NatWest Group plc Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Disciplined Growth: Attracted over 100,000 new customers organically, completed Sainsbury's transaction adding ~1 million customers, £2.4 billion savings and £2.2 billion unsecured lending. Overdelivered on £100 billion climate and sustainable funding target, now at £110 billion, and set new target of £200 billion by 2030.
• Bank-wide Simplification: Digitized over 30 customer journeys, streamlined systems, accelerated data and AI use, simplified operational model by reducing branches, relocating teams. Cost-to-income ratio improved from ~56% to ~49%.
• Balance Sheet Management: Generated 101 basis points of capital in H1, reduced risk-weighted assets by £2.9 billion, CET1 ratio stable at 13.6%.

Segment Performance

• Retail Banking: Lending grew 3%, deposits increased 1%. Attracted over 100,000 new customers organically, helped 24,000 first-time buyers, launched family-backed mortgages. Share in credit cards increased from 9.7% to 11% via Sainsbury's transaction. Lending growth included mortgages and unsecured, deposits up 1%.
• Commercial & Institutional: Lending grew 4%, deposits 2%. Loans to corporates and institutions grew via project finance, sustainable financing, etc. Commercial mid-market grew in social housing with £2.7 billion lending.
• Private Banking and Wealth Management: Lending grew 2%, net new assets under management inflows £1.5 billion (8.1% of opening AUM).

Guidance

• Upgraded 2025 guidance: Expect income > £16 billion and return on tangible equity > 16.5%. Target returns >15% in 2027.
• Expect full-year total income (excluding notable items) > £16 billion, loan impairment rate below 20 basis points.

Risks

• Interest Rate Risks: Expect 2 more Bank of England rate cuts, which could impact net interest income.
• Market Volatility: FX risk management derivatives can impact NII and noninterest income.
• Regulatory Risks: Potential changes in capital requirements, Prudential reviews, and ring-fencing could affect capital targets and operational costs.

Question and Answer

• Q: On deposit flows and market share movement, and cost restructuring charges **A: John-Paul Thwaite and Katie Murray discussed deposit growth, stable market share, and planned restructuring charges in H2, emphasizing disciplined pricing and focus on simplification.
• Q: On lending outlook and capital moving parts **A: John-Paul Thwaite noted strong lending growth, broad-based, and confident in ability to continue growth. Katie Murray talked about capital generation, CET1 ratio, and balanced approach to capital allocation.
• Q: On structural hedge interplay and mortgage spreads **A: Katie Murray explained structural hedge benefits, mortgage spread stabilization, and broadening mortgage propositions.
• Q: On revenue guidance and RoTE outlook **A: Katie Murray discussed H2 revenue drivers, including hedge income, Sainsbury's impact, and confidence in RoTE growth through 2027.
• Q: On FX risk management and Prudential reviews **A: Katie Murray explained FX risk management impact on NII, and John-Paul Thwaite discussed Prudential review implications on capital requirements.
• Q: On BIBLs book runoff and capital target review **A: John-Paul Thwaite and Katie Murray discussed BIBLs runoff consistency and ongoing review of capital targets in light of regulatory changes.
• Q: On structural hedge understanding and M&A **A: Katie Murray explained structural hedge mechanics, and John-Paul Thwaite reaffirmed disciplined M&A approach focusing on scale and capabilities.
• Q: On cost outperformance and simplification opportunities **A: John-Paul Thwaite discussed cost discipline, investment in simplification via digitization, technology, and operational model streamlining.