Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NatWest Group PLC (NWG, Financial) reported a strong first half with significant growth, achieving an operating profit before tax of GBP3 billion and an attributable profit of GBP2.1 billion.
- The company announced an acquisition of a GBP2.5 billion portfolio of prime UK residential mortgages from Metro Bank, expected to close in the second half of the year.
- NatWest Group PLC (NWG) has grown its customer base organically by over 200,000, contributing to growth across the bank.
- The company is actively managing its capital, with a Common Equity Tier 1 ratio of 13.6%, and announced an interim dividend of 6p, up 9% from last year.
- NatWest Group PLC (NWG) is accelerating its digital transformation, enhancing customer experience through initiatives like digitizing customer journeys and introducing generative AI to its chatbot, Cora.
Negative Points
- The company is closing its hub in Poland as part of its simplification efforts, which may impact operations and employee morale.
- NatWest Group PLC (NWG) faces challenges with the competitive mortgage market, which has considerable pricing pressure.
- The company has not provided specific guidance on deposit growth, leaving uncertainty about future performance in this area.
- There is potential for volatility in income due to expected base rate cuts, which could impact the company's financial performance.
- NatWest Group PLC (NWG) is awaiting regulatory changes, such as the PRA publication of Basel 3.1 rules, which could introduce uncertainty and potential headwinds.
Q & A Highlights
Q: Can you discuss the sustainability of the deposit margin increase and the impact of rate volatility in the second half? Also, how does capital management, particularly RWA management, affect the government's stake exit strategy?
A: The deposit margin increase is supported by a stable mix of term deposits and growth across all customer businesses. We expect deposit balances to trend in line with the sector. On capital management, we achieved GBP3.9 billion in RWA reduction, partly through SRT transactions. This supports capital generation and distribution capacity, but it is not directly linked to the government's stake exit strategy.
Q: Could you clarify the impact of the structural hedge on income, and is the 2026 guidance still relevant?
A: The structural hedge is expected to enhance income by about GBP800 million in 2025, with further growth into 2026. We reaffirm our 2026 guidance, targeting a return on tangible equity greater than 13%, reflecting our confidence in the outlook.
Q: What are your expectations for organic growth in the coming years, and how does this relate to your RWA guidance?
A: We focus on disciplined growth, with lending growth in commercial mid-market and unsecured lending. We expect to grow deposits in line with the market and lending ahead of the market. Our RWA guidance of around GBP200 billion by the end of 2025 includes both organic and inorganic growth.
Q: How do you view the mix of net interest income (NII) and non-NII, and what strategic actions are you considering?
A: We are focused on managing the business for return on tangible equity, with a natural weighting towards NII due to our commercial bank's deposit base. We aim to grow fee income organically, particularly in payments, lending fees, and assets under management, while being cautious about inorganic opportunities due to valuation considerations.
Q: Can you explain the impact of rate cuts on income and the structural hedge?
A: Rate cuts will bring some pressure, with a 25-basis-point reduction impacting annual income by GBP125 million, assuming a 60% pass-through. The structural hedge is expected to provide a tailwind, with income increasing by about GBP800 million in 2025 compared to 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
