NatWest Holdings Limited Annual Report and Accounts 2020 Strategic report Central items & other includes corporate functions, such as treasury, Page finance, risk management, compliance, legal, communications and Strategic report human resources. NWB Plc, NWH Ltd’s largest subsidiary, is the main Presentation of information 2 provider of shared services and Treasury activities for NatWest Group. Principal activities and operating segments 2 The services are mainly provided to NWH Group however, in certain Description of business 2 instances, where permitted, services are also provided to the wider Performance overview 2 NatWest Group including the non ring-fenced business. Stakeholder engagement and s.172(1) statement 3 Description of business Board of directors and secretary 6 Business profile Financial review 7 As at 31 December 2020 the business profile of the NWH Group was Risk and capital management 10 as follows: Report of the directors 76 Total assets of £496.6 billion. Statement of directors’ responsibilities 81 A Common Equity Tier 1 (CET1) ratio at 31 December 2020 of Financial statements 82 17.5% and total risk-weighted assets (RWA) of £135.3 billion. Customers are served through a UK and Irish network of Presentation of information branches and ATM services, and relationship management NatWest Holdings Limited (‘NWH Ltd’) is a wholly owned subsidiary of structures in commercial and private banking. NatWest Group plc, or ‘the holding company’ (renamed The Royal Bank of Scotland Group plc on 22 July 2020). NatWest Holdings The geographic location of customers is predominately the UK Group (‘NWH Group’) comprises NWH Ltd and its subsidiary and and Ireland. associated undertakings. National Westminster Bank Plc (NWB Plc), The Royal Bank of Scotland plc (RBS plc) and Ulster Bank Ireland Business Developments DAC (UBI DAC) and Coutts & Company (Coutts) are wholly owned In December 2020, we acquired a £3.0 billion portfolio of prime UK subsidiaries. The term ‘NatWest Group’ comprises NatWest Group plc mortgages from Metro Bank plc. Growing the mortgage book is an and its subsidiary and associated undertakings. important strategic priority, as we build a bank that delivers sustainable returns for shareholders. The addition of this loan book will supplement NWH Group publishes its financial statements in pounds sterling (‘£’ or the strong organic growth that we continue to achieve. ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references Performance overview to ‘pence’ represent pence in the United Kingdom (‘UK’). Reference to Financial performance in a challenging environment: ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The Profit for the year was £327 million compared with £1,406 million in abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of 2019, reflecting lower income and significantly higher impairment millions of dollars, respectively, and references to ‘cents’ represent charges primarily due to the current COVID-19 crisis and resulting cents in the US. The abbreviation ‘€’ represents the ‘euro’, and the uncertain economic conditions. abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively, and references to ‘cents’ represent Total income decreased by £905 million compared with 2019 reflecting cents in the European Union (‘EU’). continued margin pressure, despite lending volume growth on lower interest rates, and subdued business activity. To aid readability, this document retains references to EU legislative and regulatory provisions in effect in the UK before 1 January 2021 Operating expenses decreased by £1,519 million, or 19%, to £6,625 that have now been implemented in UK domestic law. These million, compared with £8,144 million in 2019, primarily reflecting references should be read and construed as including references to £1,062 million lower litigation and conduct costs. The cost:income ratio the applicable UK implementation measures with effect from 1 January decreased from 73.4% to 65.0%. 2021. Impairment losses increased by £2,349 million to £3,094 million Principal activities and operating segments compared with £745 million in 2019, predominantly driven by Stage 1 NWH Group serves customers across the UK and Ireland with a range and 2 charges reflecting the deterioration in the economic of retail and commercial banking products and services. A wide range environment, with limited levels of default across lending portfolios and of personal products are offered including current accounts, credit associated ECL stage. cards, personal loans, mortgages and wealth management services. Robust balance sheet with strong capital levels. The reportable operating segments are as follows: Total assets increased by £68.2 billion to £496.6 billion compared with £428.4 billion at 31 December 2019. This was primarily driven by a net Retail Banking serves individuals and mass affluent customers in the increase of £37.5 billion in cash balances, impacted by significant UK and includes Ulster Bank customers in Northern Ireland. deposit inflows. Customer deposits increased by £62.4 billion to £397.8 billion as consumer spending continued to be impacted by Ulster Bank RoI serves individuals and businesses in the Republic of government restrictions in response to COVID-19 and customers Ireland (RoI). retained liquidity. Commercial Banking serves start-up, SME, commercial and corporate Loans to customers - amortised cost increased by £34.4 billion to customers in the UK. £338.8 billion primarily driven by a growth in retail mortgages and an increase in corporate lending due to drawdowns against UK Private Banking serves UK connected, high net worth individuals and Government lending initiatives in response to COVID-19 uncertainty. their business interests. The CET1 ratio was 17.5% and RWA’s were £135.3 billion. NWH Group Annual Report and Accounts 2020 2 Stakeholder engagement and s.172(1) statement Stakeholder engagement and s.172(1) statement In February 2020 the Board approved its annual objectives and The Colleague Advisory Panel (CAP) provided an important two-way confirmed the Board’s key stakeholder groups, as set out in this communication channel between the Board and colleagues during the statement. pandemic. During 2020 the Board undertook a variety of activities to engage with The CAP was set up in 2018 to help promote colleague voices in the stakeholders and bring their voice into the boardroom. Details are set boardroom. out below, together with additional information on related engagement Its membership includes representatives from a range of NatWest activities undertaken within NatWest Group which impacted NWH Group’s Employee Led Networks, unions, management teams and Group. regional locations, as well as volunteer members unconnected with This section of the Strategic report describes how the directors have existing groups. It continues to provide a valuable mechanism for had regard to the matters set out in section 172(1) (a) to (f), and forms colleagues to gain a greater understanding of the Board’s role and the directors’ statement required under section 414CZA, of the provide feedback to directors. Two-way communication is crucial for Companies Act 2006. both colleagues and directors and embodies NatWest Group’s open and inclusive culture. NatWest Group’s purpose is established by the NatWest Group plc Board, promoted across NatWest Group and cascaded to subsidiaries The CAP met four times in 2020 and all meetings were virtual. In including NWH Ltd. In February 2020, and following an extensive addition to two scheduled sessions, there were two ad hoc sessions period of stakeholder engagement, the NatWest Group plc Board which supported additional listening and discussion with directors in approved a new purpose – “We champion potential, helping people, light of the challenges related to COVID-19. families and businesses to thrive.” Topics discussed in 2020 in addition to COVID-19 colleague and Various steps were taken during the year to embed NatWest Group’s customer support included embedding purpose, diversity and purpose in Board discussions and decision-making, helping the Board inclusion, innovation, executive pay and sustainable banking. to ensure different stakeholder needs were considered. The roles and At Board meetings the CAP Chair provided an update on issues responsibilities of the Board and its Committees were enhanced to discussed at the CAP and raised specific questions for Board ensure a strong focus on Purpose was built into their respective Terms feedback. Afterwards, the CAP Chair shared the Board’s views and of Reference. Board and Board Committee papers now include a feedback with CAP members. Further information on the CAP can be dedicated section which explains how the proposal or update aligns to found in the NatWest Group plc 2020 Annual Report and Accounts. NatWest Group’s purpose, which is complemented by a section detailing stakeholder impacts. These features, embedded within the Engaging colleagues NatWest Group Board paper format, help to ensure that purpose and Every year colleagues are asked to share their thoughts on what it’s stakeholders remain firmly at the centre of Board discussions. During like to work for NatWest Group via a colleague opinion survey. The the 2020 Board evaluation, directors commented positively on how results from the 2020 survey, which were considered by the Board in NatWest Group’s