FY 2018 Results Fixed income presentation 15 15 th th February - PowerPoint PPT Presentation

FY 2018 Results Fixed income presentation 15 15 th th February ruary 2019

Katie Murray Chief Financial Officer 2

FY 2018 update on progress Income remained stable (ex notable items, Natwest  Resilien ient inco come Markets and central items) × Core NWM franchise income down 24% YoY (1) Continui nuing ng cost reducti tion on Reduced costs by £278m (2) in 2018, with increased  investment spend Actively vely managing ng capita tal l RWA reduction £12bn; exceeded £191-196bn guidance  240bps underlying capital built in the year  CET1 ratio 16.2% (proforma 16.0% for IFRS 16)  Delive verin ring g capital al returns ns Proposed a final dividend of 3.5p and a special dividend of 7.5p   Ordinary dividend pay-out ratio already built to c.40% of attributable profits 3 (1) NatWest Markets Core Income excluding Own credit adjustments. “NWM” throughout this presentation refers to Natwest Markets franchise. (2) Excluding one-off VAT release in 2017.

Summary financials vs. FY 2017 £13.4bn Income 2% 13,402 (126) 288 Operating £9.6bn 13,133 54 53 expenses (7)% Income (£m) 1 £3.4bn Operating profit 50% FY’17 PBB & RBSI NatWest Centre FY’18 Attributable £1.6bn CPB Markets profit 116% 204 204 Net interest 1.98% 201 margin (FY) (15bps) NIM (bps) 195 193 CET1 ratio 16.2% (post dividend) 30bps Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 TNAV per 286p share (2) (6p) 16,194 10,401 4.8% 9,645 RoTE Costs (£m) 260bps Cost:Income 71.7% FY’16 FY’17 FY’18 ratio (7ppts) (1) Adjusted for the impact transfers. (2) TNAV per ordinary share on a fully diluted basis. 4

Outlook (1) Reduce other expenses by c.£300m  Strategic costs ~£1.5bn  2019 2019 Targets ets RWAs £185-190bn range  Cost:income ratio <50%  Risks to the downside reflect the ongoing economic and political  uncertainty and additional costs associated with ring-fencing and Brexit Expected RWA inflation:  2020 Targets 2020 ets - BoE mortgage floors £10.5bn in 2020 - Expect the overall impact of Basel 3 amendments to be in the range of 5-10%, phased across 2021 to 2023 NWM franchise RWA guidance to £39bn by 2020  RoTE target 12%+  CET1 1 ratio o to be c.14% at the end of 2021 5 (1) Please see the Cautionary & Forward Looking Statements on the last page of this presentation.

Robert Begbie Treasurer

Treasurer’s review Balance sheet reflects diversified funding, sound liquidity management and strong capital generation Clear pass on stress testing, GSIB requirement removed from 2020 as we become a simpler, safer bank Positive progress on ratings Exceeded 2018 issuance targets in challenging markets Improved efficiency of our capital stack with legacy Tier 1 calls Completed Ring fencing, significant progress on Brexit preparations 7

Strong, sustainable balance sheet FY 2018 FY 2017 Loan: 86% 85% deposit ratio  Delivered a solid set of balance sheet metrics Short term £17.8bn £15.1bn  Strong funding and liquidity position wholesale funding with Loan:deposit ratio (LDR) of Liquidity 85% and liquidity coverage ratio 152% 158% Coverage ratio (LCR) of 158%.  Underlying CET1 generation of Net stable 132% 141% ~240bps reflecting profit growth funding ratio and RWA reductions Common equity  On track to meet MREL 15.9% 16.2% tier 1 ratio requirements with Loss absorbing capital ratio (LAC) of 30.7% CRR leverage 5.3% 5.4% including £7bn of MREL issuance ratio for the year Loss absorbing 27.1% 30.7% capital 8

Achieved priorities on capital, funding and structural reform • Issuance of ~£12bn placed at competitive spreads, in a challenging market Issuanc uance e targets rgets • HoldCo issued £7bn MREL senior unsecured. £0.6bn pre funded for 2019 exceede eded • NatWest Markets Plc issued £4.8bn senior unsecured • UBIDAC re-entered the Irish RMBS market with € 1bn issuance in Q2 • HoldCo called £2.1bn legacy Tier 1 in December, generating coupon saving of ~£150m p.a. Capital al effici ciency cy • NatWest Markets (NMW) plc repatriated capital as it normalised ratios towards target & liqui uidi dity managem agement nt • £5bn of Term Funding Scheme repaid • Credit profile converging towards peers on positive rating agency actions Progres gress s on credi dit t prof ofile • Fitch ratings now in line with peers following 2 notch upgrade in December • All rated entities on positive outlook from Moody’s and S&P • Completed stand up of NWB wholesale bank Ring g fencing ng compl plete, ete, • Transformation of NWM as a separate legal entity Brexit xit prepa paredn redness ss • RBSG invested internal MREL debt of ~£4.8bn in NatWest Holdings and ~£5.1bn in NWM Plc • Brexit preparations on track to ensure operational readiness for exit on 29 March 2019 9

Positive momentum on ratings Ratings action ions in 2 2018 18 • In H1 2018 subsidiary ratings were revised to reflect our new ring-fenced structure Moody’s S&P Fitch ch • Following resolution of DoJ, Pension Fund and progress made with our restructuring plan, RBS Group up Baa2 a2/Pos Pos BBB BBB-/Pos Pos A/Sta A/ ta positive actions were taken on our ratings from Insid ide the ring-fe fence nce all three agencies Natwest Bank Plc A1*/A2/Pos A-/Pos A+/Sta • In May S&P upgraded the ratings of the ring- Royal Bank of Scotland plc A1*/A2/Pos A-/Pos A+/Sta fenced OpCos, RBSI and UBI DAC, affirmed Ulster Bank Ireland DAC the rating of NatWest Markets Plc, NatWest Baa1*/Baa2/Pos BBB+/Pos A-/Sta Markets N.V. and NatWest Markets Securities Ulster Bank Ltd A1*/A2/Pos A-/Pos A+/Sta Inc. and changed the outlook of each to Outsi side de the ring-fence nce Positive NatWest Markets Plc Baa2/Pos BBB+/Pos A/Sta • In July Moody’s upgraded the senior unsecured NatWest Markets N.V. Baa2/Pos BBB+/Pos A/Sta ratings of RBSG by 1 notch to Baa2 and NatWest Markets Securities Inc NR BBB+/Pos A/Sta assigned a Positive outlook all RBS entities RBSI NR BBB+/Pos A/Sta • In December Fitch upgraded the ratings of RBSG and subsidiaries by 2 notches. Ratings are now on Stable outlook 10 * Reflects the Moody’s Bank Deposits rating for NatWest Bank Plc, Royal Bank of Scotland plc, Ulster Bank DAC and Ulster Bank L td

External issuance reflects ring-fencing structure Market t issuance ance Senio ior Unsecur ecured ed (MREL) L) Inside e the ring fence AT1 & Tier 2 Royal Bank of Scotland land Plc NatWes est t Holdings Limi mited ed Senio ior NatWest Bank Plc Ring-fenced Bank secured ured Intermediate Holding The Royal Bank of Proportio ional l Company for our Ulster Bank Coutts & Co Scotland and Group plc interc ercompany retail, commercial and Ltd issua uance e of private banking Group holding company Senio ior MREL, , AT1 entities Ulster Bank Irel eland DAC secured ured and Tier er 2 Outside e the ring fence NatWes est t Markets ets Plc lc Senio ior unsec ecured ured Wholesale capital markets business RBS Inter ternation tional Ltd Offshore retail, commercial, private banking & funds business 11

HoldCo issuance profile HoldCo senior unsecured MREL profile Issuance Currency GBP equivalent £bn GBP Senior unsecured MREL requirements 0.8 • HoldCo focus is on building MREL stack of ~£24bn (1) to meet 1 Jan 2022 EUR 4.7 end state requirement • ~£15.5bn cumulative MREL LAC (1) achieved by year end 2018 ~£15.5b .5bn • ~£3-5bn issuance target for 2019, given pre-funding of £0.6bn • USD primary issuance currency, accounting for ~64% of all issuance, 9.9 followed by Euros and GBP USD £7.1bn • Given ratings progress, we will look for opportunities to diversify the Maturity profile investor base across currencies and maturities £7.1bn 1bn EUR GBP equivalent £bn USD 4.4 4.1 Capital requirements GBP • Potential for up to £1bn Tier 2 refinancing 2.7 2.0 • No need for AT1 this year, potential refinancing in 2020 1.4 0.8 (1) MREL: Minimum requirement for own funds and eligible liabilities. Based on RWA of ~£200bn (2) LAC: Loss Absorbing Capital <5 Yrs 5-10 Yrs >10 Yrs 12

NatWest Markets Plc issuance profile NWM Plc senior unsecured Senior unsecured Issuance plans GBP equivalent £bn • NWM plc Issues senior unsecured for general funding purposes, Fundi ding ng Type 2018 2018 2019 2019 2020 2020 with a requirement of £3-5bn for 2019 Term Senior unsecured • In 2019 we are looking to diversify the markets we access £4.8bn £3-5bn £2-4bn (non-MREL format) • In addition, NWM Plc accesses the short-term money markets and funds a portion of its banking book lending on a secured Senior debt maturity profile (incl. CP/CD) basis across a number of different formats GBP equivalent £bn CP/CD 2.8 MTNs 6.8 Capital requirements 3.6 • NWM plc now issues all capital and internal MREL to RBS Group 2.0 1.3 plc. At FY18, NWM Plc’s total regulatory capital and CRR - compliant MREL was £13.9bn or 34% of RWAs. < 1 year 1 - 3 years 4 - 5 years > 5 years 13

Closing remarks Good results set against a highly competitive environment Significant capital return to our shareholders Strong set of balance sheet metrics Achieved targets for capital and funding Ring fencing complete, significant progress on Brexit preparations 14

Q&A

Appendix