NatWest Group plc (NWG) Earnings

Management highlights

### Strategic Priorities & Core Ambitions - NatWest is positioned as the most efficient large UK bank with the lowest cost of risk, strongest capital generation, and highest returns, focused on disciplined sustainable growth aligned with key UK structural growth trends: wealth management, AI, and infrastructure. - Confirmed 2028 long-term targets: annual CAL growth of over 4%, group cost-income ratio below 45%, over 200 basis points of capital generation before distributions, and return on tangible equity (ROTE) above 18%. - Capital allocation policy prioritizes maintaining a CET1 ratio of ~13% (with appropriate headroom above regulatory minimums), reinvesting for growth, pursuing disciplined acquisitions that accelerate strategic progress, maintaining a ~50% dividend payout ratio, and returning surplus capital via share buybacks. - **Operational Progress & Strategic Milestones** - H1 2026 group operating profit grew over 15% year-over-year, with 8.9% income growth outpacing 4.5% cost growth to deliver positive operating leverage. The group cost-income ratio fell 2.8 percentage points to 46%, nearing the 2028 target. - Return on tangible equity hit an industry-leading 19.7% in H1, with 23% growth in earnings per share to 38 pence, a 26% increase in the interim dividend to 12 pence, and 13% growth in tangible net asset value per share excluding Evelyn Partners. - The CET1 ratio stands at 13.2% post the Evelyn Partners acquisition, with 197 basis points of CET1 capital generation in H1 (including 31 basis points from risk-weighted asset (RWA) management). - The Evelyn Partners acquisition completed in H1 2026, creating the UK's leading private banking and wealth management business with an end-to-end proposition spanning advice, planning, investments, banking, and a leading direct-to-consumer platform. Integration is progressing in line with expectations, with cross-referrals already underway between Evelyn Partners and existing NatWest customer bases. - In retail banking, the NatWest Rooster Money youth banking app has grown its customer base 18x since 2021, with 15% customer growth in the last year and a leading net promoter score of 72. Retail grew ISA account openings by 20% and attracted 32% more new investment customers year-over-year. - C&I leverages its 1,000-strong network of relationship managers across UK regions to maintain leading market positions in high growth structural segments, including a 20% share of the UK startup market. - **AI Investment & Deployment** - Established a dedicated internal AI research office to accelerate responsible, innovation. - AI is deployed to speed up new product development (from weeks to hours), improve customer spending insights, enable automated fraud resolution via digital assistant Cora, and provide better client insights for relationship managers to free up time for customer engagement. - AI is a core driver of ongoing productivity and efficiency gains across the group, alongside broader simplification initiatives.

Guidance

NatWest management upgraded all 2026 full-year guidance based on strong H1 2026 performance and the completion of the Evelyn Partners acquisition: - Upgraded ROTE guidance to more than 19% from the prior target below this level. - Upgraded total capital generation before distributions guidance to more than 240 basis points, excluding impacts from Evelyn Partners and Basel 3.1. - Full-year 2026 income excluding notable items is now guided to ~£17.9 billion, with an expected ~£275 million contribution from Evelyn Partners in the second half. - Full-year 2026 other operating expenses are guided to ~£8.5 billion, including ~£300 million in costs related to Evelyn Partners. - Loan impairment rate for full-year 2026 is expected to remain below 25 basis points, reflecting ongoing strong credit performance and low asset risk. - Management brought forward the timing of the next share buyback announcement by six months, to the full-year 2026 results release scheduled for February 2027. - Assumes a ~10 billion RWA uplift from the implementation of Basel 3.1 on January 1, 2027, unchanged from prior estimates. - The 2026 structural hedge reinvestment assumption is 4% overall, with 3.9% for the product hedge and 4.7% for the equity hedge, up from the start-of-year assumption of a terminal 3.25% rate. Out-year hedge assumptions remain at 3.5% for five-year swap rates through 2028, with further upside if current elevated rates are sustained.

Segment performance

NatWest Group operates three scale product segments, all delivering returns of 20% or more in H1 2026: 1. **Retail Banking**: Serves 19 million UK customers (one in three UK families). In Q2 2026, retail banking and private banking/wealth management lending balances grew £4 billion (1.7%), with £3.9 billion of that growth coming from mortgages. NatWest's mortgage stock market share increased slightly to 12.7% in the quarter, with record mortgage applications in March. Unsecured lending grew only £0.1 billion. Retail customer deposits were stable overall, with ongoing customer migration to tax-efficient fixed and variable rate savings products. Retail non-interest income received a one-time £45 million boost in H2 2026 from accelerated recognition of back-book insurance income related to a provider transition. 2. **Private Banking and Wealth Management**: This segment is significantly expanded following the completed acquisition of Evelyn Partners, which added £71.7 billion in assets under management and administration (AUMA). Excluding the Evelyn Partners acquisition, customer assets and liabilities (CAL) grew 5.2% year-to-date, above the 4% annual target. Net inflows to private banking and wealth management hit a record high in Q2, with 45,000 first-time investing customers across the group (a 60% uplift year-over-year) and 11% growth in high net worth client counts. AUMA for the group reached £130.6 billion at the end of H1, up more than 150% year-over-year. 3. **Commercial and Institutional (C&I)**: This is the fastest growing lending segment, with Q2 lending growth of £5.7 billion (3.6%). Growth is broad-based: it is strongest for larger corporate and institutional clients, driven by structural demand from decarbonization and digitization, with particularly high activity in infrastructure, social housing, and transition finance. Mid-market clients also saw healthy demand driven by manufacturing and social housing, while small business balances are stable. C&I customer deposits grew £2.5 billion in Q2, driving the group's overall deposit growth of £2.8 billion for the quarter. In H1 2026, NatWest delivered £23 billion in climate and transition finance, progressing toward its 2030 target of £200 billion. Total group revenue contribution is diversified across all three segments, with broad-based growth across all units.

Risks & headwinds

Management did not highlight material new unexpected risks in the call, but noted the following industry and operational risk factors: - Mortgage market pricing is increasingly competitive for vanilla mortgage products, driven by pricing pressure from smaller building societies, though it is still early to draw long-term conclusions about margin trends. - System-wide deposit competition remains intense, particularly as loan growth outpaces deposit growth across the industry. NatWest is maintaining discipline on pricing for "hot money" retail deposits, only investing in deposit growth where it delivers broader customer relationship value. - Fast-growing C&I lending is concentrated in lower-margin, low-risk structural segments (infrastructure, social housing), which creates gradual margin pressure from a changing loan mix. - The UK data centre development market is seeing high growth and substantial new supply, requiring disciplined underwriting focused on long-term cash flow stability and creditworthy high-quality occupants to avoid risk. - Basel 3.1 implementation and ongoing regulatory capital framework changes introduce uncertainty to future capital requirements, though management has maintained its 10 billion RWA uplift estimate and retains significant capital headroom.

Analyst Q&A

• Q: How does the reduced leverage ratio requirement impact your mortgage business, and what is the target market for wealth management penetration of your existing customer base? /

  A: The leverage ratio reduction was in line with expectations, resulting in a 42 basis point drop in requirements, but NatWest is not leverage constrained so this does not change balance sheet capacity. NatWest grew its mortgage market share slightly in H1, and while vanilla mortgages face competitive pricing pressure, it is too early to draw long-term margin conclusions. A full deep dive into customer segmentation and wealth penetration opportunities will be provided at the Q4 2026 in-depth wealth spotlight.

• Q: C&I lending growth is accelerating — is this pace sustainable, and how do you expect deposit competition to evolve? /

  A: Strong C&I growth is broad-based across large corporates, mid-market, and small business, with particularly strong demand from structural growth segments including infrastructure, social housing, tech, and transition finance, and the pipeline remains robust. NatWest deposits grew ~£3 billion in Q2, driven by C&I and private banking, with stable retail deposits. NatWest builds early primary customer relationships (youth, startups) to attract stable low-cost deposits long-term, and remains disciplined on pricing for transient hot money in retail.

• Q: With the buyback pulled forward, what is your long-term capital allocation strategy for 2027-2028, and what is your second half income outlook? /

  A: NatWest has strong ongoing capital generation and will continue to deploy capital into disciplined growth across all three businesses to hit the 4% annual CAL growth target. The bank remains committed to a 50% dividend payout ratio and will regularly return surplus capital via buybacks, which management sees as good value at current share prices. Second half NII growth will be supported by strong corporate lending pipeline and structural hedge reinvestment, while non-interest income growth will continue from strong C&I performance and the Evelyn Partners contribution.

• Q: Is the pulled forward buyback driven by stronger H1 capital generation or comfort around Basel 3.1, and what are your hedge rate assumptions? /

  A: The earlier buyback is purely a result of stronger than expected H1 capital generation, and does not reflect any assumptions about future Basel 3.1 outcomes. The 2026 full-year hedge reinvestment assumption is 4% overall, well above the start-of-year 3.25% terminal rate assumption, providing upside if current rates hold. Higher margin new business will gradually offset ongoing margin compression from the roll-off of older higher-rate fixed mortgages, which will be complete by the end of 2026.

• Q: Loans are growing faster than deposits, pushing up the loan-to-deposit ratio — how high can this go and what are the margin impacts? /

  A: NatWest manages funding holistically, not via the LDR as a core metric, and focuses on the liquidity coverage ratio (LCR), which currently stands at 140% so still has significant headroom. The bank is comfortable using wholesale funding (including covered bonds) to support loan growth when needed, and focuses on return on tangible invested capital rather than just LDR, ensuring all new lending earns appropriate risk-adjusted returns even after accounting for funding costs.