NatWest Group Q2 2026 Fixed income

Good afternoon, everyone. Thank you for joining our H1 2026 Fixed Income results presentation. I'm joined today by Donal Quaid, our treasurer, and Paul Pybus, our head of Debt IR. I will take you through the headlines for the half year and the detail for the quarter. Donal will take you through the balance sheet, capital and liquidity. I'll go through the forward look and targets. We'll open up for questions. Turning to the headlines. Our results today show how we have created a bank with increasing momentum through our focus on sustainable growth and returns. By delivering growth across all three businesses, improving operating leverage, and managing our capital and risk well, we have created the most efficient large U.K. bank with the lowest cost of risk, delivering the strongest levels of capital generation and highest returns.

Our performance makes clear we have the capability and capacity to grow at scale. The momentum we're seeing in customer growth, efficiency, and returns gives us confidence for the future. We have created a business capable of delivering strong, compounding, sustainable returns through the cycle. In February, we set out how we plan to deliver our 2028 targets by pursuing disciplined growth, leveraging simplification, and actively managing our capital and risk. Our aim is to grow customer assets and liabilities at an annual rate of more than 4%, to reduce our cost-income ratio to below 45%, and to generate over 200 basis points of capital before distributions, with a return on tangible equity of more than 18%. Our strategy is delivering excellent results as we make good progress against these three ambitions. Let me give you the financial headlines.

We have deliberately built a scale business that benefits from structural U.K. growth drivers to deliver strong returns on a sustainable basis. Our return on tangible equity was industry-leading at 19.7%. Our acquisition of Evelyn Partners has now completed and boosts our exposure to the fast-growing U.K. wealth market. Customer assets and liabilities grew 13.4%, including Evelyn Partners. We continue to drive operating leverage. Income growth of 8.9% is significantly ahead of 4.5% cost growth. Our cost-income ratio reduced 2.8 percentage points to 46%, getting close to our 2028 target. We also generated high levels of capital at 137 basis points, and our balance sheet remains strong with a CET1 ratio of 13.2% after the acquisition of Evelyn Partners. Given the strength of our performance and our confidence in the outlook, we are upgrading our 2026 returns guidance to more than 19%.

I'll now take you through the performance of the second quarter. My comments for the second quarter use the first quarter as a comparator. Our strong performance in the first quarter continued in the second, with broad-based growth, income momentum, and improved operating leverage. Income, excluding notable items, increased 5.4% to GBP 4.4 billion, and total operating costs grew 1.8% to GBP 2.1 billion, driving a one percentage point improvement in the cost-income ratio to 45.5%. The impairment charge was GBP 140 million, equivalent to 13 basis points of loans. This resulted in 12.4% growth in operating profit to GBP 2.3 billion. Profit attributable to ordinary shareholders was GBP 1.6 billion, and we delivered a return on tangible equity of 21%. Turning now to income. Income, excluding notable items, was up 5.4% at GBP 4.4 billion. Income across our three businesses continued to grow, supported by an increase in CAL, margin expansion, and higher non-interest income.

Non-interest income grew 15%, or GBP 124 million. Given the strength of our performance and the inclusion of Evelyn Partners, we now expect full-year income, excluding notable items, of around GBP 17.9 billion. Turning now to customer assets and liabilities or CAL. We are pleased with our continued track record of growth. CAL increased by GBP 86.8 billion in the quarter or 9.6% to GBP 986.9 billion. This comprises GBP 9.7 billion of broad-based customer lending growth, GBP 2.8 billion of customer deposit growth, and a GBP 73.9 billion increase in AUMA, including Evelyn Partners. I'll touch on each of these elements in turn. We are reporting another quarter of strong broad-based loan growth across the group, with growth loans to customers up by GBP 9.7 billion. Retail Banking and Private Banking and Wealth Management balances grew GBP 4 billion or 1.7%. This comprises GBP 3.9 billion in mortgages and GBP 0.1 billion in unsecured lending.

Our mortgage stock share increased to 12.7% with record applications in March. Commercial and Institutional lending increased by GBP 5.7 billion or 3.6%. Within this, growth is strongest for our larger corporate and institutions, where we see continued strong demand driven by structural trends, including digitization and decarbonization. Our mid-market customers are showing healthy demand driven by manufacturing and social housing. Turning now to deposits. Customer deposits grew by GBP 2.8 billion in the quarter. This was driven by Commercial and Institutional, where deposits increased by GBP 2.5 billion, with broad-based growth across business banking, commercial mid-market, and our large corporates. Private Banking and Wealth Management deposits were up GBP 0.3 billion, mainly as a result of growth in savings balances. Retail Banking deposits were stable, with further migration to fixed and variable rate ISAs as customers prioritized tax-efficient savings options. Turning now to assets under management.

AUMA closed the quarter at GBP 130.6 billion. This includes the addition of GBP 71.7 billion from Evelyn Partners and a GBP 4 billion reduction following the sale of Cushon in May. Turning now to costs. We are pleased that once again, we have driven operating leverage as income growth outpaced cost growth. Other operating expenses were GBP 2 billion in the second quarter, taking the total to GBP 4.1 billion for the first half. Our cost-income ratio reduced by 2.8 percentage points to 46%, and we now expect other operating expenses to be around GBP 8.5 billion for the full year. Turning to impairments. Credit performance remains strong, and we benefit from our structurally low loan impairment rate and strong asset quality. The impairment charge for the quarter was GBP 140 million, equivalent to 13 basis points of loans.

We saw no new signs of stress across our three businesses. We continue to expect a loan impairment rate below 25 basis points for 2026. Our guidance is unchanged. We carry economic uncertainty post-model adjustments of GBP 284 million, with total AUMA of GBP 316 million. With that, I'll hand over to Donal.

Thank you, Katie. Good afternoon. Thank you for joining today's call. I'll start by sharing some highlights from the first half of the year before moving into more detail on the balance sheet, covering capital, liquidity, and funding. I'll update you on our progress on funding plans across the group. Starting with an overview of the key metrics on slide 15. We ended the first half with strong capital, MREL, and leverage positions, comfortably above the regulatory minima with a CET1 ratio of 13.2%, a total MREL ratio of 30.6%, and a leverage ratio of 4.7%. Our average liquidity coverage ratio was 140%, giving us a comfortable surplus over minimum requirements. Our average net stable funding ratio was 132%, and primary liquidity was GBP 152 billion. The group's funding is very well diversified.

Our loan-to-deposit ratio was 90%. We have a strong retail, private, and corporate deposit franchise with around GBP 448 billion of customer deposits across our three businesses. We've made good progress with our 2026 funding plan, with GBP 2.7 billion sterling equivalent of benchmark issuance from NatWest Group across Holdco Senior, AT1, and Tier 2 capital securities. GBP 3.7 billion sterling equivalent from NatWest Markets. Thank you for your continued support of NatWest in both the primary and secondary markets. We saw another positive step in our credit ratings journey as Fitch upgraded a number of rated subsidiaries by one notch following an update to its bank ratings criteria. Moving to capital generation on slide 16. Our business continues to be highly capital generative. We've ended the first half of the year with a common equity Tier 1 ratio of 14% before distributions, in line with the year-end.

Our earnings power is reflected in 197 basis points of CET1 capital generation, which was boosted by 31 basis points of capital generation from RWA management. Our ongoing investment spend consumed 19 basis points. Organic lending growth consumed 61 basis points. This means all our investment and growth was funded with just six months of capital generation. We are reporting a CET1 ratio of 13.2% after accruing 50% of attributable profit for ordinary dividend payments. We expect to continue generating strong capital from earnings with active RWA management. For 2026, we now anticipate capital generation before distributions and the impact of Evelyn Partners of more than 240 basis points. This is before the impact of Basel 3.1 on the 1st of January 2027, where we continue to assume around GBP 10 billion of RWA uplift. Turning now to our approach to capital allocation on slide 17.

We have a robust balance sheet and aim to operate with a CET1 ratio of around 13%, giving us appropriate headroom above minimum requirements. Our strong capital generation enables us to invest in our business to grow and deepen customer relationships. We are both disciplined and dynamic in our deployment of capital, and our diversification across three businesses gives us optionality through the cycle to optimize risk-adjusted returns. We also apply a high bar as we consider acquisitions to accelerate our strategy through additional scale or capabilities. Our strategy is delivering attractive and growing shareholder returns, and we remain committed to a dividend payout ratio of around 50% and to returning surplus capital to shareholders via share buybacks. Turning to our total capital position on slide 18.

Our total capital ratio of 18.9% reflects the strength of our CET1 ratio and higher levels of AT1 and Tier 2 capital relative to our minimum requirements. We currently have an AT1 ratio of 2.5%, with GBP 5.1 billion of securities outstanding, inclusive of the GBP 500 million we issued in May. This is above our minimum requirement of 2.1%, and I expect to move closer to this requirement during the course of next year after the implementation of Basel 3.1. Our Tier 2 ratio is 3.1%, with GBP 6.3 billion of securities outstanding, including the $750 million new issuance in the first half. Turning to our total MREL position on Slide 19. Our total MREL is very healthy at 30.6%, significantly higher than our risk-weighted asset requirement, leaving us well-positioned for the growth and the upcoming impact of Basel 3.1.