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RBS - Annual Results & Name Change

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The Royal Bank of Scotland Group plc

2019 RBS performance summary

RBS reported an operating profit before tax of £4,232 million and an attributable profit of £3,133 million and proposes a final ordinary dividend of 3 pence and a 5 pence special dividend.

In a challenging market RBS has exceeded all of its 2019 financial targets: cost reduction above target; net lending growth ahead of target; RWAs below guidance; and 22 pence of total distributions to shareholders in 2019, while maintaining a CET1 ratio of 16.2%.

Return on tangible equity of 9.4% for 2019 and 4.7% excluding FX recycling gains.

Q4 2019 operating profit before tax of £1,546 million and an attributable profit of £1,410 million, or £176 million excluding FX recycling gains.

FY 2019 attributable profit of £3,133 million, or £1,561 million excluding FX recycling gains.

Supporting our customers through continued lending growth

We continue to achieve net lending growth at attractive returns in a challenging market. Across UK Personal Banking, Ulster Bank RoI, Commercial Banking and Private Banking, net loans to customers increased by 3.7% in 2019, exceeding our 2-3% growth target.

UK Personal Banking gross new mortgage lending was £33.3 billion in 2019 compared with £30.4 billion in 2018. Commercial Banking gross new lending was £19.5 billion in 2019.

2019 net impairment losses of £696 million equate to 21 basis points of gross customer loans, compared with 13 basis points in 2018. The cost of risk remains below our view of a normalised blended long term loss rate of 30-40 basis points.

Continuing competitive market

Reflecting challenging market conditions and ongoing margin pressure, across the retail and commercial businesses income, excluding notable items, decreased by 2.6% compared with 2018.

2019 Bank net interest margin (NIM) of 1.99% decreased by 10 basis points compared with 2018. Q4 2019 Bank NIM of 1.93% was 4 basis points lower than Q3 2019 primarily reflecting competitive pressures in the mortgage business as front book margins remain lower than back book.

Natwest Markets core income of £1,082 million was £177 million, or 14.1%, lower than 2018 largely reflecting a challenging third quarter in the Rates business.

A cost reduction of £310 million was achieved during 2019, ahead of our £300 million target for the year.

Capital generation

The Bank maintained a CET1 ratio of 16.2% despite accruing £2.7 billion of distributions to shareholders and a £0.4 billion post tax charge in respect of foreseeable pension contributions. Excluding the impact of the Alawwal bank merger and PPI, the Bank generated c.110 basis points of capital from attributable profits and c.60 basis points from a reduction in RWAs and other capital movements.

RWAs reduced by £9.5 billion during 2019 to £179.2 billion, below our £185 -190 billion guidance, in part reflecting a £4.7 billion reduction associated with the Alawwal bank merger.

Parent Company name change

Today, we have announced that we plan to rename our parent company. The Royal Bank of Scotland Group plc is intended to be renamed NatWest Group plc later this year.


RBS, like all companies, continues to deal with a range of significant risks and uncertainties in the external economic, political and regulatory environment. Our central economic forecast, which supports our corporate plan, is in line with consensus as at the end of December 2019 and shows average UK GDP growth of around 1.6% from 2019 to 2023 and continued low interest rates; we expect a base rate cut in the short term and then flat thereafter. Given the current uncertainties we will continue to actively monitor and react to market conditions.

2020 Outlook

In the current environment, and recognising ongoing market uncertainty, we continue to expect challenges on income. In addition, we anticipate that regulatory changes will adversely impact income in our personal business by around £200 million.

We plan ongoing operating cost take out by reducing operating expenses excluding strategic costs, litigation and conduct costs and operating lease depreciation costs by £250 million in 2020 compared with 2019. We expect to incur £0.8-1.0 billion of strategic costs during 2020 resulting from a refocussing of NatWest Markets and the continued resizing of the Group's cost base. We anticipate that NatWest Markets exit, restructuring and disposal costs will be around £0.6 billion in 2020, with around £0.4 billion as disposal losses through income and £0.2 billion through strategic costs.

We expect to remain below our through-the-cycle impairment loss rate assumption of 30-40 basis points, although the potential impact on the real economy of ongoing political uncertainties and geopolitical tensions could affect our credit loss outcome. The threat from single name and sector driven events remains.

We are targeting lending growth of greater than 3% across our retail and commercial franchises.

We expect to end 2020 with risk weighted assets (RWAs) of around £185-190 billion including an estimated £10.5 billion increase associated with the implementation of Bank of England mortgage floors, with NatWest Markets RWAs reducing by around £6-8 billion in the year.

RBS Group (RBSG) capital and funding plans focus on issuing £2-4 billion of MREL-compliant instruments, of which we would expect around £1 billion to be issued under our Green, Social and Sustainable Bond Framework, up to £1.5 billion of AT1 and up to £2.5 billion of Tier 2 instruments. As in prior years, we will continue to target other funding sources to diversify our funding structure, including senior secured from NatWest Bank subject to funding and liquidity considerations.

Medium term outlook

We expect to achieve a return on tangible equity of 9-11% in the medium to long term. In addition, we expect ongoing operating cost take-out.

Within NatWest Markets franchise, we anticipate that RWAs will reduce to around £20 billion in the medium term, which, after accounting for strategic costs and disposal losses, is expected to be capital ratio accretive in year one and over the course of the transition plan period.

We anticipate that the overall RWA impact of Basel 3 amendments to be around 5-10% and phased across 2021 to 2023, with the details still subject to regulatory uncertainty on both quantum and timing.

RBS Group capital distributions

We expect to maintain ordinary dividends of around 40% of attributable profit. We retain our guidance of CET1 ratio to be approximately 14% at the end of 2021, and we will target a reduction to 13-14% in the medium to long term. We have shareholder and regulatory approval to carry out directed buybacks of the UK government stake in RBS but recognise that any exercise of this authority would be dependent upon HMT's intentions and is limited to 4.99% of issued share capital in any 12 month period. As a reminder, we have also committed to make further pre-tax contributions to the pension scheme of up to £1.5 billion in aggregate from 1 January 2020 linked to future distributions to RBS shareholders.

NatWest Markets Plc

Whilst we have announced a refocusing of the business, NatWest Markets Plc remains a regulated entity and is targeting to maintain a CET1 ratio above 15%, MREL ratio of at least 30%, leverage ratio of at least 4%, and to reduce RWAs by around £14-18 billion in the medium term.

NatWest Markets Plc, as a standalone bank, plans to issue £3-5 billion of term senior unsecured instruments in 2020.