Banking Institutional other Bank RoI Bank RoI Group ��m ��m ��m ��m ��m ��m ��m Continuing operations Income statement Net interest income 1,976 232 1,487 34 3,729 15 3,744 Own credit adjustments - - 1 (1) - - - Other non-interest income 174 136 986 51 1,347 50 1,397 Total income 2,150 368 2,474 84 5,076 65 5,141 Direct expenses (359) (92) (874) (2,051) (3,376) (141) (3,517) Indirect expenses (819) (162) (915) 1,981 85 (85) - Other operating expenses (1,178) (254) (1,789) (70) (3,291) (226) (3,517) Litigation and conduct costs (9) 5 (35) 70 31 (13) 18 Operating expenses (1,187) (249) (1,824) - (3,260) (239) (3,499) Operating profit/(loss) before impairment releases/(losses) 963 119 650 84 1,816 (174) 1,642 Impairment releases/(losses) 57 27 613 (1) 696 (13) 683 Operating profit/(loss) 1,020 146 1,263 83 2,512 (187) 2,325 Income excluding notable items 2,150 368 2,503 25 5,046 65 5,111 Additional information Return on tangible equity (1) na na na na 12.8% na 11.7% Return on equity (1) 27.5% 14.2% 12.1% nm nm nm na Cost:income ratio (1) 55.2% 67.7% 73.0% nm 63.7% nm 67.6% Total assets (��bn) 204.2 27.7 442.2 76.4 750.5 25.4 775.9 Funded assets (��bn) (1) 204.2 27.7 334.5 74.5 640.9 25.4 666.3 Net loans to customers - amortised cost (��bn) 178.1 18.0 125.2 24.7 346.0 16.7 362.7 Loan impairment rate (1) (6)bps (30)bps (96)bps nm (40)bps nm (37)bps Impairment provisions (��bn) (1.6) (0.1) (2.3) - (4.0) (0.7) (4.7) Impairment provisions - stage 3 (��bn) (0.8) - (1.0) - (1.8) (0.4) (2.2) Customer deposits (��bn) 184.1 34.7 212.4 17.5 448.7 18.5 467.2 Risk-weighted assets (RWAs) (��bn) 35.6 11.2 104.0 1.7 152.5 10.5 163.0 RWA equivalent (RWAe) (��bn) 35.6 11.3 105.8 1.8 154.5 10.5 165.0 Employee numbers (FTEs - thousands) 15.3 1.9 12.3 27.1 56.6 1.9 58.5 Third party customer asset rate (2) 2.70% 2.36% 2.71% nm nm nm nm Third party customer funding rate (2) (0.07%) - (0.02%) nm nm 0.01% nm Bank average interest earning assets (��bn) (1) 176.3 17.9 120.5 nm 320.6 na 320.6 Bank net interest margin (1) 2.26% 2.62% 2.49% nm 2.35% na 2.35% nm = not meaningful, na = not applicable. For the notes to this table, refer to page 18. Segment performance Quarter ended 30 June 2022 Go-forward group Total Central excluding Total Retail Private Commercial & items & Ulster Ulster NatWest Banking Banking Institutional other Bank RoI Bank RoI Group ��m ��m ��m ��m ��m ��m ��m Continuing operations Income statement Net interest income 1,228 172 961 (56) 2,305 2 2,307 Own credit adjustments - - 34 - 34 - 34 Other non-interest income 109 73 567 111 860 10 870 Total income 1,337 245 1,562 55 3,199 12 3,211 Direct expenses (159) (53) (329) (1,144) (1,685) (81) (1,766) Indirect expenses (434) (93) (525) 1,101 49 (49) - Other operating expenses (593) (146) (854) (43) (1,636) (130) (1,766) Litigation and conduct costs (4) - (44) (8) (56) (11) (67) Operating expenses (597) (146) (898) (51) (1,692) (141) (1,833) Operating profit/(loss) before Impairment (losses)/releases 740 99 664 4 1,507 (129) 1,378 Impairment (losses)/releases (21) 6 48 6 39 (21) 18 Operating profit/(loss) 719 105 712 10 1,546 (150) 1,396 Income excluding notable items 1,337 245 1,573 (53) 3,102 12 3,114 Additional information Return on tangible equity (1) na na na na 16.5% na 15.2% Return on equity (1) 29.5% 23.5% 14.0% nm nm nm na Cost:income ratio (1) 44.7% 59.6% 56.6% nm 52.4% nm 56.7% Total assets (��bn) 216.2 30.0 451.5 87.1 784.8 21.7 806.5 Funded assets (��bn) (1) 216.2 30.0 343.4 85.8 675.4 21.7 697.1 Net loans to customers - amortised cost (��bn) 188.7 18.8 127.3 26.8 361.6 1.0 362.6 Loan impairment rate (1) 4bps (13)bps (15)bps nm (4)bps nm (2)bps Impairment provisions (��bn) (1.5) (0.1) (1.4) - (3.0) (0.4) (3.4) Impairment provisions - stage 3 (��bn) (0.9) - (0.7) - (1.6) (0.4) (2.0) Customer deposits (��bn) 190.5 41.6 223.2 20.9 476.2 15.9 492.1 Risk-weighted assets (RWAs) (��bn) 53.0 11.3 103.0 1.7 169.0 10.8 179.8 RWA equivalent (RWAe) (��bn) 53.0 11.3 101.4 2.2 167.9 10.8 178.7 Employee numbers (FTEs - thousands) 13.9 2.0 11.8 29.4 57.1 1.8 58.9 Third party customer asset rate (2) 2.59% 2.77% 3.19% nm nm nm nm Third party customer funding rate (2) (0.10%) (0.13%) (0.09%) nm nm 0.04% nm Bank average interest earning assets (��bn) (1) 188.1 19.1 124.9 nm 340.0 na 340.0 Bank net interest margin (1) 2.62% 3.60% 3.09% nm 2.72% na 2.72% nm = not meaningful, na = not applicable. For the notes to this table, refer to page 18. Segment performance Quarter ended 31 March 2022 Go-forward group Total Central excluding Total Retail Private Commercial & items & Ulster Ulster NatWest Banking Banking Institutional other Bank RoI Bank RoI Group ��m ��m ��m ��m ��m ��m ��m Continuing operations Income statement Net interest income 1,112 143 803 (35) 2,023 4 2,027 Own credit adjustments - - 18 - 18 - 18 Other non-interest income 105 73 554 214 946 17 963 Total income 1,217 216 1,375 179 2,987 21 3,008 Direct expenses (161) (49) (407) (1,037) (1,654) (64) (1,718) Indirect expenses (430) (89) (473) 1,041 49 (49) - Other operating expenses (591) (138) (880) 4 (1,605) (113) (1,718) Litigation and conduct costs (54) (1) (42) (5) (102) - (102) Operating expenses (645) (139) (922) (1) (1,707) (113) (1,820) Operating profit/(loss) before impairment (losses)/releases 572 77 453 178 1,280 (92) 1,188 Impairment (losses)/releases (5) 5 11 (4) 7 29 36 Operating profit/(loss) 567 82 464 174 1,287 (63) 1,224 Income excluding notable items 1,217 216 1,357 (27) 2,763 21 2,784 Additional information Return on tangible equity (1) na na na na 11.9% na 11.3% Return on equity (1) 23.1% 18.2% 8.8% nm nm nm na Cost:income ratio (1) 53.0% 64.4% 66.3% nm 56.7% nm 60.1% Total assets (��bn) 210.7 29.6 433.5 89.3 763.1 22.3 785.4 Funded assets (��bn) (1) 210.7 29.6 334.6 88.2 663.1 22.3 685.4 Net loans to customers - amortised cost (��bn) 184.9 18.7 126.6 28.8 359.0 6.3 365.3 Loan impairment rate (1) 1bp (11)bps (3)bps nm - nm (1)bp Impairment provisions (��bn) (1.5) (0.1) (1.6) - (3.2) (0.4) (3.6) Impairment provisions - stage 3 (��bn) (0.9) - (0.7) - (1.6) (0.4) (2.0) Customer deposits (��bn) 189.7 40.3 217.9 17.7 465.6 17.3 482.9 Risk-weighted assets (RWAs) (��bn) 52.2 11.5 100.3 1.6 165.6 11.2 176.8 RWA equivalent (RWAe) (��bn) 52.2 11.5 102.6 1.9 168.2 11.2 179.4 Employee numbers (FTEs - thousands) 14.0 1.9 11.8 28.7 56.4 1.8 58.2 Third party customer asset rate (2) 2.59% 2.53% 2.83% nm nm nm nm Third party customer funding rate (2) (0.05%) (0.01%) (0.02%) nm nm 0.06% nm Bank average interest earning assets (��bn) (1) 185.5 18.9 121.0 nm 333.3 na 333.3 Bank net interest margin (1) 2.43% 3.07% 2.69% nm 2.46% na 2.46% nm = not meaningful, na = not applicable. For the notes to this table, refer to the following page. Segment performance Quarter ended 30 June 2021 Go-forward group Total Central excluding Total Retail Private Commercial & items & Ulster Ulster NatWest Banking Banking Institutional other Bank RoI Bank RoI Group ��m ��m ��m ��m ��m ��m ��m Continuing operations Income statement Net interest income 1,003 117 762 10 1,892 8 1,900 Own credit adjustments - - (1) (1) (2) - (2) Other non-interest income 91 66 460 34 651 22 673 Total income 1,094 183 1,221 43 2,541 30 2,571 Direct expenses (171) (49) (428) (999) (1,647) (82) (1,729) Indirect expenses (422) (79) (446) 986 39 (39) - Other operating expenses (593) (128) (874) (13) (1,608) (121) (1,729) Litigation and conduct costs (7) - (35) 80 38 (4) 34 Operating expenses (600) (128) (909) 67 (1,570) (125) (1,695) Operating profit/(loss) before impairment releases/(losses) 494 55 312 110 971 (95) 876 Impairment releases/(losses) 91 27 488 - 606 (9) 597 Operating profit/(loss) 585 82 800 110 1,577 (104) 1,473 Income excluding notable items 1,094 183 1,234 (9) 2,502 30 2,532 Additional information Return on tangible equity (1) na na na na 17.3% na 15.6% Return on equity (1) 32.0% 15.9% 15.9% nm nm nm na Cost:income ratio (1) 54.8% 69.9% 73.7% nm 61.3% nm 65.5% Total assets (��bn) 204.2 27.7 442.2 76.4 750.5 25.4 775.9 Funded assets (��bn) (1) 204.2 27.7 334.5 74.5 640.9 25.4 666.3 Net loans to customers - amortised cost (��bn) 178.1 18.0 125.2 24.7 346.0 16.7 362.7 Loan impairment rate (1) (20)bps (60)bps (153)bps nm (69)bps nm (65)bps Impairment provisions (��bn) (1.6) (0.1) (2.3) - (4.0) (0.7) (4.7) Impairment provisions - stage 3 (��bn) (0.8) - (1.0) - (1.8) (0.4) (2.2) Customer deposits (��bn) 184.1 34.7 212.4 17.5 448.7 18.5 467.2 Risk-weighted assets (RWAs) (��bn) 35.6 11.2 104.0 1.7 152.5 10.5 163.0 RWA equivalent (RWAe) (��bn) 35.6 11.3 105.8 1.8 154.5 10.5 165.0 Employee numbers (FTEs - thousands) 15.3 1.9 12.3 27.1 56.6 1.9 58.5 Third party customer asset rate (2) 2.67% 2.36% 2.81% nm nm nm nm Third party customer funding rate (2) (0.06%) - (0.04%) nm nm 0.01% nm Bank average interest earning assets (��bn) (1) 177.3 18.1 121.0 nm 323.0 na 323.0 Bank net interest margin (1) 2.27% 2.60% 2.52% nm 2.35% na 2.35% nm = not meaningful, na = not applicable. (1) Refer to the appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant. (2) Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers. This excludes assets of disposal groups, intragroup items, loans to banks and liquid asset portfolios. Third party customer funding rate reflects interest payable or receivable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. Risk and capital management Page Credit risk Economic loss drivers 20 UK economic uncertainty 23 Measurement uncertainty and ECL sensitivity analysis 26 Measurement uncertainty and ECL adequacy 28 Credit risk - Banking activities Financial instruments within the scope of the IFRS 9 ECL framework 29 Segment analysis 30 Segment loans and impairment metrics 33 Sector analysis 34 Wholesale forbearance 39 Personal portfolio 41 Commercial real estate 44 Flow statements 46 Stage 2 decomposition by a significant increase in credit risk trigger 55 Asset quality 57 Credit risk - Trading activities 61 Capital, liquidity and funding risk 64 Market risk Non-traded 74 Traded 78 Other risks 79 Certain disclosures in the Risk and capital management section are within the scope of EY's review report and are marked as reviewed in the section header. Risk and capital management Credit risk Economic loss drivers (reviewed) Introduction The portfolio segmentation and selection of economic loss drivers for IFRS 9 follow closely the approach used in stress testing. To enable robust modelling, the forecasting models for each portfolio segment (defined by product or asset class and, where relevant, industry sector and region) are based on a selected, small number of economic factors (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgment. The most material economic loss drivers are shown in the table below. Portfolio Economic loss drivers UK retail mortgages UK unemployment rate, sterling swap rate, UK house price index, UK household debt to income UK retail unsecured UK unemployment rate, sterling swap rate, UK household debt to income UK large corporates World GDP, UK unemployment rate, sterling swap rate, stock price index UK commercial UK GDP, UK unemployment rate, sterling swap rate UK commercial real estate UK GDP, UK commercial property price index, sterling swap rate, stock price index RoI retail mortgages RoI unemployment rate, European Central Bank base rate, RoI house price index (1) This is not an exhaustive list of economic loss drivers but shows the most material drivers for the most significant portfolios. Economic scenarios At 30 June 2022, the range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflected a range of outcomes associated with the most prominent risks facing the economy, and the associated effects on labour and asset markets. The four economic scenarios are translated into forward-looking projections of credit cycle indices (CCIs) using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then overlaid with an additional mean reversion assumption, i.e. after reaching their worst forecast position the CCIs start to gradually revert to their long-run average of zero. Upside - This scenario assumes a very strong recovery through 2022 as consumers dip into excess savings built up since amidst COVID-19. The labour market remains resilient, with the unemployment rate falling substantially below pre-COVID-19 levels. Inflation is marginally higher than the base case but eventually retreats close to the target without substantial tightening and with no major effect on growth. The housing market shows a strong performance. Base case - After a strong recovery in 2021, growth moderates in 2022 as real incomes decline and consumer confidence falls. The unemployment rate decreases initially but subsequently increases above pre-COVID-19 levels, although remains low by historical standards. Inflation remains elevated at close to current levels through to early 2023 before retreating. Interest rates are raised to 2% to control price pressures. There is a gradual cooling in the housing market, but activity remains firm. As inflation retreats, economic growth returns to its pre-COVID-19 pace over the course of 2023, remaining steady through the forecast period. Downside - This scenario assumes that inflation accelerates to 15%, triggered by further escalation in geopolitical tensions and an associated rise in energy prices. This undermines the recovery, harming business and consumer confidence and pushing the economy into recession. Unemployment rate rises above the levels seen during COVID-19 and there is a modest decline in house prices. Inflation subsequently normalises, paving the way for cuts to interest rates and recovery. Extreme downside - The trigger for the extreme downside is similar to the downside scenario. However, in this scenario, inflation remains more persistent, necessitating a significant degree of rate tightening. This tighter policy and fall in real income leads to a deep recession. There is widespread job shedding in the labour market while asset prices see deep corrections, with housing market falls higher than those seen during previous episodes. The recovery is tepid throughout the five-year period, meaning only a gradual decline in joblessness. For June 2022, the four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the non-linearity in outcomes under different scenarios. These four scenarios were developed to provide sufficient coverage across potential rises in unemployment, inflation and asset price falls around which there are pronounced levels of uncertainty. The tables below provide details of the key economic loss drivers under the four scenarios. The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the main macroeconomic variables table below. The compound annual growth rate (CAGR) for GDP is shown. It also shows the five-year average for unemployment and the Bank of England base rate. The house price index and commercial real estate figures show the total change in each asset over five years. Risk and capital management Credit risk continued Economic loss drivers (reviewed) Main macroeconomic variables 30 June 2022 31 December 2021 Extreme Extreme Upside Base case Downside downside Upside Base case Downside downside Five-year summary % % % % % % % % UK GDP - CAGR 1.7 1.1 0.8 (0.1) 2.4 1.7 1.4 0.6 Unemployment - average 3.3 4.0 4.5 6.3 3.5 4.2 4.8 6.7 House price index - total change 24.4 13.7 (0.9) (10.5) 22.7 12.1 4.3 (5.3) Commercial real estate price - total change 7.5 (2.6) (6.8) (14.5) 18.2 7.2 5.5 (6.4) Bank of England base rate - average 1.5 1.8 0.6 2.7 1.5 0.8 0.7 (0.5) Consumer price index - CAGR 2.7 2.9 3.9 7.2 2.7 2.5 3.1 1.5 Republic of Ireland GDP - CAGR 4.6 3.9 2.9 2.1 4.4 3.7 2.9 1.6 Unemployment - average 3.8 4.9 6.5 7.7 4.2 5.2 6.8 9.3 House price index - total change 28.9 22.2 6.3 (1.9) 30.3 23.4 16.3 4.6 European Central Bank base rate - average 1.3 2.0 0.1 1.4 0.8 0.1 0.2 - World GDP - CAGR 3.8 3.4 2.0 1.0 3.5 3.2 2.6 0.6 Probability weight 21.0 45.0 20.0 14.0 30.0 45.0 20.0 5.0 (3) The five year period starts after Q1 2022 for 30 June 2022 and Q3 2021 for 31 December 2021. (4) CAGR and total change figures are not comparable with 31 December 2021 data, as the starting quarters are different. Probability weightings of scenarios NatWest Group's approach to IFRS 9 multiple economic scenarios (MES) involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights. The scale of the economic effect of COVID-19 and the range of recovery paths had necessitated subjective assignment of probability weights. However, for June 2022, NatWest Group resurrected the quantitative approach used pre-COVID-19. The approach involves comparing UK GDP paths for NatWest Group's scenarios against a set of 1,000 model runs, following which a percentile in the distribution is established that most closely corresponded to the scenario. The probability weight for the base case is set based on judgement while probability weights for the alternate scenarios are assigned based on these percentile scores. A 21% weighting was applied to the upside scenario (compared to 30% at 31 December 2021), a 45% weighting applied to the base case scenario (unchanged from 31 December 2021), a 20% weighting applied to the downside scenario (unchanged from 31 December 2021) and a 14% weighting applied to the extreme downside scenario (compared to 5% at 31 December 2021). The assigned probability weights reflect the outputs of NatWest Group's quantitative approach and were judged to be aligned with subjective assessment of balance of the risks in the economy, presenting good coverage to the range of outcomes assumed in the central scenarios, including the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. The current geopolitical tensions pose considerable uncertainty to the economic outlook, with respect to their persistence, range of outcomes and subsequent impacts on inflation and economic activity. Given that backdrop, and the higher possibility of a more challenging economic backdrop than assumed in the base case, NatWest Group judged it appropriate to apply a lower probability weight to the upside scenario and a higher probability to downside-biased scenarios, than at 31 December 2021. Risk and capital management Credit risk continued Economic loss drivers (reviewed) Annual figures GDP - annual growth Extreme Extreme Upside Base case Downside downside Upside Base case Downside downside UK % % % % Republic of Ireland % % % % 2022 4.8 3.5 2.7 2.7 2022 6.9 6.1 5.8 5.6 2023 2.9 0.8 (2.4) (5.1) 2023 7.1 4.8 (0.2) (3.8) 2024 1.7 1.4 2.1 0.3 2024 4.4 3.6 2.5 1.5 2025 1.3 1.1 2.1 2.4 2025 3.1 3.5 4.5 5.1 2026 1.1 1.3 2.0 2.2 2026 2.8 2.8 2.8 2.7 Unemployment rate - annual average Extreme Extreme Upside Base case Downside downside Upside Base case Downside downside UK % % % % Republic of Ireland % % % % 2022 3.4 3.6 3.8 3.8 2022 4.8 5.2 5.9 5.8 2023 3.0 3.8 4.9 5.9 2023 3.6 4.9 8.1 9.3 2024 3.3 4.0 4.8 8.7 2024 3.7 4.8 6.8 8.4 2025 3.4 4.2 4.5 7.5 2025 3.7 4.7 5.9 7.4 2026 3.5 4.3 4.4 5.5 2026 3.7 4.7 5.6 7.0 House price index - four quarter growth Extreme Extreme Upside Base case Downside downside Upside Base case Downside downside UK % % % % Republic of Ireland % % % % 2022 9.7 5.1 2.4 2.4 2022 10.0 7.3 4.0 3.4 2023 5.5 2.0 (11.7) (20.4) 2023 9.6 4.3 (5.7) (20.0) 2024 2.9 1.9 0.4 (4.6) 2024 1.6 3.5 1.0 (3.4) 2025 3.0 2.7 5.0 12.3 2025 2.6 3.1 3.4 15.1 2026 3.5 3.2 6.0 4.4 2026 4.1 4.0 5.4 8.4 Commercial real estate price - four quarter growth Bank of England base rate - annual average Extreme Extreme Upside Base case Downside downside Upside Base case Downside downside UK % % % % UK % % % % 2022 9.5 6.8 (3.3) (3.2) 2022 1.05 1.28 1.05 1.05 2023 3.9 0.2 (10.8) (27.6) 2023 1.63 2.00 1.12 2.31 2024 1.4 (0.1) 4.5 8.5 2024 1.69 2.00 0.10 4.00 2025 - (1.5) 4.6 13.1 2025 1.50 1.75 0.18 3.38 2026 (1.4) (2.1) 4.6 5.3 2026 1.44 1.73 0.44 2.25 Consumer price index - four quarter growth Extreme Upside Base case Downside downside UK % % % % 2022 9.5 8.4 9.3 9.3 2023 (0.9) 1.1 8.1 13.7 2024 2.0 2.0 0.4 6.4 2025 2.0 2.0 1.4 4.2 2026 2.0 2.0 1.7 3.6 Worst points 30 June 2022 31 December 2021 Extreme Extreme Downside downside Downside downside UK % Quarter % Quarter % Quarter % Quarter GDP (3.6) Q1 2023 (7.4) Q3 2023 (1.8) Q1 2022 (7.9) Q1 2022 Unemployment rate (peak) 5.1 Q3 2023 9.0 Q2 2024 5.4 Q1 2023 9.4 Q4 2022 House price index (12.9) Q2 2024 (28.0) Q2 2024 (3.0) Q3 2023 (26.0) Q2 2023 Commercial real estate price (20.7) Q2 2023 (34.7) Q1 2024 (2.5) Q1 2022 (29.8) Q3 2022 Bank of England base rate 1.5 Q4 2022 4.0 Q1 2024 1.5 Q4 2022 (0.5) Q2 2022 Consumer price index 14.8 Q2 2023 14.8 Q2 2023 7.9 Q4 2022 4.3 Q4 2021 Republic of Ireland GDP - Q2 2023 (2.9) Q3 2023 (0.7) Q1 2022 (8.9) Q2 2022 Unemployment rate (peak) 8.6 Q3 2023 10.5 Q3 2023 9.4 Q2 2022 15.1 Q2 2022 House price index (4.4) Q2 2024 (26.5) Q2 2024 (0.1) Q4 2022 (25.1) Q2 2023 (1) For the unemployment rate, the figures show the peak levels. For the Bank of England base rate, the figures show highest or lowest levels. For other parameters, the figures show falls relative to the starting period. The calculations are performed over five years, with a starting point of Q1 2022 for 30 June 2022 scenarios. Risk and capital management Credit risk continued Economic loss drivers (reviewed) Use of the scenarios in Personal lending Personal lending follows a discrete scenario approach. The probability of default (PD) and loss given default (LGD) values for each discrete scenario are calculated using product-specific econometric models. Each account has a PD and LGD calculated as probability weighted-averages across the suite of economic scenarios. Use of the scenarios in Wholesale lending The Wholesale lending ECL methodology is based on the concept of CCIs. The CCIs represent, similar to the exogenous component in Personal, all relevant economic loss drivers for a region/industry segment aggregated into a single index value that describes the loss rate conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to loss rates at long-run average levels, a positive CCI value corresponds to loss rates below long-run average levels and a negative CCI value corresponds to loss rates above long-run average levels. Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection. The rationale for the Wholesale approach is the long-standing observation that loss rates in Wholesale portfolios tend to follow regular cycles. This allows NatWest Group to enrich the range and depth of future economic conditions embedded in the final ECL beyond what would be obtained from using the discrete macro-economic scenarios alone. Business banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal lending rather than the Wholesale lending methodology. UK economic uncertainty Businesses are still trying to recover fully from the effects of COVID-19 and to service additional debt which was accessed during the period. New headwinds on inflation, cost of living and supply chain disruption have arisen. Inflation and supply chain issues are presenting significant headwinds for some businesses and sectors. These are a result of various factors and in many cases are compounding and look set to remain a feature of the economic environment into 2023. NatWest Group has considered where these are most likely to affect the customer base, including assessing which businesses that NatWest Group does not believe will fully pass the costs onto the consumer and those that can, driving further cost of living risks. In addition, while a direct impact from the Russian invasion of Ukraine is limited, the contagion events of supply chain disruption is still anticipated with European economies being dependent on Russia, Ukraine and Belarus for a number of commodities. The effects of these risks are not expected to be fully captured by forward-looking credit modelling, particularly given the unique high inflation, low unemployment base-case outlook. Any incremental ECL effects for these risks will be captured via post-model adjustments and are detailed further in the Governance and post-model adjustments section. Personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high risk are no longer collectively migrated into Stage 2, given the lack of observable default emergence from these segments and with the focus of high-risk segment monitoring now shifting to the effects of inflation and the growing cost of living effect on customers. Model monitoring and enhancement As of January 2022, a new regulatory definition of default for was introduced in line with PRA and EBA guidance. This definition of default was also adopted for IFRS 9. Underlying observed one-year default rates (after isolating one-off effects from the new definition of default) across all portfolios still trend at or below pre-COVID-19 levels. As a result, most recent back-testing of forward-looking IFRS 9 PDs continues to show some overprediction in some portfolios. As in previous quarters, model recalibrations to adjust for this overprediction have been deferred based on the judgment that low default rate actuals during COVID-19 were distorted, due to government support. Going forward, NatWest Group expects potential increases in default emergence to come primarily from forward-looking risks like high inflation and rising interest rates, rather than from delayed COVID-19 effects. Therefore, previously applied lags to the projections from the economic forecasting models of up to 12 months have been discontinued. For Personal mortgages, new fully redeveloped PD and LGD models were implemented in Q1, which removed the need for several model adjustments. In addition, newly approved IFRS 9 models for Personal unsecured portfolios are at a parallel run stage awaiting implementation in Q3 2022, with expected effects on staging and ECL captured at 30 June 2022 used to support the reported ECL estimates. Scenario sensitivity - Personal only For the unsecured Personal lending portfolios, the ECL sensitivity analyses now leverage the newly approved PD models. Risk and capital management Credit risk continued UK economic uncertainty Governance and post model adjustments (reviewed) The IFRS 9 PD, EAD and LGD models are subject to NatWest Group's model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All post model adjustments were subject to formal approval through provisioning governance, and were categorised as follows (business level commentary is provided below): - Deferred model calibrations - ECL adjustments where PD model monitoring indicated that actual defaults were below estimated levels but where it was judged that an implied ECL release was not supportable due to the influence of government support schemes on default levels in the past two years. As a consequence, any potential ECL release was deferred and retained on the balance sheet until modelled ECL levels are affirmed by new model parallel runs or similar analyses. - Economic uncertainty - ECL adjustments primarily arising from uncertainties associated with increased inflation and cost of living risks as well as supply chain disruption, along with the residual effect of COVID-19 and government support schemes. In all cases, management judged that additional ECL was required until further credit performance data became available as the full effects of these issues matures. - Other adjustments - ECL adjustments where it was judged that the modelled ECL required to be amended. Post-model adjustments will remain a key focus area of NatWest Group's ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends with a particular focus on segments of the portfolio (both commercial and consumer) that are likely to be more susceptible to inflation, cost of living and supply chain risks. ECL post model adjustments Retail Banking Private Commercial & Ulster Bank RoI (1) Mortgages Other Banking Institutional Mortgages Other Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m Deferred model calibrations - - - 64 - 2 66 Economic uncertainty 97 82 11 388 - 5 583 Other adjustments 28 (26) - 12 160 18 192 Total 125 56 11 464 160 25 841 Of which: - Stage 1 39 20 2 58 5 2 126 - Stage 2 63 36 9 404 9 22 543 - Stage 3 23 - - 2 146 1 172 31 December 2021 Deferred model calibrations 58 97 - 62 - 2 219 Economic uncertainty 60 99 5 391 6 23 584 Other adjustments 37 - - 5 156 - 198 Total 155 196 5 458 162 25 1,001 Of which: - Stage 1 9 5 - 15 4 1 34 - Stage 2 126 164 5 443 7 26 771 - Stage 3 20 27 - - 151 (2) 196 (1) Excludes ��34 million (31 December 2021 - ��49 million) of post model adjustments (mortgages - ��0.4 million; other - ��33.6 million (31 December 2021 - mortgages ��4 million; other - ��45 million)) for Ulster Bank RoI disclosed as transfers to disposal groups. Risk and capital management Credit risk continued - Retail Banking - The judgemental post-model adjustment for deferred model calibrations of ��155 million at 31 December 2021 was no longer required. This was due, firstly, to the removal of the mortgage element of this post model adjustment because of the implementation of a new IFRS 9 PD model in Q1 2022. In addition, the effects of new PD models on loan and overdraft portfolios are now captured in the staging and ECL estimates at 30 June 2022, negating the need for further management judgement on PD calibration adjustments. - The post-model adjustment for economic uncertainty increased from ��159 million to ��179 million, reflecting the increased level of uncertainty since 31 December 2021 as a result of sharply rising inflation, cost of living pressures and the expected effect on consumers and the broader economy. The primary element of these economic uncertainty adjustments was a new ��152 million ECL uplift, to capture the risk on segments of the Retail portfolio that are more susceptible to the effects of cost of living rises, focusing on key affordability lenses, including customers with lower incomes in fuel poverty and over-indebted borrowers. This adjustment has superseded the previously held ��26 million for COVID-19 payment holiday high-risk customers and the ��69 million judgemental ECL release holdback at 31 December 2021. This demonstrated management's view of a dissipating risk of economic effects from COVID-19 with the focus now on risks associated with cost of living and affordability. The introduction of the new cost of living post-model adjustment at 30 June 2022 allocated more ECL to Stage 1 given the forward-looking nature of the cost of living and inflation threat, whereas the previous COVID-19 post-model adjustments were focused on Stage 2 (for example, high-risk payment holiday cases migrated into Stage 2). - Other judgmental overlays included a post model adjustment of ��16 million to capture the effect of potential cladding risk in the portfolio. In addition, a temporary ��26 million ECL reduction adjustment was in place to reflect, on a forward-looking basis, the associated effects of a new credit card PD model that is pending implementation. - Commercial & Institutional - The post-model adjustment for economic uncertainty remained broadly stable at ��388 million (31 December 2021 - ��391 million.) It included an overlay of ��336 million to cover the residual risks from COVID-19, including the risk that government support schemes, during COVID-19 could have suppressed defaults that may materialise in future periods above expected default levels, concerns surrounding associated debt to customers that have utilised government support schemes and a new risk from inflation and supply chain issues which will present significant new headwinds for a number of sectors. The amount relating to the new inflation and supply chain risk was ��107 million and is a mechanistic adjustment, where a sector-level downgrade was applied to the sectors that were considered most at risk from these headwinds. - The post-model adjustment for deferred model calibrations on the business banking portfolio was broadly unchanged at ��64 million (31 December 2021 - ��62 million). This reflected management's judgment that the modelled ECL reduction remained unsupportable while portfolio performance was being underpinned by the various support schemes. New business banking models are currently being developed in H2 2022 in part to address this concern. - Other adjustments included an overlay of ��9 million to mitigate the effect of operational timing delays in the identification and flagging of a significant increase in credit risk (SICR). This increased from ��2 million at 31 December 2021, mainly as a result of increased Stage 1 balances and an increase in Stage 1 into Stage 3 flows. - Ulster Bank RoI - The post model adjustment for economic uncertainty reduced to ��5 million from ��29 million owing to a decrease in the amount of COVID-19 related adjustments. Other adjustments increased to ��178 million from ��156 million reflecting management opinion that continuing actions on the phased withdrawal of Ulster Bank RoI from the Republic of Ireland market will lead to higher, and/or earlier, crystallisation of losses. Risk and capital management Credit risk continued Wholesale support schemes The table below shows the sector split for the Bounce Back Loan Scheme (BBLS) as well as associated debt split by stage. Associated debt refers to the non-BBLS lending to customers who also have BBLS lending. Gross carrying amount BBL Associated debt ECL on associated debt Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Wholesale Property 1,240 200 150 1,590 1,078 171 64 1,313 4 16 23 Financial institutions 29 4 1 34 26 2 - 28 - - - Sovereign 6 1 1 8 2 - - 2 - - - Corporate 3,829 635 689 5,153 2,704 700 109 3,513 10 66 52 Of which: Agriculture 258 81 11 350 959 256 16 1,231 4 21 7 Airlines and aerospace 4 1 1 6 1 - - 1 - - - Automotive 264 34 31 329 116 25 4 145 1 2 2 Health 197 24 11 232 320 75 16 411 1 4 4 Land transport and logistics 148 26 27 201 62 11 2 75 - 2 2 Leisure 578 113 84 775 373 154 25 552 1 16 11 Oil and gas 7 2 1 10 4 1 - 5 - - - Retail 670 99 77 846 347 63 14 424 1 7 8 Total 5,104 840 841 6,785 3,810 873 173 4,856 14 82 75 31 December 2021 Wholesale Property 1,480 218 99 1,797 1,232 165 55 1,452 3 13 18 Financial institutions 33 5 1 39 9 20 3 32 - 1 - Sovereign 7 1 - 8 2 - - 2 - - - Corporate 4,593 703 334 5,630 2,481 1,087 84 3,652 10 66 34 Of which: Agriculture 302 86 6 394 827 396 14 1,237 3 16 4 Airlines and aerospace 5 1 1 7 1 1 - 2 - - - Automotive 309 43 21 373 119 39 2 160 1 2 1 Health 233 26 7 266 287 131 13 431 1 7 3 Land transport and logistics 180 32 19 231 57 26 2 85 - 2 1 Leisure 706 122 55 883 367 208 25 600 1 15 9 Oil and gas 8 2 1 11 3 1 - 4 - - - Retail 800 109 47 956 310 127 8 445 2 7 4 Total 6,113 927 434 7,474 3,724 1,272 142 5,138 13 80 52 Measurement uncertainty and ECL sensitivity analysis (reviewed) The recognition and measurement of ECL is complex and involves the use of significant judgment and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic scenarios into ECL to meet the measurement objective of IFRS 9. The ECL provision is sensitive to the model inputs and economic assumptions underlying the estimate. The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact at 30 June 2022. Scenario impacts on a SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario. Stage 3 provisions are not subject to the same level of measurement uncertainty - default is an observed event as at the balance sheet date. Stage 3 provisions therefore have not been considered in this analysis. The impact arising from the base case, upside, downside and extreme downside scenarios has been simulated. These scenarios are used in the methodology for Personal multiple economic scenarios as described in the Economic loss drivers section. In the simulations, NatWest Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a 100% probability weighting and therefore serving as a single economic scenario. These scenarios have been applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Modelled post model adjustments present in the underlying ECL estimates are also sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for deferred model calibrations and economic uncertainty, are not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit. NatWest Group's core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact. Risk and capital management Credit risk continued Measurement uncertainty and ECL sensitivity analysis (reviewed) Extreme 30 June 2022 Actual Base case Upside Downside downside Stage 1 modelled exposure (��m) Retail Banking - mortgages 164,607 164,315 165,182 164,514 162,356 Retail Banking - unsecured 7,714 7,769 7,942 7,662 7,053 Wholesale - property 28,433 28,747 28,878 27,461 23,382 Wholesale - non-property 112,900 116,027 116,679 109,232 94,138 313,654 316,858 318,681 308,869 286,929 Stage 1 modelled ECL (��m) Retail Banking - mortgages 45 46 42 50 51 Retail Banking - unsecured 131 157 152 160 141 Wholesale - property 39 33 28 50 83 Wholesale - non-property 155 162 160 171 149 370 398 382 431 424 Stage 2 modelled exposure (��m) Retail Banking - mortgages 8,965 9,257 8,390 9,058 11,216 Retail Banking - unsecured 2,829 2,774 2,601 2,881 3,490 Wholesale - property 2,902 2,588 2,457 3,874 7,953 Wholesale - non-property 14,043 10,916 10,264 17,711 32,805 28,739 25,535 23,712 33,524 55,464 Stage 2 modelled ECL (��m) Retail Banking - mortgages 76 75 69 76 86 Retail Banking - unsecured 345 302 265 325 424 Wholesale - property 101 78 69 121 300 Wholesale - non-property 543 463 420 616 1,170 1,065 918 823 1,138 1,980 Stage 1 and Stage 2 modelled exposure (��m) Retail Banking - mortgages 173,572 173,572 173,572 173,572 173,572 Retail Banking - unsecured 10,543 10,543 10,543 10,543 10,543 Wholesale - property 31,335 31,335 31,335 31,335 31,335 Wholesale - non-property 126,943 126,943 126,943 126,943 126,943 342,393 342,393 342,393 342,393 342,393 Stage 1 and Stage 2 modelled ECL (��m) Retail Banking - mortgages 121 121 111 126 137 Retail Banking - unsecured 476 459 417 485 565 Wholesale - property 140 111 97 171 383 Wholesale - non-property 698 625 580 787 1,319 1,435 1,316 1,205 1,569 2,404 Stage 1 and Stage 2 coverage (%) Retail Banking - mortgages 0.07 0.07 0.06 0.07 0.08 Retail Banking - unsecured 4.51 4.35 3.96 4.60 5.36 Wholesale - property 0.45 0.35 0.31 0.54 1.22 Wholesale - non-property 0.55 0.49 0.46 0.62 1.04 0.42 0.38 0.35 0.46 0.70 Reconciliation to Stage 1 and Stage 2 ECL (��m) ECL on modelled exposures 1,435 1,316 1,205 1,569 2,404 ECL on Ulster Bank RoI modelled exposures 56 56 56 56 56 ECL on non-modelled exposures 39 39 39 39 39 Total Stage 1 and Stage 2 ECL 1,530 1,411 1,300 1,664 2,499 Variance - (lower)/higher to actual total Stage 1 and Stage 2 ECL - (119) (230) 134 969 (1) Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 30 June 2022 and therefore does not include variation in future undrawn exposure values. (2) Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios and exposure relating to bonds and cash. (3) Exposures related to Ulster Bank RoI continuing operations have not been included in the simulations, the current Ulster Bank RoI ECL has been included across all scenarios to enable reconciliation to other disclosures. (4) All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 30 June 2022. The simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static. (5) Refer to the Economic loss drivers section for details of economic scenarios. (6) Refer to the NatWest Group 2021 Annual Report and Accounts for 31 December 2021 comparatives. Risk and capital management Credit risk continued Measurement uncertainty and ECL adequacy (reviewed) - During the first half of 2022, both the Stage 2 size and overall modelled ECL reduced in line with stable portfolio performance and underlying ECL driver trends. Judgmental ECL post-model adjustments, although reduced in value terms from 31 December 2021, continue to reflect economic uncertainty with the expectation of increased defaults later in 2022 and beyond, still represents 24% of total ECL (31 December 2021 - 26%). These combined factors, in conjunction with the new regulatory definition of default moving riskier Stage 2 assets to Stage 3 and a new suite of Personal IFRS 9 models, contributed to a smaller range of ECL sensitivities at 30 June 2022 compared to the 2021 year end. - If the economics were as negative as observed in the extreme downside, total Stage 1 and Stage 2 ECL was simulated to increase by ��1.0 billion (approximately 63%). In this scenario, Stage 2 exposure increased significantly and was the key driver of the simulated ECL rise. The movement in Stage 2 balances in the other simulations was less significant. - In the Wholesale portfolio, there was a significant increase to ECL under both a moderate and extreme downside scenario. The Wholesale property ECL increase under a moderate and extreme downside scenario was driven by commercial real estate prices which show negative growth for 2022 and 2023 and significant deterioration in the stock index. The non-property increase under a moderate and extreme downside scenario was driven by GDP contraction, unemployment growth and interest rate changes. The changes in the economic outlook and scenarios used in the IFRS 9 MES framework at 30 June 2022 to capture the increased risks of inflation, cost of living and supply chain had a minimal effect on modelled ECL. Given that uncertainty has increased due to these risks, NatWest Group utilised a framework of quantitative and qualitative measures to support the directional change and levels of ECL coverage, including economic data, credit performance insights on higher risk portfolio segments and problem debt trends. This was particularly important for consideration of post-model adjustments. As the effects of inflation, cost of living and supply chain risks evolve during 2022 and into 2023 and government support schemes have to be serviced, there is a risk of credit deterioration. However, the income statement effect of this will be mitigated by the forward-looking provisions retained on the balance sheet at 30 June 2022. There are a number of key factors that could drive further downside to impairments, through deteriorating economic and credit metrics and increased stage migration as credit risk increases for more customers. Such factors would include an adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates. Movement in ECL provision The table below shows the main ECL provision movements during H1 2022. ECL provision ��m At 1 January 2022 3,806 Transfers to disposal groups (50) Changes in economic forecasts 41 Changes in risk metrics and exposure: Stage 1 and Stage 2 (120) Changes in risk metrics and exposure: Stage 3 261 Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3 (159) Write-offs and other (264) At 30 June 2022 3,515 - ECL reduced during H1 2022 reflecting continued positive trends in portfolio performance alongside a related net release of judgemental post model adjustments and write-off activity. - Stage 3 defaults continued to be subdued on an underlying basis. Stage 3 ECL balances remained broadly stable during the quarter, mainly due to write-offs and repayments of defaulted debt largely offsetting the effect of the new regulatory default definition. - The update to the economic scenarios at 30 June 2022 resulted in a modest modelled ��41 million increase in ECL. Additionally, broader portfolio performance continued to be stable, which led to some additional post model adjustments being required to ensure provision adequacy in the face of growing uncertainty due to inflation, cost of living threat and supply chain challenges. - As described in the Governance and post model adjustments section above, the new cost of living focused post model adjustments were more than offset by the retirement of previously held COVID-19 related adjustments and also significant reduction in the requirement for deferred model calibrations due to impending new model implementations in Q3 2022. - The ��50 million ECL reduction due to transfer to discontinued operations relates to the phased withdrawal of Ulster Bank RoI from the Republic of Ireland. Risk and capital management Credit risk - Banking activities Introduction This section details the credit risk profile of NatWest Group's banking activities. Financial instruments within the scope of the IFRS 9 ECL framework (reviewed) Refer to Note 9 for balance sheet analysis of financial assets that are classified as amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment. The table below excludes loans in disposal group of ��14.3 billion (31 December 2021 - ��9.1 billion). Financial assets 30 June 2022 31 December 2021 Gross ECL Net Gross ECL Net ��bn ��bn ��bn ��bn ��bn ��bn Balance sheet total gross amortised cost and FVOCI 605.1 596.1 In scope of IFRS 9 ECL framework 593.4 590.9 % in scope 98% 99% Loans to customers - in scope - amortised cost 365.9 3.4 362.5 361.9 3.7 358.2 Loans to customers - in scope - FVOCI 0.1 - 0.1 0.3 - 0.3 Loans to banks - in scope - amortised cost 10.4 - 10.4 7.6 - 7.6 Total loans - in scope 376.4 3.4 373.0 369.8 3.7 366.1 Stage 1 342.1 0.4 341.7 330.8 0.3 330.5 Stage 2 28.5 1.0 27.5 34.0 1.4 32.6 Stage 3 5.8 2.0 3.8 5.0 2.0 3.0 Other financial assets - in scope - amortised cost 190.4 - 190.4 184.4 - 184.4 Other financial assets - in scope - FVOCI 26.6 - 26.6 36.7 - 36.7 Total other financial assets - in scope 217.0 - 217.0 221.1 - 221.1 Stage 1 217.0 - 217.0 220.8 - 220.8 Stage 2 - - - 0.3 - 0.3 Out of scope of IFRS 9 ECL framework 11.7 na 11.7 5.2 na 5.2 Loans to customers - out of scope - amortised cost - na - 0.8 na 0.8 Loans to banks - out of scope - amortised cost 0.3 na 0.3 0.1 na 0.1 Other financial assets - out of scope - amortised cost 11.4 na 11.4 4.0 na 4.0 Other financial assets - out of scope - FVOCI - na - 0.3 na 0.3 na = not applicable The assets outside the IFRS 9 ECL framework were as follows: - Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of ��11.4 billion (31 December 2021 - ��3.7 billion). These were assessed as having no ECL unless there was evidence that they were defaulted. - Equity shares of ��0.3 billion (31 December 2021 - ��0.3 billion) as not within the IFRS 9 ECL framework by definition. - Fair value adjustments on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope of nil (31 December 2021 - ��0.8 billion). - NatWest Group originated securitisations, where ECL was captured on the underlying loans of nil (31 December 2021 - ��0.4 billion). Contingent liabilities and commitments In addition to contingent liabilities and commitments disclosed in Note 14, reputationally-committed limits, were also included in the scope of the IFRS 9 ECL framework. These were offset by ��1.4 billion (31 December 2021 - ��0.8 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as amortised cost or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of ��133.3 billion (31 December 2021 - ��127.9 billion) comprised Stage 1 ��122.7 billion (31 December 2021 - ��119.5 billion); Stage 2 ��9.9 billion (31 December 2021 - ��7.8 billion); and Stage 3 ��0.7 billion (31 December 2021 - ��0.6 billion). The ECL relating to off-balance sheet exposures was ��0.1 billion (31 December 2021 - ��0.1 billion). The total ECL in the remainder of the Credit risk section of ��3.5 billion (31 December 2021 - ��3.8 billion) included ECL for both on and off-balance sheet exposures for non-disposal groups. Risk and capital management Credit risk - Banking activities continued Segment analysis - portfolio summary (reviewed) The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework. Go-forward group Central Total Ulster Retail Private Commercial & items & excluding Bank Banking Banking Institutional other Ulster Bank RoI RoI Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m Loans - amortised cost and FVOCI Stage 1 175,867 18,428 114,675 32,481 341,451 670 342,121 Stage 2 11,508 628 16,047 83 28,266 239 28,505 Stage 3 2,493 353 2,336 - 5,182 634 5,816 Of which: individual - 225 857 - 1,082 80 1,162 Of which: collective 2,493 128 1,479 - 4,100 554 4,654 Subtotal excluding disposal group loans 189,868 19,409 133,058 32,564 374,899 1,543 376,442 Disposal group loans 14,254 14,254 Total 15,797 390,696 ECL provisions (1) Stage 1 184 12 185 17 398 10 408 Stage 2 419 17 631 9 1,076 46 1,122 Stage 3 895 34 706 - 1,635 350 1,985 Of which: individual - 33 260 - 293 11 304 Of which: collective 895 1 446 - 1,342 339 1,681 Subtotal excluding ECL provisions on disposal group loans 1,498 63 1,522 26 3,109 406 3,515 ECL provisions on disposal group loans 95 95 Total 501 3,610 ECL provisions coverage (2) Stage 1 (%) 0.10 0.07 0.16 0.05 0.12 1.49 0.12 Stage 2 (%) 3.64 2.71 3.93 10.84 3.81 19.25 3.94 Stage 3 (%) 35.90 9.63 30.22 - 31.55 55.21 34.13 ECL provisions coverage excluding disposal group loans 0.79 0.32 1.14 0.08 0.83 26.31 0.93 ECL provisions coverage on disposal group loans 0.67 0.67 Total 3.17 0.92 Impairment (releases)/losses ECL (release)/charge (3) 26 (11) (59) (2) (46) (8) (54) Stage 1 (125) (6) (204) (9) (344) 2 (342) Stage 2 86 (7) 108 8 195 10 205 Stage 3 65 2 37 (1) 103 (20) 83 Of which: individual - 2 - (1) 1 (2) (1) Of which: collective 65 - 37 - 102 (18) 84 Continuing operations 26 (11) (59) (2) (46) (8) (54) Discontinued operations (62) (62) Total (70) (116) Amounts written-off 106 1 94 - 201 14 215 Of which: individual - 1 57 - 58 - 58 Of which: collective 106 - 37 - 143 14 157 For the notes to this table refer to the following page. Risk and capital management Credit risk - Banking activities continued Segment analysis - portfolio summary (reviewed) Go-forward group Central Total Ulster Retail Private Commercial & items & excluding Bank Banking Banking Institutional other Ulster Bank RoI RoI Total 31 December 2021 ��m ��m ��m ��m ��m ��m ��m Loans - amortised cost and FVOCI Stage 1 168,013 17,600 107,368 32,283 325,264 5,560 330,824 Stage 2 13,594 967 18,477 90 33,128 853 33,981 Stage 3 1,884 270 2,081 - 4,235 787 5,022 Of which: individual - 270 884 - 1,154 61 1,215 Of which: collective 1,884 - 1,197 - 3,081 726 3,807 Subtotal excluding disposal group loans 183,491 18,837 127,926 32,373 362,627 7,200 369,827 Disposal group loans 9,084 9,084 Total 16,284 378,911 ECL provisions (1) Stage 1 134 12 129 17 292 10 302 Stage 2 590 29 784 11 1,414 64 1,478 Stage 3 850 37 751 - 1,638 388 2,026 Of which: individual - 37 313 - 350 13 363 Of which: collective 850 - 438 - 1,288 375 1,663 Subtotal excluding ECL provisions on disposal group loans 1,574 78 1,664 28 3,344 462 3,806 ECL provisions on disposal group loans 109 109 Total 571 3,915 ECL provisions coverage (2) Stage 1 (%) 0.08 0.07 0.12 0.05 0.09 0.18 0.09 Stage 2 (%) 4.34 3.00 4.24 12.22 4.27 7.50 4.35 Stage 3 (%) 45.12 13.70 36.09 - 38.68 49.30 40.34 ECL provisions coverage excluding disposal group loans 0.86 0.41 1.30 0.09 0.92 6.42 1.03 ECL provisions coverage on disposal group loans 1.20 1.20 Total 3.51 1.03 Half year ended 30 June 2021 Impairment (releases)/losses ECL (release)/charge (3) (57) (27) (613) 1 (696) 13 (683) Stage 1 (195) (27) (436) - (658) (4) (662) Stage 2 45 (4) (150) 1 (108) (6) (114) Stage 3 93 4 (27) - 70 23 93 Of which: individual - 4 (30) - (26) 1 (25) Of which: collective 93 - 3 - 96 22 118 Continuing operations (57) (27) (613) 1 (696) 13 (683) Discontinued operations (24) (24) Total (11) (707) Amounts written-off 138 5 298 - 441 76 517 Of which: individual - 5 251 - 256 - 256 Of which: collective 138 - 47 - 185 76 261 (1) Includes ��3 million (31 December 2021 - ��5 million) related to assets classified as FVOCI. (2) ECL provisions coverage is calculated as ECL provisions divided by loans - amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions. (3) Includes a ��2 million release (30 June 2021 - ��4 million charge) related to other financial assets, of which nil (30 June 2021 - nil) related to assets classified as FVOCI; and ��3 million (30 June 2021 - ��2 million release) related to contingent liabilities. (4) The table shows gross loans only and excludes amounts that were outside the scope of the ECL framework. Refer to Financial instruments within the scope of the IFRS 9 ECL framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling ��178.4 billion (31 December 2021 - ��176.3 billion) and debt securities of ��38.6 billion (31 December 2021 - ��44.9 billion). - Stage 3 loans increased, as write-offs and repayments were more than offset by the effect of the new regulatory definition of default, which in isolation led to an increase of approximately ��0.7 billion in Stage 3 balances, mostly in retail mortgages and new Wholesale defaults on government scheme lending. - Underlying flows into default remained subdued during H1 2022. However, it is expected that defaults will increase as the year progresses and growing inflationary pressures on businesses, consumers and the broader economy continue to evolve. - Stage 2 loans and ECL reduced further during the first half of 2022, with positive trends in underlying risk metrics maintained since 31 December 2021 and migration of exposures into Stage 3 because of the new regulatory default definition mentioned previously. - Reflecting the stable portfolio performance and resultant ECL releases, there was a net impairment release of ��54 million for the first half of the year for continued operations. Risk and capital management Credit risk - Banking activities continued Segment analysis - portfolio summary (reviewed) The table below shows Ulster Bank RoI disposal groups for Personal and Wholesale, by stage, for gross loans, off-balance sheet exposures and ECL. The tables in the rest of the Credit risk section are shown on a continuing basis and therefore exclude these exposures. Off-balance sheet Loans - amortised cost and FVOCI Loan Contingent ECL provisions Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Personal 9,988 640 82 10,710 - - 4 10 12 26 Wholesale 2,835 678 31 3,544 1,906 217 17 37 15 69 Total 12,823 1,318 113 14,254 1,906 217 21 47 27 95 31 December 2021 Personal 5,547 210 34 5,791 - - 4 6 7 17 Wholesale 2,647 639 7 3,293 1,665 115 10 78 4 92 Total 8,194 849 41 9,084 1,665 115 14 84 11 109 Segment loans and impairment metrics (reviewed) The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework. Gross loans ECL provisions (2) Stage 2 (1) Stage 2 (1) Not past 1-30 >30 Not past 1-30 >30 Stage 1 due DPD DPD Total Stage 3 Total Stage 1 due DPD DPD Total Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Retail Banking 175,867 10,623 605 280 11,508 2,493 189,868 184 382 16 21 419 895 1,498 Private Banking 18,428 548 63 17 628 353 19,409 12 16 1 - 17 34 63 Personal 14,813 100 43 16 159 307 15,279 6 2 1 - 3 17 26 Wholesale 3,615 448 20 1 469 46 4,130 6 14 - - 14 17 37 Commercial & Institutional 114,675 14,080 804 1,163 16,047 2,336 133,058 185 569 33 29 631 706 1,522 Personal 2,352 15 18 5 38 49 2,439 3 1 - 1 2 9 14 Wholesale 112,323 14,065 786 1,158 16,009 2,287 130,619 182 568 33 28 629 697 1,508 Central items & other 32,481 83 - - 83 - 32,564 17 9 - - 9 - 26 Ulster Bank RoI 670 218 4 17 239 634 1,543 10 42 1 3 46 350 406 Personal 470 103 4 16 123 471 1,064 6 12 1 3 16 278 300 Wholesale 200 115 - 1 116 163 479 4 30 - - 30 72 106 Total loans 342,121 25,552 1,476 1,477 28,505 5,816 376,442 408 1,018 51 53 1,122 1,985 3,515 Of which: Personal 193,502 10,841 670 317 11,828 3,320 208,650 199 397 18 25 440 1,199 1,838 Wholesale 148,619 14,711 806 1,160 16,677 2,496 167,792 209 621 33 28 682 786 1,677 31 December 2021 Retail Banking 168,013 12,275 863 456 13,594 1,884 183,491 134 516 38 36 590 850 1,574 Private Banking 17,600 902 27 38 967 270 18,837 12 29 - - 29 37 78 Personal 14,350 137 24 11 172 232 14,754 6 2 - - 2 18 26 Wholesale 3,250 765 3 27 795 38 4,083 6 27 - - 27 19 52 Commercial & Institutional 107,368 17,352 455 670 18,477 2,081 127,926 129 750 23 11 784 751 1,664 Personal 2,647 21 17 11 49 57 2,753 2 1 - - 1 10 13 Wholesale 104,721 17,331 438 659 18,428 2,024 125,173 127 749 23 11 783 741 1,651 Central items & other 32,283 90 - - 90 - 32,373 17 11 - - 11 - 28 Ulster Bank RoI 5,560 747 58 48 853 787 7,200 10 58 3 3 64 388 462 Personal 5,165 510 52 46 608 609 6,382 7 15 3 3 21 301 329 Wholesale 395 237 6 2 245 178 818 3 43 - - 43 87 133 Total loans 330,824 31,366 1,403 1,212 33,981 5,022 369,827 302 1,364 64 50 1,478 2,026 3,806 Of which: Personal 190,175 12,943 956 524 14,423 2,782 207,380 149 534 41 39 614 1,179 1,942 Wholesale 140,649 18,423 447 688 19,558 2,240 162,447 153 830 23 11 864 847 1,864 For the notes to this table refer to the following page. Risk and capital management Credit risk - Banking activities continued Segment loans and impairment metrics (reviewed) The table below shows ECL and ECL provisions coverage, by days past due, by segment and stage, within the scope of the ECL framework. ECL provisions coverage Half year ended 30 June 2022 Stage 2 (1,2) ECL Not past Total Amounts Stage 1 due 1-30 DPD >30 DPD Total Stage 3 Total (release)/charge written-off 30 June 2022 % % % % % % % ��m ��m Retail Banking 0.10 3.60 2.64 7.50 3.64 35.90 0.79 26 106 Private Banking 0.07 2.92 1.59 - 2.71 9.63 0.32 (11) 1 Personal 0.04 2.00 2.33 - 1.89 5.54 0.17 (2) 1 Wholesale 0.17 3.13 - - 2.99 36.96 0.90 (9) - Commercial & Institutional 0.16 4.04 4.10 2.49 3.93 30.22 1.14 (59) 94 Personal 0.13 6.67 - 20.00 5.26 18.37 0.57 1 1 Wholesale 0.16 4.04 4.20 2.42 3.93 30.48 1.15 (60) 93 Central items & other 0.05 10.84 - - 10.84 - 0.08 (2) - Ulster Bank RoI 1.49 19.27 25.00 17.65 19.25 55.21 26.31 (8) 14 Personal 1.28 11.65 25.00 18.75 13.01 59.02 28.20 (7) 6 Wholesale 2.00 26.09 - - 25.86 44.17 22.13 (1) 8 Total loans 0.12 3.98 3.46 3.59 3.94 34.13 0.93 (54) 215 Of which: Personal 0.10 3.66 2.69 7.89 3.72 36.11 0.88 18 116 Wholesale 0.14 4.22 4.09 2.41 4.09 31.49 1.00 (72) 99 ECL provisions coverage Half year ended 30 June 2021 Stage 2 (1,2) ECL Not past Total Amounts Stage 1 due 1-30 DPD >30 DPD Total Stage 3 Total (release)/charge written-off 31 December 2021 % % % % % % % ��m ��m Retail Banking 0.08 4.20 4.40 7.89 4.34 45.12 0.86 (57) 138 Private Banking 0.07 3.22 - - 3.00 13.70 0.41 (27) 5 Personal 0.04 1.46 - - 1.16 7.76 0.18 (4) (1) Wholesale 0.18 3.53 - - 3.40 50.00 1.27 (23) 6 Commercial & Institutional 0.12 4.32 5.05 1.64 4.24 36.09 1.30 (613) 298 Personal 0.08 4.76 - - 2.04 17.54 0.47 - - Wholesale 0.12 4.32 5.25 1.67 4.25 36.61 1.32 (613) 298 Central items & other 0.05 12.22 - - 12.22 - 0.09 1 - Ulster Bank RoI 0.18 7.76 5.17 6.25 7.50 49.30 6.42 13 76 Personal 0.14 2.94 5.77 6.52 3.45 49.43 5.16 19 71 Wholesale 0.76 18.14 - - 17.55 48.88 16.26 (6) 5 Total loans 0.09 4.35 4.56 4.13 4.35 40.34 1.03 (683) 517 Of which: Personal 0.08 4.13 4.29 7.44 4.26 42.38 0.94 (42) 208 Wholesale 0.11 4.51 5.15 1.60 4.42 37.81 1.15 (641) 309 (1) 30 DPD - 30 days past due, the mandatory 30 days past due backstop as prescribed by IFRS 9 for a SICR. (2) ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios. Segment loans and impairment metrics (reviewed) - Retail Banking - Balance sheet growth continued during H1 2022, primarily in mortgages, where new lending remained strong. Unsecured lending balances increased during H1 2022, following the easing of COVID-19 restrictions. Total ECL coverage reduced slightly during 2022, reflective of low unemployment and stable portfolio performance, while maintaining sufficient ECL coverage for key portfolios above 2019 levels, given increased inflationary and cost of living pressures. Stage 3 ECL increased overall, mainly because of the IFRS 9 alignment to the new regulatory default definition, implemented on 1 January 2022. This change resulted in an increase in Stage 3 exposures of approximately ��0.7 billion, mostly in mortgages. Stage 2 balances decreased during the first half of the year, reflecting continued stability in IFRS 9 PD estimates and the consequence of the migration of balances into Stage 3 under the new regulatory default definition. The implementation of new mortgage IFRS 9 models resulted in lower Stage 3 ECL coverage due to reduced loss estimates for cases where the customer was not subject to repossession activity and was the primary driver for the change in overall Retail Stage 3 coverage during H1 2022. - Commercial & Institutional - The balance sheet increased during H1 2022, mainly attributable to growth in exposure to financial institutions. Sector appetite is regularly reviewed with continued focus on appetite to high oversight sectors. Strategic reductions and right sizing of appetite limits continued to be achieved. Stage 2 balances continued to fall mainly reflecting positive portfolio performance which lowered PDs and resulted in exposure migrating back into Stage 1. In addition, some deterioration in government scheme lending resulted in exposure moving from Stage 2 into Stage 3. PD deterioration remained the primary driver of cases moving into Stage 2. The ECL release was largely due to improvements in underlying PDs and reduced Stage 2 balances, as assets migrated back into Stage 1. Risk and capital management Credit risk - Banking activities continued Sector analysis - portfolio summary (reviewed) The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region. Personal Wholesale Total Mortgages Credit Other (1) cards personal Total Property Corporate FI Sovereign Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by geography 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442 - UK 194,055 4,142 9,389 207,586 31,950 62,433 38,741 4,538 137,662 345,248 - RoI 883 59 122 1,064 64 1,003 62 - 1,129 2,193 - Other Europe - - - - 506 3,560 7,485 1,136 12,687 12,687 - RoW - - - - 364 4,075 11,165 710 16,314 16,314 Loans by stage (2) 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442 - Stage 1 183,414 3,059 7,029 193,502 29,231 56,068 57,107 6,213 148,619 342,121 - Stage 2 9,076 1,037 1,715 11,828 2,920 13,328 271 158 16,677 28,505 - Stage 3 2,448 105 767 3,320 733 1,675 75 13 2,496 5,816 - Of which: individual 219 - 20 239 316 533 66 8 923 1,162 - Of which: collective 2,229 105 747 3,081 417 1,142 9 5 1,573 4,654 Loans - past due analysis (3,4) 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442 - Not past due 192,129 4,092 8,672 204,893 31,503 67,128 56,409 6,227 161,267 366,160 - Past due 1-30 days 987 25 75 1,087 669 2,369 1,033 156 4,227 5,314 - Past due 31-89 days 505 25 89 619 382 825 5 - 1,212 1,831 - Past due 90-180 days 457 21 81 559 49 88 1 - 138 697 - Past due >180 days 860 38 594 1,492 281 661 5 1 948 2,440 Loans - Stage 2 9,076 1,037 1,715 11,828 2,920 13,328 271 158 16,677 28,505 - Not past due 8,224 1,007 1,610 10,841 2,403 11,887 263 158 14,711 25,552 - Past due 1-30 days 611 15 44 670 150 652 4 - 806 1,476 - Past due 31-89 days 241 15 61 317 367 789 4 - 1,160 1,477 Weighted average life - ECL measurement (years) 8 2 5 5 5 6 3 2 5 5 Weighted average 12 months PDs - IFRS 9 (%) 0.25 3.78 2.24 0.40 0.98 1.27 0.12 0.17 0.77 0.57 - Basel (%) 0.67 3.16 3.01 0.82 1.11 1.55 0.14 0.17 0.92 0.86 ECL provisions by geography 650 250 938 1,838 358 1,250 48 21 1,677 3,515 - UK 364 246 928 1,538 322 1,012 29 16 1,379 2,917 - RoI 286 4 10 300 15 80 1 1 97 397 - Other Europe - - - - 16 87 6 2 111 111 - RoW - - - - 5 71 12 2 90 90 ECL provisions by stage 650 250 938 1,838 358 1,250 48 21 1,677 3,515 - Stage 1 61 65 73 199 40 134 17 18 209 408 - Stage 2 89 117 234 440 101 571 9 1 682 1,122 - Stage 3 500 68 631 1,199 217 545 22 2 786 1,985 - Of which: individual 16 - 10 26 75 183 18 2 278 304 - Of which: collective 484 68 621 1,173 142 362 4 - 508 1,681 ECL provisions coverage (%) 0.33 5.95 9.86 0.88 1.09 1.76 0.08 0.33 1.00 0.93 - Stage 1 (%) 0.03 2.12 1.04 0.10 0.14 0.24 0.03 0.29 0.14 0.12 - Stage 2 (%) 0.98 11.28 13.64 3.72 3.46 4.28 3.32 0.63 4.09 3.94 - Stage 3 (%) 20.42 64.76 82.27 36.11 29.60 32.54 29.33 15.38 31.49 34.13 ECL (release)/charge (80) 20 78 18 21 (61) (31) (1) (72) (54) - UK (75) 20 78 23 30 (66) (34) (1) (71) (48) - RoI (5) - - (5) 2 (7) (3) - (8) (13) - Other Europe - - - - (12) 10 1 - (1) (1) - RoW - - - - 1 2 5 - 8 8 Amounts written-off 27 33 54 114 17 84 - - 101 215 Not within the scope of EY's review report. For the notes to this table refer to page 37. Risk and capital management Credit risk - Banking activities continued Sector analysis - portfolio summary (reviewed) Personal Wholesale Total Mortgages Credit Other (1) cards personal Total Property Corporate FI Sovereign Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by residual maturity 194,938 4,201 9,511 208,650 32,884 71,071 57,453 6,384 167,792 376,442 - <1 year 3,589 2,490 3,187 9,266 7,892 23,283 43,697 4,152 79,024 88,290 - 1-5 year 11,760 1,711 5,448 18,919 16,551 32,808 12,682 786 62,827 81,746 - 5 year 179,589 - 876 180,465 8,441 14,980 1,074 1,446 25,941 206,406 Other financial assets by asset quality (5) - - - - 47 9 13,864 203,094 217,014 217,014 - AQ1-AQ4 - - - - - 9 13,510 203,094 216,613 216,613 - AQ5-AQ8 - - - - 47 - 352 - 399 399 Off-balance sheet 19,535 15,816 8,253 43,604 15,712 53,452 19,617 913 89,694 133,298 - Loan commitments 19,535 15,816 8,197 43,548 15,184 50,711 18,525 913 85,333 128,881 - Financial guarantees - - 56 56 528 2,741 1,092 - 4,361 4,417 Off-balance sheet by asset quality (5) 19,535 15,816 8,253 43,604 15,712 53,452 19,617 913 89,694 133,298 - AQ1-AQ4 18,510 442 7,161 26,113 12,389 32,070 18,114 781 63,354 89,467 - AQ5-AQ8 1,008 15,055 1,062 17,125 3,285 21,023 1,503 132 25,943 43,068 - AQ9 2 17 8 27 5 52 - - 57 84 - AQ10 15 302 22 339 33 307 - - 340 679 For the notes to this table refer to page 37. Risk and capital management Credit risk - Banking activities continued Sector analysis - portfolio summary (reviewed) Personal Wholesale Total Credit Other Mortgages (1) cards personal Total Property Corporate FI Sovereign Total 31 December 2021 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by geography 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827 - UK 187,847 3,877 9,253 200,977 31,574 62,952 39,086 4,542 138,154 339,131 - RoI 6,164 70 147 6,381 130 1,222 116 4 1,472 7,853 - Other Europe - - - - 439 3,831 5,066 840 10,176 10,176 - RoW - - 22 22 379 2,846 8,773 647 12,645 12,667 Loans by stage 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827 - Stage 1 180,418 2,924 6,833 190,175 28,679 53,803 52,263 5,904 140,649 330,824 - Stage 2 11,543 933 1,947 14,423 3,101 15,604 732 121 19,558 33,981 - Stage 3 2,050 90 642 2,782 742 1,444 46 8 2,240 5,022 - Of which: individual 269 - 19 288 329 583 7 8 927 1,215 - Of which: collective 1,781 90 623 2,494 413 861 39 - 1,313 3,807 Loans - past due analysis (3,4) 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827 - Not past due 190,834 3,834 8,619 203,287 31,391 68,630 52,285 6,030 158,336 361,623 - Past due 1-30 days 1,217 28 124 1,369 521 1,081 732 2 2,336 3,705 - Past due 31-89 days 592 25 73 690 256 448 19 1 724 1,414 - Past due 90-180 days 367 22 61 450 91 215 1 - 307 757 - Past due >180 days 1,001 38 545 1,584 263 477 4 - 744 2,328 Loans - Stage 2 11,543 933 1,947 14,423 3,101 15,604 732 121 19,558 33,981 - Not past due 10,259 899 1,785 12,943 2,725 14,870 708 120 18,423 31,366 - Past due 1-30 days 843 16 97 956 125 318 4 - 447 1,403 - Past due 31-89 days 441 18 65 524 251 416 20 1 688 1,212 Weighted average life - ECL measurement (years) 8 2 5 5 5 6 3 1 6 6 Weighted average 12 months PDs - IFRS 9 (%) 0.16 4.84 2.73 0.36 0.76 1.85 0.14 0.14 1.00 0.65 - Basel (%) 0.76 3.31 3.22 0.91 1.20 1.74 0.14 0.16 1.04 0.97 ECL provisions by geography 768 260 914 1,942 374 1,411 57 22 1,864 3,806 - UK 449 258 904 1,611 331 1,124 47 18 1,520 3,131 - RoI 319 2 10 331 19 107 3 1 130 461 - Other Europe - - - - 20 77 4 1 102 102 - RoW - - - - 4 103 3 2 112 112 ECL provisions by stage 768 260 914 1,942 374 1,411 57 22 1,864 3,806 - Stage 1 32 59 58 149 24 96 14 19 153 302 - Stage 2 174 141 299 614 111 713 39 1 864 1,478 - Stage 3 562 60 557 1,179 239 602 4 2 847 2,026 - Of which: individual 19 - 12 31 69 261 - 2 332 363 - Of which: collective 543 60 545 1,148 170 341 4 - 515 1,663 ECL provisions coverage (%) 0.40 6.59 9.70 0.94 1.15 1.99 0.11 0.36 1.15 1.03 - Stage 1 (%) 0.02 2.02 0.85 0.08 0.08 0.18 0.03 0.32 0.11 0.09 - Stage 2 (%) 1.51 15.11 15.36 4.26 3.58 4.57 5.33 0.83 4.42 4.35 - Stage 3 (%) 27.41 66.67 86.76 42.38 32.21 41.69 8.70 25.00 37.81 40.34 Half year ended 30 June 2021 ECL (release)/charge (23) (17) (2) (42) (197) (469) 22 3 (641) (683) - UK (40) (17) (3) (60) (224) (373) 28 2 (567) (627) - RoI 17 - 1 18 38 (53) 9 1 (5) 13 - Other Europe - - - - (20) (10) (8) - (38) (38) - RoW - - - - 9 (33) (7) - (31) (31) Amounts written-off 74 45 89 208 120 187 2 - 309 517 Not within the scope of EY's review report. For the notes to this table refer to the following page. Risk and capital management Credit risk - Banking activities continued Sector analysis - portfolio summary (reviewed) Personal Wholesale Total Credit Other Mortgages (1) cards personal Total Property Corporate FI Sovereign Total 31 December 2021 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by residual maturity 194,011 3,947 9,422 207,380 32,522 70,851 53,041 6,033 162,447 369,827 - <1 year 3,611 2,532 3,197 9,340 7,497 22,593 41,195 2,809 74,094 83,434 - 1-5 year 12,160 1,415 5,393 18,968 16,293 33,301 10,969 1,967 62,530 81,498 - 5 year 178,240 - 832 179,072 8,732 14,957 877 1,257 25,823 204,895 Other financial assets by asset quality (5) - - - - 55 11 11,516 209,553 221,135 221,135 - AQ1-AQ4 - - - - - 11 10,974 209,551 220,536 220,536 - AQ5-AQ8 - - - - 55 - 542 2 599 599 Off-balance sheet 16,827 15,354 8,230 40,411 16,342 52,033 17,898 1,212 87,485 127,896 - Loan commitments 16,827 15,354 8,170 40,351 15,882 49,231 16,906 1,212 83,231 123,582 - Financial guarantees - - 60 60 460 2,802 992 - 4,254 4,314 Off-balance sheet by asset quality (5) 16,827 15,354 8,230 40,411 16,342 52,033 17,898 1,212 87,485 127,896 - AQ1-AQ4 14,792 248 6,591 21,631 12,550 30,417 16,192 1,064 60,223 81,854 - AQ5-AQ8 2,028 14,804 1,625 18,457 3,757 21,262 1,703 148 26,870 45,327 - AQ9 - 9 3 12 6 48 1 - 55 67 - AQ10 7 293 11 311 29 306 2 - 337 648 (1) Includes a portion of Private Banking lending secured against residential real estate, in line with ECL calculation methodology. Private Banking and RBS International mortgages are reported in UK, which includes crown dependencies, reflecting the country of lending origination. (2) At 30 June 2022, Stage 3 included ��330 million in respect of mortgages and ��451 million of total lending for cases in default due to probation. (3) 30 DPD - 30 days past due, the mandatory 30 days past due backstop as prescribed by the IFRS 9 guidance for a SICR. (4) Days past due - Personal products: at a high level, for amortising products, the number of days past due is derived from the arrears amount outstanding and the monthly repayment instalment. For credit cards, it is based on payments missed, and for current accounts the number of continual days in excess of borrowing limit. Wholesale products: the number of days past due for all products is the number of continual days in excess of borrowing limit. (5) AQ bandings are based on Basel PDs and the mapping is as follows: Internal asset quality band Probability of default range Indicative S&P rating AQ1 0% - 0.034% AAA to AA AQ2 0.034% - 0.048% AA to AA- AQ3 0.048% - 0.095% A+ to A AQ4 0.095% - 0.381% BBB+ to BBB- AQ5 0.381% - 1.076% BB+ to BB AQ6 1.076% - 2.153% BB- to B+ AQ7 2.153% - 6.089% B+ to B AQ8 6.089% - 17.222% B- to CCC+ AQ9 17.222% - 100% CCC to C AQ10 100% D ��0.3 billion (31 December 2021 - ��0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. Risk and capital management Credit risk - Banking activities continued Sector analysis - portfolio summary (reviewed) The table below shows ECL by stage, for the Personal portfolios and selected sectors of the Wholesale portfolios. Off-balance sheet Loans - amortised cost and FVOCI Loan Contingent ECL provisions Stage 1 Stage 2 Stage 3 Total commitments liabilities Stage 1 Stage 2 Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Personal 193,502 11,828 3,320 208,650 43,548 56 199 440 1,199 1,838 Mortgages 183,414 9,076 2,448 194,938 19,535 - 61 89 500 650 Credit cards 3,059 1,037 105 4,201 15,816 - 65 117 68 250 Other personal 7,029 1,715 767 9,511 8,197 56 73 234 631 938 Wholesale 148,619 16,677 2,496 167,792 85,333 4,361 209 682 786 1,677 Property 29,231 2,920 733 32,884 15,184 528 40 101 217 358 Financial institutions 57,107 271 75 57,453 18,525 1,092 17 9 22 48 Sovereigns 6,213 158 13 6,384 913 - 18 1 2 21 Corporate 56,068 13,328 1,675 71,071 50,711 2,741 134 571 545 1,250 Of which: Agriculture 4,129 831 92 5,052 827 21 13 46 43 102 Airlines and aerospace 868 700 40 1,608 1,491 221 2 38 8 48 Automotive 4,704 1,455 46 6,205 4,148 54 11 24 12 47 Health 4,434 592 135 5,161 535 9 8 30 42 80 Land transport and logistics 3,885 797 43 4,725 3,242 154 5 30 12 47 Leisure 3,877 3,429 360 7,666 1,830 110 22 231 133 386 Oil and gas 966 179 57 1,202 1,565 465 2 5 31 38 Retail 6,573 1,283 190 8,046 4,501 404 13 27 67 107 Total 342,121 28,505 5,816 376,442 128,881 4,417 408 1,122 1,985 3,515 31 December 2021 Personal 190,175 14,423 2,782 207,380 40,351 60 149 614 1,179 1,942 Mortgages 180,418 11,543 2,050 194,011 16,827 - 32 174 562 768 Credit cards 2,924 933 90 3,947 15,354 - 59 141 60 260 Other personal 6,833 1,947 642 9,422 8,170 60 58 299 557 914 Wholesale 140,649 19,558 2,240 162,447 83,231 4,254 153 864 847 1,864 Property 28,679 3,101 742 32,522 15,882 460 24 111 239 374 Financial institutions 52,263 732 46 53,041 16,906 992 14 39 4 57 Sovereigns 5,904 121 8 6,033 1,212 - 19 1 2 22 Corporate 53,803 15,604 1,444 70,851 49,231 2,802 96 713 602 1,411 Of which: Agriculture 3,722 1,229 133 5,084 993 24 11 39 78 128 Airlines and aerospace 779 668 44 1,491 1,528 221 1 39 15 55 Automotive 5,133 1,304 38 6,475 3,507 65 9 32 10 51 Health 3,818 1,235 133 5,186 799 9 9 58 48 115 Land transport and logistics 3,721 833 39 4,593 3,069 188 4 53 12 69 Leisure 3,712 4,050 340 8,102 1,874 107 11 247 133 391 Oil and gas 1,482 141 52 1,675 1,126 453 1 14 28 43 Retail 6,380 1,342 180 7,902 4,872 410 8 29 66 103 Total 330,824 33,981 5,022 369,827 123,582 4,314 302 1,478 2,026 3,806 Risk and capital management Credit risk - Banking activities continued Wholesale forbearance (reviewed) The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed in the Personal portfolio section on page 41. This table show current exposure but reflects risk transfers where there is a guarantee by another customer. Property Financial institution Other corporate Total 30 June 2022 ��m ��m ��m ��m Forbearance (flow) 453 100 1,749 2,302 Forbearance (stock) 1,024 119 4,967 6,110 Heightened Monitoring and Risk of Credit Loss 985 149 3,654 4,788 31 December 2021 Forbearance (flow) 709 27 3,894 4,630 Forbearance (stock) 1,033 35 5,659 6,727 Heightened Monitoring and Risk of Credit Loss 1,225 83 4,492 5,800 - Loans by geography - In Personal, exposures continued to be concentrated in the UK and heavily weighted to mortgages and the vast majority of exposure in the Republic of Ireland was also in mortgages. Balance sheet growth during the year was mainly in mortgages. Unsecured lending balances grew slightly as noted previously. In Wholesale, exposures were mainly in the UK. Balance sheet growth was primarily due to increased lending to financial institutions. Wholesale exposure to high oversight sectors reduced in leisure and oil and gas, largely offset by an increase in retail. Agriculture was added to the disclosure due to the effect on the sector from inflation and supply chain issues. - Loans by stage - In both Wholesale and Personal, continued strong credit performance resulted in a smaller proportion of accounts exhibiting a SICR and there was, therefore, an associated migration of exposures from Stage 2 into Stage 1. Personal customers who had accessed payment holiday support, and where their risk profile was identified as relatively high, are no longer collectively migrated into Stage 2. The relevance of this collective SICR identification is no longer considered as pertinent in the context of the current inflation and cost of living related economic uncertainty. Stage 3 loans increased due to the effect of the new regulatory definition of default, mostly impacting mortgages and new Wholesale defaults on government scheme lending. - Loans - Past due analysis - Despite the risks of inflation, cost of living pressures and supply chain issues, the past due profile of the key portfolios remained stable, reflecting the broader observations on portfolio performance. The implementation of the new regulatory default definition for Wholesale included refinements to the days past due calculations, which explains the uplift in early arrears, with the largest increase in corporates. - Weighted average 12 months PDs - In Personal, the Basel II point-in-time PDs improved slightly during 2022 due to stable credit performance in the portfolios. For IFRS 9 PDs, there were decreases across the product groups, with the exception of mortgages, as a result of new IFRS 9 PD model implementation in Q1 2022. In Wholesale, the Basel II PDs were based on a through-the-cycle approach and decreased less than the forward-looking IFRS 9 PDs which reduced, reflecting positive portfolio performance. For further details refer to the Asset quality section. - ECL provision by geography - In line with the loans by geography, the vast majority of ECL related to exposures in the UK, noting the reduction in RoI mostly due to the phased withdrawal of Ulster Bank RoI from the Republic of Ireland and moving of assets to discontinued operations. - ECL provisions by stage - Stage 2 provisions reduced during H1 2022 reflecting continued strong credit performance of the portfolios, this along with increased lending led to an increase in Stage 1 provisions. As outlined above, Stage 3 provisions have yet to be materially affected by the risks of inflation, cost of living and supply chain, with increases relating to the introduction of the new regulatory definition of default more than offset by write offs. - ECL provisions coverage - Overall provisions coverage reduced, driven by a combination of robust underlying portfolio performance reflecting recent strong growth in the portfolio within risk appetite and continued stable portfolio performance. - The ECL charge and loss rate - Reflecting the continued stable portfolio performance and default trends, the impairment charge was a release for H1 2022, mainly as a result of releases in Wholesale portfolios. Risk and capital management Credit risk - Banking activities continued (reviewed) - Loans by residual maturity - The maturity profile of the portfolios remained consistent with prior periods. In mortgages, as expected, the vast majority of exposures were greater than five years. In unsecured lending - cards and other - exposures were concentrated in less than five years. In Wholesale, with the exception of financial institutions where lending was concentrated in less than one year, the majority of lending was for residual maturity of one to five years, with some greater than five years in line with lending under the government support schemes. - Other financial assets by asset quality - Consisting almost entirely of cash and balances at central banks and debt securities, held in the course of treasury related management activities, these assets were mainly within the AQ1-AQ4 bands. - Off-balance sheet exposures by asset quality - In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts. Additionally, the mortgage portfolio had undrawn exposures, where a formal offer had been made to a customer but had not yet drawn down; the value increased in line with the pipeline of offers. There was also a legacy portfolio of flexible mortgages where a customer had the right and ability to draw down further funds. The asset quality was aligned to the wider portfolio. - Wholesale forbearance - Forbearance flow continued to decrease in the first half of 2022. The leisure sector continued to represent the largest share of forbearance flow as it continued to experience disruption beyond the COVID-19 restrictions evident throughout 2021. Labour shortages, airport capacity issues, rising fuel costs and consumer uncertainty continue to weigh on the sector recovery. Payment holidays and covenant waivers were the most common forms of forbearance granted. - Heightened Monitoring and Risk of Credit Loss - Risk of Credit Loss framework exposures continued to reduce and were below pre-COVID-19 levels. Inflows were also trending lower. The sector breakdown of exposures remained consistent with prior periods. Risk and capital management Credit risk - Banking activities continued Personal portfolio (reviewed) Disclosures in the Personal portfolio section include drawn exposure (gross of provisions). 30 June 2022 31 December 2021 Retail Private Commercial & Ulster Retail Private Commercial & Ulster Banking Banking Institutional Bank RoI Total Banking Banking Institutional Bank RoI Total Personal lending ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Mortgages 178,490 12,715 2,398 906 194,509 172,707 12,781 2,444 6,164 194,096 Of which: Owner occupied 161,930 11,271 1,561 867 175,629 158,059 11,219 1,597 5,563 176,438 Buy-to-let 16,560 1,444 837 39 18,880 14,648 1,562 847 601 17,658 Interest only - variable 3,774 3,665 330 6 7,775 4,348 4,889 346 120 9,703 Interest only - fixed 16,468 7,211 214 1 23,894 14,255 5,957 209 3 20,424 Mixed (1) 9,202 1 16 5 9,224 8,616 1 17 34 8,668 ECL provisions (2) 344 7 6 286 643 429 7 8 318 762 Other personal lending (3) 11,445 1,797 314 182 13,738 10,829 1,974 305 218 13,326 ECL provisions (2) 1,156 17 2 14 1,189 1,140 19 2 11 1,172 Total personal lending 189,935 14,512 2,712 1,088 208,247 183,536 14,755 2,749 6,382 207,422 Mortgage LTV ratios Total portfolio 53% 59% 56% 45% 53% 54% 59% 57% 50% 54% - Stage 1 54% 59% 56% 37% 54% 54% 59% 56% 48% 54% - Stage 2 49% 63% 64% 45% 49% 52% 59% 62% 57% 52% - Stage 3 47% 60% 72% 52% 50% 49% 64% 77% 56% 53% Buy-to-let 51% 58% 53% 60% 52% 50% 57% 53% 52% 51% - Stage 1 51% 58% 53% 31% 52% 50% 58% 53% 51% 51% - Stage 2 48% 57% 51% 47% 48% 52% 55% 50% 56% 52% - Stage 3 48% 53% 57% 61% 52% 51% 53% 60% 66% 56% Gross new mortgage lending 18,872 1,528 138 - 20,538 35,290 2,874 340 40 38,544 Of which: Owner occupied 16,242 1,395 89 - 17,726 33,630 2,583 206 40 36,459 Weighted average LTV (4) 68% 65% 66% - 68% 69% 65% 67% 62% 68% Buy-to-let 2,630 133 49 - 2,812 1,660 292 134 - 2,086 Weighted average LTV (4) 63% 68% 62% - 63% 63% 65% 63% 60% 64% Interest only - variable rate 12 274 5 - 291 25 832 37 - 894 Interest only - fixed rate 2,821 1,102 22 - 3,945 2,388 1,563 36 - 3,987 Mixed (1) 1,088 - 1 - 1,089 2,256 - 7 - 2,263 Mortgage forbearance Forbearance flow 52 7 3 3 65 316 19 4 50 389 Forbearance stock 1,024 29 9 425 1,487 1,156 3 8 944 2,111 Current 689 17 6 149 861 727 - 5 616 1,348 1-3 months in arrears 108 2 1 34 145 146 2 1 58 207 > 3 months in arrears 227 10 2 242 481 283 1 2 270 556 (1) Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures. (2) Retail Banking excludes a non-material amount of provisions held on relatively small legacy portfolios. (3) Comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. It excludes loans that are commercial in nature. (4) The new lending LTV in the comparative has been amended to reflect LTV at time of lending origination rather than LTV at reporting period. - The mortgage portfolio grew steadily in H1 2022, benefiting from buoyant housing market activity and customers re-mortgaging ahead of anticipated Bank of England interest rate rises. - LTV ratios continued to improve as house prices increased as a result of housing market demand. - The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, buy-to-let concentrations, new-build concentrations and credit quality. Affordability assessments and assumptions were continuously reviewed considering inflationary pressure, interest rate rises and taxation changes. - The buy-to-let portfolio grew in H1 2022. This growth was expected and within risk appetite following strategy and customer journey simplification implemented in H2 2021. - Forbearance flows were subdued in H1 2022 compared to historical norms after an increase in forbearance in H2 2021, following the end of COVID-19 payment holidays. - Unsecured lending increased during H1 2022, with resilient customer demand after the easing of COVID-19 restrictions. - As set out above ECL has reduced, for further detail of movements in ECL provisions at product level refer to the Flow statements section. - As at 30 June 2022, ��121.8 billion, 63%, of the total residential mortgages portfolio had Energy Performance Certificate (EPC) data available (31 December 2021 - ��116.2 billion, 62%). Of which, 40% of UK properties were rated as EPC C or above (31 December 2021 - 38%). In addition to the Retail Banking portfolio, during Q2 2022 EPC data became available for the Private Banking portfolio for all periods. EPC data source and limitations are provided on page 60 of the 2021 NatWest Group Climate-related Disclosures Report. Not within the scope of EY's review report. Risk and capital management Credit risk - Banking activities continued Personal portfolio (reviewed) Mortgage LTV distribution by stage The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of Governance and post-model adjustments reflected portfolios carried at fair value. Mortgages ECL provisions ECL provisions coverage (2) Retail Banking Not within Of which: IFRS 9 gross new Stage 1 Stage 2 Stage 3 ECL scope Total lending Stage 1 Stage 2 Stage 3 Total (1) Stage 1 Stage 2 Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ���50% 66,690 4,283 950 62 71,985 3,250 17 32 107 156 - 0.7 11.3 0.2 >50% and ���70% 71,128 3,861 654 9 75,652 5,511 24 34 78 136 - 0.9 11.9 0.2 >70% and ���80% 20,758 600 104 1 21,463 5,348 7 7 15 29 - 1.2 14.4 0.1 >80% and ���90% 7,976 90 15 - 8,081 3,827 3 1 5 9 - 1.1 33.3 0.1 >90% and ���100% 1,241 20 7 - 1,268 934 1 - 3 4 0.1 - 42.9 0.3 >100% 54 6 7 - 67 2 - 1 4 5 - 16.7 57.1 7.5 Total with LTVs 167,847 8,860 1,737 72 178,516 18,872 52 75 212 339 - 0.8 12.2 0.2 Other 43 1 2 - 46 - 3 - 1 4 7.0 - 50.0 8.7 Total 167,890 8,861 1,739 72 178,562 18,872 55 75 213 343 - 0.8 12.2 0.2 31 December 2021 ���50% 61,233 4,548 644 63 66,488 5,845 7 60 140 207 - 1.3 21.7 0.3 >50% and ���70% 68,271 4,674 483 9 73,437 12,397 10 64 84 158 - 1.4 17.4 0.2 >70% and ���80% 24,004 1,255 93 1 25,353 10,964 3 18 15 36 - 1.4 16.1 0.1 >80% and ���90% 5,983 250 22 1 6,256 4,985 1 8 5 14 - 3.2 22.7 0.2 >90% and ���100% 1,125 58 10 - 1,193 1,098 - 5 3 8 - 8.6 30.0 0.7 >100% 14 18 6 - 38 - - 1 2 3 - 5.6 33.3 7.9 Total with LTVs 160,630 10,803 1,258 74 172,765 35,289 21 156 249 426 - 1.4 19.8 0.2 Other 14 1 1 - 16 1 - - - - - - - - Total 160,644 10,804 1,259 74 172,781 35,290 21 156 249 426 - 1.4 19.8 0.2 For the notes to this table refer to the following page. Risk and capital management Credit risk - Banking activities continued Personal portfolio (reviewed) Mortgages ECL provisions ECL provisions coverage (2) Ulster Bank RoI Not within Of which: IFRS 9 gross new Stage 1 Stage 2 Stage 3 ECL scope Total lending Stage 1 Stage 2 Stage 3 Total (1) Stage 1 Stage 2 Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ���50% 275 43 233 - 551 - 6 9 146 161 2.2 20.9 62.7 29.2 >50% and ���70% 76 21 100 - 197 - 2 7 61 70 2.6 33.3 61.0 35.5 >70% and ���80% 6 5 48 - 59 - 1 3 29 33 16.7 60.0 60.4 55.9 >80% and ���90% 1 1 33 - 35 - - 1 20 21 - 100.0 60.6 60.0 >90% and ���100% - 1 22 - 23 - - 1 13 14 - 100.0 59.1 60.9 >100% - - 23 - 23 - - - 13 13 - - 56.5 56.5 Total 358 71 459 - 888 - 9 21 282 312 2.5 29.6 61.4 35.1 Other 17 - 1 - 18 - - - - - - - - - Total 375 71 460 - 906 - 9 21 282 312 2.4 29.6 61.3 34.4 31 December 2021 ���50% 2,660 221 274 - 3,155 13 4 6 138 148 0.2 2.7 50.4 4.7 >50% and ���70% 1,497 172 128 - 1,797 16 2 5 59 66 0.1 2.9 46.1 3.7 >70% and ���80% 484 67 60 - 611 9 1 2 28 31 0.2 3.0 46.7 5.1 >80% and ���90% 231 51 55 - 337 1 1 2 26 29 0.4 3.9 47.3 8.6 >90% and ���100% 82 26 37 - 145 1 - 1 19 20 - 3.8 51.4 13.8 >100% 33 16 41 - 90 - - 1 23 24 - 6.3 56.1 26.7 Total with LTVs 4,987 553 595 - 6,135 40 8 17 293 318 0.2 3.1 49.2 5.2 Other 25 - 4 - 29 - - - - - - - - - Total 5,012 553 599 - 6,164 40 8 17 293 318 0.2 3.1 48.9 5.2 (1) Excludes a non-material amount of provisions held on relatively small legacy portfolios. (2) ECL provisions coverage is ECL provisions divided by mortgages. - ECL coverage rates for each Stage increased through the LTV bands with both Retail Banking and Ulster Bank RoI having only limited exposures in the highest LTV bands. The reduced coverage level in the lower LTV bands for Retail Banking reflects the implementation of new IFRS 9 LGD model with a modelling approach that now captures a reduced loss expectation from non-repossession recovery action. - Continued stable portfolio performance alongside the new IFRS 9 PD and LGD model implementations have resulted in reduced coverage across most LTV bands in Stage 2 and Stage 3. The increased ECL across Stage 1 LTV bands was driven by higher Stage 1 PDs as a result of the new PD model implementation and also the proportionate allocation of the new cost of living post model adjustment to Stage 1. Risk and capital management Credit risk - Banking activities continued Commercial real estate (CRE) The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly by senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. The CRE tables in this section include information on exposures which are out of scope of ECL calculations or part of disposal groups. 30 June 2022 31 December 2021 UK RoI Other Total UK RoI Other Total By geography and sub-sector (1) ��m ��m ��m ��m ��m ��m ��m ��m Investment Residential (2) 4,497 253 14 4,764 4,422 341 19 4,782 Office (3) 3,087 228 - 3,315 3,037 190 10 3,237 Retail (4) 4,071 78 1 4,150 4,207 81 - 4,288 Industrial (5) 2,942 12 144 3,098 2,760 13 106 2,879 Mixed/other (6) 935 105 49 1,089 1,185 113 50 1,348 15,532 676 208 16,416 15,611 738 185 16,534 Development Residential (2) 1,959 117 1 2,077 1,775 76 2 1,853 Office (3) 85 - - 85 79 33 - 112 Retail (4) 57 - - 57 48 - - 48 Industrial (5) 81 1 - 82 67 1 - 68 Mixed/other (6) 17 1 - 18 20 2 - 22 2,199 119 1 2,319 1,989 112 2 2,103 Total 17,731 795 209 18,735 17,600 850 187 18,637 (1) Geographical splits are based on country of collateral risk. (2) Properties including houses, flats and student accommodation. (3) Properties including offices in central business districts, regional headquarters and business parks. (4) Properties including high street retail, shopping centres, restaurants, bars and gyms. (5) Properties including distribution centres, manufacturing and warehouses. (6) Properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. Risk and capital management Credit risk - Banking activities continued Commercial real estate (reviewed) CRE LTV distribution by stage The table below shows CRE current exposure and related ECL by LTV band. Gross loans ECL provisions ECL provisions coverage (2) Not within IFRS 9 ECL Stage 1 Stage 2 Stage 3 scope (1) Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ���50% 7,113 253 37 240 7,643 10 7 11 28 0.1 2.8 29.7 0.4 >50% and ���70% 4,249 384 41 470 5,144 7 8 20 35 0.2 2.1 48.8 0.7 >70% and ���100% 299 265 57 11 632 - 10 26 36 - 3.8 45.6 5.7 >100% 159 9 86 4 258 - 2 31 33 - 22.2 36.0 12.8 Total with LTVs 11,820 911 221 725 13,677 17 27 88 132 0.1 3.0 39.8 1.0 Total portfolio average LTV% 46% 61% 87% 49% 48% Other (5) 2,299 332 57 51 2,739 5 23 27 55 0.2 6.9 47.4 2.0 Development (6) 1,947 196 66 110 2,319 5 7 30 42 0.3 3.6 45.5 1.8 Total 16,066 1,439 344 886 18,735 27 57 145 229 0.2 4.0 42.2 1.2 31 December 2021 ���50% 6,767 388 34 268 7,457 5 7 9 21 0.1 1.8 26.5 0.3 >50% and ���70% 4,367 470 46 469 5,352 3 13 20 36 0.1 2.8 43.5 0.7 >70% and ���100% 377 192 127 9 705 - 9 32 41 - 4.7 25.2 5.8 >100% 215 7 86 4 312 - 2 28 30 - 28.6 32.6 9.6 Total with LTVs 11,726 1,057 293 750 13,826 8 31 89 128 0.1 2.9 30.4 0.9 Total portfolio average LTV% 48% 58% 88% 52% 50% Other (3) 2,271 293 61 83 2,708 4 13 28 45 0.2 4.4 45.9 1.7 Development (4) 1,736 228 62 77 2,103 3 6 34 43 0.2 2.6 54.8 2.0 Total 15,733 1,578 416 910 18,637 15 50 151 216 0.1 3.2 36.3 1.2 (1) Includes exposures relating to non-modelled portfolios and other exposures carried at fair value. (2) ECL provisions coverage is ECL provisions divided by current exposure. (3) Relates mainly to business banking, rate risk management products and unsecured corporate lending. (4) Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity. Overall - The majority of the CRE portfolio was located and managed in the UK. Business appetite and strategy was aligned across NatWest Group. 2022 trends - H1 2022 saw a relatively flat performance, as the growth noted in Q1 began to subside due to deterioration in the wider economic outlook. The residential sector continued to perform well, although, with . house price growth coupled with rising borrowing costs the outlook is uncertain. Uncertainty in the office sector remained, with the full consequences of the limited return to work, still to flow through to the sector. The industrial sector continued to perform strongly reflecting the structural change in retail. The retail sector continued to exhibit mixed performance based on changing consumer habits. Credit quality - NatWest Group entered 2022 with a conservatively positioned CRE portfolio. The majority of the defaults experienced during 2021 were in the retail sector, particularly in the fashion-led shopping centre sub-sector. NatWest Group completed a strategic sale of a portfolio of these loans during 2021, achieving a rebalance of the portfolio at that stage. Rental payments have now normalised, but uncertainty still remains and the portfolio continues to be actively reviewed and managed. During H1 2022, Heightened Monitoring stock reduced by both volume and value, most materially within the investment sub-sector (retail, residential and office). Risk appetite - Lending appetite continued to be gradually and selectively increased by sub-sector aligned to our purpose led approach. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL affect. Other points to note: - Financial assets include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included. - Stage transfers (for example, exposures moving from Stage 1 into Stage 2) are a key feature of the ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly, there is an ECL benefit for accounts improving stage. - Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down. - Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements. - Amounts written-off represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity. - There were flows from Stage 1 into Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflected the effect of portfolio debt sales and also staging at the start of the analysis period. - The effect of any change in PMAs during the year is typically reported under changes in risk parameters, as are any effects arising from changes to the underlying models. Refer to the section on Governance and post model adjustments for further details. - All movements are captured monthly and aggregated. Interest suspended post default is included within Stage 3 ECL with the movement in the value of suspended interest during the year reported under currency translation and other adjustments. Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL NatWest Group total ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 546,178 302 35,557 1,478 5,238 2,026 586,973 3,806 Currency translation and other adjustments 4,259 (3) 131 - 38 2 4,428 (1) Transfers from Stage 1 to Stage 2 (18,211) (68) 18,211 68 - - - - Transfers from Stage 2 to Stage 1 18,567 512 (18,567) (512) - - - - Transfers to Stage 3 (319) (1) (1,992) (135) 2,311 136 - - Transfers from Stage 3 143 11 448 42 (591) (53) - - Net re-measurement of ECL on stage transfer (443) 483 155 195 Changes in risk parameters (model inputs) 72 (119) 34 (13) Other changes in net exposure (1,560) 31 (3,645) (155) (640) (29) (5,845) (153) Other (P&L only items) (2) (4) (77) (83) Income statement (releases)/charges (342) 205 83 (54) Transfers to disposal groups (4,942) (5) (603) (28) (134) (17) (5,679) (50) Amounts written-off - - - - (215) (215) (215) (215) Unwinding of discount - - (54) (54) At 30 June 2022 544,115 408 29,540 1,122 6,007 1,985 579,662 3,515 Net carrying amount 543,707 28,418 4,022 576,147 At 1 January 2021 446,666 519 81,667 3,081 6,524 2,586 534,857 6,186 2021 movements 46,032 (86) (26,169) (781) (666) (394) 19,197 (1,261) At 30 June 2021 492,698 433 55,498 2,300 5,858 2,192 554,054 4,925 Net carrying amount 492,265 53,198 3,666 549,129 Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Retail Banking - mortgages ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 159,966 24 10,748 155 1,267 250 171,981 429 Currency translation and other adjustments - - - - 3 2 3 2 Transfers from Stage 1 to Stage 2 (5,576) (3) 5,576 3 - - - - Transfers from Stage 2 to Stage 1 5,869 53 (5,869) (53) - - - - Transfers to Stage 3 (37) - (910) (28) 947 28 - - Transfers from Stage 3 14 1 241 11 (255) (12) - - Net re-measurement of ECL on stage transfer (50) 47 (13) (16) Changes in risk parameters (model inputs) 32 (49) 3 (14) Other changes in net exposure 5,899 - (801) (10) (174) (7) 4,924 (17) Other (P&L only items) (2) (1) (26) (29) Income statement (releases)/charges (20) (13) (43) (76) Amounts written-off - - - - (20) (20) (20) (20) Unwinding of discount - - (19) (19) At 30 June 2022 166,135 57 8,985 76 1,768 212 176,888 345 Net carrying amount 166,078 8,909 1,556 176,543 At 1 January 2021 132,390 23 28,079 227 1,291 236 161,760 486 2021 movements 16,915 (4) (12,510) (47) 61 14 4,466 (37) At 30 June 2021 149,305 19 15,569 180 1,352 250 166,226 449 Net carrying amount 149,286 15,389 1,102 165,777 - Despite the strong portfolio growth during 2022 so far, ECL levels for mortgages reduced during the same period. The decrease in ECL was primarily a result of stable portfolio performance alongside the implementation of new IFRS 9 models in Q1 2022. Collectively, this resulted in lower levels of ECL requirement. - More specifically, strong credit performance resulted in the migration of assets from Stage 2 into Stage 1, with an associated decrease from lifetime ECL to a 12 month ECL. In addition, the introduction of the new cost of living post model adjustment at 30 June 2022 allocated more ECL to Stage 1 given the forward-looking nature of the cost of living and inflation threat, whereas the previous COVID-19 post model adjustments were focused on Stage 2 (for example, high risk payment holiday cases migrated into Stage 2). Refer to the Governance and post model adjustments section for more information. - The Stage 3 inflow relates to the IFRS 9 adoption of the new regulatory definition of default in January 2022. However, the Stage 3 ECL levels reduced since 31 December 2021 primarily due to reduced LGD estimates as a result of the new model implementation in Q1 2022 alongside stable underlying default levels. The relatively small ECL cost for net re-measurement on stage transfer included the effect of risk targeted ECL adjustments, when previously in Stage 2. Refer to the Governance and post model adjustments section for further details. - Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. This would typically be within five years from default but can be longer. Given repossession activity remains subdued relative to pre-COVID-19 levels, write-offs remained at a lower level. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Retail Banking - credit cards ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 2,740 58 947 141 91 60 3,778 259 Currency translation and other adjustments - - - - - - - - Transfers from Stage 1 to Stage 2 (626) (23) 626 23 - - - - Transfers from Stage 2 to Stage 1 450 59 (450) (59) - - - - Transfers to Stage 3 (12) - (54) (22) 66 22 - - Transfers from Stage 3 - - 4 2 (4) (2) - - Net re-measurement of ECL on stage transfer (35) 90 16 71 Changes in risk parameters (model inputs) (2) (34) 7 (29) Other changes in net exposure 252 7 (49) (28) (12) 1 191 (20) Other (P&L only items) - - (2) (2) Income statement (releases)/charges (30) 28 22 20 Amounts written-off - - - - (33) (33) (33) (33) Unwinding of discount - - (3) (3) At 30 June 2022 2,804 64 1,024 113 108 68 3,936 245 Net carrying amount 2,740 911 40 3,691 At 1 January 2021 2,250 52 1,384 220 114 75 3,748 347 2021 movements 92 (6) (293) (39) (25) (18) (226) (63) At 30 June 2021 2,342 46 1,091 181 89 57 3,522 284 Net carrying amount 2,296 910 32 3,238 - The overall decrease in ECL was mainly due to the reduction in Stage 2 ECL reflecting the stable portfolio performance, causing PDs to decrease. This resulted in reduced levels of SICR identification and ECL requirement. - In addition, a temporary adjustment for an ECL release is in place to reflect, on a forward-looking basis, the associated effects of a new credit card PD model that is pending implementation in Q3 2022. This is captured in changes in risk parameters for Stage 1 and Stage 2. - Cards balances have grown since the 2021 year end, in line with industry trends in the UK, as unsecured borrowing demand increased. - Reflecting the strong credit performance observed during 2022, Stage 3 inflows remained subdued and the effect of the IFRS 9 adoption of the new regulatory definition of default was minimal for Cards, therefore Stage 3 ECL movement was low in H1 2022. - Charge-off (analogous to partial write-off) typically occurs after 12 missed payments. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Retail Banking - other personal unsecured ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 4,548 52 1,967 294 629 540 7,144 886 Currency translation and other adjustments - (3) - - 6 - 6 (3) Transfers from Stage 1 to Stage 2 (1,019) (18) 1,019 18 - - - - Transfers from Stage 2 to Stage 1 788 105 (788) (105) - - - - Transfers to Stage 3 (16) - (198) (56) 214 56 - - Transfers from Stage 3 1 2 14 8 (15) (10) - - Net re-measurement of ECL on stage transfer (94) 119 65 90 Changes in risk parameters (model inputs) 13 (14) 33 32 Other changes in net exposure 518 6 (241) (34) (48) (12) 229 (40) Other (P&L only items) - - - - Income statement (releases)/charges (75) 71 86 82 Amounts written-off - - - - (53) (53) (53) (53) Unwinding of discount - - (4) (4) At 30 June 2022 4,820 63 1,773 230 733 615 7,326 908 Net carrying amount 4,757 1,543 118 - 6,418 At 1 January 2021 3,385 59 3,487 450 596 495 7,468 1,004 2021 movements 435 (4) (963) (102) (3) 9 (531) (97) At 30 June 2021 3,820 55 2,524 348 593 504 6,937 907 Net carrying amount 3,765 2,176 89 6,030 - Overall ECL has remained stable, with a modest increase driven by Stage 3 ECL linked to the IFRS 9 adoption of the new regulatory definition of default in January 2022, with underlying Stage 3 inflows remaining stable, reflecting the strong credit performance observed during 2022. - More specifically, the reduced PDs alongside muted portfolio deterioration, resulted in migration of assets from Stage 2 into Stage 1, with an associated decrease from lifetime ECL to a 12 month ECL and kept Stage 2 levels stable. - Unsecured retail balances have grown since the 2021 year end, in line with industry trends in the UK, as unsecured borrowing demand increased. - Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than six years after default. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Commercial & Institutional total ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 152,224 129 19,731 785 2,155 750 174,110 1,664 Currency translation and other adjustments 2,455 (1) 124 - 14 2 2,593 1 Inter-group transfers (660) - - - - - (660) - Transfers from Stage 1 to Stage 2 (10,291) (21) 10,291 21 - - - - Transfers from Stage 2 to Stage 1 10,378 273 (10,378) (273) - - - - Transfers to Stage 3 (102) - (682) (25) 784 25 - - Transfers from Stage 3 100 8 92 14 (192) (22) - - Net re-measurement of ECL on stage transfer (248) 214 83 49 Changes in risk parameters (model inputs) 27 (31) 5 1 Other changes in net exposure 8,223 18 (2,409) (74) (313) (17) 5,501 (73) Other (P&L only items) (1) (1) (34) (36) Income statement releases (204) 108 37 (59) Amounts written-off - - - - (94) (94) (94) (94) Unwinding of discount - - (26) (26) At 30 June 2022 162,327 185 16,769 631 2,354 706 181,450 1,522 Net carrying amount 162,142 - 16,138 - 1,648 - 179,928 - At 1 January 2021 131,307 296 42,290 1,836 2,998 1,249 176,595 3,381 2021 movements 221 (63) (11,194) (532) (452) (302) (11,425) (897) At 30 June 2021 131,528 233 31,096 1,304 2,546 947 165,170 2,484 Net carrying amount 131,295 29,792 1,599 162,686 - There was an uplift in Stage 1 exposure from new and increased lending specifically to financial institutions along with movements in currency translations. Stage 1 ECL increased due to an uplift in post model adjustments, the largest adjustment being a new adjustment for inflation and supply chain issues and additional ECL on loans that migrated from Stage 2 and Stage 3. - Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs, with net effect of stage transfers leading to a significant reduction in ECL. In addition, a reduction in the Stage 2 economic uncertainty adjustment further reduced ECL. - Flows into Stage 3 increased due to defaults on government scheme lending, but the government guarantee has meant this has not led to an increase in ECL. In addition, write-offs led to an overall reduction in Stage 3 ECL. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial Commercial & Institutional assets ECL assets ECL assets ECL assets ECL - business banking ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 6,673 11 1,376 60 44 10 8,093 81 Currency translation and other adjustments - - - - - - - - Transfers from Stage 1 to Stage 2 (866) (3) 866 3 - - - - Transfers from Stage 2 to Stage 1 491 21 (491) (21) - - - - Transfers to Stage 3 (12) - (69) (4) 81 4 - - Transfers from Stage 3 16 1 15 2 (31) (3) - - Net re-measurement of ECL on stage transfer (20) 35 11 26 Changes in risk parameters (model inputs) 7 22 2 31 Other changes in net exposure (442) 2 (382) (9) (46) (6) (870) (13) Other (P&L only items) (2) 1 (1) (2) Income statement (releases)/charges (13) 49 6 42 Amounts written-off - - - - (1) (1) (1) (1) Unwinding of discount - - (1) (1) At 30 June 2022 5,860 19 1,315 88 47 16 7,222 123 Net carrying amount 5,841 1,227 31 7,099 - At a total level, exposure reduced mainly due to the repayment of government scheme debt. - Exposure moved from Stage 1 into Stage 2 due to a deterioration in some government scheme lending. ECL increased, reflecting a higher probability of default on additional lending to customers that had government scheme lending. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Commercial & Institutional - corporate ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 44,089 83 14,296 599 1,350 521 59,735 1,203 Currency translation and other adjustments 537 (1) 102 - 11 3 650 2 Inter-group transfers (11) - (84) (4) 1 - (94) (4) Transfers from Stage 1 to Stage 2 (6,425) (14) 6,425 14 - - - - Transfers from Stage 2 to Stage 1 6,742 189 (6,742) (189) - - - - Transfers to Stage 3 (55) - (419) (16) 474 16 - - Transfers from Stage 3 21 5 49 9 (70) (14) - - Net re-measurement of ECL on stage transfer (170) - 142 49 21 Changes in risk parameters (model inputs) 12 (44) (12) (44) Other changes in net exposure 4,389 10 (1,099) (47) (200) (4) 3,090 (41) Other (P&L only items) (1) (2) (31) (34) Income statement (releases)/charges (149) 49 2 (98) Amounts written-off - - - - (77) (77) (77) (77) Unwinding of discount - - (18) (18) At 30 June 2022 49,287 114 12,528 464 1,489 464 63,304 1,042 Net carrying amount 49,173 12,064 1,025 62,262 - There was a rise in Stage 1 exposure from new and increased lending along with movements in currency translations. ECL increased due to a rise in post model adjustments with a new adjustment for inflation and supply chain issues and additional ECL on loans that migrated from Stage 2 and Stage 3. - Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs. The net effect of stage transfers led to a significant reduction in Stage 2 ECL, and there were further reductions due to a decrease in the economic uncertainty adjustment. - Flows into Stage 3 increased due to defaults on government scheme lending, but the government guarantee has meant this has not led to an increase in ECL. In addition, write-offs have led to an overall reduction in Stage 3 ECL. - The portfolio benefit from cash recoveries post write-off, which are reported as other (P&L only items). Write-off occurs once recovery activity with the customer has been concluded or there are no further recoveries expected, but no later than five years after default. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Commercial & Institutional - property ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 25,352 20 2,777 84 661 204 28,790 308 Currency translation and other adjustments 10 - 1 - 1 (4) 12 (4) Inter-group transfers 7 - (17) - (1) - (11) - Transfers from Stage 1 to Stage 2 (1,612) (3) 1,612 3 - - - - Transfers from Stage 2 to Stage 1 1,310 23 (1,310) (23) - - - - Transfers to Stage 3 (19) - (137) (5) 156 5 - - Transfers from Stage 3 22 2 25 2 (47) (4) - - Net re-measurement of ECL on stage transfer (23) 28 12 17 Changes in risk parameters (model inputs) 11 (6) 9 14 Other changes in net exposure 986 3 (468) (14) (64) (8) 454 (19) Other (P&L only items) - - - - Income statement (releases)/charges (9) 8 13 12 Amounts written-off - - - - (15) (15) (15) (15) Unwinding of discount - - (6) (6) At 30 June 2022 26,056 33 2,483 69 691 193 29,230 295 Net carrying amount 26,023 2,414 498 28,935 - There was a rise in Stage 1 exposure from new and increased lending along with movements in currency translations. ECL increased due to a rise in post model adjustments with a new adjustment for inflation and supply chain issues and additional ECL on loans that migrated from Stage 2 and Stage 3. - Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs and a reduction in the economic uncertainty adjustment. Risk and capital management Credit risk - Banking activities continued Flow statements (reviewed) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Commercial & Institutional - other ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2022 76,109 15 1,282 43 100 15 77,491 73 Currency translation and other adjustments 1,908 - 21 - 2 2 1,931 2 Inter-group transfers (655) - 101 4 - (1) (554) 3 Transfers from Stage 1 to Stage 2 (1,387) (1) 1,387 1 - - - - Transfers from Stage 2 to Stage 1 1,835 39 (1,835) (39) - - - - Transfers to Stage 3 (17) - (57) - 74 - - - Transfers from Stage 3 41 - 4 - (45) - - - Net re-measurement of ECL on stage transfer (34) 8 10 (16) Changes in risk parameters (model inputs) (4) (3) 8 1 Other changes in net exposure 3,290 4 (460) (4) (3) - 2,827 - Other (P&L only items) - - (1) (1) Income statement (releases)/charges (34) 1 17 (16) Amounts written-off - - - - (1) (1) (1) (1) Unwinding of discount - - - - At 30 June 2022 81,124 19 443 10 127 33 81,694 62 Net carrying amount 81,105 433 94 81,632 - There was an uplift in Stage 1 exposure from new and increased lending along with movements in currency translations and an increase from exposures moving from Stage 2. Stage 1 ECL was broadly unchanged as the exposures that returned to Stage 1 are now subject to 12 months ECL , generating a significant ECL release on re-measurement. - Stage 2 exposure and ECL reduced reflecting positive portfolio performance which lowered PDs, this led to large exposure transfers to Stage 1 and a significant reduction in ECL. - Stage 3 exposure increased due to stage transfers. There was also a significant increase in Stage 3 ECL and charge due to two individual cases. Risk and capital management Credit risk - Banking activities continued Stage 2 decomposition by a significant increase in credit risk trigger UK mortgages RoI mortgages Credit cards Other Total 30 June 2022 ��m % ��m % ��m % ��m % ��m % Personal trigger (1) PD movement 5,158 57.3 23 32.0 565 54.5 808 47.0 6,554 55.4 PD persistence 1,228 13.6 5 7.0 329 31.7 369 21.5 1,931 16.3 Adverse credit bureau recorded with credit reference agency 1,936 21.5 - - 49 4.7 85 5.0 2,070 17.5 Forbearance support provided 140 1.6 1 1.0 1 0.1 22 1.3 164 1.4 Customers in collections 269 3.0 3 4.0 2 0.2 17 1.0 291 2.5 Collective SICR and other reasons (2) 163 1.8 39 55.0 91 8.8 404 23.6 697 5.9 Days past due >30 111 1.2 - - - - 10 0.6 121 1.0 9,005 100 71 100 1,037 100 1,715 100 11,828 100 31 December 2021 Personal trigger (1) PD movement 2,707 24.6 83 14.9 560 60.1 1,008 51.8 4,358 30.2 PD persistence 3,103 28.2 21 3.8 270 28.9 771 39.6 4,165 28.9 Adverse credit bureau recorded with credit reference agency 3,657 33.3 - - 60 6.4 73 3.7 3,790 26.3 Forbearance support provided 178 1.6 6 1.1 2 0.2 28 1.4 214 1.5 Customers in collections 82 0.8 33 6.0 3 0.3 15 0.8 133 0.9 Collective SICR and other reasons (2) 1,197 10.9 409 74.0 38 4.1 46 2.4 1,690 11.7 Days past due >30 66 0.6 1 0.2 - - 6 0.3 73 0.5 10,990 100 553 100 933 100 1,947 100 14,423 100 For the notes to the table refer to the following page. - The strong credit performance of the portfolio resulted in either decreased or stable account level IFRS 9 PDs during the year so far for most products. UK mortgages was the exception, where the implementation of a new IFRS 9 PD model in Q1 2022 increased the proportion of accounts exhibiting significant PD deterioration. - Personal customers who had accessed COVID-19 payment holiday support, and where their risk profile was identified as relatively high risk are no longer collectively migrated into Stage 2, given the lack of default emergence from these segments and with the focus of high risk segment monitoring now shifting to the effects of inflation and the growing cost of living effect on customers. In UK mortgages at 31 December 2021, approximately ��0.8 billion of exposures were previously collectively migrated from Stage 1 into Stage 2. - In the other lending category, there was an increase in 'Collective SICR and other reasons' as a result of the net migration of assets into Stage 2 of ��0.5 billion reflecting, on a forward-looking basis, the staging effect of new retail unsecured PD models that are pending implementation in Q3 2022. Risk and capital management Credit risk - Banking activities continued Stage 2 decomposition by a significant increase in credit risk trigger Property Corporate Financial institution Other Total Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL 30 June 2022 ��m % ��m % ��m % ��m % ��m % Wholesale trigger (1) PD movement 1,202 41.2 8,752 65.6 130 47.9 86 54.4 10,170 61.1 PD persistence 69 2.4 215 1.6 3 1.1 - - 287 1.7 Risk of Credit Loss 810 27.7 2,141 16.1 64 23.6 57 36.1 3,072 18.4 Forbearance support provided 105 3.6 682 5.1 4 1.5 - - 791 4.7 Customers in collections 29 1.0 102 0.8 1 0.4 - - 132 0.8 Collective SICR and other reasons (2) 497 17.0 894 6.7 66 24.4 15 9.5 1,472 8.8 Days past due >30 208 7.1 542 4.1 3 1.1 - - 753 4.5 2,920 100 13,328 100 271 100 158 100 16,677 100 31 December 2021 Wholesale trigger (1) PD movement 942 30.3 10,553 67.7 595 81.3 84 69.4 12,174 62.2 PD persistence 139 4.5 553 3.5 6 0.8 1 0.8 699 3.6 Risk of Credit Loss 962 31.0 2,626 16.8 71 9.7 34 28.1 3,693 18.9 Forbearance support provided 101 3.3 489 3.1 6 0.8 - - 596 3.0 Customers in collections 27 0.9 88 0.6 1 0.1 - - 116 0.6 Collective SICR and other reasons (2) 762 24.6 1,189 7.6 35 4.8 2 1.7 1,988 10.2 Days past due >30 168 5.4 106 0.7 18 2.5 - - 292 1.5 3,101 100 15,604 100 732 100 121 100 19,558 100 (1) The table is prepared on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration. (2) Includes customers where a PD assessment cannot be undertaken due to missing PDs. - PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 into Stage 2. There was a reduction in cases triggering PD deterioration reflecting positive portfolio performance which is lowering PDs. - Moving exposures on to the Risk of Credit Loss framework remained an important backstop indicator of a SICR. The exposures classified under the Stage 2 Risk of Credit Loss framework decreased over the period again reflecting positive portfolio performance. - PD persistence related to the Business Banking portfolio only. A reduction in PDs in Q4 2021 meant that some Business Banking customers were only in Stage 2 because of persistence and with PDs marginally improving in 2022, they have now returned to Stage 1. - There was an increase in customers meeting the >30 days past due trigger as a result of regulatory definition of default changes where all customer borrowing is now categorised as past due, previously it was assessed at a facility level. Risk and capital management Credit risk - Banking activities continued Asset quality (reviewed) The table below shows asset quality bands of gross loans and ECL, by stage, for the Personal portfolio. Gross loans ECL provisions ECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m % % % % UK mortgages AQ1-AQ4 111,137 3,478 - 114,615 28 24 - 52 0.03 0.69 - 0.05 AQ5-AQ8 71,779 4,951 - 76,730 27 47 - 74 0.04 0.95 - 0.10 AQ9 146 576 - 722 - 7 - 7 - 1.22 - 0.97 AQ10 - - 1,988 1,988 - - 231 231 - - 11.62 11.62 183,062 9,005 1,988 194,055 55 78 231 364 0.03 0.87 11.62 0.19 RoI mortgages AQ1-AQ4 236 21 - 257 5 2 - 7 2.12 9.52 - 2.72 AQ5-AQ8 116 39 - 155 1 8 - 9 0.86 20.51 - 5.81 AQ9 - 11 - 11 - 1 - 1 - 9.09 - 9.09 AQ10 - - 460 460 - - 269 269 - - 58.48 58.48 352 71 460 883 6 11 269 286 1.70 15.49 58.48 32.39 Credit cards AQ1-AQ4 90 1 - 91 2 - - 2 2.22 - - 2.20 AQ5-AQ8 2,964 1,002 - 3,966 62 106 - 168 2.09 10.58 - 4.24 AQ9 5 34 - 39 1 11 - 12 20.00 32.35 - 30.77 AQ10 - - 105 105 - - 68 68 - - 64.76 64.76 3,059 1,037 105 4,201 65 117 68 250 2.12 11.28 64.76 5.95 Other personal AQ1-AQ4 1,096 121 - 1,217 7 21 - 28 0.64 17.36 - 2.30 AQ5-AQ8 5,895 1,485 - 7,380 65 191 - 256 1.10 12.86 - 3.47 AQ9 38 109 - 147 1 22 - 23 2.63 20.18 - 15.65 AQ10 - - 767 767 - - 631 631 - - 82.27 82.27 7,029 1,715 767 9,511 73 234 631 938 1.04 13.64 82.27 9.86 Total AQ1-AQ4 112,559 3,621 - 116,180 42 47 - 89 0.04 1.30 - 0.08 AQ5-AQ8 80,754 7,477 - 88,231 155 352 - 507 0.19 4.71 - 0.57 AQ9 189 730 - 919 2 41 - 43 1.06 5.62 - 4.68 AQ10 - - 3,320 3,320 - - 1,199 1,199 - - 36.11 36.11 193,502 11,828 3,320 208,650 199 440 1,199 1,838 0.10 3.72 36.11 0.88 Risk and capital management Credit risk - Banking activities continued Asset quality (reviewed) Gross loans ECL provisions ECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 31 December 2021 ��m ��m ��m ��m ��m ��m ��m ��m % % % % UK mortgages AQ1-AQ4 93,956 3,157 - 97,113 8 40 - 48 0.01 1.27 - 0.05 AQ5-AQ8 81,160 7,325 - 88,485 17 103 - 120 0.02 1.41 - 0.14 AQ9 290 508 - 798 - 14 - 14 - 2.76 - 1.75 AQ10 - - 1,451 1,451 - - 269 269 - - 18.54 18.54 175,406 10,990 1,451 187,847 25 157 269 451 0.01 1.43 18.54 0.24 RoI mortgages AQ1-AQ4 3,669 226 - 3,895 5 5 - 10 0.14 2.21 - 0.26 AQ5-AQ8 1,335 176 - 1,511 2 6 - 8 0.15 3.41 - 0.53 AQ9 8 151 - 159 - 6 - 6 - 3.97 - 3.77 AQ10 - - 599 599 - - 293 293 - - 48.91 48.91 5,012 553 599 6,164 7 17 293 317 0.14 3.07 48.91 5.14 Credit cards AQ1-AQ4 44 1 - 45 1 - - 1 2.27 - - 2.22 AQ5-AQ8 2,874 894 - 3,768 58 130 - 188 2.02 14.54 - 4.99 AQ9 6 38 - 44 - 11 - 11 - 28.95 - 25.00 AQ10 - - 90 90 - - 60 60 - - 66.67 66.67 2,924 933 90 3,947 59 141 60 260 2.02 15.11 66.67 6.59 Other personal AQ1-AQ4 831 88 - 919 6 19 - 25 0.72 21.59 - 2.72 AQ5-AQ8 5,950 1,723 - 7,673 51 243 - 294 0.86 14.10 - 3.83 AQ9 52 136 - 188 1 37 - 38 1.92 27.21 - 20.21 AQ10 - - 642 642 - - 557 557 - - 86.76 86.76 6,833 1,947 642 9,422 58 299 557 914 0.85 15.36 86.76 9.70 Total AQ1-AQ4 98,500 3,472 - 101,972 20 64 - 84 0.02 1.84 - 0.08 AQ5-AQ8 91,319 10,118 - 101,437 128 482 - 610 0.14 4.76 - 0.60 AQ9 356 833 - 1,189 1 68 - 69 0.28 8.16 - 5.80 AQ10 - - 2,782 2,782 - - 1,179 1,179 - - 42.38 42.38 190,175 14,423 2,782 207,380 149 614 1,179 1,942 0.08 4.26 42.38 0.94 - In the Personal portfolio, the asset quality distribution improved overall with high quality new business written during H1 2022 and existing portfolio quality being maintained. - The majority of exposures were in AQ1-AQ4, with a significant proportion in AQ5-AQ8. As expected, mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing. - The increase in AQ10/Stage 3 balances was mainly because of the IFRS 9 alignment to the new regulatory default definition, implemented on 1 January 2022. This change resulted in an increase in Stage 3 exposures of approximately ��0.7 billion, mostly in mortgages. - In other Personal, the relatively high level of exposures in AQ10 reflected that impaired assets can be held on the balance sheet, with commensurate ECL provision for up to six years after default. - ECL provisions coverage shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage. - As noted previously, across all asset quality bands, migration from Stage 2 into Stage 1 was observed as the effect of improved economic scenarios enhanced IFRS 9 PDs and therefore reduced Stage 2 exposure. Risk and capital management Credit risk - Banking activities continued Asset quality (reviewed) The table below shows asset quality bands of gross loans and ECL, by stage, for the Wholesale portfolio. Gross loans ECL provisions ECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2022 ��m ��m ��m ��m ��m ��m ��m ��m % % % % Property AQ1-AQ4 15,014 242 - 15,256 6 2 - 8 0.04 0.83 - 0.05 AQ5-AQ8 14,204 2,435 - 16,639 34 82 - 116 0.24 3.37 - 0.70 AQ9 13 243 - 256 - 17 - 17 - 7.00 - 6.64 AQ10 - - 733 733 - - 217 217 - - 29.60 29.60 29,231 2,920 733 32,884 40 101 217 358 0.14 3.46 29.60 1.09 Corporate AQ1-AQ4 18,734 1,750 - 20,484 11 20 - 31 0.06 1.14 - 0.15 AQ5-AQ8 37,288 11,169 - 48,457 122 511 - 633 0.33 4.58 - 1.31 AQ9 46 409 - 455 1 40 - 41 2.17 9.78 - 9.01 AQ10 - - 1,675 1,675 - - 545 545 - - 32.54 32.54 56,068 13,328 1,675 71,071 134 571 545 1,250 0.24 4.28 32.54 1.76 Financial institutions AQ1-AQ4 54,185 86 - 54,271 10 - - 10 0.02 - - 0.02 AQ5-AQ8 2,921 183 - 3,104 7 9 - 16 0.24 4.92 - 0.52 AQ9 1 2 - 3 - - - - - - - - AQ10 - - 75 75 - - 22 22 - - 29.33 29.33 57,107 271 75 57,453 17 9 22 48 0.03 3.32 29.33 0.08 Sovereign AQ1-AQ4 6,082 71 - 6,153 18 1 - 19 0.30 1.41 - 0.31 AQ5-AQ8 131 86 - 217 - - - - - - - - AQ 9 - 1 - 1 - - - - - - - - AQ10 - - 13 13 - - 2 2 - - 15.38 15.38 6,213 158 13 6,384 18 1 2 21 0.29 0.63 15.38 0.33 Total AQ1-AQ4 94,015 2,149 - 96,164 45 23 - 68 0.05 1.07 - 0.07 AQ5-AQ8 54,544 13,873 - 68,417 163 602 - 765 0.30 4.34 - 1.12 AQ9 60 655 - 715 1 57 - 58 1.67 8.70 - 8.11 AQ10 - - 2,496 2,496 - - 786 786 - - 31.49 31.49 148,619 16,677 2,496 167,792 209 682 786 1,677 0.14 4.09 31.49 1.00 Risk and capital management Credit risk - Banking activities continued Asset quality (reviewed) Gross loans ECL provisions ECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 31 December 2021 ��m ��m ��m ��m ��m ��m ��m ��m % % % % Property AQ1-AQ4 13,529 223 - 13,752 3 7 - 10 0.02 3.14 - 0.07 AQ5-AQ8 15,126 2,742 - 17,868 21 94 - 115 0.14 3.43 - 0.64 AQ9 24 136 - 160 - 10 - 10 - 7.35 - 6.25 AQ10 - - 742 742 - - 239 239 - - 32.21 32.21 28,679 3,101 742 32,522 24 111 239 374 0.08 3.58 32.21 1.15 Corporate AQ1-AQ4 18,378 1,027 - 19,405 8 48 - 56 0.04 4.67 - 0.29 AQ5-AQ8 35,351 13,922 - 49,273 88 621 - 709 0.25 4.46 - 1.44 AQ9 74 655 - 729 - 44 - 44 - 6.72 - 6.04 AQ10 - - 1,444 1,444 - - 602 602 - - 41.69 41.69 53,803 15,604 1,444 70,851 96 713 602 1,411 0.18 4.57 41.69 1.99 Financial institutions AQ1-AQ4 50,121 63 - 50,184 7 1 - 8 0.01 1.59 - 0.02 AQ5-AQ8 2,138 667 - 2,805 7 38 - 45 0.33 5.70 - 1.60 AQ9 4 2 - 6 - - - - - - - - AQ10 - - 46 46 - - 4 4 - - 8.70 8.70 52,263 732 46 53,041 14 39 4 57 0.03 5.33 8.70 0.11 Sovereign AQ1-AQ4 5,787 35 - 5,822 19 1 - 20 0.33 2.86 - 0.34 AQ5-AQ8 117 86 - 203 - - - - - - - - AQ9 - - - - - - - - - - - - AQ10 - - 8 8 - - 2 2 - - 25.00 25.00 5,904 121 8 6,033 19 1 2 22 0.32 0.83 25.00 0.36 Total AQ1-AQ4 87,815 1,348 - 89,163 37 57 - 94 0.04 4.23 - 0.11 AQ5-AQ8 52,732 17,417 - 70,149 116 753 - 869 0.22 4.32 - 1.24 AQ9 102 793 - 895 - 54 - 54 - 6.81 - 6.03 AQ10 - - 2,240 2,240 - - 847 847 - - 37.81 37.81 140,649 19,558 2,240 162,447 153 864 847 1,864 0.11 4.42 37.81 1.15 - Across the Wholesale portfolio, the asset quality band distribution differed, reflective of the underlying quality of counterparties within each segment. - Asset quality improvement was observed across most segments as the economy recovered from the effects of COVID-19. - Within the Wholesale portfolio, customer credit grades were reassessed as and when a request for financing was made, a scheduled customer credit review was undertaken or a material event specific to that customer occurred. - ECL provisions coverage showed the expected trend with increased coverage in the poorer asset quality bands, and also by stage. - The low provision coverage for Stage 3 loans in financial institutions for 2021 reflected the secured nature of one exposure classified AQ10. Risk and capital management Credit risk - Trading activities This section details the credit risk profile of NatWest Group's trading activities. Securities financing transactions and collateral (reviewed) The table below shows securities financing transactions in NatWest Markets and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9. Reverse repos Repos Outside Outside Of which: netting Of which: netting Total can be offset arrangements Total can be offset arrangements 30 June 2022 ��m ��m ��m ��m ��m ��m Gross 83,381 82,631 750 85,717 84,295 1,422 IFRS offset (32,396) (32,396) - (32,396) (32,396) - Carrying value 50,985 50,235 750 53,321 51,899 1,422 Master netting arrangements (2,540) (2,540) - (2,540) (2,540) - Securities collateral (47,449) (47,449) - (49,338) (49,338) - Potential for offset not recognised under IFRS (49,989) (49,989) - (51,878) (51,878) - Net 996 246 750 1,443 21 1,422 31 December 2021 Gross 78,909 78,259 650 73,858 72,712 1,146 IFRS offset (32,016) (32,016) - (32,016) (32,016) - Carrying value 46,893 46,243 650 41,842 40,696 1,146 Master netting arrangements (900) (900) - (900) (900) - Securities collateral (45,271) (45,271) - (39,794) (39,794) - Potential for offset not recognised under IFRS (46,171) (46,171) - (40,694) (40,694) - Net 722 72 650 1,148 2 1,146 - Reverse repos and repos increased on both gross and carrying value basis when compared to 2021. These trends are consistent with trading assets and liabilities having been managed within limits at 31 December 2021. - Reverse repo and repo transactions are primarily backed by highly-rated sovereign, supranational and agency collateral. Risk and capital management Credit risk - Trading activities continued Derivatives (reviewed) The table below shows derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table also includes hedging derivatives in Treasury. 30 June 2022 31 December 2021 Notional GBP USD Euro Other Total Assets Liabilities Notional Assets Liabilities ��bn ��bn ��bn ��bn ��bn ��m ��m ��bn ��m ��m Gross exposure 119,935 115,208 114,100 109,403 IFRS offset (10,592) (12,488) (7,961) (8,568) Carrying value 3,128 4,338 5,167 1,303 13,936 109,343 102,720 12,100 106,139 100,835 Of which: Interest rate (1) 2,794 2,764 4,561 290 10,409 54,590 48,653 8,919 67,458 61,206 Exchange rate 332 1,570 596 1,013 3,511 54,504 53,762 3,167 38,517 39,286 Credit 2 4 10 - 16 249 289 14 154 343 Equity and commodity - - - - - - 16 - 10 - Carrying value 13,936 109,343 102,720 12,100 106,139 100,835 Counterparty mark-to-market netting (85,072) (85,072) (85,006) (85,006) Cash collateral (14,499) (10,545) (15,035) (9,909) Securities collateral (4,468) (918) (2,428) (2,913) Net exposure 5,304 6,185 3,670 3,007 Banks (2) 546 992 393 413 Other financial institutions (3) 3,292 2,793 1,490 1,584 Corporate (4) 1,386 2,253 1,716 938 Government (5) 80 147 71 72 Net exposure 5,304 6,185 3,670 3,007 UK 2,050 2,333 1,990 1,122 Europe 1,297 2,069 714 1,028 US 1,573 1,440 645 653 RoW 384 343 321 204 Net exposure 5,304 6,185 3,670 3,007 Asset quality of uncollateralised derivative assets AQ1-AQ4 4,611 2,939 AQ5-AQ8 648 674 AQ9-AQ10 45 57 Net exposure 5,304 3,670 (1) The notional amount of interest rate derivatives included ��7,730 billion (31 December 2021 - ��6,173 billion) in respect of contracts cleared through central clearing counterparties. (2) Transactions with certain counterparties with whom NatWest Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions, for example China, where the collateral agreements are not deemed to be legally enforceable. (3) Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NatWest Group's external rating. (4) Mainly large corporates with whom NatWest Group may have netting arrangements in place, but operational capability does not support collateral posting. (5) Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour. Risk and capital management Credit risk - Trading activities continued Debt securities (reviewed) The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor's, Moody's and Fitch. Central and local government Financial UK US Other institutions Corporate Total 30 June 2022 ��m ��m ��m ��m ��m ��m AAA - - 2,395 1,209 - 3,604 AA to AA+ - 3,840 3,091 1,635 16 8,582 A to AA- 7,074 - 1,445 214 66 8,799 BBB- to A- - - 2,433 302 424 3,159 Non-investment grade - - - 51 43 94 Unrated - - - 1 1 2 Total 7,074 3,840 9,364 3,412 550 24,240 Short positions (7,363) (2,915) (12,323) (2,000) (160) (24,761) 31 December 2021 AAA - - 2,011 838 - 2,849 AA to AA+ - 3,329 3,145 1,401 62 7,937 A to AA- 6,919 - 1,950 308 57 9,234 BBB- to A- - - 3,792 346 517 4,655 Non-investment grade - - 31 163 82 276 Unrated - - - 3 3 6 Total 6,919 3,329 10,929 3,059 721 24,957 Short positions (9,790) (56) (12,907) (2,074) (137) (24,964) This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. 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