Full Year 2020 Natwest Group PLC Earnings Call

Welcome, everyone. Today's presentation would be hosted by chairman Howard Davis. See you Alison Rose and CFO Katie. Marie after presentation will open up for questions.

Good morning, everyone and thank you for joining Alison Katie and me for our full year 2020 results presentation. It's fair to say that 2020 was a year, like no other politicians and Industry leaders have to come together and find Urgent solutions to a series of rapidly evolving challenges caused by the pandemic and the United Kingdom left the European Union after fifty years of membership at the last minute the trade agreement with the EU avoided a disorderly exit, but there's still a lot of work to do and significant uncertainty persists particular job in financial services.

The direct impact of brexit is not as significant for the NatWest group as it is the banks with larger EU or markets operations and we are as prepared as we can be thrown not capitalized operational entities in the EU any wider economic impacts on the UK will however clearly have implications for the bank's performance in the medium-term against that extraordinary backdrop. We provided exceptional levels of much-needed support to our customers and the communities in which we work throughout 2020, although office assistant low interest rate environment and ongoing COVID-19 restrictions will continue to challenge financial performance amongst all UK banks for the foreseeable future. Our bank is well-positioned to navigate to the ongoing uncertainty and is making good progress against its purpose LED strategy.

I am betting our purpose of the core of our business. We have signaled Our intention to deliver not only a sustainable financial performance for shareholders. But to make a positive contribution to society in December the pra made the welcome announcement that it was lifting restrictions on Capital returns for UK Banks subject to certain sensible guardrails following that decision. We have announced a final dividend of three Pence per share and subject to permission from The Regulators. We plan to distribute at least eight hundred million pounds each year to 2023 through a combination of ordinary and special dividends maintaining our 40% payout ratio for ordinary dividends.

Support are grateful to Allison and her senior team with a leadership and energy they've displayed in remarkably challenging circumstances. We firmly believe that we had a well-balanced leadership team in place with the necessary experience and expertise to deliver our objectives and will that I will hand over to Allison and Katie who will take you through our results strategic priorities in more detail Allison.

Thank you how it's and good morning. I'll start with an update on our strategic priorities before handing over to Katie to take you through the full-year results. Will then open it up for questions to start with the headline.

Against the backdrop of economic uncertainty. We have delivered a resilient performance while supporting customers throughout the pandemic and accelerating our digital transformation today reporting an operating profit before impairment of 2.9 billion for the full year with impairments of 3.2 billion below are guided range a well-diversified loan recipient and there has been little change in stage migration.

And payments into account this resulted in an operating loss before tax of 350 million and an attributable loss of 750 million despite the challenges of the pandemic. We had continued with disciplined execution of our strategic priorities strengthened our executive team and delivered on our Target.

During the week retail and commercial lending by 7% versus our Target of 3% We reduce costs by $277 million above our Target of 250 million and we continue to reshape not West Market reducing our two twenty seven billion. Well below are thirty two billion Target this resulted in an initial dividend 500 million from that West Market to the group this month.

The capital generative business we operate with one of the strongest Capital ratios of our European peer groups at 18.5% And as I have said before this gives us the flexibility to navigate continuing uncertainty to consider options to creating shareholder values such as our recent acquisition from metrobank and to return Capital to shareholders wage in the Bank of England's and Nelson's in December. I'm pleased to announce that we're reporting a proposed final dividend of 3/10 to share today, which is the maximum allowed within their guard rails.

Subject to regulatory permission Our intention remains to return Capital to shareholders with a payout ratio of 40% for ordinary dividends and with distributions of at least six hundred million per annum and 21 22 and 23 giving us the capacity to participate in directed by back from the government.

You will have seen that we have also announced 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 take a phased withdrawal over the coming years and I will cover this in more detail later.

But those are the headlines and I'll move on now to talk about our strategic priorities on flight five.

This time of year ago. We set out a purposeless strategy just before COVID-19 and it's an understatement to say it was not quite the year. I had anticipated when I stood up in front of you last February.

The experience of twenty-twenty has shown that it has never been more important to put purpose at the heart of our business helping people families and businesses to thrive and throughout this year. We took everything we can to put this into practice.

A purpose is underpinned by four strategic priorities with a plan to drive sustainable returns by serving customers across their lifetime to generate value pairing the organization to innovating in Partnership simplifying and digitizing our business to improve customer experience increase efficiency and reduce costs and by deploying our Capital effectively to maximize return a purpose is also exemplified by three Focus areas removing barriers to Enterprise building Financial capability and leading on climate change which delivers benefits for all our stakeholders and deepen our ability to drive long-term sustainable return.

So let me give you a flavor.

What putting purpose into practice is entailed in twenty-twenty on fly 6?

David the last year our people have done everything they can to support our customers in the face of exceptional challenges. And I'd like to thank my colleagues for their incredible dedication and commitment wage loss of depend emack we set up remote working for over 50,000 colleagues and kept 95% of our Branch Network open for customers who need us whilst also accelerating our digital offerings. We provided mortgage holidays Capital repayment holidays help for vulnerable customers and approved over 14 billion of loans under government lending scheme.

Long said this supports has been tapering since the second quarter and despite the ongoing pandemic an extension of government lending schemes current trends show. No increase in demand no increase in monthly payments and continued growth in mortgage lending.

Nevertheless, we recognize that 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.

During the year. We also responded to customer needs to our feet three Focus areas, which I'll cover on slide seven.

We are committed to removing barriers to Enterprise as a vital means of supporting economic growth and job creation whilst also generating income for Network. We recommend it depends on it cuz presented particular challenges for entrepreneurs and we have pivoted to digital channels to continue to support them. We migrated are 12:00 accelerator hubs around the country to digital delivery and welcome David 1200 new entrepreneurs to virtually accelerator programs. We helped more than 14,000 entrepreneurs to business Builder which offers advice and networking opportunities online and we hosted over a thousand virtual events for more than 45,000 business owners across the country. We also supported female entrepreneurs in 2020 by creating a 1 billion pounds to which we added a further billion this year.

I'm running there has never been a greater need for financial capability and the pandemic has left many people struggling with their finances and our banking app, which offers customers dedicated support and advice off Let's help them manage that understand personal credit schools and stay in control of their money.

We've reached 2.9 Million people in 2020 through activities such as free financial health checks are Financial education program money cents and training or Ford awareness.

We also helped over half a million people start saving with us for the first time.

Commitments on climate change recognize that this is a risk of ever-increasing importance for investors and customers we're helping the transition to a low-carbon economy by aiming to age of the climate impact of our financing activity by 2030 during 20/20. We reduced our exposure to the oil and gas sector by about 16% and it's worth noting that sucks gas represents less than 1% of our loan book.

we also

To help business customers raised 12 billion pounds of new sustainable financing and funding enabling us to bring forward our 20 billion-pound Target from 2022 to this year, which we now offer that to exceed we launched our first screen Mortgage in Norton and having achieved Net Zero on our own operations in 2020. We remain focused on making them climate positive by 2025 looking at all activity across the year our purpose it served as well.

I'd like to talk now about progress on our strategic priorities on slide eight.

A strategy remains focused on delivering sustainable returns over time and are clear priorities are first build sustainable growth with a continued strong risk discipline. We have led off the market rate in 2020 and expect to continue to do so over the next three years that can meet. We are simplifying the business and delivering cost efficiencies. We expect to reduce costs by about 4% a year to reach a 2023 leveraging our investments in technology. And third we are actively managing capital in order to maximize returns a ninja operate with the CT one ratio 13 to 14% by 2023.

So let me move on now to talk about generating income growth on slide 9.

He benefits from having strong customer franchises across the business that provides multiple growth opportunities and we are building on our strengths to serve customers across key moments in their lives.

In retail banking. We have a 16% share of current accounts that are lower Stock Show in mortgage lending. We see mortgages as an attractive growth area, and we continue to grow organically in 2012. Share increased to 10.9% up from 10.2 in 2019 with net new lending of 12.5 billion pounds.

In addition, we acquired a 3 billion-pound mortgage portfolio from metrobank which supplements or organic growth plans and represents a positive contribution to income. We plan to build on this position and gray feather was maintaining strong pricing discipline.

And private banking people saw wealth businesses together last summer so that we can make better use of our asset management expertise to support saving and investment needs for customers across the group's back online platform that West invest gives customers a simple way to invest in a range of funds managed by the investment team in private banking / 1600 new customer on board it by private banking in twenty-twenty and assets under management or Administration grew about 6% or 1.7 billion almost half of which was net new influenced by working across degree to help more customers meet their investment needs. We plan to grow assets under management significantly over the next three years.

Too Commercial Banking on fly ten. We are the largest supporter of businesses in the UK with a leading net promoter score and nearly 70% of our sales in our Commercial Bank, which still in 2020.

We're providing more services for our commercial customers by investing in technology and Innovation and products such as our Merchant acquiring platform till which continues to gain traction and bought a new payment platform pay it.

Patriots launched last June using the UK's open banking infrastructure to enable online payments direct from consumer bank accounts in close to real time.

We're also investing in digital capabilities that will enable us to deliver a relationship management experience for 16,000 more customers, but at a lower cost.

We even hold still proposition for small business customers with our digital-only business bank metal as well as online offerings such as Rapid Cash which enables businesses to borrow against unpaid invoice and path a one-stop-shop for HR and compliance that has been a Lifeline for businesses during covet.

I mean that with small kids the team are executing well and reshaping the business to serve corporate and institutional customers with leading products and capabilities in areas such as foreign exchange interest rate with management and capital markets.

With a simplified and less capital-intensive business that is better integrated into the bank. We are extending our expertise in foreign exchange across the group deepening our coverage and product offering for commercial customers and leveraging our leading position on sustainable financing where we brought forward our 20 billion pounds Target from next year to this year as I mentioned earlier and we expect to repeat it.

You can see on slide 11 how the pandemic has accelerated the rate of digital adoption over the past year 58% of our retail customers. Now use digital only way to interact with us up from 46% a year ago while transaction volumes two branches continue to decline as a result of changing customer Behavior.

We are investing in digital transformation to create a relationship bank for a digital world. In other words the bank where customers can interact with us in person or online at any time of the day off and from any place. They choose video banking is a good example of this with meetings up from under a hundred a week in January last year to around 15,000 a week in January Thursday. Yes.

He's about artificial intelligence. Chatbot Cora grew 67% in 20 22 9 million interactions of which 40% were completed without any human intervention.

I won't get digital transformation together with the initiatives I've spoken about in each of the businesses will help us acquire new customers Drive additional Revenue generation and support. Our lunch is Target. It will also help us to increase efficiency and reduce costs, which I will cover on slide twelve.

Customer Journeys currently account for 30% of our cost base. So transforming them through greater automation will have a significant impact on our operating costs.

We were able to extend over eight billion pounds of bounce back loans last year by creating an end-to-end digital application process within the space of the week. We also used automobile to improve account opening in Commercial Banking last year resulting in a net promoter score 60 up from 16 and we are building on this experience to continue to transform our customer Journey For example, since last September customers have been able to renew their mortgage online in a simple straight through process that takes as little as ten minutes compared with anywhere up to 23 days when the process was manual.

I'm looking for attention that has improved to about 80% in 2020 compared to about 70% in 2019.

We're not planning to extend digital decision-making across all our channels creating greater speed and certainty for our customers with further automation like this. We are targeting Grace saved in the region of 300 million by 2023 as part of our cost reduction Target of around 4% per annum.

Let me turn now to investment on flight 13.

We intend to invest three billion pounds over the next three years of which more than half will support our income growth and cost reduction initiatives. Our aim is to build a technology in data-driven busy supported by creating automation artificial intelligence and Robotics in order to improve customer experience increase efficiency and reduce costs.

We also expecting to reduce strategic costs to around eight hundred million in 2021 with a continued reduction through 2023 turning to slide fourteen. I'd like to talk to you on our decision on off the bank after an extensive review. It has become clear that Ulster Bank business in the Republic of Ireland will not be able to generate an acceptable level of sustainable return home as a result. We have decided to make a phased withdrawal from the Republic of Ireland over the coming years in an orderly manner. We will do everything we can to ensure that customers and colleagues are not supported and that service is maintained in the near-term. There will be minimal change for customers and colleagues and we have also made a commitment that there will be no job losses or Branch closures took the Republic of Ireland this year.

As part of this face withdrawal the group has entered into a memorandum of understanding with to sell Ulster Banks performing commercial loan book and to transfer from Ulster Bank colleagues supporting this notebook. Naturally. Any transaction is subject to the usual due diligence as well as regulatory approval.

You're also in early-stage discussions with other strategic Partners about other retail and SME assets and liabilities.

We expect the withdrawal from the Republic of Ireland to be Capital accretive over the duration of the process.

This decision has no impact on Ulster Bank in Northern Ireland.

We all continuing to actively manage Capital across the group in other ways as you can see on slide fifteen, and that was markets were ahead of plan as we reduced risk-weighted assets and expect to have lodged completed restructuring by the end of this year. We're also managing portfolios and using synthetic trades across the business to reduce Capital consumption manage risk and not return. For example. We took actions to offset growth in Commercial Banking last year, which reduced them by eight hundred million, and we will make further reductions this year long. We expect combined exit and Disposal losses from that West Market in Commercial Banking of around three hundred million in 2021.

In retail banking we have sold about 3 billion of non-performing debt over the past four years, and we continually optimize our regulatory Capital with liability management exercises.

Was focused on maximizing our Capital efficiency in order to improve returns to shareholders, which I will cover on slide sixteen.

As you know not West is a capital generous your business and our strong Capital position has been an advantage over the past year when it is given us both security and flexibility in an uncertain invite yet for the CT one ratio of 18.5% We're operating well above our Target ratio of 13 to 14% As I said earlier. We are report a final dividend of three times today and subject to permission from The Regulators. We plan to distribute at least eight hundred million per annum in 20, 21 22 and 23 months to a combination of ordinary and special dividends maintaining our 40% payout ratio for ordinary dividends.

Just gives us the capacity to participate in directed by box from the government for up to 4.99% of issued share capital A year Our intention remains to return Capital to suck holders or pursue other options that create value and we have now set out a clear Glide path to reach our 2023 Target cet1 ratio of 13 to 14% off.

So let me conclude on slide Seventeen month.

I can only count remains uncertain in an ongoing pandemic and whilst we welcome the vaccination program the duration of the current lockdown remains unclear in this environment. We continue to do everything we can to support our customers want advancing our strategy and accelerating our digital transformation. Our focus is on driving improved shareholder returns by gross income reducing costs and maximizing Capital efficiency with disciplined execution in each of these areas. We expect to deliver a return on tangible Equity of ninety 10% by the end of our three-year plan with that. I'll hand over to Katie to take you through the financial performance in more detail about

thank you, Allison, and good morning, and

I will start with a group income statement and I'm going to Focus performance on the fourth quarter.

Total income of 2.5 billion pounds was up 4.6% on the third quarter within this net interest income grew 2% to 2 billion pounds off a non interesting, was up 13% to 564 million pounds.

This increase reflects strong lending volumes increased margins on mortgages and a non-recurring loss of 324 million pounds on the liability management exercise in the third quarter.

Total income excluding all notable items was down 4% on the third quarter.

As a result of lower levels of customer activity and tight risk management in that West Market.

Partially offset by income growth of 2% across our other businesses.

Operating expenses grew 29% to 2.3 billion pounds driven by the annual UK bank Levy higher strategic costs, which were up around a hundred million pounds and Sam Smith Station and conduct costs.

It means we're reporting an operating profit before impairment of 194 million pounds 68% lower than the third quarter.

Impairment charge for the fourth quarter decreased to 130 million pounds this represents 14 basis points of growth customer loans, and I will talk more about later.

Taking all of this together. We reported an operating profit before tax of 64 million pounds.

A tribute to Lost ordinary shareholders of 109 million pounds reflects the further attacks movements in Ulster Bank and Royal Bank of Scotland along with coupons on 81 bonds and preference. Yep.

I'll move on notes and net interest income on slide twenty.

Net interest income for the fourth quarter with forty-five million pounds higher than the 3rd. If you look at the column for the third quarter on the left and the fourth quarter on the right, you can see the banking net interest income grew twenty six million parents or 1.3%

This reflects Strong Mortgage growth improved mortgage margin and lower issuance costs following the repurchase of Legacy instruments in Q3.

Strong position in the center is in part the result of this repurchase.

Heading to bank net interest. Margin this increased one basis point in the fourth quarter to 166 basis points. This is the result of three factors the lower curve accounted for a fall of two basis points due to the structural Hedge.

This was offset by one basis point increase for the credit e and two basis point increase from mix and mix and pricing.

The change in mix and pricing reflects the fuel quarter benefit of higher overdraft fees as well as the liability management exercise.

Moving on though to look at the drivers of net interest margin.

On site twenty one. We show customer loan and deposit rates were retail and Commercial Banking which together account for over 80% of groups net interest income. We also show me the overall group growth field and cost of interest-earning banking assets which covers the rest of the balance sheets notably the lower-yielding the credit portfolio and our higher wholesale funding

On the assets or lending side used across the group continued to fall reflecting the past through of lower interest rates, but the pace of reduction flawed further in the fog Blue Shield to the group declined by 9 basis points to 185 basis points compared to a 13 basis-point decline in Q3.

It was driven by Commercial Banking. We're front grill grates. Remain below the back book due to the rate Cuts earlier in the year.

On the liability or the positive side cause reduced by a further 17 basis points to fifty basis points in the fourth quarter largely driven by the repurchase of Legacy instruments in Q3 issue overall deposit cost of stabilized.

Looking at net interest. Margin in the first quarter of 2021. There are three main factors to consider.

First ongoing pressure from the stock to hedge. We expect this to be greater in 2021. It's a little over three basis points for a quarter.

It should not be completely linear and to be absolutely clear over the year it equates to reduction in income of a little over three hundred million pounds from our hedge portfolio compared to Thursday 22nd a change of liquidity in January. We repaid five million pounds of t f f m alone.

River a deposit base has continued to grow during our third lock down and liquidity levels will depend on customer behavior in the coming months. The third factor is mixed and pricing Home Mortgage margins on the front book increased in the fourth quarter 261 basis points above an improved back book of 147 basis points application. Margin route 280 basis points. However, we expect them to reduce during the year as the man papers.

Mixel also be affected by by demand for higher-margin unsecured and corporate lending which will ultimately depend on lockdowns and the shape of economic recovery moving on now to look at volumes on slide twenty-two.

Rose banking loans increased by nine billion pounds in the fourth quarter driven by mortgages which grew six billion pounds or 3% reflecting strong demands ahead of the stamps if she said line,

and

course the three billion portfolio acquired from metrobank

a retail banking flu share in the fourth quarter was 13% above our stock share of 10.9% mortgages now make up 51% of total customer across the bank.

Unsecured balance has declined slightly in the fourth quarter both across person advances and credit cards.

Demand for government schemes also slowed further, but this still accounted for 1.6 billion pounds of additional ending.

However, this was more than offset by two point four billion pounds of RCF three payments in commercial banking with utilization in Q4 of 22% off north than the usual covered levels of 27%

average interest-earning banking assets grew by four billion pounds or 1% as a metrobank completed late in the quarter.

Looking at the charges year-on-year growth banking laws increased by thirty six billion pounds or 11% driven by mortgage growth of 16.5 billion pounds and government lending scheme of 12.9 billion pounds.

Average interest-earning banking assets were 50 billion pounds higher than the fourth quarter of 2019 reflecting increased security.

Customer deposits cruise by 62 billion pounds which produced our loan-to-deposit ratio by five percentage points to 84%

moving on Night Luke an uninteresting. Come on flight 23

Boys quarter no one interesting, excluding those for license was 645 million pounds 34% lower than the same period last year and 19% down the third quarter this year.

Within this income from Trading activities decreased 59% from the third quarter to 122 million pounds.

This reflects weaker performance on the fixed-income business with lower levels of customer activity tight risk management and a further reduction of our kids.

Looking ahead. We expect that West Market income excluding disposal losses to be in the range of $800 to a billion pounds for twenty Twenty-One as a result of more normal life conditions as well as the ongoing reduction in rwa towards our medium-term Target of around twenty billion pounds.

Moving now to fees and commissions for the retail and Commercial Bank which increase 6% from the third quarter to four hundred ninety-one million pounds.

This is driven by lending and payment services in the Commercial Bank.

Despite this recovery fees and commissions remain below the fourth quarter of last year in part due to regulatory changes in retail banking.

Impact of group income for 2020 was around two hundred million pounds and you will see the full annualized effect this year.

I look for fees and commissions commissions is uncertain given the current national lockdown, but we would expect them to grow as the economy recovers.

Two runs off my comments and income we are targeting lending growth above the market rate and twenty Twenty-One, which we expect to be more than offset by two main headlines both impact of the structural hedge and the income reduction in that West Market as I just mentioned.

As a result we expect income excluding neutral item to be slightly lower in 20 21 than 20 20.

I covered costed my opening side. So I move now on to to look at on flight 24.

You remember from the half years that's a modeling is based on four different economic scenarios to which we attach a probability waiting. We use the two sample scenarios to reflect are expected outlooks. Eject the same probability waiting of 35%

Even the stabilization of Economics we have now increased the probability waiting to 40% for our base case.

This scenario anticipate GDP growth of around 4.5% in 2021 unemployment rate averages 6.3% with an improvement expected from 2 to 4 p.m.

A decline in house prices in law single digits is forecast for this year before steadily reversing from 2022 onwards and interest rates are expected to remain low with an anticipated reduction in the Central Bank rates to zero in the second quarter of this year.

This 10 basis-point declined feels a little conservative today. But as we were discussing negative rates only two weeks ago. This is clearly volatile. It would represent around 60 million pounds of income for 2021.

We have included 878 million pounds of postmodern adjustment for economic uncertainty in our Provisions until further credit performance detail becomes available as a government support Project online.

These assumptions are reflected in our expected credit loss provisions of 6.2 billion pounds to the fuel year. You will see our updated sensitivities on the slide. If we were to wait five hundred percent to the extreme downside scenario. This would increase ETL by 2.2 billion pounds, and if we waited a hundred percent of The Upside, it would reduce our ecl 840 million pounds.

So let me know cover how this impacts the impairment charge on flight 25.

Reported an impairment charge in the fourth quarter of a hundred and thirty million pounds or fourteen basis points of gross customer loans.

From 28 basis points in Houston largely driven by A reduced charge of ten million in the Commercial Bank compared to a hundred twenty-seven million in Q3.

This reduction reflects a number of releases the impact of refreshing our economic assumptions and the postmodern adjustments I talked about earlier.

Active Capital Management in the commercial bank 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 pounds charge is a slight reduction mainly reflecting stage 3 default charges and updated economic scenarios any potential floss default. It's still being delayed by government support.

Payment charged to feel year of 3.3 billion pounds is equivalent to 88 basis points of loan.

We expect and parents for 20 21 to be at or below or through the cycle guidance of 30 to 40 basis points.

I would not I would like to talk about a risk profile on flight 26.

There have been little change during the quarter as government support measures are ongoing and customers have built up healthy cash balances over the year.

97% of our loan book is in stage 1 and Stage 2 not past June with customers remain up to date on payment.

Stage 2 past due is 8% of the boot down from 9% in Q3 and stage three is 1.7% down from 1.9% in Q3. Am reflecting right off of Legacy mortgages in Ulster r e c l coverage ratio is 1.7% which stage 3 coverage of 41% in line with Q 3 a.m.

As we knew some of our wholesale loans are in sectors to be monitored closely these amounted to twenty seven billion pounds in Q4, which represents 7% of gross long.

In these sectors similar to the trend group level stage 3 Gross loans were broadly stable at around eight hundred million pounds and we remain comfortable with coverage at 52%

turning on risk-weighted assets and capital on flight 27

R wh decrease 3.6 billion pounds in Q4 driven by credit risk and counterparty credit risk.

This reduction was mainly in that with Market. We reduced by 3.1 billion to 27 billion pounds ahead of our thirty two billion pounds Target.

We expect not with markets are to increase slightly in the first quarter this year due to normal seasonality that our year-end Target remains appropriate.

This year we expect to receive achieve the majority of our targeted reduction down to around twenty million pounds.

It was no impact overall from reality for the fuel year. This reflects positive Trends in retail banking which offset the negative Trends in Commercial Banking.

We ended the year is that common Equity Tier 1 ratio of 18.5% or a transitional basis under I-4 S9.

This is Sarah fee basis points higher than Q3 driven by more rwas and software intangible benefits partially offset by the proposed dividend of three pens and the linkage and contributions of 266 million pounds post-tax.

together these accounted for an impact of 36 basis points

moving on to the drivers of our keyboard ratio on flight 28

We have shaped the business to operate as a one ratio of thirteen fourteen percent and we plan to reach this level by 2023.

As you can see there are a number of factors to consider when modeling this Evolution first, we expect to generate Capital as we move towards are 9 to 10% return Target and 2028.

Second distributions to ordinary shareholders are a priority and we intend to distribute a minimum of eight hundred million pounds per annum through dividends while rejecting capacity to to participate in directed BuyBacks for which we have regulatory provision in place today.

Either also like the pension payments where we have committed to pay up to a further one point 1 billion pre-tax into the Pension funds over the coming years.

IOS, 9 transitional benefits which are parents were around hundred basis points of our racial or tapered down through to 2024 and we'll also be affected by stage migration which remains uncertain on the denominator. We expect to increase relative to fill your 20 driven by three factors first month ending growth. We intend to grow above Market rates in the UK and RBS, I excluding government schemes and the mix of lending will impact rwas

second post policy which to date has been incredibly low and the timing of which remains uncertain

Third regulation we expect changes made by the pra to increase our mortgage by around 12 billion pounds.

This reflects growth in the boot and assumed risk weights of around 15% as we have previously guided.

While this is effective from January 1st, 20 22nd, we would expect to see some of this inflation brought forward to 20 21 as a result of Prosecco quality.

On bo3 we anticipate inflation of less than 5% in 2023 given the changes that will come into effect on January 1st 2022.

Impacts will be partially offset for the ongoing refocus of NatWest markets.

Speaking all of these facts together. We expect are in the range of 185 to 195 billion pounds at the end of twenty Twenty-One, including all regulatory impacts, Thursday, January 1st, 2022.

Send me to our Capital position on flight 29.

Cat1 ratio is now four hundred fifty to five hundred fifty basis points above or thirteen to fourteen percent target range and more than double our maximum distributable amounts off.

Are you can leverage ratio of 6.4% is 315 basis points above the bank of England the minimum requirement.

We have also maintained strong liquidity levels with high-quality liquid asset pool and a stable diverse funding base.

Our liquidity coverage ratio increased in the quarter to 165% due to higher deposit and Headroom above our minimum requirement is now $72 billion pounds.

Turning to the outlook for Returns on slides therapy.

Allison said we expect not worth groups to generate a return of tangible XT or between nine and 10% by 2023 the key drivers behind this our first thoughts growth while we expect income to be slightly down and twenty Twenty-One. We are targeting above market rate lending growth across our UK and RBS International retail and Commercial Business Thursday through 2023, and we expect support from a normalization of customer activity as we exit lock down and as the economy recovers,

Second cost reduction we plan to reduce other expenses by around 4% per annum excluding the impact of the phase of roll from the Republic of Ireland month along with continued reduction in strategic costs.

3rd Capitol we intend to reduce or see if you on racial 2 between 13 and 14% by 2023 and finally we would expect ongoing impact normalization.

Go to conclude we have delivered a resilient operating performance with gross and net interest income in the fourth quarter and continued progress on both costs and RW a reduction accompanied by strong capital and liquidity build and with that at hand back to Allison. Thank you, Katie. I'll wrap up with a brief conclusion before we open it up for questions. We deliver a resilient performance in 2020 and despite the challenges of the pandemic exceeded our Targets on growing lending cutting costs and reducing are wa wage an uncertain economic environment. We continue to do everything we can to support our customers whilst advancing our strategy and accelerating our digital transformation.

I'll focus is on.

Having improved shareholder returns with Target set to grow income reduce costs and maximize Capital efficiency over the next three years with disciplined execution in each of these areas should expect to deliver a return on tangible Equity of 9 to 10% by the end of 2023.

We are pleased to be able to recommence Dividend payments and are reporting a final dividend of three Pence for 2020 and subject to regulatory permission are intentionally remained to return Capital to Asia holders with a payout ratio of 40% for ordinary dividends and with distributions of at least eight hundred million per annum in 20, 21 22 and 23 months giving us the capacity to also participate in directed by vax from the government. Thank you very much, and we're now very happy to open up for questions.

Ladies, are you using these questions? Yeah.

I said the first question we're going to be going to cost to our phone line. So if you could have the first question please on the line.

Thank you very much as a reminder. Ladies and gentlemen, if you wish to ask a question, please press the star key followed by the digit one on your telephone keypad. Our first question for today is from home of wine from St. Please go ahead.

Oh, hi. Good morning. Thanks for taking my question. I'm Katie. Can I just check something? You said you said that you have regulatory permission for a line back for the government so long I think five percent of the market cap is just over a billion at the moment. So you have permission in place at the moment to do that if the if the government wants to sell next week.

Yes, we actually do we actually have permission and you can find us on the website and do a maximum of one point two five billion parents. Obviously, we're limited by the 5% that we can do Under the regulations that that's so old granted. It has has been approved. So if the government chose to act and next week, we review they're willing buyer. Thank you and if they don't choose to act and they don't want to sell what happens. Permission to use it in other ways it the the way it works commission is a very specific particular to the right / X. If you were to look on the website, you see that they they month for 6 months and we just we will have naturally a rolling programme of renew. So it's sitting there waiting to be used for for a direct bye-bye specifically.

Okay, perfect. All right, and then my second question is on Ulster Bank. So clearly I think the you know, what we are aiming to do is if the variance told 8 if you can't agree a price with other parties then would you put it into run-off is that a potential option or you know, it's it's kind of sell it or maintain it.

Thank you. So it's it's a phased withdrawal rules that we will be undertaking over the coming years and and clearly my focus is making sure that Sonnen and orderly and considered month. You will have seen in the announcements today that we are in discussions with a number of parties as part as that phase withdrawal. So the non-binding agreement with a and a potential transaction and also early discussions. So our preferences to continue to focus our discussions with counterparties. You can provide customers with full banking services in the Irish market so I could do it in a very considered an orderly way and you giving you an indication of some of the early preliminary conversations were having

Let me thank you very much.

Thank you. Next question is from from Bank of America, please go ahead.

Very much. Good morning have a couple please pretty for Katie. First one was on revenues and you Frank a few areas including some of the margin driver's line price reduction at West Market revenues. The one that might be able to flesh out a bit as some further detail in terms of the guidance of Revenue slightly down in 2021. And then the second was on risk-weighted assets for 20 21 guidances 1 8 5 2 1 9 5 billion guess after that. There are a few moving Parts beyond that. So how should we think about that involves going through to 20 23, please?

No, thanks or has that me jump into them. So in terms of Revenue, you know, we expect 20-21 income excluding notice for license to be slightly down on twenty-twenty you driven by off by three factors. I mentioned in my speech so lending growth is targeted targeted above Market rates and twenty Twenty-One excluding Ulster Bank, and then that gets more than offset by by June headlines the impact of the structural hedge, which is this year slightly higher a reduction of a little over three hundred million pounds in that and then on income reduction from that with market. So we expect that wage this year in terms of the income to go from the one point two billion that they did in 22222 be between 8 and 1 1 billion in in that obviously on that song on the underlying basis you then have things like disposal also separately, but I think that gives you enough to get there and then in terms of the rwa movements that are there are certainly a few different things going on dead.

Within within that package so think we were praising Q4 to see the decrease of the the 3.6 billion as we move forward from here what we've we've we expect to change one. They are RWS will be in the range of 185 to $195 and including on a performer basis the impact of the bank of England mortgage mortgage rates, wait change and other modeling changes introduced on 1st January 2022. If I look at the mortgage change that number of the stage we expect to be around 12 billion pounds. It will be subject to telling me and want to report it to see whether you're busy. It might come in a bit earlier in 2020. But either way on the 1st of January 2020, we would expect it to be about twelve billion pounds and that in line with the 15% with waiting that we've talked about over the last the last number of years. I think they they interesting challenge will be around what happens in terms, of course, see how that comes on.

and you know

Also talked about twenty twenty-three and I would expect that by 2023 that that process has started to roll off again. So you'll have a kind of a peek that comes through 21 22 by 22 you start to see that coming back. So I I would think if you look 23, I would think of that one 805-2195 number still being appropriate cuz you've got lending growth coming in for 6:30 coming off and I think the one thing I'd love to give you back to date and time to be given the number but I think we'll wait and give you updated drivers later the timing of that in terms of All-Star. So you would have expect you stated some reason on there, but that one 8595 include sales number if you've certainly got it printed.

That's right. Thank you very much.

Thanks.

Our next question is from Ralston R from JP Morgan, please go ahead.

Hi, good morning. Thanks for taking my questions. I just had maybe three quick ones if I can the first one is just off mortgage income disclosure that you gave I can see that your book is up 10% over the past year and you've got obviously some very strong mortgage margin friends, but look at your queue for mortgage income. It's actually flat year-over-year and it's down quarter-on-quarter by about 4% in struggling to reconcile that against all of your commentary. I'm wondering if there's anything specific that I might be missing that.

That's the first one the second one just on and the business that you sold to you. You've reached a memorandum of understanding on if if you look at the commercial Revenue contribution, I think it's about two hundred million. Should we think of that as the size of the business that might get transferred over if the deal completes and then third one just need you to clarify on the directed by Bank comments. If it wasn't a let's say a disposable by the government. Would you consider sort of supplementing you 40% payout ratio next year so that if there is no possibility of a direct reply back over the next year or two because of a lack of government fail. Would you also look to supplement that 40% wage issue or how would you just hold that capital reserve or whenever that director comes through? Thank you. Okay. Thank you. Let me let me pick up the the directed by back in and after in case you suck.

Consult the mortgage question. I'm directed by vaccines, you know, it is a decision for the government's when and if they sell them we are ready to participate if they don't do that. Then my closest friends is clearly to return Capital to shareholders to explore other opportunities for value for shareholders. So we would review that at that time but we have no intention of changing our 40% payout ratio and I'm giving you guidance from that on Ulster just just to be very clear. We're announcing today the phased withdrawals as part of that. We are in preliminary discussions with a number of parties including aib where we signed a memorandum of understanding and so we will be working with them on that potential transaction long as we go forward and it's subject to do diligence and negotiation, but it gives you an indication of some of the intent that we have around there. So I think we were dead.

Continue to update you on

That as much as progressed but we expect the withdrawals and the Republic of Ireland to be Catholic creative over a multi-year. And we will provide you with further guidance as we go forward Katie, Georgia pick up the mortgage question. Absolutely and the mortgage the mortgage point is actually relations in relation to the Metro Bank and transactions. That's like softness in the in the Q4 so you can see em in the North Pole items and the Company announcement that we had them a 58 million loss on Monday. They weren't on that and then that leads back through ending in drinking over the next couple of years. So that's why you see them aren't disconnecting the strength of the of the of the rates that we are charging and compared with what you see coming through an income.

Thank you.

Thank you very much. Our next question is from Andrew Kunz from City, please go ahead.

Talk to a time and then one Caucasian as well paid on Capital with Tad firstly you talked about ordering special dividends. You've talked about directed by bath, but no your discussion here General by box in conjunction with the directed by back. So can we assume that General BuyBacks are off the table as a capital term mechanism wage. That's the first question second question more numeric the eight hundred million minimum of dividends that you've got into per annum. Can you just provide some indication of how you triangulate to that? Figure? The reason I say that is even if you adjust for the the 5% directed BuyBacks the 13 14 second-quarter one that the one I thought one on five out of your writing consensus retained earnings. It looks a little low in order to hit that thirteen to fourteen percent Court to one ratio that you're guiding. Yep.

Perhaps explain how you try and delighted a hundred number and then my final question just a very quick clarification and the 2023 return Target of 9th 10% What do you assume that the base rate expectations out to 20 23 for that and

Okay, let me and I'll do you in reverse order if that's okay. So when we look at the house and sometimes of the base rate is that there's a fall today of ten basis points. And so in Q2 this year, I would say that probably system today that feels a little conservative but then there was no rising from that. So that's what's in our budget plan that we were not really anticipating arrived in certainly from that but the numbers are worked with the 10 basis-point fault, and we'll we'll see what that comes through in terms of what you triangulate in terms of the

Let me try to help you a little bit. So you've got rwe and target range of one 150 to 185. If you took the midpoint of that that would that would be about 1.9% in terms of the of the capital that's available you then have in 2021. The dividend of 800 million is the minimum that would be another good point like Consumer Directed by back. That would be another point six of ct1. Remember that will also make our pension contribution which would kind of suck on that. So you then this year without mass, you know, obviously taking your views on post if you can see so just over 15% and then as you start the January issue you a little bit of movement going on on software capitalization and also remember the efforts line and migrates down as well. So in terms of that benefits the hundred percent now be 75% and 50% and so on that you'll see that bath

He's come down then.

Then from there you think will actually they'll be that was people also be captured generation. So you're obviously you're adding on as well and then we'll continue to make some of those dividend payments Direct Buy back in a year depending on how it goes transactions are actually happening in where the government is on their disposal as well as some some further pension contributions to actually get you down to arrange. It's in thirteen to fourteen percent by the time we get a 323

Like I said reading between the lines it sounds like the 800 is because that's where you feel comfortable doing this year that the minimum phrases because in 2022 and 2023 you could tend to go beyond that that fair wage. I think if you if you looped out to twenty twenty-three and you were at the 9th 10% return you would see that on a 40% payout ratio that your number will be a bit higher than that. So I think it's really it's as a base informed and word is is is is not accidental.

I'm sorry. I missed that Andrew forgive me. So I was saying they were being erected BuyBacks an order in special dividends. But no General BuyBacks is is that a fair wage?

In terms of conversations that we've had with with our our wise investor base. I mean the the preference at the moment is is definitely directed by back.

Thank you.

Next question is from Jonathan Pearson, please go ahead.

Calling both key questions, please. It's all on guidance. I'm afraid and the Outlook the 1st is income again in two thousand and twenty one month just say we're entirely clear on this slightly down on the income X notable items consensus that thinking about two hundred million pounds 250 million pounds down on 2020, excluding notable items that within the boundaries or a slight reduction. In other words you happy with consent to Max knows what items for life when people come and they can I ask about 2023. I mean the Delta to a 9% R O T versus consensus is close. Ballpark billion-pound is pretax profit. We know what you're thinking on costs, but maybe you can give us a feel as to as to where the other Deltas are going to land in the CNL particularly income impairment a birth.

Anything else going on there as well?

Sure. Thanks. John can look up I probably won't say anything more on the 2021 guidance. I think it's been quite clear in terms of the building blocks from where we are today. So so where you'll get to twenty Twenty-One years then if I if I take a look at the r o t e so we're talking about 9 to 10% That's not impacted by by Ulster Bank. The key drivers of that. The lending rules should talk about in terms of the above Market lending rules. We'd also expect a little bit of benefit from some of the Investments that we're making in this year to come through into the income line as well cost reduction targeting around 40% off. Sorry. It was very quick clarification for giving a $0.04 and twenty Twenty-One and excluding any of the change in that direct cost base. And then with an with an ulcer will see the Strategic cost reduction, you know, we've gone from 1.4 to 1.1 no down 2.8. We'd expect that reduction to to continue within their I think one of the the teachings also will be the normalization of your

impairment charge

Cable, we've talked about two days that will be 21 to be in the around the 30 to 40 basis points as you character, 20 23, we we probably expect that to happen a little bit further as you just see more things work your way through the system by then.

Okay, so if I were to be lucky enough to see your your budget put it next to consensus. I I would probably expect to see costs a bit lower impairment maybe a bit lower and income, you know, two hundred million pounds higher. What would that be sorted? What Abby give you a service? If you are lucky enough to see that then you you probably be relatively pleased with some of those pills. So I think we're work cuz you know, I think we should put on cost and having to think about impairments and I think we've got to give it on Broad, as well as a great. Thanks a lot.

Our next question for today is from Alvaro Serano from Morgan Stanley, please go ahead.

Hi, good morning. I had a question on mortgages and and another one on the structural hedge on mortgages. Can you give us a sense of where pricing is at? The moment? Thank you said last quarter was around a hundred sixty basis points. And and also how the how that's trending given. We're probably now all the office now are are in a post on duty world and relate to that if we think about volume growth. I know you said you you plan to grow above the market, but would you say in in more ways you expect to grow more or less than this year than last year. She excluding Metro and the second question on the structural hedge that three just above $300 million dragged for this year. What career are you assuming using the latest steepening or or a bit of color on those assumptions? Thank you.

Sure, so if I get mortgages and you you would call it a night certain that we talked about we were really writing into for the applications were around 180 basis points that came in for an even in the early part of of coupons. What I would expect is that during kind of q1 and Q2 we can get the benefits of that sort of levels that we we have said that we expect to see some tightening you live scene in the last week. I think all the major Banks and a little bit of tightening on different bands and in different places, but there has certainly been been some tightening of of that that coming through in terms of volume that we grew 10.2% share it's not clear to 10.9% obviously helped by by Metro. So every take that out but we do feel that that's still just gives gives a strong growth to keep moving forward. So blessing will continue continue to to look at that and try to get to that when you look at the three hundred million hedge guidance around the move up in the in the yield curve.

So, why would they?

The little over three hundred million is our base case, you know, it's worth is reminding you that in terms of the the the hate the purpose of it is to reduce our near-term sensitivity and rate changes in a while this strengthening of the fault code. You see it's helpful. We wouldn't expect to get a particular benefits of that in the first year. You can see on the in the accounts on page two thirty-four when you see a a twenty-five basis point increase in interest rates the ads 371 million pounds in new one, but only thirty-seven million of that is in relation to the Hedge then Rises out to two hundred million a year three. And the reason for that these are you know, their five-year Hedges. So you you only get the very small averaging impact and coming in on that. So it's our base case. They the recent move it will help us in in in later years next year probably know if it's sustainable in terms of of that move upward, but it doesn't have a particular impact and 21.

Thank you very much.

Thanks, bro.

My next question for today is from John piece, please go ahead from Credit Suisse.

Thank you. So my first question I just wanted to ask Jonathan question again in a slightly different way to get to your 9 to 10% off by 2023 is 2021 is going to be a down year for Revenue. It looks like you might need a revenue cake or of about 5 to 6% in 2022 and 2023 to hit the lower end. And I just wondered if you would agree with that back-of-the-envelope calculation and and and what the drivers of that rate of Revenue growth might be and then my second question would be on Provisions to 20 21. You mentioned you might be at or below the through the cycle cost of risk. You implying you could see some provision releases and and how should we think about what might be the the triggers of these things?

I'm sure so just I'm probably not going to get into the mass of of your model and and and different kind of key cards. I just I I kind of just repeat on the income. Peace. You know, we're targeting above Market lensing goes across the UK and RBS I and we'll see a bit of benefit coming through for some of the Investments we're making in that that will get you the income. I think you've all the building blocks. You need to draw a picture out to the 9th of the ninety 10% and why we're comfortable in June 13th, 40 and basis points and and some of the release of Provisions. It feels too early to be talking about release of Provisions. Even at 3240 basis-point wage. That's that's still a charge that would be higher than we would have seen in the Years leading up to this crisis or still a meaningful number though. Obviously quite reduced from from where we are today of the 8 to 8 and bass is sick when I think about what well, well you'll see happening to see any of those releases coming through one of the Improvement in economics and you can see when you look at some of the stage to analysis and Commercial wage.

Some things have moved in this course.

These two back into each one and then that was really to do with this fencing of Economics. But what we've done is as a firm is that we've in our ports model adjustments cuz what we're seeing is that well the economics have definitely improved impact of the government support and has been such that it's it's kind of protecting the quality of the underlying root. So I think before you start to see any releases, you'll start to see that support coming off and you will also start to see business failures, which really, although there have been a few, you know, we haven't had any toll free at all this year. You need to start to actually see that real degradation coming through in in them in the business failures. So I I, you know lovely to get to talking about releases, but I don't think it's time to have that conversation just yet that feels quite far away just now.

Fair enough. Thank you.

Thank you, John.

Our next question today is from guy stabbings from exam, please go ahead.

Morning, thanks for taking questions. The first question was just on margin and what you're able to give any sense of the shape of margin for this year about basically black students function around a base rate car. It sounds from your commentary like you when you're not expecting a lot of even give them the benefit from the mortgage broker completions quite elevated levels. Hope you're setting other headwinds could actually look up see it was talking to Morgan tread lightly coming down slightly cost of flowing through. So would you expect it and sort of gradual decline over the course of the year. I just one quick clarification as well to check this month income down to twenty Twenty-One a bit of a little down factor in any reduction in Ulster income for this year. And then my my second question was just on the government guaranteed lending about fourteen billion down about it, too, which a good majority of the bounce-back loan scheme. Just wondering if you have a sense as to how much of that is just starting deposits rather than being utilized by corporates right now and and it's the club.

Conn's June one year post post being drawn. Would you expect to see a big decline in those balances and associated with that? Do you have any sense or any public system whether there's much fortunate businesses with indoor facility, or should those be quite negative and trying to think about whether that 14 billion that our government guarantees living could could fall in separate bands terms quickly over the course of the next 12-18 months or so. Thank you.

Let me let me for the the bounce back round skin. And then Casey them will pick up the other we've we've Advanced fourteen billion under under the bounce-back loan scheme. And as I said at the outset, we were lending that to our existing customers so customers who who we know and he thanked her that's I think in terms of the behavior that I'm seeing from our customers and I think that's probably where where our Focus demand for those schemes has really tapered off since really the the sort of second third quarter last year. If you bank at the peak we were sort of getting in something like seventy thousand applications a day that's tapered down to around 7 and our deposits remain very high wage. We've seen when we talk to our customers is they and it's you know, and it will depend on the sector because some sectors will be leaving it there cash much more is that a lot of customers are sitting down.

They could they have equipment.

Sent amounts of cash on their balance sheet versus their loan that they could pay down their loan. However, while things are still uncertain, they're not making that decision. So we're we're in a sort of very benign that at this point. You don't really going to see I think much of a change until those loans start falling due for repayment. So towards, you know, the the keys 2018 Ford this year in reality. I think when customers have the choice to repay their loans start with paying their loans may take advantage of the pay-as-you-grow scheme where they could extend the tenor music quite cheap lens, but I think the the issue of how quickly that cash will burn as people start spending the money or paying down their loan will depend on the record with the economy, but I think really in terms of behavior. It's it's the back end of Q3 or to fool on the Ford point just to touch on that as you know, the balance back scheme is dead.

Ali-A self-attested scheme and we're required to undertake sort of minimal checks on eligibility and fools, but we have abided fully by the terms of choice game. We've implemented our usual for checks on the scheme. So we've put in the usual protection. I think we're we've seen issues of potential areas of Florida where system is a replying for multiple bounce back loans from from different banks or where they haven't been trading so not filling the eligibility criteria, but we've applied our usual for checks that would we would do and in fact, but in enhanced for checks during the. So hopefully that gives you a flavor ghost of Behavioral and what's happening. Hey, did you want to pick up the other question? Yeah. No, absolutely. So in terms of income. I would assume I mean, I think you should take our guidance assuming that we have also in in the numbers for 20 20 20 21. So I think I've given you quite a lot of 2021 guidance on that already dead.

What repeat it if I looked your name? So if I need some coupon twenty Twenty-One, I would remind you there's three buckets that you need to think about the yield curve. So when are expecting a 3 basis-point decrease in q1 from the lower hedging come driven by some high-yield positions that are due to roll off do in in 2021 liquidity. This is affected by the tfsa me re payment that we did in early January as well as the changes in loan and deposit volumes and I think I'll leave you to decide what might happen on Earth of micro and macro basis on them and then make some pricing. I've spoken a lot already around their mortgage applications in Q4 were a little stronger, you know, obviously they commercial longer is impacted by the lower front boots meals and we are oh so am expect in certain in the early quarter lower on secured volumes just due to this lock down the road in at the moment.

Okay, great. Thank you.

thank you for calling

Our next question is from Coruscant from autonomous, please go ahead good morning both. Thank you for taking my questions to follow up through Thursday from the first on the on the revenue Guidance just so we can get this straight. I think what you're saying there you've guided us to 300 million of disposal lawsuits in 2021. So, you know that implies something like $10 headline revenues post multiples. I think you said with the base rate cut you've assumed wage hasn't happened that might be worth about sixty million. I get that you're saying a bit less than the ten 9, but maybe with no base rate cut. We just get back to square 10-9 consensus. Is it ten 6, I mean there's there's a bit of upside there. Are you comfortable with that coming back to the earlier question on Ulster Bank made? I miss the answer, but if you do sell dead

this portfolio

The during 2021 which it doesn't seem like you're assuming how much will that knock off that $10 of income guidance and then secondly on investment spending your slide that talks about 3 billion how much of that is going to be off pegs, please how much is going to be trap X and does that include the the restructuring charges you are guiding for in the p&l or those entirely separate. Thank you.

Let me let me touch on I'll string in case he can pick up the other I think she's sort of talk to you through the revenue guidance that will try and pick up those points and I'll Thursday we're announcing a gradual withdrawal as as we said the discussions. We are having or at a very preliminary stage the discussions where they relate to em, the Performing commercial loan book, which is 4 billion, but I think we're at very early stages. So you shouldn't make any assumptions around completion this year. Did you want to touch on the other point? Yeah, absolutely, but just in terms of opaques and cupcakes, you can see from our accounts that we the way that it flows through and we shared this with you in the past that we have about a 60% topics and capex are rains or sixty percent of the same would come through what I would say, it's that's not really terribly relevant these days because all the same things have capitalized in the past. They're hitting our accounts today. So it's kind of moves itself out. So I wouldn't I would probably encourage you not not dead.

How yourself down there too deeply I have to admit when we talk about the investment piece. That's the investment numbers are embedded in our other operating costs. So the impact of historical depreciation plus but we've had kind of have have coming through today. Then when we talked to the restructuring our strategic cost that we've talked about the 1.4 going to the one point one going to the 8th. Those are very much in relation to things like redundancy and and property law charges so that separates and from there. So it really is around the the the big hit when you have to do things that some of your property property Provisions are there. So it's it is the three billion that goes into that that base package, you know in terms of income obviously talking to income excluding multiple items, but I think you've all the the the building blocks there, you know, in terms of the The Lending growth the impact of the structural hedge with markets reduction and then of course on a total basis, you you have the three hundred million of disposal losses that you've talked about. So, I think I think you've got all the building blocks. Thanks, Chris.

Thank you very much. Next question is a question from Robin down of and it says on the actual hedge. What's reinvestment rate? Are you assuming for the three hundred million pounds with the recent rise above five you swap rates and assuming they're maintained would have expected that three hundred million pounds to be a little lower.

Yeah, so at the moment, it's it's rolling off. I think about eight eight basis points and our assumption would have been certainly below what you see today for Lux the early part of the year. It was it was much more around the kind of 20 basis points level. I guess. I just repeat what I said earlier and it's possible just around the timing of your question coming in on the web is really to do with the fact that these are five and 10-year hinges. So you don't get an immediate optic off in the in the Hedge income as a result of the strengthening of the curve. You can see the the disclosure quite well on page two thirty-four so as the curve strengthens up by 25 basis points and you have a 37 million-pound income benefit that would come into this year. Clearly. If there's a rate change you then get much you get a much bigger impact and much more quickly in terms of your thoughts. Margin, which you again can see on on on that note, but in terms of structural hedge it the damage of it takes time to roll out but the disadvantage of course is it takes a little bit of time to roll back on and so that's the

thirty-seven million this year

Thanks, Robin.

Next question is from Edward first from KBW, please go ahead.

The ammonia everybody I'm sorry get back to this. But I'm just trying to be clearing in terms of got two questions one was in terms of your forecast after 20 23. They are based or your town. They all based on assuming that you had kept out stuff and you've got like I said a business-as-usual Ulster in there. Is that is that correct? Firstly just to be to clarify that

And then I sent you.

Oh, yeah you go. Yeah, I'll give you my technicians on and then the second question was just going back to guys questions on the bounce back. Then a number of your your peers have of suggested that off during the course of this year customers going to have to start paying interest themselves on these loads. Whereas at the moments paid by the government and number of your peers have shifted. We might expect quite a big step down in those volumes. Once people have to pay the costs themselves. It doesn't sound like you're expecting that is that is that for?

If I think of the the Cyclones and how they will unwind I think it's obviously incredibly interesting topic. They'll start making payments in May. What we've seen is a lot of suspension of payment terms and how they can pay it. We know that people are sitting on a lot of cash deposits and I think we'll just we'll wait to see how that on wines that we're not necessary assuming that we see a map of pay down come through and maybe analysis and we I mean one one thing I would add is is bear in mind that on the balance a cleanse these these loans are average, you know, thirty-five to thirty-seven thousand pounds in terms of individual loans off that very cheap cost for the borrower and if if you look at the pay-as-you-grow scheme and the ability to extend the term, you could quite easily see a lot of customers take advantage of that to extend the term and keep low boring. I think we will start to see what will happen as those loans can't stomach start coming due for repayment and customers start making the decision.

Kind of what they want to do at the moment. As I said when I'm talking to customers, they're very much keeping their cash on deposit looking ahead at the uncertainty that they're facing. So I think we'll have a clearer view on that going home. I think for a lot of businesses. They will be facing the choice of how is the economy going to recover? How are they going to position their business? Are they going to reopen that business? You know, I think that is a consideration and how long I'll take full the base of the pay as you grow which gives them a lot more flexibility to manage both, you know, the recovery and the grace and the economy versus the extra debt they've taken on to the business. So I guess that's all winded way of saying, you know, it's too early to say that we can definitely see the attraction of of people extending and keeping the loans for longer if they are going to continue trading and if I could just walk and and on the support and the 2023 Target tried to be crystal clear, so we expect manage their withdrawal from Ulster in such a way that it is gradual and supportive of art 9 to 10 p.m.

r o t talk

In 2023. So why you received income reduction will come with rwe reduction and then we'll work on reducing the direct cost base as as as appropriate. So they also plan is inherent in that I'm giving you today occasion within it's okay. Okay. Sorry. Thanks very much. No problem. Thanks.

Our next question is from the line of La Belle from Deutsche Bank, please go ahead.

The two questions one on Capital return how much of the book you actually actively in negotiation on that sort of resume that there's a large proportion of the mortgage broker. You don't, you know actively talking about selling at the moment and how confident you it will be caps on a creative given that I presume you're not having completed negotiations. And then on Capitol return I just wanted to clarify is you say payout ratio will be around about 40% So how much Flex is there and I just didn't quite understand one of the armchairs which was that if the government doesn't do a a buyback directed by back then you happy to increase the 40% payout ratio of what else ma'am?

Okay, let me let me let me pick up I'll say she she be clear we are doing a face withdrawal the discussions that we offer having with strategic partners and strategic counterparties. Our preliminary stages at the moment. As I mentioned. We signed a number that you in relation to a portion of the book and we are also in early discussions with PTSD around certain retail SME assets and liabilities off. So those discussions are preliminary and we will obviously work very hard to ensure that we have an orderly and supportive transition over a number of years. And once we have more details I will update you but we are we expect our withdrawal from the Republic of Ireland to be Capital accretive over a multi-year process and let me let me try robot move the Patriots kind of job.

You so, you know, we like other companies have our a dividend practice that we adopt too. So that's our 40% ordinary. Ratio in in any one year on top of that I could expect us to do some special dividends which and if you look at the the forward you would certainly you would see that in the next couple of years. So therefore you would say actually the the minimum wage we sent you the minimum today is around eight hundred million and that will be a build of ordinary and special and keeping in line with that 40%. Ratio as we go through cuz that's a longer-term ratio that we offer to work with me then also block capacity and retaining that capacity to do directed by back transactions moves with the government if they were not to do that, we've not made any confirmation. But we would we do that that I would go back to our base philosophy, which is all Our intention to return our Capital back out to our shareholders, but our preferences the 800 million and direct dead.

And the eight hundred million.

a minimum to start from

great. Thank you very much.

Lovely. Thanks.

Our next question is from the line of Benjamin Thomas from please go ahead.

Good morning, very thank you for taking my questions firstly. I'm just conducting litigation in the courts. You had a an OSHA license of two hundred million, which included reversal of PPI Provisions there anything particular that driving the home number here. Are you building up censorship provision to deal with Central bounce back loan applications, and the sounds like they're going to be no industry solution on the problem. And then secondly, you said to plan to grow at home management significantly over the next three years. Could you potentially do something in organic Care? Thank you.

So let me let me take off assets under management as you can see we've had strong growth in assets under management reports a real focused around that and I'm making sure that we're using our asset management capabilities and our private Banks. Our schools are customers that we think is very good growth organically within our existing business and you can see that from the results that we've delivered as always we will consider inorganic opportunities if they offer shareholder value from that perspective it did yours and if I look at life you can see in the in the schools just as we've taken a small provision in relation to 166. It's in our litigation and conduct note so you can see that but over the year we had sort of conduct charges of about 400 million of a number of smaller items that was obviously offset by the PPI release and we were pleased that we've made our assessment with the official receiver as well. That's good to get that cleared up and then Thursday.

No, certainly not building up any loan provision in terms of bounce back lending despite that being old-fashioned Accounting in terms of being able to do that. It's not something that we that we feel that we have the need to do. So, but that's that but can't find the detail on the litigation. Hello known on the bounce back length. We're working very closely. One of the things I've talked about before is making sure that that will you know, Common protocols and standards. So the customers have been delivered this scheme in a very Digital Way have a very consistent way in How We Run The Collection process. So we've been working closely with you can finance and the treasury team on recoveries protocol servers consistent customer treatments as we go forward and that's our approach to wind up that as soon as we press on it. And if it's perhaps we fit one more in

Of course. Our next question is from Monroe car from Barclays, please go ahead.

Morning Allison morning, Katie. Only Howard. Just just one from me actually just around see the excess deposit formation that you're seeing the system off the household side. So you have seen pretty material growth in current accounts savings, you know, looks like it's probably going to balloon in the first half of this year given a lockdown. So I was just wondering how long I mean, how how are you thinking about managing this are you ascribing much liquidity value to this? Is there a chance for you to detune pockets of funding. Is there anything you can do on the Hedge in terms of deploying additional balances? I mean, how how are you thinking about this or are you having to look through it because of the uncertainty?

I would look at that is a great question and you might.

We called it when we spoke around and to see what we had said there was that we were we were probably thinking about a cautious approach in terms of building that into the into the head just because we didn't really know them to her that was but I would say what kind of managing it on a much more than business-as-usual way now, but we can Caesars is huge saving build up when I think the savings rate is 17% Whereas normally you divert 5% across new case or some big numbers there. We think you'll takes up quite some time to unwind and actually they'll more than let me just kind of flow around the economy rather than necessarily leave it in any order. So we're notes. So we are some Infiniti value subscribe to it and certainly so and please be getting and seeing the strength of the deposit deposit goes in there. We have sought to manage wait time waits done and you looking a slight phone the retail wait for ten basis points of funding that will come down a little bit more as you move into q1 as well as some of the rate reductions take effect.

Hi, great. Well, thank you very much everyone for your questions. I appreciate your time today. Thank you very much. Take care of. Thanks, bye-bye.