Quarterly Report • Jul 28, 2023
Quarterly Report
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In H1 2023, we have continued to focus on our strengths to support our customers' evolving needs with financing and risk solutions. Our improved connectivity as part of the NatWest Group Commercial & Institutional segment is enabling us to unlock further opportunities for growth and to build even deeper relationships with NatWest Group customers.
We have delivered a strong performance in the first half of the year and maintained our robust capital and liquidity position. We continue to monitor the evolving economic outlook including the continued rise in cost of living and are mindful of the impact that rising inflation and higher interest rates are having on our customers.
As of 30 June 2023, NWM N.V. surpassed a balance sheet total of €30 billion at the regulatory consolidated level. By exceeding this threshold, NWM N.V. will most likely qualify as a "significant institution" in the foreseeable future, which may result in changes to supervision and regulations applicable to it.
Climate and sustainable funding and financing have continued to perform well, and as at the end of H1 2023 we had delivered €14.7 billion towards the NatWest Group climate and sustainable funding and financing target(1) of £100 billion between 1 July 2021 and the end of 2025.
In March 2023, Anne Snel stepped down as Supervisory Board Member following the conclusion of her term of appointment.
We retain the Outlook for the CET1 ratio and leverage ratio as set out in NatWest Markets N.V. 2022 Annual Report and Accounts. NWM N.V. Group intends to issue potentially up to €1 billion in 2023, subject to the evolution of asset origination, through a mix of public benchmark transactions and private placements.
(1) This comprises funding and financing for climate and sustainable finance to support transition towards a net-zero and climate-resilient economy. NatWest Group uses its climate and sustainable funding and financing inclusion criteria (CSFFI criteria) to determine the assets, activities and companies that are eligible to be counted towards its climate and sustainable funding and financing targets.
(2) The 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 of NatWest Markets N.V. 2022 Annual Report and Accounts and the Summary Risk Factors set out in this announcement for H1 2023. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.
Profit for the period was €61 million compared with €11 million in H1 2022. The total increase of €50 million was mainly due to net interest income of €50 million compared with a net interest expense of €1 million in H1 2022 and an impairment release of €3 million compared with an impairment loss of €7 million in H1 2022. This was partially offset by a €10 million decrease in noninterest income from €105 million to €95 million.
Net interest income was a net income of €50 million compared with a net expense of €1 million in H1 2022, primarily driven by rising interest rates and by changes in the lending portfolio and the funding book in H1 2023 in comparison with H1 2022.
Non-interest income decreased by €10 million to €95 million compared with a gain of €105 million in H1 2022. Net fees and commissions of €99 million (H1 2022 - €94 million) primarily related to transfer pricing income from NWM Plc of €61 million (H1 2022 - €60 million) and syndicate fee income of €39 million (H1 2022 - €34 million). Income from trading activities was a loss of €5 million compared with a gain of €10 million in H1 2022. Other operating income was a gain of €1 million in both H1 2023 and H1 2022.
Operating expenses were €82 million compared with €79 million in H1 2022. Staff costs increased by €1 million to €40 million in H1 2023. Premises and equipment costs were €3 million (H1 2022 - €3 million). Administrative expenses increased by €3 million to €38 million, compared with €35 million in H1 2022. Depreciation and amortisation was €1 million (H1 2022 - €2 million).
Impairments were a release of €3 million, compared with a loss of €7 million in H1 2022, mainly driven by improvements in economics and scenario weightings which were partially offset by post model adjustments.
Tax charge was €5 million compared with a tax charge of €7 million in H1 2022, largely driven by the utilisation of deferred tax assets.
Total assets and total liabilities increased by €4.0 billion and €4.1 billion to €30.4 billion and €28.2 billion respectively at 30 June 2023, compared with €26.4 billion and €24.1 billion at 31 December 2022.
Capital ratios and risk-weighted assets (RWAs) on the CRR transitional basis are set out below.
| 30 June | 31 December | |
|---|---|---|
| 2023 | 2022 | |
| Capital ratios | % | % |
| Common Equity Tier 1 (CET1) | 20.4 | 21.0 |
| Tier 1 | 23.6 | 24.0 |
| Total | 25.5 | 25.9 |
| Risk-weighted assets | €m | €m |
| Credit risk | 6,493 | 6,596 |
| Market risk | 1,134 | 1,116 |
| Operational risk | 332 | 354 |
| Settlement risk | — | — |
| Total RWAs | 7,959 | 8,066 |
| Liquidity | % | % |
| Liquidity coverage ratio (LCR) | 196 | 230 |
− The lower capital ratios are largely due to dividend payments in H1 2023.
− RWAs remained stable throughout H1 2023.
− The decrease in the LCR ratio is driven by an increase in short term funding.
| 30 June 2023 €m Interest receivable 145 Interest payable (95) Net interest income 50 Fees and commissions receivable 110 Fees and commissions payable (11) Income from trading activities (5) Other operating income 1 Non-interest income 95 Total income 145 Staff costs (40) Premises and equipment (3) Other administrative expenses (38) Depreciation and amortisation (1) Operating expenses (82) Profit before impairment releases/losses 63 Impairment releases/(losses) 3 Operating profit before tax 66 Tax charge (5) Profit for the period 61 Attributable to: Ordinary shareholders 50 AT1 capital securities 11 61 |
Half year ended | |
|---|---|---|
| 30 June | ||
| 2022 | ||
| €m | ||
| 24 | ||
| (25) | ||
| (1) | ||
| 106 | ||
| (12) | ||
| 10 | ||
| 1 | ||
| 105 | ||
| 104 | ||
| (39) | ||
| (3) | ||
| (35) | ||
| (2) | ||
| (79) | ||
| 25 | ||
| (7) | ||
| 18 | ||
| (7) | ||
| 11 | ||
| 4 | ||
| 7 | ||
| 11 |
| Half year ended | ||
|---|---|---|
| 30 June | 30 June | |
| 2023 | 2022 | |
| €m | €m | |
| Profit for the period | 61 | 11 |
| Items that do not qualify for reclassification | ||
| Changes in fair value of credit in financial liabilities designated at FVTPL | (5) | 59 |
| FVOCI financial assets | 1 | (5) |
| (4) | 54 | |
| Items that do qualify for reclassification | ||
| FVOCI financial assets | 3 | (8) |
| Cash flow hedges | (11) | — |
| Currency translation | — | (1) |
| (8) | (9) | |
| Other comprehensive (losses)/income after tax | (12) | 45 |
| Total comprehensive income for the period | 49 | 56 |
| Attributable to: | ||
| Ordinary shareholders | 38 | 49 |
| AT1 capital securities | 11 | 7 |
| 49 | 56 |
| 30 June | 31 December | |
|---|---|---|
| 2023 | 2022 | |
| €m | €m | |
| Assets | ||
| Cash and balances at central banks | 8,339 | 3,961 |
| Trading assets | 4,316 | 4,440 |
| Derivatives | 9,391 | 12,335 |
| Settlement balances | 2,401 | 739 |
| Loans to banks - amortised cost | 270 | 223 |
| Loans to customers - amortised cost | 1,147 | 1,024 |
| Amounts due from holding company and fellow subsidiaries | 2,391 | 1,951 |
| Other financial assets | 2,104 | 1,673 |
| Other assets | 83 | 90 |
| Total assets | 30,442 | 26,436 |
| Liabilities | ||
| Bank deposits | 147 | 150 |
| Customer deposits | 6,282 | 1,046 |
| Amounts due to holding company and fellow subsidiaries | 4,809 | 4,359 |
| Settlement balances | 1,812 | 608 |
| Trading liabilities | 4,486 | 3,998 |
| Derivatives | 8,081 | 11,114 |
| Other financial liabilities | 2,264 | 2,441 |
| Subordinated liabilities | 272 | 365 |
| Other liabilities | 60 | 64 |
| Total liabilities | 28,213 | 24,145 |
| Total equity | 2,229 | 2,291 |
| Total liabilities and equity | 30,442 | 26,436 |
| Half year ended | ||
|---|---|---|
| 30 June | 30 June | |
| 2023 | 2022 | |
| €m | €m | |
| Share capital and premium account - at beginning of period (1) | 1,700 | 1,700 |
| Share capital restructuring (2) | (150) | — |
| At end of period | 1,550 | 1,700 |
| AT1 capital securities - at beginning and end of period | 250 | 250 |
| FVOCI reserve - at beginning of period | (11) | 4 |
| Unrealised gains/(losses) | 4 | (17) |
| Realised losses | — | 4 |
| At end of period | (7) | (9) |
| Cash flow hedging reserve - at beginning of period | (10) | — |
| Amount recognised in equity | (27) | — |
| Amount transferred from equity to earnings | 16 | — |
| At end of period | (21) | — |
| Foreign exchange reserve - at beginning of period | 6 | 13 |
| Retranslation of net assets | — | (1) |
| At end of period | 6 | 12 |
| Retained earnings - at beginning of period | 356 61 |
280 11 |
| Profit attributable to ordinary shareholders and other equity owners AT1 capital securities dividends paid |
(11) | (7) |
| Ordinary dividends paid | (100) | — |
| Share capital restructuring (2) | 150 | — |
| Changes in fair value of credit in financial liabilities designated at FVTPL | (5) | 59 |
| At end of period | 451 | 343 |
| Total equity at end of period | 2,229 | 2,296 |
| Attributable to: | ||
| Ordinary shareholders | 1,979 | 2,046 |
| AT1 capital securities | 250 | 250 |
| 2,229 | 2,296 |
(1) Includes Ordinary share capital of €50,004 (2022 - €50,004).
(2) On 31 March 2023, after obtaining regulatory permission, NWM N.V. executed a share capital restructuring, converting €150 million of share premium to retained earnings.
| Half year ended | ||
|---|---|---|
| 30 June | 30 June | |
| 2023 | 2022 | |
| €m | €m | |
| Operating activities | ||
| Operating profit before tax | 66 | 18 |
| Adjustments for non-cash and other items | (32) | (65) |
| Net cash flows from trading activities | 34 | (47) |
| Changes in operating assets and liabilities | 6,339 | (196) |
| Net cash flows from operating activities before tax | 6,373 | (243) |
| Income taxes paid | (2) | (2) |
| Net cash flows from operating activities | 6,371 | (245) |
| Net cash flows from investing activities | (401) | (345) |
| Net cash flows from financing activities | (211) | (23) |
| Effects of exchange rate changes on cash and cash equivalents | 27 | 22 |
| Net increase/(decrease) in cash and cash equivalents | 5,786 | (591) |
| Cash and cash equivalents at beginning of period | 6,518 | 7,229 |
| Cash and cash equivalents at end of period | 12,304 | 6,638 |
The condensed consolidated financial statements should be read in conjunction with NatWest Markets N.V.'s 2022 Annual Report and Accounts. The accounting policies are the same as those applied in the consolidated financial statements.
The directors have prepared the condensed consolidated financial statements on a going concern basis after assessing the principal risks, forecasts, projections and other relevant evidence over the twelve months from the date they are approved and in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union.
Amendments to IFRS effective from 1 January 2023 had no material effect on the condensed consolidated financial statements.
| Half year ended | ||
|---|---|---|
| 30 June | 30 June | |
| 2023 | 2022 | |
| €m | €m | |
| Fees and commissions receivable | ||
| - Transfer pricing arrangements (Note 10) | 61 | 60 |
| - Underwriting fees | 37 | 30 |
| - Lending and financing | 12 | 10 |
| - Other | — | 6 |
| Total | 110 | 106 |
| Fees and commissions payable | (11) | (12) |
| Net fees and commissions | 99 | 94 |
The actual tax charge differs from the expected tax charge computed by applying the statutory tax rate of the Netherlands of 25.8% (2022 - 25.8%) as follows:
| Half year ended | ||
|---|---|---|
| 30 June | 30 June | |
| 2023 | 2022 | |
| €m | €m | |
| Profit before tax | 66 | 18 |
| Expected tax charge | (17) | (5) |
| Foreign profits taxed at other rates | (1) | (1) |
| Losses brought forward and utilised | 9 | — |
| Tax on AT1 capital securities | 3 | 2 |
| Adjustments in respect to prior years | 1 | (3) |
| Actual tax charge | (5) | (7) |
Deferred tax assets of €52 million recognised at 31 December 2022 have decreased to €49 million at 30 June 2023 due to utilisations. NWM N.V. Group has considered the carrying value of this asset as at 30 June 2023 and concluded that it is recoverable based on future profit projections.
The table below shows third party derivatives by type of contract. The master netting agreements and collateral shown do not result in a net presentation on the balance sheet under IFRS.
| 30 June 2023 | 31 December 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Notional | ||||||||||
| GBP | USD | EUR | Other | Total | Assets Liabilities | Notional | Assets Liabilities | |||
| €bn | €bn | €bn | €bn | €bn | €m | €m | €bn | €m | €m | |
| Gross exposure | 7,393 | 5,909 | 8,993 | 8,135 | ||||||
| IFRS offset | (204) | (204) | (798) | (798) | ||||||
| Carrying value | 53 | 52 | 945 | 26 | 1,076 | 7,189 | 5,705 | 2,119 | 8,195 | 7,337 |
| Of which: | ||||||||||
| Interest rate (1) | 39 | 14 | 895 | 5 | 953 | 5,122 | 3,741 | 1,966 | 5,272 | 3,940 |
| Exchange rate | 14 | 38 | 49 | 21 | 122 | 2,065 | 1,958 | 152 | 2,922 | 3,394 |
| Credit | — | — | 1 | — | 1 | 2 | 6 | 1 | 1 | 3 |
| Carrying value | 1,076 | 7,189 | 5,705 | 2,119 | 8,195 | 7,337 | ||||
| Counterparty mark-to-market netting | (3,011) | (3,011) | (3,752) | (3,752) | ||||||
| Cash collateral | (3,055) | (1,815) | (3,279) | (2,348) | ||||||
| Securities collateral | (732) | (101) | (646) | (423) | ||||||
| Net exposure | 391 | 778 | 518 | 814 | ||||||
| Banks (2) | 16 | 15 | 66 | 13 | ||||||
| Other financial institutions (3) | 165 | 338 | 166 | 357 | ||||||
| Corporate (4) | 210 | 400 | 273 | 432 | ||||||
| Government (5) | — | 25 | 13 | 12 | ||||||
| Net exposure | 391 | 778 | 518 | 814 | ||||||
| Europe | 368 | 778 | 462 | 814 | ||||||
| US | 12 | — | 50 | — | ||||||
| RoW | 11 | — | 6 | — | ||||||
| Net exposure | 391 | 778 | 518 | 814 |
| derivative assets | ||
|---|---|---|
| AQ1-AQ4 | 361 | 468 |
| AQ5-AQ10 | 30 | 50 |
| Net exposure | 391 | 518 |
(1) The notional amount of interest rate derivatives includes €828 billion (31 December 2022 – €1,865 billion) in respect of contracts cleared through central clearing counterparties. (2) Transactions with certain counterparties with whom NWM N.V. has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that
may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions where the collateral agreements are not deemed to be legally enforceable.
(3) Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NWM N.V.'s external rating.
(4) Mainly large corporates with whom NWM N.V. may have netting arrangements in place, but operational capability does not support collateral posting.
(5) Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their favour.
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.
| MFVTPL FVOCI cost assets Total €m €m €m €m €m Assets Cash and balances at central banks 8,339 8,339 Trading assets 4,316 4,316 Derivatives 9,391 9,391 Settlement balances 2,401 2,401 Loans to banks - amortised cost 270 270 Loans to customers - amortised cost 1,147 1,147 Amounts due from holding companies and fellow subsidiaries 1,494 887 10 2,391 Other financial assets 1 989 1,114 2,104 Other assets 83 83 30 June 2023 15,202 989 14,158 93 30,442 Cash and balances at central banks 3,961 3,961 Trading assets 4,440 4,440 Derivatives 12,335 12,335 Settlement balances 739 739 Loans to banks - amortised cost 223 223 Loans to customers - amortised cost 1,024 1,024 Amounts due from holding companies and fellow subsidiaries 1,406 535 10 1,951 Other financial assets 1 1,309 363 1,673 Other assets 90 90 31 December 2022 18,182 1,309 6,845 100 26,436 Held-for- Amortised Other trading DFV cost liabilities Total €m €m €m €m €m Liabilities Bank deposits 147 147 Customer deposits 6,282 6,282 Amounts due to holding companies and fellow subsidiaries 2,565 2,222 22 4,809 Settlement balances 1,812 1,812 Trading liabilities 4,486 4,486 Derivatives 8,081 8,081 Other financial liabilities 291 1,973 2,264 Subordinated liabilities 252 20 272 Other liabilities 10 50 60 30 June 2023 15,132 543 12,466 72 28,213 Bank deposits 150 150 Customer deposits 1,046 1,046 Amounts due to holding companies and fellow subsidiaries 2,857 1,480 22 4,359 Settlement balances 608 608 Trading liabilities 3,998 3,998 Derivatives 11,114 11,114 Other financial liabilities 370 2,071 2,441 Subordinated liabilities (1) 251 114 365 Other liabilities (2) 8 56 64 |
Amortised | Other | ||||
|---|---|---|---|---|---|---|
| 31 December 2022 | 17,969 | 621 | 5,477 | 78 | 24,145 |
(1) The cumulative own credit adjustment, representing an increase of the subordinated liability value, was €6 million (31 December 2022 - €38 million).
(2) Includes lease liabilities of €8 million (31 December 2022 - €7 million), held at amortised cost.
NWM N.V. Group's financial assets and liabilities include amounts due from/to holding companies and fellow subsidiaries as below:
| 30 June 2023 | 31 December 2022 | |||||
|---|---|---|---|---|---|---|
| Holding companies |
Fellow subsidiaries |
Total | Holding companies |
Fellow subsidiaries |
Total | |
| €m | €m | €m | €m | €m | €m | |
| Assets | ||||||
| Trading assets | 1,494 | — | 1,494 | 1,406 | — | 1,406 |
| Loans to banks - amortised cost | 69 | 268 | 337 | 358 | 15 | 373 |
| Loans to customers - amortised cost | 20 | — | 20 | 21 | — | 21 |
| Settlement balances | 515 | 15 | 530 | 141 | — | 141 |
| Other assets | 10 | — | 10 | 10 | — | 10 |
| Amounts due from holding companies and fellow | ||||||
| subsidiaries | 2,108 | 283 | 2,391 | 1,936 | 15 | 1,951 |
| Derivatives (1) | 2,202 | — | 2,202 | 4,140 | — | 4,140 |
| Liabilities | ||||||
| Trading liabilities | 2,565 | — | 2,565 | 2,857 | — | 2,857 |
| Bank deposits - amortised cost | 1,060 | — | 1,060 | 1,102 | — | 1,102 |
| Other financial liabilities - subordinated liabilities | 150 | — | 150 | 150 | — | 150 |
| Settlement balances | 1,011 | — | 1,011 | 222 | 4 | 226 |
| Other liabilities | 9 | 14 | 23 | 9 | 15 | 24 |
| Amounts due to holding companies and fellow | ||||||
| subsidiaries | 4,795 | 14 | 4,809 | 4,340 | 19 | 4,359 |
| Derivatives (1) | 2,376 | — | 2,376 | 3,777 | — | 3,777 |
(1) Intercompany derivatives are included within derivative classification on the balance sheet.
Disclosures relating to the control environment, valuation techniques and related aspects pertaining to financial instruments measured at fair value are included in NWM N.V.'s 2022 Annual Report and Accounts. Valuation, sensitivity methodologies and input methodologies at 30 June 2023 are consistent with those described in Note 8 to NWM N.V.'s 2022 Annual Report and Accounts.
The table below shows the assets and liabilities held by NWM N.V. split by fair value hierarchy level. Level 1 are considered the most liquid instruments, and level 3 the most illiquid, valued using expert judgment and hence carry the most significant price uncertainty.
| 30 June 2023 | 31 December 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |
| €m | €m | €m | €m | €m | €m | €m | €m | |
| Assets | ||||||||
| Trading assets | ||||||||
| Loans | — | 4,301 | 15 | 4,316 | — | 4,403 | 37 | 4,440 |
| Derivatives | — | 9,340 | 51 | 9,391 | — | 12,279 | 56 | 12,335 |
| Amounts due from holding companies and | ||||||||
| fellow subsidiaries | — | 1,494 | — | 1,494 | — | 1,406 | — | 1,406 |
| Other financial assets | ||||||||
| Loans | — | — | 30 | 30 | — | — | 30 | 30 |
| Securities | 710 | 247 | 3 | 960 | 982 | 295 | 3 | 1,280 |
| Total financial assets held at fair value | 710 | 15,382 | 99 | 16,191 | 982 | 18,383 | 126 | 19,491 |
| As % of total fair value assets | 4% | 95% | 1% | 5% | 94% | 1% | ||
| Liabilities | ||||||||
| Amounts due to holding companies and | ||||||||
| fellow subsidiaries | — | 2,565 | — | 2,565 | — | 2,857 | — | 2,857 |
| Trading liabilities | ||||||||
| Deposits | — | 4,468 | — | 4,468 | — | 3,930 | — | 3,930 |
| Short positions | — | 18 | — | 18 | 51 | 17 | — | 68 |
| Derivatives | — | 7,861 | 220 | 8,081 | — | 10,938 | 176 | 11,114 |
| Other financial liabilities | ||||||||
| Debt securities in issue | — | 83 | — | 83 | — | 54 | — | 54 |
| Deposits | — | 208 | — | 208 | — | 316 | — | 316 |
| Subordinated liabilities | — | 252 | — | 252 | — | 251 | — | 251 |
| Total financial liabilities held at fair value | — | 15,455 | 220 | 15,675 | 51 | 18,363 | 176 | 18,590 |
| As % of total fair value liabilities | — | 99% | 1% | 0% | 99% | 1% |
(1) Level 1 – Instruments valued using unadjusted quoted prices in active and liquid markets, for identical financial instruments. Examples include government bonds, listed equity shares and certain exchange-traded derivatives.
Level 2 – Instruments valued using valuation techniques that have observable inputs. Observable inputs are those that are readily available with limited adjustments required. Examples include most government agency securities, investment-grade corporate bonds, certain mortgage products - including CLOs, most bank loans, repos and reverse repos, state and municipal obligations, most notes issued, certain money market securities, loan commitments and most OTC derivatives.
Level 3 – Instruments valued using a valuation technique where at least one input which could have a significant effect on the instrument's valuation, is not based on observable market data. Examples include non-derivative instruments which trade infrequently, certain syndicated and commercial mortgage loans, private equity, and derivatives with unobservable model inputs.
(2) Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instruments were transferred.
The table below shows the high and low range of fair value of the level 3 assets and liabilities.
| 30 June 2023 | 31 December 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| Level 3 | Favourable | Unfavourable | Level 3 | Favourable | Unfavourable | |||
| €m | €m | €m | €m | €m | €m | |||
| Assets | ||||||||
| Trading assets | ||||||||
| Loans | 15 | — | — | 37 | — | — | ||
| Derivatives | 51 | — | — | 56 | — | — | ||
| Other financial assets | ||||||||
| Loans | 30 | — | — | 30 | — | — | ||
| Securities | 3 | — | — | 3 | — | — | ||
| Total financial assets held at fair value | 99 | — | — | 126 | — | — | ||
| Liabilities | ||||||||
| Derivatives | 220 | 10 | (10) | 176 | 10 | (10) | ||
| Total financial liabilities held at fair value | 220 | 10 | (10) | 176 | 10 | (10) |
Reasonably plausible alternative assumptions of unobservable inputs are determined based on a specified target level of certainty of 90%. Alternative assumptions are determined with reference to all available evidence including consideration of the following: quality of independent pricing information considering consistency between different sources, variation over time, perceived tradability or otherwise of available quotes; consensus service dispersion ranges; volume of trading activity and market bias (e.g. one-way inventory); day 1 profit or loss arising on new trades; number and nature of market participants; market conditions; modelling consistency in the market; size and nature of risk; length of holding of position; and market intelligence.
The following table shows the movement in level 3 assets and liabilities.
| Half year ended 30 June 2023 | Half year ended 30 June 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Other | Other | ||||||||
| Trading | financial | Total | Total | Trading | financial | Total | Total | ||
| assets (1) | assets (2) | assets liabilities | assets (1) | assets (2) | assets | liabilities | |||
| €m | €m | €m | €m | €m | €m | €m | €m | ||
| At 1 January | 93 | 33 | 126 | 176 | 174 | — | 174 | 60 | |
| Amount recorded in the income statement (3) | (1) | — | (1) | (8) | (23) | — | (23) | 34 | |
| Level 3 transfers in | — | — | — | 2 | — | — | — | 1 | |
| Level 3 transfers out | (28) | — | (28) | (2) | — | — | — | (1) | |
| Purchases/originations | 10 | — | 10 | 61 | 95 | 3 | 98 | 35 | |
| Settlements/other decreases | — | — | — | — | (9) | — | (9) | (6) | |
| Sales | (8) | — | (8) | (8) | (73) | — | (73) | (13) | |
| Foreign exchange and other | — | — | — | (1) | (1) | — | (1) | — | |
| At 30 June | 66 | 33 | 99 | 220 | 163 | 3 | 166 | 110 | |
| Amounts recorded in the income statement in respect of balances held at year end - unrealised |
(1) | — | (1) | (8) | (23) | — | (23) | 34 |
(1) Trading assets comprise assets held at fair value in trading portfolios.
(2) Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
(3) There were €7 million net gains on trading assets and liabilities (30 June 2022 – €57 million net losses) recorded in income from trading activities.
The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.
| Items where | |||||
|---|---|---|---|---|---|
| fair value | |||||
| approximates | Carrying | Fair value hierarchy level | |||
| carrying value | value | Fair value | Level 2 | Level 3 | |
| 30 June 2023 | €m | €m | €m | €m | €m |
| Financial assets | |||||
| Cash and balances at central banks | 8,339 | ||||
| Settlement balances | 2,401 | ||||
| Loans to banks | 3 | 267 | 267 | 115 | 152 |
| Loans to customers | 1,147 | 1,133 | — | 1,133 | |
| Amounts due from holding companies and fellow | |||||
| subsidiaries | 530 | 357 | 357 | — | 357 |
| Other financial assets | 1,114 | 1,108 | — | 1,108 | |
| 31 December 2022 | |||||
| Financial assets | |||||
| Cash and balances at central banks | 3,961 | ||||
| Settlement balances | 739 | ||||
| Loans to banks | 41 | 182 | 182 | 79 | 103 |
| Loans to customers | 1,024 | 989 | — | 989 | |
| Amounts due from holding companies and fellow | |||||
| subsidiaries | 142 | 393 | 393 | — | 393 |
| Other financial assets | 363 | 411 | — | 411 | |
| 30 June 2023 | |||||
| Financial liabilities | |||||
| Bank deposits | 2 | 145 | 145 | — | 145 |
| Customer deposits | 19 | 6,263 | 6,263 | — | 6,263 |
| Amounts due to holding companies and fellow | |||||
| subsidiaries | 1,031 | 1,191 | 1,193 | 152 | 1,041 |
| Settlement balances | 1,812 | ||||
| Other financial liabilities | 1,973 | 1,972 | 858 | 1,114 | |
| Subordinated liabilities | 20 | 17 | 17 | — | |
| 31 December 2022 | |||||
| Financial liabilities | |||||
| Bank deposits | — | 150 | 150 | — | 150 |
| Customer deposits | 7 | 1,039 | 1,039 | — | 1,039 |
| Amounts due to holding companies and fellow | |||||
| subsidiaries | 317 | 1,163 | 1,165 | 152 | 1,013 |
| Settlement balances | 608 | ||||
| Other financial liabilities | 2,071 | 2,073 | 1,076 | 997 | |
| Subordinated liabilities | 114 | 120 | 120 | — |
The assumptions and methodologies underlying the calculation of fair values of financial instruments at the balance sheet date are as follows:
For certain short-term financial instruments: cash and balances at central banks, items in the course of collection from other banks, settlement balances, items in the course of transmission to other banks, and customer demand deposits, carrying value is deemed a reasonable approximation of fair value.
In estimating the fair value of net loans to customers and banks measured at amortised cost, NWM N.V.'s loans are segregated into appropriate portfolios reflecting the characteristics of the constituent loans. Two principal methods are used to estimate fair value; contractual cash flows and expected cash flows.
Most debt securities are valued using quoted prices in active markets or from quoted prices of similar financial instruments in active markets. The remaining population, is valued using discounted cash flows at current offer rates.
Fair values of deposits are estimated using contractual cashflows using a market discount rate incorporating the current spread.
Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.
| 30 June | 31 December | |
|---|---|---|
| 2023 | 2022 | |
| €m | €m | |
| Assets | ||
| Loans | ||
| Reverse repos | 2,245 | 1,849 |
| Collateral given | 2,043 | 2,539 |
| Other loans | 28 | 52 |
| Total | 4,316 | 4,440 |
| Liabilities | ||
| Deposits | ||
| Repos | 1,188 | 425 |
| Collateral received | 3,279 | 3,503 |
| Other deposits | 1 | 2 |
| Total deposits | 4,468 | 3,930 |
| Short positions | 18 | 68 |
| Total | 4,486 | 3,998 |
The portfolio segmentation and selection of economic loss drivers for IFRS 9 follows the approach used in stress testing. To enable robust modelling the forecasting models for each portfolio segment (defined by product or asset class and where relevant, industry sector and region) are based on a selected, small number of economic variables (typically three to four) that best explain the temporal variations in portfolio loss rates. The process to select economic loss drivers involves empirical analysis and expert judgment.
At 30 June 2023, the range of anticipated future economic conditions was defined by a set of four internally developed scenarios and their respective probabilities. In addition to the base case, they comprised upside, downside and extreme downside scenarios. The scenarios primarily reflected the current risks faced by the economy, particularly related to persistently high inflation and interest rate environment, resulting in a fall in real household income, economic slowdown, a rise in unemployment and asset price declines.
For 30 June 2023, the four scenarios were deemed appropriate in capturing the uncertainty in economic forecasts and the nonlinearity in outcomes under different scenarios. These four scenarios were developed to provide sufficient coverage across potential rises in unemployment, inflation, asset price declines and the degree of permanent damage to the economy, around which there remains pronounced levels of uncertainty.
Upside – This scenario assumes robust growth as inflation falls sharply and rates are lowered. Consumer spending is supported by savings built up since COVID-19 and further helped by fiscal support and strong business investment. The labour market remains resilient, with the unemployment rate remaining below pre-COVID-19 levels.
Base case – In the midst of high inflation and significant monetary policy tightening, economic growth remains muted. However, recession is avoided. The unemployment rate rises modestly but job losses are contained. Inflation moderates over the mediumterm and falls to the target level of 2%.
Since 31 December 2022, the economic outlook has improved as energy prices fell sharply and the labour market remained resilient. However, the inflation outlook remains elevated due to higher core inflation pressure. As a result, interest rates need to rise higher than assumed previously. The base case now assumes muted growth in 2023 as opposed to a mild recession assumed previously. The unemployment rate still rises but the peak is lower, reflecting the labour market's recent resilience.
Downside – Inflation remains persistently high. The economy experiences a recession as consumer confidence weakens due to a fall in real income. Interest rates are raised higher than the base case and remain elevated for longer. High rates are assumed to have a more significant impact on the labour market. Unemployment remains higher than the base case scenario.
The previous year's downside scenario also included a deep recession and labour market deterioration, but the current downside scenario explores these risks in a persistently high inflation, high rates environment.
Extreme downside – This scenario assumes high and persistent inflation. Households see the highest recorded decline in real income. Interest rates rise to levels last observed in early 2000s. Resulting economic recession is deep and leads to widespread job losses. Unemployment rate rises to a level above that observed in the aftermath of the sovereign debt crisis.
The main macroeconomic variables for each of the four scenarios used for expected credit loss (ECL) modelling are set out in the main macroeconomic variables table below.
| 30 June 2023 | 31 December 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Extreme | Weighted | Extreme | Weighted | |||||||
| Upside | Base case | Downside | downside | average | Upside | Base case | Downside | downside | average | |
| Five-year summary | % | % | % | % | % | % | % | % | % | % |
| GDP - CAGR | 2.4 | 1.5 | 1.0 | (0.3) | 1.3 | 2.4 | 1.7 | 0.8 | — | 1.4 |
| Unemployment - average | 6.0 | 6.8 | 7.4 | 10.6 | 7.3 | 6.8 | 7.0 | 8.1 | 9.9 | 7.7 |
| European Central Bank | ||||||||||
| - main refinancing rate - average | 3.3 | 3.5 | 3.5 | 4.3 | 3.6 | 2.7 | 2.9 | 1.3 | 3.7 | 2.6 |
| Probability weight | 19.5 | 45.0 | 21.5 | 14.0 | 18.6 | 45.0 | 20.8 | 15.6 |
(1) The five year summary runs from 2023-2027 for 30 June 2023. (2) Comparatives have been aligned with the current calculation approach.
NWM N.V. Group's quantitative 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. This quantitative approach is used for 30 June 2023.
The approach involves comparing GDP paths for NWM N.V. Group's scenarios against a set of 1,000 model runs, following which, a percentile in the distribution is established that most closely corresponded to the scenario. Probability weight for base case is set first based on judgment, while probability weights for the alternate scenarios are assigned based on these percentiles scores.
The assigned probability weights were judged to be aligned with the subjective assessment of balance of the risks in the economy. The weights were broadly comparable to those used at 31 December 2022. Since then, the outlook has improved across key areas of the economy. However, the risks still remain elevated and there is considerable uncertainty in the economic outlook, particularly with respect to persistence and the range of outcomes on inflation. Given that backdrop, NWM N.V. Group judges it appropriate that downside-biased scenarios have higher probability weights than the upside-biased scenario. It presents good coverage to the range of outcomes assumed in the scenarios, including the potential for a robust recovery on the upside and exceptionally challenging outcomes on the downside. A 19.5% weighting was applied to the upside scenario, a 45.0% weighting applied to the base case scenario, a 21.5% weighting applied to the downside scenario and a 14.0% weighting applied to the extreme downside scenario.
Annual figures
| Eurozone - GDP - annual growth | Upside % |
Base case % |
Downside % |
Extreme downside % |
Weighted average % |
|---|---|---|---|---|---|
| 2023 | 1.9 | 0.8 | 0.5 | — | 0.8 |
| 2024 | 4.7 | 1.6 | (0.6) | (4.0) | 1.0 |
| 2025 | 2.3 | 1.9 | 1.9 | 0.6 | 1.8 |
| 2026 | 1.8 | 1.8 | 1.8 | 1.0 | 1.7 |
| 2027 | 1.3 | 1.4 | 1.4 | 1.0 | 1.3 |
| 2028 | 1.1 | 1.3 | 1.3 | 1.0 | 1.2 |
| Extreme | Weighted | ||||
|---|---|---|---|---|---|
| Upside | Base case | Downside | downside | average | |
| Eurozone - unemployment rate - annual average | % | % | % | % | % |
| 2023 | 6.7 | 6.8 | 6.9 | 7.4 | 6.9 |
| 2024 | 6.0 | 6.9 | 7.7 | 11.8 | 7.6 |
| 2025 | 5.7 | 6.8 | 7.7 | 12.4 | 7.5 |
| 2026 | 5.7 | 6.7 | 7.5 | 11.4 | 7.3 |
| 2027 | 5.7 | 6.6 | 7.2 | 10.2 | 7.1 |
| 2028 | 5.7 | 6.6 | 7.0 | 9.2 | 6.9 |
| Upside | Base case | Downside | Extreme downside |
Weighted average |
|
|---|---|---|---|---|---|
| European Central Bank - main refinancing rate - annual average | % | % | % | % | % |
| 2023 | 3.6 | 3.7 | 3.7 | 3.9 | 3.7 |
| 2024 | 3.6 | 4.0 | 3.8 | 5.2 | 4.1 |
| 2025 | 3.1 | 3.5 | 3.4 | 4.8 | 3.6 |
| 2026 | 3.0 | 3.1 | 3.3 | 4.2 | 3.3 |
| 2027 | 3.0 | 3.0 | 3.3 | 3.5 | 3.1 |
| 2028 | 3.0 | 3.0 | 3.3 | 3.0 | 3.1 |
| 30 June 2023 | 31 December 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| Extreme | Extreme | |||||||
| Downside | downside | Downside | downside | |||||
| Eurozone | % | Quarter | % | Quarter | % | Quarter | % | Quarter |
| GDP | (0.8) | Q2 2024 | (4.7) | Q2 2024 | (3.5) | Q4 2023 | (4.3) | Q4 2023 |
| Unemployment rate (peak) | 7.8 | Q2 2024 | 12.5 | Q1 2025 | 9.0 | Q3 2024 | 11.9 | Q4 2024 |
(1) Unless specified otherwise, the figures show falls relative to the starting period. The calculations are performed over five years, with a starting point of Q4 2022 for 30 June 2023 scenarios.
(2) Comparatives have been aligned with the current calculation approach.
The lending scenario methodology is based on the concept of credit cycle indices (CCIs). The CCIs represent all relevant economic drivers for a region/industry segment aggregated into a single index value that describes the credit conditions in the respective segment relative to its long-run average. A CCI value of zero corresponds to credit conditions at long-run average levels, a positive CCI value corresponds to credit conditions below long run average levels and a negative CCI value corresponds to credit conditions above long-run average levels.
The individual economic scenarios are translated into forward-looking projections of CCIs using a set of econometric models. Subsequently the CCI projections for the individual scenarios are averaged into a single central CCI projection according to the given scenario probabilities. The central CCI projection is then extended with an additional mean reversion assumption to gradually revert to the long-run average CCI value of zero in the outer years of the projection horizon.
Finally, ECL is calculated using a Monte Carlo approach by averaging PD and LGD values arising from many CCI paths simulated around the central CCI projection.
The high inflation environment alongside rapidly rising interest rates and supply chain disruption are presenting significant headwinds for some businesses and consumers. These are a result of various factors and in many cases are compounding and look set to remain a feature of the economic environment into 2024. NWM N.V. Group has considered where these are most likely to affect the customer base, with the rising cost of borrowing during 2023 for both businesses and consumers presenting an additional affordability challenge for many borrowers in recent months.
The effects of these risks are not expected to be fully captured by forward-looking credit modelling, particularly given the unique high inflation environment, low unemployment base case outlook. Any incremental ECL effects for these risks will be captured via post model adjustments and are detailed further in the Governance and post model adjustments section.
The IFRS 9 PD, EAD and LGD models are subject to NWM N.V. Group's model risk policy that stipulates periodic model monitoring, periodic re-validation and defines approval procedures and authorities according to model materiality. Various post model adjustments were applied where management judged they were necessary to ensure an adequate level of overall ECL provision. All post model adjustments were subject to formal approval through provisioning governance, and were categorised as follows:
Post model adjustments will remain a key focus area of NWM N.V. Group's ongoing ECL adequacy assessment process. A holistic framework has been established including reviewing a range of economic data, external benchmark information and portfolio performance trends with a particular focus on segments of the portfolio (both commercial and consumer) that are likely to be more susceptible to high inflation, rapidly rising interest rates and supply chain disruption, where risks may not be fully captured by the models. There were €2 million post model adjustments at H1 2023 (31 December 2022 – nil).
The recognition and measurement of ECL is complex and involves the use of significant judgment and estimation, particularly in times of economic volatility and uncertainty. This includes the formulation and incorporation of multiple forward-looking economic 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 impact arising from the base case, upside, downside and extreme downside scenarios was simulated. NWM N.V. Group has assumed that the economic macro variables associated with these scenarios replace the existing base case economic assumptions, giving them a 100% probability weighting and therefore serving as a single economic scenario.
These scenarios were applied to all modelled portfolios in the analysis below, with the simulation impacting both PDs and LGDs. Post model adjustments included in the ECL estimates that were modelled were sensitised in line with the modelled ECL movements, but those that were judgmental in nature, primarily those for deferred model calibrations and economic uncertainty, were not (refer to the Governance and post model adjustments section). As expected, the scenarios create differing impacts on ECL by portfolio and the impacts are deemed reasonable. In this simulation, it is assumed that existing modelled relationships between key economic variables and loss drivers hold, but in practice other factors would also have an impact, for example, potential customer behaviour changes and policy changes by lenders that might impact on the wider availability of credit.
The focus of the simulations is on ECL provisioning requirements on performing exposures in Stage 1 and Stage 2. The simulations are run on a stand-alone basis and are independent of each other; the potential ECL impacts reflect the simulated impact at 30 June 2023. Scenario impacts on SICR should be considered when evaluating the ECL movements of Stage 1 and Stage 2. In all scenarios the total exposure was the same but exposure by stage varied in each scenario.
Stage 3 provisions are not subject to the same level of measurement uncertainty – default is an observed event as at the balance sheet date. Stage 3 provisions therefore were not considered in this analysis.
NWM N.V. Group's core criterion to identify a SICR is founded on PD deterioration. Under the simulations, PDs change and result in exposures moving between Stage 1 and Stage 2 contributing to the ECL impact.
The table below shows gross loans and related credit impairment measurements, within the scope of the ECL IFRS 9 framework.
| 30 June | 31 December | |
|---|---|---|
| 2023 | 2022 | |
| €m | €m | |
| Loans - amortised cost and fair value through other comprehensive income (FVOCI) | ||
| Stage 1 | 1,275 | 944 |
| Stage 2 | 176 | 303 |
| Inter-Group (1) | 357 | 393 |
| Total | 1,808 | 1,640 |
| ECL provisions | ||
| Stage 1 | 5 | 6 |
| Stage 2 | 3 | 5 |
| Total | 8 | 11 |
| ECL provisions coverage (2) | ||
| Stage 1 (%) | 0.39 | 0.64 |
| Stage 2 (%) | 1.70 | 1.65 |
| Total | 0.55 | 0.88 |
| Other financial assets - gross exposure | 10,370 | 5,564 |
| Other financial assets - ECL provision | 1 | 1 |
| Half year ended | ||
| 30 June | 30 June | |
| 2023 | 2022 | |
| €m | €m | |
| Impairment losses | ||
| ECL (release)/charge - third party (3) | (3) | 7 |
(1) NWM N.V. Group's intercompany assets were classified in Stage 1. The ECL for these loans was €0.1 million (31 December 2022 – €0.1 million).
(2) ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
(3) Includes €0.4 million (30 June 2022 – €0.1 million) related to other financial assets and nil (30 June 2022 – nil) relating to contingent liabilities.
(4) The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 39 for Financial instruments within the scope of the IFRS 9 ECL framework in the NWM N.V. Group 2022 Annual Report and Accounts for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling €8.3 billion (31 December 2022 – €4.0 billion) and debt securities of €2 billion (31 December 2022 – €1.6 billion).
The table below shows exposures and ECL by stage, for key sectors.
| Loans - amortised cost and FVOCI | Off-balance sheet | ECL provisions | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Loan | Contingent | ||||||||||
| Stage 1 Stage 2 Stage 3 | Total | commitments | liabilities | Stage 1 Stage 2 Stage 3 | Total | ||||||
| 30 June 2023 | €m | €m | €m | €m | €m | €m | €m | €m | €m | €m | |
| Property | 49 | 2 | — | 51 | 203 | — | — | — | — | — | |
| Financial institutions | 676 | 5 | — | 681 | 733 | 508 | 1 | — | — | 1 | |
| Corporate | 550 | 169 | — | 719 | 6,234 | — | 4 | 3 | — | 7 | |
| Of which: | |||||||||||
| Agriculture | 1 | — | — | 1 | — | — | — | — | — | — | |
| Airlines and aerospace | — | 1 | — | 1 | 187 | — | — | — | — | — | |
| Automotive | 2 | — | — | 2 | 635 | — | — | — | — | — | |
| Chemicals | 11 | — | — | 11 | 74 | — | — | — | — | — | |
| Health | 22 | 1 | — | 23 | — | — | — | — | — | — | |
| Industrials | 178 | 62 | — | 240 | 273 | — | — | 1 | — | 1 | |
| Land transport and logistics | 12 | 58 | — | 70 | 362 | — | — | — | — | — | |
| Leisure | 1 | — | — | 1 | — | — | — | — | — | — | |
| Oil and gas | 3 | — | — | 3 | 304 | — | — | — | — | — | |
| Power Utilities | 122 | — | — | 122 | 2,999 | — | — | — | — | — | |
| Retail | — | — | — | — | 452 | — | — | — | — | — | |
| Shipping | 2 | — | — | 2 | — | — | — | — | — | — | |
| Water and waste | 4 | — | — | 4 | 58 | — | — | — | — | — | |
| Total | 1,275 | 176 | — | 1,451 | 7,170 | 508 | 5 | 3 | — | 8 | |
| 31 December 2022 | |||||||||||
| Property | 15 | 115 | — | 130 | 208 | — | — | 1 | — | 1 | |
| Financial institutions | 535 | 6 | — | 541 | 936 | 508 | 1 | — | — | 1 | |
| Corporate | 394 | 182 | — | 576 | 6,731 | — | 5 | 4 | — | 9 | |
| Of which: | |||||||||||
| Agriculture | — | 2 | — | 2 | — | — | — | — | — | — | |
| Airlines and aerospace | — | 1 | — | 1 | 183 | — | — | — | — | — | |
| Automotive | 2 | — | — | 2 | 644 | — | — | — | — | — | |
| Chemicals | 15 | — | — | 15 | 72 | — | — | — | — | — | |
| Health | 22 | 2 | — | 24 | — | — | — | — | — | — | |
| Industrials | 38 | 63 | — | 101 | 289 | — | 1 | — | — | 1 | |
| Land transport and logistics | 20 | 59 | — | 79 | 353 | — | — | 1 | — | 1 | |
| Leisure | 1 | — | — | 1 | — | — | — | — | — | — | |
| Oil and gas | 4 | — | — | 4 | 545 | — | — | — | — | — | |
| Power Utilities | 108 | — | — | 108 | 2,897 | — | 1 | — | — | 1 | |
| Retail | — | — | — | — | 486 | — | — | — | — | — | |
| Shipping | 2 | — | — | 2 | — | — | — | — | — | — | |
| Water and waste | 4 | — | — | 4 | 286 | — | — | — | — | — | |
| Total | 944 | 303 | — | 1,247 | 7,875 | 508 | 6 | 5 | — | 11 |
The flow statement that follows shows the main ECL and related income statement movements. It also shows the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures may differ from those reported in other tables, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL effect because they relate to balances at central banks. Other points to note:
| Stage 1 | Stage 2 | Stage 3 | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Financial | Financial | Financial | Financial | |||||
| assets | ECL | assets | ECL | assets | ECL | assets | ECL | |
| €m | €m | €m | €m | €m | €m | €m | €m | |
| At 1 January 2023 | 7,179 | 6 | 303 | 5 | — | — | 7,482 | 11 |
| Currency translation and other adjustments | 4 | 1 | — | (1) | — | — | 4 | — |
| Inter group transfers | — | — | — | — | — | — | — | — |
| Transfers from Stage 1 to Stage 2 | (52) | (1) | 52 | 1 | — | — | — | — |
| Transfers from Stage 2 to Stage 1 | 170 | 2 | (170) | (2) | — | — | — | — |
| Net re-measurement of ECL on stage transfer | (1) | 1 | — | — | ||||
| Changes in risk parameters (model inputs) | (2) | — | — | (2) | ||||
| Other changes in net exposure | 1,548 | — | (33) | — | — | — | 1,515 | — |
| Other Profit or loss only items | — | — | (1) | (1) | ||||
| Income statement (releases)/charges | (3) | 1 | (1) | (3) | ||||
| Amounts written-off | — | — | (1) | (1) | — | — | (1) | (1) |
| At 30 June 2023 | 8,849 | 5 | 151 | 3 | — | — | 9,000 | 8 |
| Net carrying amount | 8,844 | 148 | — | 8,992 | ||||
| At 1 January 2022 | 6,937 | — | 46 | 1 | 39 | 39 | 7,022 | 40 |
| 2022 movements | (45) | 5 | 184 | 2 | (39) | (39) | 100 | (32) |
| At 30 June 2022 | 6,892 | 5 | 230 | 3 | — | — | 7,122 | 8 |
| Net carrying amount | 6,887 | 227 | — | 7,114 |
(1) The table above excludes inter-Group.
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 30 June 2023. Although NWM N.V. Group is exposed to credit risk in the event of non-performance of the obligations undertaken by customers, the amounts shown do not, and are not intended to, provide any indication of NWM N.V. Group's expectation of future losses.
| Total | 7,697 | 8,409 |
|---|---|---|
| Standby facilities, credit lines and other commitments | 7,189 | 7,901 |
| Guarantees | 508 | 508 |
| Contingent liabilities and commitments | ||
| €m | €m | |
| 2023 | 2022 | |
| 30 June | 31 December |
Commitments and contingent obligations are subject to NWM N.V. Group's normal credit approval processes.
Included within guarantees and assets pledged as collateral security as at 30 June 2023 is €0.5 billion (31 December 2022 – €0.5 billion) which relates to the NatWest Group's obligations over liabilities held within the Dutch State acquired businesses included in ABN AMRO Bank N.V.
NWM Plc and NWM N.V. have limited risk-sharing arrangements in place to facilitate the smooth provision of services to NatWest Markets' customers. The arrangements include:
NWM N.V. and certain members of NatWest Group are party to legal proceedings and involved in regulatory matters, including as the subject of investigations and other regulatory and governmental action (Matters) in the Netherlands, the United Kingdom (UK), the European Union (EU), the United States (US) and other jurisdictions.
NWM N.V. Group recognises a provision for a liability in relation to these matters when it is probable that an outflow of economic benefits will be required to settle an obligation resulting from past events, and a reliable estimate can be made of the amount of the obligation.
In many of these Matters, it is not possible to determine whether any loss is probable or to estimate reliably the amount of any loss, either as a direct consequence of the relevant proceedings and regulatory matters or as a result of adverse impacts or restrictions on NWM N.V. Group's reputation, businesses and operations. Numerous legal and factual issues may need to be resolved, including through potentially lengthy discovery and document production exercises and determination of important factual matters, and by addressing novel or unsettled legal questions relevant to the proceedings in question, before a liability can reasonably be estimated for any claim. NWM N.V. Group cannot predict if, how, or when such claims will be resolved or what the eventual settlement, damages, fine, penalty or other relief, if any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or indeterminate damages.
There are situations where NWM N.V. Group may pursue an approach that in some instances leads to a settlement agreement. This may occur in order to avoid the expense, management distraction or reputational implications of continuing to contest liability, or in order to take account of the risks inherent in defending claims or regulatory matters, even for those matters for which NWM N.V. Group believes it has credible defences and should prevail on the merits. The uncertainties inherent in all such matters affect the amount and timing of any potential outflows for both matters with respect to which provisions have been established and other contingent liabilities in respect of any such Matter.
It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
The future outflow of resources in respect of any matter may ultimately prove to be substantially greater than or less than the aggregate provision that NWM N.V. Group has recognised. Where (and as far as) liability cannot be reasonably estimated, no provision has been recognised.
NatWest Group is involved in ongoing litigation and regulatory matters that are not described below but are described on pages 97 to 101 of NatWest Group's H1 Results 2023. NatWest Group expects that in future periods, additional provisions, settlement amounts and customer redress payments will be necessary, in amounts that are expected to be substantial in some instances. While NWM N.V. Group may not be directly involved in such NatWest Group matters, any final adverse outcome of those matters may also have an adverse effect on NWM N.V. Group.
NWM N.V. was named as a defendant in two actions filed by the trustee for the bankrupt estates of Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC, in bankruptcy court in New York, which together seek to clawback more than US\$298 million that NWM N.V. allegedly received from certain Madoff feeder funds and certain swap counterparties. The claims were previously dismissed, but as a result of an August 2021 decision by the United States Court of Appeals for the Second Circuit (US Court of Appeals), they will now proceed in the bankruptcy court, where they have been consolidated into one action, subject to NWM N.V.'s legal and factual defences. In May 2022, NWM N.V. filed a motion to dismiss the amended complaint in the consolidated action and such motion was denied in March 2023. As a result, the case is now expected to enter the discovery phase.
In December 2021, a claim was filed in the Netherlands against NatWest Group plc, NWM Plc and NWM N.V. by Stichting FX Claims on behalf of a number of claimants, seeking a declaration from the court that anti-competitive FX market conduct described in decisions of the European Commission (EC) of 16 May 2019 is unlawful, along with unspecified damages. The claimants amended their claim to also refer to a December 2021 decision by the EC, which described anti-competitive FX market conduct. The defendants contested the jurisdiction of the Dutch court. In March 2023, the district court in Amsterdam accepted that it has jurisdiction to hear claims against NWM N.V. but refused jurisdiction to hear any claims against the other defendant banks (including NatWest Group plc and NWM Plc) unless the claimants are domiciled in the Netherlands. Certain of the claimants are so domiciled and are therefore permitted to continue with their claims against all defendants, including NatWest Group plc and NWM Plc. The claimants are appealing that decision. In June 2023, a new group of claimants indicated their intention to join Stichting FX Claims to pursue similar claims against the defendants.
NWM N.V. and certain other financial institutions are defendants in several actions filed by a number of US nationals (or their estates, survivors, or heirs), most of whom are or were US military personnel, who were killed or injured in attacks in Iraq between 2003 and 2011. NWM Plc is also a defendant in some of these cases.
According to the plaintiffs' allegations, the defendants are liable for damages arising from the attacks because they allegedly conspired with and/or aided and abetted Iran and certain Iranian banks to assist Iran in transferring money to Hezbollah and the Iraqi terror cells that committed the attacks, in violation of the US Anti-Terrorism Act, by agreeing to engage in 'stripping' of transactions initiated by the Iranian banks so that the Iranian nexus to the transactions would not be detected.
The first of these actions, alleging conspiracy claims but not aiding and abetting claims, was filed in the United States District Court for the Eastern District of New York in November 2014. In September 2019, the district court dismissed the case, finding that the claims were deficient for several reasons, including lack of sufficient allegations as to the alleged conspiracy and causation. In January 2023, the US Court of Appeals affirmed the district court's dismissal of this case. It is anticipated that the plaintiffs will file a motion to re-open the case to assert aiding and abetting claims that they previously did not assert. Another action, filed in the United States District Court for the Southern District of New York (SDNY) in 2017, which asserted both conspiracy and aiding and abetting claims, was dismissed by the SDNY in March 2019 on similar grounds as the first case, but remains subject to appeal to the US Court of Appeals. Other follow-on actions that are substantially similar to those described above are pending in the same courts.
NWM N.V. Group's financial condition can be affected by the actions of various governmental and regulatory authorities in the Netherlands, the UK, the EU, the US and elsewhere. NatWest Group has engaged, and will continue to engage, in discussions with relevant governmental and regulatory authorities, including in the Netherlands, the UK, the EU, the US and elsewhere, on an ongoing and regular basis, and in response to informal and formal inquiries or investigations, regarding operational, systems and control evaluations and issues including those related to compliance with applicable laws and regulations, including consumer protection, investment advice, business conduct, competition/anti-trust, VAT recovery, anti-bribery, anti-money laundering and sanctions regimes.
Any matters discussed or identified during such discussions and inquiries may result in, among other things, further inquiry or investigation, other action being taken by governmental and regulatory authorities, increased costs being incurred by NWM N.V. Group, remediation of systems and controls, public or private censure, restriction of NWM N.V. Group's business activities and/or fines. Any of these events or circumstances could have a material adverse effect on NWM N.V. Group, its business, authorisations and licences, reputation, results of operations or the price of securities issued by it, or lead to material additional provisions being taken.
NWM N.V. has a related party relationship with associates, joint ventures, key management and shareholders. NWM N.V. enters into transactions with related parties.
NWM N.V. is a party to transfer pricing arrangements with NWM Plc under which NWM N.V. received income of €61 million (€60 million in H1 2022) for business interactions with NWM Plc. The at arm's length nature of the transfer pricing arrangements is confirmed by transfer pricing documentation which has been prepared by an external expert.
During H1 2023, drawn balances of €18 million were transferred from NWM N.V. to NatWest Bank Europe GmbH and contingent liabilities and commitments of €10 million were transferred from NWM N.V. to NatWest Bank Plc and NatWest Bank Europe GmbH. Additionally drawn balances of €20 million were transferred from NWM N.V. to NatWest Bank Plc and €4 million were transferred vice versa.
Full details of the NWM N.V. Group's related party transactions for the year ended 31 December 2022 are included in the NatWest Markets N.V. 2022 Annual Report and Accounts.
Other than as disclosed in this document there have been no significant events between 30 June 2023 and the date of approval of this announcement which would require a change to, or additional disclosure in, the announcement.
The interim results for the half year ended 30 June 2023 were approved by the Supervisory Board on 27 July 2023.
Set out below is a summary of the principal risks and uncertainties for the remaining six months of the financial year which could adversely affect NWM N.V. Group. This summary should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties; a fuller description of these and other risk factors is included on pages 138 to 161 of the NatWest Markets N.V. 2022 Annual Report and Accounts. Any of the risks identified may have a material adverse effect on NWM N.V. Group's business, operations, financial condition or prospects.
− NWM Group (including NWM N.V Group) has been in a period of significant structural and other change, including as a result of NatWest Group's purpose-led strategy and NatWest Group's recent creation of its C&I business segment (of which NWM Group forms part) and may continue to be subject to significant structural and other change.
NatWest Markets N.V. (NWM N.V.) is a wholly owned subsidiary of RBS Holdings N.V. ('RBSH N.V.' or 'the intermediate holding company'). NWM N.V. Group refers to NWM N.V. and its subsidiary and associated undertakings. The term 'RBSH Group' refers to RBSH N.V. and its only subsidiary, NWM N.V.. RBSH N.V. is a wholly-owned subsidiary of NatWest Markets Plc (NWM Plc). The term 'NWM Group' refers to NWM Plc and its subsidiary and associated undertakings.
NatWest Group plc is 'the ultimate holding company'. The term 'NatWest Group' refers to NatWest Group plc and its subsidiary and associated undertakings. NatWest Group plc is registered at 36 St Andrew Square, Edinburgh, Scotland.
NWM N.V. publishes its financial statements in 'euro', the European single currency. The abbreviation '€' represents the 'euro', and the abbreviations '€m' and '€bn' represent millions and thousands of millions of euros, respectively, and references to 'cents' represent cents in the European Union ('EU'). The abbreviations '£m' and '£bn' represent millions and thousands of millions of pounds sterling, respectively, and references to 'pence' represent pence in the United Kingdom ('UK'). Reference to 'dollars' or '\$' are to United States of America ('US') dollars. The abbreviations '\$m' and '\$bn' represent millions and thousands of millions of dollars, respectively, and references to 'cents' represent cents in the US. The term 'EEA' refers to European Economic Area.
This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include, without limitation, the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. These statements concern or may affect future matters, such as NWM N.V. Group's future economic results, business plans and strategies. In particular, this document may include forward-looking statements relating to NWM N.V. Group in respect of, but not limited to: its economic and political risks (including due to high inflation, supply chain disruption and the Russian invasion of Ukraine), its regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital, cost savings and operational targets), the NWM Group's strategy and implementation of NatWest Group's purpose-led strategy and NatWest Group's recent creation of its Commercial & Institutional franchise (of which NWM Group forms part), its ESG and climate related targets, its access to adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, its exposure to third party risks and ensuring operational continuity in resolution, its credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, the transition of LIBOR and other IBOR rates to replacement risk free rates and NWM N.V. Group's exposure to operational risk, conduct risk, financial crime risk, cyber, data and IT risk, key person risk and credit rating risk. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to: the outcome of legal, regulatory and governmental actions and investigations, legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations, general economic and political conditions, the impact of climate related risks and the transitioning to a net zero economy. These and other factors, risks and uncertainties that may impact any forward-looking statement or the NWM N.V. Group's actual results are discussed in NWM N.V. Group's 2022 Annual Report and Accounts (ARA), NWM N.V.'s Interim Results for H1 2023, and other public filings. The forwardlooking statements contained in this document speak only as of the date of this document and NWM N.V. Group does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.
Pursuant to section 5:25d, paragraph 2(c), of the Dutch Financial Supervision Act (Wet op het financieel toezicht (Wft)), the members of the Managing Board state that to the best of their knowledge:
Amsterdam 27 July 2023
Cornelis Visscher Chief Financial Officer
NatWest Group plc 2138005O9XJIJN4JPN90 NatWest Markets N.V. X3CZP3CK64YBHON1LE12
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