Full Year 2020 Natwest Group PLC Earnings Call (Fixed Income Investors)
Speaking and payments into account this resulted in an operating loss before tax of 350 million pounds and a tribute to a loss of 750 million pounds.
Despite the challenges over the pandemic. We have continued disciplined execution of our strategic priorities and delivered on our targets.
During the year, we do retail and commercial lending by 7% versus our Target of 3% We reduce costs by 277 million pounds above our Target thousand two hundred and fifty million.
And we continue to reshape not West Market would you think is 27 billion pounds? Well above are thirty two billion Target.
This is also an initial dividend of five hundred million parents from NatWest markets to the group's this month.
As a capital generative business we continue to operate with one of the strongest Capital ratios of our European peer group at 18.5% And today we announce the final dividend of three months and which is the maximum allowed within the p r e guardrails.
You will see that we have also noticed this morning the conclusion of our strategic review on Ulster Bank.
Despite the progress that has been made in recent years. It is clear that Ulster bank's business in the Republic of Ireland will not be able to generate sustainable long-term returns.
So we have decided to make a phase withdrawal from the Republic of Ireland over the coming years.
We'll do everything we can to ensure that customers and colleagues are well supported and that service is maintained.
In the near-term there will be minimal change for customers and colleagues. We have also made a commitment that there will be no job losses or Branch closures in the Republic of Ireland.
As part of this phase with roll the group had entered into a memorandum of understanding with to sell Ulster Banks performing corporate loan books and to transfer Ulster Bank, supporting this long boot.
Naturally, our transaction is subject to the usual due diligence as well as regulatory approval.
We are also an early-stage discussions with other strategic Partners about retail and SME assets and liabilities.
We expect this patrols be capsule accretive over the duration of the process.
This decision has no impact on Ulster Bank in Northern Ireland.
So those are the headlines are move on now to talk about our strategic priorities on slide for this time of year ago. We set out a sled strategy just before COVID-19 off.
I'm the experience of twenty-twenty has shown that there's never been more important to put purpose at the heart of our business helping people families and businesses to thrive and throughout the year. We have done everything we can to his purpose into action.
Our purpose is underpinned by force to teach your priorities for the plan to drive sustainable returns by serving customers across their lifetime to generate growth powering the organization Innovation and Partnerships.
Simplifying and digitizing our business to improve customer experience increase efficiency and reduce costs and by deploying our Capital to maximize returns.
Our purpose is also exemplified by three Focus areas removing barriers to Enterprise building Financial capability and leading on climate change which delivers benefits for our stakeholders and would beep in our ability to drive long-term sustainable returns.
Don't know who talk about what that means for our fixed-income stakeholders and little later.
Moving on to slide five are clear priorities our first build sustainable growth where they continued risk discipline. We have lent above the market wage 220 and expect to do so over the life of our 3-year plan second. We are simplifying the business and delivering cost efficiencies. We expect to continue to reduce costs by 4% a year over the next three years leveraging our investment in technology. And third we are actively managing capital in order to maximize returns and aim to operate for Life CT one ratio of thirteen fourteen percent white 2023.
Oh no give you a flavor of what putting purpose into practice has entailed in twenty-twenty on slide six.
Over the last year our people have done everything they can to support our customers in the face of exceptional challenges.
The start of the pandemic we set up remote working for 50,000 colleagues and kept 95% of our Branch Network open for customers who need us while also accelerating our dispatcher told offering.
We provided mortgage holidays Capital repayment holidays and approved over 14 billion pounds of loans under government lending schemes.
On for this support has tapered since the second quarter and despite the ongoing pandemic an extension of government lending schemes current trends shall no increase in demand wage increase in impairment and continued growth in mortgage lending.
Nevertheless we recognize there are tough times ahead for some of our customers as the pandemic continues and we continue to work closely with them to understand their needs.
And I want to move on to the balance sheet particularly long growth and impairments. So starting with slide seven.
Both banking loans increased by $9 billion pounds in the fourth quarter driven by mortgages which grew by six billion or 3% reflecting strong demand ahead of the pack deadline and the three billion pounds portfolio acquired from metrobank.
Retail banking floor share in the fourth quarter was 13% above our stock sale of 10.9% mortgages now make up 51% of total customer loans the bank.
Unsecured balance has declined slightly in the fourth quarter across both personal advances and credit cards.
Bond for government schemes also slowed further this still accounted for 1.6 billion pounds of additional ending.
Whoever this is more than offset by 2.4 billion pounds of rcfe payments in Commercial Banking was utilisation in Q4 at 22% lower than the usual level of 27%
Looking at changes year-on-year growth banking loans increased by thirty six billion pounds or 11% driven by mortgage goals of 16.5 billion pounds off and government lending scheme of 12.9 billion pounds.
Moving on now to look at on slide eight you remember from the the half-year that are modeling is based on four different economic scenarios to which we attach a probability waiting. We use the two Central scenarios to reflect are expected Outlook each with the same probability. We think of 35% given the stabilization of Economics. We have no increase Mobility waiting to 40% for our base case.
This scenario anticipates GDP growth of around 4.5% and twenty Twenty-One and gradually moderating there after the unemployment rate averaged is 6.3% off 21 with an improvement expected from Q4.
I decline in house prices in low single-digits it's forecast for this year before steadily reversing from 2022 onwards.
Interest rates are expected to remain low with an anticipated reduction in the central bank rate to zero in the second quarter of this year.
We have included 878 million parents of post model adjustments for economic uncertainty in our ecl Provisions until further credit performance data becomes available government support protection online.
These assumptions are reflected in our expected credit loss provisions of 6.2 billion for the fuel year.
You can also see our updated sensitivities on the slide. If we were to wait one hundred percent to the extreme downside scenario. This would increase ecl by 2.2 billion pounds, and if we waited one hundred percent to the upside, it would reduce our ecl by 840 million pounds.
So let me know cover how this impacts the impairment charge on slide 9.
We reported an impairment charge for the fourth quarter of a hundred and thirty million pounds or fourteen basis points of growth customer loans.
This was dying from 28 basis points in Q3. Largely driven by A reduced charge of 10 million pounds in the Commercial Bank compared to 127 in Q3.
This reduction reflects a number of releases impact of refreshing our economic assumptions and the post model adjustments. I talked about earlier.
Active Capital Management in the commercial bank that has contributed to this law impairment charge and we've had no toll free exposures in 2020 or indeed this year in retail banking the 65 million pound charge is a slight reduction mainly reflecting stage 3 default charges and updated economic scenarios. Any potential flow of new default is still being delayed by government support.
Impairment charge for the fuel year of 3.3 billion pounds is equivalent to 88 basis points of loans.
We expect impairments for 20 21 to be at or below or through the cycle guidance of 30 to 40 basis points.
I would now like to talk about a risk profile on 5/10.
Has been little change during the quarter. It's government support measures are ongoing and customers have built up healthy cash balances over the year. Ninety-seven percent of our loan book is in stage 1 and Stage 2. Not past June with customers remain up to date on payments page to past due is 8% of the book down 4.9% and stage three is 1.7% down from 1.9% in Q3 reflecting right off of Legacy mortgages and Ulster.
Ecl coverage ratio is 1.7% which stays free coverage of 41% in line with Q3?
Some of our wholesale loans aren't actors that we monitor closely.
He's amounted to $27 billion in Q4 which represents 7% of gross loans.
In these sectors similar to the transit group level stage 3 Gross loans or broadly stabilize around eight hundred million pounds and we remain comfortable with coverage at 52% off. Is that a Honda what you do know to talk through the balance sheet in more detail.
Hi.
Katie good afternoon, and thank you for joining today's call. Let me start off by thanking you for your continued engagement with that work group during 2020. It was disappointing not to be able to meet you all in person last year long, but I certainly hope we can meet face-to-face once again in the not-too-distant future.
I'll share some of our highlights from last year for moving into more detail on Capital and liquidity. I conclude with our funding plans for each thousand and twenty-one.
starting with slide twelve
we ended 2020 with a strong set of balance sheet metrics against our Capital funding and liquidity requirements the economic uncertainty as a result of covert contributed to significant Market volatility during the week on those market conditions. I was pleased that we were able to successfully execute a number of Milestone transactions across the capital stack. I would like to thank all investors who participated in our primary deals on those who continue to provide support in the secondary Market,
We continue to proactively take opportunities to optimize our Capital stack including a two billion dollar liability management exercise that targeted Legacy tier-one and tier-two Security's down less than five years to maturity reducing inefficient capital and generating ongoing reductions in our interest expense.
We were also in a position to call additional tier one in July following a successful dollar additional Trayvon issue in in June.
On Racing's I was delighted to see our progress on ESG being reflected in msci's upgrades and are sustaining listed score reducing syllabus just outside the low-risk category.
Are you in the year and live at much of the UK banking sector vote fish and S&P revised the outlooks on the long-term issuer Racing's for all entities in the network group to negative from stable in November Moody's upgrade is not with Marcus 283 as a refocuses its product and service offerings and reduces risk-weighted assets.
Returning to Kaplan average position and slide thirteen arsi to one ratio at the full year was 18.5% that includes the benefits of higher, press nine transitional relief of 1.7 months or 100 basis points are total Capital ratio was 24.5% with a total loss absorbing capacity ratio, including senior Emeril of 37.5. Leave us comfortably above our minimum weight requirements on all of our Capital metrics.
Our maximum amount is at 8.9% reflecting Headroom of 410 basis points about the lower band of our 13th. 14% c21 Target. UK leverage ratio was 6.4% leaving 315 basis points bedroom above the UK's minimum requirements of 3.25%
During the year the number of modifications to the UK leverage framework, including the gnashing of regular way purchase and sales settlement balances and the exclusion for Ben's back loans. These measures combined reduce the UK leverage exposure like ten point five billion in addition to change in the right through treatment of software assets increased the UK ratio by 8 basis points.
moving to slide 14
unfortunately movements in CT one and risk-weighted assets.
I see to one ratio at the end of the year. It was Turkey basis points higher than Q3 driven by lower or was on the software and tangible benefits of 23 basis points.
This is partially offset by the three proposed dividend a link pension contribution.
Excluding rs9 transitional benefits r c g 1 ratio was 17.5%
We ended the year with or W 170.3 billion a decrease 3.6 billion in Q4 driven by credit risk and counterparty credit risk reductions primarily and not with Mom. We reduced or WHAS by 3.1 billion to $27 billion vs are $32 billion Target.
Moving on to the driver's the receipts. You want to look on slide fifteen.
We have shaped the business to operate at a c to one ratio of between 13 to 14% And we plan to reach this level by 2023.
There are a number of factors to consider in the evolution of our seats you want ratio first. We expect generate Capital as we move towards our ninth 10% return on tangible Equity Targets in 2033.
Distributions to shareholders are a key priority as those retaining capacity to participate in direct directed by subject to the government's discretion link to dividends. We have committed to pull up to a further one point 1 billion pre-tax into the pension fund over the coming years.
5/4 nine transitional benefits which accounts for a hundred basis points of our radio will taper down through 2024 and is affected by stage three migration.
On the denominator we expect or wh to increase relative for your 20 driven by a combination of lending growth procyclical C and registry uplifts including mortgage floors.
As a result of these factors, we anticipate or delays in the range of 185 to $195 billion at the end of 2021 including all regulatory impacts effective 1st, January 2022.
The Moon looks like 16 in response to the COVID-19 pandemic a number of relief measures were announced by Regulators to support Banks capital and leverage positions.
In March, the financial policy committee announced to reduction in the UK's counter-cyclical buffer to 0% And in December, they announced that the counter-cyclical buffer will remain at 0% until at least for 2021 there for no increase is expected to take effect before 2 for 2022 due to the implementation like of 12 months.
The. Confirmed in July that are pillar to a requirement is temporarily converted to a nominal amount the impact of the change had a minimal impact on a pillar to a percentage but will result in a package option to our Capital requirements and nmda if we experience future or the delay inflation.
Proposed reduction and pillar to a announced in the December 2019 Financial stability report came into effect in December 2020 and is included in our year-end pillar to a requirement.
as I guided to earlier in the year the reduction in the pillar to a requirement is all set by an increase in the pier a buffer and as a result our supervisory minimum remains unchanged
Finally the systemic risk buffer, which is now called the other systemically important institution or osii buffer for the ring-fence bank was unchanged at 1.5% and the pra have an age. They next expect to stash buffers in December 2022 with any decisions taking effect from January 2024.
NatWest group Consolidated level bosi is held within the Pierre a buffer and therefore it does not form part of the MDA for the group.
It does however foreign parts of not less groups supervisory minimum and therefore informed the group's risk appetite and setting our steady-state see to one ratio of 13 to 14%
The total loss absorbing capital is 37.5% Well above our end state requirements and that reflects both are strong Capital levels and our progress and building our senior Emerald stock.
Moving on to liquidity and funding on slide 17 r l c or ratio increased by 13% to 165% during the year reflecting over seventy billion of surplus primary language the above minimum requirements.
The elevated liquidity levels were primarily driven by deposit inflows and our total liquidity portfolio increased by $63 billion to $262 billion.
During q1 of this year. We took a decision to repay five billion of TFS Emmy given the high levels of deposit funding. This is the first time since it has been 16 we have had no outages in drawings of TFS or t f f m a
We retain drawing capacity and the region of $77 billion, which gives us funding up tonality to support our customers with future net lending needs if required ahead of the tfsa me drawing window closing this year.
A slight eighteen you can see the retail banking deposits grew by 14% or $22 billion to $172 billion, but most of the growth in current account as a result of lower consumer spending in the Life lock down and increase savings.
Commercial Banking deposits grew 24% or $33 billion to $168 billion as customers built up liquidity during the pandemic and retained a percentage of the government lending scheme drawdown.
Our deposit base is well balanced across a commercial and Retail franchises and our wholesale funding mix reflects a range of different sources and maturities.
Our loan-to-deposit ratio is 84% underpinning are strong liquidity and funding position as well as our strong ability to land.
Continue to look at all options available to us in light at the impact of covert to assess the optimal blend and most cost-effective means of funding.
Looking back at our issuance in 2020 on slide 19.
Given market conditions in the latter part of q1 and early part of Q2. I'm very pleased with the transactions. We executed during the year. We issued 1.6 billion US dollars of senior a month and you'll trans transaction including our inaugural green Bond issuance, which was the first screen Bond issued into the US onshore market from the UK bank on Capitol. We return to the Sterling Market in May with a 1 billion Sterling tier-two transaction our first Sterling tier-two since 2006.
We followed that in August with an eight hundred fifty million dollar tier two, which was the first Yankee Bank Capital trade to used 3-month particle.
In June, we were pleased to be in a position to issue a new one point five billion dollar eighty one our first one issuance since 2016 and to announce our subsequent call of our two billion a month.
In addition. I was delighted to assure inaugural Sterling 81 from NatWest group with a 1 billion transaction in November ensuring we are well-placed when considering refinancing requirements in 2021.
I'm not with markets. We issued a 1 billion-euro and 1 billion dollar trade as well as completing circuit 650 million in private placements.
Turning off like 20 and original plan for 2021.
On Capitol our expectation is issuance of approximately 1 billion 81 and 2 billion to 2.
And Senior our guidance is a range of three to five billion as we look to finalize steady-state Emerald stock requirements by being mindful of our 2022 calls and the maturity of something earlier Emeril issuance maturing in 2023. As this is in bullet format. These Securities will lose their Emeril value from q1 2022 onwards.
From the operating companies, I expect limited issue and from that with markets legal entity given its balance sheet reduction and reduced funding requirements.
We are also unlikely to be active in covered bonds or or MBS from that Westbank this year given our significant funding surface. We will however keep this under review going forward subject to funding requirements.
Finally unlike Securities. We will continue to look at further opportunities to optimize the efficiency of our Capital stack.
I'd like to finish off by covering a couple of areas of focus for us in 2021 firstly r e s g agenda and then the work we were doing on Libor transition.
Starting with our progress and and slide twenty-one.
Last year, we saw a marked improvement in our EST rankings reflecting the increased engagement effort. We've had with the SG agencies and there's a line to our purpose LED strategy.
erasing
From msci improved to double-a from travel be in Q4 after sustainalytics announced a reduction in our risk rating score from 27.7 to 20.5 in July of a score below twenty would characterize Network group as low-risk these rankings leave us very well placed from an industry perspective.
We announced plans last year to do more issuance in green social and sustainable formats, and I'm pleased the last year as green Bond represents our second GSS transaction following 2019 Soul Bond.
We have issued approximately 1.1 billion under a framework today's and this year. We're looking to further increase the volume of senior hole KO issuance in GSF format providing dedicated funding for an investment that bring a positive environment or social impact in the UK and finally on Library transition. We now have just over 10 months remaining until the expect to see station of Sterling Library would continue to be actually engaged and Industry working group to ensure a smooth transition to new risk-free rates huge progress has been made over the past number of years as now nearly two years since Network completed the first-ever bath alone and issued our first Sonia covered Bond
There's still a huge amount left to do over the remainder of the year and we are fully supportive of the Sterling risk-free rate working group roadmap and targets including the cessation of Sterling Library link loans lineage with those bombs and securitizations by the end of q1.
So in summary substantial economic uncertainty remains, but we continue to build and operate with very strong levels of capital and liquidity.
I'm with us back to Katie.
Thank you, Daniel. And so on to my final say summarize.
we delivered a resilient performance and twenty twenty and despite the challenges of the pandemic exceeded our Targets on growing lending cutting costs and reducing our
In an uncertain economic environment we continue to do everything we can to support our customers while advancing our strategy and accelerating our digital transformation.
Focuses on driving improve returns with targets that to grow income reduce costs and maximize Capital efficiency over the next three years with disciplined execution in each of these areas. We expect to deliver a return on tangible XT of ninety 10% by the end of 2023.
We are pleased to be able to recommence Dividend payments and Our intention remains to return Capital to shareholders with a payout ratio of 40% for ordinary dividends and distributions of least eight hundred million per annum in 20, 21 22 and 23 giving us the capacity to participate and directed by back from the government for which we have approval from the regulator Thursday.
Thank you very much. We're very happy to open it up for questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press the star key followed by the digit one on your telephone keypad. We will pause for a moment to give everyone an opportunity to signal for questions.
Take off fast question. And the question comes from Lee Street from Citigroup, please go ahead you'll line is open Hello. Thank you very much for the call. And thank you for taking my questions are too if you please just firstly on on issues. So obviously got very strong Capital position and that's going to stay strong for for some years. And at the same time, you know, there's been a lot of press shows interest apology Nissan. This is the Legacy tender slash has helped manage that side. It's not questions. Why why the focus on issuing a T1 and T2 this year giving your a huge Headroom Keys capsule in a position to me. It seems like you don't necessarily need to that's the first question and secondly blinked once again to to Capital also a lot of discussion about Capital dividends and directed by backs off giving I think fed say you wouldn't consider any form of m&a be on the smallest little bolt-on Acquisitions like using it take him with Metro for their for their mortgage assets. They'd be Mighty questions. Thank you God.
We thank thank y'all I'll take your second and then don't know we'll come back on the first of the issuance. So in terms of capital in dividends, we're definitely not seeing that on eliminate. What we're seeing is our offices to return and our Capital back to shareholders and participate in the directed by back. We will and continue to look at m&a. I think the Metro deal was a good example of that where it was a damn nice volume very good quality book and built building where we've got real capacity to build will continue to look at all those deals. So we're really interested in things that are volume or things that are adding capability that we don't have but it's not the primary driver of the use of excess Capital but it is something we're definitely open to and when there are opportunities, we we do look at them don't know if you want to talk issuance. Yep sure at least so in terms of additional tier-one and tier-two age. You can pretty much see what our our end state requirements are. We don't tend to ruin kind of book where is a present. So I guess what you're you're linking it to is our our strong top seat won't say somebody eighteen point five percent. So the way would look at Birth
Taking out sometimes this morning. We've got into order delay inflation of 185 $295 billion by the end of this year that obviously includes our our mortgage floor board with inflation of respect on the 1st of January. We also have built in their potential for a direct reply back or 4.9% dividends of a minimum of eight hundred million, and then the linked pension contributions as well. And then I still drink occasionally love with the software and friends will benefit of 23 basis points roll off too. So, you know, there are headwinds that currency if you want position. So we do expect it to come down during 2021. And then we're regarding to from an issue and perspective have in our plans about a billion of additional tier one. Obviously. Just noting there. We do have a two point six billion dollar call in August. So again just retaining close to what are our end state requirements are and in terms or two we have talked about before as we have about six six and a half billion of dollara bullets outstanding that are amortizing down 20% per annum. So again, that issue is just keeps us are in around what our end stages
Requirements are all right questions, just to keep him keeping up to your current levels. Rather.
Worry too much about the teacher. All right, that's good. Thank you.
Thank you. And your next question comes from the line of Robert Smith from UBS, please go ahead. Line is open.
Hi, thanks for doing the call and US successful hours as well. Greatly appreciated a couple of things first on LCR up at 165 realized that as you said, it's a lot to do with that inflow of deposits. But how do you bring that down? And how do you more efficiently manage that name? Is there any do you judge any like trapped profitability in there is is my first question second question on slide 20 on the Legacy Capital two billion left really just a couple of Q-tips is the plan just to do the rest of the list this year and and and take all of it out. And then my third question you talked about Libor transition last year your 81 she did one with treasury reset one with a guilt reset. Will you continue to do?
You're eighteen months in that format until Libor has fully transitioned or would you look to to use different reference rates? Thanks.
Let me try and let me try and take them in order Robert. So else you're fully 165% of what we have done since since full year. We paid 5 billion m m e and we also have the purchase of the mortgage the Metro mortgage book of 3 billion. So what we have seen is that a hundred sixty-five come down, you know in or around the kind of mid 150s at this stage of civil your position in terms of managing that you know, we have been managing excess liquidy now for a number of years. So we kind of consider that VA you and it just linked into you know, some of our 2031 and a longer-term targets around landing above above market levels. So again, the large majority of that liquidity is sitting within the ring-fence bank and there are constraints around, you know, what we can do with it and how we put it off work in terms of the the Legacy capital of two billion. You know, I think we have a very very obviously, you know, we very good track record of dealing with with Legacy instruments with dead.
You know, I think we had about eleven billion of of Legacy tier one that's coming back in 2014. So we've seen a gradual reduction there and I think there will our viewers that we will look as we look it up to New York a couple of stock again during Twenty-One. But our expectation is that there will be some Securities and notional is outstanding because even with a very successful, lme, you know, we'll never get a hundred percent take up to walk around the the the opportunity to the likelihood is that there will be small emotional Notions remaining outstanding and finally on on Libor transition and and the additional terrible and I think that's you know, as we go forward and we were happy with the reset to go against what we could look at that on a on a Sonia basis as well going forward. So we will keep that under review just based on on timing and invested down as well.
Great. Thank you, bye-bye.
Well, thanks for taking my questions. The first is just touching on on the Legacy Securities that you were just commenting on the first point is if if you could give any more guidance on the living through timeline post March twenty one that would be appreciated. And secondly as you just noted, I think it's safe to assume that it'd be hard to remove a hundred percent of Legacy instruments post Jam 22. So my question is if there's an infection risk, is there any consequence regulatory consequences leaving them outstanding? And also do you think the regulator might provide a bit of leniency if you've attempted to me in the past or in the future wage moving to ESG and and noting your issuance and and your developments in the space? I just wondering if you've got a Target size of the issuance in 2021. And also whether you consider Capital issuance wage more broadly post-brexit you comment on how the the EC's taxonomy factors into your your strategy going forward or if it does or not.
Sure, let me let me start off from there as well pull you correct me if I'm if I'm missing any of these in terms of I think it's just on around the Legacy instruments as you're welcome letter that came in in November. So we're just finalizing our our risk-based assessment of the impact of those Legacy instruments appear way, you know how they have lined up to taking a prudent based approach to that. So I you know, I think in terms of anything we have that standing in terms of small nominal done where we've tried to address it through Ella me. I think they will take a pragmatic Improvement approach to that off. So I think in terms of ESG we guided last year our expectations were we were hoping to do better billion in of a moral issue and cine esti based at the time of we decided to about a two to four billion a month requirement last year. Obviously we issued less than that. We only issue in total 1.6 billion dollars of which six hundred million was in was a personal Greenbaum. So I think about thirty-eight percent of a total issuance dead.
Again, when I look at it this year, we've guided to senior analyst we to five billion and our expectation is again that we would look to minimum of eight 25% of that in EST format. Obviously depending. And we can do higher than that as well. We've previously considered from a capital perspective tier 2 in any format, but additional tier one is not something we're considering off the stage and soon as I pick up the question on post brexit taxonomy. Yes, so I suppose they the initial one we've seen is something. Fuse box on software intangibles, which obviously expected disappear at some stage this year, but first to John 22, but apart from that we will just wait to see I think on the on the outcome of of a number of consultations that are expected this year. What role on but I'm not expecting any major and Divergence to where we currently stand. Okay. Thanks so much. Thanks, Daniel. Thanks.
Thank you on next question is a web question for Kevin mass of asset management. It asks. Can you discuss the key drivers of your 2022 UK GDP forecast, which might co-drivers would lead you to expect a higher GDP growth in 2022. Thank you.
Thank you. We will take on Extreme question and the question comes from Daniel David from autonomous, please go ahead to align is open. Hi. Thanks for the call.
Sure, and thanks very much. So in terms of the the the the driver's they're all across the whole state. They're all laid out with within the accounts. I think probably 173 want to go there at some stage. Kevin's have a look at it. When we look at kind of the 4.5% growth and this year then we kind of see it muting off after that, you know for us it's a game.
It's going to be a story of how we come out of lockdown how you know, the countries kind of opened up. And then I think what going to be interesting is actually what happens with a lot of the cash flow that people have built up. We see 17% of levels of savings in the retail space compared to normally a 5% level. So there's a huge amount of cash that sitting in people's and mechanics mean. I'm sure you like we do read accounts of what the war it might five. Down and if we do actually go into a big spending boom. I think that will that will have an impact obviously on that growth you counter that as well as you kind of started worsening unemployment We Believe unemployment will get worse this year off and picking it up 77% and then coming down to an average of a thing 6.3 it was for the for the year in in 2021. So for me, it's definitely going to be as you would expect the blame is what's happening in in that kind of emergence and post lock down. You know, and and and then I think what the story is on unemployment, they're going to be the two biggest drivers as we move Catholic.
I think we're pleased to see the rate curve kind of going up a little bit and there is around that's helpful obviously to us and that that could drive a little bit of growth has overtime Kevin.
Thank you very much. And this questions actually going to come across from the phone line. So we're going to hand back to the phone line for the next question. Great. Thanks Sean. Thank you your next question. Cuz the line of Chrissy Teigen from Barclays apologies for the pronunciation, please go ahead your line is open. Hi Casey. Hi Dana, that wasn't the bad guy was the back medication. I've seen a lot worse off. So my my question is on page two thousand V. I was just looking at the fourth quarter and obviously there was a fairly big reduction q1q. I think it looked like you've moved to chunk of money back into stage one. I just interested actually. If you could give us a little bit more color on on what drove even move back to Stage once all those loans is it because you've moved those below that threshold for migration or did you change the threshold in anyway just a little bit of color about the movement from backstage 2 to 1. And also if we can give us any sort of color around, you know the type of loan
That consisted of that sent back into stage two versus those that are still in that was back in stage one of those that are still in to the basic just some color around the movement of the stage two balances is a great choice. Sorry. I have a second question also on just on that with Market that should be given the ongoing reduction of this waited assets. It just be interested in just understanding a bit better the long-term ambition for the identity in terms of how you see it fitting into the group. You know, what's its steady-state size. Do you still consider it as strategic? That's all. Thank you.
Capture. Thanks. Thanks so much, and what I'll do.
Second most powerful in terms of not with market. So we definitely consider it as a strategic which is why we kind of announced the strategy that we did last year. So, I mean if you just recall it was very much around taking it. R, wh which were sitting at $39 billion this time of year ago and what we're saying we were on we wanted to go to a journey in the medium-term to get down to twenty billion and have that 20 billion of our W-2s will be focused on supporting the corporate customers who use use net worth market for us to be able to service a much broader range of their of of of their demands there what we've seen happen this year's we offer to get started you believe in the team mean did a a truly outstanding job in reality got down to twenty seven billion somewhere a nice way through that transformation. I think even more importantly just from the date of the operations and mechanics and what you see is the network Market teams and the corporate commercial teams working so much more closely together making sure you were able to give the right service out to our customer base so dead.
It's important. We expect income to fall a little bit in this year from the one point two billion really benefited from a lot of volatility and down to about $800 billion remembering of course, we've also taken off a lot with in there but you know comfortable that's in time. It will get to a kind of a contributor toward the rfe of the groups and very very pleased of that. If we look at the stage once a month for those that haven't picked up on this yet. Is that handy little table in the company and I spent on page twenty-two in if you just go here enter your end. You you miss the fact that actually off the loans in the wholesale space have moved around quite a lot in terms of the the shape, you know, we had the trail billion and say at the beginning of the year on a group basis, but 66 back down to $59 and then back to 44 what you're really seeing in there is the Improvement in economic. So we haven't changed any of our criteria. We haven't changed the kind of sick of criteria. We talked a lot about dead.
The and it each each too, but what has changed is our view of economics and if you're a wholesale loan the minute that your PD improves we move you immediately up and down stages. Whereas in the retail space. There's a six months kind of cure time to say you might be getting better. But actually we're going to wait before you remove you and so it's literally the Improvement in economics has caused that movement to happen no more than that and it would be it would be across various different factors. I wouldn't I wouldn't call that one specifically.
Thank you. Thank you very much. Thank you.
Thank you. I will now hand the call back to Casey for any closing comments.
Thanks very much. I just say thank you very much for joining us. We need to appreciate your time and coming in to touch base with you on results day, and also your ongoing support, and we look forward to check with some of you in more detail over the coming weeks, and then as I collected as part of its you want announcements. Thank you very much for your time today Take Care. Thank you.
Gentleman that will conclude today's call. Thank you for your participation. You may now disconnect.
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