NatWest Group plc (NWG) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A session reveal an overall positive outlook. The company revised its full-year income guidance upward and expects strong ROTE, indicating solid financial health. The Q&A highlighted strategic cost savings, AI-driven productivity gains, and a successful acquisition, all of which are positive catalysts. Although some risks like rate cuts and competitive pressures exist, the optimistic guidance and strategic initiatives suggest a positive stock price movement in the short term.
Key Financial Performance
Lending Grew 5.6% to GBP 393 billion, driven by broad-based growth across mortgages, unsecured lending, and commercial lending.
Deposits Increased 2.4% to GBP 442 billion, supported by growth in savings and current account balances, including balances acquired from Sainsbury's Bank.
Assets Under Management and Administration (AUMA) Increased 20% to GBP 58.5 billion, driven by net new flows and enhanced customer engagement.
Income Grew 12% to GBP 16.4 billion, largely driven by higher net interest income and balance sheet growth.
Costs Grew 2% to GBP 8 billion, resulting in positive jaws of 10% and a reduced cost-income ratio of 48.6%.
Operating Profit GBP 7.7 billion, reflecting strong income growth and cost management.
Attributable Profit GBP 5.5 billion, supported by strong operating performance.
Earnings Per Share (EPS) Grew 27% to 68p, reflecting higher attributable profit.
Dividends Per Share Increased 51% to 32.5p, supported by strong capital generation.
Tangible Net Asset Value (TNAV) Per Share Up 17% to 384p, reflecting strong earnings and capital generation.
CET1 Ratio 14%, supported by strong capital generation of 252 basis points.
Return on Tangible Equity (RoTE) 19.2%, driven by strong earnings and efficient capital management.
Loan Impairment Rate 16 basis points, reflecting strong risk management and a high-quality lending book.
Total Distributions to Shareholders GBP 4.1 billion, including GBP 1.5 billion in buybacks and GBP 2.6 billion in dividends, in line with a payout ratio of around 50%.
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Operating Highlights
Evelyn Partners acquisition: NatWest announced the acquisition of Evelyn Partners, a financial planning and investment firm, which will scale Private Banking and Wealth Management to 20% of group CAL and increase fee income by almost 20%.
Generative AI enhancements: Launched generative AI enhancements in the digital assistant, Cora, increasing query resolution by 20 percentage points.
New features in Retail Banking app: Introduced over 100 new features in the award-winning app, improving customer experience.
Customer growth: Added 1 million new customers in 2025, with broad-based growth across all three businesses.
Expansion in credit cards and mortgages: Unsecured stock share grew from 6.4% to 7.2%, and mortgage flow share for first-time buyers increased from 10% to 12%.
Commercial & Institutional lending: Lending balance grew 10%, including GBP 4.6 billion to the U.K. social housing sector and GBP 19 billion in climate and transition finance.
Cost savings: Achieved gross cost savings of GBP 600 million, creating GBP 100 million of investment capacity.
Cost-income ratio improvement: Reduced cost-income ratio to 48.6% in 2025, with further reductions targeted below 45% by 2028.
Digital platform investments: Invested GBP 100 million in transforming the Bankline platform for Commercial & Institutional customers.
Capital management: Generated 252 basis points of capital in 2025, supported by reducing RWAs by GBP 10.9 billion.
2028 targets: Set targets to grow customer assets and liabilities at over 4% annually, reduce cost-income ratio below 45%, and achieve a return on tangible equity greater than 18%.
AI and data analytics: Focused on leveraging AI and advanced data analytics to enhance customer experience and operational efficiency.
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Risk or Challenges
Economic Environment: The macroeconomic outlook for 2026 assumes moderate growth, slightly lower than the previous year, with a slight increase in unemployment rates and inflation expected to decrease at a faster pace. These factors could impact lending risk appetite and overall financial performance.
Regulatory Changes: The implementation of Basel 3.1 in January 2027 is expected to increase risk-weighted assets by around GBP 10 billion, requiring the bank to hold a higher nominal amount of CET1 capital, which could impact capital allocation and returns.
Operational Costs: The bank expects further supplier contract inflation and increased business transformation costs in 2026, which could pressure operating expenses and margins.
Credit Risk: The loan impairment rate is expected to normalize and increase to below 25 basis points in 2026, reflecting potential credit risks and lower one-off releases.
Integration Risks: The acquisition of Evelyn Partners involves integration costs of approximately GBP 150 million over three years, with potential challenges in achieving the expected cost synergies and operational alignment.
Market Competition: The bank faces competitive pressures in areas such as mortgages, unsecured lending, and wealth management, which could impact market share and profitability.
Technological Investments: Significant investments in AI and digital platforms are planned, but there is a risk of not achieving the expected efficiency gains or customer experience improvements.
Fraud and Cybersecurity: Maintaining a market-leading position in fraud prevention and cybersecurity is critical, with potential risks from evolving threats and the need for continuous investment.
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Guidance & Outlook
2026 Income Guidance: Income, excluding notable items, is expected to be within a range of GBP 17.2 billion to GBP 17.6 billion.
2026 Operating Expenses: Other operating expenses are expected to be around GBP 8.2 billion.
2026 Loan Impairment Rate: The loan impairment rate is expected to be below 25 basis points.
2026 Capital Generation: Capital generation before distributions is expected to be around 200 basis points.
2026 Return on Tangible Equity: Return on tangible equity is expected to be greater than 17%.
2028 Customer Assets and Liabilities Growth: Customer assets and liabilities are targeted to grow at an annual rate greater than 4%, equivalent to more than GBP 120 billion of balance sheet growth by 2028.
2028 Cost-Income Ratio: The cost-income ratio is targeted to be below 45% by 2028.
2028 Capital Generation: Capital generation before distributions is targeted to be more than 200 basis points, while operating with a CET1 ratio of around 13%.
2028 Return on Tangible Equity: Return on tangible equity is targeted to be greater than 18% in 2028.
Dividend Payout Ratio: The dividend payout ratio is expected to be maintained at 50%, with scope for surplus capital to be returned via buybacks.
Evelyn Partners Acquisition Impact: The acquisition is expected to scale Private Banking and Wealth Management to 20% of group CAL, increase fee income by almost 20% on Day 1, and deliver a return on invested capital above that generated by share buybacks by year 3 after completion.
2026 Hedge Income Growth: Total hedge income is expected to be around GBP 1.5 billion higher than 2025, with further increases thereafter.
2026 Macro Assumptions: Moderate growth is expected, with slightly lower unemployment rates and inflation coming down faster than previously anticipated. Interest rates are expected to reach a terminal bank rate of 3.25% by the end of 2026.
2026 Lending and Deposit Growth: Broad-based lending growth and higher customer deposits are expected to continue, supported by new propositions and improved digital offerings.
2028 Strategic Priorities: The company aims to pursue disciplined growth, leverage simplification, and manage capital and risk to achieve its targets.
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Shareholder Return Plan
Dividends per share: Increased 51% to 32.5p
Total distributions announced in 2025: GBP 4.1 billion, comprised of GBP 1.5 billion in buybacks and GBP 2.6 billion in dividends
Dividend payout ratio: Around 50% of attributable profit
Future dividend payout ratio: Expected to maintain at 50% with scope for surplus capital to be returned via buybacks
Share buybacks in 2025: GBP 1.5 billion, including GBP 750 million announced on Monday
Reduction in share count over 4 years: From over 11 billion to just under 8 billion
Future share buybacks: Surplus capital may be returned via buybacks, maintaining a CET1 ratio of around 13%
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Key Q&A
Q:What are the sources of the GBP 600 million cost savings in 2025, and what is the outlook for cost savings in 2026?
A:The GBP 600 million cost savings in 2025 come from a broad range of levers, including historic and current tech investments driving digitization and automation, decommissioning applications, consolidating platforms, property consolidation, and organizational simplification. For 2026, the focus remains on tight cost management, higher investment in data and tech, and business transformations. The cost/income ratio target is below 45% for 2028, with further improvement expected beyond that.
Q:Can you disaggregate the greater than 4% customer assets and liabilities (CAL) target across divisions?
A:Management did not provide an exact split of growth across divisions but expressed confidence in growing all aspects of CAL, including lending, deposits, and assets under management. They noted that some areas, like assets under management, have grown faster historically (e.g., 12% CAGR over the last 7 years). Lending growth is expected across mortgages, retail unsecured, and commercial lending.
Q:What factors contributed to the 19% return on tangible equity (RoTE) in 2025, and what is the outlook for 2026?
A:The 19% RoTE in 2025 was supported by low impairments, strong market results, a higher average bank base rate, and a slightly lower effective tax rate. For 2026, management expects RoTE to be greater than 17%, with continued capital growth and CAL growth contributing to tangible equity growth. There are no specific drags identified for 2026.
Q:Has anything changed in the structure, duration, or assumptions of the hedge to facilitate income growth through 2030?
A:The hedge duration remains stable at 2.8 years, with product hedge at 2.5 years and equity hedge at 5 years. Management has been reinvesting maturing 10-year swaps into 10-year gilts, which contributed GBP 50 million additional income in 2025. The hedge notional balance is expected to grow steadily, supported by CAL growth.
Q:Why was Evelyn Partners chosen for acquisition, and what are the risks and opportunities associated with it?
A:Evelyn Partners was chosen for its strategic fit, creating the #1 private bank and wealth manager in the U.K., doubling assets under management, and bringing key capabilities like a direct-to-consumer platform and the largest employed financial adviser network in the U.K. Management is confident in integration due to alignment in tech platforms and experienced teams. Revenue synergies are expected from leveraging Evelyn's capabilities across NatWest's customer base. Attrition risk is being managed through strategic actions to retain staff and customers.
Q:What are the broader risks and opportunities of AI in wealth management and banking?
A:AI is seen as an accelerant and opportunity, particularly for institutions with scale and data. In wealth management, AI can make advice more accessible and affordable, complementing human expertise for complex financial needs. In banking, AI is expected to change customer engagement and improve productivity. Management is piloting AI-driven workflows that deliver 10x productivity gains, with a focus on responsible implementation.
Q:What is the outlook for capital generation and CET1 targets through 2028?
A:Capital generation is expected to be greater than 200 bps annually through 2028, excluding the GBP 10 billion Basel 3.1 effect in 2027. The CET1 target is around 13%, not a hard floor, and management is comfortable operating slightly below this level temporarily.
Q:What are the assumptions behind the 2026 revenue guidance?
A:The 2026 revenue guidance of GBP 17.2 billion to GBP 17.6 billion reflects 5%-7% top-line growth. It factors in GBP 1.5 billion hedge income, GBP 500 million drag from rate cuts, and GBP 100 million cost from RWA actions. Customer activity and competitive pressures on mortgage margins and savings products are also considered.
Q:What is the expected impact of AI on the number of software engineers and productivity?
A:AI currently writes 35% of code, and management is piloting fully autonomous workflows delivering 10x productivity gains. While the number of engineers (currently 12,000) may evolve, AI is expected to enhance productivity and efficiency, with potential cost savings and faster product delivery.
Q:What are the key drivers of income growth and risks for 2026?
A:Income growth drivers include CAL growth, hedge tailwinds, and customer activity. Risks include rate cuts (two expected in 2026), competitive pressures on mortgage margins and savings products, and costs associated with RWA management actions.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the disaggregation of the greater than 4% CAL target across divisions, stating they would not give an exact split but expressed confidence in growth across all aspects of CAL.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AUMAs GBP
Banking Wealth
Basel
CAL
FX
GBP AUMA
GBP Monday
GBP ambition
GBP cost
GBP risk
Institutional priority
Mortgages flow
Pillar requirement
Private Banking
Promoter Score
Retail Banking
acquisition
addition
amortization
asset liability
business level
buyback GBP
buyer market
customer asset
distribution GBP
distribution capacity
element
enhancement
equity hedge
hedge income
implementation
income ratio
offering
percentage point
result
share rate
solution
track record
yield
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The earnings call summary and Q&A session reveal an overall positive outlook. The company revised its full-year income guidance upward and expects strong ROTE, indicating solid financial health. The Q&A highlighted strategic cost savings, AI-driven productivity gains, and a successful acquisition, all of which are positive catalysts. Although some risks like rate cuts and competitive pressures exist, the optimistic guidance and strategic initiatives suggest a positive stock price movement in the short term.
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