Half Year 2020 Natwest Group PLC Earnings Call
Since we speaking May however, the economic Outlook has worsened. And as a result, we are announcing a first-half net impairment charge of 2.9 billion. This is based on faith tensed modeling carried out during the second quarter, which I'll talk about on the next slide.
Cool with slightly lower year-on-year and taking into account impairments you made an operating loss of 770 million and an attributable loss of 705 million months given the ongoing economic and strategy. We are pleased to be operating from a position of strength in terms of liquidity funding and capital even after absorbing prudent Provisions. This is a sign of the strength of our franchise are common Equity Tier 1 ratio for the first half was 17.2% and our liquidity coverage ratio was a hundred sixty-six talked about and payments and capital on site 5.
Given the current level of economic uncertainty. We are managing impairments carefully or impairment charge for the second quarter was 2.1 billion and increased from 860 million in the first quarter.
This charge is based on modeling that takes into account a wide range of macroeconomic factors as well as expert views on risk and reflects. The deterioration in economic indicators may be provided you with a lot of detailed information on our approach which Katie will take you through later.
Results of this modeling the majority of Provisions have been taken in the first half providing coverage of 1.72% We anticipate a significantly lower charge in a second thoughts with foliage charge in the range of 3.5 to 4.5 billion based on current economic assumptions.
Despite this increase in Provisions. We have a one ratio of 17.2% one of the strongest Capital ratios in Europe. Now, of course this ratio package reflects, the cancellation is dividend earlier in the year in consultation with the regulator and we plan to return to paying dividends as soon as it is possible. We continue to believe what kind of shape and mix of our business that we should be operating with a cet1 ratio of 13 to 14% over the medium-to-long term, which means we have clear Headroom of somewhere between six to eight billion pounds above our Target Capital ratio and fifteen billion above the maximum distributable amount.
This gives us the flexibility to return Capital to shareholders as soon as that is possible to manage and uncertain Outlook and to consider other options that offer compelling shareholder value pack.
So having given you the headlines, let me move on to talk about how we have been running the business during the pandemic.
We sent out to new purpose in February to Champion potential by helping people families and businesses to try what you will hear today is how we are taking advantage of our strong cup a franchise and Market positions to advance that purpose.
We have supported our customers in difficult circumstances and we have done through safely with a prudent approach to risk and impairments and with careful deployment of our balance sheet month. We taking Swift action to address covid-19, but we have also focused on the key strategic priorities. I set out in February. For example, we have made real progress we practicing that with markets on to the needs of our cool customers and expect to complete the majority of our targeted r w a reduction by the end of 2021.
We will still on track to deliver or 250 million cost reduction targets despite the disruption of covid-19.
Finally, we remain focused on maintaining a strong balance sheet, which as I said give the significant advantage in this environment and will allow us to resume dividend payments to shareholders off when it is appropriate to do something.
Cooking Peppers into action has entails making a very significant change to the way. We were in order to support our customers during the pandemic as you will see on slide seven.
95% of our Branch Network open for customers. Do you need help and we have over fifty thousand people working from home including more than three-quarters of our call center colleagues. May I speak to action we have taken to help customers has contributed to increased net promoter schools, which are up eighteen points in our branches and twenty points in business banking since birth.
We're proud of the strength of our customer franchise and our response during this period of disruption is an important part of deepening relationships with customers and positioning as well to grow as the economy recovers.
We have leveraged our investment in technology not just to support working from home, but also to accelerate new Digital Services in order to meet customer needs. Our customers are increasingly engaging with us buyers digital channels. We now have seven point two million active mobile users while three-quarters of our current account customer Banking and almost all Commercial Banking customers regularly use digital banking.
Sales by digital channels have also grown rapidly 80% of personal banking sales with digital in the second quarter compared to 55% in the first in addition. They were the whole familiar new downloads of our app during the first half and we added more than 485,000 new online banking customers.
A good example of our focus on Innovation and partnership is a re-entry into Merchant acquiring by our new digital payment solution for small businesses called till till home become even more important to these customers with a move to contact with payments during the pandemic and it's progressing. Well, it is now processed over four and a half million transactions up from 1 million in February.
These examples are an illustration of how our investment is enabling us to scale up an increase speed of delivery both effectively and efficiently.
El Tucan like eight about how we have also been supporting customers to Lending.
Across the retail and Commercial businesses net lending increased by $16 billion in total during the first half approximately half of which relates to government scheme drawdown. You can see here the impact of the pandemic on customer behavior in the second quarter in personal banking. There was a fall off in demand in April, but we are now seeing signs of recovery as long easy new mortgage applications in July are nearing pre covid-19 levels and are 30% higher than June 3rd on partly by a reduction in Staffing debit and credit card spending is also growing and it's 10% higher than the level three saw in June with debit card spending back to the same level as January.
Of course it is still.
Three days and we are watching this closely given the uncertain Outlook.
In Commercial Banking, there was a steep increase in the use of revolving credit facilities in March, but customers are now making significant repayments as Government lending schemes have kicked in public accounting office usage is about 30% down from the covid-19 peak of 40% weekly commercial card and cash transactions have no games for the last week in April and we have also seen record issues in debt Capital markets.
Turning now to government support scheme lending on slide 9.
As you would expect we have done all we can to support our customers during this period of uncertainty including providing them with access to all the government's support schemes, but we had not only supported existing customer customers. We know and whose risk profile we understand we have also maintained a consistent approach to risk due diligence and under speaking standard with the exception of bounce back loans, which are a hundred percent guaranteed by the government.
In order to help people and families in the UK. We have extended 240,000 initial mortgage repayment holidays, which represents 20% of our books and 70,000 payment holidays own personal loan.
With an easing of lockdown our Focus has shifted to helping customers as they start to resume normal repayments.
What is clear is that many people who ask for repayment holidays. It's so true Prudence rather than constraint at this stage about 70% of UK customer. You have come to the end of the repayment holiday have we commenced payments? So this could clearly change when the silo system starts to roll off and all mortgage holidays run to their thoughts.
We have also played a full part in government battling loan scheme for large and small businesses at the end of June. We had received applications under these schemes and mounting 2013 building to which we have approved lending of ten billion to existing customers, which is broadly in line with our market share of that ten billion dollars billion has been drawn down.
The moment for these schemes is now tapering off from initial piece. For example in July. We have received up to two thousand applications a day for bounce-back loan compared to Jersey average of $20,000 a day in the week. They were launched and about 48,000 on the first day.
We also remain comfortable with the level of risk and diversification of our books, which I will talk about on 5/10.
That is in in UK personal banking represents just over half or total loans and advances within personal banking. It's important to remember that just 7% of all booked is unsecured and looking at our UK mortgage book. Our average loan-to-value is 57% just 12% of the book has an LTV above eighty thousand talk about commercial lending on slide 11.
Wholesale lending is well, Diversified across large corporates small and mid-sized businesses real estate and others. There are of course some sectors that we monitor closely which represents 8% of total loans and advances.
We have significant need to restore lending in these sectors in recent years by using synthetic trades and capital reduction to manage our exposure.
We have also skewed or lending to lower risk better performing subsections. For example in retail. The majority of our exposure is to feed and convenience retailers. I can use to perform well in the current market.
Unless we have reduced our exposure to high-risk sub-sectors and our lending is typically secured against property assets while oil and gas represents just 1% off wholesale book.
Since the Salted covid-19, we have continued to proactively manage our risk in these sectors by reducing limits increasing oversight of new business and making a series of controlled exit and structured risk mitigation trades.
Just 3.6% or a billion pounds of these loans are stage 3 and we are comfortable with our coverage ratio.
You'll see on slide 12 that are lending growth has been more than outweighed by deposit growth and customers continue to see NatWest group as a safe place to keep their money.
Hazel customer deposits grew by $39 billion during the first half just under a third of that Grace was in retail banking mostly in current accounts as consumer spent less during of them.
About two-thirds was in Commercial Banking as customers built up liquidity and we change a significant amount of borrowing from government lending scheme.
This influence deposits and help to maintain a healthy loan-to-deposit ratio of 86%
Well, we would quick to respond to the pandemic. We have also continued to focus on executing of four key strategic priorities and slide thirteen as a reminder of them in addition to these projects since we sent out some ambitious targets the supporting UK Enterprise by helping to create new businesses, promoting Financial capability and well-being and helping to address climate change.
Today, I want to speak to Saint the second and fourth priority showing here starting with NatWest Market on slide 14.
Refocusing that with small kids is one of my key strategic initiatives and we have continued to adapt the business to better suit the needs of our corporate and institutional customers are they used to create a business that is a simpler and more strategically aligned with a product Suite focused on financing currencies and risk management. I'm pleased with the progress. We have made executing reset the targets reduce risk-weighted assets and networks markets to thirty two billion in 2020 and to almost have them to 20 billion overtime days. We had used auto be raised by two point eight billion making good progress towards our 2020 targets and we expect to achieve the majority of our 20 billion targets by the end of 2021.
Real managing the associated disposal losses to about six hundred million over the two years.
Since February we have appointed any management team and that West Market confirming Robert baby in his Pace to CEO and bringing in David King and CFA direct costs in the second quarter of 13% lower than the first we are refocusing the business in the US and asia-pacific by reducing our footprint and we have started aligning the business to a One Bank model by centralizing technology within the group. We have also formed a new partnership with the parable. So basically execution in clearing of listed derivatives.
We expect strategic costs to be an invasion of two hundred million in that West Market for 2020.
Moving on now to simplification and cost reduction.
We have made good progress on simplification and other areas and we are on track to deliver a cost reduction of 250 million in 2020 as a result of covid-19 off the shape and timing of these cost reductions has been revised and we have also incurred additional covid-19 related costs of twenty-five million. This has led to a cost reduction of Faculty 1 million compared to the first half last year and we expect to see most of the execution impact falling in the second half.
We remain firmly focused on executions and I have accelerated a plan to exit from one of our London properties into twenty-twenty our strategic costs. However, will still be in the range of 800 million to billion pounds.
Before I handed it to Katy. I want to talk on slide sixteen about our progress on Enterprise Learning and climate change.
I mean these kids here are more important than ever as we start to rebuild the economy, which is why we have accelerated our digital offer and during the pandemic on Enterprise. We are supporting people he wants to become entrepreneurs who are twelve you can accelerate to help around the country and we have migrated this helps to digital delivery as a result. We welcome 1200 New Jersey has actually accelerated programs in April and we extended our Dream bigger program which encourages young women aged sixteen to eighteen to become entrepreneurs by offering it online.
learning the needs to financially
Education and capability has also become ever more important as people look to manage their own personal balance sheet. We have now completed Financial Health check, but over half-a-million customers off and we reached two million people in the first half three money cents are free financial education program for five to eighteen year olds, which you made available online when schools closed down. We also launched the first-ever financial education console game Island Center, which has had over a million downloads.
We continue to invest in the Next Generation and we have committed to Growing talents by creating a thousand interim graduate and apprenticeships over the next fifteen months.
I'm climate change. We remain focused on making our own operations climate positive over the next five years and having the climate impacts of our financing activity by Twenty thirty thousand the first haul we issued a $600 green bond with all proceeds allocated to renewable energy assets across the UK networks markets was ranked number one bookrunner UK corporate green and sustainable bonds by geologic and we helped raise about four billion pounds of new sustainable financing and funding since 2019. The business has helped me that issue green social and sustainable bonds totaling about twenty nine billion pounds.
So in some of me a first-half results demonstrate that we have a strong business franchise and have supported our customers as well as a time of uncertainty.
We are managing with carefully and providing for impairments thoughtfully. We continue to execute on our strategic priorities and even after absorbing increased Provisions. We have a ROM Capital position and resilient Capital generative business. This gives us the flexibility to return Capital to shareholders as soon as that is possible to manage and understand Outlook and to consider other options that offer compelling shareholder value with that. I'll hand over to Katie to take you through the numbers.
Thank you Allison and good morning. Everyone. There are three main areas. I would spend time on this morning actually start with a group income statement and I'll be using the first half last year as a comparator month for the businesses. I'll also show the income progression from the first second quarter this year and as Allison mentioned I'll give you a detailed breakdown of the impairment charge and the scenarios we have used to predict or model expected credit losses under if it's 9
Finally, I will cover our capital and liquidity position and a little more detail.
documented income statement
report your total income a 5.8 billion pounds for the first half a decrease of 5% year-on-year excluding the impact of last year's disposal of, Alabama.
Within this net interest income decreased 4% to 3.8 billion pounds and non-interest income reduced by 6% to just under two billion pounds.
These reductions were driven by a fallen rate impact of residency changes discussed in the last two quarters and the effects of covid-19 trading.
reduce overall operating costs by 9% 3.75 billion pounds
Then they other expenses excluding operating lease depreciation decreased by 1% while your costs were 26% lower at 464 million pounds.
Litigation and conduct cost for the first half were an 89 million pound release reflecting a PPI release of two hundred and fifty million pounds offset by some other historical litigation matters.
We are reporting operating profit before impairment of 2.1 billion pounds up 3% from last year mainly as a result of lower strategic can conduct cost.
Impairment charge for the first time was 2.9 billion pounds which represents 159 basis points of gross customer loans are talked about this in more detail. Later.
Thank you for holding this together. Were you approaching an operating loss before tax of 770 million pounds and a tribute to a loss of 705 million pounds.
Text your credit of 27% is higher than the standard rate of 19% due to the rate impact of FX recycling the tax surcharge and other tax adjusting items.
We will now take you through the income by business line.
Ultimate come for the second quarter with 486 million pounds lower than the first reflecting the contraction of the yield curve reduce business activity and lower customer spending resulting from governmental Affairs in response to covid-19 in UK personal banking total income decreased by $150 million pounds do to lower overdraft fees and significantly reduce carbs, which resulted in reduced fee income and lower on secured balances.
Commercial Banking income was down slightly as a result of Lord deposit funding benefits and reduce business activity.
This is partially offset by strong balance sheet growth as Government lending initiatives help to increase net interest income as a lower margin given the agreed government rates.
Which markets income was up $270 million pounds, but it's on credit adjustments and asset disposals Revenue grew by fifty million pounds.
Income from financing increased as credit Market stabilized with support from central banks. Well rates and currencies decreased as Market volatility towards the end of the first quarter East off.
moving on
No to look at next interest margin.
decrease to basis points in the second quarter 267 basis points
Is the result of three factors you recall we talked about interest rates and margin pressure and made low interest rates accounted for ten basis points. While five basis points was kicked out of the impact of a change in mix of lending. I would note of course that the level of lending has been beneficial to income particularly in the commercial area.
High level of liquidity we're holding accounted for a further seven basis point reduction as average interest-earning assets grew by over thirty five billion pounds.
It's of course at a negative impact on that subject. Margin. Go ahead no impact on income or orally.
Looking for the second half there are two main factors to consider one the impact of holding excess liquidity. And of course the ongoing pressure from the fall and hedging come.
moving all know to look at costs
Other expenses for the second quarter or fifty billion price lower than the first excusing operating lease depreciation.
Alice mention the shape and timing of our cost Reduction Program has changed as a result of covid-19.
Six cost will be higher as we have delayed some of our restructuring plans for change, then we'll be lower as we prioritize a smaller number of Key Programs to focus on maintaining critical services for customer.
Someone the bank cost will also be lower but just travel and the cost is running buildings.
We have of course encountered additional cost in our response to covid-19.
And I both believe it's absolutely critical. We remain very disciplined so that we continue making sustainable strategic change where we can
To make it covid-19 compliant.
she's requesting to two or three hundred thirty-three.
It's beneficial for us in the long run. But it means to change it costs will now be within our projected range of $800 billion pounds rather than at the lower end of that range as guided in me.
Litigation and conduct costs were $85 million pounds released for the second quarter. We have made an additional PPI release that 150 million pounds in the quarter as we have now substantially completed the complete process and settlement of claims.
Looking forward as you heard from Allyson, we remain committed to our cost reduction Target 250 pounds for 2020 moving on though to look at impairments.
Over the next couple of sides. I want to give you a more detailed explanation of how we've arrived at the impairment charge the treatment of covid-19 support measures under if it's 9 and our approach to Stage migration.
I'll start with the impairment movement on the balance sheet showing at the top.
Reporting an impairment charge of 2.9 billion pounds for each one or $159 basis point of growth customer loans.
This charge includes total stage three charges or commercial or two hundred thirty-six million pounds, including a small number of single name charges.
This compares to ecl increases of 68 million pounds and mortgages and point four billion pounds in personal unsecured over the same period in h1z, Catholicism. During the second quarter and under current economic assumptions impairment charge for the fuel year is likely to be in the range of 3.5 to 4.5 billion pounds wage increase is expected to be made up of migrations to stage three as customers move into default. And of course any further economic movement
Q1 overlay of 798 million has been absorbed into our provisioning. So we're no longer holding an economic uncertainty overlay in our numbers.
So let me take you through your approach on the next slide.
In order to arrive the impairment charge we have broadly taken a three-step approach first, we developed for different economic scenarios based on a wide range of future economic indicators off and made an assessment of their respective probabilities.
After applying probability waiting to be scenarios and given the continued uncertainty. We are using to Central scenarios through that with groups expected Outlook. They both have a 35% off thing apply. So the upside scenario has a 20% waiting and the downside has 10%
Over the four scenarios are assumptions for 2020 included a drop in GDP growth ranging from 8.9% to 16.9% unemployment rate between 7.4% and 14.4% and a fall in house prices or .1% to 11.5%
all
You a return to GDP growth and lower levels of unemployment from 2021 onward as you can see from the table on the slide.
The Second Step we've made adjustments to reflect the effects of government supports aimed at delaying impairment and reducing the likelihood of default. We also applied expert judgment on faith factors.
The third step was deployed further judgment specifically for high-risk customers and other uncaptured risks.
I also want to cover our approach the stage migration as a starting point. I approached the payment holidays and government lending schemes has continued in the second quarter.
Extended payment holidays will notes on the road rigorous cage migration. The key trigger for safety migration. Each one is a deterioration in probability of defaults driven by the adoption for new macroeconomic scenarios.
In wholesale. We use a conservative threshold for a significant increase in credit risk or sicker of just ten basis points increase in piedi. This has led to a large migration a high-quality up-to-date balances from stage 1 to Stage 2.
These will have a lower ecl coverage than past you stage two balances.
Where a sticker special to be seventy five basis points rather than ten basis points. This would reduce our stage to exposure by sixteen billion pounds over ecl be reduced by just sixty million pounds.
We're stage to loan to migrate backstage one. It must revert back to the threshold for a three month.
I said only move to stage three in the event of default. Typically once the account is 90 days past June.
On the next slide. I will cover Steve migration and expected credit loss coverage in more detail.
So going into detail. I want to reiterate the fact that the vast majority of the movement's I will be discussing in the following two sides are anticipating and not in response to observe defaults are starting point is that we've continued to use an appropriately conservative approach the stage migration and ecl and personal.
Could your criteria increase persistence where we keep balances in stage 3 typically for at least twelve months.
For mortgages 13.5% or more we close 9:16 stage 2 which are not past you again 5.6% in December. The majority of these are up-to-date as of the balance sheet dead. In fact over total mortgage. Only .9% is past you and 1.6% in stage 3.
Similarly 30% is two loans and credit cards and personal advances nurse. It's in stage 2 not passed you against 24% of December and you see a similar pattern repeating credit card and personal advances in terms of payment being up-to-date.
And our default to balances across personal we have 1.9% in stage 3 June against 2.1% in December.
It was giving her guidance. We expected to change over Q3 and Q4 and proceed default start to come through.
Turning night to wholesale migration on the next slide.
As you would expect it's clearly being a larger migration here is 38% of to close the stage to driven by forward-looking PD across wholesale 36% of law is known since age to not past due but 1.7 is stage two past due and 1.9. Today's three overall coverage for wholesale increases from 1.13 to 2.16% off reflecting the mix of immigration and prosecute Boot and staging for the slight offset from a small reduction in our State Street coverage.
What we can see today, they may not be until Q4 that we start seeing event-based stage migration as furlough ends on 31st of October and the various government lending seems closed.
These movements will combine to deliver or expected 3.5 to 4.5 billion pounds of twenty-twenty impairment charge expectations subject, of course to the economic situation as we see them today.
moving on risk-weighted assets
May I speak to a sales decreased 3.7 billion pounds into two as counterparts and Market risk were both down 1.5 billion pounds while credit risk was down seven hundred million pounds.
Santa party in Market with reductions were driven by not West Market where R wh decreased by 3.8 billion pounds as the business work towards its full-year reduction Target.
And departure basically not waste markets decreased by one point five billion pounds reflecting the exit of specific positions and Market risk also decreased by one point five billion pounds as markets generalize during the second quarter.
Introduction was mainly driven by personal banking. We're lower spending by credit card customers resulted in reduced undrawn rwas for drawing balances new lending on the government scheme of that General Credit with migration.
Looking forward our wa is at twenty twenty or expected to be in the range of 185 $295 billion pounds. We have seen little sticker in rwas in the Palm in line with the low level of overdue payments. We are seeing
moving on to capsule liquidity and funding
We ended the quarter with common Equity Tier 1 ratio of 17.2% on a transitional basis under if it's 9.
It's a 60 basis points higher than q1. We are benefiting from 70 basis points of transitional relief in Q2 as well as a reduction in our age of thirty basis points.
Ordering a change in the room. The banks are required to take 100% if it's nine transitional relief unexpected credit loss movements in stage 1 and stage two Provisions from the first of January 2026 TL from 2020 is subject to a full ad back in 2020 and 2021 and then unwinds over the following three years to 2024.
This change aims to reduce the impact caused by increasing ecl.
I don't know fully loaded if it's not bases are see if you want ratio was 16.3%
Excuse us strong position both in transitional and fully loaded bases terms.
Moving on nice capital and leverage on the next slide.
In terms of capital Headroom RCC When Rachel was 830 basis points above the maximum distributable amount of 8.9% of total loss of during capsule was 36.8 per month. Well above the minimum requirement.
This Headroom reflects our progress issuing senior debt, that's eligible for Emerald purposes. Oh Yuki leverage was 6% which is 275 basis points above the bank of England minimum requirement.
We believe that this excess Capital position means that we can manage through the economic downturn and also gives us options in the long term.
Allison said earlier given the shape and mix of our business. Will you believe that we should be operating for the CT one ratio of 13 to 14% over the medium to longer-term.
We have also maintained strong nuclear levels for the high quality liquid asset pool and a stable divert funding base as you will see on the next side.
Our liquidity coverage ratio for the first half was 166% reflecting about sixty-eight billion pounds of surplus primary liquidity above minimum requirements elevated lead levels were mainly driven by deposit influence as customer deposits increased by $39 billion pounds.
UK personal banking deposits grew 11261000000 pounds with most of the growth in current occurrence as a result of lower consumer spending in the face of both lock down an increased economic uncertainty.
Commercial Banking deposits grew twenty five billion pounds to 160 billion pounds as customers build public nudity and retain draw down from the government lending scheme.
Significant growth in deposits is driving the seven basis point decline in net interest margin that I spoke about earlier.
Supposed base is well-balanced across commercial and retail and wholesale funding makes reflects the range of sources and maturities are short-term wholesale funding is 22 billion.
During which one we took a decision to repay $5 billion to determine funding scheme and draw a five billion pounds from the new term funding SME scheme. This leaves us with five billion of CFS off an additional five billion of CFS m e
My final slide an update on targets and guidance.
We continue to expect that records to change will have an adverse impact of around two hundred million pounds on Personal Banking income in 2020 to maintain a cost reduction Target of 250 million power to the year.
As we decided on an additional property exit this year strategic costs are expected to be in our original guidance range of 8 to 1 billion pounds rather than the bottom and as we guided it q1 an impairment subject to economic conditions as we see them today. Our full-year charge is likely to be in the range of 3.5 to 4.5 billion pounds.
An rwa is a 10 20 20 are expected to be in the range of $185 to $195 billion pounds.
As you have heard we're making good progress in restructuring that with Marcus and we are now intending to achieve the majority of the expected return reduction in that with markets rwas by the end of twenty Twenty-One. Well managing the associated income disposal to around two hundred million pounds this year and a further four hundred million in 2021 subject, of course to market conditions. And with that I bought a Hyundai to Alison on the economic Outlook remains uncertain. Our focus is on a continuing to support our customers while protecting the performance of our business.
The strength of our franchise is clear during the first half. We have supported customers and accelerated our digital offerings to deepen relationships whilst also taking a prudent approach to risk and deploying our balance sheet carefully. We have taken Swift action to address covid-19 but also maintain focus on our key strategic priorities, we have made progress refocusing that was markets and expect to achieve the majority of our our w a reduction by the end of 2021 and we remain on track to deliver our cost reduction targets of 250 million to fifteen years.
Most importantly. We have a capsule generative business with a strong cet1 ratio giving us Headroom. That is somewhere between six to eight billion above our Target ratio sucking to 14% over the medium-to-long term. This Capital strength gives us flexibility to navigate the uncertain Outlook to resume dividend payments to shareholders as long as it is appropriate to do so and to consider options that deliver compelling shareholder value. Thank you very much, and we're very happy to open it up for questions now.
Ladies and gentlemen, if you would like to ask a question, please press the star key followed by the digit one on your telephone keypads. We will pause for a moment to give everyone an opportunity to signal for question.
And your first question comes from the line of Bank of America, please go ahead your line is now we're open. Hi. Thank you very much. Good morning. Let me suck it off on a couple of when I asked on a couple of areas. Please income and capital. And so first your name can be really helpful actually to get some color on your life your expectations for the second half the year. I guess I'm thinking in terms of volume growth and then the margin drivers said hedge loan and deposit pricing but also mix as well. And then the second question on Capital, you know, you've given us a risk-weighted asset range, which is very helpful. If it was wondering if you could help us with the drivers of the numerator of the CT one ratio wage earnings, but also in terms of what your expectations are for the reverse the beginnings of the reverse of the IRS nine inmates anything you're expecting on software intangibles if that comes off,
And then the thing else that we should bear in mind for the see if you want progression. Thank you.
Katy jr. Say that I think that might be safe spaces in one you try to get you there. Let me have a look for you. So if we always have Revenue in a year, you know, I think at the beginning of the year we gave him guidance, you know, so we've obviously confirmed the two hundred million in in relation to the the ahcpr and I'm sure we'll talk more about our kind of Outlet if you're moving forward, but certainly as we we're kind of consensus is is sitting at the end of the year at the moment. We're very comfortable with that in the writings. I would say
In terms of that. If on in terms of the kind of Revenue opportunities just do kind of look at that piece of the patient if I take with personal first, you know, what we'll see you Thursday. We begin to recover. We will see an element of them increase retail sales which will drive our our customer fee income on which relates to our unsecured balances credit cards that obviously fallen off quite a bit in Q2 them along fifty new demand for Lending, you know, our mortgage lending was sixteen billion, but it was very much split 10 and 6 and so it's good to see that activity to that fact you seem to be increasing again, which were very pleased about as well, you know in commercial while the business they're all of the government lending in the business very Cyclone. They themselves are low-margin given the choice and we've done that also helps in, which will help in need the tail end of the of this year as well. So overall, you know, relatively comfortable and income accepting. Of course, it is in the face of what's in a big rate drop dead.
on the capsule
and if I take this software intangibles and recent is also a small bit comes to an SME and regulation as well. We would estimate that would be twenty thirty six point and of impact positive in the next the next quarter and so you should see that coming through when we look at the if nine might unwise got 90 basis points for the first half was given you guidance today around 8 to how they they might look for the end of the year 185 to 100 month both give you a key point five billion of seemed like five four point five billion of impairment guidance. If I were to look at it doors in their own, you know, and if you were to say, let's assume you hit the mid-eighties and you hit the middle of the impairment range of about 20 basis points to come off on if it's 9:00 and then you'd obviously lose on Capitol about an extra 7 7
two basic points in terms of odd
And it's kind of uplift and then you want to decide what your thoughts are rounded that but I kind of head into that middle of that range probably gives you a fair enough kind of guidance. So clearly it will have an impact on line.
Thanks. That's very helpful. Thank you.
Your next question comes from the line of Martin Goldman Sachs, please go ahead your line is open.
Good morning, and thank you. Thank you very much for the for the presentation. I just wanted to follow up on on on on the kind of a question. But I do have a new and grabbing out looking just in terms of the grow but you need a month. So very strong growth in mortgages during the the house here despite. Obviously the back of the locks and they were just thinking how should we think about mortgage growth in particular going forward? Could you just update us on where you see pricing at the moment how that compares to your pricing Target if you potentially cheap scope here for for increased role, but Unity. Oh, well you could see bulb is for the Google box as the year progresses and maybe in the next year just considering obviously you're you're strong capital and training position at this moment in time. And and secondly, I just wanted to talk with regards to race Outlook and structural Edge and if anything change in terms of how you approach the structural heads up if levels just giving birth
Separate that smooth and if you could update us on your folks about the potential introduction a negative way from. Thank you.
Thank you. But let me let me start a little bit on the mortgage side obviously saw strong pre-provision profits performance and a good performance in mortgages. We expect to continue to grow market share and mortgages consistent with prior years with new business share some sort of ahead of lack of structure that has now grown to 10.5 our attention levels continue to improve and that is key to supporting improving mortgage mortgage margin and overall profitability going forward clearly. We've shared with you the impact or covert as obviously the market went into lockdown and we're now seeing a strong recovery page with mortgages coming back, but our retention levels are are running around 55% on that last like 79th and change the level. Sorry Alison door and
No problem. So by 79% on retention in our floor she is about 15% So it it it's pretty nicely, you know, Mark, we always talk about how long it takes to move your your kind of share of boots. So it's nice to see them go from 10.8 to 10.5 in this past year. So we're pleased with that and try to pick up your comments around pricing in there. You know, the the back brakes rolling off 138th birthday Point are Blended rate is 124 and basis points for you receive given that mix of that six billion, it would much more remortgage business rather than new mortgage. And so therefore you that kind of helps lift, you're you're Blended rate up a little bit. I would expect and hope that every move into the year probably more interview for it. I would say that you'll see the new mortgage kind of wage a little bit more significantly and it's it's the activity of today and if we threw into the system and which of course is great for income.
It was at your marginal.
Very happy that in terms of weight and the structural hedge. So the moment in terms of the structural hedge, it's rolling off about a hundred and fifty a month basis points at the moment and it's coming on around based Point. That's based disparity, but I would say, you know, people are still why do you still do to hedge if we took the average of what we added on and we're cooperate for average wait for the first six months 48 basis basis points compared to today. So it it certainly helps us back negative rates and a great question in our own economic scenarios. We've only got a 10% light to use of negative rates coming in. So we don't see that as something that that particular impactful what we've we've given you the our usual kind of disclosure and it's on a p 74 sometimes the account license you can see what the earnings would log.
If we have 25 basis-point for that twenty-five basis point forward structured with actually in a great drawing out as you're in line with a lot of all of our our contract actually have it this moment and that would be a -162 million in a year once. Hopefully, I think I got them all there.
Perfect. Thank you. Thank you very much.
Your next question comes from the line of Jonathan Pierce nearest, please go ahead July and is now open.
Hello, boys, two questions the first actually just verifying what you were just saying Katie on consensus for this year. I just confirm were you talking about the interesting term forecast for full-year 2020 look in the right place, or was it more broadly on income or the second half this clarified that cause
Total income and consensus we are very comfortable with in the room.
Okay, so I can questions on risk-weighted assets the person slightly confused as to what's going on generally with rwas at the moment. So I'm thinking a second course if you in the credit books, it was actually about a 1 billion-pound pro-cyclical benefits to the risk-weighted assets and I guess it just slightly off with what's happening on the provision side of things, you know, the ifs nine forward-looking Provisions are clearly building very substantially, but the rwa movement switch off that's what we're also supposed to be forward-looking typically in the point in time books going the other way. I mean if I look at your excellent disclosure and I for S9, I think the only person ninety Dizon say the other retail book, we're up about 65% in the first half of the bars are the only moved by 10% So I guess the question really is dead.
Close actually need to see genuine defaults going.
No, before the processor kind of team members waited assets comes through and does that mean that we're likely to see a further building rwas for political purposes into next year as well.
I mean the simple answer text Jonathan is it is yes, I mean changes in our W and H two will be driven or save. R. W a reduction in that wreck markets that you have accounted for that already. You know, the level is different by the economy. What we need to do see is the downgrades in the credit quality and the ratings and the commercial Boot and also the the move through into into kind of default off and coming straight on the mortgage group. So I do think that there is a risk and we haven't seen it yet since the next year. Is it really very dependent upon how the next half the speed at which we see the deterioration that you could continue to see some information and twenty Twenty-One. You're absolutely right.
Okay, and the points on the phone would look so just to come back on that again in the other room tell book The the I press nine default assumption is 4.9% And it's 4.1 in the bars and models wage supposed to be 12 months forward-looking on the same basis as I have for S9. Why is there such a such a big gap? Why is the rwa take time to come through versus the I press nine fields?
I think they they do for that is also and I think as we move things into into Stage to where you see our stage to build up quite quickly. I mean in are appropriate for the movements we've gotten more than 90% of it. It's still you know performing it's still being serviced in terms of debt. I think that you're seeing that kind of Gap kind of magnified given are relatively early move into interface shoe and he coming in your gap between the two elements.
Okay. All right. Thanks very much.
Next question comes from the line of Jenny Cook, please go ahead your line is now open.
Thank you Linda. I'm trying to get home. It's just for the office and then credit it gives me about five point nine billion monthly income for each one. You've told us to say you're probably happened to conservatives this year. If I then plug in the office disposed almost if you get lost went to just over 5.1 billion on July and concrete too clearly an analyzation of HT would give me an FYI 21 income some distance below consensus home. I just want to ask which of those Hopi any Revenue run Waits you're more comfortable with and the second just on all of your ways. I'm kind of bridge between where you've printed today and your full year guidance wage that last component of your lending in HD will be government guaranteed that was markets are wa should reduce a further three billion by year end and you'd assume some of that commercial off the off yet utilization will unwind as well like
You trying to tell us that you could potentially.
Have $17 billion that a part of your policy just in which to me was about 10% inflation in six months. Thank you.
And let me hate those intern. So you're absolutely right. We're comfortable with consensus in in the room. I think where I was I was to look at the kind of 21 consensus repeat. There's there's quite a lot of you know, moving parts that have to happen. We've got he actually how much of these impairments floor through cuz obviously you're familiar that when they move to default we start recognizing interests and on the main to the income statement for that will have a little bit of an impact on it. So but at the moment I would see look what kind of broadly comfortable as it stands. I think there's lots of pressure there's lots of headwinds there's uncertainty but it doesn't feel like it's in a ridiculous kind of place at the station will inevitably taught much more about the issue before as they kind of get in in in that we can terms of the iwa guidance. It's going to be a build of a couple of different things, you know, you've hit most of their highlights you're not wearing markets coming off the government lending growth, you know, and that if I look at the government lending on the seagull side, it's got about 50% iwe.
Can't see so it's sometimes more. I think the people and realize in in that case we'll obviously have more one which is going on obviously much lower intensity. But in essence then the balance will be made up some level of prestige. I will see that will will come through but we're we're comfortable with they they obviously the 185-2195 range of is giving you
Okay, so I'm just trying to find the last question happier 20/20 at this point and then we'll get more in 2021 income.
I mean, there's lots of things we want obviously will happen in the next six months say none of us could have predicted the last six months. So I won't attempt to predict the next six months, but if you look at where it's sitting on twenty Twenty-One, I'm not dead know, you know broadly comfortable. No not trying to move you around the stage.
I think we now have a question on the webcast.
Do you have two questions from Houston of JPMorgan via the web the first question could you discuss the outlook for loan growth for the rest of 2020 in particular unsecured balances, which tells me in H1 and the second. Can you discuss how the franchise within that with markets is performing in the context of the strong industry-wide Trends. Would you consider make him a five month plan for not with markets if demand for hedging activities improves relative to your expectations?
Thank you. But let me let me talk about networks markets. Let me remind you with why we are refocusing and that West Market. So it clearly very pleased with the performance of the business a strong performance as it's responded to volatility in the market and activity around financing and balance sheets restructure. But with that business was needed to be refocused and so we're very comfortable with the plans. And as you can see we're accelerating those plans. Clearly. The performance has been dead center in response to Market needs and as we have refocused that business around our core clients who which are strategically aligned, we would expect the products and services that we would provide with benefits from the activity of our customers in those segments. So but but the plans for restructuring and refocusing that business remain appropriate in terms of birth
Security question. I mean largely, I think that will partly depend on the recovery of the economy.
And just to remind you are lending to our own customers and but it will depend on the economy. But what we're seeing in July is improving Trends as we're seeing some growth come back in the economy that the only thing I would probably remind you on Roll ISM. You're obviously very small understood route. It's three point seven billion. It's Strong by point six over the last six months. So it's not a big driver of either our income or are impairment of which is important to this time.
Thank you and back across to the operator. Nicole. Next question on the phones comes from the line of that City, please go ahead your line is open.
Yeah more than I think my questions are pretty much just been off that too. But perhaps just a further clarification on on that with Market. I mean the outlet was a wait for it to be a break-even business as long as you alluded to the fact top and particularly strong. The Restriction is actually going ahead to plan the expectation that this was still be a break-even business in the medium-term and good. I'm not used to support other areas the bank like the commercial Banks and
Yes, absolutely.
And your next question comes from the line of Red Burn, please go ahead and pull up my open.
Harlem High take you think's taking the question. Just a couple the first one I was in repairing. If I look at your particular stage 3 coverage in your GDP assumptions. There are a lot stronger than a more conservative than your peers. If I'm thinking out to kind of twenty Twenty-One loan losses. What's the kind of natural run rate, you're seeing an extra Provisions. So think about that trade-off is 21 and also what did you set those Provisions for this half? How much is the fact that you've got a very very strong Capital position make you be a bit more prudent in your forecasts cuz you're an employee-owned not even more prudent in the Bank of England's desktop stress test. So that's my first question and my second question is just on margins as well. Obviously. Thanks for your answers on negative rates earlier, but we saw in Europe a lot of the European Banks were willing to charge corporate for deposit. If we got into negative territory. I appreciate the sensitivity you called out. There is any Headroom to actual dead?
Pop's corporate charge for having deposits with the bank. So that's something that you wouldn't do. Thank you.
He will let me let me start on the impairments My Philosophy is very much to take a prudent and considered approach to provisions and you see the scenarios that Katie walks you through in in terms of our assumptions now clearly. What I would also point you to is even after absorbing those Provisions. We have a very strong balance sheet and very strong Capital strength. So do you think we've taken an appropriate view of the outcome in terms of what we're actually seeing in impairments in an office and the lying book, you know, the the government schemes and the support that has been put into the economy has actually done its job in terms of supporting businesses navigate and browse through this. We do have some small impairments in our commercial big fat books that very limited by Chris, but but my Approach is to be prudent in considered and
Long Island pendants, but
A point you to even notwithstanding that the strength of our our Capital take a drug pick up the marketing person. I know and I just reboot finish off and pretty much what I think I wouldn't like to suggest that we bomb big is the Atlantic Council. So I mean, I think it's it's on consistently and in terms of of the approach that we we take there in terms of on the conversation the questions around margin, but I think what we see obviously, you know, we've got a couple of jurisdictions in terms of Austin Arabic are who already charged in terms of negative rates wage is either making charges in terms of two culprits. I can imagine as you see Europe if you go there that way you would end up on that journey in time and it has taken time for for them to get there as well. But it's not something that I actively planning for it this this this this stage given we don't see it as a big like who did we move forward?
All right. Thank you. Can I just ask one follow-up? Just when you think about capitalism that you mentioned when you speak to the dividend. Is there any acknowledgement for just how well Capital do all birds with your peers and if that influences when you compare what size you can pay on dividends once we get that allows them at the end of 2020. Thank you.
Yeah, it's out of date is here. Let me try to pick that up the pra came up with the statement earlier this week to the effect that Thursday would be reconsidering their policy on dividends in the fourth quarter. And that means that for the moment this is all a rather odd, you know at school question, but they are fully aware that we are very strongly capitalized that we have surface capital. Of course before we came into this highly onion. They were very comfortable with us making a buyback and paying special dividend. So the moment the position is is Frozen as it was at the end of March we're getting movements in water, but I'm sure that when they do me consider they will take account of us from a position.
Thank you, Jeff.
Our next question comes from the line of
juline is never open.
Good morning, everybody. Yeah, sorry. I've got a number of questions but really quick ones. So on the margin you highlighted a 10 basis-point headwind from from the yield curve wage. Is that a sort of quarterly run rate that we should expect for the rest of the year. So I guess that's the question number one question of a 2in in the UK. You obviously had a big fall off in fees, which I guess you should expect from the shutdown at cetera. Can you give us some idea of what the Run rate is now what sort of recovery we've seen in that in terms of payments and and how that might might progress and then the third one was just on financing income. You got this huge swing in in financing incoming that Westmark. It's almost two hundred million and that's always been a very stable line in the past. I'm just trying to get a sense as to how we should be thinking of that money into the second half and then very final question. Could you give us some sort of sensitivity to your impairment charge to GDP assumptions? I mean, I heard the previous question, but if I got it right you're waited for cars for next year is it?
12% growth in GDP in the UK which feels quite Punchy relative to what other people are well certainly relative to consensus. So I'm just you know, how does that change if it was 10% or 8% could just give us some idea of how that how that number moves.
Around thanks very much.
LifeStar and then you can call us and we'll call you and have missed out in terms of the margin the 10% rate. That's obviously your reflect it one time in your in your margin numbers so that full and next next and Porter and coming through again and see if you a little bit coming through from the Hedge has that kind of move through I'd call that kind of took the basis points. And so in that base TV recovery anything else and talked about earlier in Her speech. We were beginning to see the recovery coming through. I think July numbers are off in that Base outside a bit more on that for the end financing incomes. So in the financing income, you're absolutely right. It is generally a relatively stable several months depending on what happens in Cuba and you had this massive movement in the credit market. And so therefore what you were seeing what you're seeing in that space is
The leave all your ancient of a lot of positions that you've got which they started to unwind so I would almost encourage you that absent and other kind of massive Market volatility. That's not something we would do. I retake they kind of previous relatively stabling stable income coming from that business as a huge Guide to the future rather than that that wallet volatility that we've got home. They haven't given you single metrics in terms of what it would mean by moving 1 metres or another that you have seen and I'm sure on page thirty-four we give you a call and and what you can see if we were to move em, all of our metrics don't either say the up side you will see our impairment charge for the reduced by a one point four billion in this time. If you remove hundred percent to the down side, you will see that increasing by one point nine billion. I haven't given you any diapers. That's really helpful.
That gives you something to play everything else is wanted to help because I think in terms of the recovery, I mean obviously during the lockdown we saw a really significant drop often am sending and actually consumers behave really doing the right thing paying down their more expensive debt. So paying down their credit cards and activity drops and we've seen debit and credit card spending now offer 10% on June levels and coming back quite quickly actually cash transactions are still remain very low, but debit and credit cards are going up we've seen mortgage volumes obviously increasing which I mentioned and Commercial and cash transactions have more than doubled by the low points in Rolling Stone. I think a lot of it is behavioral and we'll see what happens as the economy recovers, but we are seeing those volumes and feeds coming.
Great. Okay. Thanks so much.
So much.
Your next question comes from the line of been told please go ahead your line is open.
Morning. Thank you for taking my questions morning to me. Plz firstly on that was released today in the numbers. Can you remind us what the stock Provisions left is for this and how may more you have to work through on this topic? Could we see potentially more releases in coming quarters and secondly on board prisoners. There was a consultation out this week from the FCA. He just took you don't have any of this type of customer and the link to this topic. There's been discussions from activists or an svr cap, which was discussed in a report and whilst it wasn't ruled in. It also wasn't ruled out and the FCA said they used to think about potential impacts and have dialogue with the banks. Have you had any discussions about the topic of the cap with the regulator? And do you have any sensitivity on what the impact would be on the financials if a two-person ask you a couple was implemented? Thank you.
M p p i there's $506 million is left on the balance sheet on on that. We're substantially done and we've we've dealt with our claims the wrong if they if the projects we just got to kind of they last kind of drips through your things going through. So I I think for us, you know, there are Say Never but it's a topic that it's it's really behind us where we are and not at the level of of the kitchen. We're very happy with in terms of the mortgage prisoners is not a big topic for us. We've done things in the past kind of help and if I could deal with that and I think this stage we haven't had any substantive conversations of the regulator in terms of like and that's that's right.
Thank you.
Your next question comes from the line of Chris, That's an autonomous, please go ahead your line is open.
Good morning. Thank you for taking my questions just a quick follow-up. And then what I'm mortgages, please Katie you mentioned the SME support back and software and you mentioned twenty to Thirty bits of benefit. Was that a combined benefit or was that for each of them, please and then on mortgages that was combined? Okay. Thank you. Just wanted to I just wanted to confirm and then on mortgages you mentioned two numbers in terms of 138 bits rolling off from the back book home and gave a hundred and twenty four. I think it was as a blended. I guess first half average. Um, if I think about what some of your peers have been saying, they've been talking about much much higher some of Martin's hundred 6270 business. Is that just a 1 HR Bridge vs. Sort of July issue.
And related to that in the past you talked about eighty to a hundred bits being a circle 15% r o e even allowing for pending mortgage earthquake changes. If we look at where conflict spreads are to the industry. They're always you substantially above that. Could you just give us an update on where you think from Georgia O'Charley's at the moment. I guess they're up significantly, and how does that play into your thinking about whether you want to actually start leading the market on pricing there. You can take up to call you give them back. You also well-capitalized. Thank you.
And sure so I'll leave other peers to comment on on what they are doing. It could well be an average of reporting in July or July would certainly be you know, big strong. I do think 924 blinders is the right way to think about it and bear in mind into two most of us would be doing any with three mortgages which would be a slightly higher basic Point level. So that could be some of their their numbers up as well. And then in terms of the are we we probably not change the guidance on that particular obviously writing it more or less and which is good. Well rates have come down. So you'd expect to see those are always continue to improve we were not here at this point is going to do a read-through kind of get home and he he loves market share. We've done some slight variations on pricing you may have noticed last week Chris that we started to know just moved slowly back into the 85% LTV that was based off.
Food out to for the last few months, but I think it's something that what's the best way to manage the mortgage route to make sure that we do the right thing for customers were able to deliver the right kind of service levels as well which would increase the volume that we've been doing, you know, very comfortable in the are we continue to need to earn on this business.
If I may ask the question slightly differently any events at the market does present you with an opportunity for something like a hundred and sixty to a hundred Seventy-Six price. Would that be enough to get you to compete more aggressively given how far above your previous expectation of 82/100? That would be I'm just trying to understand how bout Dynamics might play out into the second part. Yeah. So let's play mind 8208 purely new Mortgage business. I would compare the 124th and basic point for that 160. I think we view ourselves as quite competitive in this market. We're not looking to become more competitive because ultimately you end up putting them in the margins own but we do expect to continue to be competitive and in that Faith, so I think you know if we were looking at something in in Bill to earn a hundred sixty basis points, we certainly continue to pursue it but not the point.
Then dragging that margin all the way back down again, which is which is what you would actually do.
Okay.
Okay. Thank you.
Your next question comes from the line of what please please go ahead. July and is now open.
Morning morning Katie money Allison. Yeah, I just can I just take questions, please? Ask another theoretical question on distributions consumer said you lost making prior to today's results for fully or Twenty. I think given the impairment guidance. That's probably still going to be the case, you know on that basis life being lost making start loss-making does that you do from paying the ordinary dividend this year given your policies based on the triple profit and and then in the in the instance that going to pay an ordinary would you look to pursue in theory? If you're allowed to paying a special dividend in that scenario? And I guess what we really helpful to understand is dead. Is there any way that you need to seek approval from the regulator around paying a special dividend in a way that perhaps you don't have to if it's the ordinary that really helpful.
And then the second is just on Ulster.
Was he heavily loss-making in the quarter, but even if I look through the impairment charge loss-making on a pre-provision profit basis, I mean, how long do you expect business to be loss-making on a pre pro basis? And is it reasonable to expect that that could be part of some broader restructuring? Perhaps next year. I guess has coronavirus has coronavirus accelerated your thoughts in that regard. Thank you.
Let me pick up a distributions again, but I'm not sure that we're going to be able to be enormously helpful to you on this because there are a lot of em, like the vegetables in built into your question. We just say a couple of things one is that in the normal way you don't ask the regulator for approval to pay a dividend that wouldn't be able special you ensure that you are meeting all of the capital requirements and this the regulator is comfortable with your overall financial position. And and that would be that's the normal case. And as you know for the the last year we plan to pay an ordinary and indeed especially may take it with The Regulators were contented that as for where we go from here. However, they have essentially put a block on Capital distributions which includes ordinary specials and BuyBacks at this point, and they said they're dead.
We consider that in the fourth quarter and frankly. I think it's not particularly helpful to anybody to speculate on what the situation might be in the fall quarter and what we might be able to distribute to that point.
Let me pick up the Ulster question. So as you know strategy was and is to grow that business organically and safely and we have been successful in growing the personal mortgage and some of the commercial share in 2019. That strategy hasn't changed clearly covid-19 presents different challenges to the economy and we met will continue to consider all strategic options in relation to that person.
Thank you for the question. And I think you have another question on the webcast. This next question is a three-part question that comes from Gary Greenwood of Shore Capital off the spot and you expand on your comments on using Surplus Capital to explore other options that offer compelling shareholder value or you considering Acquisitions. And if so, what areas of business do you think they both doing?
The second question. Can you explain again mechanical changes to iOS 9 transitional relief and how these and wind the final part. Do you need to see greater economic thoughts to resume dividend payments BuyBacks or is your Capital position so strong you don't need to wait. Thank you. Well, I think I think we've probably answered 3 and I'll get Katie to off the the IFRS nine transitional relief, but let me let me start with the first question clearly. We are very pleased to operate with the set to Leading Castle strengths that we have and as I mentioned and let me reiterate we see our medium-to-long-term to one ratio of 13 to 14% off appropriate for the nature of our business. It is all clear intention to return to our dividend possible dividend policy as soon as possible and when it is appropriate and
returning Capital to us
This is all clear preference Acquisitions have not changed in our priority list. We have very strong client franchises, as you can see in our personal and Commercial Bank and we see significant opportunities to increase our share place that you are prevailing market share to offer opportunity to grow you have seen that we have made small acquisition like free agents or looked at mortgage books in the past. If we think that they add shareholder value, but let me come back to the point that it's are clear intention and are clear preference to return Capital to our shareholders. When it is appropriate to do so. She can I give you the transitional absolutely absolutely and is is a complicated adjustment. So I think if you kind of wine back, you're basically getting relief and I think that you know stage 1 and Stage 2 once things move into stage three you you take the hitch on them. So we are sitting at the moment with one-pass.
It's really important of relief and which equates about 90 basis points of see if you want. If I were to take you to your kind of a mid-point of our or or over arrange what you would expect happening is we got to the midpoint. If you see a natural migration of em things into these three, it quite kind of specific level. So I would have expected at that point you're conditionally thousand and being 1.6% false about 1.2. You know, you can Master sales to be complicated behind how much you do that. But later to me see quite a lot of migration Interfaith. That's why you lose such a a portion of that and then that would have a benefit of about 20 basis points in terms of your story. That would have a cost of twenty basis points in terms of here you go. If you go to that kind of midpoint on your impairment summary hope that that helps
I think I'm going to go back to your call.
Thank you. And your next question comes from the line of Rob know what it which bank he's go ahead your line is now open.
Morning, if I could just explore the range on impairments here that you've given the underlying impairment in a moment. And if I look at your guidance now, there's maybe three hundred twenty 1 million per quarter is that is that an elevated level and at the top end of your guidance is that just assuming more stage 3 migration or is that a macro assumption changes received at the top end of your impairment level and it certainly on the structural hedge. I think we we talked most about this but the back in quite a lot of deposit growth, but no growth.
Increase. Thank you.
So if you knew get and your ecl charge, you know for the half, it was split three hundred million in terms of stage one 2.1 billion month and four hundred million in terms of Old Stage 3. When you lose a Watson stage to about ninety plus percent of that sets off. Can you read the service and which is is why I mean like that's that's kind of where you are on on that number when I take it up to God arranged, you know, I would sort of say that stays free migration of you know, four hundred million perhaps it's not a bad number. It's not particular elevated for us. It's actually fairly fairly lower and then we've we've seen occasionally so it really is just a model kind of outfit the 3 and 1/2 to 4 and 1/2 billion numbers is very much guided on stage migration if we see a significant move on Mac OS
that's where that's
Number would come under threat obviously both positively and negatively in terms of what happens within then we talk to one of the earlier answers around some of the sensitivities that she's giving you for each month's wage and deposit growth know you're absolutely right and just haven't converted all of that at this stage into a structural hedge. I think we're given the speed at which the positive growing. We're happy to kind of just wait a little bit off the behavioral life of that but that's something that we we will look through the next couple of quarters.
Great. Thanks so much.
There's really the questions we have time for today. I mean, I like to hand the call back to Madison for any closing comments.
Thank you very much. And thank you everyone for joining and for all of your questions. So just to conclude our call this morning you hopefully have seen the strength of our franchise is very clear off. We supported our customer as well during the first half was also taking a prudent approach to risk and impairment and deploying our balance sheet carefully. We taking Swift action to address covid-19. But also maintain focus on our key strategic priorities, we expect to achieve the majority of our our reduction in that West Market by the end of 2021 and we're on track to deliver, of course production Target for 250 million for this year more importantly. We have a capital generative business with a strong CT one ratio giving us Headroom of six to eight months and above a medium to long-term Target ratio of Thirteen to fourteen percent, but we iterate this Capital strength gives us flexibility to navigate the uncertain Outlook to resume dividend paid.
Mr. Shareholders when it is appropriate to do so and to consider options that deliver compelling shareholder value. Thank you again for joining us today.
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