Natwest Group PLC

National Storage Mechanism | Additional information RNS Number : 6949U NatWest Group plc 31 July 2020 Interim Results 2020 www.natwestgroup.com NatWest Group plc Interim Results for the period ending 30 June 2020 Alison Rose, Chief Executive Officer, commented: "Our performance in the first half of the year has been significantly impacted by the challenges and uncertainty our economy continues to face as a result of Covid-19. However, NatWest Group has a robust capital position, underpinned by a resilient, capital generative and well diversified business. Throughout this crisis we have provided exceptional levels of support to our customers, colleagues and the communities we serve. I am proud that our colleagues have consistently shown they are putting our purpose at the heart of everything they do. Through our strong balance sheet and prudent approach to risk, we are well placed not only to withstand Covid-19 related impacts but also to provide the right support to those who will need it most in the tough times to come. Our purposeful strategy will help our customers, colleagues and communities to recover, rebuild and, ultimately, to thrive. We are building a sustainable business that will generate lasting value for all our stakeholders, as we work together to create a greener, fairer and more inclusive economy." Financial performance in a challenging environment �� H1 2020 operating loss before tax of ��770 million and operating profit before impairment losses of ��2,088 million. �� Net impairment losses of ��2,858 million in H1 2020, or 159 basis points of gross customer loans, resulted in an expected credit loss (ECL) coverage ratio of 1.72% across the Personal and Wholesale portfolios. �� In comparison to H1 2019, across the retail and commercial businesses income decreased by 9.0% whilst NatWest Markets income excluding asset disposals/strategic risk reduction, own credit adjustments (OCA) and notable items increased by 44.4%. �� Bank net interest margin (NIM) of 1.67% was 22 basis points lower than Q1 2020 reflecting the contraction of the yield curve, 10 basis points, the impact of a change in the mix of lending, 5 basis points, and excess levels of central liquidity, 7 basis points. �� Other expenses, excluding operating lease depreciation (OLD), were ��41 million lower than H1 2019. Robust balance sheet with strong capital and liquidity levels �� We have maintained absolute and relative capital strength and retain significant headroom above the regulatory minimum. CET1 ratio of 17.2% was 60 basis points higher than Q1 2020, benefiting from a ��3.7 billion reduction in RWAs. In addition, the attributable loss for the quarter was more than offset by a c.70 basis point increase in IFRS 9 transitional relief. �� The liquidity coverage ratio (LCR) is strong at 166%, 14 percentage points higher than Q1 2020 reflecting the significant increase in customer deposits. �� Across the retail and commercial businesses net lending increased by ��16.0 billion during H1 2020, of which ��8.4 billion related to drawdowns against UK Government lending initiatives and ��7.6 billion was due to mortgages. �� Customer deposits increased by ��39.1 billion in H1 2020 to ��408.3 billion, as customers sought to retain liquidity and reduced spending as a result of government measures in relation to Covid-19. Outlook(1) We remain committed to achieving a ��250 million cost reduction in 2020 and expect strategic costs to be within our ��0.8-1.0 billion guidance after recognising property related charges in Q2 2020. We believe the full year 2020 impairment charge is likely to be in the range of ��3.5-4.5 billion. Impairment charges in the second half of 2020 will be driven by a combination of the developing economic outlook for the UK and Republic of Ireland, along with the effectiveness of government support schemes in delaying and reducing the level of economic distress experienced by our personal and commercial customers, and the absolute level of defaults across lending portfolios and associated ECL stage migration. We expect RWAs to be in the range of ��185-195 billion at the end of 2020. Changes in RWAs in the second half of 2020 will be driven by the delivery of targeted reductions in NatWest Markets, the level of procyclical inflation driven by the economic outlook, downgrades in the credit quality and assessments in the commercial book and ongoing demand for lending from our customers. We continue to target a reduction in NatWest Markets RWAs to ��32 billion by the end of 2020, with income disposal losses of around ��0.2 billion, subject to market conditions. We are now intending to achieve the majority of the expected medium term reduction in NatWest Markets RWAs by the end of 2021, while managing the associated income disposal losses to around ��0.6 billion over the two years. We continue to monitor events closely and assess potential scenarios and outcomes. The multiple economic scenarios underpinning our guidance are disclosed on pages 28-35. The impacts of Covid-19 on the economy and the mitigating benefits of government support schemes remain uncertain and could result in changes to our financial results in upcoming periods, including the possible impairment of goodwill. Note: (1) The guidance, targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the "Risk Factors" section on pages 108 and 109 of this announcement, pages 29-31 of NatWest Group plc's (formerly The Royal Bank of Scotland Group plc) Q1 IMS and pages 281 to 295 of NatWest Group plc's 2019 Annual Report & Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement. Our Purpose in action - we champion potential, helping people, families and businesses to thrive Helping our colleagues and customers through the impacts of Covid-19 Provided lending support to our customers with a disciplined approach to risk and value creation: �� Approved ��10.1 billion through the government lending initiatives(1,2). �� Facilitated approximately ��7.4 billion of Covid-19 Corporate Financing Facilities (CCFF) issuances(2). Supported the financial health of our customers: �� Helped approximately 240,000 customers with an initial three month mortgage repayment holiday and provided payment holidays, of up to twelve months, on approximately 71,000 business customer accounts(2). �� Delivered approximately ��2.0 million of cash to vulnerable customers' homes(2). Long-term investment plan is powering our operational effectiveness: �� Increased digital adoption with over 500,000 new mobile app downloads and over 485,000 new online banking customers(2). �� Launched digital credit scoring in our mobile app with a net promoter score of +52(3). Partnered to proactively respond and support UK communities: �� Supported the National Emergencies Trust by raising ��10 million through matched customer donations. �� Donated ��1 million to eight existing debt management not-for-profit partners. Prioritised the wellbeing of our colleagues; �� Enabled over 50,000 colleagues to work from home, including over three quarters of our contact centre colleagues. �� Ensured that all colleagues continue to be paid as normal until September if they need to take some time to look after their families, are unable to work from home or if they are ill. H1 2020 progress against our three chosen areas of focus Enterprise - addressing barriers to enterprise and business creation: �� Migrated our twelve accelerator hubs to digital channel delivery. �� Digitised our Dream Bigger programme which supports the next generation of female entrepreneurs. �� Launched a ��5 million Enterprise Relief Fund in partnership with The Prince's Trust. Learning - skill building, particularly around financial confidence: �� Reached approximately two million people through financial capability interactions including live MoneySense lessons on social media platforms(2). �� Helped approximately 305,000 additional customers to start saving(2). �� Over 1 million downloads of Island Saver, the world's first financial education console and PC game. Climate - supporting the necessary transition to a low carbon economy: �� NatWest Group plc issued a green MREL bond, the first green bond issued in USD by a UK bank, with $600 million of proceeds allocated to renewable energy projects. �� NatWest Group has recently joined the UNEP FI PRB Collective Commitment on Climate Action and is the first major UK bank to join the Partnership for Carbon Accounting (PCAF), two important global initiatives that signal our level of commitment to measuring and reducing our climate impact in accordance with the 2015 Paris Agreement. �� Helped our customers through c.��4.0 billion of new sustainable financing and funding for H1 2020. Notes: (1) Inclusive of Commercial Banking and Private Banking: Bounce Back Loan Scheme (BBLS) - ��6.1 billion; Coronavirus Business Interruption Loan Scheme (CBILS) - ��3.3 billion; Coronavirus Large Business Interruption Loan Scheme (CLBILS) - ��0.7 billion. (2) As at 30 June 2020. (3) As at 3 April 2020. Business performance summary Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June Performance key metrics and ratios 2020 2019 2020 2020 2019 Profit before impairment losses ��2,088m ��3,017m ��767m ��1,321m ��1,918m Operating (loss)/profit before tax (��770m) ��2,694m (��1,289m) ��519m ��1,681m (Loss)/profit attributable to ordinary shareholders (��705m) ��2,038m (��993m) ��288m ��1,331m Bank net interest margin (NatWest Group NIM excluding NWM) (1) 1.78% 2.04% 1.67% 1.89% 2.02% Bank average interest earning assets (NatWest Group excluding NWM) (1) ��440bn ��407bn ��458bn ��422bn ��410bn Cost:income ratio (1) 63.8% 57.2% 70.9% 57.7% 52.6% Loan impairment rate (1) 159bps 21bps 229bps 90bps 30bps Earnings per share - basic (5.8p) 16.9p (8.2p) 2.4p 11.0p - basic fully diluted (5.8p) 16.8p (8.2p) 2.4p 11.0p Return on tangible equity (1) (4.4%) 12.1% (12.4%) 3.6% 15.8% Average tangible equity ��32bn ��34bn ��32bn ��32bn ��34bn Average number of ordinary shares outstanding during the period (millions) - basic 12,079 12,058 12,085 12,074 12,069 - basic fully diluted (2) 12,101 12,096 12,107 12,100 12,104 30 June 31 March 31 December Balance sheet related key metrics and ratios 2020 2020 2019 Total assets ��806.9bn ��817.6bn ��723.0bn Funded assets (1) ��623.5bn ��608.9bn ��573.0bn Loans to customers - amortised cost ��352.3bn ��351.3bn ��326.9bn Impairment provisions ��6.1bn ��4.2bn ��3.7bn Customer deposits ��408.3bn ��384.8bn ��369.2bn Liquidity coverage ratio (LCR) 166% 152% 152% Liquidity portfolio ��243bn ��201bn ��199bn Net stable funding ratio (NSFR) (3) 144% 138% 141% Loan:deposit ratio (1) 86% 91% 89% Total wholesale funding ��86bn ��86bn ��75bn Short-term wholesale funding ��22bn ��32bn ��19bn Common equity tier (CET1) ratio (4) 17.2% 16.6% 16.2% Total capital ratio 22.5% 21.4% 21.2% Pro forma CET1 ratio, pre dividend accrual (5) 17.2% 16.6% 17.0% Risk-weighted assets (RWAs) ��181.5bn ��185.2bn ��179.2bn CRR leverage ratio 5.1% 5.1% 5.1% UK leverage ratio 6.0% 5.8% 5.8% Tangible net asset value (TNAV) per ordinary share 264p 273p 268p Tangible net asset value (TNAV) per ordinary share - fully diluted (1,2) 263p 272p 267p Tangible equity ��32,006m ��32,990m ��32,371m Number of ordinary shares in issue (millions) 12,125 12,094 12,094 Number of ordinary shares in issue (millions) - fully diluted (2,6) 12,147 12,116 12,138 Notes: (1) Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS financial and performance measures where relevant. (2) Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for H1 2020 were 22 million shares and for Q2 2020 were 22 million shares; (Q1 2020 - 26 million shares, H1 2019 - 38 million shares; Q2 2019 - 35 million shares), and as at 30 June 2020 were 22 million shares (31 March 2020 - 22 million shares; 31 December 2019 - 44 million shares). (3) NSFR reported in line with CRR2 regulations finalised in June 2019. (4) Based on CRR end point including the IFRS 9 transitional adjustment of ��1.6 billion. Excluding this adjustment, the CET 1 ratio would be 16.3%. (5) At June 2020 and March 2020 there was no charge in CET1 for foreseeable dividends or charges. The pro forma CET 1 ratio at 31 December 2019 excludes foreseeable charges of ��968 million for ordinary dividends (3p per share final dividend and 5p per share special dividend) and ��365 million pension contribution. (6) Includes 16 million shares held by the Employee Benefit Trust (31 March 2020 -18 million shares; 31 December 2019 - 15 million shares). Summary consolidated income statement for the period ended 30 June 2020 Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 Net interest income 3,852 4,004 1,910 1,942 1,971 Own credit adjustments 53 (46) (102) 155 (3) Strategic disposals - 1,035 - - 1,035 Other non-interest income 1,933 2,124 868 1,065 1,077 Non-interest income 1,986 3,113 766 1,220 2,109 Total income 5,838 7,117 2,676 3,162 4,080 Litigation and conduct costs 89 (60) 85 4 (55) Strategic costs (464) (629) (333) (131) (434) Other expenses (3,375) (3,411) (1,661) (1,714) (1,673) Operating expenses (3,750) (4,100) (1,909) (1,841) (2,162) Profit before impairment losses 2,088 3,017 767 1,321 1,918 Impairment losses (2,858) (323) (2,056) (802) (237) Operating (loss)/profit before tax (770) 2,694 (1,289) 519 1,681 Tax credit/(charge) 208 (194) 396 (188) 22 (Loss)/profit for the period (562) 2,500 (893) 331 1,703 Attributable to: Ordinary shareholders (705) 2,038 (993) 288 1,331 Preference shareholders 16 20 8 8 10 Paid-in equity shareholders 192 182 95 97 92 Non-controlling interests (65) 260 (3) (62) 270 Notable items within total income Alawwal bank merger gain in NatWest Markets - 444 - - 444 FX recycling (loss)/gain in Central items & other (103) 290 (39) (64) 290 Legacy liability release in Central items & other - 256 - - 256 Liquidity Asset Bond sale gain 110 11 17 93 1 IFRS volatility in Central items & other (11) 17 55 (66) 21 NatWest Markets asset disposals/strategic risk reduction (1) (63) (27) (63) - (23) Note: (1) Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020. Prior period comparatives refer to the previously disclosed NatWest Markets legacy business disposal losses. Income statement overview H1 2020 compared with H1 2019 �� Income across the retail and commercial businesses decreased by 9.0% reflecting the contraction of the yield curve, mortgage margin dilution, lower business activity and lower consumer spending, resulting from government measures in response to Covid-19. Partially offsetting, we have seen strong gross new mortgage lending in UK Personal Banking with drawdowns against UK Government lending initiatives and increased utilisation of revolving credit facilities (RCFs) in Commercial Banking, whilst maintaining a disciplined approach to risk. �� NatWest Markets income excluding asset disposals/strategic risk reduction, OCA and notable items increased by 44.4% reflecting increased customer activity as the market reacted to the spread of the Covid-19 virus, partially offset by the impact of credit market write-downs. �� Litigation and conduct costs included a ��250 million PPI release reflecting lower than predicted valid complaints volumes, partially offset by other charges. �� Strategic costs of ��464 million in H1 2020 included an ��83 million charge related to technology spend, ��155 million related to property charges and a ��120 million direct charge in NatWest Markets primarily related to restructuring activity. �� Other expenses, excluding OLD, decreased by ��41 million, or 1.2%, and headcount reduced by c.3,900, or 5.9%. We have maintained a focus on driving underlying cost reductions and efficiencies across the business through the continued shift from physical to digital, process improvements and property savings. �� The net impairment loss of ��2,858 million, 159 basis points of gross customer loans, reflected the deterioration of the economic outlook. As a result the ECL coverage ratio across the Personal and Wholesale portfolios increased from 1.02% to 1.72%. Q2 2020 compared with Q1 2020 �� Income across the retail and commercial businesses decreased by ��176 million reflecting the contraction of the yield curve, reduced business activity and lower consumer spending, resulting from government measures in response to Covid-19. Partially offsetting, we have seen strong balance growth in Commercial Banking, largely relating to drawdowns against UK Government lending initiatives. �� NatWest Markets income excluding asset disposals/strategic risk reduction and OCA increased by ��50 million. Income from Financing increased as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased. �� Strategic costs of ��333 million in Q2 2020 included a ��44 million charge related to technology spend, ��148 million related to property charges and an ��86 million direct charge in NatWest Markets primarily related to restructuring activity. �� Other expenses, excluding OLD, decreased by ��54 million reflecting reduced investment spend and other cost saving initiatives. Headcount decreased by c.500. �� The net impairment loss of ��2,056 million, 229 basis points of gross customer loans, reflected the deterioration of the economic outlook. As a result the ECL coverage ratio across the Personal and Wholesale portfolios increased from 1.18% to 1.72%. Q2 2020 compared with Q2 2019 �� Income across the retail and commercial businesses decreased by 11.4% whilst NatWest Markets income excluding asset disposals/strategic risk reduction, OCA and notable items increased by 62.2%. �� Other expenses, excluding OLD, decreased by ��15 million, or 0.9%. Business performance summary UK Personal Banking Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 ��m ��m ��m ��m ��m Total income 2,185 2,447 1,035 1,150 1,202 Operating expenses (1,075) (1,229) (546) (529) (594) Impairment losses (657) (181) (360) (297) (69) Operating profit 453 1,037 129 324 539 Return on equity 10.7% 25.6% 5.7% 15.5% 26.5% Net interest margin 2.23% 2.57% 2.18% 2.28% 2.51% Cost:income ratio 49.2% 50.2% 52.8% 46.0% 49.4% As at 30 June 31 March 31 December 2020 2020 2019 ��bn ��bn ��bn Net loans to customers (amortised cost) 164.5 163.7 158.9 Customer deposits 161.0 152.8 150.3 RWAs 36.7 38.2 37.8 Loan impairment rate 87bps 72bps 20bps Note: (1) Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on H1 2019 operating profit would have been to decrease total income by ��22 million and operating expenses by ��4 million. The net impact on the H1 2019 balance sheet would have been to decrease customer deposits by ��0.3 billion. The net impact on Q2 2019 operating profit would have been to decrease total income by ��11 million and operating expenses by ��2 million. The net impact on the Q4 2019 balance sheet would have been to decrease customer deposits by ��0.2 billion. UK Personal Banking continues to support customers whose income has been impacted by Covid-19. We had 240,000 mortgage customers request an initial three month mortgage repayment holiday, representing 20% of the book by volume. To support mortgage customers who continue to be impacted, we are offering a range of options from a full payment holiday to part payments for a further three months; of those who have rolled off their initial repayment holiday, and who have reviewed their options and taken action, approximately one third have requested a further extension. Additionally, we offered the option of three month payment deferrals on loans, with 72,000, or 7%, of loan customers taking up the offer. H1 2020 compared with H1 2019 �� Total income decreased by ��262 million, or 10.7%, due to lower deposit hedge income, mortgage margin dilution and lower fee income on overdrafts, partially offset by strong balance growth. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��17 million, or 1.5%, due to one-off releases in Q2 2019 partially offset by a reduction in staff costs associated with a 9.3% reduction in headcount. �� Litigation and conduct costs include a ��250 million PPI release reflecting lower than predicted valid complaints volumes. �� Impairment losses of ��657 million increased by ��476 million primarily reflecting stage two charges linked to a forecast rise in unemployment and decline in HPI under a deteriorating economic outlook. �� Net loans to customers increased by ��12.6 billion, or 8.3%, as a result of strong gross new mortgage lending and lower redemptions. Gross new mortgage lending was ��16.5 billion with market flow share of approximately 14%, supporting a stock share of approximately 10.5%. Personal advances and cards reduced by ��0.2 billion and ��0.3 billion respectively, reflecting lower spend and higher repayments as a result of Covid-19. �� Customer deposits increased by ��13.5 billion, or 9.2%, with stronger than normal growth as government backed initiatives for Covid-19, combined with lockdown restrictions, resulted in lower customer spend and increased savings. �� RWAs remained broadly stable as mortgage lending growth was largely offset by lower unsecured balances, with no pro-cyclicality evident to date. Q2 2020 compared with Q1 2020 �� Total income decreased by ��115 million due to lower overdraft fees, Covid-19 support measures, significantly reduced card spend, which resulted in lower fees and lower unsecured balances, and the non-repeat of the annual insurance profit share. Net interest margin decreased by 10 basis points reflecting lower personal advances and cards balances and continued structural pressure in the mortgage business, as blended front book margins of around 124 basis points remain lower than the back book margin of approximately 138 basis points, partially offset by lower customer deposit rates payable. In the latter part of June 2020 blended front book application margins were around 130 basis points as spreads in the market continued to widen. �� Impairment losses of ��360 million increased by ��63 million, primarily reflecting stage two charges linked to a forecast rise in unemployment and decline in HPI under a deteriorating economic outlook. �� Net loans to customers increased by ��0.8 billion due to mortgage growth of ��1.9 billion, with lower consumer demand and increased repayments impacting unsecured. Personal advances and cards reduced by ��0.4 billion respectively, as customers spent less and made repayments. �� Customer deposits increased by ��8.2 billion as customer spend reduced and savings increased as a result of Covid-19. Q2 2020 compared with Q2 2019 �� Total income decreased by ��167 million, or 13.9%, primarily reflecting lower overdraft fees, lower deposit hedge income and mortgage margin dilution. Business performance summary Ulster Bank RoI Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 ��m ��m ��m ��m ��m Total income 285 324 135 150 158 Operating expenses (283) (322) (140) (143) (166) Impairment losses/releases (278) 24 (246) (32) 11 Operating (loss)/profit (276) 26 (251) (25) 3 Return on equity (24.2%) 2.1% (44.5%) (4.2%) 0.6% Net interest margin 1.52% 1.63% 1.48% 1.56% 1.62% Cost:income ratio 98.4% 99.3% 101.7% 95.3% 105.1% As at 30 June 31 March 31 December 2020 2020 2019 ��bn ��bn ��bn Net loans to customers (amortised cost) 20.5 21.2 21.4 Customer deposits 22.0 21.9 21.7 RWAs 14.1 14.4 15.3 Loan impairment rate 460bps 58bps 9bps Ulster Bank RoI continues to support all customers, including those who have been impacted by Covid-19. We have launched our digital Home Buying Platform, supporting customers to complete a mortgage application online, temporarily reduced our overdraft charges and we continue to support our vulnerable and elderly customers through our Companion card, dedicated helpline, priority banking hours and proactive outbound care calls. We have also provided mortgage payment breaks for approximately 12,000 customers, with over 4,000 extensions approved as at 30 June 2020. In our commercial business, we have provided payment breaks for approximately 3,000 customers and we continue to work closely with the Irish Government in providing customers with assistance through existing support schemes and the Credit Guarantee Scheme launched in July 2020. H1 2020 compared with H1 2019 �� Total income decreased by ��39 million, or 12.0%, reflecting lower business activity resulting from the impact of Covid-19 on our customers and our business, the non-repeat of ��11 million income relating to the restructure of interest rate swaps on free funds, and interest rate and foreign exchange movements. �� Excluding strategic, litigation and conduct costs, operating expenses decreased by ��6 million, or 2.2%, reflecting a 9.7% headcount reduction, including the scale down of our services and other functional teams, and lower project costs, which in H1 2019 included costs related to the improvement of the Ulster Bank RoI risk management framework. �� Impairment losses of ��278 million increased by ��302 million due to the impact across all portfolios from the deterioration in the economic outlook caused by Covid-19. �� Net loans to customers decreased by ��0.7 billion, or 3.3%, which included the net de-recognition of ��0.2 billion of non-performing loans (NPL) from a sale agreed in Q4 2019, and an increase in loan provisions against the remaining loans. Gross new lending of ��1.1 billion was 29.0% lower, with Q2 2020 impacted by lower demand primarily related to Covid-19 factors. �� Customer deposits increased by ��0.7 billion, or 3.3%, supporting a reduction in the loan:deposit ratio to 93% from 100%. �� RWAs decreased by ��1.7 billion, or 10.8%, largely due to model recalibrations and the de-recognition of NPLs in H1 2020. Q2 2020 compared with Q1 2020 �� Total income decreased by ��15 million mainly due to lower personal and commercial fees. Net interest margin decreased by 8 basis points reflecting the impact of negative rates on increased liquid assets. �� Excluding strategic, litigation and conduct costs, operating expenses were ��3 million lower due to reduced marketing and administration costs and foreign exchange movements. �� Impairment losses increased by ��214 million due to the deterioration in the economic outlook. �� Net loans to customers decreased by ��0.7 billion due to an increase in provisions together with loan repayments outweighing gross new lending, which was adversely impacted by lower demand largely as a result of Covid-19. Gross new lending was ��0.4 billion, ��0.3 billion lower than Q1 2020. �� RWAs decreased by ��0.3 billion due to model recalibrations and the impact of the NPL sale. Q2 2020 compared with Q2 2019 �� Total income decreased by ��23 million reflecting the impact of Covid-19, particularly on fee income due to lower transaction levels and implementation of waivers on both personal and commercial products. Business performance summary Commercial Banking Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 ��m ��m ��m ��m ��m Total income 2,003 2,165 995 1,008 1,083 Operating expenses (1,221) (1,262) (611) (610) (622) Impairment losses (1,790) (202) (1,355) (435) (197) Operating (loss)/profit (1,008) 701 (971) (37) 264 Return on equity (17.9%) 8.8% (32.5%) (2.5%) 6.2% Net interest margin 1.76% 1.98% 1.70% 1.83% 1.97% Cost:income ratio 59.5% 56.9% 59.9% 59.1% 56.1% As at 30 June 31 March 31 December 2020 2020 2019 ��bn ��bn ��bn Net loans to customers (amortised cost) 112.0 109.2 101.2 Customer deposits 159.6 143.9 135.0 RWAs 78.3 76.9 72.5 Loan impairment rate 472bps 157bps 32bps Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government's financial support schemes. As at H1 2020, ��6.1 billion BBLS loans, ��3.2 billion of CBILS loans and ��0.7 billion of CLBILS loans had been approved and payment holidays, for up to twelve months, provided on c.71,000 customer accounts, representing c.12% of the lending book by value. H1 2020 compared with H1 2019 �� Total income decreased by ��162 million, or 7.5%, reflecting ��108 million lower non interest income due to reduced business activity and ��54 million lower net interest income as a result of the contraction of the yield curve, partially offset by balance sheet growth. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��41 million, or 3.7%, reflecting a number of one-off releases in Q2 2019, higher innovation spend and a ��5 million increase in OLD, partially offset by a 1.9% reduction in headcount following operating model efficiencies in H2 2019 and lower non staff costs. �� Impairment losses of ��1,790 million primarily from stage one and two charges reflecting the deterioration in the economic outlook, with total stage three charges of ��236 million, including a small number of single name charges. �� Net loans to customers increased by ��10.6 billion, or 10.5%, with a ��10.8 billion increase in H1 2020 reflecting drawdowns against UK Government lending schemes and ��4.1 billion increased RCF utilisation. �� Customer deposits increased by ��26.2 billion, or 19.6%, principally due to a ��24.6 billion increase in H1 2020 as customers sought to retain liquidity in light of Covid-19 uncertainty. �� RWAs increased by ��0.5 billion, or 0.6%, due to increased lending volumes and risk parameter changes, partially offset by a ��4.5 billion reduction related to model improvements and active capital management, with limited procyclicality evident to date Q2 2020 compared with Q1 2020 �� Total income decreased by ��13 million as lower deposit funding benefits and reduced business activity offset balance sheet growth. Net interest margin decreased by 13 basis points mainly reflecting lower deposit funding benefits and higher liquidity portfolio costs. �� Excluding strategic, litigation and conduct costs, operating expenses remained broadly stable as higher back office operations costs and a ��1 million increase in OLD were partially offset by lower non-staff costs. �� Impairment losses of ��1,355 million primarily from stage one and two charges reflecting the deterioration in the economic outlook, with total stage three charges of ��169 million, including a small number of single name charges. �� Net loans to customers increased by ��2.8 billion reflecting drawdowns against UK Government lending schemes, including ��5.8 billion related to BBLS, ��2.3 billion related to CBILS and ��0.2 billion related to CLBILS, partially offset by ��2.3 billion net RCF repayments, lower specialised business lending and increased loan provisions. RCF utilisation decreased to c.32% of committed facilities following increased drawdowns in March and April 2020, but remained above pre-Covid-19 levels. �� Customer deposits increased by ��15.7 billion as customers sought to retain liquidity in light of Covid-19 uncertainty, including the retention of UK Government lending scheme drawdowns. �� RWAs increased by ��1.4 billion due to increased lending volumes, risk parameter changes and business transfers of ��0.4 billion from NatWest Markets. Q2 2020 compared with Q2 2019 �� Total income decreased by ��88 million, or 8.1%, reflecting reduced business activity and the contraction of the yield curve, partially offset by balance sheet growth and an ��8 million fair value and disposal gain in Q2 2020, compared with a ��15 million loss in Q2 2019. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��47 million, or 9.0%, reflecting a number of one-off releases in Q2 2019, higher innovation spend and ��3 million higher OLD, partially offset by a 1.9% reduction in headcount following operating model efficiencies in H2 2019 and lower non-staff costs. Business performance summary Private Banking (commentary adjusted for transfers) Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 ��m ��m ��m ��m ��m Total income 392 384 191 201 191 Operating expenses (252) (232) (129) (123) (115) Impairment (losses)/releases (56) 3 (27) (29) (1) Operating profit 84 155 35 49 75 Return on equity 8.2% 16.6% 6.6% 9.8% 15.9% Net interest margin 2.20% 2.48% 2.14% 2.25% 2.44% Cost:income ratio 64.3% 60.4% 67.5% 61.2% 60.2% As at 30 June 31 March 31 December 2020 2020 2019 ��bn ��bn ��bn Net loans to customers (amortised cost) 16.0 15.8 15.5 Customer deposits 29.8 29.0 28.4 RWAs 10.4 10.3 10.1 Assets Under Management (AUMs) 27.1 24.3 23.2 Assets Under Administration (AUAs) (1) 2.7 2.4 7.2 Total Assets Under Management and Administration (AUMA) 29.8 26.7 30.4 Loan impairment rate 67bps 73bps (3)bps Notes: (1) Private Banking manages assets under management portfolios on behalf of UK Personal Banking and RBSI and receives a management fee in respect of providing this service. (2) Comparisons with prior periods are impacted by the transfer of the Private Client Advice business to Private Banking from 1 January 2020. The net impact on H1 2019 operating profit would have been to increase total income by ��22 million and operating expenses by ��4 million. The net impact on the H1 2019 balance sheet would have been to increase AUMs by ��4.5 billion and customer deposits by ��0.3 billion. The net impact on Q2 2019 operating profit would have been to increase total income by ��11 million and operating expenses by ��2 million. The net impact on the Q4 2019 balance sheet would have been to increase AUMs by ��4.6 billion and customer deposits by ��0.2 billion. Variances in the commentary below have been adjusted for the impact of this transfer. Private Banking remains committed to supporting clients through a range of initiatives during this period of significant uncertainty, including the provision of mortgage and loan repayment breaks and via participation in the UK Government's CBILS financial support scheme, with ��146 million approved as at H1 2020. H1 2020 compared with H1 2019 �� Total income decreased by ��14 million, or 3.4%, primarily reflecting ��11 million lower net interest income due to lower deposit income and asset margin compression, partially offset by balance sheet growth. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��24 million, or 11.1%, reflecting higher investment spend and a number of one-off items. �� Impairment losses of ��56 million, mainly reflected stage one and two charges linked to the deterioration of the economic outlook. �� Net loans to customers increased by ��1.3 billion, or 8.8%, reflecting mortgage lending and other loans growth. RWAs increased by ��0.7 billion, or 7.2%, primarily reflecting increased lending volumes. �� Customer deposits increased by ��1.5 billion, or 5.3%, principally due to a ��1.2 billion increase in H1 2020 reflecting an increase in instant access savings and current accounts. �� Total AUMAs overseen by Private Banking increased by ��0.9 billion, or 3.1%, reflecting net new business inflows of ��1.2 billion partially offset by adverse market movements of ��0.3 billion. Q2 2020 compared with Q1 2020 �� Total income decreased by ��10 million, primarily reflecting asset margin compression and a reduction in fee income, partially offset by balance sheet growth. Net interest margin decreased by 11 basis points mainly due to asset margin compression, lower deposit income and higher liquidity portfolio costs. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��5 million reflecting higher investment spend and a number of one-off items. �� Impairment losses of ��27 million, mainly reflected stage one and two charges linked to the deterioration of the economic outlook, partially offset by a single name release. �� Customer deposits increased by ��0.8 billion reflecting an increase in instant access savings and current accounts. �� Total AUMAs overseen by Private Banking increased by ��3.1 billion, reflecting positive investment performance of ��2.9 billion and net new business inflows of ��0.2 billion. Q2 2020 compared with Q2 2019 �� Total income decreased by ��11 million, or 5.4%, primarily reflecting lower deposit income, asset margin compression and a reduction in fee income, partially offset by balance sheet growth. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��18 million, or 17.1%, primarily reflecting higher investment spend and a number of one-off items. Business performance summary RBS International Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 ��m ��m ��m ��m ��m Total income 259 310 115 144 159 Operating expenses (126) (119) (65) (61) (60) Impairment (losses)/releases (46) 3 (31) (15) 2 Operating profit 87 194 19 68 101 Return on equity 11.8% 29.7% 4.3% 19.4% 30.8% Net interest margin 1.30% 1.69% 1.15% 1.45% 1.68% Cost:income ratio 48.6% 38.4% 56.5% 42.4% 37.7% As at 30 June 31 March 31 December 2020 2020 2019 ��bn ��bn ��bn Net loans to customers (amortised cost) 12.7 13.6 14.1 Customer deposits 29.5 32.3 30.1 RWAs 6.8 6.8 6.5 Loan impairment rate 97bps 44bps 14bps During H1 2020, RBS International supported 1,282 personal customers with mortgage repayment breaks, reflecting a mortgage value of ��275 million, and 418 business customers with working capital facilities, reflecting a value of ��452 million, while continuing to suspend a range of fees and charges for its personal and business customers. H1 2020 compared with H1 2019 �� Total income decreased by ��51 million, or 16.5%, primarily due to the impact of interest rate reductions on deposit income as well as ��2 million lower payments income with the waiving of personal and commercial banking fees in Q2 2020 to support customers during Covid-19. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��12 million, or 11.0%, mainly due to ��6 million higher investment spend to enhance the digital proposition, ��2 million Covid-19 incident costs and ��3 million higher technology costs. �� Impairment losses of ��46 million included ��25 million stage one and stage two charges reflecting the deterioration in the economic outlook and a ��19 million charge related to a single client. �� Net loans to customers decreased by ��0.9 billion, or 6.6%, as Institutional Banking customers repaid facilities to position themselves in the uncertain environment. �� Customer deposits increased by ��1.4 billion, or 5.0%, as Institutional Banking customers sought to build liquidity in response to Covid-19 uncertainty. Q2 2020 compared with Q1 2020 �� Total income decreased ��29 million primarily due to ��23 million lower deposit income resulting from the full quarter impact of the central bank rate reductions and ��4 million lower lending income. Net interest margin decreased by 30 basis points due to lower deposit funding benefits as a result of interest rate changes by central banks. �� Impairment losses of ��31 million included ��17 million stage one and two charges reflecting the deterioration in the economic outlook and a ��13 million charge related to a single client. �� Net loans to customers decreased by ��0.9 billion as Institutional Banking customers responded to the uncertain economic outlook by repaying facilities. �� Customer deposits decreased ��2.8 billion due to lower call balances in the Institutional Banking sector as significant Q1 2020 inflows were used to fund loan repayments. Deposits in Local Banking increased by ��0.4 billion, most notably in Local Corporate and Everyday Banking. Q2 2020 compared with Q2 2019 �� Total income decreased by ��44 million, or 27.7%, due to lower deposit funding benefits, and lower fee income reflecting the economic response to Covid-19 with central bank rate reductions and fee waivers. �� Excluding strategic, litigation and conduct costs, operating expenses increased by ��7 million, or 13.0%, reflecting higher investment spend and Covid-19 incident costs. Business performance summary NatWest Markets(1) Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 ��m ��m ��m ��m ��m Total income 816 942 273 543 686 of which: - Income excluding asset disposals/strategic risk reduction and own credit adjustments 826 989 438 388 691 - Asset disposals/strategic risk reduction (2) (63) - (63) - - - Own credit adjustments 53 (47) (102) 155 (5) Operating expenses (707) (678) (365) (342) (344) Impairment (losses)/releases (40) 36 (45) 5 20 Operating profit/(loss) 69 300 (137) 206 362 Return on equity 0.8% 1.0% (7.1%) 8.7% 4.4% Cost:income ratio 86.6% 72.0% 133.7% 63.0% 50.1% As at 30 June 31 March 31 December 2020 2020 2019 ��bn ��bn ��bn Funded Assets 122.9 129.6 116.2 RWAs 35.1 38.9 37.9 Notes: (1) The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). For 2019, NWM Group includes NatWest Markets N.V. (NWM N.V.) from 29 November 2019 only. For periods prior to Q4 2019, NWM N.V. was excluded from the NWM Group. In both 2019 and 2020 the NatWest Markets segment excludes the Central items & other segment. (2) Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020. Progress on strategic change �� NatWest Markets continues to progress its strategy to refocus towards NatWest Group's corporate and institutional customers and reduce RWAs. During H1 2020, further refinements have been made to simplify the customer product suite, including exiting the Custom Index Trading business and the reduction of the third party market making offering in flow asset backed securities (ABS), residential mortgage backed securities (RMBS) and collateralised loan obligations (CLO). Additionally, NatWest Markets selected BNP Paribas as a strategic partner for the provision of execution and clearing of listed derivatives, following the decision to no longer offer these services for certain exchange traded derivatives, as announced in Q1 2020. �� NatWest Markets continues to identify efficiency improvements. During Q2 2020 changes were made to the regional operating models in the US and APAC and actions were taken to drive closer alignment with NatWest Group, such as leveraging NatWest Group Technology infrastructure. �� NatWest Markets has also actively identified and progressed RWA reduction, with a number of asset exits completed during Q2 2020. NatWest Markets continues to target an RWA reduction to ��32 billion at the end of 2020. H1 2020 compared with H1 2019 �� Total income decreased by ��126 million, or 13.4%, reflecting a ��444 million gain from the merger of Alawwal bank with Saudi British Bank (SABB) in H1 2019, partially offset by heightened customer activity and OCA movements. An OCA credit of ��53 million compared with a ��47 million charge in H1 2019 reflected the significant widening of credit spreads. �� Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by ��254 million, or 44.4%, reflecting increased customer activity as the market reacted to the spread of the Covid-19 virus, resulting in higher levels of primary issuance from governments and increased secondary market activity in both the Rates and Currencies businesses, partially offset by the impact of credit market write-downs. �� Excluding strategic, litigation and conduct costs, operating expenses decreased by ��31 million, or 5.2%, primarily reflecting lower back office operational costs and initial reductions following the strategic announcement in February 2020. �� RWAs decreased by ��6.3 billion, or 15.2%, reflecting lower levels of counterparty and market risk which, despite recent turbulence, have trended downwards as the business seeks to reduce its RWAs. Q2 2020 compared with Q1 2020 �� Income excluding asset disposals/strategic risk reduction and OCA increased by ��50 million. Income from Financing increased as credit markets stabilised, supported by central bank actions, whilst Rates and Currencies decreased as the volatility seen towards the end of Q1 2020 eased. Asset disposal/strategic risk reduction losses of ��63 million included a ��40 million loss related to a single significant transaction. �� Excluding strategic, litigation and conduct costs, operating expenses decreased by ��27 million reflecting initial reductions following the strategic announcement in February 2020. �� RWAs decreased by ��3.8 billion as the business works towards its full year RWA target. Counterparty credit risk decreased by ��1.5 billion reflecting the exit of specific positions and market risk decreased by ��1.5 billion, as markets normalised. A reduction in credit risk of ��0.8 billion included ��0.4 billion of business transfers to Commercial Banking. Q2 2020 compared with Q2 2019 �� Income excluding asset disposals/strategic risk reduction, OCA and notable items increased by ��168 million, or 62.2%, reflecting heightened levels of customer activity in Q2 2020, as markets reacted to the Covid-19 pandemic. Business performance summary Central items & other Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2020 2019 2020 2020 2019 ��m ��m ��m ��m ��m Central items not allocated (216) 284 (146) (70) 337 �� Central items not allocated represented a ��216 million operating loss in H1 2020 principally due to property related strategic costs, litigation and conduct charges and other treasury income. This compares with a ��284 million gain in H1 2019 which primarily reflected FX recycling gains of ��290 million and a legacy liability release of ��256 million, both relating to the Alawwal bank merger. Segment performance Half year ended 30 June 2020 Central Total UK Personal Ulster Commercial Private RBS NatWest items & NatWest Banking Bank RoI Banking Banking International Markets other (1) Group ��m ��m ��m ��m ��m ��m ��m ��m Income statement Net interest income 1,982 194 1,370 251 201 (34) (112) 3,852 Other non-interest income 203 55 633 141 58 797 46 1,933 Own credit adjustments - - - - - 53 - 53 Total income 2,185 249 2,003 392 259 816 (66) 5,838 Direct expenses - staff costs (280) (100) (360) (93) (65) (326) (572) (1,796) - other costs (104) (42) (149) (47) (27) (94) (1,116) (1,579) Indirect expenses (785) (92) (630) (101) (29) (149) 1,786 - Strategic costs - direct (1) (4) (5) - (3) (120) (331) (464) - indirect (103) (8) (70) (10) (5) (16) 212 - Litigation and conduct costs 198 1 (7) (1) 3 (2) (103) 89 Operating expenses (1,075) (245) (1,221) (252) (126) (707) (124) (3,750) Operating profit/(loss) before impairment losses 1,110 4 782 140 133 109 (190) 2,088 Impairment losses (657) (243) (1,790) (56) (46) (40) (26) (2,858) Operating profit/(loss) 453 (239) (1,008) 84 87 69 (216) (770) Additional information Return on equity (2) 10.7% (24.2%) (17.9%) 8.2% 11.8% 0.8% nm (4.4%) Cost:income ratio (2) 49.2% 98.4% 59.5% 64.3% 48.6% 86.6% nm 63.8% Total assets (��bn) 187.1 27.6 186.0 23.9 31.5 303.8 47.0 806.9 Funded assets (��bn) 187.1 27.6 186.0 23.9 31.5 122.9 44.5 623.5 Net loans to customers - amortised cost (��bn) 164.5 18.7 112.0 16.0 12.7 11.4 17.0 352.3 Loan impairment rate (2) 79bps 248bps 311bps 70bps 72bps nm nm 159bps Impairment provisions (��bn) (1.9) (0.9) (3.0) (0.1) - (0.2) - (6.1) Impairment provisions - Stage 3 (��bn) (0.9) (0.6) (1.2) - - (0.1) - (2.8) Customer deposits (��bn) 161.0 20.0 159.6 29.8 29.5 5.5 2.9 408.3 Risk-weighted assets (RWAs) (��bn) 36.7 12.8 78.3 10.4 6.8 35.1 1.4 181.5 RWA equivalent (RWAe) (��bn) 36.7 12.8 78.4 10.4 6.9 37.2 1.5 183.9 Employee numbers (FTEs - thousands) 17.5 2.8 10.2 2.0 1.8 5.0 23.4 62.7 Average interest earning assets (��bn) 178.6 25.7 156.5 23.0 31.2 38.0 nm 477.9 Net interest margin 2.23% 1.52% 1.76% 2.20% 1.30% (0.18%) nm 1.62% Third party customer asset rate (3) 2.96% 2.27% 2.86% 2.65% 2.65% nm nm nm Third party customer funding rate (3) (0.28%) (0.12%) (0.37%) (0.25%) (0.06%) nm nm nm For the notes to this table, refer to page 18. Segment performance Half year ended 30 June 2019 Central Total UK Personal Ulster Commercial Private RBS NatWest items & NatWest Banking Bank RoI Banking Banking International Markets other (1) Group ��m ��m ��m ��m ��m ��m ��m ��m Income statement Net interest income 2,084 200 1,424 261 242 (122) (85) 4,004 Other non-interest income 363 82 741 123 68 667 80 2,124 Own credit adjustments - 1 - - - (47) - (46) Strategic disposals - - - - - 444 591 1,035 Total income 2,447 283 2,165 384 310 942 586 7,117 Direct expenses - staff costs (300) (104) (356) (82) (59) (349) (591) (1,841) - other costs (136) (48) (155) (35) (23) (86) (1,087) (1,570) Indirect expenses (716) (90) (587) (96) (27) (165) 1,681 - Strategic costs - direct 4 (9) (32) - (5) (49) (538) (629) - indirect (75) (10) (86) (17) (5) (30) 223 - Litigation and conduct costs (6) (20) (46) (2) - 1 13 (60) Operating expenses (1,229) (281) (1,262) (232) (119) (678) (299) (4,100) Operating profit before impairment (losses)/releases 1,218 2 903 152 191 264 287 3,017 Impairment (losses)/releases (181) 21 (202) 3 3 36 (3) (323) Operating profit 1,037 23 701 155 194 300 284 2,694 Additional information Return on equity (2) 25.6% 2.1% 8.8% 16.6% 29.7% 1.0% nm 12.1% Cost:income ratio (2) 50.2% 99.3% 56.9% 60.4% 38.4% 72.0% nm 57.2% Total assets (��bn) 173.9 26.4 165.6 21.9 30.4 278.9 32.8 729.9 Funded assets (��bn) 173.9 26.4 165.6 21.9 30.4 133.4 32.7 584.3 Net loans to customers - amortised cost (��bn) 151.9 19.0 101.4 14.7 13.6 9.3 0.7 310.6 Loan impairment rate (2) 24bps (21)bps 39bps (4)bps (4)bps nm nm 21bps Impairment provisions (��bn) (1.3) (0.9) (1.3) - - (0.2) - (3.7) Impairment provisions - Stage 3 (��bn) (0.8) (0.8) (1.0) - - (0.2) - (2.8) Customer deposits (��bn) 147.5 19.0 133.4 28.0 28.1 2.8 2.8 361.6 Risk-weighted assets (RWAs) (��bn) 37.0 14.2 77.8 9.7 6.9 41.4 1.5 188.5 RWA equivalent (RWAe) (��bn) 38.1 14.5 79.3 9.7 7.0 46.1 1.8 196.5 Employee numbers (FTEs - thousands) 19.3 3.1 10.4 1.9 1.8 5.0 25.1 66.6 Average interest earning assets (��bn) 163.8 24.7 145.3 21.2 28.8 33.3 nm 440.3 Net interest margin 2.57% 1.63% 1.98% 2.48% 1.69% (0.73%) nm 1.83% Third party customer asset rate (3) 3.28% 2.30% 3.20% 2.95% 1.75% nm nm nm Third party customer funding rate (3) (0.37%) (0.17%) (0.43%) (0.44%) (0.14%) nm nm nm For the notes to this table, refer to page 18. Segment performance Quarter ended 30 June 2020 Central Total UK Personal Ulster Commercial Private RBS NatWest items & NatWest Banking Bank RoI Banking Banking International Markets other (1) Group ��m ��m ��m ��m ��m ��m ��m ��m Income statement Net interest income 975 97 696 124 90 6 (78) 1,910 Other non-interest income 60 23 299 67 25 369 25 868 Own credit adjustments - - - - - (102) - (102) Total income 1,035 120 995 191 115 273 (53) 2,676 Direct expenses - staff costs (139) (52) (176) (46) (33) (159) (272) (877) - other costs (45) (18) (71) (23) (13) (37) (577) (784) Indirect expenses (393) (46) (324) (54) (15) (75) 907 - Strategic costs - direct (1) (3) - - (2) (86) (241) (333) - indirect (69) (4) (34) (5) (2) (8) 122 - Litigation and conduct costs 101 1 (6) (1) - - (10) 85 Operating expenses (546) (122) (611) (129) (65) (365) (71) (1,909) Operating profit/(loss) before impairment losses 489 (2) 384 62 50 (92) (124) 767 Impairment losses (360) (216) (1,355) (27) (31) (45) (22) (2,056) Operating profit/(loss) 129 (218) (971) 35 19 (137) (146) (1,289) Additional information Return on equity (2) 5.7% (44.5%) (32.5%) 6.6% 4.3% (7.1%) nm (12.4%) Cost:income ratio (2) 52.8% 101.7% 59.9% 67.5% 56.5% 133.7% nm 70.9% Total assets (��bn) 187.1 27.6 186.0 23.9 31.5 303.8 47.0 806.9 Funded assets (��bn) 187.1 27.6 186.0 23.9 31.5 122.9 44.5 623.5 Net loans to customers - amortised cost (��bn) 164.5 18.7 112.0 16.0 12.7 11.4 17.0 352.3 Loan impairment rate (2) 87bps 441bps 472bps 67bps 97bps nm nm 229bps Impairment provisions (��bn) (1.9) (0.9) (3.0) (0.1) - (0.2) - (6.1) Impairment provisions - Stage 3 (��bn) (0.9) (0.6) (1.2) - - (0.1) - (2.8) Customer deposits (��bn) 161.0 20.0 159.6 29.8 29.5 5.5 2.9 408.3 Risk-weighted assets (RWAs) (��bn) 36.7 12.8 78.3 10.4 6.8 35.1 1.4 181.5 RWA equivalent (RWAe) (��bn) 36.7 12.8 78.4 10.4 6.9 37.2 1.5 183.9 Employee numbers (FTEs - thousands) 17.5 2.8 10.2 2.0 1.8 5.0 23.4 62.7 Average interest earning assets (��bn) 179.8 26.4 164.6 23.3 31.5 39.9 nm 497.4 Net interest margin 2.18% 1.48% 1.70% 2.14% 1.15% 0.06% nm 1.54% Third party customer asset rate (3) 2.86% 2.27% 2.70% 2.52% 2.58% nm nm nm Third party customer funding rate (3) (0.20%) (0.12%) (0.33%) (0.13%) (0.01%) nm nm nm For the notes to this table, refer to page 18. Segment performance Quarter ended 31 March 2020 Central Total UK Personal Ulster Commercial Private RBS NatWest items & NatWest Banking Bank RoI Banking Banking International Markets other (1) Group ��m ��m ��m ��m ��m ��m ��m ��m Income statement Net interest income 1,007 97 674 127 111 (40) (34) 1,942 Other non-interest income 143 32 334 74 33 428 21 1,065 Own credit adjustments - - - - - 155 - 155 Total income 1,150 129 1,008 201 144 543 (13) 3,162 Direct expenses - staff costs (141) (48) (184) (47) (32) (167) (300) (919) - other costs (59) (24) (78) (24) (14) (57) (539) (795) Indirect expenses (392) (46) (306) (47) (14) (74) 879 - Strategic costs - direct - (1) (5) - (1) (34) (90) (131) - indirect (34) (4) (36) (5) (3) (8) 90 - Litigation and conduct costs 97 - (1) - 3 (2) (93) 4 Operating expenses (529) (123) (610) (123) (61) (342) (53) (1,841) Operating profit/(loss) before impairment (losses)/releases 621 6 398 78 83 201 (66) 1,321 Impairment (losses)/releases (297) (27) (435) (29) (15) 5 (4) (802) Operating profit/(loss) 324 (21) (37) 49 68 206 (70) 519 Additional information Return on equity (2) 15.5% (4.2%) (2.5%) 9.8% 19.4% 8.7% nm 3.6% Cost:income ratio (2) 46.0% 95.3% 59.1% 61.2% 42.4% 63.0% nm 57.7% Total assets (��bn) 186.3 26.3 178.3 23.4 33.2 335.7 34.4 817.6 Funded assets (��bn) 186.3 26.3 178.3 23.4 33.2 129.6 31.8 608.9 Net loans to customers - amortised cost (��bn) 163.7 18.7 109.2 15.8 13.6 12.2 18.1 351.3 Loan impairment rate (2) 72bps 56bps 157bps 73bps 44bps nm nm 90bps Impairment provisions (��bn) (1.6) (0.7) (1.7) (0.1) - (0.1) - (4.2) Impairment provisions - Stage 3 (��bn) (0.9) (0.6) (1.0) - - (0.1) - (2.6) Customer deposits (��bn) 152.8 19.3 143.9 29.0 32.3 5.7 1.8 384.8 Risk-weighted assets (RWAs) (��bn) 38.2 12.7 76.9 10.3 6.8 38.9 1.4 185.2 RWA equivalent (RWAe) (��bn) 38.2 12.7 77.0 10.3 7.1 42.2 1.7 189.2 Employee numbers (FTEs - thousands) 17.8 2.9 10.0 2.0 1.8 5.1 23.6 63.2 Average interest earning assets (��bn) 177.4 24.9 148.4 22.7 30.9 36.1 nm 458.5 Net interest margin 2.28% 1.56% 1.83% 2.25% 1.45% (0.45%) nm 1.70% Third party customer asset rate (3) 3.06% 2.28% 3.03% 2.77% 2.79% nm nm nm Third party customer funding rate (3) (0.37%) (0.13%) (0.42%) (0.38%) (0.11%) nm nm nm For the notes to this table, refer to page 18. Segment performance Quarter ended 30 June 2019 Central Total UK Personal Ulster Commercial Private RBS NatWest items & NatWest Banking Bank RoI Banking Banking International Markets other (1) Group ��m ��m ��m ��m ��m ��m ��m ��m Income statement Net interest income 1,032 102 716 129 125 (91) (42) 1,971 Other non-interest income 170 35 367 62 34 338 71 1,077 Own credit adjustments - 1 - - - (5) 1 (3) Strategic disposals - - - - - 444 591 1,035 Total income 1,202 138 1,083 191 159 686 621 4,080 Direct expenses - staff costs (148) (53) (175) (41) (31) (176) (281) (905) - other costs (77) (22) (80) (17) (10) (38) (524) (768) Indirect expenses (317) (42) (269) (45) (13) (76) 762 - Strategic costs - direct 4 (4) (12) - (3) (31) (388) (434) - indirect (49) (5) (50) (10) (3) (17) 134 - Litigation and conduct costs (7) (19) (36) (2) - (6) 15 (55) Operating expenses (594) (145) (622) (115) (60) (344) (282) (2,162) Operating profit/(loss) before impairment (losses)/releases 608 (7) 461 76 99 342 339 1,918 Impairment (losses)/releases (69) 10 (197) (1) 2 20 (2) (237) Operating profit 539 3 264 75 101 362 337 1681 Additional information Return on equity (2) 26.5% 0.6% 6.2% 15.9% 30.8% 4.4% nm 15.8% Cost:income ratio (2) 49.4% 105.1% 56.1% 60.2% 37.7% 50.1% nm 52.6% Total assets (��bn) 173.9 26.4 165.6 21.9 30.4 278.9 32.8 729.9 Funded assets (��bn) 173.9 26.4 165.6 21.9 30.4 133.4 32.7 584.3 Net loans to customers - amortised cost (��bn) 151.9 19.0 101.4 14.7 13.6 9.3 0.7 310.6 Loan impairment rate (2) 18bps (20)bps 77bps 3bps (6)bps nm nm 30bps Impairment provisions (��bn) (1.3) (0.9) (1.3) - - (0.2) - (3.7) Impairment provisions - Stage 3 (��bn) (0.8) (0.8) (1.0) - - (0.2) - (2.8) Customer deposits (��bn) 147.5 19.0 133.4 28.0 28.1 2.8 2.8 361.6 Risk-weighted assets (RWAs) (��bn) 37.0 14.2 77.8 9.7 6.9 41.4 1.5 188.5 RWA equivalent (RWAe) (��bn) 38.1 14.5 79.3 9.7 7.0 46.1 1.8 196.5 Employee numbers (FTEs - thousands) 19.3 3.1 10.4 1.9 1.8 5.0 25.1 66.6 Average interest earning assets (��bn) 164.8 25.3 146.1 21.2 29.8 34.4 nm 444.8 Net interest margin 2.51% 1.62% 1.97% 2.44% 1.68% (1.05%) nm 1.78% Third party customer asset rate (3) 3.25% 2.29% 3.18% 2.89% 1.79% nm nm nm Third party customer funding rate (3) (0.38%) (0.15%) (0.42%) (0.45%) (0.13%) nm nm nm Notes: (1) Central items & other includes unallocated transactions, including volatile items under IFRS, items related to the Alawwal bank merger (2019 only) and RMBS related items. (2) Refer to the Appendix for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant. (3) Ulster Bank Ireland DAC(UBI DAC) and RBS International manage their funding and liquidity requirements locally. Their liquidity asset portfolios and non-customer related funding sources are included within their net interest margin, but excluded from their third party asset and liability rates. Capital and risk management Page Capital, liquidity and funding risk 19 Credit risk Economic loss drivers 28 Credit risk - Banking activities Segmental exposure 37 Sector analysis 42 Personal portfolio 49 CRE 52 Flow statements 54 Asset quality 66 Credit risk - Trading activities 70 Market risk Non-traded 73 Traded 76 Other risks 77 Certain disclosures in this section are within the scope of EY's review report and are marked accordingly by a bracket in the right hand margin. Capital, liquidity and funding risk Introduction The economic impact of the Covid-19 pandemic was significant. While liquidity, capital and funding were closely monitored throughout, NatWest Group benefited from its strong positions - particularly in relation to CET1 - going into the crisis. Prudent risk management continues to be important as the full economic effects of the global pandemic unfold. Key developments �� The CET1 ratio increased by 100 basis points to 17.2% primarily due to the release of ��1.3 billion following the cancellation of the proposed 2019 dividend payments and associated pension contribution in Q1 2020, as announced by the Board in response to Covid-19. The attributable loss in the period was ��705 million however the IFRS 9 transitional arrangements on expected credit losses provided relief of ��1,578 million. �� RWAs increased by ��2.3 billion in H1 2020. Credit Risk RWAs increased by ��4.7 billion largely due to increased utilisation of existing facilities, new lending under the Government lending initiatives and revision of risk parameters in Commercial Banking. There were offsetting credit risk reductions in UK Personal Banking and NatWest Markets segments. Market Risk RWAs decreased by ��1.5 billion, primarily reflecting movements in risks-not-in-VaR (RNIV) and Incremental Risk Charge (IRC) as well as a reduction in non-modelled market risk during the period. �� The CRR leverage ratio remained as 5.1% due to an increase in Tier 1 capital being offset by increases in balance sheet exposures. �� The total loss absorbing capital ratio of 36.8% is above the Bank of England (BOE) requirement of 21.9% at 1 January 2020, including CRDIV combined buffer requirements. �� In the first half of 2020, NatWest Group plc issued $1.6 billion (��1.3 billion) new MREL eligible senior debt, $1.5 billion (��1.2 billion) of AT1 and ��1.0 billion Tier 2 securities. NatWest Group plc made a redemption announcement on $2 billion (��1.3 billion) AT1 in June 2020 which have been excluded from capital and will be redeemed in August 2020. CET1 reduced by ��345 million due to the FX impact on the redemption announcement. In subsidiaries, a ��1.25 billion covered bond from National Westminster Bank Plc matured and NatWest Markets Plc issued two benchmark transactions, in the form of a ��1.0 billion five - year fixed rate EMTN and a $1.0 billion three - year fixed rate US Rule 144A programme issuance. �� NatWest Group participation in the BOE Term Funding Scheme (TFS) reduced by ��5 billion and the Group drew down ��5 billion under the BOE Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME) during H1 2020. �� UBI DAC borrowed ��3.1 billion from the European Central Bank (ECB) Targeted longer-term refinancing operation (TLTRO 3) and repaid ��2.0 billion of TLTRO 2. �� H1 2020 published LCR ratio of 166% is 14% higher than FY 2019 driven by increased deposits in NatWest Holdings Limited and Treasury issuance including AT1, Tier 2 and MREL, partially offset by NatWest Holdings Limited lending growth driven by mortgages and government schemes lending. �� The net stable funding ratio was at 144% compared to 141% for FY 2019. The increase is mainly due to deposits growth. Capital and risk management Capital, liquidity and funding risk continued In response to the Covid-19 pandemic, a number of relief measures to alleviate the financial stability impact have been announced and recommended by regulatory and supervisory bodies. One significant announcement was on 26 June when the European Parliament passed an amended regulation to the CRR in response to the Covid-19 pandemic ("the CRR Covid-19 amendment"); NatWest Group has applied a number of the CRR amendments for H1 2020 reporting. The impact on capital and leverage of the CRR amendment and other relief measures are set out below. �� IFRS 9 Transition - NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9; it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS 9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 June 2020 is ��1.6 billion. �� UK Leverage exposure - The Prudential Regulation Authority (PRA) announced the ability for firms to apply for a modification by consent to permit the netting of regular-way purchase and sales settlement balances. The PRA also offered a further modification that gave an exclusion from the UK Leverage Exposure for Bounce Back Loans (BBL) and other 100% guaranteed government Covid-19 lending schemes. The NatWest Group has received permission to apply these and it has reduced the UK leverage exposure by approximately ��6.9 billion and ��5.2 billion respectively. �� CRR Leverage exposure - The CRR Covid-19 amendment accelerated a change in CRR2 to allow the netting of regular-way purchase and sales settlement balances. The NatWest Group has applied this and it has reduced the CRR leverage exposure by approximately ��6.9 billion. �� Infrastructure and SME RWA supporting factors - The CRR Covid-19 amendment allowed an acceleration of the planned changes to the SME supporting factor and the introduction of an Infrastructure supporting factor, with these now being applicable with immediate effect. NatWest Group intends to implement these beneficial changes which will reduce RWAs but has not yet concluded the required operational change project to implement. �� Prudential Valuation Adjustment (PVA) - The European Commission amended the prudent valuation Regulatory Technical Standard such that, due to the exceptional levels of market volatility, the aggregation factor was increased from 50% to 66% until 31 December 2020. This has reduced NatWest Group's PVA deduction by approximately ��100 million. �� Market Risk Value-at-risk (VaR) model capital multiplier - The PRA and De Nederlandsche Bank (DNB) have announced temporary approaches in relation to the exceptional levels of market volatility which has resulted in an increase in VaR model back testing exceptions in NatWest Markets Plc and NatWest Markets N.V.. Under the PRA temporary approach, capital multiplier increases due to new back testing exceptions which have resulted in an increase in capital requirements can be offset through a commensurate reduction in RNIV capital requirements. Under the DNB approach, back testing exceptions have been allowed to be excluded from the capital multiplier. The PRA approach resulted in approximately ��2,300 million benefit and the DNB approach a benefit of approximately ��100 million. �� Capital buffers - Many countries have recently announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020. Capital and risk management Capital, liquidity and funding risk continued Maximum Distributable Amount (MDA) and Minimum Capital Requirements NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress. Where the CET 1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments, known as the MDA. Note that different capital requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable. The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements. Type CET1 Total Tier 1 Total capital Pillar 1 requirements 4.5% 6.0% 8.0% Pillar 2A requirements 1.9% 2.6% 3.4% Minimum Capital Requirements 6.4% 8.6% 11.4% Capital conservation buffer 2.5% 2.5% 2.5% Countercyclical capital buffer (1) 0.0% 0.0% 0.0% G-SIB buffer (2) - - - MDA Threshold 8.9% na na Subtotal (3) 8.9% 11.1% 13.9% Capital ratios at 30 June 2020 17.2% 19.4% 22.5% Headroom (4) 8.3% 8.3% 8.6% Notes: (1) Many countries have recently announced reductions in their countercyclical capital buffer rates in response to Covid-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020. (2) (3) (4) In November 2018 the Financial Stability Board announced that NatWest Group is no longer a G-SIB. From 1 January 2020, NatWest Group was released from this global buffer requirement. The prevailing combined buffer requirements for NatWest Group equate to the aggregate of the capital conservation buffer and countercyclical buffer. 8.9% CET1 represents the MDA threshold for NatWest Group. The headroom does not reflect excess distributable capital and may vary over time. Capital and risk management Capital, liquidity and funding risk continued Capital and leverage ratios The table below sets out the key capital and leverage ratios. CRR basis (1) 30 June 31 December Capital adequacy ratios 2020 2019 CET1 (%) 17.2 16.2 Tier 1 (%) 19.4 18.5 Total (%) 22.5 21.2 Capital ��m ��m Tangible equity 32,006 32,371 Expected loss less impairment provisions - (167) Prudential valuation adjustment (370) (431) Deferred tax assets (844) (757) Own credit adjustments (244) (118) Pension fund assets (588) (474) Cash flow hedging reserve (341) (35) Foreseeable ordinary and special dividends - (968) Foreseeable charges - (365) Adjustments under IFRS 9 transitional arrangements 1,578 - Other deductions - (2) Total deductions (809) (3,317) CET1 capital 31,197 29,054 AT1 capital 3,990 4,051 Tier 1 capital 35,187 33,105 Tier 2 capital 5,596 4,900 Total regulatory capital 40,783 38,005 Risk-weighted assets Credit risk 135,700 131,000 Counterparty credit risk 12,400 12,600 Market risk 11,500 13,000 Operational risk 21,900 22,600 Total RWAs 181,500 179,200 Leverage Cash and balances at central banks 100,300 77,900 Trading assets 72,400 76,700 Derivatives 183,400 150,000 Financial assets 428,100 399,100 Other assets 22,700 19,300 Total assets 806,900 723,000 Derivatives - netting and variation margin (194,400) (157,800) - potential future exposures 44,000 43,000 Securities financing transactions gross up 1,300 2,200 Other off balance sheet items 43,500 42,500 Regulatory deductions and other adjustments (14,600) (9,000) CRR leverage exposure 686,700 643,900 CRR leverage ratio % (2) 5.1 5.1 UK leverage exposure 585,100 570,300 UK leverage ratio % (3) 6.0 5.8 Notes: (1) Based on CRR end point including the IFRS 9 transitional adjustment of ��1.6 billion. Excluding this adjustment, the CET 1 ratio would be 16.3%. (2) Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment) and leverage exposure under the CRR Delegated Act. Excluding the IFRS 9 transitional adjustment, the leverage ratio would be 4.9%. (3) Presented on CRR end point Tier 1 capital (including IFRS 9 transitional adjustment). The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 5.8%. Capital and risk management Capital, liquidity and funding risk continued Capital flow statement The table below analyses the movement in CET1, AT1 and Tier 2 capital for the half year ended 30 June 2020. CET1 AT1 Tier 2 Total ��m ��m ��m ��m At 1 January 2020 29,054 4,051 4,900 38,005 Attributable loss for the period (705) - - (705) Own credit (126) - - (126) Share capital and reserve movements in respect of employee share schemes (46) - - (46) Foreign exchange reserve 466 - - 466 FVOCI reserves (218) - - (218) Goodwill and intangibles deduction 20 - - 20 Deferred tax assets (87) - - (87) Prudential valuation adjustments 61 - - 61 Expected loss less impairment 167 - - 167 New issues of capital instruments - 1,216 1,000 2,216 Redemption of capital instruments - (1,277) - (1,277) Net dated subordinated debt/grandfathered instruments - - (756) (756) Foreign exchange movements (355) - 452 97 Foreseeable ordinary and special dividends 968 - - 968 Foreseeable charges 365 - - 365 Adjustment under IFRS 9 transitional arrangements 1,578 - - 1,578 Other movements 55 - - 55 At 30 June 2020 31,197 3,990 5,596 40,783 Key points �� NatWest Group has elected to take advantage of the transitional regulatory capital rules in respect of expected credit losses following the adoption of IFRS 9, it had previously had a negligible impact up to Q4 2019. The CRR Covid-19 amendment now requires a full CET1 addback for the movement in stage 1 and stage 2 ECL from 1 January 2020 for the next two years. The IFRS9 transitional arrangement impact on NatWest Group CET1 regulatory capital at 30 June 2020 is ��1.6 billion. �� Foreign exchange movements include a ��345 million charge, in relation to a $2 billion AT1 redemption announcement on 28 June 2020. Risk-weighted assets The table below analyses the movement in RWAs during the half year, by key drivers. Counterparty Operational Credit risk credit risk Market risk risk Total ��bn ��bn ��bn ��bn ��bn At 1 January 2020 131.0 12.6 13.0 22.6 179.2 Foreign exchange movement 2.1 0.4 - - 2.5 Business movement 2.8 (0.6) 1.0 (0.7) 2.5 Risk parameter changes (1) (0.6) - - - (0.6) Methodology changes (2) 0.3 - (0.1) - 0.2 Model updates 0.1 - - - 0.1 Other movements (3) - - (2.4) - (2.4) At 30 June 2020 135.7 12.4 11.5 21.9 181.5 The table below analyses segmental RWAs. UK Personal Ulster Commercial Private NatWest Central Banking Bank RoI Banking Banking RBSI Markets items & other Total Total RWAs ��bn ��bn ��bn ��bn ��bn ��bn ��bn ��bn At 1 January 2020 37.8 13.0 72.5 10.1 6.5 37.9 1.4 179.2 Foreign exchange movement - 0.7 0.8 - 0.1 0.9 - 2.5 Business movement (0.3) (0.5) 4.5 0.3 0.2 (1.4) (0.3) 2.5 Risk parameter changes (1) (0.8) (0.6) 0.6 - - 0.2 - (0.6) Methodology changes (2) - - (0.3) - - 0.2 0.3 0.2 Model updates - 0.2 (0.1) - - - - 0.1 Other movements (3) - - 0.3 - - (2.7) - (2.4) At 30 June 2020 36.7 12.8 78.3 10.4 6.8 35.1 1.4 181.5 Credit risk 29.1 11.7 69.5 9.1 5.8 9.1 1.4 135.7 Counterparty credit risk 0.1 - 0.2 0.1 - 12.0 - 12.4 Market risk 0.1 0.1 0.1 - - 11.2 - 11.5 Operational risk 7.4 1.0 8.5 1.2 1.0 2.8 - 21.9 Total RWAs 36.7 12.8 78.3 10.4 6.8 35.1 1.4 181.5 Notes: (1) Risk parameter changes relate to changes in credit quality metrics of customers and counterparties (such as probability of default and loss given default) as well as internal ratings based model changes relating to counterparty credit risk in line with European Banking Authority Pillar 3 Guidelines. (2) The new securitisation framework has been fully implemented from 1 January 2020 and all positions have moved to the new framework. (3) The decrease in Other movements reflects the temporary reduction permitted by the PRA to offset the impact of multiplier increases (included in Business movement). The offset covers all metrics affected by the multiplier increase, including CVAs. Other movements also reflect transfers between segments, primarily reflecting a transfer of Insurance related assets from NatWest Markets to Commercial Banking. Capital and risk management Capital, liquidity and funding risk continued Key point �� RWAs increased by ��2.3 billion in H1 2020, mainly reflecting increases in credit risk of ��4.7 billion. There were offsetting decreases in market risk by ��1.5 billion, operational risk by ��0.7 billion and counterparty credit risk by ��0.2 billion. The increase in credit risk RWAs primarily reflected increases in Commercial Banking due to drawdowns on existing facilities, new lending under the Government lending initiatives and deterioration of risk parameters. There were offsetting credit risk reductions in Personal Banking mainly due to revision of risk parameters as well as in the NatWest Markets segment in line with business strategy. Market Risk RWAs decreased by ��1.5 billion, primarily reflecting movements in RNIVs and IRC as well as a reduction in non-modelled market risk during the period. Credit risk exposure at default (EAD) and risk-weighted assets (RWAs) The table below analyses credit risk RWAs and EADs, by on and off balance sheet. UK Personal Ulster Commercial Private RBS NatWest Central items Banking Bank RoI Banking Banking International Markets & other Total 30 June 2020 ��bn ��bn ��bn ��bn ��bn ��bn ��bn ��bn EAD On balance sheet 235.6 28.3 152.6 21.4 31.1 40.7 0.7 510.4 Off balance sheet 27.2 2.2 29.9 0.3 4.8 6.2 0.4 71.0 Total 262.8 30.5 182.5 21.7 35.9 46.9 1.1 581.4 RWAs On balance sheet 26.4 10.6 56.3 8.9 4.5 7.0 1.3 115.0 Off balance sheet 2.7 1.1 13.2 0.2 1.3 2.1 0.1 20.7 Total 29.1 11.7 69.5 9.1 5.8 9.1 1.4 135.7 31 December 2019 EAD On balance sheet 221.8 26.0 131.4 20.3 31.7 35.4 0.7 467.3 Off balance sheet 30.2 2.2 27.2 0.3 3.3 7.5 0.4 71.1 Total 252.0 28.2 158.6 20.6 35.0 42.9 1.1 538.4 RWAs On balance sheet 27.1 10.8 50.8 8.7 4.7 6.4 1.3 109.8 Off balance sheet 3.1 1.1 12.5 0.2 1.0 3.2 0.1 21.2 Total 30.2 11.9 63.3 8.9 5.7 9.6 1.4 131.0 Capital resources PRA transitional basis 30 June 31 December 2020 2019 ��m ��m Shareholders' equity (excluding non-controlling interests) Shareholders' equity 43,103 43,547 Preference shares - equity (494) (496) Other equity instruments (4,001) (4,058) 38,608 38,993 Regulatory adjustments and deductions Own credit (244) (118) Defined benefit pension fund adjustment (588) (474) Cash flow hedging reserve (341) (35) Deferred tax assets (844) (757) Prudential valuation adjustments (370) (431) Goodwill and other intangible assets (6,602) (6,622) Expected losses less impairments - (167) Foreseeable ordinary and special dividends - (968) Foreseeable charges - (365) Adjustment under IFRS9 transition arrangements 1,578 - Other regulatory adjustments - (2) (7,411) (9,939) CET1 capital 31,197 29,054 Additional Tier (AT1) capital Qualifying instruments and related share premium 3,990 4,051 Qualifying instruments and related share premium to phase out 1,424 1,366 Qualifying instruments issued by subsidiaries and held by third parties subject to phase out 140 140 AT1 capital 5,554 5,557 Tier 1 capital 36,751 34,611 Qualifying Tier 2 capital Qualifying instruments and related share premium 5,588 4,867 Qualifying instruments issued by subsidiaries and held by third parties 1,348 1,345 Tier 2 capital 6,936 6,212 Total regulatory capital 43,687 40,823 Capital and risk management Capital, liquidity and funding risk continued Loss absorbing capital The following table illustrates the components of estimated loss absorbing capital (LAC) in NatWest Group plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria. 30 June 2020 31 December 2019 Balance Balance Par sheet Regulatory LAC Par sheet Regulatory LAC value (1) value value (2) value (3) value (1) value value (2) value (3) ��bn ��bn ��bn ��bn ��bn ��bn ��bn ��bn CET1 capital (4) 31.2 31.2 31.2 31.2 29.1 29.1 29.1 29.1 Tier 1 capital: end-point CRR compliant AT1 of which: NatWest Group (holdco) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 of which: NatWest Group operating subsidiaries (opcos) - - - - - - - - 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Tier 1 capital: end-point CRR non compliant of which: holdco 1.5 1.7 1.5 0.5 1.4 1.6 1.4 0.5 of which: opcos 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 1.6 1.8 1.6 0.6 1.5 1.7 1.5 0.6 Tier 2 capital: end-point CRR compliant of which: holdco 9.3 9.7 5.5 6.2 6.2 6.4 4,8 4.7 of which: opcos 0.5 0.5 0.1 0.4 0.5 0.5 0.1 0.4 9.8 10.2 5.6 6.6 6.7 6.9 4.9 5.1 Tier 2 capital: end-point CRR non compliant of which: holdco 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 of which: opcos 1.6 1.9 1.2 1.7 1.6 1.8 1.2 1.6 1.7 2.0 1.3 1.8 1.7 1.9 1.3 1.7 Senior unsecured debt securities issued by: NatWest Group holdco 21.0 22.5 - 22.5 18.6 19.2 - 19.2 NatWest Group opcos 22.5 23.0 - - 21.1 20.7 - - 43.5 45.5 - 22.5 39.7 39.9 - 19.2 Total 91.8 94.7 43.7 66.7 82.7 83.5 40.8 59.7 RWAs 181.5 179.2 UK leverage exposure 585.1 570.3 LAC as a ratio of RWAs 36.8% 33.3% LAC as a ratio of UK leverage exposure 11.4% 10.5% Notes: (1) Par value reflects the nominal value of securities issued. (2) Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria. (3) LAC value reflects NatWest Group's interpretation of the Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such NatWest Group estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes eligible Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments. (4) Corresponding shareholders' equity was ��43.1 billion (2019 - ��43.5 billion). (5) Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR. (6) NatWest Group is no longer recognised as a G-SII from 1 January 2020 and is therefore not subject to the CRR MREL requirement as of this date which references CRR2 leverage exposure. To aid comparison the leverage exposure, and resulting ratio, is disclosed according to the BoE leverage framework for all time periods. Capital and risk management Capital, liquidity and funding risk continued Loss absorbing capital The following table illustrates the components of the stock of outstanding issuance in NatWest Group and its operating subsidiaries including external and Internal issuances. NatWest NatWest NWM NatWest Holdings NWB RBS UBI NWM Markets Securities RBSI Group plc Limited Plc plc DAC Plc N.V. Inc. Limited ��bn ��bn ��bn ��bn ��bn ��bn ��bn ��bn ��bn Tier 1 (Inclusive of AT1) Externally issued 5.8 - 0.1 - - - - - - Tier 1 (Inclusive of AT1) Internally issued - 3.7 2.4 1.0 - 1.1 0.2 - 0.3 5.8 3.7 2.5 1.0 - 1.1 0.2 - 0.3 Tier 2 Externally issued 9.8 - 1.2 - 0.1 0.6 0.6 - - Tier 2 Internally issued 0.0 5.4 3.5 1.6 0.5 2.0 0.1 0.3 - 9.8 5.4 4.7 1.6 0.6 2.6 0.7 0.3 - Senior unsecured Externally issued 22.5 - - - - - - - - Senior unsecured Internally issued - 9.8 4.4 0.4 0.5 5.6 - - - 22.5 9.8 4.4 0.4 0.5 5.6 - - - Total outstanding issuance 38.1 18.9 11.6 3.0 1.1 9.3 0.9 0.3 0.3 Notes: (1) The balances are the IFRS balance sheet carrying amounts, which may differ from the amount which the instrument contributes to regulatory capital. Regulatory balances exclude, for example, issuance costs and fair value movements, while dated capital is required to be amortised on a straight-line basis over the final five years of maturity. (2) Balance sheet amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR. (3) Internal issuance for NWB Plc, RBS plc and UBI DAC represents AT1, Tier 2 or Senior unsecured issuance to NatWest Holdings Limited and for NWM N.V. and NWM SI to NWM Plc. (4) Senior unsecured debt category does not include CP, CD and short term/medium notes issued from NatWest Group operating subsidiaries. (5) Tier 1 (inclusive of AT1) category does not include CET 1 numbers. Funding sources The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9. 30 June 2020 31 December 2019 Short-term Long-term Short-term Long-term less than more than less than more than 1 year 1 year Total 1 year 1 year Total ��m ��m ��m ��m ��m ��m Bank deposits Repos 627 - 627 2,598 - 2,598 Other bank deposits (1) 6,706 13,786 20,492 6,688 11,207 17,895 7,333 13,786 21,119 9,286 11,207 20,493 Customer deposits Repos 1,337 - 1,337 1,765 - 1,765 Non-bank financial institutions 54,015 146 54,161 48,759 352 49,111 Personal 196,312 904 197,216 183,124 1,210 184,334 Corporate 155,460 94 155,554 133,450 587 134,037 407,124 1,144 408,268 367,098 2,149 369,247 Trading liabilities (2) Repos (3) 23,767 - 23,767 27,885 - 27,885 Derivative collateral 27,139 - 27,139 21,509 - 21,509 Other bank customer deposits 1,111 981 2,092 710 896 1,606 Debt securities in issue - Medium term notes 829 1,255 2,084 659 1,103 1,762 52,846 2,236 55,082 50,763 1,999 52,762 Other financial liabilities Customer deposits 168 182 350 - - - Debt securities in issue: Commercial papers and certificates of deposit 6,656 97 6,753 4,272 6 4,278 Medium term notes 4,072 32,585 36,657 4,592 29,262 33,854 Covered bonds 1,907 2,991 4,898 3,051 2,897 5,948 Securitisation - 1,023 1,023 - 1,140 1,140 12,803 36,878 49,681 11,915 33,305 45,220 Subordinated liabilities 1,798 11,760 13,558 160 9,819 9,979 Total funding 481,904 65,804 547,708 439,222 58,479 497,701 Of which: available in resolution (4) - 31,063 31,063 - 26,168 26,168 Notes: (1) Includes ��5.0 billion (31 December 2019 - ��10.0 billion) relating to Term Funding Scheme participation, ��5.0 billion (31 December 2019 - nil) relating to Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises participation and ��2.8 billion (31 December 2019 - ��1.7 billion) relating to NatWest Group's participation in central bank financing operations under the European Central Bank's targeted Long-term financing operations. (2) Excludes short positions of ��20.5 billion (31 December 2019 - ��21.2 billion). (3) Comprises central & other bank repos of ��2.1 billion (31 December 2019 - ��6.6 billion), other financial institution repos of ��19.4 billion (31 December 2019 - ��19.0 billion) and other corporate repos of ��2.3 billion (31 December 2019 - ��2.3 billion). (4) Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of ��22.6 billion (31 December 2019 - ��19.2 billion) under debt securities in issue (senior MREL) and ��8.5 billion (31 December 2019 - ��6.9 billion) under subordinated liabilities. Capital and risk management Capital, liquidity and funding risk continued Liquidity portfolio The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory LCR categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow purposes. Liquidity value 30 June 2020 31 December 2019 NatWest NWH UK Dol NatWest NWH UK Dol Group (1) Group (2) Sub (3) Group (1) Group (2) Sub (3) ��m ��m ��m ��m ��m ��m Cash and balances at central banks 97,201 67,783 67,783 74,289 51,080 51,080 AAA to AA- rated governments 56,234 44,738 43,334 46,622 35,960 34,585 A+ and lower rated governments 1,040 - - 1,277 - - Government guaranteed issuers, Public sector entities and Government sponsored entities 261 261 96 251 251 90 International Organisations and Multilateral development banks 2,799 2,458 1,994 2,393 2,149 1,717 LCR level 1 bonds 60,334 47,457 45,424 50,543 38,360 36,392 LCR level 1 Assets 157,535 115,240 113,207 124,832 89,440 87,472 LCR level 2 Assets 127 - - - - - Non-LCR Eligible Assets - - - 88 - - Primary liquidity 157,662 115,240 113,207 124,920 89,440 87,472 Secondary liquidity (4) 84,910 84,427 81,835 74,431 74,187 73,332 Total liquidity value 242,572 199,667 195,042 199,351 163,627 160,804 Notes: (1) NatWest Group includes UK DoLSub, NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules. (2) NWH Group comprises UK DoLSub & Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules. (3) UK DoLSub comprises NatWest Group's four licensed deposit-taking UK banks within the ring-fenced bank: NWB Plc, RBS plc, Coutts & Company and Ulster Bank Limited. (4) Comprises assets eligible for discounting at the Bank of England and other central banks. (5) Liquidity portfolio table approach has been aligned to the ILAAP methodology with effect from December 2019. (6) NatWest Markets Plc liquidity portfolio is reported in the NatWest Markets Plc Company Announcement. Capital and risk management Credit risk Economic loss drivers 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 asset class and where relevant, industry sector and region) are based on a selected, small number of economic factors, (typically two to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgement. The most material economic loss drivers for the Personal portfolio include the unemployment rate, house price indices as well as the Bank of England and the European Central Bank base rates. For the Wholesale portfolio, in addition to interest and unemployment rates, national gross domestic product (GDP), stock price indices and world GDP are primary loss drivers. Economic scenarios The range of anticipated future economic conditions is described by a set of four internally developed scenarios and their respective probabilities. In a change from previous quarters, two scenarios are used instead of a single base case to describe the central outlook. This reflects increased uncertainty as a result of Covid-19 and the difficulty in identifying a consensus among economic forecasters. Those two central scenarios are complemented by an upside and a downside scenario. As at 31 December 2019, NatWest Group used five discrete scenarios to characterise the distribution of risks in the economic outlook. In contrast, the four scenarios set out below 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, asset price falls and degree of permanent damage to the economy, around which there are pronounced levels of uncertainty at this stage. The tables and commentary below provide details of the key economic loss drivers under the four scenarios. The average over the five-year horizon (2020 to 2024) for the two central scenarios and upside and downside scenarios used for expected credit loss (ECL) modelling, are set out below. It is compared with the five-year average (2020 to 2024) of the 2019 scenarios. The scenarios are specified on a quarterly frequency. The extreme points refer to worst four-quarter rate of change for GDP and house price inflation and worst quarterly figures for unemployment. Five-year average 30 June 2020 31 December 2019 Upside Central 1 Central 2 Downside Upside 2 Upside 1 Base case Downside 1 Downside 2 % % % % % % % % % UK GDP - change 1.4 1.5 0.6 (0.4) 2.4 2.2 1.6 1.3 0.9 Unemployment 5.1 5.5 7.4 9.9 3.6 3.9 4.4 4.7 5.2 House Price Inflation - change 2.0 1.4 0.5 (4.5) 4.1 3.3 1.6 0.8 (1.0) Bank of England base rate 0.2 0.2 0.1 (0.2) 1.0 0.7 0.3 - - Commercial real estate price - change (0.5) (1.2) (2.3) (8.6) 2.7 1.7 (0.1) (1.0) (3.0) Republic of Ireland GDP - change 2.9 2.6 1.8 0.2 3.9 3.6 2.8 2.4 1.9 Unemployment 5.8 6.9 9.3 11.8 3.9 4.3 4.8 5.7 6.9 House Price Inflation - change 2.3 2.2 1.1 (0.9) 5.3 4.7 2.9 2.2 1.0 European Central Bank base rate - - - - 1.6 0.9 - - - World GDP - change 2.8 2.9 2.0 1.3 3.8 3.3 2.8 2.5 2.1 Probability weight 20.0 35.0 35.0 10.0 12.7 14.8 30.0 29.7 12.7 Note: (1) Probability weights for the Republic of Ireland were symmetrical with 15% on the upside and downside. Weightings for Ulster Bank RoI reflect the relative severity of scenarios in a Republic of Ireland context. Capital and risk management Credit risk continued Five-year average GDP - annual growth Upside Central 1 Central 2 Downside Upside Central 1 Central 2 Downside UK % % % % Republic of Ireland % % % % 2020 (8.9) (14.3) (14.1) (16.9) 2020 (8.9) (10.5) (16.3) (20.3) 2021 10.1 15.4 11.2 5.3 2021 14.2 9.9 16.4 5.5 2022 2.7 3.4 2.3 6.4 2022 4.1 6.3 3.6 8.1 2023 1.6 1.6 2.0 1.7 2023 2.6 4.9 3.1 5.3 2024 1.6 1.6 1.6 1.6 2024 2.4 2.4 2.4 2.4 Unemployment rate Upside Central 1 Central 2 Downside Upside Central 1 Central 2 Downside UK % % % % Republic of Ireland % % % % Q4 2020 7.4 9.2 9.8 14.4 Q4 2020 8.2 9.7 13.2 16.6 Q4 2021 4.8 5.0 7.8 10.9 Q4 2021 5.5 7.3 10.0 13.7 Q4 2022 4.1 4.0 6.7 9.1 Q4 2022 4.7 5.6 8.3 11.0 Q4 2023 4.1 4.0 6.0 7.6 Q4 2023 4.8 5.0 6.9 8.7 Q4 2024 4.1 4.0 5.9 6.9 Q4 2024 4.9 5.1 6.8 8.5 House Price Inflation - annual growth Upside Central 1 Central 2 Downside Upside Central 1 Central 2 Downside UK % % % % Republic of Ireland % % % % 2020 (0.1) (8.9) (9.3) (11.5) 2020 (3.4) (6.0) (10.1) (13.6) 2021 0.6 3.6 (5.1) (14.9) 2021 (1.6) (6.8) (9.8) (17.3) 2022 2.4 6.4 7.1 0.7 2022 7.2 11.8 11.1 9.7 2023 3.5 3.2 6.4 1.5 2023 5.8 7.9 7.9 9.8 2024 3.8 2.6 3.5 1.6 2024 3.7 4.0 6.5 7.2 Commercial real estate price - annual change Upside Central 1 Central 2 Downside UK % % % % 2020 (7.5) (16.0) (22.1) (20.9) 2021 2.2 1.9 (0.7) (20.3) 2022 1.3 6.3 7.3 (8.1) 2023 0.4 1.5 2.2 3.2 2024 1.0 0.6 1.6 3.2 Extreme points Worst points H1 2020 H2 2019 Upside Central 1 Central 2 Downside Downside 1 Downside 2 UK % % % % % % GDP (year-on-year) (17.1) (27.7) (26.6) (28.0) (0.2) (1.8) Unemployment 7.6 9.5 12.0 15.1 4.9 5.5 House Price Inflation (year-on-year) (0.7) (13.7) (14.9) (20.4) (3.5) (8.4) Commercial real estate price (year-on-year) (10.2) (21.2) (27.2) (31.0) (8.2) (12.6) Worst points H1 2020 H2 2019 Upside Central 1 Central 2 Downside Downside 1 Downside 2 Republic of Ireland % % % % % % GDP (year-on-year) (19.0) (20.6) (32.7) (34.7) 0.5 (2.1) Unemployment 9.0 14.8 16.9 17.7 5.8 7.3 House Price Inflation (year-on-year) (8.0) (15.1) (22.3) (30.8) (2.6) (8.4) 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 impact of Covid-19 and the range of recovery paths necessitates a change of approach to assigning probability weights from that used in recent updates. Previously GDP paths for NatWest Group's scenarios were compared against a set of 1,000 model runs, following which a percentile in the distribution was established that most closely corresponded to the scenario. This approach does not produce meaningful outcomes in the current circumstances because GDP is highly volatile and highly uncertain. Capital and risk management Credit risk continued Instead, NatWest Group has subjectively applied probability weights, reflecting expert views within NatWest Group. The probability weight assignment was judged to present good coverage to the central scenarios and the potential for a far more robust recovery on the upside and exceptionally challenging outcome on the downside. A 20% weighting was applied to the upside scenario, a 35% weighting on each central scenario and a 10% weighting on the downside scenario. NatWest Group judged a downside-biased weighting as placing too much weight on negative outcomes. Use of the scenarios in Personal Banking Personal Banking follows a discrete scenario approach which means that ECL is calculated based on the probability of default (PD) and loss given default (LGD) values that arise directly from the probability weighted averages across all four economic scenarios. Use of the scenarios in Wholesale Lending The Wholesale Lending methodology is based on the concept of credit cycle indices (CCI). The CCI represents all relevant economic loss drivers for a region/industry segment aggregated into a single index value describing the loss rate conditions in the respective segment relative to its long run average. That means 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. The four economic scenarios outlined above are translated into individual projections of CCIs for each region/industry segment which are then subsequently aggregated into a single central CCI projection by calculating a weighted average according to the given scenario probabilities. The CCI projection for each economic scenario, and by extension the weighted central CCI projection, are overlaid with an additional assumption that after one to two years into the forecast period credit cycle conditions gradually revert to long-run average conditions, i.e. CCI values mean revert to zero. Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from a large number of CCI paths simulated around the central CCI projection calculated as above. 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 the discrete macro-economic scenarios alone. Business Banking, while part of the Wholesale segment, for reporting purposes, utilises the Personal Banking rather than the Wholesale Lending methodology. Covid-19 - estimating ECL in uncertain times Almost all areas of the global economy, in terms of both individuals and businesses, have been adversely affected by the unprecedented economic and social disruption resulting from Covid-19. The impact of the virus has led to the creation of significant government and central bank mechanisms to support businesses and individuals. Uncertainty remained elevated during H1 2020 and the severity of the economic impact becomes increasingly observable in key economic data such as GDP and unemployment. This crisis has created an unprecedented challenge for IFRS 9 ECL modelling, given the severity of economic shock and associated uncertainty for the future economic path coupled with the scale of government and central bank intervention and Covid-19 relief mechanisms that have altered the relationships between economic drivers and default. The NatWest Group approach to dealing with this challenge is to leverage stress test modelling insights to inform IFRS 9 model refinements to enable modelled ECL estimates. Management review of modelling approaches and outcomes continues to inform any necessary adjustments to the ECL estimates through the form of in-model adjustments or overlays/underlays, based on expert judgement including the use of available information. Management considerations included the potential severity and duration of the economic shock, including the mitigating effects of government support actions, as well the potential trajectory of the subsequent recovery. NatWest Group also considered differential impacts on portfolio and sector classes, including pronouncements from regulatory bodies regarding IFRS 9 application in the context of Covid-19, notably on significant increase in credit risk (SICR) identification. The modelling interventions described above and the severity of the MES scenarios underpinning the ECL estimate have alleviated the need for a dedicated economic uncertainty overlay. Consequently, the existing overlay for economic uncertainty at Q1 2020 of ��798 million was absorbed through the H1 2020 modelled ECL estimate. Treatment of Covid-19 relief mechanisms Use of Covid-19 relief mechanisms (for example, payment holidays, CBILS and BBLS) will not automatically merit identification of SICR and trigger a Stage 2 classification in isolation. For Personal products, where detailed information surrounding the customer situation may not be readily available, movements in account PD - which includes the effect of customer account behaviour as well as forward-looking economics - continued to be the key determinant of a SICR. This assessment was supplemented by an analysis of high-risk identifiers. Capital and risk management Credit risk continued For Wholesale customers, at H1 2020, lifetime PD deterioration remains the primary driver of SICR identification, amplified by the forward-looking economics. NatWest Group continues to provide support, where appropriate, to existing customers. Those who are deemed either to require a) a prolonged timescale to return within NatWest Group's risk appetite or b) not to be viable pre-crisis or c) not to be able to sustain their debt once the crisis is over will trigger a SICR and, if concessions are sought, be categorised as forborne, in line with regulatory guidance. As some of the government support mechanisms conclude, NatWest Group anticipates further credit deterioration in the portfolios. 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. A key factor would be a more adverse deterioration in GDP and unemployment in the economies in which NatWest Group operates, but also, among others: �� The timing and nature of governmental exit plans from lockdown, notably in UK and the Republic of Ireland, and any future repeated lockdown requirements. �� The progress of the pandemic, with potential for changes in worker/consumer behaviour and sickness levels. �� The efficacy of the various government support initiatives in terms of their ability to defray customer defaults is yet to be proven, notably over an extended period. �� Any further damage to certain supply chains, most notably in the case of any re-tightening of lockdown rules but also delays caused by social distancing measures and possible export/import controls. �� The level of revenues lost by corporate clients and pace of recovery of those revenues may affect NatWest Group's clients' ability to service their borrowing, especially in those sectors most exposed to the impacts of Covid-19. �� Higher unemployment if companies fail to restart jobs after periods of staff furlough. This could potentially lead to further ECL increases. However, the income statement impact of this will be mitigated to some extent by the forward-looking provisions taken at H1 2020. Model performance To date, model performance monitoring has not identified any noticeable increases in default or loss rates in Wholesale Lending or Personal Banking. This is not unexpected given the recent impact of Covid-19 and the implementation of government interventions aiming to delay and/or mitigate its impact on the economy. As a result, it is too early to meaningfully assess model performance against the actual impact. Nonetheless, Covid-19 has already had a significant impact on the forward-looking economic information used by the IFRS 9 models in calculating ECL. While the central scenario used previously implied largely a continuation of current conditions, the central scenarios assumed now forecast a dramatic deterioration in conditions on a magnitude typically observed for severe stresses but with the deterioration and subsequent recovery compressed into a much shorter time frame than typical economic cycles. This extreme and unusual nature of the scenarios considered has highlighted several limitations in the components of the Wholesale methodology that translate projected economic loss drivers into aggregate default and loss rate conditions at portfolio level. To account for these limitations, a number of refinements and changes have been applied to the respective model components to ensure that the ECL outcome is reasonable, not only in aggregate, but at industry sector level and with regard to the timing in which deteriorating economics translate into default and loss outcomes. More specifically, the following key adjustments have been applied to the modelled forward-looking economic conditions for the Wholesale portfolios: �� Scenario profile - The previously unseen, extreme movements and quarterly variations in some economic loss drivers (most notably year-on-year change in UK GDP) are extrapolated by some Wholesale models into unrealistically high default rate outcomes. Where necessary, judgement was applied to adjust model outcomes to more appropriate levels based on peak default rates observed in previous crises and other existing stress scenario analysis, including the 2019 Bank of England annual cyclical scenario. �� Government support - The temporal profile of projected default and loss conditions was further adjusted to account for the expected impact of government interventions where those are not already reflected in the scenario's economic loss drivers. These adjustments result in both a delay and a reduction in the peak level of default and loss rates that would have been expected under the projected economic loss drivers without government intervention. The specification of the parameters of the adjustments - while guided by the level and characteristics of loans extended under the various government guarantee schemes - involve a considerable level of expert judgement. �� Industry sector detail - The current suite of models for the Wholesale portfolios provides limited differentiation by industry sector. This approach is based on the data from the global financial crisis which exhibited a very high correlation across industry sectors. In contrast, the impact from Covid-19 is highly differentiated by industry sector and accordingly adjustments have been applied to implement an appropriate differentiation in the severity of projected default rate conditions for different sectors. The categorisation of industry sectors and scale of adjustments have been informed by a combination of expert judgement and external market data. Capital and risk management Credit risk continued For the UK Personal Banking portfolio, the forward-looking components of the IFRS 9 PD models were also modified leveraging existing stress testing models to ensure that PDs appropriately reflect the forecasts for unemployment and house prices in particular. Additionally, post model ECL adjustments were made to ensure that the ECL was adjusted for known model over and under-predictions pending the systematic calibration of the underlying models. The in-model adjustments have been applied in order to weight the PD and LGD estimates within the core ECL calculation process and therefore consistently and systematically inform stage allocation and ECL quantification. Government guarantees During March and April 2020, the UK government launched a series of temporary schemes designed to support businesses deal with the impact of Covid-19. The BBLS, CBILS and CLBILS lending products are originated by NatWest Group but are covered by government guarantees. These are to be set against the outstanding balance of a defaulted facility after the proceeds of the business assets have been applied. The government guarantee is 80% for CBILS and CLBILS and 100% for BBLS. NatWest Group recognises lower LGDs for these lending products as a result, with 0% applied to the government-guaranteed part of the exposure. Notwithstanding the government guarantees, NatWest Group's measurements of PD are unaffected and NatWest Group continues to move exposures to Stage 2 and Stage 3 where a significant deterioration in credit risk or a default is identified. Wholesale support schemes The table below shows the uptake of BBLS, CBILS and CLBILS in Wholesale, by sector. BBL CBIL CLBIL Drawdown % of BBIL to Drawdown % of CBIL to Drawdown % of CLBIL to 30 June 2020 Volume amount (��m) Sector loans Volume amount (��m) Sector loans Volume amount (��m) Sector loans Wholesale lending by sector Airlines and aerospace 175 5 0.21% 17 4 0.17% - - - Automotive 9,267 309 4.07% 495 111 1.46% 26 22 0.29% Education 1,347 36 2.11% 83 21 1.23% 4 30 1.76% Health 6,976 222 3.78% 543 69 1.17% 2 5 0.09% Land transport and logistics 6,222 181 3.94% 306 66 1.44% 2 3 0.07% Leisure 22,776 715 7.13% 1,697 305 3.04% 16 11 0.11% Oil and gas 197 6 0.29% 13 5 0.24% - - - Retail 23,824 808 10.19% 1,395 328 4.14% 13 48 0.61% Shipping 113 4 0.34% 15 3 0.25% 2 - - Textiles 844 25 13.37% 94 18 9.63% 2 - - Property 12,284 402 0.99% 327 64 0.16% 4 10 0.02% Other (including Business Banking) 116,382 3,082 3.40% 8,742 1,406 1.55% 72 52 0.06% Total 200,408 5,795 3.32% 13,727 2,400 1.38% 143 181 0.10% Notes: (1) The table contains some cases which as at 30 June 2020 were approved but not yet drawn upon. (2) Approved limits as at 30 June 2020 were as follows: BBLS - ��6.1 billion; CBILS - ��3.3 billion; and CLBILS - ��0.7 billion. Capital and risk management Credit risk continued Mortgage payment holidays/breaks by stage The tables below show payment holidays in UK Personal Banking and payment breaks in Ulster Bank RoI, by loan-to-value (LTV) band and by stage. They show live payment holidays as at 30 June 2020, including any agreed second payment holidays. They exclude cases which have been completed prior to this date. UK Personal Banking Mortgages ECL Proportion of mortgage portfolio Not within IFRS 9 ECL Stage 1 Stage 2 Stage 3 scope Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ��50% 4,441 661 31 4 5,137 - 4 5 9 9.2 14.7 5.8 9.6 >50% and ��70% 6,722 1,226 30 1 7,979 1 8 4 13 13.7 19.4 6.2 14.3 >70% and ��80% 3,159 1,447 11 - 4,617 1 9 2 12 15.8 21.3 6.2 17.1 >80 and ��90% 1,727 1,356 6 - 3,089 - 13 1 14 16.8 23.8 7.8 19.3 >90% and ��100% 378 121 1 - 500 - 2 - 2 18.5 25.1 2.3 19.7 >100% and ��110% 1 4 - - 5 - 1 - 1 3.4 9.8 - 7.3 >110% and ��130% 2 3 - - 5 - - - - 5.6 6.3 - 5.8 >130 and ��150% - 2 - - 2 - - - - - 9.0 - 5.5 >150% - - - - - - - - - - - - - Total 16,430 4,820 79 5 21,334 2 37 12 51 12.7 20.1 6.0 13.8 Note: (1) Total payment holidays in the period up until 30 June 2020 were ��33.6 billion (22% of the UK Personal Banking mortgage portfolio). Ulster Bank RoI Mortgages ECL Proportion of mortgage portfolio Not within IFRS 9 ECL Stage 1 Stage 2 Stage 3 scope Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ��50% 148 115 49 - 312 - 5 13 18 3.5 21.4 11.9 6.1 >50% and ��70% 139 119 44 - 302 - 5 11 16 4.1 21.9 14.8 7.2 >70% and ��80% 47 62 23 - 132 - 3 7 10 3.4 19.0 15.1 7.1 >80 and ��90% 40 53 21 - 114 - 3 7 10 3.8 15.7 14.1 7.4 >90% and ��100% 2 42 16 - 60 - 2 6 8 0.8 17.3 12.4 9.3 >100% and ��110% 1 17 13 - 31 - 1 5 6 0.9 12.5 13.2 9.5 >110% and ��130% - 13 9 - 22 - 1 4 5 - 15.8 9.0 9.8 >130 and ��150% - 1 3 - 4 - - 2 2 - 21.2 10.8 11.3 >150% - 1 - - 1 - - - - - 8.2 4.1 4.8 Total 377 423 178 - 978 - 20 55 75 3.6 19.1 13.0 7.0 Note: (1) Total payment breaks in the period up until 30 June 2020 were ��1.8 billion (13% of the Ulster Bank RoI mortgage portfolio). Measurement uncertainty and ECL sensitivity analysis The recognition and measurement of ECL is complex and involves the use of significant judgement and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic conditions 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 as at the H1 2020 balance sheet date. Stage 3 provisions are not subject to the same level of measurement uncertainty - default is an observed event as at the balance sheet date, unsecured portfolio LGDs do not vary between scenarios, plus repossession periods in the UK mean that short term volatility in HPI does not translate directly to additional loss. Stage 3 provisions therefore have not been considered in this analysis. The impact arising from the downside, upside and the central 1 scenarios has been simulated. These scenarios are three of the four discrete scenarios used in the methodology for Personal MES. 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 thus 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 overlays present in the underlying ECL estimates are also sensitised. 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, policy changes by lenders that might impact on the wider availability of credit. Capital and risk management Credit risk continued NatWest Group's core criterion to identify a SICR is founded on PD deterioration, as discussed above. Under the simulations, PDs increase and result in exposures moving from Stage 1 to Stage 2 contributing to the ECL impact. 30 June 2020 Actual Upside Central 1 Downside Stage 1 modelled exposure (��m) UK Personal Banking 134,398 146,496 142,448 100,658 Ulster Bank RoI Personal & Business Banking 10,766 11,300 11,268 9,367 Wholesale 235,333 263,206 242,672 223,386 Stage 1 modelled ECL (��m) UK Personal Banking 154 154 159 114 Ulster Bank RoI Personal & Business Banking 18 16 18 19 Wholesale 274 289 278 284 Stage 1 coverage (%) UK Personal Banking 0.11% 0.11% 0.11% 0.11% Ulster Bank RoI Personal & Business Banking 0.17% 0.14% 0.16% 0.20% Wholesale 0.12% 0.11% 0.11% 0.13% Stage 2 modelled exposure (��m) UK Personal Banking 28,575 16,477 20,525 62,314 Ulster Bank RoI Personal & Business Banking 2,352 1,819 1,850 3,751 Wholesale 65,908 38,034 58,569 77,855 Stage 2 modelled ECL (��m) UK Personal Banking 900 630 760 1,641 Ulster Bank RoI Personal & Business Banking 110 83 91 174 Wholesale 1,984 891 1,661 3,071 Stage 2 coverage (%) UK Personal Banking 3.15% 3.82% 3.70% 2.63% Ulster Bank RoI Personal & Business Banking 4.69% 4.58% 4.89% 4.63% Wholesale 3.01% 2.34% 2.84% 3.94% Stage 1 and Stage 2 modelled exposure (��m) UK Personal Banking 162,973 162,973 162,973 162,973 Ulster Bank RoI Personal & Business Banking 13,118 13,118 13,118 13,118 Wholesale 301,240 301,240 301,240 301,240 Stage 1 and Stage 2 modelled ECL (��m) UK Personal Banking 1,054 784 919 1,755 Ulster Bank RoI Personal & Business Banking 129 99 109 193 Wholesale 2,258 1,180 1,939 3,355 Stage 1 and Stage 2 coverage (%) UK Personal Banking 0.65% 0.48% 0.56% 1.08% Ulster Bank RoI Personal & Business Banking 0.98% 0.76% 0.83% 1.47% Wholesale 0.75% 0.39% 0.64% 1.11% Reconciliation to Stage 1 and Stage 2 ECL (��m) ECL on modelled exposures 3,441 2,063 2,967 5,303 ECL on non-modelled exposures 53 53 53 53 Total Stage 1 and Stage 2 ECL 3,494 2,116 3,020 5,356 Variance to actual total Stage 1 and Stage 2 ECL (1,378) (474) 1,862 Notes: (1) Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is as at 30 June 2020 and therefore does not include variation in future undrawn exposure values. (2) The table above reflects ECL for all modelled exposure in scope for IFRS 9; in addition to loans this includes bonds and cash. The analysis excludes non-modelled portfolios. (3) All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact at the H1 2020 balance sheet date. (4) Refer to page 28 for details of economic scenarios. (5) 2019 comparatives are not included as the sensitivity scenario analysis relates to the H1 2020 balance sheet position. Refer to the NatWest Group plc (formerly The Royal Bank of Scotland Group plc) 2019 Annual Report and Accounts for the sensitivity analysis carried out at that time. Capital and risk management Credit risk continued Key points �� The outlook for the financial year 2020 ECL charge (disclosed on page 2) is ��3.5 billion to ��4.5 billion. However, the economic outcomes are very uncertain and if the economics are as adverse as the downside scenario, the Stage 1 and Stage 2 charge would be at least ��1.9 billion higher. �� In the downside scenario, UK Personal and Wholesale portfolios reached a similar level of coverage (1.08% and 1.11% respectively), however, this represented a greater increase in provision for the UK Personal portfolio. �� In arriving at the H1 2020 ECL position, Wholesale portfolios had already observed a larger proportionate increase in ECL and coverage, driven by a larger rise in Stage 2 size relative to Personal, which typically carries a higher level of Stage 2 through-the-cycle provision. Additionally, Personal portfolios, especially mortgages, are particularly responsive to changes in unemployment rate, leading to a greater increase in ECLs in the downside simulations in comparison to the Wholesale portfolio, where relative impacts of GDP and dampening effects of base rate resulted in a lower proportionate uplift. �� The upside release and the downside uplift were more symmetrical in Wholesale portfolios. This was at least partly due to the impact of credit mitigation by way of portfolio securitisations, which dampened the downside impacts. Additionally, the higher proportion of Stage 2 in the Wholesale portfolio at H1 2020 resulted in a larger benefit to the upside scenario. The impacts on retail reflected a more standard view of non-linearity of losses to the downside. �� Central 1 presented a marginal upside to the weighted average, but a step change in Stage 2 retail assets for the UK and the Republic of Ireland was noted. This reflected that a number of assets classed as Stage 2 under the weighted average had only just hurdled the SICR threshold. �� A higher coverage rate was observed in the Republic of Ireland portfolio compared with the UK Personal portfolio. This was due to higher coverage rates in the Republic of Ireland mortgage portfolio as compared with the UK mortgage portfolio. The Republic of Ireland portfolio appeared more responsive to economic simulations than the UK Personal portfolio. A larger upside benefit was observed, since the Republic of Ireland portfolio was heavily weighted towards mortgages and mortgage assets benefit more than personal unsecured lending in upside scenarios. The downside simulation indicated a larger uplift for the Republic of Ireland portfolio, reflecting the particular sensitivity of this portfolio to adverse unemployment rates and house price forecasts. Capital and risk 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 Refer to Note 8 for balance sheet analysis of financial assets that are classified as amortised cost (AC) or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment. Financial assets 30 June 31 December 2020 2019 ��bn ��bn Balance sheet total gross AC and FVOCI 541.6 484.3 In scope of IFRS 9 ECL framework 530.0 475.5 % in scope 98% 98% Loans - in scope 370.4 340.0 Stage 1 266.4 305.5 Stage 2 97.0 27.9 Stage 3 7.0 6.6 Other financial assets - in scope 159.6 135.5 Stage 1 158.2 135.5 Stage 2 1.4 - Out of scope of IFRS 9 ECL framework 11.6 8.8 Those assets outside the framework were as follows: �� Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of ��8.9 billion (31 December 2019 - ��6.1 billion). These were assessed as having no ECL unless there was evidence that they were credit impaired. �� Equity shares of ��0.8 billion (31 December 2019 - ��0.9 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 - ��1.5 billion (31 December 2019 - ��1.1 billion). �� NatWest Group originated securitisations, where ECL was captured on the underlying loans of ��0.4 billion (31 December 2019 - ��0.4 billion). �� Commercial cards which operate in a similar manner to charge cards, with balances repaid monthly via mandated direct debit with the underlying risk of loss captured within the customer's linked current account of nil (31 December 2019 - ��0.3 billion). Contingent liabilities and commitments In addition to contingent liabilities and commitments disclosed in Note 13 - reputationally-committed limits, are also included in the scope of the IFRS 9 ECL framework. These are offset by ��0.1 billion (31 December 2019 - ��2.6 billion) out of scope balances primarily related to facilities that, if drawn, would not be classified as AC or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of ��135.5 billion (31 December 2019 - ��127.9 billion) comprised Stage 1 ��89.0 billion (31 December 2019 - ��121.7 billion); Stage 2 ��45.7 billion (31 December 2019 - ��5.6 billion); and Stage 3 ��0.8 billion (31 December 2019 - ��0.6 billion). Capital and risk management Credit risk - Banking activities continued Portfolio summary - segment analysis The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework. UK Personal Ulster Commercial Private RBS NatWest Central items Banking Bank RoI Banking Banking International Markets & other Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m Loans - amortised cost and FVOCI Stage 1 136,065 18,642 53,514 14,465 12,697 10,197 20,864 266,444 Stage 2 28,270 4,478 58,374 1,567 1,825 2,381 115 97,010 Stage 3 2,052 1,547 2,806 256 195 178 - 7,034 Of which: individual - 22 1,727 256 195 172 - 2,372 Of which: collective 2,052 1,525 1,079 - - 6 - 4,662 166,387 24,667 114,694 16,288 14,717 12,756 20,979 370,488 ECL provisions (1) Stage 1 155 42 217 21 9 18 7 469 Stage 2 901 262 1,714 49 25 53 21 3,025 Stage 3 902 567 1,184 29 42 136 - 2,860 Of which: individual - 4 701 29 42 129 - 905 Of which: collective 902 563 483 - - 7 - 1,955 1,958 871 3,115 99 76 207 28 6,354 ECL provisions coverage (2,3) Stage 1 (%) 0.11 0.23 0.41 0.15 0.07 0.18 0.03 0.18 Stage 2 (%) 3.19 5.85 2.94 3.13 1.37 2.23 18.26 3.12 Stage 3 (%) 43.96 36.65 42.20 11.33 21.54 76.40 - 40.66 1.18 3.53 2.72 0.61 0.52 1.62 0.13 1.72 Half year ended 30 June 2020 Impairment losses ECL charge (4) 657 243 1,790 56 46 40 26 2,858 Stage 1 24 12 231 16 4 10 11 308 Stage 2 524 186 1,323 39 20 43 15 2,150 Stage 3 109 45 236 1 22 (13) - 400 Of which: individual - (2) 114 1 22 (4) - 131 Of which: collective 109 47 122 - - (9) - 269 ECL loss rate - annualised (basis points) (3) 78.97 197.02 312.13 68.76 62.51 62.72 24.79 154.28 Amounts written-off 117 164 120 1 2 4 - 408 Of which: individual - - 34 1 2 4 - 41 Of which: collective 117 164 86 - - - - 367 For the notes to this table refer to the following page. Capital and risk management Credit risk - Banking activities continued Portfolio summary - segment analysis UK Personal Ulster Commercial Private RBS NatWest Central items Banking Bank RoI Banking Banking International Markets & other Total 31 December 2019 ��m ��m ��m ��m ��m ��m ��m ��m Loans - amortised cost and FVOCI Stage 1 144,513 18,544 88,100 14,956 14,834 9,273 15,282 305,502 Stage 2 13,558 1,642 11,353 587 545 180 3 27,868 Stage 3 1,902 2,037 2,162 207 121 169 - 6,598 Of which: individual - 68 1,497 207 121 158 - 2,051 Of which: collective 1,902 1,969 665 - - 11 - 4,547 159,973 22,223 101,615 15,750 15,500 9,622 15,285 339,968 ECL provisions (1) Stage 1 114 29 152 7 4 10 6 322 Stage 2 467 53 214 7 6 5 - 752 Stage 3 823 693 1,021 29 21 131 - 2,718 Of which: individual - 22 602 29 21 122 - 796 Of which: collective 823 671 419 - - 9 - 1,922 1,404 775 1,387 43 31 146 6 3,792 ECL provisions coverage (2,3) Stage 1 (%) 0.08 0.16 0.17 0.05 0.03 0.11 0.04 0.11 Stage 2 (%) 3.44 3.23 1.88 1.19 1.10 2.78 - 2.70 Stage 3 (%) 43.27 34.02 47.22 14.01 17.36 77.51 - 41.19 0.88 3.49 1.36 0.27 0.20 1.52 0.04 1.12 Half year ended 30 June 2019 Impairment losses ECL charge (4) 181 (21) 202 (3) (3) (36) 3 323 Stage 1 (53) (24) (55) (5) (3) (2) 2 (140) Stage 2 103 (38) 38 (1) - (2) 1 101 Stage 3 131 41 219 3 - (32) - 362 Of which: individual - (4) 200 3 - (29) - 170 Of which: collective 131 45 19 - - (3) - 192 ECL loss rate - annualised (basis points) (3) 23.70 (17.88) 39.66 (4.03) (3.86) (68.68) 9.98 19.88 Amounts written-off 90 72 276 1 2 11 - 452 Of which: individual - 2 227 1 2 11 - 243 Of which: collective 90 70 49 - - - - 209 Notes: (1) Includes ��8 million (31 December 2019 - ��4 million) related to assets classified as FVOCI. (2) ECL provisions coverage is calculated as ECL provisions divided by loans. (3) ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans. The half year ECL charge is annualised by multiplying by two. (4) Includes a ��5 million charge (30 June 2019 - ��30 million charge) related to other financial assets, of which ��4 million (30 June 2019 - nil) related to assets classified as FVOCI; and ��8 million (30 June 2019 - ��28 million) related to contingent liabilities. (5) The table above shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 90 for 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 ��99.2 billion and debt securities of ��60.5 billion (31 December 2019 - ��76.1 billion and ��59.4 billion respectively). Key points �� The ECL requirement increased significantly, primarily in Stage 1 and Stage 2 exposures, in anticipation of credit deterioration, reflecting the severity of the economic impact arising from Covid-19. �� The various customer support mechanisms available mitigate against flows to default in the short-term. Hence, there was a more limited impact on Stage 3 ECL requirements. �� Reflecting the deteriorated economic environment, the annualised loss rate was significantly above the previously advised view of a normalised blended long-term loss rate. Capital and risk management Credit risk - Banking activities continued Segmental loans and impairment metrics 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 1-29 >30 Not past 1-29 >30 Stage 1 due DPD DPD Total Stage 3 Total Stage 1 due DPD DPD Total Stage 3 Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m UK Personal Banking 136,065 26,597 1,017 656 28,270 2,052 166,387 155 766 61 74 901 902 1,958 Ulster Bank RoI 18,642 4,122 150 206 4,478 1,547 24,667 42 234 12 16 262 567 871 Personal (3) 10,602 2,015 131 133 2,279 1,384 14,265 18 82 10 13 105 467 590 Wholesale 8,040 2,107 19 73 2,199 163 10,402 24 152 2 3 157 100 281 Commercial Banking 53,514 55,593 1,934 847 58,374 2,806 114,694 217 1,614 72 28 1,714 1,184 3,115 Private Banking 14,465 1,545 14 8 1,567 256 16,288 21 48 - 1 49 29 99 Personal 11,972 168 12 7 187 243 12,402 4 3 - - 3 26 33 Wholesale 2,493 1,377 2 1 1,380 13 3,886 17 45 - 1 46 3 66 RBS International 12,697 1,792 15 18 1,825 195 14,717 9 25 - - 25 42 76 Personal 2,793 18 13 11 42 68 2,903 1 1 - - 1 9 11 Wholesale 9,904 1,774 2 7 1,783 127 11,814 8 24 - - 24 33 65 NatWest Markets 10,197 2,363 - 18 2,381 178 12,756 18 53 - - 53 136 207 Central items & other 20,864 115 - - 115 - 20,979 7 21 - - 21 - 28 Total loans 266,444 92,127 3,130 1,753 97,010 7,034 370,488 469 2,761 145 119 3,025 2,860 6,354 Of which: Personal 161,432 28,798 1,173 807 30,778 3,747 195,957 178 852 71 87 1,010 1,404 2,592 Wholesale 105,012 63,329 1,957 946 66,232 3,287 174,531 291 1,909 74 32 2,015 1,456 3,762 31 December 2019 UK Personal Banking 144,513 11,921 1,034 603 13,558 1,902 159,973 114 375 45 47 467 823 1,404 Ulster Bank RoI 18,544 1,405 104 133 1,642 2,037 22,223 29 39 6 8 53 693 775 Personal (3) 10,858 944 96 105 1,145 1,877 13,880 12 20 6 6 32 591 635 Wholesale 7,686 461 8 28 497 160 8,343 17 19 - 2 21 102 140 Commercial Banking 88,100 10,837 254 262 11,353 2,162 101,615 152 195 12 7 214 1,021 1,387 Private Banking 14,956 478 63 46 587 207 15,750 7 6 - 1 7 29 43 Personal 11,630 180 60 41 281 192 12,103 3 2 - 1 3 23 29 Wholesale 3,326 298 3 5 306 15 3,647 4 4 - - 4 6 14 RBS International 14,834 520 18 7 545 121 15,500 4 6 - - 6 21 31 Personal 2,799 27 17 6 50 65 2,914 1 1 - - 1 12 14 Wholesale 12,035 493 1 1 495 56 12,586 3 5 - - 5 9 17 NatWest Markets 9,273 176 4 - 180 169 9,622 10 5 - - 5 131 146 Central items & other 15,282 3 - - 3 - 15,285 6 - - - - - 6 Total loans 305,502 25,340 1,477 1,051 27,868 6,598 339,968 322 626 63 63 752 2,718 3,792 Of which: Personal 169,800 13,072 1,207 755 15,034 4,036 188,870 130 398 51 54 503 1,449 2,082 Wholesale 135,702 12,268 270 296 12,834 2,562 151,098 192 228 12 9 249 1,269 1,710 For the notes to this table refer to the following page. Capital and risk management Credit risk - Banking activities continued Segmental loans and impairment metrics 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 provision coverage Half year ended 30 June Stage 2 (1,2) ECL Not past Total Amounts Stage 1 due 1-29 DPD >30 DPD Total Stage 3 Total charge Loss rate written-off 30 June 2020 % % % % % % % ��m basis points ��m UK Personal Banking 0.11 2.88 6.00 11.28 3.19 43.96 1.18 657 78.97 117 Ulster Bank RoI 0.23 5.68 8.00 7.77 5.85 36.65 3.53 243 197.02 164 Personal (3) 0.17 4.07 7.63 9.77 4.61 33.74 4.14 120 168.24 162 Wholesale 0.30 7.21 10.53 4.11 7.14 61.35 2.70 123 236.49 2 Commercial Banking 0.41 2.90 3.72 3.31 2.94 42.20 2.72 1,790 312.13 120 Private Banking 0.15 3.11 - 12.50 3.13 11.33 0.61 56 68.76 1 Personal 0.03 1.79 - - 1.60 10.70 0.27 3 4.84 - Wholesale 0.68 3.27 - 100.00 3.33 23.08 1.70 53 272.77 1 RBS International 0.07 1.40 - - 1.37 21.54 0.52 46 62.51 2 Personal 0.04 5.56 - - 2.38 13.24 0.38 (3) (20.67) 2 Wholesale 0.08 1.35 - - 1.35 25.98 0.55 49 82.95 - NatWest Markets 0.18 2.24 - - 2.23 76.40 1.62 40 62.72 4 Central items & other 0.03 18.26 - - 18.26 - 0.13 26 24.79 - Total loans 0.18 3.00 4.63 6.79 3.12 40.66 1.72 2,858 154.28 408 Of which: Personal 0.11 2.96 6.05 10.78 3.28 37.47 1.32 777 79.30 281 Wholesale 0.28 3.01 3.78 3.38 3.04 44.30 2.16 2,081 238.47 127 31 December 2019 UK Personal Banking 0.08 3.15 4.35 7.79 3.44 43.27 0.88 181 23.70 90 Ulster Bank RoI 0.16 2.78 5.77 6.02 3.23 34.02 3.49 (21) (17.88) 72 Personal (3) 0.11 2.12 6.25 5.71 2.79 31.49 4.57 (10) (13.87) 64 Wholesale 0.22 4.12 - 7.14 4.23 63.75 1.68 (11) (24.26) 8 Commercial Banking 0.17 1.80 4.72 2.67 1.88 47.22 1.36 202 39.66 276 Private Banking 0.05 1.26 - 2.17 1.19 14.01 0.27 (3) (4.03) 1 Personal 0.03 1.11 - 2.44 1.07 11.98 0.24 (3) (5.11) 1 Wholesale 0.12 1.34 - - 1.31 40.00 0.38 - - - RBS International 0.03 1.15 - - 1.10 17.36 0.20 (3) (3.86) 2 Personal 0.04 3.70 - - 2.00 18.46 0.48 (1) (7.30) 2 Wholesale 0.02 1.01 - - 1.01 16.07 0.14 (2) (3.13) - NatWest Markets 0.11 2.84 - - 2.78 77.51 1.52 (36) (68.68) 11 Central items & other 0.04 - - - - - 0.04 3 9.98 - Total loans 0.11 2.47 4.27 5.99 2.70 41.19 1.12 323 19.88 452 Of which: Personal 0.08 3.04 4.23 7.15 3.35 35.90 1.10 167 18.39 157 Wholesale 0.14 1.86 4.44 3.04 1.94 49.53 1.13 156 21.76 295 Notes: (1) 30 DPD - 30 days past due, the mandatory 30 days past due backstop is 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. (3) Includes a ��7 million charge and a ��1 million write-off (31 December 2019 - ��5 million release and ��3 million write-off) related to the business banking portfolio in Ulster Bank RoI. Capital and risk management Credit risk - Banking activities continued Segmental loans and impairment metrics Key points �� Personal Banking - Balance sheet growth since the 2019 year-end was driven by mortgages, primarily pre-Covid-19, in the first quarter of the year. Unsecured lending balances reduced in the second quarter as customer spend and demand for borrowing reduced whilst in lockdown and customers have made repayments. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of customer accounts exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. Additionally, forecast declines in house prices increased the ECL requirement on the mortgage portfolio. The various Covid-19 related customer support mechanisms (loan repayment holidays, government job retention scheme) are mitigating actual portfolio deterioration in the short term, with the days past due, and flows to Stage 3 metrics, yet to be materially impacted. Provisions coverage increased overall but coverage on Stage 2 alone has reduced driven by a proportionately higher share of mortgage exposures where coverage levels are lower, reflecting the secured nature of the borrowing. The annualised loss rate for H1 2020 was significantly higher than in 2019. �� Commercial Banking - Balance sheet growth since the 2019 year-end was mainly due to further drawdowns on existing facilities and new lending under the Covid-19 government lending schemes. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including significant falls in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of the exposures exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. The increase in Stage 2 assets due to PD deterioration was also the primary driver for the increase in the Stage 2 exposures less than 30 days past due. The various Covid-19 related customer support mechanisms are providing some mitigation against flows in to defaults in the short-term. Increased coverage in Stage 1 and Stage 2 was driven by the increased ECL, mainly as a result of the deteriorated economic outlook, which was partially offset by a slight decrease in Stage 3 coverage. The annualised loss rate for H1 2020 was significantly higher than in 2019. �� Ulster Bank RoI - Balance sheet growth since the 2019 year-end was mainly due to further drawdowns on existing facilities and new lending across both the commercial and personal banking portfolios, offset by ongoing deleveraging of the Ulster Bank RoI mortgage non-performing portfolio through the execution of two tranches of a portfolio sale. The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, included forecast increases in unemployment, falls in property prices and GDP, which resulted in increased IFRS 9 PDs across all portfolios. Consequently, compared to the 2019 year-end, a larger proportion of the exposures exhibited a SICR with an associated migration of assets from Stage 1 to Stage 2. As a result, the ECL requirement increased. The various Covid-19 related customer support mechanisms (loan repayment breaks, government job retention scheme) provided by Ulster Bank RoI are mitigating actual portfolio deterioration in the short-term, with the days past due, and flows to Stage 3 metrics, yet to be materially impacted. The annualised loss rate for H1 2020 was significantly higher than in 2019. Capital and risk management Credit risk - Banking activities continued Portfolio summary - sector analysis 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 based on the country of operation of the customer. Personal Wholesale Total Credit Other Mortgages(1) cards personal Total Property Corporate FI Sovereign Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by geography 182,142 3,818 9,997 195,957 40,441 81,715 42,932 9,443 174,531 370,488 - UK 168,163 3,743 9,786 181,692 37,546 66,125 29,575 3,566 136,812 318,504 - RoI 13,979 75 211 14,265 1,375 4,312 288 4,994 10,969 25,234 - Other Europe - - - - 829 5,706 4,260 382 11,177 11,177 - RoW - - - - 691 5,572 8,809 501 15,573 15,573 Loans by asset quality (2) 182,142 3,818 9,997 195,957 40,441 81,715 42,932 9,443 174,531 370,488 - AQ1 2,552 - 554 3,106 4,602 1,919 23,299 2,054 31,874 34,980 - AQ2 4,496 - - 4,496 2,324 647 1,954 1,824 6,749 11,245 - AQ3 276 - - 276 2,924 6,502 1,644 5,300 16,370 16,646 - AQ4 98,997 42 377 99,416 7,268 15,830 9,977 96 33,171 132,587 - AQ5 59,995 907 1,405 62,307 10,048 20,605 1,798 106 32,557 94,864 - AQ6 4,066 994 3,969 9,029 6,539 14,905 706 3 22,153 31,182 - AQ7 5,627 1,374 1,697 8,698 3,596 12,018 3,258 44 18,916 27,614 - AQ8 1,610 335 868 2,813 1,086 4,566 268 5 5,925 8,738 - AQ9 1,620 56 393 2,069 795 2,711 18 5 3,529 5,598 - AQ10 2,903 110 734 3,747 1,259 2,012 10 6 3,287 7,034 Loans by stage 182,142 3,818 9,997 195,957 40,441 81,715 42,932 9,443 174,531 370,488 - Stage 1 152,947 2,387 6,098 161,432 26,782 29,661 39,133 9,436 105,012 266,444 - Stage 2 26,292 1,321 3,165 30,778 12,400 50,042 3,789 1 66,232 97,010 - Stage 3 2,903 110 734 3,747 1,259 2,012 10 6 3,287 7,034 - Of which: individual 290 - 21 311 860 1,196 2 3 2,061 2,372 - Of which: collective 2,613 110 713 3,436 399 816 8 3 1,226 4,662 Loans - past due analysis (3,4) 182,142 3,818 9,997 195,957 40,441 81,715 42,932 9,443 174,531 370,488 - Not past due 177,991 3,663 8,989 190,643 38,890 78,439 42,651 8,476 168,456 359,099 - Past due 1-29 days 1,495 25 155 1,675 604 1,964 200 967 3,735 5,410 - Past due 30-89 days 954 46 132 1,132 435 599 75 - 1,109 2,241 - Past due 90-180 days 494 30 84 608 29 88 - - 117 725 - Past due >180 days 1,208 54 637 1,899 483 625 6 - 1,114 3,013 Loans - Stage 2 26,292 1,321 3,165 30,778 12,400 50,042 3,789 1 66,232 97,010 - Not past due 24,624 1,267 2,907 28,798 11,636 47,992 3,700 1 63,329 92,127 - Past due 1-29 days 1,020 17 136 1,173 395 1,548 14 - 1,957 3,130 - Past due 30-89 days 648 37 122 807 369 502 75 - 946 1,753 Weighted average life - ECL measurement (years) 9 3 5 6 4 5 4 - 5 5 Weighted average 12 months PDs - IFRS 9 (%) 0.71 4.14 4.88 0.98 3.78 4.07 0.52 0.06 2.74 1.69 - Basel (%) 0.89 3.75 4.14 1.10 1.61 2.52 0.29 0.09 1.55 1.30 ECL provisions by geography 1,032 376 1,184 2,592 1,031 2,625 96 10 3,762 6,354 - UK 461 373 1,168 2,002 895 2,010 37 7 2,949 4,951 - RoI 571 3 16 590 82 219 3 1 305 895 - Other Europe - - - - 47 182 42 1 272 272 - RoW - - - - 7 214 14 1 236 236 ECL provisions by stage 1,032 376 1,184 2,592 1,031 2,625 96 10 3,762 6,354 - Stage 1 34 47 97 178 126 133 22 10 291 469 - Stage 2 292 243 475 1,010 392 1,554 69 - 2,015 3,025 - Stage 3 706 86 612 1,404 513 938 5 - 1,456 2,860 - Of which: individual 20 - 15 35 305 565 - - 870 905 - Of which: collective 686 86 597 1,369 208 373 5 - 586 1,955 ECL provisions coverage (%) 0.57 9.85 11.84 1.32 2.55 3.21 0.22 0.11 2.16 1.72 - Stage 1 (%) 0.02 1.97 1.59 0.11 0.47 0.45 0.06 0.11 0.28 0.18 - Stage 2 (%) 1.11 18.40 15.01 3.28 3.16 3.11 1.82 - 3.04 3.12 - Stage 3 (%) 24.32 78.18 83.38 37.47 40.75 46.62 50.00 - 44.30 40.66 ECL charge 243 164 370 777 568 1,439 73 1 2,081 2,858 - UK 136 163 358 657 501 1,238 26 1 1,766 2,423 - RoI 107 1 12 120 47 77 1 - 125 245 - Other Europe - - - - 16 50 36 - 102 102 - RoW - - - - 4 74 10 - 88 88 ECL loss rate (%) 0.27 8.59 7.40 0.79 2.81 3.52 0.34 0.02 2.38 1.54 Amounts written-off 169 49 63 281 21 104 2 - 127 408 Not within the scope of EY's review report. For the notes to this table refer to page 45. Capital and risk management Credit risk - Banking activities continued Portfolio summary - sector analysis Personal Wholesale Total Credit Other Mortgages(1) cards personal Total Property Corporate FI Sovereign Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by residual maturity 182,142 3,818 9,997 195,957 40,441 81,715 42,932 9,443 174,531 370,488 - <1 year 3,820 2,357 3,129 9,306 8,930 25,187 33,226 7,322 74,665 83,971 - 1-5 year 9,103 1,461 5,724 16,288 21,932 39,324 8,790 1,317 71,363 87,651 - 5 year 169,219 - 1,144 170,363 9,579 17,204 916 804 28,503 198,866 Other financial assets by asset quality (2) - - - - 37 129 13,213 146,272 159,651 159,651 - AQ1-AQ4 - - - - - 128 12,734 146,236 159,098 159,098 - AQ5-AQ8 - - - - 37 1 479 36 553 553 Off-balance sheet 11,161 17,481 12,685 41,327 16,030 58,398 18,630 1,131 94,189 135,516 - Loan commitments 11,158 17,481 12,640 41,279 15,423 55,099 17,500 1,129 89,151 130,430 - Financial guarantees 3 - 45 48 607 3,299 1,130 2 5,038 5,086 Off-balance sheet by asset quality (2) 11,161 17,481 12,685 41,327 16,030 58,398 18,630 1,131 94,189 135,516 - AQ1-AQ4 10,537 278 10,362 21,177 11,837 35,657 17,083 1,092 65,669 86,846 - AQ5-AQ8 614 16,910 2,307 19,831 4,116 22,210 1,543 39 27,908 47,739 - AQ9 1 9 16 26 12 46 - - 58 84 - AQ10 9 284 - 293 65 485 4 - 554 847 For the notes to this table refer to page 45. Capital and risk management Credit risk - Banking activities continued Portfolio summary - sector analysis Personal Wholesale Total Credit Other Mortgages(1) cards personal Total Property Corporate FI Sovereign Total 31 December 2019 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by geography 174,003 4,478 10,389 188,870 36,371 71,042 36,266 7,419 151,098 339,968 - UK 160,431 4,383 10,176 174,990 33,644 58,666 22,564 3,479 118,353 293,343 - RoI 13,572 95 213 13,880 1,310 4,169 513 3,167 9,159 23,039 - Other Europe - - - - 921 4,350 5,120 328 10,719 10,719 - RoW - - - - 496 3,857 8,069 445 12,867 12,867 Loans by asset quality (2) 174,003 4,478 10,389 188,870 36,371 71,042 36,266 7,419 151,098 339,968 - AQ1 3,837 - 665 4,502 4,474 2,272 17,841 1,931 26,518 31,020 - AQ2 2,866 - - 2,866 2,490 496 1,763 1,780 6,529 9,395 - AQ3 277 - - 277 2,465 5,561 2,939 3,520 14,485 14,762 - AQ4 92,520 375 625 93,520 6,574 14,660 9,979 41 31,254 124,774 - AQ5 58,051 786 1,708 60,545 10,419 19,584 2,027 107 32,137 92,682 - AQ6 5,253 1,211 3,344 9,808 5,809 13,470 811 3 20,093 29,901 - AQ7 5,326 1,531 2,328 9,185 2,853 11,404 867 30 15,154 24,339 - AQ8 1,379 393 792 2,564 302 1,478 20 2 1,802 4,366 - AQ9 1,217 66 284 1,567 90 468 6 - 564 2,131 - AQ10 3,277 116 643 4,036 895 1,649 13 5 2,562 6,598 Loans by stage 174,003 4,478 10,389 188,870 36,371 71,042 36,266 7,419 151,098 339,968 - Stage 1 159,261 3,103 7,436 169,800 32,896 59,689 35,707 7,410 135,702 305,502 - Stage 2 11,465 1,259 2,310 15,034 2,580 9,704 546 4 12,834 27,868 - Stage 3 3,277 116 643 4,036 895 1,649 13 5 2,562 6,598 - Of which: individual 235 - 21 256 646 1,137 7 5 1,795 2,051 - Of which: collective 3,042 116 622 3,780 249 512 6 - 767 4,547 Loans - past due analysis (3,4) 174,003 4,478 10,389 188,870 36,371 71,042 36,266 7,419 151,098 339,968 - Not past due 169,536 4,313 9,473 183,322 35,445 68,730 36,214 7,365 147,754 331,076 - Past due 1-29 days 1,578 43 164 1,785 317 1,339 36 54 1,746 3,531 - Past due 30-89 days 955 36 123 1,114 82 271 7 - 360 1,474 - Past due 90-180 days 495 30 84 609 26 148 - - 174 783 - Past due >180 days 1,439 56 545 2,040 501 554 9 - 1,064 3,104 Loans - Stage 2 11,465 1,259 2,310 15,034 2,580 9,704 546 4 12,834 27,868 - Not past due 9,798 1,204 2,070 13,072 2,466 9,266 534 4 12,270 25,342 - Past due 1-29 days 1,050 29 128 1,207 49 214 5 - 268 1,475 - Past due 30-89 days 617 26 112 755 65 224 7 - 296 1,051 Weighted average life - ECL measurement (years) 9 2 6 5 6 6 3 1 6 6 Weighted average 12 months PDs - IFRS 9 (%) 0.31 3.86 2.98 0.54 0.63 0.98 0.13 0.05 0.60 0.54 - Basel (%) 0.81 3.59 3.75 1.03 0.96 1.25 0.20 0.07 0.83 0.92 ECL provisions by geography 964 261 857 2,082 494 1,181 28 7 1,710 3,792 - UK 342 259 846 1,447 424 800 14 4 1,242 2,689 - RoI 622 2 11 635 39 117 3 1 160 795 - Other Europe - - - - 28 130 9 1 168 168 - RoW - - - - 3 134 2 1 140 140 ECL provisions by stage 964 261 857 2,082 494 1,181 28 7 1,710 3,792 - Stage 1 25 40 65 130 45 124 16 7 192 322 - Stage 2 118 132 253 503 47 198 4 - 249 752 - Stage 3 821 89 539 1,449 402 859 8 - 1,269 2,718 - Of which: individual 24 - 11 35 236 521 4 - 761 796 - Of which: collective 797 89 528 1,414 166 338 4 - 508 1,922 ECL provisions coverage (%) 0.55 5.83 8.25 1.10 1.36 1.66 0.08 0.09 1.13 1.12 - Stage 1 (%) 0.02 1.29 0.87 0.08 0.14 0.21 0.04 0.09 0.14 0.11 - Stage 2 (%) 1.03 10.48 10.95 3.35 1.82 2.04 0.73 - 1.94 2.70 - Stage 3 (%) 25.05 76.72 83.83 35.90 44.92 52.09 61.54 - 49.53 41.19 Half year ended 30 June 2019 ECL charge 3 26 138 167 22 134 (2) 2 156 323 - UK 15 26 136 177 22 165 (1) 1 187 364 - RoI (12) - 2 (10) - (11) - - (11) (21) - Other Europe - - - - - (25) (1) - (26) (26) - RoW - - - - - 5 - 1 6 6 ECL loss rate (%) - 1.24 2.78 0.18 0.12 0.37 (0.01) 0.05 0.22 0.20 Amounts written-off 71 35 51 157 173 112 10 - 295 452 Not within the scope of EY's review report. For the notes to this table refer to the following page. Capital and risk management Credit risk - Banking activities continued Portfolio summary - sector analysis Personal Wholesale Total Credit Other Mortgages(1) cards personal Total Property Corporate FI Sovereign Total 31 December 2019 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Loans by residual maturity 174,003 4,478 10,389 188,870 36,371 71,042 36,266 7,419 151,098 339,968 - <1 year 3,996 2,750 3,480 10,226 7,318 24,539 27,299 5,477 64,633 74,859 - 1-5 year 8,771 1,728 5,769 16,268 19,774 31,215 7,922 1,164 60,075 76,343 - 5 year 161,236 - 1,140 162,376 9,279 15,288 1,045 778 26,390 188,766 Other financial assets by asset quality (2) - - - - - 110 12,185 123,170 135,465 135,465 - AQ1-AQ4 - - - - - 110 11,742 122,906 134,758 134,758 - AQ5-AQ8 - - - - - - 441 264 705 705 - AQ9 - - - - - - 2 - 2 2 Off-balance sheet 14,348 16,686 12,332 43,366 15,383 51,390 16,742 1,022 84,537 127,903 - Loan commitments 14,345 16,686 12,285 43,316 14,739 47,883 15,417 1,021 79,060 122,376 - Financial guarantees 3 - 47 50 644 3,507 1,325 1 5,477 5,527 Off-balance sheet by asset quality (2) 14,348 16,686 12,332 43,366 15,383 51,390 16,742 1,022 84,537 127,903 - AQ1-AQ4 13,506 3,818 10,049 27,373 11,364 34,852 15,397 984 62,597 89,970 - AQ5-AQ8 832 12,588 2,271 15,691 3,948 16,228 1,340 38 21,554 37,245 - AQ9 1 4 12 17 11 49 4 - 64 81 - AQ10 9 276 - 285 60 261 1 - 322 607 Notes: (1) Includes a portion of secured lending in Private Banking, in line with ECL calculation methodology. Private Banking and RBSI mortgages are reported in UK, reflecting the country of lending origination. (2) 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 2019 - ��0.3 billion) of AQ10 Personal balances primarily relate to loan commitments, the drawdown of which is effectively prohibited. AQ10 includes ��0.5 billion (31 December 2019 - ��0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3. (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. Capital and risk management Credit risk - Banking activities continued Sector analysis The table below shows ECL by stage, for key sectors in the Personal and Wholesale portfolios impacted by Covid-19. Off-balance sheet Loans - amortised cost & FVOCI (1) Loan Contingent ECL provisions Stage 1 Stage 2 Stage 3 Total commitments (1) liabilities Stage 1 Stage 2 Stage 3 Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Personal 161,432 30,778 3,747 195,957 41,279 48 178 1,010 1,404 2,592 Mortgages 152,947 26,292 2,903 182,142 11,158 3 34 292 706 1,032 Credit cards 2,387 1,321 110 3,818 17,481 - 47 243 86 376 Other personal 6,098 3,165 734 9,997 12,640 45 97 475 612 1,184 Wholesale 105,012 66,232 3,287 174,531 89,151 5,038 291 2,015 1,456 3,762 Property 26,782 12,400 1,259 40,441 15,423 607 126 392 513 1,031 Financial institutions 39,133 3,789 10 42,932 17,500 1,130 22 69 5 96 Sovereign 9,436 1 6 9,443 1,129 2 10 - - 10 Corporate 29,661 50,042 2,012 81,715 55,099 3,299 133 1,554 938 2,625 Of which: Airlines and aerospace 495 1,839 38 2,372 1,829 233 4 53 26 83 Automotive 2,000 5,437 146 7,583 3,547 93 8 108 19 135 Education 704 919 83 1,706 725 19 2 27 16 45 Health 2,055 3,650 168 5,873 515 13 9 145 60 214 Land transport and logistics 1,149 3,334 110 4,593 3,919 206 6 96 43 145 Leisure 2,755 6,739 534 10,028 1,841 126 22 303 249 574 Oil and gas 465 1,535 89 2,089 2,627 382 4 55 61 120 Retail 2,647 5,059 221 7,927 5,858 507 13 158 170 341 Shipping 293 877 21 1,191 219 38 2 90 11 103 Textiles 73 111 3 187 65 9 - 2 2 4 Total 266,444 97,010 7,034 370,488 130,430 5,086 469 3,025 2,860 6,354 31 December 2019 Personal 169,800 15,034 4,036 188,870 43,316 50 130 503 1,449 2,082 Mortgages 159,261 11,465 3,277 174,003 14,345 3 25 118 821 964 Credit cards 3,103 1,259 116 4,478 16,686 - 40 132 89 261 Other personal 7,436 2,310 643 10,389 12,285 47 65 253 539 857 Wholesale 135,702 12,834 2,562 151,098 79,060 5,477 192 249 1,269 1,710 Property 32,896 2,580 895 36,371 14,739 644 45 47 402 494 Financial institutions 35,707 546 13 36,266 15,417 1,325 16 4 8 28 Sovereign 7,410 4 5 7,419 1,021 1 7 - - 7 Corporate 59,689 9,704 1,649 71,042 47,883 3,507 124 198 859 1,181 Of which: Airlines and aerospace (2) 1,412 261 40 1,713 1,716 271 2 3 55 60 Automotive 5,062 1,143 20 6,225 3,815 98 12 11 15 38 Education 1,426 154 12 1,592 654 18 2 4 1 7 Health 4,695 844 167 5,706 534 17 9 16 52 77 Land transport and logistics 3,477 316 53 3,846 3,301 249 6 12 21 39 Leisure 6,323 1,253 377 7,953 2,876 135 25 27 175 227 Oil and gas 1,923 140 86 2,149 2,400 358 5 3 55 63 Retail 6,397 1,279 215 7,891 5,383 560 13 16 180 209 Shipping 474 725 20 1,219 313 53 1 37 5 43 Textiles 134 29 3 166 93 6 - 1 2 3 Total 305,502 27,868 6,598 339,968 122,376 5,527 322 752 2,718 3,792 Notes: (1) Loan commitments as at 30 June 2020 includes ��4.1 billion of commercial cards related balances which were brought into scope of ECL calculations in H1 2020. (2) Airlines and aerospace Stage 3 ECL at 31 December 2019 included ��27 million of ECL related to contingent liabilities. Capital and risk management Credit risk - Banking activities continued Sector performance in Wholesale portfolios The nature of the Covid-19 crisis is such that the impact on customers varies significantly by industry sector. NatWest Group has adopted a nuanced response to capture the sector ECL impact by using sector specific CCIs in its Wholesale methodology. The CCIs observed at the reporting date are based on average default probability estimates for publicly-listed companies, in a set of comprehensive sector/region segments derived from the stock market valuation, asset volatility and capital structure of each company. Forward-looking CCIs are projected based on the economic loss drivers in the scenarios (refer to the Use of the scenarios in Wholesale section) and have been adjusted by sector group specific CCI changes observed throughout H1 2020 to make them more sector specific (refer to the industry detail in the Model performance section). Since both, current and projected CCI are driving PD and LGD, NatWest Group obtains modelled ECL outcomes which are significantly differentiated by sector. As a result, the impact on ECL is more pronounced for those sectors which have suffered a more significant disruption from Covid-19. Wholesale forbearance The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on page 49. FI Property Sovereign Other corporate Total 30 June 2020 ��m ��m ��m ��m ��m Forbearance (flow) 80 730 - 2,648 3,458 Heightened Monitoring and Risk of Credit Loss 154 1,333 - 5,960 7,447 31 December 2019 Forbearance (flow) 35 546 - 2,254 2,835 Heightened Monitoring and Risk of Credit Loss 107 1,209 - 4,207 5,523 Capital and risk management Credit risk - Banking activities continued Key points �� Loans by geography - In the Personal portfolios, exposures continued to be concentrated in the UK and heavily weighted to mortgages and the vast majority of exposures in the Republic of Ireland remained in mortgages. Balance sheet growth since the 2019 year-end was driven by mortgages, primarily pre-Covid-19, in the first quarter of the year. Unsecured lending balances reduced as described earlier. In the Wholesale portfolios, balance sheet growth was driven by additional drawings on existing facilities and new lending under the various government-supported lending schemes which are predominantly to UK customers. �� Loans by asset quality (based on Basel II PD) - In the Personal portfolios, asset quality distribution deteriorated slightly in credit cards and other personal since the year-end, with the Basel II point-in-time PDs yet to reflect the expected credit deterioration. In the Wholesale portfolios, Basel II PDs are based on a through-the-cycle approach. The asset quality distribution was relatively stable with only modest deterioration. For further details refer to the Asset quality section. �� Loans by stage - In both the Personal and Wholesale portfolios, the deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR with an associated migration of exposures from Stage 1 to Stage 2. �� Loans - past due analysis and Stage 2 - The various Covid-19 related customer support mechanisms (capital repayment holidays, government job retention scheme, government supported lending schemes) are mitigating actual portfolio deterioration in the short term, although there have been some increases in past due exposures. �� Weighted average PDs - In Personal, the Basel II point-in-time PDs have yet to be materially affected. The forward-looking IFRS 9 PDs increased reflecting the deteriorated economics. The cards PD had been significantly over-predicting defaults at the 2019 year-end but has now been addressed, hence the relatively small movement. The over-prediction had been mitigated by a downward ECL overlay, now discontinued. The IFRS 9 PDs for both loans and mortgages were under-predicting and an upward ECL overlay adjustment was held in mitigation. In the Wholesale portfolios, the Basel II PDs are based on a through-the-cycle approach and have been relatively stable. The increase in the IFRS 9 PDs reflected the impact of the deteriorated economic outlook. �� ECL provisions by geography - In line with exposures by geography, the vast majority of ECL related to exposures in the UK and the Republic of Ireland. �� ECL provisions by stage - Stage 1 and Stage 2 provisions have increased reflecting the deteriorated economic outlook. As outlined above, Stage 3 provisions have yet to be materially impacted mitigated by the various customer support mechanisms discussed earlier. In mortgages, the Stage 3 ECL reduction was driven by a debt sale in Ulster Bank RoI, where the exposure value also reduced. �� ECL provisions coverage - Overall provisions coverage increased. In Stage 2 alone, at a total Personal level, coverage reduced slightly, driven by a proportionately higher share of mortgage exposures where coverage levels were lower reflecting the secured nature of the borrowing. In Wholesale, overall provisions coverage increased, primarily due to the impact of the deteriorated economic conditions. Stage 1 and Stage 2 coverage increased, particularly in those sectors suffering the most disruption as a result of Covid-19. �� ECL charge and loss rate - Reflecting the deteriorated economic outlook, the impairment charge was elevated, with the annualised loss rate for H1 2020 significantly higher than the 2019 outcome. �� Loans by residual maturity - In mortgages, the vast majority of exposures remained greater than five years. In unsecured lending - cards and other - exposures were concentrated in less than five years. In Wholesale, the vast majority of new lending was for residual maturity of one-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 category. �� Off-balance sheet by asset quality - In Personal, undrawn exposures were reflective of available credit lines in credit cards and current accounts and have increased slightly as drawn exposures have reduced. Additionally, the mortgage portfolio had undrawn exposure, where a formal offer had been made to a customer but had not yet been drawn down; the value has reduced in line with a reduction in 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 distribution in mortgages remained heavily weighted to the highest quality bands AQ1-AQ4, with credit card concentrated in the risk bands AQ5-AQ8. In Wholesale, undrawn exposures increased additional lending facilities were agreed, primarily as a result of the Covid-19 crisis. The vast majority of new corporate loan commitments were in the AQ5-AQ8 asset quality bands. �� Wholesale forbearance - Customers seeking Covid-19 related support, including payment holidays, who were not subject to any wider SICR triggers and who are assessed as having the ability in the medium term post-crisis to be viable and meet credit appetite metrics, were not considered to have been granted forbearance. Completed forbearance flow in H1 2020 for other corporate was ��2.6 billion. Retail and leisure continued to represent the largest share of this forbearance flow. Following the outbreak of Covid-19, the flow of forbearance rose significantly in the property and transport sectors, with the rise in transport resulting from forbearance completed on individually significant exposures. Payment holidays and covenant waivers were the most common forms of forbearance granted. �� Heightened Monitoring and Risk of Credit Loss - Exposure increased to ��7.4 billion (31 December 2019 - ��5.5 billion). Consistent with the impacts of Covid-19, increased flows into Heightened Monitoring and Risk of Credit Loss have been noted across a number of sectors. The most material increases in both volumes and exposure was seen within other corporate and particularly in retail and leisure. Capital and risk management Credit risk - Banking activities continued Personal portfolio Disclosures in the Personal portfolio section include drawn exposure (gross of provisions). 30 June 2020 31 December 2019 UK Personal Ulster Private RBS UK Personal Ulster Private RBS Banking Bank RoI Banking International Total Banking Bank RoI Banking International Total Personal lending ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Mortgages 154,909 14,007 10,238 2,596 181,750 147,489 13,598 9,955 2,620 173,662 Of which: Owner occupied 140,372 13,038 8,991 1,728 164,129 132,698 12,593 8,714 1,747 155,752 Buy-to-let 14,537 969 1,247 868 17,621 14,791 1,005 1,241 874 17,911 Interest only - variable 5,650 166 3,965 349 10,130 6,279 165 3,646 371 10,461 Interest only - fixed 13,277 9 4,570 248 18,104 12,891 9 4,604 241 17,745 Mixed (1) 6,689 59 1 20 6,769 6,288 61 1 20 6,370 Impairment provisions (2) 437 571 12 10 1,030 309 622 13 11 955 Other personal lending (3) 11,650 286 1,943 290 14,169 12,778 308 1,767 280 15,133 Impairment provisions (2) 1,515 18 21 2 1,556 1,087 13 16 1 1,117 Total personal lending 166,559 14,293 12,181 2,886 195,919 160,267 13,906 11,722 2,900 188,795 Mortgage LTV ratios Total portfolio 57% 59% 57% 58% 57% 57% 60% 57% 58% 57% - Stage 1 56% 55% 57% 57% 56% 57% 57% 57% 57% 57% - Stage 2 67% 69% 61% 66% 67% 58% 67% 60% 64% 59% - Stage 3 55% 69% 69% 75% 63% 55% 73% 70% 80% 66% Buy-to-let 52% 60% 55% 52% 53% 53% 61% 54% 53% 54% - Stage 1 51% 54% 55% 52% 51% 52% 57% 54% 53% 52% - Stage 2 60% 74% 65% 50% 62% 57% 69% 57% 51% 59% - Stage 3 58% 75% 54% 62% 64% 59% 75% 58% 66% 67% Gross new mortgage lending (4) 15,849 400 814 124 17,187 31,857 1,184 2,112 355 35,508 Of which: Owner occupied 15,368 399 732 82 16,581 30,779 1,175 1,889 248 34,091 Weighted average LTV 69% 75% 67% 72% 69% 69% 75% 65% 71% 69% Buy-to-let 481 1 82 42 606 1,078 10 222 107 1,417 Weighted average LTV 62% 60% 64% 64% 62% 60% 58% 60% 63% 60% Interest only - variable rate 51 - 394 - 445 56 - 688 4 748 Interest only - fixed rate 714 - 279 19 1,012 1,275 - 993 51 2,319 Mixed (1) 674 - - 1 675 1,074 1 - 4 1,079 Forbearance flow 255 24 14 6 299 450 177 4 5 636 Forbearance stock 1,207 1,870 14 13 3,104 1,212 2,229 2 11 3,454 Current 650 1,130 9 9 1,798 623 1,149 1 9 1,782 1-3 months in arrears 273 132 3 - 408 338 157 - 1 496 > 3 months in arrears 284 608 2 4 898 251 923 1 1 1,176 Notes: (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) For UK Personal Banking this 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) UK Personal Banking excludes additional lending to existing customers. Key points �� New mortgage lending was higher than in H1 2019, reflecting strong lending before the Covid-19 lockdown. 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. Underwriting standards were maintained during the period. �� Mortgage growth was driven by the owner-occupied portfolio. �� By value, the proportion of mortgages on interest only and mixed terms (capital and interest only) reduced. This was driven by low proportions of buy-to-let and owner occupier interest only new business. �� In the UK Personal Banking mortgage portfolio, 88% of customer balances were on fixed rates (57% on five-year deals). In addition, 99% of all new mortgage completions were fixed rate deals (41% of these were five-year deals). �� 43% of the stock of UK Personal Banking lending was in Greater London and the South East (31 December 2019 - 43%). The average weighted loan-to-value for these regions was 54% (31 December 2019 - 53%) compared to all regions 57%. �� Impairment provisions - as detailed earlier, the deteriorated economic outlook including forecast increases in unemployment and declines in house prices, resulted in an increased ECL requirement. �� Unsecured balances fell, with the decrease driven principally by reductions in overdrafts and credit card borrowing in the UK Personal Banking segment. Overdraft and credit card usage decreased significantly following the Covid-19 lockdown. NatWest Group also responded to Covid-19 with a more cautious approach in new lending, to protect the bank and customers from potentially unaffordable borrowing. Capital and risk management Credit risk - Banking activities continued Personal portfolio 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 IFRS 9 ECL reflected portfolios carried at fair value. Mortgages ECL provisions ECL provisions coverage (2) UK Personal Banking Not within Of which: Stage Stage Stage IFRS 9 gross new Stage Stage Stage Stage Stage Stage 1 2 3 ECL scope Total lending 1 2 3 Total(1) 1 2 3 Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ��50% 48,176 4,505 544 125 53,350 2,361 3 28 98 129 - 0.6 18.0 0.2 >50% and ��70% 48,897 6,325 487 38 55,747 4,758 6 49 74 129 - 0.8 15.2 0.2 >70% and ��80% 20,039 6,796 163 8 27,006 4,763 3 45 29 77 - 0.7 17.8 0.3 >80% and ��90% 10,261 5,691 80 6 16,038 3,262 3 53 16 72 - 0.9 20.4 0.4 >90% and ��100% 2,038 483 19 3 2,543 632 1 10 5 16 - 2.1 26.5 0.6 >100% and ��110% 22 40 7 1 70 - - 2 2 4 0.1 5.3 23.5 5.3 >110% and ��130% 27 49 8 1 85 - - 3 2 5 0.2 6.8 30.4 6.8 >130% and ��150% 10 24 5 - 39 - - 2 1 3 0.1 7.0 26.1 7.9 >150% 1 4 3 - 8 - - - 1 1 0.1 10.6 42.6 20.5 Total with LTVs 129,471 23,917 1,316 182 154,886 15,776 16 192 228 436 - 0.8 17.4 0.3 Other 16 6 1 - 23 73 - - 1 1 0.1 5.0 75.3 3.9 Total 129,487 23,923 1,317 182 154,909 15,849 16 192 229 437 - 0.8 17.4 0.3 31 December 2019 ��50% 47,746 3,375 511 159 51,791 4,661 2 19 90 111 - 0.6 17.6 0.2 >50% and ��70% 47,224 3,804 463 91 51,582 8,723 3 29 68 100 - 0.8 14.7 0.2 >70% and ��80% 23,235 1,568 150 39 24,992 8,366 2 14 26 42 - 0.9 17.1 0.1 >80% and ��90% 14,030 1,111 85 25 15,251 8,675 2 12 18 32 - 1.1 20.5 0.2 >90% and ��100% 3,401 174 20 15 3,610 1,208 1 4 5 10 - 2.5 25.4 0.3 >100% and ��110% 42 34 8 1 85 - - 2 2 4 0.1 5.1 25.3 4.4 >110% and ��130% 47 38 7 1 93 - - 2 2 4 0.1 6.1 33.5 5.0 >130% and ��150% 19 22 6 1 48 - - 1 2 3 0.1 6.3 27.7 6.5 >150% 3 6 3 - 12 - - - 2 2 0.1 6.5 45.7 15.2 Total with LTVs 135,747 10,132 1,253 332 147,464 31,663 10 83 215 308 - 0.8 17.0 0.2 Other 21 3 1 - 25 224 - - 1 1 0.1 4.2 81.2 3.2 Total 135,768 10,135 1,254 332 147,489 31,857 10 83 216 309 - 0.8 17.1 0.2 For the notes to this table refer to the following page. Capital and risk management Credit risk - Banking activities continued Personal portfolio Mortgages ECL provisions ECL provisions coverage (2) Ulster Bank RoI Of which: gross new Stage 1 Stage 2 Stage 3 Total lending Stage 1 Stage 2 Stage 3 Total(1) Stage 1 Stage 2 Stage 3 Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ��50% 4,197 538 413 5,148 34 6 20 103 129 0.1 3.7 24.9 2.5 >50% and ��70% 3,376 542 297 4,215 84 5 23 73 101 0.1 4.2 24.6 2.4 >70% and ��80% 1,379 325 154 1,858 138 2 14 49 65 0.1 4.3 31.8 3.5 >80% and ��90% 1,051 335 150 1,536 141 2 15 54 71 0.2 4.5 36.0 4.6 >90% and ��100% 276 244 124 644 - 1 11 52 64 0.4 4.5 41.9 9.9 >100% and ��110% 89 139 100 328 2 - 8 47 55 - 5.8 47.0 16.8 >110% and ��130% 41 80 97 218 1 - 6 52 58 - 7.5 53.6 26.6 >130% and ��150% 5 7 30 42 - - 1 20 21 - 14.3 66.7 50.0 >150% 3 6 9 18 - - - 7 7 - - 77.8 38.9 Total 10,417 2,216 1,374 14,007 400 16 98 457 571 0.2 4.4 33.3 4.1 31 December 2019 ��50% 4,107 308 475 4,890 107 4 7 97 108 0.1 2.3 20.5 2.2 >50% and ��70% 3,382 274 409 4,065 231 3 7 90 100 0.1 2.6 22.0 2.5 >70% and ��80% 1,381 151 219 1,751 356 2 4 60 66 0.1 3.0 27.5 3.8 >80% and ��90% 1,132 145 217 1,494 484 1 5 76 82 0.1 3.0 35.1 5.5 >90% and ��100% 381 102 188 671 3 1 3 72 76 0.2 2.9 38.6 11.3 >100% and ��110% 167 57 151 375 2 - 2 67 69 0.3 3.5 44.0 18.4 >110% and ��130% 82 36 152 270 1 - 2 78 80 0.3 4.9 51.3 29.7 >130% and ��150% 8 3 46 57 - - - 30 30 0.6 4.1 64.7 51.9 >150% 7 3 15 25 - - - 11 11 0.3 8.2 71.4 44.6 Total with LTVs 10,647 1,079 1,872 13,598 1,184 11 30 581 622 0.1 2.8 31.0 4.6 Notes: (1) Excludes a non-material amount of provisions held on relatively small legacy portfolios. (2) ECL provisions coverage is ECL provisions divided by mortgages. Key points �� ECL coverage rates increase through the LTV bands with both UK Personal Banking and Ulster Bank RoI currently having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for UK Personal Banking included the effect of time-discounting on expected recoveries. Additionally, this also reflected the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity. �� The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR with an associated migration of exposures from Stage 1 to Stage 2. Capital and risk management Credit risk - Banking activities continued Personal portfolio UK Personal Banking mortgage LTV distribution by region LTV ratio value Weighted �� 50% 50% �� 80% 80% �� 100% 100% �� 150% > 150% Total average LTV Other Total Total 30 June 2020 ��m ��m ��m ��m ��m ��m % ��m ��m % South East 14,284 21,339 4,329 7 - 39,959 57 6 39,965 26 Greater London 13,459 11,797 1,625 4 - 26,885 50 4 26,889 17 Scotland 3,621 6,231 1,429 2 - 11,283 58 1 11,284 7 North West 4,414 8,619 1,808 3 - 14,844 59 3 14,847 10 South West 4,600 7,764 1,451 4 - 13,819 57 2 13,821 9 West Midlands 3,347 6,604 1,290 4 - 11,245 59 1 11,246 7 Rest of the UK 9,627 20,397 6,649 170 8 36,851 62 6 36,857 24 Total 53,352 82,751 18,581 194 8 154,886 57 23 154,909 100 31 December 2019 South East 14,175 19,390 3,920 7 - 37,492 56 7 37,499 25 Greater London 13,199 10,496 1,504 4 - 25,203 49 4 25,207 17 Scotland 3,395 5,946 1,726 3 - 11,070 60 1 11,071 8 North West 4,449 8,420 1,524 4 - 14,397 58 2 14,399 10 South West 4,482 7,374 1,391 5 - 13,252 57 2 13,254 9 West Midlands 3,086 6,109 1,520 5 - 10,720 60 1 10,721 7 Rest of the UK 9,004 18,839 7,276 198 13 35,330 63 8 35,338 24 Total 51,790 76,574 18,861 226 13 147,464 57 25 147,489 100 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. All disclosures in the CRE section are based on current exposure (gross of provisions and risk transfer). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of the guarantee or letter of credit; derivatives - the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral. 30 June 2020 31 December 2019 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) 4,791 412 5 5,208 4,507 462 27 4,996 Office (3) 3,737 210 58 4,005 2,916 183 83 3,182 Retail (4) 5,419 64 78 5,561 5,277 63 62 5,402 Industrial (5) 2,881 18 100 2,999 2,457 18 115 2,590 Mixed/other (6) 3,199 202 170 3,571 3,672 187 56 3,915 20,027 906 411 21,344 18,829 913 343 20,085 Development Residential (2) 3,052 233 8 3,293 2,464 165 5 2,634 Office (3) 137 22 - 159 78 17 - 95 Retail (4) 147 - 1 148 134 2 1 137 Industrial (5) 129 2 - 131 85 2 - 87 Mixed/other (6) 24 2 - 26 16 2 - 18 3,489 259 9 3,757 2,777 188 6 2,971 Total 23,516 1,165 420 25,101 21,606 1,101 349 23,056 Notes: (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. Capital and risk management Credit risk - Banking activities continued Commercial real estate CRE LTV distribution by stage The table below shows CRE current exposure and related ECL by LTV band. Current exposure (gross of provisions) (1,2) ECL provisions ECL provisions coverage (4) Not within Stage Stage Stage IFRS 9 ECL Stage Stage Stage Stage Stage Stage 1 2 3 scope (3) Total 1 2 3 Total(1) 1 2 3 Total 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m % % % % ��50% 7,445 2,904 70 - 10,419 45 88 18 151 0.6 3.0 25.7 1.4 >50% and ��70% 4,445 1,732 216 - 6,393 35 68 70 173 0.8 3.9 32.4 2.7 >70% and ��80% 163 72 44 - 279 2 3 12 17 1.2 4.2 27.3 6.1 >80% and ��90% 66 91 20 - 177 1 5 4 10 1.5 5.5 20.0 5.6 >90% and ��100% 42 22 126 - 190 - 2 42 44 - 9.1 33.3 23.2 >100% and ��110% 15 23 63 - 101 - 4 11 15 - 17.4 17.5 14.9 >110% and ��130% 16 15 59 - 90 - 2 32 34 - 13.3 54.2 37.8 >130% and ��150% 5 8 10 - 23 - 1 5 6 - 12.5 50.0 26.1 >150% 63 21 28 - 112 1 3 18 22 1.6 14.3 64.3 19.6 Total with LTVs 12,260 4,888 636 - 17,784 84 176 212 472 0.7 3.6 33.3 2.7 Total portfolio average LTV 45% 47% 88% 50% 47% - - - - - - - - Other (5) 1,406 1,014 210 930 3,560 6 62 96 164 0.4 6.1 45.7 6.2 Development (6) 1,323 2,173 176 85 3,757 16 49 67 132 1.2 2.3 38.1 3.6 Total 14,989 8,075 1,022 1,015 25,101 106 287 375 768 0.7 3.6 36.7 3.2 31 December 2019 ��50% 8,787 468 40 837 10,132 8 8 11 27 0.1 1.7 27.5 0.3 >50% and ��70% 4,945 252 148 846 6,191 7 6 33 46 0.1 2.4 22.3 0.9 >70% and ��80% 269 38 51 9 367 1 1 19 21 0.4 2.6 37.3 5.9 >80% and ��90% 61 19 15 2 97 - 1 3 4 - 5.3 20.0 4.2 >90% and ��100% 50 81 22 1 154 - 2 15 17 - 2.5 68.2 11.1 >100% and ��110% 18 13 52 - 83 - - 5 5 - - 9.6 6.0 >110% and ��130% 20 26 46 1 93 - 1 16 17 - 3.8 34.8 18.5 >130% and ��150% 3 6 18 - 27 - - 7 7 - - 38.9 25.9 >150% 63 6 37 - 106 - 1 24 25 - 16.7 64.9 23.6 Total with LTVs 14,216 909 429 1,696 17,250 16 20 133 169 0.1 2.2 31.0 1.1 Total portfolio average LTV 46% 55% 101% 48% 48% - - - - - - - - Other (5) 658 149 123 1,905 2,835 5 4 54 63 0.8 2.7 43.9 6.8 Development (6) 2,377 272 144 178 2,971 8 4 73 85 0.3 1.5 50.7 3.0 Total 17,251 1,330 696 3,779 23,056 29 28 260 317 0.2 2.1 37.4 1.6 Notes: (1) Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as part of the overall CRE portfolio. (2) The exposure in Stage 3 mainly related to legacy assets. (3) Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives. (4) ECL provisions coverage is ECL provisions divided by current exposure. (5) Relates mainly to business banking, rate risk management products and unsecured corporate lending. The low Stage 3 ECL provisions coverage was driven by a single large exposure, which was written down to the expected recoverable amount. (6) Relates to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity. Key points �� Overall - The majority of the CRE portfolio was managed in the UK within Commercial Banking and Private Banking. Business appetite and strategy remained aligned across the segments. �� 2020 trends - The portfolio remained broadly unchanged in composition. While new activity in H1 2020 was subdued due to Covid-19, NatWest Group has supported existing customers with capital repayment holidays, interest roll-ups and extensions using CRE specific criteria and government-backed Covid-19 support schemes. The retail and leisure sectors were heavily affected by the government-imposed lockdown, resulting in low rental payments. The office sector was more resilient overall, albeit the smaller serviced-office sub-sector came under some stress given the short-term nature of income and site closures. Demand for office space in the medium-term is expected to decline with flexible working trends continuing post Covid-19. Residential development re-started but progress is slow with social distancing measures. The early resurgence in residential sales following the housing market hiatus is expected to curtail as the economic outlook becomes clearer. �� Credit quality - Despite significant challenges across the CRE sector, Heightened Monitoring inflows by volume were stable. By value, Heightened monitoring and Risk of Credit Loss increased due to some larger names, particularly in the retail sub-sector. �� Risk appetite - Appetite in CRE remains cautious. Pre-Covid-19 conservative lending criteria remains in place, including lower leverage required for new London office originations and parts of the retail sector. Capital and risk management Credit risk - Banking activities continued Flow statements 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 in this section may therefore 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 impact. 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 to 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 (Profit or loss (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 debt sale activity. �� There were small ECL flows from Stage 3 to Stage 1. This does not, however, indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period. �� NatWest Group continues to hold post model adjustments (PMAs) on a temporary basis ahead of the underlying model parameter changes being implemented, as well as on certain portfolio segments where management judge additional ECL is required. The impact of any change in PMAs during the year is reported under changes in risk parameters, as are any impacts arising from changes to the underlying models. �� 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 2020 428,604 322 28,630 752 7,135 2,718 464,369 3,792 Currency translation and other adjustments 6,386 4 430 9 165 46 6,981 59 Transfers from Stage 1 to Stage 2 (86,717) (385) 86,717 385 - - - - Transfers from Stage 2 to Stage 1 11,976 200 (11,976) (200) - - - - Transfers to Stage 3 (360) - (1,849) (145) 2,209 145 - - Transfers from Stage 3 133 20 835 75 (968) (95) - - Net re-measurement of ECL on stage transfer (170) 1,564 336 1,730 Changes in risk parameters (model inputs) 372 604 180 1,156 Other changes in net exposure 52,463 106 (2,024) (18) (744) (19) 49,695 69 Other (P&L only items) - - (97) (97) Income statement charges 308 2,150 400 2,858 Amounts written-off - - (1) (1) (405) (405) (406) (406) Unwinding of discount - - (46) (46) At 30 June 2020 412,485 469 100,762 3,025 7,392 2,860 520,639 6,354 Net carrying amount 412,016 97,737 4,532 514,285 At 1 January 2019 422,541 297 27,360 772 8,251 2,782 458,152 3,851 2019 movements (10,048) (17) (553) (90) (332) 13 (10,933) (94) At 30 June 2019 412,493 280 26,807 682 7,919 2,795 447,219 3,757 Net carrying amount 412,213 26,125 5,124 443,462 Capital and risk management Credit risk - Banking activities continued Flow statements The following flow statements show the material portfolios underpinning the NatWest Group flow statement. Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL UK Personal Banking - mortgages ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 135,625 12 10,283 86 1,289 215 147,197 313 Currency translation and other adjustments - - - - 9 9 9 9 Transfers from Stage 1 to Stage 2 (17,557) (5) 17,557 5 - - - - Transfers from Stage 2 to Stage 1 3,051 9 (3,051) (9) - - - - Transfers to Stage 3 (10) - (335) (12) 345 12 - - Transfers from Stage 3 7 - 172 12 (179) (12) - - Net re-measurement of ECL on stage transfer (8) 95 4 91 Changes in risk parameters (model inputs) 10 20 34 64 Other changes in net exposure 7,089 (1) (554) (5) (115) (6) 6,420 (12) Other (P&L only items) - - (14) (14) Income statement charges 1 110 18 129 Amounts written-off - - - - (8) (8) (8) (8) Unwinding of discount - - (18) (18) At 30 June 2020 128,205 17 24,072 192 1,341 230 153,618 439 Net carrying amount 128,188 23,880 1,111 153,179 At 1 January 2019 127,671 10 10,241 74 1,286 202 139,198 286 2019 movements 535 (1) 149 3 2 - 686 2 At 30 June 2019 128,206 9 10,390 77 1,288 202 139,884 288 Net carrying amount 128,197 10,313 1,086 139,596 Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase. �� The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL. �� In Stage 3, reflecting the various customer support mechanisms available, ECL was less impacted than in Stage 1 and Stage 2. �� In Stage 3, the ECL cost within changes in risk parameters included the forward-looking impact of forecast reductions in house prices, as well as the monthly assessment of the loss requirement, capturing underlying portfolio movements. �� Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. Write-off would typically be within five years from default but can be longer. Capital and risk management Credit risk - Banking activities continued Flow statements Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL UK Personal Banking - credit cards ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 2,804 38 1,246 131 127 88 4,177 257 Transfers from Stage 1 to Stage 2 (860) (29) 860 29 - - - - Transfers from Stage 2 to Stage 1 575 46 (575) (46) - - - - Transfers to Stage 3 (10) - (59) (24) 69 24 - - Transfers from Stage 3 - - 5 3 (5) (3) - - Net re-measurement of ECL on stage transfer (32) 163 23 154 Changes in risk parameters (model inputs) 5 (30) 5 (20) Other changes in net exposure (332) 17 (157) 14 (15) - (504) 31 Other (P&L only items) - - (2) (2) Income statement (releases)/charges (10) 147 26 163 Amounts written-off - - - - (49) (49) (49) (49) Unwinding of discount - - (3) - (3) At 30 June 2020 2,177 45 1,320 240 127 85 3,624 370 Net carrying amount 2,132 1,080 42 3,254 At 1 January 2019 2,632 36 1,226 118 108 73 3,966 227 2019 movements (82) (2) (29) (20) 20 15 (91) (7) At 30 June 2019 2,550 34 1,197 98 128 88 3,875 220 Net carrying amount 2,516 1,099 40 3,655 Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing PDs to increase. �� The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL. �� In Stage 3, reflecting the various customer support mechanisms available, ECL was less impacted than Stage 2. �� Charge-off (analogous to partial write-off) typically occurs after 12 missed payments. Capital and risk management Credit risk - Banking activities continued Flow statements Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial UK Personal Banking - other assets ECL assets ECL assets ECL assets ECL personal unsecured ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 5,417 63 2,250 252 608 518 8,275 833 Currency translation and other adjustments - - - - 2 3 2 3 Transfers from Stage 1 to Stage 2 (2,347) (52) 2,347 52 - - - - Transfers from Stage 2 to Stage 1 771 48 (771) (48) - - - - Transfers to Stage 3 (6) - (180) (59) 186 59 - - Transfers from Stage 3 1 - 19 6 (20) (6) - - Net re-measurement of ECL on stage transfer (32) 206 56 230 Changes in risk parameters (model inputs) 55 86 29 170 Other changes in net exposure 309 11 (473) (26) (13) (4) (177) (19) Other (P&L only items) - - (16) (16) Income statement charges 34 266 65 365 Amounts written-off - - - - (61) (61) (61) (61) Unwinding of discount - - (8) (8) At 30 June 2020 4,145 93 3,192 469 702 586 8,039 1,148 Net carrying amount 4,052 2,723 116 6,891 At 1 January 2019 5,073 54 1,970 239 503 402 7,546 695 2019 movements 329 2 191 3 92 98 612 103 At 30 June 2019 5,402 56 2,161 242 595 500 8,158 798 Net carrying amount 5,346 1,919 95 7,360 Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing PDs to increase. �� The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL. �� In Stage 3, reflecting the various customer support mechanisms available, ECL was impacted relatively less than in Stage 1 and Stage 2. �� The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL. �� Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than six years after default. Capital and risk management Credit risk - Banking activities continued Flow statements Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Ulster Bank RoI - mortgages ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 10,603 11 1,084 30 1,875 581 13,562 622 Currency translation and other adjustments 691 1 115 4 104 (7) 910 (2) Transfers from Stage 1 to Stage 2 (1,526) (5) 1,526 5 - - - - Transfers from Stage 2 to Stage 1 624 11 (624) (11) - - - - Transfers to Stage 3 (4) - (31) (2) 35 2 - - Transfers from Stage 3 13 - 179 12 (192) (12) - - Net re-measurement of ECL on stage transfer (10) 39 6 35 Changes in risk parameters (model inputs) 8 22 51 81 Other changes in net exposure (36) - (30) - (290) 2 (356) 2 Other (P&L only items) - - (11) (11) Income statement (releases)/charges (2) 61 48 107 Amounts written-off - - (1) (1) (157) (157) (158) (158) Unwinding of discount - - (9) (9) At 30 June 2020 10,365 16 2,218 98 1,375 457 13,958 571 Net carrying amount 10,349 2,120 918 13,387 At 1 January 2019 10,782 11 1,394 75 2,278 657 14,454 743 2019 movements 223 (6) (339) (57) (92) (37) (208) (100) At 30 June 2019 11,005 5 1,055 18 2,186 620 14,246 643 Net carrying amount 11,000 1,037 1,566 13,603 Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, coupled with the application of post-model adjustments to fully reflect the deteriorated economic outlook in ECL estimations. �� The updated economics also resulted in a net migration of assets from Stage 1 to Stage 2 with a consequent increase from a 12 month ECL to a lifetime ECL. �� The reduction in ECL in Stage 3 reflected ongoing deleveraging of the Ulster mortgage non-performing portfolio through the execution of two tranches of a portfolio sale. �� In Stage 3, the ECL cost within changes in risk parameters included the forward-looking impact of forecast reductions in house prices and the application of post-model adjustments to fully reflect the deteriorated economic outlook in ECL estimations. �� Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding or when the loan is sold to a third party. Capital and risk management Credit risk - Banking activities continued Flow statements Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial Commercial Banking - commercial assets ECL assets ECL assets ECL assets ECL real estate ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 25,556 31 2,218 28 895 306 28,669 365 Currency translation and other adjustments 25 - 3 - 2 - 30 - Transfers from Stage 1 to Stage 2 (9,216) (46) 9,216 46 - - - - Transfers from Stage 2 to Stage 1 893 13 (893) (13) - - - - Transfers to Stage 3 (101) - (412) (10) 513 10 - - Transfers from Stage 3 29 3 202 12 (231) (15) - - Net re-measurement of ECL on stage transfer - (13) - 157 - 87 - 231 Changes in risk parameters (model inputs) - 91 - 53 - 21 - 165 Other changes in net exposure 2,474 18 20 1 (88) 9 2,406 28 Other (P&L only items) - - - - Income statement charges 96 211 117 424 Amounts written-off - - - - (15) (15) (15) (15) Unwinding of discount - - (2) (2) At 30 June 2020 19,660 97 10,354 274 1,076 401 31,090 772 Net carrying amount 19,563 10,080 675 30,318 At 1 January 2019 29,180 37 1,500 24 1,631 459 32,311 520 2019 movements (11) 1 361 4 (189) (158) 162 (154) At 30 June 2019 29,169 38 1,861 28 1,442 301 32,473 366 Net carrying amount 29,131 1,833 1,141 32,107 Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase. �� The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL. �� For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available. �� Stage 3 recovery values are beginning to be impacted as market conditions deteriorate, leading to higher ECL charges. �� Other changes in net exposures have increased across Stage 1 and Stage 2 as customers draw down on existing facilities and undertake new lending supported by government schemes. Capital and risk management Credit risk - Banking activities continued Flow statements Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Commercial Banking - business banking ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 6,338 28 767 45 257 200 7,362 273 Transfers from Stage 1 to Stage 2 (1,312) (13) 1,312 13 - - - - Transfers from Stage 2 to Stage 1 310 22 (310) (22) - - - - Transfers to Stage 3 (12) - (78) (16) 90 16 - - Transfers from Stage 3 6 2 18 7 (24) (9) - - Net re-measurement of ECL on stage transfer (21) 88 32 99 Changes in risk parameters (model inputs) 9 (10) 11 10 Other changes in net exposure 3,870 5 (110) (7) (18) (5) 3,742 (7) Other (P&L only items) - - (41) (41) Income statement (releases)/charges (7) 71 (3) 61 Amounts written-off - - - - (53) (53) (53) (53) Unwinding of discount - - (2) (2) At 30 June 2020 9,200 32 1,599 98 252 190 11,051 320 Net carrying amount 9,168 1,501 62 10,731 At 1 January 2019 6,303 22 897 43 245 163 7,445 228 2019 movements 64 (5) (56) (9) - 24 8 10 At 30 June 2019 6,367 17 841 34 245 187 7,453 238 Net carrying amount 6,350 807 58 7,215 Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase. �� The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL. �� For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available. �� Other changes in net exposures have increased in Stage 1 as customers draw down on existing facilities and undertake new lending supported by government schemes. �� The portfolio continued to 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 and there are no further recoveries expected, but no later than five years after default. Capital and risk management Credit risk - Banking activities continued Flow statements Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Commercial Banking - other ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 53,722 94 8,788 143 1,386 516 63,896 753 Currency translation and other adjustments 709 - 154 - 20 18 883 18 Inter-group transfers (116) - - - - - (116) - Transfers from Stage 1 to Stage 2 (44,992) (193) 44,992 193 - - - - Transfers from Stage 2 to Stage 1 4,666 34 (4,666) (34) - - - - Transfers to Stage 3 (80) - (567) (19) 647 19 - - Transfers from Stage 3 47 13 225 19 (272) (32) - - Net re-measurement of ECL on stage transfer (37) 625 117 705 Changes in risk parameters (model inputs) 133 411 25 569 Other changes in net exposure 6,928 43 (805) 5 (142) (11) 5,981 37 Other (P&L only items) - - (6) (6) Income statement charges 139 1,041 125 1,305 Amounts written-off - - - - (51) (51) (51) (51) Unwinding of discount - - (2) (2) At 30 June 2020 20,884 87 48,121 1,343 1,588 599 70,593 2,029 Net carrying amount 20,797 46,778 990 68,565 At 1 January 2019 52,312 71 7,893 131 845 444 61,050 646 2019 movements 1,310 (3) (678) (5) (99) 118 532 111 At 30 June 2019 53,622 68 7,215 126 746 562 61,582 757 Net carrying amount 53,554 7,089 184 60,825 Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase. �� The updated economics also resulted in the migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL. �� For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available. �� Stage 3 recovery values have decreased as market conditions deteriorate, leading to higher ECL charges. �� Other changes in net exposures increased across Stage 1 and Stage 2 as customers draw down on existing facilities and undertake new borrowings supported by the government schemes. Capital and risk management Credit risk - Banking activities continued Flow statements Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL NatWest Markets (1) ��m ��m ��m ��m ��m ��m ��m ��m At 1 January 2020 32,892 10 188 5 183 131 33,263 146 Currency translation and other adjustments 1,345 - 36 (1) 13 14 1,394 13 Inter-group transfers (774) - - - - - (774) - Transfers from Stage 1 to Stage 2 (2,133) (6) 2,133 6 - - - - Transfers from Stage 2 to Stage 1 62 - (62) - - - - - Net re-measurement of ECL on stage transfer - 39 - 39 Changes in risk parameters (model inputs) 9 4 (9) 4 Other changes in net exposure 6,855 5 502 - (10) 4 7,347 9 Other (P&L only items) (4) (8) (12) Income statement (releases)/charges 10 43 (13) 40 Amounts written-off - - - - (4) (4) (4) (4) Unwinding of discount - - - - At 30 June 2020 38,247 18 2,797 53 182 136 41,226 207 Net carrying amount 38,229 2,744 46 41,019 At 1 January 2019 32,758 7 732 14 775 179 34,265 200 2019 movements 1,276 1 (278) (4) (9) (31) 989 (34) At 30 June 2019 34,034 8 454 10 766 148 35,254 166 Net carrying amount 34,026 444 618 35,088 Note: (1) Reflects the NatWest Markets segment and includes NWM N.V.. Key points �� The increase in ECL in Stage 1 and Stage 2 was primarily driven by the deterioration in the economic outlook as detailed in the Covid-19 - estimating ECL in uncertain times section, causing both PDs and LGDs to increase. �� The updated economics also resulted in a migration of assets from Stage 1 to Stage 2 with a consequential increase from a 12 month ECL to a lifetime ECL. �� For flows into Stage 3, defaults have been suppressed reflecting the various government customer support mechanisms available. Capital and risk management Credit risk - Banking activities continued Stage 2 decomposition - arrears status and contributing factors The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios. UK mortgages RoI mortgages Credit cards Other Total Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Personal Currently in arrears (>30 DPD) 532 21 34 3 30 10 102 35 698 69 Currently up-to-date 23,553 173 2,173 95 1,291 233 3,063 440 30,080 941 - PD deterioration 19,089 166 1,332 69 859 187 2,553 383 23,833 805 - Up-to-date, PD persistence 1,017 1 66 2 293 15 256 17 1,632 35 - Other driver (adverse credit, forbearance etc) 3,447 6 775 24 139 31 254 40 4,615 101 Total Stage 2 24,085 194 2,207 98 1,321 243 3,165 475 30,778 1,010 31 December 2019 Personal Currently in arrears (>30 DPD) 528 14 21 3 16 6 92 19 657 42 Currently up-to-date 9,860 73 1,056 28 1,243 126 2,218 234 14,377 461 - PD deterioration 4,184 60 208 15 727 92 1,482 188 6,601 355 - Up-to-date, PD persistence 1,812 5 252 4 422 20 540 29 3,026 58 - Other driver (adverse credit, forbearance etc) 3,864 8 596 9 94 14 196 17 4,750 48 Total Stage 2 10,388 87 1,077 31 1,259 132 2,310 253 15,034 503 Key points �� The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including forecast increases in unemployment, resulted in increased account level IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of accounts exhibited a SICR causing Stage 2 exposures to increase significantly. �� As expected, ECL coverage was higher in accounts that were more than 30 days past due than those in Stage 2 for other reasons. Property Corporate FI Other Total Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL 30 June 2020 ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Wholesale Currently in arrears (>30 DPD) 346 7 492 27 75 3 - - 913 37 Currently up-to-date 12,054 385 49,550 1,527 3,714 66 1 - 65,319 1,978 - PD deterioration 10,715 304 47,137 1,418 3,217 38 1 - 61,070 1,760 - Up-to-date, PD persistence 25 - 81 1 1 - - - 107 1 - Other driver (forbearance, RoCL etc) 1,314 81 2,332 108 496 28 - - 4,142 217 Total Stage 2 12,400 392 50,042 1,554 3,789 69 1 - 66,232 2,015 31 December 2019 Wholesale Currently in arrears (>30 DPD) 57 2 219 6 7 - - - 283 8 Currently up-to-date 2,523 45 9,485 192 539 4 4 - 12,551 241 - PD deterioration 1,386 28 6,083 144 368 3 3 - 7,840 175 - Up-to-date, PD persistence 45 1 183 5 2 - - - 230 6 - Other driver (forbearance, RoCL etc) 1,092 16 3,219 43 169 1 1 - 4,481 60 Total Stage 2 2,580 47 9,704 198 546 4 4 - 12,834 249 Key points �� The deteriorated economic outlook, as detailed in the Covid-19 - estimating ECL in uncertain times section, including significant falls in GDP and commercial real estate valuations, resulted in increased IFRS 9 PDs. Consequently, compared to the 2019 year-end, a larger proportion of the exposures exhibited a SICR causing Stage 2 exposures to increase significantly. �� PD deterioration is the main trigger for identifying a SICR and Stage 2 treatment, although there has also been an increase in arrears. �� There was an increase in flows on to the Risk of Credit Loss framework, however, these have been recorded under PD deterioration if this Stage 2 trigger has also been met. Capital and risk 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 2020 ��m % ��m % ��m % ��m % ��m % Personal trigger (1) PD movement 19,557 81.2 1,362 61.7 889 67.2 2,635 83.3 24,443 79.5 PD persistence 1,017 4.2 66 3.0 293 22.2 257 8.1 1,633 5.3 Adverse credit bureau recorded with credit reference agency 2,910 12.1 - - 51 3.9 69 2.2 3,030 9.8 Forbearance support provided 209 0.9 2 0.1 - - 37 1.2 248 0.8 Customers in collections 112 0.5 53 2.4 4 0.3 54 1.7 223 0.7 Other reasons (2) 228 0.9 724 32.8 84 6.4 109 3.4 1,145 3.7 Days past due >30 52 0.2 - - - - 4 0.1 56 0.2 24,085 100 2,207 100 1,321 100 3,165 100 30,778 100 31 December 2019 Personal trigger (1) PD movement 4,583 44.0 223 20.7 742 59.0 1,538 66.6 7,086 47.1 PD persistence 1,815 17.5 252 23.4 422 33.5 542 23.5 3,031 20.2 Adverse credit bureau recorded with credit reference agency 3,236 31.2 - - 59 4.7 102 4.4 3,397 22.6 Forbearance support provided 163 1.6 3 0.3 - - 10 0.4 176 1.2 Customers in collections 137 1.3 74 6.9 3 0.2 36 1.6 250 1.7 Other reasons (2) 339 3.3 525 48.7 33 2.6 56 2.4 953 6.3 Days past due >30 115 1.1 - - - - 26 1.1 141 0.9 10,388 100 1,077 100 1,259 100 2,310 100 15,034 100 For the notes to the table refer to the next page. Key points �� The primary driver of credit deterioration was PD, which including persistence, accounted for the majority of movements into Stage 2. High risk back-stops, for example, forbearance and adverse credit bureau, provide additional valuable discrimination. �� However, with a larger proportion of exposures now triggering PD deterioration following the deteriorated economic outlook, the proportion of accounts triggering high risk backstops alone decreased. Capital and risk management Credit risk - Banking activities continued Stage 2 decomposition by a significant increase in credit risk trigger Property Corporate FI Other Total Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL 30 June 2020 ��m % ��m % ��m % ��m % ��m % Wholesale trigger (1) PD movement 10,849 87.6 47,483 94.9 3,259 86.0 1 100 61,592 93.0 PD persistence 25 0.2 82 0.2 1 - - - 108 0.2 Risk of credit loss 449 3.6 1,007 2.0 211 5.6 - - 1,667 2.5 Forbearance support provided 17 0.1 16 - 19 0.5 - - 52 0.1 Customers in collections 16 0.1 63 0.1 - - - - 79 0.1 Other reasons (3,4) 959 7.7 1,296 2.6 266 7.0 - - 2,521 3.8 Days past due >30 85 0.7 95 0.2 33 0.9 - - 213 0.3 12,400 100 50,042 100 3,789 100 1 100 66,232 100 31 December 2019 Wholesale trigger (1) PD movement 1,416 54.8 6,129 63.1 368 67.4 3 75.0 7,916 61.7 PD persistence 45 1.7 183 1.9 3 0.5 - - 231 1.8 Risk of credit loss 915 35.5 2,394 24.7 69 12.6 - - 3,378 26.3 Forbearance support provided 31 1.2 140 1.4 29 5.3 - - 200 1.6 Customers in collections 10 0.4 47 0.5 - - - - 57 0.4 Other reasons (3,4) 146 5.7 659 6.8 71 13.0 1 25.0 877 6.8 Days past due >30 17 0.7 152 1.6 6 1.1 - - 175 1.4 2,580 100 9,704 100 546 100 4 100 12,834 100 Notes: (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) ��322 million of Ulster Bank Rol mortgage exposure which did not meet existing SICR criteria have been classified within Stage 2 following a strategic review and are included in other reasons. It includes customers that have accessed payday lending, interest only mortgages past end of term, a small number of mortgage customers on a highly flexible mortgage significantly behind their repayment plan and customers breaching risk appetite thresholds for new business acquisition. (3) Includes customers where a PD assessment cannot be undertaken due to missing PDs. (4) ��703 million of Ulster Bank Rol Wholesale exposure which did not meet existing SICR criteria have been classified within Stage 2 following strategic and sectoral reviews and are included in other reasons. Key points �� PD deterioration continued to be the primary trigger of migration of exposures from Stage 1 to Stage 2. As the economic outlook deteriorated, it now accounts for a higher proportion of the balances migrated to Stage 2. �� Moving exposures on to the Risk of Credit Loss framework remains an important backstop indicator of a SICR. �� The exposures classified under the Stage 2 Risk of Credit Loss framework trigger decreased over the period as more exposures were captured under the PD deterioration Stage 2 trigger. �� NatWest Group continues to appraise its IFRS 9 SICR rules in the context of effectiveness, volatility and industry consistency. The recent PD driven increase in Stage 2 exposures in the Wholesale portfolios highlighted the gradual diminished impact on ECL of the threshold for better quality portfolios under stress, suggesting possible conservatism in the SICR rules for these portfolios. As an illustration, an increase of the de minimus PD threshold to 0.75% in the SICR rules could decrease the Wholesale portfolios Stage 2 exposure by 24% with a two basis point reduction on good book ECL coverage. Capital and risk management Credit risk - Banking activities continued Stage 3 vintage analysis The table below shows estimated vintage analysis of the material Stage 3 portfolios totalling 83% of the Stage 3 loans of ��7.0 billion. 30 June 2020 31 December 2019 UK Personal Ulster Bank UK Personal Ulster Bank Banking RoI Banking RoI mortgages mortgages Wholesale mortgages mortgages Wholesale Stage 3 loans (��bn) 1.3 1.4 3.1 1.3 1.9 2.3 Vintage (time in default): <1 year 33% 5% 46% 32% 13% 37% 1-3 years 26% 18% 15% 23% 12% 14% 3-5 years 10% 23% 9% 11% 23% 9% 5-10 years 23% 41% 30% 26% 44% 40% >10 years 8% 12% - 8% 8% - 100% 100% 100% 100% 100% 100% Key points �� Mortgages - The proportion of the Stage 3 defaulted population who have been in default for over five years reflected NatWest Group's support for customers in financial difficulty. When customers continue to engage constructively with NatWest Group, making regular payments, NatWest Group continues to support them. NatWest Group's provisioning approach retains customers in Stage 3 for a life-time loss provisioning calculation, even when their arrears status reverts to below 90 days past due. �� Wholesale - The value of Stage 3 loans that have been impaired for > 5 years was mainly due to customers being in a protracted formal insolvency process or subject to litigation or a complaints process. Asset quality 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 2020 ��m ��m ��m ��m ��m ��m ��m ��m % % % % UK mortgages AQ1-AQ4 92,865 4,672 - 97,537 10 14 - 24 0.01 0.30 - 0.02 AQ5-AQ8 49,355 18,440 - 67,795 7 138 - 145 0.01 0.75 - 0.21 AQ9 325 973 - 1,298 - 42 - 42 - 4.32 - 3.24 AQ10 - - 1,533 1,533 - - 250 250 - - 16.31 16.31 142,545 24,085 1,533 168,163 17 194 250 461 0.01 0.81 16.31 0.27 RoI mortgages (1) AQ1-AQ4 7,820 964 - 8,784 13 37 - 50 0.17 3.84 - 0.57 AQ5-AQ8 2,576 927 - 3,503 4 45 - 49 0.16 4.85 - 1.40 AQ9 6 316 - 322 - 16 - 16 - 5.06 - 4.97 AQ10 - - 1,370 1,370 - - 456 456 - - 33.28 33.28 10,402 2,207 1,370 13,979 17 98 456 571 0.16 4.44 33.28 4.08 Credit cards AQ1-AQ4 35 7 - 42 2 1 - 3 5.71 14.29 - 7.14 AQ5-AQ8 2,350 1,260 - 3,610 45 226 - 271 1.91 17.94 - 7.51 AQ9 2 54 - 56 - 16 - 16 - 29.63 - 28.57 AQ10 - - 110 110 - - 86 86 - - 78.18 78.18 2,387 1,321 110 3,818 47 243 86 376 1.97 18.40 78.18 9.85 Other personal AQ1-AQ4 883 48 - 931 7 11 - 18 0.79 22.92 - 1.93 AQ5-AQ8 5,148 2,791 - 7,939 87 357 - 444 1.69 12.79 - 5.59 AQ9 67 326 - 393 3 107 - 110 4.48 32.82 - 27.99 AQ10 - - 734 734 - - 612 612 - - 83.38 83.38 6,098 3,165 734 9,997 97 475 612 1,184 1.59 15.01 83.38 11.84 Total personal AQ1-AQ4 101,603 5,691 - 107,294 32 63 - 95 0.03 1.11 - 0.09 AQ5-AQ8 59,429 23,418 - 82,847 143 766 - 909 0.24 3.27 - 1.10 AQ9 400 1,669 - 2,069 3 181 - 184 0.75 10.84 - 8.89 AQ10 - - 3,747 3,747 - - 1,404 1,404 - - 37.47 37.47 161,432 30,778 3,747 195,957 178 1,010 1,404 2,592 0.11 3.28 37.47 1.32 Note: (1) AQ10 includes ��0.5 billion (31 December 2019 - ��0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3. Capital and risk management Credit risk - Banking activities continued Asset quality 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 2019 ��m ��m ��m ��m ��m ��m ��m ��m % % % % UK mortgages AQ1-AQ4 90,494 2,579 - 93,073 6 7 - 13 0.01 0.27 - 0.01 AQ5-AQ8 58,039 6,939 - 64,978 8 55 - 63 0.01 0.79 - 0.10 AQ9 96 870 - 966 - 25 - 25 - 2.87 - 2.59 AQ10 - - 1,414 1,414 - - 240 240 - - 16.97 16.97 148,629 10,388 1,414 160,431 14 87 240 341 0.01 0.84 16.97 0.21 RoI mortgages (1) AQ1-AQ4 6,215 212 - 6,427 4 4 - 8 0.06 1.89 - 0.12 AQ5-AQ8 4,416 615 - 5,031 7 19 - 26 0.16 3.09 - 0.52 AQ9 1 250 - 251 - 8 - 8 - 3.20 - 3.19 AQ10 - - 1,863 1,863 - - 581 581 - - 31.19 31.19 10,632 1,077 1,863 13,572 11 31 581 623 0.10 2.88 31.19 4.59 Credit cards AQ1-AQ4 364 11 - 375 1 1 - 2 0.27 9.09 - 0.53 AQ5-AQ8 2,734 1,187 - 3,921 39 112 - 151 1.43 9.44 - 3.85 AQ9 5 61 - 66 - 19 - 19 - 31.15 - 28.79 AQ10 - - 116 116 - - 89 89 - - 76.72 76.72 3,103 1,259 116 4,478 40 132 89 261 1.29 10.48 76.72 5.83 Other personal AQ1-AQ4 1,231 59 - 1,290 4 5 - 9 0.32 8.47 - 0.70 AQ5-AQ8 6,127 2,045 - 8,172 59 195 - 254 0.96 9.54 - 3.11 AQ9 78 206 - 284 2 53 - 55 2.56 25.73 - 19.37 AQ10 - - 643 643 - - 539 539 - - 83.83 83.83 7,436 2,310 643 10,389 65 253 539 857 0.87 10.95 83.83 8.25 Total personal AQ1-AQ4 98,304 2,861 - 101,165 15 17 - 32 0.02 0.59 - 0.03 AQ5-AQ8 71,316 10,786 - 82,102 113 381 - 494 0.16 3.53 - 0.60 AQ9 180 1,387 - 1,567 2 105 - 107 1.11 7.57 - 6.83 AQ10 - - 4,036 4,036 - - 1,449 1,449 - - 35.90 35.90 169,800 15,034 4,036 188,870 130 503 1,449 2,082 0.08 3.35 35.90 1.10 Note: (1) AQ10 includes ��0.5 billion (31 December 2019 - ��0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but are included in Stage 3. Key points �� In the Personal portfolios, the asset quality distribution deteriorated slightly in credit cards and other personal since the year-end, with the Basel II point-in-time PDs yet to reflect the expected credit deterioration. �� 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 relatively high level of Stage 3 impaired assets (AQ10) in RoI mortgages reflected their legacy mortgage portfolio and the residual effects from the financial crisis. �� 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. Capital and risk management Credit risk - Banking activities continued Asset quality 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 2020 ��m ��m ��m ��m ��m ��m ��m ��m % % % % Property AQ1-AQ4 14,066 3,052 - 17,118 16 56 - 72 0.11 1.83 - 0.42 AQ5-AQ8 12,100 9,169 - 21,269 110 320 - 430 0.91 3.49 - 2.02 AQ9 616 179 - 795 - 16 - 16 - 8.94 - 2.01 AQ10 - - 1,259 1,259 - - 513 513 - - 40.75 40.75 26,782 12,400 1,259 40,441 126 392 513 1,031 0.47 3.16 40.75 2.55 Corporate AQ1-AQ4 9,419 15,479 - 24,898 21 155 - 176 0.22 1.00 - 0.71 AQ5-AQ8 18,094 34,000 - 52,094 111 1,350 - 1,461 0.61 3.97 - 2.80 AQ9 2,148 563 - 2,711 1 49 - 50 0.05 8.70 - 1.84 AQ10 - - 2,012 2,012 - - 938 938 - - 46.62 46.62 29,661 50,042 2,012 81,715 133 1,554 938 2,625 0.45 3.11 46.62 3.21 Financial institutions AQ1-AQ4 34,532 2,342 - 36,874 13 12 - 25 0.04 0.51 - 0.07 AQ5-AQ8 4,590 1,440 - 6,030 9 57 - 66 0.20 3.96 - 1.09 AQ9 11 7 - 18 - - - - - - - - AQ10 - - 10 10 - - 5 5 - - 50.00 50.00 39,133 3,789 10 42,932 22 69 5 96 0.06 1.82 50.00 0.22 Sovereign AQ1-AQ4 9,274 - - 9,274 9 - - 9 0.10 - - 0.10 AQ5-AQ8 157 1 - 158 1 - - 1 0.64 - - 0.63 AQ 9 5 - - 5 - - - - - - - - AQ10 - - 6 6 - - - - - - - - 9,436 1 6 9,443 10 - - 10 0.11 - - 0.11 Total AQ1-AQ4 67,291 20,873 - 88,164 59 223 - 282 0.09 1.07 - 0.32 AQ5-AQ8 34,941 44,610 - 79,551 231 1,727 - 1,958 0.66 3.87 - 2.46 AQ9 2,780 749 - 3,529 1 65 - 66 0.04 8.68 - 1.87 AQ10 - - 3,287 3,287 - - 1,456 1,456 - - 44.30 44.30 105,012 66,232 3,287 174,531 291 2,015 1,456 3,762 0.28 3.04 44.30 2.16 Capital and risk management Credit risk - Banking activities continued Asset quality 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 2019 ��m ��m ��m ��m ��m ��m ��m ��m % % % % Property AQ1-AQ4 15,590 413 - 16,003 7 6 - 13 0.04 1.45 - 0.08 AQ5-AQ8 17,268 2,115 - 19,383 38 36 - 74 0.22 1.70 - 0.38 AQ9 38 52 - 90 - 5 - 5 - 9.62 - 5.56 AQ10 - - 895 895 - - 402 402 - - 44.92 44.92 32,896 2,580 895 36,371 45 47 402 494 0.14 1.82 44.92 1.36 Corporate AQ1-AQ4 22,373 616 - 22,989 12 11 - 23 0.05 1.79 - 0.10 AQ5-AQ8 37,133 8,803 - 45,936 111 169 - 280 0.30 1.92 - 0.61 AQ9 183 285 - 468 1 18 - 19 0.55 6.32 - 4.06 AQ10 - - 1,649 1,649 - - 859 859 - - 52.09 52.09 59,689 9,704 1,649 71,042 124 198 859 1,181 0.21 2.04 52.09 1.66 Financial institutions AQ1-AQ4 32,297 225 - 32,522 7 1 - 8 0.02 0.44 - 0.02 AQ5-AQ8 3,406 319 - 3,725 9 2 - 11 0.26 0.63 - 0.30 AQ9 4 2 - 6 - 1 - 1 - 50.00 - 16.67 AQ10 - - 13 13 - - 8 8 - - 61.54 61.54 35,707 546 13 36,266 16 4 8 28 0.04 0.73 61.54 0.08 Sovereign AQ1-AQ4 7,268 4 - 7,272 7 - - 7 0.10 - - 0.10 AQ5-AQ8 142 - - 142 - - - - - - - - AQ10 - - 5 5 - - - - - - - - 7,410 4 5 7,419 7 - - 7 0.09 - - 0.09 Total AQ1-AQ4 77,528 1,258 - 78,786 33 18 - 51 0.04 1.43 - 0.06 AQ5-AQ8 57,949 11,237 - 69,186 158 207 - 365 0.27 1.84 - 0.53 AQ9 225 339 - 564 1 24 - 25 0.44 7.08 - 4.43 AQ10 - - 2,562 2,562 - - 1,269 1,269 - - 49.53 49.53 135,702 12,834 2,562 151,098 192 249 1,269 1,710 0.14 1.94 49.53 1.13 Key points �� Across the Wholesale portfolio, the asset quality band distribution differed, reflecting the diverse nature of the sectors, however, asset quality deterioration was observed across most sectors in H1 2020 as the impacts of Covid-19 affected customers' operations and markets. �� Within the Wholesale portfolio, customer credit grades are being reassessed as and when a request for financing is made, a scheduled customer credit review is undertaken or a material event specific to that customer occurs. �� As noted above, a request for support using one of the government-backed Covid-19 support schemes is not itself a reason for a customer's credit grade to be amended. �� The magnitude of credit migration in Wholesale was influenced by Covid-19 specific guidance on credit grading for customers in place during Q2 2020. NatWest Group established this guidance to provide consistency and fair outcomes for these customers, whilst appropriately reflecting the economic outlook at that time. Large or complex customers were graded using financial forecasts, incorporating both the impact of Covid-19, and the length of the time to return to within credit appetite metrics. �� All other customers who were not subject to any wider SICR triggers and who were assessed as having the ability in the medium-term post-crisis to be viable and meet credit appetite metrics were graded using audited accounts. �� NatWest Group identified those customers for whom additional borrowing would require remedial action to return to within risk appetite over the medium term, and customers who were exhibiting signs of financial stress before the Covid-19 crisis. These customers were graded with reference to the impact Covid-19 had on their business. �� Tailored guidance applies to financial institutions and, where appropriate, specialist credit grading models. �� ECL provisions coverage shows the expected trend with increased coverage in the poorer asset quality bands, and also by stage. �� The relatively low provision coverage for Stage 3 loans in the property sector reflected the secured nature of the exposures. Capital and risk management Credit risk - Trading activities This section details the credit risk profile of NatWest Group's trading activities. Securities financing transactions and collateral 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 2020 ��m ��m ��m ��m ��m ��m Gross 80,186 79,972 214 68,927 66,816 2,111 IFRS offset (43,196) (43,196) - (43,196) (43,196) - Carrying value 36,990 36,776 214 25,731 23,620 2,111 Master netting arrangements (321) (321) - (321) (321) - Securities collateral (33,982) (33,982) - (23,299) (23,299) - Potential for offset not recognised under IFRS (34,303) (34,303) - (23,620) (23,620) - Net 2,687 2,473 214 2,111 - 2,111 31 December 2019 Gross 74,156 73,348 808 71,494 69,020 2,474 IFRS offset (39,247) (39,247) - (39,247) (39,247) - Carrying value 34,909 34,101 808 32,247 29,773 2,474 Master netting arrangements (562) (562) - (562) (562) - Securities collateral (33,178) (33,178) - (29,211) (29,211) - Potential for offset not recognised under IFRS (33,740) (33,740) - (29,773) (29,773) - Net 1,169 361 808 2,474 - 2,474 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. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com. END IR SDUEDSESSEFW

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