NatWest Markets N.V. Annual Report and Accounts 2020 Financial Review Page Description of business Financial review NWM N.V., a licensed bank, operates as an investment banking firm serving corporates and financial institutions in the European Economic Presentation of information 2 Area (‘EEA’). NWM N.V. offers financing and risk solutions which 2 Description of business includes debt capital markets and risk management, as well as trading 2 Performance overview and flow sales that provides liquidity and risk management in rates, Impact of COVID-19 3 currencies, credit, and securitised products. NWM N.V. is based in Chairman's statement 4 Amsterdam with branches authorised in London, Dublin, Frankfurt, Summary consolidated income statement 5 Madrid, Milan, Paris and Stockholm. Consolidated balance sheet 6 On 1 January 2017, due to the balance sheet reduction, RBSH 7 Top and emerging risks Group’s regulation in the Netherlands, and supervision responsibilities, Climate-related disclosures 8 transferred from the European Central Bank (ECB), under the Single Risk and capital management 11 Supervisory Mechanism. The joint Supervisory Team comprising ECB Corporate governance 43 and De Nederlandsche Bank (DNB) conducted the day-to-day Financial statements prudential supervision oversight, back to DNB. The Netherlands Authority for the Financial Markets, Autoriteit Financiële Markten Consolidated income statement 52 (AFM), is responsible for the conduct supervision. Consolidated statement of comprehensive income 52 Consolidated balance sheet 53 UK ring-fencing legislation Consolidated statement of changes in equity 54 The UK ring-fencing legislation required the separation of essential Consolidated cash flow statement 55 banking services from investment banking services from 1 January Accounting policies 56 2019. NatWest Group placed the majority of the UK banking business in ring-fenced banking entities under an intermediate holding Notes to the consolidated accounts 60 company, NatWest Holdings Limited. NWM Plc and RBS International Parent company financial statements 87 Limited (RBSI Ltd) are separate banks outside the ring-fence, and are Other information 102 subsidiaries of NatWest Group plc. RBSH N.V., which is the parent Independent auditor’s report 103 company of NWM N.V., is a direct subsidiary of NWM Plc and an Risk factors 112 indirect subsidiary of NatWest Group plc. NWM N.V. is outside the ring-fence. Additional information 129 Presentation of information Performance overview NatWest Markets N.V. (NWM N.V.) is a wholly owned subsidiary of NWM N.V. Group reported an attributable profit of €6 million for 2020 RBS Holdings N.V. (‘RBSH N.V.’ or ‘the intermediate holding compared with €634 million in 2019, primarily reflecting lower total company’). NWM N.V. Group refers to NWM N.V. and its subsidiary income as prior year included the impact of the Alawwal bank merger and associated undertakings. The term ‘RBSH Group’ refers to RBSH and disposal. Impairment charges were €42 million compared to a €1 N.V. and its only subsidiary, NWM N.V.. RBSH N.V. is a wholly-owned million release in 2019. subsidiary of NatWest Markets Plc (NWM Plc). The term ‘NWM Group’ refers to NWM Plc and its subsidiary and associated undertakings. Income, balance sheet and RWAs NatWest Group plc is ‘the ultimate holding company’ (renamed from Total income was €151 million compared with €749 million in 2019, the Royal Bank of Scotland Group plc (‘RBSG plc’) on 22 July 2020). primarily reflecting lower Other operating income of €17 million The term ‘NatWest Group’ refers to NatWest Group plc and its (2019 - €656 million), as prior year included the gain on the merger subsidiary and associated undertakings. NatWest Group plc is of Alawwal bank of €516 million and a €112 million release of registered at 36 St Andrew Square, Edinburgh, Scotland. Alcover claims reserves. Total assets increased to €21.7 billion from €14.5 billion in 2019 NWM N.V. publishes its financial statements in 'euro', the European single currency. The abbreviation ‘€’ represents the ‘euro’, and the and total liabilities increased to €19.6 billion compared with €12.3 abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of billion in 2019, primarily driven by increases in derivative assets, millions of euros, respectively, and references to ‘cents’ represent derivative liabilities and amounts due to holding companies and cents in the European Union (‘EU’). The abbreviations ‘£m’ and ‘£bn’ fellow subsidiaries, and the raising of new funding for N.V.. represent millions and thousands of millions of pounds sterling, RWAs decreased to €5.4 billion from €7.1 billion at 31 December respectively, and references to ‘pence’ represent pence in the United 2019, reflecting lower levels of credit and market risk as the Kingdom (‘UK’). Reference to ‘dollars’ or ‘$’ are to United States of business seeks to reduce RWAs including through the execution of America (‘US’) dollars. The abbreviations ‘$m’ and ‘$bn’ represent capital optimisation actions and exit activity. millions and thousands of millions of dollars, respectively, and references to ‘cents’ represent cents in the US. The term ‘EEA’ refers Progress on strategic change to European Economic Area. Throughout 2020, NWM Group has made progress on the new strategy announced in February 2020, creating greater alignment International Financial Reporting Standards with NatWest Group customers as well as refining products and Unless otherwise indicated, the financial information contained in this services offered. This has involved reorganising the front office Annual Report and Accounts has been prepared in accordance with operating model, with some customer facing roles and functional International Financial Reporting Standards (IFRS) as adopted by the teams transferring to NatWest Holdings Limited to simplify the European Union (EU) and IFRS as issued by the International operating model and leverage shared resources and expertise to Accounting Standard Board (IASB). act as one bank for customers. A Capital Management Unit was also established to safely manage the capital reduction and optimisation. NWM N.V. Group has been indirectly impacted as a result of the NWM Group strategic change. NatWest Markets N.V. Annual Report and Accounts 20202 Financial review Brexit developments The liquidity position also remained strong, with NWM N.V. liquidity Following the 2016 EU Referendum, the UK ceased to be a portfolio of €5.7 billion and LCR of 356%. member of the EU and the EEA on 31 January 2020 (‘Brexit’) and Capital, funding and liquidity remained closely monitored, with the transition period ended on 31 December 2020. increased tracking and scenario analysis to ensure balance sheet As part of preparations to ensure continuity of service to NatWest strength. Group’s EEA customers after Brexit, NWM N.V. began transacting During 2020 NWM N.V. Group broadened its funding base by new business on 25 March 2019. Also, during 2019 substantial increasing the customer deposit book and issuances of commercial business transfers occurred, which covered both trading books and paper. NWM N.V. Group established a €2 billion Euro Medium banking books. Term Note programme, therefore NWM N.V. Group may, subject to During 2020, approximately 1,350 customers were transferred from compliance with all relevant laws, regulations and directives, from NWM Plc to NWM N.V. for new transactions. In addition, in time to time, issue unsecured and unsubordinated notes. November 2020 primary dealerships of 11 European debt management offices were migrated to NWM N.V. from NWM Plc. Risk In December 2020, NWM N.V.’s Banking Business Transfer Risk management activities have continued to focus on the safety Scheme was extended up to 31 December 2021. and soundness of the business. There was an additional emphasis Significant uncertainty remains as to the extent to which UK law will on the oversight of initiatives to support customers following the diverge from EU/EEA laws, whether and what equivalence onset of the COVID-19 pandemic in Q1 2020 as well as of the determinations will be made by the various regulators and therefore transformation work that was executed throughout 2020. what the respective legal and regulatory arrangements will be, A COVID-19 risk register was established in the early stages of the under which NWM Group will operate. The legal and political pandemic to track all key risks and risk acceptance decisions, uncertainty and any actions taken as a result of this uncertainty, as together with regular analysis of the impact of COVID-19 on NWM well as new or amended rules, could have a significant impact on N.V. Group’s risk profile. COVID-19 related risks have since been NWM N.V. Group’s operations. integrated into standard management and governance processes. In response to the pandemic, a number of macro-economic Impact of COVID-19 scenarios were developed at NatWest Group level to assess the Business resilience range of potential medium-term impacts. These were benchmarked Robust business continuity plans ensured that NWM N.V. Group against the Bank of England’s illustrative scenario and continually was able to continue to support customers and protect employees, updated throughout the year. The outputs of these analyses were with the vast majority of the workforce working remotely since the used to develop continuity plans for NWM N.V. Group’s critical onset of the pandemic in Q1 2020. In line with guidance from public services. health authorities and local governments in the various regions Weekly calls were and continue to be held to assess the COVID-19 where NWM N.V. Group operates, a small proportion of employees related risks and to decide on mitigating actions for the NWM N.V. have returned to the workplace, primarily those in regulated roles Group locations in Europe. and key oversight functions. The Risk function also provided oversight of adjustments to . working practices and processes in some areas to facilitate working Capital, funding and liquidity from home arrangements.